Well said CEO Bussemaker on corporate bonds for industrialization

31Oct 2018
Financial Times
Well said CEO Bussemaker on corporate bonds for industrialization

SOUL searching has been engaged on the way to materialize a proposal for attracting corporate bonds of 15 years at the Dar es Salaam Stock Exchange (DSE) and the Bank of Tanzania, an issue discussed at a recent meeting of the CEOs Roundtable (CEOrt) in Dar es Salaam.

It appears that this idea that has frequently been broached at a technical level by the DSE CEO, Moremi Marwa, in terms of its feasibility, leaving aside its obvious utility, has not been received by the targeted corporate entities, the leading ones for that matter, with open arms. There is an evident gap between expectations at the corporate level and what the government seems to be rolling out.

One veteran CEO in the banking sector, Irene Bussemaker of the National Microfinance Bank (NMB plc), said that more dialogue was needed on the issue, raising a number of salient points in a modestly ironic subtitle, ‘Peeling back the onion.’ Under that rubric the CEO then proceeded to provide an understanding of key factors affecting local bank capacity to finance long term investments.

She said plainly that local banks cannot afford long term lending for mega projects and industrial investments, noting further that the country’s commercial banks depend on short term deposits, and thus this sort of financing can’t be placed on mega projects.

Regarding financing small and medium sectors, the CEO accepted that the banks have finances for their borrowing needs but most of the business plans the banks receive are poorly worked out or are unrealistic.

This singular aspect is likely to characterize plenty of what is being suggested as the focus on industries, to start such units wherever possible and especially in order to make use of resources available in a certain zone, and create jobs.

At the political level that sounds quite reasonable but it doesn’t excite a bank analyst, for it can’t be projected into a ready market.

As for the DSE parameter, where activism about using the platform to obtain long term funds for industrialization became a sort of buzz word, Bussemaker said that investors go for Treasury bonds of up to two, three or five years and not 15 year bonds and upwards.

It basically implies that DSE isn’t different from the local banking sector when it comes to its capacity for industrial financing, in which case other avenues ought to be sought for the purpose.

The usual method that the Treasury is used to is borrowing at commercial levels from multilateral financial institutions and foreign banks, applicable for infrastructure megaprojects but out of question for industries.

In that case what Bussemaker is actually saying is that the method or model for financing of industries is something that ought to be sorted out by dialogue, which is perfectly logical from the CEOrt point of view.

Yet when the question is closely examined it actually yields a ‘nyet’ as to the very possibility of financing industries, for most of what her remarks covered isn’t issues that are open to dialogue.

Short term deposits can’t be put to long term financing short of making them national assets, in a way similar to how pension funds are frozen until one is really retiring.

At any rate, if one proceeds with the terms of her remarks much further, the context of dialogue as to financing industries ought to be with major foreign banks and not local commercial banks, assuming that using the central bank as in the first phase government is not being envisaged. 

There will be temptations in that regard, partly related to safeguards that have been enacted over the past year as related to statistics, where the specific extent of gaps in this or that dimension may stay put, not aired to the wider public. Yet there are numerous sorts of data produced by multilateral agencies for instance, and policy can’t be anchored on combating real data, reality.

Left at a limited level, the remarks by Bussemaker put to an end the euphoria and buzzword on DSE being the source of long term financing for development projects generally. It isn’t gainful to say it was faulty from the start; it has to be so demonstrated by a well-placed authority like the NMB CEO, in which case the question is posed once again as to how industries are to be financed.

This DSE method as well as its alter ego, the Bank of Tanzania capacity to yield such funds having been carted aside, there is need for an authoritative reconstruction of the matter at hand, unless the Treasury will be ready to advise the government to drop industrialization as an idea.

One thing is clear: open doors for foreign investors to buy local assets that they want, be it industries or services, to use the local market to grow. It isn’t money we need but good policies.