Tanzania: Exclusive Interview with Yusuf Manji from Quality Group

Interview with Yusuf Manji, Advisor Extraordinary & Plenipotentiary to CEO and Chairman of the Governing Council of Quality Group

Can we start by backgrounding a little as to the role Quality Group has played in the overall development of Tanzania?

I think it has been a symbiotic relationship. The company was founded in 1975 and its founder was in commerce during the Independence period. It has both grown with the country, as well as accompanying it through periods of lesser growth. It would be unwise to think simply about what Quality Group has contributed, but rather what it has complemented, and what opportunities it has had to do so. By complement, I mean that the company grew hand in hand with the country’s Independence, which entails that both the mistakes and the benefits were reaped jointly. This togetherness allowed the company to be closer to its market: its consumers, employees and its various stakeholders. At that particular time, in the 60s and 70s, Africa was a new frontier, so investment coming into certain sectors faced less competition. Consequently, you had this ‘marriage’, which created the situation of a symbiotic relationship the company achieved with regard to both Tanzania and Africa more broadly, since we are not limited to Tanzania. We have grown in a similar pattern to the country.

Do you feel that the stage has now been reached where the basic physical infrastructure of the country is in place now, in order to further the socio-economic development of Tanzania? And how vital do you believe it is now to build a strong, efficient and competitive private sector?

Background integration is a priority, be it dairy products or whatever the industry we are operating in. We will need to look at how well we are able to integrate activities backwards, while offering value for money and saving costs, as well as bringing prices down.

Let me deal with the question on infrastructure. The definition of infrastructure has been changing quite dramatically, from our beginnings to what we mean by infrastructure today. In terms of today’s global economy, it means ‘how fast is the web?’ 20 years ago, it was ‘where are the motorways?’, and 100 years ago it was ‘where are the rivers?’ So you can see this definition has shifted over time. The question may better be answered in terms of ‘is there infrastructure in place for the correct kind of economic development, or not?’ On this front, there is some consistency, for instance with regard to electricity, which is a challenge across Africa as a whole – where consumption is high against ever more strain from the population dividend on resources, as we used to have higher death rates from Malaria 5-10 years ago. As a result of dealing with Malaria, we now have a larger population, as a result of improved life expectancy, which in turn places more pressure on ressources, as well as on basic infrastructure. So if you had the opportunity to come to Africa 10 years ago, you would have seen fewer traffic jams – of which you will see more today. Then you can either say that the roads have not been built at the same pace, or that car ownership has been growing faster than the roads, where people complaining about the quality of roads is actually a sign of prosperity.

I remember how 30 years ago, I could drive a car and reach my destination faster with potholed roads than I can today with tarmac roads, because there are many more cars, which means there’s prosperity, in that people can now afford cars. As such, I feel the infrastructure will not be able to keep pace, given a very low starting point for our continent as a whole – in contrast to Europe, America or the Far East; as well as a much later starting point. Timing is also important. So, while Google is talking about driverless cars, we are still talking about roads. We may think about shared passenger transportation models, such as Uber – which means infrastructure may reach an equilibrium point faster than we imagine; not for the reasons we may expect – not because there will be more roads, but rather because greater transportation efficiency may leave hard infrastructure to one side. Something similar could be said with electricity with the advent of green energy, etc., bringing about more energy efficiency, so I believe equilibrium may be close.

On the economic front and regarding our growth as a country in the world, we need to consider the digital economy and think about increased productivity. 20 years ago, we were talking about productivity in terms of industrialisation, and now we talk more about mobility when it comes to productivity, with people working from home, on their phones, etc. This infrastructure is the million-dollar question, as we do have internet. But is this the kind of internet you may enjoy in the West, with streaming, YouTube and watching TV shows online? Is our infrastructure going to allow us to even make use of a simple CRM software, Outlook or Office 365, which relies on cloud-based solutions? Internet speed is not good enough, and you have to wait for a page to download for 3 or 5 seconds, which would be unacceptable in the West, but is standard here. However, in light of investments such as Facebook’s ‘internet balloons’ in the skies, and Google coming up with TV white space as a faster means of communication, we may even reach that level of infrastructure quicker than through conventional processes, which we may be able to bypass. When fibre-optic cables were laid, these were expected to last for a number of years, but new technology came on the scene allowing for data delivery to be expanded a hundred-fold by splitting it better. As such, technology is helping bring our infrastructure up to par, where it’s not just the infrastructure being enhanced as an investment, but where technology is allowing it to be more productive.

How effective do you think the government has been here in providing the right incentives and financial assistance where necessary, in order to stimulate rapid growth, particularly in the areas of production and commerce, which were previously unknown in Tanzania?

Financial assistance is a concept which cannot be applied to Africa. We are not talking about FDIs as key indicators of an economy, and so on. Rather, the issue is that African countries’ currencies and their value in some cases involve pegged or controlled currencies, and in other cases these are not fully convertible. Governments in Africa and across the developing world in general have not benefited from the hard currency to provide support.

I meant more in terms of fiscal incentives and the like.

Incentives have always been there on paper, and brought forward to attract more investment. It’s worth putting in context that we have 52 countries in Africa competing for the same investment. So, if you have a reduction in the tax rate in country A – possibly Tanzania -, then country B will do the same. No matter how hard it has been tried, given that you have 52 doing the same thing in a globalised economy, it will not be felt. It will have little bearing on the figures whether you offer more or fewer exemptions, with the market – meaning countries competing for the same FDI – ultimately ensuring convergence.

As such, I do not believe that fiscal incentives are what will ‘catch’ investment over the next 5, 10, 30 or 50 years going forward. Instead, it will have more to do with what you may term the ‘happiness index’, which encompasses education, medical facilities, safety, confidentiality in some cases, rule of law and time value, in terms of adding time-value to a commodity. For example, some people choose first class over economy, just to be able to go through immigration faster to attend a meeting and then be able to connect back home. That person will pay a premium for that extra time. It’s not about paying for a premium seat or to be seen. There are no cameras there to boast that you are in first class rather than economy class. Instead, what you have in mind is that you will be getting your immigration card first, getting out of the plane faster, getting my luggage faster. Getting through all of that faster is where the value lies.

Successful countries, including Tanzania, will be those able to place a premium on the value of time. This is where the challenge lies.

Certainly, there are many other countries in Africa. I am not talking about Tanzania competing with all the others and racing to the bottom, by throwing its doors open and offering the best possible incentives. The thrust of my question was whether you think the government here is actually creating the right environment, in regulatory terms, with regards to the rule of law, the tax environment and so on. Is the government, in a sense, creating the right ‘incubator’ as a country?

Forgive me, but believe me when I say that this is a dated question. It may have been relevant 10 or 20 years ago. Today, we are talking about how fast is your internet speed? It’s not a question about what the internet can or cannot do. It’s about the speed and how productive you can be. A quick answer would probably be: “Yes, the Law is there, but executed in a tiny fashion”. Let’s take the example of when you go on a motorway and you speed. You are expecting to get caught and pay the fine, but you are not expecting the traffic police to hold you up to pay the fine for three to four hours. This will infuriate you more than the £100 or £200 fine. You tell yourself you have sped, and have taken the conscious risk of paying the fine, and I have been caught, so I will pay the fine. That’s the law in our country, fair enough. But if the traffic policeman does not have that computer gadget to hand, with your driver registration number, etc., and needs to get you to go to the traffic station, in order to pay the fine, in order to go back on the road, this can easily take 3, 4 or even 6 hours, which is time lost. So you could say that the law is still being enforced as the book says, and the government is endeavouring to keep abreast of the Corruption Index, etc., all of which is very good. But how is that going to increase my productivity as a business? That’s the question people always ask; “are you going to make me more productive with the hours and the days lost and opening fees? I want to get more things done, and I also want to enjoy quality of life with my family”, with millennials at 40 talking about retiring at a very young age and doing something else. Therefore, the value of time is what we should actually be talking about now, instead of fiscal policies.

The role of policies is done, they are already written. The laws are in place, and only minor changes can be expected over time. How many changes, let’s say, have there been to manslaughter or rape law in the last 5 to 10 years? We banned slavery 40 years ago, and there’s nothing new to add to that. In terms of compliance, you could certainly argue there is more or less slavery in some parts of the world. But more importantly, value now rests less on labour than on time. Labour can be accessed 24 hours, versus 18 or 6 hours.

In terms of services, perhaps the better question to answer is: “can the government allow commerce to be conducted in a more time-conscious way?” At a rudimentary level, you may say this allows you to open your business for just an hour a day. But this is not the real productivity aspect. That would be whether you can get your business running in 6 hours instead of 7 hours – or even just 3 hours. In the US, you can do this online and you are registered for business within 20 minutes.

This is going to determine the country which will move fastest in providing the business community with access to the market.

I just wanted to come back to Quality Group now, as you are involved in a myriad of sectors: trading, representation, construction, contracting, all kinds of services, manufacturing, financial services, and so on, not to mention your private equity arm. So my question is really, where next for Quality Group? Are you now looking to increase exports and seeking new markets, and how will you adapt as a company, in order to function effectively?

Well, there are two main things I can mention. On the one hand, per hour costs in China and Vietnam have gone up, which means the manufacturing base in the Far East is going to shift and those countries are going to be more service-oriented. This leads us to expect some form of manufacturing renaissance in Africa. Like I said, there are two parallel factors at work. From a manufacturer’s point of view, the raw material is already here, which means lower transportation and labour costs, as well as energy costs, including gas.

What will happen is that, given our various downstream activities, our priority will be backward integration. For example, we represent Honda. We would aim to manufacture their tyres, in order to integrate backwards towards their product and making use of the market footprint, where we already have our own motorcycle sales agents. In the case of construction, since we are already building and importing cement, it would be more sensible for us to manufacture the cement here, as cement prices from China or the Far East increase.

Globally, world economies are ‘closing themselves in’. Brexit is an example of that. There is a sense that a level of protection is needed against Globalisation, because wealth has not been evenly spread out. Therefore, if as a business we were to take the view of ‘exporting’ our way out of poverty, the way Asia did 30 years ago – which in itself is a dated view, in that this will now involve a self-sustaining market response, in relation to quicker delivery of the product, cheaper transport costs, cheaper labour costs, etc.

Background integration is therefore a priority, be it dairy products or whatever the industry we are operating in. We will need to look at how well we are able to integrate activities backwards, while offering value for money and saving costs, as well as bringing prices down. A case in point is how a mobile phone is now cheaper than what it was 5 or 10 years ago, and yet they have many more functions.

The second and largest challenge we are trying to address is human capital. There is an inherent shortage in human capital worldwide, in terms of the right skills for the right sectors. There are a lot of people, but are they skilled for the tasks or jobs that will come up in the future? Or, in our case, are we fully equipped for the opportunities that will arise?

In terms of new age businesses, such as digital and mobile communications, we are looking to develop something of a quasi-Amazon of Tanzania, but there is a need for computer programmers.

Would you say there is a skills gap?

Yes, but that skills gap is another great opportunity for us, which is also socially conscious, since it involves improving people through education. Thus could be done online, in which case we have things such ‘e-health’ coming up.

While being socially-conscious and uplifting, this involves assessing the resource gap with regards to human capital. This is something we are going to place a little more emphasis on.

The new President, John Magufuli, nicknamed the ‘bulldozer’, has delighted Tanzanians with his anti-corruption drive and his very public displays of austerity, such as banning all but the most urgent foreign travel for government ministers, he has spent Tanzania’s Independence Day picking up litter, he has fired official suspected of incompetence and dishonesty, and he has purged around 10,000 ghost workers from the public payrolls; even enforcing VAT on the cost of moving goods arriving at the port of Dar es Salaam. Do you feel that perhaps he has a tendency not to think things through, and are you having any doubts as to whether Mr Magufuli’s flair for the dramatic is not just classic Populism?

No, but your question has there components, which required different answers. I do not believe that the President is not thinking things through. For example, on the issue of VAT on transit cargo, he has probably looked at our competition. There are currently very few East African ports available, compared to 8 lining your country. So, our competition could be Mombasa and Dar es Salaam, but the former is already at 90% capacity and Dar es Salaam, which is closer to Burundi, is at 80% capacity. Why not therefore reap the benefits and charge higher taxes on port activities? If you had more competition, from several other ports in the region and all were trying to reach the same market, then you would try to approximate your costs. Therefore, I think he is looking at our geographic competitive edge.

In terms of his flair and his reputation as the ‘bulldozer’, which relates to the first part of your question, this is not a nickname I would really want for myself. It is something of a hangover, more suitable to the work of his past Ministry, rather than his personality. I feel the media are looking at it through the wrong lens. 10,000 fired out of a sizeable public sector workforce is not really a lot of people. But the media saw this happen, so it became news.

As regards austerity in relation to travel or reducing costs, there was a time when countries looked west, following the Cold War in the 80s. In the 90s, countries looked east, towards China, etc. Now we are in this new century, where do we look to? We look inward. You source your human and other resources locally, where your own manpower – albeit not as productive – is getting to be cheaper than in the Far East. As such, what are you actually going to do travelling around so much? That is the question being asked.

Foreign dignitaries doing the travelling will be those looking for markets for the country, where there are no markets locally or these are saturated; or where there is something to be gained from an import or attracting capital. But you already have the West and China coming to Africa anyway. Moreover, we don’t have to face terrorism issues and the like, which require your head of state to meet his counterparts for these to be addressed.

In this regard, Tanzania has been very strategic in its international relations.

Do you feel however that he perhaps ought to address some of the deeper structural issues affecting the country, such as making it easier for companies to pay tax or simplifying the taxation code? We understand that fewer than 500 companies contribute an astonishing 43% of government revenues, for example.

Well, he has in fact been doing that. You may have read a couple of days ago about online tax payments, which are to his credit.

However, at a deeper level, the culture of taxation, as a general culture, emerges when you believe that the government you are paying taxes to is going to give you something in return. Compliance in Europe is higher because you get national health insurance in the UK, for instance; or you have an army that protects you in the US, and so on. So, while citizens believe there may be a rebate, they still comply with their taxes.

Now, those 500 companies paying 80% of our taxes is not really the figure that attracts or dissuades me. The question is rather, why would someone not want to pay their taxes? Because in theory you would actually be investing in your children’s future. Why do you see yourself having to start saving for your child’s college when you are 24 or 28? People do therefore want to pay a level of tax they feel is equitable. Everyone complains, including in the West, about taxes being low or high. But they do understand that they need to put something in, in order to get something back.

This is also the case in the US, where people keep money aside in special accounts, not in order to pay tax, but for their retirement.

This culture is therefore globally understood. It is surprising to have someone come to Tanzania and ask why this is not happening. The crux is whether citizens feel that what they are paying the government is value for money, which also goes for business people.

Let’s look at what has been happening in the West, for example. In the US, you have the Bernie Sanders vs. Donald Trump phenomenon: a socialist and a capitalist. These are phenomena which may change 5 or 10 years down the line…

There is talk of Le Pen coming to power in France, while in the UK, there’s Brexit. Why these phenomena? You could say, everyone pays their taxes there. But when the citizenry does not feel that what it is receiving a more or less equitable return from what it pays to the government, then you end up with a low tax base, or you have a rebellion in a different form: shootings in the US, or ISIS in Iraq, etc.

On another issue, the country also scores quite dismally on the World Bank’s ‘Ease of Doing Business’ index. I believe it is ranked 139 out of 189 countries, which is a very poor showing. Why is this the case, and what do you think needs to be done or chiefly addressed, in order to improve this?

Frankly speaking, it boils down to marketing. It’s all to do with packaging and marketing and what spin you can put on what angle. I will give you an example. If you say that the ease of doing business in the US is easier than in Tanzania, you will find most Tanzanians will tell you that getting a visa to go to the US is harder than for an American to get a visa to come to Tanzania. So you see, it’s a question of marketing, so the question would need to be: “what can the government do, in order to be perceived to allow business to be easily conducted?” Perceptions often matter more than actual facts, or numbers and figures. It is about having the right marketing in place.

Therefore, in order to do something well, like firing people, you don’t say you are firing them and that you have reached your goal. Instead, you simply say this was something long overdue. It hinges on terminology, and sometimes the way it is conveyed in our language, Swahili, may not be the same as in English, and you can say there is ‘no ease of doing business’. But I would tell you that if you are able to come into this country more easily than I can come into your country, then automatically I should be an easier place to do business, for you at least. Now, the issue is whether the forms are in Swahili or English, in addition to processing times, as we may fall short on IT. This is where we can start talking about what we mean about ease of business.

This brings me back to my earlier point about time. As you saw, I could speak to you earlier about the first class in relation to time, and you were able to understand me perfectly well.

Portrayal and marketing have been extremely poor. In Africa, when decisions are made fast, the question that arises is whether corruption was involved. This is where I have a problem, because government decisions that are made fast fall prey to the charge that there must be some hidden ulterior motive behind them; whereas, if decisions in the West are made fast, the assumption is that these were the result of good, reliable intelligence, research, and so on. Therefore, what often happens is that the government cannot make decisions fast enough, because if it does so, then people start pointing fingers, as in “why is this or that happening fast?” It may even apply in the West, in that you may ask why a particular license is approved very quickly, while another may take two years. If it two years, this is too long and shows that there is no ‘ease of business’, but on the other hand, if you do it in one day, then you are corrupt. There is a catch-22 at work, and that’s where I come to the marketing part of it.

The value of time on a decision needs to be brought more in line towards an equilibrium, by educating the public, along with better public relations and marketing in our view.

Real GDP growth in this country is forecast to average around 6.3 to 6.8 % per year, between now and 2020. This is a very brisk growth trend on the global map. This reflects relatively robust domestic demand, as well as strong growth in the construction and service sectors. From your perspective, and from your experience in operating a company encompassing such a diffuse array of sectors, could you tell us which of areas might be as yet under-exploited and that you think may hold a lot of promise for Tanzania?

I would say all sectors, for two reasons. Firstly, precisely because GDP growth has been forecast at 6.3%. Secondly, the country’s economy stands at just $ 61 billion and per capita income is at $ 800 or lower. In that sense, it’s very infant, when a reasonably middle-income country has a per capita income of $20,000. So, you will see that there are opportunities everywhere. That’s my view on that point.

The question then becomes: “which areas involve least competition at this particular point in time?”

Clearly, the companies with the best human capital are the ones that will succeed in this market, as well as those with the highest level of capitalisation in the sector they are entering into, which will allow them to leverage on economies of scale, global outreach, etc.

Therefore, if you were to come and ask me to open a bank in Tanzania, I would personally say “No”. Not because the market is saturated, given that the population is underbanked, but because my competition is going to be more capitalised. Citi Bank or JP Morgan is going to come into that market with a lot more money than me.

But if you come to me and ask me to open something to do with supermarket I’ll say “Yes, I’ll do that very happily”. Why? Because the management base and the systems at my disposal will allow me to be more effective than a Walmart coming into Tanzania, which doesn’t know my customers, doesn’t have any customers, doesn’t know how to get the goods from the port, and doesn’t even know what their preferred size is. In the US, it’s extra-large, here it’s medium. There are those basic learning curves, which have to do with local knowledge.

As such, if you are a local company, we would advise you to focus on where you know your market better, and you can be sure your foreign competitors are not going to come in and outdo you. Uber is a case in point, where they would come and put $30 million into a country and offer free cab rides, and they have the pockets for it; but are they going to be able to sustain it? From our point of view, we are able to sustain it. Why? Look at what happened in India, where Uber failed to understand the market. Now you also have something in the Middle East called Careem, which caters to the fact that women cannot drive cars in Saudi Arabia, for example. Careem does better than Uber, because they missed the point. Certainly, Uber is a much bigger company at the global level, so if you are going to go and pick that fight, make sure that you know your local market a lot better than your competitor.

How much of a factor do you think a more reliable power supply would be, together with the availability of domestic gas and Tanzania’s growing integration to regional EAC markets, where it will now have a feedstock of power?

Energy exports are a possibility, but you know commodity prices better than I do, and that these fluctuate. Capex is very high, where you are probably talking about gas coming online 7-8 years later, so even then something else could be cheaper than gas. Two years ago, who thought oil would be at $ 50 a barrel? We’re now at 40, where the price may pick up again this year.

As such, I prefer not to talk about gas per se, but about energy; where solar energy costs have come down significantly. Villages are getting power faster than power generation from utility companies, so I believe power is very, very important. However, I do not think it needs to be conditioned by gas development. Again, it’s more a case of technological development. Solar is now coming in at a much cheaper price, it’s quicker to set up, has lower maintenance costs, etc. If this trend continues, you can basically power a house with a fridge and a microwave, three lights and a fan at a $180, and a person can remain productive on their computer.

Do you think the ports industry is going to be a very key driver of growth?

I have always believed that rather than agriculture, Tanzania should position itself as a logistics hub, which as a current project in fact has its roots in our history. There’s a saying in Malaysia: “If a country faces an ocean, it’s a sin if it’s poor.” We don’t just have the Indian Ocean, but we are also surrounded by three of the continent’s five largest lakes, namely: Lake Nyasa, Lake Tanganyika and Lake Victoria. Therefore, for us to be poor and not be trading is a cardinal sin! Look at Singapore and Hong Kong, which both developed around ports, with smaller populations to feed. We have eight land-locked countries around us. When you start exploiting your port to its fullest, you can imagine us having the deepest and largest port, along with highways with truck lanes, shops, etc. Despite being a strong believer in technology, I don’t see the hard goods moving any other way other than by sea, or secondary connections, be it by rail or road. This can usher in many benefits with regard to industrialisation, capacity building, employment, as well as motivating yelp manufacturing, including stevedoring facilities, shipyards, etc.

My belief is that logistics and using the port as the hub, along with everything else around it, as I mentioned, is a much faster path towards Tanzania’s economic development, considering its position, considering its neighbours and their ports, and so on. The issue is how fast we can raise the capital to do it. These are very capital-intensive endeavours.