Family business in Tanzania – a history of opportunities
Family businesses present a range of benefits in terms of the potential for a close-knit team, and readily available, if sometimes limited, financial support. While family businesses tend to imply a smaller business, family-run companies can turn into significant economic powerhouses, and launch dynasties. However, because family businesses tend to start off small (and often depend initially on family support), an investment-friendly economic environment is critical.
In particular, the opportunity to leverage early gains to expand and secure the business can be especially desirable, not least because start-up debts may be borne by members of the family. As such, developing economies provide ideal characteristics for family businesses. African economies are experiencing significant growth, and governments actively seek to promote small and medium enterprise development in order to secure and sustain those high growth rates.
Tanzania is typical of this, with a high level of growth, and a range of markets ripe for exploration and exploitation by entrepreneurs. There are several examples of family businesses in Tanzania, some of which were in precisely the right place at the right time, and have subsequently reaped the rewards. But even for smaller, currently operating family businesses, or for prospective entrepreneurs, Tanzania is an enticing potential business destination.
Tanzanian potential for business and investment is high
Africa’s potential as a retail destination has attracted significant attention in recent years. Persistently high levels of economic growth and changing perceptions about the continent have lured many foreign investors, while African companies have also grown and expanded regionally. A recently released African Retail Development Index (ARDI) illustrates the economic potential of several African economies – notably, Tanzania.
To compile the rankings, Research company A.T. Kearney, considered several factors relating to the current state and future potential of each country’s retail environment. The ARDI report notes that,
“Tanzania’s vast scale (it is Africa’s thirteenth largest country by size) and its location on the Indian Ocean coast make it an attractive market for international retailers seeking a regional base.”
The report highlights supermarkets as a particular growth area, as they are becoming more popular, especially for higher income Tanzanians and expatriates. However, the report also notes the predominance of small family-owned shops in Tanzania – typical of a developing economy. In what had been a closed economy, which actively limited external investment and private economic participation, several families managed to establish small companies that have grown to now dominate the consumer goods sector.
Tanzania is home to several highly successful family businesses
These family-run companies also have substantial interests in other sectors across the Tanzanian (and East African) economic spectrum. Of 50 industrial companies in Tanzania analysed by a London School of Economics (LSE) 2013 study, 29 originated in the domestic private sector – with family businesses playing a substantial role. Historically, the phenomenon of long-standing family businesses gaining substantial holds on the Tanzanian economy, can be traced to 1970s-1980’s economic reforms, which saw a loosening of the centralised state-run economy.
These reforms were intended to encourage private business activity. As a result, several family-run businesses, which had previously managed to establish solid, if unspectacular, places in the limited private sector, were able to seize control of market voids left by previously state-run entities. These family businesses then went on in many cases to develop into multimillion dollar conglomerates, which today dominate the consumer goods industry.
A notable example is the Bakhresa Group – which is similar to many of Tanzania’s leading conglomerates: run by close knit family members, having started out very small. In the case of the Bakhresa Group, its founder, Said Salim Bakhresa started his first small businesses, including shoe repair stores, a bakery, and an ice-cream parlour some 50 years ago. He now presides over a conglomerate that has recently reached a US$600million-plus annual turnover. Aside from consumer goods, Bakhresa Group has interests in agricultural commodities, ferrying passengers, and fuel distribution.
Family business’ role in the private sector
Other examples, recently profiled by the Financial Times, include:
- MeTL, overseen by the Dewjis family. Initially an import-export business started in the 1970s MeTL is now active countrywide, manufacturing a wide range of goods including bicycles and textiles, and with interests in agriculture, insurance, transport and logistics, mobile telephony, infrastructure and distribution. The company has declared an annual turnover of US$1billion.
- Sumaria Group, overseen by the Shah family, has a self-declared annual turnover of US$130million. Having started as a simple trading house in the 1940s, the Sumaria Group is now involved in plastics manufacturing, cotton ginning, drinks bottling, food processing, pharmaceuticals, soaps, cement, flour and, more recently real estate, bio-gas and finance.
- The Maneks own and oversee the MAC Group, which can trace its roots to a trading house started by current owner, Yogesh Manek’s grandfather in the 1880s. Aside from a range of consumer products (including cosmetics, toiletries, electrodes, detergents, slippers, pharmaceuticals) MAC Group has interests in shipping, mining and insurance.
Private equity investors seek to gain access to family businesses in Tanzania
“The macro story in East Africa echoes that of Africa, but more so and that makes it a relatively more attractive region,” says Catalyst Principal Partners managing director Rajal Upadhyaya. Catalyst is a private equity fund manager that invests in medium-sized businesses in across the East Africa region. Its US$125million fund focuses on sectors such as financial services, retail, manufacturing, telecommunications and technology.
Catalyst has particular interest in Tanzania: “It is a fast growing market. It is less competitive than a market like Kenya is [and] has lower penetration thus far. For instance, tea consumption in Tanzania on a per capita basis is probably about a quarter of what it is in Kenya. There is potential to double, treble the market. So from a dollar investor perspective we see attractive opportunities in Tanzania.”
Private equity investment is absolutely vital to sustaining the high economic growth seen across the region. However, attracting investment, is a challenge, not least because of what Upadhyaya describes as mistaken perceptions of the operational risks facing businesses in Africa. The lack of confidence and experience that Upadhyaya alludes to, means that pre-existing family businesses, even small ones, could provide the sort of sturdy anchor that private equity investors are interested.
Just as small family businesses were able to capitalise on economic reforms (and the opportunities those reforms presented) in Tanzania in the 1980s, so too can small businesses benefit from growing investment interest in the region today.
For more information
- Katrina Manson, ‘Investing in Tanzania’, The Financial Times, 30 September 2013. Available at: http://www.ft.com/intl/cms/s/0/7d166be4-1ebe-11e3-b80b-00144feab7de.html#axzz2x44G4Cut
- Dinfin Mulupi, ‘Private equity firm explains why it is back the East African growth story’, How we made it in Africa, 28 February 2014. Available at: http://www.howwemadeitinafrica.com/private-equity-firm-explains-why-it-is-backing-the-east-african-growth-story/36028/
- Jaco Martiz, ‘Sub-Saharan Africa’s top five retail markets’, 19 March 2014. Available at: http://www.howwemadeitinafrica.com/sub-saharan-africas-top-five-retail-markets/36913/