CHAPTER FIVE CORPORATE GOVERNANCE 5.1 Overview 665. Tanzania’s private sector is increasingly becoming a key partner in development, as is the case in many African countries. Consequently, it has become critical for the Tanzanian Government to create a better environment for private sector development in order to build integrity and attract both local and foreign investors. On the other hand, the private sector has to accept and implement good corporate governance, for sustainability. 666. The concept of corporate governance is very much in its infancy in Tanzania, but is growing due to an emerging and burgeoning private sector. Even in Zanzibar, the subject of corporate governance has received little attention. One school of thought attributes this to the “ideological crisis” faced by Tanzania, following the abandonment of socialist ideologies and the half-hearted adoption of market-driven economics. In this environment, local entrepreneurship is still tentative and unambitious. 667. However, in the capital markets, there are formal and established corporate governance frameworks that govern listed companies. In addition, sectors that are prudentially regulated, such as the banking and insurance sectors have been compelled by their independent regulators to operate at high levels of governance. 668. The assessment of Tanzania’s corporate governance stance is premised on the examination of applicable international standards and codes, and the investigation of five objectives regarding the promotion of an enabling business and regulatory environment; corporate citizenship, codes of business ethics, stakeholder treatment and the accountability of corporations and directors. 669. Tanzania has ratified and adopted most significant international standards and codes as a preliminary step towards ensuring the promotion of good conduct and practices in corporate governance, although the extent of the actual application of some of these standards and codes (particularly those concerned with fiscal transparency, effective banking supervision and budget transparency) remained questionable. The differential application of corporate governance standards between listed and unlisted entities and between prudentiallyregulated entities and others also points to the generally weak adoption of recognised standards and codes, especially among small to medium enterprises, which comprise the bulk of the corporate sector in Tanzania. 670. The economic liberalisation policies that came into being in the early 1990s significantly changed the corporate environment in Tanzania, by introducing the concept of competition and compelling Government to play a more active role in ensuring the creation of a level-playing business field and fair competition policies. Small-scale enterprises and the informal sector have assumed their place as the drivers of economic and social value, taking over from a state-dominated economy. However, despite the assumption of this critical role, the private sector in Tanzania remains young and under-developed. 671. The extractive industry (especially gold mining) is considerably the most developed of all the aspects of the private sector. However, the corporate governance record in this sector is characterised by a heavy dominance by big corporations and an exclusion of ‘ordinary Tanzanians’, low tax and royalty revenues, indifference to environmental concerns, and an abuse of both investor incentives and employee rights. 672. The adoption of Codes of Business Ethics is premised on three levels: internal codes as set out in individual human resource manuals, external codes of ethics drawn and promoted by self-regulatory, professional bodies and thirdly, codes of ethics that emanate from the interface between the private and public sectors. The record of compliance of the internal codes that relate to listed entities is high, owing to stringent oversight of the industry regulator. Conversely, the observance of business ethics codes enforceable by professional bodies has been inadequate. 139