by Dr Hildebrand Shayo

Tanzania has launched a more modern passenger and cargo fleet to compete in the sky race
Many readers will remember that eleven years ago, British Airways (BA) discontinued direct flights from London Heathrow to Dar es Salaam, due to what was then described as an inability to operate profitably. This marked the end of nearly forty years of BA flight services to Tanzania.

If the agreement to fly to London is successful and Air Tanzania (ATCL) begins operating direct flights from Dar es Salaam to UK airports – ideally London Heathrow or Gatwick – will travel agencies and the business community be able to profit from the direct flight to Tanzania at a competitive rate?

British Airways (BA) was the most dependable passenger airline for diplomats, government officials and intellectuals flying through Heathrow to the UK and the US for nearly forty years. According to statistics, the United States and the United Kingdom are among the leading countries where tourists arrive in Tanzania yearly.

The relevant inquiry is whether the acquisition of a more modern passenger and cargo fleet and the potential for direct flights from Tanzania to the major airports in the United Kingdom will support the economies of these two historically significant countries. Can Tanzania, through market-driven competition, close the 13-year-old gap created by British Airways’ (BA) withdrawal of flight services between London Heathrow and Dar es Salaam?

In this analysis, I’ll examine the main factors driving this expansion and any potential financial effects on Tanzania’s aviation sector. Such discussion could signal what would keep ATCL competitive nationally, regionally and internationally.

After a history that is well known, ATCL now operates a fleet of sixteen aircraft, comprising three widebody Boeing B787-8s, one widebody freighter B767-300F, two narrow bodies B737-9, four Airbus A220-300s, six regional turboprops DHC-8-Q300 and five HDC-8-Q400s.

According to the ATCL route plan, the national carrier presently offers 13 domestic services and 11 international destinations. With further fleet expansion, it plans to add flights to other destinations including Kinshasa, N’Djili Goma, Lagos, and Muscat.

Economic benefits from fleet expansion will have a substantial financial impact, especially on revenue and tax contributions. They will increase Tanzania’s regional influence while at the same time increasing ATCL’s operational capacity. Tanzania continues to be a centre for our economic region. Improved business class seats with better cushions and a premium economy cabin on an extra new aircraft with a 262-seat capacity that can load 20 cargo tonnes on ATCL flights will put the ATCL fleet in a more competitive market.

Looking at the areas where ATCL can resist competition in African aviation, most countries, including Tanzania, with national airlines, strive to maintain their competitiveness through market protection, preferential treatment, and incentives.

Therefore, ATCL operators must pay close attention to how State-owned airlines in Africa and the Middle East manage to maintain a lopsided competitive advantage and continue to provide high-quality services. It is crucial to remember that the free market economy in the airline sector has not historically performed as predicted in countries attempting to resurrect their national carriers.

Competitors from other areas, for example, have different strategies and often do not subscribe to the same school of economic thought. It is absurd to believe that ATCL can successfully compete with heavily subsidised regional airlines that are well-known in the industry and dominate long-haul travel.

One important thing to remember as Tanzania expands its fleet to compete in the sky race is that the continent’s airline market structure differs significantly from other regions, such as the US, where the deregulation of the aviation industry has been a significant driver of the industry’s expansion. In specific markets, the one-size-fits-all approach is inapplicable, and replicating it would be detrimental to Tanzania’s long-term investment goals.

Building a sustainable enterprise requires certain fundamental principles, which the government is putting in place as it prepares to strengthen ATCL. The reciprocity principle is the first. ATCL must have an equivalent chance back home in regions around Tanzania where international airlines are permitted to operate.

Some airlines prefer to fly during the day into the nation, but on their soil, ATCL might only be permitted to utilise the airports during times that would be detrimental to the airline. Although open skies imply a mutual connection, certain airlines have often taken advantage of it. Tanzania shouldn’t fall into that trap with our ATCL.

Similarly, cargo is one of airlines’ primary sources of income. This corporate sector should support ATCL, just as other nations do. Rather than importing specific goods from Europe for the continent’s emerging industries sector, Tanzania should go in the same direction as the African Continental Free Trade Agreement (AfCFTA), cultivate relationships with African producers to import the raw material directly.

The new aircraft would improve trade potential. The efficiency and capacity of the B787-8 would enable improved trade connections, which will help industries like manufacturing and agriculture by giving them better access to international markets.

For airlines operating in Tanzania to genuinely establish Dar es Salaam and Tanzania as the primary hub of East Africa’s aviation sector, the airline must support its long-haul operations to reach global market destinations while simultaneously expanding service quality rapidly domestically and regionally.

By synchronising essential sectors and generating more economic value, ATCL should catalyze trade connections throughout Africa. It’s a chance to expand both intra-African trade and the airline. To establish Julius Nyerere International Airport and Amani Karume International Airport as the principal hubs of Africa’s aviation sector, ATCL should vigorously expand locally and regionally while supporting the airline’s long-haul operations.

Tanzania’s aircraft fleet is expected to boost air travel, demonstrating the aviation industry’s exceptional growth potential, which Tanzania, led by President Samia, has in this sector. In my view, expansion points to a bright future for the aviation sector in Tanzania that is driven by several causes, including the country’s strong economic growth, rising demand for air travel, government efforts, infrastructure development and fleet upgrades.

The enlarged fleet brings the potential for improved connection, job creation, economic growth, and tourism, all of which contribute to the nation’s overall development. To facilitate the smooth integration of the expanding fleet into the aviation ecosystem, industry stakeholders must prioritise environmental sustainability and tackle infrastructure issues that, if not well managed, could be a constraint in achieving ATCL’s full market potential.

by Ben Taylor

Strong growth recorded, and projected
Tanzania recorded economic growth of 5.1% in 2023, according to the latest government figures. This was stated by the Minister of Planning and Investment, Prof Kitila Mkumbo, in his National Economic Status Report for 2023, presented to Parliament in Dodoma in June.

This represents a small improvement in growth rates compared to recent years. Tanzania was among a small number of countries to maintain economic growth throughout the Coronavirus pandemic, though growth slowed from 6.9% in 2019 to 4.5% in 2020, 4.8% in 2021 and 4.7% in 2022.

According to Mkumbo, the growth in 2023 was driven by the arts and entertainment sector, which expanded by 17.7%, followed by the finance and insurance sector at 12.2%, and mining at 11.3%. The accommodation and food services sector grew by 8.3% and the information and communications sector by 7.6%. Prof Mkumbo noted that sectors that had traditionally provided substantial employment saw slower growth rates. He noted particularly that agriculture, which is vital for the majority of Tanzanians, grew by only 4.2% while manufacturing and trade expanded by 4.3% and 4.2% respectively. The result, he said, was that the benefits of growth have not been evenly distributed, particularly among the nation’s poorest citizens

Nevertheless, the Minister also explained that the agriculture sector continued to make the largest contribution to GDP, accounting for 26.5%. This is followed by construction (13.2%) and mining (9%).

Prof Mkumbo told Parliament that the types of goods that Tanzania exports have changed over the past two decades. “In the 2000s,” he explained, “57% of Tanzania’s export goods involved agricultural products sold to markets in Europe, the United States, and Africa. However, twenty years later, Tanzania’s exports are now dominated by minerals, with many products being sold to markets in Asia and African countries.”

In 2023, 49% of exported goods were minerals, followed by manufactured goods (17%), with agricultural products (12%) coming in third, said the Minister.

Moreover, the country still continues to face a significant trade imbalance. The value of the country’s exports was $8.2 billion in 2023, while imports amounted to $13.7 billion. “This indicates that we are still spending a considerable amount of foreign currency on importing goods that could be produced domestically,” the minister told Parliament.

Going forward, Prof Mkumbo said the government’s target was to achieve 5.4% GDP growth in 2024.

Later in the same month, the IMF suggested that this target was in line with their projections. In a report, they predicted growth in Tanzania would pick up to 5.4% in 2024 and 6.0% in 2025, respectively, supported by improvements in the business environment and subsiding global commodity prices.

Njombe, Simiyu, Dodoma, Coast and Kagera regions experience growth spurt
Njombe, Simiyu, Dodoma, Coast and Kagera regions recorded the fastest economic growth at the regional level from 2018 to 2022, according to data from the Bank of Tanzania’s 2023 Consolidated Zonal Economic Performance Report. Despite having lower GDP figures than Dar es Salaam and other major urban centres, these regions posted notable growth during the five-year period.

Njombe’s GDP surged 48%from TSh2.1 trillion to TSh3.1 trillion, Simiyu’s jumped 45%, Dodoma and Coast regions both grew by 43% and Kagera by 39%.

In contrast, Dar es Salaam’s GDP grew by 34% during the same period, the second slowest rate in the country. It should be noted, however, that Dar es Salaam has continuously retained its status as Tanzania’s biggest and most important economic hub, with a regional GDP worth TSh29 trillion in 2023. “It’s the norm that the larger the economy, the slower the growth,” said Dr Daudi Ndaki of Mzumbe University. “That’s why you will see that Tanzania’s economy, for instance, is growing much faster than the GDPs of many developed countries,” Dr Ndaki said.

University of Dar es Salaam Business School assistant lecturer Godsaviour Christopher said the five regions’ economies are growing fast due to increased investment and untapped potential for growth.

“These regions still have many investment opportunities, while big cities such as Dar es Salaam have already used up a great deal of available resources and are approaching full capacity,” he said.

There is plenty of arable land available for investment in Njombe for the cultivation of maize, tomatoes, potatoes, beans, pineapples, avocados, tea production, flowers and timber. And Coast Region has in recent years emerged as a key destination of strategic projects such as the Julius Nyerere Hydro Power Project (JNHPP).

Common East African currency postponed
Secretary General of the East African Community (EAC), Ms Veronica Mueni Nduva, said in August that the process for monetary union and a single East African currency has been pushed back to 2031. Previously, EAC member states had committed to launching the currency in 2024.

“The Monetary Union was expected to be established in 2024 as per the Monetary Union Roadmap” she explained. “However, it has not been realised and the timeline was therefore revised to 2031.”

She said that so far, some aspects of the roadmap have been imple­mented even as members remain divided on several other aspects. She noted that central banks within the EAC have established the East African Payments System (EAPS), a multicurrency platform that ena­bles settlements in the local currencies of the partner states, facilitating currency convertibility across the region, and said that partner states have signed and are implementing an MOU on currency convertibility and repatriation.

There have, however, been delays in obtaining a consensus on which country should host the East African Monetary Institute (EAMI), a precursor to an East African Central Bank, and member states have not yet managed to agree on the criteria to effectively converge the four macroeconomic fundamentals.

These include a headline inflation rate of 8%, a foreign exchange reserve cover equivalent to 4.5 months of imports, a ceiling on the overall fiscal deficit set at 3% of gross domestic product (GDP), and a limit on gross public debt capped at 50% of GDP for all partner states.

For context, Tanzania currently meets or is very close to meeting all four of these targets, with headline inflation at 3.1%, foreign exchange cover at 4.4 months of imports, an overall fiscal deficit at 3% of GDP and gross public debt at an estimated 38% of GDP.

by Dr Hildebrand Shayo

Key indicators show Tanzania’s economy to be in a good position
President Samia’s improved economic diplomacy has helped Tanzania expand economically, diversify economically, and become more resilient. This has improved Tanzania’s standing with her trading partners and, if it continues, has the potential to propel Tanzania’s economic growth to new heights. The economic indicators suggest that Tanzania is a favourable choice as an investment destination and allow many investors to come and invest, which will in turn provide sources of taxes and sources of employment to young Tanzanians.

For the first quarter of 2024, inflation stayed constant at 3%. This stability is caused by a plentiful domestic food supply and lower import inflation brought about by a slowdown in global market pricing. Notably, core inflation, a significant factor influencing total inflation dynamics, rose from 3.2% to 3.7%, the highest level since February 2023. The primary cause of this outturn is the pass-through impact of changes in domestic energy costs.

Additional data analysis indicates that the country’s current inflation rate is within the intended range and in line with the standards established by the Southern African Development Community and the East African Community. The reduction of food prices is expected to maintain monthly bulleting inflation, which, looking at the data, is expected to stay constant and within the target range of 3-5% in the near and medium term, according to data analysis derived from the National Bureau of Statistics and Bank of Tanzania. However, OPEC+ continues to restrict oil production, and upside risk is still present in the case of geopolitical unrest and disruptions to the Red Sea supply.

Tanzania’s food inflation rate is still relatively low; however, it slightly increased to 1.8% in February 2024 from 1.5% the month before. This result is linked to a sufficient supply of food in the home markets and a decline in demand from nearby nations. The cost of staple food crops is likewise trending to decrease. The energy, fuel, and utilities inflation sub-group, which comprises fuel, charcoal, firewood, electricity, and water charges, among other items, recorded an increase in inflation to 7.2% from 6.6% in the preceding month. This performance emphasises how stable the domestic food market is, which supports stability in the economy.

Regarding money and credit, the amount of money in circulation and credit extended to the private sector have both demonstrated steady growth, which has helped Tanzania’s economy as a whole. The extended broad money supply (M3) rise was slightly higher in March at 13.1% compared to 12.8% the previous month. At 16.8%, the increase in private sector lending is vital but just slower than in the prior period. With a growth rate of 49.6%, credit to agricultural activities continues to record the fastest, followed by mining and quarrying. In the meantime, personal loans, which are mainly given to small and medium-sized firms and single proprietorships, continued to account for the majority of outstanding credit at 37.2%. Trade and agriculture came in second and third, respectively, at 13.6% and 10.2%. The sustained demand for loans indicates ongoing expansion in economic activities driven by favourable business conditions and supportive policies.

Regarding interest rates, the central bank rate (CBR) of 5.5% is still within a 200 basis point range for the 7-day interbank cash market rate. As a result, there has been no movement in the 7-day interest rate, which is currently sitting at 7.28% in February 2024, a slight increase from the 7.25% recorded in the previous month. Bank lending rates decreased in the first quarter of 2024; in February 2024, they averaged 15.44%, down from 15.96% in the same month in 2023. An improvement in credit risk, as shown by a decline in the percentage of non-performing loans falling below the Bank’s 5% threshold, is partially responsible for this dip.

Furthermore, in February 2023, the negotiated lending rates dropped from 13.75% to 13.40%. The average deposit rate, however, was relatively steady at 7.39% overall. Negotiated deposit rates did, however, somewhat rise from 9.37% to 9.52%. Between February 2023 and February 2024, the difference in one-year interest rates shrank even more, going from 8.07% points to 7.04% points.

Regarding the market for government securities, there is still a lot of interest in the government securities auctions. Up to this point, every auction has seen oversubscriptions, consistent with the market’s sufficient supply of shilling liquidity and reopening the previously issued Treasury bonds. Two Treasury bill auctions with a total tender size of TSh 164.2 billion will take place in Q1 2024 to support government funding and aid in price discovery. From 11.76% the previous month to 12.21% this month was the weighted average yield. In the meantime, TSh 148.8 billion and TSh 137.5 billion worth of 15- and 20-year Treasury bonds are being offered to meet government funding needs.

The combined bids for both auctions, which attracted oversubscription, totalled TSh 644.6 billion. The weighted average yield to maturity reached 13.66% and 15.83% for the 15- and 20-year Treasury bonds, respectively, from the rates registered in the previous auctions, and only bids totalling TSh 385.0 billion were accepted.

According to BOT figures for February 2024, domestic revenue from collections by the central and municipal governments was TSh 2,214.8 billion, or 92.8% of the monthly target. TSh 2,123.8 billion was the total revenue collected by the central government, of which TSh 1,817.8 billion came from tax collections and TSh 305.9 billion from non-tax sources. All main tax categories had lower revenue than expected, except income taxes, driven mainly by PAYE collections.

The government kept cutting back on spending while maintaining available resources. Preliminarily speaking, government spending in February 2024 was TSh 3,203.8 billion, of which TSh 2,289.2 billion and TSh 914.6 billion were for ongoing and development expenses, respectively.

Regarding the national debt, the stock rose 0.8% to US$ 44,963.4 million from its level the previous month. Both internal and foreign borrowing was blamed for the rise. Remarkably, 72.7% of the total stock was made up of external debt. The external debt the central government due was US$ 23,164.3 million, followed by public businesses (US$ 11.8 million). In February 2024, the federal government was disbursed US$ 79.3 million of the US$ 110.2 million in external debt. The total amount paid towards servicing external debt was US$ 59.3 million.

Comparing exports of goods and services to the same time in 2023, they increased by 14.7% to reach US$ 14,274 million. The primary drivers were revenue from tourism, traditional items, and minerals, particularly gold. Exports of conventional commodities totalled US$ 1,022.7 million, up from US$ 748.7 million the year before. The goods and services imported decreased to US$ 16,087.2 million from US$ 16,928.3 million in the previous year. Fertilisers, plastic products, and refined white petroleum products were the leading causes of the decline. On the other hand, there was a rise in the importation of machinery, industrial transport equipment, and passenger cars.

Tanzania’s credit rating marked upwards
The credit rating agency, Moody’s announced in March that it was upgrading the Government of Tanzania’s long-term issuer ratings to B1 from B2 and changing the outlook to stable.

“The upgrade to B1 reflects Tanzania’s track record of economic resilience throughout multiple external shocks in recent years, providing confidence in its shock absorption capacity going forward,” read the announcement. Tanzania, Moody’s said, is specifically credited for a diversified economic base and exports, stable debt burden and limited contingent liabilities. As such, Moody’s expect that the country’s continuation of conservative fiscal policy supports the rating at the B1 level.

“Moody’s is sending a message to the international community – which includes the lenders – that Tanzania is financially disciplined,” said economics professor, Semboja Haji. “It means that since, as a country, we use development funds for the intended purpose, then lenders should have faith in us. This is a message to the international community that there is stability, sustainability and predictability in Tanzania’s development strategy,” he said.

In its statement, Moody’s said Tanzania was taking tangible steps to improve institutional strength and foster an improving business environment. Although progress remains gradual and in the early stages, Moody’s says, initial signs of improvements in the business environment were materialising as evidenced through an increase in private sector lending and increasing investment, both foreign and domestic.

Banking: CRDB posts record profit in 2023
CRDB Bank’s net profit grew by 21% last year to demonstrate another strong financial performance of one Tanzania’s leading financial institutions. Unaudited financial results released in January indicated that profit after tax increased to TSh 424bn in 2023 up from TSh 353bn in 2022.

The full-year results showed that total assets saw a notable 14 per cent increase from TSh 11.6tri to TSh 13tri.

CRDB Group CEO and Managing Director, Abdulmajid Nsekela, said “the impressive financial results reflect our commitment to delivering value to our stakeholders.” He explained that delivery of the bank’s new medium-term strategy (2023 – 2027) has been a key catalyst for achieving the record-breaking performance, highlighting strategic investments in digital transformation that are yielding significant returns.

In the past year, CRDB significantly broadened its horizons by extending its reach into new territories, such as the Democratic Republic of Congo (DRC) and venturing into the insurance sector with the establishment of CRDB Insurance Company.

“CRDB is well-positioned for the future, and we remain committed to delivering value to our customers, shareholders, and the communities we serve,” Mr Nsekela said. (Daily News)

Economy grows, poverty persists
Tanzania is facing the challenge that strong economic growth is failing to translate into poverty reduction while at the same time grappling with rapid population growth. This is according to the World Bank, which launched the 20th edition of the Tanzania Economic Update in Dar es Salaam in March.

The latest data shows that 3 million Tanzanians fell into poverty during and after the Covid-19 pandemic. In 2018, around 14 million Tanzanians were living in poverty, but by December 2023, the number had risen to 17.3 million. Population projections suggest the number of people in Tanzania could reach around 140 million by 2050, driven by high birth rates. World Bank country director, Nathan Belete, said this surge could intensify demand for education and healthcare services beyond the economy’s capacity, and will lead to challenges in job creation.

Mr Belete added that Tanzania can nevertheless attain a demographic dividend, which is the potential economic growth that can take place when a country undergoes a rapid improvement in health outcomes accompanied by a decline in fertility.

This includes intensifying efforts to expand access and strengthen completion of secondary education for girls and scaling up family planning services.

“For Tanzania to benefit from demographic dividend, three pre­conditions need to be in place. The first is a rapid decline in mortality followed by a rapid decline in fertility. The second pre-condition is investment in human capital to create a healthy, well-educated and skilled labour force and lastly is the creation of good jobs and economic opportunities for this skilled labour force,” said World Bank human development leader Aneesa Arur.

Planning and Investment minister Kitila Mkumbo said at the launch that the government has prioritised youth-focused and rural-oriented policies, with human investment being at the centre of President Samia Suluhu Hassan’s agenda.

“Education remains key in terms of going forward as it correlates with low fertility rates. This goes hand in hand with family planning and reproductive health education,” he said.

Prof Mkumbo added that the government has also made education and rural economic transformation a top priority through revision and repositioning of the education policy and curriculum.

The World Bank also noted that while the economic outlook for Tanzania was broadly positive, several significant threats remained on the horizon. This includes the possibility of a global recession, faltering domestic reforms, and the effects of global heating on key sectors such as agriculture and tourism. (The Citizen)

by Dr Hildebrand Shayo

Tanzania’s National Vision 2050: lessons to learn from China?
Dr Samia Suluhu Hassan, the president of the United Republic of Tanzania recently endorsed the process of soliciting public input for the National Development Vision 2050 (NDV). Among the eight directives she issued was a need to adhere to a strong emphasis on national integrity.

To create prosperity for all, the NDV 2050 places a strong emphasis on an inclusive economy that aims to reduce poverty, create jobs, and increase exports outside the nation to earn foreign currency. The endorsement took place in the nation’s capital, Dodoma, in front of international partners and development agencies who attended the launching of the process of preparing the new vision, showcasing their commitment to supporting Tanzania’s development journey.

For a trip like this to bear fruit, we must learn from our peers. There are lessons to be learned from China, for example, which has a remarkable record at eradicating poverty with a well-coordinated and capable, focused government. These factors made the country’s strategy for economic growth possible, as well as the carefully calibrated policies and programmes that produce the long-term gains that the rest of the world is currently experiencing.

Published Chinese data shows that from 1970 to 2017, the percentage of Chinese citizens living in extreme poverty fell from approximately 90% to 88% in 1981, 10.2% by 2012, 3.1% by 2017, and approximately 30.46 million at that time. It was stated in 2022 that only 0.7% of people were considered to be living below the poverty line. How China did this is a potentially useful lesson for Tanzania in its planning for NDV 2050.

Undeniably, China’s efforts to reduce poverty have depended on a series of dedicated and determined leaders, starting with Chairman Mao, followed by Deng Xiaoping (who implemented the National Economic Development Programme), and, more recently, President Xi Jinping, who has made the fight against poverty the centrepiece of his administration.

A large portion of the imperial economy was based on agriculture and agrarianism, which meant that generations of Chinese people had historically lived in poverty for tens of decades under the various Dynasties. But starting in 1949, the Chinese Communist Party made a significant effort to lessen extreme poverty and inequality, which resulted in land and economic reforms.

This measure was followed by investment in rural healthcare and education facilities, as well as farm irrigation systems. Throughout, the CCP was the catalyst for the nation’s efforts to reduce poverty.

The Chinese government’s subsequent initiatives to reduce poverty, a good lesson to Tanzania were based on two main factors. One, the economy must be transformed to create new opportunities and raise income levels; Two, policies and programmes to reduce poverty must target demographics that lack access to opportunities due to their geographic location.

Based on this, Tanzania could in its NDV 2050 adopt the four main strategies that China used to reduce poverty: improving urbanisation, which will encourage the development of industries and income potential; increasing agricultural productivity, which will help raise household and farmer incomes; continuing industrialization, which will result in a record number of well-paying jobs and an increase in foreign investment; and significant investments in infrastructure, particularly roads, which will help to improved access to markets and distribution networks.

Currently, one of the main tenets of President Xi Jinping’s governance policies is poverty reduction and this new phase of poverty alleviation in 2012 began when the sitting president took office, solidifying the record of at least seven hundred million people who had been helped by the CCP to escape poverty.

The government needed to identify the impoverished groups and determine the underlying causes of their poverty to implement relief policies and decide who could carry out the programmes at the central, municipal, prefectural, and county levels. This approach could give Tanzania a good start as it establishes the foundation for NDV 2050.

The Xi Jinping administration outlined 5 courses to alleviate poverty. These included: the economy’s continued growth to keep growth job availability or the developmental approach; the relocation of people from extremely impoverished areas to areas where they can find better livelihoods; the creation of environmentally friendly employment opportunities; the provision of quality education as a means of bridging intergenerational poverty; and the provision of social security for those unable to work, including insurance and medical care. All these offer potential as ingredients for Tanzania’s NDV 2050.

A good lesson for Tanzania, as it starts working on NDV 2050, is to know that a fundamental element in the accomplishment of China’s unparalleled efforts to reduce poverty was the presence of sound governance, resulting from devoted leadership, which made it possible for the economic growth plan and the well-targeted policies and initiatives to produce long-term benefits.

China’s success in reducing poverty can be rationalised as a growth story, illustrating how steady and quick economic expansion resulted in changes to the productive base of society, which were then linked to the strengthening of market incentives.

China’s rapid economic and social growth was facilitated by its long-term development plan, strength, and ruthless prioritisation of government goals. These factors attracted investment and provided incentives for growth in important sectors like infrastructure, agriculture, health, education, and technology, among others. The Development Vision 2025–2050 will promote stability, draw investment, and guarantee equitable growth, benefiting all Tanzanians. It will do this by acquiring from peers, especially from China and the United Kingdom.

by Ben Taylor
Rising growth, no fall in poverty

In its recent Country Economic Memorandum for Tanzania, the World Bank concluded that Tanzania’s economic growth model is not sufficiently inclusive and as a result is continuing to trap many in poverty. The report, entitled Privatizing Growth, stated that while many Tanzanians have come out of poverty in recent years, many others have fallen into it as well: “more than half of those in the lowest quintile of the wealth distribution in 2021 had fallen back from a higher quintile.”

The Bank said many Tanzanians are “exposed to frequent income shocks” and that they are “highly sensitive to such shocks as they tend to own few assets and have limited access to social protection”. Median consumption per adult in 2021 was more than 10% lower than in 2014 due to overlapping shocks that occurred after 2019, according to the report.

The report found that between 2012 and 2018, poverty in Tanzania – measured against the national basic-needs poverty line – only decreased by 1.8 percentage points. Alongside relatively high GDP growth rates in this period, “the near-zero growth elasticity of poverty in Tanzania was one of the lowest in the world,” and “the number of poor Tanzanians rose by 1.3 million over the same period”.

Nevertheless, the report also pointed to Tanzania’s impressive rate of GDP growth in recent years, which has averaged 6.1% per year since 2000, raising Tanzania to Lower Middle-Income Country (LMIC) status in 2020. And this was accompanied by a lot of progress on broader human development: between 2000 and 2020, life expectancy rose from 52 years to 67 years and the average duration of school attendance from 3.8 years to 6.4 years, while in just the last decade the share of Tanzanians with access to electricity has increased from 5.6% to 39.9%.

This contrast – rapid growth without similar rates of poverty reduction – was the focus of much of the report. In particular, the report unpacked different elements that had contributed to the growth, most notably the changing role of exports. Between 2000 and 2012, Tanzanian exports grew by a massive 6.5 times, but more recently were stagnant afterwards, such that the exports-to-GDP ratio increased from 9.6% in 2000 to 20.9% in 2012, but fell back to 14.3% by 2021. The composition of exports changed too, from over 50% agricultural produce in the 2000s, to a very different situation in 2021, where extractives (mostly gold) made up more than half of all merchandise exports.

The report also found that the agriculture sector’s role in the economy had shifted in recent years. Between 2000 and 2014, the percentage of the labour force employed in agriculture fell from 76% to 67%, but more recently the figure has been rising again. The report points to economic shocks and policy factors forcing many who had previously earned a living in other ways to return to agriculture as a backup livelihood mechanism.

Earlier, speaking at the 27th Annual Research Workshop held in Dar es Salaam, the World Bank Africa Region Chief Economist, Andrew Debalen, emphasised that African countries should invest more in human capital. “To attain real transformation in Africa, the organisation of production has to change. Economies of skills are lacking. Large firms have to augment labour with innovation and technology to reach larger markets,” he says.

Speaking at the same event, the Minister for State in the Prime Minister Office, Professor Joyce Ndalichako said that the government has taken bold steps to strengthen the workforce by investing in education from early ages. “The government has increased the education budget and stepped-up enrolment to ensure that all children have access to education. We have built more classrooms, hired more teachers, and allocated more funds to the Higher Education Student Loans Board to enable more students to pursue higher education,” she said.
The former Chief Secretary, Ambassador Ombeni Sefue argued that despite Tanzania’s move towards the market economy, some Tanzanians still hanker for an outdated model that should be consigned to the past.

“Our entering into the market economy notwithstanding, we are still embracing the past economic model. We forget that our economy can grow through cooperation between the private and public sectors. This is where we should be heading,” he said.

“If the government doesn’t trust the private sector and vice versa, there can never be a conducive environment to build collaborations. We’ve always said that there ought to be channels for each party to listen to the other,” Ambassador Sefue emphasised.

by Dr Hildebrand Shayo

Should Tanzania be concerned about the UK and USA’s banks’ hike in interest rates?
When the Fed in the US or the Bank of England raises interest rates, what happens To Tanzania? Is Tanzania secure, bearing in mind the government’s commitments and government repayment to loans on the table, given like any other nation has borrowed from international financial institutions that use hard currency? If any further financial commitments and repayment are necessary, were these interest hikes anticipated in the nationally approved 2023/24 national budget? If not, how will this increase in interest rates affect Tanzania’s economy, which is already struggling to find enough dollars for imports of essential items like oil and other goods and services?

When the Fed or Bank of England raises interest rates, it is obvious that they intend to boost borrowing costs generally. The choice results in higher interest rates for everyone, raising the cost of loans for both businesses and consumers. Furthermore, this will result in a significant shortage of greenbacks, which will have an impact on many economies, including Tanzania, which depends on foreign exchange to facilitate trade.

Tanzania should be prepared to soon face the effects of US monetary policy, which will generally raise the cost of lending across the economy. Everyone ends up paying more in interest since higher interest rates make loans more expensive for both firms and consumers. Therefore, the crucial question is: Are we ready to withstand the sting of rising interest rates?

To ensure that everyone is on the same page, it is crucial to know for example that the US Federal Reserve on Wednesday 26th July 2023 increased its benchmark lending rate by 0.25% points to combat the US market’s prevalent above-target inflation. For the UK, the Bank of England envisaged hikes exceeding 200bps by year-end and a peak policy rate above 5% by early next year is something that cannot be overlooked in Tanzania. There are indications that the rate may be hiked higher to boost their economic prospects, according to the discussion that followed this US federal decision and the expected Bank of England decision rates scope.

Will this decision spare Tanzania, which like many other countries in the region is suffering from a shortage of the widely used trade currency, as evidenced by the recent shortage of the US dollar supply that prompted oil importers to voice their concerns to the government, even though this is likely to attract more investment into the US market?

Tanzania will have a difficult mountain to climb to manage the consequences of this rate increase. While it may seem like Tanzania should seriously consider increasing its domestic production by reviving its domestic industries that use local raw materials, or seriously consider switching over machines and engines that used imported oil to gas, or generally seriously consider achieving output that will mitigate this impact, this isn’t a one-day action.

As a nation, in my opinion, it is high time to face reality and accept that this shift would only strengthen the US dollar and damage other currencies, including the Tanzanian shilling. Changes in interest rates have an impact on how consumers and businesses access credit to make critical purchases and make financial plans. Even some life insurance policies are affected by it.

I do recognise that as a country we might be tempted to look to raise money through Euro bonds on the global market, but if this is going to be the only solution, we need to be ready because there will be significant charges with higher interest rates as the markets all over will react to the Federal Reserve decision.

In a way, our desire to create more jobs for young Tanzanians graduating from colleges and universities as well as those who want to start their businesses will be unable to obtain bank credit and likely be severely hampered by the gradual reduction in borrowing by businesses or the failure of new businesses to access credits at reasonable affordable rates.

When the Fed or Bank of England adjusts interest rates, it’s crucial to consider the effects on the economy, including lending and borrowing, consumer spending, and the stock market. My reflection aims to spark conversation about how we can assist the government in working with the central bank to find workable solutions because these changes will soon have an impact on how Tanzanian consumers will pay more for the capital needed to make purchases and when businesses will face higher costs associated with expanding their operations and funding payrolls.

The use of many strategies, in my opinion, including loans, swaps, exports of products and services, promotion of tourism, closer coordination of remittances, or attracting more FDIs, can help Tanzania overcome this difficult and challenging time in our development history.
While these actions may seem great, I believe there is one area that needs extra attention – specifically purchasing gold, that can be utilised as a hedge in this situation – but mistakes and lessons of the past when the government through the central bank was involved in purchasing gold must be considered.

It is more crucial for the government to set aside money to assist projects that promote exports and import alternatives. In this regard, policy banks like the TIB Development Bank or commercial banks can carry out the export guarantee plan, but caution must be exercised to prevent misuse by learning from lessons from the past where such government support was seriously mismanaged at the expense of Tanzanians.

Unquestionably, an increase in interest rates in the US or in the UK will induce or persuade investors to place their capital in equities and bonds and assets on the US market in search of big returns.

Changes in interest rates have a ripple effect on many aspects of the economy, comprising mortgage rates and consumer credit and consumption, and stock market movements. Nonetheless, due to the impact of interest rate changes on the global economy, most commodities traded on the international market, such as oil, will cause Tanzania to experience greater economic hardship if the proper strategies and actions are not taken on a timely and strategic basis.

My main concern is how interest rate instruments are being utilised while also thinking about what needs to be done to calm markets and prevent potential bank runs. I will go into more detail about this in the next issue and how strategically Tanzania can overcome this global challenge. But first and foremost, I worry that higher interest rates will increase pressure on Tanzanian banks, which will restrict lending. This will in turn undoubtedly damage small companies and businesses and other borrowers that seek sanctuary in this sector of the economy that is considered a major source of tax revenue for the government and importantly job creation for the army of young graduates from colleges and universities.

by Ben Taylor
February saw the maiden Tanzania-EU Business Forum in Dar es Salaam, bringing together over 600 business leaders from the EU and representatives of the Tanzanian government and business community.

Speaking at the event, Tanzania’s Vice-President, Dr Philip Mpango, invited investors from the 27 EU member states to explore untapped investment and business opportunities in Tanzania. He cited potential areas for investment as agriculture and agro-processing for value addition of local farm produce, as well as tourism, energy, mining, real estate, transport and logistics.

Dr Mpango, also a former Finance Minister, assured delegates of a conducive environment for trade and investment. “Just last year, the government repealed the Investment Act of 1997 and enacted new legislation that offers more incentives to strategic investors,” he said, adding that Tanzania is among the fastest growing economies in the sub-Saharan Africa at present.

At the same event, Dr Mpango urged Tanzanian businesspersons to also explore and take advantage of investment and trade opportunities in the EU.

Tanzania and the EU have been enjoying more cordial relations since President Samia Suluhu Hassan came to power in March 2021. In February 2022, the President visited the European Commission (EC) headquarters in Brussels and met with Commission President, Ursula Von der Leyen. Shortly after this meeting, the EU head of delegation to Tanzania, Mr Manfredo Fanti, stated that investors in the 27-member European bloc were happy with initiatives that the East African nation was taking to improve its business climate, saying this would foster increased Foreign Direct Investment (FDI) inflows.

According to the 2022 EU Investment in Tanzania Report 2022, imports to Tanzania from the EU were valued at €856 million in 2021, representing 12% of Tanzania’s imports, while exports stood at €456 million (10%). The report, which was jointly prepared by the EU Delegation and the European Business Group (EUBG), also found that over 100 companies from the EU have invested in the country, creating an estimated 151,000 jobs.

by Dr Hildebrand Shayo

2023/2024 budget amid thorny audit report
Tanzania’s national 2023/2024 budget debate is gaining thrust at a time when numerous flaws have been exposed by the 2021/22 report of the Controller and Auditors General (CAG), in addition to the global economic outlook that remains thought-provoking, flimsy, and unclear. The Russian vs Ukraine situation that is impacting other major economies might make this year’s 2023/2024 budget tricky.

The 2023/2024 national budget debate likewise is taking place at a time when capital markets are not functioning efficiently, and unemployment continues to persist as a major concern both at the national and global levels, but nationally at the time when the sixth phase government has been more transparent and embarrassing openness something which led to exposing the number of losses in government expenditure and revenue collection.

In these circumstances, advanced economies and important emerging nations such as Tanzania will be facing difficult policy choices, to strike a balance between the imperative of fiscal consolidation and the need for sustainable economic recovery and growth.

For emerging and rising economies, the road to a sustained recovery will continue to be challenged by several key concerns comprising capital inflows volatility, risks of domestic credit and asset price bubbles, commodity price instability, especially fuel and food prices, and inadequate resources. This will be coupled with limited fiscal space and large development needs, containing the need to achieve the MDGs.

Evaluation of economic trends and performance signals that the global economy will continue to struggle financially. Despite the realisation of unprecedented macroeconomic policy responses, including monetary and fiscal measures undertaken, uncertainties will continue regarding the path to economic recovery partly coping with the effects of Covid and the ongoing war between Russia and Ukraine.

Global headwinds
All is happening when the global economy continues to grapple with financial market fluctuations and macroeconomic imbalances, that is leading to increasing vulnerabilities in global economic recovery and weakening employment prospects across many economic sectors.

Against this setting, world output growth is projected to decelerate from an estimated 3.0% recorded in 2022 to 1.9% in 2023, indicating the world will have one of the lowest growth rates in recent decades. This makes the world economic situation and projection for the remaining 2023 present a gloomy and uncertain economic outlook.

Similarly, growth in cutting-edge economies has already declined from 5% recorded in 2021 to 3.8% in 2022 and 2.3% projected in 2023 a pace that, while moderating, will be satisfactory to restore output and investment to cope with the post-pandemic trend and impact of the on-going war in Russia and Ukraine.

Economic output in the US is expected to slow early this year in response to last year’s sharp rise in interest rates. Nonetheless, the output is expected to start growing again during the second half of 2023 as falling inflation might permit the Federal Reserve to cut interest rates, which would likely cause a rebound in sectors of the economy that are sensitive to interest rates. Further, US domestic consumption, the major driver of economic growth, is still sluggish as the foreign inflow starts to decline wary of emerging market uncertainty after the failure of three banks in the US during the last month of March 2023.

In Europe, the weak banking sector limits credit supply and hampers the pace of economic recovery. Households and firms across the euro area are currently feeling the effects of higher inflation and weaker economic activity, amid the ongoing energy crisis prompted by the war in Ukraine.

According to the European Central Bank’s November 2022 financial stability review, the deterioration in economic and financial conditions has increased the risks to euro area financial stability and how this might negatively affect emerging markets and developing countries through trade and financial channels thus adding to domestic weaknesses.

GDP growth in Germany, the largest economy in Europe, has increased by 1.8% in 2022. Notwithstanding high inflation, growth has been supported by the boost in demand that followed the post-pandemic reopening of the economy, and in particular, services although by the third quarter of 2022, investment and private consumption had not yet reached their pre-pandemic levels that led to a decreased in the fourth quarter with real GDP contracting by 0.2%. The weak private demand is the main factor behind this weak performance and the prolonged output gap.

On average, the BRICS group of five major emerging economies-Brazil, Russia, India, China, and South Africa has grown strongly since its inception in 2006. Accounting for 23% of the global economy, 18% of trade in goods and 25% of foreign investment, BRICS nations have formed an important force that cannot be ignored in the world economy. BRICS economies imply that the irresistible rise of emerging markets and developing countries has injected strong impetus to the reform of the global economic governance system that will have a considerable impact on other nations’ planning.

National challenges
Tanzania’s 2023/2024 national budget partly relies on development partners’ support, which is of course affected by global dynamics. And in addition, the recent CAG’s report has recommended serious action to be taken since currently, global economic growth is slowing amid a gloomy and more uncertain outlook.

Tanzania’s parliament will debate budgeting issues of respective sectors for a few months when the world’s three largest economies are stalling, with important consequences for the global outlook with inflation remaining a major concern.

Inflationary risks will remain high due to both external and domestic influences. The external risks will be associated with the possibility that the international financial crisis may persist, while the domestic risks will be associated with a context of slower demand due to the slow growth in private sector activities and low-capacity utilisation in many sectors.

All in all, higher-than-expected, although global inflation has been revised in part due to rising food and energy prices, especially in the United States and major European economies, will continue to trigger a tightening of global financial conditions and this will have further negative spill-overs from the war in Ukraine and as a result, global output will be affected enormously.

This year, inflation is anticipated to reach 6.6% in advanced economies and 9.5% in emerging and developing economies. Inflation has also broadened in many economies, reflecting the impact of cost pressures from disrupted supply chains and historically tight labour markets. These issues are critical to Tanzania as honourable MPs debate national budget for 2023/2024.

by Ben Taylor
Pro-business moves by President Hassan
President Samia Suluhu Hassan’s business-friendly outlook is sending positive signals across the globe, with Moody’s Investors Service chang­ing Tanzania’s outlook from stable to positive.

“The outlook change to positive reflects Moody’s view that political risks have lessened under the government’s new approach to promot­ing economic development and engagement with the international community,” Moody’s says in its latest change on Tanzania’s rating which was published in October.

Ratings such as those for Moody’s are used by investors globally in deciding on where and why they should invest their money in any particular economy.

President Hassan took over at a time when relations between the gov­ernment and some investors were somewhat uneasy. The sentiment then was that the country was excessively regulating foreign investors, and that Tanzania’s business climate had abruptly become unpredict­able.

As a result, despite promoting industrialisation, a report by the United Nations Conference on Trade and Development (UNCTAD) found that inflows of foreign direct investment (FDI) decreased by 24% between 2015 and 2017.

Later, relations between the government and the International Monetary Fund (IMF) soured when the latter criticised the former for its unpre­dictable economic policies and unreliable statistics. An IMF report in 2019 warned Tanzania of unpredictable and interventionist policies that worsen the investment climate and could lead to meagre [or even nega­tive] growth, was blocked from being published in the country.

But almost 18 months since the change of guard at State House, Moody’s said the government’s efforts to improve the business and investment climate and attract FDI, most notably in the mining and hydrocarbon industries, offers the prospect for higher potential growth and improv­ing international competitiveness. “Tanzania’s re-engagement with the IMF also has the potential to support higher government revenue generation capacity and unlock greater concessional financing from development partners, supporting debt affordability and increased social spending,” Moody’s said. “Initial steps to improve the business and investment climate include relaxing regulations for foreign work permits, streamlining VAT refunds, and tabling legislation that supports local businesses,” Moody’s noted.

Government officials and some analysts say the government has indeed managed to effectively tell the world that Tanzania was open for invest­ments and that its policies were predictable. “This change is a clear indication that the government’s efforts to create an enabling business environment were being noticed….This will instil confidence to investors that their money will be safe when they invest in Tanzania,” said the Deputy Minister for Investment, Industry and Trade, Mr Exaud Kigahe.

He said the government will keep on creating a friendly-business and investment climate to convince investors that investing in Tanzania could make them be sure of their tomorrow.

Dr Daud Ndaki, an economist from Mzumbe University, echoed this view, noting that the sixth phase government has achieved a remark­able milestone in building investors’ confidence. “This is a positive development. With this positive outlook, we are likely to attract more investors,” he said.

Separately, World Bank Vice-President Victoria Kwakwa praised President Hassan’s “economic miracle,” where key macro indicators showed a strong post Covid-19 position compared to many countries.

Indeed, growth data showed a healthy 5.4% annualised growth rate early in 2022, ahead of earlier projections. The Bank of Tanzania said money supply and private sector credit growth continued to rise swiftly, with the trend being attributed to monetary and fiscal policy accommodation, an improved business environment and recovery of private sector activities from the effects of Covid-19.

Private sector credit growth improved significantly in July and August, reaching around 20%, compared with the projection of 10.7% for 2022/23.
Further, Tanzania appears to have dodged the worst inflationary impacts of the war in Ukraine. Official estimates saw inflation reach 4.6% in August 2022, well below the double-digit figures seen in many countries, and below Tanzania’s own upper-range ceiling of 5%.

Economist and business analyst, Dr Donath Olomi, said there is positive change in perception towards investment and the business environment in Tanzania, which has been influenced by President Samia Suluhu Hassan’s government. “The economic potential has yet to be fulfilled, but we have come far, and there is this confidence as far as doing business in Tanzania is con­cerned. Trust has recovered, and the trajectory is good,” he said.

Census data published

November 2022 saw the publication of the first findings from the 2022 national Population and Housing Census. The main headlines were drawn by the overall total population figure of 61.7 million, up by more than a third from 44.9 million in 2012, representing an annual growth rate of 3.2% since the previous census.

The population of Dar es Salaam has risen a little more slowly over the same period, from 4.4 million in 2012 to 5.4 million in 2022, an annual growth rate of 2.1%. Mwanza meanwhile has grown from 2.8 million to 3.7 million, an annual growth rate of 2.9%.

The overall population figure for 2022 is a little lower than the United Nations Population Division had projected (63.6 million at the end of 2021). Nevertheless, the annual growth rate over the past ten years is considerably higher than had been the case in the previous decade (3.2%, up from 2.7%).

In launching the initial report, President Samia Suluhu Hassan said it was estimated that by 2025 Tanzania will be home to 68 million people and that by 2050 there will be 151 million in the country.

Commenting on the figures, some economists said that rapid popula­tion growth makes it more difficult for low-income and lower-middle­income countries like Tanzania to afford the increase in public expendi­tures on a per capita basis. This, they say, makes it increasingly difficult to eradicate poverty, end hunger and malnutrition, and ensure univer­sal access to health care, education, water and other essential services.

Dr Wilhelm Ngasamiaku, an economist from the University of Dar es Salaam, said it will be important for the economic strategies of the coun­try to take into account the age structure of the population. “In previous census for example, we have seen that people below 18 years account for the majority of the population. This means as a coun­try, you must invest more on social services as demand for health and education will increase,” he said. “But if the majority is in the working age group, 15-59 years, it means we are going to need to re-strategise economically to make sure we create more decent job opportunities,” added Dr Ngasamiaku.

Others say a large population translates into more workers and more consumers who make a good market for locally-produced products for the general good of the economy.

Dr Lutengano Mwinuka, an agricultural trade economist from the University of Dodoma (UDOM), said the population growth provides an opportunity by providing a bigger pool of human capital. “For instance, in agriculture we have a lot of unutilised land across the coun­try. From the census data we can identify the size of the working age group and skills composition and thus we can appropriately develop economic development strategies,” he said.

The initial census data released in November does not include the age profile of the population. This data is expected to be released in 2023.

by Dr Hildebrand Shayo

Highlights on President Samia’s FY 2022/23 and what could be budget’s effect on business and investment
The total budgeted expenditure in the 2022/23 budget is TSh 41.5 trillion (USD $18bn). What does this budget mean? How is this budget going to be financed, and is this budget likely to speed up business’ growth, maintain or attract new investment to Tanzania ?

This FY2022/23 budget was tabled at a time the Tanzanian economy is growing at 4.9% compared to a growth of 4.8% in 2020. The increase was attributed to diverse efforts taken by the Government, including the execution of the Tanzania Covid Socio-Economic Response Plan and strategic investment, especially in energy, water, health, education, roads, railway, and airports infrastructure.

The economic activities with the highest growth rate at the time the FY2022/23 budget was tabled were arts and entertainment (19.4%); electricity supply (10.0%); mining and quarrying (9.6%); and information and communication (9.1%).

In 2021, the GDP at the current prices was TSh 161.5 trillion compared to TSh 151.2 trillion in 2020. Tanzania’s mainland population was estimated to be 57.7 million people in 2021 compared to 55.9 million people in 2020. Per capita GDP was TSh 2.79 million in 2021, compared to TSh 2.7 million in 2020. Further, the inflation rate increased to 3.8% in April 2022 compared to 3.3% in April 2021.

The rise in inflation was an outcome of reasons beyond the Government’s control including disruptions in the production and distribution chains of goods and services in the world market because of the Russian invasion of Ukraine.

The total proposed expenditure in the 2022/23 budget is TSh 41.5 trillion (USD $18bn) for recurrent and development expenditure. Out of that amount, TSh 26.5 trillion (USD $11.5bn) is allocated for recurring expenditure, equivalent to 63.8% of the total budget and TSh 15.0 trillion (USD $6.5bn) for development expenditure. The sources of funds are government domestic revenue (including LGAs own sources) estimated at TSh 28.0 trillion (USD 12.1bn), equivalent to 67.5% of the total; external grants and concessional loans estimated at TSh 4.65 trillion (USD $2.0bn) equivalent to 11.2% of the total; and domestic and external non-concessional loans TSh 8.8 trillion (USD $3.8bn) equivalent to 21% of the total.

The theme for the 2022/23 budget is Realising Competitiveness and Industrialization for Human Development. Priority sectors include agriculture, livestock, fisheries, energy, investment, and trade. Tanzania theme is very well in line with the EAC Partner States’ budget theme for 2022/23, which is Accelerating Economic Recovery and Enhancing Productive Sectors for Improved Livelihoods.

The budget however for FY 2022/23 aims to achieve macroeconomic policy targets of real GDP growth rate of 4.7% in 2022 and 5.3% by 2023; holding inflation between an average of 3.0% to 7.0% in the medium term; domestic revenue collection of 14.9% of GDP in 2022/23; tax revenue collection is projected at 11.7% of GDP in 2022/23; and maintaining foreign reserves sufficient to cover at least four months of imports of goods and services.

In FY 2022/23, the Minister for Finance and Planning further proposed several changes in tax laws including the Income Tax Act, the Value Added Tax Act, the Tax Administration Act, the Excise (Management and Tariff) Act. The Minister proposed amendments to existing provisions as well as new provisions in tax laws.

Tax and related changes
The Minister proposed the following amendments to the Income Tax Act, 2004:
• Introduction of a tax rate of 3.5% for taxpayers with turnover exceeding shillings 11 million but not exceeding shillings 100 million in a year.
• Improvement of the Tanzania Revenue Authority payment systems, to enable payments of taxes through mobile wallets.
• Recognition of alternative financing as approved by the Bank of Tanzania to be the same as conventional borrowing to enhance financial inclusion and access to finance.
• Granting the Minister for Finance powers to waive income tax for strategic investors after approval by the National Investment Steering Committee, as indicated under the Tanzania Investment Act, and as subsequently approved by the Cabinet.
• Abolishment of withholding tax exemption on rent paid by individuals for residential houses, apartments, and commercial premises. The Commissioner General for Tanzania Revenue Authority will enter an Agency Memorandum of Understanding with the President’s Office Regional Administration and Local Government on the administration and collection of this tax.
• Capital gain tax exemption on any transaction involved on the entry into force and implementation of agreements involving the transfer or surrender to a joint venture company of any project; or the authorisation, issue, distribution, or transfer to the Government of the free carried interest shares.
• Capital gain tax exemption on equity shares freely surrendered to the Government through the Treasury Registrar.
• Withholding tax exemption on coupon for corporate and municipal bond.
• Reduction of the withholding tax on service fees paid to nonresidents in the film industry from 15% to 10%.
• Introduction of 2% digital service tax on the turnover of non-resident service providers.
• Introduction of 2% final withholding tax on payments made to small scale miners.
• Introduction of an annual income tax of TSh 3.5 million per truck and passenger bus and
• Introduction of an advance income tax of TSh 20 per litre for retailers of petroleum products.

In relation to VAT, the Minister proposed exemptions on various items including the following:
• Raw materials and Machinery under Chapter 84 and 85 of the East African Community Common External Tariff solely and directly used in the manufacturing of fertilizers by an approved manufacturer. Exemption will be granted upon approval by the Minister for Agriculture.
• Unprocessed green vanilla pods for equity purpose as treatment of other unprocessed agricultural products that are exempted from VAT.
• Locally manufactured sisal twine.
• Ultra-High Temperature (UHT) milk and yoghurt, and dairy packaging materials.
• Pasture seeds (grass seeds) and pasture legumes seeds.
• Machines and tools solely and directly used by the military and armed forces. The exemption will be granted upon approval of the goods by the Minister responsible for defence and security. VAT exemption is proposed to be abolished on the supply of air charter services, as well as on smartphones, tablets and modems.

Other proposed VAT amendments:
• Treatment of alternative financing arrangement as conventional borrowing to enhance financial inclusion and accessibility of financial services.
• Zero rate for one year, locally manufactured double refined edible oil.
• Zero rate for one year, locally manufactured fertilizer.
• Grant power to the Minister for Finance to grant VAT exemption on strategic investments after approval by the National Investment Steering Committee (NISC).
• Expand the list of capital goods that qualify for VAT deferment to include tractors, trailers and semi-trailers, and other vehicles not mechanically propelled.

Changes proposed to the Local Government Finance Act include exempting crop cess on seeds to provide relief to farmers and enhance productivity, and reducing forest produce cess from 5% to 3% to provide relief to forestry traders and support growth of forestry sector.

Further, the Minister proposed to reduce the Workers’ Compensation Fund contribution rate from 0.6% to 0.5%, to align the rate payable for private and public sector employees; to reduce the rate of royalty from 3% to 1% on coal used as energy raw material in factories, to encourage investment; to introduce an export levy of 30% or USD$150 per metric tonne (whichever is higher) on copper waste and scrap metals, to protect local manufacturers.

On the Insurance Act, the Minister, expanded the scope for mandatory insurance to include public markets, commercial buildings, imported goods, marine vessels, ferries, and pontoons. On the Foreign Vehicle Transit Charges Act, he reduced transit charges for vehicles exceeding 3 axles from USD 16/100 km to USD 10 or its equivalent in convertible currency for every 100 km. On the Bank of Tanzania Act, he increased the limit on Government borrowing to not exceed 18% of approved domestic revenue in the current fiscal year instead of the current rate of one eighth of the domestic revenue collected in the preceding fiscal year.

Sources: MOFP budget speech for FY2022/23- presented at parliament-Dodoma, Tanzania. Effectiveness of the 2022/23 budget start 1st July 2022