by Arrad Tabandeh
Arrad is a TDT Volunteer currently studying at the London School of Economics and Political Science (LSE)

IMF approves more funding for Tanzania to deal with the effects of pandemic and war
In July the IMF Executive Board approved a forty month $1.05 billion extended credit facility (ECF) arrangement with Tanzania. This type of support is designed to provide financial assistance to countries with protracted balance of payments problems, and is part of a broader reform at the Fund to make their financial support more flexible and better suited to the needs of countries requiring more diverse assistance. It is seen as a major tool in providing medium-term support to Tanzania and its economic programmes aimed at stability and sustainability.

This follows the Fund’s emergency support to Tanzania in 2021, as overall financing since the start of last year is now equivalent to 300% of the country’s special drawing rights (the IMF’s own currency used as an international reserve asset and allocated between countries). The arrangement is expected to accelerate further bilateral and multilateral financial support.

The purpose of this ECF is to assist Tanzania with the spill-over effects from the war in Ukraine which is stalling the country’s gradual recovery from the pandemic. The programme draws from the key priorities of the government’s Five-Year Development Plan which commits to the improvement of living conditions through measures aimed at building a “competitive and industrial economy for human development”. The authorities will therefore use this additional funding in accordance with the Plan and invest in infrastructure, skills-training, as well as strengthen the business environment to facilitate private sector success. Contributions are also thought to be made towards scaling up vaccination efforts.

The IMF has forecasted Tanzania’s GDP to grow 4-5% each year from a base of about $65 billion in 2021, with the current account deficit floating around 4% of GDP. Therefore, while financing of $1 billion across nearly four years covers a relatively small amount of the deficit, it is still sufficient in driving reforms and building a sustainable base for future revenues and growth.

Speaking to “Daily News”, a cross-section of economists said they were optimistic that the credit will offset the rising prices of commodities. They also suggested that the fund should be used to provide subsidies on imported fertilisers, to reduce prices of the soil nutrient encouraging the country to become more self-reliant. It is hoped that this could go some way in alleviating the worsening cost of living crisis.

Mr. Bo Li, Deputy Managing Director at the IMF mentioned how executive directors “commended authorities for their economic response to the pandemic and the policies enacted to mitigate the spill-overs from the war in Ukraine”, but also referred to the “considerable development and reform challenges and external headwinds” that the country is facing. It is against this backdrop as well as “recognising Tanzania’s strong track record in reform implementation” that the directors supported the country’s request for an ECF arrangement.

The directors also highlighted the authorities’ continued work in “rebalancing expenditure towards social spending and improving its efficiency and execution.” They welcomed the progress made in establishing fiscal transparency in the nation alongside emphasising the importance of raising government revenue to address priority spending, including the containment of rising food and fuel prices. This can also help pave the way for a more sustainable fiscal policy in the country, freeing up room for longer-term development.

Plans are in place to pay out $150 million immediately. The financing is Tanzania’s first IMF policy-reform funding programme in a decade and comes after the Washington-based lender raised the country’s risk of debt distress to moderate from low last year. For now the fund has encouraged the implementation of Tanzania’s ambitious reform agenda, alongside stressing the need to continue to address climate risks.

by Dr Hildebrand Shayo

Banks’ lending rates to business, and the effect on economic growth in Tanzania
The issue of banks in Tanzania being advised to reduce loaning interest rates is on the lips of politicians, government officials, the President herself, borrowers and loan seekers, whether small or large, seeking loans to run their businesses. Despite these efforts and calls, interest rates charged by lending institutions remain high, something that in-turn affects the growth of productive economic activities, business especially for SMEs and start-up businesses that offer employment on one hand but also tax base for government revenue. Why are interest rates not declining in Tanzanian market? Is the approach used to reduce rates wrong or inappropriate? Or is there a problem in the financial system and interest rates setting system in Tanzania? These are the issues that need reflection with an economic eye to assess why the situation remains the same despite countless calls to reduce the rates. This assessment described concludes with hints as to why it will be thought-provoking to bring down lending rates and what can be done.

Gain access to loans, interest rates and business lending setting panorama
As clamour to lower lending rates continues, Tanzanian borrowers, small or large should not expert reduced loans interest rates soon, notwithstanding lowered policy instrument rates and regular government officials’ reminders that include other strict measures issued by the Bank of Tanzania.

The conventional approach stems from the fact that interest is the return for the productive use of principal. Since physical capital is purchased with monetary funds, then, the rate of interest is taken to be the rate of return over capital invested in physical capital assets. Whereas the demand for investable capital draws from investment decisions of the business sector, the supply of capital results from supplies of savings derived from households. Loanable funds are the sums of money supplied and demanded at any time in the money market, where: funds available for lending are inclined by the savings of the people and the additions to the money supply (normally through credit creation by banks), while demand for loanable funds is determined by the need for investment plus desire for hoarding.

Within this theoretical background, although BOT practises different measures such as reducing statutory reserves money (SRM) lowering Repos, lending to banks, and reducing yields for debt instruments, these efforts have not yet translated into effective lowered lending rates as anticipated.

Actual lending rates remain at around 16% by most banks, except one bank that recently announced the reduction of rates for personal loans targeting farmers. This makes it harder for borrowers to access loans, and indeed the cost of finance makes it challenging to make profit.

High rates are good for the banks and their shareholders but damaging to viable economic activities that are vital for county’s economic growth. High banks rates also discourage prospective borrowers from applying loans, as others have opted to borrow from individual private lenders or family members.

Presently, there are some banks which lend up to 21% – four times of the BOT policy rate – while maximum mortgage lending rates in Tanzania is 19%. Digital lenders issuing loans through mobile money services, which are assumed to be cheaper due to lower operating costs, lend at a fixed cost between 11% and 15% of the loan among. This is repaid within a much shorter time period: up to a month. When annualised, rates charged by telecoms are a killer, though many users do not realise on how is expensive the loan through mobile phones can be.

Research on informal lending market finds loans at rates that are higher than mobile lenders or banks, as the cost of funds are ranging from 30% to 50% per month. Here risk of non-payment is the key driver.

The main drivers of high lending rates in Tanzania’s lending market are high operating costs, non-performing loans, and cost of funds. Interest income is the major earning stream for all banks.

Tanzanian banks’ operating costs are related to employee salaries and benefits, which account for an average of 44% of the banking industry operating costs and have been increasing over time. Folks familiar with banking industry supposes that maximum monthly salary of large bank CEO is TSh 60m (around USD $25,000), very roughly equivalent to a profit of a bank branch. Likewise, monthly pay for CEO of other medium and small bank ranges between TSh 15-30m.

The implications of these, is simple that efforts should be directed at improving operation efficiencies aiming at reducing banks operating costs. The key areas of attention are with respect to employees’ salaries and how to improve bank’s productivity.

Another notable cost that is not often taken seriously is the cost of premises and equipment – rent, transport fleet, equipment and utilities – which together constitute another 16% of the banking industry operating costs. In this case, ICT advancement in the country in service provision could bring these costs down somewhat.

As far as non-performing loans (NPLs) are concerned, this has become a major problem for most banks. Factors affecting NPLs comprise global financial crises, credit screening weakness, a decrease in supply of loans partly, and capital enhancement measures. In Tanzania, banks are aiming to comply with the regulator’s benchmark of at most 5% of NPLs. Some banks have gone beyond this figure due to various genuine reasons, including economic uncertainty and instability of the labour market, as well as unethical practices among loan officers. Each of these drivers nonetheless are subject to discussion as each might have its own story.

Cost of funds is another factor that keeps banks’ lending rates high, banks cannot lend money at lower rates than they themselves pay. According to BOT, in Tanzania, the overall interbank cash rates which banks uses to lend each other, up to the period of seven-day ranges between 4.4% to 4.5% while overnight was at 3.72%. Here, some banks that have good relationship with each other usually outsource expensive funds outside the country when there is liquidity shortage locally and vice versa.

Regulator’s role and financial market dynamism in Tanzania
In recent years, the BOT has announced various policy measures to ease lending rules which include lowering the statutory minimum reserves requirement, lowering the discount rates as well as providing regulatory flexibility on restructuring of loans. For instance, in 2021, the central bank lowered its benchmark lending rates from 7% to 5% to cushion banks from Covid-19 impact. This together with the policy change aimed at to provide additional space for bank to borrow at a lower cost, hopes to encourage lower rates by banks. To spur liquidity, the regulator correspondingly resolved to lower statutory minimum reserve to 6% from 7% effective June 8, 2021.

Various initiatives as stated in this analysis are now being practiced by various financiers including commercial banks. Initiatives such as cluster marketing where employees of the government established parastatals and corporate establishment are able to enjoy good, lowered lending rates may inspire many to get loans at costs that are low compared to what banks charges, but for how long? These tactics exclude important economic groups such as traders, farmers and businesspeople. And importantly they do not target help at start-ups and SMEs viewed as riskier prospects, though these could benefit from lower rates.

Policy Implications
Attempts examined in this article to help deal with high lending rates alone on the other hand will not bear fruits without political will. As such, top government officials, including President Samia Suluhu Hassan on various occasions, have made an appeal to the banks to rethink and consider lowering lending rates telling them that they are part of the wider economy. Likewise other leaders also have from time to time have been calling for banks to reduce lending rate, but this is unworkable in real sense.

The implications of the analysis expressed in this article are that high interest rates signal banking sector inefficiency, and when that occurs it hampers not only financial development but also economic growth and potential productivity enhancement.

In June 2021, the President said, “financial institutions need to cut real interest rates in line with measures implemented by the BOT,” and suggested that rates for short term loans should be lowered to below 10%. Will banks in Tanzania heed the President’s call, or will they turn a deaf ear?

Hildebrand Shayo, BA (hons) MA, PhD, is currently a manager, responsible for Economic Research and Planning at TIB-DFI Development Bank, wholly 100% owned by the Government of Tanzania. TIB development bank is one of development financial institution responsible for financing long-term infrastructure and development projects with development impact.

by Ben Taylor

Government cuts growth forecast, secures IMF loan
In September, the Tanzanian government slashed its growth forecast for 2021 to 4%, down from 5.6% announced in June. This was expressed in a letter to the International Monetary Fund (IMF). The government attributed the lowering of growth projections to the decline in performance of key sectors due to Covid-19.

“Some key sectors have been seriously hit by the third wave of Covid-19 in the first six months of 2021 that has forced us to review projections,” said Emmanuel Tutuba, permanent secretary in the Ministry of Finance and Planning. He noted that the tourism sector in particular suffered in the first and second quarters.

Growth figures and forecasts have been a source of tension in recent years between the government of Tanzania and major development partners including the IMF and the World Bank.

IMF Resident Representative, Jens Reinke, commented that the government has shown commitment for economic recovery following the Covid-19 pandemic. He made the remarks in approving an IMF loan worth USD $567 to help finance the urgent balance of payment needs, stemming from the effects of coronavirus pandemic.

The government also announced it will also table a supplementary budget before Parliament in February 2022, after the disbursement of the IMF funds. “This is a new source of income that will need approval of Parliament in agreed areas,” said Mr Tutuba, describing this as a normal legal requirement.

Later, the Bank of Tanzania’s monthly economic review for the year to October 31, 2021 reported an 11% rise in exports of goods and services compared to the equivalent period 12 months earlier. Exports amounted to USD $9.6 billion in the year to October 31, 2021, up from $8.6 billion in previous year.

This was driven by a rise in exports of manufactured goods and non­traditional goods other than minerals. Exports of goods increased by 10.4%, with non-traditional goods rising by 13.4%.

Analysts attributed the trend both to a recovery from the past impact of Covid-19 and in part to the efforts of President Samia Suluhu Hassan to establish a more supportive business environment.

“The right signals from the President bolster traders and investors’ confidence to invest in the country,” said Prof Abel Kinyondo of the University of Dar es Salaam’s School of Economics. He recommended, however, that these signals needed to be translated into legislative and policy reform in order for the positive trend to be sustained.

New statistical masterplan forthcoming
The World Bank senior economist in Tanzania, Rob Swinkels, has said the organisation is working with the government of Tanzania to support implementation of the new Tanzania Statistical Master Plan (TMSP) 2022-2027. Mr Swinkels gave the assurance after meeting with the National Bureau of Statistics (NBS) on the matter.

He said the bank is the long partner of the government in the development of the statistics system, which among others, is in response to demand for better information on updates in living standards and policy implementation. He added that the Bank has supported the implementation of TMSP 2010-2018, together with other development partners.

Speaking at the meeting, the Director General of the Tanzania National Bureau of Statistics, Dr Albina Chuwa said, “The World Bank project will help us achieve our vision for statistical development to support the government with quicker and better data to underpin the policy process”.

In a separate development, NBS has requested USD $80m financial support from the World Bank to help in conducting the 2022 Population and Housing Census. The request was by Dr Chuwa, saying the support would go into the purchase of more equipment to be used in the census whose preparations are at an advanced stage.

UK government pursues increased trade with Tanzania
November 2021 saw a UK-Tanzania Business Forum held in Dar es Salaam. It brought together government and business to discuss the trade and investment relationship between the two countries, and opportunities for increased economic partnership.

The UK Prime Minister’s Trade Envoy to Tanzania, Lord Walney (John Woodcock), was in attendance as part of his first visit to Tanzania since his appointment to the role in August. He expressed the UK’s commitment to increasing Tanzania’s exports to the UK market, and investment by British businesses in Tanzania.

“Our particular focus will be on supporting quality and sustainable UK investments into Tanzania that create jobs, inclusive economic growth and mutual prosperity,” he said.

UK Trade Envoys are parliamentarians appointed by the Prime Minister, drawn from both Houses and across the political spectrum. The roles are unpaid and voluntary. These new appointments bring the total number of Trade Envoys who help support the UK’s trade and investment agenda to 36, covering 76 different countries.

Currently, trade between the two countries is highly imbalanced, with the value of Tanzania’s exports to the UK reportedly standing at a mere £29 million per year, while its imports are worth £127 million.

To raise Tanzania’s exports to the UK, Prime Minister Kassim Majaliwa urged the UK to bring in capital and inject it into various sectors especially in value addition. Mr Majaliwa also said UK-funded technical assistance and analysis will help to inform the prioritisation of economic reforms that the private sector could benefit from. He said Tanzania will continue to create an enabling business environment to increase investor’s confidence.

Industry and Trade minister Kitila Mkumbo said it was the government’s wish to see more Tanzania’s products sold in the UK market. “The trade volume between Tanzania and the UK is relatively large. But it is one-sided as it favours the UK more. We import more than what we export,” said Prof Mkumbo.

The forum was attended by over 20 companies from the UK, 150 British and Tanzanian (joint ventures) companies attending in-person and a further 300 participating virtually. It was organised by TanTrade, the British High Commission, the Tanzania Private Sector Foundation and Zanzibar National Chamber of Commerce.

UK aid to Tanzania in precipitous decline

Official aid provided by the UK to Tanzania has fallen sharply in the 2021-22 budget, to £28.5m. This represents a 68% drop compared to 2020-21 (£89.2m) and a massive 86% drop compared to 2015-16 (£204.8m), according to figures released by the Foreign, Commonwealth and Development Office (FCDO).

The drop is most directly linked to the UK government’s decision to abandon its commitment to provide 0.7% of GDP in official development assistance, which came into effect in the most recent budget. It is also linked to the incorporation of the former Department for International Development (DfID) within the Foreign and Commonwealth Office (FCO), now renamed as FCDO. However, though these changes have accelerated the decline of UK aid to Tanzania, the decline started several years earlier.
In 2020, Prime Minister Boris Johnson mentioned Tanzania explicitly as an example of a country where too much aid was provided, in contrast to countries in eastern Europe such as Ukraine and the Balkans, which are more strategically important to the UK.

Development practitioners within Tanzania responded with dismay to this argument, saying they were “left questioning the UK government’s assessment of what constitutes British interests.”

“We believe the move is short sighted, as there are global benefits to providing humanitarian aid to developing countries like Tanzania. A glaring example of this is the current coronavirus pandemic. A unified global response to the pandemic is in everyone’s interests, including the UK’s.”

A representative of the British High Commission in Tanzania responded that “bilateral aid represents one element of the UK’s contribution to Tanzania’s development. UK businesses and investors are a key source of foreign direct investment. And significant amounts of UK aid are channelled through non-bilateral mechanisms, including through major contributions to International Financial Institutions and multilateral programmes. Taking all channels into account, the UK remains one of the largest providers of aid to Tanzania.”

Some analysts have also linked the specific decline in aid to Tanzania to the country’s recent record on governance and democracy, and even to its unusual response to the Coronavirus pandemic.

“Where we have any such concerns on these issues, we have raised them with the Government of Tanzania,” said the BHC spokesperson. “The UK’s relationship with Tanzania remains vibrant and strong. In the year ahead, we will have a major focus on girls’ education and support for Tanzania’s efforts to improve its business environment and build a resilient and productive economy. We will also be working in partnership with Tanzania on climate change, tackling transnational serious and organised crime, and strengthening democratic institutions and the development of civil society.”

by Ben Taylor

Controversial mobile money tax introduced, partially retracted
The most controversial and headline-grabbing move in the 2021-22 budget was a new tax on sending and withdrawing money on mobile phones. A levy of between TSh 10 and TSh 10,000 was introduced on mobile money transactions.

The effect varies according to the particular network being used and the amounts of money involved, but for example, the cost of a transfer of TSh 15,000 on Airtel Money would rise from TSh 350 to TSh 960, while the cost of a TSh 600,000 transfer on the same network would rise from TSh 1,000 to TSh 7,400.

The government hoped the move would raise a total of TSh 1,254 bn over the course of the year. Framing it as a “Patriotism Levy”, Finance and Planning minister Mwigulu Nchemba said it was important that every Tanzanian took part in it.

Given that 2019 saw mobile money transfers in Tanzania worth approximately $40 billion, representing over 60% of the country’s GDP, this new tax could potentially have a major impact on the circulation of money, on poverty reduction efforts, and on the economy as a whole.

The change prompted a major outcry from economists and citizen groups across the country. Richard E. Ms homba, Professor of Economics at La Salle University, Philadelphia, USA, wrote that “the end does not justify the means”. He added that though this type of levy “may be a convenient tax window, it may also lead to a slowdown in economic activities and exacerbate inequality in the country.”

In previous research, the global association of mobile phone network operators, GSMA, found that taxes of this kind are generally “regressive in nature, undermining the fundamental concept of tax equity.”

The Legal and Human Rights Centre (LHRC) filed a court case challenging the new levies.

A few days after the levy came into effect on July 15, the Tanzania Mobile Network Operators Association (TAMNOA) said the business has dropped drastically, therefore asking government to amend the new charges.

The government responded to these complaints by first announcing in late July that possible changes to the levy were under discussion, and President Samia Suluhu Hassan directed the Minister of Finance and Planning, Dr Mwigulu Nchemba and his Communications and Information Technology counterpart Dr Faustine Ndugulile to review mobile money transaction charges.

Then, at the end of August, the Ministry of Finance and Planning released a statement saying Dr Nchemba had signed the amendments of the Regulations for Electronic Transactions Levy for 2021 with a view to reduce the rates by 30%.

Business leaders welcome 2021-22 budget
Finance and Economic Planning minister Mwigulu Nchemba in June tabled the TSh 36.3 trillion budget before Parliament, with a bundle of fiscal measures that business associations say contain promising prospects. A slightly-revised budget was approved by parliament two weeks later, with a value of TSh 36.6 trillion.

Headline measures in the budget include a cut in PAYE from 9% to 8% for the lowest taxable band, cuts on various import tariffs and abolition of VAT on imported metals and raw materials.

Confederation of Tanzania Industries (CTI) policy specialist Frank Dafa said the budget generally brought relief to the manufacturing sector and the move could boost investment and increase job opportunities.

“There are significant improvements in the taxes and levies of employers and manufacturers. So the relief provided will stimulate industrial growth,” said Mr Dafa, adding that the abolition of the 15% additional import duty on industrial sugar was commendable. The local manufacturers have been complaining about the requirement which left their billions of shillings in the hands of the government due to delayed refunds.

Tanzania Bankers Association (TBA) chairman Abdulmajid Nsekela echoed the sentiments, saying that it was a relief budget. He said if the budget would be implemented accordingly it would create conducive environment for business, translating into more opportunities for banks to provide finance.

Nevertheless, CEO Roundtable chairman Sanjay Rughani said “a deeper look on the impact from the newly introduced taxes on mobile money transactions plus daily levy on SIM card is necessary as it can constrain the financial inclusion agenda and can have other implications.”

by Ben Taylor

A Samia Stimulus
Among the many announcements and shifts in direction brought in by the new President, Samia Suluhu Hassan, is a new focus on encouraging investment and stimulating economic growth. She signalled this first when speaking at the swearing-in ceremony for new permanent secretaries on April 6 and then again in her first State of the Nation address to parliament on April 22.

“We intend to focus more on economic growth,” she told MPs. “We will continue the good work achieved during the previous administrations, change where necessary but with a view to promoting efficiency and productivity, guided by the national, regional and party manifestos.”

“Last year, our nation managed to enter the middle-income category where the per capita income increased to $1,080 from $1,036. It is a great achievement, but more effort is needed to accelerate the economy,” she added.

Framed as a package of measures to strengthen the country’s economic recovery from the effects of the global Coronavirus pandemic, the President spoke at length on the need to regain investor confidence. She noted that investors have been complaining about Tanzania’s unpredictable investment climate, hostile tax collection tactics and bureaucracy, saying the situation would change with her at the helm as Tanzania’s sixth president.

“The government will be taking specific steps to promote investment by looking into investment policies, laws, and regulations, remove clauses that are hampering smooth investments, including unpredictable policies, an unstable tax system and unnecessary bureaucracies,” she explained.
“The sixth phase government will take an uncompromising approach on this, and we will start with the blueprint (for the improvement of Tanzania’s business climate, which was approved in 2018). Issuance of permits and licences will be streamlined, and so will the process of issuance of land to investors.”

Under her administration, President Hassan said, the tax collection would focus on compliance instead coercion and intimidation. In partnership with the Tanzania Private Sector Foundation (TPSF), the government plans to put in place a system through which members of the private sector can forward their complaints directly to the government.

She added that the government will strengthen the Foreign Affairs ministry to drive investment. “Economic diplomacy will be our emphasis,” she stressed, saying the country’s relations with the outside world would now hinge on economic partnerships.

World Bank assesses the economic impact of the Coronavirus in Tanzania
Tanzania’s economy has fared relatively well under the Coronavirus pandemic, but still registered its first decline in per capita GDP for over 25 years, according to the latest Tanzania Economic Update, published by the World Bank in February 2021.

Titled “Raising the Bar: Achieving Tanzania’s Development Vision”, the report noted that Tanzania’s economy had suffered much less than its neighbours under the pandemic, but that it had still suffered. “The real GDP growth rate fell from 5.8% in 2019 to an estimated 2.0% in 2020, and … the global economic slowdown has adversely affected export-oriented industries, especially tourism and traditional exports, and caused a drop in foreign investment.”

A survey of 1,000 small and medium enterprises in Tanzania in June and July 2010 found that an estimated 140,000 formal jobs were lost and another 2.2 million non-farm informal workers suffered income losses. “Tanzanians employed in informal non-farm microenterprises tend to be especially exposed to economic shocks, as they often have limited savings to draw on in a crisis,” said the report. “Firms reported an average decline in sales of 36%, which has jeopardized the solvency of more than three-quarters of small and medium enterprises. Most affected firms have not benefited from any type of government support.”

“Although the government did not impose stringent mobility restrictions, the pandemic prompted firms and consumers to adopt precautionary behaviour, hindering domestic economic activity. Meanwhile, steep declines in production, consumption, and imports have significantly reduced fiscal revenue.” The result, according to the report, is that an additional 600,000 people could fall below the poverty line.

The report’s authors cautioned that the future of both the pandemic and the national economy remain highly uncertain. In particular, they noted that without quality information on the state of the outbreak in Tanzania, it remains difficult to plan and implement effective policies, both in terms of public health and managing the economy.

The report also warned that the country’s much-cherished attainment of lower middle income status (LMIS, officially achieved in July 2020) could be fragile. “Over the past 10 years, 23 countries have fallen from middle- to low-income status or from high- to middle-income status. … As the COVID-19 pandemic continues to depress global economic activity, Tanzania will need to endure an indefinite slump in external demand regardless of the effectiveness of its domestic health response.”

This fragility is also linked to the country’s unusual combination of middle-income status with persistent high levels of poverty. For countries newly achieving LMIS, the average poverty rate based on the international extreme poverty line is 30%, while Tanzania’s extreme poverty rate remains close to 50% percent. “Rapid population growth, slow and uneven job creation, low levels of education, and limited access to educational and employment opportunities, especially among women and girls, have reduced the inclusiveness of Tanzania’s economic expansion, blunting its effect on poverty reduction,” argues the report.

2021-22 Budget
The total value of the national government budget for 2021-22 will be TSh
36.23 trillion (USD $14bn), according to the budget framework present by Finance and Planning Minister, Dr Phillip Mpango to parliament on March 11. This represents an increase of 3.9% (TSh 1.35tn) over the 2020­21 budget, slower than the increase in previous years, and comparable to both the World Bank’s latest estimate of the rate of GDP growth (4.5% in 2021) and to the rate of inflation (3.7%).

Of this amount, TSh 26 trillion will be sourced locally, including TSh 22 trillion raised by the Tanzania Revenue Authority (TRA). Development partners will provide TSh 2.9 trillion in grants and concessional loans, representing 8% of the total. The government will source another TSh
7.3 trillion in form of domestic and foreign loans.

“It is the government’s view that implementation of the 2021/22 development plan and budget will stimulate economic growth, improve delivery of social services, create job opportunities as well as development for people and the nation at large,” said the minister.

The government, according to Dr Mpango, will focus much of the development budget on executing the ongoing priority projects before embarking on new ones. This includes the Julius Nyerere Hydropower Station (TSh 1.3 trillion), currently under construction at Stiegler’s Gorge on the Rufiji River, ongoing construction of the Standard Gauge Railway (TSh 3.2 trillion), and construction of passenger terminals and the purchase of aircraft for Air Tanzania (TSh 1.5 trillion).

by Ben Taylor

President Magufuli’s economic goals, and a charm offensive for investors
President Magufuli emphasised economic matters in his inaugural speech to parliament following his re-election in October. Over half the speech was devoted to economics, reflecting a new emphasis.

The President focussed on the need to manage the economy well so that the country attains higher economic growth, together with an emphasis on ensuring that growth benefits citizens. The aim is to achieve 8% growth, well above historic growth averages in sub-Saharan Africa of 4%, and above 5.5% growth projected for Tanzania in 2021.

Other goals listed by the President include the creation of eight million jobs, stabilisation of the shilling, keeping inflation in single figures, and reducing the interest rate.

The combination of two targets – 8% growth and 8 million jobs – was termed the 8-8 economic agenda by President Magufuli. The President also emphasised the importance of attracting both local and foreign investment in order to achieve these goals. As part of the new emphasis, the ministerial docket with responsibility for promoting investment and the Tanzania Investment Centre (TIC) have both been moved from the Prime Minister’s Office to the President’s Office.

Prof Kitila Mkumbo, the new Minister of State in the President’s Office (Investment), took this as his cue to launch a charm offensive to improve relations with existing investors, and to attract new investors. “It’s a new dawn for investors in Tanzania,” said the Minister. “We will continue to work closely with the private sector in promoting, facilitating, handling and developing investments in Tanzania. We recognise the private sector as an engine for economic growth and a valued and dependable partner in our endeavour to achieve the 8-8 agenda of economic growth and jobs creation.”

“We will seek to constantly and consistently engage and dialogue with members of the private sector and their member-based associations on how best to promote investment in Tanzania. We will openly and transparently listen to and welcome their ideas; and we will implement good and evidence-based ideas with a view to promoting investments in our country. In the same spirit, we express our commitment to continue working responsibly and in a friendly manner with development partners and like-minded civil society institutions in investments promotion and facilitation, fostering business enabling environment, as well as private sector development – and economic development in general.”

Prof Mkumbo tasked TIC to solve issues of nepotism and unnecessary delays when an investor wants to invest in Tanzania. He reiterated President Magufuli’s target that it should not take more than 14 days in enabling an investor to invest in Tanzania.

“We need to change our mindset. Officials working with investment facilitation institutions should not see themselves as bosses to investors, we should look at them as partners and your duty is to facilitate,” he said.

The Minister said the government’s key strategic approach for promoting investments in Tanzania will be based on implementing the Blueprint for Regulatory Reforms to Improve the Business Environment in Tanzania, which has been approved by the government. He promised to “embrace the use of the World Bank’s Ease of Doing Business Reports as one of the key feedback mechanisms on our progress,” aiming to raise Tanzania’s ranking in the World Bank’s Ease of Doing Business Index to at least 100.

Tanzania’s 2020 ranking on the index was 141, just below Zimbabwe. In comparison, Rwanda ranks 38th, Kenya 56th, Zambia 85th and Uganda 116th. Tanzania has never ranked higher than 127th.

“Additionally, we will put a sustainable feedback mechanism with investors and members of the business community so as to garner their views and assessments on how we are doing – and where government action is mostly needed,” said the Minister.

After several years of strained relations between government and business in Tanzania, the business community responded with cautious positivity to the President and Minister’s remarks.

Investors and business operators have complained in recent years that they have been compelled to deal with multiple regulatory bodies and other bureaucracies. This was compounded, in their view, by multiple taxes, inordinately high tax rates and lack of adequate information on investment opportunities, as well as unpredictability of extant policies and regulatory frameworks.

World Bank cautiously optimistic on Tanzania’s economic prospects in 2021
The World Bank has upgraded its projection for Tanzania’s economic growth this year, forecasting that growth would reach 5.5% in 2021, up from its earlier estimate of 2.5% for last year.

Tanzania’s real GDP had been growing at an average of 7% in the last decade. But the government lowered the projections for 2020 to 5.5% from the initial projection of 6.9% due to factors, including Covid-19, heavy rains that resulted in floods and destruction of transportation infrastructure, and delayed implementation of some projects.

Sectors like tourism were hard-hit by the pandemic as countries across the world introduced travel restrictions to control spread of the pandemic. At the same time, however, earnings from mining exports rose due to the rising price of gold in the world market during the pandemic.

Vodacom / Vodafone criticised for conspiring to undermine freedom of speech
Vodacom Tanzania, part of the Vodafone Group, a multinational company headquartered in Britain, has come in for criticism after allegations the company “caved to a government demand to filter and block messages containing certain terms associated with the country’s main opposition party”.

The issue arose when opposition supporters realised that some – but not all – of their text messages were not reaching their intended recipients. They noted that it appeared that messages containing the name of opposition Presidential candidate, Tundu Lissu, were being blocked.

Nic Cheeseman, Professor of Democracy at the University of Birmingham criticised both Vodacom Tanzania and the Vodafone Group for acquiescing in efforts to undermine credible elections. “Despite proudly proclaiming their commitment to promoting ‘inclusion for all’, ‘operating responsibly’ and contributing to the UN SDGs on their website, a Western company aided an authoritarian leader to undermine freedom of speech,” he wrote.

“Despite aiding and abetting an increasingly authoritarian government,” he added, “neither Vodacom Tanzania nor its parent group Vodafone Plc, has been forced to explain its behaviour. Perhaps even more tellingly, they have not even felt the need to apologise.”

“Instead, Vodacom Tanzania recently intensified its efforts to cosy up to the ruling party, appointing Thomas Mihayo –a known Magufuli ally, and a member of the National Electoral Commission (NEC) that just signed off on a flawed election – as its new Board Chairman.”

by Ben Taylor

Tanzania formally attains Middle Income status

In July, the World Bank officially promoted Tanzania to the list of lower-middle income countries, recognising that the country has attained an annual per capita income of above USD $1,035. The World Bank calculation was based on economic data for 2019 and found that per capita GNI had increased from $1,020 in 2018 to $1,080 in 2019.

This is five years ahead of the official government target of achieving middle income status by 2025. According to William G. Battaile, the World Bank’s Lead Country Economist, “the upgrade is the product of the country’s strong economic performance of over 6% real gross domestic product (GDP) growth on average for the past decade”.

Tanzania joins 51 other countries on the lower-middle income list, including Kenya, Zambia, Nigeria, Ghana, Egypt and India, which includes countries with GNI per capita between $1,036 and $3,995.

Graduating to middle income status does not mean Tanzania will necessarily lose access to concessional financing from the World Bank. GNI per capita informs the decision on whether or not a country is eligible for loans from the World Bank’s concessional lending arm, but it is not the only indicator. Other factors, such as a country’s macroeconomic prospects, creditworthiness, risk of debt distress, vulnerability to shocks, institutional constraints, and levels of poverty and social indicators are also used to establish a country’s eligibility.

“I congratulate all my compatriots for this historic achievement. We had envisaged to achieve this status by 2025 but, with strong determination this has been possible in 2020,” wrote President Magufuli in a tweet.

Hassan Abbasi, the chief government spokesperson, explained that “discipline in financial expenditure and the prevailing peace and tranquillity also helped the country to earn the middle-income status.”

Economic data questioned
The Economist magazine published an article in July that questioned whether Tanzania’s economic data could be relied on. “The growth numbers do not stack up. From about 2017 several other indicators, from tax revenue to lending to the private sector, have slowed sharply. The IMF raised doubts last year when it said there were ‘serious weaknesses’ in the growth data. It pointed out that public-sector wages, lending to the private sector and imports were all falling while tax revenue was growing only weakly. The authors made it clear that the official 6.8% growth figure for 2017 was not credible. Publication of the report was blocked by the Tanzanian authorities. (The Economist has seen a copy.)

The IMF did later back down. It now reports Tanzania’s growth as 6.8% in 2017, 7% in 2018 and 6.3% in 2019.

However, The Economist notes that the IMF’s concerns have not disappeared. Performing their own analysis of official Government of Tanzania data, the magazine found several grounds to question official growth rates that have remained very steady at 6-7% in recent years. According to the magazine, tax revenue has shrunk in real terms, public-sector wages “crept up” by 2% in 2019, lending to the private sector by just 4%, the amount of money circulating edged up by only 2% in 2019, foreign direct investment has almost halved since 2013, exports and imports both fell between 2012 and 2018, and imports of machinery and construction equipment fell between 2015 and 2018.

“The growth numbers are out of line with almost everything else we are seeing out of Tanzania,” says Justin Sandefur of the Centre for Global Development, a think-tank.

The government says the economy will grow by 5.5% in 2020. That would, according to The Economist, “probably make Tanzania the best-performing economy in the world”. The IMF predicts 1.9%. [See below]

Covidonomics
With the true impact of Coronavirus on Tanzania remains impossible to verify, the likely economic impact is also uncertain. The discrepancy between the IMF and government growth projections in part reflect this uncertainty.

The African Development Bank (AfDB), lowered its growth forecasts for Tanzania as a result of the pandemic, though only from 6.4% to 5.2%. In contrast, the bank reduced growth forecasts for other east African countries by a much greater extent: from 6% to 1.4% in Kenya, from 6.5% to 2.5% in Uganda, and from 3% to -5% in Burundi.

“Real GDP growth in Tanzania will benefit from increased prices of gold, a major national export,” said an AfDB the report. Gold prices have reached above $1,900 an ounce, up 50% from May 2019, with the precious metal benefitting from its ‘safe haven’ status as the coronavirus outbreak triggered global economy fears.

The price surge partly contributed to making gold Tanzania’s leading foreign exchange earner, overtaking tourism which has been hit hard by the Covid-19 global pandemic.

According to the Bank of Tanzania, gold export earnings increased by 47% to $2.5 billion in the year to 31 May 2020. This in part relates to the long-awaited resolution of the dispute between Acacia/Barrick and the government of Tanzania that had slowed production and exports from some of Tanzania’s biggest gold mines. (See Energy and Minerals section).

The Minister for Finance and Planning, Dr Philip Mpango has also argued that the government’s decision not to impose any form of lockdown in response to the Coronavirus pandemic will lessen the economic impact.

“The country’s decision to keep the economy open has offered a major relief to the private sector in terms of business resilience”, said Peter Mathuki, Executive Director of the East African Business Council.

A budget for complicated year, and for managing debt
With an election due in October and a global pandemic causing havoc to lives and livelihoods across the globe, government budget calculations have been even more complicated than ever this year.

Nevertheless, the main headline in the budget presented to parliament in June is that the government plans to spend 30% of the annual budget on debt payments – a total of TSh 10.5 trillion (approximately USD $4.5bn) over the next year. These figures represent a considerable increase over 2019, when budgeted debt payments totalled TSh 6.2 trillion, or 18.7% of the total budget.

The parliamentary budget committee acting chairman, Mr Mashimba Ndaki, said the committee’s opinion was that despite commendable efforts to service verified debts, payment should be expedited to avoid expensive penalties. “Servicing the debts will enable service providers to clear loans secured from financial institutions in order to provide services to the government. This is mostly important at these moments of Covid-19,” he said.

Beyond this headline, the budget continued to extend a package of measures aimed at promoting investment and spurring economic growth, building on a business environment improvement plan that began in FY-2019/20.

Under the theme “Stimulating the economy to safeguard livelihoods, jobs, businesses and industrial economy,” the government foresees a rise in spending and the budget will likely have a deficit of 2.6% of GDP in FY-2020/21. It is also projected that in FY-2020/21 tax revenues will account for 12.9% of GDP from 12.1% in FY-2019/20. These targets call for reforms to improve tax administration.

Reforms included in the budget include creating a business-friendly environment for taxpayers, enhancing the capacity of tax adjudication forums and improving the ability to enforce tax laws. These reforms are in part a response to a common complaint amongst businesspeople that some officials of the Tanzanian tax administration were treating businesses unfairly. They also include the abolishment or reduction of sixty (60) fees and levies that were charged by Ministries Departments, Agencies and Regulatory Authorities.

“The year 2019/20 is ending with unexpected circumstances resulting from the destruction of transport infrastructure caused by heavy rains/floods across the country as well as the Covid-19 pandemic. The government will allocate more resources to the health sector in order to fight against the Covid-19 and support other most affected sectors,” told Parliament.

Low income earners will have a reason to smile as Dr Mpango is raising the Pay-As-You-Earn threshold from TSh 170,000 to TSh 270,000 so as to give employees some disposable income. And savings groups will now only be required to pay income tax when their gross revenues exceed TSh 100 million per year, up from TSh 50 million.