by Ben Taylor

National budget endorsed
Members of Parliament (MPs) overwhelmingly endorsed the 2017/18 national budget: of 355 votes cast, 260 voted to approve the budget and 95 voted against. All but two opposition legislators voted to oppose the budget.

Finance and Planning Minister Philip Mpango announced the abolition of Value Added Tax (VAT) on hunting fees, licences and permits in order promote business in the sector. He also relieved private schools of skills development levy and fire extinguishing fees, expressing the hope that school owners will reduce their fees and enable more Tanzanian children to access private education. Further, industrial investors will no longer have to pay for the Environmental Impact Assessment (EIA) fee, said the Minister.

“The property tax is charged on permanent structures in cities, municipalities, towns and townships…villages and mud houses will not be taxed,” he clarified, adding that houses for people aged over 60 years are also exempted.

During the debate, a proposed property tax of TSh 10,000 and TSh 50,000 per ordinary house and storied buildings, respectively, were decried, with legislators describing the taxing of rural mud-built and grass-thatched houses as unfair and unjustifiable. The Minister clarified that “the property tax is charged on permanent structures in cities, municipalities, towns and townships … mud houses and houses in villages will not be taxed.” He added that houses for people aged over 60 years are also exempted.

Dr Mpango also defended the replacement of the annual motor vehicle licence fee with a levy of TSh 40 per litre on fuel, saying the move will relieve motorists with the burden of fee, which is costly. He dismissed claims by many MPs that taxing fuel was burdening the poor for the benefit of motorists, mostly urban dwellers, saying the collected taxes will be used to finance development projects and social service provision for the benefit of all, rural dwellers inclusive.

Deputy Minister for Finance, Dr Ashatu Kijaji said the government was committed to fulfilling President John Magufuli’s campaign promise to disburse TSh 50m to each village, saying already the State has already allocated about TSh 120bn for the purpose.

“We remain committed to release this money but there are issues that must be tackled…we are currently working on firm systems to support the distribution of the money,” said Dr Kijaji.

The Minister of State in the President’s Office, Public Service Management and Good Governance, Angela Kairuki said she would permanently verify the authenticity of public servants to ensure that not a penny from government coffers will be paid without proper justification.

“Let me be referred to as minister of verification, if necessary,” said the Minister, declaring the introduction of performance contract system for all executives in the public sector.

The opposition camp in parliament took issue with the budget, saying it contained serious, unexplained discrepancies and that it was crafted on the basis of an ambitious but unrealistic revenue assumptions. The Shadow Finance and Planning Minister, Ms Halima Mdee, is unable to attend sessions in parliament until February 2018 following a ban issued by the speaker. Her response to the budget was therefore issued to journalists.

Miss Mdee said the presented budget seems to be bent on killing the Decentralisation by Devolution (D by D) plan which seeks devolve powers from the central to the local government authorities. D by D started out of the admission that the central government had failed to do everything. Unfortunately, the central government is now grabbing the powers of collecting property tax and city service levy away from local government authorities,” said Ms Mdee.

Earlier, when tabling the budget, Mr Mpango acknowledged the concern of the increasing frequency of businesses closure in Kariakoo, Dar es Salaam and in other cities. He said figures from the tax authority, TRA, showed that from July 2016 to March 2017, a total of 7,277 businesses were shut down. “This trend is discouraging since residents lose jobs and incomes and the government loses tax revenue, while the economy slows down,” he said.

He told parliament that factors contributing to business shutdown include stiff business competition, weak business management, increasing business operating costs attributed to transportation, taxes and levies; and non-compliance to business rules and principles. He also reminded the house that it is worth noting that business owners have become aware of the need to report to TRA as soon as they cease their business operations in order to avoid accumulation of tax liabilities, and that a much larger of new businesses were registered during the same period.

He compared this situation to that of China since the 1980’s, quoting from a book on the subject: “Businesses at the time were like ships, each raised up and carried along by the sheer momentum of the wave. Some, however, soon capsized and were swallowed up, while most drifted along, going with the flow. Others crashed against barriers in the sea or got stranded on deserted islands. Only a few rose atop the crest of the wave and survived, eventually sailed towards new lands.”

The Minister refuted accusations that the government was anti-business, reassuring business leaders that the fifth phase government recognised business as the engine of the economy and recognised the contribution of business to national development. He pointed to the government’s efforts to maintain economic stability, peace and security, reduce regulation and to development national infrastructure as evidence of the government’s pro-business credentials. He also reminded TRA officials to act fairly and in accordance with the law when dealing with tax payers. (The Citizen, Daily News)

Case against Manji heard at Muhimbili National Hospital
Kisutu Magistrate’s Court in Dar es Salaam briefly relocated to Muhimbili National Hospital (MNH) in July, where prominent businessman Yusuph Manji and three others were charged with seven counts relating to military uniform fabrics worth over TSh 200m. Other charges relate to illegal possession of government stamps, which are three rubber stamps of the TPDF bearing different addresses and two motor vehicle plate numbers of government offices suspected to have been unlawfully acquired. Manji is charged alongside three officials with Quality Group, the firm he heads.

Manji has for several months been a patient of the Jakaya Kikwete Cardiac Institute under police supervision after initially being arrested on immigration-related charges.

It is alleged that on June 30, the accused persons were found by a police officer in possession the fabric, stamps and number-plates without lawful authority. The prosecution alleges that this was prejudicial to the safety or interests of the United Republic of Tanzania.
Manji and his co-accused were not required to enter a plea at this stage.
(Daily News, The Citizen)

by Ben Taylor

Jim Kim in Tanzania: World Bank to lend $2.4bn
The World Bank President, Dr Jim Yong Kim, visited Tanzania in March, promising $2.4bn worth of loans for infrastructure projects in Tanzania over the next three years. As part of a ceremony to lay a foundation stone for a new “flyover” interchange at Ubungo in Dar es Salaam, Dr Kim and President Magufuli witnessed the signing of three contracts worth a total of $780m – for improvements in transport infrastructure, water supplies in Dar es Salaam and urban development projects elsewhere in the country.

Further projects at various stages of planning include finance for upgrading port services and rail infrastructure in and around Dar es Salaam, and for projects in the health, education, agriculture and energy sectors.

“The World Bank has been a true friend in pushing our development agenda; they issue long term loans with an affordable interest rate of just 0.5 per cent,” said President Magufuli.

Dr Kim praised President Magufuli for the purge on corruption and his vision of development towards the Tanzania Vision 2025 which seek to transform the country into a middle-income economy. He added that the $2.4bn figure represented an increase of half a billion dollars over the previous three-year period. (Reuters, Daily News)

Uncertainty in cement
President Magufuli took steps to resolve the energy problems facing the Dangote cement works in Mtwara, though many questions remain unanswered and uncertainty around energy supplies for the sector looks set to continue for some time.

The dispute arose last year after the government proved unable to fulfil the promises it had made to Dangote Group with regard to supplies of gas to the factory, and then took issue with Dangote’s decision to import coal from South Africa – banning coal imports in response. The factory later suspended operations, citing “operational issues”, putting several thousand jobs at risk.

In March, the President directed that Dangote Group should be allowed to carry out its own mining activities to source coal locally, and instructed the National Development Corporation (NDC) to allocate the firm a section of Ngaka coal mine at Mbinga, in Ruvuma region. “You should therefore give Dangote a piece of land at the mine so that he can produce coal for his factory,” said President Magufuli, referring to Nigerian billionaire Aliko Dangote, who was in attendance. A week later, the Ministry of Energy and Minerals yesterday handed a 10-square-kilometre plot in Ngaka to Dangote.

Dr Magufuli also directed the Minister of Energy and Minerals, Prof Sospeter Muhongo, to make sure that natural gas was directly delivered to Dangote Cement Company as soon as possible. It doesn’t make sense that natural gas is transported to Dar es Salaam, some 500 kilometres away, and not to Dangote Cement, which is only about 10 kilometres from where the gas is produced,” he added.

However, a number of other cement companies have similar issues with supplies of energy, and the ban on imports of coal. ARM Cement Ltd, operating in the country as Maweni Limestone Limited (MLL) was reporting as saying it could well be forced to shut down its two plants in Dar es Salaam and Tanga after failing to obtain enough coal locally. According to MLL Chairman, the firm had entered into an understanding with Tancoal Energy Ltd to be supplied with 350 tons of coal per day without fail, up to February this year, but Tancoal was able to supply only 5,000 tons of coal in three months, against MLL’s total requirement of 17,000 tons per month.

Further, these other cement companies point out that giving Dangote the opportunity to mine coal was at best a temporary solution: “Dangote has targeted natural gas and that is why he constructed the plant in Mtwara. Once he’s connected with gas he will no longer be interested in heavy coal mining,” argued a senior manager of a large local cement company. They called for the import ban to be lifted until local sources had the capacity to meet demand.

President Magufuli agreed that Tancoal appeared unable to meet the demand. “Under the current arrangement, it is very difficult to ensure that the investor gets enough coal for cement production because of poor production capacity,” he said, and called for an investigation into the relationship between Tancoal and NDC.

Earlier, in January, the Tanzania Petroleum Development Corporation (TPDC) promised to provide the Dangote works with a connection to the natural gas pipeline by the end of the year. A ceramics factory, a food processing plant and the Coca Cola plant in Dar es Salaam were also promised connections this year, which would bring the number of connected factories to 41. (The Guardian, The Citizen)

Competing interpretations of IMF review
The release of a report by the IMF on the state of Tanzania’s economy noted both strengths and weaknesses in the economy.

“Tanzania’s macroeconomic performance remains strong. Economic growth was robust during the first half of 2016 and is projected to remain at about 7% this fiscal year. Inflation came down below the authorities’ target of 5% and is expected to remain close to the target, while the external current account deficit was revised down on account of lower imports of capital goods,” said an IMF statement. The statement also welcomed President Magufuli’s anti-corruption drive and tax revenue collection measures. “If sustained, [this] will provide a good foundation for the envisaged scaling up of infrastructure investment, starting with the 2016/17 budget.”

However, the statement also noted that President Magufuli’s approach to the management of the economy faces four key challenges that risk undermining the country’s macroeconomic stability. It listed these as a tight stance on macroeconomic policies, the slow pace of credit growth, slow implementation of public investment, and private sector uncertainty about the government’s new economic strategies.

This mixed report led to varied headlines. “IMF hails Dar over economic feat,” said the state-owned Daily News. In contrast, The Citizen went with a very different line: “JPM’s policies may hurt economy: IMF.”

Vodacom IPO
Vodacom Tanzania began an initial public offering (IPO) in March, the first in a series of mobile network listings expected on the Dar es Salaam stock exchange. The company plans to raise TSh 476 billion ($213 million) in an offering of 560 million shares at TSh 850 each, according to a prospectus issued to brokers, expects to list on the Dar es Salaam Stock Exchange in May.

This follows a law passed in 2016 requiring phone companies to sell at least 25% of their businesses to the public to boost local ownership.
“Vodacom Tanzania’s IPO valuation looks rich at a first glance,” said London-based investment firm, Exotics Partners. Nevertheless, analysts predict high demand for the shares. CEO of Zan Securities, Raphael Masumbuko said would-be investors were waiting for the IPO since the telecom Act was passed. “People from all walks of life are waiting for this IPO. We have been in constant pressure as to when Vodacom IPO will come out. The firm self-sales since it’s a household name,” he said.
With 31% of the telecoms market and 12.4 million active subscribers, Vodacom is the market leader in Tanzania. The country had over 40 million tele-subscribers by the end of 2016.

2,400 dollar millionaires in Tanzania Tanzania added an estimated 200 new dollar millionaires in 2016, according to a report by Knight Frank, bringing to the total number to around 2,400. The report is based on responses from 900 of the world’s private bankers and wealth advisors who manage over 10,000 clients with a combined wealth of around $2 trillion. The report also stated that Tanzania currently has two dollar billionaires, and predicted that this number would double in the next ten years.

by Ben Taylor

Hot debate on Tanzania’s economic situation
Questions were raised in parliament about an apparent slowdown in Tanzania’s economic growth, particularly in some key sectors. Data from the National Bureau of Statistics showed a considerable decline in the rate of growth of the construction sector in particular, with growth having slowed to 4.3% in the first quarter of 2016 compared to 23.2% in the same period of 2015. Transport and manufacturing saw smaller declines in the same figures, from 14.5% to 7.9% and 9.9% to 7.4% respectively.

“Some transport companies have reportedly cut their operations by up to 40%, while others have relocated to neighbouring countries because of uncertainty in the business environment in Tanzania. Is the government aware of this? What steps is it taking to address the situation?” asked Freeman Mbowe, Chadema party chair.

Prime Minister Majaliwa replied there was no concrete evidence the economy has not been performing well. He told Parliament that for the government to come up with a definitive answer it would first conduct an in-depth study. He added that the government was already taking a number of measures to improve the situation at Dar es Salaam port, including seeking the advice of a number of countries that were operating successful ports. He further noted further that the decline in cargo was partly a global phenomenon linked to lower oil and gas prices in the world market.

Bank of Tanzania governor, Prof Benno Ndulu, said there was no slowdown, but rather a re-distribution of money away from the pockets of corrupt people. “Nationally, there is enough money in circulation to serve and implement various public projects for the interests of all the people,” he stated, explaining that the government had plugged loopholes in illicit or cheap means of getting money, which was why those who had previously been taking advantage were now crying out for money.

On executing the government expenditures for the first six months, the governor said there have been difficulties in obtaining foreign aid due to the world economic crunch, adding, however, that the cost cutting and tax collection measures helped to fund various projects.

Meanwhile, the IMF issued a coded note of caution to the Tanzanian government to prevent national debt from growing out of control. “Careful prioritisation and implementation of expenditures will be required to ensure that spending does not exceed available resources and to avoid domestic arrears accumulation,” said IMF deputy managing director Min Zhu after the conclusion of the latest country review for Tanzania.

“Creating fiscal space for higher infrastructure investment through sustained efforts to raise domestic revenue and increasing spending efficiency, particularly in public investment, is imperative,” Zhu added.

The government plans to raise spending by 31% to TSh 29.53 trillion in its 2016/17 fiscal year budget, focusing on infrastructure and industrial projects.

Prof Ndulu said that as of June, this year, national debt had reached US$ 21bn, but that it is projected to drop. He noted that Tanzania currently uses TSh 20 in every TSh 100 of its revenue collected on debt payments, a level which he said was relatively low. “It is contrary to some reports that the national debt has reached dangerous levels,” he insisted. (The Citizen, The Guardian, Daily News)

Suspension of operations at Dangote cement: a symptom of Magufuli’s economic dilemmas?
The recent temporary suspension of production at the Dangote cement works in Mtwara, less than six months after the plant was opened, has been described as a sign of difficult times ahead for Tanzania’s economy. According to media coverage, promises made under the presidency of Jakaya Kikwete relating to tax exemptions and the supply of natural gas to power the plant have either been withdrawn or failed to materialise.

“Before Kikwete left, the gas issue hadn’t been resolved but there were promises made that Dangote would get gas at a cheaper price,” a source familiar with the company’s business in Tanzania told Quartz, an online magazine.

Dangote plugged the gap in their power supplies by importing coal from South Africa, until the Tanzanian government banned coal imports in response, arguing that domestic coal production should be supported.

“We don’t want to hear that the price of imported coal from South Africa is cheaper than the price of coal from Mchuchuma to Mtwara,” said Medard Kalemani, Deputy Minister for Energy and Minerals.

This forced Dangote to rely on generators which sent operational costs soaring. Operations at the plant were suspended in November.

President Magufuli then became personally involved and reached a last-minute deal with Dangote in mid-December to keep the factory in the country and save thousands of jobs that were at risk if it closed.

The president has taken a more hard-line approach to tax incentives than his predecessor, leading to concerns among some analysts and investors that Tanzania could lose out on future investment decisions as a result.

The previous administration has been accused of giving Dangote Cement generous incentives through the Tanzania Investment Centre, including land for the factory and tax exemptions on importation of diesel and machinery. According to the East African, other potential investors in the cement industry are demanding similar incentives, which the government is finding hard to square with their commitment to reducing tax exemptions.

“If you’re told one day, out of the blue, that you’re no longer exempt from VAT, not only does it throw a spanner in your current business, it also affects your confidence about your future investment decisions,” said Anna Rabin, an investment analyst. “Investors feel that the want for upfront revenue collection is to the detriment of the potential to secure future investments,” she added. (Quartz, The East African, The Guardian)

EU Economic Partnership Agreement (EPA) still contested
The debate prompted by the Tanzanian government’s decision earlier in 2016 to withdraw from a proposed Economic Partnership Agreement (EPA) between the East African Community (EAC) and the European Union (EU) continues to rage.

In September, the EU parliament extended Kenya’s current preferential access terms for an additional four months, to give Kenya time to persuade their Tanzanian counterparts of the benefits of the proposed agreement. Without the EPA, as a middle-income country, Kenya is set to lose their valuable trade terms with the EU – Kenya’s largest export market – worth an estimated $100m each month, and linked to around 4 million jobs.

As a shared customs territory, all the six EAC members must sign the EPA for it to be implemented in the region. Tanzania has refused to sign, saying the agreement would have serious consequences for its revenues and the growth of its industries. Burundi has also declined to sign.

Former Tanzanian President Benjamin Mkapa has previously personified the country’s resistance to the trade deal. In November, the Tanzanian parliament added their support for his arguments with a near unanimous vote to block the country from signing the EPA.

Opposition MP, Zitto Kabwe, referred to figures from Eurostat and the International Trade Centre (ITC) to make the case that Tanzania would lose out heavily under the proposed deal. “Losses will mainly be caused by contractual demands requiring Tanzania to scrap tax barriers by 90 per cent on non-agricultural products from the EU and by 10 per cent on agricultural products. This means that Tanzania will remain a supplier of raw material and a market for value added products from the EU.” Kabwe added that Tanzania would lose anticipated revenue following removal of value added tax (VAT) payable as import duty to products from the EU. “We should build internal capacity first. World Trade Organisation conditions allow us access the EU market without taxation,” he concluded.

Kenyan Vice President, William Ruto, said the agreement had given the EAC a lot of credibility and had assisted the region to attract investments He said backtracking on the agreement would erode the credibility the region has built over the last 20 years. “This will negatively affect prospective trade arrangements with other countries,” he said.
(The Citizen, The East African)

Race for mobile phone networks to list on Dar stock exchange
Tanzania’s leading mobile phone networks were scrambling to meet a December 31st deadline for mandatory listing on the Dar es Salaam stock exchange (DSE). Vodacom, now under the name Vodacom Tanzania PLC, became in November the first network to submit its application for an Initial Public Offering (IPO). Tigo and Airtel, the second and third largest networks in the country are following close behind, though Tigo admit they are unlikely to meet the deadline.

Under the Electronic and Postal Communication Act of 2010 (EPOCA) and the Finance Act of 2016, all telecoms companies in the country were required to list at least 25 per cent of their shares on the DSE before the end of 2016. It is expected that most such firms will complete the listing requirements in the first quarter of 2017.

Financial experts described the listing of the foreign-backed mobile phone giants on the local stock exchange as a ‘game changer’ in the country’s capital market.

“When a telecom company lists on a stock exchange, its impact is significant. Our nearest example is Safaricom in Kenya, where its listing on the Nairobi Stock Exchange changed the dynamics of NSE to date,” said Moremi Marwa, chief executive officer of the DSE to The Guardian.

“The impact on the DSE will result in almost the doubling of its market capitalisation, which is good and it will of course offer more choices to investors,” said George Fumbuka, chief executive officer of CORE Securities Limited.

“The parent companies of these telecommunications companies are abroad, so when they make profits all the profit goes out of the country,” said a spokesman of the Capital Markets and Securities Authority.
“Through these IPOs, Tanzanians can now own shares in the companies. This means that some of the profits made by the firms will in the near future remain in Tanzania.” (The Guardian)

by Ben Taylor

Tanzania pull-outs of EU-EAC Economic Partnership Agreement, Brexit cited
Tanzania has decided not to sign the proposed Economic Partnership Agreement (EPA), which would have opened up trade between the European Union (EU) and the East African Community (EAC). Dr Aziz Mlima, permanent secretary in the Ministry of Foreign Affairs, made the announcement in early July.

“Our experts have analysed the pact and established that it will not be to our local industry’s benefit. Signing this pact at the moment would expose young EAC countries to harsh economic conditions in post-Brexit Europe,” explained Dr Mlima.

Minister for Trade, Industries and Investment Charles Mwijage said Britain was Tanzania’s key trade partner in Europe. “Internationally, we trade with Britain, China, India and South Africa. When you don’t have Britain in a deal with Europe, what do you have? We have to think it over and this can take any duration to decide,” he said.

The move appears to fit with President Magufuli’s economic policies, which include a greater focus on raising tax revenues and on protecting local industry. A few weeks before the decision on the EPA was announced, the President gave a speech in which he called for imported good to be subject to higher taxes in order to protect local producers.

“We have every reason to protect our industries,” he said. “They generate direct employment for our people and provide our farmers with reliable markets for their produce. The government collects revenue from them and they play a key role in spurring economic development. That is the direction I want to take, and I know the Minister for Industry, Trade and Investment (Mr Charles Mwijage) is here…this is what I want him to do.”

Former Tanzanian President, Benjamin Mkapa, expanded on the decision in an essay published various Tanzanian and regional newspapers.

“If we sign the EPA, we would still get the same duty-free access, but in return, we would have to open up our markets also for EU exports,” he explained. “Tanzania would reduce to zero tariffs on 90% of all its industrial goods trade with the EU i.e. duty-free access on almost all EU’s non-agricultural products into the country. Such a high level of liberalisation vis-a-vis a very competitive partner is likely to put our existing local industries in jeopardy and discourage the development of new industries.”

“As a Least Developed Country (LDC), Tanzania already enjoys the Everything but Arms (EBA) preference scheme provided by the European Union i.e. we can already export duty-free and quota-free to the EU market without providing the EU with similar market access terms.”
Kenya, Rwanda and Burundi were ready to sign the Economic Partnership Agreement (EPA) with the EU, but Uganda indicated that no agreement should be signed without full agreement of all EAC member states. World Trade Organisation rules do not allow countries aligned to a trade bloc to sign up individually.

In the short term at least, Kenya is seen as the biggest loser from Tanzania’s decision, as the country’s middle-income status means Kenya does not currently have the same tariff-free access to European markets that the other EAC members enjoy. Nevertheless, at current growth rates, Tanzania will itself achieve middle-income status within the next couple of years.

Austerity budget
Dr Philip Mpango, the aptly-named Minister of Finance and Planning presented an austerity budget to parliament in June. The budget scrapped a wide range of tax exemptions while increasing taxes on sugar, cement imports and beverages, and doubled down on President John Magufuli’s cost-cutting measures with tight restrictions on ministries’ and departments’ operating costs.

Tabling the TSh 29.54tn (US$14bn) budget for the 2016/17 financial year in Parliament, Dr Mpango introduced income tax on the gratuity that MPs earn after every five years and offered relief to small-scale farmers and other low-income earners by scrapping various “nuisance taxes”.
The budget also aims to support the president’s industrialisation strategy, by increasing import taxes on various manufactured goods, including cement, sugar, corrugated iron sheets, and second-hand clothes and shoes.

Dr Mpango, a former World Bank economist, told the house that in the 2016/17 Budget, TSh 17.8tn (60% of the total) would come from domestic sources, TSh 5.37tn (18% of the total) from domestic loans and the sale of Treasury papers, TSh 3.6tn (12%) from foreign aid and development grants, and TSh 665bn (2%) from local government authorities’ sources. Finally, the government plans to borrow TSh 2.1tn (7%) from foreign commercial sources for infrastructure projects.

Some business leaders and economists reacted to the budget with a note of caution, recognising the value of the budget as a bold attempt speed up industrialisation, but arguing that “too much focus” on the private sector in revenue collection could hit investment.

The decision to target key and fast growing sectors of the economy, particularly telecommunications, banking and tourism, will adversely affect the economy, they argued. Further, they also warned that strong enforcement of cost-cutting measures in the budget could hurt businesses and narrow the tax base.

“The newly introduced taxes will hit the banking and tourism sectors hard. These are key sectors of the economy that have yet to reach their full potential. Imposing 18% VAT on tourism services will only succeed in benefiting our closest competitor, Kenya,” said Ernst & Young Executive Director for Tax, Laurian Justinian [see also Tourism & Conservation section].

Elsewhere in the budget, Dr Mpango said that Tanzania’s economy will grow by 7.2% in 2016, and the inflation rate, at 5.1% in April this year, will remain between 5% and 8%. Domestic revenue will reach 16.9% of GDP in the 2016/2017 financial year, up from 14.8% in 2015/2016.

However, President Magufuli took issue with official inflation figures, arguing that they appear to be at odds with the economic reality on the ground as many Tanzanians complain about the rising cost of living. “[We’re told] Tanzania’s inflation rate has fallen from around 30% in the 1990s to 5%. But is this really reflected in the lives of Tanzanians?” he queried. “We can just celebrate these statistical data, but in reality people might feel that the inflation rate has actually increased to 70%,” the president added.

Volumes down at Dar port, but revenues rise
The Commissioner General of the Tanzania Revenue Authority (TRA), Alphayo Kidata, said revenue from the Port of Dar es Salaam has increased in the last two months despite the burdens of a reduction in trade volumes. He said this after the Tanzania Ports Authority (TPA) reported a decline by more than 50% in the freight transported to neighbouring DR Congo and Zambia.

Kidata cited global economic problems, in particular in China, as the main reason for the reduction in volume, adding that a similar effect could also be seen in Mombasa, Beira and Durban.

However, he stressed that despite the decrease in cargo, revenue at the port has increased because they have closed loopholes for importers, ensuring that all appropriate duties are now paid.

The Commissioner said TRA were previously collecting TSh 200-300bn per month from the port but after controlling loopholes, TRA collected TSh 458bn in April of this year, and TSh 517bn (US$250m) in June.
Dr Philip Mpango, the aptly-named Minister of Finance and Planning, told parliament in April that from October 2015 to March of this year cargo had declined at the port, with the number containers from Congo dropping from 5,529 to 4,092. He added that freight to Malawi fell from 337 to 265 containers, while the number heading to Zambia declined from 6,859 to 4,448.

Later, analysts noted that the Dar es Salaam port risks handling the lowest number of vessels in its history this year. Several logistics firms opted to bypass the city after Value Added Tax (VAT) was imposed on transit goods.

Cargo firms took issue with the imposition of VAT, which came even after the Prime Minister, Kassim Majaliwa, agreed that it was standard practice worldwide not to charge VAT on transit goods. A meeting between TRA and the Tanzania Freight Forwarders Association (TAFFA) was postponed when TAFFA representatives were not satisfied with TRA sending a junior representative to the meeting.

Tanzania Economic Update (TEU) published
The World Bank published the latest in their bi-annual series of economic updates, with a mix of praise and criticism for Tanzania’s economy.

The report commended the new government’s measures to strengthen fiscal management and curb corruption, saying they have started to yield results with tax revenue collection exceeding targets.

Nevertheless, the report called for a greater focus on strengthening the private sector, calling for adoption of Public-Private Partnerships as a new source of finance for development projects. “Tanzania needs to improve overall business environment, including through improved access to finance and electricity, for private sector development,” said Emmanuel Mungunasi, WB Senior Economist and co-author of the report. “Further development of the private sector will be key to accessing the needed resources including financing and creating more employment opportunities which are critical for poverty reduction.”

The Bank’s Country Representative, Bella Bird, also noted that Tanzania had been very generous in recent years with tax exemptions, and praised President Magufuli’s commitment to limiting such exemptions.

Critics took issue with some aspects of the report, notably a warning that over-dependence on China as an economic partner could leave Tanzania vulnerable to faltering growth in the East Asian giant.

“The saviour of industrial policy is China and other developed nations of the East. We stand to gain from China’s relocation plans. It is the right time to grab the opportunities,” said Prof Humphrey Moshi of the University of Dar es Salaam.

Standard Bank compensation payment
The outgoing British High Commissioner to Tanzania, Ms Diana Melrose, announced on Twitter that the UK has transferred US$ 7m to the Tanzanian government, paid by Standard Bank as a compensation payment as a result of its failure to prevent bribery in Tanzania. In November 2015, a UK court ordered the bank to pay a fine of US$ 25m, plus this compensation payment to the Tanzanian government. [See TA114 for details of the case].

by Ben Taylor

Standard Bank case
Late in 2015, a landmark judgement in the UK courts saw Standard Bank fined US$25m and ordered to pay the Tanzanian government US$7m in compensation. The “deferred prosecution agreement” (DPA) suspended a case against Standard Bank for its alleged failure to prevent bribery. It relates to a $6m payment made in 2013 by Stanbic Bank Tanzania, then a sister company of Standard Bank, to a local agent, Enterprise Growth Market Advisors (EGMA), associated with Tanzania’s US$600m private bond placement.

The judge in the case, Lord Justice Leveson, concluded that Standard Bank “did not have adequate measures in place” to guard against corruption, and did not conduct sufficient due diligence in relation to EGMA.

EGMA was paid $6m for assistance in arranging the bond issue, though there was no evidence that the firm actually provided any services. One of EGMA’s directors was Harry Kitilya, then Commissioner General of the Tanzania Revenue Authority, a potential conflict of interest. The payment to EGMA was financed by raising the cost of the service provided by Standard Bank to the Tanzanian Government from 1.4% to 2.4% ($8.4m to $14.4m) of the total bond issue.

This is the first use of a DPA in UK courts. It allows for criminal proceedings against a company to be suspended provided that the company meets certain conditions. A prosecution may follow if the conditions are not met within three years, otherwise the Serious Fraud Office (SFO) will discontinue proceedings.

The case was initiated by Standard Bank itself reporting concerns to the UK authorities, when close to $6m in cash was withdrawn from EGMA’s account over nine days in March 2013. Observers are speculating whether the firm really decided of its own accord to self-report in this way, or whether they did so under pressure. Tanzanian opposition MP, Zitto Kabwe, argued that Standard Bank could have falsified information given to the SFO in order to reduce the fine.

The case raises difficult questions for the Magufuli administration, which has in other cases acted swiftly and decisively against corruption. The DPA does not prevent Tanzanian authorities from investigating further or from bringing a case against Standard Bank, Stanbic, EGMA or government officials involved in the bond issue.

In January, Valentino Mlowola, Director General of the Prevention and Combatting of Corruption Bureau (PCCB), said investigations into the Standard Bank case were at “final stages,” and promised that “soon you will see grand corruption suspects taken to court.” This has not yet happened.

Meanwhile, Tanzania has a debt of $600m, which may not have been negotiated on favourable terms. Standard Bank and Stanbic Bank were appointed to manage the bond placement following a closed bidding process, and the placement attracted a 6% interest rate – substantially higher than the 4% achieved by Zambia and Ghana. Corruption Watch UK estimate that the potential cost to Tanzania could be as much as $80m over the life of the bond.

Tax cut
On Workers Day, May 1, just as Tanzanian Affairs was going to press, President Magufuli announced a reduction in the basic rate of income tax. The rate for monthly salaries between TSh 170,000 and 360,000 has been cut from 11% to 9%. The higher rates for incomes above TSh 360,000 are unchanged. As a result, a worker on a monthly salary of TSh 360,000 or above will be better off by TSh 3,800 each month, or TSh 45,600 over the course of a year.

Announcing the change, President Magufuli stated that the move aims at alleviating the burden of tax on workers. “I promised during my campaign to reduce pay as you earn tax to single digits. Now I declare to reduce it from 11% to 9%. I know this percentage will create a gap in our revenue, but we shall see how to fill it,” said President Magufuli.

Professor Haji Semboja of the University of Dar es Salaam said that the amount returned to workers as tax reduction and its impact on economy was minimal. “The government has increased workers’ purchasing power by 2% … it’s something … but not that much.” Professor Honest Ngowi of Mzumbe University, said the 2% tax-cut on s alaries at the end of day was likely to be chopped off by inflation, exchange rate and consumable tax increase in the 2016/17 budget.

The Daily News newspaper, however, in an editorial, stated that they “warmly welcome the PAYE relief not necessarily because of the impact they will bring on the workers’ earnings, but as a concrete message that the future of the workers in the country is bright.”

by Ben Taylor

Stabilised shilling, but at a price
The decline in value of the Tanzanian shilling against the US dollar has been halted, with the shilling now stable at around TSh 2,150 to the dollar since the end of September. Previously, the shilling had hit a record low of just over TSh 2,300 to the dollar in late July, having declined by around 30% in the preceding six months.

The stabilisation has been at some cost, with a little over US $500m of Tanzanian foreign currency reserves spent on reversing the decline by the end of September. However, by mid-November, the Governor of the Bank of Tanzania, Benno Ndulo, was able to state that the central bank was no longer intervening in forex markets.

A strong dollar contributed to the trend, which was seen across many African countries’ currencies.

“Depreciation of the shilling against the US dollar is driven by external and internal factors,” noted the Bank of Tanzania in their Economic Bulletin. “In the second half of 2014, the US dollar strengthened against currencies across the world following improved economic performance in the US, which led to increased demand for US dollar as investors preferred investing in the US economy. From April 2015 onwards though, the depreciation of the shilling against the US dollar accelerated as it was compounded by domestic factors that included continued decline in receipts from some exports, particularly gold and cotton,”

IMF chief of Debt Policy, Hervé Joly, said other factors affecting the shilling were the high liquidity in the banking system, seasonally low export earnings, and high repatriation of corporate dividends. The situation was further compounded by delays by donors to disburse pledged funding of the budget during 2014/15, which fuelled a foreign exchange shortage psychology.

“The shilling, which was assessed to be somewhat overvalued in 2014, is now closer to equilibrium,” said the IMF in a statement following their regular assessment of the economy.

Dangote cement plant
Alhaj Aliko Dangote, a Nigerian billionaire described by Forbes magazine as “Africa’s richest man by far” with an estimated net worth of over US $16bn, has commissioned a cement plant 20km outside Mtwara town.
The plant, with a capacity of 3 million metric tonnes per annum, is the largest cement works in East Africa, and will represent half the total cement production in Tanzania. It reportedly cost around US $600m to construct.

Dangote explained the choice of Tanzania for investment, stating that the existing supply gap had been inadequate in meeting local demands, noting the need to boost export supply in the eastern Africa regional bloc.
“The construction sector is a major emergent component of the Tanzanian economy that has been receiving the attention of investors. This makes it an ideal market for cement production. The existing cement manufacturers have historically been unable to satisfy local demand, which has been filled by imports. As essential economy-driven infrastructure continues to be built to improve electricity supply and the transport network, additional demand for cement can be expected,” he said.

“Our strategy is to invest in countries that offer investors attractive returns on investment as well as provide them with an enabling environment to operate. It is our sincere belief that our $600million investment in Tanzania will further speed up infrastructural development and complement the government’s efforts in stimulating economic growth and creating jobs for the people. When in full production, this plant will make Tanzania self-sufficient in cement, with a lot of cement for export to neighbouring countries,” Dangote added.

President Kikwete, who was also present at the launch noted that the timing of the citing of the cement plant was very auspicious, coming at a time when the demand for cement is on the upsurge and increasing both locally and regionally.

Uchumi Supermarket woes
Kenya-based Uchumi Supermarkets Limited has closed its operations in both Tanzania and Uganda, after they had failed to turn a profit in five years of operations.

CEO of the company, Dr Julius Kipng’etich said the outlets in Uganda and Tanzania make up only 4.75% of the firm’s operations but over 25% per cent of operating costs. “The two subsidiaries have not made any profits over the last 5 years which means they have been draining the parent operations,” said Dr. Kipng’etich.

Earlier in the week of the announcement, around 50 staff of Uchumi Supermarkets at the Quality Centre in Dar es Salaam confined themselves behind doors for 20 hours to press their employer for clarifying on their fate of employment, following unofficial reports that business operations would be closed due to poor performance.

Uchumi Supermarket which had operated in the country for two years had six outlets. The firm had recently hired a firm of management consultants to investigate theft by staff in Uganda and Tanzania and identify the retailer’s prospects of surviving in both markets. The closures will result in around 900 job losses across the two countries.
The move makes Uchumi the second major supermarket firm to shut up shop in Tanzania in two years, after the departure of the South African chain, Shoprite, in 2014.

by Valerie Leach

Economic growth

Annual growth in GDP

The Tanzanian economy con­tinues to grow, at a rate of 7% in 2014. (Hali ya Uchumi 2014). Construction, transport and financial services were the fastest growing sectors.

Estimated GDP per capita was TSh 1.72 million (USD 1,038), a small real increase over the year. This allowed the Minister of Finance, Saada Mkuyu, to state in parliament that Tanzania is on the verge of achieving middle-income status.

Employment
Over 1 million people were added to the payroll in the private sector in the ten years 2005 to 2014, increasing the number of people formally employed from just over 1 million in 2005 to over 2 million in 2014. The National Bureau of Statistics reported results from the Employment and Earnings Survey of 2014. The biggest growth in formal sector employment was from 2012 onwards and in the private sector. Dar es Salaam, Morogoro and Arusha feature in the NBS’ report as regions with especially strong growth. One-third of all formal sector employees are reported to be in Dar es Salaam.

There was a big jump in the number of newly recruited workers in 2014 and in their average earnings, with changes in new recruitment particu­larly strong for professional and technical employees. The percentage of formal sector employees who are female – 37% – has not changed in this ten-year period.

Unemployment rates have, accordingly, fallen, mostly among urban male adults. Changes were negligible for younger people, among women and people in rural areas.

Prices
Prices increased by 6.1% in June – the same rate as a year earlier, but higher than the 4.5% and 5.3% in the two previous months. As is usual, increases in the prices of foodstuffs were the main cause of the increase in prices overall.

Exchange rates
The fall in the value of the Tanzanian shilling, depreciating by almost 20% in the first five months of the year, was reported with great concern in the newspapers. Much of the change was attributed by the Ministry of Finance to the strength of the dollar.

Recent inflows of external funds resulting from increased export earn­ings from tourism, coffee and cashews as well funding from interna­tional development banks have stemmed the shilling’s decline.

Currencies in Kenya and Uganda have been similarly affected and central banks in all three countries are reported to be taking actions to tighten liquidity and dealing in foreign exchange. At the time of writing, the exchange rate has recovered to around TSh 2,100 to the dollar, an improvement from the TSh 2,300 reached in June.

The Development Plan
The Annual Development Plan is tabled at the time of the budget. This year, the Parliamentary Standing Committee on the Budget identified the following priorities: managing inflation and depreciation of the shil­ling; scaling up efforts to reduce income poverty; construction of a new central railway line of standard gauge; increase electricity supply par­ticularly in rural areas; improve rural water supply services; improve irrigation; improve livestock and fishing sectors; accord priority to education and health services; and improve the business environment for private sector investment.

The Annual Development Plan 2015/16 specified the following main policy targets: maintaining peace, stability, unity and strengthening good governance; poverty reduction; sustaining macroeconomic stabil­ity; value addition; increasing capacity for storage of food grains and strengthening crop market; attracting more tourists and promoting domestic tourism; and improving private sector participation in imple­mentation of development projects.

Key issues of focus in the plan were identified: completion of ongoing development projects particularly projects in the “Big Results Now” initiative; ensuring food security; improving the business environment; developing human resource skills especially in oil and gas, science, technology and innovation; and mitigating effects of climate change.

The Budget
The budget, announced in June, includes plans to increase revenue from domestic sources and reduce the share of the budget coming from exter­nal financing from 14.8% in 2014/15 to 8.4% in 2015/16. Uncertainties about external development funding have led to a reduc­tion in the share of the budget for development expenditure. No new development projects are to be included in the budget, though there is a possibility that the new government after the October elections may choose, through a supplementary budget, to modify priorities and allocations.

Tax revenues currently amount to 12.5% of GDP, not enough to fund much needed investments in infrastructure and social services. The World Bank argues that greater increases in domestic tax revenues are needed through a reformed, more productive and well-managed tax system. Among the measures included in the budget is a new levy on imported goods of 1.5% which is to be earmarked for improve­ments in the rail infrastructure. It is a measure which has been agreed by all the countries of the East African Community. There is also an increase in petroleum levy on petrol, diesel from 50 to 100 shillings per litre and on kerosene from 50 to 150 shillings, the proceeds from which will go towards rural electrification.

The minimum wage has been increased and the low band PAYE rate lowered from 12% to 11%.

At the time of the budget, the World Bank approved a fund of USD 100 million to help increase transparency and accountability in Tanzania’s governance, and to help improve public financial management.

IMF’s review
The IMF’s assessment of the state of the economy in July was largely positive: “The draft 2015/16 budget, which targets an underlying deficit of 3.5 percent of GDP (excluding arrears clearance), is built on more prudent revenue and foreign financing assumptions. The fiscal target also puts Tanzania on a path to a 3-percent deficit over the medium term, which is consistent with maintaining a low risk of debt distress.”

The Fund, however, also expressed concern about the accumulation of arrears in government payments and actions were urged to have them cleared. It commended a policy paper, approved by the cabinet, for a fis­cal framework for managing resources from natural gas which is based on international experience. There will be a Natural Gas Revenue Fund that will be fully integrated into the budget, with no parallel spending authority.

Recent Developments
President Kikwete, at the Dar es Salaam International Trade Fair directed all regional and district commissioners to stop banning the transportation and exportation of produce. He said that such bans do not benefit farmers and business but rather engender corruption.

On a visit to the port of Dar es Salaam, World Bank Vice President for Africa, Dr Makhtar Diop commended its improved infrastructure and efficiency. He pointed out the benefits to the economy of Tanzania and its landlocked neighbours of a well-functioning port.

An aspect of the planned large trading centre at Kurasini has been criti­cised by a representative of small traders now operating in Kariokoo who believe the new trading centre will benefit Chinese rather than local traders.

Further progress has been made in the reduction of non-tariff barriers to trade in the larger region with an agreement between the governments of Tanzania and Zambia. Border management will be improved with a one-stop border post by the Nakonde-Tunduma corridor which will speed up transit times and lower costs of trading.

Structural change in the economy
Manufacturing is a growing albeit still a small part of the Tanzanian economy. A research paper for World Institute for Development Economics Research (WIDER) by Samuel Wangwe, Donald Mmari, Jehovanes Aikaeli, Neema Rutatina, Thadeus Mboghoina and Abel Kinyondo examined the manufacturing sector in Tanzania. It remains largely undiversified, and vulnerable to variations in agricultural pro­duction and commodity prices.

The growth in output and exports, production innovation and product diversity have been most dynamic in the manufacturing of food prod­ucts, plastic and rubber, chemicals, basic metal work, and non-metallic mineral products. However, the extent to which Tanzanian manufactur­ers have added value has been limited by their dependence on imported intermediate goods. This limits inter-industry linkages that are impor­tant for promoting a domestic manufacturing base and employment.

The authors conclude that various technological, financial, policy and administrative constraints remain unresolved and they are limiting faster industrial growth and transformation.