ECONOMICS & BUSINESS

Posted on May 1, 2015 by editor

by Valerie Leach

Economic Outlook
The IMF review in March was generally positive but with cautions about government spending. GDP growth has been close to 7% again in 2014 and rates of inflation continue at close to 4%, helped by falls in international oil prices and falls in the prices of food.

Chart: National Consumer Price Index and Inflation
Source: NBS, Press Release, 9 March 2015 (www.nbs.go.tz)

Tanzanians surveyed in Afro-Barometer were not so positive about the economy. In a survey of about 2,500 people conducted in August/ September 2014 two-thirds considered current economic conditions to be fairly bad or very bad. The chairman of the CEO Roundtable of Tanzania, Ali Mufuruki, told an international forum in London that Africa is still facing problems such as low education levels, lack of access to reliable energy, inefficient transport and logistics infrastructure, inadequate technology for maximising agricultural production and depletion of Africa’s biodiversity as a result of corruption. (The Citizen, 12 February and 12 March 2015)

The IMF team raised concerns about government budget implementation because of “substantial tax and nontax revenue shortfall and some delays in budget financing. To avoid further accumulation of expenditure arrears, it will be important to strengthen the expenditure commitment controls.

“The [IMF] mission welcomes the steps taken to address the governance concerns raised by the IPTL case. Continued progress will be critical both to sustain the resumption of donor financing and to limit any repercussions on the business environment. The accumulation of payment arrears in the public sector needs to be tackled forcefully. This problem has become pervasive with large and growing government arrears to domestic suppliers and pension funds, and persistent arrears of TANESCO, the national electricity company, to its suppliers. It is important that the government now implements measures to settle existing arrears and prevent the recurrence of new ones by tackling their root causes.

“It is essential for preserving fiscal policy credibility that the budget for 2015/16 be based on realistic revenue and financing assumptions. A realistic budget with a moderate deficit is a key prerequisite to avoid the accumulation of new arrears and large mid-year expenditure adjustments, and also to preserve debt sustainability.” (www.imf.org/tanzania Press Release No. 15/125, March 19, 2015)

As reported elsewhere in this TA, constraints on government finances may be relieved to some extent by the release of some of the budget support from external development agencies. The Budget Support Development Partners (BSDPs) have agreed to start disbursing USD 44 million out of over USD 400 million which they had withheld pending the outcome of the inquiry into the Escrow affair. (The Guardian, 12 March 2015)

Insufficient government funds have affected farmers who had produced a much larger harvest of maize than expected. Payments were delayed to farmers for purchases by the National Grain Reserve. The Prime Minister promised to repay them. The government has borrowed about TSh15 billion from CRDB to settle extended debts that the National Food Reserve Agency (NFRA) owes farmers. (The Citizen, 24 February 2015)

As a result of the large harvest, food stocks in the National Food Reserve were 459,561 in January 2015 – almost twice their level in January 2014. Stock levels had risen steadily from July 2014. Maize will be exported, including to China, and some of the stock will be sold to the World Food Programme so that the proceeds may be used to pay debts to farmers still waiting for payments owed them. (Daily News, 24 March 2015)

External Trade

Chart: Export Performance of Selected Goods and Services 2013 – 2015
(Millions of USD)
Source: Bank of Tanzania, Monthly Economic Review, February 2015

The Bank of Tanzania’s Monthly Economic Review in February 2015 reports that revenue from tourism, $2.05 billion, in the period January 2014 to January 2015 exceeded that from gold exports, which raised $1.31 billion. Both the volume and price of gold exports fell in this period. Plans to expand tourism include a project to upgrade the Southern Circuit of Ruaha and Katavi National Parks and Selous Game Reserve. (The Guardian, 27 January 2015)

An increase in exports of cashew nuts of 28 per cent was reported by the Cashew Nut Board of Tanzania, which said 149,742 tonnes of raw cashew nuts worth $226 million have been exported so far during the 2014/15 agricultural season. Horticulture exports are also increasing, reaching $450 million in 2014. (The Guardian, 9 February 2015 and he Citizen, 2 February 2015)

Investment
A consortium of international companies, led by Ferrostaal Industrial Projects of Germany and Tanzania Petroleum Development Corporation (TPDC), plans to establish a $1 billion fertiliser complex in Mtwara. This is expected to start operations in 2019/20 and will produce more than a million tonnes of fertiliser annually. (The Citizen, 3 February 2015)

Also in Mtwara, Nigerian tycoon Aliko Dangote is reported to be setting up a factory that will produce 3 million tonnes of cement annually. (The Citizen, 3 February 2015)

Construction of a large new port in Bagamoyo is expected to begin in July. Oman’s General State Reserve Fund (GSRF), the Tanzanian government and China Merchants Holding International (CMHI) will jointly develop the USD11bn port and a special economic zone. The first phase of the project is planned to be ready in three years’ time and will handle 20 million containers annually. The project also includes building a 34km road joining Bagamoyo and Mlandizi and a 65km of railway connecting the port to Tanzania’s Central Line and Tanzania-Zambia Railway. (The Guardian, 12 March 2015)

TANZANIA & EXTRACTIVES - ANOTHER TWIST?

Posted on January 1, 2015 by editor

by Alan R. Roe
(This is a summary of a talk to the Britain-Tanzanian Society, November 2014)

In common with Ghana, Kenya, Mozambique, Sierra Leone and Uganda, Tanzania will soon enter the ranks of oil and gas producing countries. Tanzania’s discoveries are mainly off-shore in the Indian Ocean and dominated by gas rather than oil. These discoveries are large, and have excited expectations of greatly improved economic growth and incomes and of a windfall for the Tanzanian budget. The government recognises the need to manage expectations about what all this may mean.

The resurgence of gold and diamond production after 1999 was associated with the first real signs of structural change in the economy since independence. Specifically, the turn of the millennium saw the longest sustained period of per capita income growth (1999-2014) since 1950 (fig.1), Tanzania as one of the top non-oil countries in Africa in terms of the volumes of foreign direct investment (FDI), the rapid rise of gold exports which quickly overtook traditional agriculture exports as a source of foreign exchange earnings (fig. 2), and a significant increase in government revenues from mining to $385 million (7% of all tax revenues) by 2012.

fig(1) Per Capita Income Growth: 1950 to 2007 (Angus Maddison and the University of Groningen)

fig(2) The Growth of Exports: 1999 to 2008 (Bank of Tanzania)

There is considerable controversy in Tanzania over many aspects of mining, as the windfall associated with gold and diamonds has not been managed in a way that might have yielded optimum benefits both to the nation and to the affected communities around Mwanza and Shinyanga. But the mining boom has certainly given the authorities significant experience of the issues associated with managing natural resources wealth.

How will the new gas finds change the situation?
The gas discoveries so far are on a scale far larger than anything ever seen in gold and diamond mining. Early estimates from just one of the 20 or more major companies currently licensed to explore for oil and gas, suggests that FDI from their project alone could top $5 billion in the peak year of construction some 5-6 years from now. This is some five times larger than the maximum annual FDI seen in the years of the gold resurgence.

In the short term (to end-2016) there seems certain to be some significant gains in Tanzania’s capability for electric power generation fuelled by the early stage on-shore gas at Mnazi Bay for which much of the commercial contracting has already been finalised.
In the longer term (after 2021) there are expectations of large gas exports in the form of liquefied natural gas (LNG), with a variety of domestic uses in addition to electric power generation.

Short-term prospects

fig(3) Map of new 36” diameter pipeline (Wentworth)

In the past three months Wentworth Resources of Canada, working with Maurel and Prom (a large French company – the operator) and the state-owned Tanzania Petroleum Development Corporation (TPDC), have signed a gas sales agreement (GSA) with the government. This provides for the delivery of up to 80 million cubic feet per day (mmscf/d) to the new Chinese-built Mnazi Bay pipeline to Dar beginning in 2015. This pipeline is much longer than the existing pipeline from Songa Songa which currently delivers the bulk of Tanzania’s existing gas production (fig 3). By 2016 the Wentworth GSA provides for the delivery of up to 130mmscf/d to the new pipeline.

This development is highly significant. First, it will help to justify and partially cover the $1.2 billion costs of the new pipeline, which will have a large capacity (around 750mmscf/d).
Second, the GSA involves a gas selling price at Mtwara of $3 per million cubic feet (mcf), allowing TPDC to sell that gas to Tanesco in Dar at around $5. This should allow Tanesco to generate power at nearer 12 cents/kilowatt hour rather than current cost of around 35 cents using diesel, jet fuel etc. With Tanesco currently selling power at around 16 cents/kwh, the huge government subsidy to Tanesco (estimated at TSh 353 billion in 2013/14) should be significantly reduced.

The new gas will also more than double the volumes of gas currently available for power generation which could contribute significantly to attaining the Tanzanian “Big Results” target of 5 million more people with access to electricity.

Longer-term prospects
The new gas situation will also create new jobs and higher income for some local populations, new investment opportunities such as the integrated cement plant in Mtwara (to supply gas companies), and a welcome albeit small boost to government revenues. In the longer term the scale of the known and likely discoveries will be focused much more on the export of gas – processed into LNG.

The Production Sharing Agreements (PSAs) already signed with government anticipate that at least 5% of total production will be provided to the domestic market, which means up to 95% will be exported. Even a 5% share of a huge volume of gas will provide many opportunities to expand domestic power generation and open up petro-chemical industries such as fertiliser production.

Based on data from three of the concession blocks in the Indian Ocean (Blocks 1, 3 and 4, operated by the UK BG Group in partnership with Ophir Energy and the TPDC), the broad orders of magnitude of the likely impacts in Tanzania from around 2021 onwards are likely to include:

• Between $3 and $5 billion of new export earnings from sales of LNG
to China and other East Asian countries by about the fourth year of production (circa 2025 depending on when final decisions are taken). Tanzania’s total exports in 2012/13 were $5.5 billion.
• An early addition to revenues (taxes, royalties plus production share)
equivalent to just under 3% of GDP – moving towards $2 billion per annum. This compares with Tanzania’s present total grant receipts from aid donors of around 3.3% of GDP and a budget deficit of 5%. It is several times more than the revenues currently received from gold and diamond mining.
• The creation of several thousand new jobs in the 4-5 years of project
construction, falling to several hundred new jobs in the years of regular production.
These potentially transformational orders of magnitudes are based on the likely outputs from only three concession blocks. At least another eight concession blocks in the Indian Ocean have exploration underway – Statoil of Norway, Ophir, Shell and Petrobras of Brazil (see TA 102 for a map of the concessions, and article below by Roger Nellist for information on latest discoveries).

Challenges and dangers
Exploitation of Tanzania’s natural gas presents a wide range of possible threats as well as substantial new opportunities. Several areas of policy need to be very well-managed over the next few years if the Tanzanian people are to obtain a real benefit. The government is well aware of the main issues and its Natural Gas Policy presented in 2013 contains ideas on most of these.

There are still numerous difficult technical problems to solve in extracting gas from the Indian Ocean under 1,400 metres of water and a further 2,000 metres of variable sea bed strata. There is no guarantee that the concessionaires will be able to solve these problems at an acceptable cost.
There is still a question mark over whether the companies will be able justify the huge upstream and mid-stream investments that are required given the (changing) expectations of the global market e.g. the recent large falls in oil prices. One concessionaire alone is anticipating a full investment cost of well over $20 billion.

Can the government and TPDC finance the large infrastructure and investments needed to ensure the delivery and effective usage of the available gas? Who will coordinate the efforts of the different governmental players and prospective investors?

Will the global demand and supply situation remain favourable to exploiting the Tanzanian resources over the very long period (circa 30 years of more) anticipated by the off-shore projects?
A communications strategy is needed immediately to manage expectations in government, in the affected local communities and in the country more generally. The 2013 Gas Policy refers directly to this matter, but the government is handicapped by the fog of ignorance (and rumours) about the true magnitudes and timing of benefits.

Public sector capacity
Much will need to be done to develop skills in both the private and public sectors. Although few direct jobs will be created there are large opportunities for indirect job creation through linkages to the rest of the economy. The problem is that most of the jobs become in the construction phase. To be filled by Tanzanian workers, a large skills training programme needs to start very early – as indeed it has but on a relatively small scale.

Tanzania now has some effective and well qualified civil servants and specialists. But the depth of the skill base is often thin, for example in the areas of contract negotiation, regulation of the sector, contract management, and management of the fiscal regime.

Attention needs to be given to the strengthening of a National Oil and Gas Company (NOC) based on the present TPDC – building its financing, its specific roles, its capacities. The division of roles between government and the NOC has been a source of much difficulty in other countries.

The government needs to exercise caution on the macroeconomic fundamentals to avoid exchange rate appreciation and damage to traditional export activities – the Dutch Disease problem.

Should Tanzania establish a Sovereign Wealth Fund? What stabilization arrangements, if any, should be set up to guard against the future volatility of oil and gas prices and to ensure that other sectors are not left behind?

The emphasis must lie in building human capacity in all sectors with transferable skills from oil and gas. Tanzania is fortunate to discover gas now. They can learn lessons from other countries on the importance of transparency and good governance. Above all, how to protect this unique opportunity from political opportunism and mismanagement, especially with an election in 2015.

AGRICULTURAL MARKETING-MAKE OR BREAK?

Posted on January 1, 2015 by editor

by Andrew Coulson

There are two iron laws of agriculture:
1.If there is no market for a crop, don’t grow more than you can store and eat.
The second makes the same point from a national perspective:
2.If you are trying to promote expansion of an agricultural product, then you will fail if the marketing arrangements do not work.

Farms – large or small – are businesses. Farmers make choices, about what crops to plant, how much of each, when to plant them, where, when to weed and how often, whether to use inputs such as fertilizers and insecticides, and so on.

Small farmers need money – for school uniforms and school fees, agricultural tools, food items that they cannot produce themselves, medical costs, clothes and shoes, cooking utensils – and if at all possible, cement and wood for houses, bicycles, mobile phones, lamps, bus fares, and all that we can imagine that makes a better life. They are therefore integrated into national, and indeed international, economies. It is misleading to call them peasants, or to imply that they can be entirely self-sufficient. They cannot exist if they are paid very little, paid late, or not paid at all.
Large farms are also businesses, and face many of the same risks as small farmers: failures of the rains, attacks by insects, birds or animals, plant diseases, and unexpectedly low prices.

Until the 1970s many farmers were organised in cooperatives, which purchased their crops and took responsibility for repaying credit. Much of what was produced was sold by marketing boards. But by the time of liberalisation in the 1990s most of these arrangements had broken down and agricultural marketing was left almost entirely to the private sector. The result has been a series of disasters so bad that farmers only continue growing crops when they have no other plausible alternative.

For cotton, businessmen purchased ginneries and employed buyers to purchase the crop from the farmers. Farmers had a choice of where to sell. If one buyer rejected their cotton because of poor quality they could sell to another. If they took credit from one buyer, they could sell their cotton to another and avoid paying back the credit. Buyers travelled over large areas to buy cotton – and one consequence was that the varieties which had been specially bred for the North and the South of the cotton area got mixed up. The position now is that many farmers are adulterating their cotton with sand, water, or even hygroscopic chemicals – and Tanzanian cotton sells at a discount on world markets when once it sold at a premium. To get back to a position where quality could be achieved, the government promoted “contract farming”, where farmers contract with a single buyer who also supplies credit for inputs; in the central cotton areas this was opposed and ultimately sabotaged by small ginners who did not have access to the capital to provide credit to farmers.

The position with coffee is much the same. A sharp decline in quality, a failure to manage credit, and low prices.

Cashew nut farmers produced a bumper crop in 2011/12. The local processing factories were swamped. The buyers had insufficient money to buy it all in the short window when Tanzanian cashew nuts can be sold to India, before the Indian crop is harvested. So they paid for the cashew nuts with IOUs. Many of those farmers are still waiting to be paid.

Rice production has been one of the success stories. But just when farmers were doing well, the Bank of Tanzania approved imports of cheap rice which depressed the prices, and many farmers who have taken credit to buy fertilizers or sprays could not pay back their loans.

Maize is another success story, with record harvests in the Southern Highlands, Songea and Sumbawanga. According to the Citizen on 1 December, the surplus is more than 2 million tonnes, although the National Food Reserve Agency will only purchase 200,000 tonnes. There are good harvests in Malawi, Zambia and parts of Congo, so no easy export markets. Many farmers may not get paid. Some will try and store their maize, but without modern stores much of it will succumb to post-harvest insects, especially the large grain borer or Skanya bora, unofficially named after the lorries which transported food aid in the early 1980s.

One of the main planks of “Big Results Now”, the most recent government planning strategy, is the “Warehouse Receipt Schemes” where a farmer takes the crop to a store and, provided the crop is of good quality, he or she can be paid in cash or in credit. If the latter, and crop prices rise later in the season, what they have sold will be given the higher value – and payment to the farmers may be made either in cash or in the form of seeds or fertilizers for next years’ crops. This is fine in principle, not so easy in practice, where corruption can creep in. The system fails altogether if the warehouses are full or the manager does not have sufficient cash.

There are also problems with the marketing of sugar, where unexpected and perhaps corrupt imports have discouraged new local projects to increase production.

Tanzania should be celebrating its small farmers (who have shown that they can produce surpluses of cashew nuts, maize and rice), not making them angry by not buying what they have produced.

Crop marketing is a specialist skill. It is much more than an administrative task. One consequence of liberalisation has been the loss of the expertise and contacts learnt in the days of the marketing boards. Since most crops are sold without the crops themselves being visible, it requires good contacts and above all trust, which can only be built up between individuals, and over time. Moreover, to achieve good quality, the marketing must be regulated: buyers who accept low quality must be driven out of the market, along with buyers who buy from farmers who have contracted to sell to someone else. The banks must know the reliable buyers, and lend them sufficient money to purchase the crops. Farmers unable to sell their crops on time and for fair prices cannot be blamed if they choose not to grow those crops in the future.

ECONOMICS & BUSINESS

Posted on January 1, 2015 by editor

by Valerie Leach

Poverty Reduction
Much of the news about the economy and business suggests fast-moving new developments. Some of them, notably prospects for gas, are reported elsewhere in this journal. Nonetheless, the Tanzanian economy is still characterised as a basic agricultural one, where rural households continue to live in poverty.
In a recent survey of opinions about the challenges they face, Tanzanians said that poverty, health and education remain the biggest challenges, with 63% reporting poverty to be the biggest challenge (up from 49% in 2012). (Twaweza: “Tanzania towards 2015: Citizen Preferences,” Nov 2014).

The recently released report of the 2011/12 Household Budget Survey by the National Bureau of Statistics shows that one third of the rural population live below the poverty line. (NBS, Household Budget Survey, Main Report, October 2014)

Food Poverty
Rural 13.7 (2007) 11.3 (2011/12)
Dar es Salaam 3.2 (2007) 1.0 (2011/12)
Other Urban 8.9 (2007) 8.7 (2011/12)
Tanzania Mainland 11.8 (2007) 9.7 (2011/12)

Basic Needs Poverty
Rural 39.4 (2007) 33.3 (2011/12)
Dar es Salaam 14.1 (2007) 4.1 (2011/12)
Other Urban 22.7 (2007) 21.7 (2011/12)
Tanzania Mainland 34.4 (2007) 28.2 (2011/12)
Percentage of Population Living in Poverty, Tanzania Mainland, 2007 and 2011/12

Income poverty has been reduced in all parts of the country, but particularly in Dar, and the difference in poverty rates between Dar compared with elsewhere is more dramatic than ever. While the reduction in rural income poverty is modest, living conditions and access to communication improved from 2007 to 2011/12. The percentage of households living in homes with a modern roof has risen from 55% to 68% and those with modern walls from 35% to 46%.

Mobile phones
57% of all households now report having a phone, almost all of them a mobile phone. In rural areas, ownership of a mobile phone increased from 14% in 2007 to 45% 2011/12. Mobile phone ownership reached 88% in Dar and 77% in other urban areas in 2011/12. (NBS, Household Budget Survey, Main Report, October 2014)

Macroeconomic developments
GDP growth rates continue to be strong – 7% in 2013 and estimated by the IMF to be at this same rate in 2014. In October 2014 the annual inflation rate was 5.9%, a fall from 6.6% in September 2014. The NBS has revised the estimates of GDP, increasing the overall estimate of GDP in the base year of 2007 by 28%; and of agriculture GDP by 26%. The revisions result in estimated per capita GDP for 2007 at TSh 699,127 compared with the old estimate of TSh 547,081.

Government revenue and expenditure for fiscal 2013/14 was below target and development expenditure will continue to be adversely affected by the withholding by aid donors of general budget support. Recurrent expenditure amounted to TSh 10,085.1 billion, or 91% of target, while development expenditure was 70% of estimate. The shortfall in development expenditure in 2013/14 was on account of lower disbursement of project funds and shortfall in external non-concessional borrowing.
(Bank of Tanzania, Monthly Review, October 2014, www.bot-tz.org)

Annual growth rates of GDP at constant 2001 market prices

An IMF mission to Tanzania in October 2014 concluded that, “Macroeconomic performance has been broadly in line with the program, although new challenges have emerged during the last three months. Economic growth was strong during the first half of 2014 and is expected to remain close to 7% this year… Despite significant revenue shortfalls in the 2013/14 fiscal year compared to the original budget assumption, the fiscal deficit was contained to 4.4% of Gross Domestic Product (GDP)…. However, reflecting continued weaknesses in the ability to control expenditure commitments, this performance coincided with further accumulation of expenditure arrears… Combined with delays in the disbursement of budget financing from development partners, related to the Independent Power Tanzania Limited (IPTL) case, this has been a challenging backdrop for program implementation. .. The expected implementation of VAT reforms in early 2015 should help bolster the revenue base. The mission welcomes the government’s intention to address comprehensively arrears to suppliers and pension funds. (IMF Press Release No. 14/490, October 29, 2014)

Investment and Business
Within the East African Community, Tanzania recorded the highest Foreign Direct Investments (FDI) in 2013, according to the UN Conference on Trade and Development (UNCTAD) World Investment Report 2014. Tanzania’s inflows stood at $1.872 billion followed by Uganda at $1.146 billion. Direct investment from UK was the largest share, at 23% of the total. Recently discovered gas reserves in Tanzania are propelling investor interest. The report also noted that underdeveloped infrastructure has made the country a high-cost location for doing business. (The East African, 27 September 2014)

Tanzania is determined to float a planned $700 million bond in the international market. The government is hoping to capitalise on the investor appetite and stable markets that saw Kenya raise $2 billion in June at fairly affordable terms. Tanzania intends to fund the $1.23 billion Mtwara gas-pipeline project, a $10 billion port at Bagamoyo, new roads, railways and power plants. (The East African, 20 September 2014)

In August, the government announced that a project to construct a major centre to serve as a common entry point for imports from China will start before the end of this year. The centre will be run under a Public Private Partnership (PPP) arrangement with China represented by Yiwu Pan-Africa International Investment Corporation and Tanzania represented by EPZA. (The Citizen, 21 August 2014)

Trade Agreements
In September 2014, Tanzania joined Kenya, Uganda and Rwanda in rolling out the clearance of goods under the East Africa Community Single Customs Territory (SCT).The system seeks to eliminate dumping of goods in countries of transit, thus protecting industries and jobs. (The East African, 13 September 2014)

East Africa and the European Union (EU) have agreed on an Economic Partnership Agreement (EPA). As well as dropping customs duties, the agreement covers free movement of goods and cooperation on customs and taxation. More than half of the imports the EAC has agreed to liberalise are currently duty-free under the EAC Customs Union. Those subject to duty will be liberalised over a period of 25 years, with most of the cuts within 15 years. (The Citizen, 18 October 2014)

Free Trade Area
In December, the heads of state from 26 Eastern and Southern African countries are due to sign an agreement for a free trade area (FTA). Encompassing member states of the East African Community (EAC), Common Market for Eastern and Southern Africa (COMESA) and Southern African Development Community (SADC), the FTA will create a market of over 800 million people. The EAC, which is already a common market, has four member states in COMESA and one member — Tanzania— is in SADC. Ten countries in the region are already members of customs unions. (The Citizen, 19 November 2014)

Rural Communications and Access to Finance
An investment by a Vietnamese firm, Viettel, estimated to be of TSh 1.7trn will connect at least 4,000 villages, about 40% of the country’s total number, to a 3G communication network by 2017. The launch of the project in Coast Regions came after President Kikwete visited the company in Vietnam. The firm has been contracted to connect all district hospitals, police stations, post offices and District Commissioners’ offices, plus three government schools in every district. (The Guardian, 14 November 2014)

Improved telecommunications are expected to help farmers’ access to finance. At a conference in Arusha in November, Vice President Mohamed Gharib Bilal said that poverty cannot be seriously addressed without removing constraints on productivity, including financing of smallholder agriculture and agribusiness. Governor of the Bank of Tanzania Benno Ndulu, said over two-thirds of the working population derived its livelihood from agriculture. Limited access to finance was an impediment to farmers in adopting better technologies. Developments in communication technology are improving the situation; 57% of adults currently have access to formal financial services compared to barely 15% in 2009.

A new study by the Economist Intelligence Unit confirms that Tanzania has the most conducive conditions in sub-Saharan Africa for expanding access to financial services for under-served populations. The use of mobile technology facilitates payment services, including those who have been under-served or unbanked, with the adoption of comprehensive and conducive regulation of e-money and mobile payments.
(The Citizen, 20 and 24 November 2014)

MOBILE MONEY

Posted on September 1, 2014 by editor

by Ben Taylor

Mobile money has revolutionised financial services in East Africa, starting with M-Pesa in Kenya and spreading from there. All Tanzania’s major mobile phone networks offer similar services, through which users can send money at very low cost to anyone in the country using a standard mobile phone.

The global association of mobile phone network operators, GSMA, has recently published a report on mobile money in Tanzania, with a chart showing the total value of mobile money transactions since 2007:

Two points are worth highlighting here. First, though Kenya was undoubtedly the trendsetter, Tanzania is fast catching up, and looks set to overtake Kenya during 2014.

Second, take a look at the Y-axis label on the left. These figures are in billion US$. In other words, the total value of mobile money transactions in Tanzania in 2013 was US$17.7 billion. This is a huge amount – equivalent to over half (54%) of Tanzania’s GDP*. Which means in one sense Tanzania has already overtaken Kenya, where the value of mobile money transactions in 2013 was “only” 49% of GDP*:

This raises the question: is Tanzania the first country in the world where mobile money transactions are worth more than half the country’s GDP? Quite possibly it is.

* GDP Estimates are from IMF (2013): Tanzania US$32.5bn, Kenya US$45bn

ECONOMICS & BUSINESS

Posted on September 1, 2014 by editor

by Paul Gooday

Municipalities in Dar and Tanga to raise capital through DSE
Dar es Salaam Stock Exchange (DSE) Chief Executive Moremi Marwa has said that the time has come for the municipalities intending to implement various economic projects to raise capital through stock market. The Capital Markets and Securities Authority (CMSA) initiated and supported the move and according to the Chief Executive officer of CMSA, Nasama Massinda, municipal bonds are soon to be a reality in three councils.

The government through the assistance of the World Bank sponsored a two-phase municipal bonds study. The study brought to light the fact that the prevailing government policy would not support efficient issuing of bonds by Local Government Authorities (LGAs) for public subscription.

The first phase of the project strived to establish the feasibility and required policy changes for a thriving municipal bonds market in Tanzania. The second phase was to develop the legal and operational framework for the municipal bond markets in the country.

The former Dar es Salaam City Council director, Bakari Kingobi, was quoted as saying that the municipalities now qualify to issue loans. “Although we have not received the official go ahead from the Bank of Tanzania (BoT), the signs are promising,” he said adding that according to experts, it will help raise resources for development of schools, airports, hospitals and other facilities. Presently, all local authorities depend largely on subventions from the central government and taxation to raise revenue for their expenditures. (The Guardian)

Tanzania urges Chinese to build factories
The Minister for Industry and Trade, Dr Abdallah Kigoda, called on the Chinese business community to build manufacturing industries in the country to mutually benefit both nations. The call was made at the launch of Brands of China African Showcase 2014. The event brought over 100 Chinese companies showcasing products. Products displayed range from machinery, vehicles, home appliances, electronics and solar energy products, consumer goods, building materials, chemical, medical and comprehensive products.

Dr Kigoda said it is time for the Chinese nation to invest in the manufacturing sector which would add value to the country’s profile by reducing the exporting of raw materials which adversely affects the economy. “A great part of our exports are raw materials which after being processed outside, are then sold back to us. We are acting as a global supermarket for goods made from materials produced in our country,” said Dr Kigoda.

He said this has to change because it has adverse impacts on employment and the economy. He suggests that one way of addressing the challenge is through promoting value addition in the country. Dr Kigoda acknowledged the Chinese interest in doing business and investing in the country in different area such as a TSh16 trillion ($10 billion) investment in Bagamoyo Export Processing Zone. He also said the current efforts of laying down infrastructure in Kigoma Region will be an area that Chinese communities can invest in. (The Citizen)

ECONOMICS

Posted on May 1, 2014 by editor

by Paul Gooday

China biggest foreign investor in Tanzania
China’s total direct investment in Tanzania increased from US $700 million in 2011 to US $2.1 billion last year, becoming the biggest foreign investor in the country. Bilateral trade has soared in the same period, reaching over US $2.5 billion by the end of 2012.

According to Imara Equity Research, this investment is focused on railways, ports, road construction, gas pipelines and wind power farms. It has not only boosted economic growth but also created more than 150,000 direct jobs. Up to 19 projects worth billions of dollars include construction of the new port at Bagamoyo, set to be the largest and most modern in Africa. The harbour is expected to be in operation by 2017 and will handle 20 times more cargo than the Dar es Salaam, which is Tanzania’s current major import and export gateway in East Africa. Additionally, a Chinese US $1.2 billion soft loan for a 523km pipeline connecting Dar es Salaam and the Mtwara gas field was endorsed in September 2012 between the Tanzanian government and the Exim Bank.
(The Citizen)

Single Currency and Monetary Union
The East African Community (EAC) Monetary Union Protocol was signed in December 2013 by the five heads of state in Kampala, kicking off ambitious plans to have a common currency within 10 years. The single currency is aimed at enhancing trade in the region.

A few weeks later, however, the Managing Director of the International Monetary Fund (IMF), Christine Lagarde, cautioned EAC member states against rushing the Monetary Union. Addressing the Kenya private sector she said the EAC was not yet ready for the move and needed to address key issues before uniting their currencies. The challenges include increasing non-tariff barriers, varying economies and different tax regimes. She added: “As a member of the European Monetary Union, I have to tell you that it is a very exciting and ambitious project. … make sure you learn from our mistakes, so that the East African Monetary Union can even teach the Europeans how to do it right.” (The Citizen)

Mobile Payment Transactions
Mobile money platforms offer instant money transfer using phones, which helps cut costs and saves time as compared to physically transporting money. The value of mobile payment transactions jumped more than three times in the twelve month period ended December 2013. This was due to increased use of mobile phones in payment of services such as utility bills. Further, several banking institutions have formed partnerships with mobile network operators to facilitate customer transactions, according to the regulator in its latest Banking Supervision report.
(The East African)

Debt dilemma
Tanzania faces a new debt crisis unless government moves fast to contain its current borrowing, which has seen national liabilities more than double in less than 10 years. Until around 2006, the public debt as a percentage of GDP was almost 70%. Debt forgiveness brought that ratio down to about 21% the following year, but since then it has been growing at an alarming rate.

“The national debt as a percentage of GDP is now about 38%. That is a manageable debt ratio,” said Prof Richard Mshomba, a Tanzanian economist based in the US. “However, what is alarming is that hat ratio has been steadily growing and Tanzania could find itself in a debt crisis.”

Some see that happening as early as next year, when the debt may hit TSh30 trillion, about three times what it was when the current government assumed power in December 2005. They warn that the crisis would derail economic prospects in the wake of huge gas discoveries and undermine efforts to alleviate poverty. (The Citizen)

LOW CONFIDENCE IN ECONOMY

Posted on May 1, 2014 by editor

by Ben Taylor

Though Tanzania has posted some enviable rates of economic growth in recent years – averaging around 7% in recent years – a new Africa-wide survey shows that Tanzanians are unconvinced by the state of the economy. The report, from Afrobarometer, found that Tanzanians were consistently much less positive about their country’s economic situation than people elsewhere on the continent.

Fewer Tanzanians (8%) were positive about the current state of the economy than in any other country. Twice as many Tanzanians said that they thought the economy had got worse in the past twelve months (51%) as said it had got better (25%). Fewer Tanzanians (22%) said that they expected the economy to improve in the coming twelve months than in any other country.

1) How would you describe the present economic condition of this country?

2) Looking back, how do you rate economic conditions in this country compared to one year ago?

3) Looking ahead, do you expect the economic conditions in this country in 12 months time to be better or worse?

BRITISH AID – NEW DIRECTION

Posted on January 1, 2014 by editor

by Ben Taylor

Prime Minister Pinda with Justine Greening (extreme right), British High Commissioner Dianna Melrose and the head of DfID Marshall Elliott

The British International Development Secretary, Justine Greening, signalled a shift towards a more pro-business approach for British aid in Tanzania while visiting the country in November. She was accompanied by representatives of 18 British and international business and social enterprises, including Unilever, JCB (construction equipment), Mott Macdonald (engineering consultants), Diageo and SABMiller (brewers), and Swire Pacific Offshore (oil and gas services). It is the first time DfID has hosted such a delegation.

“The Chinese government has invested and it’s time the British government makes sure we’re helping British businesses have that advantage to invest in Africa too,” Ms Greening said.

Investments in agriculture
The Department for International Development (DfID) will invest £20m in four new partnerships with businesses and not-for-profit organisations working in Tanzania. DfID will collaborate with social enterprise and business with loans and equity, generating a return that can be reinvested. The largest partnership is with Unilever, the Wood Family Trust and the Gatsby Foundation.

DfID will invest £7.5m in “a major new tea plantation” in the southern highlands. A second investment in tea production will go to the Tanzania Tea Packers (TATEPA) Wakulima Tea Factory in Rungwe district. DfID will provide up to £2.5m to fund a hydro-power plant that will reduce energy costs and increase the factory’s productivity. Further investments are to Kilombero Plantations Ltd (£6.7m) to finance a rice husk gasification plant and £3.3m to Equity for Tanzania, to enable small agri-businesses and farmers to access finance for agricultural equipment.

These investments were announced by Ms Greening at the launch of a new High Level Prosperity Partnership (HLPP), which was attended by the Tanzanian Prime Minister, Mizengo Pinda. Tanzania is one of five countries to be part of the partnership, alongside Angola, Ghana, Ivory Coast and Mozambique.

DfID hope that the partnership will see the UK and Tanzania create even closer commercial links and will “double the number of UK companies doing business in Tanzania in the renewable energy and agriculture sectors by 2015.” The partnership will focus primarily on four sectors: oil and gas, renewable energy, agriculture and strengthening business environment. The London Stock Exchange Group will provide training to financial professionals, regulators and government officials in Tanzania. Prime Minister Pinda expressed his hope “that this Partnership will open a new window of opportunity to these important areas of cooperation”.

Transport and trade
Later in her visit, Ms Greening announced initiatives aimed at reducing transport costs within East Africa. Following a visit to the Dar es Salaam port, she launched a £10.5m fund to support a scheme run by TradeMark East Africa, called the Logistics Innovation For Trade (LIFT) fund. The LIFT fund will provide match grants to encourage private sector investment in freight and other logistics technologies and business processes in East Africa. The aim is to reduce transport time along the main transport corridors in East Africa, stimulate further research and create systems for tracking industry performance and efficiency.
East Africa currently has some of the highest freight and transport costs in the world.

A new direction
Justine Greening was keen to emphasise that this initiative represents a change of direction for DfID. “For too long the development world has seen the skills and potential of the private sector as something separate to its own efforts,” she said. “I want to take a different approach. The only way for developing countries to end their dependency on aid is to create more jobs, growth and tax receipts. In the end, for individuals too, a job is the only sustainable route out of poverty. Business can bring much needed investment and innovation at a scale that can be transformational, providing prospects and economic opportunities for communities. It is sensible for us to work with business to make sure their plans help local communities. This is also firmly in our own interest, as we are helping to open up markets for British goods.”

The new approach has attracted criticism that it would benefit the wealthy more than the poor. Christine Haigh, from the World Development Movement said: “It’s clear that this initiative is very much about finding new markets for UK companies and very little about reducing poverty for the majority of Tanzanians”.

The move is the latest evolution of British aid policy in Tanzania since the Conservative-led coalition took office in 2010. There was a reduction in the aid provided as General Budget Support (from 66% in 2010/11 to less than 30% in 2013/14), but an overall increase in total aid linked to the promise to spend 0.7% of British GDP on aid. In 2010/11, DfID spent £150m in Tanzania and this will rise to £192m in 2014/15.

When Chinese President Xi Jinping visited Tanzania earlier in 2013, he signed a $500m bilateral trade deal with Tanzania and agreed a $10bn investment in a new port in Bagamoyo.

TANZANIA’S ISOLATION IN THE EAST AFRICAN COMMUNITY

Posted on January 1, 2014 by editor

by David Brewin

Once again Britain and Tanzania seem to be facing a similar dilemma
– how do you join a multilateral organisation aiming to bring neighbouring countries together in the common interest without sacrificing important parts of your own sovereignty? In Europe, Britain was originally forced to delay its entry into the European Union because another member state, France, objected that the country was not ‘European enough’. Then Britain was allowed to enter and it subsequently signed several treaties which were clearly aimed at the ultimate creation of a European Federation. It was many years before Britons began to understand what was happening and how its sovereignty was being undermined. But at the same time, for many the EU offered attractive features in trade and free movement of people that Britain did want.

Over the years the Conservative party almost broke into two on the issue and the anti-EU UKIP party rapidly gained support. The British government has now decided to hold a referendum in 2017 (if it wins the election in 2015) on whether Britain should abandon its close ties with the other EU countries and go it alone.

The ‘Coalition of the Willing’
To the surprise of many, and quite suddenly, Tanzania finds itself facing the same kind of dilemma as Britain, and also a growing isolation. Kenya, Uganda and Rwanda have become known as the ‘Coalition of the Willing’, pushing ahead with political, economic and infrastructure projects, leaving Tanzania side-lined from important discussions. Tanzania was not invited to (or decided to stay away from) several recent EAC meetings. As this issue of TA went to press the ‘Coalition’ were discussing the draft of a federal constitution. Many Tanzanians believe (not without some justification) that Tanzania is not like the other EAC members, so during recent months the government has been trying to put a brake on the rush towards a political federation.

Reactions in Tanzania
At the end of October East African Cooperation Minister Samuel Sitta said that any decision concerning the EAC federation reached only by the ‘willing countries’ would not be recognised by Tanzania. On 7 November, as the crisis escalated, President Kikwete told parliament that Tanzania would never quit the East African Community, and called on her neighbours to be more accommodating. “We have come too far… to give up now….Tanzania has done nothing wrong against any EAC member state…. some leaders are said to be accusing Tanzania of dragging its feet on the integration of the EAC…..we do not have problems fast-tracking the proposed Federation. But this must be done according to the ‘Federation Protocol’…. nowhere is it said that we should skip any of the preparatory steps. But these friends of ours have decided to do so. We want to avoid what happened in 1977 [when the first EAC collapsed].” In an echo of the European Union controversy, he added: “We must bear in mind that economic gains are among the attractions for member states to remain members. If this is not done the political federation will be under threat”.

Contentious issues
The Ugandan newspaper New Vision in October listed other ‘sticking points.’ They included Tanzania’s recent expulsion of refugees; its imposition of a 35% increase in work permit fees on residents of other EAC states; a $200 fee on vehicles crossing into its territory; and its opposition to the use of national identity cards as travel documents within the EAC (because Tanzania had not completed issuing these documents to its own people).

The paper claimed that during the September 2013 terrorist attack on the Nairobi Westgate supermarket, the EAC HQ in Arusha was unable to mobilise and transfer blood to Nairobi because ‘of the complexities of moving such a delicate matter as blood’; and President Kikwete was not present at a meeting in October when Uganda abolished work permit fees for Kenyans and Rwandans. (Thank you Kenneth Mdoe for sending this – Editor)

In early August – in the East African Legislative Assembly, which meets in rotation in member countries – some members had wanted to oust the Tanzanian Speaker who was alleged to favour meeting permanently in its Arusha HQ as a way to save money.

Some observers believe that there is a power struggle going on. Kenya’s economy has always been stronger than the other EA countries, but things are now changing. Foreign investment in Kenya now lags well behind Tanzania and Uganda. Tanzania benefitted from its much longer trade relations with China, dating from when China constructed the TAZARA Railway; and China has now agreed to finance a massive port at Bagamoyo with a capacity far greater than Mombasa and Dar es Salaam put together. Kenya needs a ‘coalition of the willing’ to hang on to the huge trade prospects in Uganda, Rwanda, Burundi, the DRC and now South Sudan.

The land issue comes first
The first meeting of the Presidents of Kenya, Rwanda and Uganda, without Tanzania, was in Entebbe in June 2013; the second in September in Mombasa. It was revealed that, for Tanzania, land was the major issue. The country has just over half of the land mass of the EAC but less than half under agriculture. With a population explosion under way, Tanzania feared that, under a new Federation, there could be great pressure on it to open its gates to workers from neighbouring countries and its land to foreign buyers or leaseholders.

Dream dashed
Tanzanian columnist Jenerali Ulimwengu wrote in The East African newspaper that moving ahead on EAC integration without Tanzania would amount to trying to “stage Hamlet without the prince”. He also said: “Some of us fear the dream of integration of our countries is in danger of being dashed once again….Our leaders need to stop singing themselves lullabies. If they cannot engage with their natural partners, they will not be able to engage with the artificial ones they have tried to cobble together,” (referring to suggestions about Tanzania’s approaches to the members of the Southern African Development Communty (SADC) as an alternative to the EAC). Ugandan journalist Paul Busharizi wrote in New Vision: “Whatever the reasons at the top, the people of East Africa would hate to see the Community break up again”. In The East African, Tanzanian columnist Elsie Eyakuze wrote that “It is hard to tell how we have fallen into this area of mild disgrace….we are steadily dropping off every popularity chart imaginable”. Like the UK in Europe!

The original concept
The original East African Federation came into being in June 1967. It established joint ownership and operation of services managed by the East African Railways and Harbours; the East African Airways; the East African Posts and Telecommunications; the Inter-University Council for East Africa; and the East African Currency Board. There was also a Court of Appeal for East Africa and an East African Legislative Assembly. It ended when Idi Amin seized power in Uganda and when Kenya became more capitalist and Tanzania more socialist.

Although the EAC is in stormy waters at present, it has some positive achievements to its credit. It has set up a Customs Union and a Common Market. In November it was due to complete a ‘Single Customs Territory’ and work is underway on a Monetary Union. This will be implemented over 10 years, with a single currency to be launched at the last stage, which will culminate in the integration of member states’ financial markets.

New measures bring EAC countries closer
At an extraordinary summit meeting attended by all five EAC Heads of State in Kampala on November 30 some progress was made in bringing Tanzania back on board.

Tanzania argued that its slow decision making was dictated by the need to get input from its citizens. However, all five presidents signed a Monetary Union Protocol and agreed that all the partner states should conclude the ratification of this by July 2014. They also agreed that the East African passport be launched on November 2014. According to the Uganda Sunday Monitor, the Tanzanian President sat closest to his Burundian counterpart throughout the summit. All participants agreed that it would be necessary to sensitise East African citizens about the benefits of the Union. President Kenyatta said ”Let us all put an end to unnecessary rumour mongering” and President Museveni was said to have lashed out at people who employed tribalism and religion to divide the population.

But, in spite of this, Tanzania has now announced officially that it is starting a new economic partnership with Burundi and the Democratic Republic of the Congo (DRC). The three countries met in Burundi and agreed to develop road, rail and water transportation infrastructure. Meanwhile Kenya with Uganda and Rwanda (now plus South Sudan) has launched a plan to develop a new 500-kilometre standard gauge railway line starting in Mombasa.

The East African is now writing about two competitive ‘coalitions of the willing’ as a possible blessing in disguise to trigger faster development in all seven countries.

Tanzanian Affairs

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Category Archives: Business & the Economy

ECONOMICS & BUSINESS

TANZANIA & EXTRACTIVES - ANOTHER TWIST?

AGRICULTURAL MARKETING-MAKE OR BREAK?

ECONOMICS & BUSINESS

MOBILE MONEY

ECONOMICS & BUSINESS

ECONOMICS

LOW CONFIDENCE IN ECONOMY

BRITISH AID – NEW DIRECTION

TANZANIA’S ISOLATION IN THE EAST AFRICAN COMMUNITY