Coming into Focus

Jan. 3, 2018

Tanzania's long-term focus is to foster homegrown skill, while also raising its game in infrastructure through the slow and steady implementation of the Five-Year Development Plan.

According to the 2016-2017 Global Competitiveness Report of the World Economic Forum, Tanzania is the 116th most competitive nation in the world. It also languishes at 132nd among 190 countries in the World Bank's Ease of Doing Business annual study. As Toufiq. S Turky, CEO of Turkys Group, said to TBY, “…while taxation tariffs in Tanzania are fairly similar to other countries within the East African Region, the interpretation of legislation has differed from that of, say, Kenya, (where) the actions of the Kenya Revenue Authority have pushed the country to 80th in the world in terms of ease of doing business, while Tanzania lags behind at 132nd."

The Fund

In June 2017, the IMF completed its sixth review of Tanzania's economic performance under the Policy Support Instrument (PSI) program, a scheme to determine the most pragmatic direction for economic policy. Back in January, the IMF had warned the government not to fail in its commitment to capital investment—budget permitting—in economy-driving infrastructure supportive of economic growth. Macroeconomic performance is deemed strong, and the medium-term outlook favorable, where the “2017/18 budget reaffirms the authorities' objective of scaling up public investment, while preserving fiscal sustainability." For its commitment to enhancing the business environment conducive to foreign investment, the IMF has approved a six-month extension of the PSI arrangement. In a TBY interview, the IMF's Resident Representative Bhaswar Mukhopadhyay explained how one dilemma faced by Tanzania, namely an FX inflow shortage, was a burden faced throughout East Africa. “The government," he notes, “has worked to mitigate a noticeable decline in inflows causing a slowdown in the growth of monetary aggregates by reducing the statutory minimum reserve requirements at the banks."


Notably, in July of 2017, President Magufuli signed off fresh mining legislation granting the state a minimum 16% stake in related projects, boosting royalties and enabling the government to renegotiate natural resource contracts. Tanzania's GDP contribution from mining actually fell to TZS486,728 million in 1Q2017 from TZS509,033 million QoQ, having averaged at TZS293,667.04 million from 2005 to 2017. Available data for 2015 puts total FDI net inflows as a percentage of GDP at 4.3%, largely reflecting the discovery of 45 trillion cubic feet of natural gas reserves. The leading five sources of FDI were South Africa, the UK, Kenya, Canada, and China. Another interested party is Oman, and Mohamed Al-Tooqi, Country Manager for Tanzania of the State General Reserve Fund (SGRF) of Oman, explained how the nation was 20% invested in Tanzania's strategic Bagamoyo Port. The port, a special economic zone, is a litmus test of national commitment to “a business-oriented development strategy (to) tap into the country's potential resources (and) spearhead industrialization." Corporate tax in Tanzania is 30%.


The government's 2025 Vision anticipates Tanzania attaining middle-income status by that year, which would require a GNI per capita of USD1,045-12,736 by the World Bank's reckoning. Annual GDP has averaged 7% over the past five years, ranking the nation among the world's swiftest-growing 20 economies, exceeding the Sub-Saharan Africa average growth rate of 4.4% during the period. The IMF forecasts 7.1% growth for 2017 (World Bank Sub-Sahara average estimate is 5.1%). Inflation, essentially food driven, at low double digits in 2011, was brought to manageable single-digit territory in 2016 as per the goals of the central bank, the Bank of Tanzania. As of June 2017 it had climbed 5.4% YoY, down from 6.1% in May.


Central bank data puts the domestic debt stock at TZS11,353.8 billion at end-May 2017, up TZS223.7 billion MoM and TZS1,434 billion from May 2016. The proportion of long-term debt grew, confirming the government's medium-term policy of stretching the overall maturity profile to facilitate debt service. Government debt equated to 39% of the GDP in 2016. The ratio had averaged at 34.9% from 2001 to 2016, having seen a high of 50.2% in 2001 and low of 21.5% in 2008. Meanwhile, external debt for May 2017 stood at USD17,907.2 million, up MoM from USD17,802.6 million.


Tanzania's current account virtually halved YoY to a deficit of USD1,508.9 million for the year ending in May 2017. And while export earnings fell, a slimmer import bill enabled this improvement. The month of May saw a trade deficit of USD132.8 million.


Exports rose to USD608.2 million in May from USD583.5 million in April 2017, having averaged USD550.21 million from 2006 to 2017, peaking at USD956.5 million in December 2015 and troughing at USD228.7 million in March 2006. For 2016 the top-five export commodity groups were pearls, precious stones, metals, and coins on USD1.72 billion; tobacco and manufactured tobacco substitutes on USD370.41 million; edible fruits and nuts on USD359.16 million; ores, slag, and ash on USD323.43 million; and coffee, tea, and spices on USD208.97 million. The GDP contribution from agriculture grew to TZS2,929 million in 1Q2017 from TZS2,268 million QoQ.


In May 2017 imports rose to USD741 million from USD672 million MoM. The print averaged at USD833.75 million from 2006 to 2017, peaking at USD1,399.3 million in December 2011 and troughing at USD89.3 million in March 2006. For 2016 the leading five categories were mineral fuels, oils, and distillation products on USD1.43 billion; machinery, reactors, and boilers on USD936.23 million; vehicles other than railway/tramway on USD757.14 million; electrical and electronic equipment on USD616.26 million; and plastics on USD405.78 million.


Edwin Rutageruka, Acting Director General of the Tanzania Trade Development Authority (TanTrade), pointed out certain products that call for commercial processing. “Tanzania is the second-largest country in Africa in terms of livestock population, with 25 million cows (to name just one item)." Meanwhile, the annual capacity of honey is estimated at 240,000 tons, and when Zanzibar's products are included the spice trade becomes a viable money-spinner.


Tanzania, on the Indian Ocean, offers more than safaris. And tourism, with 1,284,279 visitors in 2016 up 12.9% YoY, generated revenues of USD2 billion in 2016, up from USD1.9 billion in 2015. The Ministry of Natural Resources and Tourism's program for 2017/2018 earmarks a budget of TZS148.6 billion, with TZS51.8 billion going to development projects. PWC research puts compounded growth in available rooms at 2% annually, estimating available rooms climbing from 7,700 in 2016 to 8,500 in 2021, while guest nights rise from 1.6 million to 1.8 million. Moreover, the average daily rate of hotels (ADR) is forecast climbing from USD140 to USD174, with total room revenue appreciating by a compounded annual 6.9%, to USD371 million in 2021.

AND FOR 2017?

Focus Economics foresees slight economic deceleration on slack private-sector credit growth; the latter a domino effect of the banking sector's higher non-performing loans. Meanwhile, the external sector is being buttressed by rising tourism and gold exports. GDP seems set to grow 6.3% this year, rising to 6.6% in 2018. The IMF's Bhaswar Mukhopadhyay expects sustained execution of policy set in the previous budget “to continue (building) infrastructure, reallocating spending toward development needs, and improving revenue collection domestically."

Tanzania is finding its focus economically to better benefit from the FDI it seeks to attract. Its longer-term job now is to foster home-grown skills, while also raising its game in key infrastructure.