Tanzania Country Brief: January 2010

Wednesday, 17 February 2010

An overview of key deals, industry news and data releases. BUSINESS ENVIRONMENT Dar es Salaam port operations have improved by 35% to 45% over 2009, according to a report from a stakeholders committee published in January 2010. Cargo clearance times are down to between 11 and 13 days compared to an average of 20 days in January 2009. The average wait time for a ship to enter the port is now 3.8 days, down from 12.7 days in January 2009. Thousands of containers have been transferred to inland depots to free up space at the port. And customs clearance times have dropped as a result of more working hours logged by customs officials. However, dilapidated road and railway transport links continue to cause crowding at the port and hike transport costs. Mombasa port is even more congested than Dar, but it will retain most of the region's traffic until rail links from Dar to Rwanda and Uganda are upgraded. Even though rail lines in Kenya are also in desperate need of improvement, the distance from Mombasa to many inland destinations is half that from Dar. Optimistic estimates put the new high-speed Dar-Kigali railway online by 2014. A new USD39m loan from China may help bring the heavily indebted Tanzania -Zambia Railway (Tazara) up to speed (see development financing below). And the World Bank has pledged to support railway rehabilitation throughout East Africa (and the rest of the continent) in partnership with Indian Railways. But this may not be so encouraging to the Tanzanian government as it considers ditching the embattled lease of the country's main rail operator, Tanzania Railways Ltd. (TRL), to another Indian rail outfit (see key deals below).   In the meantime, road cargo transport through Tanzania will be even slower now that many routes have been washed out by floods. President Jakaya Kikwete called this month for rehabilitation of roads and rail destroyed by floodwater. TRL has had to cancel trips from Dar to Dodoma due to extensive flooding damage. At least nine bridges in the country have been swept away, and roads in 18 regions – from Arusha to Tanga – have been destroyed.   Finally, January saw the launch of a new western-style postal address and mail delivery system meant to deliver letters and packages directly to residences and businesses throughout Tanzania . The system will take at least five years to implement, so efficiency gains will not occur too soon. And officials have warned that Zanzibar 's power blackout, which began in early December, may not end until late February 2010 when repairs to the undersea cable that brings electricity to the island from the mainland are expected to be complete. KEY DEALS: Rail India Technical and Economic Services (RITES) Ltd may sell its 51% stake in Tanzania Railways (RTL) Ltd , Tanzania 's principal national rail operator, back to the government, effectively ending its 25 year lease on the operation 22 years early. However, this transaction depends on the approval of the International Finance Corporation (IFC). The concession has been troublesome from the start, with sins from both sides. Reports this month say the IFC gets to weigh in based on the USD7m loan it made to the project. Parliament is demanding a quick end to the lease to save taxpayer money. But even with termination, RTL is left without the capital or professional management it desperately needs. The IFC estimates RTL may require as much as USD100m in fresh cash to run properly. Dovetel Ltd, through its subsidiary Sasatel , has launched a high-speed WiMax internet network for large businesses and corporates in Dar es Salaam . The network will feed off of Sasatel's connection to the Seacom fibre optic cable. The company says its customers will incur no additional costs for switching to WiMax from the LAN network. That is good news if Sasatel keeps its word, as many customers in Kenya have seen pricing changes following the arrival of the fibre connection there. China's Jinchuan Mining has partnered with Beijing Songshanheli Mining Investment to develop Toronto-based Tanzanian Royalty Exploration's properties in Tanzania 's Kabanga Nickel Belt. Jinchuan , China 's largest nickel producer, will be the project operator. Exploration is expected to begin in early 2010. Despite a shaky regulatory environment (see Tanzania Mining Industry: Revenues, Resentment and Overregulation? ) that has seen some mining companies cut back investments in Tanzania, countries like China and Russia have expressed an ongoing interest in the sector. DATA RELEASES Foreign direct investment (FDI) in Tanzania was down by 12.6% in 2009, according to numbers released in January by the Tanzania Investments Centre (TIC). UNCTAD stats show FDI inflows for all of Africa falling by 36% in 2009 because of the global crisis. But Tanzania 's dip is not due solely to external factors: TIC officials say investors were also hit in the second half of last year by the Treasury's decision to scrap tax waivers on redeemed capital goods in the 2009/10 budget. The budget also raised various excise duties and abolished tax exemptions on petroleum products for mining companies. Income tax went down slightly, as well as some customs duties. But overall, Tanzania says it is raising taxes to increase government revenue collection affected by the global recession and resultant local slowdown in growth, while other countries in the region have been instituting more tax incentives to make up for crisis reductions by attracting more investment. Zanzibar 's total exports for the year ending October 2009 were up 26.1%, according to a report from the central bank, Bank of Tanzania (BoT) this month. Exports in spices, manufactured goods, and souvenirs were all down from September to October, although tourism revenues had risen slightly. All of these numbers are sure to have plummeted for December and January due to the island's two-month long power outage. GDP is expected to recover to near pre-crisis growth levels of 6.8% in 2011, according to a report this month from CompaniesandMarkets.com. The report says new capital investments will be fueled by EAC regional integration. Tanzania 's GDP growth for 2010 is forecast at 5.1%. However, the report also notes that reducing public corruption will be necessary to secure development funding and ensure a favorable business environment for investors. REGULATORY AND LEGAL CHANGES In a surprise move that triggered an immediate and vociferous backlash from mobile phone operators, the Tanzanian Parliament passed the Electronic and Postal Communication Bill 2009 in late January. The bill requires mobile companies to list on the Dar es Salaam stock exchange. MPs defended the new legislation by criticizing operators for evading taxes, with the dubious logic that local listing would allow the government to better track their taxable profits. If the bill becomes a law, telecoms companies would have to begin offering shares locally within three years. Vodacom Tanzania has said the bill contradicts constitutional provisions that protect private property. Observers have pointed to this and other moves as evidence of a recent regression by the government toward nationalisation tendencies. On the flip side, the government announced in January that as of January 2011, Tanzanians will be allowed to invest in equities (but not debt instruments) on foreign stock markets. Tanzania is expected to lift restrictions on cross-border investments as part of EAC integration.   Horticulture farmers, with the backing of the TIC, are criticising a new 18% value added tax (VAT) on airfreight for export introduced by the Tanzania Revenue Authority (TRA) last month. Farmers say the tax could cripple or even destroy their business. Kenya and Ethiopia , Tanzania 's competitors for the European flower market, levy no VAT on airfreight exports. The TRA says the VAT charges can be collected as refunds at the end of the month. But as in so many African countries, collection times in Tanzania remain prohibitively long – up to three or four months – and can greatly disrupt businesses' cash flow cycles. As usual for Tanzania , the new tax comes at a bad time: The horticulture industry has just begun to recover from the global crisis. And the Tanzania Horticulture Association recently started airlifting flowers – formerly exported through Nairobi – directly from Tanzania to Europe .   SECTOR NEWS Banking: Kenya 's I&M Bank has acquired a controlling stake in CF Union Bank in Tanzania as part of a full buyout of the bank by a consortium of investors with international backing. I&M hopes to bring its corporate customers interested in regional expansion across the border with it. Such parallel expansion is becoming a regular feature of active EAC integration, with companies growing into the regional market and banks following suit. Kenya Commercial Bank (KCB) and Commercial Bank of Africa (CBA) are also represented in Tanzania (see Tanzania 's Banking Sector Ready for a Nudge from Kenya? ).   Mining: The International Finance Corporation (IFC) announced this month it will invest CAD6.2m (USD5.9m) in Canada 's Helio Resource Corp. in an effort to boost the Tanzanian mining industry. The IFC will purchase shares and share options that could amount to a nearly 20% stake in the mining company that is exploring for gold in southwest Tanzania . Investor interest in Tanzanian mining has waned recently due to capital shortages and regulatory risks, although China and Russia have both shown interest in the sector. The IFC wants to promote environmentally and locally friendly mining practices. This will be good for community relations, job creation and economic linkages. But the government may still ward off other investors with bad regulation (see Tanzania Mining Industry: Revenues, Resentment and Overregulation? ), and the country's overdependence on mining for FDI is in some ways preventing broader economic diversification and growth. Agriculture: Food processing giant General Mills is working with US-based NGO TechnoServe to provide intensive training to about 10 local Tanzanian companies on food processing and packaging techniques. Increasing food processing in the country would support growth in agriculture and manufacturing. But attracting investors to set up large plants will still be difficult given the country's difficult business environment and land regulations. Infrastructure deficits also remain a challenge.   Sugar prices shot up in Tanzania this month as the whole region faces a supply shortage due to falling global production. Capacity constraints have kept East Africa from producing enough sugar to meet local demand, despite multiple producers operating plants in Kenya , Uganda and Tanzania . China signed a five-year deal with the Tanzanian government in mid-January to develop fish farming and livestock projects. The Tanzanian Cotton Board announced this month that cotton production may fall by 28% for the season ending in March due to low global cotton prices, poor rainfall and insufficient pesticide use. Tanzanian coffee prices are also down this month by 7.6% due to global market pressures. However the tea sector is expected to do well this year: Officials say production for the season ending in June may be up by over 9% due to plantation upgrades and government subsidies.   Tourism: Zanzibar is still without power this month as technicians attempt to replace the undersea cable that brings all of the island's electricity from the mainland. Costs to the industry are reportedly coming less from cancelled vacations than the crippling sums required to run generators straight through the high season. The government has attempted to ensure fuel supplies, and says back-up generators will arrive in mid-February. But the cable should be fixed by late February, and by then the damage will have been done. Following reports that the tourism sector took a 10% dip in the first 10 months of 2009, the government has launched a campaign to attract domestic travellers . Local tourism is now up 19.3%.   DEVELOPMENT FINANCE China has provided a USD39m interest-free loan to support the Tanzania-Zambia Railways Authority . China has supported Tazara since it built the railway in the 1970s. Nevertheless, the line that has been used largely to haul copper and cobalt from Zambia and the DRC to the coast at Dar es Salaam port has fallen into terrible debt and disrepair. The new loan comes with the understanding that a Chinese firm will run the railway on concession. Despite warnings from the EAC secretariat that Tazara should not be privatized given the myriad problems incurred by other private railway concessions in the region, China 's demand for central Africa 's mineral exports will ensure that this deal goes forward as planned. China gave a total of USD180m in concessionary loans to Tanzania in January as part of its promise to disburse USD10bn in low-cost loans across Africa between 2010 and 2013. The money will go toward infrastructure and ICT sector developments.   UN-HABITAT launched a USD65m water and sanitation project in January with Zanzibar to be funded by the African Development Bank. The project will attempt to improve urban water supplies and water resource management. The UN will pilot programmes for rainwater harvesting and cheaper water pumping systems run off alternative energy. REGIONAL NEWS January 2010 marked the official launch of the uniform East African Community (EAC) customs union, with the common market on its way later this year. But Kenya and Uganda voiced misgivings this month about moving forward toward a monetary union scheduled for 2012. Officials are not keen to give up classified financial information or the ability to use monetary policy against economic shocks to a central authority just yet. EAC integration has progressed relatively quickly, but even the customs union has taken five years to phase in and still faces numerous hurdles to full operation. A single currency poses even larger up-front costs for longer term benefits and will thus take significantly more time to implement. And for the switch to work well, EAC economies will have to be more in sync than is likely by 2012. Tanzania has been the member most resistant to regional integration, especially on issues of land ownership and capital flows. President Kikwete has taken on the chairmanship of the EAC Heads of State Summit for 2010. He will be expected to show more commitment to implementing the common market protocol this year. But Kikwete does not have the unilateral power – like that displayed by Rwanda 's President Kagame during his tenure as chairman in 2009 – to stem his country's nationalist demands. Share this article with others: Comments (0) Subscribe to this comment's feed Write comment Show/Hide comment form Name Email Title Comment smaller | bigger Subscribe via email (Registered users only) I have read and agree to the Terms of Usage. Add Comment