An overview of key deals, industry news and data releases.
BUSINESS ENVIRONMENT
Tanzania’s Chief Justice Augustino Ramadhani announced in early February that the country’s court system is flagging under the weight of 260 unresolved banking sector cases due to lack of funding for the judicial system. The Tanzania Association of Bankers has offered to pitch in some cash to get things flowing. The cases stuck in court represent millions of dollars in trapped funds, which bankers say is preventing the sector from moving forward with more investment and expansion. President Kikwete has promised to increase funding to the system, which also faces a backlog of criminal cases.
The Tanzanian government has awarded China’s Sinohydro Corporation Ltd a USD53.8m contract to construct a 65km road from Tanga in northeastern Tanzania to the border with Kenya. The project, funded by America’s Millennium Challenge Account, is expected to promote cross-border trading and grant traders in northern Tanzania better access to Kenya’s Mombasa port, which is much closer than the port at Dar es Salaam. The project should be completed in 27 months.
The Tanzania Petroleum Development Corporation (TPDC) has announced that it will begin importing oil in bulk this year through a joint public-private venture to prevent further oil shortages in the country that the government says were the result in 2008 and 2009 of inefficient procurement practices by private companies. The widely respected Energy and Water Regulatory Authority (EWURA) says bulk procurement will promote supply security and price stability, despite lobbying from private marketers against the change.
President Kikwete was in Turkey this month, drumming up diplomatic support and trade and tourism ties. Businessmen from both countries met to discuss cooperation during the Turkey-Tanzania Business Forum. The two countries ultimately signed four bilateral agreements, including one to abolish various visa fees and another to promote partnerships between the countries’ airlines.
And finally, the government failed to meet its promise of returning power to Zanzibar by February 2010. After a three-month blackout that hit the tourism sector’s high season hard and forced several factories to close, power was finally restored in early March 2010.
KEY DEALS
India’s Micro Technologies signed a USD5m deal this month with Tanzanian-based JKBRS International Co. Ltd to provide a range of security products and services. Micro says it wants to promote a shift from physical to electronic security in Tanzania. Tanzania is known for its lack of political violence (with the exception of Zanzibar), but has problems with petty crime, burglaries etc.
POLITICAL RISK
Under intensifying pressure from donors, President Jakaya Kikwete has announced that he will make fighting corruption a priority going into Tanzania’s October 2010 general election. Even though this has long escaped wider public notice, Tanzania has one of the most corrupt bureaucratic systems in Africa. Since Kikwete came into power in 2005 on an anti-corruption platform, many high-level officials have been forced to resign on corruption charges, and grand scandals have declined. But lower-level graft remains omnipresent, persistent and costly. The Netherlands has already withheld EUR30m in grants for this fiscal year, and other donors are threatening to do the same if corruption is not more effectively tackled.
Unfortunately for Kikwete and the Tanzanian taxpayer, insiders say a faction of old ruling party officials, disgruntled with Kikwete’s efforts to improve governance, is attempting to use past gains from graft to bankroll a presidential candidate for this year’s poll who will not be as tough on corruption as Kikwete has been. If corruption continues and donors follow through on their threats, that will be bad news for the economy, which relies heavily on aid-backed development projects. However, as also seen in the case of Uganda, a wholesale withdrawal of aid funding is unlikely.
On the flipside, under the settlement of the BAE Systems corruption case in the UK this month, Tanzania will receive part of a GBP30m penalty payment in reparation for the sale of an overpriced and unnecessary radar system to the country by BAE in 1999. Activists have called the settlement a travesty, and Tanzanian officials say they will continue their own investigation into the case.
DATA
Tanzania’s year-on-year inflation rate was 10.9% in January 2010, down from 14.5% in December 2009, according to the National Bureau of Statistics. Headline inflation was high in 2009 due to a drought that pushed food prices up. Agricultural production is expected to recover this year, which should continue to bring inflation rates down.
REGULATORY AND LEGAL CHANGES
The Ministry of Finance and Economic Affairs announced this month that it is reviewing Tanzania’s tax system in an effort to enrich the tax base, strengthen administration and control exemptions before presenting the 2010/11 budget estimates. A government statement said the review will promote a conducive investment environment. However, Tanzania has long erred on the side of over-taxation to boost revenues in the short term rather than lowering rates to enhance compliance and widen the tax base over time.
The Energy and Water Utilities Regulatory Authority (EWURA) set a deadline of 15 February 2010 for all downstream oil marketing companies to apply for an operating license. It is feared that as much as 70% of the country’s petroleum dealers do not have the documents necessary to complete the application, such as title deeds for business premises, proof of ownership of oil terminals and capital for cash guarantees. Unlicensed companies will no longer be allowed to operate as of 1 April 2010. Many say enforcement of this new regulation could shut down numerous retail petrol stations and cause a transport crisis, but EWURA authorities say they are working on public education and sticking to the deadlines.
Tanzania’s Agriculture Ministry has proposed a new law that would help Tanzanian plant breeders patent new varieties and protect their intellectual property from cooption by multinational corporations (MNCs). Campaigners have long noted that farmers in developing countries need more help to safeguard and profit from their traditional knowledge. At the same time, the Tanzanian government moved this month to stop the US, Brazil, and two MNCs from patenting an aluminum-tolerant sorghum gene first developed on Tanzanian farms. Tanzania says the patent contravenes an international agreement and would endanger domestic supply of the staple food by hiking seed prices.
INDUSTRY NEWS
- Energy: Tanzania’s electricity regulator, EWURA, announced approval this month for the Artumas Group to take over generation, transmission and distribution of electricity for the Lindi and Mtwara regions, effective 1 March 2010. Artumas has been lobbying for months for an exemption to the country’s new Electricity Act 2008 in order to carry out this Mtwara Energy Project. EWURA finally granted the company a 15-year license. Due to regulatory delays and other factors, the project is not profitable, but the hope is that a successful run will open the way for more distribution contracts for Artumas and other private power producers in the future.
- Mining: The Tanzanian Royalty Exploration Corporation (TRE) has completed a National Instrument Technical Report for its Lunguya gold mining project in northern Tanzania’s greenstone belt. The new data is promising and will soon be combined with previous data to establish drill target sites. The company is also exploring opportunities for quartz mining at the site. Social tensions and an unfavorable investment outlook have plagued Tanzania’s gold mining industry, making TRE’s continued exploration efforts valuable to the sector. However, the company’s performance has been weak in recent years. Meanwhile, Barrick Gold’s Tulawaka mine in Tanzania is reported to have produced 94,180 ounces of gold in 2009. Barrick projects that cash costs will rise in 2010 as production shifts more to the underground mine, while output will lower to 76,736 ounces.
- Banking: Commercial Bank of Africa (CBA) Tanzania CEO Nehemiah Kyando said this month that CBA has increased repayment times on mortgage loans from 15 to 20 years, and invested in asset financing arrangements where ground property can be put up for collateral, in an effort to extend mortgage financing to more Tanzanians. Kyando says the demand for mortgages in Tanzania is high, but real estate developers lack the capacity to meet that demand, resulting in a national housing deficit of at least three million houses.
- Bank of Tanzania (BoT) Governor Benno Ndulu says he will consider granting a waiver to allow Tanzanians to invest in African Barrick Gold’s upcoming initial public offering (IPO) in London because the company also owns operations in Tanzania. Current law prevents Tanzanians from investing in foreign stock markets. Tanzania’s financial markets are very slowly liberalising, with plans to allow cross-border investments within the East African Community in coming years.
- KCB opened its tenth branch in Dar es Salaam this month, continuing its EAC expansion. And CRDB Bank, the second largest in Tanzania, announced in February that it is centralising and automating much of its back office operations in Dar es Salaam in order to enhance front office services and reduce costs.
- Telecoms: Zain launched its new Biashara Community this month. The package for SMEs offers communications support, programme funding, and bulk SMS database services, and possibly a discounted tariff at some stage.
- Manufacturing: Diageo’s East African Breweries Ltd (EABL) is set to acquire a substantial stake in Tanzania’s Serengeti Breweries Ltd (SBL) in order to expand its foothold in the Tanzanian beer market. The move means that the rights to produce popular EABL brands in Tanzania will shift from SABMiller’s Tanzania Breweries Ltd (TBL) to SBL. Diageo and SAB, both multinational brewing giants, have been engaged in turf wars over the east African beer market for over a decade. This latest move will end an anti-competitive agreement the two had reached in Tanzania, giving Diageo a chance to enhance its sales while possibly leaving SAB out in the cold.
DEVELOPMENT FINANCE
- In February, the Japan International Cooperation Agency (JICA) committed USD22m to support poverty reduction in Tanzania through policy and institutional reform.
- And Switzerland has promised USD2.3m in aid to finance smallholder rice farming in Tanzania’s central corridor.
REGIONAL NEWS
Kenya jumped further onto the regional integration bandwagon this month by removing work permit requirements for Rwandans working in Kenya. Rwanda had already abolished the need for Kenyans to acquire a work permit in Rwanda. Uganda announced this month that it will be hosting this year’s annual East African Community Investment Conference from 26 to 29 April.
EAC officials have warned that upcoming elections in Rwanda and Burundi may slow down integration activities such as the implementation of a single tourist visa, and statistics database work, which require presidential commitments. Some activities may have to be rescheduled to 2011, but most technical work will go forward. President Kagame is also assured reelection and his push for integration will continue uninterrupted.
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