Updates on the business environment, data releases, public finances and sector news.
BUSINESS ENVIRONMENT
Political risk: The former chair of the Tanzania Chamber of Commerce Industry and Agriculture (TCCIA) commented that the October 2010 elections were not a major concern for business, especially not compared to other factors such as persistent power cuts and the global economic developments. It is not expected that there will be any significant tensions on the mainland – certainly nothing to rival Kenya’s post-election of early 2008. However, political priorities have been reflected in the budget 2010/2011 (see below).
Regional trade: Tanzania signed a bilateral agreement with Zambia to establish a one-stop border post at Nakonde and Tunduma, due to be completed in two years.
Opening capital account: Bank of Tanzania (BoT) will begin to open the country’s capital account, which will enable Tanzania’s institutional and retail investors to participate in the rights issue of Kenya Commercial Bank (KCB), a regional bank headquartered in Kenya. BoT Economic Policy Director Joseph Massawe stated that Tanzania intended to remove all restrictions within the coming two years to comply with East African Community (EAC) Common Market regulations stipulating free movement of capital across the EAC. Capital account restrictions had prevented Tanzanian investors from participating in the Safaricom IPO, unlike e.g. Rwanda’s and Uganda’s pension funds.
IMF Financial System Stability Assessment: The IMF’s analysis finds that Tanzania’s financial sector has undergone substantial structural changes since the introduction of the Financial Sector Adjustment Programme (FSAP), but remains small and relatively inefficient, and access to financial services is still fairly low with only one in six citizens. Profitability is strong, however, with a wide interest margin.
On the whole, systemic risks are contained, but the Fund points out that several risk factors have become more pronounced: increased credit risks, especially from large exposures and exposures to sectors affected by the global financial crisis, insufficient compliance with provisioning requirements, and supervisory weaknesses, including lack of enforcement. In addition, gaps in data collection also mean that risk assessment and management are made more difficult. Finally, Tanzania still lacks a full crisis management framework. The full text is here .
PUBLIC FINANCES
Budget 2010/2011
- GDP growth: GDP growth in 2009 was slightly higher than projected at 6%, supported by gold prices and an increase in gold production as a new gold mine came on stream. Tanzania’s authorities forecast that GDP growth will accelerate to 7% in 2010, whereas IMF estimates are a little more conservative at 5.5% and 6.2% respectively). Exports, tourism, construction and mining performed well.
- Spending will increase by 17% in the TZS11.1trn (USD7.6bn) budget defended as an ‘economic recovery budget’ – not strictly necessary given the better-than-expected performance, but Tanzania also holds elections in August 2010. The budget included a range of tax incentives to boost agriculture and manufacturing, and generally ticks all the right boxes with spending increases for social services (health and education), infrastructure and agriculture. Around 50% of the total budget was allocated to these sectors.
- Grants and donor financing are programmed to cover 30% of the budget, but the finance minister also aims to increase revenue collection to 17.3% of GDP in the coming fiscal year, up from 16.4% in 2009/10. Whether that is realistic is another question: In the previous fiscal year, revenue collection fell short of its target by 8%. In addition, Tanzania may rely more on commercial loans to finance development, which may raise concerns over Tanzania’s external debt development.
Infrastructure spending:
- An audit on road works by the National Audit Office of Tanzania (NAOT) found that delays in the completion of road projects have led to an increase in costs of TZS36bn over the initial budget. NAOT states that out of ten roads audited, not one was completed on time, leading to an average increase in costs of 57%. The report also concluded that the Ministry of Infrastructure Development and the Tanzania National Roads Agency (Tanroads) had failed in providing oversight and supervision.
DATA
- Inflation: In May 2010, Tanzania’s annual inflation rate eased to 7.9%, from 9.4% in April. Good rainfalls helped to accelerate food production and therefore ease pressure on prices. Food represents nearly 56% of the basket used to measure changes in prices.
REGULATORY AND LEGAL:
- SIM card registration: In Tanzania, SIM card registration has been made compulsory from June 2009. Initially, the deadline for SIM card registration had been December 2009, but this had then been extended to June 2010. However, so far, less than 5m subscribers of an estimated total of 18m have registered. Many of those who did have complained about inaccuracies in their data captured. Mobile operators have expressed concerns to the Tanzania Communication Regulatory Authority (TCRA) that they stand to lose up to 25% of revenues if TCRA goes ahead and block all unregistered SIM in full implementation, as legally required. This will ultimately also lower government’s revenues from the industry. The deadline has now been extended to mid-July, which is unlikely to solve the problem. Kenya has followed Tanzania’s example and will face similar headaches (SIM Card Registration: Crime Prevention, Administrative Heachache, or Both? ).
- Banking: In its monetary policy statement for June , Bank of Tanzania (BoT) announced that the minimum capital for commercial banks would be tripled to TZS15bn (USD10.3m), from TZS5bn currently. Maximum insurance cover for depositors will increase from TZS0.5m to TZS1.5m.
INDUSTRY NEWS
Aviation:
- In early June, Oman Air have begun direct flights connecting Dar es Salaam to Oman. The Middle East has become a flight hub for connections out of East Africa that offer both attractive services for tourists as well as connections into the Far East for traders and business people. Emirates and Qatar Airways also link Tanzania to the Middle East.
- Turkish Airlines have also added Tanzania to their routes, the second destination in East Africa after Kenya.
Mining and Energy:
- BusinessWeek reported that African Barrick Gold are considering a listing on the Dar Stock Exchange by the end of the year. No details were given, but this is undoubtedly in relation to the new Mining Act that, if fully implemented, would oblige mining firms to do so, and would also substantially increase market capitalisation. Also controversial was that the government would take a stake in mining firms. For a commentary on the new mining act: Tanzania Mining Act 2010: Stifling New Investment?
- A competent persons report (CPR) on Dominion’s Alpha prospect in Tanzania’s off-shore block 7 indicates a potential of 1bn barrels of oil, or 7trn cubic feet of natural gas. These conclusions are based on 2D seismic data, and Dominion are starting the 3D seismic survey in July.
- Australian Beach Energy, though their wholly owned Tanzanian subsidiary, have signed a production sharing agreement for oil and gas exploration with Tanzania in Lake Tanganyika South. The agreement covers three phases of four, four and three years respectively, and Beach Energy are obliged to drill an exploration well in the second and third phase. Beach Energy anticipate investing USD46m. According to the Minister for Energy and Minerals, William Ngeleja, Tanzania now hosts 14 oil and gas exploration firms. Interest in the overall East Africa region has been given a boost by Tullow’s Uganda discoveries: East Africa's Hydrocarbons: Rising Interest, Growing Business Opportunities
Telecommunications:
- Indian Bharti Airtel has finalized its acquisition of Zain’s Africa operations, which includes a network in Tanzania in which the Tanzanian government holds a 40% stake. The government will receive USD11.2m from the sale. Bharti Airtel are expected to transfer their business model to their newly acquired African operations: Will Bharti Airtel’s Business Model Translate to Sub-Saharan Africa?
- According to the Tanzania Communications Regulatory Authority (TCRA), subscribers spend an average of TZS43,521 on mobile communications per month in the first quarter of 2010, or a total of TZS744bn in March 2010 alone. The Q1 2010 average revenue per user (ARPU) rose to TZS42,166 for voice, up from TZS39,565 in the previous quarter. The ARPU for text messages, however, fell from TZS1,865 to TZS1,355. Spending on mobile communications is often seen as indicative of the spending power of the poorer population.
DEVELOPMENT FINANCE
- Refund to Norway: The Tanzania government has agreed to refund TZS2.9bn (USD1.8m) to the Norwegian government. Norway had last year suspended funding to the Natural Resources Development Programme after an audit revealed misuse of the funds. The sum in question is minor, but it is an interesting development regardless as this might encourage other donors to take a firmer stance on Tanzania’s entrenched corruption. Donors had generally reduced their commitments for the just started fiscal year over the slow implementation of projects, but this newfound penchant for austerity was not shared by everyone:
- Infrastructure, cities loan: The World Bank will give Tanzania a USD270m soft loan (under IDA conditions) for the Transport Sector Support Project. The funds will be used for road rehabilitation, the preparation of tenders, road safety management, and the expansion of regional airports. In addition, the World Bank has committed USD163m for the Tanzania Strategic Cities Project (TSCP) for urban infrastructure and services development, also on IDA conditions.
- IMF disbursement: After completing the 2nd review of Tanzania’s performance under its current Exogenous Shocks Facility (ESF), the IMF authorised the disbursement of the third and final tranche of USD29.1m of the total amount of USD320.6m under the facility. Tanzania no longer receives regular structural adjustment funding from the IMF, but has moved on to a Policy Support Instrument (PSI), an unfunded monitoring agreement with the IMF. The Fund and the Tanzanian authorities also agreed on a new three-year PSI.
REGIONAL NEWS
The East African Council of Minister endorses a bill for one-stop border posts. If implemented, this means that only one border post, by one country, will be operated. This is encouraging, but will depend on whether it will be implemented, and how. Despite strong growth in intra-regional trade, which also helped to offset the impact of the global financial crisis, non-tariff trade barriers, including corruption at border posts, road blocks etc., are still a huge concern to businesses in the region.
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