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Tanzania Country Brief: August 2010 Print E-mail
Friday, 17 September 2010
Updates on the business environment, political risk, data releases, key deals, and sector news.

POLITICAL RISK
President Jakaya Kikwete collapsed briefly during an election campaign event and was seen by medical personnel, but continued the event saying he would need to break his Ramadan fast. This seems not to present any significant risk, and Kikwete is still widely expected to win a second term in the October 2010 elections.

In a referendum this month, Zanzibar voters have voted 65% in favour of a power-sharing government on the island. The semi-autonomous island has been the site of regular election clashes in the past, which have made the island’s tourism industry – hugely significant for all of Tanzania – vulnerable.


BUSINESS ENVIRONMENT
Opening up Dar Port to investment: The Minister of Infrastructure Development, Shukuru Kawambwa, announced further measures to curb inefficient operations management at the Dar-es-Salaam port, including demanding that the Tanzania Ports Authority (TPA) TPA seek out a competent investor for the construction of two new jetties for container services. This move represents a follow-up to a decision, months earlier, to end Tanzania International Container Terminal Services’s (Ticts) grossly inefficient monopoly. The Minister also reduced the period foreign ships may dock at the port to two days – a time period reduced from three days, and previously from 26 days, and said that the TPA should lay down a strategy to end loss of cargo, petty theft of customer property and the cripplingly slow bureaucracies on cargo clearing and forwarding, but gave no word on how this ought to be done.

Flight connections to DRC, Malawi and regional trade:
Low-cost Zambezi Airlines have launched four new weekly flight connections to Lubumbashi, DRC, from Dar-es-Salaam via Lusaka. It is hoped that the launch will encourage regional trade as the cheap airline is already a favourite among Zimbabwean and Zambian traders travelling to Dar-es-Salaam to source goods.

Retail: Business Machines Tanzania Ltd (BMTL) have launched three new devices, the Electronic Tax Register (ETR), Electronic Fiscal Printer (EFP) and Electronic Signature Device (ESD) which should enable retailers and the tax authority to keep track of taxes more efficiently, and more securely. The price of the technology ranges from USD1,200 to USD2,500.

DATA
  • A Reuters poll of nine economists predicts that Tanzania’s economy will expand by 6.3% this year and 6.8% in 2011, quoting a lively performance across all sectors. The IMF forecast similar figures for growth, at 6.2% and 6.7% respectively, while the Tanzanian government projects a 7.0% rise in GDP this year. However the poll also notes that the economy will continue to perform below potential due to poor infrastructure services and a weighty bureaucratic apparatus.
  • The same poll predicts that consumer price inflation will not exceed 8% this year, and drop slightly to 7.7% in the upcoming year. Recent months have shown a continued downward trend in inflation, with June’s 7.2% inflation giving way to July’s 6.3%, as food prices decreased. The current account deficit is predicted to widen to 8.0% of GDP in 2010, and again to 9.2% in 2011 though the global rise in gold prices should help offset expensive oil imports.

KEY DEALS
Power Supply: Millenium Challenge Account Tanzania (MCA-T) signed a TZS63bn (USD45m) deal with Symbion Power LLC (USA) and Areva (France) for the design and construction of 24 electricity sub-stations across Tanzania’s mainland and Zanzibar. The money for the deal is part of the USD206m energy compact under the Millennium Challenge Compact (MCC).

Japanese VISCAS Corporation has already begun design work for an energy project which aims to lay a second submarine power cable from the mainland to Zanzibar, between Ras Kiromoni and Ras Fumba.

REGULATORY AND LEGAL CHANGES
Toothless PPAA pushes for amendment of Procurement Act: This month, the Tanzania Revenue Authority (TRA) defied Public Procurement Appeals Authority (PPAA) orders to re-float a tender for the supply of heavy-duty container scanners, importing the scanners despite the PPAA’s objection that the contract for the deal was void as a result of a lack of transparency. As a result, the PPAA – previously similarly ignored by the Tanzania Electricity Supply Company (Tanesco) – is pushing for an Amendment of the Procurement Act, to include a provision compelling parties to either implement PPAA decisions or appeal to the high court within fourteen days.


INDUSTRY NEWS
Agriculture
  • Tanzania will do a three-year trial of genetically modified cotton that can fight off pests. GMO seeds are still highly contentious across Africa as their European markets are generally opposed to GMO foods, and there are also often concerns that trials cannot be contained properly.
  • Tanzania expects a good coffee harvest this year, with an increase of a good 50%. This is mostly a recovery from last year when coffee production was hit by bad weather and bugs. Also, global stocks are low, which works in Tanzania’s favour. Citing the world market as the reason, Kagera Cooperative Union chairman John Binusu recently announced that the KCU was raising its coffee purchasing prices this season. However, this also illustrates Tanzania’s vulnerability to such uncontrollable factors as weather. Tanzania is the fourth largest coffee grower in Africa.
  • Increased demand has pushed cotton prices up 33% this season. There is speculation that prices may rise further after the heavy flooding suffered by major cotton-grower Pakistan. Tanzania is making efforts to increase the cotton harvest from 700,000 bales to 1,500,000 bales by 2015, with the Tanzania Gatsby Trust (TGT) committing USD7.2m for cotton development.
  • After a US-supported programme has rehabilitated irrigation infrastructure, Tanzanian rice yields are expected to be up by 150% this season. US-supported maize and rice farmers can reportedly also expect a 20% increase in productivity and profitability following adoption of high-yield seeds, fertilizer and other agronomic practices.
  • The Tanzania Investment Centre (TIC) has acquired an American market for Cocoa in the form of Askinosie Chocolate Company Ltd. They credit President Kikwete’s trips to the US and his appointment of Dough Piti as Tanzanian Goodwill Ambassador to the US with the new deal which could be extremely significant to the cocoa-growing industry, which previously lacked a reliable international market.
  • The National Microfinance Bank (NMB) has donated TZS30m for the implementation of an investment plan for public-private partnership the Southern Agricultural Growth Corridor of Tanzania (SAGCOT). The plan will improve existing infrastructure in the region and make investments in commercial agriculture, encouraging the set-up of clusters of farms connected by improved road and rail.

Tourism:
  • The Tanzania Tourist Board (TTB) has lowered its estimates for the industry success in 2010, as a result of the global economic slump, from 1m tourists and USD1.7bn to 800,000 tourists and USD1.4 bn. The Natural Resources and Tourism Minister announced that the main block to the industry’s development was poor transport infrastructure and climate change.
  • Although an increase from 2009’s USD1.2bn in tourism revenues, the reduced tourism figures represent a significant hit to the economy as the industry accounts for 25% Tanzania’s forex inflows and brings in 17.2% of GDP annually. The TTB is seeking out new markets in Eastern Europe, Asia, Australia and even Africa – regions hit less hard by the credit crunch than the traditional markets. Promotions in India are already bearing fruit, with 1,000 Indian visitors expected this year.

Real Estate:
  • Shelter Afrique have made TZS42bn (USD30m) available for the construction of about 600 housing units in Tanzania. The money will add onto a TZS56bn (USD 40m) soft loan issued in March this year by the World Bank, also aimed at alleviating Tanzania’s housing shortage. Shelter Afrique will offer the money to private real estate investors and financial institutions on a 10 year tenure loan with an interest rate of at least 10.5%, depending on the nature of the project – an improvement from the prevalent and prohibitive 17-20% rate.

Energy:
  • Despite a recent policy change allowing independent power producers (IPPs) to compete fully with parastatal Tanzania Electrical Supply Company (Tanesco), rather than merely selling the power they generate to Tanesco, consumers are being warned not to expect price drops. At present, the climate still remains too unfavourable for prospective investors, and Artumas Tanzania’s managing director said the government would need to offer meaningful investment incentives in order to create an environment within which prices might be lowered.
  • At the same time, Tanesco, forecasting a loss of TZS34.1bn this year due to the depreciation of the shilling, increased operational costs and rising oil prices, is pleading to raise the power tariff by 34.6% this year and 48.4% by the end of 2012 in order to unburden customers. In 2007, Tanesco asked for a similar tariff hike of 47% but were only granted a 21% rise.

Manufacturing:
  • Having recently acquired a 51% share in Lake Cement, along with limestone-deposit rich land, Indian company Banco Products will invest USD65m in the plant. Banco will target the East African market, especially Rwanda and Burundi as neither country has a cement plant of its own. To begin with the factory will produce 0.5m tonnes of cement annually, a significant contribution to Tanzania’s current annual output of 2.97m, a figure which is supplemented with huge imports from Asia. With the strong growth in infrastructure and construction in general in the region, many companies clearly see the potential in cement production.

Telecommunications:
  • Zantel have increased the capacity of their Z Connect internet packages from 200MB to 250MB, offered at the same prices. The packages are now also being offered on daily, weekly and monthly subscriptions, offering more affordability and flexibility to customers. The rate charged is TZS24/MB. Further, Zantel’s modems have undergone a 33% price-cut.
  • Telecoms network operator Excellentcom are rolling out their mobile voice, SMS and data services, branded as Hits Tanzania. Explaining the timing of their entry onto the market, Excellentcom CEO David Charles pointed out that according to the Tanzania Communications Regulatory Authority (TCRA), Tanzania’s mobile market currently has a penetration of 40%, and there are reports predicting that this will have risen to 60% in 2012.

Mining:
  • Tanzania’s ban on raw tanzanite exports is negatively affecting trade in Indian city Jaipur, where the gemstones are cut and polished for re-export. But Sammy Mollel, Chairman of the Tanzania Mineral Dealers Association (Tamida) explains that Tanzania now has 400 citizens qualified to cut and polish tanzanite and 120 gemstone cutting and polishing machines, and is therefore capable of handling a much larger share of the USD500m tanzanite market than the measly USD100m it currently receives for its raw exports. Under the new legislation, mining will be reserved to locals, but current mining agreements are unchanged and foreign miners TanzaniteOne will be unaffected by the change.

Logistics:
  • Dar airport operator Swissport Tanzania Ltd has reported that the year ending June 2010 was marked by profits up 8% from the previous year. The pre-tax profit of USD1.8m was yielded by increased operation efficiency under favourable economic circumstances, which allowed a 4% rise in turnover despite a 46% drop in flights, and 12% drop in cargo handled by the company. (alongside a 2% decrease in total assets,) The increased profits have led Swissport’s board of directors to recommended increased dividends of USD1m equivalent to USD0.028 per share, up from USD0.026.

Banking:
  • The three-year-old Bank M Tanzania Ltd’s hit record growth figures with total assets up to USD102.67m from the previous year’s USD71.73. Profits increased from USD114,280 for the year ending July 2009, to USD1.2m for the year ending July 2010, and the bank’s third year also had deposits growing by 57%, which nudged forward a 55% growth in the bank’s loan portfolio. Success has led Bank M’s Director of Finance to declare his anticipation of further growth, not just in Tanzania, but regionally as well.

DEVELOPMENT FINANCE
A USD 150m loan from the World Bank will go towards the improved availability of electricity in mining regions. Currently, only 14% of Tanzania’s 40.7m people have access to electricity, and the shortage is particularly problematic for development in the mining sector.



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