Tanzania Country Brief: July 2010
Monday, 23 August 2010
Latest update on political risk, business environment, investments, and sector news. Latest update on political risk, business environment, investments, and sector news.

POLITICAL RISK

  • In July 2010, president Jakaya Kikwete dissolved parliament ahead of the October 2010 general elections. Kikwete is widely expected to be re-elected for a second term.
  • In a referendum, semi-autonomous Zanzibar voted in favour of a constitutional amendment that would allow for the formation of a unity government. The referendum was supported by the main opposition party, CUF, which plays a much stronger role on the island than on the mainland. In the past, there were regular violent clashes on Zanzibar between CUF and the country’s main CCM party during elections, which should be prevented by the referendum outcome.
BUSINESS ENVIRONMENT
The Tanzania Shipping Agents Association (TASAA) had sought an increase of fees between 21.4% and 100%, affecting a range of fees including delivery order fees, amendment fees and bill of lading fees. TASAA justified the increase arguing that higher revenues will enable it to provide better services and investment in facilities.

 Fees had last raised fees in 2005. Unsurprisingly, industry members were opposed to the raise and asked for fees to be streamlined and more details on improved service delivery to be provided. Inefficiencies at the port are a limiting factor for transports into central Africa even if the railway lines is rehabilitated successfully.
 
DATA

  • Consumer price inflation eases further: Tanzania’s consumer price inflation rate eased to 6.3% in July, down from 7.2% in June and 7.9% in May. Good rainfalls have helped to bolster food production. The government aims to bring consumer price inflation below 6%.
  • Current account deficit narrows marginally in May 2010: Tanzania’s current account deficit narrowed to USD2.53bn in May 2010, compared to USD2.56bn in May 2009, as earnings from gold exports rose. Gross national reserves amounted to USD3.45m, up from USD2.68bn a year ago, providing a good 5.1 months of import cover. On a yearly basis, imports of goods and services rose from USD7.6bn to USD8.1bn, and exports rose by 12% to USD4.98bn, driven by strong gold prices. As a consequence, gold exports, earning USD1.39bn, exceeded earnings from tourism amounting to USD1.22bn.
  • National debt stock eases marginally to USD9.6bn: The 0.7% change was due to exchange rate fluctuations. Of Tanzania’s total debt stock, USD7.7bn are external debt.
 
DEALS AND INVESTMENTS

  • Biofuels: During his visit to Tanzania with a delegation of business people, Brazil’s president Lula da Silva stated that Brazil would work with Tanzania to develop the country’s biofuels sector, similar to what he had promised Kenya. He also indicated willingness to waive bilateral debt amounting to USD240m.
  • Rising FDI: The Executive Director of the Tanzania Investment Centre (TIC) anticipates a 16% increase in foreign direct investment (FDI) in 2010, up from USD645m in 2009. TIC figures show a slight decline from USD679m in 2008 in reaction to the global financial crisis. The number of new foreign investments registered with TIC fell to 503 in 2009 from 768 in 2008. The main sectors attracting FDI are telecoms, energy, manufacturing, financial services and transport. However, the World Investment Report (WIR) compiled by the United Nations Conference on Trade and Development (UNCTAD), shows Tanzania’s FDI inflows large unchanged at USD645m for both 2008 and 2009 (see Regional below).
 
REGULATORY AND LEGAL

  • Fuel adulteration: The Consumer Consultative Council of the Energy and Water Utility Regulatory Authority (EWURA) is keen to see harsher sanctions for fuel adulteration, arguing that the current system of fines is not a sufficiently strong deterrent. EWURA would like to see the cancellation of business licenses and imprisonment to prevent fuel adulteration.
Sector News
Manufacturing:

  • Tanzania Breweries Ltd Group (TBLG) posted an increase in profits to TZS92.449bn for the period ended March 2010, up from TZS85.495bn. The company’s chairman, Mr Cleopa Msuya, described this as an excellent performance, given that in the financial year under review, TBLG’s partnership with East African Breweries (EABL) ended, the company felt the impact of the global financial crisis, and also suffered a fire at its Dar es Salaam factory. On the upside, TBLG expanded its production capacity in Dar and commissioned a new plant at Mbeya. It also started a co-operation with local farmers to purchase more of its raw materials locally.
Aviation:
  • Precision Air, a private airline owned to 49% by Kenya Airways, and to 51% by businessman Michael Shirima, is planning an IPO before the end of 2010. The IPO would reduce both Kenya Airways’ and Shirima’s stake in the company. To date, the airline has shortlisted transaction advisors. If the IPO proceeds, and gold mining firms also begin to list, as technically required by the new mining act, this will give a boost to the Dar stock exchange.
 
Mining:
  • Coal mining: Exploration data indicate that the Ngaka basin could hold coal reserves of up to 800m tonnes. The East Africa subsidiary of advisory firm Atomic Resources are currently preparing a bankable feasibility study. The Ngaka basin is managed by Tancoal Energy Ltd., a joint venture between the National Development Corporation of Tanzania (NDC) and Atomic Resources set up to manage the development of coal mining operations and the establishment of a a 400MW coal-fired thermal power plant.
  • Interest in Tanzania’s oil and gas sector has been rising steadily: Tullow are said to have acquired more exploration acreage in northern Tanzania. Together with Irish Aminex, Tullow – who have discovered commercially viable oil deposits in neighbouring Uganda – already have two onshore licenses in Tanzania, the Lindi and Mtwara blocks in the Ruvuma Basin. At the end of June 2010, the exploration venture was officially joined by Solo Oil.
Telecoms
  • Bharti entry: After acquiring Zain’s Africa operations, Indian Bharti Airtel have promised to provide affordable mobile phone services to Tanzania and, in particular, to extend their service provision into the rural areas. The company aims to invest up to USD150m in Tanzania in the coming years. Tanzania’s government still holds a 40% stake in the Tanzania Zain operation, the second-largest operator in the country. Zain’s rebranding to Bharti is expected in October 2010.
  • New mobile tower company: Newly established Eaton Tanzania, the country’s first independent mobile tower company, counts on strong growth in Tanzania’s mobile telecoms sector. The company will not only build, but also own and manage the towers, arguing that this tower-sharing model is attractive for network operators as they will save on capital expenditures and operating costs.
  • EASSy fibreoptic cable: Construction of the East Africa Sub marine cable system (EASSy) has been completed at the end of July 2010 and the cable is expected to go live shortly. After Seacom, EASSy is the second fibreoptic cable to land in Tanzania. New market entrant Bharti is an investor in EASSy.
Tourism:
  • The 13th Zanzibar International Film Festival (ZIFF) again proved a key attraction for domestic, regional and international tourists.
  • Regional market a threat to tour operators? Some tour operators have expressed concerns that Kenyan tour operators will take business in Tanzania’s northern circuit away from them under the East African Community (EAC)’s common market that came into force on 1 July 2010 and allows for the cross-border movement of goods and services. Statistics published by the Tanzania Association of Tour Operators (TATO) show that 40% of Tanzania’s tourists cross into Tanzania from Kenya, and Kenyan tour operators are now no longer obliged to sub-contract Tanzanian operators.
Infrastructure
  • Serengeti Road: Tanzania’s government has faced criticism for its plan to construct a road through the Serengeti, one of Tanzania’s main national parks and tourist attractions. Critics were especially concerned that the Serengeti Road, a thoroughfare for commercial traffic, would cross the traditional route for the wildlife migration, in itself a major draw for tourists. Towards the end of the month, president Kikwete softened the government’s position slightly by promising that the road would not be paved, but remain a gravel road. He also criticised conservationists for their lack of appreciation that the people in that region needed transport infrastructure.
  • Dar es Salaam flyovers: President Kikwete stated that the designs for two flyovers for the capital city Dar es Salaam, intended to ease the notorious traffic congestions, were at an advanced stage. The government of Japan is supporting Tanzania in the design of a total of four flyovers.
Banking and finance:
  • Bank M celebrated its third anniversary in July 2010, noting that its total assets had grown to TZS154bn this month, up from TZS107.6bn in July 2009.
  • The National Microfinance Bank (NMB) announced the launch of its ‘Juhudi’ loan programme under which small entrepreneurs could borrow from TZS5m to TZS500m at an interest of 15%, markedly lower than the competition’s interest rates of 18% to 25%. In addition, Juhudi borrowers would receive business skills training. Eligibility for this loan programme is restricted to member of the Business Development Gateway (BDG), Small Industries Development Organsation (SIDO) and Enablis Tanzania.
  • Tanzania’s Women’s Bank (TWB) was inaugurated at the end of July 2010. While the bank will focus on a female clientele, men are allowed to open accounts, too. Access requirements are kept deliberately low in Tanzania’s 28th bank: an ID and TZS3,000 suffice to open an account.
Regional

FDI Inflows into the EAC


The World Investment Report (WIR) compiled by the United Nations Conference on Trade and Development (UNCTAD) shows that the East African Community (EAC) has attracted USD2bn in FDI In 2009. FDI inflows into Kenya have been comparatively low with USD141m in 2009, down from USD729m in 2007, which mirrors the deceleration in GDP growth to 7% in 2007, and then undoubtedly the impact of the post-election crisis from early 2008.
 
Uganda’s FDI inflows, in contrast, jumped from USD733m to USD799m, while Tanzania’s remained largely unchanged at USD645m. Inflows into those two countries were driven by investments in Uganda’s oil sector and mining investments in Tanzania. Rwanda attracted USD110m, and Burundi USD10m.
 
Interestingly, though, Kenya is the country that has invested most in its neighbouring EAC countries. The data are also an indication that the EAC has withstood the global financial crisis quite well, and Kenya is an outlier mostly for domestic reasons.



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