Tanzania Country Brief: January 2011
Friday, 25 February 2011
Updates on the business environment, data releases, key deals, and sector news.

BUSINESS ENVIRONMENT
  • Abolition of TICTS monopoly improves cargo handling at Dar Port: Since the Tanzanian government abolished the monopoly held by the Tanzania International Containers Terminal Service (TICTS), the Dar Es Salaam Port’s cargo-handling efficiency has improved by an impressive 12.5%, with dwell time reduced from its high point of 24 days to 14. Numbers of container vessels docked at the port also rose, with 762 pulling into the port over the last two years, representing a total of 763,265 twenty-foot equivalent unit containers handled. TICTS and the Tanzania Port Authority (TPA) currently handle cargo. TPA has plans to reduce dwell time to single-digits this year.
  • Mtwara port punching below its weight: Over the past five years, the southern Mtwara port has been handling less than 35% of its usual 400,000 tonne annual cargo capacity. In the 2006/07 financial year, handling rates peaked, but have been declining since as a result of decreasing cashew nut exports, as well as the rehabilitation of the Mtwara-Dar es Salaam road. This has decreased the numbers of ships docking at the port over the last several years. In 2005, Mtwara had 28 foreign ships dock at its port, a figure which had dropped to 16 by 2009/10. However, the port’s management plans to expand the harbour from its current 71 hectares to a vast 2,646 hectares, including export processing zones, fuel depots and warehouses. The management has also let an area to British company M/S Ophir, which is currently involved in Indian Ocean oil exploration.
  • Tanzania’s industry hampered by cheap imports: The import of cheap consumables, often sub-standard and counterfeit, has been working to the detriment of local industry. Small-scale crafts salesmen have lamented the high costs of transport, unreliable and expensive raw materials and intermediate inputs, and lack of capital, which are a reflection of Tanzania’s relatively uncompetitive business environment.
  • Zanzibar importers face losing goods at auction: The Zanzibar Minister of Communication and Infrastructure, Hamad Masoud Hamad, has told importers to clear their goods from the Zanzibar port, as they otherwise risk losing them in a government-organised auction. This follows a complaint from the Minister of Communication and Infrastructure, which indicted importers for failing to clear their goods, even after several reminders.


DATA
  • Economic growth: President Kikwete has predicted accelerated growth for Tanzania in 2011. GDP growth is expected to rise to 7.2% from 7.0% in 2010 due to a strong recovery from the global financial crisis. The IMF expects growth to speed up on the back of an improved external position, moderate inflation and increased domestic revenue mobilisation. However, the president also warned of inflationary pressures over the coming year from rising food and fuel prices.
  • Debt: Tanzanian national debt has increased to USD10.8bn from USD6.1bn in June 2007. According to figures from the Bank of Tanzania, 84% of the debt stock is owned by government institutions with the remainder in the private sector. Economists warn that the increased debt, which has been taken on to fund an expanding government budget, could become problematic if the money is not invested in effective development projects that raise domestic resource collection. Tanzania was one of the indebted poor countries that benefited from the Multilateral Debt Relief Initiative (MDRI) at the end of 2005. Effective debt management is also vital if the country is to pursue its rumoured Eurobond in the coming year.


KEY DEALS
  • Tanzania and China sign agreement to develop heavy industry: The Sichuan Hongda Corporation plans to undertake a USD10bn iron ore and coal mining project in the Mchuchuma and Liganga regions of the southern highlands. Sichuan Hongda won the tender in competitive bidding in which 48 firms, including India’s Tata Steel Company and Western Minerals of Australia submitted bids. The company’s agenda includes using the mined coal to create a coal-run power project with a 400MW capacity, which will go some way towards decreasing Tanzania’s power deficit. The Tanzanian government anticipates that the Mchuchuma/Liganga project will bring in as much as 20 to-25% of GDP, after its anticipated 2012 start-date. Mchuchuma has proven coal reserves of 125.3m tonnes and Liganga is home to 45m tonnes of un-mined iron ore.
  • Indian companies to invest TZS300bn: Seven or more Indian companies are expected to build factories in Tanzania this year, with the projects beginning within the first six months of 2011. The move is expected to represent an aggregate of TZS300bn in investment, and to create over 6,000 jobs. Indian businessman Mukesh Ambani announced plans to invest in luxury hotels in Tanzania, Kamal Steel Industries plans to expand on an existing development to construct a USD220m steel factory, which will create roughly 5,000 jobs, and Science and Corp Ltd are planning an investment in the seed industry that is expected to cost USD3m and create a further 500 jobs. A USD1.2m investment from Lotters Packaging Ltd is expected to create another Indian-owned factory in Tanzania.
  • Eight companies to invest in export processing zones: The Export Processing Zones Authority (EPZA) has awarded certificates to eight new countries, which have jointly invested USD39m in EPZs. The companies include Diamond & Gamestone, Quality Pulse, Fresh Air, Dekker Bruins Tanzania, Tube Ltd, Rods Ltd, Premier Agro Processing and Tanzania Rods Industries. The investments will result in over 3,000 new jobs. EPZA has certified a total of 85 companies, with 42 involved in infrastructure development.


INDUSTRY NEWS
Mining:
  • Tanzanite exports banned: Government has once again placed a ban on the export of rough tanzanite. In September 2010, the Tanzanian government waived the previously instituted ban, only to rescind the waiver as dealers called for development polishing and cutting capacity locally. The export of raw gemstones that are exclusively mined in the Mererani Hills in Tanzania has resulted in its home country making only USD100m out of a total USD500m annually.

Banking:
  • Network problems hinder bank growth: The network systems infrastructure in Tanzania is failing to keep up with rapidly growing demand for banking services, according to Lawrence Mafuru, Chairman of the Tanzania Bankers Association (TBA). The inefficiency of technology is hindering the expansion of ATMs and banking services into rural areas, though this should be helped when the undersea fibre optic cable is finally connected to the system.
  • New banknotes released into circulation: The Bank of Tanzania has issued a series of new banknotes in denominations ranging from 500 to 10,000 shillings. The notes, which depict images of wildlife as well as political figures, will be used in conjunction with the old currency as it is gradually phased out.

Telecommunications:
  • Tanzanian telephone subscribers outnumber Kenyan counterparts: A recent airtime price-war in Tanzania has lowered prices to the extent that new subscriptions beat those in neighbouring Kenya, long-time leader of the East African telecommunications space. The Tanzania Communications Regulatory Authority (TCRA) has released data indicating that telephone subscribers in Tanzania stood at 20.77m people in September 2010. TCRA spokesperson did, however, warn that this figure did not equal penetration, as a result of the trend to own multiple subscriptions. Airtime is currently priced at about TZS60 per minute for on-network calls.

Energy:
  • Orca Exploration announces 2010 results: The firm generated revenues of USD6.1m in 2010, an increase of 44% on the company’s 2009 results. The largest share of the revenue came from industrial gas sales, which increased by 33%. Utility gas sales also increased by 17%. Increasing demand contributes to a positive 2011 outlook for Orca, despite higher capital expenditures as a result of activities such as the drilling of Songo Songo West. Following the recent creation of Orca’s new infrastructure division, EastCoast Transmission and Marketing, Orca announced the first project of the new entity, the creation of a 207km pipeline from Songo Songo to Dar es Salaam that is currently undergoing a feasibility study.
  • Tanzania poised to become EAC’s major natural gas supplier: The recent discovery of deep sea natural gas reserves has brought Tanzania’s total of available natural gas to 7.5trn cubic feet. These are sufficient to meet Tanzanian demand for power generation, energy for local industry, and more, including providing for significant exports of natural gas and electricity to other nations in the East African Community (EAC). The implementation of the Natural Gas Pipeline Dar Es Salaam will be a key step towards realizing this new potential in the Tanzanian energy sector.
  • Gas prices head skywards: According to Minister for Energy and Minerals, jumping gas prices follow increased demand, a situation caused by lack of competition in investment in the sector. Gas importers currently dominating the sector include Oryx (whose imports account for 75% of the total), Niham Gas, and BP. The government plans to introduce regulations on the gas importation business, curbing the tendency towards monopoly. Crude oil prices have also been rising internationally.
  • Electricity prices rise: Regulator EWURA has approved an 18.5% hike in electricity prices for 2011, following electricity provider Tanesco’s requests. Tanesco claims that prices are rising in largest part due to the company’s high operational costs.
  • Kerosene prices increase: Prices of the fuel rose by 6% early in January 2011, as a recovering global economy increases demand for petroleum products. Coupled with increased prices for cooking gas (up by 20%) and electricity (up by 18.5%) this price hike is set to have an adverse effect on poorer Tanzanian households. Petrol and diesel prices also rose between 3.4% and 5% early in January 2011. Increased fuel prices are intensifying environmental worries, as forests are being chopped down to provide for the fuel needs of local households.

DEVELOPMENT FINANCE
UK grants TZS17bn for business competitions: These will be run by the Tanzania Private Sector Foundation (TPSF), and will offer entrepreneurs the opportunity to compete for awards in two categories: the Business Plan Competition (BPC) and the Business Diagnostic Programme (BDP). The BPC competition will cover eight months for training and work, and will award 400 winners out of 750 competitors with grants of between TZS3m and TZS30m to implement their plans. The BDP cycle will also cover eight months of training and implementation, as well as self-diagnosis, and will involve 1350 competitors, out of which 1,148 winners will receive seed grants of between TZS 1.1m and TZS4.6m. The UK Department for International Development’s (DFID’s) donation is intended to build on the achievements of the first phase of the Business Development Gateway (BDG) programme, which aims to promote a culture of entrepreneurship.


REGIONAL NEWS
Increased aviation activity in East Africa: East African airlines Rwandair, Fly 540, Air Uganda, Jetlink and Kenya Airways have increased their presence in the region with additional routes. Air fares remain static in most of the routes covered over the last two years, with Kenya Airways acting as the dominant force in the market. Increasing activities might well lead to lower prices as competition increases. East Africa’s open skies agreement is yet to come into force.




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