BUSINESS & THE ECONOMY

Exchange rate: 1US$ = Tzs 1,136

At the G8 summit in Scotland in July President Mkapa received assurances that in view of its impressive record in economic management, poverty reduction, good governance and good use of aid and previous debt relief, Tanzania can expect to receive a significant share of the new resources being added to the aid programme. The actual amount will be worked out by the boards of the IMF, the World Bank, and the African Development Bank over the next few months. The President said that to him, debt relief was the most assured form of development assistance as it freed revenues in his government’s budget to help in poverty reduction.

On May 12 Vice-President (Operations Policy) of the World Bank Jim Adams who was formerly the Bank’s Tanzanian Country Director gave a comprehensive review of Mkapa’s achievments in an address to the Britain-Tanzania Society. The subject was: ‘The Mkapa Legacy – Economic Reform, Growth and Poverty Reduction’ He listed some of Mkapa’s achievements including a reduction in poverty, a strong macro- economic programme, a successful programme of privatisation, (Dar es Salaam harbour and the telecommunications industry now performing better), reform of primary education with enrolment increasing from 65% to 100%, good relations with the private sector, debt reduction, substantial expansion of mining and tourism and close cooperation with donors. “President Mkapa’s reputation stands very high in the world” he said.

More foreign tourists are visiting Tanzania. Those staying in hotels increased from 562,000 two years ago to 582,000 last year. The Government earned $746.14 milion compared with $730 million two years ago. Last year 257,000 tourists arrived in Tanzania from African countries 53,000 from America, 221,000 from Europe and 50,000 from Asia. – Guardian

Tanzania is the first country in Africa to benefit from the World Bank programme on ‘Trade Finance Clinics’ targeting small and medium enterprises (SMEs). A Bank spokesperson said the clinics would help create linkages between local and foreign exporters and importers and assist traders to exchange knowledge and information on international trade through a series of training courses and the exhibition of export products. She also said that there would be a special forum for addressing the impediments faced by women exporters.
Tanzania is among countries that will benefit from a 40 million-Euro assistance programme to enable it to adapt to the new market conditions created by the reform of the European Union (EU) Sugar Regime. The exact terms of the changes to the regime are likely to be agreed by the end of this year but the amount of money available to Tanzania has not yet been decided. For many years Tanzania has benefited from being able to sell about 20,000 tonnes a year to the EU at a price higher than the world market price. The statement said the funds would be made available by mid-2006 and would continue for a maximum of eight years thereafter.
The companies mining Tanzanite have become the largest contributors of royalties to the government. Last year they amounted to $0.4 million or 5% of total royalty revenues. The USA is the primary market followed by Japan – Guardian.

A UN Report has listed Tanzania as the second largest marijuana producer in Africa after South Africa and there is fear that the drug is becoming the mainstay of the economy of some remote villages north-west of Arusha. According to the Arusha Times (July 23) up to 10 bales of marijuana, commonly known as bhang, are daily brought down from Mount Meru by foot or loaded on donkeys. From the many depots along Nairobi Road in Arusha, marijuana consignments are transported to the Namanga boarder post. The largest consignment is destined for Nairobi from where it is sold to Uganda, Rwanda, Burundi, the Congo, Ethiopia and Sudan. A peddler who has just served a three-year jail term in Kenya, said the route to the Namanga border post did not bother him much compared to the Kenyan side which he said had many check points. That was where he was nabbed and sent to prison. Another peddler claimed that the business is lucrative and therefore worth the risk. In remote areas marijuana is intercropped with food crops such as maize and peas. Other areas involved in cultivation of marijuana are the Usambara mountains and the southern highlands, but according to those familiar with the matter, Arusha’s variety is favoured and highly priced because of its potency. “It flowers quickly in one’s head” one grower said– Guardian.

A PEASANTS’ BUDGET ’

Joseph Kilasara has kindly agreed to summarise and comment on Tanzania’s latest budget. This what he wrote – Editor

Finance Minister the Hon. Basil Mramba described his 2005/06 budget as a Peasants’ Budget designed to implement the ruling CCM party’s manifesto on poverty reduction. Despite misgivings expressed by several MPs on the political face of the budget they eventually passed it with a huge majority according to the Guardian.
The Government is proposing to spend Tzs 4.176 trillion (US$ 39bn) out of which Tzs 2 trn (US$17.6bn) is projected from home revenue while the rest will come from foreign aid, Central Bank savings, sale of shares in government owned companies as well as internal borrowings.
In order to attain an economic growth rate of around 8% the budget allocates about 50% to works, health, education, agriculture and water – key sectors in poverty reduction. Development expenditure has been set at Tzs 1.3 trn which will include raising of the Ministry of Works budget by about 20.5% to Tzs 345bn and the education budget by 39% to Tzs 271bn. (Source: The Guardian and Daily News).
The main aspects of the budget as captured by experts from PriceWaterhouseCoopers are:
* Raising the minimum wage from Tzs60,000 to Tzs 80,000(US$77)
* Removal of special relief on VAT to mining companies.
* VAT exemption to railway locomotives and rolling stock, and to Jet –A1 aviation fuel and Mobile Health clinics. Abolition of Excise duty on Jet- A1.
* Excise duty on most beverages increased by about 5% in line with inflation.
* Other changes include reduction of stamp duty from 4% to 1% on a number of items, the abolition of licence fees for non-passenger vehicles and an increase of vehicle license fees from Tzs 10,000 to Tzs 20,000 annually.

WELL RECEIVED

The budget has been received well across the country albeit with some misgivings.
As a member of the Tax Reform Team the Confederation of Tanzania Industries (CTI) decried the Government’s refusal to reduce the VAT rate of 20% in line with that of other East African countries in order to offset the unfair advantages to Tanzanian manufacturers. The Kenya and Uganda VAT rates are currently 17% . CTI also noted the continuing high dependency on donor funding of the national budget which currently stands at around 41% and thus believes stimulating the manufacturing sector should be one of the key strategies to address the problem – The Financial Times – Tanzania).
According to the Planning Minister the economy for the year 2004 grew by 6.7% which is short of the projected rate of 8%, perceived as necessary to win the war on poverty. The manufacturing sector recorded a 8.6% growth rate, mining 15.6%, agriculture 6%. The inflation rate was contained at around 4%. As this is the last budget for the presidency it should be noted that when it started the GDP growth rate was 3.6% while the inflation rate was hovering around 29.5% – a remarkable achievement.
Exports receipts have increased by 18% to US$ 1,333m (2004) which has been contributed mostly by non- traditional exports which increased by 14.6% to US$1,042m with gold exports alone contributing US$ 686.5 million. Of major interest is the high contribution of mining to the GDP growth as well as exports (51%). To what extent this will stir up growth in other sectors and boost employment is unclear.
Equally troubling is the increasingly unfavourable balance of trade with imports rising by 18% to US$2,281.8m (fob) creating a balance of trade deficit of US$ 948.3m.
Despite receiving the HIPC relief the National Debt amounted to US$ 9,219.3 by December 2004 an increase of about 4.8% from December 2003.
The Shilling continued to fluctuate negatively registering an average of US$1,089.6 for the year 2004 as opposed to an average of US$1,038 in the previous year.

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