BUSINESS AND THE ECONOMY

(Exchange rates: £1 = 2,426 TShs, 1US$ = 1,244 TShs on August 6th 2006 )

The economy recorded a lacklustre performance for the year 2005. Though there was an increase in value of exports by 13.8% to $1,676.3 million this was matched by a similar increase in value of imports to $ 2,661 million leaving a trade deficit of $985 million equivalent to 5.8% of GDP. There was a 10.8% decrease in foreign reserves to $2,048 m which is equivalent to 6.4 months of imports as opposed to the targeted 7 months. This may have contributed to the 3.6% depreciation of the shilling to an average of TShs 1,128.8 to the dollar.

Because of higher world fuel prices and the serious drought Tanzania has been experiencing, inflation went up from 4.3 per cent in July 2005 to 6.9 per cent in April 2006 causing much hardship to the people.
There was some disappointment when it became clear that the $2.8 billion debt waiver Tanzania got last year under the Highly Indebted Poor Countries (HIPC) initiative would not translate into immediate budgetary relief but would take time to trickle down. The external debt however decreased slightly by about 1.1% to $7,934.4. The domestic debt increased by 30.3% to TShs 2,362.5 billion which raises concerns about the government’s intention to provide soft loans to enhance economic development capacity.

THE BUDGET
New Finance Minister Mrs Zakia Meghji announced her 2006/07 budget on June 15. It was centred on promoting manufacturing industry by increasing tariffs on goods manufactured in Tanzania, mobilising savings, broadening the tax base and reducing tax evasion. It also aimed to help the vital agricultural sector. The budget placed an emphasis on broadening the tax base and giving more concessions to raise the participation of the people in economic growth. The budget provides for expenditure of TShs 4,850 billion (£1,999m) which is equivalent to 28.6% of GDP. This includes development expenditure of TShs 1,734 billion. Of this TShs 2,461 bn (14.5% of GDP) will be from domestic revenue collection.

The Minister stated that among the aims of her budget were the implementation of the CCM 2005 election manifesto and the National Strategy for Growth and Reduction of Poverty (Mkukuta) by increasing budgetary allocations especially for education and health. She also indicated her desire to reduce dependency on donors for budgetary support which in the 2006/07 budget is 39% – a decrease of 2% from the last budget.

The budget placed an emphasis on mobilising savings, broadening the tax base and giving more concessions to raise the participation of the people in economic growth.

In boosting the development of financial markets, she reduced the corporation tax rate from 30% to 25% for the first three years of listing at least 35% of equity. In a similar step the Minister also reduced the income tax rate on Collective Investment Schemes (CIS) from 30% to 10% thus putting the schemes on a similar footing to dividends paid to individuals. Some suggest that more public participation in these schemes would be achieved if payment were allowed through the PAYE system to encourage individual savings as it would be tax efficient.
The Minister said that Tanzania’s economic reforms were working as the country became less dependent on agriculture although the budget included increased subsidies for fertilisers, seeds and agricultural inputs including irrigation infrastructure. The diversification into mining, manufacturing and tourism was going well with growth rates continuing to improve.

Shortages of electricity during recent months have caused serious difficulties to industry and the daily life of the people and the budget contains many measures in the energy sector. It helps to reduce the country’s reliance on energy- inefficient firewood and charcoal by reducing excise duty on kerosene, and removing VAT on petroleum prices, gas cylinders and on liquid petroleum gas and on solar energy equipment. The increase in rate of tax on mobile phone air time without reduction of tax on handsets however is bound to be counter productive as it will impede the increase in mobile phone usage and thus decrease the overall tax intake. Industry sources also lament the fact that this works against the government’s intention to increase access to communication and moreover it is discriminatory with respect to landline operators who face no excise duty.
The budget initiatives failed to address the demand side of fuel. With an increasingly volatile situation in the Middle East and the ever increasing demand for oil from the fast growing economies of India and China it does not look likely that the price will come down soon. A look into alternative sources of energy, such as ethanol from maize, and tax measures to reduce use of private cars, might be worthwhile.
Joseph Kilasara

MORE LOANS
In the first six months of this year the National Microfinance Bank (NMB) has issued more than 350,000 loans to its customers worth TShs 296.4bn/-. Half of them have been issued to small and medium enterprises (SMEs) and other low income-earning citizens – Guardian.

CHANGES AT TANESCO
The Managing Director of Tanzania Electric Supply Company (TANESCO) Adrian van der Merwe, has re-shuffled its 24 regional managers while sacking 6 and suspending 10 of its officers on grounds of incompetence. He published the mobile numbers of all Tanesco regional managers. Performance assessments had revealed a loss of TShs 2 billion. Van der Merwe lamented that the firm was facing a serious problem with the theft of oil from its transformers – TShs 315 million in 2003 and TShs 686 million in 2005 – Nipashe.

IMPACT OF THE ARUSHA CRIMINAL TRIBUNAL
The Arusha Times in its issue dated April 22 gave an assessment of the economic impact of the presence of the International Criminal Tribunal for Rwanda (ICTR) on Arusha’s economy. Extracts: The assessment reveals a substantive inflow of cash into the local economy but more could have been injected had more of the overall ICTR procurement funds been spent in Arusha. In her MBA thesis, Mrs. Céline Claire Fomete collected data which showed an estimated minimal amount of $ 58.79 million was injected into the local economy thanks to the presence of the ICTR. The major sectors benefiting were real estate, education, general business, health and insurance. About one million US dollars was paid yearly by the ICTR for the use of its premises, representing some 70% of the total income of the Arusha International Conference Centre. An average of 60% of the houses and flats owned by the Para-statal Pension Fund (PPF) in Arusha were occupied by ICTR staff or consultants. Also an average of $337, 000 was paid by international staff to landlords in rent. More than 200 Tanzanian nationals were employed by the ICTR and had received the equivalent of $ 6,69 million in salaries.

The study recommended that the Government and relevant stakeholders should organise themselves to minimise the negative impact of the anticipated closure of the ICTR by, for example, assisting nationals to plan their redeployment and attracting more international organisations such as the newly established African Court of Justice and Human Rights.

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