BUSINESS & THE ECONOMY

Tanzania no longer needs financial support from the International Monetary Fund according to IMF Deputy Managing Director Murilo Portugal quoted in the Guardian. He said that Tanzania had achieved strong growth and low inflation through macroeconomic policies in the past few years. He added that the external position had strengthened in recent years, and debt relief had reduced Tanzania’s external debt burden. He said the role of the Fund now would be to continue supporting Tanzania’s development of a sound macroeconomic policy framework and to encourage reforms in areas that are critical to securing higher and more sustainable growth. Much remained to be done for Tanzania to make greater inroads in reducing poverty and raising living standards especially in creating a business environment conducive to private investment.

Power consultancy firm Vattenfall is to do project analysis for a power generation project on the Rufiji River in Njombe district. The $400-500 million 360 MW project is to be built by the British firm Aldwych and is to be funded by the World Bank – Habari Leo.
Zanzibar Finance Minister Mwinyihaji Mwadini reported in July that the islands could fail to achieve their millennium development goals because of high population increase. He said the Zanzibar Government was planning to step up its family planning campaign and impose stricter migration rules to regulate the flow of outsiders wishing to settle in the islands.

Opposition politicians have expressed concern over what they claimed were large numbers of people from mainland Tanzania settling in Zanzibar. The leader of the opposition in parliament, Abubakar Khamis Bakari, has advised the Zanzibar government to reintroduce entry permits for mainlanders coming to the islands. Zanzibar’s population is estimated at just over a million and is growing at an annual rate of 3.1 percent – IRIN.

DOLLARIZATION OF THE ECONOMY
In 1993 the Tanzanian shilling was trading at 479.9 to the US Dollar. Ten years later the shilling was 1194.5 to the dollar, a fall of about 150%. To-date it is trading at over 1200. Of late the shilling has been appreciating against the American dollar mainly because the US currency value has been depreciating in the world market. The shilling is also falling against Tanzania’s East African partners’ currencies. The Tanzania shilling last year dropped by almost 18 percent.

This has led some opposition politicians to call for an urgent intervention by the government to stop the growing tide towards the use of the dollar as a medium for transactions. The spokesman of the opposition alliance Mr. James Mbatia said it was a pity to see the government allowing what he described as “the on-going dollarization of the national economy” for such a long time such that the strength of the shilling had been weakened compared with the currency of neighbouring countries. He castigated the use of US dollars in payments for accommodation in tourist hotels and also claimed that some employees were also being paid in dollars albeit often in a dubious manner.

“In order to curb the effect of dollarization of the Tanzanian economy on the people, we propose that from now onwards, the government should clearly direct all economic sectors to use the Tanzanian shilling in all their transactions,” Mbatia said.
This is happening at a time when the custodian of the Shilling, Governor Daudi Balali, is alleged to be mired in scandals regarding the misuse of funds in the Central Bank which resulted in a heated debate during the budget session of Parliament. The Governor has insisted that he has done nothing wrong.

The measures being suggested by the opposition appear to be aimed at the disease rather than the cause which is the continuing low level of exports, the increasing import bill and low productivity level in the country.
Though exports have increased from US$390.43m in 1995 to US$1,723.0m in 2006, imports have increased from US$770.8m to US$3,864.1m in the same period creating a current account deficit of more than 10% of GDP. This increases pressure on the general reserves which have fallen from their peak – the equivalent of 9.2 months of imports to about 5 months this year.
While announcing her second budget this June Minister Meghji estimated that the economy will reach a growth level of 7.7% by year 2008 though she did not indicate how that is going to be achieved. She is also planning to reduce the level of dependency by increasing internal revenue collection to 18.1% of GDP. It is however difficult to see how this is going to be achieved without hurting the economy as no attempt has been made to expand the tax base. Instead, more revenue is expected from existing sources with several hikes in current tax rates. One example is the increase in excise duty on mobile phones from 5% to 7% which has netted the government an extra TShs11bn (90%) even with minimal growth in subscribers.

In her first budget Mama Meghji reduced tax on Collective Investment schemes from 30% to 10% and in this journal it was suggested that she should go further to encourage a saving culture. Employees should be allowed to invest through the PAYE system as its tax effectiveness would be an incentive. This idea has however yet to catch her eye. Perhaps she may borrow a leaf from the UK Enterprise Investment Scheme (EIS), Venture Capital Trust (VCT) or the idea being concocted by Mr Cameron’s Conservative Party of Lifetime Savings Accounts (LSA). The benefit of these schemes is that they reward individuals through the tax system for taking risks while encouraging savings and investments.

In an effort to seek a fast means of escaping poverty Tanzania, just like many African Countries, has been exploring for oil in and around the country. In one of its August editions the Economist described Nigeria as behaving like a suicide maniac after having earned US$223bn from oil over the last 8 years while still languishing at 159th in the UN development index (HDI). There are 177 countries in the Index. Congo-Brazaville earned over US$3bn last year alone but has only known coups and wars from it. One is bound to ask a curious but very serious question. Tanzania, with her US$10bn+ GDP is on 162 in the HDI but is peaceful and is enjoying a moderate growth with an economy proving resilient during harsh time such as the just ended drought season. However will the discovery of the much sought Black Gold in Tanzania be a blessing or a curse? As some people might sometime say, “The future is a moving target!”
Joseph Sabas

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