BUSINESS & THE ECONOMY

by Ben Taylor

Hot debate on Tanzania’s economic situation
Questions were raised in parliament about an apparent slowdown in Tanzania’s economic growth, particularly in some key sectors. Data from the National Bureau of Statistics showed a considerable decline in the rate of growth of the construction sector in particular, with growth having slowed to 4.3% in the first quarter of 2016 compared to 23.2% in the same period of 2015. Transport and manufacturing saw smaller declines in the same figures, from 14.5% to 7.9% and 9.9% to 7.4% respectively.

“Some transport companies have reportedly cut their operations by up to 40%, while others have relocated to neighbouring countries because of uncertainty in the business environment in Tanzania. Is the government aware of this? What steps is it taking to address the situation?” asked Freeman Mbowe, Chadema party chair.

Prime Minister Majaliwa replied there was no concrete evidence the economy has not been performing well. He told Parliament that for the government to come up with a definitive answer it would first conduct an in-depth study. He added that the government was already taking a number of measures to improve the situation at Dar es Salaam port, including seeking the advice of a number of countries that were operating successful ports. He further noted further that the decline in cargo was partly a global phenomenon linked to lower oil and gas prices in the world market.

Bank of Tanzania governor, Prof Benno Ndulu, said there was no slowdown, but rather a re-distribution of money away from the pockets of corrupt people. “Nationally, there is enough money in circulation to serve and implement various public projects for the interests of all the people,” he stated, explaining that the government had plugged loopholes in illicit or cheap means of getting money, which was why those who had previously been taking advantage were now crying out for money.

On executing the government expenditures for the first six months, the governor said there have been difficulties in obtaining foreign aid due to the world economic crunch, adding, however, that the cost cutting and tax collection measures helped to fund various projects.

Meanwhile, the IMF issued a coded note of caution to the Tanzanian government to prevent national debt from growing out of control. “Careful prioritisation and implementation of expenditures will be required to ensure that spending does not exceed available resources and to avoid domestic arrears accumulation,” said IMF deputy managing director Min Zhu after the conclusion of the latest country review for Tanzania.

“Creating fiscal space for higher infrastructure investment through sustained efforts to raise domestic revenue and increasing spending efficiency, particularly in public investment, is imperative,” Zhu added.

The government plans to raise spending by 31% to TSh 29.53 trillion in its 2016/17 fiscal year budget, focusing on infrastructure and industrial projects.

Prof Ndulu said that as of June, this year, national debt had reached US$ 21bn, but that it is projected to drop. He noted that Tanzania currently uses TSh 20 in every TSh 100 of its revenue collected on debt payments, a level which he said was relatively low. “It is contrary to some reports that the national debt has reached dangerous levels,” he insisted. (The Citizen, The Guardian, Daily News)

Suspension of operations at Dangote cement: a symptom of Magufuli’s economic dilemmas?
The recent temporary suspension of production at the Dangote cement works in Mtwara, less than six months after the plant was opened, has been described as a sign of difficult times ahead for Tanzania’s economy. According to media coverage, promises made under the presidency of Jakaya Kikwete relating to tax exemptions and the supply of natural gas to power the plant have either been withdrawn or failed to materialise.

“Before Kikwete left, the gas issue hadn’t been resolved but there were promises made that Dangote would get gas at a cheaper price,” a source familiar with the company’s business in Tanzania told Quartz, an online magazine.

Dangote plugged the gap in their power supplies by importing coal from South Africa, until the Tanzanian government banned coal imports in response, arguing that domestic coal production should be supported.

“We don’t want to hear that the price of imported coal from South Africa is cheaper than the price of coal from Mchuchuma to Mtwara,” said Medard Kalemani, Deputy Minister for Energy and Minerals.

This forced Dangote to rely on generators which sent operational costs soaring. Operations at the plant were suspended in November.

President Magufuli then became personally involved and reached a last-minute deal with Dangote in mid-December to keep the factory in the country and save thousands of jobs that were at risk if it closed.

The president has taken a more hard-line approach to tax incentives than his predecessor, leading to concerns among some analysts and investors that Tanzania could lose out on future investment decisions as a result.

The previous administration has been accused of giving Dangote Cement generous incentives through the Tanzania Investment Centre, including land for the factory and tax exemptions on importation of diesel and machinery. According to the East African, other potential investors in the cement industry are demanding similar incentives, which the government is finding hard to square with their commitment to reducing tax exemptions.

“If you’re told one day, out of the blue, that you’re no longer exempt from VAT, not only does it throw a spanner in your current business, it also affects your confidence about your future investment decisions,” said Anna Rabin, an investment analyst. “Investors feel that the want for upfront revenue collection is to the detriment of the potential to secure future investments,” she added. (Quartz, The East African, The Guardian)

EU Economic Partnership Agreement (EPA) still contested
The debate prompted by the Tanzanian government’s decision earlier in 2016 to withdraw from a proposed Economic Partnership Agreement (EPA) between the East African Community (EAC) and the European Union (EU) continues to rage.

In September, the EU parliament extended Kenya’s current preferential access terms for an additional four months, to give Kenya time to persuade their Tanzanian counterparts of the benefits of the proposed agreement. Without the EPA, as a middle-income country, Kenya is set to lose their valuable trade terms with the EU – Kenya’s largest export market – worth an estimated $100m each month, and linked to around 4 million jobs.

As a shared customs territory, all the six EAC members must sign the EPA for it to be implemented in the region. Tanzania has refused to sign, saying the agreement would have serious consequences for its revenues and the growth of its industries. Burundi has also declined to sign.

Former Tanzanian President Benjamin Mkapa has previously personified the country’s resistance to the trade deal. In November, the Tanzanian parliament added their support for his arguments with a near unanimous vote to block the country from signing the EPA.

Opposition MP, Zitto Kabwe, referred to figures from Eurostat and the International Trade Centre (ITC) to make the case that Tanzania would lose out heavily under the proposed deal. “Losses will mainly be caused by contractual demands requiring Tanzania to scrap tax barriers by 90 per cent on non-agricultural products from the EU and by 10 per cent on agricultural products. This means that Tanzania will remain a supplier of raw material and a market for value added products from the EU.” Kabwe added that Tanzania would lose anticipated revenue following removal of value added tax (VAT) payable as import duty to products from the EU. “We should build internal capacity first. World Trade Organisation conditions allow us access the EU market without taxation,” he concluded.

Kenyan Vice President, William Ruto, said the agreement had given the EAC a lot of credibility and had assisted the region to attract investments He said backtracking on the agreement would erode the credibility the region has built over the last 20 years. “This will negatively affect prospective trade arrangements with other countries,” he said.
(The Citizen, The East African)

Race for mobile phone networks to list on Dar stock exchange
Tanzania’s leading mobile phone networks were scrambling to meet a December 31st deadline for mandatory listing on the Dar es Salaam stock exchange (DSE). Vodacom, now under the name Vodacom Tanzania PLC, became in November the first network to submit its application for an Initial Public Offering (IPO). Tigo and Airtel, the second and third largest networks in the country are following close behind, though Tigo admit they are unlikely to meet the deadline.

Under the Electronic and Postal Communication Act of 2010 (EPOCA) and the Finance Act of 2016, all telecoms companies in the country were required to list at least 25 per cent of their shares on the DSE before the end of 2016. It is expected that most such firms will complete the listing requirements in the first quarter of 2017.

Financial experts described the listing of the foreign-backed mobile phone giants on the local stock exchange as a ‘game changer’ in the country’s capital market.

“When a telecom company lists on a stock exchange, its impact is significant. Our nearest example is Safaricom in Kenya, where its listing on the Nairobi Stock Exchange changed the dynamics of NSE to date,” said Moremi Marwa, chief executive officer of the DSE to The Guardian.

“The impact on the DSE will result in almost the doubling of its market capitalisation, which is good and it will of course offer more choices to investors,” said George Fumbuka, chief executive officer of CORE Securities Limited.

“The parent companies of these telecommunications companies are abroad, so when they make profits all the profit goes out of the country,” said a spokesman of the Capital Markets and Securities Authority.
“Through these IPOs, Tanzanians can now own shares in the companies. This means that some of the profits made by the firms will in the near future remain in Tanzania.” (The Guardian)

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