Archive for Business & the Economy

THE MINERAL SANDS EXPORT SAGA

by Roger Nellist

Tanzania’s mining sector in difficulty – the background
As reported in TA117, in March the government took the controversial step of banning the export of mineral concentrates and ores for metallic minerals such as gold, copper, nickel and silver. Later the same month, President Magufuli had intervened personally, ordering the seizure at Dar port of 277 containers of mineral sands destined for export mainly from two gold mines operated by Acacia Mining (Tanzania’s largest gold-producer), and asserted: “There is no country being robbed of its mineral wealth like Tanzania”. Samples were taken from the sands for analysis. Several foreign mining companies were immediately affected by the export ban but local miners and other entities also expressed concerns. In April, Magufuli established two expert teams to report to him quickly on different aspects of the mineral sand exports. Since then the saga has intensified, triggering an avalanche of robust follow-up actions by government – including more sackings and contentious new legislation.

Tanzania is variably listed as Africa’s third or fourth largest gold-producing country so, unsurprisingly, the saga has generated much news coverage and comment, both in Tanzania and abroad. There have been headlines like: “Industrial-scale plunder of Tanzania’s mineral wealth by multinational companies”, “Probe team unearths massive thievery in mineral sand exports”, “Tanzania has been losing trillions of shillings in revenue” and “Tanzania’s Acacia spat shows deepening battle with business”.

Two Presidential probe reports
President Magufuli received the two reports in person at State House, presented by the respective expert teams, with the presentations broadcast live on national media. The first took place on 25 May, led by Prof A. Mruma, the head of the Geological Survey of Tanzania. Their report found that the containers impounded at Dar’s port held real minerals with a value totalling up to TSh 1.4 trillion that had not been declared for tax or recorded by the Tanzania Minerals Audit Agency (TMAA). Minerals discovered in the concentrates included gold, silver, copper metal and sulphur, as well as quantities of undeclared strategic minerals like lithium. The team said it found an average of 1.4kg of gold per tonne of mineral sand in the containers, seven times as much as reported by TMAA. It also uncovered other discrepancies. Mruma’s committee recommended that the export ban on metallic mineral concentrates be maintained, effective scanners be installed at Dar’s port, containers be sealed immediately after testing, that government should ensure smelters are built in Tanzania to maximise the full value of minerals produced and that disciplinary action should be taken against officials in the Ministry of Energy & Minerals (MEM) and in the TMAA.

On 12 June Magufuli received the second report, concerning the economic impact of the mineral sands exports. This team, led by Prof N Osoro, estimated that between 44,000 and 61,000 containers of gold and copper concentrates had been exported between 1998 and March 2017, most emanating from two mines run by Acacia (formerly Barrick Gold). It estimated losses in government revenue running into trillions of shillings over the two decades – through under-declaration of both export volume and value of gold and copper concentrates. Magufuli announced: “The report says the amount of unpaid taxes between 1998 and March 2017 through illegal exports of gold and copper concentrates is between TSh 68.59 trillion and TSh 108.5 trillion”. Such sums would be enough to cover Tanzania’s national budget for three years and build about 1,000 kms of railway line between Dar and Mwanza. Describing the losses as “criminal”, Osoro’s committee made 21 far-reaching recommendations – principally that: responsible senior public officers (past and present) should be charged with complicity in tax evasion, abuse of public office, economic sabotage and fraud; all Mining Development Agreements (MDAs) and mining laws should be reviewed; all new MDAs should be approved by parliament and the terms of all MDAs should be made public; government should take a stake in all large mines; overly generous tax concessions should be removed; and there should be strengthened security at mines to reduce smuggling.

The government’s response
Inevitably, the two reports produced very strong reactions from many quarters, including demands for a major overhaul of Tanzania’s mining laws and arrangements. In a parliamentary session after the first report, MPs were close to unanimous in expressing their shock. They offered many suggestions on what should be done and called for officials in MEM “who have been telling lies” to be investigated. They also called for Energy & Minerals Minister Sospeter Muhongo and his Deputy Minister to be held to account for the mistakes of their subordinates and, since the scandal has been ongoing for years, for his predecessors to be investigated too.

President Magufuli took quick action. Immediately after publication of the first report he cancelled Muhongo’s appointment as Minister, saying “The Minister is my friend but I want him to reconsider his position …. I am advising him to step down”. State House indicated that there would be no immediate replacement for him. Magufuli also dissolved the Board of TMAA and suspended its CEO. These sackings came on top of the earlier dismissal of MEM’s Permanent Secretary, allegedly for lying to parliament about the concentrates.

The President was incensed after receiving the second report on the revenue losses. Saying he was left “utterly speechless” by its findings, in a televised response he declared: “Enough is enough. We have been given raw deals for too long and this has to end. … Even the devil is laughing at us over our own self-inflicted level of poverty amid natural wealth given to us by God.” He demanded that Acacia Mining – if it wanted to continue mining in the country – pay billions of shillings in tax due since 1998 as arrears and dared the company to sue his government. Calling on Acacia to repent, Magufuli said he would not discuss anything with the company whilst debts were pending. He ordered that all 21 recommendations made in the Osoro report be implemented immediately. In early July he went further, ordering MEM not to issue any new mining licences or to renew expiring ones.

On 14 June, with only a few dissenting voices, parliament passed a resolution praising Magufuli for his actions. One MP said “this is war…. economic war”.

Then on 3 and 4 July Parliament considered and approved three hastily-prepared bills tabled by the Minister for Constitutional and Legal Affairs, Prof P. Kabudi. The three Acts (see below) make amendments to six existing laws (including the Mining, Petroleum and Income Tax Acts) aimed at strengthening government control of Tanzania’s mineral and petroleum sectors and increasing revenues from extraction activities in those sectors.

The Natural Wealth and Resources (Permanent Sovereignty) Act 2017 asserts that all natural resources belong to Tanzania and will be used only to benefit the country. It requires all disputes between the government and investors to be settled in Tanzania (no foreign arbitration) and compels companies to process minerals within the country rather than exporting them as raw materials; mineral concentrates if not smelted by the producer will be sold to whoever is able to smelt them in Tanzania and pay taxes due. We understand that this Act also allows government to own up to 50% of mining firms, and requires all earnings from the exploitation of natural resources to be banked in Tanzania (foreign mining companies may remit dividends only).

The Natural Wealth and Resource Contracts (Review and Renegotiation of Unconscionable terms) Act, 2017 requires all natural resource contracts to be made public, that parliament must endorse them, and allows the government to revoke contracts if they have “unconscionable terms” or are otherwise prejudicial to the interests of Tanzanians.

The Written Laws (Miscellaneous Amendments) Act 2017 dissolves the TMAA and replaces it with a Minerals Commission (with most of its nine members being serving Permanent Secretaries).

The debate on the three Bills, rushed through parliament in just two days, was heated, with many differing views expressed. CCM MPs supported their immediate consideration but opposition MPs questioned the urgency, arguing for more time for their public and parliamentary scrutiny. One CCM MP cautioned that “these are revolutionary measures. We need to understand what we are getting in to. … Multinationals may decide to pull out from our country and adversely affect our current account and the value of the Tanzanian shilling”. He added that to balance the risk of such negative outcomes from “our economic freedom fight” the government should invest more in small-scale mining.

The mining industry’s response
Acacia Mining operates three mines in Tanzania. Whilst its Mara North mine produces almost pure gold (and was not the subject of the probes) its two other gold mines (Bulyanhulu and Buzwagi) produce mixtures and were investigated. The company announced in April that the concentrate export ban was costing it about $1 million daily, and its shares fell on the FTSE 250 Exchange.

After the first probe report findings were publicised Acacia’s share values dropped by more than 15% in minutes. The company stated it had fully co-operated with the committee and maintained it fully declares everything of commercial value and pays all appropriate royalties and taxes on all payable minerals produced.

After the release of the second report’s findings Acacia called for an independent review of both Presidential committee reports, asserting that they contained inaccurate and unexplainable findings and allegations. It strongly refuted the “unfounded accusations”, insisting it is a law-abiding company, mining in full compliance with Tanzanian laws, paying all royalties and taxes due and publishes fully audited accounts. It called for a lifting of the mineral sands export ban (saying it was hurting its ability to conduct business in Tanzania and also badly affecting the lives of thousands of Tanzanians) and called for a resolution of the current situation. Over the last 20 years Acacia/Barrick has invested US$4 billion in Tanzania’s mining sector. In all, Acacia’s shares are now priced at less than half of their value of twelve months ago.

Within days of the second report being presented to the President, the Executive Chairman of Acacia’s majority shareholder, Barrick Gold Corporation of Canada, flew to Dar to hold talks with Magufuli. He said he wanted to help resolve the problems and, after the discussions, he and Magufuli announced they will establish two expert teams to begin negotiations to that end. The Chairman said he was optimistic about reaching a solution – one that will involve payment of any past dues and also arrangements for establishing a smelter in Tanzania. Acacia said it would not participate directly in the government-Barrick talks but would work to support Barrick.

On 4 July, before the new legislation had been signed into law by the President, Acacia filed arbitration notices in Tanzania in order “to protect the company”. It reiterated that “Acacia remains of the view that a negotiated resolution is the preferable outcome to the current disputes and the company will continue to work to achieve this”. It is understood that production continues at Acacia’s three mines.

All other mining companies in Tanzania will also be impacted by the government’s recent actions. The Tanzania Chamber of Minerals and Energy, representing the industry, said the implications of the new laws (which it had opposed) are “vast”, adding that “the industry is going to be affected big time” and that it will need extensive legal advice. External commentators are expressing concerns that, even though Magufuli has said the private sector is “an important ally”, his robust actions will unsettle other investors. One pointed to the US$ 19 billion of major infrastructure projects the government has in the pipeline and for which it needs private investors, reminding that other large private investment projects in Tanzania have also been jeopardised this year. Another commentator opined that Tanzania’s mining sector is deteriorating from a situation of relative stability and sense to becoming “yet another African basket case”.

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BUSINESS & THE ECONOMY

by Ben Taylor

National budget endorsed
Members of Parliament (MPs) overwhelmingly endorsed the 2017/18 national budget: of 355 votes cast, 260 voted to approve the budget and 95 voted against. All but two opposition legislators voted to oppose the budget.

Finance and Planning Minister Philip Mpango announced the abolition of Value Added Tax (VAT) on hunting fees, licences and permits in order promote business in the sector. He also relieved private schools of skills development levy and fire extinguishing fees, expressing the hope that school owners will reduce their fees and enable more Tanzanian children to access private education. Further, industrial investors will no longer have to pay for the Environmental Impact Assessment (EIA) fee, said the Minister.

“The property tax is charged on permanent structures in cities, municipalities, towns and townships…villages and mud houses will not be taxed,” he clarified, adding that houses for people aged over 60 years are also exempted.

During the debate, a proposed property tax of TSh 10,000 and TSh 50,000 per ordinary house and storied buildings, respectively, were decried, with legislators describing the taxing of rural mud-built and grass-thatched houses as unfair and unjustifiable. The Minister clarified that “the property tax is charged on permanent structures in cities, municipalities, towns and townships … mud houses and houses in villages will not be taxed.” He added that houses for people aged over 60 years are also exempted.

Dr Mpango also defended the replacement of the annual motor vehicle licence fee with a levy of TSh 40 per litre on fuel, saying the move will relieve motorists with the burden of fee, which is costly. He dismissed claims by many MPs that taxing fuel was burdening the poor for the benefit of motorists, mostly urban dwellers, saying the collected taxes will be used to finance development projects and social service provision for the benefit of all, rural dwellers inclusive.

Deputy Minister for Finance, Dr Ashatu Kijaji said the government was committed to fulfilling President John Magufuli’s campaign promise to disburse TSh 50m to each village, saying already the State has already allocated about TSh 120bn for the purpose.

“We remain committed to release this money but there are issues that must be tackled…we are currently working on firm systems to support the distribution of the money,” said Dr Kijaji.

The Minister of State in the President’s Office, Public Service Management and Good Governance, Angela Kairuki said she would permanently verify the authenticity of public servants to ensure that not a penny from government coffers will be paid without proper justification.

“Let me be referred to as minister of verification, if necessary,” said the Minister, declaring the introduction of performance contract system for all executives in the public sector.

The opposition camp in parliament took issue with the budget, saying it contained serious, unexplained discrepancies and that it was crafted on the basis of an ambitious but unrealistic revenue assumptions. The Shadow Finance and Planning Minister, Ms Halima Mdee, is unable to attend sessions in parliament until February 2018 following a ban issued by the speaker. Her response to the budget was therefore issued to journalists.

Miss Mdee said the presented budget seems to be bent on killing the Decentralisation by Devolution (D by D) plan which seeks devolve powers from the central to the local government authorities. D by D started out of the admission that the central government had failed to do everything. Unfortunately, the central government is now grabbing the powers of collecting property tax and city service levy away from local government authorities,” said Ms Mdee.

Earlier, when tabling the budget, Mr Mpango acknowledged the concern of the increasing frequency of businesses closure in Kariakoo, Dar es Salaam and in other cities. He said figures from the tax authority, TRA, showed that from July 2016 to March 2017, a total of 7,277 businesses were shut down. “This trend is discouraging since residents lose jobs and incomes and the government loses tax revenue, while the economy slows down,” he said.

He told parliament that factors contributing to business shutdown include stiff business competition, weak business management, increasing business operating costs attributed to transportation, taxes and levies; and non-compliance to business rules and principles. He also reminded the house that it is worth noting that business owners have become aware of the need to report to TRA as soon as they cease their business operations in order to avoid accumulation of tax liabilities, and that a much larger of new businesses were registered during the same period.

He compared this situation to that of China since the 1980’s, quoting from a book on the subject: “Businesses at the time were like ships, each raised up and carried along by the sheer momentum of the wave. Some, however, soon capsized and were swallowed up, while most drifted along, going with the flow. Others crashed against barriers in the sea or got stranded on deserted islands. Only a few rose atop the crest of the wave and survived, eventually sailed towards new lands.”

The Minister refuted accusations that the government was anti-business, reassuring business leaders that the fifth phase government recognised business as the engine of the economy and recognised the contribution of business to national development. He pointed to the government’s efforts to maintain economic stability, peace and security, reduce regulation and to development national infrastructure as evidence of the government’s pro-business credentials. He also reminded TRA officials to act fairly and in accordance with the law when dealing with tax payers. (The Citizen, Daily News)

Case against Manji heard at Muhimbili National Hospital
Kisutu Magistrate’s Court in Dar es Salaam briefly relocated to Muhimbili National Hospital (MNH) in July, where prominent businessman Yusuph Manji and three others were charged with seven counts relating to military uniform fabrics worth over TSh 200m. Other charges relate to illegal possession of government stamps, which are three rubber stamps of the TPDF bearing different addresses and two motor vehicle plate numbers of government offices suspected to have been unlawfully acquired. Manji is charged alongside three officials with Quality Group, the firm he heads.

Manji has for several months been a patient of the Jakaya Kikwete Cardiac Institute under police supervision after initially being arrested on immigration-related charges.

It is alleged that on June 30, the accused persons were found by a police officer in possession the fabric, stamps and number-plates without lawful authority. The prosecution alleges that this was prejudicial to the safety or interests of the United Republic of Tanzania.
Manji and his co-accused were not required to enter a plea at this stage.
(Daily News, The Citizen)

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TRANSPORT

by Ben Taylor

Dar port expansion underway

Launch of Dar es Salaam Maritime Gateway Project (DSMGP) (World Bank)

In July, President John Magufuli laid the foundation stone to launch construction works at Dar es Salaam port to deepen and upgrade seven of the port’s berths.

Dr Magufuli was informed that at present, only ships up to 243m in length and with carrying capacity of between 2,500 and 4,000 twenty-foot equivalent units (TEUs) can dock, but that following the upgrading works, the port will accommodate Post Panamax ships with 320-metre lengths and carrying capacity of up to 8,000 TEUs.

The Dar es Salaam Maritime Gateway Project (DMGP) is supported by the World Bank, which has offered a USD $345m loan, and the United Kingdom through the Department for International Development (DfID) through a USD $12.4m grant. The Tanzanian government, through own sources, will provide USD $63.4m.

The upgrading of the country’s major port is expected to enable more ships to dock, offload and load shipments at the harbour at the same time, reducing dwell time and enhancing efficiency. Dwell time at the port is expected to drop from 80 to 30 hours.

President Magufuli was impressed by the project and instructed the contractor, China Harbour Engineering Company (CHEC), to fast-track the project from 36 to between 28 and 30 months.

“This project will benefit not only Tanzania but her landlocked neighbours like Rwanda, Zambia, Burundi, Uganda, Malawi and Democratic Republic of Congo (DRC). The envisaged Standard Gauge Railway (SGR) will highly depend on the effectiveness of the port that handles 90 per cent of imported goods,” he said.

The entrance channel will have its depth deepened from 10.2m to 15.5m for a distance of 8km and its width widened from 140m to 170m, explained the Director General of Tanzania Ports Authority (TPA), Eng Deusdedit Kakoko. (Daily News)

Dar es Salaam wins Sustainable Transport Award
Dar es Salaam was announced the winner of the Sustainable Transport Award by the Institute for Transport Development and Policy (ITDP) in New York. This makes Dar the first African city to win the prestigious award.

ITDP notes that Dar had “launched a series of transformative improvements to transit, cycling and walking” in the past year, the most important of which is the Dar es Salaam Bus Rapid Transit (BRT) system, or DART. “DART is a high-quality, high-capacity BRT system incorporating best practice design and features, is the first true BRT system in East Africa. It spans 21 km of trunk route, and serves 160,000 passengers per day on average with the current fleet of 140 buses. By mid-2018, when the first phase becomes fully operational with over 300 buses, the system is projected to carry an estimated 400,000 passengers per day. DART has reduced commute times by more than half for residents.”

“Serving the key axis of Morogoro Road and running through the city centre, DART is more than a public transit system, it has brought improvements for pedestrians and cyclists as well. The project includes cycle paths, sidewalks, and improved pedestrian safety with well-designed, at-grade pedestrian crossings also complying with universal accessibility principles.” (The Guardian)

Eleven locomotives abandoned
The government has ordered Tanzania Railway Limited (TRL) and Tanzania Ports Authority (TPA) to explain the circumstances that led to the abandoning of eleven locomotives at the Dar es Salaam port.

The deputy minister of Works, Transport and Communications, Edwin Ngonyani ordered a report in July, a day after President John Magufuli had hinted at “dirty games” in the procurement process of the locomotives that arrived at the port a week earlier.

TPA director general Mr Deusdedit Kakoko told reporters that the locomotives belonged to TRL. It seems, however, that TRL had a dispute with the suppliers of the locomotives that TPA was not aware of at the time of clearing the consignment, according to Mr Kakoko.

The Citizen newspaper reported that the locomotives were dispatched in fulfilment of the contract signed in 2013 between TRL and a US based firm, Electro-Motive Diesel (EMD). A statement issued by the then TRL director general, Mr Kipallo Kisamfu said TSh70.9 billion had been paid to the contractor on 13 locomotives which would be dispatched in three phases. (The Citizen)

St Lucky Vincent school bus tragedy
Thirty-five people died when a bus carrying pupils from St Lucky Vincent School in Arusha crashed into a gorge in Karatu District in May. Among the dead were two teachers and a driver, and thirty-two pupils. They were travelling to Karatu to take part in mock examinations.

Vice President Samia Suluhu led mourners at a communal mass. Three survivors were taken to the US for treatment, and have made good progress. They are expected to return to Tanzanian sometime in August. (Daily News, The Citizen, The Guardian)

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BUSINESS & THE ECONOMY

by Ben Taylor

Jim Kim in Tanzania: World Bank to lend $2.4bn
The World Bank President, Dr Jim Yong Kim, visited Tanzania in March, promising $2.4bn worth of loans for infrastructure projects in Tanzania over the next three years. As part of a ceremony to lay a foundation stone for a new “flyover” interchange at Ubungo in Dar es Salaam, Dr Kim and President Magufuli witnessed the signing of three contracts worth a total of $780m – for improvements in transport infrastructure, water supplies in Dar es Salaam and urban development projects elsewhere in the country.

Further projects at various stages of planning include finance for upgrading port services and rail infrastructure in and around Dar es Salaam, and for projects in the health, education, agriculture and energy sectors.

“The World Bank has been a true friend in pushing our development agenda; they issue long term loans with an affordable interest rate of just 0.5 per cent,” said President Magufuli.

Dr Kim praised President Magufuli for the purge on corruption and his vision of development towards the Tanzania Vision 2025 which seek to transform the country into a middle-income economy. He added that the $2.4bn figure represented an increase of half a billion dollars over the previous three-year period. (Reuters, Daily News)

Uncertainty in cement
President Magufuli took steps to resolve the energy problems facing the Dangote cement works in Mtwara, though many questions remain unanswered and uncertainty around energy supplies for the sector looks set to continue for some time.

The dispute arose last year after the government proved unable to fulfil the promises it had made to Dangote Group with regard to supplies of gas to the factory, and then took issue with Dangote’s decision to import coal from South Africa – banning coal imports in response. The factory later suspended operations, citing “operational issues”, putting several thousand jobs at risk.

In March, the President directed that Dangote Group should be allowed to carry out its own mining activities to source coal locally, and instructed the National Development Corporation (NDC) to allocate the firm a section of Ngaka coal mine at Mbinga, in Ruvuma region. “You should therefore give Dangote a piece of land at the mine so that he can produce coal for his factory,” said President Magufuli, referring to Nigerian billionaire Aliko Dangote, who was in attendance. A week later, the Ministry of Energy and Minerals yesterday handed a 10-square-kilometre plot in Ngaka to Dangote.

Dr Magufuli also directed the Minister of Energy and Minerals, Prof Sospeter Muhongo, to make sure that natural gas was directly delivered to Dangote Cement Company as soon as possible. It doesn’t make sense that natural gas is transported to Dar es Salaam, some 500 kilometres away, and not to Dangote Cement, which is only about 10 kilometres from where the gas is produced,” he added.

However, a number of other cement companies have similar issues with supplies of energy, and the ban on imports of coal. ARM Cement Ltd, operating in the country as Maweni Limestone Limited (MLL) was reporting as saying it could well be forced to shut down its two plants in Dar es Salaam and Tanga after failing to obtain enough coal locally. According to MLL Chairman, the firm had entered into an understanding with Tancoal Energy Ltd to be supplied with 350 tons of coal per day without fail, up to February this year, but Tancoal was able to supply only 5,000 tons of coal in three months, against MLL’s total requirement of 17,000 tons per month.

Further, these other cement companies point out that giving Dangote the opportunity to mine coal was at best a temporary solution: “Dangote has targeted natural gas and that is why he constructed the plant in Mtwara. Once he’s connected with gas he will no longer be interested in heavy coal mining,” argued a senior manager of a large local cement company. They called for the import ban to be lifted until local sources had the capacity to meet demand.

President Magufuli agreed that Tancoal appeared unable to meet the demand. “Under the current arrangement, it is very difficult to ensure that the investor gets enough coal for cement production because of poor production capacity,” he said, and called for an investigation into the relationship between Tancoal and NDC.

Earlier, in January, the Tanzania Petroleum Development Corporation (TPDC) promised to provide the Dangote works with a connection to the natural gas pipeline by the end of the year. A ceramics factory, a food processing plant and the Coca Cola plant in Dar es Salaam were also promised connections this year, which would bring the number of connected factories to 41. (The Guardian, The Citizen)

Competing interpretations of IMF review
The release of a report by the IMF on the state of Tanzania’s economy noted both strengths and weaknesses in the economy.

“Tanzania’s macroeconomic performance remains strong. Economic growth was robust during the first half of 2016 and is projected to remain at about 7% this fiscal year. Inflation came down below the authorities’ target of 5% and is expected to remain close to the target, while the external current account deficit was revised down on account of lower imports of capital goods,” said an IMF statement. The statement also welcomed President Magufuli’s anti-corruption drive and tax revenue collection measures. “If sustained, [this] will provide a good foundation for the envisaged scaling up of infrastructure investment, starting with the 2016/17 budget.”

However, the statement also noted that President Magufuli’s approach to the management of the economy faces four key challenges that risk undermining the country’s macroeconomic stability. It listed these as a tight stance on macroeconomic policies, the slow pace of credit growth, slow implementation of public investment, and private sector uncertainty about the government’s new economic strategies.

This mixed report led to varied headlines. “IMF hails Dar over economic feat,” said the state-owned Daily News. In contrast, The Citizen went with a very different line: “JPM’s policies may hurt economy: IMF.”

Vodacom IPO
Vodacom Tanzania began an initial public offering (IPO) in March, the first in a series of mobile network listings expected on the Dar es Salaam stock exchange. The company plans to raise TSh 476 billion ($213 million) in an offering of 560 million shares at TSh 850 each, according to a prospectus issued to brokers, expects to list on the Dar es Salaam Stock Exchange in May.

This follows a law passed in 2016 requiring phone companies to sell at least 25% of their businesses to the public to boost local ownership.
“Vodacom Tanzania’s IPO valuation looks rich at a first glance,” said London-based investment firm, Exotics Partners. Nevertheless, analysts predict high demand for the shares. CEO of Zan Securities, Raphael Masumbuko said would-be investors were waiting for the IPO since the telecom Act was passed. “People from all walks of life are waiting for this IPO. We have been in constant pressure as to when Vodacom IPO will come out. The firm self-sales since it’s a household name,” he said.
With 31% of the telecoms market and 12.4 million active subscribers, Vodacom is the market leader in Tanzania. The country had over 40 million tele-subscribers by the end of 2016.

2,400 dollar millionaires in Tanzania Tanzania added an estimated 200 new dollar millionaires in 2016, according to a report by Knight Frank, bringing to the total number to around 2,400. The report is based on responses from 900 of the world’s private bankers and wealth advisors who manage over 10,000 clients with a combined wealth of around $2 trillion. The report also stated that Tanzania currently has two dollar billionaires, and predicted that this number would double in the next ten years.

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TRANSPORT

by Ben Taylor

Foundation stone laid for new Ubungo interchange

Dr Jim Yong Kim at ceremony to mark start of new Ubungo interchange,

In the presence of World Bank President, Dr Jim Yong Kim, President Magufuli laid the foundation stone for a new flyover interchange at Ubungo junction on the outskirts of Dar es Salaam. The three-level flyover is to be built by China Civil Engineering Construction Corporation (CCECC) and is expected to ease the city’s traffic congestion problems.

Ubungo, where Morogoro Road meets Sam Nujoma Road and the Nelson Mandela Expressway, is a major bottleneck. As one of the busiest road junctions in the country, more than 65,000 vehicles pass through each day. At peak times, motorists trying to enter or leave the city can often find themselves spending three hours or more at the junction. The intersection also serves an average of 500 to 600 upcountry and international passenger buses coming in and out of the nearby Ubungo bus terminal every day.

The project will cost TSh 188bn, financed by a World Bank loan. The government is understood to have completed all the preliminary preparations including paying compensation amounting to TSh 2.1bn to people with property that is to be demolished.

CCECC is expected to begin construction works immediately, with a stated completion date of September 2020. Construction works are expected to aggravate traffic problems during this time.
A similar overpass costing around TSh 100bn is under construction at the TAZARA junction in Dar es Salaam.

Air Tanzania revenues up
Managing Director of Air Tanzania Company Limited (ATCL), Lasislaus Matindi, said the company had collected TSh 9bn in the first four months after it began operating flights with two new aircraft in October 2016. Mr Matindi said about 80% of the revenue was spent on operational costs and on settling some outstanding debts. He was speaking to reporters after talking with the Parliamentary Public Investment Committee (PIC).

Last year, the government of Tanzania bought two 76-seater Q400 aircraft from Canadian manufacturer Bombardier, at $62 million.

However, though the committee was happy with the information provided by from the management and board of ATCL, it called for a more detailed investment policy and business plan, a recruitment plan and details of the challenges the company faces, according to PIC chairman Albert Obama.

Dar-Bagamoyo ferry remains grounded
A ferry that was intended to provide a means of commuting direct to Dar es Salaam city centre from Bagamoyo remains grounded, with no immediate prospect of providing services. The boat, with a capacity of 300 passengers, was delivered in 2014 but grounded for ‘intense maintenance’ soon after its trial test. Rather than 90 minutes each way, as expected, the ferry was found to be only able to cover the distance in 3 hours, making commuting an unattractive prospect.

“The issue is already in the mandate of legal experts to ensure that all the prerequisites are met as per agreement before handing over the vessel after mechanical systems are approved. Once it is over the public will be informed on further steps forward,” said Deputy Minister for Works, Transport and Communication, Engineer Edwin Ngonyani.

He explained that up to now the boat was back with the manufacturers as it was not possible to accept something that failed to meet such a significant part of the specifications.
A report from the Controller and Auditor General in 2016 discovered signs of a flawed procurement process in the Dar es Salaam ferry boat’s $5m purchase from Danish-based company, JGH.

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AGRICULTURE

by David Brewin

President Magufuli of Tanzania, often known locally as the ‘Bulldozer’, is vigorously continuing his campaign against corruption throughout Tanzania. The President is now turning to other areas of public service, in particular, the industrialisation of the economy.

However, he is well aware of the overwhelming importance of agriculture to the economy. A recent measure he has introduced is the banning of public organisations holding meetings outside their offices so that public events such as the annual agricultural show are no longer an opportunity for ministries to award contracts including bribes for uniforms, catering and entertainment in elaborate pavilions.

Major change in land tenure leases
Dr Magufuli’s reforming zeal is evident in the revelation that a new policy on land tenure is being examined, which is likely to lead to a new national land policy, the draft of which is being subject to public scrutiny by the Ministry of Lands and Settlement Development. The main change is that conditions for foreigners trying to develop land for business would change.

The normal period for a lease of land for development is 99 years, but in the purposed new policy this will be reduced to 33 years for foreigners. In justifying the change, it is said that there have been many instances where foreigner s have applied for land and not used it for the stated purpose. To curb such cases, foreign investors will have to register with the Tanzania Investment Centre (TIC) to acquire land. To purchase a parcel of land from individuals or companies, once the buyer and seller have agreed on the price, the seller is required to surrender the land title to the Commissioner of Lands in order to reissue it in the name of TIC. The intention is that the rights of Tanzanians will be protected and that land needed for development is being used for the purpose originally indicated. The aim of this is also to minimize conflict between foreign investors and communities, and to promote optimal utilisation of the country’s resources. Under the new draft land policy, foreigners will be allowed to directly own land (occupational rights), but not to hold it on behalf of others (derivative rights).

Needless to say, the draft policy is facing criticism from many sides. Although the policy drafting process included consultations – conducted in 8 zones across the country – these have often been rushed and were not ‘conclusive’.

Women
For the first time in Tanzanian history a national land policy will recognise the right to equal access for land for both women and men.

Tractor assembly plant
At present Tanzanian imports about 1,000 agricultural tractors a year. This has encouraged two Indian companies to establish a joint tractor plant in the Morogoro region. It aims to start with the assembly of fully-knocked-down tractors but will move on to the manufacture of complete tractors in the future.

Sugar
With Tanzania still producing much less sugar than is needed by the population, two cabinet ministers are planning to visit Mauritius, a major global supplier of sugar, on a mission to attract investors into Tanzania’s sugar cultivation sector. At the same time the government embarked in October, on a country-wide search for ‘hidden sugar’ often being hidden by suppliers in anticipation of increasing prices.

Local firms are also already setting up new sugar firms mainly in the Morogoro, Kigoma and Songwe regions as well as in the costal district of Rufiji. The National Social Security Fund and a pension fund have also announced joint plans to establish sugar processing factories in Mkunazini, Ngerengere and Morogoro.

Seaweed
Seaweed farmers in Zanzibar are complaining about the falling price of their product. They have appealed to the government to provide more harvesting equipment to help increase selling prices. The Japanese Aid Agency JICA recently convened a workshop to bring the seaweed farmers together. The JICA representative said that a Japanese expert would continue to support seaweed farmers in improving their methods and in the use of appropriate equipment.

Marketing Boards
The government has indicated that it intends to close down existing marketing boards for sales of agricultural products. The Cashew Nut Marketing board has already been closed down. However, in the case of the Cotton Board, the Director General, who was initially removed on allegations of misappropriation of money, has been reinstated. Other marketing boards are being investigated to determine whether they are still carrying out the functions for which they were originally established.

FAO-Dar link up to double rice production
With funding from the Government of Venezuela, a ‘Partnership for Sustainable Rice Systems Development in Africa’ covering ten countries, including Tanzania, is being set up. It will begin by supporting efforts to improve domestic rice supply and strengthen the rice market.

Permanent Secretary in the Tanzanian Ministry of Agriculture, Livestock and Fisheries, Dr Florens Turuka, said that rice productivity in Tanzania is lower than in most neighbouring countries and is one of the lowest in the world. He mentioned factors such as predominantly rain fed production, limited adoption and availability of improved cultivars, minimal use of fertiliser, traditional planting techniques and the limited areas of irrigation as being behind the low production. The new project will be implemented in five targeted irrigation schemes in Morogoro Region and will establish junior farmer field schools to upscale the adoption of systems of rice intensification, purchase of new processing machinery to reduce post-harvest losses.

Deadly weed causes alarm in Arusha Region
A new variety of alien weed affecting plant and human life is spreading around the Arusha region and causing considerable concern. Scientists from the Tropical Pesticide Research Institute (TPRI), Tanzania, the Wildlife Research Institute (TAWIRI) and Education Concerning Hunger Organisation (ECHO) are already studying the strange weed – “Parthenium” – which is referred to as ‘Gugu Karoti’ in Kiswahili.

According to Ms Hannah Hacker, a researcher from Wheaton College in Illinois, the weed is found around Ngaramtoni, Kwa-Mrombo, parts of Meru and Njiro. She is working with ECHO, one of whose scientists is studying the problem, and has said that the first effect of getting into contact with the weed is developing skin rashes all over the body.

Scientists warn that the weed could also grow in the Southern Highlands, Bukoba and some coastal regions should its seedlings find their way there. Scientists are at the moment conducting training to local residents in Arumeru and Arusha Urban districts on the dangers of the alien grass.

When consumed by livestock, lesions in the mouth and excessive salivation occur. According to scientists, consumption also causes tainted meat and milk which can lower the value of livestock. A diet consisting of between 10% and 50% of Parthenium can cause death in cattle. Most livestock avoid Parthenium but will consume it if forced by circumstances to do so.

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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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TOURISM & ENVIRONMENTAL CONSERVATION

by Mark Gillies

Value Added?
This June a familiar shadow fell across Tanzania’s tourism industry. For the past few years, in the run up to the annual budget, the Tanzania Government has threatened to remove the VAT exemption that previously applied to many aspects of the tourism industry’s goods and services. And every year, following a good argument and representations from tourism players to the highest levels of government, the threat has fallen away.

Until this year. As reported by Hugh Morris in The Daily Telegraph on 7th July, on 23rd June, Tanzanian tourism operators were notified by the Ministry for Natural Resources and Tourism that the exemption would be removed from 1 July.

The reaction from tourism operators was immediate as representatives of the industry pushed behind the scenes and in public for the government to reassess its position, citing the potential harm the changes will cause to the Tanzanian tourism industry and the potential result of making the country and uncompetitive and unattractive destination for long haul tourists.

The East African on 18th June contained a statement from the 330-member Tanzania Association of Tour Operators (TATO) that said the country was already charging 7% more than other regional states due to multiple taxes and that imposing the proposed VAT would cripple the $2 billion worth industry. Going onto explain how tour operators in Tanzania are currently subjected to 32 different taxes, 12 being business registration and regulatory licence fees, 11 annual duties for tourist vehicles and nine other miscellaneous fees.

Despite on-going protests and negative international publicity, by mid-July, no government climb down was announced and Tanzanian tour operators engaged in a confusing intercourse with their international agents with neither sure who was charging what and whether to pass on additional costs to final client. Cancellations began to be reported and Prof. Maghembe, the embattled Minister for Natural Resources and Tourism moved to allay fears about a fall in visitor numbers by saying to reporters (The Citizen on 15th July), “Go and see for yourself the long lines of vehicles bringing tourists into Ngorongoro and Serengeti. It does not in any way point to a decline.”

As the story developed and opposition seemed to grow, sources began
to indicate that the government would consider a compromise and reports began to circulate of leading industry figures considering approaching President Magufuli to plead their case.

If these stories suggested a conclusion to the story (for another year), they were wrong. On 19th July, the Citizen reported how President Magufuli used an address to newly promoted police officers to scotch any rumours of compromise and reiterated that all charges due must be paid saying that it was better to have 500,000 tourists who paid the correct charges, rather than 1,000,000 who do not.

President Magufuli has made probity and clarity of procedure the mark of his nascent presidency and his comments are understandable in that context. However, it is also not difficult to understand the frustration of all Tanzanians working in the highly competitive African tourism industry. They know that the Okavango Delta or the Maasai Mara, to name but two, have as much draw as the Serengeti or the Ngorongoro Crater to many tourists who still regard Africa as a single country. The costs of going on safari are rising across the continent and so the end price of a package is assuming ever-increasing importance. The fear is that Kenya, which recently restored the VAT exemption on various tourism goods and services, will take a painfully large slice of tourist pie that had, until this year, been feeding so many Tanzanians.

A declining Tanzanian tourism industry will have three potentially serious consequences. The first consequence will be a significant drop in foreign currency earnings that will directly impact the national finances. The second will be loss of jobs as drivers’ services go unrequired and camps close. The third will be a setback for the cause of Tanzanian wildlife conservation – still, itself, reeling from the horrendous poaching epidemic of the last few years. In many parks and reserves it is only the presence of camps and the tourists they attract that protects these vital areas from poaching, habitat loss and unrestrained development. If camps don’t attract tourists then they become financially unviable and close, leaving the land vulnerable.

It is therefore understandable that many in the Tanzanian tourism and conservation sectors are despondent, but they are also frustrated, asking themselves why impose a new tax when so many existing ones go unpaid by so many?

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BUSINESS & THE ECONOMY

by Ben Taylor

Tanzania pull-outs of EU-EAC Economic Partnership Agreement, Brexit cited
Tanzania has decided not to sign the proposed Economic Partnership Agreement (EPA), which would have opened up trade between the European Union (EU) and the East African Community (EAC). Dr Aziz Mlima, permanent secretary in the Ministry of Foreign Affairs, made the announcement in early July.

“Our experts have analysed the pact and established that it will not be to our local industry’s benefit. Signing this pact at the moment would expose young EAC countries to harsh economic conditions in post-Brexit Europe,” explained Dr Mlima.

Minister for Trade, Industries and Investment Charles Mwijage said Britain was Tanzania’s key trade partner in Europe. “Internationally, we trade with Britain, China, India and South Africa. When you don’t have Britain in a deal with Europe, what do you have? We have to think it over and this can take any duration to decide,” he said.

The move appears to fit with President Magufuli’s economic policies, which include a greater focus on raising tax revenues and on protecting local industry. A few weeks before the decision on the EPA was announced, the President gave a speech in which he called for imported good to be subject to higher taxes in order to protect local producers.

“We have every reason to protect our industries,” he said. “They generate direct employment for our people and provide our farmers with reliable markets for their produce. The government collects revenue from them and they play a key role in spurring economic development. That is the direction I want to take, and I know the Minister for Industry, Trade and Investment (Mr Charles Mwijage) is here…this is what I want him to do.”

Former Tanzanian President, Benjamin Mkapa, expanded on the decision in an essay published various Tanzanian and regional newspapers.

“If we sign the EPA, we would still get the same duty-free access, but in return, we would have to open up our markets also for EU exports,” he explained. “Tanzania would reduce to zero tariffs on 90% of all its industrial goods trade with the EU i.e. duty-free access on almost all EU’s non-agricultural products into the country. Such a high level of liberalisation vis-a-vis a very competitive partner is likely to put our existing local industries in jeopardy and discourage the development of new industries.”

“As a Least Developed Country (LDC), Tanzania already enjoys the Everything but Arms (EBA) preference scheme provided by the European Union i.e. we can already export duty-free and quota-free to the EU market without providing the EU with similar market access terms.”
Kenya, Rwanda and Burundi were ready to sign the Economic Partnership Agreement (EPA) with the EU, but Uganda indicated that no agreement should be signed without full agreement of all EAC member states. World Trade Organisation rules do not allow countries aligned to a trade bloc to sign up individually.

In the short term at least, Kenya is seen as the biggest loser from Tanzania’s decision, as the country’s middle-income status means Kenya does not currently have the same tariff-free access to European markets that the other EAC members enjoy. Nevertheless, at current growth rates, Tanzania will itself achieve middle-income status within the next couple of years.

Austerity budget
Dr Philip Mpango, the aptly-named Minister of Finance and Planning presented an austerity budget to parliament in June. The budget scrapped a wide range of tax exemptions while increasing taxes on sugar, cement imports and beverages, and doubled down on President John Magufuli’s cost-cutting measures with tight restrictions on ministries’ and departments’ operating costs.

Tabling the TSh 29.54tn (US$14bn) budget for the 2016/17 financial year in Parliament, Dr Mpango introduced income tax on the gratuity that MPs earn after every five years and offered relief to small-scale farmers and other low-income earners by scrapping various “nuisance taxes”.
The budget also aims to support the president’s industrialisation strategy, by increasing import taxes on various manufactured goods, including cement, sugar, corrugated iron sheets, and second-hand clothes and shoes.

Dr Mpango, a former World Bank economist, told the house that in the 2016/17 Budget, TSh 17.8tn (60% of the total) would come from domestic sources, TSh 5.37tn (18% of the total) from domestic loans and the sale of Treasury papers, TSh 3.6tn (12%) from foreign aid and development grants, and TSh 665bn (2%) from local government authorities’ sources. Finally, the government plans to borrow TSh 2.1tn (7%) from foreign commercial sources for infrastructure projects.

Some business leaders and economists reacted to the budget with a note of caution, recognising the value of the budget as a bold attempt speed up industrialisation, but arguing that “too much focus” on the private sector in revenue collection could hit investment.

The decision to target key and fast growing sectors of the economy, particularly telecommunications, banking and tourism, will adversely affect the economy, they argued. Further, they also warned that strong enforcement of cost-cutting measures in the budget could hurt businesses and narrow the tax base.

“The newly introduced taxes will hit the banking and tourism sectors hard. These are key sectors of the economy that have yet to reach their full potential. Imposing 18% VAT on tourism services will only succeed in benefiting our closest competitor, Kenya,” said Ernst & Young Executive Director for Tax, Laurian Justinian [see also Tourism & Conservation section].

Elsewhere in the budget, Dr Mpango said that Tanzania’s economy will grow by 7.2% in 2016, and the inflation rate, at 5.1% in April this year, will remain between 5% and 8%. Domestic revenue will reach 16.9% of GDP in the 2016/2017 financial year, up from 14.8% in 2015/2016.

However, President Magufuli took issue with official inflation figures, arguing that they appear to be at odds with the economic reality on the ground as many Tanzanians complain about the rising cost of living. “[We’re told] Tanzania’s inflation rate has fallen from around 30% in the 1990s to 5%. But is this really reflected in the lives of Tanzanians?” he queried. “We can just celebrate these statistical data, but in reality people might feel that the inflation rate has actually increased to 70%,” the president added.

Volumes down at Dar port, but revenues rise
The Commissioner General of the Tanzania Revenue Authority (TRA), Alphayo Kidata, said revenue from the Port of Dar es Salaam has increased in the last two months despite the burdens of a reduction in trade volumes. He said this after the Tanzania Ports Authority (TPA) reported a decline by more than 50% in the freight transported to neighbouring DR Congo and Zambia.

Kidata cited global economic problems, in particular in China, as the main reason for the reduction in volume, adding that a similar effect could also be seen in Mombasa, Beira and Durban.

However, he stressed that despite the decrease in cargo, revenue at the port has increased because they have closed loopholes for importers, ensuring that all appropriate duties are now paid.

The Commissioner said TRA were previously collecting TSh 200-300bn per month from the port but after controlling loopholes, TRA collected TSh 458bn in April of this year, and TSh 517bn (US$250m) in June.
Dr Philip Mpango, the aptly-named Minister of Finance and Planning, told parliament in April that from October 2015 to March of this year cargo had declined at the port, with the number containers from Congo dropping from 5,529 to 4,092. He added that freight to Malawi fell from 337 to 265 containers, while the number heading to Zambia declined from 6,859 to 4,448.

Later, analysts noted that the Dar es Salaam port risks handling the lowest number of vessels in its history this year. Several logistics firms opted to bypass the city after Value Added Tax (VAT) was imposed on transit goods.

Cargo firms took issue with the imposition of VAT, which came even after the Prime Minister, Kassim Majaliwa, agreed that it was standard practice worldwide not to charge VAT on transit goods. A meeting between TRA and the Tanzania Freight Forwarders Association (TAFFA) was postponed when TAFFA representatives were not satisfied with TRA sending a junior representative to the meeting.

Tanzania Economic Update (TEU) published
The World Bank published the latest in their bi-annual series of economic updates, with a mix of praise and criticism for Tanzania’s economy.

The report commended the new government’s measures to strengthen fiscal management and curb corruption, saying they have started to yield results with tax revenue collection exceeding targets.

Nevertheless, the report called for a greater focus on strengthening the private sector, calling for adoption of Public-Private Partnerships as a new source of finance for development projects. “Tanzania needs to improve overall business environment, including through improved access to finance and electricity, for private sector development,” said Emmanuel Mungunasi, WB Senior Economist and co-author of the report. “Further development of the private sector will be key to accessing the needed resources including financing and creating more employment opportunities which are critical for poverty reduction.”

The Bank’s Country Representative, Bella Bird, also noted that Tanzania had been very generous in recent years with tax exemptions, and praised President Magufuli’s commitment to limiting such exemptions.

Critics took issue with some aspects of the report, notably a warning that over-dependence on China as an economic partner could leave Tanzania vulnerable to faltering growth in the East Asian giant.

“The saviour of industrial policy is China and other developed nations of the East. We stand to gain from China’s relocation plans. It is the right time to grab the opportunities,” said Prof Humphrey Moshi of the University of Dar es Salaam.

Standard Bank compensation payment
The outgoing British High Commissioner to Tanzania, Ms Diana Melrose, announced on Twitter that the UK has transferred US$ 7m to the Tanzanian government, paid by Standard Bank as a compensation payment as a result of its failure to prevent bribery in Tanzania. In November 2015, a UK court ordered the bank to pay a fine of US$ 25m, plus this compensation payment to the Tanzanian government. [See TA114 for details of the case].

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BUSINESS & THE ECONOMY

by Ben Taylor

Standard Bank case
Late in 2015, a landmark judgement in the UK courts saw Standard Bank fined US$25m and ordered to pay the Tanzanian government US$7m in compensation. The “deferred prosecution agreement” (DPA) suspended a case against Standard Bank for its alleged failure to prevent bribery. It relates to a $6m payment made in 2013 by Stanbic Bank Tanzania, then a sister company of Standard Bank, to a local agent, Enterprise Growth Market Advisors (EGMA), associated with Tanzania’s US$600m private bond placement.

The judge in the case, Lord Justice Leveson, concluded that Standard Bank “did not have adequate measures in place” to guard against corruption, and did not conduct sufficient due diligence in relation to EGMA.

EGMA was paid $6m for assistance in arranging the bond issue, though there was no evidence that the firm actually provided any services. One of EGMA’s directors was Harry Kitilya, then Commissioner General of the Tanzania Revenue Authority, a potential conflict of interest. The payment to EGMA was financed by raising the cost of the service provided by Standard Bank to the Tanzanian Government from 1.4% to 2.4% ($8.4m to $14.4m) of the total bond issue.

This is the first use of a DPA in UK courts. It allows for criminal proceedings against a company to be suspended provided that the company meets certain conditions. A prosecution may follow if the conditions are not met within three years, otherwise the Serious Fraud Office (SFO) will discontinue proceedings.

The case was initiated by Standard Bank itself reporting concerns to the UK authorities, when close to $6m in cash was withdrawn from EGMA’s account over nine days in March 2013. Observers are speculating whether the firm really decided of its own accord to self-report in this way, or whether they did so under pressure. Tanzanian opposition MP, Zitto Kabwe, argued that Standard Bank could have falsified information given to the SFO in order to reduce the fine.

The case raises difficult questions for the Magufuli administration, which has in other cases acted swiftly and decisively against corruption. The DPA does not prevent Tanzanian authorities from investigating further or from bringing a case against Standard Bank, Stanbic, EGMA or government officials involved in the bond issue.

In January, Valentino Mlowola, Director General of the Prevention and Combatting of Corruption Bureau (PCCB), said investigations into the Standard Bank case were at “final stages,” and promised that “soon you will see grand corruption suspects taken to court.” This has not yet happened.

Meanwhile, Tanzania has a debt of $600m, which may not have been negotiated on favourable terms. Standard Bank and Stanbic Bank were appointed to manage the bond placement following a closed bidding process, and the placement attracted a 6% interest rate – substantially higher than the 4% achieved by Zambia and Ghana. Corruption Watch UK estimate that the potential cost to Tanzania could be as much as $80m over the life of the bond.

Tax cut
On Workers Day, May 1, just as Tanzanian Affairs was going to press, President Magufuli announced a reduction in the basic rate of income tax. The rate for monthly salaries between TSh 170,000 and 360,000 has been cut from 11% to 9%. The higher rates for incomes above TSh 360,000 are unchanged. As a result, a worker on a monthly salary of TSh 360,000 or above will be better off by TSh 3,800 each month, or TSh 45,600 over the course of a year.

Announcing the change, President Magufuli stated that the move aims at alleviating the burden of tax on workers. “I promised during my campaign to reduce pay as you earn tax to single digits. Now I declare to reduce it from 11% to 9%. I know this percentage will create a gap in our revenue, but we shall see how to fill it,” said President Magufuli.

Professor Haji Semboja of the University of Dar es Salaam said that the amount returned to workers as tax reduction and its impact on economy was minimal. “The government has increased workers’ purchasing power by 2% … it’s something … but not that much.” Professor Honest Ngowi of Mzumbe University, said the 2% tax-cut on s alaries at the end of day was likely to be chopped off by inflation, exchange rate and consumable tax increase in the 2016/17 budget.

The Daily News newspaper, however, in an editorial, stated that they “warmly welcome the PAYE relief not necessarily because of the impact they will bring on the workers’ earnings, but as a concrete message that the future of the workers in the country is bright.”

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