The new South African management of the Tanzania Electric Supply Company (TANESCO) caused some surprise on June 11 by issuing a 21-day ultimatum to its customers to settle over Shs 100 billion in outstanding bills. Otherwise they would be disconnected. TANESCO Managing Director Rudi Huysen thanked the 70% of TANESCO customers who paid their bills promptly. Only 10% of Tanzanians had electric power. Others would have to wait a long time to be connected if people refused to pay for the supplies they were receiving.

The South African team had finally entered TANESCO head office on 17th May after protracted resistance from employees who wanted to get their terminal benefits before it took over. The new management has a two-year mandate to Improve TANESCO services before divestiture.

On April 29 President Mkapa had railed against the previous management saying it had failed to deliver, and that was why the government had decided to contract a foreign firm to run the company. The President noted that the decision was accelerated by revelations arising from audits carried out by three renowned international firms which had revealed gross mismanagement and misappropriation within the state-owned company. In the six years from 1995 to 2000 the company had recorded an aggregate loss amounting to more than Shs 125 billion. Another audit company, KPMG Consulting, revealed in its report that 36 per cent of revenue from the pre-paid (LUKU) meter system did not feature in any of the company reports since 1995. The KPGM auditors also revealed that since 1995 the TANESCO Board of Directors had approved tenders worth 5.6bn/-, which were beyond its powers to sanction. The KPGM report also accused the TANESCO management of failure to command revenue collection, poor management of company assets, funds misappropriation and power leakages which could have been contained. President Mkapa further quoted the report as saying that TANESCO did not know the actual number of its customers and that those who featured in its computerised system differed from the number of connected electricity users. “This means that a good percentage of electricity users have been using power without paying a single cent, since they were not being billed,” he said. He conceded that, as of November last year, government had also owed TANESCO some Shs 42 billion.

On July 3 power to the Tanzania Peoples Defence Forces (TPDF) and the Dar es Salaam Water Authority (DAWASA) was cut off. They promptly paid part of their outstanding bills. On 15th July TANESCO disconnected power to hundreds of houses in Zanzibar including those owned by government institutions and departments allegedly for not paying outstanding debts amounting to Shillings 31 billion. Following the success of this programme (people were queuing in TANESCO offices to settle their bills) the company was planning to embark on a campaign against people who have connected electricity to their houses illegally.

The Swahili press reported what papers called ‘a big row’ at the Friendship Textile Mill in Dar es Salaam on May 7 when Minister for Trade and Industry, Juma Ngasongwa, entered into a heated argument with workers. The problem was said to have started when the Minister accused the workers of “being lazy” while asking for a pay rise. One angry worker shouted “bull” and the Minister asked the police to arrest him. In the ensuing melee the meeting was called off and the Minister’s car was surrounded. In the end the arrested worker was released and the Minister was allowed to leave. Friendship is a joint enterprise run by Tanzania and China.

Thirty nine small-scale Tanzanite miners at Mererani, near Arusha, suffocated after an air compressor which was providing oxygen to one of the mines broke down. When the Government stopped mining operations at Mererani in July (a few days later) and gave small-scale miners 30 days to fulfil new conditions to improve safety, some 4,000 miners went on a rampage looting goods worth millions of dollars. They asked why one mine accident should lead to the closure of 300 other mines. Police arrested 15 miners before order was restored. Meanwhile, Tiffany’s in New York and other American jewellers have now resumed purchase of Tanzanite after earlier allegations that the trade was helping to launder money being used by terrorists.

Launching the 300m/- Contractors Assistance Fund (CAF) and officially opening the Contractor’s Annual Workshop in Dar es Salaam on May 28 President Mkapa directed the Ministry of Works and the Contractors Registration Board (CRB), to clear up what he described as the mess in the construction industry. “The government I head is the biggest contractors’ service user. I would like to tell you in black and white, that your sector is rotten. The government has lost patience”.

“Change your attitude and performance record, because jobs that you do cannot be hidden from the public eye. This has been proved during my up-country tours where there is an outcry that public funds have been swindled, following rapid deterioration of recently completed road works and other infrastructure”. The President said he was impressed by the measures so far taken by the Board to clean up the industry, including the axing of 1,164 poorly performing contractors.

Responding to a request by local contractors that the government should enact laws which would limit foreign contractors when it came to bidding for some projects the President said: “To me, enacting hostile legal mechanisms against foreign firms, won’t make local firms stronger, more honest or more competent”.

Exchange Rates: £1 = Shs 1,400. US$1 = Shs 990

KEY ECONOMIC DATA
At a recent Britain-Tanzania Society Seminar on development Ronald Fennel provided some useful economic data as an introduction to his presentation:

‘The population of Tanzania has increased fourfold since independence 40 years ago. At 32 million it compares with Kenya’s 28 and Uganda’s 20 million.

Tanzania is endowed with a rich resource base, easy geographical access to international markets; it has a peaceful and politically stable environment and has been able to forge a cohesive national identity. And yet it is among the 10 poorest countries in the world. GNP per capita is $280, compared with Kenya $360, Sub Saharan Africa average of $500 and East Asia and Pacific $970.

Yet there are encouraging signs in macroeconomic performance particularly since Mkapa’s presidency has built on earlier gains. Inflation is down from 30 percent in 1996 to 5 percent last year. Foreign Exchange Reserves have grown from the equivalent of 6 weeks imports in 1998 to 20 weeks in 200 1. Tourism has grown from 1.8% of GDP in 1997 to 7.6% in 1999 worth just under $600 million. Exports stand at $937 million but the trade gap is large with imports at $1.57 billion -including donor funded imports ….. .

Social statistics are not so encouraging. Tanzania’s place on the UNDP Human Development Index has slipped from 127th in 1991 to 156th in 1999 out of 174 countries. Real income per head is only thirty percent higher than at Independence. 50% of the population live on less than $1 a day. Life expectancy at birth is 45, compared with 48 for Kenya and 69 for East Asia and the Pacific.

Tanzania has been the largest recipient of donor aid in sub Saharan Africa in absolute terms: $16.8 billion between 1970 and 1996. Starting with $38 million in 1970 it reached $1.2 billion in 1992, fell to $830 million in 1996 when ‘policy reform wavered’ and is back up to $1.1 billion this year. This amounted to almost $40 per capita in the 80s and 90s, well above the average’ for Sub Saharan Africa and above the ‘successful reformers’ Ghana and Uganda.

These inflows have to be set against the debt burden, the present value of which was $4.9 billion in 1999. As the IMF reported Tanzania has established a solid record of economic performance over the past several years, thereby enabling it to access substantial debt relief. Annual debt service has fallen from $303 million in 1989 to $116 million in 2001, i.e. about 12 percent of current exports.

In a general sense Tanzania’s popularity with the donor community over the years and its recent willingness to engage in economic policy reform has resulted in a favourable flow of aid. There continue to be concerns about the reality of self-reliance, but we all live in a ‘joined up world’ as some leaders of the industrial world continually assert.

Compared with these aid flows, the impact of increased foreign direct investment has been much less significant in financial terms, although it has brought with it entrepreneurial skill and some training that can double the benefits. Foreign direct Investment in 1999 was $183 million and $193 a year later. Yet this investment has been focussed on three main areas -mining, tourism and services/consumption such as breweries and telecommunications. Some investors fear the lack of institutional infrastructure in the legal and fiscal areas. Some Tanzanians on the other hand perceive the infusion of Gulf capital and South African investors as infringing on their sovereignty. Both recognise the need to improve physical infrastructure, an area where the government with donor help is likely to bear the principal responsibility to introduce a maintenance culture.

There is little doubt that many of the economic policy prescriptions adopted by Tanzania over the last two decades (and even before that) have been prompted by the fashions of donor development economists. Tanzania has benefited from intensive study by highly qualified economists of differing political persuasions . …… Ujamaa villages tried to change society too fast. The move to effective privatisation in the 90s was too slow …… ‘

COAL MINING
Development of a $600 million surface coal-mining operation in Ludewa district, Iringa region, close to the border with Malawi, is expected to commence at the end of 2003 following successful negotiations with investors. After commissioning in 2006 or 2007 it will have a production capacity of 1.5 million metric tons and is expected to generate 400 MW of electricity. It may also provide energy to a proposed iron ore project in the same district which will process vanadium and titanium concentrates for export and iron and steel products for local and international markets -East African.

NEW SHIPPING BILL
Government has stopped issuing licences to clearing and forwarding agents, pending new shipping legislation. The agencies will be allowed to work until 30 June, after which the work will be taken over by the National Shipping Corporation (NASACO). The attorney general’s chamber is now preparing a bill to be tabled before the parliament -Mwananchi. (The Shipping Bill when it was presented to Parliament in April came under heavy fire from MP’s and had to be substantially changed NASACO was heavily criticised The Bill was still being debated when this issue of Tanzanian Affairs went to press -Editor)

TANZANIA A FRENCH PRIORITY
France has added Tanzania to the list of 40 countries in its ‘priority zone’ in a strategy to gain more influence in East Africa. Tanzania will now be eligible for more grants than loans. As the first example of this there have been joint army operations in Tanzania financed by and participated in by French forces -East African.

SOUTH AFRICA
Philip Magani, a CCM MP, has said that it was a well-known fact that Britain and India were the leading trade partners of Tanzania, yet South Africa now ‘determined the country’s economy.’ He said this was probably due to most of the gold going to South Africa. At a meeting of the Parliamentary Finance and Economic Committee, the Permanent Secretary to the Ministry of Finance said that the Tanzania shilling had been declining due to the recent decline of the South African rand by more than 40% -Mwananchi.

Exchange Rates: £1 = Shs 1,300.
$1 = Shs 925

‘INVESTMENT TO CONTINUE’ – IMF
According to the IMF’s World Economic Outlook for 2001, Tanzania is among five African countries which are expected to continue attracting investment and long-term economic growth because of its pursuit of sound macro-economic and structural policies. The other countries are Botswana, Cameroon, Mozambique and Uganda but Zimbabwe and Cote d’Ivoire come out of the report badly. The report said that the outlook for private investment, economic diversification and longer-term growth was generally brighter in countries that had pursued sound macroeconomic and structural policies. As a result of this, relatively strong growth of around 5% and above was expected to continue in the five countries.

“POWER RATIONING OVER” -MINISTER.
The Deputy Minister for Energy and Minerals Dr Ibrahim Msabaha has announced that the days of power rationing in Tanzania are over. He was inspecting the 100MW Tegeta-based Independent Power Tanzania Ltd (IPTL) plant. He said that the final take-off of the IPTL, after three years of stalemate, was a major boost to government efforts to ensure all Tanzanian’s got electricity. The dispute between the Malaysian-financed IPTL and the Tanzania Electric Company (TANESCO) was solved by the International Centre for the Settlement of Investments in the middle of this year.

EXCHANGE RATES: £1 = TShs 1,250 $1 = TShs 890

‘HIGHER IN HUMAN DEVELOPMENT’
According to the UN’s Human Development Report 2001 Tanzania has climbed from l56th position in terms of people’s life expectancy, income per person, educational enrolment and adult literacy to 140th out of 165 countries. Norway is the first. The Head of the Development Unit at UNDP Tanzania, Ernest Salla, said that, with poverty reduction at the heart of the government’s programme and the formation of the Poverty Reduction Strategy Paper (PRSP) and establishment of a national poverty monitoring system, the future for Tanzania was bright.

‘MARGINALISED IN TECHNOLOGICAL DEVELOPMENT’
According to the Technological Achievement Index (TAI), contained for the first time in the Human Development Report, Tanzania is also among nine countries classified as ‘marginalised’ in terms of technological innovation and achievement. They have been listed as the lowest in rank out of a total of 72 countries in the world in terms of creating and using technology. The HDR stresses that in this network age: “Any country that fails to make effective use of technology is likely to find itself falling behind in human development and marginalised in the global economy.

‘AMONG FASTEST GROWING ECONOMIES’
The Poverty Reduction Strategy Group has praised Tanzania’s 5.8% growth rate and described it as among the fastest growing economies not only in East Africa but in the whole of Africa. Uganda’s rate is 5% and Kenya’s 0.3%.

‘TOP IN FOREIGN INVESTMENT’
Tanzania has been placed at the top of Sub-Saharan African countries in attracting direct foreign investment for eight years, according to the report. Net foreign direct investment as a percentage of GDP increased from 0.3 per cent in 1992 to 2.1 per cent in 1998, compared with an average increase of 0.1 per cent for sub-Saharan Africa. Tanzania was described as one of the most improved countries in the region.

THE ‘GOLD STANDARD’
Outgoing UNDP Representative in Dar es Salaam, Sally Fegan­Wyles, told the Daily News on July 19 that Tanzania had become a ‘standard bearer for excellence’ in economic recovery, poverty reduction and the war against corruption after years of tough economic and political reforms. It was ‘the gold standard’.

THE BUDGET -‘VISIONARY AND BOLD’
This is how David Tarimo described, in the Guardian, Finance Minister Basil Mramba’s first budget since taking up his post. The writer referred to what he described as the clearly articulated vision that poverty reduction could only be realised by significant growth and that this growth was dependent on nurturing competitive industrial and agricultural sectors The boldness and ambition was seen in the increased revenue collection target of 12.1% of GDP compared with 11.7% for 2001 together with the significant reductions in import duties and certain other taxes. Changes made to ensure that agriculture would be competitive included the abolition of stamp duty on proceeds from sales of agricultural produce and the reduction of land rent on agricultural land by 66%. The five per cent cap on local tax (producer and livestock cess) announced two years ago was to be enforced. Changes to promote the local dairy sector included the banning of imported powdered milk and the imposition of suspended duty of 25% on other types of imported milk -except for infant milk. The VAT on milk packaging materials had also been abolished.

A major step towards reducing industry’s production costs was the abolition of customs duty on capital goods and raw materials. Business was also said to have welcomed the abolition of the two per cent withholding tax on payments for goods and services; investors would welcome the abolition of withholding tax on interest on foreign loans. In raising revenue the Minister introduced a gaming tax and planned to raise significant revenue through abolishing the exemption from VAT that the government and its institutions previously enjoyed.

In the media the headlines concentrated on the Shs 30,000 million allocation for an increase in salaries of civil servants. OTHER HGHLIGHTS included an increase in airport charges; a fuel levy on petrol; increases in duty on beer, cigarettes and soft drinks; a halving of excise duty on locally-produced wine; new taxes on lotteries and casinos; VAT on computers, printers and accessories to be abolished; hospital equipment and taxes for drugs used to treat TB HIV / Aids and malaria abolished; VAT on education investment and ground transport for tourists abolished; Shs 8 billion provided for next year’s census.

The Minster said that expenditure would total Shs 1,764 billion and revenue Shs 991 billion leaving a gap of Shs 773 billion to be filled by external assistance and debt relief, the drawing down of reserves, the sale of shares in previously privatised public firms and by increases in taxation. But Chairman of the Parliamentary Finance Committee, Dr Juma Ngassongwa, a CCM MP, said that the fact that the economy was showing signs of recovery remained a mystery to the majority of Tanzanians who continued to suffer in poverty. He said that with a birth rate standing at 2.8 per cent the 4.2 per cent economic growth figure was brought down to a mere 1.4 per cent. Although agriculture was still the mainstay of the economy, government seriousness in insuring growth in the sector was not reflected in the development programme 2001 -2 nor in the national budget. Only 5.5 per cent of the budget had been allocated to the agricultural sector.

As ‘The Express’ put it ‘The agricultural sector, whose dismal performance (3.4% growth rate) last year largely contributed to the failure of the economy to reach the targeted growth rate of 5.1%, is still besieged by the same (seemingly intractable) problems which cannot be solved in a very short span of twelve months. These problems include: lack of investment in agriculture -the sector accounts for 50% of GDP but of all the projects sanctioned by the Tanzania Investment Centre, only 5% concerned agriculture; primitive farm-implements, such as the traditional hand-hoe which perpetually condemns the peasant farmers to subsistence farming; flawed marketing policies accompanied by mismanagement and corruption in the cooperative unions, and imperfections inherent in the marketing boards which inhibit efforts to increase production; low processing capacity of agro-based industries; and, lack of linkage between agriculture and industry. It does not appeal to an inquiring mind that, with a budgetary allocation of only 5.5% per cent to agriculture (compared with, for instance, 18% to Defence and Security, and 21% to administration), the government is really seriously committed to ‘revolutionizing’ agriculture, no matter how impressive the said ‘strategy’ may be on paper.

TANZANIA WINS IN ELECTRICITY DISPUTE
Tanzania has won in the three-year-long long dispute over the cost of the $150 million 100 MW Malaysian-financed Independent Power Tanzania Limited (IPTL) thermal plant project at Tegeta in Dar es Salaam. Production of electricity should finally start in October, the Minister for Energy and Minerals, Mr Edgar Maokola-Majogo has announced. The London-based International Centre for Settlement of Investment Disputes (ICSID) ruling issued on July 12 stated that the value of the plant would be reduced to $125 million, not $150 million as claimed and the cost of electricity would be $2.8m per month as proposed by TANESCO as against IPTL’s $4.2m demand. Maokola-Majogo also announced that the construction of the long-delayed 232-kilometre $300 million gas pipeline from Songo Songo to Dar es Salaam, would start in September and would be completed in 2003. He said the implementation of the gas project would go hand in hand with providing towns and villages along the gas pipe with power from gas and solar power at a cost of $13.3 million. The gas from Songo Songo would be used to generate power at TANESCO’s Ubungo gas turbines in Dar es Salaam and later at the IPTL plant.

SUGAR CRISIS
A crisis in the sugar industry erupted in May this year when local producers threatened to suspend production, blaming the government for issuing 22 licenses to import 100,000 tonnes of ‘industrial’ sugar and thus spoil their market. The Guardian reported that the crisis deepened in June when a consignment of more than 6,500 tonnes of sugar was confiscated by the Tanzania Revenue Authority (TRA) after it was found to have been imported illegally. Early reports had it that the ‘game’ was being practised by some prominent businessmen, who used the name of the Tanzania People’s Defence Forces (TPDF) to avert paying import tax. On reaching the local market, the alleged businessmen sold the sugar at throwaway prices, thus, undercutting the price of locally produced sugar. In April, Minster for Industries, Iddi Simba, had been reported in The East African as having revoked 10 import licenses for 38,000 tonnes saying that the permits had been issued without his authority. Tanzania’s annual sugar requirement was said to be 290,000 tonnes and local sugar production about 180,000 tonnes so that importation, legally or clandestinely was necessary. Local sugar was highly taxed but imports could sell at much lower prices thus giving higher profit margins. Local producers argued that some of the permit holders imported refined sugar but declared it as raw sugar to cheat on taxes.

AND QUESTIONS ABOUT SHIPPING
The dynamic Minister Simba was in further trouble when it was reported on August 8 that the Parliamentary Select Committee on Finance and Planning had criticised Mr Simba’s handling of the privatisation (perhaps better expressed as ‘liberalisation’) of the Shipping Corporation (NASACO). He was said to have ignored a Cabinet Paper by issuing some 30 licenses for clearing and forwarding operations to foreign shipping companies. The Minister was quoted as saying that the question of corruption did not arise. “I am not in politics to make money” he said. “In fact I do not live on my ministerial salary”.

NEW RISK AGENCY
Tanzania has become one of the first seven countries to show interest in a new political risk insurance agency for Africa -the African Trade Insurance Agency (ITA) which is being supported by COMESA and the World Bank. The agency said that there were significant gaps in the political risk insurance market when it comes to the assumption of risk in cross-border transactions. Premium rates were likely to range from 0.4% to a maximum of 2.5% depending on the length and type of credit involved. Risks eligible would include embargoes, expropriation, inability to convert or transfer currency, imposition of import or export taxes of a discriminatory nature, war and civil disobedience -Press Release.