Tanzania is the least corrupt state in East Africa, according to Transparency Internationals East African Bribery Index published on July 22 and quoted in the Guardian. In Rwanda however, corruption was insignificant.

The agency declared Burundi the most corrupt nation in the region. The survey was conducted among 10,505 respondents selected through random household sampling across all the administrative provinces in the five countries between January and March 2010. Burundi had a ‘corruption prevalence’ of 36% with Kenya at third position (45% in 2009 to 32% in 2010). Uganda came second at 33% while Tanzania was fourth at 28%. Key governance and enforcement institutions such as the police, judiciary and defence featured prominently in the index, as did institutions offering key services like health, education, housing and finance.

In the Aggregate Index for Tanzania there were some new entries including the Tanzania Ports Authority, the Registrar of Births and Deaths, the Prisons Service and the Department of Defence.

There are more than 100 Chinese companies doing business in Tanzania with an accumulated direct investment of more than 200 million U.S. dollars in construction, textiles, agriculture, medicine and infrastructure, according to the Chinese news agency Xinhua quoted in the Guardian. Reports in 2008 showed business between China and Tanzania had reached $102 million in 1997, a jump of 22% over the previous year. The growth rate of trade between the two countries has developed steadily since 1994, surpassing the 15 percent mark for three years in a row. The rise of the trade is attributed to the political stability and economic reforms in Tanzania, which have increased the confidence of Chinese businessmen.

In August 2009 Minister for Agriculture, Food Security and Cooperatives, Stephen Wasira, had announced that “Tanzania welcomes Chinese investment and is expecting more investment in the agriculture sector to boost bilateral cooperation and enhance food production.”

Four more agreements
Tanzania and China signed four more grant and concessional loan agreements on 15 January 2010 amounting to over Shs 239 billion for various projects including the Information, Communication and Technology (ICT) Infrastructure Network Project and the International Airport Terminal II Project in Zanzibar and, very significantly, the transformation of the Tanzania Zambia Railway Authority (TAZARA).

Increasing concern for Chinese nationals
However, in March, the Chinese embassy expressed concern for the safety of its nationals doing business in Tanzania. It asked for security measures to be strengthened to protect the safety of Chinese investors in Tanzania following the murder of two businessmen in 2008 and another in Dar in 2009. In a statement, the Chinese Business Chamber of Tanzania demanded that the police speed up the investigation into the latest killing – Guardian.

93rd freest economy
Tanzania has been rated the 93rd freest economy in the world with an ‘Economic Freedom Index’ placing of 58.3 out of 100 – 1.8 points higher than in the previous year. The economy registered improved scores in six of the ten economic freedoms tracked in terms of the Index. Tanzania is ranked 11th out of 46 countries in sub-Saharan Africa, and the third out of the four East African Community members ranked. Globally, Hong Kong is leading with an index of 90.0. Zimbabwe and North Korea are the ‘at the bottom.

The report on the Index says: ‘Tanzania scores above the world average in fiscal freedom, investment freedom, and government size,’ reads the Report. Foreign and domestic investors receive equal treatment, although poor infrastructure, government control and corruption remain deterrents. Government spending is moderate, and tax administration has been centralized and modernized.” As in many other sub-Saharan nations, the Judiciary is underdeveloped and subject to the political whims of the Executive. Corruption is a pervasive problem throughout Government – despite feeble attempts at reform over the past decade. The overall freedom to conduct business is seriously limited by Tanzania’s regulatory environment. However, starting a business has improved somewhat, taking an average of 29 days, compared to the world average of 38 days.

Obtaining a business license takes more than the world average of 18 procedures and 225 days… costs are high. Bankruptcy proceedings are fairly straightforward – but still lengthy. Tanzania’s weighted average tariff rate was 7.2 per cent in 2006. Adding to the cost of doing business is motley of negatives that include import and export restrictions; taxes and fees; registration and licensing processes; prohibitive tariffs; inefficient/slow customs implementation, and weak enforcement of intellectual property rights. Ten points were deducted from Tanzania’s trade freedom score to account for non-tariff barriers.

Tanzania has moderate tax rates. Both the top income tax rate and the top corporate tax rate are 30 per cent. Other taxes include a value-added tax (VAT), a property tax, and an excise tax on petroleum products.
In recent years, overall tax revenues as a percentage of GDP have been 12.0 per cent. On the other hand, total government expenditures, including consumption and transfer payments, are low. After five years of growth, government spending in the most recent year equaled 23.5 per cent of GDP! Inflation is relatively high, averaging 6.8 per cent between 2005 and 2007 – and 11-13 per cent currently.’

“World Bank has disappointed us” – Mkulo
Finance and Economic Affairs Minister, Mustafa Mkulo has expressed dismay at the World Bank disclosure of classified information about Tanzania in a public statement. The government reaction was conveyed in a Bank statement which said Tanzania was not doing enough to stamp out grand-corruption, among other things. Mkulo told ‘The Guardian’ in an interview that traditionally, such comments “are not expected to be made in public” because that was not a proper way of disclosing information or making comments. The Minister was specifically referring to information furnished by the World Bank regarding a slight drop of 0.1 per cent by the government on Public Management and Institutions, being one of the specified four rating categories before a country qualified for a soft loan.

However, the World Bank insisted that the decision to make the report public was a shift in policy, aimed at eliminating unnecessary secrecy when dealing with financial communications with various beneficiaries. ‘A sound open policy on the disclosure of information was fundamental to the fulfillment of many roles. “Our intention is to strike the right balance between maximum disclosure and our legitimate concerns to protect certain types of confidential information,” the World Bank information spokesman said.

According to the World Bank Communication Officer in Dar es Salaam, Nicodemus Odhiambo, more ‘open-policy implementation’ would be experienced in future functioning of the Bank to sustain transparency. “Under the new arrangement the general public will have access to non confidential information such as the Quarterly Management Reports, Country Portfolios and Performance Reviews, Implementation Status and Results reports (excluding staff comments), Mission aide-memoirs and Minutes of Concept Review and Decision Meetings,” Odhiambo said. “
“This new approach is consistent with our business model, which recognizes that transparency is critical for enhancing governance, accountability, and development effectiveness,” he insisted.

Minister Mkulo said Tanzania was ranked 4th in the evaluation which covered 34 different countries in Sub Saharan Africa, after scoring above average, equivalent to 3.8 points in a scale of one to six points. Tanzania scored 4.3 points in Economic Management; 3.8 points in Structural Policies; and, 3.7 points on Policies for Social Inclusion/Equity and Public Management and Institutions.

The ranking places heavy emphasis on public finance management and reforms – the Guardian.

Africa`s Governor of the Year
Bank of Tanzania Governor Prof Benno Ndulu has won the 1909 award of the ‘Central Bank Governor of the Year for Africa’ award by the London-based ‘Emerging Markets’ daily newspaper – the newspaper of record for the World Bank, IMF and African Development Bank meetings for the past 18 years. The Governor won the award because of his ‘impeccable performance since he assumed the leadership of the Bank in January 2008.’

Improved Ibrahim Index Rating
The Ibrahim Index attempts to rate the quality of governance of African countries using statistics on 84 criteria arranged in four categories; Safety and Rule of Law; Participation and Human Rights; Sustainable Economic Opportunity; and Human Development.

In the latest ranking, Tanzania has improved by two points to 59.2, and continues to outrank its neighbours – Zambia (55.3), Kenya (53.7) and Uganda (53.6). It is well ahead of Zimbabwe (31.2) and Nigeria (46.5) but still some way behind South Africa (69.4) and Botswana (73.6).

The Mo Ibrahim Foundation held a celebration in Dar-es-Salaam in November to celebrate Africa and promote good governance, including performances from Angelique Kidjo and Youssou N’Dour.

In his 2008/09 budget the Finance Minister projected that the inflation rate would be controlled at below 7% by the end of June 2009. As previously noted in this section of TA the Bank of Tanzania (BoT) is primarily charged by law with maintaining price stability. Hence, they have declared on their website that inflation is their enemy number one. Since they are yet to name their number one friend or rather the ideal inflation rate, it would probably be safe to consider the projected rate as their targeted rate.

However, in 2008, the average inflation rate was recorded at 10.3% with the highest rate being 13.6% in December. By the end of June 2009 it was 10.7%. With such a wide divergence from target one may wonder whether it would be safe to conclude that BoT is failing in its primary objective!

In the June 2009 biannual Monetary Policy Statement the BoT only promises to restore and maintain a low and stable inflation rate which begs the question “what is a low and stable inflation rate or is it a moving target? From previous experience on price stability, particularly the period of falling inflation from 1995 to 2005, a 5% rate would appear to be the ideal to ensure stable prices without jeopardizing economic growth.

The BoT tends to adopt a post mortem-rather than a pro-life approach to reporting, be it monthly or annually, their reports focusing only on what has happened and not what is likely to happen and how they intend to achieve their set targets. The future will be shaped rightly or wrongly by the choices we make today. These choices can sometimes be difficult and may be painful as we witnessed when the government chose to pay foreign debt in the early years of Mkapa’s presidency. In the end the rewards in debt relief, good creditworthiness, increased budgetary support, low inflation rate, sustained economic growth, etc did however justify those choices.

It is high time for the BoT to set out not only why the inflation target could not be met but what they intend to do to achieve it. This will also allow them the chance of bringing to government’s attention the direction of fiscal policy and its potential impact on inflation.

Tanesco (the national electricity company) is still malfunctioning and the government is still unable or unwilling to reform it. There is increasingly heavy reliance on thermal electricity generation to meet increasing demand which leads to high energy costs and provides an erratic supply.

To sustain a projected GDP growth rate of above 7% would require an increased demand for energy and, as western countries’ economies starts to grow, there would be an upward pressure on the oil price which, in turn, would have a further negative effect on the value of the shilling and hence energy and transportation costs and food prices.
With all this in mind the chance of containing inflation at the perceived ideal rate of 5% without transparent, pro-active and coherent policies, which clearly set out a medium to long-term inflation, this outlook is remote.
Joseph Sabas

Economic stimulus package
President Kikwete announced on June 10 a Shs 1.7 trillion economic stimulus package designed to mitigate the effect of the global financial crisis. He said that the crisis had adversely affected many areas including exports, tourism, manufacturing and agriculture. He said that the world was facing the worst economic crisis since the 1930s, but the government would do everything possible to absorb the shocks. Among the measures included were the off-setting of the Shs 21.9 bn loss suffered by several firms and co-operative unions involved in crop buying. On firms which had borrowed over Shs 270 bn for construction of hotels and in other areas, the government would guarantee the debts and ask bankers to extend the repayment schedule by two years. Shs 80 bn would go to recapitalizing firms with inadequate working capital and Shs 20 bn to boost export and small and the medium entrepreneurs guarantee schemes plus Shs 20 bn to the Tanzania Investment Bank (TIB) to enhance its capacity to extend loans. To support gemstone dealers who could not sell diamonds, tanzanite and other precious stones abroad, they would be exempted from payment of royalty for two years. – Daily News

THE ECONOMY AND THE BUDGET

During the budget session in Parliament Finance Minister Mustafa Mkulu reviewed the state of the economy. He forecast a significant fall in revenue because of the global financial crisis and said that the Government would borrow funds from the domestic market, although he hoped that donors, would increase their support through loans and grants by 30% compared with the previous year.
The economy of Tanzania is estimated to have attained GDP growth of 7.4% during the year 2008 (7.1% in 2007). The annual rate of inflation for 2008 was 10.3% (7% in 2007.) The rate of inflation reached 13% by the end of March 2009.

GDP growth in Tanzania 2008

The 2009/10 budget sets out the following targets:
• GDP growth rate of 5% in 2009;
• inflation at below 10% by end of June 2010;
• increase in domestic revenue from 15.9% of GDP in 2008/09 to 16.4% in 2009/10;

Total budget revenues will be as follows (Shs mn):
• Domestic revenue 5,096
• grants and loans 3,181
• domestic loans 1,082
• local government collections 138
• privatisation proceeds 15
Total Revenue 9,513

Donor dependency is expected to grow due to the economic crisis reaching 45% of the 2009/10 budget.
The Government is proposing to spend Shs 9,513 billion in 2010/11: Recurrent 6,688, development 2,825. Total: 9,513 in the following areas: Education 18.3%; agriculture 7%; infrastructure 11.5%; health 10.1%; water 3.7%; energy and minerals 3%;
Tourism and gold receipts continued to dominate the export sector accounting for 27% and 18% respectively.
Foreign reserves increased by 3.9 % to US$ 2,869.7 million in 2008, enough to cover 5 months of imports.

As at 31 December 2008, the national debt had increased by 7% at $ 6,329 million – 32.6% of total GDP.

The budget included provision for:
– the immediate abolition of 405 government notices issued between 1964 and 2005;
– a reduction in local Government taxes to 3% from the previous 5%;
– a number of measures to ease widespread concerns that Tanzania isn’t getting a fair return on foreign investments in gold mining including the removal of VAT special relief and limiting it to cover only prospecting and exploration; abolition of exemption from taxes on fuel for mining companies, other than fuel levy exemptions in existing mining development agreements;
– a reduction in the VAT rate from 20% to 18% and a 7.5% increase in excise tariffs on alcohol, tobacco and carbonated drinks;
– in the tourism sector the removal of VAT exemption on air charters, balanced by a removal of import duty on 4-wheel drive vehicles specifically designed for tourist purposes, and some rationalisation of visa costs;
– removal of import duty on pharmaceuticals.
– to encourage companies to list on the Dar es Salaam Stock Exchange a reduction in the corporate tax rate for companies from 30% to 25%;
– PricewaterhouseCoopers Newsletter.

Criticism
There was such strong criticism from religious leaders of the proposal to lift tax exemptions enjoyed by religious and other non-governmental institutions providing services like education, health and water that on June 17 the Prime Minister announced, at an emergency news conference, that this part of the budget would be cancelled – Guardian.