Thursday, July 28, 2016

Tanzania: The Fastest Growing Economy In Africa

Tanzania’s new president promises to shake things up

The economy is among the fastest growing in Africa, but big challenges lie ahead
Tanzanian President John Pombe Magufuli has earned the nickname the
For years, the image of Tanzania was that of an economic backwater: a peaceful and stable nation by Africa’s volatile standards, yet one held back by the socialist legacy of Julius Nyerere, the country’s founding father. Bigger geographically than Kenya and with a marginally larger population, estimated at some 55m, Tanzania is habitually contrasted with its northern neighbour: bureaucratic and state-led to Kenya’s dynamic and entrepreneurial.
That caricature is becoming outdated. It is true that Kenya is faster paced and marginally richer, with a gross domestic product per capita (at purchasing power parity) of $3,200 against $2,900 for Tanzania, according to the International Monetary Fund. In nominal terms, Kenya’s economy is worth $61bn compared with Tanzania’s $45bn. It is also true too that Kenya has led the way in technological advancement, particularly in the use of mobile money. But here, as in many other ways, Tanzania is catching up.
Official statistics put average economic growth at 7 per cent since the turn of the century, when Tanzania’s economy began to open up to market forces. That has prompted some scepticism, partly because of the seemingly remarkable consistency of the performance. Even so, a short stay in Dar es Salaam, the commercial capital, where skyscrapers are sprouting up and imported cars ride bumper to bumper along backed-up roads, is enough to convince many visitors that the economy has changed gear.
Now there is a new element. John Magufuli became president in November with an apparent determination to shake things up. In his first few months in office he has cleared the civil service of thousands of “ghost workers” and begun a campaign against tax evasion, both by foreign companies and local entrepreneurs, many of them connected to the ruling Chama Cha Mapinduzi party. (More controversially, he rammed through disputed elections in semi-autonomous Zanzibar). He has also tilted the budget sharply away from current expenditure towards development, including capital spending.
“We have a president who wants things to happen today — or yesterday,” says Adolf Mkenda, permanent secretary of trade and investment. He says that Mr Magufuli’s emphasis on poverty reduction and his loathing of government waste and corruption is hugely popular with a public impatient to see the benefits of growth. “You ask people on the streets and they are quite excited when they see us getting fired.”
Yet the problems are formidable. Growth in Dar es Salaam, driven by services, telecoms and banking, is impressive, if uneven. But the 70 per cent of people who live in the countryside, many of them subsistence farmers, are falling behind. Farming productivity is barely keeping pace with a population that is growing at just below 3 per cent a year. The population, which has quintupled since independence in 1961, could double again to more than 100m by 2035. Finding jobs for young people pouring into the labour market is a top priority.
Tanzania’s potential population by 2035
So is powering the country and building the roads and ports that could turn Tanzania, with its long coastline and proximity to six landlocked countries, into an important transshipment centre. Under Mr Magufuli, Tanzania has shown more interest in the East African Community, an emerging tariff-free area with EU-style ambitions. The new president is seen to have played an important role in persuading his Ugandan counterpart, Yoweri Museveni, to opt to ship Ugandan oil via a pipeline through Tanzania instead of Kenya, as originally planned.
China, which has had close relations with Tanzania for decades — even the country’s military academy was built with Beijing’s assistance — is helping to finance much of the infrastructure, from roads and rail to a potential multibillion-dollar port at Bagamoyo, north of Dar es Salaam.
Power shortages have been partly alleviated in the commercial capital thanks to a Chinese-financed pipeline carrying natural gas from onshore fields in the south to Dar es Salaam. But far more work will be needed to sort out the energy problem. Only about one-fifth of the population has access to regular supplies.
Tanzania is more economically diverse, less indebted and less dependent on commodity exports than many countries on the continent. It is a beneficiary of low oil prices, a spectacular tourist destination for high-end travellers and emerging as a top-five African gold producer. It is also sitting on 55tn cubic feet of undersea gas. However, drawn-out negotiations with the likes of ExxonMobil and Royal Dutch Shell, coupled with a sharp drop in global prices, mean it could be many years before production starts.
The new government has also declared its intention to step up manufacturing and agro-processing, both to push the economy up the value chain and to provide jobs for the swelling workforce. Infrastructure will be key, but so will creating the right business environment. Benno Ndulu, central bank governor, says cleaning up the judiciary so that companies have speedy and dependable recourse to the law is crucial. Foreign investors used to Tanzanian courts will share his hope, but will not be holding their breath.
Much depends on the new government’s relations with business. Mr Magufuli has inherited Nyerere’s suspicion of the private sector. He has, for example, questioned the deals struck with foreign miners, including London-listed Acacia Mining, formerly Barrick Gold Africa, arguing that companies have been allowed to declare years of losses while paying dividends overseas. In April, Acacia was forced to make a $70m tax provision as a result of disputes with Tanzania’s authorities over past taxes.
Those close to Mr Magufuli say he genuinely wants to root out corruption and fly-by-night practices. “People believe sincerely there’s a new sheriff in town and that he means to do what he says he’ll do,” says Salim Ahmed Salim, a former prime minister.
But Mr Salim argues that the new president, accused by opponents of authoritarian tendencies, will have to institutionalise change rather than take on everything himself. Still, Mr Salim argues, if the new government can rationalise the business environment, Tanzania — stable, economically diversified and growing quickly — is ripe for further investment. “If corruption is tackled,” he says, “this country has tremendous potential.”

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