Despite continued strong macroeconomic indicators relative to the region, increasing uncertainty in government policies has recently raised questions about the business climate and long-term prospects for investment in Tanzania. Though the government publicly states a favorable attitude towards foreign direct investment, in 2016 it pursued policies which prioritized domestic production, often to the detriment of attracting foreign investment or trade.
Tanzania has sustained an average rate of 6-7% economic growth since the late 1990s due to a relatively stable political environment, reasonable macroeconomic policies, structural reforms, a resiliency from external shocks, and debt relief. The IMF recently reported that Tanzania’s macroeconomic performance remains strong, economic growth is projected at about 7 %, and inflation is expected to remain close to the Government of Tanzania’s (GoT) 5 % target. Despite these figures, widespread poverty persists with 43.5% of Tanzania’s population living below the extreme poverty line of $1.25 per day (2005 PPP exchange rate). The average annual GDP growth has been hardly perceptible among Tanzania’s predominantly rural (70%) population. Inclusive, broad-based growth is stymied by slow growth in labor intensive sectors (agriculture employs 67% of Tanzania but has grown at under 4% per year over the past decade) and a high and steady population growth rate of 3% percent.
Beginning 2016, the GoT instituted significant measures to raise revenues, encourage the hiring of Tanzanian citizens over foreigners, and protect/grow local industry. Some stakeholders fear these measures adversely affect the business environment and potential investment. On the revenue front, the measures include new taxes in certain industries (e.g., telecommunication, banking, and tourism) as well as more assertive collection measures by the Tanzania Revenue Authority that some label arbitrary and without merit. On the employment front, new regulations were implemented making it more costly, difficult, and time-consuming to hire foreign employees. Finally, on the local industry front, the GoT is using increased tariffs and import and export bans as a stated, but ineffective, way to protect/grow local industry. Some examples of affected items include sugar, corn, coal, mineral sands, and second-hand clothing. Some businesses complain that these measures increase operational costs, reduce profits.
The private sector also expressed increasing concern with government decisions that limit private sector consultation and/or that give the private sector little advance notice. Examples include a number of the import and export bans that were implemented without warning as well as some of the new taxes that were introduced in 2016. 2016 also saw a number of highly publicized disputes between the private sector and the Government of Tanzania, including two that involved U.S. companies. Moreover, arrears continue to be a problem with the GoT and some contractors remain unpaid. These issues increase the perceived risk of investment and potentially discourage investment.
One key issue to watch will be how the Tanzania judicial system handles a recent arbitration award issued to Standard Chartered Bank – Hong Kong. Investors rely on international arbitration as a way of enforcing its contracts. The issue is still being litigated. Another key issue is whether the GoT continues to mandate that private companies float their shares on the Dar es Salaam Stock Exchange (DSE) as it demanded for mining companies and telecom companies in 2016. The first company to pursue an IPO in compliance with the mandate received GoT approval to extend the deadline of its IPO share sale to allow more time to sell unpurchased shares.
Best prospects in Tanzania traditionally included agriculture and agro-processing, minerals processing, textiles, and the services sector, driven by banking, construction, and trade. The GoT’s recent aggressive revenue raising measures, however, made investment in many of these sectors less attractive. Government plans for infrastructure development, including moving the seat of government to Dodoma, is purported to offer investment opportunities in railroads, real estate development, and construction-related industries, such as cement. Untapped potential in the tourism sector may only be achieved through increased infrastructure investment. Corruption, especially in government procurement, privatization, taxation, and customs clearance, remains a major concern for donors and foreign investors. The GoT acknowledged the problem of corruption and included the elimination of corruption among its stated goals. Grand corruption, however, remains a problem and prosecution of government officials is very rarely pursued.
Tanzania held its fifth multi-party general elections on October 25, 2015. The ruling Chama Cha Mapinduzi (CCM) party faced its most serious competition in the multi-party era (since 1995). CCM party candidate John Pombe Magufuli won the Union presidential election with 58% of the vote. In semi-autonomous Zanzibar, the October election was controversially annulled, and a re-run election was held on March 20, 2016. CCM swept the re-run amidst an opposition boycott, in a poll that was widely criticized for failing to adhere to principles of a free and inclusive election. A special session of Parliament wrote a new draft constitution destined for a public referendum, scheduled for April 30, 2015, although the process was subsequently postponed indefinitely.
|TI Corruption Perceptions Index||2016||116 of 176||http://www.transparency.org/
|World Bank’s Doing Business Report “Ease of Doing Business”||2017||132 of 190||doingbusiness.org/rankings|
|Global Innovation Index||2016||105 of 128||https://www.globalinnovationindex.org/
|U.S. FDI in partner country ($M USD, stock positions)||2015||USD 578 Mill||http://www.bea.gov/
|World Bank GNI per capita||2015||USD 920||http://data.worldbank.org/