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Expropriation Risk: 80 80 78 77 Political Violence Risk: 45 42 42 40 Terrorism Risk: 40 38 40 40 Exchange Transfer and Trade Sanction Risk: 54 54 52 53 Sovereign Default Risk: 68 66 65 68
TREND ▲ OUTLOOK ▲
The government’s response to the COVID-19 virus, which was only beginning to make an impact at the end of March 2020, will determine its longer-term economic and political impact on the country. The early indications were not encouraging, with a lack of coherent leadership in responding to the social and economic threat that the virus presents. The government of President Magufuli moved to a lockdown later than its neighbours, arguing that more people would die of hunger if prevented from earning a living than will be lost to the virus. Instead, it opted for a very light regime that appeared designed to minimise economic disruption as much as possible. The crowded public transport system was left operational, businesses were encouraged to continue working, and the port of Dar es Salaam enjoyed an unexpected surge of traffic as South African ports closed. Tanzania had the chance to learn from recent experience, having been publicly criticised by the WHO last year for its handling of the regional Ebola outbreak, which included a cover-up of the number of infections. There are concerns that a similar lack of transparency will seriously undermine national and regional efforts to combat COVID-19. Tanzania’s health system is under-prepared to cope with a crisis on this scale, lacking sufficient personnel and laboratory facilities for mass testing. Rural areas are significantly under-resourced, and whilst services are better in major urban areas, especially Dar es Salaam, the ability of the virus to spread rapidly through densely crowded areas means even those services will very quickly reach capacity. Although around two-thirds of Tanzania’s population is under the age of 25, and therefore part of the demographic group experiencing the lowest impact from COVID-19, the country has significant instances of tuberculosis, HIV and other health conditions that will ensure the country’s level of fatalities will still be significant. Failure to control the epidemic will undermine regional and global efforts, and could spark new epidemics later in the year and into 2021. The economic impact will also be significant. TB rates are particularly high in the mining sector, helping the virus take hold there and reducing production. Other sectors have been more immediately hit. Tourism was worth 2.5 billion USD in 2019, accounting for 14% of GDP, but has now shut down completely. Border closures will also dramatically impact regional trade. All this means that Tanzania will require donor support in both the short and the long term. The main political question at present is how this will affect October’s 2020 presidential and legislative assembly elections. A successful handling of the crisis would play into Magufuli’s reputation for tough decision-making, blunting some of the criticisms of his leadership. But the government will be particularly sensitive to any criticism of its efforts. It will use a crackdown on false news about the virus to prevent legitimate questioning of its policy and approach, while the ban on public gatherings will hamper opposition parties. The government may seek to postpone the elections if the epidemic is still evident in late summer, although doing so without the consent of opposition leaders could lead to protests that, in turn, trigger a violent state response.
TREND ▼ OUTLOOK ▲
During the current crisis, investment confidence is likely to fall, reflecting global trends. However, the government now has more important things to focus on than its ongoing battle with foreign companies, especially its feud with the foreign-owned mining sector. Instead, it will be keen to ensure that foreign companies will continue to operate in order to provide revenue and may therefore reduce pressure on renegotiating contracts. Such a stance is likely to be temporary, and the resumption of political campaigning in the run-up to elections would probably see a resurgence of economic nationalist rhetoric. With the mining sector vulnerable to a fall in productivity due to its susceptibility to COVID-19, the government will not want to threaten its viability. Fluctuations in the price of gold, an important export for Tanzania, that have been heightened by the pandemic are likely to continue.
The government was aware that neighbouring Kenya, Rwanda and Uganda saw local outbreaks of violence in response to an urban lockdown, and this may have encouraged its relatively light approach. However, there are still concerns about flashpoints in Dar es Salaam and other major urban areas as people find it harder to earn a living. If the government were seen as cynically postponing the elections on the pretext of concern about the virus, opposition parties would be likely to call for mass protests and demonstrations, which would probably lead to a harsh crackdown from the state. However, the government will have significant leeway in imposing strict conditions on movement and gatherings given the scale and severity of the crisis, which may help to prevent localised violence from becoming national.
TREND ► OUTLOOK ▲
The risk of significant international terrorist activity in Tanzania remains relatively limited, though Tanzanian nationals have been implicated in regional terrorist or extremist groups across the region. Whilst the main threat has traditionally been seen to come from the north with the spill-over from Somalia’s political crisis, the border area with Mozambique has become increasingly insecure. Late last year, a cross-border attack by jihadist forces operating in Mozambique left six people dead in Mtwara Region. Continued attacks by jihadist groups in the Cabo Delgado province of Mozambique could carry across into Tanzania and worsen security in the southern regions.
Annual inflation continued to fall during 2019 and was just 3.7% in January 2020, well below domestic and East African Community targets. This reflected lower food inflation, which outweighed the impact of increases in energy and fuel prices. Despite falls in global commodity prices, the value of key traditional exports such as cashew and cotton had increased, with higher volumes making up for falls in prices. Gold exports also increased in value to 2.28 billion USD, reflecting increases in volume and prices. Overall, the value of exports increased to 9.9 billion USD in January 2020, up from 8.3 billion USD on the previous year. However, there are significant questions about the ability of key sectors to perform to anywhere near these levels if they are hard hit by COVID-19.
Although tax revenues increased during 2019, they will clearly fall again during 2020. Meanwhile, government debt continues to grow, with almost half of the total being owed to multilateral institutions. The debt burden is high and will grow further because of the epidemic, making donor support increasingly significant. Reserves at the start of 2020 were around 5.5 billion USD, equivalent to over six months of imports, and the government will probably need to make substantial use of this during 2020.
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