Previous Quarterly Editions
Expropriation Risk: 76 78 76 77 Political Violence Risk: 46 44 46 44 Terrorism Risk: 42 42 40 40 Exchange Transfer and Trade Sanction Risk: 56 54 51 53 Sovereign Default Risk: 65 66 66 68
TREND ▲ OUTLOOK ▲
The overall economic picture for Tanzania remains generally positive. Growth for 2018 was around 6.7%, slightly down on 2017 but still high by regional standards, and the figure for 2019 should be similar. Inflation is at its lowest level for two decades, having fallen to 3% at the end of 2018 from 4.4% a year earlier. Whilst government spending commitments are likely to begin pushing inflation up again during 2019, it is likely to remain below 5%. However, concerns remain about the government’s policies towards key sectors of the economy and about the increasing friction in its relationships with donors. The government’s approach to the mining industry, in particular, continues to alarm investors. President Magufuli appointed a new Minister for Minerals, Doto Biteko, at the start of 2019, with a specific brief to increase government revenues from the sector still further. The appointment of Biteko, who had previously chaired the parliamentary committee looking into Tanzania’s mining sector and the government’s contracts with international firms, will be seen as a statement of its continued determination to rewrite mining contracts and amend licences to maximise government income from the sector. Whilst the African Development Bank forecasts that Tanzania will remain the most popular regional investment destination in 2019, others, including credit rating agencies, warn that economic growth could be undermined if Tanzania’s cooling relationship with donors, most recently due to concerns over the treatment of LGBT+ communities, continues to worsen. The government has still not finalised agreements with several major energy companies, including Shell, Statoil, and Exxon Mobil, over the construction of a natural gas export terminal. This looks likely to result in further delays to LNG investment and therefore to the expected revenues from this new sector, which the government is counting on to boost revenues in the medium term. There should be greater progress in 2019 on the Stiegler’s Gorge project, a 2,100 MW hydroelectric dam that will allow Tanzania to export electricity to neighbouring countries. Another infrastructure project that should see progress is a standard gauge railway linking Tanzania, Uganda and Rwanda, and from there to Burundi and the DRC. This is a core element of the plan to develop the port at Dar es Salaam into the primary container port for eastern Africa.
TREND ▲ OUTLOOK ►
Tanzania looks set to continue its ongoing battles with the mining sector over disputed royalties and demands for allegedly unpaid taxes. It is also continuing to review the terms of licences and mining development agreements, including stability agreements. Negotiations between Barrick Gold and the government over the long-running tax dispute involving Acacia Mining have yet to reach an agreement, despite both sides stating they are seeking to close this dispute. In January, Acacia was fined a further 130,000 dollars for breaches of environmental regulations. The dispute with Barrick, together with a changeable government attitude towards foreign investors in general, is creating concerns over stability and is likely to undermine efforts to maintain and increase foreign direct investment. Although work is continuing on its major infrastructure development plans, a lack of consistency in government policy could make it harder and more costly to raise the billions of dollars that they require. Tanzania has indicated it will look to China and other donors such as Turkey, which it sees as less likely to impose conditions or focus on human rights as part of their approach to investment.
TREND ▼ OUTLOOK ▼
The ban on political protests and demonstrations has made it difficult for the opposition to operate, and new measures introduced into the National Assembly in January would allow the government to exercise even greater control over political parties. This could affect local elections this year and the general election in 2020. There is already speculation that President Magufuli may be considering an effort to circumvent the term limits that would stop him from seeking a third term in 2025. This may be linked to indications of splits within the ruling CCM, raising a possibility that Magufuli will face a challenge for the CCM presidential nomination in 2020. This could be significant if the challenge came from Bernard Membe, his main rival. A CCM that is facing internal discord yet is determined to maintain power could respond in a very heavy-handed fashion to any signs of wider opposition. The situation on Zanzibar remains relatively calm, despite ongoing tensions over the political settlement there.
TREND ► OUTLOOK ►
There are few indications of any significant terrorist presence in Tanzania, although the country’s security services remain limited in their ability to track and monitor any such elements. The government has sought to link the activities of armed gangs in Pwani Region to Islamist groups, but has provided little evidence to back up the claim.
The fall in inflation to 3.0% reflects a sharp drop in food price inflation following a successful 2017-18 harvest season. Inflation for energy and fuel, however, remains relatively high with an annual figure close to 20. Like other currencies in the region, the shilling has come under pressure as the dollar strengthens. The widening current account deficit reflects a decline in exports, and in particular a fall in earnings from the gold sector as a result of a decline in the volume of exports.
Central government debt now stands at 15.8 billion dollars, up by 800 million dollars year-on-year as the government borrows to invest in transport and telecoms infrastructure. However, the government’s auction of treasury bonds in November was undersubscribed, as was an issue earlier in the year, and this will have implications for infrastructure development going forward. Meanwhile, the flow of aid funding is under threat as donors lose patience with the government. In December, Denmark withheld 10 million dollars of aid funding over human rights concerns, and the EU is reviewing support worth 100 million dollars for the same reason. External government debt remains around 34.5% of GDP but is mostly concessional, reducing the associated risk. Foreign reserves have risen over the past few months to just over five billion dollars.
Return to contents Next Chapter