Previous Quarterly Editions
Expropriation Risk: 74 76 78 76 Political Violence Risk: 46 44 46 46 Terrorism Risk: 44 42 42 40 Exchange Transfer and Trade Sanction Risk: 58 56 54 51 Sovereign Default Risk: 65 65 66 66
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Fears are increasing that President John Magufuli’s autocratic and impulsive style of leadership is having a serious impact on the level of foreign investment in the country. Whilst it remains largely popular, his continued campaign against supposedly unfair contracts signed with foreign investors risks delaying new deals, and putting others off. Reports suggest that government officials have become wary of signing large investment deals with foreign partners on behalf of the government because of fears that President Maguful will denounce the deal as unfair and public disown it. Some officials have been sending back contracts with further questions in order to delay final signing, which is leading to delays in investment, as well as a growing wariness of foreign investors. Foreign direct investment into Tanzania fell by 20% during Magufuli’s first two years in office. A cabinet reshuffle in July saw the appointment of a new minister responsible for infrastructure with orders to increase the pace of work on current large infrastructure projects, roads, rail and airports in particular. The government has been accused of complicity in attacks, kidnappings and torture of opposition supporters and demonstrators, and there have been growing complaints about police violence. The government has been criticised by EU and US diplomats, who have called for transparent investigations into allegations of police brutality. Meanwhile, Acacia Gold, the subject of the government’s fiercest attack on foreign companies, appears to have reached agreement with OreCorp Tanzania Limited to buy full control of Acacia’s Nyanzaga mine in Shinyanga Region, although the government will still need to approve the deal. Acacia may sell the rest of its Tanzanian operations to Chinese mining companies. The government expects growth for 2018 to be above 7%, while most independent estimate are closer to 6.5%. this is still impressive. But the administration’s willingness to buttress political support through an adversarial approach to foreign investors suggest that it may be difficult to sustain this level of growth.
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The changes to the government’s relations with the mining sector last year, which included higher royalty payments and a free stake for the government in mining operations, are part of a move towards economic nationalism. This, in turn, is a central element of President Magufuli's wide attempt to use populism to consolidate his power amid an increasingly competitive political environment as frustration builds with decades of one party rule. However, whilst the government has effectively torn-up pre-existing contracts, most notably with Acacia Gold, it has continued to negotiate settlements with those companies. The extent to which government decisions are reached without following due process has contributed to growing fears amongst investors, particularly those involved in the country’s ambitious infrastructure plans. The government recently announced its intention to spend more than 45 billion dollars on new energy infrastructure over the next twenty years, but this looks ambitious. Despite its public commitment to the Stiegler’s Gorge hydropower project, for example, which has a projected output of 2.1 gigawatts, there are doubts as to whether the government will be able to raise the estimated 3.6 billion dollar investment required.
TREND ► OUTLOOK ▲
The government ban on protests and demonstrations continues, and when the opposition has risked a public event the police have tended to respond in a heavy-handed way. There are some fears that rising anger and resentment at both the government and the security forces could develop into wider political violence, and there have been outbreaks of violence during the most recent set of by-elections in August. Attacks by armed groups, and police operations in response, have continued in Pwani Region, and the government is using these clashes to justify crackdowns on opposition leaders and officials there even though there is no evidence to associate them with the attacks. The situation on Zanzibar remains relatively calm, although unresolved tensions over allegations of rigged elections means that the political situation on the island is not stable.
Tanzania remains at relatively low risk of attacks by international terrorists, and there are few indications of a significant terrorist presence in the country. However, the ability of the security services to track and monitor elements of international terror groups is limited. The government initially linked some of the armed groups in Pwani Region to Al Shabaab, claiming Islamist flags and literature were found when security forces raided their camps, before changing the narrative to link the attacks with opponents of the president.
Inflation has continued to fall during 2018, dropping from 4% to 3.3% and reaching the lowest level since 2003 as price rises slowed in transport, housing and utilities. With inflation comfortably inside its 5% target, the central bank was able to cut interest rates in August from 9% to 7% in an effort to encourage growth. However, a level of non-performing loans around 11% poses a challenge for the banking sector. Tax revenues in May were up 2% on the same month in 2017, with local government revenues up by more than 12%, but in the same month government spending was up 8.4% year-on-year.
Tanzania’s fiscal deficit is forecast to double during 2018 to 4.4% of GDP, and the growth in domestic debt is raising concerns that the government may become unable to secure the level of external financing it requires. Early in 2018, Tanzania received its first sovereign rating from any of the main international agencies when Moody’s rated it as B1 with a negative outlook, citing the impact of unpredictable policy decisions. A subsequent issue of 10-year treasury bonds went undersubscribed but the government is considering issuing two Eurobonds, each worth around 800 million dollars, to help meet the costs of its infrastructure development plans. Foreign reserves continue to trend down and now stand at just over 4 billion dollars.
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