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Wednesday July 13 2016 www.ft.com/reports | @ftreports

Inside New leader starts to shake things up Magufuli alienates political opponents New president faces The economy is among alleviated in the commercial capital accusations of stifling thanks to a Chinese-financed pipeline democracy the fastest growing in carryingnaturalgasfromonshorefields in the south to Dar es Salaam. But far Page 2 , but big moreworkwillbeneededtosortoutthe challenges lie ahead, energyproblem.Onlyaboutone-fifthof Works in the pipeline writes David Pilling the population has access to regular Latest budget prioritises supplies. infrastructure spending Tanzania is more economically diverse, less indebted and less depend- to boost economy or years, the image of Tanza- ent on commodity exports than many Page 3 nia was that of an economic countriesonthecontinent.Itisabenefi- backwater: a peaceful and sta- ciary of low oil prices, a spectacular ble nation by Africa’s volatile tourist destination for high-end travel- Business hope for F standards, yet one held back lers and emerging as a top-five African easing environment by the socialist legacy of , gold producer. It is also sitting on 55tn Government tries the country’s founding father. Bigger cubic feet of undersea gas. However, to reassure foreign geographically than Kenya and with a drawn-out negotiations with the likes of marginallylargerpopulation,estimated ExxonMobil and Royal Dutch Shell, investors at some 55m, Tanzania is habitually coupled with a sharp drop in global Page 3 contrasted with its northern neighbour: prices, mean it could be many years bureaucratic and state-led to Kenya’s beforeproductionstarts. dynamicandentrepreneurial. The new government has also Mobile Thatcaricatureisbecomingoutdated. declared its intention to step up manu- money It is true that Kenya is faster paced and facturing and agro-processing, both to Operators marginallyricher,withagrossdomestic push the economy up the value chain compete to productpercapita(atpurchasingpower and to provide jobs for the swelling parity) of $3,200 against $2,900 for workforce. Infrastructure will be key, deliver Tanzania, according to the Interna- but so will creating the right business fintech for tional Monetary Fund. In nominal environment. Benno Ndulu, central consumer terms, Kenya’seconomy is worth $61bn bank governor, says cleaning up the compared with Tanzania’s $45bn. It is judiciarysothatcompanieshavespeedy and also true too that Kenya has led the way and dependable recourse to the law is commercial in technological advancement, particu- crucial.ForeigninvestorsusedtoTanza- market larly in the use of mobile money. But nian courts will share his hope, but will Page 3 here,asinmanyotherways,Tanzaniais notbeholdingtheirbreath. catchingup. Much depends on the new govern- Official statistics put average eco- ment’s relations with business. Mr Tourism suffers from nomic growth at 7 per cent since the Magufuli has inherited Nyerere’s suspi- turn of the century, when Tanzania’s cion of the private sector. He has, for misconceptions economy began to open up to market example, questioned the deals struck Growth at the start of forces. That has prompted some scepti- with foreign miners, including London- decade has since stalled, cism, partly because of the seemingly listed Acacia Mining, formerly Barrick with pressure to remarkableconsistencyoftheperform- Gold Africa, arguing that companies ance. Even so, a short stay in Dar es have been allowed to declare years of diversify attractions Salaam, the commercial capital, where losses while paying dividends overseas. Page 4 skyscrapers are sprouting up and In April, Acacia was forced to make a imported cars ride bumper to bumper $70m tax provision as a result of dis- along backed-up roads, is enough to putes with Tanzania’s authorities over Farming blighted by convince many visitors that the econ- pasttaxes. lack of development omyhaschangedgear. Those close to Mr Magufuli say he Agriculture would Now there is a new element. John Bold vision: new president is committed to reducing poverty and government waste AFP Photo/Daniel Hayduk genuinely wants to root out corruption benefit from more Magufuli became president in Novem- and fly-by-night practices. “People ber with an apparent determination to says , permanent secre- ity is barely keeping pace with a popula- area with EU-style ambitions. The new believe sincerely there’sa new sheriff in commercial incentives shake things up. In his first few months tary of trade and investment. He says tion that is growing at just below 3 per president is seen to have played an town and that he means to do what he Page 4 in office he has cleared the civil service that Mr Magufuli’semphasis on poverty cent a year. The population, which has important role in persuading his Ugan- says he’ll do,”says Salim Ahmed Salim, of thousands of “ghost workers” and reduction and his loathing of govern- quintupled since independence in 1961, dan counterpart, Yoweri Museveni, to aformerprimeminister. Media tycoon on graft begun a campaign against tax evasion, ment waste and corruption is hugely could double again to more than 100m opt to ship Ugandan oil via a pipeline But Mr Salim argues that the new clampdown both by foreign companies and local popular with a public impatient to see by 2035. Finding jobs for young people through Tanzania instead of Kenya, as president, accused by opponents of Reginald Mengi entrepreneurs, many of them con- the benefits of growth. “You ask people pouring into the labour market is a top originallyplanned. authoritarian tendencies, will have to nected to the ruling Chama Cha Mapin- on the streets and they are quite excited priority. China, which has had close relations institutionalise change rather than take talks to the FT duzi party. (More controversially, he whentheyseeusgettingfired.” So is powering the country and build- with Tanzania for decades — even the on everything himself. Still, Mr Salim about the rammed through disputed elections in Yet the problems are formidable. ing the roads and ports that could turn country’s military academy was built argues, if the new government can potential semi-autonomous ). He has Growth in Dar es Salaam, driven by Tanzania, with its long coastline and with Beijing’s assistance — is helping to rationalise the business environment, alsotiltedthebudgetsharplyawayfrom services, telecoms and banking, is proximity to six landlocked countries, finance much of the infrastructure, Tanzania — stable, economically diver- for current expenditure towards develop- impressive, if uneven. But the 70 per into an important transshipment cen- from roads and rail to a potential multi- sified and growing quickly — is ripe for making ment,includingcapitalspending. cent of people who live in the country- tre. Under Mr Magufuli, Tanzania has billion-dollar port at Bagamoyo, north further investment. “If corruption is deals “We have a president who wants side,manyofthemsubsistencefarmers, shown more interest in the East African ofDaresSalaam. tackled,” he says, “this country has tre- Page 4 things to happen today — or yesterday,” are falling behind. Farming productiv- Community, an emerging tariff-free Power shortages have been partly mendouspotential.” Move to market-based model inspires quiet success story

In macroeconomic terms, Tanzania has cynic would question the idea that Tan- commercial capital has at least doubled areas, such as telecoms and banking. Economy beenaquietsuccessstory.Officialcalcu- zania, which has changed from a quasi- to5m,andpossiblymore. Still, by 2015, Tanzania’sGDP per capita lations of gross domestic product — socialist to a quasi-market economy “That doesn’t mean we have become was just $942, or $2,900 in purchasing Agriculture is a rare weak though problematic in a largely rural over the past decade and a half, has rich,”MrNdulusays,addingthatittook power parity terms, which adjusts for spot as country outperforms economy with a big informal sector — experienced strong growth for a sus- China 30 years of near-double-digit local prices. That makes it around the rivals, writes David Pilling show growth has averaged 7 per cent a tainedperiod. growthtoeradicatepovertyandcreatea 150th country in the world on that year since the country turned away “Forme,7percentisreal,”saysBenno sizeablemiddleclass.“Westartedsolow measure. fromsocialismaround15yearsago. Ndulu, the central bank governor, ges- down,itwilltaketime.” One of the reasons for continued pov- To some, that performance, particu- turing through the window of his office Since the turn of the century, the erty is that, although growth is real, it larly its consistency, sounds too good to to the rapidly evolving Dar es Salaam country’s nominal GDP has almost tri- has been far from even. Agriculture, betrue.Growthhashardlystrayedfrom skyline.Services,telecoms,bankingand pled to $45bn, helped by a 32 per cent whichemploysatleast70percentofthe between 6 and 8 per cent, even after the construction have all grown quickly, he boost in 2013 when statistics were population, has lagged. Annual growth 2008 financial crisis. But only a true says. In a decade, the population of the rebased to take into account expanding Real estate: Dar es Salaam skyline Continuedonpage2 2 ★ FINANCIALTIMES Wednesday 13 July 2016 Investing in Tanzania

Politics John Magufuli faces accusations of stifling Zanzibar ‘Politics is like a religion’ democracy, writes John Aglionby

In Stone Town, the historic centre of Zanzibar City, people are still talking about politics months after the elections were supposedly settled. In the warren of streets, the complex history President’s of the semi-autonomous archipelago, home to 1.2m people, is on full display. People of Omani, Indian and Persian origin rub shoulders with Africans from the mainland. A museum in the centre of town bears witness to the archipelago’s active tough tactics participation in the slave trade. The tight alleyways are crammed with palaces, churches and mosques. Zanzibar, which joined in 1964 to form the union of Tanzania, has been seething with political tension for years. Formed by two main islands — Unguja and alienate his Pemba — it has its own president and parliament. Elections have often been fraught. In 2000, some 35 people were killed after police shot into a crowd following a contested poll. There were further fatal clashes in 2005. Tensions bubbled to the surface again last year when opponents the electoral commission annulled October’s election on the grounds of alleged irregularities. The main opposition candidate for president, Maalim of the , declared himself the winner. His party, hen John Magufuli party,won 70 seats in the 367-seat legis- ‘It’s all about tion parties, for the sake of developing Tanzanians live, analysts say the most which said it had won the election easily, boycotted the re- became Tanzanian lature. This was up from 48 seats in work’: President the nation, to confine their political important political event of Mr Magu- run, held in March. That was duly won — with 91 per cent president in November 2010and11in2005. Magufuli has a activities to parliament and not engage fuli’sfirst year will be when he succeeds of the vote — by the candidate from the ruling Chama Cha it was widely expected They were helped by uniting around reputation for in campaigns that could obstruct the theformerpresidentaspartychairman. Mapinduzi party, . W that he would shake up one presidential candidate, CCM defec- taking action governmentuntilthe2020election. Thisisduetohappenatapartycongress Internationally, the election is regarded as a serious blot government. He campaigned under the tor and former prime minister Edward AFP/Daniel Hayduk Freeman Mbowe, chairman of onJuly23. on Tanzania’s copybook. Most foreign diplomats refuse to slogan “It’sall about work” and had gar- Lowassa, and fielding a single candidate , called the move “regretta- CCM suffered a slew of desertions interact with Zanzibar’s new government. The Millennium nered a reputation for action in his pre- inmostconstituencies. ble”.“[The president] should know that after Mr Magufuli became the party’s Challenge Corporation, a US government aid agency, viousroleasworksminister. Adjoa Anyimadu, a Tanzania analyst he can’t and won’t silence us,” he said presidential candidate last year. The cancelled a $470m project in Tanzania in protest. The Less clear was how he would handle at Chatham House, a London think- afterthespeech. extent to which he reforms the party agency said the elections were “neither inclusive nor the nation’s politics. While a longstand- tank, says, however, that while the Elsewhere, the new government also will shape how Tanzania develops over representative” and accused the government of stifling ing member of opposition “coalition around Lowassa appears to have curtailed Tanzanians’ therestofhisfive-yearterm. freedom of expression. (CCM), the party that has ruled Tanza- has held, he hasn’t made as much of an democratic rights. The police have Mr Kinana, who is expected to step The stand-off has raised fears of radicalisation of niasinceitsfoundation39yearsago,the impact as opposition leader as you’d banned opposition rallies and a man down as secretary-general, accepts Zanzibar’s Muslim majority population. Jennifer Cooke, trained chemist was not seen as a mem- expect”. was last month ordered to pay a fine or there is some complacency in the party. director of the Africa Program at the Center for Strategic berofitsinnercircle. “I think this reflects a change in the serve three years in prison after being But he is confident that CCM’s grip on and International Studies in Washington, says Zanzibar, Western diplomats argue he failed his way government is being carried out ‘It looks found guilty, under controversial cyber power will endure. This is because, he with a median age of just 16, is a potential recruiting first political test soon after being inau- after being done in the same way for crime legislation passed last year, of says, the party has evolved from its ground for al-Shabaab, the Somalia-based terrorist group. gurated. He backed the decision by the decades,”she says. “It’sgoing down well multi-party, insultingMrMagufulionFacebook. socialist roots to become a group of Zanzibar, she says, has all the ingredients of militancy, Zanzibar electoral commission chair- in Tanzania because officials are being but basically , CCM secre- “social democrats”. “We have accepted including poverty, unemployment and inequality. “Once man to annul the semi-autonomous fired and ministers are being sent to tary-general, insists Mr Magufuli is not that the private sector is the engine of the radicalisation genie slips out of the bottle, it is very region’s October election results based ruralareas.” Tanzania autocratic, but rather “strict” and growth,” he adds. “We have accepted difficult to put it back in,” she adds. on unproven claims of irregularities. Of more concern, according to Ms is still a merely determined to “restore disci- that the government would regu- Abdulrahman Kinana, secretary-general of Tanzania’s The opposition boycotted the re-run in Anyimadu, is the opposition MPs’ deci- pline”. late . . . [and]notdobusiness.” ruling CCM party, denies the elections were unfair and March and US and EU diplomats boy- sion to boycott parliamentary sessions one-party Some observers are not convinced. Even if CCM does endure at the says his party is “legitimately running Zanzibar”. He adds: cotted the inauguration of the islands’ overseen by deputy speaker Tulia Ack- regime . . . Lawrence Kilimwiko, an author and national level, Ms Anyimadu says a “The island is very different from the mainland. I would say president. son. The action was prompted by their former journalist, says: “It looks multi- growing number of towns and cities — politics is like a religion.” Parliament has been another battle- belief that she was mistreating them It’s not party, but basically Tanzania is still a includingthecommercialcapital,Dares Fatma Karume, granddaughter of Zanzibar’s first ground. Here opposition parties felt and stifling democracy at the behest of democratic, one-party regime. It’s just a mockery. Salaam — have mayors from opposition president, says the situation is explosive. “Zanzibar has emboldened by securing their best ever MrMagufuli,whoappointedher. It’snotdemocratic,it’ssimplychaotic.” parties. She believes this “could make a never wanted to lose its identity. Now we are being results in the 2015 election — 40 per Opposition MPs were further it’s simply Because of the ruling CCM party’s difference at the national level” if Mr swallowed up.” cent of the vote in the presidential elec- incensed by a speech Mr Magufuli gave chaotic’ dominance, particularly in rural Magufuli stops delivering tangible David Pilling tion and Chadema, the main opposition last month in which he ordered opposi- areas where more than 70 per cent of development.

Real GDP growth Market-based Per cent economy  inspires quiet Tanzania

success story  Kenya

Emerging market and developing economies Continuedfrompage1 (EMDEs) in the sector of around 3-4 per cent has Sub-Saharan Africa barely kept up with population expan-  sion of nearly 3 per cent. “That means a lot of people are being left behind,”says Adolf Mkenda, permanent secretary for tradeandinvestment. World Outsideagriculture,therehasbeenan impressive performance across nearly all sectors, with construction and tele- coms growing at double digits for sev-       eral years. Tanzania has also become Estimate Forecast one of the top five gold producers in Source: World Bank Africa, although the new government of John Magufuli has questioned how much benefit that has brought to the tank. “Inequality widened a great deal. down on tax evasion could scare off the economyasawhole. Magufuliisdeterminedtoreversethat.” private sector or even provoke capital Manufacturing, which Mr Magufuli Part of the plan involves a big shift of flight. One official from a multilateral has prioritised partly because of its spending towards roads, rural electrifi- institution worries that the temptation potentialtoemploywhatislikelytobea cation and power as well as health and may be to “come down too heavily on restless young workforce, has also education. Much of this will go straight the private sector, which [the govern- begun to recover after years of decline. toGDP,leadingsomeeconomiststopre- ment]mayseeasagoldengoose”. Tanzania produces cement, textiles, dict increased growth as more people in Trade and investment permanent ceramics, tools and simple machinery the countryside join the formal econ- secretary Mr Mkenda concedes: “The both for itself and neighbours, many of omyandproductivityimproves. tempoforcrackingdownontaxevasion themlandlocked. One risk, highlighted by the IMF, is is very strong and I’m not surprised Delivering goods from its ports to that ambitious spending plans could some people are anxious about that.” countries such as Uganda, Rwanda, push up the country’s budget deficit, But he says the emphasis is on making Burundi and Zambia is another source which the fund estimates at 4.5-5 per companies comply with existing laws, of income, as will be fees for transport- cent of GDP if government arrears on something that should not deter legiti- ing Ugandan oil to the coast when a energy and pensions are taken into matebusinesses. recently agreed pipeline reaches com- account.Anotherriskisthatthegovern- Mr Ndulu at the central bank thinks pletion. ment’s bid to raise revenue and clamp foreign and offshore Tanzanian money “During the [previous government of willstillbeattractedtothecountry,par- JakayaKikwete]weachievedquitegood ticularly if regulations can be simplified economic growth, but that growth was ‘We started so low to make it easier to do business. Once down, it will take not widely shared,” says Samuel time,’ says Benno the dust has settled, he says, investors Wangwe, principal research associate at Ndulu, Tanzania’s will realise that Tanzanian growth pros- the Economic and Social Research central bank pects are among the most attractive on Foundation, a Dar es Salaam think- governor thecontinent.

Contributors

David Pilling Alan Knox All editorial content in this report is Africa editor Picture editor produced by the FT. Our advertisers have no influence over or prior sight of the articles. John Aglionby East Africa correspondent Chris Campbell Graphic artist All FT Reports are available at: Owen Walker ft.com/reports Commissioning editor For advertising details, contact: Mark Carwardine, +44 (0)20 7873 4880, Steven Bird [email protected], or your usual Designer FT representative. Follow us on Twitter @ftreports Wednesday 13 July 2016 ★ FINANCIALTIMES 3 Investing in Tanzania ‘Bulldozer’ builds for the future Call for stability after anti-corruption push km [the energy companies]. They want to Infrastructure buildahugeplant.’” The latest budget shows SOUTH MrKinanasaysheexpectsnaturalgas the Confederation of Tanzania Indus- SUDAN investments of about $25bn over the Business environment tries, says: “There is bound to be some a dramatic shift in ETHIOPIA next 10 years. “So we should take every short-term pain because the govern- emphasis from current step possible to help them invest.”Such The government is trying ment is trying to address the issues that to capital spending, sentiments aside, negotiations are to reassure foreign investors werebrushedunderthetable.” unlikely to be concluded until 2019 at it wants their business, Toby Bradbury, chief executive of reports David Pilling DEM UGANDA theveryearliest,observerssay. London-listed miner Shanta Gold, also REP OF SOMALIA OnedealthatTanzaniahasclinchedis reports John Aglionby welcomes the push against corruption f a key priority for Tanzania, as CONGO the shipment of oil from Ugandan fields but adds: “The government now needs many experts say,is to upgrade the KENYA to the Indian Ocean via a 1,200km pipe- tosettledownandprovidedirection.” qualityandcapacityofitsroadsand Kampala line running from eastern Uganda to It is easy to find horror stories of doing Mr Shah believes that it is going to be ports and to make full use of its Tanga port in Tanzania. Originally businessinTanzania. hard to change after decades of socialist I untapped energy resources, then Uganda had agreed to export its oil In April, Acacia Mining, a London- administration. “I think it’s very diffi- having a president nicknamed the Nairobi through Kenya, but Total, the French listed gold producer, issued a press cult to get away from that socialist men- “Bulldozer” seems like a promising RWANDA petroleum company that is expected to release denying that it was running a tality and that distrust of the private start. Lamu INDIAN finance the $4bn project, lobbied hard “sophisticated tax evasion” scheme in sector,” he says. He argues that recent OCEAN Before his surprise selection as presi- BURUNDI for the Tanzanian route, partly on secu- Tanzania following a tribunal ruling changes to the tax regime have made dential candidate for the Mombasa ritygrounds. againstitinthecountry. doingbusiness“muchharder”. last year,John Magufuli spent two stints Oil licence Other parts of the infrastructure puz- Standard Chartered Bank, listed in Government officials acknowledge as minister of public works. In that role, zle include upgrading the railway to London and Hong Kong, is meanwhile there is “anxiety” among businesspeo- Tanga areas the former industrial chemist — who TANZANIA Previously Zambia and adding significantly to port mired in a protracted legal dispute over ple but it is trying to reassure investors. has an engineer’s eye for detail and a considered capacity. China Merchants Group is the alleged extraction of funds from “The socialist legacy that this country is reputation for getting things done — Dar es Salaam pipeline routes planning to construct a megaport at Independent Power Tanzania, an proud of has moved on,” says Adolf became renowned for impromptu visits Bagamoyo, 75km north of Dar es energycompany. Mkenda, permanent secretary of the Agreed to construction sites where he would pipeline route Salaam. The new government’s exact Foreign diplomats are far from effu- trade and investment ministry. “We’ve sniff out delays and malfeasance. The Sources: Platts; FT research intentions are uncertain, but the origi- sive in their praise for the country’s realised that private investment is key country’sroad network, much of it built nal plan envisaged a $10bn port that investment climate, despite the 7 per tostimulatingtheeconomy.” and financed by China, improved under generation, transmission and distribu- countries where rent seeking and com- wouldbebuiltinphasesandcouldeven- cent annual growth rate. “Ministers are hiswatch. tion,intoatleast$350mofdebt.Unreal- moditydependencyhaveresulted. tually reach a capacity 25 times that of walking the talk that a lot of the invest- Those qualities will be very much istically low tariffs — even after price So far negotiations have been slow theportatDaresSalaam. ment they’re doing, like building roads, ‘The government required if Tanzania is to build on that increases — and Tanesco’s poor pay- and opaque. The appetite of foreign In the meantime, a new management will help facilitate private sector-led now needs to settle down and provide success. The latest budget puts renewed ment record are big disincentives for companies has cooled with falling gas team at Dar es Salaam port is trying to growth,”onesays.“Butwe’realsoseeing direction,’ says emphasis on infrastructure, with a potentialsuppliersofelectricity. prices. “I sense a lot of impatience overcome its well-earned reputation for contradictoryactions.There’singrained Shanta Gold’s dramatic shift in priorities from current The situation in Dar es Salaam, at among investors,” says one foreign dip- backlogs and corruption. A recent in many serving government officials a Toby Bradbury tocapitalspending. least, may improve as a result of a lomat, adding that foreign companies crackdown on “ghost” containers, suspicion of the private sector and that A string of projects, covering every- 542km Chinese-built pipeline to bring havespentsome$3bn-$4bnonexplora- which slip through without paying fees, skewshowtheylookatit.” Statisticssuggestthatdespitetheneg- thing from rural electrification to natural gas from Mtwara in the south to tionwithnosignofareturn. has reduced traffic, but may set opera- Tanzania is ranked 139 out of 189 ative stories, investors believe it is still improvements to regional road and rail the commercial capital. Construction After four years of toing and froing, tions on a sounder footing in the countries in the World Bank’s ease of worthinvestinginTanzania.TheTanza- links,couldsignificantlyraiseeconomic began in 2015 and the $1.3bn pipeline Tanzania’s centrepiece oil and gas legis- mediumterm. doingbusinessindex.SiriliAkko,execu- nia Investment Centre registered 551 potential as well as improve the lives of willsupplytwogas-firedpowerstations, lation finally passed into law earlier this Hebel Mhanga, port manager, says tive secretary of the Tanzania Associa- projects worth $9.2bn between Decem- ordinary people. Tanzania, with its long potentially doubling generation capac- year. But red tape and mixed messages Dar es Salaam will double capacity to tion of Tour Operators, says the ranking ber and May, which compares favoura- coastline and proximity to six land- ity to 3,000MW. The government has havetestedthepatienceofinternational 30mtonnesayearwithintwoyearswith is “fair”, citing the average of 128 days bly with the 458 projects worth $5.7bn locked countries, should be able to use set an ambitious, some say unrealistic, energy companies. Schlumberger and thehelpofa$600mWorldBankloan. each year it takes his members to renew registered in the six months before Mr its influence as a transport conduit for target of raising generating capacity to Halliburton, oil services companies, Whatever the problems in the port allthepermitstheyrequiretooperate. Magufulibecamepresident. anintegratingeastAfricantradebloc. 10,000MW and bring electricity to half havescaledbackoperations.Separately, itself,heinsiststhattherealbottlenecks Alackofpolicycertaintyisexacerbat- WhileStandardCharteredandAcacia Top of the list is power. About only a thepopulationby2025. land set aside for a liquefied natural gas lie elsewhere. “The challenges are the ing the situation. When John Magufuli are contesting the claims against them, fifth of Tanzanians have access to elec- As well as solving its domestic needs, plantinthesoutherntownofLindimys- inland transport infrastructure . . . out- became president in November he they nonetheless appear to be commit- tricity and, even in the urban centres, Tanzania has enough offshore gas — teriously found its way into private side the port and in the rest of the coun- “camechargingoutoftheblocksandthe ted to the country. Andrew Wray, Aca- manufacturers must contend with about 55tn cubic feet in proven reserves hands until Mr Magufuli personally try,” he says. “Some require time to country didn’t know what had hit it,”in cia’s chief financial officer, said in a costly and sporadic supply. When the — to become a significant exporter. The intervened in January to clear the overcome. Power and inland transport thewordsofoneforeigninvestor. video published on the company’s web- reliance on hydropower was exposed country’schallengeistoconcludetrans- impasse. aregoingtotakeyearstoimprove.” He has clamped down on corruption site in May that the challenges were as unsustainable during chronic elec- parent and robust deals with foreign “This is where this gentleman is dif- If Tanzania is to develop the infra- and smuggling, imposed austerity “nothing I wouldn’t expect to see in a tricity shortages in 2011 and 2012, a companies, including ExxonMobil, ferent. He makes a quick decision,”says structure needed to unlock its domestic measures and sought to increase tax long-term relationship”. He added: subsequent shift to imported liquid Royal Dutch Shell, Statoil and Ophir, Abdulrahman Kinana, secretary-gen- and regional potential then Mr revenues. Jayesh Shah, managing direc- “We’ve been in Tanzania for over 15 fuel plunged Tanesco, the parastatal and to avoid the resource curse that has eral of the ruling Chama Cha Mapinduzi Magufuli, the “Bulldozer” president, tor of manufacturing conglomerate years and fully expect to continue for organisation responsible for electricity plagued so many other African party. “He said: ‘OK, give the land to hashisworkcutout. Sumaria Group and vice-chairman of another30years.” Fintech and mobile money transform business practice

Telecoms Local operators are competing to deliver innovative financial services, writes John Aglionby

Ramadhani Saidi Gereza is a barometer for the way mobile phone technology is changingTanzania. TheengineoilsellerinDaresSalaam’s Kariakoo market says mobile money has transformed his business. “People from upcountry used to send cash by Calling the market: a sugar cane juice vendor at a Zanzibar market — ISTOCK bus and I had to go further to collect theirmoney,”hesays.“NowIdon’thave earlier this year. Customers of Tigo, loans and savings facility, 4.9m Tanza- to.It’smuchmoreefficient.” meanwhile,canalsosendmoneytoTigo nians have borrowed 39bn Tanzanian Yet it is not all good news. The coun- customersinneighbouringRwanda. shillings ($19.5m), with monthly loans try’s eight mobile operators offer vari- “Mobile money is so successful nowabove4bnshillings. ous incentives to attract customers, but because the competition is cash, not the Operating in Tanzania is not always they do not always deliver, Mr Gereza banks,”saysDiegoGutierrez,Tigo’sgen- easy,however. At 36 per cent, the coun- says. “Bonus payments [for customers] eralmanagerforTanzania.Some60per try has the highest rate of consumer tax are delayed or we don’t get them so I tell cent of adults have mobile money wal- on mobile phone ownership in sub-Sa- my city customers to go and get cash lets in the country, while only 15 per haran Africa, according to the GSMA. andpaywiththat[instead].” centhavebankaccounts,Tigosays. Theregionalaverageis20percent. These glitches are a result of the con- “I believe we’re just scratching the The operators, who have invested tinuous innovation the operators feel surface,”Mr Gutierrez adds. “Fintech is more than $1bn over the past five years, compelled to adopt as they compete in going to drive the development of are also taxed heavily. In 2013-14, the one of the most promising markets in mobile financial services. I believe that last financial year for which there are sub-SaharanAfrica. Tanzaniaisshowingthewayastowhere data, operators paid $540m in taxes, Johannesburg-listed Vodacom, which mobile money is going. If it’s not the equivalent to almost half their reve- is majority owned by Vodafone, is the most advanced it’s one of the most nues, the GSMA said. Meanwhile, the largest mobile operator by subscriber advancedmarkets.” turnover of the mobile sector directly numbers. Its main rivals are Tigo, a Among the innovations that Tigo has contributed about 4 per cent of Tanza- brand name of Stockholm-listed Milli- introduced is paying customers to keep nian GDP that financial year, yet it con- com, and India’sBharti Airtel. Together, money in their mobile wallets. It has tributed more than 11 per cent of the three operators control some 90 per paid customers a total of $25m in profit nationaltaxrevenues. cent of the market of 34m active mobile distribution — it insists it is not interest Last month the government contractsoutofapopulationof55m. — in the past two years and the banks announced that operators would have The GSMA, a global body represent- arefeelingtheimpact. to list 25 per cent of their subsidiaries’ ing operators, predicts Tanzania will be shares on the Dar es Salaam stock among the top seven subscriber mar- exchange by January 1. The decision, kets in sub-Saharan Africa in the next which appears to reverse an informal fiveyears. ‘Mobile money is successful agreement with the main operators, is Mobile money is the main battle- because the competition is part of a government strategy to ground. While Kenya’s M-pesa has won squeeze more money from the private international plaudits for its ground- cash, not the banks’ sector. Ministers have said the measure breaking mobile money system, Tanza- would help the government keep track nia has arguably overtaken its northern “Two years ago you wouldn’t have got oftherevenuecompaniesgenerate. neighbour in the depth of its mobile interest on anything short of a fixed While the central bank and govern- moneymarket. deposit,” says Ruan Swanepoel, the ment have been very proactive in sup- The World Bank reported last year company’s head of mobile financial porting mobile money, there has been there were more mobile money services for Africa. “Now [customers] less government encouragement of accounts per 1,000 adults in Tanzania getupto5percentonacurrentaccount. economies of scale — such as making thananywhereelseinAfrica.Interoper- I firmly believe that’s because of the infrastructure-sharing mandatory — ability,where people using one network mobilemoneymarket.” whichiscommoninothermarkets. can send money to mobile wallets of Mobile loans are also booming. Voda- Ifthesehurdlesaredentingtheopera- people using another, is now complete com announced last month that in the tors’ enthusiasm for Tanzania, it does after Vodacom joined other networks two years since it launched its M-Pawa notappeartobeshowing. 4 ★ FINANCIALTIMES Wednesday 13 July 2016 Investing in Tanzania Tourism hit by Media tycoon sees hope for end to graft bad news from ItwasthisscarcitythatpromptedMr Interview Mengi—thenworkingatUK Reginald Mengi accountancyCoopers&Lybrand,now PwC—togointobusinessinthe1980s, John Aglionby talks assemblingballpointpens.“Atthattime other African to one of Tanzania’s itwasverydifficulttoimportready- madegoods.Fortunatelythesystem richest businesspeople allowedtheimportationofcomponents orknocked-downgoodsthatyoucould assemblelocally.” countries ThepersonalwebsiteofReginaldMengi MrMengieventuallyacquiredthe —thetycoonwho,over30years,has financingandthecomponentsand accumulatedinterestsinprintand navigatedthebureaucracytolaunchhis broadcastmedia,manufacturing,soft business.Hedescribeshowhemade drinks,miningandtechnology— moneybyproducingshoepolishoutof suggestsTanzaniaisandalwayshas charcoalduringtheshortages. Leisure Strong growth at beginning of the decade beenanopeneconomywhereitiseasy Buthesaysthatdecadesofsocialism appears to have stalled, writes John Aglionby National pride: Ngorongoro Crater is a top attraction — ISTOCK todobusiness. havehadasignificantimpactonsociety. Buttwohourswiththesoftlyspoken “Peopledon’tseeopportunitiesin businessman,whoisoneofthe things,”hesays.“Wehavesomuchin he two lions whose mating bountiful. Devota Mdachi, managing 20 per cent each year. “While attaina- Ms Mdachi says the tourist board is country’srichestpeople,revealsavery Tanzaniapeopleneedhelptoseethe was interrupted by the director of the Tanzania Tourist Board, ble, the achievement of this target will taking steps to reverse the downward differentpicture.DespiteTanzania’s opportunitieswhicharethere.” arrival of more than 100 says that while the official annual fig- require substantial investments in trend. It launched an e-marketing cam- economygrowingatmorethan7per Theeconomydidopenupinthelate buffalo in their corner of ures have yet to be tallied, there was a infrastructure, the provision of support paignthatfocusedonfourprimarymar- centayear,MrMengisayswidespread 1990sunderPresidentBenjamin T the20km-wideNgorongoro “slight fall in the number of arrivals in to the private sector, and the develop- kets:theUS,Germany,ItalyandtheUK. grafthasleftitresemblingapieceof Mkapa.ButMrMengisaysthepolicies Craterunsurprisinglylookedannoyed. 2015 and . . . this year there might be a ment of human capital in diversified But she admits arrivals from the latter fabricthatisriddledbyholes. usheredinaneraofcronycapitalism. Their faces contrasted sharply with slumpagain.” geographicareas,”thereportsaid. might fall if the pound remains weak in “Youtouchherethere’sahole,you Bylastyearthesituation“had the smiles, squeals of excitement and The Ebola outbreak, which peaked in It also highlighted the need to thewakeoftheBrexitvote. touchherethere’sahole,”hesays reachedtippingpoint”,accordingtoMr incessant camera clicking from the doz- 2014 in three west African countries, “improve the quality of governance”,in Thetouristboardisalsotryingtopro- proddingthetableclothoverlunchina Mengi,andheisrelievedthatthenew ens of tourists watching from their and terrorism, nearer to home in Soma- particular to create a “fair, business- mote a wider selection of the country’s DaresSalaamhotel.“Youtouchthis president,JohnMagufuli,has safari buses only a few metres away in lia and Kenya, are two of the main con- friendly taxation system and the devel- attractions. Tanzania is best known for ministrythere’sahole,youtouchthis prioritisedfightingcorruption. what is one of Tanzania’s most popular tributingfactors,MsMdachisays.“Most opment of transparent redistribution Mount Kilimanjaro, the highest peak in functionary . . . everywhereisfullof MrMengiacknowledgesthe visitordestinations. tourists think Africa is a country so if mechanisms”. Africa, the northern parks such as the holes.”MrMengisayshehaslostouton presidenthasyettoarticulatehis Tourism is a crucial part of Tanzania’s something happens in one country it In some respects the new govern- Serengeti, and Zanzibar’s beaches. “We atleasttwobigdealsduetocorruption. economicvision,butheunderstands economy, contributing about a quarter spreadstoothers,”sheadds. ment, which took office last November, are looking to open up the south much Itisnotjustcorruptionthathas whythishastakentime. of the country’s foreign exchange reve- Poaching has also been rampant in is moving in the opposite direction. more,” Ms Mdachi says. “However, it hamperedTanzania’seconomicgrowth; “Ifsomeonehasaheartattackwhat nue and supporting some half a million Tanzania. In the Selous Game Reserve, Tour operators are aggrieved about the will need considerable infrastructure itwasruledfordecadesbysocialists doyoudo?Pooppooppoop,youtryand jobs directly, along with many more the largest in the country and a Unesco imposition of value added tax of 18 per investment because there are many whoregularlystifled revivethem.Youdon’tthink,‘Shall indirectly. World Heritage Site, the elephant popu- cent on tourism services such as areasthatarenotaccessiblebyroad.” entrepreneurialism,MrMengi IgivethemaPanadol?’”hesays Theindustrygrewsteadilyatthestart lationhasfallenfromaround110,000to national park fees and transport hire MsMdachialsowantstopromotecul- says. whilemimingusingadefibrillator. of the decade. Foreign visitor numbers 15,000inthepast40years. from July 1. This was announced in last tural tourism. “We have more than 125 Thebusinessmanrecounts Despitepaintingagloomypicture, rose from 783,000 in 2010 to 1.14m in “Giventhethreattotheseanimals,it’s month’s budget. The situation has been tribes, all speaking their own vernacu- howinthe1980stherewere MrMengisaysbusinesspeople 2014. Annual revenues grew from likely tourism will be affected because exacerbated by the fact that a few lar, and not many of them are yet fully widespreadshortagesdueto shouldnotbetoodowncast $1.2bn to $2bn over the same period. elephants are one of the great attrac- months ago Kenya, Tanzania’s neigh- integrated into the tourism industry,” thegovernment aboutthecurrent“bad Four Seasons and Hyatt are among the tions for tourists,”says Simon Lugandu, bour and tourism rival, cut fixed fees on shesays.“Weneedtodothat.” promotingpolicies times”. international hotel chains that a conservation manager at the World similarservicestoenticevisitors. But while Tanzania’s tourist board thatfavoured “Peoplewithguts expanded in the country,while regional WildlifeFund. “I understand that every sector has to would like to accommodate a greater domesticproduce willmakealotof groups, such as Elewana, opened more Ms Mdachi says the lack of a national help contribute to the government, but number of visitors, it knows that the overimports. moneyinbadtimes, high-endaccommodation. airline also puts off some tourists. “Peo- before the tax is imposed I would sug- country’s main selling point is access to “Peoplewould alotofmoney,”he “We came here because it was ple can easily fly to Kenya so that’s gest growing the cake,”says Sirili Akko, wildlife, which would be threatened by queueforanything insists.“Beautyisin cheaper than South Africa and we were wheretheygoonholiday,”shesays. executive secretary of the Tanzania increasedtourism. andthingswere theeyeofthe toldthere’sagreaterguaranteeofseeing In a detailed report on Tanzanian Association of Tour Operators. “It will “We’re looking to attract more people veryverytough,” beholder.Youcan all the big animals,” said Kate, a British tourism last year, the World Bank put people off coming. Tanzania is not from [Brazil, Russia, India and China] hesays. saythisisgood tourist, as she gazed at a group of two said the government’s goal of Mecca. It’s not an unmissable destina- andpromoteintra-Africantourism,”Ms timesorbadtimes dozenhipposintheNgorongoroCrater. increasing annual revenues to $15bn tion. Tourists are becoming extremely Mdachi says. “But we want to maintain Reginald Mengi dependingonthe But the past year has not been so by 2025 would require growth of about costsensitive.” thequalityofourproduct,too.” Sam Vox beholder.” Farming blighted by lack of modern infrastructure

Agriculture About 70 per cent of Tanzania’s land is cultivated by hoe, but commercial incentives offer hope for the future, writes David Pilling

When Julius Nyerere wrote the Declaration, the 1967 statement in which he laid out the principles of Afri- can socialism, he called agriculture the “basis of development”. Tanzania’s foundingfatherwarnedagainstamodel of progress that bled the countryside dry in order to invest in the big cities. Yet,hesaid,“onlybyincreasingourpro- Bearing fruit: villagers carry bananas in Morogoro Carl de Souza/AFP/Getty Images duction can we get more food and more moneyforeveryTanzanian”. 70 per cent of the land is cultivated by thrown away,” says Benno Ndulu, cen- Half a century later, despite all the hoe. As in much of Africa, most of the tralbankgovernor. efforts to transform it, farming is badly land is dependent on rainfall, not irriga- Samuel Wangwe, principal research lagging, both as a provider of a decent tion. The weary joke among economists associate at the Economic and Social livingforruralfamiliesandasadriverof isthat,giventherelianceofmostpeople Research Foundation in Dar es Salaam, economic growth. Agriculture employs for sustenance on farming, the best pre- says: “The biggest challenge is improv- three-quarters of the workforce, yet dictor of economic performance is the ing farming practices, so you can have produces only one-quarter of economic weatherforecast. higherproductivityperunitofland.”He output. It contributes to exports, but Uncertain land rights are another points to efforts such as the Southern muchofitinunprocessedform. impediment to working the land more Agricultural Growth Corridor of Tanza- “Clearly something has gone wrong intensively. Many farmers do not have nia, which is attempting to link com- despite the fact that agriculture has legal title to the plots they till and mercial farmers with small-scale sub- been a priority for successive govern- attempts at commercial farming are sistence farmers, replicating a way of ments,” says Thomas Baunsgaard, IMF often dogged by life-and-death strug- drawing smallholders into the market residentrepresentativeinTanzania. gles over land. Credit is another prob- economy that is gaining traction across Parts of the national economy, con- lem, one that could be addressed by partsofAfrica. centrated in the big cities of which the recentadvancesinmobilebanking. “For a long time there was a socialist late president Nyerere was so wary, are Infrastructure is perhaps the biggest approach in this country,” says Mr growing at double digits. If Tanzania hurdle of all. Tanzania’s main roads are Ndulu, referring to Nyerere’s persistent were a city state in which the telecoms, prettygood.Butdeepinthecountryside legacy,“thisframeworkoflookingatthe services, banking and construction the roads become narrow, turn to mud farmer almost as an extension of the industriesdominated,itwouldbeoneof or disappear altogether. Without trans- public sector.” Now the aim, he says, the fastest-growing economies in the should be to incentivise farmers and to world. Farming, meanwhile, much of it provide them with the means — espe- subsistence and performed by women, cially through market access — to turn is growing at only 3 per cent a year. ‘[Infrastructure has] always their smallholdings into profitable Given that this is similar to the popula- been the problem. Where enterprises. tion growth rate, productivity has prac- Some of the approaches that are now ticallystalled. productivity has improved, under way, such as contract farming — That is alarming for a country whose crops are thrown away’ where individual farmers are commit- population is growing as fast as almost ted to producing products for compa- anywhere on earth. Tanzania has more port links or adequate refrigeration, nies — are beginning to have an impact, arable land than any country in east surplus production simply rots in the he says. Mr Ndulu thinks that, if these Africa,butpopulationpressurewilltake field rather than being shipped effi- projects can bear fruit they can provide its toll. The country is not alone in ciently to markets elsewhere in Africa anexamplefortherestofTanzania.The squandering its most obvious asset. or beyond. Here, the new government’s country’s leadership, he believes, may Africa as a whole is an importer of food, push to step up construction of roads, have turned a corner in finally under- while,inmuchofthecontinent,farming railandpowerandtoelectrifythecoun- standing that farming needs to be set on techniques — from implements to seeds trysidecouldhavearealimpact. a commercial footing. If he is right, the — have barely altered in centuries. “It’salways been the problem. Where next 50 years may be better than the In Tanzania, according to one report, productivity has improved, crops are previoushalfcentury.