Investing in Tanzania
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FT SPECIAL REPORT Investing in Tanzania 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 Africa, 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 Julius Nyerere, 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 John Magufuli 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 Adolf Mkenda, 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 Zanzibar). 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