Tanzania Comoros

COUNTRY REPORT

Tanzania Comoros

At a glance: 2000-01

OVERVIEW The ruling CCM party will win the national elections scheduled for October. Political violence may escalate over the succession to the Zanzibari leader Salmin Amour. Continued macroeconomic stability will ensure financial support from international donors during 2000-01. Real GDP growth is forecast at 5.2% in 2000 and 5.7% in 2001, driven by a recovery in agriculture and expansion in the mining, manufacturing and tourism sectors. Key changes from last month Political forecast • Violence continues to plague Zanzibar. However, the decision by the CCM, to prevent the incumbent Zanzibar president, Salmin Amour, from standing for a third term has strengthened party unity. Economic policy outlook • Economic policy during the forecast period will be driven by the recently agreed IMF poverty reduction and growth facility. It aims to promote macroeconomic stability, high growth and public-sector reform. Economic forecast • GDP is forecast to grow by 5.2% in 2000 and 5.7% in 2001. • Inflation will continue to fall. An average of 5-6% is forecast for 2000-01. • The Tanzanian shilling will experience a gradual decline to an average of TSh830:US$1 in 2000 and TSh900:US$1 in 2001. • The current-account deficit will fall from an estimated US$911m in 1999 to US$541m in 2000 and US$595m in 2001.

August 2000

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ISSN 0969-6776

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Contents

3 Summary

Tanzania

5 Political structure 6 Economic structure 6 Annual indicators 7 Quarterly indicators 8 Outlook for 2000-01 8 Political forecast 9 Economic policy outlook 10 Economic forecast 13 The political scene 16 Economic policy 21 The domestic economy 21 Economic trends 22 Agriculture 23 Financial services 23 Mining and energy 24 Foreign trade and payments

Comoros

26 Political structure 27 Economic structure 27 Annual indicators 28 Quarterly indicators 29 Outlook for 2000-01 30 The political scene 34 Economic policy and the domestic economy

List of tables

11 Tanzania: international assumptions summary 12 Tanzania: forecast summary 14 Tanzania: CCM candidates for the Zanzibar presidency, June 2000 17 Tanzania: government finances 17 Tanzania: financing the budget deficit, 2000/01 18 Tanzania: budgetary grants 19 Tanzania: estimates of foreign investment 21 Tanzania: gross domestic product 25 Tanzania: foreign trade, Jan-May

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List of figures

13 Tanzania: gross domestic product 13 Tanzania: Tanzanian shilling real exchange rates 21 Tanzania: inflation 22 Tanzania: coffee prices 30 Comoros: gross domestic product 30 Comoros: Comorian franc real exchange rates

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August 6th 2000 Summary

August 2000

Tanzania

Outlook for 2000-01 The ruling Chama Cha Mapinduzi (CCM) party will win an easy victory in the national elections scheduled for October 29th 2000. Predictions of renewed violence in Zanzibar have been re-evaluated after the decision by the CCM to select Aman Abeid Karume, the Zanzibari minister for transport and communications, as its candidate for the Zanzibar presidency. Tanzania’s real GDP growth is forecast to be 5.2% in 2000 and 5.7% in 2001, driven by strong agricultural performance, increased gold production, and investment in tourism and gas production. Inflation will continue falling and is forecast to range between 5% and 6% in 2000-01. Although exports will grow during the outlook period, faster GDP growth will accelerate import demand and the trade account will remain in deficit. Increased revenue from tourism, high aid flows and reduced debt repayments, as a result of HIPC debt reduction, will all contribute to a reduction in the current-account deficit to US$541 in 2000 and US$595 in 2001. Despite a smaller current-account deficit, the Tanzanian shilling remains vulnerable to the weakness it suffered in 1999. We forecast a gradual depreciation to TSh830:US$1 in 2000 and TSh900:US$1 in 2001.

Political scene In an extraordinary session of the CCM’s national executive in June, the president, Benjamin Mkapa, was selected as the party’s candidate for the all- union presidency. The favourite candidate for the Zanzibar presidency was Mohammed Bilali, Isles chief minister. However, his close association with the incumbent, Salmin Amour, put him at a disadvantage. As a result, Aman Abeid Karume, won the nomination. The nomination was broadly welcomed by the CCM, the general population and the opposition parties, as it holds out the prospect of reduced political confrontation and violence.

Economic policy Economic policy during the 2000-01 outlook period will be driven by the commitments recently agreed with the IMF under the poverty reduction and growth facility. The government is also taking measures to boost foreign direct investment. These include port and airport rehabilitation, the development of power stations and the proposed establishment of export-processing zones.

The domestic economy Despite adverse agricultural conditions and depressed prices for key commodities, exports have grown strongly so far in 2000. Total exports were US$259m in the first five months of 2000, compared with US$170m during the same period in 1999. This growth is forecast to continue into 2001.

Foreign trade and The current-account deficit is forecast to fall from an estimated US$911m in payments 1999 to US$541m in 2000 and US$595m in 2001. Rising exports have been accompanied by subdued import growth, leading to a sharp reduction in the trade deficit, from US$401m in the first five months of 1999 to US$286m in the first five months of 2000.

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Comoros

Outlook for 2000-01 The Comoros’ military ruler, Colonel Azali Assoumane, may be forced to reach a compromise with the Moroni-based opposition. He has proposed constitutional changes which would transform his ruling military council into a parliament and allow a civilian prime minister, with executive powers, to be appointed. Although these overtures were initially rejected by the opposition, protracted bargaining is expected, which may result in the end of military rule. The Organisation of African Unity has stepped up its efforts to mediate a return to civilian rule in the Comoros, and is considering military options in solving the Anjouan secession. The Comorian economy suffered negative per capita growth during 1998-99, and the situation looks set to worsen. The government has failed to reduce the civil service wage bill or increase the collection of revenue, which has led to an increased budget deficit.

Economic policy and the The government’s efforts to control expenditure and improve revenue economy collection (1st quarter 2000, page 31) have stalled. The public-sector wage bill for 1999 was twice the value of collected revenue, and employees face four months’ salary arrears. These difficulties have contributed to the collapse of the government’s attempts to establish fiscal stability.

Editor: John Arthur Editorial closing date: August 6th 2000 All queries: Tel: (44.20) 7830 1007 E-mail: [email protected] Next report: Full schedule on www.eiu.com/schedule

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Tanzania

Political structure

Official name United Republic of Tanzania

Form of state Republic, formed by the 1964 union of Tanganyika and Zanzibar

Legal system Based on English common law, the 1977 Union and 1985 Zanzibari constitutions, as amended

National legislature National Assembly, comprising 269 members (232 directly elected and 37 women appointed); elected members are chosen by Union-wide adult suffrage every five years; Zanzibar has its own House of Representatives of 59 members (nine women appointees), which legislates on internal matters

National elections October-November 1995 (legislative and presidential); next elections due in October 2000 (legislative and presidential)

Head of state President, elected by universal adult suffrage every five years

National government The president, vice-president and Council of Ministers; last cabinet reshuffle September 1998

Main political parties The ruling Chama Cha Mapinduzi (CCM); Civic United Front (CUF); National Convention for Construction and Reform (NCCR-Mageuzi); United Democratic Party (UDP); Chama Cha Demokrasia na Maendeleo (Chadema)

President Benjamin Mkapa Vice-president Omar Ali Juma Prime minister Frederick Sumaye

Key ministers Agriculture & co-operatives Paul Kimiti Communications & transport Ernest Nyanda Community development, women’s affairs & children Mary Nagu Defence Edgar Majogo Education Juma Kapuya Energy & minerals Abdallah Kigoda Finance & planning Daniel Yona Foreign affairs Jakaya Kikwete Health Aaron Chiduo Interior Mohamed Seif Khatib Industry & trade Iddi Simba Justice & constitutional affairs Bakari Mwapachu Labour & youth development Sebastian Kinyondo Lands, housing & urban development Gideon Cheyo Natural resources & tourism Zakia Meghji Science, technology & higher education Jackson Makweta Water & livestock development Pius Ng’wandu Works Anna Abdallah

Central bank governor Daudi Ballali

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Economic structure

Annual indicators

1995 1996 1997 1998a 1999b GDP at market prices (TSh bn) 3,066 3,746 4,616 5,630 6,341 Real GDP growthc (%) 5.1 4.6 3.0 3.8 4.1 Consumer price inflationc (av; %) 29.8 19.7 16.1 13.5 7.9 Population (m) 29.7 30.6 31.5 32.4 33.3 Exports fob (US$ m) 683 764 715 590 541 Imports fob (US$ m) 1,340 1,213 1,164 1,462 1,419 Current-account balance (US$ m) –646 –511 –708 –563 –911 Reserves excl gold (US$ m) 270.2 440.1 622.1 599.2d 775.5d Total external debt (US$ m) 7,406 7,362 7,129 7,603d 7,038 External debt-service ratio, paid (%) 17.9 18.9 129 24.4b 25.3 Coffee productione (‘000 tonnes) 43.5 52.0 42.4 38.0 46.6 Exchange rate (av; TSh:US$) 575 590 617 655d 745d

July 28th 2000 TSh798.5:US$1

Origins of gross domestic product 1998a % of total Components of gross domestic product 1997a % of total Agriculture, forestry & fishing 49.1 Private consumption 83.0 Mining 2.0 Government consumption 8.5 Manufacturing 8.4 Gross fixed capital formation 17.5 Construction & utilities 6.9 Increase in stocks 0.2 Trade & hotels 15.9 Exports of goods & non-factor services 16.3 Transport & communications 5.3 Imports of goods & non-factor services –25.5 GDP at factor cost incl others 100.0 GDP at market prices 100.0

Principal exports 1998f US$ m Principal imports 1998f US$ m Coffee 117.4 Machinery & transport equipment 331.4 Cotton 116.5 Consumer goods 246.7 Manufactures 172.0 Building materials 77.0 Minerals 92.8 Oil 60.0 Cashew-nuts 73.4 Industrial raw materials 50.5

Main destinations of exports 1998f % of total Main origins of imports 1998f % of total India 19.5 Japan 8.3 UK 10.1 South Africa 8.3 Germany 8.3 UK 7.8 Japan 7.7 Kenya 6.7 Netherlands 7.6 India 5.7 Belgium 4.4 US 5.2 a IMF and Tanzanian authorities. b EIU estimates. c Mainland only. d Actual. e Crop years ending June. f Bank of Tanzania.

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Quarterly indicators

1998 1999 2000 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr General government finance (TSh bn) Revenue & grants 270.29 181.59 217.76 185.05 274.88 201.07 246.12 n/a Expenditure –311.63 –139.39 –154.18 –192.15 –330.99 –257.32 –223.78 n/a Adjustment –38.33 –10.07 –49.64 3.83 3.84 –32.89 9.52 n/a Balance –79.67 32.13 13.94 –3.28 –52.27 –89.14 31.87 n/a Prices Consumer prices (1995=100) 159.9 155.6 158.6 173.7 173.1 167.2 169.7 184.7 % change, year on year 12.7 12.3 11.9 8.8 8.3 7.5 7.0 6.3 Financial indicators Exchange rate TSh:US$ (av) 663.54 668.78 676.47 687.23 707.62 786.80 797.39 800.03 TSh:US$ (end-period) 665.49 675.82 681.00 694.00 737.00 797.90 797.33 800.50 Interest rates (%) Deposit (av) 7.67 7.74 8.12 7.98 7.76 7.34 7.92 8.57 Discount (end-period) 17.20 19.20 17.60 15.20 12.20 18.00 20.20 20.10 Lending (av) 24.67 26.00 30.00 30.00 30.00 30.00 29.33 28.50 Treasury bill (av) 10.38 13.19 12.13 8.26 6.42 10.52 15.00 15.13 M1 (end-period; TSh bn) 481.64 503.29 545.52 511.04 508.99 548.92 632.58 578.50 % change, year on year 1.9 5.8 10.5 5.3 5.7 9.1 16.0 13.2 M2 (end-period; TSh bn) 947 966 1,026 1,021 1,035 1,120 1,218 1,203 % change, year on year 7.7 6.9 10.8 10.5 9.2 15.9 18.6 17.8 Sectoral trends Productiona (annual totals; ‘000 tonnes) C o f f e e ( 3 8 . 0 ) ( 4 6 . 6 b ) n / a Seed cotton ( 118.0 ) ( 104.9b ) n / a Cotton, lint ( 39.5 ) ( 31.5b ) n / a S i s a l ( 1 5 . 0 ) ( 2 4 . 0 b ) n / a Foreign trade (TSh m) Exports fob 84,038 90,350 155,547 81,309 54,425 77,789 197,104 139,109 Imports cif –269,694 –260,595 –239,718 –272,513 –280,614 –344,814 –322,131 –286,298 Trade balance –185,656 –170,245 –84,171 –191,204 –226,189 –267,025 –125,027 –147,189 Foreign reserves (US$ m) Reserves excl gold (end-period) 502.5 556.0 599.2 631.5 604.6 666.6 775.5 761.0 a Crop years ending June. b Provisional. Sources: Food and Agriculture Organisation; Bank of Tanzania, Economic Bulletin; IMF, International Financial Statistics.

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Outlook for 2000-01

Political forecast

Domestic politics In the lead-up to national elections on October 29th 2000, the political scene will be dominated by two events: the election campaign itself and whether the Zanzibari question can be put to rest or whether there will be a continuation of the violence that has plagued the island for the last three years. With the CCM poised to win a relatively easy victory on the mainland, it had seemed the main problems would be in Zanzibar. But the recent election of Aman Abeid Karume as the CCM’s candidate for the island’s presidential election opens a window of opportunity for a period of national reconciliation both on the island and between the island and the mainland.

The turning point for this improved outlook for the political situation in Zanzibar can be traced to the decision by the ruling Chama Cha Mapinduzi (CCM) party, taken at a special meeting in Dodoma in February 2000, that the current Zanzibar president, Salmin Amour, could not run for a third term. Winning this showdown substantially strengthened the position of President Benjamin Mkapa and he was subsequently nominated unopposed in the party’s election for its national presidential candidate. It also weakened the position of Mr Amour within the CCM and led the party in Zanzibar to nominate four presidential candidates for the island for the recent party elections. Although one of these four was Mohammed Bilali, the current Zanzibar chief minister and Mr Amour’s chosen successor, Mr Amour’s waning position within the party encouraged a campaign to support Aman Abeid Karume, Zanzibar’s minister for communications and transport and, more importantly, the son of the late Abeid Aman Karume, who founded the Zanzibar revolutionary government and together with Julius Nyerere was the architect of the union of Tanganyika and Zanzibar in 1964.

Following Mr Karume’s election as the CCM’s candidate, there was widespread and spontaneous public support for him around the island, both from the general population and, surprisingly, from opposition parties. This positive reception to his election gives him a strong chance of being able to reunite the CCM on the island, although progress will be slow and difficult as substantial sections of the CCM strongly support the divisive, policies of Mr Amour. But, as Mr Karume is a candidate more acceptable to the opposition, there is now a chance of reducing the harassment of the main opposition party on Zanzibar, the Civic United Front. Moreover, it is also likely that, if elected, Mr Karume will seek to build consensus on the island by implementing the Commonwealth’s peace accord, without the modifications proposed by the outgoing president, Mr Amour. Finally, as the inheritor of his father’s pro- Union mantle, he is likely to play down the demands for independence from the mainland, although they will not die away quickly.

Election watch The election process in Tanzania is now well under way; the registration of all candidates was set to start on August 1st and voting will take place on October 29th. With its internal divisions now behind it, the CCM should easily win re-

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election. What is uncertain is the size of its majority and whether the opposition will win enough seats to create an effective voice in parliament. The ruling party has commanding advantages. Many Tanzanians, especially those in rural areas, regard the CCM as the natural governing party and are unlikely to change allegiance. After years of one-party rule it has also built up a considerable political infrastructure, which penetrates down to village level and has greater financial resources than the opposition parties. The opposition parties are at a further disadvantage, as they have failed to establish formal or informal electoral alliances. As a result the opposition vote will be split, and the parties will lose out even in the urban areas where they are stronger. Durable electoral arrangements are unlikely to materialise. Probably the best that can be expected is that the leading opposition party, the National Convention for Construction and Reform (NCCR-Mageuzi), will be seen as the only real alternative to the CMM and attract the votes of undecided and tactical anti-government voters. The forthcoming elections will be broadly free and fair; however, some harassment of the opposition parties will take place during the campaign. Although the CCM has spoken out against such intimidation, it has not acted against police over-zealousness as many senior officers have close links with the party.

International relations Political stability and steady—if unspectacular—progress in implementing economic reforms are the main reasons why Tanzania attracts substantial foreign support, and these factors are expected to continue throughout the 2000-01 outlook period. Although the government’s respect for political pluralism is questioned, this is unlikely to attract serious criticism from foreign donors. A major reason for this is that conflict in neighbouring states of the Great Lakes and elsewhere in Central Africa has increased the importance of Tanzania as a centre of regional stability.

The main international issue for the country remains the problem of refugees fleeing the civil war in Burundi, of whom there are now some 320,000 living in displaced camps in western Tanzania. Concern over this influx has been behind the government’s deep involvement in peace talks over the Burundian conflict held in Arusha, Tanzania, mediated by the former South African president, Nelson Mandela. Now that Mr Mandela has set a tight deadline for agreement among the various Burundian parties (August 28th), Tanzania will increase its engagement in the peace process. In particular, it will be pressing the Burundian rebel Forces nationales de libération (FNL), which operate in the refugee camps in Tanzania, to participate in the peace talks.

Economic policy outlook

Policy trends Economic policy during the 2000-01 outlook period will be driven by the commitments recently agreed with the IMF under the poverty reduction and growth facility (PRGF). It will aim for macroeconomic stability and high real GDP growth—above 5%—in addition to structural reforms aiming to privatise parastatal companies and the management of public infrastructure. The government will also push ahead with public-sector reforms, notably a reduction in the number of civil servants and improved capacity for policy

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implementation. As in previous years, the timetable for implementing reforms will slip, although the IMF and World Bank are still expected to maintain their strong support for the government’s efforts.

Fiscal policy Under the PRGF agreement with the IMF, the main emphasis of government fiscal policy is to improve the control of expenditure through the new Integrated Financial Information and Management (IFIM) system. The main challenge, however, is raising additional revenue and keeping the budget deficit within acceptable limits. As some 40% of spending is accounted for by salaries and interest payments on domestic and foreign debt, expenditure cuts—which would require reductions in the civil service—will be politically sensitive. The remaining solution for the government is to raise revenue and curb tax evasion, partly by simplifying the tax system; these were themes of the recent June 2000 budget. Although this is a major thrust of current policy, it has met with a mixed reaction, including complaints from the business community about overzealous implementation which has led to the formation of a tax-payers’ association. Domestic revenue—excluding grants—has actually fallen from over 17% of GDP in 1995/96 to only 14.9% in 1998/99, a level which is low even by African standards (the government has set a target of 11.3% for the 2000/01 fiscal year).

Monetary policy Tanzania has followed tight monetary policy in recent years, and this is expected to continue. As the fiscal deficit has been brought under control there has been a sharp reduction in inflation, with the year-on-year rate falling to single digits in 1999. Although this allowed the government to ease monetary policy in the first half of 1999, inflationary concerns due to the increase in oil prices led to an increase in interest rates in the second half of the year. The government is expected to maintain this stance, before easing policy towards the end of the year and into 2001 as the price of oil falls (see below).

Economic forecast

International assumptions The world economy is now entering a period of sustained economic growth against a background of relatively low inflation. The EIU forecasts that global GDP will expand by 4% in 2000, although this will slip back to 3.3% in 2001. The fall will be largely a result of the forecast slowdown in the US economy— until now the motor of global expansion. But this slowdown will be partly offset by a pick-up in growth in Asia, including Japan, while growth will remain relatively strong in Europe.

The upturn in the world economy has led to a surge in world trade and produced a positive outlook for many commodities. The EIU is forecasting an average oil price of US$24.5/barrel in 2000, falling to US$20/b in 2001. Markets for soft commodities, however, are in a position of oversupply which is pushing prices downwards. The outlook for coffee, cotton and tea—Tanzania’s main agricultural exports—is for prices to recover marginally in 2001 from the extremely low levels recorded in 2000. Gold prices, however, are expected to recover more sharply in 2000 and 2001.

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Tanzania: international assumptions summary (% unless otherwise indicated) 1998 1999 2000 2001 GDP growth US 4.3 4.2 4.9 2.9 OECD 2.4 2.9 3.9 3.0 EU 2.6 2.2 3.4 3.0 Exchange rates (av) US$ effective (1995=100) 119.3 116.4 117.3 112.9 ¥:US$ 130.9 113.9 106.0 104.0 US$:¤ 1.12 1.07 0.97 1.04 Financial indicators US$ 3-month commercial paper rate 5.34 5.18 6.52 6.55 ¥ 2-month private bill rate 0.72 0.27 0.13 0.38 Commodity prices Coffee (Arabica; US cents/lb) 135.2 103.9 98.3 82.3 Cotton (US cents/lb) 65.3 53.1 60.1 69.0 Tea (£/kg) 2.0 1.8 1.8 1.8 Food, feedstuffs & beverages (% change in US$ terms) –13.9 –18.6 –2.8 5.3

Economic growth The EIU is forecasting real GDP growth of 5.2% in 2000 and 5.7% in 2001, led by strong growth in the agricultural sector, but supported by rapidly rising gold production and investment in the Songo-Songo gas project, tourism and privatisation. However, this rate of growth is unlikely to be fast enough to make real inroads into poverty in Tanzania.

Although there has been some failure of the rains in the 1999/2000 agricultural season (July-June) in the centre and north of the country, we expect that the agriculture sector—the backbone of the Tanzanian economy—will recover in 2000 and 2001. The recovery in cash crops will be led by increased cotton and tea production, whose international prices have been less effected by oversupply. The recent growth in non-traditional agricultural commodity production should also be maintained, with buoyant output of cashew nuts and pyrethrum.

Outside the agricultural sector, growth will be driven by developments in the mining and industrial sectors. Expansion of the mining sector—which grew by 17% in 1997 and 27% in 1998—will remain high. Expansion will be led by gold production, which is expected to increase rapidly in the next two years as a number of projects now under development come on stream. The output of other minerals—which has been relatively disappointing—is expected to increase modestly. Economic growth will also be underpinned by the development of the Songo-Songo gas project. Assuming the dispute between Independent Power Tanzania of Malaysia and the state power utility, Tanesco, is settled in the latter’s favour before the end of the year, construction of the pipeline and power plant is expected to begin in 2001. Tourism growth should continue to be healthy, as Tanzania benefits from weakness in its main competitor markets—Kenya and South Africa—and the privatisation of state- owned tourism facilities. Although the effect of the privatisations will not be felt until toward the end of the outlook period, they should provide new capital, skills and marketing for potentially valuable—if dilapidated—facilities.

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Inflation The rate of inflation, which fell to single digits in 1999, is expected to continue the downward trend in 2000-01. Despite official concerns that the sharp rise in international fuel prices will feed through into higher inflation, this effect is likely to be limited as the consumer price index is heavily weighted towards basic foodstuffs. Food price increases, meanwhile, are declining, and this momentum is expected to be maintained throughout 2000-02 under the impact of higher agricultural production. Coupled with tight monetary policy, this will ensure that inflation is kept in the 5-6% range over 2000-01.

Exchange rates The Tanzanian shilling averaged TSh744.76:US$1 in 1999, ending the year at TSh797.33:US$1 after a substantial fall between June and July 1999 caused by weak foreign-exchange reserves. The currency will remain vulnerable to such downward slides in both 2000 and 2001, although the more positive outlook for exports and strong aid inflows will ensure that they will not be as sharp as in 1999. Otherwise we forecast a gradual depreciation of the shilling, which will average TSh830:US$1 in 2000 and TSh900:US$1 in 2001.

Tanzania: forecast summary (% unless otherwise indicated) 1998a 1999b 2000c 2001c Real GDP growth 3.5 4.7 5.2 5.7 Agricultural production growth 2.2 3.0 4.0 4.5 Gross fixed investment growth 4.2 7.3 7.0 7.7 Consumer price inflation Average 12.8 7.9 6.0 5.5 Year-end 16.5 10.0 3.6 5.2 Short-term interbank rate 26.7 29.8 17.5 16.5 Government balance (% of GDP) 0.2 0.7 0.1 –0.4 Exports of goods fob (US$ bn) 0.6 0.5 0.9 1.1 Imports of goods fob (US$ bn) –1.4 –1.4 –1.6 –1.7 Current–account balance (US$ bn) –1.0 –0.9 –0.5 –0.6 % of GDP –12.4 –11.8 –7.0 –7.5 Total foreign debt (year-end; US$ bn) 7.6 7.0 6.9 3.4 Exchange rates (av) TSh:US$ 664.7 744.8 830.0 900.0 TSh:¥100 507.8 653.8 782.9 865.4 TSh:¤ 744.4 793.5 804.4 936.0

a Actual. b EIU estimates. c EIU forecasts.

External sector Despite weak international prices for most of Tanzania’s agricultural exports during the outlook period, export volumes should increase substantially with the recovery from the drought of 1998-99. As well as increases in coffee, cotton and tea, exports will be aided by a large increase in gold production. Higher GDP growth, however, will accelerate import demand, keeping the trade account firmly in deficit. A fall in the invisibles deficit, however, should be apparent in 2000-01, as earnings from services are boosted by higher revenue from tourism and high levels of aid boost the current transfers surplus. Debt service will fall under the heavily indebted poor countries debt relief initiative, although most of the benefit will be outside our forecast period. These factors

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combined will reduce the current-account deficit from an estimated US$911m in 1999 to US$541m in 2000 and US$595m in 2001.

The political scene

The CCM chooses its On June 10th an extraordinary session of national executive of the ruling presidential candidates Chama Cha Mapinduzi (CCM) chose the party’s candidates to stand in the October presidential elections. As the sole candidate for the all-union presidency, the current president, Benjamin Mkapa was elected with an overwhelming 99% of the votes cast. Mr Mkapa has announced that his running-mate will be the current vice-president, Omar Ali Juma.

But, as Mr Mkapa was the sole candidate for the all-union presidency, the real interest was in who the party would choose to run for the Zanzibar presidency. A two-day meeting of the CCM in Zanzibar, had put forward the names of five candidates for the party’s nomination, although one, Ahmed Hassan Diria, withdrew from the contest before the vote. There was an intense political battle within the CCM over its choice of candidate. The early favourite, and the candidate who headed the list sent to the national executive meeting, was Mohammed Bilali, who was widely regarded as the choice of the incumbent president, Salmin Amour. But, given the controversial presidency of Mr Amour in recent years, such a close association seems to have worked against him. In contrast, Mr Karume quickly won the support of senior party members, led by the minister of foreign affairs, Jakaya Kikwete, and the minister of state within the president’s office, Edward Lowassa, and this quickly swung the campaign in his favour.

The choice of Mr Karume The nomination of Mr Karume has been broadly welcomed not only by party may reduce conflict members and other people on the island, but also by the opposition parties. The secretary-general of the main opposition party on the island, Sief Shariff Hamad of the Civic United Front (CUF), welcomed the nomination, stating that Mr Karume had the interests of all Zanzibaris at heart and that it was now likely that the CUF would accept the results of the elections, even if the CCM

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were to win, and would seek to co-operate with the new government. Similar views were also expressed by the chairman of the Tanzanian Labour Party, Augustino Mrema.

Tanzania: CCM candidates for the Zanzibar presidency, June 2000

Votesa Aman Abeid Karume Zanzibar minister for transport and communications 111 Mohammed Ghaib Bilali Isles chief minister 61 Abdisalaam Issa Khatib Union government deputy finance minister 15 Amina Salum Ali Zanzibar minister of finance 9

a At the extraordinary session of the party national executive. Source: Press reports.

But progress may be slower Although there is now a real chance for an end to the political confrontation than many expect and violence on the island, there is unlikely to be a quick solution. Mr Amour remains a powerful figure within the CCM on the island and retains a strong support base which will actively work behind the scenes to undermine Mr Karume. Moreover, Mr Karume will be under pressure to deliver quick results, which may not be possible given the long history of political conflict and intimidation. The poor state of the economy will also undermine attempts to introduce political change and broadly based economic development in anything but the medium to long-term.

Aman Abeid Karume

Mr Karume, who is 52 years old, has been a leading politician on the island for a decade and is minister of transport and communications in the current cabinet. His real political authority derives from the fact that he is the son of the late Abeid Aman Karume, who was a key leader in the armed uprising in January 1964 which overthrew the sultan of Zanzibar and declared a republic. As leader of the Afro-Shiraz Party and the new revolutionary government, the older Mr Karume joined forces with Julius Nyerere to form the union between Tanganyika and Zanzibar. He became vice-president of the united republic and chairman of the supreme ruling council of Zanzibar. He survived two coup plots in 1967 and 1971, but was assassinated in April 1972. He has since acquired a mythical status as a benign and forward-looking leader who led the economic development of the island. However, he actively suppressed all opposition to the new government and there is little doubt that his economic policies undermined Zanzibar’s position as the pre-eminent supplier of cloves to the world market.

One potential opposition The United Democratic Party chairman, John Cheyo, has announced that his alliance has collapsed party will not contest the national elections in October as part of the Alliance for Liberty, and that he will be the party’s presidential candidate. The alliance, will therefore consist only of the mainland section of the main opposition party on Zanzibar, the Civic United Front and .the small Chama Cha Demokrasia na Maendeleo (Chadema). Their joint presidential candidate will be Professor Ibrahim Lipumba whose running-mate will be Nassar Mohammed. The break up of the alliance is unlikely to have a significant impact on the

EIU Country Report August 2000 © The Economist Intelligence Unit Limited 2000 Tanzania 15

elections but does illustrate the problem of creating working alliances to oppose the CCM out of parties dominated by strong competing personalities.

Donors are asked to help In May President Mkapa stated that the cost of holding the forthcoming with electoral costs elections would be an estimated US$40m and he appealed for increased donor funding to meet this expense. This was a theme that was also taken up by the minister of finance, Daniel Yona, in his pre-budget briefing. While noting that eight donor countries had already agreed to provide US$8m towards the cost, he said that more was needed. Moreover, he argued that the rapidly escalating cost largely reflected external demands on the government to ensure that the elections are free, fair and transparent.

However, the government has also strongly reiterated its argument that, though it appreciates the financial and moral support provided by donors, this does not give them the right to intervene in the country’s political affairs. This seems to be a reaction to the allegation that donors have been financing political causes in Tanzania and to donors’ increasing concern about the escalating political crisis in Zanzibar (the EU even felt compelled to make a public statement about the issue—May 2000, page 14). Tensions over what the government sees as foreign involvement in its domestic political affairs came to a head in June, when the Tanzanian Ministry of Foreign Affairs made a formal diplomatic protest to the US ambassador to Tanzania, Charles Stith, over his remarks broadcast by the BBC World Service about the current position of Salmin Amour and the possibility that the political situation on the island might deteriorate quickly.

The NEC publishes an As part of its campaign to allay donors’ concerns about the possible conduct of electoral code of conduct the election, the National Electoral Commission (NEC) has passed a new election code of conduct which attempts to create a more level playing field for the parties at the elections. The new code seeks to address the advantages enjoyed by the CCM as the party in power, which was a major concern of international observers of the 1995 election. The new code includes the following provisions.

• The use of government planes, vehicles and other facilities for political campaigning is prohibited.

• The relevant authorities are required to co-operate with all political parties in organising political rallies.

• Political parties are not to campaign along religious or ethnic lines, or use religious facilities (including churches and mosques) in their campaigns.

• The state owned media will provide access to all parties during the election campaign. The government will also provide the media with information on various events, so that the public should receive balanced and informed coverage of the elections.

The government has amended the Elections Act of 1985 to try to ensure a freer and fairer election. One amendment permits house-to-house campaigning by candidates, which reduces their reliance on meetings and rallies. Another requires that ballot boxes should be sealed rather than just padlocked.

EIU Country Report August 2000 © The Economist Intelligence Unit Limited 2000 16 Tanzania

In addition, the press have also met and outlined a code of conduct for their coverage of the election. Following a two-day meeting at the Bwawani hotel in Zanzibar in early June, representatives of the press produced a list of 21 rules and regulations committing them to objective reporting and banning journalists from receiving gifts. A non-governmental organisation, the Legal and Human Rights Centre, has also announced that it will be issuing monthly reports on the media coverage of the elections, to highlight any bias that might emerge in the next few months. Although the code of conduct and the monitoring is unlikely to be successful, given the growth in newspapers since the last elections (many of them are given to sensationalist reporting), it is a positive step in the right direction.

However, it is unlikely that these changes will lead to major changes in the conduct of the elections and does not alter the EIU’s view that the low-level harassment of opposition parties will remain a feature of the election campaign. In fact, this is unlikely to change until multiparty democracy has established much firmer roots in Tanzania; the old link between being a member of the CCM and holding important positions in the civil service and security forces is broken further; and a serious political party emerges to effectively challenge the currently monopoly of power enjoyed by the CCM.

The refugee problem During the visit of the Canadian minister of international co-operation, Maria continues to cause concern Minna, in July, the prime minister, Frederick Sumaye, again appealed to the international community not to forgot that Tanzania has a large and growing refugee population which is causing major political and economic problems. Before the visit the minister for home affairs had announced in parliament that according to government statistics there were currently 664,000 refugees in Tanzania from Burundi, Rwanda, the Democratic Republic of Congo and Somalia. During the parliamentary debate on the budget allocation for the Ministry of Foreign Affairs, Mr Sumaye had also stressed the government’s commitment to the current initiatives seeking peaceful resolutions to the various conflicts in the Great Lakes region, particularly in Burundi—all-party peace talks took place in Arusha in July, under the mediation of the former South African president, Nelson Mandela.

Economic policy

Recently revised data for the 1998/99 fiscal year (July-June) show that the government recorded a fiscal surplus of TSh24.42bn (US$30.6m), with donor grants accounting for nearly 20% of total government revenue. This austerity has continued into 1999/2000 and, using a combination of the data presented in the budget and those available from the Bank of Tanzania, the EIU calculates a surplus of TSh46.78bn in the fiscal year to June 2000. This increase in the surplus has occurred despite an estimated fall in both revenue and grants on the previous year, and was largely because the government managed to keep expenditure under control.

EIU Country Report August 2000 © The Economist Intelligence Unit Limited 2000 Tanzania 17

Tanzania: government finances (TSh m) 1997/98 1998/99 1999/2000a Revenue 738,442 859,269 768,420 of which, grants 119,359 169,944 78,472 Expenditure 730,338 816,706 761,432 Overall adjustmentb -76,243 -18,141 38,678 Balance –68,139 24,422 45,666 Financing Domestic 3,699 –5,739 –4,700 Foreign 64,469 –18,683 –40,966 a EIU estimates based on IMF data up to January and Bank of Tanzania data to May.b Government payments that were approved and processed but were not collected or cashed by recipients. Sources: IMF; Bank of Tanzania; Government of Tanzania; EIU.

After three years of austerity and holding down expenditure, the government does not seem to have heeded the IMF’s advice on the continuing need for fiscal prudence in the run-up to the October elections, and in his 2000/01 budget, the minister of finance, Daniel Yona, announced that expenditure would increase to TSh1.39trn. Although this seems a huge increase on our estimate of expenditure in 1999/2000, there is still a strong possibility that expenditure will be much lower. Last year the government announced that expenditure would be TSh1.16trn, but it actually came in much lower than this, mainly thanks to the cash budgeting system which does not permit expenditure when funds are not available to finance it. Therefore, the key factor in whether the government actually gets close to this level of expenditure will be revenue. In this regard, the minister set a lower limit for revenue at 11.3% of GDP. Using our GDP growth figures, this would yield revenue of TSh847.36bn and create a budget deficit of TSh541.63bn (although using its projection of GDP growth, the government estimates that it would yield TSh856.4bn).

Tanzania: financing the budget deficit, 2000/01

(TSh m) Deficit 541,632 Grants and loans 518,186 Privatisation receipts 15,000 New revenue measuresa 8,446 a Revenue measures which have been broadly outlined but details of which have not been clarified. Source: EIU estimates; Government of Tanzania.

Although there is scope to increase domestic borrowing after several years of surpluses, even if revenue does substantially exceed the government’s lower limit, it will only be possible for expenditure to reach the proposed level with a large increase in grants and loans. However, the government seems confident that it will receive a large increase in aid inflows following commitments made at the May 2000 donor consultative group meeting, and with money already committed by the IMF and World Bank under the poverty reduction and growth facility (PRGF). In a response to this, the budget outlined a 4% cutback in defence spending and a 6% rise in spending on social services. But, although

EIU Country Report August 2000 © The Economist Intelligence Unit Limited 2000 18 Tanzania

grants to support government expenditure have increased rapidly in recent years, the requirements outlined in the current budget would require a very large increase on top of already substantial growth, and this is unlikely to materialise. That said, the IMF completed its first review of the PRGF on August 1st 2000 and released SDR 20m, bringing total disbursements under the three- year programme to SDR 40m.

Tanzania: budgetary grants (TSh m) 1996/97 1997/98 1998/99 1999/2000a 2000/01b Grants 81,416 119,359 169,944 78,472 518,186

a Estimates. b Forecasts. Sources: IMF; EIU.

On the revenue side, the budget stuck to the broad themes already agreed by the government, simplifying the current complex tax structure, especially in relation to petroleum products, and measures aimed at improving revenue collection. In what would seem an inappropriate move in the run-up to an election in most countries, Mr Yona increased the duty on liquor, cigarettes and soft drinks. Drivers also suffered as duties went up on small vehicles, while the road levy on petrol went up from TSh70/litre to TSh80/l. However, it could be argued that these measures have caught the feeling of austerity that prevails in the country at present, despite the forecast increase in government expenditure and the strong macroeconomic fundamentals—the minister projected real GDP growth of 5.8% and a fall in inflation to 4% by June 2001.

Government committed to Following criticism by the UN in its 1999 World Investment Report that little has attracting FDI been done to attract foreign investors, the government seems to have encountered further problems in its attempt to establish Tanzania as an attractive investment location. After the negative publicity given to the privatisation of the National Commercial Bank (May 2000, pages 20-21), opposition members of parliament, led by the shadow minister of finance, John Cheyo, again raised concerns about the level of foreign investment in Tanzania, notably fears of South African control of the economy. In early May the East African newspaper reported the claim of a government official that the cabinet was divided over the issue of how best to respond to the recent press attacks on South African investors; however, the issue has probably been overplayed by the press. In fact, the government seems to have made a concerted effort in recent months to highlight how attractive Tanzania is as a location for foreign investors, especially from South Africa. The prime example of this of this was a presentation at the recent Southern African Economic Summit in Durban in June, attended by both President Mkapa and the governor of the Bank of Tanzania (the central bank), Daudi Ballali, which gave details of specific investment prospects within the country, ranging from developing power stations, a coal mine, Mtwara airport and rehabilitating the Lake Malawi port. While in Durban, President Mkapa is also reported to have held talks with the chairman of Illovo, the South Africa sugar producer which bought the Kilombera sugar plantation, seeking to allay concern over the

EIU Country Report August 2000 © The Economist Intelligence Unit Limited 2000 Tanzania 19

future of his company’s investment in Tanzania. Shortly after the president’s return, the government acted quickly to resolve a four-week strike at the plantation, laying off 3,000 workers (with severance benefits).

An EPZ is being considered The government has also announced that it is to look into establishing an export-processing zone (EPZ) for foreign investors. Although the EPZ is only in the planning stages—the National Development Corporation has been directed to find a suitable site for it and a special committee has been set up to co- ordinate the process and identify what changes in the law are required— progress may actually be quite fast. This is because the government has also indicated that the Friendship Textile Company (Urafiki) in Dar-es-Salaam may be able to operate under the EPZ regulations. This would be a similar arrangement to the EPZ legislation in Mauritius, where there is no actual physical EPZ site, but where individual factories can apply for EPZ status. Although the Mauritian approach has some advantages in that it is easier to implement quickly and requires far less initial investment, the drawback of this approach for Tanzania and some other developing countries is that by creating a physical EPZ site, the government can actually provide superior infrastructure, and often at subsidised rates, which is often attractive to foreign investors and whose lack is an important constraint to industrial development in the wider economy.

The NIC is to improve FDI Statistics on the level and sectoral destination of foreign direct investment is statistics often the most important information sought by foreign investors. However, such information is usually the hardest to find, and the least reliable. The government is aware of this, and has been encouraging the National Investment Centre (NIC) to improve the statistics on foreign investment in the country, including a census of the 1,500 investment projects in Tanzania that have a foreign component. The table below illustrates this problem, showing large variations in data on investment published in different sources. Moreover, these data in turn, differ significantly from those recently announced by the NIC, which claimed that foreign investment in Tanzania in the past five years had amounted to US$2.5bn (1994-98), but might rise by US$1bn in 2000 following heavy investment in the mining industry. According to Ole Naiko, the NIC’s director, investment in the mining sector amounted to around US$700m in the last three years (1996-99) but should total US$700m in 2000 alone, led by investment in Kahama mine in the Shiyanga region (an estimated US$400m) and the Geita mine (US$200m). To this has to be added a possible US$300m-400m in other projects.

Tanzania: estimates of foreign investment (US$ m) 1994 1995 1996 1997 1998 EIU 49.1 168.9 148.0 157.0 172.0 IMF 50.0 119.9 150.1 157.9 172.3 UNCTAD 50.0 120.0 150.0 250.0 n/a Sources: UN Conference on Trade and Development; Forum on Debt and Development, Private Capital Flows to Africa; IMF, International Financial Statistics; EIU, CountryData.

EIU Country Report August 2000 © The Economist Intelligence Unit Limited 2000 20 Tanzania

The government seems to have accepted donors’ arguments about the importance of making economic data and its own economic forecasts more widely available. At the end of May it made a public presentation of its three- year medium-term economic framework to the country’s donors and senior government officials, which the press was also invited to attend.

Tanzania ratifies the EAC On July 12th, the minister for justice and constitutional affairs, Bakari treaty Mwapachu, announced that Tanzania would pull out of the Common Market for East and Southern Africa (Comesa) by September 2nd 2000, having paid off its arrears to the organisation. The government has also completed the legal formalities to accede to the East African Economic Community Treaty. As Kenya and Uganda had already completed these, the treaty came into effect on July 7th, although it will not be officially inaugurated by the three heads of state until November 30th. However, it is clear that the government is still worried by the economic implications of the treaty, and the minister for industry and trade, Iddi Simba, has again stated that the government is not prepared to move too quickly to implement a zero-tariff policy within the EAC, arguing that it still feels that Tanzanian industry is still not sufficiently competitive to survive such a degree of liberalisation at this stage.

The smuggling problem

A major problem for Tanzania is the smuggling of commodities into the country. Smuggling has the dual effect of damaging the domestic market and reducing government revenue. The confederation of Tanzanian Industries (CTI) estimates that Tanzania may be losing up losing up to TSh6bn a year in customs revenues because of smuggling. The smuggling of sugar, tea and petroleum products are the major concerns.

The prevention of smuggling in Tanzania is extremely difficult, owing to its long and porous borders and poor government structures for controlling trade and collecting tax. Smuggling is also a response to tax regime distortions , such as the tax sugar, where lower duties are paid on imports into Zanzibar than to the mainland. Similarly, the smuggling of petrol products from Malawi is a result of the subsidy paid by the Malawian government, which makes petrol products cheaper there than in than in Tanzania. The best policy response is not simply to attempt to stamp out smuggling, but to ensure that the country has a simple and consistent tax regime, especially for imports, and to harmonise it as much as possible with tax regimes in neighbouring countries, which should reduce the economic rationale behind crossborder smuggling. What is certain is that a country with a complex tax regime, and many exemptions from it, is simply encouraging the problem.

EIU Country Report August 2000 © The Economist Intelligence Unit Limited 2000 Tanzania 21

The domestic economy

Economic trends

The government has recently published provisional GDP figures for 1999 and revised some of those for 1998. These show that real GDP grew by 4.7% in 1999, driven by increases in exports, private consumption and gross fixed investment. Interestingly, the growth in export data is not consistent with that for merchandise exports, which actually contracted in 1999. Therefore the main growth must have been in services, which is plausible given the rapid growth in tourism earnings in 1999.

Tanzania: gross domestic producta (TSh bn) 1998 1999 % change Private consumption 4,909.25 5,667.44 15.4 Government consumption 433.79 451.14 4.0 Gross fixed capital formation 892.70 989.34 10.8 Change in stocks 9.91 10.31 – Exports of goods and services 748.97 888.98 18.7 Imports of goods and services –1,565.33 –1,698.68 8.5 GDP by expenditure 5,429.29 63,08.53 16.2 GDP by production 5,571.64 6,431.55 15.4 GDP at 1992 prices 1,505.83 1,577.33 4.7

a Data from the IMF do not match World Bank data. Source: IMF, International Financial Statistics.

As government consumption fell in real terms, the increase in gross fixed capital formation reflects the impact of foreign direct investment (FDI) inflows into the country, in the mining sector, in refurbishing dilapidated purchases and in new projects and ongoing infrastructure projects, many of which are donor-funded. Agriculture growth and the creation of jobs in the services and construction sectors, in turn drove the increase in private consumption.

EIU Country Report August 2000 © The Economist Intelligence Unit Limited 2000 22 Tanzania

Inflation continues to fall The inflation rate has continued its downward trend in 2000, with the headline year-on-year inflation rate falling to 6% in both April and March. Whether this marks a temporary slowdown in the fall, or a bottoming out, will now depend heavily on the extent to which increases in food prices can be reduced. Food price inflation has continued to fall in 2000, from 7.5% in January to 7.2% in May, despite food shortages in some regions, so the fall will continue, but slow down during the year. With the year-on-year inflation rate of non-food prices having reached 2% in March and April, it was not surprising that it increased marginally, to 2.4% in May.

Agriculture

There are food shortages, It is now clear that Tanzania will face food shortages in 11 out of the country’s but they are under control 20 regions following the late short (vuli) rains and problems with army worms in some regions. Preliminary figures show that food crop production in 1999/2000 was 6.7m tonnes, compared with an estimated requirement of 7.4m tonnes. The food shortages seem to be worse in Dodoma and Singidi regions, although there are food surpluses in other regions. However, poor infrastructure and lack of well-developed markets make transporting food around the country for sale difficult; in fact it is easier to sell the surplus into Zambia, although this can easily become a political problem. Meanwhile, the strategic grain reserve has continued to release supplies during the year helping to ensure that basic cereals continue to be available and that prices are kept under control.

Coffee production looks set The Tanzanian Coffee Marketing Board (TCMB) recently released its forecasts of to increase coffee production figures. The TCMB expects to see output of 50,000 tonnes in 2000, an increase of 12,000 tonnes on 1999. The harvest is then projected to rise to 60,000 tonnes in 2003 and 70,000 tonnes in 2005 as the three-year campaign to supply coffee seedlings to farmers begins to have an impact.

The EU increases Tanzania’s Tanzania’s sugar export quota to the EU has been increased by 2,000 tonnes, to sugar quota 12,000 tonnes for the current financial year, 2000/01. According to EU sources, Tanzania sold 65,200 tonnes of sugar into the EU between 1995/96

EIU Country Report August 2000 © The Economist Intelligence Unit Limited 2000 Tanzania 23

and 1999/2000, an average of 13,000 tonnes/year compared with its previous quota of 10,000 tonnes/year. Despite the increase in quota, Tanzania is still expected to exceed it, exporting 13,500 tonnes of sugar into the EU this financial year. The increase in Tanzania’s quota is a result of the fact that Uganda is not able to meet its export quota to the EU this year and a proportion of its quota has been transferred to Tanzania. Although Tanzania exports sugar to the EU, its total annual production of around 130,000 tonnes is not sufficient to meet total domestic demand, which is estimated at around 300,00 tonnes/year.

Sukari Investment, a Mauritius-based company, has recently acquired a 75% stake in the former Tanzania Planting Company (TPC) and has stated that it will invest up to US$30m in the sugar refinery over the next five years to increase production to 72,000 tonnes/year. Under the agreement, the government will sell the new company 179 ha of land currently held by TPC and allow it to utilise land currently held by the National Food Company near Kahe. This will be used to grow sugar for processing at the refinery.

Financial services

NIC faces a financial crisis The problems caused by years of government involvement in the financial sector in Tanzania have become apparent outside the central bank. First, there have been reports that the National Insurance Company (NIC) is facing a financial crisis and struggling to meet outstanding claims against it, because it has not been paid premiums by both clients and its various agents. It has also been subject to high levels of fraudulent claims. Although the government is to restructure NIC prior to privatisation, it is likely to require a substantial capital injection if it is to find a suitable purchaser.

Rural lending programmes The Business Times has reported that the government has contracted five debt collection companies to try to reclaim money lent by the Agricultural Trust Fund (ATF), but which has remained unpaid to date. Lending from the ATF was suspended in December 1999 when it became apparent that out of TSh5.1bn lent between 1995/96 and 1998/99 repayment levels were extremely low. The government will have difficulty recovering much of the debt lent to quasi- official bodies, which may prove hard to prosecute owing to the ATF’s lax lending procedures and poor accounting records which means that it does not have a reliable database of its debtors.

Mining and energy

Geita pours its first gold Despite financial difficulties at the Geita mine, which compelled Ashanti Goldfields to sign an agreement in April selling 50% to AngloGold, (the sale is expected to be completed on September 30th, 2000), the development of the mine is still progressing well. In early June the mine poured its first gold, more than three months ahead of schedule and within its estimated US$165m budget. It is to be formally opened on August 3rd. Although initially, production will be slightly above its estimated long-run cost, at US$220/oz, by

the end of the year the mine should be increasing production. However, it will take several years to reach its estimated production capacity of 500,000 ounces of gold a year, with a forecast production cost of US$180/oz. Ashanti has also announced that it will be carrying out further exploratory drilling within its Geita concession at Nyamatigata, which has shown encouraging test results. The Geita mine will be the third large-scale gold mine in Tanzania, along with the Golden Pride mine in Nzega and the Bulyanhulu mine in Kahama. Recent Bank of Tanzania projections shows that the country’s total gold production in 2001 will be 270,000 oz, earning an estimated US$290m.

Tanzanite mining looks set African Gem Resources (Afgem) of South Africa has acquired the rights to mine to resume this year tanzanite in Block “C” of the Mererani mining area in northern Tanzania and is expected to start preliminary mining operations towards the end of 2000. The mine is estimated to have a life of 19 years and will yield some 22m carats of tanzanite which is mainly used in jewellery. To date, Afgem has invested US$1.5m in the mine and will commit a further US$10m over its lifetime.

Songo-Songo project runs Further controversy has arisen over the financing of the Songo-Songo gas into further controversy project which could lead to delays in its start-up. The project, managed by the Tanzanian Petroleum Development Corporation (TPDC) and Songas, a joint venture between Ocelot Energy (renamed PanAfrican Energy in March 2000) and TransCanada Pipelines, has been accused of making payments to individuals rather than the sub-contracting companies, allowing them to avoid taxes. There is also concern about an alleged TSh1.2bn in excess payments made to companies, which was believed to have been paid on to land owners as compensation for the pipeline crossing their property. Although the managing director of TPDC has denied the reports, the government has demanded a full report and is well aware that, with the previous problems over the development of the pipeline and the involvement of the World Bank in the project, it is likely to come under considerable external scrutiny.

Foreign trade and payments

Zanzibar can now directly When presenting the Zanzibar budget to the House of Representatives, the seek its own aid minister of finance, Amina Salum Ali, announced that the union government had accepted that Zanzibar should be able to seek its own foreign assistance directly from potential donors. It is expected that the decision will make it quicker and more straightforward for Zanzibar to obtain the estimated TSh1.5bn (US$1.9m) in aid that it is seeking for the coming financial year. The government has also appealed to donors to reconsider their decision to suspend aid to the island, although there is unlikely to be any significant increase in foreign financial flows until after the elections. During the budget debate the opposition Civic United Front announced that it no longer supported the freeze on aid, arguing that because of the rapidly changing political climate it wanted donors to resume their aid programmes.

Exports grow well in 2000 Despite the food shortages and depressed prices for many of Tanzania’s key commodity exports, provisional data shows that export growth picked up significantly in the first five months of 2000. The total value of exports from January to May 2000 was US$259m compared with US$170.1m in the first five months of 1999 and US$218 in the first five months of 1998. Tanzania’s exports tend to follow a pattern of considerable growth from September to December as commodity harvests are sold, and then decline from this December peak to a low between May and July. With gold exports from the Geita mine kicking in towards the end of the year, coupled with the positive developments in the first five months of the year, export growth is predicted to be strong in 2000.

Tanzania: foreign trade, Jan-May (US$m) 1998 1999 2000 Exports 218.1 170.1 258.6 Imports –557.3 –570.8 –544.6 Trade balance –339.2 –400.7 –286.0 Source: Bank of Tanzania.

Encouragingly for the government, imports fell in the first five months of 2000, to US$545m compared with US$570m in the first five months of 1999. These trends led to a sharp reduction in the trade deficit from US$401m in the first five months of 1999 to US$286m in the first five months of 2000.

Comoros

Political structure

Official name République fédérale islamique des Comores

Form of state Federal Islamic republic

Legal system Based on the Napoleonic Code, the 1996 constitution and sharia (Islamic law)

National legislature Council of State, composed of 12 army and 8 civilian personnel

Head of state President

National government Colonel Azali Assoumane seized power in a military coup on April 30th 1999

Main political parties Since the April 1999 coup the 24 main parties and movements, both conservative and reformist, have come together to form a single political movement whose sole objective is the restoration of civilian rule. Members of this umbrella grouping include the reformist Front pour le redressement national (FRN), the Islamist Front national pour la justice (FNJ), the Forces pour l’action républicaine (FAR) and a long-standing conservative alliance, the Rassemblement national pour le développement (RND). The RND itself includes the Union nationale pour la démocratie aux Comores (UNDC), the Rassemblement pour la démocratie et le renouveau (RDR), Udzima, Uwezo, Maecha Bora and Chuma

President Colonel Azali Assoumane Prime minister Bianrifi Tarmidi

Committee of state Civil service, employment & work Miissane Hamdia commissioners Culture, youth, sports & information Ahmed Sidi Economy, commerce, industry & artisans Assoumani Aboudou Equipment & energy Djaffar Mmadi Finance, budget & planning Mohamed Abdou Soimadou Foreign affairs & co-operation Souef Mohamed El-Amine Interior & state institutions Mohamed Abdou Soimadou Justice & Islamic affairs Abdoulbar Youssouf National education & francophonie Moinaecha Yahaya Production & environment Charif Abdallah Public health, population, & women’s affairs Mlahaïli Mistoihi Public works & employment Abdallah Kouati Tourism, transport, posts & telecommunications Saïd Dhoifir Bounou

Central Bank governor Mohamed Halifa

Economic structure

Annual indicators

1995 1996 1997 1998 1999a GDP at market prices (Cfr bn) 80.3 81.9 84.7 88.9 93.0 Real GDP growth (%) –3.9 –0.4 0.0 1.1 0.5 Consumer price inflation (av; %) 7.1 1.4 2.5 4.0 4.0 Populationb (‘000) 610 630 650 671a 692 Exports fob (US$ m) 11.2 9.2 8.8 9.3 8.0 Imports fob (US$ m) 44.5 35.7 46.2 49.5 51.0 Current-account balance (US$ m) –19.0 –16.0 –13.4 –17.2 n/a Reserves excl gold (US$ m) 44.5 50.5 40.5 39.1 37.7 Total external debt (US$ m) 204 206 197 n/a n/a External debt-service ratio, paid (%) 1.6 2.3 3.9 n/a n/a Exchange rate (av; Cfr:US$) 374.4 383.7 437.8 421.6 458.0

July 28th 2000 Cfr545.2:US$1

Origins of gross domestic product 1997c % of total Components of gross domestic product 1997c % of total Agriculture, fishing & forestry 38.6 Private consumption 90.7 Manufacturing 5.3 Government consumption 15.1 Services 56.0 Gross domestic investment 18.7 GDP at market prices 100.0 Exports of goods & non-factor services 19.7 Imports of goods & non-factor services –44.6 GDP at market prices 100.0d

Principal exports 1997e US$ m Principal imports 1996e US$ m Vanilla 3.7 Rice 14.0 Ylang-ylang 2.4 Petroleum products 7.7 Cloves 1.2

Main destinations of exports 1998f % of total Main origins of imports 1998f % of total France 50.0 France 37.5 Germany 25.0 Pakistan 12.5 South Africa 8.3 Kenya 8.3 a EIU estimates. b IMF, International Financial Statistics. c IMF and Comoros Directorate of Statistics. d Total does not sum in source. e Bank of France. f Based on trading partners’ returns; subject to a wide margin of error.

Quarterly indicators

1998 1999 2000 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr Financial indicators Exchange rate Cfr:US$ (av) 451.15 443.11 418.33 438.31 465.55 469.32 473.92 498.64 Cfr:US$ (end-period) 458.80 421.23 421.65 457.99 476.34 461.29 489.72 514.99 M1 (end-period; Cfr m) 10,430 12,129 10,015 9,849 10,079 12,505 11,662 11,969 % change, year on year –12.1 6.3 –5.5 –7.3 –3.4 3.1 16.4 21.5 M2 (end-period; Cfr m) 17,016 18,907 15,773 16,667 16,823 19,417 18,698 18,766 % change, year on year –5.2 5.6 –14.2 –4.1 –1.1 2.7 18.5 12.6 Foreign tradea (US$ m) Exports fob 1.21 0.97 0.88 1.97 2.21 3.36 2.69 n/a Imports cif –12.63 –10.31 –13.67 –12.63 –12.37 –11.92 –16.40 n/a Trade balance –11.42 –9.34 –12.79 –10.66 –10.16 –8.56 –13.71 n/a Foreign reserves (US$ m) Reserves excl gold (end-period) 36.91 43.18 39.14 36.22 35.62 40.11 37.15 36.08 a DOTS estimate. Sources: IMF, International Financial Statistics; Direction of Trade Statistics.

Outlook for 2000-01

Political forecast

Domestic politics There are signs that Azali Assoumane, the Comoros’ military ruler, may be forced to reach a compromise with the Moroni-based opposition politicians. Already he has proposed constitutional changes, which would transform his ruling military council into a parliament and allow a civilian politician to be appointed prime minister with executive powers. Initially, his overtures were turned down by the opposition, but a protracted process of bargaining is expected which could eventually see the end of purely military rule. This might be aided by the renewed efforts of the crisis management team from the Organisation of African Unity (OAU) which has been working on Comoros.

International relations Since June the OAU has stepped up its conflict resolution work on Comoros. It insists that Colonel Assoumane should step down and return the Comoros to constitutional rule. The OAU’s demand was reiterated at its annual summit conference of heads of state which was held in early June in Lomé, Togo. Much, of course, depends on how the Anjouan crisis plays out. The opposition maintains that the Anjouan secessionist crisis has become more intractable since Colonel Assoumane’s military coup. They point out that the secessionist leader, Abeid Said Abeid, has become increasingly intransigent, insisting that he cannot have dialogue with an illegitimate government in Moroni. This creates a problem as Colonel Assoumane has repeatedly stated that he will not relinquish power before the Anjouan secession ends. It is possible that the opposition, encouraged by the OAU’s uncompromising stand on Colonel Assoumane’s rule, will launch a campaign of civil disobedience to isolate the government further. Colonel Abeid himself may also be forced to compromise as he faces the threat of an OAU-led invasion against his secessionist cabal at a time when he is being challenged by a growing body of Anjouanese, who are opposed to the secession and who would like their island to return to the Comorian fold. It is not yet clear when, or even whether, the OAU will send an intervention force to Anjouan. But after the debacle of the invasion force sent by the late president Mohamed Taki in 1997 (4th quarter 1997, page 24), the OAU will be careful that any intervention force it sanctions against Anjouan does not meet the same fate as Taki’s. Therefore it will only mount such an invasion when it is certain that it will succeed with no loss of life. A meeting of military experts from neighbouring countries is scheduled to be held in Pretoria in the first week of August.

Sanctions bite An additional worry for Colonel Abeid is the economic paralysis in Anjouan, which has been exacerbated by the OAU’s trade embargo against the island. The effects of the embargo have started to weigh heavily on the day-to-day life of the Anjouanese because trade sanctions no longer allow renewal of stock. Even if the secession in Anjouan is ended, it will be some time before normality returns to the island.

Ordinary Anjouanese find it hard to lead normal lives as the politicians argue and the economy deteriorates. Electricity, which used to be supplied six hours a day, now cannot be assured because the supply of fuel has run out. The oil tanks are empty since the Mauritius-based company which used to supply Anjouan had to stop because of the sanctions. Life will get tougher for the population following the closure of all banking and financial institutions on the island, which will have a vital effect on businesses.

The political scene

A new constitution and The head of Comoros’ military government, Azali Assoumane, has proposed legislature proposed amending the constitution and bringing civilian politicians into his government, in the hope that these moves would help him remain in power. He apparently believes that the presence of civilians in his government will placate the Organisation of African Unity (OAU), which has refused to recognise his administration. He has said that a new draft constitution would be submitted to parliament for debate and approval in late July-early August. According to Colonel Assoumane, the existing constitution, would be thoroughly amended and the new document that emerged from it would be submitted for approval to a national congress at which political parties, and civil society, would all be asked to participate, before going before parliament. Colonel Assoumane claimed that he had been consulting politicians and civil society for the past few months.

Key elements in his constitutional proposals are the transformation of his ruling state council into a “genuine” legislature which would be open to new members from the political class and the professions, the appointment from among the political parties of a civilian prime minister with executive powers and the decentralisation of administration. Ultimately, the council would be transformed into a constituent assembly of a new Comorian Union.

According to Colonel Assoumane, the proposed amendments will take into account the wishes expressed by the political parties participating in the ongoing national consultation, initiated by the OAU. The current constitutional

charter by which he rules, grants him wide legislative and executive powers. The reaction of opposition leaders and civil society activists was to reject Colonel Assoumane’s proposals. Idriss Mohamed Chanfie of the Democratic Front stated that the head of state was diverting attention away from the Anjouan issue and concentrating his attention on efforts to remain in power. Sitou Raghdat Mohamed, of the Union of Comorian Women, doubted whether any good would come out of Colonel Assoumane’s constitutional proposals. She insisted that the colonel should abide by the OAU-backed Antananarivo agreement which was signed two days before his coup d’état. The Movement for Democracy and Socialism appeared to be divided on the issue. However, Colonel Assoumane found support from Mohamed Mchangama of the Association for Unity and Integrity of the Comoros who welcomed the invitation to politicians, civil society members and Comorians in the diaspora to meet at a roundtable conference to discuss the future of the islands.

Colonel Assoumane appears Many in the opposition see in Colonel Assoumane’s latest proposals a desire to reluctant to leave office perpetuate himself in power. Although he has constantly said that he does not want to prolong his time in power, he now says that the two conditions he had set for a return to constitutional normality, the signature of the Antananarivo agreement by the Anjouan separatists and the establishment of new institutions, have yet to be met. He, therefore, feels justified in remaining in power until the conditions are met. However, this may not happen for a long time, as he has set an ambitious programme of reforms. This includes the reform of the judicial system, reconstruction of the political parties, organisation of the nation’s youth, settlement of the separatist crisis and the creation of the conditions necessary for a return to the normal constitutional dispensation. In a bid to entice the opposition, he extended an olive branch to political parties, inviting them to join a new alliance in an extended government. But this found no takers among the political parties that have consistently opposed his rule. Even the group headed by a former minister in his government, Ali Mroudje, was not keen to accept Colonel Assoumane’s invitation. The co-option of opposition parties in the government would have worried the government’s current allies, including the Mohéli leaders who do not want to see their representation in government reduced. Some members of the Mohéli Island Co-ordination have already defected and have been calling for the implementation of the section of the Antananarivo accord that provides for the autonomy of their island. Colonel Assoumane tried to calm things down when he visited Fomboni, Mohéli’s capital, on April 24th; but he met with little success. The Mohéli island defectors have also voiced strong criticism of the embargo imposed on Anjouan island because of the loss of trade between the two islands. Mohéli had been an important source of smuggled goods into Anjouan, and recently about 60 soldiers were sent from Moroni to increase coastal surveillance. Colonel Assoumane has also been considering holding an international conference in Moroni on the theme of a “national revival”. He sent representatives to several neighbouring countries seeking support for such a conference, but with not much success.

Colonel Assoumane attacks Recently France has taken a more robust stand in support of OAU measures to France and the OAU end unconstitutional rule in Moroni; and Colonel Assoumane used the

occasion of the 25th anniversary of Comoros’ independence from France, on 6th July, to launch a vitriolic attack against Comoros’ former colonial rulers. At a reception held in Beit Salam, the presidential palace, he criticised the referendum which France held on July 2nd in Mayotte, the fourth Comorian island which opted to remain with France in 1975. In the referendum a majority voted for Mayotte to become a French department. About 2,000 youths, mostly students, demonstrated in Moroni on July 5th against the referendum on Mayotte, and dispersed after a brief sit-in in front of the French embassy. Colonel Assoumane also accused the French of working with the Moroni-based politicians that are opposed to his rule. Colonel Assoumane used the same occasion to roundly condemn the OAU. Clearly, he has an ambivalent relationship with the organisation. Although he welcomes its stance on Anjouan separatism and apparent determination to resolve the crisis, even if that would mean military intervention, he does not want it to be involved in Comoros’ internal affairs. At the July 6th reception, he attacked the OAU for “encroaching on national sovereignty” by its insistence on a return to constitutional rule in Moroni and civilian government. He earlier wrote to the OAU secretary-general, Salim Ahmed Salim, asking him to limit its mission of mediation in Comoros to resolving the Anjouan crisis, insisting that the question of a return to constitutional rule was a purely Comorian question in which he would tolerate no foreign interference.

The OAU considers Comoros In late June Dr Salim had sent the Mozambican diplomat, Franscisco Madeira to Moroni, as his special envoy at the head of a six-man delegation to Comoros. Mr. Madeira held separate discussions with Colonel Assoumane and with leaders of political parties on both the Anjouan secession and the republic’s constitutional crisis. Surprisingly, on that occasion Colonel Assoumane did not object to the OAU team raising the question of the constitutional crisis created by his military coup. Mr. Madeira returned to Addis Ababa, headquarters of the OAU, and presented a report to the secretary- general which formed the basis of the resolutions that were passed at the OAU’s summit in Lomé. These reinforced the anti-Anjouan sanctions and reiterated the OAU position on Comoros’ military rule. The summit, however, fell short of endorsing an immediate use of military force to end the secession on Anjouan. But it did express support for the use of force “as a last resort” to end the secession. Just so that the secessionists do not interpret this as sabre- rattling, the OAU has announced that its military experts are soon to meet to discuss logistics and modalities of such an undertaking.

There has recently been much pressure on the OAU secretary-general for the organisation to take “decisive measures” to end the Anjouan crisis. A political party on Grand-Comoros, the Co-ordination for Ngazidja party, has put forward the following proposals for the resolution of the separatist crisis.

• The OAU should intervene militarily, following which, an election should be organised on the island within 90 days to choose representatives, on the basis of the existing electoral constituencies and under the supervision of the OAU, the Arab League, and the European Union.

• The elected representatives should then choose an executive head of the island to lead the transitional period.

• Finally, the political parties represented in the chambers of representatives should form a consensus government which would be charged with putting in place the constitutions of the islands and of the republic.

The issue of the Comorian crisis was discussed at length during the 72nd ordinary session of the OAU council of ministers and the 36th ordinary session of African heads of state and government in Lomé. The council expressed its concern over the intransigence of the Anjouan separatists. It urged the heads of state to approve their earlier proposal to take military measures against the separatists and called on countries in the region, under the co-ordination of South Africa and in close consultation with the OAU secretariat, to take measures geared towards this goal. The council called on all OAU members to support Comoros’ neighbours in the implementation of the measures. The council also expressed its concern about the lack of significant progress in returning Comoros to constitutional, civilian rule, in conformity with last year’s Algiers summit decisions on the military coup.

At the summit level, the OAU reiterated its commitment to Comorian unity and territorial integrity. On the recommendation of the troika of countries (led by South Africa) spearheading the OAU’s initiative and of other countries in the region, it approved the proposal of the council of ministers aimed at ending the Anjouan separatist crisis, notably the military measures whose modalities are to be determined by neighbouring countries and the troika. The summit also voiced its support for regional and OAU efforts to restore constitutional order in Comoros.

The military option The OAU has to be circumspect in its dealings with Colonel Assoumane as it will need his co-operation in any military venture it plans to launch on Anjouan. A decision on when and how to invade Anjouan will probably be taken in September during the OAU council of ministers meeting in Lomé. Its uncompromising attitude towards the island’s secession has emboldened those Anjouanese opposed to secession. With the hardships that they encounter in their daily life, many Anjouanese have now abandoned the hard-line secessionist leader Colonel Abeid. They now realise that separatism has no future, that there is no chance for their island to forge a union with France and that independence is out of the question, either in the short or long term. Franscisco Madeira’s OAU delegation did not have much success with the Anjouanese separatists.

French mediation fails The new French ambassador to Moroni, Jean-Pierre Lajaunie, tried to act as a broker between the separatists and the OAU delegation at a meeting in Fomboni, Mohéli, on June 28th.However, he failed to convince the separatists to sign the Antananarivo agreement. Despite assurances by Mr Madeira and his team that certain amendments proposed by the Anjouan secessionists would be taken into account in an addendum to the agreement, Colonel Abeid and his delegation refused to sign it. They also boycotted an OAU luncheon. This failure is believed to have convinced France, hitherto an advocate of dialogue

rather than the use of force, that military intervention is the only way to bring the secession to an end. During the discussions in Fomboni, the separatists’ delegation put forward fresh demands, including the lifting of the embargo on their island, a general amnesty, and the payment of government arrears accruing to Anjouanese over the past three years. In return, they promised only to consult the Anjouan island parliamentary assembly about signing the Antananarivo agreement. However, when the assembly later met in Mutsamudu its members refused to sign the agreement.

Economic policy and the domestic economy

Revenue collection is The economic situation has continued to worsen. Comoros’ economy during in crisis 1998-99 registered negative per capita growth, according to an IMF aide- mémoire prepared earlier this year. The trend is likely to continue in the immediate future, with domestic revenue stagnating and government efforts to cut expenditure on public sector wages continuing to be ineffective. Fiscal problems are also likely to increase, leading to an accumulation of large arrears in domestic and foreign payments. With only 12% of external debt paid in 1998 and 1999, the outlook for economic growth this year remains very poor.

The salaries of public service employees are four months in arrears. According to the IMF, the main cause of the Comoros’ budgetary problems is the large wages bill, which in 1999 was twice that of collected revenue. The low levels of revenue collection, and non-payment of salaries contributed to the collapse of the government’s anti-corruption drive. Expenditure on goods and services increased by 58% last year and is expected to rise by 8% this year. The Fund believes that some Cfr1.2bn could be cut from goods and services expenditure without affecting essential expenditure on health and education. The IMF recommends that the government should reduce the number of tax exemptions it allows. According to the IMF’s aide-mémoire, Comoros needs to improve its budget management and supervision. One way of doing this would be to set up an evaluation committee in the Ministry of Finance. The government could also bring in modern data processing for administrative purposes in the Treasury and the customs department. It also recommends that all state revenue and expenditure should pass through the Treasury. The IMF is willing to supply technical assistance from its fiscal affairs department, should this be asked for by the government.

Comoros is advised to The IMF has advised the Comorian government to contact its creditors and consult its creditors begin talks on regularising it debt servicing, which shows arrears of Cfr10.7bn.

Donor support The World Bank continues to advise the Comorian government on its 18- month transitional support strategy (TSS). The board is expected to approve the TSS in late 2000. However, the Bank regards the Anjouan crisis as a major problem to be resolved before it can consider longer-term measures to follow the TSS.

The French development agency, Agence française de développement (AFD), has made grants totalling ¤2.8m for three projects in Comoros. A grant of ¤1.3m will cover the Comoros’ contribution to the Sub-Saharan Economic and Statistical Observatory. A grant of ¤400,000 is to fund a feasibility study of projects eligible for AFD support. ¤1.1m goes to a community-based credit and savings union.