COUNTRY REPORT

Tanzania Comoros At a glance: 2001-02

OVERVIEW The ruling Chama Cha Mapinduzi (CCM) party was victorious in the mainland presidential and parliamentary elections held on October 29th. Voting was judged to have been peaceful and fair. However, the Zanzibar poll was chaotic, so much so that voting was annulled in 16 of the 50 constituencies. The Zanzibar Electoral Commission refused to rerun the entire election, but announced new voting in the 16 constituencies. Anti- government demonstrators clashed with riot police following the decision not to rerun the entire election, and opposition parties refused to participate in the partial rerun. Substantial real GDP growth is forecast during the outlook period, driven by strong growth in agriculture and expansion in the mining, manufacturing and tourism sectors. Exports and imports are both set to rise during the forecast period, with the current-account deficit narrowing between 2001 and 2002. Inflation is predicted to continue its downward trend. Key changes from last month Political outlook • The prospect of further violence is likely, as Zanzibar awaits the rerun of voting in the 16 constituencies where polling was annulled. Economic policy outlook • Economic policy continues to be led by the IMF poverty reduction and growth facility. Further privatisation of parastatals and other measures of liberalisation are envisaged, as are measures to attract foreign direct investment, particularly to the mining and minerals sectors. Economic forecast • Real GDP is forecast to grow by 5.7% in 2001, increasing to 6.3% in 2002. • Inflation will continue to fall, averaging 5.5% in 2001, declining to 5% in 2002. • The current-account deficit will be US$595m in 2001 and US$440m in November2002, equivalent 2000 to 7% of GDP and 5% of GDP, respectively.

The Economist Intelligence Unit 15 Regent St, London SW1Y 4LR United Kingdom The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For over 50 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. The EIU delivers its information in four ways: through our digital portfolio, where our latest analysis is updated daily; through printed subscription products ranging from newsletters to annual reference works; through research reports; and by organising conferences and roundtables. The firm is a member of The Economist Group.

London New York Hong Kong The Economist Intelligence Unit The Economist Intelligence Unit The Economist Intelligence Unit 15 Regent St The Economist Building 25/F, Dah Sing Financial Centre London 111 West 57th Street 108 Gloucester Road SW1Y 4LR New York Wanchai United Kingdom NY 10019, US Hong Kong Tel: (44.20) 7830 1000 Tel: (1.212) 554 0600 Tel: (852) 2802 7288 Fax: (44.20) 7499 9767 Fax: (1.212) 586 1181/2 Fax: (852) 2802 7638 E-mail: [email protected] E-mail: [email protected] E-mail: [email protected]

Website: http://www.eiu.com

Electronic delivery This publication can be viewed by subscribing online at http://store.eiu.com Reports are also available in various other electronic formats, such as CD-ROM, Lotus Notes, online databases and as direct feeds to corporate intranets. For further information, please contact your nearest Economist Intelligence Unit office London: Jan Frost Tel: (44.20) 7830 1183 Fax: (44.20) 7830 1023 New York: Dante Cantu Tel: (1.212) 554 0643 Fax: (1.212) 586 1181 Hong Kong: Amy Ha Tel: (852) 2802 7288/2585 3888 Fax: (852) 2802 7720/7638

Copyright © 2000 The Economist Intelligence Unit Limited. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of The Economist Intelligence Unit Limited. All information in this report is verified to the best of the author's and the publisher's ability. However, the EIU does not accept responsibility for any loss arising from reliance on it.

ISSN 0969-6776

Symbols for tables “n/a” means not available; “–” means not applicable

Printed and distributed by Redhouse Press Ltd, Unit 151, Dartford Trade Park, Dartford, Kent DA1 1QB, UK 1

Contents

3 Summary

Tanzania

5 Political structure 6 Economic structure 6 Annual indicators 7 Quarterly indicators 8 Outlook for 2001-02 8 Political outlook 9 Economic policy outlook 10 Economic forecast 12 The political scene 17 Economic policy 18 The domestic economy 18 Economic trends 18 Agriculture 20 Energy and industry 21 Mining 22 Transport and infrastructure 23 Financial services 24 Foreign trade and payments

Comoros

26 Political structure 27 Economic structure 27 Annual indicators 28 Quarterly indicators 29 Outlook for 2001-02 29 Political outlook 30 The political scene 33 Economic policy and the domestic economy 36 Foreign trade and payments

List of tables

10 Tanzania: international assumptions summary 11 Tanzania: forecast summary 13 Tanzania: election candidates and parties, 2000 34 Comoros: selected economic indicators

EIU Country Report November 2000 © The Economist Intelligence Unit Limited 2000 2

34 Comoros: gross domestic product by sector 35 Comoros: public finances 36 Comoros: balance of payments 37 Comoros: value of principal exports 37 Comoros: value of principal imports

List of figures

12 Tanzania: gross domestic product 12 Tanzania: Tanzanian shilling real exchange rates 19 Tanzania: tea production 20 Tanzania: six offshore oil license areas 21 Tanzania: cashew nut production 21 Tanzania: gold production 25 Tanzania: tourist arrivals 28 Comoros: foreign trade 28 Comoros: foreign reserves 30 Comoros: gross domestic product 30 Comoros: Comorian franc real exchange rates

EIU Country Report November 2000 © The Economist Intelligence Unit Limited 2000 3

Summary

November 2000

Tanzania

Outlook for 2001-02 As predicted, the ruling Chama Cha Mapinduzi (CCM) party won landslide victories in the presidential and parliamentary elections on mainland Tanzania. However, chaos in the Zanzibar elections, and the subsequent annulment of voting in 16 constituencies, poses a serious threat to governance of the island. The president, Benjamin Mkapa, announced a rerun of the election in the 16 constituencies, but the Civic United Front (CUF) opposition called for the entire poll to be carried out again, and stated that it would boycott any partial rerun on Zanzibar. It is highly unlikely that the CUF will accept the result of the rerun poll, and political violence is a strong possibility.

Real GDP growth is forecast to be 5.7% in 2001 and 6.3% in 2002, driven by strong agricultural performance, increased gold production and investment in tourism and gas production. Inflation will continue falling and is forecast at 5.5% in 2001 and 5% in 2002. Exports and imports will grow during the outlook period and the trade account will remain in deficit. The current- account deficit is forecast at US$595 in 2001 and US$440 in 2002. The stability of the Tanzanian shilling will be buoyed by strong donor inflows and increased exports during 2001, but will depreciate at a faster rate in 2002 as the currency becomes increasingly overvalued. The EIU forecasts an annual average of TSh841:US$1 in 2001 and TSh901:US$1 in 2002.

The political scene Mr Mkapa’s reaction to the Zanzibar crisis may well be the defining feature of his second term in office, establishing him either as a creditable leader or as little more than a “lame duck”. After the rerunning of the elections in the 16 annulled constituencies, and the subsequent victory of the CCM candidate, Amani Karume, opposition parties stated that they would recognise neither Mr Mkapa’s nor Mr Karume’s presidency, and diplomats from the international community boycotted Mr Karume’s inauguration ceremony. Violent protests, perhaps to the point where Zanzibar becomes ungovernable, present a significant risk for the future.

Economic policy Economic policy during the outlook period will be driven by the country’s commitments under the IMF’s poverty reduction and growth facility. The government is also keen to boost the already high levels of foreign direct investment, particularly in the mineral and fossil fuel sectors. Measures to encourage investment include attractive licensing terms and the absence of “signature bonus” payments for investors.

The domestic economy The Tanzanian economy has experienced relatively strong real GDP growth during 2000 and this is set to continue during the outlook period. GDP growth is forecast at 5.7% in 2001, increasing to 6.3% in 2002.

EIU Country Report November 2000 © The Economist Intelligence Unit Limited 2000 4

Foreign trade and Exports are set to rise over the forecast period because of a recovery in trad- payments itional commodity exports, particularly coffee and cotton. Strong GDP growth will lead to an increase in imports. The current-account deficit is predicted to be US$595 in 2001, narrowing to US$440 in 2002.

Comoros

Outlook for 2001-02 Colonel Azali Assoumane, the country’s military leader, and Colonel Said Abed, its secessionist leader, both face mounting opposition to their signing—on August 26th—of the Fomboni accord. The accord proposes a new confederal entity, sharing a common defence and foreign policy, and the establishment of a joint committee to develop a new constitution and the structure of new federal institutions, to be put to referendum by February 2002. Opponents of the accord have suffered severe penalties. The Organisation of African Unity has signalled its disapproval of the accord and has urged the international community to avoid supporting the agreement.

Economic policy and the Following a two-year suspension owing to government disruption and political economy turmoil, the IMF concluded Article IV Consultations with Comoros in July. The IMF noted that the Comoran economy has remained weak, and pointed to weakness in the implementation of macroeconomic and structural policies, together with a deteriorating external environment, as the cause.

Editors: John Arthur (editor); Douglas Mason (consulting editor) Editorial closing date: November 7th 2000 All queries: Tel: (44.20) 7830 1007 E-mail: [email protected] Next report: Full schedule on www.eiu.com/schedule

EIU Country Report November 2000 © The Economist Intelligence Unit Limited 2000 Tanzania 5

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 2000 (legislative and presidential); next elections due in October 2005 (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

EIU Country Report November 2000 © The Economist Intelligence Unit Limited 2000 6 Tanzania

Economic structure

Annual indicators

1996a 1997a 1998a 1999a 2000b GDP at market prices (TSh bn) 3,394.1 4,210.8 5,112.6 5,759.1 6,417.7 GDP (US$ bn) 5.9 6.9 7.7 7.7 8.0 Real GDP growth (%) 4.3 4.0 3.5 4.7 5.2 Consumer price inflation (av; %) 21.0 16.0 12.8 7.9 6.0 Population (m) 30.5 31.3 32.1 33.0 33.9 Exports of goods fob (US$ m) 764.1 715.3 589.5 551.4 937.0 Imports of goods fob (US$ m) 1,213.1 1,164.5 1,365.3 1,419.0 1,568.0 Current-account balance (US$ m) –510.8 –629.8 –956.4 –900.6 –541.0 Foreign-exchange reserves excl gold (US$ m) 440.1 622.1 599.2 775.5 685.0 Total external debt (US$ bn) 7.4 7.1 7.6 7.0 6.8 Debt-service ratio, paid (%) 19.1 13.2 20.8 24.1 12.5 Exchange rate (av) TSh:US$ 580.0 612.1 664.7 744.8 800.9

November 3rd 2000 Tsh800: US$1

Origins of gross domestic product 1998c % of total Components of gross domestic product 1997c % of total Agriculture, forestry & fishing 49.1 Private consumption 83.0 Mining 2.0 Government consumption 7.6 Manufacturing 8.4 Gross fixed capital formation 18.0 Construction & utilities 6.9 Increase in stocks 0.2 Trade & hotels 15.9 Exports of goods & non-factor services 16.2 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 1998d US$ m Principal imports 1998d 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 1998d % of total Main origins of imports 1998d % 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 Actual. b EIU estimates.c Sourced to IMF and Tanzanian authorities. d Bank of Tanzania estimates.

EIU Country Report November 2000 © The Economist Intelligence Unit Limited 2000 Tanzania 7

Quarterly indicators

1998 1999 2000 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr Government finance (Tsh bn) Revenue & grants 181.59 217.76 185.05 274.88 186.38 257.48 229.45 n/a Expenditure 139.39 154.18 192.15 330.99 258.35 227.79 239.33 n/a Adjustment –10.07 –42.64 3.83 30.74 –12.03 1.92 –4.02 n/a Balance 32.13 20.94 –3.28 –25.37 –84.00 31.62 13.90 n/a Prices Consumer prices (1995=100) 155.6 158.6 173.7 173.1 167.2 169.7 184.7 183.4 % change, year on year 12.3 11.9 8.9 8.2 7.5 7.0 6.3 6.0 Financial indicators Exchange rate TSh:US$ (av) 668.78 676.47 687.23 707.62 786.79 797.38 800.02 799.63 TSh:US$ (end-period) 675.82 681.00 694.00 737.00 797.90 797.33 800.50 799.54 Interest rates (%) Deposit (av) 7.74 8.12 7.98 7.76 7.34 7.92 8.57 8.53 Discount (end-period) 19.20 17.60 15.20 12.20 18.00 20.20 20.10 13.10 Lending (av) 26.00 30.00 30.00 30.00 30.00 29.33 28.50 27.67 Treasury bill (av) 13.19 12.13 8.26 6.42 10.52 15.00 15.13 10.90 M1 (end-period; TSh bn) 503.29 545.52 511.04 508.99 548.92 632.58 578.50 601.23 % change, year on year 5.8 10.5 5.3 5.7 9.1 16.0 13.2 18.1 M2 (end-period; TSh bn) 966 1,026 1,021 1,035 1,120 1,218 1,203 1,259 % change, year on year 6.9 10.8 10.5 9.2 15.9 18.6 17.8 21.7 Sectoral trends Productiona (annual totals; ‘000 tonnes) C o f f e e ( 3 8 . 0 ) ( 4 6 . 6 ) ( 5 0 . 0 b ) Seed cotton ( 118.0 ) ( 104.9 ) ( 104.9b ) Cotton, lint ( 39.5 ) ( 31.5b ) ( n / a ) S i s a l ( 1 5 . 0 ) ( 2 4 . 0 ) ( 2 4 . 0 b ) Foreign trade (TSh m) Exports fob 90,350 155,547 81,309 54,425 77,789 197,104 139,109 100,995 Imports cif –260,595 –239,718 –272,513 –280,614 –344,814 –322,131 –286,298 –312,615 Trade balance ––170,245 84,171 –191,204 –226,189 –270,515 –125,027 –147,189 –211,620 Foreign reserves (US$ m) Reserves excl gold (end-period) 556.0 599.2 631.5 604.6 666.6 775.5 761.0 745.3 a Crop year, ending year shown. b Provisional.

Sources: UN Food and Agriculture Organisation; Bank of Tanzania, Economic Bulletin; IMF, International Financial Statistics.

EIU Country Report November 2000 © The Economist Intelligence Unit Limited 2000 8 Tanzania

Outlook for 2001-02

Political outlook

Domestic politics With the ruling Chama Cha Mapinduzi (CCM) having won easily in the recent presidential and parliamentary elections on the mainland, the domestic political situation in the short term will continue to be dominated by the volatile situation in Zanzibar. The unrest is unlikely to die away in the immediate future and will test Mr Mkapa’s presidency.

The recent vote on the island was largely condemned as a farce by the opposition and by international observers. Polling was annulled in 16 constituencies after serious irregularities were discovered, and it appeared that the only way to restore some sort of stability would be a complete rerun of the vote. However, the Zanzibar Electoral Commission chose instead to hold a partial rerun in the 16 constituencies where the vote had been suspended. Amani Karume, the CCM candidate, was declared the victor and sworn in as president on November 7th. In a conciliatory acceptance speech Mr Karume announced a pardon for all those held by the police in connection with the election campaign, and called for a swift verdict in the treason trial in the hopes that it would “bring peace and solidarity to Zanzibar”.

The CUF opposition has already stated that it will not recognise the result of a partly rerun election, and international donors are unlikely to be any more accepting. Two main possibilities for the future of the Zanzibar have arisen;

• Violent protests are triggered as the opposition attempts to reverse the outcome of the poll, with the very real prospect of a total breakdown of governance on the islands; and

• Mr Karume forms a government of national unity, ceding important ministerial positions to members of the opposition and making concessions towards greater autonomy for the islands.

At present it is too early to say which path Mr Karume will take. However, given the pressing need for donor support on Zanzibar, the great risk of massive civil disorder, and the conciliatory tone of his acceptance speech, a government of national unity would appear to be the likelier of the two choices.

The opposition parties are divided and largely discredited, and it is hard to see where real political opposition to the CCM will come from on the mainland. It is possible that those sections of the CCM which were de-selected in the run-up to the election may break away and challenge the party. Another is that the growing Muslim population, which is becoming increasingly isolated— especially in terms of educational opportunities—may produce an effective opposition; Jakaya Kikwete, minister of foreign affairs in the previous government, may begin to emerge in 2002 as front-runner for the leadership, given that he is a Muslim and also appeals to younger and women voters.

International relations 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

EIU Country Report November 2000 © The Economist Intelligence Unit Limited 2000 Tanzania 9

in recent years. However, the conflict is also a major problem for the government, with an estimated 320,000 refugees—having originally fled the civil war in Burundi—now living in displaced persons’ camps in western Tanzania. Concern about this influx has driven the government’s involvement in peace talks on the Burundian conflict.

Talks held in Arusha, Tanzania, and mediated by the former South African president, Nelson Mandela, took an important step forward in September when most of the warring parties in Burundi signed a ceasefire. However, two rebel groups did not sign the agreement, and the establishment of lasting peace is still some way off. Tanzania is now set to assume a new central role as outside parties look to it to pressure the rebels, who regard Tanzania as their traditional protector, to sign a ceasefire and join the peace process.

Economic policy outlook

Policy trends The Tanzanian government has made considerable progress towards achieving macroeconomic stability in recent years. With inflation now firmly under control, attention will focus on establishing a credible fiscal policy.

Tanzania’s broader economic policy orientation during the 2001-02 period will be led by the poverty reduction and growth facility (PRGF) agreed with the IMF in April 2000. The main goal of the PRGF is to create a favourable macroeconomic climate for achieving GDP growth rates of at least 6% per annum, which, coupled with increased spending in the social-services sector, should allow the country to reduce poverty significantly.

The Tanzanian government has shown increasing willingness to agree to much-needed structural reforms in recent years, but concerns exist regarding its ability to implement them. The government has a limited capacity to push through reforms, and it is not clear whether the civil service is entirely committed to the reform process. There is also some public opposition to the privatisation and liberalisation of the economy. In addition, many of the easier reforms have now been completed, so those that remain are more complex and may not produce results quickly. This is most apparent in the privatisation process, which will now slow because only the more important parastatals remain to be sold. Some slowing may also be apparent in civil-service reforms. However, Tanzania is increasingly receiving support for its reform programme from the international donor community, and aid levels are likely to rise significantly in the next few years.

Fiscal policy Despite introducing various tax reforms in recent years, Tanzania continues to suffer from substantial fiscal deficits and a low fiscal-revenue-to-GDP ratio. Taxes are already relatively high, so increasing revenue will have to come from better tax administration and a broadening of the tax base. The situation will be helped by the significant increase in petroleum revenue forecast to occur within the next 12-18 months, especially as the government extends value added tax (VAT) to its own purchases of fuel.

EIU Country Report November 2000 © The Economist Intelligence Unit Limited 2000 10 Tanzania

Recent reductions in the fiscal deficit are largely the result of the introduction of a cash budgeting system which has imposed tight spending constraints on ministries. This may ease in coming years as the government develops a medium-term expenditure framework. However, the deficit will remain substantial, though it will be met easily by projected increases in donor inflows over the forecast period.

Economic forecast

International assumptions Although global economic growth is forecast to slow to 4.2% in 2001 (at PPP exchange rates), it will remain on a par with growth in the years immediately preceding the emerging markets crisis of 1998. Much of the global slowdown will be caused by a weakening of the economy in the US (and to a lesser extent in the euro zone). The EIU expects world growth in 2002 to be similar to that achieved in 2001, as further moderation in the US will be offset by a slight improvement in Japan and the emerging economies.

The current global economic upturn has had a mixed impact on commodity prices. Generally, beverage prices have tended to decline, while metals prices (with the exception of gold) have been rising. In Tanzania coffee prices have fallen substantially in 2000. Tea prices have also decreased, but not as much as prices for the other main beverage crops, coffee and cocoa. However, it now appears that the fall in prices has bottomed out, and beverage prices should recover towards 2002. Cotton prices have remained more stable and will also improve into 2002. With oil prices beginning to fall back there will be a gradual improvement in the external environment facing Tanzania.

Tanzania: international assumptions summary (% unless otherwise indicated) 1999 2000 2001 2002 GDP growth World 3.5 4.9 4.2 4.1 OECD 2.9 4.1 3.1 2.7 EU 2.3 3.5 3.0 2.6 Exchange rates (av) US$ effective (1995=100) 116.4 120.0 117.8 111.8 US$:SDR 1.37 1.30 1.29 1.35 Financial indicators ¥ 2-month private bill rate 0.3 0.2 0.4 1.0 US$ 3-month commercial paper rate 5.2 6.4 6.6 5.3 Commodity prices Oil (Brent; US$/b) 17.9 29.1 25.4 19.1 Gold (US$/troy oz) 278.8 283.2 275.0 270.0 Cotton (US$/lb) 0.53 0.59 0.68 0.75 Coffee (US$/lb) 0.68 0.45 0.37 0.34 Food, feedstuffs & beverages (% change in US$ terms) –18.6 –6.1 4.2 10.1 Industrial raw materials (% change in US$ terms) –4.3 14.9 8.7 2.3

Note. Regional aggregate GDP growth rates weighted using purchasing power parity (PPP) rates.

EIU Country Report November 2000 © The Economist Intelligence Unit Limited 2000 Tanzania 11

Real GDP growth is forecast to accelerate gradually over the outlook period, Economic growth rising from 5.2% in 2000 to 5.7% in 2001, and to 6.3% in 2002. Assuming continued favourable weather, growth in the agricultural sector is predicted to continue, with commodity export volumes expected to rise by about 12% per year during the forecast period. Growth outside the agricultural sector will be driven by increased gold production and by increased foreign direct investment, especially in the mining sector. It should also be supported by rising non-traditional agricultural exports and increased tourism revenue. Because of the state of decline in rural areas, the economy will take some time to overcome severe structural impediments despite the relatively high growth rates predicted.

Tanzania: forecast summary (% unless otherwise indicated) 1999a 2000a 2001b 2002b Real GDP growth 4.7 5.2 5.7 6.3 Gross agricultural growth 4.5 5.0 5.8 6.7 Consumer price inflation Average 7.9 c 6.0 5.5 5.0 Year-end 10.0 3.6 5.2 2.7 Short-term interbank rate 29.8 c 17.5 16.5 14.0 Government balance (% of GDP) 0.7 0.1 –0.4 –0.5 Exports of goods fob (US$ bn) 0.6 0.9 1.1 1.4 Imports of goods fob (US$ bn) 1.4 1.6 1.7 1.9 Current-account balance (US$ bn) –0.9 –0.5 –0.6 –0.4 % of GDP –11.6 –7.0 –7.0 –5.0 External debt (year-end; US$ bn) 7.0b 6.8 4.9 3.2 Exchange rates TSh:US$ (av) 744.8 c 800.9 840.9 901.5 TSh:¥100 (av) 653.8 778.1 865.4 935.3 TSh: ¤ (year-end)d 801.0 765.4 944.4 1,073.7 TSh:SDR (year-end) 1,094.3 1,076.7 1,244.9 1,357.0

a EIU estimates. b EIU forecasts. c Actual. d Ecu before 1999.

Inflation The inflation rate has fallen sharply in recent years, and it now appears that it will remain low during the outlook period. The recent downward trend in inflation was largely the result of improved food supplies, which moderated price rises. Fears that food shortages—caused by the failure in seasonal rains in some regions of the country—might exert inflationary pressures now appear to have been unfounded. However, the recent substantial increases in world oil prices, and the possibility of further adverse weather conditions, may well have a strong influence on the overall price level and slow the rate of decline in inflation over the coming months. We forecast that inflation will average 5.5% in 2001 and 5% in 2002.

Exchange rates The depreciation of the Tanzanian shilling against the US dollar looks set to continue during the forecast period. However, the predicted growth in exports and strong aid inflows will ensure that the decline is relatively gradual. The shilling is forecast to average TSh841:US$1 in 2001 and TSh901:US$1 in 2002. However, the currency will remain vulnerable to

EIU Country Report November 2000 © The Economist Intelligence Unit Limited 2000 12 Tanzania

further downward pressure, especially if the modest recoveries in the prices of export commodities are reversed or if there is disagreement with donors over the pace of economic reform.

External sector Exports are set to rise strongly over the forecast period owing to the recovery in traditional commodity exports, particularly coffee and cotton, from the current lows. This will be supported by increased gold production and rising non- traditional exports.

Exports are forecast to reach US$1,050m in 2001, rising to US$1,350m in 2002. The strong GDP growth will lead to rising imports over the forecast period, up to US$1,568m in 2001 and US$1,700m in 2002. The resulting trade deficit will be US$650m in 2001, narrowing to US$500m in 2002. Growing tourism revenue and increased transfers are forecast to lead to a fall in the invisible trade deficit, with the result that the current-account deficit will be US$595m in 2001, narrowing to US$440m in 2002, equivalent to 7% and 5% of GDP, respectively.

The political scene

The election campaign on The election campaign leading to the October 29th presidential and the mainland is uneventful parliamentary vote was a rather sedate affair on the mainland. Owing to a widespread lack of interest in the opposition parties—who are largely discredited and have no real support base—it was clear from an early stage that the main challenge to the ruling Chama Cha Mapinduzi party (CCM) would be voter apathy. The party did not produce a particularly lively campaign, but chose to highlight political problems in the countries surrounding Tanzania, including Zanzibar, and contrast them with the relative stability of Tanzania’s own nascent democracy. The government also highlighted its own economic success and argued that the reform process was only just beginning to show signs of progress, which would come through strongly in the next term if the electorate continued to give their support.

EIU Country Report November 2000 © The Economist Intelligence Unit Limited 2000 Tanzania 13

It was clear that the government had thought about its campaign, and it made an important pre-emptive strike against potential criticism of corruption and nepotism by removing a large number of incumbent members of parliament (MPs) from its list of candidates. In total 40 MPs, including some minor ministers and deputy ministers, were dropped by the National Executive Committee following its meeting on August 12th in Dodoma (for example the minister and deputy minister for water, the minister of state and the minister of state for planning—both in the president's office—and the deputy minister of regional administration). In a nationwide address following the announcement of the party’s list of candidates, the president stressed that the CCM was a broad party, dedicated to every citizen and placing the welfare of society as a whole before individual benefit. These removals cannot be seen as a major attempt to root out corruption in the party, but they were a start, and helped to convince some of the electorate that the CCM is moving forward on this issue.

The opposition is weak Unable to offer a detailed and realistic response to the government, and with no and divided real alternative economic programme to offer, the opposition was always likely to face an uphill battle during the election campaign. The struggle was compounded by the government’s overwhelming dominance of the mass media and ongoing low-level harassment of the opposition by the police and security forces. However, it cannot be denied that at times the opposition parties were their own worst enemies, and squabbling within the parties convinced many voters that those in opposition were interested in furthering their own personal goals rather than acting on behalf of the nation. As a result, the vote for the opposition parties faded away substantially from the level reached in the first multiparty election, and there is concern that democracy in Tanzania has taken a major step backwards because the CCM now appears to hold nearly as much power as it did when Tanzania was a one-party state.

Tanzania: election candidates and parties, 2000

Presidential (and party) Mainland Zanzibar John Cheyo (UDP) Aman Karume (CCM) Professor Ibrahim Lipumba (CUF) Seif Hamad (CUF) Benjamin Mkapa (CCM) Abbas Sum (TLP) Augustine Mrema (TLP) Parliamentary Mainland Zanzibar Chama Cha Mapinduzi (CCM) Chama Cha Mapinduzi (CCM) Chama Cha Demokrasia na Maendelo (CHADEMA) Civic United Front (CUF) Civic United Front (CUF) NCCR-Mageuzi NCCR-Mageuzi Tanzanian Labour Party (TLP) Tanzanian Labour Party (TLP) United Democratic Party (UDP)

Parties which are registered but were inactive during the campaign include: The National League for Democracy (NLD); National Reconstruction Alliance (NRA); Popular Political Party (PONA); Tanzanian Democratic Alliance (TDA); The Tanzanian People’s Party (TPP); United People’s Democratic Party (UPDP); and Union for Multiparty Democracy (UMD).

Source: National Electoral Commission.

EIU Country Report November 2000 © The Economist Intelligence Unit Limited 2000 14 Tanzania

The election climate

The 2000 elections on the mainland can be seen as a marked improvement of those held in 1995. Not only were they better organised, but they were also much more free. In addition, multiparty democracy has had time to put down roots, if only to a limited extent. However, there are still some very worrying developments:

• The current funding system, which supports only those parties which have won representation in parliament, needs to be reviewed. There are 13 fully registered parties in Tanzania, but only six of them were active in the election campaign. This largely reflects the parties’ generally precarious financial situation, and any new party, unless it has a wealthy backer, will face similar problems.

• The CCM continues to enjoy greater access to the press and media than the opposition. However, media coverage was more objective in these elections, and the Election 2000 media monitoring project reported that coverage was more balanced as the election campaign progressed.

• The police were less obstructive than they had been during the previous election, but they were still heavy-handed. Serious incidents included the firing of tear gas at Civic United Front (CUF) supporters at a rally in Dar-Es-Salaam in mid-September, and the arrest of 30 CUF members in Dar-Es-Salaam on October 30th. Other prominent opposition leaders also spent time in jail, usually on relatively spurious charges of inciting unrest, although most were released.

• The opposition faced ongoing low-level harassment, such as CCM businessmen refusing to sell them petrol for campaign vehicles or denying them hotel rooms. Similarly, local authorities made hiring local halls and stadia for rallies difficult.

The political climate in In contrast, the real political developments occurred on the island of Zanzibar. Zanzibar is extremely tense From a relatively early stage in the election process the CUF was determined to challenge the CCM. In early August the CUF took the first step of nominating five members—already under arrest as part of the ongoing treason trial—as parliamentary candidates, even though at that stage it was not clear whether they would be able to register as electors, a pre-requisite for standing as a candidate. In mid-August the Zanzibar police used violence to break up clashes between members of the CCM and CUF at Amani, after the CUF national chairman, Professor Ibrahim Lipumba, gave a press conference in Dar-Es-Salaam at which he claimed 126 members of the CUF had been detained by the police. CUF members were also reported to have slept in voter registration centres, on the grounds that this was the only way they could ensure that the registration process was not being violated. By the end of August the leader of the CUF, Seif Hamad, and his deputy, Shaban Mloo, were warning that there would be violence at the elections because of irregularities in the registration process.

Troops are deployed and a In response to the escalating violence, the authorities imposed a curfew on the curfew is imposed island, and on August 15th the Department of Defence and the National Defence Forces issued a statement outlining arrangements to send 3,000 troops

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

from the Tanzanian People’s Defence Force (TPDF) to the island to guarantee security and peace and to safeguard lives and property.

Amid the growing violence, internal rifts within the CUF and CCM also came to the fore. In the case of the CCM, division arose because the incumbent president, Salmin Amour, increasingly found himself at odds with his own ministers, most notably his finance minister, Fatma Salum Ali. However, it was widely believed that Mr Amour refrained from sacking her to promote party unity in the run-up to the poll and also because of concern that, if dismissed, she would reveal damaging information about the party’s finances. In the CUF, the split seemed to be more one of political opportunism, with Naila Jidawi (an expelled but still registered member of the CUF) initially announcing that she would be the presidential candidate for the National Convention for Construction and Change-Reform (NNCR-Mageuzi), before this was overturned by the chairman of the Zanzibar Electoral Commission, Adb al-Rahman Jumbe, on the grounds that Mrs Jidawi was already registered as a member of the CUF and not the NCCR-Mageuzi.

In late August the Zanzibar government announced that it would not be allowing EU election monitors, who were already in mainland Tanzania, on to the island. The move was really little more than a fit of pique on the part of Salmin Amour, following EU criticism of his government—particularly of the ongoing treason trial—and because the EU led the suspension of international aid to the island after the previous vote. However, the government announced that a team of Commonwealth observers would be allowed on the island to monitor the vote.

Zanzibar poll descends Tension continued to build during September and October, and with numerous into chaos outbreaks of violence despite the presence of the army, violence in the election seemed likely. It became an absolute certainty when voting, on Sunday 29th October, descended quickly into chaos. Officials failed to deliver voting forms to several polling stations until three hours after the official opening time. As a result, on Monday 30th October the Zanzibar Electoral Commission announced a rerun of the vote in 16 constituencies of the Western Urban Region, where irregularities had led to the vote being annulled and the indefinite extension of Salmin Amour’s presidency until a new poll could be organised. This was seen widely as an attempt by the CCM to cling to power, and, unsurprisingly, riots flared throughout the island and were only put down with considerable violence by the police and the army.

The Commonwealth observer team, led by Gaositwe Chiepe, a former minister of foreign affairs for Botswana, described the polls as shambolic and noted that the CCM was leading the island further into turmoil. The team stated that, “in many places last Sunday’s elections were a complete shambles. The cause is either massive incompetence or a deliberate attempt to wreck at least part of this election” and “on the evidence of polling day, these elections should be held again in their entirety. But first, the existing election campaign machinery must be reformed from top to bottom”.

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

It is not clear how best The Zanzibar Electoral Commission held a rerun of the election in the 16 to proceed contested constituencies on November 5th, despite condemnation from the Commonwealth observers, who favoured a complete rerun of the vote, and from the leader of the CUF, Seif Hamad, who called for the Zanzibar Electoral Commission to dissolve itself and for the creation of an interim government acceptable to all parties, to govern the island until fresh elections could be held. The CCM candidate, Amani Karume, was declared the winner and sworn in as president of Zanzibar.

Prospects for the future remain, at best, unclear. Neither the opposition nor the international community is likely to accept the result, with the probable consequence of further violent protests—perhaps to the point where Zanzibar becomes ungovernable—and the continued suspension of badly needed international aid. However, Mr Karume may take a conciliatory path and establish a government of national unity, sharing power with—and making concessions to—the opposition. Mr Karume’s acceptance speech, which called for a swift resolution to the ongoing treason trial, in the interests of peace and solidarity on Zanzibar, may give a clue to his future direction.

The treason trial

In mid-August the Tanzania Court of Appeal (which was sitting in Zanzibar) denied bail to 18 members of the opposition CUF currently facing treason charges––five had hoped to use their time on bail to present their papers to the Zanzibar Electoral Commission so that they could stand as candidates in the elections. It was then announced that the trial verdict would be announced several days before the scheduled election date of October 29th. Faced with rising political violence, the court has yet to announce its verdict, but if the defendants are found guilty this will add to the current tension and may trigger violent confrontation beyond the current skirmishes.

Problem of hosting There has been a minor resurgence of problems along Tanzania’s border with refugees re-emerges Burundi and also in the various refugee camps in the country. In early September there were reports that soldiers from the Tanzanian People’s Defence Force had exchanged fire with Burundian armed rebels. The rebels had apparently been fleeing from fighting within Burundi’s Makamba Province. Then, in mid-September, hitherto unknown extremists the Revolutionary Burundi Group claimed to have planted a number of bombs in refugee camps in the north-west. The bombs were said to be set to detonate in mid-October, in an attempt to force the refugees to return to Burundi.

The government may Although the bombing threat now seems to have been a hoax, it has re- toughen its current stance emphasised the ongoing strain of hosting so many refugees, and illustrates the delicate political path which the government must tread. There are also signs that the government’s patience may be wearing thin; instead of continuing its role as a peace mediator in Burundi, the government is seeking to upgrade its military capabilities and military presence along the border with Burundi. In July the government hosted a Chinese military delegation at which the delegation leader, chief-of-staff for the South Sea Fleet, Huang Jiang, met the

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

Tanzanian chief of defence forces, General Robert Mboma, a meeting which may lead to future arms sales. The government’s general fatigue in dealing with refugee problems has also become apparent in other areas; when speaking to journalists in September, the minister of foreign affairs, Jakaya Kikwete, warned refugees from the Democratic Republic of Congo (DRC) that they should not engage in political activities while in Tanzania. It has also become apparent that the government would like to see the repatriation of around 700 Somali refugees who have been in the country since 1991.

Economic policy

Aid to Zanzibar will not be Press reports in Tanzania claimed that the World Bank and IMF would be set to resumed in the near future resume aid to Zanzibar following the October 29th elections, but a press release from the World Bank office in Dar-Es-Salaam has denied this. The Bank was engaged in technical discussions with the government on Zanzibar but would not specifically commit itself to providing funding, a stance which can only have been reinforced by the chaos surrounding the poll. Both the Bretton Woods institutions joined the general suspension of donor aid to Zanzibar in 1995 after the disputed multiparty elections.

Zanzibar government In late August the Zanzibari president, Salmin Amour, introduced plans for a announces a free port free port in Marughudhi, on the outskirts of Zanzibar city—this was apparently a snub to the mainland government, which is already concerned about smuggling from Zanzibar to the mainland (August 2000, page 20). If the plans go ahead the port would have the capacity to handle up to 30,380 containers a year, adding substantially to the current port’s capacity of 7,000-9,000 containers. It will also have a substantial container stocking yard, an all- weather goods shed and a motor vehicle yard where goods can be stored free of duty whilst awaiting re-shipping to other destinations. However, it remains far from clear whether the port will go ahead as planned. Building it would require substantial external assistance, which is unlikely to be forthcoming until the restoration of political normality on the island. In addition it is unclear whether the Zanzibar government has the constitutional right to adopt such a measure, because issues such as harbours and customs duties are supposed to be dealt with on a union level. Such concerns would also mean that many donors would require the new Zanzibar government to obtain the direct approval of the mainland government before supporting the project. As such, the announcement of the project is best seen as an attempt by Mr Amour to snub the mainland government, and it is likely to be dropped or scaled back by an incoming government.

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

The domestic economy

Economic trends

Tanzania’s dependence on rainfall was once again highlighted by the permanent secretary in the president’s office, Charles Mutalemwa, who noted that a failure of the short October-December vuli rains may have a significant impact on both agriculture and the water level in the country’s dams. With food shortages already emerging in some parts of the country and stocks in the strategic grain reserve running down, a failure in these rains may pose a problem. If the rains fail there is also the possibility that power-rationing will be introduced as water levels in the country’s various dams start to become critical. This happened most recently in 1998, and if repeated would certainly help reduce economic growth in 2000 and into 2001. An additional problem facing the government and the Tanzania Electric Supply Company is that although the Umbungo thermal power station is able to help offset the loss of hydroelectric power to Dar-Es-Salaam, it is expensive to run and is especially so with the current high oil prices.

As a result of food shortages and the running down of the strategic grain reserve, the government announced that it was extending the remission of import duty on maize, up to December 2000. This should help to ease the situation but it is also encouraging the smuggling of grain across to Kenya, which is also experiencing a drought. The Bank of Tanzania estimates that the food shortage in the country for the fiscal year 2000/01 (July-June) will be 662,000 tonnes and that the strategic grain reserve should hold stocks of 150,000 tonnes. Latest data show that the stocks held by the strategic grain reserve fell from 72,000 tonnes in June 2000 to only 63,946 tonnes in July 2000, although they were rebuilt slightly in August to reach 70,352 tonnes (this is only approximately half the target level). However, despite the food shortages in some parts of the country and the rising international oil prices, inflation has continued to fall. The year-on-year figure for August was only 5.7%, and the inflation rate has now been below 6% since May.

Corruption in Tanzania The Berlin-based organisation Transparency International (TI) stated in a recent appears to be declining report that there has been a significant improvement in the anti-corruption environment in Tanzania. In the past three years Tanzania has been ranked fourth from bottom in TI’s list of about 100 countries, but in the 2000 report the country had moved up ten places to 14th from the bottom. The improvement has been welcomed by the government, but it is hard to believe that there have been such significant gains. Instead, it probably reflects improvements in perceptions of Tanzania’s business operating environment, and the decline of more visible petty corruption.

Agriculture

Flower exports increase Tanzania’s flower exports have increased sharply in recent years. According to the customs department, exports increased from 7.8m kg in 1998 (equivalent

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

to US$1.93m) to 9.4m kg in 1999 (worth US$2.83m). However, further expan- sion is limited by the lack of international flights from Dar-es-Salaam and Kilimanjaro airports, where already limited cold-storage facilities have been out of order this year. This led to some flowers being trucked to Kenya––Kenya imported 13,480kg in 1999, worth US$2,042. However, a private charter company, MK airlines, has started flights to Europe and the recent privatisation of the Dar-es-Salaam Airport Handling Company may lead to an improvement in the cold-store handling facilities at both airports.

Vegetable exports decrease Whilst flower exports were increasing, it was reported that fruit and vegetable exports had fallen sharply in 1999. They fell from 4,597 tonnes in 1998 to only 506 tonnes in 1999, reducing export earnings from TSh374.4m to TSh44.7m. Although a report by the Ministry of Agriculture and Co-operatives argued that the decline was the result of poor packaging and transport problems, the fact remains that flower exports offer some farmers a greater return, and there is also increased domestic demand from the strong tourist industry in the Arusha-Kilimanjaro region.

The government seeks to The government is seeking to boost the tea industry in Tanzania. It has revive the tea industry announced that it will sell four of the six state-owned tea processing factories to the UK’s Commonwealth Development Corporation, and a further one to a Kenyan firm (the sixth factory is to be leased). The six factories have a total processing capacity of around 6,000 tonnes a year. The new owners will be expected to renovate the factories and to build links with local farmers to help boost supply. These links will probably take the form of the provision of inputs (such as seedlings or fertilisers), but may also include helping to develop rural infrastructure. The Tanzanian Tea Board is therefore hoping that this will boost smallholder production to around 5,000 tonnes by 2002, partly by increasing the acreage devoted to tea but more importantly by increasing yields––at 500- 1,000kg per hectare this is nearly half the level recorded in Kenya. It is estimated that in the 1998/99 (July-June) growing season total smallholder production was 1,327 tonnes, compared with the 22,227 tonnes produced on estates. Output in the 2000/01 growing season is forecast at 26,000 tonnes, compared with 24,972 tonnes recorded in the 1999/2000 growing season.

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

Energy and industry

Tanzania sells important In September the minister for energy and mineral resources, Abdallah Kigoda, geological data conducted roadshows in London and Houston at which he offered the right to tender for oil exploration in Tanzania. Although Tanzania has proven gas reserves at Songo Songo and Mnazi Bay 1, the search for oil has been disappointing in the past—wells drilled in 1996 and 1997 in the Mandawa and Ruiji regions proved to be dry. However, in 1997 Canop Tanzania (a subsidiary of Canop Worldwide) signed a production-sharing contract with the Tanzanian Petroleum Development Corporation, and has since made some limited progress in oil prospecting. It recently signed a deal with AIS Resources which will lead to the drilling of three exploration wells at Kisangerie Block, the Dar- es-Salaam Platform and Mafia Island Basin by September 2001. All three wells have been described as promising.

Although Mr Kigoda returned to Dar-Es-Salaam in a highly optimistic mood, claiming that some of the world’s largest oil companies (TotalFina-Elf, Texaco, Chevron, Sasol and ExxonMobil) were interested in drilling for oil in Tanzania, his claims should not be taken too seriously. An important aspect of his trip was that he made new data available, produced in a two-dimensional seismic survey on six license areas carried out by a US company, Western Geophysical, and the data will be purchased by various multinational oil companies as a matter of course. The real issue is whether any of these companies now approach the government with proposals to start exploration in the blocks. Despite a lack of success to date, factors working in Tanzania’s favour include the relatively welcoming licensing terms and the fact that there are no signature bonuses to be paid.

The permanent secretary at the Ministry of Energy and Minerals has announced that the dispute between the Tanzanian Electric Supply Company and the Malaysian-owned Independent Power Tanzania Limited (ITPL) is close to being settled by the International Centre for the Settlement of Investment Disputes. He claimed the dispute should be resolved by late 2000, or by early 2001 at the latest.

Measures are taken to In what is seen as a hasty and ill-judged election statement, in mid-September promote the sisal industry the government announced that cashew nuts could only be exported in Tanzanian sisal sacks from the start of the 2000/01 (October-September) growing season. This may have won votes in the Tanga region, where sisal production is in long-term decline, but it is a worrying development for cashew nut exporters, especially as cashew exports have expanded rapidly in recent years. Theoretically the scheme seems like a good way to promote domestic industry, but the main problem with it—and with similar government schemes elsewhere in Africa—is that it assumes the Tanzanian sisal industry will be able to meet the demand for its products. In practise it is likely that the sisal bags will be overpriced and delivery will be erratic. This will tend to undermine the competitiveness of cashew nut sales and may lead to the nuts having to be stored, and perhaps even rotting, until sufficient bags have been secured for them to be exported. A far better approach would be to build

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

up the competitiveness of the sisal industry, thereby enabling it to compete directly with other providers of export bags.

The government raised the issue of enacting an Indigenisation Bill (designed to promote indigenous output over imported goods) during the recent election campaign, which would then be moved in the new parliament some time in 2001. As no real details have been given it is not clear whether this was merely a policy raised while campaigning, to be quietly dropped later for such a reason as, for example, a lack of parliamentary time. However, such bills are common in African countries, and seek to ensure that certain industries and commercial businesses can only be carried out by nationals of the country. These usually include such basic trades as baking, running garages and certain retailing activities. However, such rules are open to abuse.

Mining

Gold production increases Several new gold mines will start to come into production in the next 12-24 months, which should have a significant impact on exports. Until recently most production was from the Golden Pride mine. However, production at Geita mine started in June this year, and it is now reported that production at Barrick Gold’s Bulyanhulu mine is now scheduled for April 2001 (the mine was officially opened by the president, Benjamin Mkapa, in August). Barrick has also announced that it now estimates that the mine has reserves of 10.5m oz, a 40% increase on the 7.5m oz estimated for the mine in 1999, which can be mined at an estimated cost of US$130/oz. It has also been reported that production at Geita, which has proven reserves of 12m oz, will be considerably expanded considerably during the year, with throughput of ore increasing from 4 millions tonnes/year in the second half of 2000 to 7 million tonnes/year this year.

Australia’s East African Gold Mines (EAGM) has announced that it is to develop the North Mara mine in the next 21 months. The mine is expected to produce 180,000 oz each year at a cost of US$180/oz. Twigg Gold has also announced

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

that it has discovered a "promising mineralisation" in its Miyabi concession, which is likely to move ahead quickly in coming months.

A small Australian company, Goldstream Mining, has announced that it wants to buy three prospecting areas, with the prime area likely to be the Wansisi district east of Lake Tanganyika, in order to search for platinum. The other two possible areas are just north of Lake Malawi in Southern Tanzania, and between Lake Victoria and Lake Rukwa. Given that Tanzania has diamonds and gold, it seems that Goldstream is basing its search on trends established in similar geological conditions found in South Africa, currently the world’s largest producer of platinum and palladium.

There are clashes between According to reports in the Daily Mail & Guardian newspaper in early October, Tanzanite miners 21 people were killed and more than 50 injured in clashes between Tanzanite miners in the Merelani hills in north-east Tanzania. Since then these figures have been reduced—a spokesman for the recently established Afgem Tanzanite mine said seven people had died and twelve were injured. The clashes apparently arose when some miners tried to seize Tanzanite held in Mererani village, about 5km from the Afgem mine. Afgem said its operations were unaffected by the clashes, which were reminiscent of troubles that occurred between artisanal gold miners in the Geita region before the big mining companies began operations there.

Transport and infrastructure

DAHCO is sold The government has pushed ahead with its efforts to upgrade and improve the country’s dilapidated infrastructure. The Dar-es-Salaam Airport Handling Company (DAHCO) has been turned into a private company and a 51% shareholding has been sold to Swissport, a Swissair subsidiary. The sale should improve ground handling services at Dar-es-Salaam and Kilimanjaro inter- national airports (which may also boost horticultural exports—see Agriculture), but it will have a knock-on effect on Air Tanzania. Air Tanzania previously owned 65% of DAHCO, and the income from this had helped to cross- subsidise the poor financial performance of its flight operations.

New container terminal The government has awarded a 10-year contract for the running of the operators face problems container terminal at the Dar-es-Salaam port to a consortium of three companies—two from the Philippines (International Container Terminal Services and ICTSI International Holding), and one local (Vertex Financial Services). Under the agreement, the operator will pay an annual lease of US$3.7m for the port, with a US$13 royalty for each container passing through the terminal. The agreement will last for 10 years and during this time it is forecast that the number of containers passing through the port will double from the current level of around 1,000,000 containers per annum. However, initial reports on the operation of the new company have not been complimentary, with port users complaining of considerable delays when dealing with the new company. Some are even reputed to have unfavourably compared the new operators with the old parastatal.

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

The final agreement for the Some of the problems at the container port are no doubt teething problems sale of TTCL is delayed which will be resolved in time, but they illustrate that simply winning a privatisation contract is often the easiest part of the process. This is also illustrated by the problems and delays affecting the agreed sale of Tanzania Telecommunications Company (TTCL). Tenders for the privatisation were invited in June 2000, and six companies pre-qualified, of which a joint venture between Datecom of Germany and MSI of the Netherlands was selected. They offered US$120m for a 35% stake in TTCL and aim to increase the number of fixed-line connections from the present 140,000 to 800,000 by December 31st 2003. However, the deal has not been completed, although it was provisionally scheduled to go ahead on September 22nd.

It is not clear whether a real problem is delaying the deal, or whether various technical issues remain. At present the EIU is inclined to take the latter view— when an investor looks more closely at a parastatal concern in which it intends to invest a large sum, numerous problems can often emerge.

The government has indicated that it will encourage further competition in the telecommunications sector. It seems likely that the sector will be broken up into a number of semi-autonomous entities. These will be responsible for the telephone provision (fixed line); cellular services (in an already competitive market); data provision (marketing and business); and an internet service provider. It is not clear how aware Datecom/MSI were of the proposed new structure, and whether this has been a contributory factor in the delay in signing the final purchase agreement.

Financial services

Another stock market In late September the Dar-es-Salaam Stock Exchange held a launch for the listing is launched official listing of the Tanzanian Cigarette Company (TCC). On sale to the public and a handful of local institutions were 19.5 million shares in the company, at a price of TSh410 each (US$0.51), representing 19.5% of its equity. At present Japan Tobacco Limited already holds a 51% stake in the company, which it bought as part of the government’s privatisation programme for TSh550 (US$0.69) per share, but it will purchase a further 24% stake in the company from the government. This will leave the government with a 5.5% stake in the company, which it will divest at a later stage. The offer closed on October 20th and was heavily oversubscribed. TCC becomes the fourth company to be listed on the exchange (the East African development Bank also has a bond listed).

Although the exchange is still in its embryonic stage, it is likely to grow strongly in coming years as a result of the general pick-up in the economy, the privatisation process, the expansion of the country’s banking sector and the surge in foreign direct investment. It is also likely that the government will open up the exchange to foreign investors in the next 12-24 months. However, at present the exchange faces a major marketing problem owing to the listing of the Tanzanian Oxygen Company (TOC). The company was listed too early in the privatisation process and because of its consistently poor financial performance—it recorded large losses in 1998 and 1999—its share price has

EIU Country Report November 2000 © The Economist Intelligence Unit Limited 2000 24 Tanzania

fallen from TSh5000 (US$7.5) on listing in April 1998 to around only TSh200 (US$0.25) at present. This fall has acted as a considerable dead-weight on the index. In contrast, shares in Tanzanian Breweries (TBL) and Tanzanian Tea Packers have performed well, although trading is severely limited by a lack of liquidity and is overwhelmingly dominated by TBL. It is rumoured that the Kenyan arm of British Oxygen Company (BOC Kenya) will acquire a majority stake, rumoured to be 60%, in TOC, so the index may receive another boost if these rumours materialise. Most shareholders, including the government, would not oppose such a sale and it is likely that BOC Kenya, which has close links with its British parent, BOC Group, would have the necessary technical capability to turn the company around.

New developments occur in Barclays Bank is to reopen in Tanzania after an absence of just over 30 years. At banking sector present the bank aims to open two branches, and it will be interesting to see whether it seeks to expand its branch network quickly or concentrates on corporate and higher-income-bracket clients. In most countries in the Southern African Development Community, Barclays usually competes head-to-head with Standard Chartered, and also with other South African banks, which already have a substantial branch network in Tanzania. In this instance Barclays may well seek to buy up smaller rivals in order to expand quickly and obtain prime sites for its branches.

The Bank of Tanzania has announced that it is currently studying how best to restructure three state-owned banks––The Tanzanian Investment Bank, the Tanzanian Postal Bank and the People’s Bank of Tanzania. The Bank of Tanzania has already been very busy in 2000, with the restructuring and sale of the National Bank of Commerce to the South African Banking Group, ABSA. It has also had to close the Greenland Bank, has been involved in the restructuring of First Aldi Bankcorp, and has had to find a buyer for a 51% stake in Trust Bank (Tanzania) following problems with its parent company, Trust Bank (Kenya). With nearly 20 banks operating in Tanzania, further problems are likely as the sector is gradually rationalised in the next few years .

Foreign trade and payments

The TIC is to be reformed The Tanzanian Investment Centre (TIC) has made considerable progress in the past six months in improving its service, but it is still some way from being a true “one-stop investment shop”. As a result, the government has decided to create a ministerial-level investment committee, chaired by the prime minister, Frederick Sumaye (it will also include the minister of commerce and industry, the minister of agriculture and the governor of the Bank of Tanzania). The committee has been mandated to accelerate investment in Tanzania by helping to create a coherent investment policy and eliminate those hurdles still facing foreign investors. The government, with the help of the UK Department for International Development, will also be drawing up a five-year corporate plan for the TIC, aiming to turn it into a fully fledged “one-stop shop” within the first two years of the plan. In the recent World Investment Report 2000, published by the UN Council on Trade and Development, Tanzania was

EIU Country Report November 2000 © The Economist Intelligence Unit Limited 2000 Tanzania 25

already the most attractive destination for foreign investment in East Africa, and the eighth most attractive in Africa.

Government figures show According to the Directorate of Tourism, the number of tourist visitors has tourism is growing risen from 201,744 in 1992, earning U$120m in foreign exchange, to 627,325 strongly in 1999, earning a total of US$733m. This represents an annual growth rate in earnings of around 25%. However, the tourism industry has cast doubt on the reliability of the data––the industry claims, for example, that it is physically impossible for the reported number of visitors to have entered Tanzania given the current transport links. The government has publicly defended its data, which it claims are accurate. This issue is unlikely to be resolved in the short- term but it highlights the problem with much of the data produced—that is, the need to interpret it with caution. There has also been considerable concern expressed over the reliability of the country’s inflation data, although it is likely to be correct at a basic level. The problem lies in identifying the vested interests of those complaining about the quality of the data, and in assessing whether data are in fact accurate.

EIU Country Report November 2000 © The Economist Intelligence Unit Limited 2000 26 Comoros

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

EIU Country Report November 2000 © The Economist Intelligence Unit Limited 2000 Comoros 27

Economic structure

Annual indicators

1995 1996 1997 1998 1999 GDP at market prices (Cfr bn) 80.3 81.8 84.7 87.2 89.0 Real GDP growth (%) –3.9 –0.1 0.5 –0.5 –1.4 Consumer price inflation (av; %) 8.0 2.0 3.0 3.5 3.5 Population (‘000) 610 630 650 671 692 Exports fob (US$ m) 11.3 6.3 5.4 6.1 7.9 Imports fob (US$ m) 67.9 62.1 61.1 53.9 55.1 Current-account balance (US$ m) –20.6 –20.1 –11.6 5.2 0.1 Reserves excl gold (US$ m) 44.5 50.5 40.5 39.1 37.1 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$) 374.4 383.7 437.8 442.5 461.8

November 3rd 2000 Cfr568.6:US$1

Origins of gross domestic product 1999a % of total Components of gross domestic product 1999a % of total Agriculture, fishing & forestry 39.9 Private consumption 87.4 Manufacturing 3.7 Government consumption 12.4 Services 56.4 Gross domestic investment 14.7 GDP at market prices 100.0 Exports of goods & non-factor services 26.1 Imports of goods & non-factor services –40.6 GDP at market prices 100.0

Principal exports 1999b US$ m Principal imports 1999b US$ m Vanilla 3.8 Rice 7.3 Ylang-ylang 1.6 Petroleum products 2.9 Cloves 1.1

Main destinations of exports 1998c % of total Main origins of imports 1998c % of total France 50.0 France 37.5 Germany 25.0 Pakistan 12.5 South Africa 8.3 Kenya 8.3 a Sourced to IMF and Comoros Directorate of Statistics. b General Directorate of Customs and IMF staff estimates. c Based on trading partners’ returns; subject to a wide margin of error.

EIU Country Report November 2000 © The Economist Intelligence Unit Limited 2000 28 Comoros

Quarterly indicators

1998 1999 2000 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr Financial indicators Exchange rate Cfr:US$ (av) 443.11 418.33 438.31 465.55 469.32 473.92 498.64 527.06 Cfr:US$ (end-period) 421.23 421.65 457.99 476.34 461.29 489.72 514.99 514.83 M1 (end-period; Cfr m) 12,129 10,015 9,849 10,079 12,505 11,662 11,969 13,043 % change, year on year 6.3 –5.5 –7.3 –3.4 3.1 16.4 21.5 29.4 M2 (end-period; Cfr m) 18,907 15,773 16,667 16,823 19,417 18,698 18,766 19,991 % change, year on year 5.6 –14.2 –4.1 –1.1 2.7 18.5 12.6 18.8 Foreign tradea (US$ m) Exports fob 0.97 0.88 1.88 2.16 3.21 3.99 3.41 n/a Imports cif –9.90 –13.46 –13.98 –14.76 –12.29 –14.82 –17.92 n/a Trade balance –8.93 –12.58 –12.10 –12.60 –9.08 –10.83 –14.51 n/a Foreign reserves (US$ m) Reserves excl gold (end-period) 43.18 39.14 36.22 35.62 40.11 37.15 35.22 38.50 a DOTS estimate.

Sources: IMF, International Financial Statistics, Direction of Trade Statistics.

EIU Country Report November 2000 © The Economist Intelligence Unit Limited 2000 Comoros 29

Outlook for 2001-02

Political outlook

Domestic politics Opposition to the military ruler of Comoros, Colonel Azali Assoumane, is likely to intensify and may lead to violent protests. Colonel Assoumane has tried to forestall such an eventuality by launching a constitutional review, which is to resume in Moroni on November 8th. However, this initiative has been roundly condemned by all the opposition parties. The opposition—and much of the international community—has also rejected the Fomboni accord, signed on August 26th by the military authorities and the secessionists on Anjouan. The accord proposes an undefined single confederal entity, “subject to international law”, sharing a common defence and foreign policy, and also the establishment of a joint committee to develop a new constitution, to be put to referendum in February 2002. Many consider the new deal to be a delaying tactic to thwart Organisation of African Unity (OAU) sanctions, or see it as a gimmick by the authorities in Anjouan and Moroni to buy time.

The economy suffers The economic situation in both Anjouan and Grand Comoro remains volatile and is set to worsen as the twin crises of secession and military rule persist. On Grand Comoro civil servants have not been paid for several months, provoking teachers to strike. There have been demonstrations against fuel price rises and economic hardships on the streets of Moroni. Economic recovery cannot be expected without support from international donors, but this is unlikely until the political difficulties are resolved.

International relations Among the international players in Comoros, only the Arab League, of which Comoros is a member, appears to have welcomed the accord. At the beginning of September the Arab League council of ministers adopted a resolution backing the Agreement, calling on the international community to lift the embargo on Anjouan. The Arab League position goes against that of the OAU, the major international player in Comoros, which views the Fomboni accord as a step backwards in relation to the Antananarivo Agreement of April 1999, which was accepted by a number of countries as constituting the most workable framework for a lasting settlement of the Comorian crisis. The OAU has called for the embargo on Anjouan to be maintained, and it is now contemplating extending the sanctions imposed on the Anjouan secessionists to the entire Comorian archipelago in a bid to force Colonel Assoumane to surrender political power. However, this is unlikely to move Colonel Assoumane. Instead it will probably bolster the opposition against military rule and embolden opposition activists to take to the streets.

The OAU has considered military action against the Anjouan secessionists but is unlikely to take this option, at least in the short-to-medium term. Colonel Assoumane has repeatedly said he will not relinquish power until the Anjouan secession ends. The OAU is more likely to set up a total maritime blockade of Anjouan island—to reinforce the embargo decreed in April—in which the South African navy may play a role.

EIU Country Report November 2000 © The Economist Intelligence Unit Limited 2000 30 Comoros

The political scene

Fomboni accord The political scene has been dominated by discussion of the Fomboni accord, signed on August 26th by Colonel Azali Assoumane and Anjouan’s secessionist leader, Colonel Said Abeid. The agreement proposes an undefined single confederal entity, sharing a common defence and foreign policy, and the establishment of a joint committee to develop a new constitution, to be put to referendum in February 2002. On September 17th 2000 a committee on the Fomboni accord defined the powers of institutions of the new Comorian bodies, giving the future president and the legislative assembly competence in appropriate domains, and also assigning them symbols including a flag, currency, state seals and a national anthem.

Planned transition timetable under the Fomboni accord

By November 2000: A monitoring committee should be established to deal with the practical problems of setting up new institutions.

By January 2001: A tripartite commission (representing all three islands) should be inaugurated. It is hoped the commission will include “international experts”.

By April 2001: The commission should have developed a new draft constitution. This is to be followed by a general debate on the draft document. A final report on the draft document is to be prepared by mid-2001. Thereafter, a campaign in favour of adoption, in a referendum, will be launched.

By September 2001: The new constitution should have been approved. The new institutions it will provide for are scheduled to become operative no more than six months later—that is, by March 2002.

The Fomboni accord faces There has been widespread opposition to the accord on Grande Comore and widespread opposition Anjouan. Demonstrations against the accord were held in Moroni in early

EIU Country Report November 2000 © The Economist Intelligence Unit Limited 2000 Comoros 31

September but were suppressed quickly by the security forces. The accord has been described as treasonable by Moroni-based opposition politicians. Both Colonel Assoumane and Colonel Abeid face considerable opposition in Moroni and Anjouan. In late October a senior Anjouannais MP, Saindou Cheikh, sent a letter to the OAU secretary-general, Salim Ahmed Salim, in which he stated that MPs from Anjouan island favoured military intervention on the island to bring Colonel Abeid to heel. On Moroni, opposition politicians have said that they are strongly opposed to the constitutional-review exercise unveiled by Colonel Assoumane, which is due to take place on November 8th. The nine opposition parties which have formed an alliance against Assoumane’s military rule have stated categorically that they oppose discussion of the draft constitution proposed in the Fomboni accord. Anjouan and Mohéli have already despatched 20-member delegations to the conference, which is to review and discuss the draft constitution. The Moroni-based opposition was to send a five-member delegation to join 15 others who would represent the main island of Grande Comore (Ngazidja). The spokesman for the nine opposition parties, Ali Msaidie, insists that the Antananarivo agreement is the only solution to the Comoros crisis.

Opposition is On September 2nd more than one hundred opponents of the accord were brutally repressed arrested on Anjouan, after security forces loyal to Colonel Abeid broke up pro- separatists and anti-government militants who had clashed over the co- operation deal. The disturbances occurred after the international community rejected the reconciliation deal which was officially aimed at ending Anjouan’s three-year-old secession. Most of those arrested were from the opposition Group for the Recovery Initiative for the Anjouan Movement (GIRMA), led by Ahmed Charikane. Several of the detainees were reportedly tortured, with eight of them said to be in a critical condition. On their arrival at the court of justice some defendants could not walk unaided; one collapsed during the hearing. An army official was reported to have acknowledged irregularities during the interrogations following the arrests. Those detained included Salim Mirghane—previously a minister under the former prime minister, Abbas Djoussouf—Ahmed Charikane and Saed Ali Chahalane. They were later put on trial, and the three were each handed five-month jail terms and fined 50,000 Comorian francs. They were also stripped of their civic rights and prohibited from visiting public places. No charges were filed against them even though they had been accused of planning to overthrow the government by force.

The OAU considers The OAU insists that the Antananarivo accord remains the basis for a solution. its options Regional states have been preparing plans for a naval blockade of Anjouan, led by South Africa, after two rounds of sanctions this year crippled the Anjouan economy but failed to end the secession crisis. The OAU may now consider another sanctions resolution on the entire Comoran archipelago. African diplomats draw some comfort from the fact that Comoros is vulnerable as it cannot survive without external support; they hope that without such support, Moroni will capitulate quickly. Much, however, depends on the position the OAU and international community choose to take.

EIU Country Report November 2000 © The Economist Intelligence Unit Limited 2000 32 Comoros

Even before the Fomboni agreement was signed, the OAU had signalled its disapproval of the “secret” negotiations between the Assoumane government in Moroni and separatists on Anjouan island, saying that they had heightened tension and instability in the archipelago. On August 24th the OAU’s committee on conflict resolution condemned the negotiations for being at variance with the Antananarivo agreement and for excluding the majority of Comorian people and political stakeholders. The committee urged the international community not to lend any support to the Fomboni joint declaration, as it would undermine the unity and territorial integrity of Comoros.

This appeal was made to all OAU partners, including the UN Security Council, the Arab League, the European Union, Organisation Internationale de la Francophonie, the Indian Ocean Commission and the Organisation of the Islamic Conference. The committee reiterated the OAU’s determination to bring the crisis quickly to an end to create conditions conducive to the imple- mentation of the Antananarivo agreement, which has the support of the majority of the Comorian people and the international community. The committee also said that the Antananarivo agreement represents the most viable framework for a lasting and consensual solution to the crisis, and urged the Comorian authorities to work towards the speedy implementation of the decision on Comoros which was passed by the OAU during its summit in Lomé, Togo, in July.

Communication between On September 7th a troika of OAU ambassadors from Algeria, Togo and Zambia islands is resumed met in Addis Ababa to hold emergency talks on the Fomboni agreement. The envoys reaffirmed the OAU’s commitment to the principle of the unity and territorial integrity of the Indian Ocean archipelago, and described the Fomboni pact as a setback for the OAU’s own efforts to settle the Comoros political crisis. However, the authorities in Moroni and in Anjouan were unmoved by the international condemnation of the Fomboni agreement and the local demonstrations against it. On August 31st, and for the first time, a delegation from the secessionist authorities of Anjouan arrived in Moroni for talks centred on a new draft constitution and practical measures for the transitional period. Both sides have agreed to restore air and sea links between the islands, and to re-establish telephone links, which were cut off in February after the OAU embargo on Anjouan. The Societe nationale des postes et telecommunications (SNPT) designated a manager on Anjouan island, at the suggestion of local authorities. An agreement on September 10th set out details of a resumption of telephone links with Anjouan, and institutes decentralised the administration of accounts for a limited period, at the same time recognising SNPT as a joint organism. Banking arrangements have been established for the administration of the links, and investigations into the introduction of digital exchanges are under way. In another sector, Societe comorienne des hydrocarbons has decided to put in a single order for fuel with a Dubai firm, Emirates National Oil Company. The fuel will also take care of Anjouan island needs.

Officers from Moroni and Anjouan have been scheduled to meet to discuss security matters. Their main priority will be the recovery of arms known to be

EIU Country Report November 2000 © The Economist Intelligence Unit Limited 2000 Comoros 33

hidden on Anjouan island. Customs services are also to discuss the progressive harmonisation of tariffs between Anjouan and Moroni.

Rivals meet An unprecedented meeting took place in Moroni on October 24th between Colonel Assoumane and his fiercest opponent, the former prime minister, Abbas Djoussouf. The meeting, in the presence of an OAU representative, was suggested by the Organisation internationale de la francophonie’s mission to Moroni between October 18th and 25th, led by Professor André Salifou. Although Colonel Assoumane appeared to be conciliatory to Mr Djoussouf, the former prime minister stuck to his guns and used the opportunity to repeat his condemnation of Colonel Assoumane’s coup d’état and the Fomboni accord, and again demanded that the military return to barracks. Professor Salifou has tried to bring the military rulers in Moroni and the opposition leaders together. One idea would be the nomination of a prime minister from the ranks of the opposition, who would wield substantial powers, with Colonel Assoumane continuing as head of state with much-reduced powers. Colonel Assoumane had previously opposed this idea and the opposition, too, is unlikely to accept it. Nor will the opposition agree to change its stance on the new draft constitution. Colonel Assoumane has said that he was disappointed at the opposition’s stance, but that he will nevertheless approve the new constitution even if it is supported by only a small number of people.

Economic policy and the domestic economy

IMF concludes Article IV Following its two-year suspension owing to the disruption of government consultation with Comoros services and political turmoil, in July the IMF resumed Article IV consultations with Comoros. The IMF noted that Comoros’s economic performance has continued to worsen. Real GDP declined by 0.5% in 1998 and 1.4% in 1999, although living standards were partly maintained by increased transfers—for the sixth consecutive year—from the 150,000-strong Comorian diaspora. A deteriorating external environment played a role in this decline, but Comoros also suffered from a weakness in the implementation of macroeconomic and structural policies. The IMF welcomed recent measures to raise government revenue and strengthen economic management (the measures included increasing various tax rates and making job cuts in the civil service), but it called for more efforts to stabilise the fiscal position and for better progress in the privatisation of parastatals. It also called for further gradual trade liberal- isation and appropriate modification of the regulatory and legal frameworks.

The economic situation will probably not improve without external funding. However, this is unlikely to be forthcoming, in the continued absence of an internationally-recognised government. The government is prioritising its outstanding foreign debts (total outstanding external debt is forecast to be 95.4% of GDP in 2000), and has settled its arrears to the World Bank, which as a result has resumed project activities. However, Comoros will not receive new aid from international donors until democracy is restored. If this happens

EIU Country Report November 2000 © The Economist Intelligence Unit Limited 2000 34 Comoros

during the outlook period it may persuade the IMF to reward the authorities with a poverty reduction and growth facility loan.

Comoros: selected economic indicators

1995 1996 1997 1998 1999 2000a National accounts & prices (% change, year-on-year) Real GDP at market prices –3.9 –0.1 0.5 –0.5 –1.4 0.5 Consumer price index 8 2 3 3.5 3.5 4.5 Public finance (% of GDP) Revenue 14.3 13.3 15.1 11.9 13.7 15.5 Expenditure 34 28.5 27.2 24.1 22.1 23.7 Overall balanceb –7.9 –6.3 –2.4 –4.2 –0.7 –2.4 External sector (% of GDP) Current-account balance –9.6 –9.4 –9.4 2.7 0.1 –2.8 Total external debt outstanding 94.4 98.1 94.3 94.5 98 95.4 Gross international reserves 5.1 6.5 5.5 5.7 6.1 4.5

a IMF estimates. b Includes grants; commitments basis.

Sources: Comorian authorities; IMF, staff estimates and projections.

Economic performance The performance of agriculture, the sector upon which most Comorians depend, is weak was weak in the 1990s. The value of outputs (of both food and cash crops) fell by an average of 0.9% per year between 1995 and 1999. The decline in the manufacturing sector has been even more marked, averaging 3% per year during the same period, although growth was recorded within industry as a whole in 1998-99, largely owing to investment in the electricity sector after privatisation. The service sector, the largest supply-side component of GDP, has been badly affected by political disruption. It contracted by an average 1.1% per year from 1995-99. Consumer spending and government expenditure both declined in real terms from 1995-99, reflecting widespread poverty and the poor state of government finances. However, IMF estimates indicate that both demand-side components rose in 1999, compared with the preceding year. Investment and exports rose from 1995-98, before declining in 1999. The economy is forecast to recover marginally in 2000, with real GDP growing by 0.5%.

Comoros: gross domestic product by sector (% change) Economic activity 1995 1996 1997 1998 1999 Agriculture, livestock, fishing & forestry –3.31 0.01 0.56 –0.13 –1.78 Manufacturing –4.56 –5.76 1.94 –3.70 –2.09 Electricity, gas & water –7.00 –4.35 –48.09 97.39 16.81 Construction & public works –3.06 –0.97 1.30 –1.79 –0.91 Trade, hotels, bars & restaurants –3.50 2.96 2.60 –2.19 0.45 Banks, insurance, REBa & STEb –9.19 –0.45 0.83 –0.96 –1.14 Transportation & communications –3.01 0.26 2.79 –2.42 –1.13 Government departments –4.42 –2.31 0.79 2.99 –4.64 Other services –3.92 –6.90 26.26 –20.53 –1.01 Imputed banking production –3.73 –6.95 –13.92 –17.66 –14.80 GDP –3.87 –0.13 0.48 –0.48 –1.44 a Real estate business b Services to enterprise.

Sources: Directorate of Statistics; IMF, staff estimates.

EIU Country Report November 2000 © The Economist Intelligence Unit Limited 2000 Comoros 35

Tourism has not increased Tourism has not grown in the mid-1990s. Hopes for growth were dashed by the violence associated with the Anjouannais and Mohélian secessionist movements in mid-1997 and also the April 1999 coup. This largely thwarted efforts by holiday companies in the UK and other markets to promote Comoros as a destination. The country is “sold” as a tropical beach holiday location with a distinctive cultural touch, to appeal to the more discerning traveller. The bulk of package tourism is currently accounted for by South Africans and some more adventurous Réunionnais.

Monetary growth and Reflecting the decline in economic activity, broad money and credit grew by inflation are subdued only 4% in the two years to end-1999. According to recent data, broad money grew by 18% in the year to end-June 2000, reflecting the slight improvement in the economy. However, predictions of a significant rise in the provision of domestic credit this year have not been fulfilled. Inflation remains subdued, mainly because of Comoros’s membership of the franc zone, although the rate of price increases is forecast to rise from 3.5% in 1999 to 4.5% this year. In January 2000 the Central Bank adopted a more flexible interest rate policy, linking rates for the country’s single commercial bank to rates prevailing in the euro zone.

The fiscal situation Public finances showed a modest improvement in 1999; fiscal receipts improves increased by 9.6%, the domestic portion rising by17%. The increase was a result of improved tax administration and other fiscal measures. Various tax increases had the effect of raising total taxation from 11.9% of GDP to 13.7% of GDP in 1998. However, despite these improvements the fiscal situation remains difficult. By the end of 1999 arrears on civil-service salaries had accumulated to twice the annual salary bill, and there have been significant increases in current expenditure.

Comoros: public finances (Cfr m) 1997 1998 1999a Total revenue 21,011 17,369 19,036 Domestic 12,828 10,422 12,230 External 8,182 6,947 6,806 Total expenditure 23,076 21,038 19,669 Current expenditure 17,512 13,648 14,138 Capital expenditure 5,564 7,390 5,531 Balance –2,065 –3,669 –633 Financing 1,118 3,740 –536 Of which: Internally financed –577 2147 –504 Externally financed 1695 1593 –32

a IMF estimates.

Sources: Ministry of Finance ; IMF, staff estimates.

EIU Country Report November 2000 © The Economist Intelligence Unit Limited 2000 36 Comoros

Foreign trade and payments

Current account posts a The current account showed a surplus of Cfr2.3bn in 1998, owing to rising smaller surplus in 1999 tourism revenue. However, 1999 showed a much smaller surplus of Cfr47m (US$0.1m), or 0.1% of GDP. The principle cause for the decline was a sharp drop (of approximately 33%) in official transfers after the coup in April 1999. This decline was partly offset by an increase in private transfers from Cfr5.1bn in 1998 to Cfr5.9bn in 1999. The trade deficit rose marginally, by 1.25%, to Cfr16.3bn (US$35.3m) in 1999, despite a 40% increase in export earnings. Imports rose by 6.8%, from Cfr18.7bn in 1998 to Cfr20bn in 1999, owing to higher oil prices. The invisibles account rose from Cfr2.8bn in 1998 to Cfr3.4bn in 1999 because of increased tourist revenue and investment income

Comoros: balance of payments (Cfr m) 1997 1998 1999 Exports of goods 2,630 2,652 3,725 Imports of goods –21,077 –18,731 –20,004 Trade balance –18,447 –16,079 –16,279 Services balance –1,643 2,804 3,359 Net current transfers 15,000 15,618 12,967 Current-account balance –5,090 2,343 47 Sources: Ministry of Finance; IMF, staff estimates.

Increased world prices help Comoros relies on an export base dominated by only three agricultural export earning commodities (vanilla, cloves and ylang-ylang), leaving the country vulnerable to fluctuations in world markets. Vanilla and clove exports showed dramatic growth in 1999. Vanilla benefited from an increase in global prices and the consequent revival of production. An improved marketing strategy, focusing on Comorian organic production methods, also had a positive impact. Clove exports rose after Indonesian output declined because of fires and political unrest. Ylang-ylang output slumped in 1999 to 32 tonnes, but an increase in global prices led to export earnings being only slightly reduced. Comorian ylang-ylang exports face various production problems and also increased competition from Indonesia, which threatens Comoros’s status as the world’s largest producer.

Export base is weak Despite the price recoveries of two important export commodities in 1999, total exports remained insignificant in international terms. A significant and durable improvement in export performance would require diversification into new product areas, such as light manufacturing, and also improved manage- ment in the traditional export sectors. The 40% rise in exports in 1999 is not expected to be repeated in 2000.

EIU Country Report November 2000 © The Economist Intelligence Unit Limited 2000 Comoros 37

Comoros: value of principal exports (Cfr m) 1994 1995 1996 1997 1998 1999 Vanilla 2,767 2,320 1,035 1,119 1,058 1,788 Clove buds 522 134 210 89 268 522 Ylang-ylang 930 855 645 716 793 753 Other products 272 927 546 568 597 606 Total exports 4,491 4,236 2,436 2,360a 2,716 3,669

a Does not add in source.

Sources: General Directorate of Customs; IMF, staff estimates.

Foreign exchange The relative stagnation of the value of imports from 1998-99 (during this period constrains imports it rose only slightly, from Cfr18.65m to Cfr20m) reflects a foreign exchange shortage rather than a lack of demand. Major import items in 1999 were rice (13.2% of imports), meat (10%), petroleum products (5%), cement (3%) and iron/steel (3%). The decline in imports in 1998—compared with 1997—partly reflected the collapse of world oil prices; the sustained recovery of oil prices since mid-1999 has been characterised in Comoros by ongoing fuel shortages.

Comoros: value of principal imports (Cfr m) 1994 1995 1996 1997 1998 1999 Rice 2,614 5,252 3,318 3,947 4,096 3,365 Meat 1,247 1,617 1,456 2,469 2,350 2,512 Petroleum products 2,546 2,879 1,509 1,384 962 1,333 Cement 1,676 1,652 880 843 813 822 Iron and Steel 778 804 858 668 709 645 Other products 14,827 13,189 15,828 17,464 17,040 18,286 Total importsa 23,689 25,411 23,849 26,776 23,831 25,451

a Balance-of-payments basis, including adjustments for coverage, valuation and recording errors.

Sources: General Directorate of Customs; IMF, staff estimates.

EIU Country Report November 2000 © The Economist Intelligence Unit Limited 2000