Country Reports - Tanzania, United Republic Of
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Country Reports - Tanzania, United Republic of 24 Feb 2015 IHS Economics and Country Risk Our take Key points Tanzania is set to adopt a new constitution by 2015, after several false starts. Islamic radicalisation and calls for independence may increasingly threaten Zanzibar's stability ahead of the 2015 election. The offshore natural-gas sector provides economic hope. Claimed payment irregularities in the power sector have led to dismissal of ministers and suspension of foreign donor budgetary support. Analysis Six-Factor Country Risk - Tanzania Risk Score Description Political 3.00 SIGNIFICANT Economic 3.25 SIGNIFICANT Legal 3.50 HIGH Tax 3.50 HIGH Operational 3.75 HIGH Security 3.25 SIGNIFICANT Overall 3.32 SIGNIFICANT 12-Month Rating Trend Stable Trend Note: 1 = minimum risk, 5 = maximum risk. Ratings form part of enhanced Country Analysis & Forecast suite of services. Sovereign Risk Ratings - Tanzania Medium-Term 55(B+) High Payments Risk Sovereign Risk Outlook Stable Note: 0 = minimum risk, 100 = maximum risk. Ratings form part of enhanced Economic and Sovereign Risk services. Tanzania is set to adopt a new constitution in 2015, after several false starts. A referendum on the new constitution will be held on 30 April 2015, ahead of presidential and legislative elections in October 2015. The political opposition, grouped under the umbrella Coalition of Defenders of People's Constitution (Ukawa), boycotted a vote on the draft and has indicated plans to boycott and possibly disrupt the referendum. They claim the draft promotes segregation, discrimination of Zanzibaris, and bias in favour of the ruling Chama cha Mapinduzi (CCM) party. Islamic radicalisation and calls for independence may increasingly threaten Zanzibar's stability ahead of the 2015 election. Zanzibar is led by a power-sharing Government of National Unity (GNU) formed in the wake of the 2010 elections, following a landmark political agreement designed to end widespread political instability. The GNU’s formation has, however, failed to address a number of fundamental concerns and some Zanzibaris have gravitated to a rising tide of radical Islamism that continues to fuel periodic unrest. There have been several bouts of violence throughout 2012, fuelling concerns of an escalation in the build-up to the 2015 election. The offshore natural-gas sector provides economic hope. With the mining sector, especially gold production, running out of steam due to overrunning costs, recent natural-gas discoveries bode well for medium-term growth prospects. Reserves currently stand at around 53 trillion cubic feet (tcf), but the government expects this to rise to more than 100 tcf in coming years. Existing reserves are already justifying investment in natural-gas liquefaction plants and other infrastructure, paving the way for the commencement of exports. Claimed payment irregularities in the power sector have led to dismissal of ministers and suspension of foreign donor budgetary support. President Kikwete has dismissed Lands Minister Anna Tibaijuka, and Attorney-General Eliakim Maswi resigned from his post in December 2014, following a recommendation by a parliamentary committee for their dismissal in connection with the controversial takeover of Independent Power Tanzania Ltd (IPTL) by © 2015 IHS.. No portion of this report may be reproduced, reused, or otherwise distributed in any form without prior written consent, with the exception of any internal client distribution as may be © 2015IHS. permitted in the license agreement between client and IHS. Content reproduced or redistributed with IHS permission must display IHS legal notices and attributions of authorship. The information page 1 of 18 contained herein is from sources considered reliable but its accuracy and completeness are not warranted, nor are the opinions and analyses which are based upon it, and to the extent permitted by law, IHS shall not be liable for any errors or omissions or any loss,damage or expense incurred by reliance on information or any statement contained herein. Pan Africa Power Solutions Tanzania. Parliament has also alleged that the government had been making excessive payments to private offshore bank accounts amounting to USD120 million from an escrow account jointly held by IPTL and power utility TANESCO. The scandal has led to a group of 12 donor countries declaring the suspension of their assistance programmes to Tanzania, worth some USD490 million, pending an investigation. Forecast summary Strong domestic demand and foreign investment should support growth through 2015. IHS expects domestic demand to remain the main driver of growth in 2015, as falling food and energy prices have expanded disposable incomes. On the other hand, public investment into energy and transport infrastructure may weaken somewhat. We expect fiscal policy to remain accommodative over the medium term, although the authorities have tightened monetary policy to bring inflation back to single digits. We forecast the Tanzanian economy to grow 7.3% in 2015 and 7.2% in 2016—up an estimated expansion of 6.5% in 2014, but down slightly from previous projections. The revision of the national-accounts statistics—moving the base year from 2001 to 2007—announced in October 2014 lifted estimated nominal GDP in 2013 by 31% to USD44 billion. Political stability bolsters a positive economic outlook, but corruption is becoming an increasingly pertinent issue. Tanzania remains one of the most politically stable countries in the region; however, it is widely perceived that corruption has become more widespread in Tanzania in recent years and is often cited as one of the biggest hindrances to doing business in the country. To combat the worsening problem, the government has introduced measures aimed at empowering the various state anti-corruption agencies, including the Prevention of Corruption Bureau (PCB), amid growing calls to make the agency more independent from the government. Recent legislation includes the Prevention and Combating Corruption Bill and the Prevention of Corruption Act. High-level officials have been implicated in a spate of corruption scandals, with the former head of the central bank, Daudi Ballali, losing his job, and former Prime Minister Edward Lowassa stepping down after being implicated in a suspect energy deal in 2012. Another scandal in the energy sector is linked to Pan Africa Power Solutions’ allegedly illegal acquisition of Independent Power Tanzania Ltd (IPTL) and has prompted 12 donor countries to suspend budgetary support and prompted calls for Prime Minister Mizengo Pinda to step down. Power utility TANESCO reportedly established a joint escrow account with IPTL (the Tegeta account) in 2006. Senior officials within government and power utility TANESCO then allegedly facilitated USD120 million in payments from to offshore private accounts under the guise of supposed energy contracts. The country has once again slipped down the ranks of Transparency International’s Corruption Perception Index – it ranked 119 out of 175 countries in 2014, down from 127 in 2013. The power sector remains in dire need of reform to attract investment. Tanzania's medium-to-long-term growth prospects hinge to a large extent on the development of the power sector. On the bright side are the plans to expand domestic gas production and construct a pipeline linking Dar-es-Salaam with Tanga in the north and the Kenyan port of Mombasa are moving forward, and the Export-Import Bank of China is providing USD1.2 billion in financing for the construction of a new gas pipeline linking Mtwara and Dar-es-Salaam. In addition, new discoveries during late 2011 and 2012 prompted the government to increase its estimate of Tanzania's natural gas reserves from 10 to 33 tcf in October 2012, with the vast majority of these located offshore. Further discoveries during 2013 and 2014 have brought this figure to in excess of 50 tcf. The prospect of large-scale investment into the offshore gas sector has raised the need for improved regulation of the natural gas sector. The adoption of a natural gas master plan legislative bill drafted by the Ministry of Energy and Minerals has been postponed, though, because of a review of previous contracts ordered by newly appointed Energy and Minerals Minister Sospeter Muhongo, who was given the portfolio following a government reshuffle in May 2012, and the formulation of a new gas policy bill presented in October 2013. However, significant details in the investment framework still need to be worked out. This is likely to delay final investment decisions in many projects until 2016. Changes since last forecast February interim forecast versus January interim forecast Nominal UP Rebased national-account statistics presented in December 2014 showed nominal GDP in 2013 31% higher than previously GDP estimated. As this was in line with our expectations, we have not altered our longer-term nominal GDP forecasts. Real DOWN We reduced our 2014 real GDP growth estimate from 6.9% to 6.5% and increased our 2015 real GDP forecast from 7.1% to GDP g (2014) 7.3%, largely because of stronger private-consumption growth offsetting weaker public-expenditure growth and a lower drag rowth /UP from net exports. (2015) Inflation DOWN We reduced our 2015 consumer price inflation forecast from 7.2% to 6.6%, largely owing to lower energy prices. Inflation should (2015) increase to 9.2% in 2016, up from 8.4% previously. /UP (2016) Trade DOWN Our forecast for the trade deficit in 2015 is reduced to USD5.2 billion on expectations