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Form CH@World A 754 Country: Tanzania Last update: 13.07.2020 STUAL

Tanzania Economic Report 2020

0. Summary The overall performance of the Tanzanian economy in 2019 was robust, and the economy recorded a GDP growth of 6.9% according to the Bank of Tanzania (BOT)1 and 5.8% according to the World Bank (WB)2, respectively. In July 2020, the country’s economy progressed from a low income country to a lower-middle income country in the World Bank’s classification – an important milestone and the result of almost two decades of strong economic growth.

This report also includes an outlook on the impact of COVID-19 on the Tanzanian economy. As per July 2020, Tanzania is already suffering substantial economic costs related to the pandemic, which has impacted the livelihoods of many Tanzanians. The impact on the country’s economy is mainly through the external sector. World Bank estimates that in the short-term, the pandemic will dramatically undercut Tanzania’s growth outlook and increase poverty in 2020. However, Tanzania will most likely not be among the economically most affected countries in Sub-Sahara Africa, due to its relatively sound macroeconomic situation pre-COVID and the surge in gold price - Tanzania’s most important export. As a net oil-importer Tanzania is also profiting from lower oil prices. The Government of Tanzania has introduced only limited lockdown measures and re-opened the economy much faster than almost all countries in the region.

There is fear of a further slowdown of the economy in the coming year due to the outbreak of COVID-19, unpredictability of Government policies and the General Election, which are scheduled in October 2020. These are all contributing factors to unconducive business environment. The Government’s Five Year Development Plan for fiscal years up until 2020/22 prioritises industrialization and job creation. Yet, despite this objective, the economic policy remains inconsistent. The Government promised to pursue a private-sector-led development strategy, with plans to remove bureaucratic impediments to doing business. However, an increasingly complicated tax regime, erratic regulatory changes and deficient consultation with the private sector make Tanzania a challenging place to do business.

Tanzania’s economy is affected by its contradictory fiscal policies and little participation of the private sector in the economic policy making. However, the Government will have to develop a robust partnership with the private sector in order to succeed with the planned industrialisation and the much needed job creation. So far, the Government’s messages to the private sector and to foreign investors have remained inconsistent. While the Government tries to attract new investors, it should also care about investors and companies already operating in Tanzania, as some might leave the country.

Future economic growth and attractiveness of Tanzania as a business destination will depend on the Government’s response to the impact of COVID-19, removing existing structural constraints, enforcing rule of law, fostering sound institutions and making economic policy and important business decisions more predictable. The Government will have to continue its fight against the persistent corruption and implement the National Anti-corruption Strategy, to

1 Annual Report 2018-2019, Bank of Tanzania (BOT), January 2020 2 Tanzania Economic Update, Addressing the Impact of COVID-19, the World Bank WB, June 2020

1 address the challenge of unemployment and unskilled labour force, to create a more conducive and stable business as well as investment environment. Moreover, the GoT will also face increased pressures to address persistent inequality and poverty. Despite two decades of strong economic growth, the absolute number of poor people in Tanzania is still increasing.

1. Assessment of the economic problems and issues

1.1. General Context

The overall performance of the Tanzanian economy in 2019 was strong, and per 1st of July 2020, the country’s economy progressed from a low income country to a lower-middle income country in World Bank’s classification3. The GNI per capita in Tanzania grew from USD 1’020 in 2018 to USD 1’080 in 2019. Tanzania’s high growth over the last years was due to increased public consumption together with burgeoning infrastructure, communication, financial services (mainly mobile money services), the mining sector and growth in the tourism sector.

In 2019, the economy recorded a GDP growth of 6.9% according to the Bank of Tanzania (BOT)4 and 5.8% according to the World Bank (WB)5, respectively. Tanzania is among the top three countries in East Africa in terms of economic performance. Between 2013 and 2018, the average GDP growth of Tanzania (6.5%) was behind only Ethiopia (9.5%) and Rwanda (6.7%). There are, however, concerns about data quality which means economic growth numbers in Tanzania could be overstated by the Government.

Public consumption, gross fixed capital formation and exports rose in 2019. Also, recurrent and development spending and tax revenue in 2018/19 rose in the first half of 2019/20, as well as credit to the private sector, imports of capital goods and raw material. Growth of the economy was led by nonmanufacturing industry, especially mining and construction, transport, communication and financial services. The growth in mining production (12.6%) was driven by a rebound in gold, which went up by 11.6%. Growth in construction (14%) was driven by work on public infrastructure such as roads, bridges, water supply facilities, buildings, and residential projects. This was reflected in the rise in production of construction materials for the domestic market, such as cement, iron and steel.(WB) Independent experts have doubted the economic benefits of some of the mega projects currently being constructed which means that long term return on investment beyond the construction phase of these works is uncertain. Moreover, Tanzania is increasingly financing these projects with non-concessional external funds.

From 2011 to 2018, the agricultural sector contribution to GDP grew much slower than the rest of the economy, averaging 4.4 percent a year and 1.4 percent per capita. In 2018, agricultural GDP per capita was 10 percent higher than in 2011, while in industry it rose by 55 percent. However, with 75.5 percent of the poor dependent on agriculture for their livelihoods, growth of the agricultural sector is crucial for poverty reduction. (WB) The poverty rate in Tanzania fell from 34.4 to 26.4 percent in 2018. Although there has been economic growth and a decline in poverty in the past years, poverty was not reduced as much as the population grew, resulting in an increase in the absolute number of poor people. In 2018, about 14 million people lived below the national poverty line of TZS 49,320 per adult equivalent per month. About 26 million (49 percent of the population) lived below the $1.90 per person per day international poverty line.6

3 https://blogs.worldbank.org/opendata/new-world-bank-country-classifications-income-level-2020- 2021 4 Hereafter, if not stated otherwise, the source BOT refers to the Annual Report 2018-2019, by the Bank of Tanzania, January 2020 5 Hereafter, if not stated otherwise, the source WB refers to the Tanzania Economic Update, Addressing the Impact of COVID-19, by World Bank, June 2020 6 Tanzania Mainland Poverty Assessment, World Bank, 2019

2 Inflation in 2018/2019 was low. According to the BOT, headline inflation averaged 3.2 percent. The annual inflation according to World Bank averaged 3.5 percent, which is below the 4.7 percent in the preceding year and the 5.0 percent medium-term target. The low inflation was a result of a decline in both food and nonfood inflation, the former was driven by adequate domestic food supply and government measures to facilitate importation of rice, wheat and sugar; the latter was due to subdued fuel prices. The low inflation is projected to be sustained in 2019/20. (BOT) This is the lowest rate since 2000. Tanzania’s inflation rate has been the lowest in the East African Community. (WB)

The value of the Tanzanian shilling remained stable throughout 2019, except between January and February 2019. In that period, the shilling depreciated by 0.7 percent against the US-dollar and 2.2 percent against the Kenyan shilling, while appreciating 1.1 percent against the Chinese yuan and 2.1 percent against the euro. This was a result of BOT interventions in the foreign exchange market. (WB) The growth rate in money supply in the period between 2017 and 2019 was not stable. In 2019, there was a growth of 11.1% in credit to the private sector, compared to 4.9% in 2018. This is due to a surge in loans to agriculture, construction and transport services. (WB)

The fiscal deficit rose from 1.9 percent of GDP in 2017/2018 to 3.1 percent of GDP in 2018/2019, which is within the country target of not more than 3.2 percent. The deficit was financed through borrowing, mostly at commercial rates. (BOT) In the first half of 2019/2020, the fiscal deficit stood at 0.4% of GDP, compared to 0.1% for the same period in 2018/2019. This, while domestic revenue collection remained at the same level as in 2018/2019. The rise in fiscal deficit was mainly driven by spending, especially for development projects. (WB) While debt is still manageable, mainly due to very prudent public spending, the increased borrowing for large infrastructure projects with limited economic benefits is raising some concerns.

In 2018/2019, domestic revenue collection decreased to 13.8 percent of GDP (15.1 percent of GDP in 2017/2018) according to the World Bank, lower than the 15.5 percent targeted. 96.4 percent of the total revenue was collected by central government. Expenditure decreased from 17.2 percent of GDP in 2017/2018 to 16.6 percent of GDP in 2018/19.(BOT)

Development expenditure in 2018/2019 amounted to 6.3 percent of GDP, which is below the target of 8.9 percent. In the first half of 2019/2020, development expenditure was significantly higher than in the year before and amounted to 3.3 percent of GDP. The expenditure was partly driven by pre-election spending pressure (general elections are planned in October 2020). The largest share of development spending was directed to big infrastructure projects in the transport and energy sectors, including standard gauge railway, the Hydro Power and roads. This is still in line with the targets, but significantly higher than in the same period in 2018/2019, when development expenditure amounted to 2.6 percent of GDP. (WB)

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The balance of payments was healthy, and the current account deficit (CAD) narrowed. The deficit amounted to USD 990.7 million in 2018/19 compared to a surplus of USD 627.9 million in the preceding year. The current account also continued to be in a good position, but widened to a deficit of USD 2,645.3 million from a deficit of USD 1,771.8million. (BOT) The CAD was primarily funded by external borrowing.

As reported 2017, the adoption of the second Five Years National Development Plan (FYDP II) was a significant and transformative policy decision. The plan is built on three pillars of transformation, namely industrialization, human development and implementation effectiveness. The country’s twin development strategies aims to transform itself into a middle income country by 2025 through industrialization and human development. As previously mentioned, this target was achieved in 2020. The Tanzanian economy is now classified as a lower-middle income country by the World Bank. Among the outcomes associated with the attainment of the objectives of the FYDP, the plan targets to raise annual real GDP growth to 10 percent by 2021 (from 7.0 percent in 2015), per capita income to US$ 1,500 (from US$ 1,043 in 2014) and reduction of the extreme poverty rate to 16.7 percent from 28.2 percent recorded in 2011/12. The Plan also envisages raising FDI flows from US$ 2.14 billion in 2014 to over US$ 9.0 billion by 2021; increase electricity generation and improving electricity connections to 60 percent of the population, up from 36 percent in 2015. On average, manufacturing sector targets grow by over 10 percent per annum with its share in total exports increasing from 24 percent in 2014/15 to 30 percent in 2020.

The FYDP II is still a key document referred to in various areas and in public discourse, with a particular focus on industrialization. Until now, the implementation of the development agenda under the FYDP II has focused on launching a number of infrastructure flagship projects such as railways, ports, airports, hydro power dam and the acquisition of planes for Air Tanzania. However, transparent communication of the annual action plans is missing. Moreover, budget credibility remains a challenge despite the increased efforts in tax collections.

The FYDP II is in place until 2020/21 (July/June) and will be followed by the FYDP III (2021/22- 2025/26). The FYDP prioritizes industrialization and job creation, with a private-sector-led development strategy. However, the government's erratic regulatory changes (with respect to mining licenses and periodic trade restrictions), abrupt increases in business taxes and a lack of transparency undermine it. This is particularly true for the natural resources sector, where the government is inclined towards economic nationalism. In January 2020 the government acquired a 16% free carried interest in three gold mines as part of a tax dispute settlement (that began in 2017) with Canada's Barrick Gold.

The strong drive against corruption and tax evasion by President J. P. Magufuli has led to higher fiscal revenues, which, if sustained, will provide a good foundation for the envisaged scaling up of infrastructure investment.

Military expenditure in Tanzania has been rising in the past decade, reaching the historic level of USD 665 Million in 2018, compared to USD 313 million in 2010.7 However, military expenditure remains significantly lower than in neighboring Kenya. It is likely that the trend will continue over the coming years, namely in order to secure the maritime safety along the Tanzanian coastal line and its territorial water and to upgrade military installation.

The market interventions and unpredictability can be illustrated in President J. P. Magufuli’s decision in November 2018 to buy all cashew harvests after private buyers failed to raise their prices at the request of the President. The army subsequently collected all the harvests from farmers in the country’s southern region. The President doubled the price of a kilo of cashew nut from 1,500 to 3,300 shillings. Three months later the Government acknowledged the lack of capacity to process all the nuts and 200,000 tons of cashew nuts are still awaiting buyers.

7 tradingeconomics.com

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Trade and investment policies needed to sustain open markets are undercut by lingering Government interference in the economy. Decisions, such as the sudden compulsory listing of telecommunication companies on the Dar es Salaam stock exchange, sudden cancellation of business licenses in the mining sector, the temporary ban of sugar and coal imports and the sudden tightening of issuing work permits or renewal thereof illustrate the challenge to create a more predictable business and investment environment. Also, the presidential emphasis on the socialist concept of self-reliance sends mixed signals to international and domestic investors alike.

Furthermore, few decisions such as to prioritize the reinstallation of Air Tanzania and to move the entire administration within few months from Dar es Salaam to Dodoma triggered a number of questions on the government decision making process and its prioritization. This decision received postum parliamentary endorsement, but it took observers by surprise, as well as parliamentarians, who had adopted the budget shortly before. The city of Dodoma faces challenges of such as lack of basic infrastructure. Furthermore, the Government has started building Offices for the Ministries without former budgeting. Budget for it is foreseen in 2019/2020. The Government is investing heavily in upgrading the formerly sleeping town of Dodoma into a major urban hub. In 2019 alone, the GoT borrowed USD 450 mio. for the construction of an international airport and a ring road in Dodoma. Given that a vast new terminal just opened at the Julius Nyerere International Airport in Dar es Salaam which is only using a fraction of its potential capacity, it is questionable whether these investments are needed in the planned dimension.

In July 2016, President John Pombe Magufuli as per tradition took over the chairmanship of the ruling party (CCM) and started to review the membership profile and to restructure the longest serving ruling party on the African continent. While the ruling party enjoys a continuous support in the large public, it has to address pressing issues such as of party funding and its internal coherence. The General elections are scheduled in October 2020. It is expected that CCM will continue to dominate the domestic political landscape, benefiting from a weak opposition, as well as a tightening of the civic and political space which have made it very costly to voice any criticism against the President. The CCM's dominance and lack of commitment to a fair political contest was demonstrated the local elections in November 2019, which it won by a landslide, securing 99.8% of all local government seats. This came after a boycott of the polls by much of the opposition because of irregularities during the preparatory phase. In the run up to the 2020 polls, opposition parties are already reporting severe limitations in their capabilities to campaign, including frequent arrests by the police, banning of opposition newspapers, and physical attacks against main opposition leaders which remain unresolved by the security forces.

According to EIU8, latent tensions in the semi-autonomous territory of Zanzibar could re- emerge ahead of the elections, as they did in 2015. The CCM-controlled subnational administration is committed to preserving the union with Mainland, however with the end of the term of the current President of Zanzibar, , and a re-grouped opposition, this might prove more complicated than on the mainland.

Important policy decisions are expected to address the funding balance of the pension and health fund. The rapid population growth (2.9 percent) and increase of the unemployment rate of the youth, particularly in the urban and sub-urban zones, remain a major challenge for the Government. Out of 800’000 youth entering the job market every year, only 40’000 find an employment in the formal sector. While the poverty rate has declined recently, the absolute number of the poor has not changed given the fast pace of population growth. Low income per head and a drifting business and investment environment will remain the chief structural constraints in the medium term.

8 EIU Country Report June 2020

5 1.2. International Comparison of Tanzania’s performance Tanzania is among the top three countries in East Africa in terms of economic performance. Between 2013 and 2018, the average GDP growth of Tanzania (6.5%) was behind only Ethiopia (9.5%) and Rwanda (6.7%). The country’s inflation rate has also been the least volatile and is one of the lowest in the East African Community EAC. (WB)

Future economic growth and attractiveness of Tanzania as a business destination will depend on the Government removing existing structural constraints, enforcing rule of law and fostering sound economic institutions and unpredictability of important economic decisions. Currently, Tanzania’s business environment remains low in global and regional comparisons, as progress towards a more open market economy is very slow.

Tanzania’s rating in the Global Competitiveness Report published by the World Economic Forum has lost one position from 116 in 2018 to position 117 in 2019. Furthermore, its ranking in the ease of doing business has worsened from 132 in 2016 and 137 in 2017 to 140 in 2018 according to the World Bank annual ratings. The score and ranking improved slightly in 2019 to position number 141. Yet, Tanzania’s performance continues to trail its neighbouring peers Rwanda (position 38), Kenya (position 56), and Uganda (position 116). According to the World Bank9, Tanzania has serious problems in trading across the border, resolving insolvency, registering property, protecting minority investors and paying taxes.

With regard to the Human Development Index (HDI), Tanzania had a value of 0.528 in 2019. The consolidated ranking in 2019 by UNDP puts Tanzania on position 159, out of 189 countries.

Tanzania demonstrates a strong political will in fighting corruption. The Corruption Perceptions Index (CPI) reported by Transparency International ranked Tanzania in 2019 as 96 out of 188 countries. According to AfroBarometer data, the perception of corruption in Tanzania decreased dramatically over the past three years: while in the 2015 cohort (data collected in 2014) 39% of Tanzanians stated that corruption has “increased a lot” in the past year, the number dropped to 4% in 2018 (data collected in 2017). Likewise, in 2018, 52% of Tanzanians claimed that corruption “decreased somewhat”, up from 10% in 2015. TWAWEZA found in 2017 that almost 9 out of 10 citizens (85%) think that the level of corruption has declined compared to five years ago. In contrast, in 2014, 8 out of 10 (78%) said that there was more corruption than 10 years ago. No new data has been published on corruption since 2017. There are therefore some doubts about the efficiency of the Government’s current strategy of combatting corruption as no action plan and no systemic change has been implemented so far.

Tanzania worsened 30 places from 83 to 118 out of 180 countries in the 2019 World Press Freedom Index. President J. P. Magufuli has continued to tighten the laws that govern press freedom in the country leading police and ministry officials to increase their actions against media houses. In 2019 the Citizen, the most renowned English language Tanzanian Newspaper was banned for 7 days after being too critical. There were similar cases in 2020, two examples include the Swahili Newspapers Mwananchi and Daima, two key Swahili language newspapers: In April, Mwananchi’s online license got suspended for six months, and in June, Daima’s publishing license was revoked for publishing “seditious content.” With the elections scheduled in 2020, the situation is expected to slide further for independent media.

As mentioned in former reports, President Magufuli introduced a set of new bills relevant to the press freedom, such as the Cybercrime Act 2016, the Media Services Act and the Access to Information bill were meant to update the laws, rules and regulations. In practice, however, the Tanzanian authorities have taken a tougher line with the media. Journalists are required to be officially registered. It also requires all social media contributors to register for a very high fee. Newspapers are further required to renew their operating licenses annually which leaves room

9 Tanzania Economic Update, Transforming agriculture, World Bank, December 2019

6 for the Government to refuse renewal and stop a newspaper from publication. The laws make it illegal to publish any “official” data not approved by the Government or any information online that the Government deemed “deceptive, misleading, or inaccurate.”

1.3. Impact of COVID-19 on the Tanzanian economy

As per July 2020, Tanzania is already suffering substantial economic costs related to the impact of COVID-19. World Bank estimates that in the short-term, the pandemic will dramatically undercut Tanzania’s growth outlook and increase poverty in 2020. To reflect the impact of COVID-19, the Tanzanian government has corrected its expected growth for 2020 to 5.5 percent from 6.9 percent.

According to IMF10, growth in sub-Saharan Africa in 2020 is projected at –1.6 percent, the lowest level on record, while the World Bank11 predicts that economic growth will decline from to -2.1 to -5.1 percent in 2020 (from 2.4 percent in 2019). Tanzania will however most likely not be among the most affected countries economically. While the government has asked for debt relief, citing the pandemic, the International Monetary Fund (IMF) projections suggest that neither the economy nor the public finances are at risk of extreme distress. According to the World Bank, growth in Tanzania is expected to stay positive in 2020 but decline sharply to 2.5 percent. The baseline for this estimation is based on available data through April 2020, and assuming that Government takes action to strengthen the health response and help mitigate impact on livelihoods.

Most importantly, COVID-19 is affecting the livelihoods of many people in the country. According to a survey by BRAC International12, 36% of households report experiencing a lot of reduction in their income in June 2020, compared to 21% in mid-April and 16% in early April 2020. The loss of income for people working in the affected sectors will translate into lower local demand in the economy.

The public health response to the pandemic in Tanzania has been very timid. Tanzania confirmed its first imported COVID-19 case on March 16. In the following days, Government announced a series of measures to curb the spread of the disease. Measures included closing schools, banning public gatherings except religious and suspending international flights. Most businesses except hotels, restaurants, bars and nightclubs remained open. Early on, the president early on ruled out the possibility of a lock down, arguing it will hurt production, implementation of development projects and other economic activities. Ever since reports about new cases and deaths stopped in the end of April, the government started creating a narrative that the fight against COVID-19 is progressing very well and the number of people testing positive for COVID-19 has significantly dropped. Based on this statements, the country gradually relaxed measures initially put in place. In June 2020, the Government announced a gradual reopening.

The Bank of Tanzania has reduced its discount rate and lowered borrowing costs for banks as a measure in response to the impact of COVID-19.

The impact of the pandemic on the Tanzanian economy are mainly due to exposure to the other economies. In the scenario of the World Bank, COVID-19 is expected to have following impact on Tanzania’s economic performance:

10 Regional Economic Outlook, Sub-Saharan Africa, IMF, April 2020 11 Africa’s Pulse, An Analysis Of Issues Shaping Africa’s Economic Future, World Bank Group, April 2020 12 COVID-19 Assessment Report, BRAC, June 2020

7 Export demand is expected to decrease as growth slows for Tanzania’s main trade partners and travel restrictions halt tourist arrivals. Exports are expected to decline by 10 percent and imports by 1.5 percent. (WB)

Tourism is one of the most severely affected sectors. International travel bans have almost stopped the flow of tourism in Zanzibar and Kilimanjaro. The sector has been a significant export driver of economic growth in the country, as it has been one of the fastest-growing sectors in the economy. Consequently, the contraction of tourism has a drastic effects on the Tanzanian economy. The main tourist operators in the country are forecasting a revenue decline of 80 percent or more for 2020, followed by a very weak recovery in 2021. Furthermore, the contraction of tourism has multiplier effects on the economy, as suppliers, subcontracted companies working with tourist operators, hotels and restaurants have seen their demand severely reduced. (WB) According to the BOT13, the impact of the pandemic was more noticeable in April 2020 than in the preceding month, as travel receipts fell by 92.5 percent from April 2019.

The impact of COVID-19 has also dampened other non- traditional exports as well. Externally oriented companies are reporting significant declines in their expected sales. Major exporters of fruits and agricultural products expect a loss of around 40 percent. The production oriented towards the domestic economy is also softening as some Tanzanians adjust behaviour to avoid the coronavirus through work absenteeism and avoiding large gatherings. Lower activity is expected to erode the tax base, in particular in sectors that have already ceased to operate such as tourism.

But also the agricultural sector is severely impacted. According to a report on the impact of COVID-19 on selected commodity value chains14, the impact on agri-commodity value chains is expected to come from exposure to other economies, through change in consumer demand, but also government interventions such as emergency responses that distort prices. Both traditional exports (such as cotton, coffee or cashew) and non-traditional exports (such as horticulture) will be affected through supply/demand disruptions and revenue losses from value. The poultry meat sub-sector has been affected through the drastic fall of hospitality and gastronomic demand and contraction of demand in other outlets – e.g. mining sites, schools and colleges, and street food outlets. The poultry sector is expected to shrink by around 30%. Maize, rice: limited/delayed access to fertilizer and the rise of global fertilizer price will result in low production

Lower transit trade is also expected to decrease Tanzanian exports of transport services to its neighbours. The Dar es Salaam port is the second largest port in East Africa and has become a gateway for other countries in the region. In 2018, exports to the region represented 16.7 percent of Tanzania’s total exports, with Kenya (6.6 percent), Malawi (2.2 percent), Burundi (2.2 percent), and Zambia (0.8 percent). Hence disruptions and closures at the borders could

13 Bank of Tanzania monthly economic report, May 2020 14 Rapid analysis of the impact of coronavirus (COVID-19) on selected agricultural commodity value chains, smallholder producers, women and youth, ANSAF June 2020

8 reduce the traffic and thus the exports of freight transport. This was the case in May 2020, when a dispute over COVID-19 tests for truck drivers crossing the border between Kenya and Tanzania caused disruptions at the border. The dispute was subsequently resolved, and the ministers agreed that truck drivers from both sides will be tested for COVID-19 before commencement of their journeys at the point of origin using standards set by WHO. (WB)

Tanzania’s external position will benefit from higher gold prices and lower oil prices. The external position is highly vulnerable to volatility in gold and oil prices. In 2019, oil accounted for 20 percent of total imports and gold for about 20 percent of total exports. Recent price developments for these commodities have been favorable and Tanzania’s four large-scale gold mines are benefiting from the high gold price. (WB)

Foreign investment will become even scarcer and financial markets will continue to be stressed. According to the World Bank, the plunge in global growth and the rise in uncertainty have caused major capital flight from emerging markets because of both the reduced appetite of investors and the higher cost of capital for projects in Tanzania. The result will be a further reduction in FDI, which had already been slipping in the last few years because of the deteriorating business environment. World Banks expects FDI as a share of nominal GDP to be lower than 1.0 percent. In addition, the decline in capital flows to emerging markets has put pressure on exchange rates (as in South Africa) and can dilute the effectiveness of monetary policy. However, because the BOT has a healthy reserve position exchange rate volatility has not yet spiked.

Domestic business conditions are expected to deteriorate. According to the World Bank, this situation could worsen if the spread of the virus is widespread. As a result, domestic investors will lose confidence and delay investment projects, and consumers as a precaution will save more and limit consumption of durable goods. In addition, disruptions in tourism, export- oriented manufacturing, and related services are shrinking the disposable income of employees in these sectors and owners of small-and medium-size businesses. Thus, it is expected that private consumption decelerate from 5.5 percent in 2019 to 2.4 percent in 2020, and gross fixed capital investment from 8.0 percent to 4.0 percent.

With the COVID-19 pandemic, more workers will self-isolate, even if there is no mandatory policy for social distancing, and some workers will become ill. According to the World Bank, both effects will reduce GDP through lower labor productivity. The toll would be heaviest on the informal economy where there is no safety net: there, a decline in hours worked will cause a loss of disposable income. Even though the World Bank’s baseline scenario assumes that the impact of coronavirus will start phasing out in 2020, there is a significant downside risk of long-lasting negative spillovers on labor productivity, schools closed for a significant period, and dramatic effects on future productivity, thus reducing permanently potential GDP growth below 6.0 percent.

The EIU forecasts steady fiscal expansion in the medium term as the government increases spending to bolster the capacity of the healthcare system amid the pandemic, and subsequently raises capital investment for infrastructure development. Consequently, it is expected that the fiscal deficit will widen from 2.3 percent of GDP in 2018/19 to 3.6 percent of GDP in 2020/21 as spending growth outpaces revenue growth.

2. International and Regional Economic Agreements

2.1. Country Policy and Priorities

EAC was formally established by Kenya, Tanzania and Uganda in 2000; Burundi and Rwanda subsequently joined in 2007, followed by South Sudan in 2016. The economic and financial integration in the EAC has been supported by several initiatives, including joint protocols and common regulatory frameworks. The three main protocols of regional integration are the

9 Custom Union (2005), the Common Market (2010) and the Monetary Union protocol (2013). The regional integration is likely to deepen further as new initiatives (for example, regional infrastructure projects) get under way. In principle, EAC member countries have pursued economic integration not only for its economic benefits but also as a stepping stone to political integration. Currently, the political finality of the EAC is termed to take the shape and structure of a Political Confederation.

In practice, different comprehensive assessments conducted by the EAC Secretariat noted that laws and regulations of the EAC Partner States still present barriers to increased regional trade and direct investment. Overall progress to eliminate non-tariff barriers has been slow, and some Partner States have introduced new measures, contradicting their obligations under the Common Market protocol. Finally in 2015, a significant step was taken in support of the progressive elimination of Non-Tariff Barriers (NTB) to Trade by introducing a draft Act establishing a legal mechanism for identifying and monitoring the removal of NTBs.

Since September 2014, Tanzania has been implementing the EAC Single Customs Territory (SCT) system, which involves the removal of duties and other restrictive regulations, and the minimisation of internal border customs controls on goods moving among partner states, with the ultimate aim of free circulation of goods. Despite efforts to promote regional trade, the volume of trade between Tanzania and its EAC partners remained stagnant or with little increase in 2017. Intra-regional exports continue to constitute a small proportion amounting to only 5.9 percent of total EAC trade. The volume of trade with the Southern African Development Community (SADC) also increased, to USD 2.05 billion in 2013 from USD 1.45 billion in 2010.

The introduction of One-Stop Border Posts (OSBP) has been hailed for improving trade among East African Community (EAC) member countries. EAC countries continued last year the implementation of infrastructure projects in order to enhance existing trade corridors. The countries have committed to establish up to 15 one stop border crossings. In the five partner states, 15 OSBPs Eight OSBPs have been constructed since 2010 and are now fully operational.

A joint project aiming at facilitating the access of new medicines and drugs in the six EAC Partner States enjoys the support of Swissmedic and is funded by the Swiss Agency for Development and Cooperation; the project was well progressed in 2017, contributing to the significant decrease of time-laps for the introduction of new medicines and drugs into the EAC market.

On 16 October 2014, the EAC partner countries finalised the negotiations for a region-to-region comprehensive Economic Partnership Agreement (EPA) with the European Union (EU). The agreement would have covered trade in goods and development cooperation. It also was to contain an extensive chapter on fisheries and foresees further negotiations on services and trade-related rules in the future. Since the Extraordinary EAC Summit in September 2016, the EAC Partner States have not come to a final conclusion. On 28 September 2017, President of Uganda, Yoweri Museveni, then Chairperson of the EAC, met with the President of the EU Commission, Jean-Claude Junker, in Brussels to raise EAC’s concern with regard to the EPA. The EU pointed out that it is to EAC member states to decide whether to sign the agreement or not, and that the EU would not step into their internal affairs. They further encouraged the EAC Ministers present to meet among themselves in order to clarify all pending issues delaying the signature of the EPA by all 5 EAC members.

The Member States of the European Free Trade Association (EFTA), through the EFTA secretariat and the EAC secretariat explored further in 2017 the intentions for a joint declaration of collaboration.

10 2.2 Outlook for Switzerland (potential for discrimination)

No cases of discrimination due to international and regional economic agreements against Swiss companies in Tanzania have been reported in 2020. In order to mitigate any possible risk of discrimination for Swiss enterprises, a framework agreement between the EFTA trading block and the EAC Partner States is encouraged in order to facilitate and create a trade and investment dialogue platform in the long-term.

3. Foreign Trade

3.1. Developments and General Outlook

Similarly to previous year, over 72% of Tanzania trade was concentrated in ten countries. About 35% of the country’s import came from China and India, while about 46% of exports were to South Africa, India and Switzerland. In 2018 there was a general decline in imports of goods and services in Tanzania. The latest available data shows that imports decreased slightly in the third quarter of 2018. During the same period, exports in Tanzania increased to 1053 USD Million in the third quarter of 2018 from 1015.90 USD Million in the second quarter of 2018. Manufactured goods export declined to an even greater extend by – 46%, while other goods such as sisal, tea, cloves and tobacco, decline by -18.7 %. Agriculture commodities increased by 11.7% and services by about 2.5%.

Tanzanias main export15 goods are Precious Stones & Metals (39%), followed by Fruits and Nuts (13%), Tobacco (5.2%), Coffee, Tea and Spices (4.9%) and Seafood (4.6%).16

Likewise, all types of imports17 (oil, transport, capital equipment, services) declined except for food, which increased by 13.8% over the period. According to the World Bank, the decline in imports is mainly attributable to the slow implementation of public investment projects and scaling down of exploration activities in the natural gas sectors. Tanzania’s main import goods are Mineral Oils (20%), Machinery (12%), Vehicles (7.7%) and Electronics (7.3%)18

Tanzania imports petroleum mainly from India, the United Arab Emirates, and through trading companies in Switzerland.

The BOT Monthly Economic Review for May 2020 shows that overall exports of goods increased by 30.3 percent to USD 5,897.0 million in the year ending April 2020, driven by both traditional and no-traditional exports. Traditional exports almost doubled, driven by cashew nuts, cotton, cloves and sisal exports. Cashew nuts and sisal exports rose on account of increase in volume and price, while exports of cotton and cloves rose due to volume effect. Conversely, exports of coffee, tea and tobacco declined. Exports of gold increased by 44.5 percent to USD 2,436.5 million, and accounted for 56.3 percent of exports of non-traditional goods. The increase was on account of volume and price in the world market. Tanzania’s major trading partners

15 Exports, Trading Economics 16 Trading Economics, data from 2017 17 Imports, Trading Economics 18 Trading Economics, data from 2017

11 include China, Germany, Japan, India, the EU, United Arab Emirates, United Kingdom, Kenya, Japan, India and South Africa.

3.2. Bilateral Trade Switzerland was Tanzania’s number one export destination for 2016 and had replaced India as the leading export destination. A significant change occurred in 2017, when gold export declined by 88.7 % due to the presidential order to hold gold trading by few companies. This development is important to Switzerland as it is currently Tanzania’s 3rd important export nation (in 2018). According to the BOT’s Quarterly Economic Report march 2020, the value of Tanzania’s exports to Switzerland was of TZS 584,262.2 million in 2018. Provisional data for 2019 shows a value of TZS 743,462.2 million in export to Switzerland. It is important to note that 92% of the products physically exported to Switzerland is gold. Other exports included raw cotton and cut flower. Tanzania ranks on the 63rd place as import partner.

But on the other way around, Tanzania ranked 91 as export partner for Switzerland in 2018. Switzerland has posted a trade deficit with Tanzania in 2017 and 2018. Switzerland’s exports added up to CHF 46.5 million in 2018, up from CHF 14.5 million in 2016 (+220.4%). As in previous years, chemical and pharmaceutical products with 42% and machinery with 39% accounted for the biggest shares. Those two sectors are also responsible for the substantial growth. With CHF 274.2 million in 2018, the value of Switzerland’s imports from Tanzania decreased from the 2016 figures (-5.4%).

Other than in the previous economic reports of this Embassy, these trade figures provided by the Swiss customs administration include trade in gold, precious stones and other commodities under chapter 12 and 13 of the Swiss Foreign Trade Statistics. These figures do not include other commodities traded, but not physically moved through the Swiss customs territory. As a consequence, according to Tanzania’s trade data, which include these commodities in its statistics, Switzerland is ranked the ninth biggest buyer of Tanzanian goods and the fifth largest source of Tanzanian imports. 30-50% of the oil and petrol bulk imported in Tanzania are traded by the two Geneva-based companies. 60-70% of all Tanzania’s coffee export is traded by companies based in Switzerland. 3.3 Gold Trade

3.3.1 General Mining has placed Tanzania in the higher ranks of African economies in terms of attracting FDIs. Tanzania is endowed with a variety of industrial minerals and precious metals as well as gemstones. These include iron ore, soda ash, coal, clay soil, uranium, diamond, tanzanite, and gold. Tanzania mining output totalled USD 1.8 billion in 2014, which represented 3.7% of the country’s GDP. The mineral exports accounted for USD 1.3 billion of the total value of

12 Tanzania’s exports in 2015 (i.e. 22%). Gold represents more than 90% of the country’s mineral exports. According to the Tanzania Ministry of Minerals and Energy, gold production increased by more than 700% over the past 25 years from 5 to 40-50 tonnes per year, which makes it the 4th largest gold producer in Africa after South Africa, Ghana and Mali.

There are 6 major gold mines in Tanzania:

Gold Mine Ownership Production (%) North Mara Acacia 26.6 Bulyanhulu Acacia 20.1 Buzwagi Acacia 11.5 Geita AngloGold Ashanti 34.4 New Luika Shanta Gold 6 Biharamulo Stamigold (STAMICO) 1.4 Data from Tanzania Minerals Audit Agency report 2016

The value of exports of Gold in 2018 amounted to US 1.5 billion (Intracen, 2018). The Bank of Tanzania notes in the Economic Bulletin for the Quarter Ending March 2019 that the value of gold and diamond produced by large-scale miners accounted with USD 325.9 million in the quarter ending March 2019, compared to USD 324.0 million recorded in the corresponding quarter of 2018 nearly equally. Production of gold increased by 7.8 percent to 10,063.4 kilograms quarter-on-quarter, while that of diamond rose by 18.2 percent. However, the trade volume is still under the level of 2016.

Source: BOT Q1/2019 The main explanation is the Ministry of Energy and Minerals of Tanzania’s ban on the export of mineral concentrates and ores for metallic minerals such as gold, copper, nickel and silver, which took place with immediate effect on the 2nd of March 2017. The press release from the ministry states that “The ban intends to make sure that mineral value addition activities are carried out within Tanzania as emphasized in the Mineral Policy of 2009 and Mining Act of 2010”. Following the introduction of the ban, the parliament passed 3 bills covering natural resources contracts, sovereignty and amendment of existing laws in July 2017.19 Under the new laws, the Government is given more power over mining and energy companies operating in Tanzania. The ban as well as the unfavourable revisions to the mining laws provoked major blows to the sector. For example, the blockage of 260 gold containers that had reached the final stage of exportation and were being held at the Port of Dar es Salaam.

The Government’s action to ban the export of mineral is part of a broader issue that rose between the Government of Tanzania and Acacia, the largest mining company in Tanzania. The dispute escalated in July 2017 when the company was asked to pay a USD$ 190 billion

19 https://www.voanews.com/a/tanzania-president-signs-new-mining-bill-into-law-/3936493.html http://www.tanzaniainvest.com/mining/new-laws http://www.tanzaniainvest.com/mining/ban-export-mineral-concentrates

13 bill for unpaid taxes, fines and interest. Negotiations between the Government and Barrick Gold (owns 63% of Acacia) have resulted in an agreement in October 2017. In January 2020 the government acquired a 16% free carried interest in three gold mines as part of a tax dispute settlement with Canada's Barrick Gold.

3.3.2 Gold trade with Switzerland

Gold trade is of particular importance for Switzerland. The country is the international hub for world gold trading, notably due to its performing refineries. International production of gold is about 3000 tonnes a year, and 2/3 of the gold passes through Switzerland. Its record level was in 2013 where importation of gold amounted for CHF 110 billion, and its exportation for CHF 117.7 billion. In 2018, exports amounted to CHF 54.4 billion and imports to 61.7 billion.

Yet, gold differs from other commodities in terms of the determination of the “origin” country. While for goods it is the country of origin that is referred to for trade statistics, for gold it is more generally the country of dispatch. The main reason for that is the difficulty to trace back the origin of the gold, since it is everlasting and can be melted several times. Hence, when one cannot identify the country of origin, the country of dispatch is used as a reference for statistics. This explains the provenance of gold to Switzerland from mainly Germany (19%), the United Kingdom (7.1%) Italy (7.4%), France (6.1%), the United States (9%), United Arab Emirates (6.2%) and China (4.7%). In 2018, Switzerland gold imports from Tanzania amounted to 252.7 million (USD$), a significant decrease of 60.1% after an all-time high in 2016.

On the other hand, Tanzania exports gold mainly to South Africa, India and Switzerland. As Switzerland had become the most important export partner for Tanzania in gold, with a trade value of 753 million (USD$) in 2016, South Africa and India overtook Switzerland’s rank in 2017. The total value of the exported gold by Tanzania was 1,508,983 (USD$) in 2018. 16.7% of it was exported to Switzerland (263.6 million USD$).

3.4 Impact of COVID-19 on Foreign Trade

As mentioned before, the impact of the pandemic on the Tanzanian economy are mainly due to exposure to the other economies. Exports are expected to decline by 10 percent and imports by 1.5 percent according to the World Bank. (WB)

Decreased external demand and travel bans in Tanzania and abroad have already had a severe impact on the tourism sector and dampened other non-traditional exports as well. Externally oriented companies are reporting significant declines in their expected sales. Tour operators expect a decline in 2020 revenue of 80 percent or more, while major exporters of fruits and agricultural products expect a loss of around 40 percent.

According to a report on the impact of COVID-19 on selected commodity value chains20, the impact on agri-commodity value chains is expected to come from exposure to other economies, through change in consumer demand, but also government interventions such as emergency responses that distort prices. Both traditional exports (such as cotton, coffee or cashew) and non-traditional exports (such as horticulture) will be affected through supply/demand disruptions and revenue losses from value.

The Cotton subsector for instance is heavily dependent on markets in India, Bangladesh, China and Thailand. Due to a fall of demand in India, losses are expected. Coffee is also expected to drop in exports. It is empirically estimated that 1% drop in GDP growth result into 0.95% decline in growth of coffee consumption. The export loss associated with 5.2% fall in Japan’s GDP in 2020 will transmit a loss to the Tanzanian coffee sector of US$ 1.6 – 2.5 million

20 Rapid analysis of the impact of coronavirus (COVID-19) on selected agricultural commodity value chains, smallholder producers, women and youth, ANSAF June 2020

14 in export revenue, for that market alone. Given that the economies that buy Tanzanian coffee will all contract, it means combined loss for all markets will be a huge loss in export revenue.

The Cashew nut subsector, which had an export value of US$ 500 million in 2017, is affected through the fall of global demand due to containment measure in the market. The Indian market accounts for more than 90% of the exports. A fall of up to 60% in exports is suspected.

The Horticulture subsector is particularity hard hit, as global markets rely on passenger flights. Before the pandemic, Tanzania’s horticultural export had a growth rate of 11 percent per year. Flower exports have however been resurging after arrangement with Ethiopian airways in April 2020 to airlift cargo from Kilimanjaro airport direct to export markets and easing lockdowns at destination markets.

The sunflower subsector relies on import substitution. The Tanzanian edible oil sector will be affected through the disruption in the global supply chains of edible oil commodities, especially the fall in prices in India, Malaysia and Indonesia. Restricted or costly imports of edible oil might favor the domestic sunflower sector and vice versa.

However, Tanzania’s external position will benefit from higher gold prices and lower oil prices. Recent price developments for these commodities have been favourable and Tanzania’s four large-scale gold mines are benefiting from the high gold price. In the twelve months ending in March 2020, the value of gold exports rose by 22 percent as prices bounced back from a low of US$1,301 an ounce in March 2019 to US$1,592—a level not seen since March 2013. Over the same period, oil prices fell by 50 percent to US$32.2 per barrel, reflecting lower jet fuel demand and increased production, which will lower the oil import bill, putting Tanzania in a favourable external position. The coronavirus pandemic is unlikely to disrupt existing onshore gas production. Yet, the increased volatility observed in commodities prices in May and June add considerable uncertainty to World Bank’s forecast of Tanzania’s external accounts. (WB)

Lower transit trade is also expected to decrease Tanzanian exports of transport services to its neighbours. In 2018, Tanzanian exports in the region represented 16.7 percent of its total exports (up from 8.5 percent in 2001), with Kenya (6.6 percent), Malawi (2.2 percent), Burundi (2.2 percent), and Zambia (0.8 percent). Hence disruptions and closures at the borders could reduce the traffic and thus the exports of freight transport. (WB) This was the case in May 2020, when a dispute over COVID-19 tests for truck drivers crossing the border between Kenya and Tanzania caused disruptions at the border. The dispute was subsequently resolved, and the ministers agreed that truck drivers from both sides will be tested for COVID-19 before commencement of their journeys at the point of origin using standards set by WHO.

With regard to the mining sector, the government has not imposed restrictions. According to the National Resource Governance Institute, the impact on mining is almost exclusively a result of global factors, and Tanzania’s four large-scale gold mines are benefiting from the high gold price. However, they are facing some operational challenges. International airlines’ flights suspension means that Tanzania needs charter flights to export the bullion. The pandemic has also disrupted input imports, particularly those with supply chains involving China, South Africa and the US. But there is no suggestion that any largescale gold mine is experiencing financial difficulties. On the contrary, given that the recent Barrick deal allows for the resumption of concentrate exports, production should increase at two of these mines. The only other large- scale mine operating prior to the coronavirus pandemic, a diamond mine, has been put on “care and maintenance” due to the fall in the diamond price, which exacerbated existing cash flow issues.

Although the mineral trading centers that were established in 2019 for artisanal and small- scale miners remain open, these miners have been hit hard as the dealers do not have access to export markets and international buyers due to global travel restrictions and Tanzania’s suspension of international flights. The miners have appealed to government to buy their minerals (mostly gold). The government has ruled out having the Central Bank buy unrefined

15 gold but is looking into alternative measures such as asking commercial banks to accept the gold from miners as collateral for loans.21

4. Direct Investment

4.1. Developments and General Outlook

UNCTAD estimates Tanzania’s FDI stock for 2017 at USD 20.3 billion (39% of GDP). The same source reports that FDI inflows for 2017 stood at USD 1.18 billion (2.3% of GDP), down by 13% compared to the previous year but Tanzania is still among the ten biggest recipients of FDI in Africa. This decrease is due to policy changes in tax administration and mining royalty; it did not register any outward FDI for Tanzania. Tanzania wants to capitalise on its long coastline and upgrade existing railways and roads to serve growing economies in the land- locked heart of Africa from Uganda on its north border to Zambia and Malawi in the South. In order to exploit the potential of transit trade, the Government intends to modernize the central railway by changing the gauge from 60/80 lb to 120 lb.

According to UNCTAD22, the FDI inflow in Tanzania reached USD 1,1 billion in 2019 and showed an increase compared to the previous year (USD 1 billion). The current FDI stock was estimated at USD 21,8 billion in 2019. The mining sector, the oil and gas industry, as well as the primary agricultural products sector (coffee, cashew nuts and tobacco) draw most FDI. The country’s primary investors are China, India, Kenya, United Kingdom, Mauritius, Oman, the United Arab Emirates, Canada, the United States, the Netherlands, South Africa, and Germany

Moody’s Investors Service published on April 1st 2019 their Research Announcement for Tanzania. An overall rating of B1 negative was explained by Tanzania’s high growth potential and moderate Government debt, set against its very low per capita income, a relatively weak institutional framework and vulnerability to exchange-rate volatility.23

A rating allows for conducive condition for both the Government and private sector to borrow from the international financial market at relatively better terms than no rating. It is expected that the Government may borrow between 600 and 800 million USD through a sovereign Eurobond, for financing priority infrastructure projects that didn’t qualify for a support by the WB or the AfDB. However, up to now, the GoT has not pursued this option as part of its prudent debt strategy.

Tanzania’s Investment Center (TIC) under the Prime Minister’s office has published in 2018 a new Investment guide, updated recently all relevant information on its Website and introduced a transparent process for the registration of a company through the one stop shop at TIC provided that their investment projects are worth at least 500,000 USD for foreigners and 100,000 USD for Tanzanian Nationals.

Tanzania expects a consortium of international oil companies to start building a long-delayed LNG project in 2022. Construction of an LNG export terminal near huge offshore natural gas discoveries in deep water south of the East African country has been held up for years. The Government announced its intention to conclude talks in September with a group of foreign oil and gas companies led by Norway’s Equinor on developing the LNG terminal. Equinor, alongside Royal Dutch Shell, Exxon Mobil and Ophir Energy and Pavilion Energy, plan to build the onshore LNG plant in Lindi region. The international oil companies will develop the project in partnership with the Tanzania Petroleum Development Corp. The Government launched a new round of talks in April 2019 with each company in order to speed up the process. Tanzania

21 Tanzania: Initial Assessment of the Impact of the Coronavirus Pandemic on the Extractive Sector and Resource Governance, NRGI, June 2020 22 World Investment Report 2020, UNCTAD 23 https://www.moodys.com/research/Moodys-Tanzanias-credit-profile-balances-high-growth-potential-against- low--PBC_1168226

16 has estimated recoverable reserves of over 57.54 tcf of natural gas. Tanzania already uses some of the gas for power generation and running of manufacturing plants.

Since November 2015, foreign investors and international development organisations alike have been facing difficulties in relation to application for work and residence permits. There has been no major improvement of the situation in 2020, and this is becoming an important obstacle to foreign investments. A new regulation defining the positions opened for Work permits and the experience required has been issued for and was in consultation in October 2018. So far, the new regulation has not been implemented.

For the last two decades, Tanzania has attracted unprecedented levels of local and foreign direct investment (FDI). However, the proliferation of nuisance taxes, inadequate human and financial resources, coordination capacity in the state bureaucracy, and resistance to market reforms by politicians and governments officials have all contributed to the stagnation or deterioration of the business environment with a climate of great uncertainties. This inevitably has driven away investors. Various actions from the Government in 2017 reflect this trend that present impediments to the private sector and significant drag on growth. For example, with regard to the telecoms, the implementation of the finance act of 2016 required all telecoms to list at least 25% of their share on the Dar es Salaam Stock Exchange (DSE). Other sectors affected where the mining companies, which were asked to list 30% of their shares.

The current Government is focusing mostly on addressing infrastructure challenges. In April 2017, the Standard Gauge Railway (SGR) project was launched. The first phase of the project is to link Dar es Salaam to Morogoro, while the second phase that is to connect it further to Dodoma. The second phase is expected to start soon, yet the Government is still seeking for USD 1.2 billion. Complementary, the World Bank is supporting the rehabilitation of the already existing railways.

Moreover, the Lake Tanganyika Transport Programme (LTTP) was discussed between the EAC, the WB, and the Central Corridor Transit Transport Facilitation Agency. The project is in the pipeline and WB committed US$ 203.00 million. The LTTP is designed to improve navigation and to strengthen infrastructure in the hope that it will emerge as a key logistics hub for Burundi, the DRC and Tanzania. For Tanzania, developing infrastructure that connects to these countries would be a major boom to its logistics industry as the country attempts to increase its share of regional trade traffic. Additionally it could also unlock significant intra- regional trade (EIU). In addition, discussions going on between China’s Sinoma and Hengya Cement and the Industry, Trade and Investment minister Innocent Bashungwa on the USD 3 billion investment project in the production of cement and electricity in Tanga region. “Our goal is to see the project’s kicking off by the year 2020. In so doing, it will add impetus to the goal of industrialising Tanzania as envisioned in the country’s Development Visions 2025” Mr Mwijage, one of Bashungwa’s predecessors told journalists.

4.2. Bilateral Investment Flows

The value of the Swiss FDI stock in Tanzania grew from CHF 113 million in 2015 to CHF 176 million in 2018. FDI flows in the same year totalled CHF 16 million.24. A bilateral agreement on the promotion and protection of investments was signed in 2004 and entered into force in 2006. Over 40 Swiss companies do business in Tanzania. In addition, some Swiss multinationals market their goods and services in Tanzania.

According to EIU, albeit the economic fallout from the pandemic, it is expected that the infrastructure sector and mining sector still attract foreign direct investment. These sectors have displayed resilience in the past, for example in the face of unhelpful government policies.25

24 Swiss-African Business Relations 2020, report by Swiss-African Business Circle, April 2020 25 EIU, Country Report April 2020

17

5. Trade, Economic and Touristic Promotion “Country Advertising”

5.1. Foreign economic promotion instruments

Tanzania is not a priority country of Swiss Tourism and PRS. There is no Swiss-Tanzania Chamber of Commerce. Interested companies are, however, supported by Switzerland Global Enterprise (SGE) in Zürich, the Handelskammer Schweiz-Afrika in Muttenz and the Swiss- African Business Circle in Bern.

The Swiss Embassy in Dar es Salaam organizes informal gatherings for Swiss invested companies in Tanzania on a biannual basis. The Embassy supports companies or investors in their business in Tanzania. The European Union Business Group (EUBG) in Tanzania was created in 2015 and is also open to Swiss enterprises. The Group aims at exchanging information such as taxation, immigration and customs.

Switzerland’s development cooperation with Tanzania is aligned with the FYDP II. The Swiss Agency for Development and Cooperation (SDC) supports projects in the areas: health, employment and income, and governance. The new Country Program 2021-2024 is currently being finalized.

Following the division of labour between SDC and the Swiss State Secretariat for Economic Affairs (SECO), the former cooperates with Tanzania as a priority country, while the latter phased out its bilateral activities by 2013 in order to concentrate its resources on middle- income countries. However, Tanzania continues to benefit from SECO-support through regional or multilateral programmes under the implementation of international organisations. 5.2. Interest for Switzerland as a venue for tourism, education and other services, potential for development

The image of Switzerland as a wealthy, sustainable and stable country is widespread among Tanzanians. The many international conferences taking place in Switzerland and in the UN- city of Geneva in particular add to the business trips of the private sector of Tanzania. Switzerland is also known for its finance and medical services of excellence as well its private schools. Prior to the COVID-19 pandemic, Swiss International Air Lines had six flights per week between Zurich and Dar es Salaam with a short stopover in Nairobi on the inbound flight from Zurich. In late June 2020, SWISS resumed Cargo flights to Dar es Salaam and announced that passenger flights – initially once a week – will resume as of mid- July 2020.

Switzerland’s reputation as an attractive financial centre is well known in Tanzania. Swiss banks assist Tanzania’s private companies, mostly family based, in their business expansion, financing and consultancy services. The compliance commitment of Swiss banks doing business in Tanzania has been well noted in the business community. While commodity financing will remain strong, Swiss banks are interested in developing further their services in an emerging business environment such as the East African Community.

18

6. Sources

 Rapid Socioeconomic Impact of COVID-19 in Tanzania, UNDP  Poverty assessment  IMF: o Regional Economic Outlook, Sub-Saharan Africa (April 2020) o International Monetary Fund, country report, No.17/180 (July 2017)  WB World Bank Group: o Tanzania Economic Update, Addressing the Impact of COVID-19 (June 2020) o Tanzania Economic Update, Transforming Agriculture (December 2019) o Tanzania Mainland Poverty Assessment (2019) o Africa’s Pulse, An Analysis Of Issues Shaping Africa’s Economic Future (April 2020)  EIU: Economist Intelligence Unit, country report (May 2020 and June 2020)  BOT: Bank of Tanzania, publications and statistics, Annual Report 2018/19, https://www.bot.go.tz/Publications/EconomicAndOperationsAnnualReports/ANNUAL %20REPORT%202018-19%20SIGNED.pdf  United Nations conference on Trade and Development (2020) World Investment Report https://unctad.org/en/PublicationsLibrary/wir2020_en.pdf  World Trade and Investment report 2017, http://unctad.org/en/PublicationsLibrary/tdr2017_en.pdf?user=46  World integrated Trade solutions, https://wits.worldbank.org/CountryProfile/en/Country/TZA/Year/2016/TradeFlow/Expo rt/Partner/CHE/Product/All-Groups  Tanzania Investments Centre, http://www.tic.co.tz/  Trading Economies, https://tradingeconomics.com/  Tanzania Invest, http://www.tanzaniainvest.com/fdi  Tanzania Minerals Audit Agency, annual report 2016, http://www.tmaa.go.tz/uploads/TMAA_ANNUAL_REPORT_2016.pdf  Tanzania National Bureau of Statistics, http://www.nbs.go.tz/nbs/takwimu/na/Second_Quarter_Gross_Domestic_Product_20 17.pdf  EZV, https://www.ezv.admin.ch/ezv/en/home/topics/swiss-foreign-trade- statistics/daten/handelspartner.html  OEC: Observatory of Economic complexity, https://atlas.media.mit.edu/en/  Tanzania Initial Assessment of the Impact of the Coronavirus Pandemic on the Extractive Sector and Resource Governance, Natural Resource Governance Institute (June 2020)  COVID-19 Assessment Report, BRAC International, June 2020  Swiss-African Business Relations 2020, report by Swiss-African Business Circle, April 2020  Rapid analysis of the impact of coronavirus (COVID-19) on selected agricultural commodity value chains, smallholder producers, women and youth, ANSAF June 2020

19 Annex 1: Structure of the Economy

Shares of GDP by Activities at Current Prices

Sectors’ shares of GDP 2016 2018 Agriculture, forestry and fishing 29.2% 28.2%

Construction 14.0% 13.0% 10.8% 9.1% Wholesale and retail trade

Public administration and defense 6.3% 4.0% Manufacturing 4.9% 8.1% Mining 4.8% 5.1% others 30% 32.5%

Source: Bank of Tanzania

20

Annex 2: Selected Economic Indicators (Macro), 2014-2019

Economic indicators 2014 2015 2016 2017 2018 2019 GDP (current US$ billions) 49.9 47,3 49.7 53.3 58.0 63.1 GNI per Capita, Atlas method (current US$) 970.0 980.0 970.0 970.0 1,020 1,080 Real GDP Growth (% of GDP) 7.2 6.97 7 6.6 6.1 6.8

Inflation (%) 5.4 6.86 5.2 3.8 3.5 3.2

Budget Balance (incl. grants; % of GDP)1 -4.9** -3.3 -2.8 -1.9 -1.3 -2.3 Current Account Balance (% of GDP, incl. official transfers) -13.3 -8.65 -8.8 -3.3 -4.7 -2.4 External Debt (end of period, % of GDP) 37.8 n/a 39 36.3 33.05 n/a

International Reserves (US$ billions) 4.49 4.07 4.3 5.906 5.043 5,567

Sources: https://data.worldbank.org/country/TZ https://tradingeconomics.com/tanzania/indicators Economist Intelligence Unit, Country Report Tanzania, May 2020

21

Embassy of Switzerland in Tanzania

Formulaire CH@World A 352 Country: Tanzania Dernière mise à jour: 03.07.2020 STUAL

Annex 3: External Sector Developments (A352) source: ITC, www.trademap.org

Tanzania’s Imports from Top Five Countries for 2018

Position Country Trade Value Share in Value (US$ thousand) (in %) 1. China 1’761’353 20.69 2. India 1’217’777 14.31 3. UAE 870’897 10.23 4. Saudi Arabia 567’423 6.66 5. South Africa 437’230 5.13 14. Switzerland 124’029 1.45

Tanzania’s Imports from Top Five Countries for 2019

Position Country Trade Value Share in Value (US$ thousand) (in %) 1. China 3,814,731 38.2 2. India 1,692,931 17 3. South Africa 478,484 4.8 4. United States of America 332,202 3.3 5. Kenya 329,535 3.3 26. Switzerland 50,875 0.5

22

Tanzania’s Exports to Top Five Countries for 2018

Position Country Trade Value Share in Value (US$ thousand) (in %) 1. South Africa 743’020 19.57 2. India 727’622 19.16 3. Switzerland 257’166 6.77 4. Belgium 240’367 6.33 5. Kenya 221,933 5.84

Tanzania’s Exports to Top Five Countries for 2019

Position Country Trade Value Share in Value (US$ thousand) (in %) 1. India 859,480 25.5 2. China 366,339 10.9 3. Switzerland 281,243 8.3 4. Kenya 269,784 8 5. Zambia 206,000 6.1

23

Annex 4: Development of the bilateral trade between Switzerland and Tanzania 2018-2019 Switzerland – Tanzania: 2018 – 2019 Trade statistics

Nature of goods Imports 2018 Imports 2019 Exports 2018 Exports 2019

Value (CHF) Change Value (CHF) Change Value (CHF) Change Value (CHF) Change +/- % +/- % +/- % +/- %

Total trade 274’200’018 -5.4 279’254’868 1.8 46’481’734 220.4 50’616’712 8.9

01 - Forestry and agricultural products, fisheries 20’824’751 -19.3 10’133’084 -51.3 143’626 -12 85’298 -40.6

02 - Energy source * * -100 108 *

03 - Textiles, clothing, shoes 136’210 142.9 394’463 189.6 68’468 426.9 69’925 2.1

04 - Paper, articles of paper and products of the printing 19’088 ** 66 -99.7 3’232’388 ** 8’319’999 157.4 industry

05 - Leather, rubber, plastics 16 -97.8 1’913 ** 347’436 195.1 217’410 -37.4

06 - Products of the chemical and pharmaceutical industry 4’290 3.6 977 -77.2 19’329’802 113.8 14’579’721 -24.6

07 - Stones and earth -100 47 * 14’172 -45.9 45’385 220.2

08 – Metals 4’530 -66.2 8’910 96.7 746’510 103.5 769’349 3.1

09 - Machines, appliances, electronics 355’629 46.1 292’079 -17.9 18’194’414 476.8 24’165’499 32.8

10 - Vehicles 15’601 -31.7 1’515 -90.3 552’266 -39.2 592’285 7.2

11 - Precision instruments, clocks and watches and jewellery 11’339 -68.8 9’605 -15.3 3’676’917 471.2 1’605’130 -56.3

12 - Various goods such as music instruments, home 37’121 175.7 11’853 -68.1 175’735 ** 166’603 -5.2 furnishings, toys, sports equipment, etc.

* Percentage change/share/price not interpretable or not calculable ** Percentage change > 999.9 % *** Provisional data

Request date/time: 03.07.2020 17:30:46 © 1988 - 2020 Swiss Federal Customs Administration FCA 24

Annex 5: Main investing countries in Tanzania, 2013 (A356)

NOTE: No consolidated data is available from the Government of Tanzania since 2013

It is estimated that Tanzania Foreign Direct Investment amounted over USD 10 billion in 2013. Tanzania Investment Center registered a total of 861 projects with a total value of USD 8.5 billion between July 2012 and June 2013. These have the prospect of creating about 93,334 jobs upon completion.

Position in 2013 Country Investment in USD 1 UK 5.10 Mrd 2 China 2.12 Mrd 3 India 1.16 Mrd 4 Kenya 1.05 Mrd. 5 US 0.99 Mrd.

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Annex 6: Useful Internet Links

• Government of Tanzania http://www.tanzania.go.tz • Ministry of Finance http://www.mof.go.tz • Ministry of Industry and Trade http://www.mit.go.tz • Ministry of Natural Resources and Tourism http://www.mnrt.go.tz • Bank of Tanzania http://www.bot-tz.org • East Africa Community http://www.eac.int • National Bureau of Statistics http://www.nbs.go.tz • Business Registration and Licensing Agency http://www.brela-tz.org • Tanzania Investment Center http://www.tic.co.tz • Small Industries Development Organisation http://www.sido.go.tz • Tanzania Revenue Authority http://www.tra.go.tz • Zanzibar Investment Promotion Authority http://www.zanzibarinvest.org • The Export Processing Zones Authority http://epza.go.tz • Tanzania Ports Authority http://www.tanzaniaports.com • Tanzania Railways Corporation http://www.ntz.info/gen/b00630.html • TAZARA http://www.tazarasite.com • Tanzania Chamber of Commerce, Industry, and Agriculture http://www.tccia.com/tccia/ • Tanzania Trade Development Authority http://www.tantrade.or.tz • Tanzania Tourist Board http://www.tanzaniatouristboard.com • Tanzania Private Sector Foundation http://www.tpsftz.org • Business Environment Strengthening for Tanzania http://www.best-ac.org • Embassy of the United Republic of Tanzania in Berlin (accredited to Switzerland) www.tanzania-gov.de • Tanzania Parliament Website http://www.parliament.go.tz/bunge/bunge.asp • Tanzania Poverty Monitoring website http://www.povertymonitoring.go.tz • Swiss Cham East Africa http://www.swisscham-africa.ch • Switzerland Global Enterprise: http://www.s-ge.com • DIAS – Direct Investment Advisory Services http://www.dias-management.ch • Bilateral Agreement on the Promotion and Reciprocal Protection of Investments http://www.admin.ch/ch/d/sr/c0_975_273_2.html • African Trade Insurance Agency http://www.ati-aca.org • Tanzania Invest http://www.tanzaniainvest.com • Overseas Dev. Institute East Africa Update http://www.odi.org.uk/sites/odi.org.uk/files/odi-assets/publications-opinion-files/8945.pdf

Sources of useful international comparisons

• Doing Business Report http://www.doingbusiness.org 26

• Africa Competitiveness Report http://reports.weforum.org • Human Development Report http://hdr.undp.org/en/countries/profiles/TZA • World Investment Report http://unctad.org/ • ExportMap – Swiss Export Market Ranking of 100 countries, incl. Tanzania: http://www.exportmap.ch • Corruption Perception Index https://www.transparency.org/cpi2014/results • Worldwide Governance Indicators http://info.worldbank.org/governance/wgi/index.aspx#home • Index of Economic Freedom http://www.heritage.org/index/ranking • Economic Freedom of the World Index http://www.fraserinstitute.org/research-news/display.aspx?id=20395  Global Competitiveness Report, https://www.weforum.org/reports

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