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The Report: Tanzania 2018

One of East Africa’s largest economies and most popular tourist destinations, Tanzania is reputed for its stability in the region. Its extractive wealth, favourable climate for agriculture, and natural assets such as Mount Kilimanjaro and the Serengeti National Park have helped it build a relatively high rate of growth over the last decade, averaging 6-7% per year.

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Sections

  • Country Profile
  • Economy
  • Banking
  • Capital Markets
  • Insurance
  • Energy and Mining
  • Industry and Retail
  • Transport
  • Telecoms & IT
  • Construction & Real Estate
  • Agriculture
  • Tourism
  • Education and Health
  • Tax
  • Legal Framework
  • The Guide
  • Table of Contents

Country Profile

Located on the east coast of Africa and south of the equator, Tanzania was home to some of the world’s first human settlements, with fossils dating back as far as 3.6m years. Today, the country comprises mainland Tanganyika and the archipelago of Zanzibar. Dodoma is its official capital, although Dar es Salaam, the largest city and port, has long been the nation’s commercial and administrative centre. Overall, Tanzania’s experience as an independent African nation has been a positive one on the world stage. In its shift from a socialist experiment under Julius Nyerere to a market economy under his successors, the country has fared relatively well in maintaining political stability and economic growth. However, there is work and further collaboration needed to support the continued development of the country’s democratic credentials and foster broad-based socio-economic development. This chapter contains a viewpoint with President John Pombe Joseph Magufuli; and interviews with Libérat Mfumekeko, Secretary-General, EAC; and Stergomena Lawrence Tax, Executive Secretary, South African Development Community.

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Economy

Tanzania is one of sub-Saharan Africa’s fastest-growing economies, boasting average GDP growth of around 7% per year since 2000. Significant investment in rail, port and road development is likely to drive GDP expansion into the next decade. While the ongoing process of economic reform presents challenges to some sectors, and weak budget execution and policy uncertainty have dampened investment, the overall macroeconomic picture remains favourable. The presence of abundant natural resources, a reform-oriented government and a 53m-strong population that is growing at an annual rate of 3% are just some of the key growth drivers that will help Tanzania remain an interesting prospect for investors. This chapter contains an interview with Godfrey Simbeye, Executive Director, Tanzania Private Sector Foundation.

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Banking

Tanzania has a well-developed and diverse financial services sector, with a number of large domestic and multinational lenders present, and a rate of financial inclusion that exceeds that of most other large economies in Africa. However, in line with major markets elsewhere on the continent, just five bodies account for roughly half of total assets. 2017 was a challenging year for Tanzania’s banks, as they adjusted to changes in the economic and regulatory environment. Slowing credit growth and increasing loan defaults have compelled the regulator to intervene, adjusting policy rates and increasing supervision of troubled lenders. Nonetheless, the fundamental stability indicators of the sector remain sound, and the industry is well positioned to take advantage of opportunities arising from the government’s development programme. This chapter contains interviews with Benno Ndulu, Former Governor, Bank of Tanzania; Ineke Bussemaker, CEO and Managing Director, NMB Bank; and Charles Kimei, CEO and Managing Director, CRDB Bank.

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Capital Markets

The Dar es Salaam Stock Exchange (DSE) has evolved impressively since its establishment in 1996, and its recent demutualisation has ushered in a new phase of market development. Updated regulations, products and infrastructure are under way as exchange authorities position the DSE to attract much-needed liquidity. The listing of telecoms and mining companies – the result of new legal requirements – should help to provide a regular schedule of new investment opportunities in the medium term; however, long-term index growth will ultimately depend on the direction of the broader economy, and the impact of ongoing economic reforms. This chapter contains a viewpoint with Moremi Marwa, CEO, Dar es Salaam Stock Exchange.

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Insurance

While Tanzania’s insurance premiums have increased over the past year, elevated competition has affected underwriting profits. Larger players may welcome an agenda of wholesale regulatory reform as a basis for more sustainable growth, but many insurers with lower levels of capitalisation face an uncertain period, as legislation is given an overhaul and more stringent requirements are established. Nevertheless, the country’s considerable population and low insurance penetration rate make it one of the most promising markets in the region over the long term. This chapter contains a viewpoint with Baghayo Abdallah Saqware, Commissioner, Tanzania Insurance Regulatory Authority.

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Energy and Mining

Tanzania’s energy sector has shown signals of growth in recent years, with established domestic gas production and ambitious plans to scale up. Offshore gas reserves are sufficient to have prompted a proposal for a two-train liquefied natural gas (LNG) project in Lindi, while there is ample potential onshore around the Rift Valley based on commercial-scale deposits in similar terrain as in neighbouring Uganda and Kenya. Infrastructure is always a challenge for new producing countries, but Tanzania has constructed mid-stream processing plants and pipelines to leverage existing production, and has capacity to spare for new projects. With midstream infrastructure and ample reserves in place, the challenge of attracting larger investment – such as for the Lindi LNG plant – hinges on the ability of the government to maintain a competitive commercial, fiscal, legal and regulatory framework. As the fourth-largest gold producer in Africa and the world’s only source of tanzanite, Tanzania is a major mining destination in the region. It has nine large-scale mines that produce silver, copper, diamonds and coal, as well as major untapped deposits of graphite, uranium and other minerals. The government has begun to review its legislative framework for mining activity as part of efforts to reassess the value of existing projects, increase local revenues and ensure communities benefit from extractive industries. While there is no doubt that tax revenues and licences will be more constricting moving forward, the benefits are likely to include increased revenues for the country and improved governance over the long term. This chapter contains interviews with Kapuulya Musomba, Acting Managing Director, Tanzania Petroleum Development Corporation; and Marc den Hartog, Vice-President East Africa, Shell.

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Industry and Retail

Industrialisation is set to accelerate in Tanzania, as part of a significant push by the government to sustain economic growth and inclusion, on the back of increased manufacturing output and recent investment in labour-intensive industries. Diversifying the country’s narrow production base and boosting exports of manufactured goods are critical priorities for Tanzania’s mid-term economic development strategy, and the government is moving to attract new investment in value-added manufacturing at export processing zones and special economic zones, offering attractive tax incentives and a simplified regulatory regime. While still in its nascent stages, formal retail development in Tanzania holds considerable potential for long-term expansion, with population growth and rising demand for fast-moving consumer goods slated to support the sector over the next decade. As is the case for formal retailers across the continent, however, there are a number of structural challenges to contend with, such as high distribution costs, rising taxes and inflation, which have driven up overheads and reduced consumer purchasing power. Moreover, limited demand for organised retail space outside of select locations in Dar es Salaam is likely to weigh on near- and mid-term growth. This chapter contains an interview with Charles John Poul Mwijage, Minister of Industry, Trade and Investment.

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Transport

Located along an increasingly important international trade corridor and benefitting from over 1400 km of Indian Ocean coastline, Tanzania is well positioned to expand its share of regional transit and trans-shipment activities. The country already serves as an international gateway for six landlocked African countries, making the development of its transportation sector a regional priority. Meanwhile, a push for domestic industrialisation necessitates a major overhaul of increasingly congested road, port and aviation networks. Addressing aspects of financing and actualising development spending will be a challenge for upcoming transportation development, but this has created new opportunities for private investors, as the government increasingly seeks to launch new projects under public-private partnership models. This chapter contains an interview with Jared Zerbe, CEO, Tanzania International Container Terminal Services.

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Telecoms & IT

Tanzania’s telecoms industry is considered as a model for development in sub-Saharan Africa. The sector has recorded rapid growth in activity, supported by some of the lowest user tariffs in Africa, speedy smartphone and mobile broadband uptake, and steady investment in infrastructure and next-generation service expansion. However, sustaining growth will require telecoms operators to navigate a handful of obstacles, including one of the highest tax rates in Africa, as well as a recent push by the government to expedite required initial public offerings on the Dar es Salaam Stock Exchange. Although these challenges could weigh on future revenues, the country’s relatively low levels of mobile broadband penetration, combined with demand for cashless banking services and new investment in infrastructure, should keep telecoms growing steadily over the medium term. Improvements in and expansion of ICT services have accelerated in Tanzania over the last decade, supported by new submarine cable connectivity, successful completion of a National ICT Broadband Backbone project and rising investment in mobile broadband networks. However, the country’s large rural population and substantial small and medium-sized enterprise segment means that internet penetration remains low and ICT services are out of reach for most businesses. Steadily rising demand for next-generation services and rapid growth in e-government and e-payment systems could see that change in the coming years, with internet adoption, mobile broadband network coverage and digital financial services set to continue on a strong growth path into 2018. This chapter contains an interview with James Kilaba, Director-General, Tanzania Communications Regulatory Authority.

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Construction & Real Estate

As a direct beneficiary of the government’s current economic strategy, which focuses on major infrastructure, housing and energy investment, and a key player in the ongoing shift of government functions from Dar es Salaam to Dodoma, the construction industry is undergoing significant expansion in both absolute and relative terms. The pace of growth has been fast, with the overall sector valuation jumping from $1.6bn in 2010 to $6bn by 2015, and its contribution GDP growing from 7.4% in 2006 to 13.6% in 2015 on mainland Tanzania, and from 7.7% to 9.5% on the Zanzibar archipelago. The government is betting that short-term struggles caused by rooting out corruption will pay dividends over the long term by providing a more predictable operating environment in which domestic builders can thrive. Tanzania has relatively young real estate sector, with large-scale commercial development only taking off in the 1990s. While public sector actors historically handled the largest projects in the country, private sector players are now playing an increasingly important role in developing residential, office and commercial space. However, the industry in mainland Tanzania is growing more slowly than the economy overall, with its contribution to GDP declining steadily in the past 10 years, from 6.1% in 2006 to 3.2% in 2015. Cost sensitivity remains a significant concern, not only directly in terms of house sales, but also indirectly in terms of demand for formal retail and commercial space, since approximately three-quarters of the population live on $2 or less per day. As a result, the country will most likely have to depend on government intervention and innovative financing to help address demand at the lower end of the real estate market, while higher-end residential and commercial spaces are left in the hands of private sector developers. This chapter contains an interview with Dhruv Jog, Managing Director, Advent Construction.

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Agriculture

Agriculture is undoubtedly the largest and most important sector of the Tanzanian economy, with the country benefitting from a diverse production base that includes livestock, staple food crops and a variety of cash crops. The sector’s contribution to GDP has more than tripled in the last 10 years, supported by rising cash crop production, an emerging agro-processing segment and strong domestic demand for processed food. At the same time, however, farmers and other sector stakeholders face considerable challenges in modernising the industry to increase yields, exports and value-added processing. Nonetheless, the diversity of the sector leaves it well positioned to benefit from substantial investment inflows in the coming years, with budget announcements highlighting its critical importance to employment, exports and industralisation. This chapter contains interviews with Charles John Tizeba, Minister of Agriculture; and Aranyak Sanyal, East Africa Cluster Head, Olam International.

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Tourism

Tanzania’s tourism industry is expected to be among one of the world’s fastest growing over the next decade. With 1.28m tourist arrivals in 2016, the country is already one of the most-visited destinations in sub-Saharan Africa, and attractions such as the Serengeti National Park and Zanzibar have an increasingly prominent global profile. The government aims to attract 3m annual visitors by 2022, and is in the process of drawing up the first new national tourism strategy in nearly two decades, which is expected to include a focus on high-value segments and infrastructure development. Private investment in hotels and resorts is driving growth, while government infrastructure investment is opening up new areas of the country to tourism. However, the industry continues to face challenges, including the recent imposition of value-added tax and the effects of austerity on business demand. This chapter contains an interview with Nura-Lisa Karamagi, CEO, Hotels Association of Tanzania.

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Education and Health

As Tanzania seeks middle-income status, strengthening the education system has become a high priority. The past 20 years have seen substantial progress in improving access to education and enrolment rates. In 2015 the government abolished fees for public secondary schools, which led to a surge in enrolment, while service provision by the private sector has also expanded significantly. International partners and private contractors are playing an important role in supporting universal education, particularly with regards to raising educational quality. Although Tanzania’s education targets are still a way off, efforts to progress towards them are well under way. Tanzania is gearing up for an overhaul of its health care sector that could prove transformational by ensuring universal insurance coverage and greatly broadening the opportunities for outside service providers. The past decade-and-a-half has seen considerable successes in public health, with major communicable diseases brought under control and steady rises in expenditure. Primary care has also grown, bringing the system closer to citizens. However, gaps remain and provision has lagged behind the changing demographics of an urbanising country and an increasingly dynamic economy. The government’s latest strategy looks to address these shortcomings and build a more efficient system that focuses resources on those in greatest need. This chapter contains interviews with Sulaiman Shahabuddin, Regional CEO, Aga Khan Health Services, East Africa; and Dr Matshidiso Moeti, Regional Director for Africa, World Health Organisation.

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Tax

In conjunction with EY, this chapter explores the taxation system and Tanzania’s efforts to build an investor-friendly environment. It also contains a viewpoint with Joseph Sheffu, Country Managing Partner, EY.

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Legal Framework

This chapter introduces the reader to the different aspects of the legal system in Tanzania, in partnership with ATZ Law Chambers. It also contains a viewpoint with Shamiza Ratanasi, Managing Partner, ATZ Law Chambers.

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The Guide

This section includes information on hotels, government offices and other listings, alongside useful tips for visitors on topics like currency, visas, language, communications, dress, business hours and electricity.

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Table of Contents

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