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.
President John Magufuli’s administration has identified transportation as a vital component of its mid-term economic development agenda and is investing significantly in major projects including an expansive standard-gauge railway (SGR) network, highway construction and rehabilitation, and ports modernisation with a focus on increasing cargo volumes as well as establishing new transport hubs for its energy and tourism sectors.
Although accessing the necessary financing and improving spending execution has proved challenging, steady progress in developing the project pipeline and the planned expansion of public-private partnerships (PPPs) should keep the country on track to meeting its mid-term development targets.
The National Bureau of Statistics reported that the transportation and storage sector’s contribution to GDP at current prices has risen steadily over the previous decade, from TSh1.39trn ($632.2m) in 2006 to TSh2.32trn ($1.1bn) in 2009 and TSh2.99trn ($1.4bn) in 2013, before reaching TSh3.44trn ($1.6bn) and TSh3.86trn ($1.8bn) in 2014 and 2015, respectively.
As of publishing, official figures from 2016 had not yet been released, however, according to the World Bank’s “Tanzania Economic Update April 2017” report, the transportation sector’s GDP grew by an estimated 16.9% in the first three quarters of 2016. However, as is the case in many African economies, the infrastructure deficit continues to weigh on transport and macroeconomic growth, with decades of underinvestment, population growth, rising vehicle ownership and tourism growth straining its rail, ports, roads and aviation networks.
The priorities of the Ministry of Works, Transport and Communications (MWTC), as highlighted in the FY 2017/18 budget statement, include implementing the National Policy for Construction, launched in 2003 and the National Road Safety Policy of 2009. These policies call for the construction, rehabilitation and maintenance of roads, bridges and ferries, as well as airport upgrades.
Over recent years transportation development has also been guided by medium- and long-term strategies including Tanzania Development Vision 2025, the second phase of the National Strategy for Growth and Reduction of Poverty 2010/11-2014/15, Five-Year Development Plan II 2016/17-2020/21 (FYDP II), as well as initiatives such as the Implementation Strategy of the Transport Policy 2010/ 11-2024/25, the second phase of the Local Government Transport Programme 2012/13-2016/17 and the second phase of the Transport Sector Investment Programme 2012/13-2016/17.
FYDP II Targets
The FYDP II emphasises industrialisation, with infrastructure and transportation development set to play an important role in improving the business environment and attracting new investment. One primary development target is to improve the country’s global transportation infrastructure ranking of 114 out of 137 countries, found in the World Economic Forum’s “Global Competitiveness Report 2017-18” (up from 118 out of 138 countries according to the previous year’s report), to the top 100 by FY 2025/26.
Other targets include increasing the proportion of paved roads in the total road network from 6.8% in FY 2014/15 to 10% by FY 2020/21 and 15% by FY 2025/26 (see analysis), as well as the construction of 1341 km of SGR by FY 2020/21, increasing the network to 2000 km by FY 2025/26. Regarding maritime transport, the FYDP II seeks to increase total cargo freight volumes by a factor of more than five from 15.4m tonnes in 2014-15 to 84m tonnes annually in 2025-26. It also targets the construction, expansion and rehabilitation of the country’s airports.
The emphasis on capital projects is clear from the allocation of general fund items. In the FY 2016/17 budget the MWTC reported that public spending on recurrent items including wages and operations stood at TSh35.94bn ($16.3m), while its development budget reached TSh2.18trn ($991.5m), including TSh1.25trn ($568.5m) of government funds and TSh344.84bn ($156.8m) of external financing. In June 2017 the government announced that it plans to increase spending in its FY 2017/18 budget by 7.3%, with a focus on the areas of infrastructure development and industrialisation.
In spite of an expansion in value-added tax (VAT), revenue collection realisation has been a challenge (see Economy chapter). KPMG reported that by April 2017 the government had collected just 70% of TSh29.45trn ($13.4bn) in anticipated revenues for the financial year ending in June, while development expenditure stood at TSh4.56trn ($2.07bn), or around 38.5% of total planned spending.
The majority of development spending was channelled into road construction, electricity projects and advance payments for the SGR project, as well as payments for aircraft acquisition for state-owned carrier Air Tanzania. Auditors KPMG reported that low absorption of development expenditure remains a challenge to the country’s economic growth.
The private sector has also been playing an important role in transportation development under PPP frameworks. Since 1990, 20 PPP projects have reached financial close in Tanzania with a total investment value of $1.73bn, while 13 additional projects which are valued at $1.68bn are currently under development, according to a May 2017 report by the PPP Knowledge Lab.
In 2014 the PPP Act No. 18 of 2010 was amended to create a new PPP Centre, incorporated in the Office of the Prime Minister, as well as a PPP Technical Committee to recommend PPP projects for approval by the National Investment Steering Committee. The Public Procurement Act No. 7 of 2011 regulates PPP procurement.
Under the PPP Act any government ministry, department, agency or statutory corporation is entitled to act as a PPP-procuring authority, with the Ministry of Finance and Planning’s PPP Office being responsible for fiscal risk allocation, in addition to a range of other financial arrangements.
The PPP Knowledge Lab reported that there are two major transportation projects expected to be funded under the amended PPP Act: upgrades to 970 km of rail line linking Dodoma to Dar es Salaam, and the expansion of a 422-km stretch of the Dar es Salaam-Chalinze expressway connecting Usagara to Dar es Salaam. More recently, authorities have expressed interest in developing a new port in Mwambani on Lake Rukwa under a PPP model.
The MWTC is responsible for overseeing Tanzania’s transportation sector, with the mandate to provide affordable, safe and reliable transport systems to meet public needs. The ministry is responsible for managing activities including contracting, engineering, designing, building materials research and development, environmental impact studies and human resources development.
There are five transport divisions operating under the MWTC: the Transport Services Division, which includes the road, railway, maritime, air transport and meteorology sections; the Transport Infrastructure Division, which oversees the ports, rail and aerodromes infrastructure sections; the Transport Safety and Environment Division; the Administration and Human Resources Management Division; and the Policy and Planning Division.
The road transport industry is regulated by the Surface and Marine Transport Regulatory Authority (SUMATRA), which was established in 2001 to license and regulate vehicles and passenger fares, monitor freight rates and conduct roadside inspections to ensure compliance with licensing conditions. The Tanzania National Roads Agency (TANROADS) is responsible for the development of trunk and regional roads, while district, urban and feeder roads are managed by local government authorities operating under the oversight of the Prime Minister’s Office regional administration and local government departments.
Established under the Ports Act No. 17 of 2004, the Tanzania Ports Authority (TPA) was established to assume the functions of the Tanzania Harbours Authority and the Marine Services Company. The TPA is responsible for developing, managing and promoting a network dominated by the Port of Dar es Salaam (PDS), the country’s principal maritime hub.
The Tanzania Airports Authority (TAA) was established in 1999 and today manages operations at facilities including the country’s main international hub, Julius Nyerere International Airport (JNIA), in Dar es Salaam. Swissport Tanzania entered the market in 2001 after acquiring the Dar es Salaam Airports Handling Company and today operates ground and cargo handling, aircraft maintenance and fuelling services at JNIA, Kilimanjaro International Airport, Songwe Airport and Mtwara Airport.
Tanzania has two railway lines, one operated by Tanzania Railways (TRL) and the other by the Tanzania-Zambia Railway Authority (TAZARA).
The bulk of Tanzania’s external trade, along with transit and trans-shipment activity, occurs via its seaports. The country acts as a critical access point for a large market of landlocked countries including Burundi, Rwanda, Uganda, Zambia and Malawi. Outside of seaports, facilities on Lake Victoria, Lake Tanganyika and Lake Nyasa also act as important trade centres for regional markets, although the African Development Bank (AfDB) reported in 2013 that increasing competition from road transportation has impacted on the growth of these facilities in recent years.
The TPA’s port network is made up of three primary seaports: the PDS, Mtwara Port and the Port of Tanga, as well as several smaller ports in Lindi, Kilwa, Masoko, Mafia Island, Pangani and Kwale. The Port of Zanzibar is under the administration of the Zanzibar Port Corporation.
The PDS is the largest and most important port in the country, with a rated capacity for 4.1m tonnes of dry cargo, 6m tonnes of bulk liquid cargo, 3.1m tonnes of general cargo and 1m tonnes of containerised cargo. Additionally, the PDS handles 95% of international trade, according to the TPA’s “Tanzania Ports Handbook 2016-17” report, and volumes have risen over the past five years, with the World Bank reporting that the PDS handled 13.8m tonnes of throughput in 2016, against 10.4m in 2011.
However, performance has not been as positive in other ports. According to the TPA’s FY 2013/14 annual report, the Port of Tanga handled 368,000 tonnes of cargo out of its 700,000-tonne capacity during FY 2013/14, while Mtwara Port has capacity for 333,400 tonnes annually, but handled just 203,000 tonnes for the same period. Regarding lake ports, Mwanza handled 218,000 tonnes in FY 2013/14, a 39.6% drop from the previous year; Kigoma handled 88,000 tonnes in the same period, an increase of 8% from the previous year.
Room to Grow
Ports upgrades and construction make up a critical component of the government’s transportation development agenda and the state has been active in launching new port projects in recent years – though some of these have since been put on hold – as well as moving forward on the planned modernisation and expansion of the PDS.
Upgrading and improving operations at the PDS will be particularly important given the volume of traffic it currently sees and the fact that operational and efficiency issues have constrained growth and affected revenue collection.
According to a 2015 World Bank report, inefficiencies at the PDS cost Tanzania and its neighbours up to $2.6bn annually. The report also highlighted Kenya’s Mombasa Port – one of the port’s primary competitors, alongside other competing African facilities such as Durban in South Africa, Walvis Bay in Namibia and Maputo in Mozambique – as being more efficient for regional activity.
However, the potential for improvement is significant and the bank estimated that efficiency enhancements, including measures to crack down on corruption, could add $1.8bn to the Tanzanian economy annually. As a result, the government has worked to improve operational oversight and President Magufuli replaced the TPA’s top management, including its board of directors, in 2015.
The government has also revised some of its fiscal reforms to reduce the tax burden on the shipping sector’s tax burden. Maritime growth was affected by the government’s 2015 decision to impose an 18% VAT on ancillary transport services, which saw the PDS lose a significant volume of its maritime traffic to nearby competing ports in Mombasa, Maputo and Durban.
VAT was applied to a variety of steps in the transport sector, which drove up shipping costs. The tax drew widespread criticism as a result, with stakeholders claiming it made the ports uncompetitive and chased investors away. The VAT was removed as of July 2017, but the problems created by the tax continue to impact the sector.
“Tanzania is losing its position as a regional hub. Cargo volumes to Zambia, for example, fell by 30-35% in 2016 due to VAT. Business does not just come back as soon as VAT is removed – you have to buy it back,” Morten Juul, former managing director of Nyota Tanzania, an agent for Maersk Line and Safmarine, told OBG. “We’ve seen negative growth in the last two years, of between 5% and 6%, which is strange for an emerging economy with robust GDP growth. We are hoping it will bottom out this year.”
To this end, a $690m upgrade and modernisation programme at the PDS, involving the construction of a new multipurpose terminal and dredging to increase the current 9.1-metre draught to between 13.1 and 14 metres, looks set to improve overall capacity and efficiency (see analysis).
Operational upgrades are also playing a major role in streamlining cargo handling at the PDS. In 2014, for example, the government launched its Tanzania Customs Integrated System (TANCIS) at the PDS, as part of a programme to modernise Customs processing and payment systems. TANCIS has helped the port reduce import clearance days from nine days to less than one day, according to a September 2016 study published by the UN-supported Better Than Cash Alliance, with researchers noting that ongoing efforts to digitise import and export clearance payments should significantly reduce the country’s $1.8bn annual Customs operations costs.
More recently, Prime Minister Kassim Majaliwa announced in May 2017 that he had directed public operators at the PDS, including the TPA, the Tanzania Revenue Authority, the Tanzania Food and Drugs Authority, and the Tanzania Bureau of Standards, to extend office hours 24/7. The move should reduce dwell times from current levels of between 10 and 13 days, with the country hoping to improve its competitiveness with Mombasa Port’s three- to four-day dwell times. Once upgrades are completed, dwell times are estimated to drop to 30 hours.
Mtwara Port, which is currently the third-largest facility in Tanzania, is slated for a potentially significant expansion. Offering a natural 20-metre-deep access channel and an average draught of 9.8 metres, Mtwara Port could be set to play an important role in future energy sector development. The port is due to become a centre for liquefied natural gas (LNG) shipments on completion of a planned $30bn LNG plant and terminal (see Energy chapter). Current shipping activities are dominated by raw cashew exports, with cargo volumes reaching 388,000 tonnes in FY 2016/17, a 41.7% increase from FY 2015/16.
Handling capacity should improve in the coming years following the government’s unveiling of a $214m expansion plan in September 2014, which is set to boost the port’s capacity to 28m tonnes annually on completion. In March 2017, President Magufuli laid the foundation stone for the Mtwara Port expansion project, which will include construction of a 350-metre berth able to accommodate larger vessels and serving the recently opened Dangote cement plant (see Industry chapter). The project will take 21 months to complete.
The largest recent new port development to be announced was a planned $10bn project at Mbegani in Bagamoyo, which has received commitments from China Merchants Holdings International (CMHI) and Oman’s State General Reserve Fund. The project was first proposed in March 2013 when the former administration signed a framework agreement with CMHI. It was set to add 20m twenty-foot equivalent units of capacity to the country’s shipping industry, and included plans to support rail and road infrastructure, a 1700-ha industrial park and modern port facilities.
However, proximity to the PDS and Mombasa Port made the development unfeasible, with all three set to compete for the same cargo destined for landlocked African countries. The Magufuli administration announced it was shelving the project in January 2016, with plans to focus on delayed expansion projects at the PDS and Mtwara Port.
In May 2017 the MWTC also announced that the Forum on China-Africa Cooperation had expressed interest in funding construction of a new port in the northern Tanga region, in Mwambani, following a meeting between the ministry and the forum. The government hopes to develop the project under a PPP, after the government of Uganda announced plans in April 2016 to build a $3.55bn oil export pipeline from Hoima district, in the west of the country, along a southern route through Tanzania, terminating at Mwambani. The idea had already been floated in 2014 under the proposed Mwambani Economic Corridor Project, which included plans for a new deep sea and free port, although TPA reported in April 2015 that it had not endorsed any plans for port construction in Mwambani.
In line with similar efforts in Kenya and Mozambique, Tanzania’s rail corridors are undergoing an overhaul. The country’s first railway system, built by TRL and Reli Assets Holding Company (RAHCO), was constructed during German colonial times to a one-metre gauge standard. The line’s backbone runs from the PDS in the east and links to central and western areas, terminating at Kigoma on Lake Tanganyika in the west. A second east-west line connects Tanga to Moshi and onwards to Arusha, linking the country to systems in Kenya and Uganda. New branch lines were constructed in 1949 and 1965, linking it to Mpanda, Kidatu and a new connection to the Tanga line, with the AfDB reporting the total network extends 2707 km overall.
The TAZARA network was built between 1970 and 1975, and was financed by the Chinese government using the cape-gauge standard of 1067 mm, similar to rail systems in southern Africa. The 1860-km line includes a 975-km stretch in Tanzania and connects to the TRL system at Kidatu.
As is common throughout the continent, both networks have suffered from decades of underinvestment and lack of maintenance, with TAZARA’s managing director, Bruno Ching’andu, announcing in March 2017 that the company will require at least $900m to meet debt obligations and finance necessary new rolling stock and track improvements.
The line currently offers 600,000 tonnes of annual haulage capacity, although TAZARA expects it to carry just 381,000 tonnes of freight and 2.28m passengers during FY 2016/17, while new rolling stock and track improvements could boost haulage capacity to 2m tonnes annually. As with the roads and ports sector TAZARA is hoping to undertake a rehabilitation project using a PPP model. Revitalising the country’s deteriorating rail networks has been a top priority for the government, especially given rising road shipping and congestion.
“As there is a move towards semi-industrialisation, the country will have to expand its rail networks, which will mean an increase in demand for relevant labour as well as knowledge,” Zacharia Mganilwa, rector of the National Institute of Transport, told OBG. As a result, the country’s SGR project could become one of the most significant transport growth drivers in the years to come.
In April 2017 President Magufuli officially launched the SGR project, a planned 2561-km line that will link the PDS to Mwanza on Lake Victoria and Kigoma on Lake Tanganyika, as well as neighbouring Rwanda and Burundi.
The project’s 205-km first phase will connect Dar es Salaam to Morogoro, with a completion deadline set for October 2019. In February 2017 a $1.2bn construction contract for this phase was awarded to Turkey’s Yapı Merkezi and Portugal’s Mota-Engil. Korail, Korea’s national railway operator, was also awarded a contract from RAHCO to supervise the first phase’s design and construction.
The initial phase of the line is designed to operate at speeds of 160 km per hour along a six-station route that includes a dry port in Ruvu, with capacity for 17m tonnes of freight annually. According to President Magufuli, the government of Turkey has expressed interest in funding the line’s 366-km second phase, which will link Morogoro to the country’s capital city of Dodoma.
In November 2016 RAHCO announced that it had launched tenders for the project’s remaining four phases. These tenders are valued at a total of $7.6bn. The contracts will cover 1057 km of new line including the second phase to Dodoma, a 294-km link between Makutupora and Tabora, a 133-km line between Tabora and Isaka, as well as a 294-km line between Isaka and Mwanza.
The first phase was scheduled to start in May 2017, however, as of mid-2017 the government was struggling to secure financing for the project. The administration has been lobbying heads of states, such as South Africa’s then President Jacob Zuma, in an effort to secure funding from the New Development Bank, which was set up to invest in developing and emerging economies. The World Bank provides similar support to the existing, separate TRL rail network in the form of a TSh300bn ($136.4m) facility for maintaining the network.
With few alternatives, Tanzania’s roads handle most internal trade. Underinvestment has created issues within the road network, yet demand for licences continues to increase, with SUMATRA issuing 26,018 passenger vehicle licences and 41,918 truck licences in the period between July 2016 and March 2017 (see analysis).
To remedy theses challenges, TANROADS has been tasked with creating new routes and rehabilitating existing roads, with TSh582.64bn ($265m) being allocated for this purpose during FY 2016/17. Progress has so far been gradual, with TANROADS reporting that it had completed two-thirds of its planned road construction targets for this period.
In Dar es Salaam, where congestion is particularly acute, the MWTC is investing in a flyover at Tazara Junction, an important chokepoint on Julius Nyerere Road, work on which was 32% complete as of March 2017. The ministry is also expanding a new bus rapid transit network, the Dar Rapid Transit Agency (DART). Inaugurated in January 2017, the 20.3-km first phase notably reduced travel time between Kimara and Kivukoni. The state has allocated the DART project TSh38bn ($17.3m) for FY 2017/18.
According to the AfDB’s “Tanzania Transport Review 2013” report, there are 368 airports, airfields and landing strips in the country, including 58 under the purview of the TAA on the mainland, although the vast majority of aviation facilities in Tanzania are private landing strips owned by mining companies and tour operators.
On the back of an increase in foreign visitors, and aided in part by the country’s growing tourism sector (see Tourism chapter), air passenger traffic has risen significantly over the previous decade, although the numbers have dropped off somewhat in recent years. The TAA has targeted reaching 18.51m passengers annually by 2033, including 9.4m at JNIA, which is currently being upgraded (see analysis).
Air Tanzania, the national carrier, was established in 1977 after the dissolution of East African Airways and was partially privatised in 2002 when the government reduced its stake in the company to 51%, with the remaining 49% then being acquired by South African Airways. Air Tanzania recorded $7.3m in losses during its first 16 months as a private company. In 2006 the government repurchased its share. Its financial position has deteriorated further since 2006 and in September 2016 local media reported its debts are estimated at TSh100bn ($45.5m).
The state has so far invested $490m in a fleet upgrade for Air Tanzania. This includes a purchase agreement for two Bombardier CS300 jetliners and one Bombardier Q400 turboprop in November 2016, in addition to the two Bombardier Q400 turboprops delivered in September 2016, as well as a new 787 Boeing Dreamliner, expected in June 2018.
The company had operated one Bombardier Q300 since 2011. With these new purchases, the airline’s total fleet has risen to seven. The carrier airline currently offers services from JNIA to Bukoba, Dodoma, Kigoma, Kilimanjaro, Mbeya, Mtwara, Mwanza, Songea, Tabora and Zanzibar, as well as Hahaya in Comoros. In May 2017 the MWTC reported the new Dreamliner will be used to launch services to China.
In addition to Air Tanzania, international carriers including Air Mauritius, LAM Mozambique Airlines, Air Zimbabwe, EgyptAir, Emirates, Etihad Airways, Ethiopian Airlines, flydubai, Kenya Airways, KLM, Oman Air, Qatar Airways, RwandAir, South African Airways, Swiss International Air Lines and Turkish Airlines also serve the country, while Tanzanian lowcost carrier fastjet also offers domestic services.
The air transport sector remains dependent on capital investment from the government, and while a number of recent upgrades have been undertaken or are currently under way at airports across the country, financing challenges could continue to delay future planned projects.
Presently, one of the biggest developments is the construction of a new TSh560bn ($254.7m) terminal at the congested JNIA, the country’s principal international gateway, which is designed to handle just 1.2m passengers annually, but which currently receives 2.47m passengers. The new terminal will increase capacity to 6m, and while delayed twice, is expected to open by February 2019 (see analysis).
The TAA reported that a number of other airport upgrade projects are also under way, including enhancements to the Mwanza Airport, rehabilitation and upgrades to Bukoba Airport and its runways, in addition to the third phase of construction of a new airport in the region of Songwe. Similarly, the government is working on rehabilitation and upgrades at the Tabora, Kigoma, Sumbawanga, Shinyanga and Mtwara airports, as well as construction of the greenfield Msalato International Airport in Dodoma. The TAA completed a feasibility study for the latter in 2011, although the project was put on hold as the government sought foreign investment to help cover its estimated $1.5bn budget. In January 2017 Prime Minister Majaliwa told local media the government is still committed to building the new facility, which will be located 14 km from downtown Dodoma.
In May 2016 the TAA announced that it would require $1.8bn of funding to complete the planned airport upgrades, reporting that just $91.3m had been allocated to airport expansion plans during FY 2016/17. According to the authority, JNIA’s new terminal, to be developed in three phases, would need an additional $1bn of financing, while the Kigoma and Mtwara airport upgrade projects would cost $36.3m and $4.9m, respectively. Upgrades at Mwanza would cost $78.5m, while works at airports in Arusha, Tanga and Manyara would cost $49m each.
Addressing aspects of financing and actualising development spending will be a challenge for upcoming transportation development, although the government has made firm commitments to several major planned projects that should significantly boost cargo and passenger volumes across all transport modes in the coming years.
Ongoing financial challenges have also created new opportunities for private investors, as the government increasingly seeks to launch new projects under PPP models, with transport development slated to act as a major support mechanism for construction and industrial growth, as well as broader macroeconomic expansion. While the nearterm outlook is somewhat subdued, because of the country’s prime location and the state’s ambitious development plan, Tanzania still has the potential to become a major transport centre locally and beyond.