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Tanzania offers potential amid World Bank's low growth forecast

2018-02-15 08:53:45

By Paul Kibuuka

Last week I learned that the World Bank downgraded its Tanzania economic growth forecast for the just-ended year to 6.6 percent, and expects growth to hit 6.8 percent this year, and 6.9 in both 2019 and 2020. (See, The Citizen, January 11, 2018)

But these projections are in contrast to the Tanzanian government’s target of real GDP growth of 7.2 percent in FY2017-18 based on an expected growth of 7.1 percent in 2017 and 7.3 percent in 2018.

Slowed growth in China, along with low commodity prices, high levels of debt and rising default rates and policy uncertainties have contributed to the cut in the World Bank’s forecast for Tanzania, according to the January 2018 edition of the Global Economic Prospects report. 

However, despite this projected slowdown, I am optimistic about Tanzania’s long-term economic future.  

Investing, after all, is all about discerning value where it just doesn’t seem to be present. Thus, although Tanzania cannot be perceived as weak in Africa terms, Tanzania may well offer unexpected value in the next few months.  

Not surprisingly, the World Bank expects Tanzania to be the fastest growing economy in the East African Community bloc, and one of Africa’s fastest growing economies. 

Economic data released by the government has spurred some scepticism with assertions of data being exaggerated; nevertheless, to a remarkable extent, investors I have spoken to still consider Tanzania a positive investment destination, citing President Dr John Magufuli’s relentless assault on corruption and laziness.   

Tanzania is one of the top 10 recipients of foreign direct investments (FDIs) in Africa, according to the latest edition of the African Economic Outlook report. The Tanzania Investment Centre (TIC) is targeting to attract $5 billion in FDIs into the country by 2020 to drive further growth.

With global companies such as Heidelberg Cement Group and Citibank established in Tanzania, the country is basically a launch pad into the rest of Africa due in part to its long-standing political stability and the strategic geographic location, whereby 6 landlocked countries surround Tanzania.

Nevertheless, a good understanding of Tanzania’s political environment, including laws and regulations that influence or restrict business and investment activities, is crucial for any investor sizing up Tanzania.

Tanzania’s demographics exhibit huge potential

Tanzania’s youthful population is under 25 and growing rapidly because of the high fertility rate of 5.5 per woman, compared to a global figure of 2.5, according to the latest Thematic Report on Fertility and Nuptiality of the National Bureau of statistics.

Paradoxically in the absence of direct jobs, as Tanzania’s working-age population rises and pension awareness is enhanced, savings increase and this turns into a source of funds for investment.

Annual investment by the social security sector in Tanzania increased by Sh4.9 trillion to Sh9.30 trillion in 2015/2016 from Sh4.40 trillion in 2011/2012, according to the SSRA’s sectoral statistics released in June 2016.  

In short, Tanzania’s demographic profile can help drive asset prices and eventually consumer spending and boost GDP growth.

Trade, natural resources and tourism are fundamental drivers

Trade is still a cherished source of income for Tanzania and trade partnerships can be seen through Kenya, South Africa, China, India, UAE, Japan and Switzerland. Export earnings amounted to $8,753.3 million in the year ending April 2017. 

Beyond this, Tanzania is abundantly endowed with natural resources for developing into one of the world’s richest countries. For example, the country has extensive gas fields, and a $30 billion liquefied natural gas (LNG) export terminal is planned. And perhaps most notably, Tanzania is Africa’s fifth largest producer of gold.  

With 44 million hectares of arable land available, Tanzania offers strategic investment opportunities for investors in rainwater harvesting for agriculture and livestock; large scale commercial farming; and agro-processing.

Other opportunities include, but are not limited to, PPP projects in power, roads, railways, telecoms and other economic infrastructures.

But of concern is Tanzania’s poor competitiveness ranking, which relates to the ease of doing business, even as the government recognizes that improved business regulation is critical for making economic progress. This will smooth the path to stronger investor confidence in Tanzania.

Tanzania has the added benefit of its growing capital market, where opportunities abound to invest capital to yield returns.

Banks in Tanzania are extending loan tenures, and they are also participating in loan syndications even though collaborative efforts are needed to address the causes and drivers of high lending rates.

Finally, despite the optimism engendered by Tanzania’s demographics and other fundamental drivers highlighted above, enhanced investments in business, legal, regulatory and institutional reforms as well as in human capital are still desperately needed in Tanzania. Such reforms should help improve the competitiveness of Tanzania.

Paul Kibuuka is the managing partner of Isidora & Company Advocates. Email: paul.kibuuka@isidoralaw.co.tz

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