Tanzania: At the Starting Block

Home to the second largest economy of the East African Community, Tanzania struggles to find its way ahead notwithstanding a robustly expanding economy and a much-improved business climate. A nation of two minds, Tanzania has experimented with different development models. The darling of progressive donor nations such as The Netherlands, Denmark, and Sweden in the 1970s and 1980s, the country’s persistently lacklustre growth and its failure to eradicate poverty resulted in a re-evaluation of its policy matrix.

That ultimately led Tanzania to abandon the progressive course inspired by Julius Nyerere – the country’s first post-independence president – who longed for an African development model based on an indigenous form of socialism.

Whilst the policies flowing from the Arusha Declaration of 1967, in which President Nyerere traced the way forward, did deliver significant social progress – with increased life expectancy and literacy rates – economic growth remained anaemic with bloated state-owned corporations and farming collectives unable to keep pace, and production levels declining in most sectors.

However, thanks to its purpose-driven government, the country was spared the savagery of the extractive resources based model that destroyed a great many African states through a nefarious conspiracy between big business and corrupt officials. As a result, Tanzania to this day has most of its resources still in place. So much so, that the country may yet become a ‘petro-state’. With help from Norway, a five-year programme for research, capacity-building, and policy dialogue has been launched to prepare the nation for a resource-fuelled future.

Exploiting Thought

Surprisingly modest in its set up, the initiative aims to exploit thought rather than explore hydrocarbons. The programme brings together academic experts, researchers, public officials, private sector representatives, and a host of other stakeholders to find the best way of dealing with the windfall expected if and when the offshore oil fields become productive. Meanwhile Norwegian’s Statoil is busy prospecting for oil and natural gas in Tanzania.

While some have raised questions about a possible conflict of interest, since the Norwegian government dispenses governance wisdom but also owns the company standing to benefit most from any finds, the consensus is that Tanzania may learn from one of the very few countries that has successfully managed to leverage the proceeds of its mineral wealth to further national development, and avoided falling victim to the resource curse.

Interestingly, and perhaps ironically, the national debate about the imminent arrival of the petro-state has emboldened those who argue for a return of state interventionism. After all, the Norwegian model of resource extraction requires a high degree of state intervention. One of the Ten Commandments Norway adopted – and now readily exports – clearly says: “The state must become involved at all appropriate levels and contribute to a coordination of national interests in the domestic petroleum industry as well as the creation of an integrated oil community which sets its sights both nationally and internationally.”

As Chambi Chacha, co-moderator of the Wanazuoni network of Tanzanian intellectuals, notes in a recently published op-ed article in Pambazula News, the country needs to strengthen its civil society in order to ensure that any future revenues from oil and other resources benefit the entire nation. Deputy permanent secretary at the Tanzanian Ministry of Finance Adolf Mkenda agrees and points out that petro-states come in all shapes and sizes with some experiencing a boom without proper management of public affairs and monies, and others failing to maximise public revenue: “Maximising revenue and managing this income stream properly go hand in hand. To do so in Tanzania, requires a strong and strategic corporate-state-civic setup that mimics the Norwegian experience.”

Two Minds

Tanzania just happens to be exceptionally well-poised for such an experiment. While since 1985 successive governments have pursued a liberalisation programme that saw most state-owned companies privatised and introduced a slew a market-friendly policies, the state remains an important economic agent pursuing a set of well-defined development initiatives. Being of two minds does bring a number of advantages.

With a buoyant economy that over the past decade has grown at an annual average clip of around seven percent, Tanzania is now in a good place. State expenditure has been brought down to approximately 25% of GDP whilst inflation reached a historical low of barely 6%. Agriculture remains central to the country’s economy due to the large share of the workforce employed working the land. Recent growth has mostly been driven by an uptake in manufacturing and the robust expansion of the services sector – clear signs that the economy is maturing.

Regional integration is progressing steadily with the East African Community developing into a single stable market with streamlined legislation amongst member states helping to create an attractive destination for investment. The Dar es Salaam Stock Exchange (DSE) already cooperates closely with sister exchanges in Nairobi (Kenya) and Kampala (Uganda) and plans to create a single regional bourse. Two companies – East African Brewers and Kenya Airways – are already cross listed on the three exchanges.

The launch, in 2013, of a second-tier market – Enterprise Growth Market – seeks to enable smaller companies to access the capital market and currently list three financial services providers. Meanwhile, the UK’s Department for International Development (DFID) signed a memorandum of understanding with the London Stock Exchange Group to further the development of capital markets not just in Tanzania but across the continent. To that effect, the DSE and other exchanges may tap into the vast reservoir of expertise available at London Stock Exchange Group Academy.

The academy will shortly welcome up to fifty Tanzanian professionals who may help accelerate capital market development. Alexander Justham, CEO of the LSE, said that the year-long skills development programme aims to help build a pool of professionals in both the government and the private sector spheres: “This way, we can fast-track the development of a long term, sustainable equity capital market.”

Mr Justham went on to say that “both London Stock Exchange and DFID understand the importance of economic growth in improving people’s lives. By combining our expertise and experience in this innovative partnership, we hope to enhance capital markets across sub-Saharan Africa, so that they in turn can help companies to grow and create vital jobs.”

Democratising Share Ownership

One Tanzanian company is already ahead of the game: UTT (Unit Trust Tanzania), set up to allow ordinary Tanzanians to benefit from the privatisation drive, is actively promoting share ownership amongst all the nation’s demographics. UTT investment funds allow people to easily buy in with just a few shillings (dollars) at a time. The streamlined process aims to democratise share ownership and has already roused the interest of close to a 150,000 small investors of whom most not normally have considered buying stock.

What has investors, both small and large, bullish on Tanzania is that the country’s mining sector so far contributes less than four percent to GDP. Offering plenty room for expansion, the country is now ready to live a sustained boom, adding to an already fast-growing economy. Later this year, exploitation starts at the nickel deposits discovered in 2012 by Australian mining company IMX Resources. Chinese companies have pledged $3 billion in investments to work the coal and iron ore deposits in Tanzania’s southern regions.

Add to these the likely income boost from the country’s formidable oil and natural gas reserves and an African powerhouse may be in the making. The country’s foreign debt, reduced by $6 billion under the relief programme for heavily indebted poor countries sponsored by the World Bank and the International Monetary Fund (IMF), now stand at slightly over forty percent of GDP and has remained stable. The IMF recently reiterated that the country’s debt outlook remains excellent with no distress expected.

Of late, the government’s attention has turned to improving the business climate. According to the Doing Business 2015 Report published by the World Bank, Tanzania ranks an unimpressive 131^st out of 189 countries when it comes to the ease of conducting business. Though the red tape involved in setting up a business has already been cut significantly, much work remains to be done. The implementation of a ‘Roadmap for Improvement of the Business Environment’ promises to eliminate more restrictions on private enterprise with the government actively promoting its ‘Big Results Now’ initiative that aims to speed up the reform necessary to fully exploit the country’s vast, but yet largely untapped, potential.

Tired of waiting in vain for a better future to arrive on the coattails of wishful thinking, Tanzania has set to work. The country occupies a unique niche in Africa: it boasts a relatively well-functioning state, a stable political environment, and now has a policy framework to match. Thus, at long last, Tanzania has arrived at the starting block.

Cover photo: Mineral riches lurk under the surface and Tanzania is determined to exploit them.

---

@ 2022 Photo by Clive Moss