Monday, 19 November 2018

Tanzania: Prey turned Predator?

President Magufuli: Bull in a China shop
Tanzania recently passed a legislation which criminalizes criticism of official statistics. The legislation drew immediate protest from The World Bank and is viewed as a major contributor to the Bank's decision to cancel a proposed $300 million in financial support to the country.  This adds to the plethora of legislation and edicts that make the country’s Policy and legal environment baffling. While the laws and edicts are issued in the name of protecting Tanzania’s interests, they appear to have the opposite effect. 
Consequently, investors are leaving, others have held back their plans, proposed acquisitions have been cancelled, businesses are closing, development partners are withdrawing and her mega- projects have no takers. And, with development partners also holding back their support, trouble is brewing in the Tanzanian pot.
Apart from the Laws, edicts by Ministers and provincial administrators add to the confusion. The sum effect being the country is beginning to sound like the Biblical tower of Babel.
The government has exploited alleged war against corruption to stifle dissent and turn into a predator- a society that exploits the vulnerability of its potential partners. And one that wants to gain its unfair share- against its interests. That is called covetousness- the desire to have things others have without working for them.
 First, it was hoarding of parastatal’s revenue at the Bank of Tanzania, the country’s Central Bank,  then the confrontation with the mining sector over allegations of corruption and cheating the government out of its rightful revenue, then a law legalizing robbery, then one criminalizing contradiction of official statistics.  Finally, the virtual ban on imports of dairy products.
And investors and traders are responding by standing back to watch with their chequebooks tacked away.  The recent Law barring anyone from producing statistics that contradicts the official statistics is a pointer that things aren’t rosy in Tanzania. And the business community is likely to keep away from the country.
The passing of the Law implies that the official statistics, especially on economic data, are cooked. It will be recalled that last year, there was an uproar over the release of statistics suggesting that the economic growth rate had slowed to 6.9 per cent down from 7.2 per cent previously. While 6.9 per cent is robust compared to her East African neighbours, a slow-down would be an indictment of the President’s wrong management.
The Law is then seen as an attempt to cover up the drastic decline in economic fortunes in the country. But the truth is still piling up. Tanzania is no longer attractive to investors and financiers.

Soon, trading its partners could also stand back. The latest in the “Bull in a China shop Policy pronouncement,” is the virtual ban of dairy products imports into the country and the order to raise Cashew nut farm-gate prices by more than 90 per cent. Exporters of the crop held back.
The Policy, which came into effect this month, will certainly hurt Tanzanians. The import duty was raised from Tshs150 (US$0.07) per kilogram to Tshs 2000($0.89) per Kilogram- a more than 1200 percent increase. It is not clear how this order-like all other orders before it- benefits the ordinary Tanzanian.
Tanzania's SGR: Funded from own resources for there are no takers
The effect of such a policy is to raise domestic prices of dairy products – whether imported or local-beyond the reach of many a Tanzanian. This, in a country where per capita milk consumption is way below the WHO recommended level of 200 litres per year. Tanzanians consume 45 litres a year per person. That is just 22.5 per cent of the recommended level. This suggests that there is a massive demand for dairy products in Tanzania but the supply is minuscule.
 Tanzania’s milk output a year, according to official data, is estimated at 4.4 billion litres or 12.055 million litres a day, on average. However, the milk processing capacity is 700,000 litres a day. And even this capacity is under-utilized. The processors operate at 40 per cent capacity due to a shortage of milk. At 280,000 litres a day, Tanzania’s capacity is the same as the output of small dairies in neighbouring Kenya.
In terms of per capita consumption, Tanzania’s dairy processing capacity can only supply  5.6 litres a year per person. That is to say that imports top up the difference, that is, 39.4 litres to reach the per capita consumption of 45 litres. The result of this edict will be a massive shortage of processed milk in Tanzania and the prices will soon shoot through the roof denying Tanzanians the health benefits of milk consumption.
Another troublesome Law allowed the government to toss -out of the window previous mining contracts and renegotiate them afresh. It also grants the government a free-rider 16 per cent stake in all mining ventures with an option to acquire 50 per cent for free. Investors immediately headed for the exit door. Those left behind have held back and are shopping for buyers who have become scarce.
This policy and legal uncertainty are holding the flow of critical investment funds in such areas as high potential infrastructure projects in the transport, energy, and water- at a time when investors and contractors are fighting for similar projects in Tanzania’s neighborhood.
Take the SGR project for instance.  The contract for the construction of the Central Corridor Railway line had been awarded to a Chinese contractor who was kicked out by the Magufuli administration citing corruption. China withdrew funding for the project. It’s funding is now a subject of myths and fables.
To be sure, Tanzania has borrowed a commercial loan of US$1.4 billion to extend the line from Morogoro to Dodoma, the capital city.  But President Magufuli’s scant respect for due process is keeping away investors from Tanzania, only recently a darling of investors. Tanzania stands out as a risky venture!
 To counter investor reluctance to enter the country, Tanzania which badly needs infrastructure to develop its economy has opted to finance its mega projects from own pockets.  But this raises serious doubts about its ability.
Tanzania’s budget in the current financial year (2018/19) is Tshs 32.5 trillion (US$ 14.5 billion). An estimated 40 per cent of the budget (Tshs 13 trillion US$5.791 billion) will be set aside for development projects.
The projects lumped together will require an estimated $10 billion, twice the development budget for this year.   This, in a country where the potential tax revenue will shrink as the business community stays away.