President Magufuli is Tanzania's Major risk factor

Magufuli: A bull in a China Shop?

 It is rare for an elected government to become a stability risk for any country. However, in Tanzania, East Africa, the government, particularly the president is slowly assuming that dubious distinction. 

This is a consequence of his disregard for due process and the rule of law in his governance style. It is becoming increasingly difficult to gauge the purpose of some of his actions for they appear to work against the country’s interests. Some actions even contradict the country’s economic and political goals.

For instance, transferring government funds from private Commercial banks is reasonable if the government wants to spend the money and does not want to be tied down by investment contracts. However, it becomes a hurdle to economic activity if it is just parked at the Central Bank and the government begins to show a budget surplus because it did not spend the money. 

Economic growth is driven by the flow of credit and money circulation in an economy.  Credit to the productive sectors is generated by savings in commercial banks that trade in money.  The central Bank does not trade in money and when the government is not spending the money in its account, the money is withdrawn from the economy. This leads to low circulation of money and therefore low demand even for local products. Low demand means low products and contraction of the economy.

The most telling contradiction of this move is it contradicts the government's own stated goal of spreading the wealth in Tanzania. Wealth is spread through the consumption of goods and services. Without these, there cannot be any transfer of wealth.  

The financial sector in Tanzania is weak. This is why they need support from the government in terms of deposits because, some government institutions, such as the retirement benefits schemes have a lot of cash lying idle in bank vaults. 

This is the money that when deposited with commercial banks, generate interest for the depositors and the banks  as the banks also sell -on profit-to those looking for credit.  One of the consequences of the withdrawal of money  is that commercial banks in Tanzania are posting losses due to credit squeeze and bad debts. 

The banks' deposits have declined after the loss of government deposits. The largest private bank, CRDB, for example, posted a loss of Tsh1.9 billion ($1 million) in the third quarter of this year. Twiga Bancorp also registered a loss of Tsh18 billion ($8.26 million) over the past year. These are indigenous banks whose fall could have serious ramifications on the economy.

The Central Bank of Tanzania is itself convinced that danger is looming.  It recently said in a statement, that weakness in the financial sector “poses a systematic risk to the stability of the financial system; the continuation of Twiga operations in its current capital position is detrimental to the interest of its depositors."

To avert risks associated with tight monetary policy, the government must spend taxes on goods and services. But the government is proudly announcing savings made due to certain restrictions. 

Restricting wasteful spending  such as foreign travel is good but the money so saved musty be spent on other sectors that buoy economic activity.

 Ironically, the government is not spending.  In the third quarter last year, which was the first quarter of the current fiscal year, the government ran a budget surplus of over Tshs 300 billion (US$ 150 million). It also saved another $500 million from restricting foreign travel. That is a whole US$700 million lying idle in a consolidated account.

Governments collect taxes in order to spend –not to save.  In fact, governments are famous for running budget deficits- that is they spend more than they collect.  This is because there is more demand for government services than the available resources. Saving nearly 10 percent of a country’s annual budget suggests that the government does not need the taxes. It should therefore ease the tax burden so that, citizens can have more money to spend and keep the economy going.

Another contradiction is the rejection of the electricity tariff increase yet the government seeks to borrow US$200 million to pay off Tanesco’s debt. We have reliably learned that the government had earlier tried to borrow from the World Bank for the same purpose but the request was rejected. Analysts do not see the current application succeeding. The government’s argument in rejecting the increase is; such an increase would hamper the President Industrialisation drive which is pegged on the availability of electricity.

 In November, Dangote Cement Tanzania closed for 10 days over a dispute over the availability of energy to fire the plant.  Book publishers are crying foul over the ban to publish school textbooks while some of the large corporations in the country are reportedly slowing down on investment in Tanzania. Some are even said to be considering decamping from the country altogether.

The far-reaching cost-cutting measures announced by President John Magufuli's administration since coming into office in November last year have become widely blamed for causing a liquidity squeeze in the economy that appears to be getting tighter by the day.

This has, in turn, had a ripple effect on the private sector - the engine of the country’s economic growth - leading to a decline in revenues and profits for various small, medium, and large-scale businesses across several industries and sectors, according to analysts. At least six companies are rethinking their business and investment plans others, some of the biggest foreign firms operating in Tanzania, or their local arms, in sectors including mining, telecoms, and shipping.

The president assumed office in October 2015 and embarked on a sacking spree of public servants deemed corrupt or inefficient. This scares civil servants and is likely to reduce Tanzania into a country of sycophants who do what the President says even if it is wrong.

The first to suffer the President’s wrath was Tanzania Ports Authority whose managers were removed under the pretext of fighting corruption. Within two months the port had lost 42 percent of its business to other ports in the Indian Ocean seaboard. While there many factors driving the scampering from the Port, the major cause was the delay caused by fear to work by employees at the port.

 Others who have been sacked in a humiliating fashion include the director of the National Institute for Medical Research (NIMR) Director-General Dr. Mwele Malecela whose only crime was to report that the dreaded Zika virus had been detected in Morogoro and Geita regions; and the CEO of Tanesco for raising power tariffs, among others.

  On the Political Scene, the President has effectively silenced the opposition by banning political activity. The malicious nature of this abuse of power is the humiliating arrest of Opposition MPs right at the gate of Parliament on flimsy criminal cases. One of them has been languishing in Jail for more than four months over a charge of incitement. This charge is bailable in Tanzanian law and a person no less a former Attorney General of Tanzania, who is currently an MP of the ruling party was publicly quoted s as saying regarding the wisdom in the arrest of MPs.

From the foregoing, it is clear Tanzania is headed in the wrong direction. The President, who is the single major threat to the country’s stability needs to slow down. He must stand back and take stock before the country implodes.