Jitters as Tanzanian economy slows

President Magufuli:  dwindling economic fortunes
 pose a challenge to his re-election

 After years of neglecting due process and imposing unsustainable policies and legislation, the Tanzanian economy is decelerating.

According to the IMF database for April 2019, Tanzania’s GDP growth rate has sharply declined from more than 6 percent on average, to 4 percent this year. The rate will remain subdued over the next four to five years says the IMF. This sharply contrasts the country’s optimistic estimates of a 7.3 percent growth this year, up from an alleged 7.2 percent last year.

None of the independent reports on the Tanzanian economy supports the government’s position. For instance, the Regional Economic Outlook by the African Development Bank estimates that the GDP grew by 6.6 percent last year. The IMF data agrees with these findings in their review but estimates a sharp 2.7 percentage decline this year which according to IMF gurus, marks the start of the lean period for Tanzania.

So sensitive is the deceleration that Tanzania refused to allow the IMF country team to publish its Article IV Consultation report, according to Reuters.  The Reuters report, published in Nairobi, does not carry the author’s byline, showing the sensitivity of the report. Normally, reports about Tanzania are published in Dar-Es-Salaam, the commercial capital.

Tanzania has criminalized publishing of statistical data that contradicts the government’s data. GDP growth rate will decline sharply from 6.6 percent last year to 3.9 percent in 2019. It will remain below five percent till 2024, the data shows.

There is a reason for the sensitivity: Tanzania is entering an unfamiliar territory for she has posted robust growth averaging 6.3 percent over the last two decades ending in 2017.  The deceleration will see her slip from the rank of Africa’s fastest-growing economies to the laggards.

According to the African Pulse, Published by The World Bank, Tanzania is among the top performers in Africa. In the world banks taxonomy, Tanzania is ranked among The established Performers, those who have consistently posted growth rate above 5.4 percent for a long period of time. With the new circumstances, the country will drop to the level of Stuck in the middle countries whose growth rate hardly exceeds 5 percent.

The deceleration is unwelcome news for two reasons: One the downturn comes in the run-up to an election year.  The deceleration will vindicate critics who have questioned President Magufuli’s management of the economy.  Coming at a time when the ruling party’s fortunes are shrinking, the deceleration could result in the rout for the ruling Chama Cha Mapinduzi, CCM, in the ballot. Its popularity has shrunk from 85 percent in 2005 to 55 percent in 2015 and could shrink even further this year.

 Analysts, including this publication, have in the past warned that Tanzania is on the wrong path.  DFIs have warned that Tanzania’s, “hostile business environment” will affect wealth creation.

See Related content https://eaers.blogspot.com/2019/02/the-pitfalls-of-economic-nationalism-in.html

https://eaers.blogspot.com/2018/11/tanzania-prey-turned-predator.html

The decline in economic fortunes has sparked off panic within the ruling party resulting in even more aggressive legislation that made a bad situation worse.

Tanzania is now firmly on an Economic Nationalism path in a bid to create a “fairer economy” for the country and its citizens.  Such policy involves a greater state role in the management of the economy, diminishing the role of markets.

This has led to persistent wrangling with the Private sector, which responded by withholding investments. FDI, according to IMF has declined from five percent of the GDP to two percent in 2017. And there are prospects for further declines. The IMF also pointed at poor investment in low return infrastructure projects. Among these projects is the Central Corridor Railway line which is experts say is, unviable unless it diverts traffic from Kenya’s Mombasa Port. The Hoima-Tanga Oil pipeline is also another project that fits in the category of projects that confer no benefit to Tanzania.

 It has kept investors away by exploiting what economists call “obsolescing bargain” to the full. The obsolescing bargain is a situation where bargain power shifts from the investor to the host government after an investment has been put in place and cannot be transferred elsewhere. This is blackmail and it helps keep future investors away.

Tanzanian SGR: A low return investment

While the politicians say they want to create a “fairer economy,” the business community sees a tendency to create a bureaucratic and obstructive government, says Petroleum Economist, warning that “investors could be forced to think hard before they commit any funds for Tanzania.”

The AfDB has warned in its 2019 Africa Economic Outlook, that policy uncertainty could unsettle the private sector, stifling economic growth.

Apart from demanding a larger share in the mining sector, Tanzania is also domesticating multinational corporations. In 2017, telecoms companies were ordered to list at the local securities exchange. Some did, others are still working their way into listing.

 In the last four months or so, other MNCs have offloaded their majority stake to Tanzanians. Among these is Fastjet, which has sold its majority stake. The local outfit, Fastjet Airlines is grounded. MultiChoice, the pay-TV giant is also considering offloading its majority stake to a Tanzanian. Its fate remains to be seen.

The headwinds facing fastjet are illustrative of the conditions that must hold for economic nationalism to succeed: The country must have the financial muscle, technical and managerial competencies to replace the deep-pocketed foreigners. And it must also have a large market to sustain the new outfit.  

In mining, the country must have a monopoly over the resource.  In Natural gas, it faces competition from Mozambique. Tanzania has 58 trillion cubic feet of recoverable natural gas. The main discoveries are in the Rovuma Basin, which has yielded 75 tcf in Mozambique, just across the border.

 Mozambique has sanctioned Eni’s Coral South floating LNG project and an Anadarko-led LNG development may not be far behind, reports Bloomberg. Tanzania's plans are still struggling to get off the drawing board reports, Petroleum Economist.

The publication does not see Tanzania exporting LNG until mid -2020s due to delays in contract negotiations.   

Tanzania is ambitious but lacks the necessary wherewithal to implement its goals and could stumble its economy further if her volleys with investors continue. She does not have the capital muscle to exploit her resources.