Economically, Tanzania has enjoyed the best 10 years in its history and most importantly,this has resulted in improved living standards for the people. But there is a lot more to come – the gas boom should reduce energy costs and new rail and port developments will boost trade and incomes. Report by Neil Ford.
The past decade has been the most successful in the history of the Tanzanian economy. Growth has averaged 7% a year, following on from slower but still strong growth over the previous 10 years.
As a result, per capita GDP, or the amount of economic activity per person, has increased six-fold over the past 20 years. All this has been achieved from a very low base but the outlook is very positive, providing the government keeps the economy under control as it awaits the injection of bumper gas revenues.
The government’s Development Vision 2025 has set a target of achieving middle income status by that date. That group includes 70% of the world’s population but Tanzania’s elevation into the category would finally indicate that it was no longer one of the poorest countries in the world.
The turnaround has been achieved by economic reforms and encouraging private sector investment. There has also been a great deal of donor support and preferential access to finance from the multilaterals. Most recently, in March, the World Bank agreed to lend Tanzania $2.4bn in low-interest finance to fund infrastructure projects.
It is often argued that economic growth can be achieved without benefiting the bulk of the population but this is less likely in economies that do not rely on the export of single commodities. Tanzania’s strong growth over the past decade has resulted in improved living standards. The proportion of children in primary education has increased by 36% and infant mortality has fallen by 60%.
Speaking in Tanzania on 17 May, the IMF deputy managing director Tao Zhang said: “Your country has made great progress reducing poverty. It declined from 33% to about 28% of the population between 2007 and 2012 and it should have continued to fall since then…The upside for Tanzania is virtually unlimited: real development, sustainable economic growth, and measurable improvements in the lives of all Tanzanians.”
Zhang outlined three areas for the government to focus on:
“First, it is essential to increase investment in an effective way, to address key bottlenecks in the economy and create more jobs;
“Second, take concrete steps to strengthen the role of the private sector in the economy, to help drive future growth; and
“Third, ensure that all Tanzanians can share in the benefits of development through better access to education, health care and access to finance. This means creating inclusive growth that lifts all living standards.”
There is a huge amount to be optimistic about. The East African Community is developing slower than planned but offers the potential for much greater trade within the region by reducing duties and other barriers to the movement of goods and services between Tanzania, Kenya, Uganda, Rwanda and Burundi.
As we discuss in the side-panel (right), Tanzania should emerge as a gas exporter of global importance, although it is vital that the government manages the sudden jump in investment and export revenues carefully. Oil and gas booms have derailed far too many African economies and even Ghana has suffered from rocketing expenditure, debt and inflation as Accra has sought to take advantage of impending oil income.
President John Magufuli’s efforts to reduce corruption and inefficiency have had a big impact on reducing public spending. Salaries to ghost – or non-existent – workers have been stopped and many civil servants regarded as ineffective or taking bribes have been fired.
The IMF’s resident representative in Tanzania, Bhaswar Mukhopadhyay, said: “This particular government has also actually made the hard decisions to curb wasteful spending, [and] try and re-orient spending toward capital spending.” However, he warned that the strategy would have an impact on economic growth, as the cuts would begin to bite before additional infrastructural spending came on stream.
Mukhopadhyay added: “In the immediate period, there seems to be in the first half of this calendar year some slowing from the very high growth rates that Tanzania has achieved in recent years. But by and large, the fundamentals of the economy remain strong and growth remains healthy.” He also advised the government to simplify the tax system and business regulations in order to encourage investment.
The government’s current Five Year Development Plan, named ‘Nurturing Industrialisation for Economic Transformation and Human Development’, focuses on promoting two of the country’s main strengths, agriculture and mining, by encouraging private sector investment in transport and energy. There is a great deal of potential for both to make a bigger contribution to GDP and employment but many mining deposits can only be developed if new railways are built, while agricultural processing plants need more reliable and plentiful electricity.
Many people work in the informal economy, generally earning small sums and paying no tax. The government must find a way of bringing everyone within the tax system, even if their income is currently below the threshold for paying income tax. As the economy continues to grow, hopefully the proportion of the population with sufficient income to pay tax will increase.
In the more immediate future, the government may be able to raise more revenue from corporate taxation. President Magufuli has promised to crack down on tax evasion by big businesses, including in the mining sector, although some firms have complained that they have been affected by high tax bills. Business taxes provide more revenue than income tax and taxes on consumption.
As in many parts of Africa, access to financial services is limited and a small proportion of the population have traditional bank accounts. However, mobile banking has completely changed the landscape, with 17m active users of mobile financial services in Tanzania at the end of 2016. People are able to transfer money, pay bills, take out loans and seek insurance via mobile phones and the range of services on offer should become wider as smartphones become more common.
Power to the people
The Tanzanian power sector had traditionally heavily relied on hydroelectric power production, but hydro schemes are vulnerable to fluctuations in rainfall. Gas-fired plants now make a bigger contribution to power production and more are planned, to take advantage of the country’s new-found gas wealth.
A consortium of Sumitomo Corporation, Hitachi Power Systems and Toshiba Plant Systems and Services expects to complete the 240 MW Kinyerezi plant near Dar es Salaam early next year. Funding is being provided by the Japan Bank for International Cooperation.
Gas will be transported to the plant by the new Mtwara-Dar es Salaam gas pipeline, which is being developed at a cost of $1.2bn. Kinyerezi III and IV, plus several other gas-fired power plants, are also scheduled for construction. The country currently has generating capacity of 1.6 GW but the government has set a goal of massively increasing this to 10 GW by 2025.
Even with gas on the way, Tanzania could gain its first coal-fired power plant. Edenville Energy of the UK has signed an agreement with China’s Sinohydro to develop the Rukwa Coal to Power Project in the southwest of the country. A full feasibility study into the scheme will now be undertaken. Sinohydro, which was originally a hydroelectric firm, now has interests in various types of power generation, and is one of the biggest developers of power generation projects in Sub-Saharan Africa.
Rufus Short, the CEO of Edenville Energy, said: FA4P53 “Sinohydro’s broad experience in Africa and its presence in Tanzania for over a decade give us the confidence that we have joined with a group that can bring many positive benefits to the project.” The Chinese firm’s participation also makes it more likely that Chinese banks will help to finance the project.
Solar lights up rural areas
One of the most important developments underway in Tanzania is receiving far less media coverage than it deserves. Off-grid solar power is starting to revolutionise access to electricity, particularly in rural areas, where the percentage of people with electricity at home is in single figures.
A range of private companies import equipment, often from China, to distribute to individual homes. Families receive a solar kit comprising a single solar panel, storage battery, light bulbs and mobile phone/laptop chargers.
The cost is usually about $150 but this is usually paid off in small weekly or monthly instalments, often via mobile phone. Many sources calculate that such kits make solar power as cheap as kerosene as a form of lighting. The solar systems can be expanded when finances allow, with extra solar panels providing more generating capacity. In addition, thousands of solar kiosks have sprung up around the country, where Tanzanians can pay small sums to charge their mobile handsets and other devices.
The government has set a goal of increasing the proportion of the population with access to electricity from 11.5% in 2012 to 75% by 2035 but it remains to be seen whether traditional grid-supplied electricity or localised off-grid solutions will make the biggest contribution.
Many African governments have drawn up impressive programmes for connecting people to their national grids over the past 50 years but relatively little progress has been made on the issue. Tanzania’s huge solar resources and the fact that the private sector is driving solar development could make it the ideal solution.