Interview with H.E. Dr. Jakaya Kikwete President Of The United Republic Of Tanzania

TanzaniaInvest had the pleasure to conduct an exclusive interview with H.E. Dr. Jakaya Kikwete, President of the United Republic of Tanzania. In the interview TanzaniaInvest and President Kikwete discuss the current state of the economy and the government forecasts for the coming years, the investment opportunities available, the upcoming oil & gas industry and the government commitment to reach the country’s 2025 vision to take Tanzanians out of poverty and become a Middle Income Country.    TanzaniaInvest: Tanzania is a brilliant example of a developing country experiencing sustained economic growth, with GDP growth consistently averaging 7% for the last ten years. How do you explain these impressive macroeconomic performances? Will such strong growth continue? Jakaya Kikwete: When you look at the Tanzanian economy, having been in situations where at some point we had negative growth and difficulties, certainly the strong macroeconomic performances we witness now are a function of the implementation of economic reforms and sound economic policies that were introduced in the second half of the 1990’s, aimed at bringing our macroeconomic indicators back on track. However I believe we should be able to do much more. 7% GDP growth is not adequate at our level of development meaning our level of poverty. Being a Least Developed Country (LDC) we want to move people out of poverty and for that we need a higher growth rate. We were almost there and then the global economic crunch hit us in 2009 when our GDP growth rate went down to 6%, although expectation were 5%, which is proof of the level or resilience that the Tanzanian economy has reached. We expect a GDP growth rate of 7.2% this year [2014] and if everything goes well we will reach 8-10% in the medium term. We expect a GDP growth rate of 7.2% this year [2014] and if everything goes well we will reach 8-10% in the medium term.  TI: Within this growth vision, which roles are Foreign Direct Investments (FDIs) expected to play? JK: FDIs have a critical role because where there is no investment there is no growth. That’s why we are very keen on receiving constant inflows on investments, both international and local. As a poor country obviously there is not much investment available locally therefore we look at attracting more FDIs and we have been successful in doing so. In 2005 we received USD 150 million worth of FDIs while in 2013 we received USD 1.7 billion. TI: You have been very active in showcasing Tanzania internationally as an investment destination of choice, and indeed very successful looking at the strong increase in FDIs. What is your message to investors? JK: One thing we tell prospective investors is that opportunities abound in Tanzania, in all economic sectors: agriculture, mining, oil & gas, manufacturing, tourism, you name it. When looking at the broader spectrum, first and foremost there are opportunities to invest in agriculture, with plenty of arable land, conducive weather and ground and surface water. There are opportunities in agro-processing, livestock, leather production and manufacturing, for example of cotton. One thing we tell prospective investors is that opportunities abound in Tanzania, in all economic sectors: agriculture, mining, oil & gas, manufacturing, tourism, you name it. If you look at mining, Tanzania is so blessed. All minerals known to exist in the heart crust can be found here, and some in huge quantities, such as gemstones or industrial minerals like coal, iron, nickel, ore, gold, silver… And within minerals there is still a lot which has not been exploited yet. So the key message is that in Tanzania there are plenty of opportunities. But there is also the geography of Tanzania that comes into play. We border eight countries, six of which landlocked. Hence Tanzania is a great place to locate a business for transit trade, you can make Tanzania an international logistics hub, is almost a captive market. The investment climate is permissive. Of course there is need to improve some flows here and there. The last evaluation from the World Bank [Doing Business Report] has not been so kind. For this the institutions involved in the BIG RESULT NOW (BRN) initiative have been asked to undergo a diagnostic study to assess what is holding back investments, what are the challenges to investors, what are the issues. We are now awaiting the results of such diagnostic to analyze them and take the necessary actions to make the investment climate even more conducive. most of all Tanzania has experienced uninterrupted peace and stability for the last 50 years. So investments in Tanzania are safe and actually the constitutional process we are undergoing will further strengthen and consolidate the democracy and the rule of law But most of all Tanzania has experienced uninterrupted peace and stability for the last 50 years. So investments in Tanzania are safe and actually the constitutional process we are undergoing [Tanzania is currently revising its constitution] will further strengthen and consolidate the democracy and the rule of law, and improve the government bodies’ effectiveness and tackle vices in society such as corruption. In a nutshell, there are better days ahead of us. TI: Agro-processing and manufacturing are energy consuming, with Tanzania still experiencing power shortages. Will the natural gas resources solve the issue once and for all? JK: I agree with you all these opportunities need supportive infrastructure such as energy, telecoms, roads and so on. This is why infrastructure development is a key sector on which we have a serious focus. First and foremost we are not producing enough power. We have been working on suppressed demand. We have been overdependent on hydropower with our dams not receiving enough water, and this is the main reason for the power shortages. But Tanzania is blessed with plenty of energy sources, such as natural gas and coal, as well as green energy sources like wind and sun. In regards to natural gas we are currently building a major gas pipeline form Mtwara [next to the main discoveries of offshore natural gas] to Dar Es Salaam. The new pipeline will also connect with Songosongo [currently active gas field] to bring more gas. If everything goes well by December 2014 the new gas pipeline will reach Dar Es Salaam. Meanwhile TANESCO [the Tanzania Electric Supply Company] is building the related power station, in partnership with international companies to produce 3,000 MW of energy by 2016. TANESCO [the Tanzania Electric Supply Company] is building the related power station, in partnership with international companies to produce 3,000 MW of energy by 2016. With that we think the power shortages problem will be solved. We are also working on the coal deposits in Mchuchuma and Mangaka, with new annex power stations. In regards to wind energy we are already investing in Singida, while we are also welcoming investors in solar energy production. TI: How will you ensure that the gas industry will be attractive enough for the investors, while benefitting Tanzania’s wider population? JK: In regards to the investors, the production sharing agreements that we negotiated provide for both the investors and us with a rightful share. Our model ensures it is a win-win between the investors and the Tanzanian government. Before sharing revenues, investors are allowed to depreciate the whole of the capital invested, which I think is a fair arrangement for all of us. the production sharing agreements that we negotiated provide for both the investors and us with a rightful share. Before sharing revenues, investors are allowed to depreciate the whole of the capital invested In relation to how to use revenues judiciously so that all Tanzanians benefit from them, we are training our people to acquire the skills required by the industry. This is something new for us and we need to ensure that not only foreigners but also Tanzanians are included in the generation of employment this industry will bring. For this at the University of Dar Es Salaam and of Dodoma we have now special courses for jobs skills that are required by the gas industry. We are also sending young Tanzanians to study all over the world to acquired those necessary skills and so being able to take up employments within the gas industry. Our vocational training schools are also tailoring courses for technicians to work in the industry. This is one aspect of sharing the wealth. But of course, there will be a lot of money coming to the government of Tanzania. Today we have so many plans but not enough government resources, so we ask donors and the private sector for support, without actually collecting enough. But during these times in the near future I think this problem will not be there anymore. The question will be how to spend such money judiciously and effectively and for this good leadership and good plans will be key. To successfully anticipate that, we are learning from other countries that went through the same, such as Norway and Abu Dhabi, where they established sovereign wealth funds with strict modalities on how to spend the resources generated from the gas industry. We expect by October 2014 that the Tanzanian parliament will have enacted a law to create [a sovereign wealth] fund so that revenues are used judiciously for the benefit of the current as well as the future generations of Tanzanians. We expect by October 2014 that the Tanzanian parliament will have enacted a law to create such fund so that revenues are used judiciously for the benefit of the current as well as the future generations of Tanzanians. TI: The Tanzanian national budget still relies on foreign donors support. Do you think such reliance could disappear with the revenues from natural gas? JK: It will take some time, as we are a still a young developing nation. As we earn revenues there will come a point in time where we will have done a lot for ourselves but now at this level where we still have to build key infrastructures, it is such a daunting task for which we need huge amounts of money. The current revenues the government is collecting are not enough. Even if we were able to collect 30% of the country’s GDP in taxes, this remains 30% of the GDP of a poor country. At this point in time we definitely need development assistance for infrastructure development like roads, railways, ports, power stations. Still, we have tried hard to reduce the level of dependence from foreign donors. When I came in office in 2005 the proportion of the national budget that was provided by foreign donors was 44%, while today it is 22%. But again I wish we could get more support for all we need to do.