Summary
· The EU-Tanzania Business Forum kicks off at a time when the EU is stepping up its offer to its partners with major investments in infrastructure development around the world
One thing that Tanzania has going
for it is its fairly diversified economy. When Covid-19 was ravaging the global
economy and destroying tourism-dependent countries, mining (particularly gold
mining) kept Tanzania’s balance of payments and the shilling buoyant.
Three years prior, when gold exports
dropped dramatically, tourism kept the economy and the shilling afloat. Not to
mention the agriculture and manufacturing potential that Tanzania has, given
its strategic location on the continent as a gateway to the East and Central
Africa regions.
In its semi-annual economic update
published this month, the World Bank reported Tanzania to be performing better
than its regional peers in almost every metric. Both the pandemic and the
conflict in Ukraine have had negative consequences for inflation and
agricultural inputs.
But Tanzania’s inflation is well
below its regional peers. The relatively stable exchange rate likely mitigated
the impact of adverse global trends on domestic inflation. The better news is
that according to last year’s World Bank Report, even manufacturing exports are
on an upward trajectory (32.3% growth during the first three quarters of 2021),
reflecting Tanzania’s improving relations with EAC member states and other
regional neighbours.
While it is safe to say that
Tanzania’s economy has vast potential left, two metrics remain stubbornly
concerning. One is the minimal decline in poverty rates, which have hovered
around 26%–27% for a very long time. While economic growth is important,
prosperity should also be shared, and there is quite a bit Tanzania can do
about it.
The other is the relative decline in
the levels of Foreign Direct Investment (FDI) in absolute terms since 2015. On
the second item, I would like to turn my attention to the trade and investment
relations between the European Union and Tanzania.
The European Union has been a
historically strong economic partner for Tanzania. In a report issued last
year, 12% of Tanzania’s imports originated from EU states, while 10% of its
exports went the other way. The EU’s consolidated contribution to overseas
development in Tanzania stood at a significant 27%. In addition to that, there
are significant EU investments in agriculture (particularly in Arusha) as well
as tourism. Data suggests that EU investors’ focus seems to be long-term, given
the industries they tend to invest in.
In the EU-Tanzania business forum
kicking off this week, delegates, leaders, policymakers, and businesses will be
keen to explore the potential for deepening business relations between the two
parties. This is welcome news for Tanzania as it seeks to attract FDI with the
view of fostering shared prosperity.
The EU-Tanzania Business Forum kicks
off at a time when the EU is stepping up its offer to its partners with major
investments in infrastructure development around the world. Between 2021 and
2027, EU institutions and EU Member States jointly are expected to mobilise up
to €300 billion of investments in a range of sectors, including digital,
climate and energy, transport, health, as well as education and research.
But it is not just about European
FDI; it is also about how Tanzania can benefit, trade-wise, from linking with
European businesses. But for us to make that happen, I think two things must
happen.
Make fiscal policy stable and
predictable
The first is to make fiscal stability
stable and predictable. In a report issued less than a year ago, EU businesses
were asked about their key challenges in working and investing in Tanzania. You
may have guessed that “tax policy and administration” was the number one issue,
with 94% of the surveyed firms saying it was their primary bottleneck.
Fiscal policy, particularly tax
policy, is always a balancing act. With an economy like Tanzania, where half of
it is informal, conventional measures simply won’t cut it. The measures must
incentivise formalisation while raising enough revenues to keep the exchequer
afloat.
There has been progress in making
tax paying easy with the use of technology in recent years, with technology
implementation effectively transforming tax paying in Tanzania, albeit with
some glitches along the way.
If there are any improvements from a
procedural perspective, they would be around the capacity of the TRA’s network
and the challenges that come with the system being overloaded, but Tanzania is
heading in the right direction.
From a taxpayer engagement
perspective, we are beginning to see some deliberate efforts to include us in
the debate. In January of this year, there was a national tax dialogue led by
the Minister of Finance to discuss challenges around paying taxes.
Initiatives like these will go a
long way to foster voluntary compliance and also enrich the quality of
legislation coming through our parliament.
However, from a policy perspective,
there are some salient points to address. The majority of the investment coming
from the EU will be cross-country, and we currently do not have many double
taxation agreements with European countries.
In addition, there are specific
change of control provisions that make offshore investments and disposals
tricky. This certainly has to be looked at given the declining FDI trend since
2015.
Connected to policy, though not
fiscal, is the need to make regulators “facilitators” rather than “frustrators”
of businesses. This is where a well-coordinated Tanzania Investment Centre
(TIC), Business Registration and Licensing Authority (BRELA), Fair Competition
Commission (FCC), and other regulatory bodies must come in. The mindset must be
that of facilitation as opposed to just being a watchdog.
Execute urgently, knowing that
opportunities have expiration dates
Having resources and potential is
fantastic, but the game changer is how quickly one executes to tap into those
resources. With the world and its technology changing so fast, it is important
to know that resources will not be relevant forever.
At the moment, three projects will
have a significant impact on FDI flows into Tanzania. The EACOP project, the
LNG project, and the Kabanga Nickel Project All of the projects have their
financing linked to European entities or parent companies. The key message here
is that these big projects require timely execution to get off the ground. The
changing geopolitical demands, including climate politics, may mean that if
there is a significant delay in getting the investment in place, the projects
may not pick up, resulting in an incredible loss of transformative economic
potential.
Shakespeare’s words appear to be apt
at this juncture in Tanzania’s development history: “There is a tide in the
affairs of men.” which, taken at the flood, leads on to fortune.” The tide
seems to be right for Tanzania to cease its investment potential.
There has to be a sense of urgency
in the execution of some of these major projects. Indeed, there has to be a
sense of urgency broadly, whether that is with a TRA official getting
clearances or finalising audits as quickly as possible or a traffic police
working hard to ensure the road is clear for cargo to make its way.
The European Union offers a
fantastic opportunity for Tanzania. Our history with European investment means
that these waters are not uncharted. In particular, there appears to be
political will behind the EU Global Gateway package.
The investment package is geared
towards the priorities identified through the engagement between the EU and
Africa, within the context of the Africa Agenda 2060, and jointly identified
through close dialogue with the African Union Commission, African partners’
countries, as well as regional economic organisations.
Perhaps the most promising aspect of
the package is the support for strengthening Africa’s economic integration
process toward the African vision of the AfCFTA as a single continental trade
and investment system that is stable, solid, and based on clear regulatory
frameworks.
According to the European Union, as
part of the package, the EU has announced an additional €630 million to
continue such support, including the operationalisation of the TEI Technical
Assistance Facility for the AfCFTA, a €24.2 million action co-funded by France,
Germany, and Sweden.
The fact that continental
integration is central to this package means that the development will be
self-sustaining. For a very long time, analyst have bemoaned the lack of
intra-African trade as one of the chief reasons Africa remained poor and
disconnected from itself.
To summarise my thoughts, I have
argued that Tanzania’s economy is uniquely endowed with the kind of potential
and diversity that make it very attractive for investors, not just from Europe
but from the rest of the world.
This potential, however, requires a
predictable and stable policy and fiscal framework that will make the country
much more competitive than the rest of its regional peers and neighbours. In
addition to that, a sense of urgency needs to be injected in order to drive
such investment. In that sense, Europe is an exciting source of investment and
cooperation.
We just need to intensify the
economic cooperation for us to be able to attract not just investment but also
markets to that part of the world.
Samwel Ndandala is an Associate
Director with Deloitte Consulting Limited. The views presented are his own and
not necessarily those of Deloitte. He can be reached
at sndandala@deloitte.co.tz
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