F o r e w o r d

1

Tanzania is a country of close to fo rty million people. It's a country of a peaceful and hard - working people and today, i tis also the gatew ay to a market of over 100 million citizens of East A f r i c a .

I can proudly say that, t o d ay,Tanzania is a success story in political and economic refo rm , in growth and deve l o p m e n t , and ins u s t a i n a ble progress dri ven by market fri e n d ly policies and the private sector.

Tanzania is a country undergoing phenomenal economic tra n s i t i o n . O ver the last ten ye a rs , we set ours e l ves targets which willu n d e rpin the economic development of our country. In pursuit of this we have had many positive achieve m e n t s , but alsoc h a l l e n g e s .

We can not pretend that this transition is without probl e m s . These difficulties are not exceptional or incapacitating, but they arep a rt of a reality we all face in striving together for a better life for all.

We still face the challenges of pove rty and diseases, access to health and provision of clean water to our ru ral communities aswell as affording access to secondary school and unive rs i t y. We also have to deal with globalisation and how we can fit in sothat we can reap the benefits of a wider wo rld marke t . There is too, the question of climate change and how it will affect ourd e velopment targ e t s . Ye t , we have overcome the biggest challenge of achieving greater economic grow t h . Our economy is nowg r owing at a rate of 7%, the fastest growing in A f ri c a .

The gove rnment is alert to the challenges and has put in place the necessary policies, institutional structures and mechanisms toe n c o u rage Direct Foreign Investment as well as local inve s t m e n t . We're wo rking to simplify our legal and regulatory procedures,maximise our incentivisation schemes in taxation, and continue to ease out bu r e a u c ra c y.

The Business Environment Strengthening for Tanzania (BEST) programme is designed to reduce the burden of doing business inTa n z a n i a , and to improve the efficiency of gove rnment service and delive ry to the private sector.

We are an active member of the Multilateral Investment Guarantees Agency (MIGA) as well as a member of The Intern a t i o n a lCentre for Settlement of Investment Disputes (ICSID).

We continue to make our investment climate attra c t i ve based on sound, l o n g - t e rm macroeconomic management.

The Wo rld Bank's Doing Business Report 2007 recognises Tanzania as one of the ten best refo rming countries in the wo rl d . T h eFinancial T i m e s labelled Tanzania as the best country in the region for investment in 2006, and our investment agency was vo t e dthe best such organisation in the wo rld by the prestigious Wo rld Association of Investment Promotion Agencies last ye a r.

F u rther to these aw a r d s , the Investment Climate Facility (ICF) has cited Tanzania as one of the leading facilitators of refo rm onthe continent and it has found a home for its headquart e rs in our capital, Dar es Salaam.

There are opportunities within agri c u l t u r e, m i n i n g , e n e rg y, i n f ra s t ructure deve l o p m e n t , t o u ri s m , m a nu f a c t u ri n g , business serv i c e sand in tra n s p o rt and today, our economy is now growing faster than our population, which has immense and positive effects ata grassroots leve l .

The presence of many international companies at the Tanzania Investment Forum 17th A p ri l , 2 0 0 8 , is testimony to the soundeconomic policies and good investment climate operating in Tanzania today.

The gove rnment of Tanzania looks forward to inviting you to Tanzania to see for yo u rself one of the great economic stories inm o d e rn A f rica and, in time, we hope to welcome you as part n e rs in its continued success.

Forewordby His Excellency Jakaya Mrisho Kikwete,President of the United Republic of Tanzania

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Introduction by Her Excellency Mrs Mwanaidi Sinare Maajar,Tanzania High Commissioner in the UK

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I n t r o d u c t i o n

I am very pleased to write this introduction for the first Tanzanian Investment Report.

When commissioning this report, we wanted to present an objective and balanced account of Tanzania to the Foreign DirectInvestment (FDI) community as well as highlighting some of the outstanding opportunities that exist for the would-beinvestor.

I am pleased to say that I feel we have achieved our goals and that this document, in marrying clinical analysis and statisticsfrom organisations such as the International Monetary Fund (IMF) and World Bank, with intelligent sectoral comment andanalysis of individual investment areas, presents an informative and objective review of the investment climate andinvestment opportunities in Tanzania today.

Over the last 48 years, we've moved from a one-party state to a multi-party democracy. Our geo-economic emergenceas a gateway into the East and Central Africa regions has been attributed, in no small part to a progressive and embracingcommitment to measured macro-economic management of successive budgets.

Sound economic policy, coupled with a strong political will has also led to increased transparency within government andan intolerance to corruption.

However, structural reforms and prudent economic management are not the only indicators that 'now' is the right time toinvest. It is demonstrated by much clearer and more tangible examples: the investors themselves.

Last year the Tanzania Investment Centre endorsed 592 projects and was estimated to have created about 70,000 jobopportunities in the financial year alone. Further to this, three-quarters of investors in a 2005/6 FDI survey were planningon expanding their services in the country.

FDI has increased by 1,000 per cent into agriculture since 2002, 900 per cent into tourism and 500 per cent intomanufacturing industries within the same time period.

With 800km of coastline, productive access to six landlocked countries, the world famous Serengeti plains, the island ofZanzibar and Mount Kilimanjaro,Tanzania is one of the most naturally stunning, and best positioned, key developing marketsin the region.

I hope that you find the narrative of this report as interesting and rewarding as we have in compiling it. My thanks go toDeveloping Markets Associates for their input and advice and to all of those contributors who have provided an analysis ofindividual sectors.

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Contents

3

C o n t e n t s

4 Economic Overview 18 Manufacturing

10 Political History 20 Mining

12 Agriculture 22 Tourism

14 Energy 24 Key contacts

16 Infrastructure

DMA acknowledge the assistance of all the individuals and organisations who have contributed to his publication. The views expressed

herein are the opinions of the authors, and do not necessarily represent THCL or DMA. All rights reserved. No part of this publication

may be reproduced or transmitted in any form without the written permission of the publisher.

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Publisher Chris GerrardConsultant Editor Richard SyngeContributors Finnigan Wa Simbeye, Derek

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Published by Developing Markets Associates Ltd (DMA) for the

High Commission of the United Republic of Tanzania in London

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TIR08_F-I-C_1_3 9/4/08 15:18 Page 3

En d owed with plentiful mineral and agriculturalresources, Tanzania has one of the best performingeconomies in sub-Saharan A f r i c a . In fact, few

countries in the region can boast a comparable record ofpeace and macroeconomic stability over the past twodecades. The International Monetary Fund (IMF) hasnoted: “The Tanzanian economy continues to performstrongly. Sound policies have contributed to robustgrowth and moderate inflation, placing Tanzania among theleading successful re formers in A f r i c a ,” add i n g : “ T h eauthorities' commitment to continued structural reformsand the maintenance of macroeconomic stability willfurther raise the country's growth potential so as to makedecisive progress in poverty reduction.”

Despite the recent economic successes, there remain somesignificant policy challenges that in turn now demandimprovements in the micro-business environment to sustainboth investment and growth, and to put the Tanzanianeconomy on a more solid footing to compete successfully inthe global economy.

Socio-economic conditions have improved tangibly in recentyears as nominal Gross Domestic Product (GDP) in (USdollar terms) surged by nearly two-thirds to US$14.79bnbetween 2000 and 2007, with real GDP growth averaging6.3% per annum, surpassing Africa's average and far abovethe lacklustre 3.4% seen over the previous eight years. Abroad-based expansion led by mining and construction isevident, reflecting a fairly diversified economy. The IMFfigures for 2000-06 show the mining sector (principally goldproduction and exploration) as the largest contributor tototal growth, with 14.3% growth, followed by construction(10.6%), retail trade (7.4%), light manufacturing (7%) anda g riculture (4.7%). Mining generates around half ofTanzania's aggregate exports.

Africa's third-largest gold producer after South Africa andGhana,Tanzania has attracted investments worth US$2.5bnfrom a number of mining giants – notably Barrick Gold ofCanada, AngloGoldAshanti of South Africa and Australia'sResolute. The sub-sectors of tourism and telecoms alsoboast strong potential. In 2006, tourism comprised 5% ofGDP and employed over half a million people; it is projectedto grow by a further 4.8% per annum between 2007 and2016. The telecoms industry is poised for rapid expansionwith analysts expecting mobile subscriptions to increasefrom 12.6mn in 2008 to 33.8mn by 2012. Vodacom ofSouth Africa and Kuwaiti-owned Celtel are market leaders.

The economy is now growing faster than the population,and this has positive effects at a grassroots level. Real percapita GDP growth (the indicator of social well-being)reached 5.2% in 2007, compared to 1.9% over 1997-2001,according to the IMF.

And yet, despite all its success in achieving good growth, lowinflation (which was once 30%) and a manageable externald e b t , Tanzania faces downside risks to sustainabl ed e ve l o p m e n t , and part i c u l a rly those arising from itsinfrastructure bottlenecks in transportation, electricity andcommunications, as well as those related to its skilled labour shortages.

Annual GDP growth and its external current account arevulnerable to drought related reductions in hydroelectricpower and soaring world oil prices. Tanzania Electric SupplyCompany (Tanesco), the state-owned utility, has six hydro-plants with a capacity of 561MW. In 2006, it met only 20%of grid demand when power generation was hit by a harshdrought. It is thus important to reduce over reliance onhydropower by developing alternative sources of electricity.

To consolidate the hard won economic gains, the IMF hasadvised the authorities to steadily pursue key structuralreforms, including in the vital energy sector and capacitybuilding to remove barriers to sustaining robust growth andpoverty alleviation. According to The Integrated Labour Force

S u rv e y, the 2006 jobless rate was 11%, t h o u g hunemployment is more acute in Dar es Salaam where therate is 31.4%. The survey reported that the the workforcehas increased by 2.8mn since 2001/02 to 20.6mn. Anestimated 760,000 nationals annu a l ly are entering the labour market.

The policy environment

In the face of the current turmoil in global financial marketsand a downturn – caused by the credit crunch – in thedeveloped world, Tanzania's economy is proving resilient,thanks in part to the pursuit of effective policies over recentyears. Growth is predicted to reach 7.5% in 2008, or 4.5%in per capita terms, and this will be fuelled by buoyantactivity in constru c t i o n , m a nu f a c t u ri n g , m i n i n g / q u a rry i n g ,telecoms and touri s m . A rebound in agri c u l t u r e, t h ecommodity price boom and improved power supply should,too, underpin economic growth. Both public and privatei nvestments continue to expand ra p i d ly as capitalexpenditure – funded mainly by development partners –

E c o n o m y

4

Building on a record of steady progress

Moin Siddiqi, Economist

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increases. The share of gross capital formation in GDP hasgrown in recent years (see Table 1).

Preserving currency and price stability are the main goals ofthe Bank of Tanzania (BoT), which is among the fewindependent central banks in Africa. A prudent monetarystance has delivered single-digit inflation throughout thisdecade. Targets for end-2007 were largely met and thanksto improvements in the BoT's conduct of open marketoperations, interest rates have declined from the highs of2006/07. The IMF notes: “Recent steps by the Bank ofTanzania have succeeded in reining in monetary expansionand moderating interest rates. The Bank's strategy isappropriately geared at further reducing inflationary risksand strengthening monetary control.” But inflation iscurrently above the 5% official target, reflecting spiralling fueland food prices. However, better harvests, plus any easingof world oil prices and continued monetary restraint couldyet bring down inflation to the preferred target in thecoming months.

Fiscal probity will be critical to retaining the confidence ofthe international community. Tanzania's Public FinancialManagement (PFM) systems – launched in 1998 to ensureoptimal use of public resources and improved transparency– compare favourably with its peer countries. A joint 2004World Bank-IMF study found that Tanzania had the highestscore on the quality of public expenditure managementsystems of 26 Heavily Indebted Poor Countries (HIPC).External financing (comprising over 40% of the nationalbudget) is now more effective because funds are channelledvia the PFM system, either as untied budget support orlarger project grants. Net donor inflows to Tanzania in2004/05 were US$1,557mn, according to the Organisationfor Economic Co-operation and Development's (OECD)2006 Development Co-operation Report, the second highestin Africa after Ethiopia (US$1,780mn). The country hasr e c e i ved US$7.5bn in Official Development A s s i s t a n c e(ODA) over 2001-05, equivalent to 6.6% of the sub-Saharantotal or US$12.5 per head.

F o l l owing the fiscal year 1999/2000, careful planning andsocial policies led to a hike in public spending from 17.9%of GDP to 23.6% in 2006/07, while annual GDP expandedon ave rage by 6% in real term s . Total expenditure fo r2007/08 is anticipated at 28% of GDP, with capitalspending (i.e. p u blic investment) absorbing over a third ofthe budget (see Ta ble 2). In the past decade, the Ta n z a n i aR e ve nue A u t h o rity implemented tax refo rms thatboosted tax collection fo u r- fo l d . The rate of tax collectionis expected to be 16% of GDP by June 2008, up from12.6% in 2005/06, based on the Ministr y of Finance'sfi g u r e s . In the past six ye a rs , c e n t ral gove rnment reve nu eand donor funds have risen by 4% and 6%, r e s p e c t i ve ly, o fG D P.

The overall fiscal deficit, after grants, is predicted at 4% ofGDP this year and next (down from 5% in 2005/06) helpedby strong donor support and relief flowing from theMultilateral Debt Relief Initiative (MDRI). The 2008/09budget currently under preparation will need to balancedemands on public resources for stimulating higher growthwhilst preserving long-term fiscal stability. The IMFcautioned:“Pressing social and infrastructural needs warrantincreased public spending, although careful planning will beneeded to ensure that spending can be adjusted if domesticrevenue falls short of its ambitious target.”Tanzania will needto reach a tax collection level of 20% if it is to lessen itsheavy reliance on concessional external financing and grants,which in 2006/07 amounted to nearly a tenth of GDP.Going forward, aid inflows should be complemented byhigher domestic and external private investments.

Debt sustainability

Tanzania has benefited from enhanced debt relief under theHeavily Indebted Poor Countries (HIPC) Initiative and theG8 agreement on the MDRI, which provides 100% relief toeligible member countries qualified for assistance. At itsHIPC completion point, reached in 2001, Tanzania's debtstock in Net Present Value (NPV) terms fell by half(approximately US$3bn), which restored the country todebt sustainability. It continues to benefit from the MDRIthat could deliver US$4.83bn over time, of whichUS$336mn owed to the IMF was cancelled in December2005. Meanwhile, the African Development Fund andInternational Development Association – soft lending armsof the African Development Bank (ADB) and World BankGroup – have also approved MDRI relief to Tanzania.

The external debt stock was trimmed by US$2.92bn, f r o mUS$7.81bn at end-2004 to US$4.89bn at end-2007. T h eC e n t ral Bank's end-June 2007 figure was US$5.21bn (35% ofG D P ) . C o n s e q u e n t ly, debt service as a percentage of totale x p o rts declined from a peak of 39.4% in 1998 to a low of3% in 2007. While annual debt service savings represented onave rage about 1% of GDP during the period 2000-06. M o r er e c e n t ly, MDRI relief has yielded over 1% of GDP in annu a ls avings for 2006/07-2007/08. Debt cancellation creates moreresources for anti-pove rty spending. Social expenditures oneducation and healthcare, on ave ra g e, are fi ve times theamount of debt service payments.Tanzania has received a total of US$6.2bn in credits, loansand grants from the World Bank since the 1960s.

Capital inflows

Tanzania has a chronic external current account deficit (seeTable 3). This reflects higher imports of fuel, industrial rawmaterials and equipment/machinery, to meet the domesticdemand of a buoyant economy. The increase in capitalgoods imports is positive for long-term growth potential.

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Despite yawning trade defi c i t s , the Tanzanian Shilling hast raded remark a bly steadily in recent ye a rs , thanks tostrong macro fundamentals, foreign investment and donori n f l ow s . The US Millennium Challenge Corp o ra t i o n(UMCC) recently approved a US$698mn fi ve year gra n tfor the country.

E x p o rts are relative ly dive rs i fied (see Ta ble 4) but localm a nu f a c t u r e rs have not fully tapped the expor to p p o r tunities to North A m e rica and the European Unionunder the US A f rican Growth and Opportunity Act andteh EU's Eve rything But A rms Initiative. T h a t , h owe ve r,will require trade facilitation measures like improve m e n t sin road netwo rk s , p o r t s , access to inputs and extension serv i c e s .

N e ve rt h e l e s s , Tanzania records a modest surplus on itsove rall balance of payments on account of sustainedcapital inflow s , project assistance (i.e. g ra n t s ) , fo r e i g ni nvestment and debt relief. C o n c u rr e n t ly, Gross Forexr e s e rves rose to almost US$3bn by end-2007. F o r e i g naid remains a major source of income for the capitala c c o u n t , which showed a surplus of $288mn in 2006/07,according to IMF fi g u r e s .

Tanzania is emerging as a potential hub for Foreign DirectI nvestment (FDI) into the East A f rican region, with inflow save raging 4% of GDP in recent ye a rs . Popular sectors(besides mining) are touri s m , r e t a i l , t e l e c o m s ,m a nu f a c t u ring and agro-processing. The stock of inwardFDI has surged ye a r- o n - year from US$2.8bn in 2000 toUS$6.1bn in 2006, according to United NationsC o n ference on Trade and Development (UNCTA D )s t a t i s t i c s . The Tanzania Investment Centre repor t e dactual FDI inflow s , while growing steadily over 2002-06,falling well shor t of inve s t o rs' registered interest, p a r t lybecause of high business costs, red tape, i n f ra s t ru c t u ra lbottlenecks and the low technical skill base.

An unfinished agenda

The government is making concerted efforts to put theeconomy on a vibrant and equitable growth path. To achievethis, it has developed several policy initiatives to guide thed e velopment agenda and growth-enhancing measures.These are incorporated in the National Strategy for Growthand Reduction of Poverty (2005-10), referred by its Swahiliacronym, MKUKUTA.

The policy document, linked to the National DevelopmentVision 2025, seeks:

• promotion of broad-based sustainable growth;

• uplifting the quality of life and social well being;

• durably strengthening public finances and macroeconomicstability;

• increased government effectiveness and accountability;

• deepening stru c t u ral refo rms (including the fi n a n c i a lsector);

• improving the business climate.

Such core areas are imperative for Tanzania to beginprogress on its Millennium Development Goals (MDGs) ininfrastructural development. The international community isproviding support for MKUKUTA through sectoral budgetsupport, project finance, loan guarantees, technical adviceand equity investments by the International FinanceCorporation (IFC).

The authorities are pursuing far-reaching refo rms as a basis fo r:

• fostering an enabling environment for micro-, small andmedium-sized enterprises (SMEs), which are seen asagents of job creation;

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FDI inflows, US$ mn

2002 2003 2004 2005 2006

Total registered projects 1072 1590 1133 1706 5877

Agriculture 50 146 72 466 533Mining & natural resources 55 64 29 16 176Tourism 90 121 141 227 683Manufacturing 204 228 390 462 1243Transport & infrastructure 25 834 214 138 1254Construction 590 56 203 195 1248Other 58 141 86 200 741

Total FDI inflows 411 473 485 506 597

Figure1: Foreign Direct Investment inflows 2002-2006

Sources:Tanzania Investment Centre and Bank of Tanzania.

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• addressing power supply shor tages by facilitatingcompetition in the genera t i o n , t ransmission anddistribution segments;

• improving financial intermediation in the rural areas, wherethe majority of the population lacks access to financialservices;

• strengthening the banking sector's contri bution toi nvestment and growth through lending to pri v a t ebusinesses including SMEs. The ratio of credit to GDP was10% in 2005, versus 25% in Kenya, according to theCentral Bank;

• accelerating structural reforms (including privatisation) toraise productivity growth and reduce the heavy burden onpublic finances;

• building infra s t ructure by promoting publ i c - p ri v a t epartnerships, especially in energy/transportation sectorsand streamlining labyrinthine bureaucracy;

• diversifying the production/export base of the economyand tackling human resource and institutional capacityc o n s t ra i n t s , which deter development and pove r t yreduction.

Examples of recent initiatives are the Business EnvironmentStrengthening (BEST) Progra m m e ; the Medium-Te rmTransportation Infrastructure Investment Plan; the SecondGeneration Financial Sector Reform Action Plan that focuseson SMEs and the rural sector ; and the Power SectorRestructuring Programme which will be supported byUS$1.3bn worth of investment over the next five years.BEST aims to cut business costs by eradicating red tape andi m p r oving the quality of public serv i c e s , including theresolution of commercial disputes. To address governanceissues, the authorities adopted National Anti-CorruptionStrategy Action Plan, which is expected to improve thebusiness environment.

P rivatisation continu e s , though at a slower pace thane nv i s a g e d . The Public Sector Refo rm Commission,responsible for the divestiture process, has yet to sell-offprime assets such as Tanzania Telecoms Company Ltd, AirTanzania, the power utility Tanesco, National InsuranceC o rp o ra t i o n , Tanzania Zambia Railw ays A u t h o ri t y,commercial units of Tanzania Ports Authority and Dar esSalaam Water and Sewage Company, among others. Thesestrategic assets have considerable potential to attract FDI.One of the country's largest banks, The National Bank ofCommerce, was sold over two years ago. As of end-2006,a total of 322 parastatals were privatised and 647 non-coreassets divested. Besides an increase in capital injections,former public enterprises will benefit from much-improvedmanagerial and marketing skills.

Potentials and challenges

The country's economic performance is expected to remainstrong over the medium-term, with real GDP growthprojected at 7.5-8.0% range. Growth should be driven byprivate sector investment in mining, construction, tourismand telecoms, as well as higher development expenditure forsocial needs. While inflation could subside to the 5% targetband, as the BoT maintains tighter monetary policy andgrowing agricultural output relieves pressure on food prices.The external and fiscal position should remain manageableon account of continued donor inflows, debt relief under theMDRI and foreign investments.

Looking ahead,Tanzania faces daunting challenges in meetingthe MDGs, even if aid is substantially boosted in the comingyears. To have a real impact on poverty and job creation,real GDP has to grow annually by 10%, (or 7% in per capitat e rms) to increase spending on socio-economici n f ra s t ru c t u r e. That would require substantial fi xe dinvestments (equivalent to 30-35% of GDP), vastly higheragricultural/industrial production and export diversification.In two key areas Tanzania is on target to reach its MDGs –Universal Primary Education and Gender Equality where90% of children between the ages of seven and 13, of bothsexes, are now enrolled in primary education.

A decade of solid growth, coupled with the effectiveutilisation of foreign aid and higher FDI inflows havetransformed Tanzania from a state-run into a dynamicemerging market, which offers investors opportunities ina g ri bu s i n e s s e s , i n f ra s t ru c t u r e, financial serv i c e s , m i n i n g(particularly gold and diamonds), the mobile phone industryand, increasingly, tourism. In order to take advantage of thec u rrent climate howe ve r, Tanzania must upgra d ecommunications and transport networks and foster skilledwo rk force by investing in education and vocational training schemes.

There are now grounds for optimism about future growthand investments in Tanzania, which remains a beacon ofstability in East Africa.

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Projections

2005/06 2006/07 2007/08 2008/09 2009/10 2010/11Nominal Gross Domestic Product (GDP)at market prices (billions of T Sh)1 16,857 18,948 21,465 24,289 27,482 31,067Total GDP (US$ mn) 14,251 14,797 17,305 19,551 21,688 24,037Nominal GDP growth2 12.6 12.4 13.3 13.1 13.1 13.0Sectoral components of GDP 2 (end-year)Agriculture 3.9 5.0 5.2 5.2 5.2 5.2Industry 8.5 9.2 11.2 11.6 11.6 11.6Services 7.7 6.7 7.3 7.8 7.9 7.9

Real GDP growth2 7.0 6.9 7.3 7.7 8.0 8.0Consumer prices (period average)2 5.6 6.3 6.9 5.2 5.2 5.0Gross capital formation (%) of GDP 25.1 28.0 29.1 29.4 29.7 30.0Of which: Private sector investment 19.1 22.0 20.7 19.2 19.7 19.8Gross domestic savings (%) of GDP 16.2 14.0 14.6 14.5 15.0 15.5Discount rate (%) (end-year) 20.1 21.4 21.0 < < <Lending rate (%)3 (end-year) 15.4 15.7 15.5 14.0 13.5 13.0Real interest rate (%)4 9.8 9.4 8.9 8.8 8.3 8.0Broad money supply (M3) growth2 31.6 20.7 21.0 20.0 19.0 18.0

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Table 1: Key macroeconomic indicators

1Fiscal year: July-June; 2Annual percent change; 3Interest rate charged by commercial banks; < The Bank of Tanzania could relax monetary policy infuture years; 4Adjusted for inflationSources:Tanzanian authorities, IMF projections, Economist Intelligence Unit, and private estimatesArea: 883,749 sq km. Population: 39.5mn (2006). Exchange rate:Tanzanian Shilling 1231.50 = US$1 (31/03/08); 2007 average:TSh 1242.7 = US$1

Projections

2005/06 2006/07 2007/08 2008/09 2009/10 2010/11Central government revenue 12.6 14.5 16.0 16.3 16.6 16.8Total public expenditure 23.0 23.6 28.0 27.6 27.2 27.4Recurrent expenditure 17.3 17.4 17.7 17.6 17.2 17.2Capital expenditure 5.7 6.2 10.3 10.0 10.0 10.2Of which: Foreign (donor) funding 3.9 3.6 5.5 5.5 5.5 5.5Government fiscal balance, before grants -10.4 -9.1 -12.0 -11.3 -10.6 -10.6Official grants 5.4 5.0 7.8 7.2 6.5 6.7Overall fiscal balance, including grants -5.0 -4.1 -4.2 -4.1 -4.1 -3.9

Sources: Ministry of Finance, Bank of Tanzania, and IMF projections

Table 2: Public finance (%) of GDP, 2005/06- 2010/11

Figure 2: GDP by sector in 2006 (%)

Agriculture 46%

Manufacturing 9%

Public services 6%

Construction 6%

Tourism 5%

Telecoms 4.9%

Mining 3.3%

Other 10.8%

Financial and businessservices 9%

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Table 3: Balance of payments (US$mn, unless otherwise indicated)

Projections (%) chg

2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2008-11Exports, f.o.b. 1,741 2,042 2,360 2,574 2,818 2,807 19.0Volume1 2.5 -7.1 19.6 7.1 7.4 7.6 -Imports, f.o.b. 3,436 4,336 5,016 5,534 6,073 6,724 34.0Volume1 3.4 20.4 9.4 12.8 12.1 12.2 -Terms of trade2 -2.7 4.8 -6.8 4.1 4.1 3.3 -Merchandise trade balance -1,695 -2,294 -2,656 -2,960 -3,255 -3,917 47.5Trade deficit (%) of GDP -11.9 -15.5 -15.3 -15.1 -15.0 -16.3 -Current account balance -1,110 -1,561 -1,729 -1,908 -2,092 -2,282 32.0As (%) of GDP,including grants -7.8 -10.5 -10.0 -9.8 -9.6 -9.5 -Services (net) 135 241 274 335 393 526 92.0Current transfers (net) 531 543 675 759 815 875 29.6Of which:Official transfers 502 509 641 724 778 838 30.7Foreign Direct Investment 541 653 700 775 860 955 36.4Other investment 357 915 467 566 674 746 59.7Overall external balance 383 288 43 111 189 242 462.8As (%) of GDP 2.7 1.9 0.2 0.6 0.8 1.0 -

1 Annual % change; 2 Terms-of-trade (the ratio of export-to-import prices)Sources:Tanzanian authorities, and IMF projections

(%) chg Projections

2004 2005 2006 2007 2004-07 2008 2009Total external debt stock 7,800 7,787 4,760 4,891 -37.3 5,529 6,047Debt stock (%) of GDP 76.5 61.8 37.2 33.0 - 32.0 31.0External debt (%) exports 529.5 464.6 276.2 239.5 - 234.2 235.0Debt service due 124 127 59 67 -46.0 77 73Debt service ratio (%)1 8.0 7.0 5.0 3.0 - 2.5 2.0Official debt (%) of GDP 50.9 48.1 48.4 15.9 - - -Official forex reserves 2,296 2,049 2,259 2,951 28.5 3,071 3,221Import-coverage2 9.3 6.4 5.3 4.5 - 3.9 3.7BoT # foreign assets 2,198 2,115 2,277 2,771 26.0 - -

1Scheduled debt service – principal and interest repayments – as a % of total exports; 2Forex reserves in months of imports of goods and services;# The Bank of TanzaniaSources: IMF, Economist Intelligence Unit and World Bank

Principal exports, Principal imports,

2005, (US$ mn) 2005, (US$ mn)

Gold 615 Consumer goods 643Cotton 122 Machinery 584Coffee 82 Crude oil and other fuels 315Cashews 54 Industrial raw materials 280Tea 30 Foods and foodstuffs 185

Source: Economist Intelligence Unit

Table 4: Principal commodities, 2005

Percent share of total trade

Exports Imports

China 9.8 China 10.6India 8.7 South Africa 10.3Netherlands 6.2 Kenya 8.2Japan 5.3 India 7.1Germany 4.2 UAE 6.2UAE 4.2 Zambia 6.0Switzerland 3.5 US 4.1UK 3.1 UK 4.0Zambia 3.0 Germany 4.0South Africa 2.7 Bahrain 3.8

Source: Direction of Trade, IMF

Table 5: Major trading partners, 2006

Table 6: External debt and Official assets, (US$mn unless otherwise indicated)

TIR08_EconOver_4_9 9/4/08 15:20 Page 9

The United Republic of Tanzania was hard ly bornwith a silver spoon in its mouth. Indeed when theB r i t i s h - a d m i n i s t e red UN trust terr i t o ry of

Ta n g a nyika became independent in December 1961 thiswas one of the poorest countries in A f r i c a . A tindependence it had only two qualified engineers and 12d o c t o r s . An advantage that it did have was that of the 100or so small tribes amongst its population, none was dominant.

The new nation was bl e s s e d , t o o, at the outset with ar e m a rk a ble leader, Julius Nye r e r e, one of the wisest andi n t e rn a t i o n a l ly popular of post-colonial heads of gove rn m e n t .F u rt h e rm o r e, the last British Gove rn o r, Sir Richard Tu rn bu l l ,was one of the best of the ‘ we l l - a b ove - ave ra g e ’ clutch oft ransitional British colonial gove rn o rs at that time. The twomen continued a good wo rking relationship until Tu rn bull leftthe scene when Ta n g a nyika became a Republic a year afteri n d e p e n d e n c e. In the meantime,N yerere surp rised eve ryo n ewhen only two months after independence he stepped dow nb ri e f ly as Prime Minister to reorganise his par ty and deve l o phis policies to return as President a year later.

One of Nyerere's wo rrying preoccupations had alw ay sbeen the unsettled neighbouring state of Zanzibar, which in1963 became independent. His concern was not misplaced.

H i s t o r y

10

Forty seven

challenging

but stable years

Derek Ingram

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Within a month a revolution ove rthrew the Sultan ofZanzibar and precipitated an army mu t i ny in Ta n g a ny i k ai t s e l f . With British help it was quickly suppressed, and in1964 Zanzibar became a semi-autonomous part of theUnited Republic of Ta n z a n i a . In 1977 the countries' tworuling parties merged to fo rm the Chama Cha Mapinduzi( C C M ) .

From the outset Nye r e r e, who came to be known asM w a l i mu (teacher), was determined to take his countryd own the road to one-party socialism. He set this out inthe 1967 A rusha Declara t i o n , which called for self-reliancethrough the creation of coopera t i ve farm villages and thenationalisation of factori e s , p l a n t a t i o n s , banks and pri v a t ec o m p a n i e s .

After seve ral ye a rs , N yerere's particular brand of socialism,the village pattern of Ujamaa, p r oved difficult to wo rk andin due cours e, although not until the 1980s, the countrybegan to move towards We s t e rn-style economics.

Julius Nyerere stepped down as President of Tanzania in1985 after 24 years in power. His huge legacy was thecreation of a stable and united nation in a continent that hasseen all too much instability during the last 50 years. Thecoming to power in neighbouring Uganda in 1971 of theruthless dictator Idi Amin became a huge distraction overseveral years for Nyerere, especially when Amin expelled hisAsian population. It was highly unsettling for Tanzania wherethe Asian population had long lived in harmony.

Amin's behaviour was deeply offe n s i ve to Nyerere anddisturbing for Ta n z a n i a . At one point fo rmer soldiers andexiles suppor ting the ousted President Milton Obote tri e du n s u c c e s s f u l ly to invade Uganda from Ta n z a n i a . In 1978Amin launched an attack on Tanzania to distract attentionfrom his own probl e m s . Three months later, 4 5 , 0 0 0Tanzanian troops, s u p p o rted by Ugandan exiles, i nv a d e dUganda and took Kampala. Amin fled and Obote wasr e s t o r e d , o n ly to be replaced after much turmoil by Yowe riM u s e veni and his own liberation army. M u s e veni took over Uganda in 1986, where he remains President tothis day.

All these upheavals across its borders hugely diverted anddrained Tanzania's resources in Nyerere's last years asPresident. He gave notice that he would not stand for re-election, and in 1985 he, a Roman Catholic, was succeededas President by a Muslim, the long-serving senior ministerand Zanzibari, Ali Hassan Mwinyi.

In retirement, Nyerere worked tirelessly for Africa, trying tomediate over disputes and conflicts in countries such asRwanda, Burundi and the Congo. On a wider front heheaded the think tank on rich-poor issues, the SouthCommission, based in Geneva.

In his History of Modern Africa, author Guy Arnold sums upNyerere's record: “Though his economic policies were notsuccessful, he did create a moral and social climate superiorto the rest of Africa and he gave his people educationalstandards and a strong belief in his philosophies andthemselves.”

Nyerere's life style was remarkably simple. He lived a plain,even austere, life in State House and on the farm where hewas born, and was often seen digging away alongside hisfarmworkers.

Internationally, Tanzania had always played a leading role inthe affairs of institutions such as the Commonwealth. Thiswas largely due to the initial principled commitment ofNyerere himself, who had said just before independencethat Tanzania would not join the Commonwealth if SouthAfrica remained a member. At a Prime Ministers' Meeting inLondon in March 1961 South A f rica withdrew frommembership and so at independence in December theproblem no longer arose.

Thereafter Nyerere was a key figure over two decades inthe tortuous Commonwealth dealings with fi rs tRhodesia/Zimbabwe and then South Africa.

Politically, Nyerere's great legacy was to establish a regularleadership succession. The new constitution laid down alimit of two terms for the President, so Mwinyi steppeddown in 1995 and was succeeded by Benjamin Mkapa, afo rmer newspaper editor and High Commissioner toNigeria. Following the Tanzanian example, several Africancountries have subsequently moved away from the habit oflimitless presidential terms – most notably Ghana, Malawi,Mozambique, Namibia and Zambia.

Mkapa's two terms in office ended with the December 2005elections. As the driving force behind the extensiveeconomic liberalisation, he presided over a substantial fall ininflation and growth in the economy. Under him Tanzania'sforeign debt was wiped out. However, Zanzibar remainedthe politically more difficult part of the two components ofthe Republic of Tanzania.

Jakaya Kikwete, who had served as Foreign Minister, was theCCM's chosen successor and won the 2005 election, takingover as President at the age of 55. He proclaimed the fightagainst corruption as a priority. In January 2008 the CentralBank Gove rnor Daudi Ballali was sacked when anindependent international audit exposed fra u d u l e n ttransactions. A month later, Prime Minister Edward Lowassaand two other ministers resigned after being implicated in ane n e rgy deal involving a US-based fi rm , R i c h m o n dD e ve l o p m e n t . K i k wete dissolved his entire cabinet,appointed Local Government Minister Mizengo Pinda asPrime Minister and a new government was formed.

H i s t o r y

11

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Despite more rapid growth in other sectors,agriculture is still the mainstay of the Tanzanianeconomy. The sector accounts for about 66% of

merchandise exports and makes a large contribution toGross Domestic Product (GDP) (over 45% last year) whileemploying over 80% of the rural population, who stillmainly use crude tools to cultivate the land.

With 44 mn hectares (ha) of arable land of which only 10mnha are under utilisation, the country has huge potential forlarge-scale commercial farming. As far as investment isc o n c e rn e d , h owe ve r, the agriculture sector remainsdominated by subsistence producers who lack modernfarming knowledge, technology and capital to produce asurplus to feed the country adequately.

H i s t o ri c a l ly, foreign investment in the sector has beenhampered by archaic laws and a land tenure system whichonly allowed foreigners to lease land (for up to 99 years).But effo r ts are being made by the gove rnment andstakeholders in the sector to modernise, commercialise andbecome significantly more productive by the year 2025.

A g r i c u l t u r e

12

Fields of

long-term

opportunity

Farmland in Tanzania

TIR08_Agriculture_12_13 9/4/08 15:26 Page 12

Under Tanzania's 'Vision 2025', the government plans to turnthe country into a middle income economy rather than itscurrent Least Developed Country status. A number ofi n i t i a t i ves are being under taken with suppor t from d o n o rs , such as the A g riculture Sector Deve l o p m e n tProgramme (ASDP).

Both Vision 2025 and the ASDP recognise the importanceof FDI in revamping the ailing agriculture sector. Subsistencefarmers have failed to feed the country and every year thecountry faces periodic food shortages.

This year alone, the government waived import duty oncereals and urged traders to import 300,000 tonnes ofcereals to avert food shortages caused by poor yields lastye a r. F o rmer Minister for A g ri c u l t u r e, Food andCooperatives, Steven Wassira, told Parliament that over11.2mn tonnes of food crops were expected to beharvested while actual consumption is 10.9mn tonnes. Theexpectation proved wrong however, when last Decembersome parts of the country started complaining aboutanother food shortage.

Experts estimate that a growing population will reach 40mnby the end of the decade and that the demand for foodcould climb to over 15mn tonnes in the next two years.

Potential and existing activity

Opportunities exist in establishing large-scale commercialfarms for the production of crops for domestic consumptionand export, mainly to the European Union.

The Ministry of Agriculture, Food and Cooperatives saysthat irrigation farming is currently a priority as rains becomeunreliable due to changing global weather patterns. About29.4mn ha are suitable for irrigation, with 2.3mn ha beingcategorised as being of high development potential and4.8mn ha as having medium development potential.

Large-scale production of cereals such as maize, millet,rice,and sorghum will need substantial capital to supply theever-growing urban population and a fast growing economy.

A few multinational companies have shown an interest.Biotechnology firms like the Swiss Syngenta and Monsantoof the US are currently supplying non-transgenic seeds tolocal farm e rs . The gove rnment through the Tr o p i c a lPesticide Research Institute is already doing ground work onhow to regulate genetically modified crops once they getintroduced into the country.

A few South A f rican and Zimbabwean farm e rs haveventured into the sector by setting up commercial farms for

crops and livestock. The area which has attracted the most FDI is the cultivation of crops for export like coffee, cotton,cut flowers, sugarcane, tea, tobacco and jatropha for bio-fuel.Joint venture companies like Tanzania Tea Packers have teafarms in the Iringa and Mbeya regions.

Associated British Foods, which bought a majority of sharesin South Africa's Illovo Sugar last year, owns Kilombero SugarCompany, a former state owned sugar manufacturer inMorogoro region.

Cut flowers are also attracting more investment following anexodus of foreign investors from Kenya where exhaustedsoils and other poor conditions have encouraged them toshift to Tanzania and Ethiopia. Companies like Hortanzia andKiliflora are owned jointly by local and foreign investors.Daily flights by KLM from Dar es Salaam via Kilimanjaro toAmsterdam have been a crucial facilitator of cut flower,vegetable and fruit exports to Europe.

Coffee is also among the export crops which have attractedboth foreign investment and support from the UnitedStates' Agency for International Development. Through aTechnoServe-implemented project to find business solutionsto rural poverty, farmers are beginning to cultivate specialtycoffee for export to the world's leading roasters in the US,Europe and Japan.

Kilicafe is a cooperative grouping that has succeeded inwinning business from Starbucks and Peet's Coffee & Tea, aswell as German importers. “The main business approach isto win orders on stocklot samples,” says Adolph Kumburu,Kilicafe's Executive Director. “We're yet to have long-termsales contracts, which we may be able to see in the nearfuture, especially from Starbucks.”

Incentive packages in the sector are similar to those offeredelsewhere under the Tanzania Investment Act of 1997.Major problems include a lack of long term financing tos u p p o rt commercial farming although Wo rld Bank isundertaking a pilot project on leasing finance of capitalgoods.

TIC's Executive Director Emmanuel Ole Naiko says thatwith the planned launch of land banks, the government willbe encouraging foreign investment in agriculture to producecrops both for domestic and export markets.

A g r i c u l t u r e

13

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Tanzania's energy sector offers opportunities inelectricity generation, natural gas, oil and solarp owe r, and there are also related opportunities in

fo re s t ry investment to benefit from the growing globalcarbon credit trade. Amid mounting international concernabout global warming and env i ronmental degradation,s everal effo rts are being undert a ken by the government toreduce ove rdependence on natural fuel wood as a mains o u rce of energy especially for the majority poor.

Electricity and natural gas

The government has recently confirmed that it will table inParliament, sometime in the course of 2008, a bill toderegulate the energy sector, especially generation andsupply of electricity which is currently a monopoly of thefi n a n c i a l ly - c o n s t ra i n e d , s t a t e - owned Tanzania NationalElectric Supply Company (Tanesco).

President Jakaya Mrisho Kikwete said the bill to deregulate thec o u n t ry's energy sector will allow private competitors tochallenge Tanesco's monopoly in order to connect moreTanzanians to the national power gri d .

E ven ahead of the bill's enactment, p rivate power producingcompanies such as Canada-based A rtumas Group throughtheir local subsidiary,A rtumas Tanzania Ltd,are already supply i n gclients through Ta n e s c o. A rtumas is already providing 12MW ofp ower in southern Tanzania while investing in a 300MW powe rg e n e ration plant which will supply the southern regions of Lindi,M t w a ra and Ruvuma plus areas on the borders of then e i g h b o u ring countries of Malawi and Mozambique.

H y d r o e l e c t ricity curr e n t ly produces the bulk of the country ' se n e rgy needs, but natural gas and refined fuels are also play i n ga key role in the sector. For example, d u ring 2006's prolongeddroughts which drained the country's main power supplyd a m s , there was a boost in output of natural gas from theSongo Songo islands by Songas Ltd, a company jointly ow n e dby the Tanzania gove rnment and CDC Globelec. M a ny larg e -scale energy consumers such as manu f a c t u ring companiesmanaged to absorb the high costs of electricity in 2006 bygetting natural gas supplies from Songas Ltd to operate their m a nu f a c t u ring plants.

Further reserves of natural gas have been identified by aFrench company along the eastern coastline of the countrysome 100 kilometres or so from the commercial capital andseaport, Dar es Salaam.

The incentives offered in this area include tax exemptions oncapital goods, cheap labour, with a minimum wage of US$65per month, and a vast local and regional market cove ri n gover 100 million people throughout the East A f ri c a nc o m mu n i t y. There is also security of private investment asTanzania is a member of the Wo rld Bank's Multilatera lI nvestment Guarantee Agency (MIGA).

O i l

E x p e rts anticipate the discove ry of vast reserves of both oiland natural gas along Tanzania's eastern coastline as well as insome regions bordering Lake Nyasa and Ta n g a nyika in thesouth and south west respective ly.

Over 19 international companies have signed productionsharing agreements with Tanzania Petroleum DevelopmentCorporation (TPDC) to explore for oil in various parts ofthe country. At least one of them, Artumas Group, hasmade significant progress by extracting some 89 barrels ofliquid hydrocarbons from the Rovuma basin in the bordersof Tanzania and Mozambique. The company sent the 89barrels to laboratories abroad for further testing to warrantif there is enough oil at the area to justify commercialexploitation.

As in other extraction sectors, the terms are very fair. Withall major expenses incurred by the investor, revenue sharingis often in the ratio of 8:1. The revenue-sharing agreementhowever, changes with increased production and as yearspass after the investors recover their costs.

Solar energy

This is another important area of investment especiallybecause only about 10% of an estimated 40 million peopleh ave access to electri c i t y. E ven so, Tanzania's electri c i t ydemand hove rs well above 1,000MW while it produces lessthan 700MW,m a i n ly from hy d r o e l e c t ricity which has been hitby increasingly unpredictable patterns of ra i n f a l l .

E n e rgy experts are pressing the gove rnment to waive importduty on solar equipment to make it accessible by the majori t yof the remaining 90% residing in ru ral areas who can't affo r dc u rrent pri c e s . The gove rnment has said that it is looking intothe possibility of abolishing duty on solar equipment in thenear future.

E n e r g y

14

Tanzania's energy sector – its risks and

opportunities

TIR08_Energy_14_15 9/4/08 15:28 Page 14

Investment in natural forests

With the rate of deforestation said to be around 40,000hectares per annum due to overdependence on natural fuelwood and growing demand for hardwood logs by Indian andChinese manufacturers, the government has started theEastern Arc Mountains Conservation Endowment Fund(EAMCEF) with support from the World Bank and theGlobal Environmental Facility. The EAMCEF offers grantsranging between US$5,000 and US$300,000 for forestryand conservation projects located in the Eastern A r cMountains. Hardwood cultivation of teak trees, amber andblack-wood has been introduced.

EAMCEF Executive Director, Francis Sabuni, says the fund isoffering grants to qualified project applicants. Investors canbenefit from projects through a number of incentives such astax exemptions for capital goods, access to financing and anopportunity to exploit the rapidly expanding global carboncredit trade.

Some international companies are already exploiting thisnew market which has been provided under Kyoto Protocol.One is US company, Clean Air Action Corporation (CAAC),through its local subsidiary, Ukuazaji Maendeleo EndelevuTanzania Limited of Morogoro. The company has so farcontracted over 2,200 villagers who are taking care of some169,682 trees and 10,008 seedlings in central and easternregions of Tanzania.

One of CA AC's projects is the International Small Groupand Tree Planting Programme (known locally as TIST) whichit runs jointly with the US-based Institute for Env i r o n m e n t a lI n n ov a t i o n , on the same lines as similar projec ts in India andK e nya . These sell carbon credits to US-based mu l t i n a t i o n a lc o rp o rations such as Pfi zer Inc. and Shell ChemicalsC o m p a ny as well as to the Wo rld Bank's BioCarbon Fund.CA AC's European Coordinator, Fiona Hafve n s t e i n , l a m e n t s

that Kyoto does not allow projects like TIST to benefit ascommercial investments because of Tanzania's lack of ap r o p e rly structured system of forest management. M sH a f venstein suggests the European Union allow countri e ssuch as Tanzania to benefit from its lucra t i ve carbon tra d i n gm a rket which is the largest in the wo rl d .

Richard Muyungi, an assistant director of the Department ofE nvironment at the Vice President's Office in Tanzania and amember of Kyoto Protocol's Clean Deve l o p m e n tM e c h a n i s m , hopes that any future protocol that replacesKyoto will give projects such as TIST a commercial value, s oas to earn more from the major global polluters .

Risks

The fact that the country's land laws don't allow a freeholdsystem can be a cause for uncertainty among fo r e i g ni nve s t o rs . H owe ve r, the Tanzanian land ow n e rship systemdoes allow lease agreements of up to 99 ye a rs with thepossibility of renewal.

I n e f ficiency in the civil service and the lack of reliable sourcesof long-term local financing are also problems which inve s t o rsh ave confronted. The gove rn m e n t , with the support of theWo rld Bank, European Union and other donors , is curr e n t lyu n d e r taking a civil service refo rm project while theI n t e rnational Finance Corp o ration is running a pilot projectfor capital goods leasing.

In the period leading up to the recent visit of US PresidentG e o rge W. B u s h , President Kikwete's gove rnment showe dsome determination to act against corrupt public offi c i a l s .S u f ficient progress was shown for the US to approveUS$700mn through the Millennium ChallengeC o rp o ration (MCC) to assist with pove r ty era d i c a t i o n ,i n f ra s t ructure development and restru c t u ring ther e g u l a t o ry sector.

E n e r g y

15

Solar energy is anotherimportant area of investmentespecially because only about10% of an estimated 40million people have access toelectricity.

TIR08_Energy_14_15 9/4/08 15:28 Page 15

One of the stumbling blocks frustrating Ta n z a n i a ' sr apid economic growth is the poor state of mu c hof its infrastructure. T h roughout much of its

940,000 square kilometre s , the country needs especially toi m p rove the state of its ro a d s , r a i lw ay s , a i r p o rts and port s .Former Pre s i d e n t , Benjamin Mkapa once told an inve s t o r s 'round table fo r u m :“It's a challenge to you to invest in thesea reas and improve the situation. The government's role is toput in place a conducive env i ronment to enable the privatesector to invest and re ap pro f i t s .” President Jakaya MrishoK i k wete has maintained his predecessor's stance inencouraging investors to put their money intoi n f r a s t r u c t u re, including ro a d s , a i r p o rt s , p o rts andt e l e c o m munications (especially the mobile phone serv i c e sthat curre n t ly serve an estimated seven million subscribers).

Te l e c o m m u n i c a t i o n s

The state-owned Tanzania Telecommunications CompanyLimited (TTCL) is only one of a growing number of firmsoffering mobile phone services. Among the current marketleaders are Vodacom Tanzania, Celtel Tanzania, MIC Tanzaniaand Zanzibar Telecoms (Zantel).

I n f r a s t r u c t u r e

16

Investment

opportunities in

infrastructure

development

Train crossing Tanzania

TIR08_Infra_16_17 9/4/08 15:30 Page 16

Zantel's low tariff rates have helped it expand rapidly sinceit first introduced its services to mainland Tanzania little overa year ago. From an initial 200,000 subscribers in early 2007it had expanded to more than half a million by the end of the year.

Zantel is also a partner in the East African SubmarineSystem fibre-optic cable project which is investing around$250mn in an undersea cable to connect the whole of EastAfrica directly to the outside world, thereby reducing theregion's reliance on satellite connections and at the sametime sharply reducing prices.

P o r t s

Tanzania's principal Indian Ocean port at Dar es Salaamserves several landlocked countries in east, central andsouthern Africa. Tanzania Ports Authority (TPA) is thelandlord not only of Dar es Salaam port but also of Tangaport in the north east and Mtwara port in the south east.TPA also owns ports on both LakeVictoria and Lake Nyasa.

C u rr e n t ly, T PA and the Ministry of Infra s t ru c t u r eDevelopment are seeking investors in the expansion andmodernisation of Dar es Salaam port which is struggling tocope with an influx of goods due to the boom in regionaleconomies and Kenya's post-election violence whichrendered Mombasa port almost paralysed for a time.

Countries such as Rwanda and Uganda officially requestedthat Tanzania handle the bulk of their imports which werep r e v i o u s ly channelled through Mombasa por t . W i t hcapacity to handle over 250,000 containers per annum, Dares Salaam port last year handled over 350,000 TEU (Twentyfeet Equivalent Units).

Tanzania International Container Terminal Services whichwas awarded the lease for Dar es Salaam port's containerterminal for 10 years in 2001 has reported huge profits eachyear. However, the lack of access to neighbouring countriesthrough roads and railways is currently a major setback ini m p r oving the perfo rmance of the port in terms oftransporting cargo.

TPA is currently seeking a private operator for its dry cargoarea with capacity to hold over 200,000 tonnes annually.

With support from the United Nations Conference onTrade and Development, Tanzania has plans to developMtwara and Tanga ports.

A i r p o r t s

Few Tanzanians take to the skies because air transport isconsidered a luxury in this vast country. The country has fivemain airports as well as airstrips and aerodromes. Only two

airlines currently fly domestic routes. Yet air travel is set toprosper, especially if the influx of foreign tourists reaches thetarget of one million by 2010.

Tanzania Airports Authority (TAA), an executive agencyunder the Ministry of Infrastructure, is currently finalisingplans to rehabilitate and expand the country's major airport,Julius Nyerere International Airport (JNIA), with EuropeanUnion funding.

Airports such as Mwanza on the shores of Lake Victoria,Kilimanjaro International Airport (KIA) at the foot of Africa'shighest mountain and Mtwara airstrip in the southern partof the country are also under planning for major expansionand modernisation.

There are investment opportunities in cargo and passengerhandling at all major airports. Swissport International andKilimanjaro Airport Development Company (KADCO) aretwo private companies which have won contracts to handlepassengers and cargo at the country's two major airports ofJNIA and KIA.

There is also growing demand for affordable air travel in thecountry. When a budget company, Community Airlines,brought its fares down by 25% it quickly found itself a hugemarket. More investment can be expected in commercialairlines plying domestic routes and chartered services tocater for an anticipated growing number of touri s t s ,especially from Europe and North America.

TAA Managing Director, Prosper Tesha, says the authority'smajor objective is “expansion and upgrading ofinfrastructures and facilities at JNIA, Mwanza, KIA, Dodoma,Mafia, and Mtwara by 2008, and Kigoma,Tabora and Bukobaby 2010, to accommodate the growing demands of airport users.”

I n c e n t i v e s

Under the Tanzania Investment Act of 1997 whichestablished the Tanzania Investment Centre, an investor isentitled to a number of incentives to help a venture get offthe ground. These include the granting of a Certificate ofIncentives, Strategic Investor Status and an Import DutyDraw Back Scheme which, as a package, provide tax relief aswell as preferential treatment by authorities and lendinginstitutions. There are also packages of incentives offeredthrough the Export Processing Zones Act of 2002 andSpecial Economic Zones Act of 2005.

I n f r a s t r u c t u r e

17

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Tanzania's manufacturing sector came close tocollapse in the late 1980s but is now emerging as anewly important sector of the economy thanks to

the privatisation of more than 300 state-owned companiessince 1992.

The sector's contri bution to Gross Domestic Product(GDP) has significantly increased from less than 5% in 1992to over 9% last year. The surge in manufacturing growth inrecent years has been mainly attributed to the increasedproduction of beverages, cement, cigarettes, corrugated ironsheets, plastic products, steel products, and textiles. Thevalue of exports of manufactured goods rose by 41.8% toUS$156.1mn in 2005 from US$110.1mn in 2004.Manufactured goods exported included plastics, metals andapparels and mainly went to neighbouring countries such asB u ru n d i , D e m o c ratic Republic of Congo (DRC) andRwanda.

M a n u f a c t u r i n g

18

Revival

and tough

competition

Ariel view of Arusha factory belt

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Through the 1997 Tanzania Investment Act, a range ofincentives had been given to the strategic investors whichinclude 100% capital allowance, tax exemption on capitalgoods, protection of investment under the MultilateralInvestments Guarantee Agency (MIGA) and full repatriationprofits by foreign shareholders to home countries.

All policies and regulations have since focused on sustainableindustrial development as stipulated in the SustainableIndustrial Development Policy (SIDP). The main purpose ofSIDP is to set out a path for industrialising the country andit dovetails with the country's 'Vision 2025' which hopes toturn the country into a semi-industrialised economy, withindustry accounting for over 40% of GDP.

In its approach, SIDP embraces the principles of a market-led economy. It points out that industry would only prosperin the hands of increased private sector participation both indecision making and implementation.

Thanks to economic liberalisation, the private sector hasbecome a power player in the country, sometimes pushingthe government to change policy and legislation, althoughthe manufacturing sector will be exposed to increasedcompetition from Kenyan imports when a fully-fledged EastAfrican Community (EAC) customs union takes off in 2010.

Manufacturers are mostly grouped in two powerful lobbies,the Tanzania Chamber of Commerce, I n d u s t ry andAgriculture (TCCIA) and the Confederation of TanzaniaIndustries (CTI). Most privatised enterprises now belong toTCCIA which also constitutes farmers while the influentialCTI is largely made up of manufacturers.

Among the leading foreign companies which have turnedround former ailing state enterprises is South Africa'sSABMiller which took over Tanzania Breweries in the late1990s. There is still a lot of room for investment in thebrewing sector as the market is growing with access toother EAC members with a combined population of over100 million.

There are new challenges for cement manufacturers as theconstruction sector keeps growing, and as a result ofincreased demand from neighbouring countries such asBurundi, DRC and Rwanda, which are all making majorreconstruction efforts after years of civil war. Currently,three major local cement producers have a combinedoutput of over 1.7mn tonnes per annum while demand issaid to have surpassed 2mn tonnes. Leading cementp r o d u c e r, Tanzania Po r tland Cement, controlled byG e rm a ny's Heidelberg Cement Group, is curr e n t lyexpanding capacity with an investment of over US$100mn.Mbeya Cement Company, run by French construction giantLafarge, is also undertaking major expansion to cater for thegrowing demand.

The manufacturing of apparel, clothing and mosquito netsalso provides opportunities. Tanzania is said to have failed tofully exploit the African Growth and Opportunity Act(AGOA) which provides duty free and quota free access tothe US market. The country still earns less than US$20mnper annum from the US market while neighbouring Kenyaearns over US$100mn. Among the apparel companiesexploiting the AGOA market opportunity are Arusha-basedSun Flag Company and A to Z Tanzania. The latter has alsopartnered with Japanese chemicals giant Sumitomo tomanufacture insecticide mosquito nets which are sold locallyand in neighbouring countries.

There may also be opportunities in the consumables marketfor confectionaries, dry cells, maize flour milling, radios andwheat and , although cheaper imports from Asian countriesare threatening the viability of local manufacturers in someof these areas. Japanese National and Panasonic East Africahad a radio and dry cell manufacturing factory in Dar esSalaam but stopped radio manufacturing in late 1990s andits dry cell plant is facing market challenges due tocompetition from Chinese-made imports.

The gove rnment is taking steps to protect localmanufacturers and last year a Fair Competition Commission(FCC) became operational to crack down on counterfeitsand sub-standard import s . The FCC has destroye dcounterfeit and sub-standard television sets, computers,music systems and other items valued at over a half a milliondollars but faces an uphill task.

The Tanzania Reve nue A u t h o rity has also launched acrackdown against imports that evade taxes through amodernisation project jointly sponsored by the World Bankand the government. The Authority increased monthlyrevenue collection from US$160mn per month in 2005 to arecord US$260mn in January 2007.

M a n u f a c t u r i n g

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It was in the early 1990s that Tanzania began to enact itsprogramme of thorough-going economic liberalisationwith a view to stimulating new private sector investment,

and it is only since those times that mining has achieved anykind of importance in what has prev i o u s ly been apredominantly agrarian economy.

Today, mining is the fastest growing sector in the economy,thanks to the ongoing discovery of a variety of minerals –which include base metals, diamonds, gemstones, gold, andindustrial minerals like coal and uranium.

Most foreign mining firms hesitated before coming in until1998 when the 1997 Mining Act came into force. Prior tothat, the country's mining sector was dominated by small scaleminers using crude technology and illicit export routes.Thereafter, between 1998 and 2005, the authorities issued inexcess of 1,500 prospecting licences and 82 mining licencesand the industry soon began to flourish. The value of

M i n i n g

20

The all-important

mining sector

Mwadui Diamond Mine,Tanzania

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regulated mineral exports rose exponentially fromUS$14mn in 1996 to US$711mn in 2005.

With the LakeVictoria greenstone belt estimated to containaround 40mn ounces of gold, annual gold production standscurrently at over 1.5mn ounces. The main production sitesare at Bulyanhulu, North Mara and Tulawaka (all run byB a rrick Gold Corp o ra t i o n ) , Geita (run by A n g l o G o l dAshanti) and Mashariki (run by East African Gold Mines).Barrick is also currently developing Buzwagi mine, anothermajor gold project that is set to take off next year.

De Beers owns and operates the Williamson diamondmines in the central region of Tabora while another SouthA f rican company, Ta n z a n i t e O n e, is the leading fo r e i g ncompany in the booming tanzanite mining sector. There isalso a nickel project at Kabanga.

The latest rush for minerals is taking place in the southeastern and central parts of the country where severaluranium deposits have been identified. Last year, Canadian-based International Gold Mining announced that it has

entered into two joint venture agreements to explore foruranium and gold in six areas of the country's centralregions. Another Canadian company, Atomic Minerals,recently announced the signing of an amended letter ofintent with Geo Can Resources Company to acquire up to90% interest in about 1,300,000 acres of uranium-richproperty on the shores of Lake Nyasa.

Gemstones like tanzanite are also bringing in new investorsalthough the government's ban on trading in and the exportof raw and uncut gemstones in recent years is meant to setthe stage for the growth of a lapidary industry in which thecountry expects to attract and develop the requisite skills,which are currently lacking.

Taxation under the spotlight

Mining companies generally pay the government between3%-5% as royalty plus some local taxes. Private investmentsare guaranteed security of tenure, repatriation of capital andprofits with assurances of a transparent regulatory andadministrative system in the acquisition of mineral rights.Tanzania is a member of the World Bank's MultilateralInvestment Guarantee Agency (MIGA).

An audit report by the American company Alex StewartAssayers in 2005, which pointed out that up to 30% ofrevenue is denied by mining companies to the government,has caused public uproar.

The report said that much of the revenue is lost through thegranting of unnecessary tax exemptions, opportunism bymining companies which took advantage of an outdated taxlaw to post losses which then exempted them from payingtaxes and through shipment of bulky containers of copperc o n c e n t rate for beneficiation in Asia with little government supervision.

The report indicated that Tanzania earned only a tenth ofover $2.5bn of mineral exports between 1998 and 2005,prompting President Jakaya Kikwete to appoint a MiningSector Review Committee in November 2007 to study thesector and recommend to the government on how publicearnings could best be improved.

Some foreign mining companies have expressed concernthat altering their contracts, signed with the government

several years ago, may jeopardise fresh investments in thearea. But Barrick, which is one of the largest foreigninvestors in the sector, has committed itself to paying a$7mn advance annual payment to help boost thegovernment's tax revenue, pending the review of signedc o n t ra c t s . AngloGold Ashanti also announced abreakthrough with the government on payment of mainlycorporate tax on annual earnings.

The eleven-member mining committee, The BomaniCommission, which is chaired by former Attorney GeneralMark Bomani has just submitted its report to PresidentKikwete and its recommendations may cause major changesto the sector. There is public pressure on the governmentto take direct shares in the giant mining projects, to reducetax exemptions on consumables, to impose corporate taxand to put in place a conducive environment for investorsto step up their local processing activities. However, on thelatter point, Barrick, which has the largest underground goldmine producing copper concentrate as a by-product, arguesthat its annual copper production is simply too low to justifythe $500mn investment in a copper smelter. The debate islikely to continue as the public becomes better informed onTanzania's increasingly important economic motor.

M i n i n g

21

The latest rush for minerals is taking place in the south eastern

and central parts of the country where several uranium

deposits have been identified.

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With 800km of coastline, the world famousS e rengeti plains, Mount Kilimanjaro, t h eN go ro n go ro and the spice islands of Zanzibar,

Tanzania presents one of the most naturally stunning,best positioned yet underd eveloped tourism markets inthe wo r l d .

H owe ve r, h i s t o ri c a l ly, outside A f ri c a , it was often believe dthat treasured tourist attractions such as MountK i l i m a n j a r o, A f rica's highest mountain, were located inn e i g h b o u ring Kenya , which over the ye a rs has attra c t e dmuch more international media publ i c i t y.

Recent promotion in Europe and North A m e ri c a , h owe ve r,by the Tanzania To u rist Board (TTB) and Natural Resourcesand To u rism Minister, P r o fessor Jumanne Maghembe hasbegun to pay off, e s p e c i a l ly since the recent naming ofSerengeti National Pa rk wildebeest annual migration as“The Wo rld's Seventh New Wo n d e r ” by a panel of expert s( for ABC News' Good Morning A m e rica and USA To d a y

n e w s p a p e r ) .

To u r i s m

22

The expansion

of tourism

Safari on the Serengeti Plain

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This, coupled with Mount Kilimanjaro being named by theNewYork Times newspaper as one of the ‘top-and-must-see’destinations for 2008, has seen ministry officials and TTBbusy mobilising stakeholders in the travel, tourism and hotelsector to invest heav i ly in infra s t ructure and humanresources training and to forge cross-border partnershipswith peers in Kenya who have long experience in thebusiness.

The Shortfall

Investment opportunities are certain to open up with thelikely influx of foreign arrivals not only from Europe and theUS but also Asia. There is a shortage of almost everythingto meet the needs of the current number of foreign arrivals,which last year reached over 600,000 people, let alone forthe annual number of one million anticipated by 2010.

In the northern tourist circuit, the infrastructure is relativelydeveloped but is still some way below Kenyan standards, asshown at Serengeti National Park where for visitors toTanzania's 16,000 square kilometre wildebeest migrationplain there are only 940 hotel rooms, while Kenya's Maasai-Mara Reserve (covering 3,000 square kilometres) has over4,500 rooms.

Among the well known inve s t o rs already investing inTanzania's tourism sector is Paul Tudor Jones whose GrumetiReserves has formed a partnership with eco-tourism andleisure operation Singita to further develop Gru m e t iReserves' 140,000 hectare safari destination bordering theSerengeti National Park. The joint venture also involvesconstruction of an airport.

The Kempinski Group of luxury hotels have recently spent$40mn in a world class renovation of the Kilimanjaro Hotelin Dar es Salaam, invested heavily in Zanzibar and are nowreinforcing their commitment to Tanzania by investing in afurther development in Arusha.

However, Tanzania still has a general shortage of hotelrooms, especially in the five star category and above. Thissees the government plan to incentivise the private sectorwith financial support to both increase and modernise hotelrooms to cater for both tourists and business visitors.

Going south

Nevertheless, it is the southern tourist circuit of Tanzaniathat represents some key challenges and opportunities. It isnot as popular as the north largely because of the lack ofinfrastructure such as hotels, airstrips and roads, despite theunique environment and wildlife in Mikumi National Park,Ruaha Reserve, Udzungwa Mountains Park and SelousGame Reserve.

Selous is A f rica's largest protected wildlife reserve.Embracing some 54,000 sq km, it covers more than 5% ofTanzania's total area – an area twice the size of Belgium initself. Its rivers, hills, and plains are home to roamingelephant populations, wild dogs and some of the last blackrhino left in the region.

Also in the south is Mikindani, an historic German-built townof the 1800s which has already attracted a number ofinvestors to refurbish old buildings for remote hotelsbordering the Indian Ocean.

However, there remains a serious shortage of efficientt ra n s p o r t between Dar es Salaam and Mtwara andMikindani, a distance of over 400 kilometres. Indeed,investment is needed in almost all necessary infrastructure inthe southern circuit. A strong potential area of investmentis in coastal transport and cruises.

Heading to the islands

Zanzibar. Perhaps one of the most evocative names of alltropical paradise destinations. Much like its famous northerncounterpart, Mount Kilimanjaro, Zanzibar is a destinationthat up until recently few people outside Africa would placeas part of Tanzania.

Zanzibar and its neighbour Pemba are both renowned asthe 'spice islands'. As a major stopping point on IndianOcean trade routes to East Africa in the 19th Century, theisland found prosperity as many spices were planted thereand flourished bringing constant trade to Zanzibaris asexplorers and merchants passed through.

Since the late 1980s tourism has dramatically increased toZanzibar, with as many as 100,000 people visiting thearchipelago each year. Tourists are enticed by the headycombination of Zanzibar's fascinating history and thestunning natural scenery which includes some of the world'sfinest coral white sand beaches and a number of coral reefsthat surround the island.

Despite the influx of tourists to Zanzibar in recent ye a rs ,the island's inhabitants have larg e ly not benefited from thenew 21st century ri c h e s . A significant majority of touri s tr e ve nue in Zanzibar remains within the confines of selfc o n t a i n e d , l u x u ry, and often foreign owned hotels.Outside of Zanzibar's historical hub, Stone Tow n , there arer e l a t i ve ly few pri v a t e ly owned restaurants and othere n t e rp ri s e s . For the Zanzibari population to benefit on awider scale from the rapid growth of touri s m , s m a l l e rp rivate and larger publ i c - p rivate part n e rship projectsneed to be encoura g e d , an outcome which would seeZanzibar's population benefiting more widely from its newgolden era .

To u r i s m

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Key contacts

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Key contacts

Tanzanian High Commission London3 Stratford PlaceLondonW1C 1ASTel + 44 207 7569 1470

Tanzania Investment CentreP.O. Box 938 Dar es Salaam Tel: 255 22 211 6328-32

Business Registration and Licensing Agency (BRELA)Cooperative Bldg,Lumumba Str, P.O. Box 9393,Dar es Salaam Tel: 255 22 2180141/2180130/2180344

Board of External TradeFair GroundsKilwa RoadPO.BOX. 5402Dar Es SalaamTel: 00255-22-2851759/2851706

Bank of Tanzania (BoT) Mirambo Street P.O. Box 2939 Dar es Salaam Tel: 255 22 211 0945-51

Capital Market & Securities Authority (CMSA) PPF TowerOhio Str/ Garden Ave, P.O. Box 75713,Dar es SalaamTel. 255 22 211 3903/211 4959-61

Tanzania Revenue Authority (TRA) P.O. Box 11491 Dar es SalaamTel: 255 22 211 9591-4

Tanzania Railways Corporation Sokoine DriveP.O. Box 468Dar es Salaam Tel; 255 22 211 0599-600

Tanzania Harbours Authority P. O. Box 9184Dar es SalaamTel: 255 22 2110252/2116026

Tanzania Bureau of Standards Morogoro Rd, Ubungo P.O. Box 9524Dar es Salaam Tel: 255 22 245 0298/245 0949

National Housing Corporation Mandela Rd,TemekeP.O. Box 2977Dar es Salaam Tel: 255 22 2850040/1434

Ministry of Communication & TransportTancot House Sokoine DriveP.O. Box 9144 Dar es Salaam Tel: 255 22 211 4426

Ministry of Energy and Minerals Mkwepu Str/ Sokoine DriveP.O. Box 2000 Dar es SalaamTel: 255 22 211 7156-9

Ministry of FinanceTreasury Building, Madaraka AvenueP.O. BOX. 9111Dar es SalaamTel: 255-2111174/6

Ministry of Foreign Affairs and International CooperationKivukoni Front P.O. Box 9000Dar es Salaam Tel: 255 22 211 1906-12

Ministry of Home Affairs Ghana Ave/ Ohio Street P.O. Box 512 Dar es Salaam Tel: 255 22 211 8636-46

Ministry of Industry and Trade Lumumba Str P.O. Box 9503Dar es SalaamTel: 255 22 218 0075

Ministry of Justice & Constitutional Affairs Kivukoni FrontP.O. Box 9050Dar es Salaam Tel: 255 22 211 8178

Ministry of Labour,Youth and Sports Development Hifadhi House, Azikiwe Str P.O. Box 1422Dar es Salaam Tel: 255 22 211 0889/ 211 0877

Ministry of Natural Resources and Tourism Samora Ave/ Mission Street P.O. Box 9372,Dar es Salaam.Tel. 255 22 211 1061-4/211 6682

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