12 June 2018

Tanzania: Will It Be a Budget for Dodoma?

This week all roads lead to Dodoma, where the Budget will be read on Thursday. But whilst the Budget will be read in Dodoma, will it be a budget for Dodoma?

The origins of Tanzania's capital Dodoma are not dissimilar to Nairobi - the former founded in 1907 by the Germans during the construction of the Tanzanian central rail line, and the latter in 1899 by the British as a supply depot for the railway being built linking Mombasa to Uganda. However, whereas in 1905 Nairobi replaced Mombasa as capital of the British protectorate, it was only seven decades later (1973) that Mwalimu Nyerere declared that the capital should move from Dar es Salaam to Dodoma.

This decision strongly influenced Nigeria, and in particular General Murtala Mohammed who took over from General Yakubu Gowon following a July 1975 coup. Murtala Mohammed appointed a panel to evaluate moving the federal capital from Lagos - and their verdict was in favour of a move. The influence also extended to design, with the Dodoma master plan inspiring the planning of Abuja. The timing of the decision to move was propitious as the 1970s energy crisis and consequent high petroleum prices gave Nigeria the wherewithal to fund Abuja's construction.

With the renewed commitment under the fifth phase Government to making Dodoma's capital status a reality, a question arises as to how best such construction can be funded so as to accelerate its development. At the same time, we want to be sure that developments that come up are top tier structures that will do justice to Dodoma's status as a capital.

Unlike Nigeria we cannot bank on a petroleum windfall any time soon. Whilst we do have significant offshore gas reserves, and even if negotiations between investors and Government can be expedited, it appears that production deep offshore would not commence until a decade from now at the very earliest. So, what alternative avenues can we think of? Well whilst we do not yet have a petroleum windfall, one consideration might be to review more closely the use of existing extractive sector revenues - in particular from the mining sector. So what are these revenues?

The Geita Gold mine website (www.geitamine.com) reveals that over the project life to date (2000 to 2017), turnover of $6.967 billion has been generated. Of this 72.2 per cent has been used on costs (including mine development, fuel), and the remaining balance (representing net cash flows before payments to Government) has been split between receipts to the Government (15.3 per cent) and dividends to the shareholder (12.5 per cent) - so a 55 per cent government share, with total payments to Government of USD 1.1 bn (including royalties of $225 million and corporate income tax of $367 million). While the Geita website shows cumulative numbers, the sustainability page of the Acacia Mining website (www.acaciamining.com) gives year by year results, and shows a net tax contribution in 2016 and 2017 of $163.5 million and $143.1 million, respectively (including royalties of $47.2 million and $44.9 million, respectively, and corporate income tax of $54.5 million and $35.7 million, respectively). The concern with the extractive sector is always that the resource being exploited is a finite resource, and therefore revenues raised should perhaps be ring-fenced for development activities. Against this background it might be worth ring-fencing some of the receipts from mining (for example, royalties and corporate income tax) for developments in Dodoma.

The private sector clearly will have a significant role to play in Dodoma's development. But how can we fast track this? One measure to consider would be additional tax relief for those putting up buildings in Dodoma. Currently costs incurred on a commercial building are claimed for tax over 20 years (being tax depreciation at 5 per cent straight line). Moving this relief to a 100 per cent deduction (i.e. full cost claimed in year 1), or even 20 per cent straight line (relief over 5 years) might be a very positive inducement to investors to put up factories, hotels and other commercial buildings.

In last year's Budget speech when addressing the topic of financing the development agenda, the Minister for Finance re-emphasised the role for PPPs stating that "the motive is to leverage resources from the Private Sector through Public Private Partnership (PPP) arrangement". Given the funding challenge, another matter to explore in fast tracking Dodoma's development should be the role that PPP arrangements might play.

More generally, improved infrastructure (including the standard gauge railway under construction) should also make the location a more attractive investment destination.

In the meantime, if you are planning to be in Dodoma for the budget session, but have not yet reserved accommodation, you should make a reservation fast - otherwise you might find that "there is no room at the inn"!

David Tarimo, Country Senior Partner, PwC The views expressed do not necessarily represent those of PwC

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