East Africa: Region's Sleeping Giant Stirs Out of Its Slumber Under Samia's Leadership

opinion

Tanzanian leader Samia Suluhu Hassan has embarked on a diplomatic charm offensive in the region to promote her country as an investment destination, inspiring optimism about the realisation of the nation's huge economic potential for the benefit of the region.

Tanzania, with a population of 58.8 million people, has a huge natural resource base and GDP of $63 billion. And with President Samia -- who took over after John Pombe Magufuli's death in March -- now fully in charge of the political and economic transformation (she has taken over the chair of the ruling Chama cha Mapinduzi) the region's giant has been stirred from its sleep.

Tanzania is the seat of the East African Community and is therefore crucial to the region's integration. While some past administrations have given the EAC lukewarm support, there is hope at the Secretariat that President Samia's political goodwill will see better working relations. And the EAC Secretariat is promising to lay the ground for better investment prospects for the region.

"Kenya and Tanzania are among the founding members of the EAC and are therefore bound by history and geographical proximity. Tanzania is a huge market and an important player in the region," said Peter Mathuki, EAC Secretary-General, adding, "President Samia is keen to see increased intra-EAC trade and clearly demonstrates political commitment to see Tanzania become a key player in the regional integration process."

President Samia has hit the ground running by offering tax concessions and business incentives; lifting longstanding tariff and non-tariff barriers; and is mending fences with Kenya, with which Tanzania has had many disputes over the movement of goods, people and labour, at times in contravention of the East African Community Common Market and Customs Union protocols.

Tanzania is the EAC's second-largest economy after Kenya, with a GDP of $95 billion. Dar has forecast a positive economic outlook in 2021, with real GDP projected to grow at 4.1 per cent, largely due to the improvement seen in the tourism sector and the reopening of the trade corridors, according to the African Development Bank (AfDB).

The economy has performed well compared with its regional peers, but growth has slowed significantly to as low as two per cent in 2020, from 5.8 per cent in 2019, with per capita growth turning negative for the first time in 25 years.

But while the country is poised for an economic rebound, uncertainties related to the Covid-19 pandemic, increases in energy and fuel prices and business regulatory bottlenecks that constrain private sector activity could all slow down growth.

"Poverty and unemployment are expected to remain high due to depressed private sector activity," said the AfDB.

Inflation is expected to rise to 3.9 per cent in 2021 and drop to 3.4 per cent in 2022 while spending on large infrastructure projects and depressed revenue performance are expected to widen the fiscal deficit to 3.2 per cent of GDP in 2021 and 2022. This could be financed by external borrowing.

Vulnerabilities

Tanzania's public debt stood at $30.97 billion by the end of 2020, comprising $24 billion from external sources, according to the Bank of Tanzania. Although the risk of external public debt distress is low, the Covid-19 pandemic is likely to increase vulnerabilities caused by reduced public revenues and decreased capacity for concessional borrowing. According to the AfDB, maintaining debt sustainability will require keeping debt financing costs low, increasing exports, and improving domestic resource mobilisation to substitute for expensive commercial debt.

In 2020 global rating agency Moody's downgraded the foreign- and local-currency issuer ratings of Tanzania to B2 from B1 and changed the outlook to stable from negative, citing risks to the country's credit profile due to "very weak" governance. The agency noted that the country's reviewed outlook to stable balanced its large and diversified economy against institutional weaknesses that undermined fiscal strength.

Tanzania's gross national income (GNI) per capita increased to $1,080 in 2019 from $1,020 in 2018, exceeding the threshold for lower-middle-income status. This achievement reflects sustained macroeconomic stability that has supported growth, in addition to the country's rich natural endowments and strategic geographic position.

However, Tanzania deteriorated or stagnated in most governance indicators between 2012 and 2019 (except for the control of corruption and political stability/absence of violence) according to the World Bank.

"The strongest decline has been in the rule of law, governance, effectiveness and voice and accountability where political, media and civil society freedoms have continued to shrink," said the World Bank.

But President Samia's administration has prioritised efforts to fight corruption, improve public infrastructure systems and improve administration, accountability and proper management of public resources for improved social outcomes.

According to the Tanzania Investment Centre (TIC), the country has huge investment opportunities covering pharmaceuticals and medical equipment, agroprocessing and fishing (cotton, sugar cane, edible oils, fishing and aquaculture), livestock and leather, mining and metals, oil and gas and tourism and leisure. In Zanzibar investment opportunities abound in deep sea fishing, agriculture, fish processing and canning, fish farming, essential oils, horticulture and spices. With the change of guard, the country has improved in the latest Global Peace Index (GPI) report, where it was named the most peaceful nation in East Africa and the seventh in sub-Saharan Africa. The GPI report by the Institute for Economic and Peace ranks Tanzania 54th out of the 163 surveyed countries across the world.

President Samia has come out as a diplomat, promoting cultural and economic diplomacy and wooing investors with great deals, including zero import duty on capital goods, zero import duty on raw materials, tax reliefs and reduced corporate tax for investors. Tanzania's selling points are peace, political and economic stability, rich natural resources, investment guarantees, strategic location and access to regional and global markets. In July last year, after two decades of sustained growth, the country reached an important milestone by formally graduating to lower-middle-income economy.

Last week, on her first state visit since she became president, the Tanzanian leader charmed Kenyans on a two-day state visit during which she and Kenya's President Uhuru Kenyatta signed several bilateral agreements to promote growth and trade, they addressed legislators and the business community while lifting several NTBs that have hampered business in both countries.

This visit came barely a month after President Samia went to Uganda and signed a $3.5 billion East African Crude Oil Pipeline (Eacop) deal with President Yoweri Museveni in Entebbe.

The Eacop is among many regional infrastructure projects in which Tanzania is involved. The country's 1,457km standard gauge railway line from Dar es Salaam to the shores of Lake Victoria is expected to open up the landlocked Burundi and eastern Congo, when complete. Tanzania also agreed with Rwanda for an extension of the SGR line from Isaka to Kigali. This development on the Central Corridor will largely complement the Northern Corridor and ease the movement of goods in the region to facilitate trade.

While in Nairobi, the two presidents signed agreements on joint projects that are billed to boost integration and promote regional growth. They include a $70 million 460km Coastline Transnational Highway covering Bagamoyo-Tanga-Horohoro on the Tanzanian side and Lunga Lunga-Mombasa-Mtwapa-Malindi on the Kenyan side. The project has received funds from the AfDB and a grant from the European Union. The highway will complement the Voi-Taveta-Moshi-Singida-Kobero highway, which is an alternative route from the port of Mombasa. In June 2020, AfDB approved $384 million and a grant of $33.4 million from the EU while the two governments were to jointly fund 30 per cent of the project.

Transport network

The highway is considered a major component of the region's transport network, and is among the infrastructure projects being prioritised by the EAC to boost integration by reducing transit times for cross-border movement of people and goods.

The second road project under the EAC is the 260km highway Arusha-Moshi- Taita Taveta-Voi road. The project is part of the Arusha - Namanga - Athi River corridor, which was started in 2012 and is under construction in two phases.

"We are working to complete other One Stop Border Posts at Lunga Lunga, Horohoro and Sirare-Isebania. The Namanga and Holili OSBPs are complete and operational," said President Samia.

Tanzania is also constructing a 400kilovolt power transmission line from Singida to Namanga, expanding the power substation at Singida and constructing new substations in Arusha and Legumur. On the Kenyan side, she said it will involve the construction of high-voltage lines from Isinya substations to Namanga to join the Tanzanian line.

The project will be funded by the AfDB and Japan International Co-operation Agency.

The two heads of state also signed an MoU for the development of a natural gas export line from Dar es Salaam to Mombasa in what the two countries' leaders said was part of a long-term project to share energy resources.

"Our government is committing to these projects because we are confident that our partnership is strong and will last," said President Samia.

On health, and in view of the prevailing Covid-19 pandemic, the leaders directed the ministers to meet in order to establish simplified systems for facilitating testing and issuance of results to ease the movement of people, goods and services across the common border.

On tourism, the two heads of state directed the relevant ministries to address the existing challenges in the tourism sector and endeavour to ease movement within the tourism corridors.

On joint projects, both leaders reiterated their personal commitments and that of both governments to continue implementing the strategic projects for the mutual benefit of the two countries.

President Samia reiterated her delight in rekindling relations with Kenya.

"The two countries have a lot more in common than perceived differences. Whatever causes the differences between the two countries are just but mere perceptions of certain people. There are no major differences between us," she said.

In a move to change the balance of trade, President Samia told Kenyan legislators to formulate laws that promote sound investment policies and trade.

She said her tour in Nairobi was not because of its proximity but its importance to her country. Kenya is the continent's biggest investor in Tanzania and the fifth biggest after the UK, China, US and India.

"It is the leading country in Africa with the largest investment in Tanzania," President Samia told a joint sitting of the National Assembly and the Senate on Wednesday. "Kenya has invested in 513 projects worth $1.7 billion, providing employment to 51,000 Tanzanians."

A recent report shows that Tanzania overtook South Africa as the biggest source of remittances. Kenya is the leading destination and major source of Tanzania's intra-EAC exports and imports, followed by Uganda.

But the trade is largely skewed in favour of Kenya, accounting for 40.2 per cent of total exports to EAC and 86.9 per cent of total imports.

"According to our investment records, we have 25 to 30 companies registered and operating in Kenya worth Ksh19.33 billion ($180 million) employing a paltry 2,642 people," the President noted. "Even with the trade largely skewed against Tanzania, we wish to invite more investors from Kenya. We are inviting you because Tanzania has a lot to offer. The country is rich in natural resources and has large tracts of land, and many more good things."

Data from the Kenya National Bureau of Statistics shows that its exports to Tanzania were worth Ksh7.99 billion ($74.7 million), a 7.8 per cent growth from Ksh7.41 billion ($69.3 million), in quarter one of 2019. Imports from Tanzania increased to Ksh5.61 billion ($52.5 million) from Ksh5.04 billion ($47.1 million). The value of imports from Tanzania increased by 11.4 per cent, largely driven by an increase in imports of pinewood and butane gas.

According to data from the Tanzania Revenue Authority and the Bank of Tanzania, in 2018, Tanzanian exports to Kenya were valued at $213.7 million, down from $291.5 million in 2017. But imports increased to $249.5 million in 2018, from $201.3 million in 2017. Tanzania's major exports in the EAC were beans, maize, sisal rope, tea and mosquito nets. Its major imports were medicines and soaps.

Among the NTBs are high visa and work permit fees, Tanzania's land policy (land belongs to the state), bureaucracy, allegations of corruption and harassment by Tanzania Revenue Authority, and lack of clear investment procedures.

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