Tanzania: Risk Assessment

Country Rating¹

Rating: B

Business Climate Rating¹

Rating: C

Risk Assessment²

Strong growth underpinned by spending on infrastructure and sales of gold
As in 2010, economic growth will be strong in 2011. Construction will be driven by continuing investment in road and energy infrastructure and building of office space, commercial premises, and housing in urban areas. The extraction of gold will be supported by still high world prices. Activity in services will benefit from the dynamism of telecommunications, transport, and finance.

Economic policy still accommodating thanks to international aid
Despite the gradual tightening of economic policy it will nonetheless remain relatively accommodating. The marked easing of inflation, the stability of the Tanzanian shilling, and the accumulation of foreign exchange reserves will facilitate keeping the key interest rate low. An increase in the cost of imported food products will result, however, in a tightening of policy. Fiscal policy is expected to remain expansionary despite the large deficit, albeit reduced by half thanks to grants from abroad. Revenues have been insufficient due especially to deficient tax collection. And measures taken to increase them notably include the rise of the mining tax from 3% to 4% and mandatory government participation in any new extractive project as stipulated in the new mining code. While revenues may remain limited, spending on crucial needs will continue to grow, including infrastructure, social programmes, and particularly agriculture, which provides a living for two Tanzanians in three. Besides grants and traditional concessional loans, the authorities will certainly have to rely on non concessional loans and partnerships with the private sector abroad to finance their projects.

Low but growing foreign debt
Despite the growth of sales of gold and the recovery of tourism revenues, the trade deficit will remain large with imports of fuel, intermediate products, and capital goods - much larger in volume than exports - also growing. The resulting current account deficit will again be covered by grants (even with the procrastination in combating corruption and the controversy over the construction of a speedway across the Serengeti somewhat cooling financial-backer enthusiasm), loans (concessional or otherwise), and foreign investment (attracted by the potential in mining, gas, and tourism). The limits on grants and the development of private financing will be accompanied by the growth of foreign debt, which will nonetheless remain low as a result of the relief granted to Tanzania early in the past decade.

Political stability
The elections on 31 October 2010 returned the Chama cha Mapinduzi Party(CCM) and President Jakaya Kikwete to power for five years. Despite some accusations of election fraud and low turnout, the opposition accepted the result. In his second and last term in office, the president will, however, have to contend with the discord between clans (tensions over affairs of corruption) within his own party, which could undermine his effectiveness. In the Zanzibar archipelago, which enjoys considerable autonomy and elects its own parliament and president, the election outcome was identical to that on the continent but with a smaller margin of victory. Unlike in the past, these elections on the islands went smoothly. A significant contributing factor was the adoption by referendum before the election of an agreement stipulating parity between the CCM and the main opposition party CUF within the government whatever the outcome.

Strengths

• Extensive mining resources (gold, gas) and presence of uranium
• Upmarket tourist sector
• Hospitable environment for foreign investors
• Major player in the Great Lakes region
• Political stability 

Weaknesses

• Among Africa's poorest countries
• Economic activity highly concentrated in agriculture and mining
• High dependence on international aid
• Deterioration of the business environment
• Poverty and deficient education and sanitation systems
• Relatively unproductive agriculture