Country Risk Rating

C
A very uncertain political and economic outlook and a business environment with many troublesome weaknesses can have a significant impact on corporate payment behavior. Corporate default probability is high. - Source: Coface

Business Climate Rating

C
The business environment is difficult. Corporate financial information is often unavailable and when available often unreliable. Debt collection is unpredictable. The institutional framework has many troublesome weaknesses. Intercompany transactions run major risks in the difficult environments rated C.

Strengths

  • Rich in mineral resources (gold, copper)
  • Gas potential thanks to offshore reserves discovered in 2010
  • Tourism potential (national parks, coastline)
  • Regional co-operation strategy
  • International support in form of concessional loans
  • Development of monetary policy instruments

Weaknesses

  • Heavily reliant on the price of gold
  • Dependent on the agricultural sector (29% of GDP and 65% of employment) and weather conditions
  • Inadequate infrastructure, especially in terms of power generation and transport networks
  • Inconsistent industrial policy and business climate shortcomings
  • Religious tensions between Zanzibar and the mainland

Current Trends

Robust but constrained growth

Growth is expected to remain robust in 2020, driven by public investment. Infrastructure projects, particularly in transport (work on the Dar es Salaam – Makutupora railway line) and energy (construction of the Rujifi hydroelectric power plant), will be the main beneficiaries of this investment and will support construction activities. However, persistent financing constraints are expected to limit the contribution of this growth driver. Private investment is expected to suffer from deteriorating perceptions of the overall business climate, but also from delays in liquefied natural gas (LNG) and oil pipeline projects linking Hoima (Uganda) to the port of Tanga (Tanzania). While taxes and export bans are expected to continue to constrain exports, imports of capital goods will undermine the trade balance's contribution to growth. However, the rise in international gold prices and a potential increase in production following Barrick Gold's acquisition of Acacia Mining (with which the authorities were in dispute) could support an increase in gold export revenues, which represent about one-third of the total. On the other hand, the risk of the Ebola virus disease spreading from the Democratic Republic of Congo could slow the increase in tourism revenues, despite the expansion of the national airline (Air Tanzania) and work on airport infrastructure. The contribution of private consumption is expected to remain strong, benefiting from relatively low inflation.

Increasing fiscal risk

The budget deficit is expected to continue to widen as capital investment spending on infrastructure increases, while current expenditure should be more contained. The 2019/2020 budget features an increase of almost 30% in capital expenditure. However, the increase will most certainly depend on progress in the collection of domestic revenues (about 12% of GDP) to be used to finance projects. Limited progress so far in this regard has seen the State accumulate arrears towards its suppliers. To achieve the high domestic revenue collection targets, the authorities will take steps to improve the electronic collection platform and broaden the tax base by expanding the formal economy. Given the increased financing requirements generated by infrastructure projects, the level of debt, and in particular its commercial component (about 20% of the total), is expected to continue to rise. That said, the level of debt remains low, and the risk of debt distress is contained.

In 2020, the current account deficit is expected to widen, largely due to increased capital goods imports. The surplus in the services account may be reduced by logistics services, despite a potential increase in tourism receipts. While official transfers have declined in recent years, the surplus in the balance of transfers will be maintained by remittances from expatriate workers. However, these remittances are expected to fall in line with global economic developments. Finally, the income deficit will continue to be affected by corporate profit repatriation. With FDI shrinking in recent years, borrowing, both concessional and commercial, and the use of foreign exchange reserves (which cover nearly six months of imports) may be necessary to finance the current account deficit.

Is the “Bulldozer” heading for re-election?

Elected in 2015, President John Magufuli, from the Chama cha Mapinduzi (CCM) party, is expected to stand for re-election in the general elections scheduled for later in 2020. With a solid electoral base, particularly in rural areas, the CCM, which has been in power since 1977, is expected to win a majority again. President Magufuli, nicknamed Tingatinga (“Bulldozer” in Swahili) since his time at the Ministry of Public Works, also looks well placed to remain in power. Nevertheless, the government's authoritarian shift has been widely criticized, while actions such as the ban on publishing statistics without the agreement of the statistical institute are adding to the sense that the regime is tightening its grip on freedom of expression. The President’s governance style and some investor- and exporter-unfriendly decisions are likewise fuelling growing mistrust among bilateral partners and multilateral donors, who, for example, have questioned the reliability of the growth figures published by the National Institute of Statistics in 2018. These developments are hurting the perception of Tanzania’s business climate, which is seen as restrictive (141st out of 190 countries in the Doing Business ranking).

Source:

Coface (01/2020)
Tanzania