The Risk Rating for Tanzania is 2.5: Moderate. Minor elements of terrorism and civil unrest. High possibility of corruption.
The republic of Tanzania is investing in new markets and has met with some success in diversifying its economy. Many have attributed the economic success of Tanzania in comparison to its sub-Saharan neighbours to its political stability and willingness to open up new financial fronts, partners and industries. However as promising the future may be for Tanzania there are some obstacles to overcome for any business in the country. These obstacles are the corruption that is most prevalent in the civil service, the nature of Tanzanian politics and the prevalence of terrorism and other forms of unrest in the country.
“Understanding where the potential risk of these factors is vital for a prospective investor in Tanzania”
The Tanzanian economy is predominately agrarian; at the time of writing some two-fifths of the country’s population is engaged in agricultural production. The agricultural focus is a remnant of the centrally planned economy from the socialist government, which implemented a massive increase in the 1970s and 1980s. At present Tanzania has attempted to create a more mixed economy with assistance from the IMF. The country’s main export and import partners are China and India the latter receiving 21.4% of the nation’s exports.
Agriculture is responsible for 24.5% percent of GDP. The major food crops are corn (maize), rice, sorghum, millet, bananas, cassava (manioc), sweet potatoes, barley, potatoes, and wheat. There is little in way of infrastructure so a catastrophic event such as a drought, flood or shock temperature change can have serious repercussions with unemployment, decrease in living standards and malnutrition rates rising in the wake of a bad harvest.
Industry in Tanzania is on the rise. Like many countries in the African continent the main areas of Tanzanian manufacture are the discovery and processing of raw materials such as mining, electricity and the use of natural gas. Mining is seen as a sector which is particularly susceptible to corruption due to the convoluted and protean nature of obtaining Tanzanian contracts. This is compounded by a report detailing Tanzania’s regulatory capacity in the mining sector is undermined by state functionaries who have connections to rent-seeking networks and monopolies.
Corruption pervades Tanzania and is prevalent across many sectors of the economy and society the nation is ranked as 116 in the Corruptions Perceptions Index (CPI). The most affected sectors are government procurement, land administration, taxation and customs. This is unsurprising as members of public office have the ability to approve planning permits. The inconsistent and ineffective attempt at policing corruption has resulted in a culture of bribery despite it being forbidden by law. The main cause of corruption is due to the poor salary afforded to public sector employees. The prevalence of corruption is a critical element in weighing up whether the risks of investing in Tanzania merit the rewards. The departments that are widely considered to be the most corrupt have been highlighted in this report.
In Tanzania the land administration poses a high risk to a business, due to the ownership of land being restricted. Foreign investors have to obtain a government-granted right of occupancy or partner with a Tanzanian leaseholder to have access to land, both of which are open to exploitation and corruption. ‘Knowing your partner’ has never been more vital.
Trade in Tanzania is hindered by customs procedures that lack efficiency. Importing and exporting requires time-consuming paperwork to clear goods at the border. Tanzania ranks among the worst performing countries in the world in relation to trading across borders.
The Tanzanian judicial system is tainted by corruption and is subject to executive influence. The judiciary is underfunded, corrupt and inefficient, especially in the lower courts. Court clerks and magistrates are known to accept bribes to open/misdirect cases or to altogether determine a case’s outcome, respectively. It is reported that irregular payments are often exchanged in return for favourable court decisions. Administrations suffer from a lack of resources and weak capacities, poorly trained staff and political interference. Public officials are furthermore, poorly paid making them even more susceptible to corruption.
The political regime of Tanzania is defined as a hybrid system whereby the President of Tanzania is both head of state and head of government, and of a multi-party system. Executive power is exercised by the government. Legislative power is vested in both the government and parliament.
Tanzania has successfully transitioned from a one party state into a participatory political system remarkably well. Political plurality has replaced single party hegemony and the growth of the independent society continues to gain momentum. There are still some remaining issues from one party state. Politics is still largely dominated by the one-party generation. This generation maintains control of both the ruling and opposition parties leaving younger dotcom generations in the periphery.
A lack of grassroots desire for reform hampers Tanzania as well; this allows the wealthy to fund political parties with the express goal of maintaining the status quo. The political system of Tanzania does not favour smaller parties and works to the benefit of the ruling party. Tanzania’s winner takes all electoral system actively disproportionally rewards the ruling party with seats in parliament. Tanzania’s politics is skewed towards the urban centres of the country and very little is done for the agricultural countryside. Any attempts by prospective investors to invest against the status quo will face resistance.
The British government has labelled Tanzania as having the possibility of being subject to a terrorist attack. However, there has been little in the way of terrorist activity since the bombings of the US Embassies in 1998. Despite this impressive statistic, there are sporadic outbreaks of violence directed at a variety of groups. The attacks appear to be random and most likely the result of criminal violence.
The terrorist group Al-Shabaab based in Somalia poses a significant threat across the east Africa region, and are thought to be active in Tanzania. There is also thought to be some support for the so called Islamic State (IS, Daesh).
Visitors are advised to remain wary in public places and to be aware of their surroundings. This is much to do with local crime rather than the possibility of a terrorist attack. The Tanzanian government has reported some success in arresting citizens with terrorist affiliations.
China has shown significant interest in the deposits of minerals located in Tanzania. Major Chinese investments include the Sichuan Hongda Group which invested an estimated $3 Billion in coal and iron projects in the south of the country. Potential investors should take note of the increased presence of Chinese interests in the African continent. Many of the investments made by China in Tanzania have been made by private enterprises. However, there is growing discontent from some members of the African population over the levels of Chinese investment. The early euphoria of large infrastructure investments has given way to a wariness, many Africans are wary of being taken for a ride by Chinese firms. Critics of the trade partnerships have likened the new partnerships to neo-colonialism. On a larger scale, many economic and foreign policy analysts have suggested that Africa represents an attempt to shift China’s geopolitical axis, the purpose of which is to take advantage of the raw material wealth of a continent many western nations had given up on. Companies should be aware of the possibility of Chinese competition when competing for contracts.
Tanzania holds promise for companies seeking to invest in Tanzania. The abundance of natural resources such as mineral and natural gas, make it a desirable destination for companies operating in that market. China has continued its investment into the continent and Tanzania looks to benefit from investment from all sides. The prevalence of recoverable natural gas with an estimated combined reserves of Mozambique and Tanzania totalling up to 250 trillion cubic feet. The vast reserves of natural gas offers the potential of growth and large returns on investments. This is all dependent however on the oil market which is prone to fluctuate. The Tanzanian government actively encourages investment by redrawing taxes, floating the exchange rate and cutting red tape. Despite these gestures investors should maintain a suitable level of caution when investing. There is a moderate risk from physical harm and terrorism, but the biggest risk for an investor comes from the corruption of those in public office and the culture that allows this to flourish. Any business ventures that risk upsetting the status quo will find its contracts declined, lacking support in the planning committees and will lose out to their competitors. Navigating a path through is certainly possible, but Tanzania must be treated with great care lest idealistic businesses be swallowed by the corruption.