Tanzania Business Projection Industry Update Quarter 1 2012

  • December 2013
  • -
  • Business Monitor International
  • -
  • 45 pages

Core Views

Critical electricity shortages and the possibility that tariffs will be
hiked massively in early 2012 have clouded an otherwise positive
economic picture for Tanzania. Based on the hypothesis that
ambitious government plans to deal with the problem will come to
fruition, we have, for the time being, retained our 7.0% Gross Domestic Product growth
forecast for 2013. This will be subject to downward revision, however,
if tangible progress is not made over the course of 2012.
Tanzania’s ballooning current account deficit will persist in 2012 as
demand for capital goods takes the place of high oil demand seen in
2011. While we expect the shortfall to continue to grow in absolute
terms for the foreseeable future, we expect that it will decline as
a proportion of Gross Domestic Product and will therefore become less and less of a
structural weakness.
Tanzania’s fiscal account will remain in the red for the foreseeable
future. The size of the deficit; the reliance on external grants and
concessional funding; and the skewed allocation towards current
expenditure are all reasons for concern. However, a low government
debt load means that the authorities will have the capacity to borrow
more from capital industries, which should allow the government to
spend more on much-needed infrastructure. This will be beneficial
for the economy – and the fiscal accounts – over the longer term.

Major Projection Changes

We have downgraded our real Gross Domestic Product growth projection for 2012 to
5.9%, from 6.5% previously.
As a result of newly available data, we have adjusted our expectation
for the 2011 current account deficit to 12.6% of Gross Domestic Product (from 9.9%
previously) and we now projection that the 2012 shortfall will come in
at 12.4% of Gross Domestic Product .

Key Risks To Outlook

Failure to address the country’s power segment woes will have a
detrimental impact on Tanzania’s growth outlook and would render
our real Gross Domestic Product growth projection for 2013 (which currently stands at
7.0%) overly optimistic.
Approval of state-run Tanzania Electric Supply Firms ’s request
to hike tariffs by 155% from January 1 2012 would render our view
that inflation will head lower from early 2012 inaccurate.

Table Of Contents

Executive Summary........... 5
Core Views.............5

Major Projection Changes
.......5
Key Risks To Outlook............5
Chapter 1:Political Outlook................ 7
Industry SWOT Analysis .. 7
BMI Political Risk Ratings. 7
Domestic Politics............... 8
Constitution-Making Process To Be Divisive........8
Tanzania’s constitution-making process is set to be a volatile affair and could well be impetus for demonstrations over the coming
months. We previously have argued that opposition party Chadema’s star could be on the rise amid signs that ruling Chama Cha
Mapinduzi is slowly losing favour with the electorate. The early signs are that the constitution-making process could hasten this shift.
TABLE: POLITICAL OVERVIEW.... 8
Long-Term Political Outlook.............. 9
Corruption And Reliance On Foreign Money High On The Agenda......9
We believe Tanzania will continue to enjoy broad political stability over the coming decade, with little to suggest that the ruling Chama
Cha Mapinduzi party’s authority will be threatened. That is not to say the from 2012 to 2021 period will be without challenges. Chief among
these will be dealing with high levels of corruption and addressing the country’s dependence on foreign aid.
Chapter 2: Economic Outlook.......... 11
Industry SWOT Analysis 11
BMI Economic Risk Ratings............. 11
Economic Activity............ 12
2012 Growth Projection Downgraded Owing To Power Struggle..........12
Critical electricity shortages and the possibility that tariffs will be hiked massively in early 2012 have clouded an otherwise positive
economic picture for Tanzania. As a result, we have downgraded our 2012 real Gross Domestic Product growth projections to 5.9%, from 6.5% previously.
Based on the hypothesis that ambitious government plans to deal with the problem will come to fruition, we have, for the time being,
retained our 7.0% projection for 2013. This will be subject to downward revision, however, if tangible progress is not made over the course
of 2012.
TABLE: ECONOMIC ACTIVITY.... 12
Balance Of Payments ..... 14
Current Account Deficit Here To Stay.14
Tanzania’s ballooning current account deficit will persist in 2012 as demand for capital goods takes the place of the high demand for oil
seen in 2011. While we expect the shortfall to continue to grow in absolute terms for the foreseeable future, we expect that it will decline
as a proportion of Gross Domestic Product and will therefore become less and less of a structural weakness.
TABLE: CURRENT ACCOUNT ..... 14
Monetary Policy ............... 15
Weather Poses Risk To Prospect Of Disinflation15
We believe that inflation in Tanzania is near a cyclical peak and that headline price growth will head lower over the course of 2012. Key
to this belief is the hypothesis that the rains will not fail for a second consecutive season. If the country does experience another dry
spell, headline inflation is likely to remain elevated.
TABLE: MONETARY POLICY...... 16
Fiscal Policy.... 17
Fiscal Accounts: Light At The End Of The Tunnel...............17
Tanzania’s fiscal account will remain in the red for the foreseeable future. The size of the deficit; the reliance on external grants and
concessional funding; and the skewed allocation towards current expenditure are all reasons for concern. However, a low government
debt load means that the authorities will have the capacity to borrow more from capital industries, allowing the government to spend more
on much-needed infrastructure which will be beneficial for the economy - and the fiscal accounts - over the longer term.
TABLE: FISCAL POLICY.............. 17
Chapter 3:10-Year Projection ............. 19
The Tanzanian Economy To 2021.... 19
Strong Long-Term Growth Expected .19
With telecoms, food and drink, transport, construction and mining projection to be drivers of growth in the years ahead, and conditions
supportive for long-run productivity gains in the important agricultural segment, we are projecting robust economic expansion over the
next 10 years. The weather is likely to remain the key risk to our outlook owing to the country’s dependence on hydroelectricity and the
agricultural segment .
TABLE: Long-Term Macroeconomic Projections ............. 19
Chapter 4:Business Environment.... 21
Industry SWOT Analysis 21
BMI Business Environment Risk Ratings........ 21

Environment Overview Outlook....... 22
Institutions ...... 22
TABLE: BMI Business And Operation Risk Ratings........ 22
TABLE: BMI Legal Framework Rating............... 23
Infrastructure .. 24
TABLE: Labour Force Quality............ 24
TABLE: Africa - Annual FDI Inflows. 25
TABLE: TRADE AND INVESTMENT RATINGS............. 26
Market Orientation ........... 27
TABLE: TOP EXPORT DESTINATIONS ....... 27
Operational Risk .............. 28
Chapter 5:BMI World Assumptions 31
World Outlook. 31
Eurozone Break-Up Risks Rising .......31
TABLE: GLOBAL ASSUMPTIONS ................ 31
TABLE: DEVELOPE D STATES REAL Gross Domestic Product GROWTH FORECAST .............. 32
TABLE: REAL Gross Domestic Product GROWTH CONSENSUS FORECASTS ......... 32
TABLE: EMERGING MARKETS REAL Gross Domestic Product GROWTH FORECAST ............. 33

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