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Tanzania Country Risk Report Q4 2016

  • September 2016
  • -
  • Business Monitor International
  • -
  • 43 pages

Core Views

Tanzania's growth prospects are bright in 2016 and 2017, supported by robust infrastructure investment and stronger household spending. While increased taxes on the tourism and telecoms sectors will offer some headwinds, we nevertheless single out Tanzania as a growth outperformer in the next two years. Tanzania's current account deficit will widen as fuel prices rise and major infrastructure projects ramp up, prompting a sharp increase in capital goods imports. However, robust investment will keep Tanzania's external position strong. A wide-reaching programme of infrastructure development will keep Tanzania's fiscal balance in deficit for the next decade. However, authorities are making long-term efforts to broaden the tax base and gas production will come online in 2020, bolstering the outlook for revenue collection.

Table Of Contents

Tanzania Country Risk Report Q4 2016
Executive Summary.................................................................................................................................. 5
Core Views.......................................................................................................................................................................................5
Key Risks.........................................................................................................................................................................................5
Chapter 1: Economic Outlook.................................................................................................................. 7
SWOT Analysis........................................................................................................................................................... 7
BMI Economic Risk Index.......................................................................................................................................... 7
Economic Growth Outlook........................................................................................................................................ 8
Infrastructure Investment Will Offer Tailwinds To Growth..........................................................................................................8
Tanzania's growth prospects are bright in 2016 and 2017, supported by robust infrastructure investment and stronger household
spending. While increased taxes on the tourism and telecoms sectors will offer some headwinds, we nevertheless single out Tanzania
as a growth outperformer in the next two years.
GDP By Expenditure Outlook.................................................................................................................................... 9
TABLE: GDP GROWTH FORECASTS......................................................................................................................................................................9
TABLE: PRIVATE CONSUMPTION FORECASTS....................................................................................................................................................9
TABLE: GOVERNMENT CONSUMPTION FORECASTS.........................................................................................................................................9
TABLE: FIXED INVESTMENT FORECASTS..........................................................................................................................................................10
TABLE: NET EXPORTS FORECASTS....................................................................................................................................................................10
Fiscal Policy And Public Debt Outlook.................................................................................................................. 10
Broader Revenues Will Boost Budget In The Long Term..........................................................................................................10
A wide-reaching programme of infrastructure development will keep Tanzania's fiscal balance in deficit for the next decade. However,
authorities are making long-term efforts to broaden the tax base and gas production will come online in 2020, bolstering the outlook for
revenue collection.
TABLE: FISCAL AND PUBLIC DEBT FORECASTS...............................................................................................................................................11
External Trade And Investment Outlook................................................................................................................ 12
Robust Foreign Investment Will Buoy External Position..........................................................................................................12
Tanzania's current account deficit will widen as fuel prices rise and major infrastructure projects ramp up, prompting a sharp increase in
capital goods imports. However, robust investment will keep Tanzania's external position strong.
Outlook On External Position.................................................................................................................................. 13
Monetary Policy........................................................................................................................................................ 14
Monetary Policy On Hold Into 2017.............................................................................................................................................14
The Bank of Tanzania (BoT) will keep the statutory minimum reserve ratio on hold at 10.0% in the coming quarters. With inflation and
credit growth close to the BoT's targets, and growth poised to remain robust, we see little impetus for a shift in policy stance in the short
term.
Monetary Policy Framework.................................................................................................................................... 15
Currency Forecast.................................................................................................................................................... 16
TZS: Shilling To See Downside Break By 2017..........................................................................................................................16
Our short-term outlook for the Tanzania shilling is neutral as we expect the Bank of Tanzania to maintain the current loose peg with the
US dollar for the remainder of the year. We expect it to resume its gradual depreciatory trend in 2017 due to relatively high inflation but
note that weakness will be much more mild compared to previous years
TABLE: CURRENCY FORECAST...........................................................................................................................................................................17
Chapter 2: 10-Year Forecast................................................................................................................... 19
The Tanzanian Economy To 2025........................................................................................................................... 19
Robust Growth Hinges On Gas Investment................................................................................................................................19
We forecast a period of robust growth in the Tanzanian economy in the years ahead, as the country looks set to benefit from its
nascent offshore gas sector, and the investment flowing in to develop this. Increasing regional integration and significant investment
in infrastructure projects will also boost growth. The country remains beholden to the weather, however, through the importance of its
agricultural sector and dependence on hydroelectricity, and this presents the greatest risk to our forecasts.
TABLE: LONG-TERM MACROECONOMIC FORECASTS.....................................................................................................................................19
Chapter 3: Political Outlook................................................................................................................... 23
SWOT Analysis......................................................................................................................................................... 23
BMI Political Risk Index........................................................................................................................................... 23
Domestic Politics..................................................................................................................................................... 24
Tighter Government Grip Hurting Business Environment........................................................................................................24
The Magufuli government's implementation of tax and regulatory reform has been too rapid and forceful for many businesses. If
sustained, the pattern of sudden policy shifts could damage Tanzania's attractiveness for many businesses. Meanwhile, despite the
president's popularity, the government's crackdown on opposition will cause short-term political and social instability.
TABLE: POLITICAL OVERVIEW ............................................................................................................................................................................24
Corruption And Reliance On Foreign Money High On The Agenda.........................................................................................25
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 2015-2025 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 4: Operational Risk................................................................................................................... 29
SWOT Analysis......................................................................................................................................................... 29
Operational Risk Index............................................................................................................................................ 29
Operational Risk....................................................................................................................................................... 30
TABLE: OPERATIONAL RISK.................................................................................................................................................................................30
Market Size And Utilities.......................................................................................................................................... 31
TABLE: SUB-SAHARAN AFRICA - MARKET SIZE AND UTILITIES RISK............................................................................................................32
Labour Costs............................................................................................................................................................ 36
TABLE: REGULATIONS GOVERNING FLEXIBILITY OF THE WORKFORCE......................................................................................................36
Chapter 5: BMI Global Macro Outlook................................................................................................... 39
Global Macro Outlook.............................................................................................................................................. 39
EMs Past The Worst, But Structural Problems Persist.............................................................................................................39
TABLE: GLOBAL ASSUMPTIONS..........................................................................................................................................................................39
TABLE: DEVELOPED STATES - REAL GDP GROWTH, %..................................................................................................................................40
TABLE: EMERGING MARKETS - REAL GDP GROWTH, %.................................................................................................................................41
TABLE: MACROECONOMIC DATA and FORECASTS..............................................................................................................................................43

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