FDI has declined, PE not very interested in Tanzania landscape and both EU and US send strong warnings as Tanzania’s position as the leading light in East Africa drastically declines
Two incidences happened as 2018 was closing that showcased the shifting position of Tanzania and its investment environment.
The first was the East Africa Private Equity and Venture Capital Association (EAVCA) released its annual report showcasing how private equity and new investments in the East African region was used. Kenya and Uganda were celebrating, Ethiopia was brave and Rwanda was hopeful. Tanzania was awful.
In the report, Kenya recorded the highest number of private equity investments deals, with 24 transactions recorded compared to 18 in 2017. Uganda was a distant second in terms of PE deals activity with a total of 6 deals recorded in 2018.
Credit Line Robert Knudsen. White House Photographs. John F. Kennedy Presidential Library and Museum, Boston
Ethiopia, whose profile has been steadily rising amongst the investing community recorded five PE transactions for the year while Rwanda had two. Tanzania, the second largest economy in East Africa Community and the largest in mass and population recorded just one single Private Equity investment.
The second incident was more politically focused via a statement released by the US Senators and a resolution passed by the European Union’s Parliament in which both the US and the EU warned of a shrinking political space in Tanzania.
The EU Parliament called on Tanzania to, among other things, release political prisoners, repeal or amend draconian laws, safeguard the rights of human rights defenders, journalists, and other freedom of expression stakeholders.
The EU, in late 2018, recalled its ambassador to Tanzania following continued pressure from the government on his stand on human rights and political freedoms.
The US Senators statement was addressed to Mike Pompeo, the US Secretary of State, on December 12, 2018. It decries the shrinking civic and political space that have been leading to erosion of civil liberties and democratic gains in Tanzania.
While political and human rights remain top of the EU and US foreign policy objectives, there is little indication that Private Equity is also finding any space in the country.
These two indicators show a rapidly changing environment in Tanzania which has been orchestrated by a firm President John Magufuli who is determined to transform the country into a self-reliant jurisdiction, free from corruption and sleaze.
Government officials have not been spared. Forbes reported that a manager of state electricity company Tanesco, for example, was dismissed after failing to consult President Magufuli over power tariff increases despite their approval by the regulator.
According to Patricia Rodrigues an associate analyst covering East Africa at Control Risks, the leading international risk consultancy based in Nairobi, says the climate of uncertainty and fear of contradicting the President has since pervaded the public sector, and is likely to continue to slow decision- and policy-making.
Tanzania was viewed as a shining light on democracy and growth for decades. It was hard for a visiting US leader to omit the country out of his itinerary.
The west now has turned away from Tanzania as the country cramps down on its opposition. In response, Tanzania has shifted its focus to the East than the West with President Magufuli declaring his preference to Chinese funding, as the terms are more relaxed than those presented by the West.
While much of the Chinese development aid has been in the categories of infrastructure building, health, tourism and agriculture, it is the most recent contribution in education that stands out. The latest example of China’s contribution to Tanzania is the provision of funding toward the country’s lartgest university library in sub-Saharan Africa – the University of Dar es Salaam Library.
Covering an area of 4.7 hectares and a building area of 20,000 square metres, the UDSM Library can store 800,000 books and accommodate 2,100 people at the same time. It also has a lecture hall with a capacity of 600 seats. This facility was constructed at a cost of about 40 million US dollars funded by the Chinese government.
While Tanzania has been receptive of Chinese and Turkish loans, several policy changes has pushed Western donors and their affiliates to rethink their view of the country.
For example, the mining sector has had little appeal to miners. The Fraser Institute, an independent non-partisan research and educational organization based in Canada, has ranked Tanzania as the worst destination for any miner to be wary off.
Read also: Good year for East Africa as PE fund deals hit US$930.3 million
Under new regulations Tanzania’s Ministry of Energy and Minerals announced in January 2018 that Tanzania will now make it compulsory for foreign-owned mining groups to offer shares to the government and local companies.
The new rules, already in enforcement may impede the manner in which foreign-owned banks, insurance companies and law firms conduct business with mining firms, according to details of the regulations seen and reported by Reuters.
The country’s mining sector, dominated by gold mineral deposits, has seen a growth of 8.5% growth in 2017 with a value of USD $960m compared to 2016 US$880m.
Some of these regulatory changes are the new income tax regimes introduced in 2016, increased royalty rates and a new ‘clearance fee’ charged on the export of minerals, restrictions on VAT input credit in relation to the export of unprocessed ore and new local content requirements.
Some of the measures are great for Tanzania’s government coffers, according to the World Investment Report of the United Nations Conference on Trade (UNCTAD), Tanzania’s inflows nonetheless recorded a 14 per cent decline compared with 2016, which is more than expected given the stringent government regulations. Future numbers are expected to increase, if interest from non-Western countries continues.
The strong gold price and a diversified productive structure contributed to FDI inflows worth $1.2 billion with Facebook and Uber (both United States firms) expanding into Tanzania and India’s Bharti Airtel continued investments.
For many foreign telecommunication companies, a new regulation has come into play, which requires that all such telecom companies must list at least a quarter of their equity on the local stock exchange, an effort by the Tanzanian Government to increase domestic ownership.
Equally, Earnest& Young has shown that FDI inflows to Tanzania reached $1.18 billion, which was a 13 percent decrease as compared to 2016 but continues to be an attractive investment destination with business incentives and opportunities.
Read also: President Magufuli Pledges Incentives For International Investors
Tanzania has been called to reform its political and trade diplomacy if it needs to reverse the scare it is giving new investors. For example, President Magufuli has reduced international travels as way of curtailing national spending which in turn has affected political and trade diplomacy.
Since becoming president in 2015, Magufuli has only travelled to Uganda, Rwanda, Kenya and Ethiopia. The key to building greater diplomacy lies with a Head of State, however, the current President sees that building the country from inside out as the most important factor, as of now.
Who knows, if the 2020 elections go favorably for the CCM Party, then let’s hope that President Magufuli’s second term is geared toward building international relations, as foreign diplomacy has always been a key determinant for Tanzania that bred many international friends for development. This was surely the case with all his former predecessors, especially the late former President and founding father Julius K. Nyerere.
