Tanzania’s Economic Policy: Focusing on Industrialization and Productivity

Interview with Clifford Tandari, Acting Executive Director of Tanzania Investment Centre (TIC)

The very long standing Chama Cha Mapinduzi, the CCM, will remain in power under the leadership of the new president John Magufuli. To what extent would you say policies in this country are set to grow more competitive amidst some of the internal party divides and over the new galvanised opposition?

Actually, we are implementing the policies for the ruling party. We are implementing contracts between the voters. The current government is for pro-reform. They are talking about industrialization in order to bring about their vision for 2025 and to be able to achieve the regional East African Community agenda for 2063. The SADC (Southern African Development Community) is verging on the strategic dominant plan to also be able to implement the AU 2063 agenda which is about industrialization. They want to do this within the UN framework of the sustainable development goals in order to implement them.

What about the more multi-party democracy?

The CCM will continue for a long time because they implement what they promise to the people. People see the reforms and that is why I think it would be very difficult for the opposition to win.

As public servants we don’t belong to any parties but what we are expecting is to have the same type of situation that is happening in the UK where you have two major parties, labour and conservative or like in America where you have democrats and republican. In Tanzania we wish to also have something similar with the CCM and a very strong opposition party so that there will be competition in regards to policies, strategies and so forth, to enable people to decide which party they belong to. However, to me it seems that the CCM is ruling well and will do so for a long time to come.

If the political scene does grow increasingly pensive and if there is negligence, then there is the second party to hold them accountable, which is vital for a democratic society. Is there a risk that the CCM will struggle to adjust to a genuine multi-party politics and maybe even increasingly revert to repressive tactics to maintain control?

The CCM will continue for a long time because they implement what they promise to the people. People see the reforms and that is why I think it would be very difficult for the opposition to win because even the promises they made during the campaign are being implemented by the ruling party.

The government’s overall economic policy is very much focused on stimulating inclusive growth and supporting industrialization. To what extent do you feel that the lingering protectionist policies and policy making will sometimes contradict the pro-business message? For example, the UK company Songo which owns a gas fired plant in Dar es Salaam threatened to withhold their electricity supply to the state-owned utility TANESCO because it failed to clear a debt it owed to the company of about 80 million dollars. That’s just one example.

The policy of the current government is to pay debts. Debt payment is one of the priorities. So whatever we collect, the priority is to pay debts to clear as much as possible.

What is the pro-business message and will it be in any way compromised by perhaps some of the more protectionist leanings of the vested interest in this country?

We hope that once these debts are paid, positive signals will be sent to the business community.

Magufuli’s administration has a tendency to centralize decision making and we understand that this is intended to save costs and to cut unnessacary expenditure. Is there not a risk that this approach will perhaps erode some of the capacity of public institutions and maybe weaken the business environment overall?

I don’t think so. Some of the successful economies have strong decision making. Look at China. Look at countries like Singapore. Look at South Korea. Once the government brings the development agenda to the top and pushes it, stands for it and implements the policies, then it will be the best way for us to go. Look at Rwanda as well!

I understand they are very close.

Yes. Kagame has been doing very well because he implements what they agree to. So Magufuli is also doing very well because he implements to the last centimetre what they have agreed to. It is good for our country.

The government is also expecting that the private sector will step into the breach and provide and play a central role in financing its 5 year development plan which is between the fiscal years of 2016-2017 and 2020-2021. But to what extent will these tax hikes that have come into play, as well as some of the restrictive employment regulations, deter investors? And can we expect to maybe see a tussle between some of the politically popular nationalistic tendencies and the more economically sound free market agenda?

It’s a good point but I don’t see that happening because we can get investment from the private sector in various ways, Through PPPs (Public Private Partnerships), where the government comes in and invests together with the private sector. Then there are large conglomerates that come together and invest in certain projects and then there is the domestic private sector and the private sector from abroad. So there are all those possibilities. There is a window of opportunity for the private sector instead of involving themselves in politics. I believe the economic agenda should prevail.

The government’s other specific policy priorities focus on industrialization and also boosting productivity which is especially important. How would you aim specifically to attract investment into the manufacturing industry in this country, particularly in expanding Tanzania’s port investment, as well as into some of the special economic zone programs?

There is a new port being developed in Bagamoyo. That is going to be one of the largest ports on the East coast of Africa. We hope it will bring bigger cargo containers to Bagamoyo, which could be transhipped, and the others transported to a number of neighbouring countries with the port expansion. Even the port of Dar es Salaam is being expanded. There will be another new port in Tanga that will also be constructed. The port of Mtwara down south is being expanded so as to cater for the southern corridor of Tanzania. Some parts of Malawi, Zambia and northern parts of Mozambique would also utilize the Mtwara port in terms of the southern corridor activities.

What is roughly the total capital expenditure on this infrastructure upgrading that is taking place?

I would guess that it is more than 1 trillion shillings that is going into it. I don’t have the figures here but the Bagamoyo port is massive. It’s a big project between Chinese constructing firms and the government of Tanzania. So it will fall under PPPs.

What is Tanzania doing to attract investment?

We are trying to attract investors to come to Tanzania because, for example, Tanzania is the second country in Africa in terms of heads of cattle. The by-products of cattle, like hides, could be used for leather which would be a valued addition. There’s an opportunity there. We are trying to get some Chinese companies like the ones that have settled in Ethiopia where they have invested massively in shoemaking. Those are the kinds of companies we are trying to attract because we have plenty of the raw materials for leather making and it needs to be utilised.

Helium, uranium and graphite have recently been discovered in Tanzania. You were hoping these would be developed with the assistance of mostly Chinese conglomerates.

I don’t know. I haven’t checked with the Minister of Energy and Minerals, but I would think it could be anybody. As far as I understand the helium was discovered by the British in the local region. So whoever made the discovery can go ahead and invest. We are not only tied to the East or the Chinese. We attract investors from all corners of the world, including the British, to come and invest here.

The real GDP growth is forecast to remain brisk. It has a projected yearly average of around 6.2% to 6.3% between 2016 and 2020. That is really robust on a global scale. To what extent will the robust domestic consumption as well as strong growth in manufacturing, construction and the port services also continue to drive that growth?

The GDP in Tanzania has been growing at 7% for the last fifteen years on average. We hope to increase that beyond 7%. I see 7.5% to 8% coming in the next 5 years. Once we have laid the foundation for manufacturing and the factories here are sufficient, it will add value to our farm products and we will be able to export and receive export earnings as well. The services sector is growing and it is becoming the largest sector in the economy. I see growth happening beyond 7%. Tanzania is a very rich country, especially with all the new discoveries in the different mines. I believe at some stage we will reach 8% and even 10%. I hope that at this rate we can become a middle income country before 2025.

If you start growing beyond 10%, then in five years you will have doubled your GDP. That’s the magic of compound annual growth.

You must realise that it is very difficult to raise your GDP by 1%. So to go from 7% to 8%, a lot has to be done. But the measures the government is planning to take will make it happen. We are going to go onto 8% before 2020.

The Ministry of Industry, Trade and Investment has presented plans for 18 strategic projects including Greenfield mines, soda ash and a rubber plantation. These are intended to expedite the industrialization of the country. Could you expand about your overall industrialization strategy?

Firstly, the industrialization strategy works around the farmers produce, what the farmers produce and who are the majority in terms of crops such as tobacco, tea, coffee, cotton and then animals and husbandry projects such as milk. All these projects are part of the majority of our crop export. Once they can be value added here instead of exporting raw products, then that value addition will increase the GDP of our country because we will be selling finished products rather than raw materials. The strategy in terms of animals and produce is to link agriculture and agro-processing. Then there is the industrialization strategy based on natural source products such as soda ash in Arusha. There is a potential for creating fertilizer there. Look at the oil and gas subsector down in Mtwara and the Lindi area. We could have an iron smelter in Mtwara and fertilizer factories because of the potential abundance of natural gas. In order to have effective industries functioning you need to have sufficient electricity. So TANESCO’s master plan, which is under the Ministry of Energy, intends to go to 3000 mega-watts. We are currently on 1200 mega-watts and we are going to get another 300-600. Once we are sitting on about 2000-2500 mega-watts, then we can support industrialization effectively so that we have a stable and constant supply of electricity. That’s a major ingredient for the industrialization agenda to take off in Tanzania. That is one of our strategies. In order to attain industrialization we need to have a sufficient and stable electricity supply in place. We must also develop manpower in terms of skilled people and train young people. There are some sunset industries that are going to be closing in China and India. They are looking for allies in Africa to come and invest. These sunset industries are sort of semi-manual and semi-automatic, so young people can get jobs in those factories. They are being prepared through vocational training authority colleges so that they are able to participate in the modern economy in terms of working in factories and so forth.

The relations with the fellow members of the East African community are set to deepen and this is underpinned by the Tanzanian government’s efforts to position the country as a regional transit hub. Can you tell us how cross border infrastructure projects and rising regional players will be coupled with enhanced political cooperation within the East African block?

On the political front we are doing very well. First of all, we have been heading the East African Community (EAC) for the last two years and on the economic front and the trade front we are like a one stop border post with Rwanda where transport is seamless. There are no obstacles like we had in the past. That is a one stop border post window facility. A transit hub between Tanzania and Rwanda will enhance the volume of trade and transhipment. We are also developing one for the Mutukula border between Tanzania and Uganda. That will speed up cargo transport between Uganda and Tanzania. In terms of transhipment, Burundi is another market for us and the potential for cargo coming through will be good if they become politically stable. Then you have the railway. We are constructing a standard railway gauge from Dar es Salaam going to Kigali. We have started the construction of the standard railway gauge on the Tanzanian side. Rwanda is supposed to start on their side so that we can meet in the middle.

This is a 6.8 billion dollar project.

Yes. It is a project by the Chinese.

Is Tanzania likely to play an increasingly active role in regional diplomacy?

Yes. We are strategically located. Geographically, we have an advantage and in terms of diplomacy, we are number one in the region in the East African Community and in SADC. We have a lot of influence because the position struggle was headquartered here in Dar es Salaam. Most of the presidents of the southern African region countries had their base in Dar es Salaam so they respect Tanzania. Diplomatically, we have an advantage in the SADC Community and we have an advantage in the East African Community. Uganda and Rwanda have much respect for Tanzania and we are friends. The president is friendly with the presidents of Uganda, Rwanda, Burundi and South Sudan so if an opinion comes from Tanzania it receives respect, especially on the diplomatic front. For example, there are the retired presidents who are still very active such as Mwini, Mkapa and Kikwete. They can all go into these regions and help to resolve the regional conflicts because of the respect they still command.