TANZANIA
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GENERAL INFORMATION
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Geography and Population
The United Republic of Tanzania is located on the east
coast of Africa between the great lakes of the rift valley system
in the central part of the continent and the Indian Ocean.
Tanzania's territory, of 945,000 km2 also includes the Indian
Ocean islands of Pemba and Zanzibar. Tanzania's neighbours are
Kenya, Uganda, Rwanda, Burundi, Zaire, Zambia, Malawi and
Mozambique. The population was estimated at 27.4 million in 1995,
with an annual growth rate of 3.0 percent. Slightly more than
half of the population is between 15 and 64 years of age.
Tanzania was ranked 144 in the 1996 UNDP Human Development Index1
comparable with Zambia (136), Côte d'Ivoire (147) and Nepal
(151). KiSwahili is the official, universally spoken language in
Tanzania. English, also an official language, is the language of
commerce.
Sectoral Description
Tanzania is rich in mineral resources. Investment is, however,
required to upgrade technology and renew aging plant and
machinery used for transporting bulky minerals. Although its
share of national income is small, the mining sector contributes
a significant share of exports and has attracted new foreign
investment in recent years. Gold production has improved with the
introduction of economic reforms, which curbed illegal mining.
There is much artisanal production but new commercial mines are
also being developed with foreign partners. Other minerals
include diamonds, coal, phosphates, iron, and to a lesser extent,
tin, salt, gypsum and kaolin. Nickel deposits have also recently
attracted important new investment in the sector.
Tanzania's
agricultural sector produces 55 percent of GDP, and accounts for
approximately 80 percent of the country's foreign exchange
earnings. The main form of agriculture is crop farming accounting
for about 80 percent of agricultural production. Animal husbandry
accounts for a further 15 percent, fisheries for five percent and
forestry for less than one percent. Major cash crops are coffee,
cotton, tobacco, cashew nuts, tea, cloves, sisal, sugar,
pyrethrum, cardamom and groundnuts. Coffee, cotton, tobacco and
cashew nuts are grown mainly by smallholders, while sisal and tea
are grown predominantly on large estates. Tanzania's national
cattle herd numbered some 13,4m in 1994. Despite the country's
great forestry potential, capacity utilisation has been low. The
aim is to increase the industry's output to meet Tanzania's
future needs in forest products and generate export earnings.
Until the end of the 1970s, the forestry industry was almost
entirely based on indigenous hardwoods from natural forests. Now,
more than two-thirds of total log consumption (700,000m3 per
annum) is softwood from 18 national plantations.
Tanzania has several freshwater lakes (six percent of the total
mainland area) with substantial fish resources. In addition, it
has an 800 km coastline with a narrow continental shelf. While
traditional methods are still used on the inland lakes, modern
fishing techniques are being employed in the coastal waters.
The construction industry experienced an increase in activity as
a result of investment financed by aid inflows, particularly
during the 1980s. Spending is on equipment, road and bridge
construction and other civil works and buildings.
The manufacturing sector contributes a very small share of
national income, estimated by the Bank of Tanzania to have fallen
from 13.0 percent in 1976 to 6.4 percent in 1995. An increased
pace of privatisation and adequate supply of power are required
to achieve sustainable growth in the sector.
Tanzania's vast game reserves cover nearly one-third of its total
area. The government encourages private investment in 'up-market'
tourist developments, including joint ventures with the Tanzania
Tourism Board.
Infrastructure
The national Urban Water Authority administers urban water
supply, and regional water engineers service the rural systems
through local/village governments. All district headquarters have
water systems. Wood-based energy resources accounted for
approximately 90 percent of all energy needs in 1993. Petroleum
met nine percent of energy needs, while hydroelectricity and coal
provided the balance. Petroleum has to be imported, thus
absorbing large amounts of the country's foreign exchange. There
is
great potential for developing alternative sources of energy,
notably hydroelectric power, coal, natural gas and solar energy.
Tanzania is well served by international, land, sea and air
transportation routes. In most parts of the transport sector,
major rehabilitation works are being undertaken. The size of the
country and its low population density make maintenance and
expansion of the transport infrastructure very costly. A road
network connects Tanzania with Kenya, Malawi, Zambia, Uganda,
Burundi and Rwanda, and any part of the country can be reached by
the existing comprehensive road network of almost 54,000 km, of
which 3,200 km are asphalt. Many roads are currently in poor
condition and a major rehabilitation project began
in 1990.
Tanzania Railways Corporation runs the 2,600 km system linking
Dar es Salaam with the central and northern regions. The
Tanzania-Zambia Railway Authority (TAZARA) operates 1,860 km of
track, 976 km of it in Tanzania, which links Dar es Salaam with
Kapiri Mposhi in Zambia. It is mainly used to transport Zambian
copper to Dar es Salaam port and Zambian imports in the opposite
direction. The principal coastal ports are Dar es Salaam, Tanga,
Lindi, Mtwara and Zanzibar. They are managed by the Tanzania
Harbour Authority.
International airlines operate in and out of Tanzania through Dar
es Salaam and Kilimanjaro airports. There is a third
international airport on Zanzibar. There are also several
regional airports and numerous landing strips for use by charter
planes. Air Tanzania operates regular services to most regional
towns and has scheduled flights to neighbouring countries and to
the Middle East.
Telecommunication facilities are available in most parts of the
country. The telephone system in Dar es Salaam is being
rehabilitated. Telephone, fax, telex, expedited mail service,
private couriers and cellular phones are available. Tanzania has
two earth satellite stations situated in Dar es Salaam with a
total capacity of 420 channels.
ECONOMIC OVERVIEW
Introduction
Agriculture is the economic lifeline of Tanzania, while mining
and tourism are important growth ectors. Economic policy is
geared towards creating an enabling environment for private
sector involvement and reducing the role of government in
business and economic activities. Since the mid-eighties,
Tanzania has followed an Economic Recovery Programme supported by
the IMF, the World Bank and other international institutions and
donors. The aims of the strategy include: the attainment of a 5
percent average economic growth in real terms; fiscal and
monetary measures to reduce the annual rate of inflation to below
10 percent; reducing dependence on exceptional balance of
payments financing; increasing foreign exchange reserve levels to
at least three months' import cover; reducing the public sector
role of the economy and encouraging foreign direct investment.
Recent Macroeconomic Developments
During the first three months of 1997, the government continued
with the reform programme aimed at increasing growth, lowering
inflation, stabilising the exchange rate, ensuring a
market-determined interest rate and improving the foreign
exchange reserve position. Against this background, real GDP
growth of 4.7 percent is expected for 1996/97. Production in the
manufacturing and mining sectors improved during 1996 due to
increased private sector participation in the economy, and food
production also increased slightly.
Inflation declined from 22.7 percent in June 1996 to 14.0 percent
in January 1997. The average annual inflation rate for 1996 was
19.6 percent. The target is to reduce inflation even further to
10.0 percent by June 1997.
Against the background of 40.0 percent of budgetary expenditure
being allocated to debt repayments and another 40.0 percent to
salaries, the fiscal performance was remarkable, especially
during the second half of 1995/96. The fiscal target for 1996/97
is to record a saving exceeding 0.5 percent of GDP on recurrent
expenditure, as well as improving revenue collections. Indicators
show that the government is on target in achieving its goals.
Due mainly to the improved fiscal performance, money supply
growth rate (M3) declined from 11.9 percent in September 1996 to
8.7 percent in December, and even further to 8.5 percent in
January 1997. The government budget also had a stabilising
influence on the money market with Treasury Bill rates declining
dramatically (44.6 percent in 1995 to an average of 18.6 percent
in 1996), and short-, medium- and long-term lending rates
following suit. Saving deposit rates started to increase in
January 1997.
Though the currency (Tanzania Shilling) depreciated against the
US Dollar during the course of 1996, the average exchange rate
reflected stabilisation, with the 1996 average rate being the
same as the 1995 average rate. Sufficient foreign exchange was
available for sale to the public, and reserves increased to cover
15 weeks of imports at the end of January 1997, compared to 8.3
weeks at the end of June 1996.
The country's total debt level makes it difficult for the
government to allocate more funds to priority sectors such as
health and education. The debt situation, however, is due to
improve with a Paris Club cancellation of external debts
totalling USD 1 billion, and the rescheduling of USD 0.7 billion
on concessional terms.
The government is aiming at a real growth rate of above 6 percent
to eradicate poverty, lowering inflation to below 5 percent by
June 1998, implementing measures to improve budget management
(including public debt), expediting financial sector reforms to
improve the availability of funds, and the creation of a
conducive environment for investment promotion, especially in the
export sector. Financial Institutions Tanzania's central bank,
the Bank of Tanzania, was established in 1966. The primary
objective of the bank, as outlined in the Bank of Tanzania Act of
1995, is to formulate and implement monetary policy directed to
the economic objective of maintaining price stability, conducive
to a balanced and sustainable growth of the national economy of
Tanzania. In 1991, the financial services sector was opened to
private and foreign capital. Already sixteen foreign banks and
nine non-bank financial institutions have been licensed to do
business in Tanzania. More than 80 bureaux de change are
currently in operation.
Liberalisation of the financial services sector and the
establishment of open markets in foreign exchange and government
paper have extended the scope for the implementation of an active
monetary policy. Interest rates have been liberalised and are now
determined freely by the market. Since the launching of regular
Treasury Bill auctions in August 1993, it has been possible for
the central bank to set its discount rate on the weighted average
yield of all maturities.
Plans are at an advanced stage for the establishment of a stock
exchange market. The Capital Market Authority has been tasked
with developing the rules and regulations and launching the stock
exchange market, which is expected to become operational during
1997.
Foreign Trade
Main export goods are agricultural commodities such as coffee,
tea, tobacco, cotton, and cashew nuts. Exports of manufactures
have been growing steadily during the 1990s, and accounted for 16
percent of total exports in 1995. Imported products are
machinery, textiles and apparel, fuel and transport equip-ment.
Tanzania's main trading partners are Germany, the UK, India,
Japan, China and the USA.
Trade Liberalisation
Tanzania now has a comprehensive liberalised trade regime.
External trade restrictions on imports have been removed (except
for those items on which control is necessary for health or
security reasons), export and import procedures have been
simplified and single channel export of traditional export crops
has ended. For statistical purposes, all imports still need to be
declared on an import form.
Labour Relations
The Regulation of Wages and Terms of Employment Ordinance
prescribes minimum wages. Labour disputes are settled by the
Industrial Court. Trade Union Legislation is under review.
Human Resources
The literacy rate is presently at 68 percent. Tanzania has two
universities, the University of Dar es Salaam and the Sokoine
University of Agriculture. An open university specialising in
distance education has also been established.
INVESTMENT CLIMATE
Investment Incentives
The National Investment (Promotion and Protection) Act 1992
offers the following incentives:
* First time investors receive a five-year tax holiday, followed
by a reduction in tax rate up to five percentage points below the
standard rate;
* exemption from import duties on all capital equipment and raw
materials;
* exemption from sales tax on imports of capital equipment and
raw materials;
* a five-year tax exemption applies to withholding tax on
dividends, royalties and interest payments, followed by reduced
rates; and
* depreciation allowed for in profit calculations.
Investment is treated favourably under Tanzania's corporate tax
system. Many tax incentives relate directly to capital outlays,
from full write-off for clearing and planting of agricultural
land in the year of investment, to extensive depreciation
allowances.
Export Incentives
At present exporters are benefiting from the liberalisation of
export licensing, and the duty drawback scheme. A feasibility
study for the establishment of EPZs in Tanzania was carried out
during 1996, and the draft regulations and organisation of EPZs
are under preparation.
An EPZ is however already in place in Zanzibar. Companies
established in the EPZ are offered 10 years corporate tax holiday
and duty exemption on imports of raw materials and capital
equipment.
Tanzania is a member of the regional organisations SADC and
COMESA, and thus enjoys preferential access to the markets of the
other member states.
Taxation
Corporate tax: 35 percent
Individual tax: maximum 35 percent
Institutions Involved in Investment Promotion
The Investment Promotion Centre, established in 1991, processes
investment proposals and assists investors with application
procedures. Their mandate is to be the focal point for the
implementation of the National Investment Policy and to promote,
coordinate and monitor domestic and foreign investments. In an
effort to further improve the investment climate in Tanzania, the
Centre is expected to be replaced by the proposed Tanzania
Investment Facilitation Authority, upon approval by Parliament
which is anticipated during 1997.
Zanzibar operates a separate Investment Promotion Agency which
was established in 1991.
Investment Code
The National Investment Promotion Act was passed in 1990,
outlining provisions and incentives for investment in areas of
national priority.
Investments in Zanzibar are regulated by the National Investment
Promotion Act of 1986 (under revision), outlining provisions and
incentives for investments in areas of national priority. The
Economic Zones Act (1992) governs EPZs.
Exchange Controls
Foreign exchange controls were removed by the Foreign Exchange
Act (1992), and Bureau de change regulations of 1992. Capital
transfers are however still subject to approval by the Bank of
Tanzania.
To ensure eventual repatriation of capital, all inward
invest-ments should be registered with the Investment Promotion
Centre. Investors are allowed to retain 100 percent of their net
foreign exchange earnings for purposes of remittance of
dividends, profits and settlement of external obligations.
Borrowing of funds from local banks by non-residents is allowed.
Legal Protection of Investment
Extensive guarantees are provided to investors under the
Investment Promotion Centre's Certificate of Approval, such as
guarantees regarding ownership of properties, dispensation of
assets, repatriation of income and others. Tanzania is also a
member of MIGA and ICSID.
Zanzibar guarantees against compulsory acquisition by government,
except on payment of full compensation.
Privatisation Programme
The Parastatal Sector Reform Commission manages the divestiture
of non-performing government parastatals. A total of 151 state
owned parastatals had been divested by February 1997.
The government of Zanzibar is operating a privatisation
programme, in order to improve the efficiency of state-run
corporations.
