Reflecting strong income growth over the past decade, on July 1, 2020, the World Bank announced that Tanzania’s gross national income per capita increased from $1 020 in 2018 to $1 080 in 2019, exceeding the threshold for lower-middle income status.
Tanzania has fared relatively well compared to its regional peers, but economic growth has slowed significantly. The real gross domestic product (GDP) growth rate fell from 5.8% in 2019 to an estimated 2.0% in 2020, and per capita growth turned negative for the first time in more than 25 years due in part to the Covid epidemic.
The global economic slowdown has also adversely affected export-oriented industries, especially tourism and traditional exports, and caused a drop in foreign investment. Gold has been the sole export to benefit from the crisis, as international gold prices rose sharply between 2019 and 2020. Although the government did not impose stringent mobility restrictions, the pandemic prompted firms and consumers to adopt precautionary behaviours, hindering domestic economic activity.
Meanwhile, steep declines in production, consumption, and imports have significantly reduced fiscal revenue. The pandemic has also compounded pre-existing challenges in the financial sector, and the share of nonperforming loans on bank balance sheets continues to be high, while the growth of credit to the private sector has slowed.
New president, new politics?
The sudden death of Tanzania’s President John Pombe Magufuli in March 2021 has thrown the East African nation into a period of political uncertainty. Vice-president, Samia Suluhu Hassan has been sworn in as his successor, making her Tanzania’s first female president. An immediate concern is what steps she will take to curb the pandemic.
Whatever she does, the health emergency and associated economic crisis could define the economic trajectory of the African region in years to come. Magufuli ruled through an economic boom period when commodity prices were high and access to international finance was fairly easy. This provided the latitude to choose between various development approaches.
Projects with potential
The Board of Directors of the African Development Bank have approved a US$120-million loan to fund the construction of a 50MW hydropower plant in Western Tanzania that will provide reliable renewable energy to households, schools, clinics and small and medium-sized enterprises in the Kigoma Region. The Malagarasi Hydropower project has several components: a run-of-the-river hydropower plant facility; a 54- km, 132 kV transmission line that will connect to Tanzania’s national grid; a distribution network expansion operation that includes rural electrification and last-mile connections; project management and contract administration support; and compensation and resettlement of affected persons.
The project’s overall cost is estimated at US$144-million. The bulk of the funding (US$120 million) will be sourced from the Bank Group’s sovereign window, with an additional US$20-million contributed by the Africa Growing Together Fund – a co-financing fund with resources from the government of the People’s Republic of China that is administered by the Bank. The government of Tanzania will provide the remaining US$4.14-million. The hydropower plant’s expected average annual output of 181 GWh will meet the electricity needs of as many as 133649 Kigoma households, bringing the region’s electrification rate more closely in line with the rest of the country.
Making tracks
The Government of Tanzania’s Ministry of Finance has signed a facility agreement with Standard Chartered Tanzania for a US$1.46-billion term loan financing to fund the construction of the Standard Gauge Railway (SGR) project from Dar es Salaam to Makutupora. Running approximately 550 kilometres long, the SGR project is one of the country’s biggest projects connecting Dodoma to Dar es Salaam via Morogoro and Makutupora. Once complete, the SGR Rail project will provide a safe and reliable means for efficiently transporting people and cargo to and from the existing Dar es Salaam Port.
According to the Tanzania Railways Corporation, it is expected that the railway will address current congestion challenges and decrease freight service charges by 40%, as the railway will be able to haul up to 10 000 tons of freight, equivalent to 500 lorries, per trip. It will also connect Tanzania to Burundi, Rwanda and The Democratic Republic of Congo (DRC), thereby playing a key role in enhancing regional trade. The project has already created more than 8000 new direct employment opportunities for Tanzanians and has opened up opportunities for local communities surrounding the project area to access social services such as shelter and food.
The oil & gas industry is a booming industry and the sector is already seeing the entry of large international players paying dividends through the recent discoveries of gas reserves. Electricity prices are a different story. Prices can reach 27 to 29 cents per kilowatt-hour during peak hours in the capital Dar es Salaam, however, independent contractors produce great returns in a starving energy environment. Prices will drop and even at half their price today, they will be attractive to international investors, says a former Blackstone executive but energy always involves politics in or outside of Africa.
Food security
Food consumption in Tanzania is a disturbing story but it does point to the great potential for the agribusiness sector. According to the United Nations Food & Agriculture Organisation (FAO), 70% of calorific intake requirements of low and middle-income households, are met by street food. As incomes increase and education improves, there will be a change in the diets of Tanzanians with growing demand for vegetables, meat and dairy.
Unfortunately, Tanzania’s commercial-scale farming cannot keep up with growing demand. Tanzania is blessed with diverse climate zones, fertile land, and water to support its agriculture. Yet the number of commercial-scale farms producing revenues greater than $200 000 in South Africa, is approximately 500 times the amount found in Tanzania.
Chicken, at three times the price in the United States, provides a great opportunity, especially as Tanzanians demand more white protein. Dairy consumption at 42 litres per capita is far below the recommended 200 litres per year as it is not a staple in the Tanzanian diet. Distribution of all these products should also improve with the arrival of Africa’s larger supermarket chains.
A lot in Tanzania, in the end, is about potential. But investing in Africa, in general, is about buying into the big picture.
For more information and or for any assistance you might require please email Sassda Market Intelligence Specialist, Lesley Squires
lesley@sassda.co.za