TANZANIA ECONOMIC OUTLOOK FOR 2009

Tanzania’s gross domestic product stood at $20.72 billion as at the end of 2008, according to IMF data.

The Government expects economic growth to slow this year, but only to 5 percent from 7.4 percent a year earlier.

It is Africa’s third largest gold producer, having exported 39.2 tonnes worth $870.6 million in the year to March, up 4.1% from the previous year’s sales of 36.2 tonnes.

The global crisis is projected to have a more significant negative impact in 2009 as foreign capital and tourism arrivals fall short and export earnings decline.

Earnings from exports were seen dropping to $2.86 billion in 2009/10 from $2.89 billion the previous year. Tourism earnings are expected to drop by $186 million.

Tourism is the leading foreign exchange earner, having fetched $1.31 billion in the year to March, compared with $1.19 billion a year before.

Stocks held by the National Food Reserve Agency (NFRA) fell by 40.5 per cent to 76 650 tons in June 2008 from 130 000 tons a year earlier. There are plans to restock to 150 000 tons by the end of 2009. A ban on cereal exports was imposed in May 2008 and import duties on cereal were waived.

Tanzania was forced to postpone plans for a $500 million Eurobond to fund infrastructure projects as a result of the global financial crisis

So far 48,000 people had lost their jobs by April because of the global economic slowdown.

The crisis forced U.S-based Century Aluminum Co (CENX.O: Quote) to defer plans to build a $3.5 billion smelter.

Canadian miner Xstrata Plc (XTA.L: Quote) halted plans for a $165 million nickel mining and extraction plant in the northwest of the country.

Other investments on hold include a coal and iron ore project and a cement plant.

United Arab Emirates’ Ras Al Khaimah’s investment agency also withdrew from a $135 million project to build an export-processing zone

TANZANIA STIMULUS PACKAGE ANNOUNCED BY THE PRESIDENT JAKAYA M. KIKWETE

Tanzania will spend 1.7 trillion shillings ($1.3 billion) money that has been factored in the budget to compensate companies in the east African country hit by the global slowdown and to boost agricultural production, infrastructure and small businesses.

Under the stimulus package:

• The government would guarantee debt rescheduling for some companies in tourism, agriculture and other sectors — and reimburse some losses directly.
• Royalty payments on mineral (gemstones) exports would be waived to ease suffering in the sector. The government will forfeit $500,000 in revenue due to this.
• the country’s main railway will receive $43 million for rehabilitation and another 40 billion TZS shillings will be for farmers’ soft loans and leasing of implements.Another 90 billion TZS shillings will subsidise fertilizer costs.
• The government would increase export credit guarantees for small businesses and will release food from its strategic grain reserves to help lower food costs.
• The president outlined that they will compensate those who got losses in 2008/09. The government will compensate cooperatives, companies for a total loss of 21.9 billion shillings which it will pay straight away to the banks that lent to them.
• The government will guarantee rescheduling for two years of 270 billion shillings in debt of those compensated, along with other companies struggling with debt repayments.

BUDGET HIGHLIGHTS

Below are highlights from the presentation:

FINANCE MINISTER MUSTAFA MKULO:

On economy:“The most affected sectors are agriculture, manufacturing, mining and tourism.”

On mining companies: “It is proposed to … abolish the excise duty exemption granted to mining companies as the government is losing substantial amount of revenue from this exemption.”

On value-added tax: “It is proposed to … reduce the VAT from 20 percent to 18 percent in order to minimise the impact of the global economic crisis to the economy.”

On Microfinance Bank “The government hopes to get 15 billion shillings from the sale of its 21percent stake in National Microfinance Bank.”

On spending, revenues:“In 2009/10 government expenditure will stand at 9.51 trillion shillings.

“Aid from foreign donors will stand at 3.182 trillion shillings.”

The government plans to raise 5.1 trillion shillings in domestic revenue, up from a targeted 4.73 trillion shillings a year before.

Tanzania also hopes to seek additional funding from countries in the Gulf and Asia.

It aims to raise domestic revenue collection by widening the tax base and revoking various exemptions.

It aims to borrow 506.2 billion shillings from domestic markets to fund some development spending and another 576.5 billion to pay off maturing government securities.

From budget speech notes:

Recurrent expenditure at 6.68 trillion Tanzanian shillings in 2009/10 vs 4.78 trillion shillings in 08/09

Development expenditure at 2.83 Tanzanian trillion shillings vs 2.49 trillion shillings in 08/09

Government will collect 5.1 trillion Tanzanian shillings in domestic revenue, up from 4.3 trillion shillings in 08/09

Tanzania’s 2009/10 budget Tax Measures

Tanzania said on Thursday it will increase spending by 31 percent to 9.51 trillion shillings in 2009/10 (July-June) fiscal year to help mitigate effects of the global scenario and boost agricultural production and education.

Finance Minister Mustafa Mkulo introduced some of the following tax measures:

INCOME TAX:

• The government plans to lower corporate income tax to 25 percent from 30 percent for listed companies in the Dar es Salaam Stock Exchange that have issued at least 30 percent of their share capital to encourage more listings.

IMPORT DUTY MEASURES:

• Tanzania will exempt import duty on 4×4 vehicles for tourism purposes in order to promote the sector.
• The government will also scrape import duty on equipment used in the exploration and development of oil, gas, geothermal or gas.
• The government will exempt import duty on industrial spare parts, subject to conditions developed by the East African Community customs union.
• It will also remove a 10 percent duty on pharmaceuticals and apply zero duty under a regional common external tariff.
• *The government will reduce duty on used clothing from 45 percent or $0.30 cents per kg to 35 percent or $.20 per kg, whichever is higher.
• Mkulo said the government would increase import duty on yoghurt and other buttermilk from 25 percent to 60 percent to protect the local dairy industry from competition from imported products.
• It plans to remove duty on synthetic yarn to reduce production costs for local producers who use it to blend with cotton.

EXCISE DUTY MEASURES

• The government increased excise duty on carbonated soft drinks, alcohol and cigarettes.
• Tanzania said it plans to impose excise duty on mining companies to stop substantial revenue losses.

VAT MEASURES:

• Mkulo lowered VAT to 18 percent from 20 percent previously, to soften the pain of the global economic slowdown.
• Mkulo said the government planned to exempt VAT on farm services for land preparation, cultivation and harvesting to reduce agricultural production costs.
• The government will abolish VAT exemption on locally processed grown tea and coffee, to bring them on par with other agricultural products.
• Mkulo said the government plans to limit VAT Special Relief given to mining companies to only cover prospecting and exploration.

MACRO ECONOMIC POLICY

The government’s macroeconomic and fiscal objectives are to achieve real GDP growth of 8 per cent by 2010, reduce inflation to 7 per cent, raise domestic revenue growth to at least 18.5 per cent in 2008/09 and 20 per cent by 2010/11. It wants to keep international reserves of at least 5 months of imports, and ensure resources to finance private sector development and major infrastructure investment.

INFLATION OUTLOOK

According to figures released by National Bureau of Statistics (NBS) and the Bank of Tanzania

Tanzania’s average annual inflation rate for 2008 came in at 10.3 percent, or 6.7 percent excluding food.

Tanzania’s monetary policy targets an inflation rate of 5 % in the medium term.

The central bank said in late May it saw annual inflation at 11 percent by June, and down to 6 percent by 2010.

Food inflation stood at 17.8 percent, unchanged from April.

STRUCTURAL OUTLOOK

Tanzania’s global position in the World Bank Group’s ease of doing business ranking fell to 127th of 178 countries in 2008 from 124th out of 181 countries in 2007.The latest report noted the slow pace of starting a business, difficulties in getting credit and inadequate protections for investors. In 2007 the government enacted a New Business Activities Registration Act to reduce the red tape involved in business registration but more remains to be done.