Publications
Partners
President John Magufuli rang in his 56th birthday on 29 October 2015 by winning Tanzania’s national election with a 58% majority. Magufuli is a member of the Chama Cha Mapinduzi (CCM) party, Tanzania’s dominant ruling party and the longest-ruling party in Africa.
He stepped into the country’s top position along with the East African nation’s first female vice president, Samia Suluhu Hassan, who comes from Zanzibar.
Corruption and poor governance have become worrying fixtures in Tanzania’s political landscape.
Enter Magufuli. His campaign slogan describes his methods succinctly: “Work and nothing else.” Work he has. After he was sworn in on 5 November, he went about the business of cleaning house.
Magufuli has been unequivocal in his commitment to rooting out grand corruption in the nation and taking Tanzania into the future. His message is clear: corruption will not be tolerated, and Tanzanian citizens, opposition party members and observers are sitting up and listening because this president is not all talk.
To start things off, Magufuli appointed only 19 cabinet ministers, 11 fewer than his predecessor; implemented austerity measures, including the immediate ban on foreign travels by public servants; and suspended several senior civil servants for disobeying his directives on austerity measures, as reported by Kenyan newspaper Daily Nation in December.
And to bring the message home, he also did away with lavish Independence Day celebrations. Instead, Tanzanians spent the day sweeping the streets, tidying up hospitals and literally cleaning up the country, reported dw.com.
To again prove that Magufuli is a leader that puts his money where his mouth is, he also honoured his campaign commitment to free education: pupils and students that enrolled at the beginning of January will receive free education up to secondary school level, Daily Nation reported.
All these measures Magufuli has taken could not have come soon enough “since the level of public debt due to ill-disciplined public spending is alarmingly high and the IMF and donor community have recommended more efforts are needed if Tanzania is to maintain its growth prospects in near terms”, says Joseph Sheffu, Country Managing partner for Tanzania EY.
Magufuli’s hard-line stance against wasteful spending has not only pleased Tanzanian citizens, but captured the attention of the internet at large, giving rise to #WhatWouldMagufuliDo, which inspired humorous tweets and images following his frugal lead.
Confidence levels in Magufuli are high. He proved his mettle when he served as infrastructure minister, where he made good on his promises and earned his nickname “The Bulldozer” for his steadfast attitude and ability to get things done. Now, as the political leader of the nation, he shows no sign of slowing down on stringent action to get the country back on track.
Over and above the corruption that has marred the country, Tanzania has been labelled an underperformer in Africa, earning it the ‘sleeping giant’ moniker. Despite its rich mineral resources and abundance of natural gas, the country has not been reaching its potential and Magufuli has been quite vocal about tapping into this.
He has certainly entered with a bang and his no-nonsense approach to restoring integrity and rousing the country has been welcomed, but this is just the start of a challenging road that will see him having to address a number of structural issues, as well as socioeconomic imbalances in this East African nation.
What is Magufuli up against?
Tanzania, like other developing economies, has suffered from negative market sentiment amid concerns regarding China’s growth outlook and increased dollar strength. But Tanzania has proven resilient in the past and initial forecasts expect GDP growth of 7% for 2016.
Sheffu attributes this robustness to the country’s strong macroeconomic policies, great financial support from donor communities and perhaps the fact that it has not been so closely connected to international financial systems.
He does, however, express concern regarding donor funding, which Tanzania is heavily reliant on: “Decline in the global economy and governance concerns saw donors holding back their funding in the last two years resulting in a lower-than-expected GDP growth rate.”
Mamello Matikinca, macroeconomic analyst at FNB, cites a better-diversified economy helped the country maintain an impressive average growth rate of 6.5% over the past decade. But she adds that risks remain in the form of regional instability (see box on page 32), declining donor aid (which declined from 4% of GDP in the 2010/11 financial year, to an estimated 1.5% in 2015/16) and prospective setbacks in the implementation of growth-promoting policies.
Another key concern remains Tanzania’s fiscal discipline, “especially as it faces multiple socioeconomic challenges such as a rapid population growth, poor infrastructure, poor healthcare and education,” notes Sheffu.
Matikinca reiterates that the decline in donor funding, along with the fact that a lot still needs to be done in the way of improving the country’s tax collection system, is problematic. “Fiscal stability is further threatened by the accumulation of arrears from contractors, the pension fund and general weakness in budget formation,” she says. These factors add to concerns about Tanzania’s ability to repay its external debt.
Despite obvious challenges and an urgent need to remedy poor policy and weak systems, Sheffu believes that Tanzania will be able to maintain its positive growth outlook if Magufuli’s government adopts appropriate macroeconomic policies and measures that will improve provision of public services and attract foreign and local investments in an effort to improve on key infrastructure.
Ongoing investment in gas production and power generation, strong urban migrations and improving regional trade will all contribute to a constructive long-term outlook for growth, says Matikinca. Magufuli already committed to these issues.
In his inaugural speech, Magufuli specifically mentioned that “key quick wins will be to ensure the construction of major LNG [liquefied natural gas] commences during the year. This alone would bring over $20bn worth of FDI [foreign direct investment] to Tanzania during its implementation phase. Magufuli is also pro-private sector, thus it is anticipated that the private sector will grow exponentially during his tenure,” comments Sheffu.
Some of the biggest growth constraints that may prove hurdles in the Magufuli race to win back Tanzania remain unreliable electricity, poor road, rail and port infrastructure, inadequate skilled labour and regulatory bottlenecks.
One of the major initiatives included in the government’s infrastructure drive is the improvement of its port facilities. Kenya currently has the largest port in the region, but it is running over capacity, says Matikinca. “The large investments made into improving ports in Tanzania will definitely help with eradicating inefficiencies and reducing port costs.”
Developing Tanzania as a port of call in the region makes logistical sense, according to Sheffu, “If Rwanda or DRC import via Tanzania as opposed to Mombasa [Kenya], they will save 1000+ km”. The Tanzanian government has also signed a memorandum with China to build a new port in Bagamoyo, with the goal of making it one of the most important ports on the continent by 2017.
The vast and immediate investment is most certainly a preamble for Tanzania to up its game and make it an effective competitor for Kenya, says Sheffu. Opportunites for SA Inc.So what should South African business make of the untapped gem that is Tanzania? ?According to Sheffu, there are several South African companies currently operating in the country, ranging from mining, services to mining, to FMCG (fast-moving consumer goods).
Although most of the major construction activities are dominated by China, SA’s larger high-quality construction companies can tap into this sector.
Income levels are rising among Tanzanians, so consumer products are a good bet. High-class and low-cost real estate partnership with the major pension funds may also prove attractive to South African investors, says Sheffu.
In September 2014, the Tanzanian government relaxed rules regarding foreign investors and they are now allowed to own more than the previous 60% limit of shares in a locally-listed firm. Sheffu says that this opening of the capital is highly encouraging for foreign investors and developed a lot of interest, which is evidenced in several private equity firms taking equity interest in local companies.
This generation of opportunity will “expose emerging Tanzanian home-grown entities to private investors. We expect the local capital market to be vibrant in the near future once more and more foreign investors will become actively involved in the market.”
Sheffu adds that regulatory bottlenecks have been a major challenge to doing business in Tanzania but this is expected to change as Magufuli has restored the public services charter, which would oblige public officials to act and resolve issues within a stipulated timeframe and holds them accountable for their actions or inactions.
Magufuli has his work cut out for him. But it seems Tanzania’s president is aware of what he is up against and is resolute in getting the country on track.
“In just 60 days of his taking office, Magufuli has been an inspiration not only to Africa but also the world. With sound policies, a great team, integrity and well-executed strategy, he would surely be able to rouse Africa’s sleeping giant,” says Sheffu.
This article originally appeared in the 18 February 2016 edition of finweek. Buy and download the magazine here.
