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Tanzania Busines Focus Special Edition - May 2012

TPSF Magazine | Issue 4

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TANZANIA BUSINESS

FOCUS The power of the private sector The power of Private sector

To succeed in business, to reach the top, an individual must know all it is possible to know about that business.

– J. Paul Getty

September, 2012 ISSUE: 005 www.eurocom.co.tz

INSIDE REGULARS 10 Mails 12 Tech Talk Official Gadgets 14 COVER STORY: Tanzania National Budget 23 Perspective 71 Importing food to curb Inflation in Tanzania

BUSINESS/FEATURE 74 Sino-Africa co-operation 30 Global Economic Crisis 54 Bright Prospects for Private sector

66 Business Leader: Richard Branson

PERSPECTIVE 32 Credit Reference Bureau 58 The railway infrastructure 34 Small- and Medium-sized

Enterprises (SMEs) 38 Cross Border Trade: Its effects on the Economy in the region

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Cover Page: Budget: What you need to know A16 - Page Special Report

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TANZANIA BUSINESS

FOCUS

The power of the Private sector

Editorial Board Chairperson Exec. Director Comm. Officer

Esther Mkwizu Mr. Godfrey Simbeye

Rehema Mtingwa

Editorial Consultants CEO Editor Sub-Editor

Dismas L. Masawe Michael Kagumya

Sameer Kamal

Contributors

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Tanzania’s natural Gas discovery

Dr. Gideon Kaunda Dr. Hilderbrand Shayo Constatine Deus Honest Prosper Ngowi Roohina Doloo Tamara Khama Victor Karega

DOES AFRICA NEED CHINA? In 1970, the Chinese begun the construction of a railway line, braving the natural elements to help construct what has come to represent one of the great symbols of Sino-Africa cooperation

Photography Sameer Karmal

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AFRIBUSINESS

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Copyright © 2012. All rights reserved. No

sections of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means mechanical, electronic, photocopy, recording or otherwise without the written permission of the publisher and copyright owner.

Declaimer: The views expressed in this

publication are not necessarily those of Tanzania Business Focus. The Publisher declares that this document has been compiled to the best of their knowledge. However, no warranty of representation is made to the accuracy of this information. The publisher assumes no responsibility for the mistakes that may arise from the use of this document.

Rights: Tanzania Business Focus is the intellectual property of Tanzania Private sector Foundation

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Tanzania’s First Chocolate factory

East Africa Cement Producers Cement manufacturers in the partner states of East Africa have expressed their distress with 2012/13 budget proposals,

Sep 2012 | TANZANIA BUSINESS FOCUS | 3


WORD

Message from the CEO The Private Sector’s Opinion on the Budget 2012/13 Welcome once again dear readers, to our fifth edition of the Tanzania Business Focus. During this quarter, Tanzania Private Sector Foundation TPSF), the focal point of the business sector in Tanzania, continued to establish its role of advocating and engaging with the Government for a conducive business environment. TPSF re-emphasizes to the Government of the United Republic of Tanzania, the need for continuing to involve the Private Sector as its strategic partner. s it has been the case over the past years, the Private Sector pledges its continued support and participation in the Government’s budget formulation process as one of the means to enhance the business environment through offering private sector proposals on fiscal policy.

A Godfrey Simbeye Executive Director TPSF

The Private Sector noted the prioritization of the following sectors, like infrastructural development, specifically, on long term reliability of electricity, transportation infrastructure (railways, port, road tied to open economic opportunities) and maintenance of airports. For example, allocations for the energy sectors have gone down by 40 billion, again in the previous year allocations for Infrastructure (roads, railways ports and ICT) had been allocated Tshs 2,781.4 billion in 2011/12 compared to Tshs 1,505.1 billion in 2010/2011 (This was an increase of 85 percent). In this year’s budget, it is learned that the same priority sector has been allocated Tshs 1,394.5 billion which is down by 49.86%. The Private Sector has noted, with concern, that the allocation ratio of recurrent budget (70%) vis-a-vis development budget (30%) does not address enabling environment for doing business and competitiveness. The private sector is proposing at least 35 percent for the development budget in order to cope up with the move towards a fully-fledged fledged EAC common market. The 2012/13 is silent on how to address the issues raised by the Controller and General Reports, and

4 | TANZANIA BUSINESS FOCUS | Sep 2012

given the fact that the recurrent budget is 70 percent of the total budget, then the Private Sector is proposing that in order to enhance accountability in the Government, we must introduce performance-based contracts for civil servants (The performance base contracts should be for three years).

Issues related to the Private Sector Development The 2012/13 Budget has addressed key issues which are important and necessary for the development of the private sector, these include: Continue to allocate resources to the Tanzania Investment Bank (Tshs 30 billion) and the Agricultural Development Bank (Tshs 40 billion) which are aiming at addressing challenges associated with long term financing and agricultural financing. However, the amount allocated is not sufficient, given the demand of the agricultural sector.

Expanding the tax base and revenue collection Despite the fact that the Government shall meet its target in revenue collection by the end of the Financial Year 2011/12, the private sector is of the view that there are other avenues and enforcement on performances that if considered may have enhanced the Government revenue base. Full involvement of the private sector in the fiscal reform processes. Broadening the tax base by bringing in the tax net traders who currently do not pay some of the imposed taxes.


Budget allocation for Kilimo Kwanza and adherence to Kilimo Kwanza pillars In 2009, the Government launched Kilimo Kwanza; though there are notable progresses in budget allocation to major sectors in the past two years, the agricultural budget allocation is 6.7% a decrease from 7.8% (2010/11 Budget). The private sector had expected for a gradual budget increase towards attaining the 10% of the total budget in order to ensure that the Kilimo Kwanza resolve is satisfactorily implemented and in order to comply with the African Union Maputo declaration. It seems that the Government has abandoned the Kilimo Kwanza since there are no commitments to address one of the main pillars, namely: a Land Bank which addresses the critical challenge s of land for agricultural investment.

Issues of concern to the Private sector that have not been addressed in the Budget The private sector is of the opinion that fees on business licensing should be regarded as sources of revenues for the LGAs, but rather Business Licensing is a tool to facilitate traceability of the business entity. It is within this spirit that the private sector re-iterates the role of the Government in facilitatiting the regulatory and policy frameworks whilst the private sector does the implementation. Much as the Government has declared its efforts in strengthening production and services, such as reviewing domestic industrial incentives on textiles and edible oils, yet the Private Sector opines that there are quick win measures which could have addressed these challenges. The Government can also introduce specific rates of US $ 1.50 per kg on grey/bleached fabrics or 25% import duty whichever is higher in order to create a level -playing field for importers and local textile producers. On the case of edible oils, it is very clear that if an imposition of

10% import duty on crude edible oil is applied then local edible oil sector in the country will generate more revenue to the economy. Furthermore ,on review of tax rates in agricultural sector, the Government was expected to provide clearly on how this will be undertaken. The private sector and other partners have, for quite a long time, proposed that the produce tax chargeable on agricultural products should be abolished. For farmers producing for export produces massively, these taxes affect their competitiveness in their international markets since farmers in other countries in the region are always exempted from taxes. With regard to the statements on the reform of the tax structure, fees, levies and other revenue measures, the Private Sector does not see an expected changes on Skills development Levy and Motor Vehicle Licence. The Private Sector had earlier on proposed to reduce the SDL rate to 4% to which the Government agreed. The budget does not address the skill challenge in different sectors of the economy.

Private Sector recommends that Budget process should involve the private sector form the start say, from January

Involvement of the Private Sector in Tax Reform Process It has been noted that the involvement of the Private Sector in the formulation of Tax Reform in 2012/13 Budget has been very minimal. The original budget of about Tshs 13 Billion, for example, was presented to the Parliamentary Committee on Finance and Economic Affairs in April 2012 without contributions from the Private Sector. This is not the expected level of partnership between the Government and the Private Sector.

Godfrey Simbeye

Executive Director - TPSF

Sep 2012 | TANZANIA BUSINESS FOCUS | 5


WORD

Word from Communications Officer - TPSF Our esteemed Readers, The Tanzania Business Focus is growing! This is our fifth issue and look forward to many more issues in the years ahead! All of this is made possible by your support and inspiration to read the immense information we have compiled for you.

O In the past two months, Tanzania Private Sector had the incalculable honour to have one of the most distinguished global financial institutions hold its annual event in Tanzania [May 28 –June 2nd 2012].

n behalf of the Tanzania Private Sector Foundation (TPSF), we were delighted to have witnessed this auspicious moment in history. The meeting underscored the development of the African continent in the ever dynamic, unfolding and indeed challenging global landscape, political, technological and economic landscape. The main theme in this issue is the 2012/13 Tanzanian National Budget that was tabled less than two months ago, in the just ended Parliamentary budget session. As usual, a number of debates, discussions and comments arose from various sections of the society including media houses--radios, television and newspapers. In this issue, some post-budget comments are outlined and the author of this article has consistently argued that Tanzania suffers from structural rather than monetary inflation and that there are some elements of structural measures to tame inflation instead of the hitherto monetary measures.

The Small-and-Mediumsized Enterprises (SMEs) have the potential to turn around the country’s economy provided adequate funding is allocated for their growth. We urge SMEs to move from the usual focus on building businesses to a broader branding concept in order to grow further. The EAC member states have to work together in improving and expanding border infrastructure in order to move people and goods more safely and efficiently across our borders. Private sector prospects are brighter; Tanzania and Mozambique have discovered about 100 trillion cubic feet of gas, almost enough to meet global demand for a year. Some of the world’s biggest exploring companies have ventured into East Africa to search for hydrocarbons and some discoveries have been made in Kenya and Uganda. Within the next five years, Tanzania is expected to confirm the presence of nearly 60 trillion cubic feet of natural gas, thereby opening the country up to massive foreign investments.

Imported cement from the Middle East and Pakistan is now capitalising on the opportunity to monopolise East Africa’s lucrative cement market by a deliberate dumping. This is particularly evident in Tanzania. This negatively affects domestic producers of cement, specifically through the increase of unemployment as a result of increased cheap and subsidized cement from Asia. Tanzania gives high priority to the railway infrastructure development, principally to open up the hinterland and in particular, to stimulate socio-economic development. The geographical attributes bear out a strong argument in support of revival and expansion of the railways network. Lastly, I extend my sincere thanks to our generous contributors, sponsors and everyone involved in the production of this issue. Your creativity, vision and commitment makes our magazine possible!

Rehema Mtingwa Communications Officer TPSF Sep 2012 | BUSINESS FOCUS | 7


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Quotable Quotes

Dear Editor,

I have recently come across a copy of Tanzania Business Focus magazine.I saw the ad calling on creative writers.I am a lawyer by profession and would love to write articles on the business side of the law,or rather on business law.Would you kindly give the specifics on how to go about the arrangement?

Regards, Sarah

Dear Sarah, Thank you sarah for you intrest, First you can begin by sending in your articles to the editor through the address below and if any of your articles qualify then we will get back to you. Editor

Dear TZ Business Focus Team,

I will start by congratulating you for the wonderful contribution TPSF is making through this magazine. I picked a copy recently in Dar es Salaam, which carries a leading story on dollarization, when I read this piece, I though it might a future reference. Pass my compliments to the Staff, Management and other partners in this initiative. Regards Abdul

Dear Abdul,

Thank you. We are very grateful for your appreciation, we promise more, so expect a lot from form us and look out for our next edition. Editor

“Confidence is contagious; so is lack of confidence.” Vince Lombardi “When a distinguished but elderly scientist states that something is possible, he is almost certainly right. When he states that something is impossible, he is very probably wrong.” Arthur C. Clarke, Profiles of the Future “The problem is never how to get new, innovative thoughts into your mind, but how to get old ones out.” Dee Hock. “The greatest barrier to success is the fear of failure.” Sven Goran Erikssono

Jokes

Dear Editor,

First and fore most, thank you for the wounderful job you people are doing. Well, I’m a small business owner and I have been following Tanzania Business Focus issues but my concern is that I feel the Magazine has not reached the grass roots to hear our view on the problems and strategies in which we could be helped through this magazine. Incase I would like to send in my view will they be published and how do I go about this? Regards James - Mwanza

Dear James,

Thank you for appreciating the work we do. We are working a round the clock to reach each and every corner of the region in making sure all business get a fair playing field. You can send your views through our emails; info@eurocom.co,tz/ editor@eurocom.co,tz. all you views will published. - Editor

10 | TANZANIA BUSINESS FOCUS | Sep 2012

BUSINESS

A well-adjusted person is one who makes the same mistake twice without getting nervous.

Opportunity always knocks at the least opportune moment. If everything is coming your way, you are probably in the wrong lane.

Long back,

A person who sacrificed his sleep, forgot his family, forgot his food, forgot laughter were called “SAINTS” But now they are called…. “IT professionals/ Logistics Professionals”

I’m the boss

A boss was complaining in a staff meeting the other day that he wasn’t getting any respect. Later that morning he went to a local sign shop and bought a small sign that read, “I’m the Boss”. He then taped it to his office door. Later that day when he returned from lunch, he found that someone had taped a note to the sign that said. “Your wife called, She wants her sign back!”


TECH TALK

Marbella for iPhone

HTC has introduced a new mid range smartphone in India: The HTC Desire C. The best thing about this device is you get Android 4.0 (Ice Cream Sandwich) with HTC Sense 4 out of the box.

The device will be available in the market for 14,999 INR. It weighs just 100 grams and measures 12.5 mm. This device appears to be a smaller version of HTC One S and One X. However, Desire C offers 480Ă—320 pixel resolution which is a bit low and hence considered to be one of the cons of the device. HTC Desire C is powered by 600 MHz Qualcomm Snapdragon processor and offers 512 MB RAM. The internal memory is 4GB. You can certainly expand it upto 32 GB by using a microSD card. There is a 5 MP camera at the back with LED Flash and geo tagging support. It lacks a front camera though.

Nexus Q: The First Social Streaming Device Google announced several new products Google IO, including their first android tablet Nexus 7 and Android 4.1 Jelly Bean. They also announced another device previously unknown to mankind- Nexus Q. Google terms it as the first social streaming device. It connects with your android phone or your tablet (running Jelly Bean most probably) and streams whatever media you throw at it i.e. select on your android device in your living room. You can connect your TV and your speakers to it. You do need wifi access as the media will be accessed from your google play account and youtube. Play store for $299

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Why Data Transfer between iOSOperated Mobile Devices and Computer Is Necessary

There are many reasons why you need to transfer digital data stored in your iPhone, iPod, or any other mobile devices operated by iOS to your Mac computer. iPhone and iPod to Mac transfer becomes a necessity because iOSoperated mobile devices have limited storage space whereas a computer has much more space to store digital data that those mobile devices cannot accommodate. If you have a lot of videos in your iPod, for example, you have to transfer those videos to your computer before you can add other videos to your iPod.

Toshiba AT300 Tablet: Gaming, entertainment and style to go Toshiba has released a new tablet that offers a slimmer, lighter experience, without compromising on power, connectivity or style. Complete with Android’s Ice Cream Sandwich operating system, the app store Play, and a powerful NVIDIA Tegra 3 processor, the device combines high performance, modern design, and some of the best tech features available on the market.

Specs Weighing in at under 600 grams, and with a thickness of less than 9mm, the AT300 is perfect for gaming, browsing and reading on the move. The device has a 10.1 inch LED backlit display that supports 10-finger multitouch and is available with 16GB or 32GB storage. As users can choose from over 500,000 apps, as well as movie rentals and e-books, through Play, you might need the extra space.


TECH TALK

How are our companies prepared from the security point of view? These are very high quality cameras made of metal with a Sony image sensor. They come with a fixed 3.6mm Lens that needs no focusing, and provides a 70 degree angle of view. You can expect to identify a stranger’s face up to 25ft away from the camera in night or day, and see up to 60ft in complete darkness thanks to the night vision provided by the 24 Infrared LEDs. Of course you can see a lot farther in areas that are lit or during the day. In addition, they will withstand the harshness of weather without a problem; let it be rain, snow, or sleet, or hot or cold weather. Then again, why not put these cameras indoors? These are small and versatile and work well in an indoor or outdoor environment.

Using social media (facebook, twitter) for business growth

There are three major classifications of Social Network Advertising:

Direct Advertising that is based on your network of friends - This can be the most effective format but also causes the most controversy. An example is the Facebook beacon project. Based on an action your friend has taken, you might see a message in your news feed saying ‘Bob has just bought a ‘RadioHead CD from MusicWorld’. This can be an extremely effective mode as often people make decisions to purchase something or do something based on their close group of friends. However, there is also a lot of controversy surrounding this as it can be considered exploiting the personal relationships you have with your friends and also raises privacy concerns. Direct

Advertising placed on your social networking site - This is a more traditional form of web advertising that is minimally effective. Just like you see banner ads on many other sites, this is a similar concept, except on a social networking site. You can see these - for example - as a brick in the top right of MySpace pages, or as a banner on the right of Facebook profiles and so on.

Car security

Cars are expensive. Other than a house, perhaps, few purchases we make will compare to a new car. And just like any other expensive asset, a car brings with it a secondary cost -- the risk of theft. In Tanzania for instance, although locking the doors may not be enough to ward off the threat. Everywhere else, it’s a good idea to arm yourself -- and your car -- with some security.

Indirect Advertising by creating ‘groups’ or ‘pages’ - This is an innovative marketing technique in which a company will create a ‘page’ or ‘group’ that users can choose to join. They will use this to build up ‘subscribers’ or ‘fans’ and use this to market a contest, a new product, or simply just to increase brand awareness. These groups can quickly grow in numbers of subscribers which can become a very effective marketing tool.

On the bright side, car thefts have been steadily decreasing in recent years; fewer cars were stolen in Tanzania in 2011. The car security has come a long way since that time and period.

Sep 2012 | TANZANIA BUSINESS FOCUS | 13


COVER STORY

Tanzania National Budget

Honest Prosper Ngowi,

2012/13 Budget: The Salient features

How Innovative Are the New Revenue Measures in the 2012/13 Budget?

Increased Taxation of the ‘Sin Industry’ in the 2012/13 Budget: Is It Sinful?

Increasing Revenue to 18 Percent of GDP in 2012/13 Budget: Some Issues of Discussion

Selected Economic Options for Africa in the Changing Global Landscape

Importing Food to Curb Inflation in Tanzania: Good or Bad Economics?

Will the Iranian Nuclear Standoff Derail Global Economic Recovery?

Special Report

14 | TANZANIA BUSINESS FOCUS | Sep 2012


COVER STORY

2012/13 Budget: The Salient features By

Honest Prosper Ngowi,

It is normal that when the government has tabled its budget for a financial year, a number of debates, discussions and comments will arise. This has not been an exception with the 2012/13 budget. Among the 2012/13 postbudget comments in which the inputs of the author of this article were requested include in Voice of America with Hamza Moyo; ITV’s Kipima Joto; Ernest and Young breakfast debate that was conducted less than 15 hours after the Minister’s budget speech and various media houses including radios, television and newspapers. In this article, some selected postbudget comments are outlined.

Nominal versus real budget There are correct arguments for an increase in the 2012/13 budget by about Tshs. 2 Trillion from about 13 Trillion Tshs 2011/12 budget. This is correct in nominal terms but incorrect in real terms. This is the case when one factors in inflation. By July 15th 2011, inflation was 10.9 percent. At the time of tabling the 2012/13 budget, inflation was 18.5 per cent. This is an increase in inflation by 7.6 per cent. It means a reduction in real as opposed to nominal value of the 15 trillion Tshs. By extension, it implies a reduction in purchasing power of the shilling by 7.6 per cent. Therefore, the 15 trillion Tshs budget today is equivalent to only 92.4 per cent (13.9 trillion Tshs) of the same amount when subjected to the 2011/12 prices. This is worrisome in the context of actual new goods and services that can be purchased by the monies set aside in the 2012/13 budget. If inflation goes down substantially in the due course of 2012/13 financial year, it will be a blessing. However, it will be a curse if inflation does not go down substantially.

Skewed Allocations

skewed allocation of the 15 trillion Tshs. The ratio of 70% recurrent and 30% development expenditure is among the causes of heated debates in and outside the Parliament. There are many and far-reaching negative development implications when a lion’s share of the budget goes to recurrent rather than development expenditure. Inter alia, it will be a very tall order to attain the envisaged 6.8% economic growth. If development in general and inclusive growth in particular are to see the light of the day, then the government needs to spend a lot on development projects rather than spending more on maintaining itself.

Poor domestic sources The domestic sources for the envisaged 2012/13 revenues account for just over 50% of the total budget. This is understood in a country where out of potential tax payers mass of 15 million, it is only about 1.5 who actually pay taxes. Tanzania is also an economy where the potential tax to Gross Domestic Product (GDP) ratio is about 21 per cent, but what is actualized is only about 16 per cent.

As if these were not bad enough, the informal sector that generally does not pay tax is estimated to be producing over 50% of GDP that is not captured in the tax net.

felt but more importantly, the Euro zone sovereign debt crisis threatens the ability and willingness of the development partners to deliver more aid to Tanzania which has been the darling of the donors since independence.

Too many objectives? The 2012/13 budget looks ambitious in terms of the objectives to be attained. The urgency of the many problems to be solved by the budget is known. However, it remains a fact that 13 objectives form too long a litany and shopping list amidst the rather thin revenue envelope. Within most of the 13 objectives, there are many other objectives. For example infrastructure has roads, railway, and electricity, among others. All of them are very important and, indeed interdependent. However, there is a need to prioritize and forego some items in any budget. Short of that, there will be too thin spread of the budgetary funds without tangible, sustainable and lasting impacts on the ground.

Inflation equation It is good that this time around, there are some elements of structural measures to tame inflation instead of the hitherto monetary measures. The author of this article has consistently argued that Tanzania suffers from structural rather than monetary inflation.

In this list of cases of narrow tax base are also the several tax exemptions and incentives offered by Tanzania to various groups.

Our weak sources of funds jeopardize successful and desired implementation of the budget. This is because donor budget funding may not be forthcoming in the desired amounts and time. Borrowing

both

internally

and

Among the greatest issues of externally is also not guaranteed due concern in the 2012/13 budget is the

to both local and global economic scenes. Globally, the traces of the 2008 economic crisis are still seen and Sep 2012 | TANZANIA BUSINESS FOCUS | 15


COVER STORY

However, in most of the 2011/12 fiscal year, the authorities seemed to implement more monetarist policy instruments rather than structural ones in taming inflation that went up from just over 10% on July 2011 to 19.4% in the first half of 2012.

Some adjusted taxes It is good that there are some tax reductions to stimulate some sectors and sub-sectors and to develop the private sector. However, increasing tax on airtime from 10 to 12% is bad to a common man! Mobile phones are no longer luxuries in Tanzania. They are extremely important in rural as well as urban areas. Inter alia, for none-banked majority of Tanzanians, mobile phones are their mobile banks in the ever-increasing use of mobile phones to undertake various transactions. For farmers – especially smallholder ones – mobile phones are extremely important in accessing market and related-information. Hiking the rates too is against the objective of making the most out of ICT in Tanzania.

Taxation principles It is good that PAYE threshold has gone from Tshs 135,000 to 170,000 Tshs per month. But there is lack of tax justice and fairness when the same budget states that businessmen earning up to 3,000,000 in a year will not be taxed. Tshs 170,000 times 12 months is 2,040,000 Tshs. This is less than 3,000,000 Tshs. Therefore the businessman earns more than the worker earning 170,000 a month yet the latter is taxed while the former is not. Remember that the businessmen have the ‘opportunity’ to cheat on their income as opposed to the worker! In the name of distributive justice, it would make sense to increase the PAYE minimum income threshold to be at least equal to that of the businessman earning Tshs, 3,000,000 a year.

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How innovative are the new revenue measures in the 2012/13 Budget? The government of Tanzania has several financing sources for its plans in general and budgets in particular. In its 2011/12 – 2015/16 Five Years Development Plan, for example, the conversional sources of financing include tax revenues, non-tax revenues, domestic borrowing, sale of public shares, foreign grants and concessional loans, credit/loan guarantees and skills development financing. By

Honest Prosper Ngowi,

A

mong the innovative sources of public finance in the development plan cited here include sovereign borrowing, Tanzanians in the Diaspora, special infrastructure facility, regional economic arrangements and SouthSouth Cooperation, sovereign wealth funds and pension funds, taxation of financial transactions, carbon trading and carbon tax, Debt to Health Innovative, voluntary based initiatives and super profit tax on minerals. In this article, the author discusses one particular innovative source of revenues for the 2012/13 budget.

Car number plates Among the innovative measures to increase government revenues in the 2012/13 Tanzanian national budget is the proposal to introduce private car registration plates. This will cost those willing and able a fortune of five million Tshs for a period of three years. This is equivalent to about 1.7 million Tshs per year. According to the budget speech, the expectation is to get some 50 million Tshs only. This implies that only 10 cars will get private plates for

the 2012/13 fiscal year. The private number plates, as a source of new revenues, is innovative. However, it is not innovative enough as it does not seem to be well informed. Some of the holes in this otherwise good approach are outlined below.

Not informed by elasticity At some level of price (tax in this context) people become pricesensitive. This is based on the economics concept of elasticity. Payers may be willing and able to pay some price levels up to a point. Above that point, their response will be towards not paying. Even without empirical research a mere touch with the real situation on the ground indicates that most people in the middle and high income bracket (not in the super rich category) start becoming price-sensitive even below the one million Tshs mark. This implies that the five million private plate number charge will be constrained by price elasticity of demand. There are many who would be willing to pay if the charge was at a lower rate. These are, therefore, missed out when the rate is raised beyond their point of willingness and ability to pay. This can also be derived from the consumer behaviour analysis. When prices go up above a certain point, there are some potential consumers who will opt out from consuming a good or a service, in this case private plate number for cars.

Research-based? It is not clear how the government came up with the five million Tshs figure. Assuming that it was reached at scientifically through some


COVER STORY

From consumer behaviour theory and knowledge contained in price elasticity of demand it is fair to judge that 5,000,000 is too much on the higher side and that it gives lower total revenue than would a low rate do. Try lower rates

Lower rates of say, 200,000 Tsh per year for a private plate in one’s car would be more enticing to those who are willing to pay for private plate numbers but not able to part with the staggering five million. It is an hypothesis in this article that over 100,000 people would be willing and able to pay the 200,000 Tshs per year. research, it would be good to see the research report. The assumption in this article is that the figure was not reached at through a broad-based research, if at all. This is because, the figure is too high to have one tempted to think that it is research-based. In order to come up with a more realistic figure, there would be a need for a thorough needs analysis research. Such research would identify how many people would be willing to pay up to how much in order to have private car plate numbers. If such studies are correctly done, the charge that would bring in more total

revenue, calculated as tax rate times number of those willing to pay that rate would be easily determined.

Lower rates of say, 200,000 Tsh per year for a private plate in one’s car would be more enticing to those who are willing to pay for private plate numbers but not able to part with the staggering five million. It is an hypothesis in this article that over 100,000 people would be willing and able to pay the 200,000 Tshs per year. This gives a total of 20, 000,000,000 Tshs per year which is much more than 50,000,000 Tshs in three years or about 17,000,000 Tshs per year! Sensitivity analysis can be done by reducing the 200,000 Tshs to 150,000 Tsh per year to test the impact on total revenues. It would not be surprising to see that this rate could attract a total of up to 200,000 people thereby giving a total revenue of 30,000,000,000 Tshs in a year compared to the five million that may give 17,000,000 Tshs only per year. It is all about applying consumer behaviour and elasticity concepts to inform revenue enhancement decision making process. It is a matter of investing some relatively little amount of money in research to establish these numbers scientifically rather than intuitively as done in this article. If this is done, this innovative revenue measure will be more

Smaller rates better than bigger Substantially, lower rate for private plates in one’s car could attract more people but give more total revenues. The variable of interest in this new revenue measure equation is total revenue not unit charge. The question is the 5,000,000 Tshs the rate that gives the highest total revenue?

Sep 2012 | TANZANIA BUSINESS FOCUS | 17


COVER STORY

Increasing Revenue to 18 Percent of GDP in 2012/13 Budget The 2012/13 Tanzanian national budget has about thirteen major objectives. Among these is the long overdue objective of increasing domestic revenues from around 16.9 per cent to 18 percent of Gross Domestic Product (GDP). By

Staff Correspondent

innovative and attain the desired objectives.

T

his will be done within the 2012/13 financial year. This is such a noble objective that it needs some critical discussions. In this article, the author outlines some issues of discussion in the context of increasing the revenue as a percentage of GDP.

Magnitude of the challenge Whether it will be easy or difficulty to increase domestic revenue collection from about 16.9 to 18 per cent of GDP these is a need of knowing the numbers. The increase from 16.9 to

18 per cent of GDP implies 1.1 per cent increase in domestic revenue.

The current value of Tanzanian GDP is about 23.2 billion USD. If one takes an average exchange rate of 1 USD to 1600 Tshs, the GDP in Tshs is equivalent to 37,120 billion Tshs. Its 1.1 per cent is equal to Tshs 408.32 billion. Therefore the new revenue that has to be collected domestically will have to be Tshs 408.32 if the 18 per cent of GDP goal is to be achieved. Indeed it is supposed to be even more than Tshs 408.32 billion because in the same budget, the objective is to increase GDP by 0.4 per cent from 6.4 per cent to 6.8 percent.

Situation on the ground In order to know whether these extra revenues in the government coffers will be forthcoming or not, it is important to know the revenue situation on the ground today. It is the real situation on the ground, 18 | TANZANIA BUSINESS FOCUS | Sep 2012

both current and that foreseen in the 2012/13 financial year that will determine the success or failure of the objective to increase revenues by 1.1 per cent of GDP. Some of the key issues in this regard are outlined in what follows.

Too few tax payers Some studies including those by the author of this article indicate that there are very few actual tax payers in Tanzania compared to the existing potential. It is estimated that the potential tax payers in this great Republic are about 15 million men and women. In reality, however, it is only about 1.5 million people (10 per cent only) that give Ceaser what belongs to him! By all standards, this is a very small number in absolute as well as in relative terms. It implies that 1.5 million people are shouldering a very heavy burden should be shouldered

by a mass of 15 million people. The challenge of increasing domestic revenue by the 1.1 per cent of GDP include the ability and willingness to turn the 13.5 million none-tax payers into tax payers. Winning their souls and converting them to tax payers may be a very tall order. One needs, inter alia, high level of tax education for none-tax payers, tax payers identification techniques, very efficient and effective tax revenue collection techniques as well as prudent public expenditure of the collected public funds if those outside the tax net are to be captured.

Many exemptions Another big challenge in attaining the

noble objective of increasing domestic revenues to the tunes of 18 per cent of DGP are the many tax exemptions and incentives that Tanzania dishes out to some individuals


COVER STORY

Increased Taxation of the ‘Sin Industry’ in the 2012/13 Budget: Is It Sinful? The government of Tanzania has several financing sources for its budget. and institutions. The individuals include some public servants while institutions include various categories of investors, religious institutions and development partners (donors).

In a study commissioned by the Interfaith Committee of religious leaders in Tanzania – where the author of this article took part – substantial revenue losses were documented from various sources. No wonder then that the report bears the title of “The One Billion Dollar Question: How Can Tanzania Stop Loosing So Much Revenues”. It is acknowledged here, however, that some exemptions have been removed in the 2012/13 budget. Generally, this is a move to the right direction in the bid to widen the tax base and reach the 18 per cent domestic revenue to GDP ratio. Informal sector Besides the factors above, capturing the rather very large informal sector in the Tanzanian tax net will also pose substantial challenges. Partly this is because of challenges associated with formalization of the informal sector. The greatest challenge is directly related to revenue collection. There are many obvious advantages of moving from what Peru’s Professor Hernando De Sotto would call extra legal economy or legally and economically dead capital to going formal. Yet some actors in the informal sector – some of whom may also be not only in the formal sector but also in the government – see formalization of business as a threat that exposes them to the taxman. Therefore, some

schools of thought are of the view that formalization should not be forced but reached at through some appropriate sticks and carrots that automatically give incentives to graduate from informal to the formal sector. In an economy where about 60 per cent of GDP and about 70 per cent of the labour force is said to be in the informal sector and, therefore ,not paying tax, increasing domestic revenue collection by 1.1 per cent of GDP is a very tall order.

Don’t squeeze the easy to tax The challenges of increasing revenues from 16.9 to 18 per cent of GDP are manageable if concerted efforts are undertaken. However, it is not going to be a dance on roses or a Sunday school affair. One danger that must be avoided is that of squeezing tax revenues even more from the easy to see and easy to tax section of the population. These include workers in the formal sector and some businesses.

Due to either lack of innovations, creativity or just being too lazy, some revenue collectors may fall into the very bad trap of milking the cow to the point of giving blood and ultimately loosing not only the cow but also the little milk that was forthcoming during its life! New revenue sources should

be championed instead of going back to the same sources as if situation on the ground has not changed. The need to update taxman’s notes in this context cannot be overemphasized.

By

Staff Correspondent

A

mong the conventional sources of public finance in Tanzania include tax revenues, nontax revenues, domestic borrowing, sale of public shares, foreign grants and concessional loans, credit/loan guarantees and skills development financing. Among the innovative sources of public finance that have been outlined in the 2011/12 – 2015/16 Five Years Development Plan include sovereign borrowing. Tanzanians in the Diaspora, special infrastructure facility, regional economic arrangements and SouthSouth Cooperation, sovereign wealth funds and pension funds, taxation of financial transactions, carbon trading and carbon tax, Debt to Health Innovative, voluntary based initiatives and super profit tax on minerals.

Dependency on ‘sin industry’ Despite of the many potential sources of revenues to finance public expenditure of goods and services, there has been a tendency of depending on some few sources of tax revenues. Among such sources include what is termed as the ‘sin industry’. Typically, the ‘sin industry’ includes such consumption of goods and services such as cigarettes, alcohol, spirits and casino.

Where it is legally accepted – typically in more liberal societies or less moral ones (depending on how on looks at this), one would Sep 2012 | TANZANIA BUSINESS FOCUS | 19


COVER STORY

For those whose consumption is price-elastic, they will reduce or even stop consumption. The net effect may be reduced government consumption. Social implications High tax on the ‘sin industry’ has at least two social implications. The good side of it is that it may help in reduced consumption of such ‘social vices’ as alcohol, spirit and cigarettes and associated bad side-effects. But the high tax on these items in Tanzania aims at higher revenues and not in reducing or prohibiting consumption. Therefore, the potential good side of reducing ‘social vices’ is not likely to be realized.

add prostitution in this list of the ‘sin industry’ for taxation purposes. These items are termed ‘sin industry’ in the sense that they are luxurious and one can do without. In the 2012/13 budget, as has been in previous years, the government has increased tax rates on the Tanzanian ‘sin industry’.

‘Sin industry’ taxes in 2012/13 Among the elements of ‘sin industry’ taxation in the 2012/13 Tanzanian national budget include excise duty rates on soft drinks, beers, spirits, cigarettes and wine. For cigarettes, excise duty rates have gone up by several percentages depending on the percentage of filter and origin of such raw materials as tobacco. Others are gaming tax for casinos that has been increased from 13 per cent to 15 per cent of the gross gaming revenue. For cigar, the excise duty remains at 30 per cent.

It is a money minter but... Taxing the ‘sin industry’ is good for the sake of raising public funds needed to finance various expenditure posts of public goods and services. This is mainly so because the consumption of the goods and services in the ‘sin industry’ list is normally not price or income elastic. Students of economics would term these as goods and 20 | TANZANIA BUSINESS FOCUS | Sep 2012

services whose consumptions have no price or income elasticity. Consumer behaviour scholars would say that people would keep on buying these goods and services however high the prices (partly caused by high tax rates) are. However, when prices are too high relative to incomes, elasticity may set-in and reduced consumption or consumption of substitutes may be observed

The bad social implications of increased taxation of the ‘sin industry’ will be more seen in the low income brackets of our society. This is more so the case for the members of this stratum whose consumption is price inelastic and incomes are low. Consumer behaviour theory predicts that such people will continue consuming these ‘sin industry’ goods and services. They are likely to forego (sacrifice) even consumption of such necessities as food, education, health and shelter for themselves and their families. Those likely to bear the burden of this sustained consumption that will reduce the income available for basic goods and services are children and women.

Disincentive to producers?

Not a necessary sin

Although the ‘sin industry’ seems to be a good money minter in the government coffers, its continuous high taxation may indeed reduce such revenues. The increased tax will translate into higher prices. These can be shouldered by producers, consumers or both. To the extent that they are shouldered by producers,

Taxing the ‘sin industry’ is not sinful. However, increased high taxation of the ‘sin industry’ is sinful. It may not prevent the tax policy makers and the taxman to see the Kingdom of God, but it has many and far-reaching negative implications to those paying the taxes. However, looking at all the available potential sources of revenues in Tanzania, taxing the ‘sin industry’ is not a necessary sin. It could be avoided by looking at the other existing potential revenue sources as outlined in the first paragraph of this article. Added to this list of potential revenues that would decrease the gravity of the sin of taxing the ‘sin industry’ are the revenues lost through some exemptions, the untaxed informal sector as well as the 13.5 million potential tax payers that are not giving Caesar his dues.

it is added cost that reduces competitiveness, other things remaining constant (ceteris paribus). If this cost becomes unbearable to producers, they may stop producing. As a result, there will be lost revenues. If the extra price due to extra taxation of the ‘sin industry’ is shouldered by consumers, some may continue consuming. These are those whose consumption is not price-sensitive.


PERSPECTIVE

Selected Economic Options for Africa in the Changing Global Landscape The week to 2nd June 2012 in Tanzania was characterized by a number of conferences and meetings related to the development of the African continent in the ever dynamic, unfolding and indeed challenging global landscape.

By

Honest Prosper Ngowi,

O

ne such meeting was the Roundtable Discussions amongst Senior Leaders on How Africa should engage with both the new players and traditional donors in the new era of development cooperation. This was organized by the Institute of African Leadership for Sustainable Development (Uongozi Institute) on 29th February 2012 in which the author participated. Another meeting was that of the African Development Bank in Arusha whose theme was Africa and the Emerging Global Landscape: Challenges and Opportunities. Drawing from the two meetings, the author of this article outlines some selected economic options for Africa in the rapidly changing global social,

political, technological and economic landscape.

Bi-polar world epoch In the area of development cooperation the new landscape is the one where the hitherto bi-polar world in international cooperation is increasingly being kissed goodbye. In the old days of bi-polar world, there were only traditional donors mainly from the West (Europe and America). These donors had a ‘monopoly’ in the international cooperation contexts and in the official development assistance (ODA) industry in particular. They would dictate terms and impose tough conditionalities to ODA recipients.

Multi-polar world In such new times as these of multipolar world, there are new emerging economies in general and the BRICS (Brazil, Russia, India, China and South Africa) group of countries in particular. These are coming with new dynamism in the context of development cooperation. They are diluting the hitherto ‘monopolistic ODA market structure’ . They make the ODA market and industry more competitive which is a good thing for ODA ‘consumer markets’. The new entrants in the global development cooperation landscape can be seen as posing challenging to the traditional donors.

Sep 2012 | TANZANIA BUSINESS FOCUS | 21


COVER STORY

For example, an entrant like China is seen a threat to the West as it aggressively engages with Africa.

cooperation undertakings.

These customers now have the ‘look East’ option.

As seen from the market structure literature in general and market power in competitive as opposed to monopolistic market structure in particular, potentially Africa has decision-making power in the ODA market. It has to seize the opportunity strategically.

This dragon of Asia has at times been accused of not asking the human rights, democracy and good governance questions to its newly found African development partners. The lesser are such questions for some African countries, the better for them and this is a threat for the West to lose its African ODA ‘customers’.

Africa’s ODA Market Power With the multi-polar world, the ODA recipient countries in Africa and elsewhere have more ODA suppliers than was the case in the era of bipolar world. Borrowing from the markets structure economics point of view, African countries – similar to consumers in a competitive as opposed to monopolistic market – have the ODA market power now more than ever.

Options for Africa The new multi-polar world presents some opportunities for African countries. They have wider menu from which to choose in their international

22 | TANZANIA BUSINESS FOCUS | Sep 2012

They have both the old and the new players. They have to strategically engage with both the old and new players. Each individual African country has to identify what it needs for its sustainable development, inclusive economic growth and poverty reduction. Each specific country has to identify which of the many donors has what it takes for it to achieve its goals.

Emerging economic landscape Similar to the international cooperation arena, things are not static in the realm of global economy. The emerging markets in general and the BRICS in particular have added new dimensions and dynamism in the ever none-linear and multiple variable economic equations. They have been new sources of foreign direct investments (FDIs), new sources of trade both imports and exports as well as new sources of technology. All

these pose huge potential economic and business opportunities for Africa. However, they have to be strategically taped if the continent is to graduate from underdevelopment and escape poverty on permanent basis. Short of that, the ever unfolding opportunities will be lost in moments . Each individual country and its sons and daughters will turn into huge laughing stock if they let go the very promising opportunities of life time.

Ways forward The changing global landscape in general and in the area of economics and business in particular has to make sense for Africa and its many income-poor sons and daughters. For this to happen, each specific country has to identify strategies to make most out of the new realities on the ground. There have been many workshops, conferences, seminars, symposia and the like on these issues for the past fifty years of Africa’s independence. African countries need to critically ask themselves as to why they have not graduated from aid, underdevelopment and poverty fifty long years after their independence.

The key issue is to walk the many talks that have been around.


PERSPECTIVE

Budget dependency: An indicator of a dependent society? It is beyond doubt that Tanzanian citizens are anxiously waiting for the final approved national budget.

of dependency starts from the very family level to institutions then to the government. In connection to dependency, we have found ourselves having a certain kind of life system based more on expenditures than earning. Most Tanzanians, Government and NGOs have more liabilities than assets. The problem is, therefore, a chain of dependency coupled with the chain of having liabilities than assets, making things worse from individuals to national level. Creg Mills (2010) states that aid makes African externalize their problems and that no any country on earth has ever developed through aid support. More surprisingly, all those countries which are donating to Africa and Tanzania in particular, were themselves never developed through aid.

The budget dependency at national level is such a small indicator of the existing problem. If we do not change our outlook on the way that we run our lives from individuals to institutions and even at government level, this country will not develop as we expect. Families must encourage family members to generate more income than wait to spend; they should not entertain more liabilities than assets such as avoiding having high fuel consumptive cars. NGO’s should, as well, stop relying entirely on donations and external funding, and instead they have to mobilize resources through income generating projects. This will promote the implementation of projects that are sustainable.

By Costantine Deus

MA, Development Management at UDSM Tel: +255 717 492 023 lukale8@yahoo.com

F

or a couple of years now, the debate has been focused on reducing donor dependency on Government Budget through the implementation of creative internal sources for increasing Government revenue. Indeed, Tanzania has sufficient resources and an end to foreign budget dependency is a possibility in the near future. However, it should be acknowledged that, communism before and during colonial times in combination with the legacy of socialism which was adopted by the country soon after colonialism

have had a bearing impact on the dependency that we are seeing.

On the other hand, the Government needs to do a critical evaluation on the recurrent budget which always consumes more than 60% of the total budget every year, an amount which persistently remains inadequate to meet the needs of sectors such as health and education. An analysis was made on the CAG report of

A financial culture that is focused on spending more than saving and earning is reflected both in the government and amongst the citizens. For instance, The chain of dependency starts from the very family level it is common for family members to institutions then to the government. In connection to to depend entirely dependency, we have found ourselves having a certain kind on the financial support of the family of life system based more on expenditures than earning. at large for their wellbeing and day to day expenses. 2009 by Hakielimu and it was revealed that the Even working women are sometimes Government had spent about 4 billion buying reluctant to contribute to the finances vehicles but it did not spend even ten million in at home as they believe this is largely buying books for students in public schools. the responsibility of a man. The chain Sep 2012 | TANZANIA BUSINESS FOCUS | 23


PERSPECTIVE

By Dr Hilderbrand Shayo, PhD

 

‘Tanzanianomics’ of 2012/13 Fiscal budget: Sound allotment, but how critical is financing and monitoring? Tanzania’s transition from relatively low performing economy to a relatively high one requires heavy investments, appropriate resource allocation and a sound financing strategy.

The 2012/13 budget presented by Dr. William Augusto Mgimwa (MP) was prepared and presented when Tanzania is still grappling with many societal problems such as youth unemployment, private sector impasse, and macroeconomic constraints driven by minimum emphasis on ‘growth induced’ programs and projects. The new challenges emanated from external shocks (rising commodity prices, including fuel) and environmental related concerns (diamond, gold, iron ore, copper mining, oil and gas and illegal extraction of natural forest and live wildlife exportation). To confront the resilience, the fiscal year 2012/13 budget seems as a cushioning instrument against these challenges. 24 | TANZANIA BUSINESS FOCUS | Sep 2012

This cursory outlook adds to insightful views on the proposed budget vis vis its potentially expected spill-over on the economy forecasts to grow at about 6 per cent this year (Ernst & Young’s 2012 Africa Attractiveness survey Building Bridges) underpinned by continuity in the road project, expansion of electricity, gas drilling, possible commercial oil discovery, strengthening of institutions, demand for natural resources, youth empowerment and dedicated financial development.

“Tanzanianomics” is a term we have coined to describe the economic management of Tanzania’s economy through the proposed budget, which seeks to further advance targets in relation to stabilization, redistribution and resource


PERSPECTIVE

2012/13 Fiscal budget The 2012/13

proposed budget seems ambitiously planned for spurring Tanzania sporadic development, evidenced by focusing on shared and inclusive economic growth in “poverty enclave” sectors.

allocation (SRR). Reflecting on the previous 2011/12 budget, the structure is indicative of the country’s determination at redeeming lost clout for a friendly economic landscape. The previous budget (2011/12) was mostly recurrent (about 87%), with minimum components directed at capital expenditure, especially real capital expenditure. “Planned expenditure” was relatively lower, with budgetary shortfall due to low “actual expenditure”. It is important to note that only minimum percent of “capital” expenditures went towards real projects involving infrastructure, with the rest going towards fixed capital. Among the winning projects/ programs from previous budget were the continuity in upgrading/ rehabilitation of most road networks

in and outside Dar es salaam, refurbishing and building of markets, expansion of the emergency electrification and timely payment of civil servants, i.e. teachers, doctors, police force and other public servants. Moreover, across the country, under the leadership of His excellence President Dr. Jakaya Kikwete, access to education and health services increased, especially in rural areas, although not to expected levels. Let’s point out that no single concentration of the budget unilaterally transmitted to pro-poor growth, implying that combination of various aspects had a positive growth effect in different contexts. Interestingly, it seems like in the last fiscal 2011/12 budget year, emphasis was on electioneering, shifting resource allocation from implementation of important projects in the country. For example, the Government spent shillings 296 billion to implement the Emergency Power Plan to address the problem of shortage of electricity by using leased power generating plants. Also, the Government spent Dollars (US Dollars) 183 million to finance the construction of a 100 MW power generating plant in Dar es Salaam, and a 60 MW plant in Mwanza. Construction of the Dar es Salaam plant has been completed; and is being tested at the moment. The Mwanza plant is still under construction. The 2012/13 budget takes into account the priorities set in the Annual Development Plan of 2012/2013, National Strategy for Growth and Poverty Reduction phase two (MKUKUTA II), the Millennium Development Goals (MDGs) 2015, the CCM Election Manifesto 2010, and the public sector reform programmes. The goal is to realize the objectives of the Tanzania Development Vision 2025. Planned expenditure for earmarked projects include electricity Tsh. 498.2 billion; transport 1,1382 billion; clean water 568.8 billion, ICT 4. billion; Agriculture 192.2 billion, Industry development 128.4 billion and human resource 84.1billion. Although this expenditure level is reflective of a “big push” investment plan for prioritized projects, which could transmit tremendous multiplier effects, Tanzania economy is facing

several challenges, including high inflation rates, which declined from 19.8% in December, 2011 to 18.7% in April, 2012. The main causes of high inflation rates are high electricity tariff, high prices of oil and food - especially rice and sugar prices. For example, during April, 2012 food contributed 24.7% while electricity and fuel contributed 24.9% of inflation. Core inflation, which excludes food and energy prices, is still at single digit of 8.8%. Therefore, Government efforts will be directed towards controlling the rising food and energy prices. As a way of boosting rural-urban linkage, the proposed budget prioritized development of ‘production roads’, aside from just expansion of low cost energy. The move by government to inject more funds in roads and other infrastructure is a big step for boosting capital formation, promoting private sector growth in the medium to long term.

Financing: Like most developing countries, financing Tanzania’s budget will be a challenge. Taxes represented the greatest proportion of Government revenue, evidenced by about 70% in 2011/12. The concern now for the Government is how it explores funding the budget. This is suggestive of the need to coordinate programs and design innovative ways of generating the desirable revenue to meet planned expenditure. Let’s remember that previous budget ran into shortfall Tsh. billions, not to even mention projects that were not zerodown at the end of the budget period. Potential financing gap will have to be offset from abroad, mostly in the form of budget support or direct project assistance. It is also rational tapping on domestic resources while looking outside of national borders to bridge the potential gap. In the 2010/11, Tanzania got million USD in aid. Of that, about 17% was through budget support directed at Government executed projects. Looking at the sectoral distribution of the total aid, substantive share was utilized for infrastructure - electricity, roads, water. Many of big business that should have been registered on the stock market are yet to do so. Even if traded on Sep 2012 | TANZANIA BUSINESS FOCUS | 25


PERSPECTIVE

foreign market, this route, however, could be costly and difficult, perhaps due to the slow recovery of developed countries from global debt crisis as money available on the international market dried up. Alternatively, if the government decides to approach local market, the chance of gathering adequate resources is dimmed, or even if it is successful to acquire domestic funding, government borrowing could potentially crowd out private investment, hence a mechanism that is adversary to sustainable private sector growth. To offset any potential deficit, value added tax should, therefore, be considered as alternative in the budgetary framework, focusing on specific goods/services that the mega rich elites usually spend their income on. Some of these goods may include private cars registration plate number (excluding gasoline and fuel), bottled mineral water, alcoholic beverages, gold jewelleries, air tickets, etc

Ethical economic concerns: No doubt that the proposed budget targets development priorities of economic importance for spurring inclusive growth. However, ambitiously as it is planned, the budget also exposes the economy to potentially susceptible structural risk s (i.e inflation, BOP imbalance) in the absence of effective monitoring, appropriate economic absorptiveness as well as coordinating with the monetary authority which should be tactful with policies that enhance money growth.

instituting two “aggressive” expansionary policies by monetary and fiscal authorities are unhealthy for macroeconomic stability. Sound fiscal and monetary policies are extremely laudable during the implementation of the budget. Economic arguments for the proposed budget: Tanzania’s poverty situation is multifaceted from the context of income, non-income and environmental perspectives. The positive effects of the proposed budget are undoubtedly imminent for the average Tanzanian because of its investment nature. Notwithstanding, unless the growth of the budget and the increment in the “real capital” expenditure portion provides the optimal benefits to the economy, the socioeconomic constraint will perpetuate.

Let’s highlight that the Government could also source funds through flotation of bonds, but Tanzania lacks dynamic and effective capital market to explore this path. Any slip-up to allow portion of budget to filter into the economy through any unproductive transmission mechanism (i.e corruption or poor project management) could eventually hurt the enormous gains the proposed budget envisage by hiking cost of living, influencing imbalance in BOP, and creating sluggish economic growth. In addition to effective monitoring, monetary and fiscal coordination is imperative in this endeavor, because concurrently 26 | TANZANIA BUSINESS FOCUS | Sep 2012

In the budget speech, the budget is integrated for inclusive growth to reduce poverty. An integrated budgetary policy translates into meaningful poverty reduction as indicated in the speech. The externality effect of the budget is through sound tax policy, sectoral allocation and other macroeconomic factors for accelerating pro-poor growth and enhancing stability. A sustained poverty reduction requires allowing the poor to participate fully in economic growth, an approach the

current budgetary system seeks to follow. Thus, the strategy regarding money growth, business expansion and direct employment are potentially the key links between poverty reduction and economic growth. The design of the proposed budget engages our vulnerable groups (women and youth) for capacity development, gainful employment and wealth creation, as well as implementation of multiple impact projects. This is suggestive that the budget allocation is directed to areas with greater multiplier effects for sustained growth and poverty alleviation. Therefore, supportive views in the context of proposed budget being more pro-poor are based on the following:

Infrastructure: From an economic perspective, improved infrastructure (especially energy) is prime factor for holistic development because it supports low cost private sector growth, enhances job creation for youth, and improves income distribution. For poverty reduction to be a positive realization, huge investments in infrastructure development (roads, seaport, energy) guarantee inclusivity, whereby individuals in the various counties are strongly linked to the budgetary process. Moreover, removal of the daunting macro-constraint by investing in electricity is transmission for galloping effect on private sector growth and employment creation. Energy has resounding economic implication for developing a vibrant manufacturing


PERSPECTIVE and industrial sectors to absorb the huge unemployed and youth base population. There is no question that inadequate and poor infrastructure remains a major challenge for private sector development in Tanzania. Once completed, this project will diversify the economy through access to market and attraction of foreign investors. In addition, the road project has relevance to boost the flow of imported goods, easing pressure on trade. Anecdotal statistics shows that it is costly to transport commodity to/from Tunduru / to Songea. Even worse is the fact that the numerous potholes on the road usually extend travelling journey. So, the planed highway and roads announced by Minister of infrastructure, Dr. Magufuli, in his 2012/13 budget is expected to enhance efficiency.

Investing in People: A serious microeconomic constraint at household level is the high dependency syndrome inflicted from the ongoing politics. Attractive salary/ incentives trickles down by helping civil servants to meet social needs for effective spill over. This payment must be linked to productivity and sustainable initiative. The budget supports strong economy for youth development through capacity building (vocational knowledge) and short term employment via macro projects. Continuity of cash transfer policies targeting the vulnerably “poor” at low fiscal cost enhances social security.

Institutions: The budget targets traditional and non-traditional institutions like the school for “physically challenged” people, and State owned Enterprises that are vital for poverty reduction. However, the proposed budget places less emphasis on sustainable institutional development, evidenced by lack of specific allocation for advanced training for medical doctors and university lecturers for quality services.

The World Bank Report on doing business has been very critical on Tanzania’s bureaucracy on tax compliance. It is wonderful that effort is being made to reduce these bureaucracies, evidenced by tackling corruption, instituting one-stopshop payment (such as the use of fiscal devise) and providing less complicated tax system. Interestingly, the budget does not say much about guaranteeing of loan scheme through the TIB for SMEs to thrive.

Macroeconomics: Strengthening institutional policy (avoiding wastage of resources through the budget) for remarkable macroeconomic growth and stability is vital for poverty reduction. The consideration of instituting mining code and close eye on natural resources such as gold, gas and oil potential could induce export growth and reduce trade deficit, which has implication for an efficient public spending. Inflation and exchange rate: The budget recognizes inflationary pressures and their impact on ordinary people, including on private

sector growth and development. Notwithstanding, inflationary developments should be monitored very carefully through sound fiscal and monetary management. That is why investment in key projects is highly prioritized. However, capacity constraint, especially in relation to the shortage of skilled labour, translates into high wage and rental costs, respectively, in the budget. Moreover, commodity prices are an exogenous factor for fuelling inflation. The common external tariff should allow the importation of basic commodities at lower rate to boost local supply. Exchange rate and single digit inflation (especially food and fuel) are critical for absorbing price effect on low income earners. In a bid to address the rising cost, the budget exercises flexibility in charging basic commodities. Budgetary allocation for agriculture ventures promotes agriculture programs and enhances food security. This is expected to check on the rising prices of food commodities, thereby taming inflation. Critical in

Infrastructure Over the years, expansion of private sector has been constrained by poor roads and infrastructure. Upgrading the road network, especially from towns to rural areas and beyond, is the pacesetter of taking Tanzania economy out of rural areas for a pervasively viable economy.

This budget seeks to also capture the large informal sector through “formalizing the informal sector”. Tanzania is lagging behind many countries in terms of policies geared at promoting business operation and formalising informal sector. Sep 2012 | TANZANIA BUSINESS FOCUS | 27


PERSPECTIVE

cushioning the country against the rising food prices is the Government move to increase allocation for seed rice, pesticide, agriculture training and direct purchase of local produce to boost local food production.

Borrowing/Debt sustainability: Being too meticulous about debt induces macroeconomic constraint. Debt is increasing again, but expectation is for it to be managed and maintained at a sustainable level. The debt may hover around 35%, increasing from 4% in 2011/12 budget. The proposed budget ensures that debt is tied to visible infrastructure project. Contingent liabilities associated with Government’s investment project represents a remarkable development foresight. This is a catalyst for real GDP growth, high exports and strong private sector development. The fiscal responsibility allowing for more flexibility to borrow is worthy, given that the debt to GDP ratio remains below appreciable range (i.e, below 5%). This ensures that the hard work to get debt to sustainable levels is not squandered to serve as a burden again. So, all future debt must be tied to the returns from the financed project for repayment. Though recurrent expenditure still dominates as reflected in the summary of the budget frame for 2012/13, presented below, it is observed that the proposed budget targets socioeconomic projects and programs to remove development constraint for shared and inclusive economic growth. However, budget deficit is imminent, and yet domestic financing of the budget is inadequate

28 | TANZANIA BUSINESS FOCUS | Sep 2012

Revenue

Shillings Millions

Domestic Revenue

8,714,671

Tax revenue

8,070,088

Non Tax Revenue

644,585

LGAs own Sources

362,206

General Budget Support

842,487

Foreign Loans and Grants including MCA(T)

2,314,231

Domestic borrowing

1,631,957

Non-concessional Borrowing

1,252,092

Total Revenue Expenditure Recurrent expenditure

10,591,805

Consolidate Financial Services

2,745,056

Wages and slaries

3,781,100

Other charges

4,065,649

Ministries

3,311,399

Regions

49,701

LGAs

704,549

Development Expenditure

4,527,839

Local

2,213,608

Foreign

2,314,231

Total Expenditure

Source: 2012/13 Tanzania Budget Speech. to meet projected expenditure. The fiscal and macroeconomic dimensions in which the proposed budget has robust multiplier effects for prodevelopment programs are elicited. Targeting of government expenditure at appropriate infrastructure programs and framework is inevitably the solution to removing daunting socioeconomic constraint. Notwithstanding, neglect of effective monitoring strategies of projects

15,119,644

and programs as well as poor coordination with monetary authority could possibly fuel unanticipated macroeconomic imbalance in the short to medium term to further hurt the poor.

The proposed budget is only considered as a good working tool when actual and projected expenditures are in congruence; when resources are appropriately allocated and used; and people are made to account for misappropriation and misapplication of assets. The general apprehension is not to have a good budget on document that does not translate to the expected development of the country and poverty reduction of the citizenry.


EB MARITIME GROUP LTD

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Sep 2012 | BUSINESS FOCUS | 29

MAN Magazine - Issue 7 2011

5


BUSINESS & FINANCE

Economic Crisis

How the Global Economic Crises affected the Banking Sector The 2008 global financial and economic crisis (GFEC) and its many far-reaching implications are still very fresh in our minds. As an extension of the 2008 GFEC, the ever evolving and unfolding Euro Zone sovereign debt crisis is posing dangers of a double dip global recession.

By Honest Prosper Ngowi pngowi2002@yahoo.com, +255 754 653 740, Senior lecturer: researcher and consultant in economics and business, Mzumbe University, Dar Es Salaam Business School.

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hese realities, especially the latter, are strong enough reasons to worry about potential impacts of economic crises in the global economies as well as in the local economy. The financial sector in general and its banking sub-sector in particular are not an exception. In this article, the author draws from his intensive and extensive writings on the 2008 global financial and economic crisis (over 10 conference and commissioned papers and 60 newspaper and magazine articles as well as several television and radio programmes) to shed some light on the conceptual and theoretical framework of possible impacts of economic crises in the banking sector.

Impacts in the financial sector Impacts of an economic crisis in the real and productive sectors of the economy and other areas such as mining, agriculture, industry, tourism, transport, remittances, official development assistance (ODA), and civil society organization (CSO) funding , have impacts in the banking sector in differing degrees and ways. This is because an economic crisis causes a decline in economic activities in the affected sectors. Among such activities that are likely to decline with the on-set of economic crisis are various transactions that would have gone through the banking system. When these transactions decline, there will automatically be a decline in banking activities and associated bank incomes and profits. 30 | TANZANIA BUSINESS FOCUS | Sep 2012

Reduced borrowing ability

Inability to repay loans

The other way in which an economic crisis might impact banks is through the inability of the affected real sector businesses to borrow more from banks thereby reducing the banks core business of issuing credit. This implies a decline in bank incomes and profits that would have accrued from extending such credits to the sectors affected by the crisis. The banking incomes that are affected in this case include, but are not limited, to various fees and interest rate incomes.

Due to an economic crisis, some of the businesses that had borrowed from banks are likely to be unable to repay their loans. This inability might have been to pay the whole loan or part of it, as well as to adhere to the payment schedule in terms of time and amounts. This would lead to defaults and/or debt restructuring. In turn this, would increase the bank’s doubtful and bad loans. These impact will surely lead to reduced profits and reduced bank soundness.


BUSINESS & FINANCE

Impacts of responses The impacts of the 2008 crisis have triggered a number of responses within the banking sector. The responses have aimed at stopping the crisis, reducing its impacts and preventing a future crisis. Some the responses from the banking sector include freezing lending, reduced lending, increased risk assessment, stress-testing, financial stability measures, and more adherences to regulations (Central bank and Basel regulations including Basel III). To some extent, these responses, especially freezing and stopping of loans, may have a short term impact of reducing bank sales volumes, revenues and profits.

Need to see the big picture

Bank of Tanzania - Dar es Salaam

The article has illustrated that the banking sector stands to suffer from economic crises even when it is not linked to the global financial system due to the inter-sectoral linkages and the co-movement of sectors. As long as the real sector of the economies are linked to the global production, distribution and consumption systems, the financial sector and the banking sub-sector are indirectly linked and vulnerable to volatilities triggered by global economic crises.

Way forward The author has provided a mental picture, assumptions and predictions of some of the possible impacts of economic and financial crises in the banking sub-sector. It is important for the stakeholders in the sector to be alert on possible future economic crises and its’ impacts in general and the implications for specific banks in particular. This would be the case even in Africa where the assumption is that the global economic crises do not affect the financial sector because it is not highly integrated in the global systems (save for South Africa and possibly Nigeria).

Stanbic Bank - Dar es Salaam Sep 2012 | TANZANIA BUSINESS FOCUS | 31


BUSINESS & FINANCE

Why a Credit Reference Bureau is critical in the banking industry In the wake of increasing credit facilities in Tanzania, the establishment of a Credit Reference Bureau (CRB) seems to be a critical tool in terms of supplying credit providers such as commercial banks, microfinance deposit taking institutions and credit institutions with information on customer’s credit history. By Staff Writer

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r Basil Saprapasen, the Altenate in the board of Directors of African Trader Insurance Agency (ATI), has given call for the Tanzania Private Sector Foundation (TPSF) advice to hasten the process of establishing the CRB, saying this is part of ongoing efforts to promote transparent and enhance market discipline as well as the performance of each banking institution. Credit Reference Bureaus essentially help lenders make faster and more accurate credit decisions. They assist lenders to easiely and fastly collect, manage and disseminate customer information within a provided regulatory framework. “This is information that banks utilise

32 | TANZANIA BUSINESS FOCUS | Sep 2012

to take a decision on whether to extend credit service to a particular client in order to address financial challenges facing small and large businesses in the country. It will also provide a central database for credit information sharing, which will, among other things, augment credit risk management as well as provide the requisite support infrastructure for the implementation of Base II by banks,� he says. Basel II is the second accord of the Basel Committee on Bank Supervision that lays out the standards and regulations requiring the minimum amount of capital that banking institutions must maintain as buffer deposits in the event that a bank fails. According to him, this move

will enable borrowers to build up financial reputation over time, adding that speeding up the establishment of CRB will enable Tanzanians to form a positive credit history, which in turn will increase money in the economy for investment. Mr Saprapasen states that the main thrust of CRB is to form a data bank of credit worth individuals and firms in the country. The bureau would provide lending institutions with significant information on individuals and firms to facilitate access to credit while speeding up credit applications and approval processes. This unique facility intends to improve the performance of the Tanzania financial sector and enkindle economic development by making borrowing easier faster and ultimately cheaper.


BUSINESS & FINANCE

ATI’s representative points out that more businesses are going to be brought into the banking system and the banks will have more money to lend, which in turn will lead to an increase in the domestic investments. This system will also enable businesspeople to be assessed and guaranteed in order to do business locally and beyond borders. While most banks use the credit risk data, it would also benefit other lending firms to have access to credit information in order to make informed risk management decisions.

While there is a growing need for the establishment of the CRB, it has taken long for the initiative to see the light of day. This is because apart from increasing corporate indebtedness, the growing use of credit cards has increased consumers’ debts. The most important factor is that, the cost of lending for banks and the number of clients defaulting on their loans will lower, Mr Saprapasen notes. TPSF Executive Director, Mr Godfrey Simbeye, has ensured to hasten the formation of CRB in order to lower commercial lending rates by improving credit information in the banking sector. He explains that this new facility is expected to increase the confidence and volume of credit transactions. The lack of credit reference information amongst banks in Tanzania is a major contributing factor to the rising costs of credit, due to incomplete borrowers’ information. “I promise to form this facility for the benefit of all stakeholders in the banking sector and business subsector. Benefit of credit information sharing significantly reduces information search costs and

lowers credit risk. So it important for us as TPSF to emphasise this exercise,” Mr Simbeye says. According to him, it is a tool for that Tanzania’s financial market that will complement the overall banking services, which shall maximise the investment opportunity in the country. However, the new body will cooperate with the TPSF, the Central Bank and the financial services institutions through secured communications links to offer efficient and quality services. TPSF Executive Director went on to say that this should make it easier for trustworthy borrowers to get credit at more favourable conditions as well as strengthen historical information. CRB expects to improve services to businesses and individuals by enabling creditors to better risk analyse borrowers and bring transparency towards the lending market. Mr Simbeye further revealed that the formation of CRB will go simultaneously with the launch of the Commission for Mediation and Arbitration (CMA) that will help reconcile commercial problems before going to court. There are commercial snags occurring in the country but there is no special commission to resolve them. He also stated that a vibrant environment for business is one with good policies that does not change frequently, adding that frequent policy changes present a

political risk. ATI’s Chief Underwriter Officer, Mr Jef Vincent says the formation of CRB is a respectable move that TPSF should put into consideration and give it top priority, as it intends to give small and medium enterprises easy access to finance. “This bureau will help mitigate this problem. The difficult of obtaining credit has in part attributed to the lack of physical collateral that banks have requested to guarantee loans,” he states. He reiterates that this facility will ascertain the risk profile of the SME customers to enable them to lower the cost of capital to the private sector and make borrowing more affordable, adding that benefits of credit information sharing significantly reduces information search costs and lowers credit risk. According to him, ATI will continue to develop trade and facilitate business by helping banks to take risks of their clients and corporate customers as well as exporters, enabling exporters to export safely. “Our future at ATI in Tanzania will be to ensure companies with risks will not be paid by the local companies and to require some investment because it is difficult to find some information here,” Mr. Vincent outlines.

Sep 2012 | TANZANIA BUSINESS FOCUS | 33


BUSINESS & FINANCE

Branding for small and medium sized enterprises (SMEs) These have got the potential to turn around the country’s economy provided adequate funding is allocated for their growth. SMEs have been urged to move from the usual focus on building businesses to a broader branding concept in order to grow further. By Staff Writer

“Enhancing on the quality and packaging of their products will enable them lure in both domestic and international customers”, says Premier Mizengo Pinda.

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lobally, SMEs are being hailed for their pivotal role in promoting grassroots economic growth and equitable sustainable development. “Many SMEs today find it difficult to gain entry into certain markets. This is because many products are still weak in terms of packaging and branding, which unfairly reflect on the quality of the products. Therefore, products should be well packaged to attract buyers and adhere to the standards set by the Tanzania Bureau of Standards (TBS) that emphasise the use of the bar code for products so as to penetrate both

34 | TANZANIA BUSINESS FOCUS | Sep 2012

the local and international markets,” says Mr. Pinda. According to him, packaging is critical to market products effectively, not only to locals, but also to foreigners, saying since foreigners are now buying Tanzanian products, they appreciate the quality and innovative designs of local produce. Mr Pinda states that SMEs are expected to play an increasingly important role for the country to make the quantum leap in its development. He hopes that if SMEs grow, the sector can contribute more to the growth of the country’s gross domestic product (GDP).

He wishes to see small businesses growing because their empowerment could strongly support poverty alleviation efforts. However, he appeals to SMEs to take prudent measures when securing loans from financial institutions so as to enable them yield expected results in particular ending income poverty. “Entrepreneurship development is a process that needs the player to be keen. It is like a US business person who said, ‘Business is like oil, it won’t mix with anything but Business,” says Prime Minister.


BUSINESS & FINANCE

that some of the world’s performing economies like Taiwan and Hong Kong rely heavily on the strength of their SMEs. Mr mbilinyi states that in Japan, 81 per cent of all employment is in SMEs and on average, enterprise employs twice as many workers as their counterparts in the European Union.

He urges SMEs to differentiate always between business and other activities if they want to become successful. Ms Ros Cooper, from the Department for International Development , notes that there was no country in the world that overlooks the important role SMEs play in the growth of the economy. “It is SMEs who come up with creative and innovative ideas… we badly need them. Importantly, is to empower them in order that their ideas come true,” she says.

SMEs subsector in Tanzania, currently accounts for about 30 per cent to the country’s gross domestic product (GDP), and have the potential to contribute more if they are well menitored.

saying they are supporting local communities, making investments that will rebuild the country’s economy in the long term. “As a number of areas in Tanzania are struggling, SMEs are considered to be the key to supporting local communities, by generating revenue and creating jobs,” he adds.

“It’s only when SMEs improve the quality of their products that they will be able to boost their businesses and get access to loans,” she states. She believes that SMEs should be the focus of the economists and politicians as they generate higher revenues of tax from turnover and they employ significant numbers.

According to Tanzania Investment Centre (TIC) Acting Executive Director, Mr Raymond Mbilinyi, SMEs have employed between four and five million of the country’s total labour force of 20 million people. TIC boss notes that there are 2.7 million enterprises across the country which have played a key role in promoting the economy. “Well managed and healthy SMEs are a big source of employment opportunities and wealth creation. They have also contributed to stability and generated tax revenues,” he emphasises.

On his part, TPSF Executive Director, Mr Godfrey Simbeye, states that they plan to uplift qualities of SMEs to move them up in line with the government’s call for the transformation. He emphasises the importance of SMEs,

Mr Mbilinyi explains that the positive results have been a key factor in pushing the government to promote public-private partnership since 2002. He reiterates

Chairperson of the Tanzania Private Sector (TPSF), MS Esther Mkwizu notes that improving quality of products will assist SMEs to meet the demands of consumers at national and international markets, a critical step towards promoting local businesses.

Historically, the private sector, albeit growing, has been unable to create sufficient jobs for nationals. This scenario is clearly unsustainable especially in a growing population. This puts strain on the public sector which will inevitably be limited in its ability to offer employment to all. It is therefore imperative that the SME segment in Tanzania be developed to play an important role in employment creation over the coming years. Notwithstanding, Tanzania, like its neighbouring states, is taking notice of the contribution of SMEs to employment and to GDP, and hence, is developing programmes to support the segment. SMEs are expected to have a significant role in Tanzania’s economy moving forward. However, the survey should identify the country’s fastest growing medium size companies to enable them showcase business excellence and highlight some of the successful entrepreneurship stories. Analysts who subscribe to the theory of promoting SMEs also argue that in terms of innovation, SMEs have a greater tolerance for higher-risk initiatives and the capacity to reap substantial market rewards in niche markets. As small business entities, they are very flexible and move fast to adapt to any environment.

Sep 2012 | TANZANIA BUSINESS FOCUS | 35


BUSINESS & FINANCE

The current liquidity constraints have also seen most banks failing to provide long-term lending. Despite the dominance of the sector in the economy, most of the businesses have remained largely informal thereby limiting the sector’s contribution to the growth of the economy and revenue collection base. In the United States and Europe, it is estimated that that SMEs contribute over 60 per cent in employment, 4060 per cent to gross domestic product (GDP) and 30-60 per cent to exports. The Asian Tigers such as India, Indonesia, China, Malaysia, Japan, and South Korea also have thriving sectors contributing between 70 per cent and 90 per cent in employment and an estimated 40 per cent contribution to their respective GDPs. In Africa, the SMEs sector in economic powerhouses such as South Africa, Egypt, Nigeria and Kenya, is estimated to contribute over 70 per cent in employment and 30-40 per cent contribution to GDP. Market watchers states that the absence of a secondary stock exchange for SMEs to help raise working capital and allow participation of other investors has also made expansion of such firms difficult.

36 | TANZANIA BUSINESS FOCUS | Sep 2012

In Egypt, a few years ago, a SMEs stock exchange was commissioned to help the sector raise capital and improve quality of products thus bringing it into the main stream economic matrix allowing government to collect taxes. Over the years, SMEs in Tanzania have been left out of the government incentive structures and this has forced them to avoid taxes because of lack of perceived benefits emanating from the fiscus. SMEs play a key role in economic recovery, jobs creation and stimulating growth in Tanzania. Creating a favourable business and policy environment for the SME sector will boost their performance and contribution to their growth.


BUSINESS & FINANCE

Cross Border Trade East African partner states should examine infrastructure for trade and business along the border and implement measures to boost cross border trade. According to deputy Chief Executive Officer of Kenya Private Sector Alliance (KEPSA), Mr Wycliffe Owanda, concluding the bilateral trade agreement will enable exports to increase between the neighbouring countries. By Staff Writer

“I

urge the EAC member states to work together in improving and expanding border infrastructure in order to move people and goods more safely and efficiently across our borders,� he says. Mr Owanda noted that bilateral trade among the EAC countries is an urgent governmental task that must be developed for mutual economic benefits. He stated that, for the markets to continue to expand, cross border business interests should engaged through bilateral dialogue, including the ameliorating of duties and trade barriers that restrict trade and the elimination of monopolies in the cross borders road transportation sector. Having identified the challenges facing cross border traders, the next step is to solve the challenges and problems faced by cross border businesses, he pointed out. Mr Owanda went on to say that, the improvement of cross border trading will open doors for the traders in the region and will result in massive economic development for the region. He calls for close cooperation among the EAC counties to enhance the cross border trade and improve business skills, keeping in view the continuous increase in demand of businesses from across the border. The governments should therefore prioritise the improvement of infrastructure since cross border trade has competitive advantage. However, economists raise the need to focus on developing the appropriate legal and institutional framework so as to allow the trans38 | TANZANIA BUSINESS FOCUS | Sep 2012

East Africa Heads of State

The improvement of cross border trading will open doors for the traders in the region and will result in massive economic development for the region.

border market to convert to an element of economic development among the countries. The Tanzania Private Sector Foundation (TPSF) representative, Mr Evans Mlelwa, adds that, transfer of technology, trading requirement, local content and portability on insurance matters slows the pace of cross border trade. He further states that EAC member states must act immediately to improve cross border trade so as to create an effective market whereby, for instance, a businessman from Muheza in Tanga region can send and trade oranges in the Nairobi market. Mr. Mlelwa insists that the harmonisation of domestic taxes, which will aim to remove distortion in

taxes, will address some of the hurdles of cross border trade and aid in the implementation of the free movement of goods, services and capital across boarders. He adds that, this move will also promote investment in the region as well as reduce administrative and tax compliance cost. For example, if Tanzania charges a lower tax rate than Kenya, it encourages cross border illicit trade and smuggling across the two countries. Having similar tax structures and the harmonisation of specific tax rates is therefore vital. He outlines that the goal of such cross border trade development would stimulate a form of development that is unique to the two countries and


BUSINESS & FINANCE

poverty at the regional level and at the same time complements economic development efforts by member states to improve the living standards of their citizens. “It is in this context that one of the key priority areas of the EAC gender and community development framework is to enhance infrastructure at community level with focus on those that will enhance community development such as community access roads, community centres, rural training centres, water and sanitation and health centres.”

the region, making maximum use of current national resources and stimulating the evolution of local resources and expertise. According to EAC Head of Corporate Communications and Public Affairs, Mr Richard Owora, the EAC secretariat plans to formulate a project intended to support development of local markets across borders of the partner states. The project is aimed, at among others, to reduce the informal cross border trade through which member states lose billions of dollars annually. “We are in collaboration with the Africa Trade Policy Centre and the United Nations Economic Commission for Africa (UNECA) to spearhead the proposed project entitled “Empowering Border Communities through Modernization of Shared Markets,” notes Mr Owora. He explains that the proposed project is a strategy for implementing the EAC Gender and Community Development Framework and the Social Development Agenda, with a planned focus on capacity building to enable border communities to take advantage of opportunities in the EAC Common Market. He cites that information from the Uganda Bureau of Statistics (UBOS) indicate the volume of unofficial trade rose from $300 million in 2007 to over $1.5

billion in 2009, representing a growth rate of over 300 per cent. Mr. Owora revealed that Kenya’s volume of trade with neighbours has also been growing steadily since the region started implementing a custom union in 2005. However, this trade level does not include products worth billions of shillings that are exchanged across national borders informally. Informal cross border trade between Rwanda and its neighbours Burundi, Tanzania, Uganda and Democratic Republic of Congo (DRC) has hit Rwf40 billion, according to a government survey report. Mr Owora

While the EAC is currently implementing the Common Market which represents a deeper state of cooperation by the partner states, there is a need to empower communities in light of the opportunities offered by this second stage of integration, he stresses. Informal trade refers to unrecorded trade of goods and services passing through borders to neighbouring markets. Uganda’s unofficial trade is high with Sudan followed by Tanzania, the Democratic Republic of Congo, Kenya and Rwanda. Mr Victor Ogalo, Programme Officer of Consumer Unity and Trust Society, Nairobi Resource Centre says that, most of the informal cross border trade is in staple food commodities such as maize, beans, rice, fish, groundnuts and bananas. This trade also includes food aid that has a direct impact

Trade ministry data indicates that Kenya’s export into the region grew from Ksh53 billion in 2006 to Ksh90.5 billion in the year 2009. states that, Article 120 of the EAC Treaty spells out the areas of focus for community development in relation to social welfare. These include poverty alleviation programmes, eradication of adult illiteracy in the community, and the development and adoption of a common approach towards the disadvantaged and marginalized groups. The social development agenda which is being spearheaded by the community aims at alleviating

on regional food security as well as low quality consumer goods such as shoes, clothes, textile and vehicle and bicycle parts and even fake drugs. Some of the informal cross border trade goods, such as textiles, are in the list of good that benefit from export promotion schemes. The continued engagement in informal cross border trade is attributed to the presence of physical and technical barriers within the formal trade arena.

Sep 2012 | TANZANIA BUSINESS FOCUS | 39


BUSINESS & FINANCE

Tanzania’s natural gas discovery With the recent offshore discoveries, Tanzania’s total estimated natural gas reserves almost tripled to approximately 28.7 trillion cubic feet. One of the discoveries was made by Statoil ASA (STL). The energy ministry estimated total reserves at 10 trillion cubic feet and plans to submit a draft natural gas policy and propose legislative amendments in September. By Staff Writer

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t is important to ensure that this pace of oil and gas exploration continues,” Energy and Minerals Minister, Prof. Sospeter Muhongo said. Recent findings off Tanzania’s Indian Ocean coast brought recoverable offshore reserves to 21 trillion cubic feet, while onshore fields were estimated at 4.27 trillion cubic feet to 7.77 trillion cubic feet, the ministry said in a statement. Tanzania and Mozambique have discovered about 100 trillion cubic feet of gas, almost enough to meet global demand for a year. Some of the world’s biggest explorering companies have ventured into East Africa to search for hydrocarbons and some discoveries have also been made in Kenya and Uganda. On June 14, Statoil, Norway’s largest oil and gas producer said it made a second high-impact gas find off Tanzania’s Indian Ocean coast. Earlier on, in May this year, BG Group Plc and Ophir Energy Plc (OPHR) said they discovered more gas off the Tanzanian coast, about 45 kilometres (28 miles) north of the maritime border with Mozambique, where explorers have made the largest gas discoveries of the decade.

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BUSINESS & FINANCE

According to deputy minister for Minerals, Mr Stephen Masele, these latest findings in the country’s deep waters, gas blocks are attracting new interest from a host of international oil companies especially as the bulk of the country’s offshore and onshore gas and oil blocks are yet to be explored. “We are inspiring companies to maintain the current momentum in the oil and gas exploration sector,” he stated. The recent discovery of around 3 trillion cubic feet of gas reserve in block 2 by Norwegian Oil Company Statoil and U.S based ExxonMobil has cut the risk. The U.S. Geological Survey estimates that East Africa’s coastal region has potential reserves of 441 trillion cubic feet of natural gas. Tanzania is also trying to boost power generation at gas-fired thermal plants as it seeks to wean its electricity sector away from unreliable hydro power generation as well as the expensive diesel-fired thermal plants. Reports by a Norwegian firm Statoil and US’s ExxonMobil have confirmed that indications of natural gas in a good quality reservoir have been made in the Zafarani-1 well in Block 2 off the coast of Tanzania. They confirmed that the drilling at a deep water wildcat in the Mafia Deep sub-basin, 80km into the sea, has shown strong indications of the presence of gas. The drill site for Statoil and ExxonMobil is located 160km north-northwest of the Mozambique-operated Area 1 and Area 4 blocks in the Ruvuma basin. Drilling began earlier last month for the Statoil and ExxonMobil drill site, which is located 160km northnorthwest of the Mozambique owned Area 1 and Area 4 blocks in the Ruvuma basin, and is expected to last up to three months. Overall, Statoil and ExxonMobil have declared a total of 60 trillion cubic feet of gas discoveries in place, and the Anadarko group is currently in the process of designing a new liquefied natural gas (LNG) project. Currently, Statoil has been charged by the Tanzania Petroleum Development Corporation (TPDC) with the operation of Block 2 and has a 65 per cent working interest while ExxonMobil Exploration & Production

Within the next five years, Tanzania is expected to confirm the presence of nearly 60 trillion cubic feet of natural gas, thereby opening the country up to massive foreign investments. Tanzania Ltd has the remaining 35 per cent. This joint project covers nearly 5,500 square km with a water depth of 2,582 meters and a planned total depth of 5,150 meters. Managing Director of Tanzania Petroleum Development Corporation (TPDC), Mr Yona Killaghane, says he is pleased with the preliminary results of the first exploration well that has been drilled in the country and is excited to receive additional updates on the operation. Mr Killaghane pointed out that the use of natural gas for power and industrial production has resulted in savings of approximately $3.3 billion and $200 million respectively, while also earning the government $146 million in revenue. Tanzania witnessed a boom of oil and gas exploration companies, where the government issued 28 licenses to 19 firms from nine countries, including U.S., U.K., Australia, Ireland, Norway, Holland, France, Brazil and Mauritius. The Director of Deloitte East Africa, Mr Bill Page, states that the boom of new discoveries of natural gas brings hundreds of billions of dollars’ worth of investment to the continent’s shores, saying Mozambique’s gas reserves have put the country in the global spotlight, Tanzania is not far behind and Kenya is at the beginning of the exploration road. “The revenues acquired by the governments as a result of oil and gas exploration will alter the economic landscape of Africa’s east coast, though the implications for South Africa are less clear,” he stresses. Mr Page Points out that the stimulation of the economy is high on the agenda in oil-rich Uganda and gas rich in Mozambique, hence Tanzania still lags behind, and Kenya still has a long way to go. But regulatory environments

will evolve with exploration and discoveries, as witnessed in Mozambique. In Uganda, the oil and gas policy is robust and regulations are evolving, says Page. The country is also setting up a national oil fund — a sovereign wealth fund of sorts which will be filled with a proportion of the fiscal take and used to ensure the sustainability of the revenues. Many foreign companies operating in Uganda have programmes to help local business develop the capacity to serve the industry. Mr Page states that the only worry is that governments may toughen the terms up too quickly for investors’ liking. The gas will be used for, but not exclusively, power generation, fertiliser production and petrochemicals. Sofar, South African companies have not been major players. “I don’t see a lot of SA business focused on this. Sasol and PetroSA aren’t in Tanzania and Kenya, which is surprising.” Currently Sasol has a pipeline that flows gas from Mozambique to South Africa. When Mozambique becomes a major player in the gas production, the country will have the option of exporting gas to where it will receive the highest returns. This may no longer be to South Africa (SA), says Page. SA companies have not jumped on the bandwagon, either, for services around the projects like engineering, construction and transport. But SA’s story may be a different one. Though there is oil and gas exploration off both the east and west coasts of the country, with licences granted to companies like BHP Billiton, Sasol, and PetroSA, the real interest, says Page, lies in the country’s potential shale gas reserves.

Sep 2012 | TANZANIA BUSINESS FOCUS | 41


BUSINESS & FINANCE

East Africa cement producers Cement manufacturers in the partner states of East Africa have expressed their distress with 2012/13 budget proposals, saying the budget has failed to create a level playing field for the industry against imported cement. Cement players in Tanzania, Kenya, Uganda, Rwanda and Burundi advised the governments to accelerate the implementation of protection measures from imported cement by restoring the Common External Tariff (CET) to 35 per cent or $50 per ton, whichever is higher.

Tabling 2012/13 budget estimates in Dodoma, June 14 this year, Finance Minister, Dr William Mgimwa said during the Pre-budget consultations held in Kampala, Uganda on 18 May, 2012, Ministers for Finance from EAC partner states proposed and agreed to make amendments and changes the EAC Customs Management Act, 2004 (EAC CMA 2004) and CET for the Financial Year 2012/13. By Staff Writer

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he EAC agreed to continue to apply CET rate of 25 per cent instead of 35 per cent on imported cement under HS Code 2523.90.00 for the period of one year. “The main objective of the proposed changes is to enhance industrial production, improve transportation, health services, livestock development and communication sectors,” said Dr Mgimwa. The changes were recommended and agreed by the ministers. 42 | TANZANIA BUSINESS FOCUS | Sep 2012

The East African Cement Producers Association (EACPA) states that, the move by the government will negatively impact domestic producers of cement, specifically through the increase of unemployment as a result of increased cheap and subsidised cement from Asia. Imported cement from the Middle East and Pakistan are now capitalising on the opportunity to monopolise East Africa’s lucrative cement market by a deliberate dumping. This is particularly evident in Tanzania. The association has also requested the governments to raise additional anti-dumping and countervailing duties in consultation after consultation with local industry players. It is also imperative for the government to institute correct valuation of imports for assessment of taxes and duties.

of EACPA Tanzania Chapter, Mr Mbuvi Ngunze, stated that there is enough capacity to meet local demand and export to emerging markets in the region, adding that the government had promised to review its stance on removal of CET once the manufacturers had invested in new capacity. This is however yet to happen in spite of the ominous threat imports posed to the local industry.

Two years back, The companies complied by investing $1 billion, to grow production from 6.4 million tons to 10 million tons. The chairman

With Pakistan’s Free On Board (FOB) prices ranging between $50 and $56 depending on the location of the

The EACPA chairman, Mr David Njoroge, also stated that there should be a $50 per ton charge to supplement the 35 per cent tariff but the higher of the two should be charged. It costs between $11 and $17 to transport one tonne of cement from the Pakistan to East Africa, with the government subsidising 35 per cent of the total cost.


BUSINESS & FINANCE cement plant, the government subsidy amounts to between eight and 11 per cent discount per tonne. “This subsidy is expected to increase Pakistan’s export earnings by $322 million at the expense of other economies in East Africa. Besides increasing imports, the subsidy also envisages reducing the competitive pressure within Pakistan and allows for a price recovery after the drastic drop in prices,” says EACPA. Pakistan has an installed capacity of around 44 million tonnes of cement against the local demand of 20 million. The local sector remains with an exportable surplus of over 13 million tonnes of cement after exporting to Afghanistan and India by road. The surplus is exported to the Middle East and Africa, especially East Africa, where current annual demand for cement stands at 7.1 million tonnes. As a result of the risk posed to the industry, the association is demanding a 35 per cent tariff for imported cement products to be restored. EAC partner states removed the common external tariff in 2008 for a period of two years which EACPA says opened doors for cheap imports to flood the market. This decision was made before the global financial crisis which precipitated a cement glut in the world market. Countries such as Pakistan and China no longer had sufficient local demand and had to find new markets to sustain their capacity. In the same period, EAC partner states removed the product’s sensitive status, due to cement shortage because of construction of stadia for the 2010 World Cup tournament in South Africa. The import duty was then reduced from 40 per cent to 25 per cent. Stakeholders have complained that imported cement is sold cheaply because Pakistan, India, China and even Egypt heavily subsidize their producers. Tanzania imports about 250,000 tonnes annually to bridge the deficit gap.

(TPCC) or Twiga and Simba cement, have completed their expansion plans adding about 1.4 million tons to the industry. Lafarge’s Mbeya Cement plant has also rolled out a new investment with capacity of 350,000 tonnes annually. Local cement manufacturers claim that they have increased the production capacity to off-set any shortages.

Statistics indicate that Tanzania currently has an estimated production capacity of 3 million tonnes per annum against a demand of 2.2 million tonnes. However, TPCC Managing Director, Mr Lesoinne Pascal, outlines production challenges are faced include power shortages and the challenges caused by the aftermath of floods last year. The company’s sales stand at 80 per cent.

The EAC member states encouraged cement producers to invest in innovative capacity, in order to meet domestic shortage.

National Cement, a subsidiary of Kenya’s Devki Group, has disclosed plans to grow its production capacity six times to 2.5 million tonnes by the end of 2012, making it East Africa’s largest producer. In Tanzania, Tanzania Portland Cement Company Sep 2012 | TANZANIA BUSINESS FOCUS | 43


BUSINESS & FINANCE

The plight of African countries amidst the euro-economic crisis A prolific and internationally respected Indian-American Journalist, Commentator and author engaged the 2008 global economic crisis in a different way. Fareed Zakaria viewed the financial meltdown as what he calls the “the rise of the rest”, pointing to the economic emergence of China, Brazil, India and other countries among them African countries that are rapidly gaining grounds in the wake of the crisis.

By Hildebrand Shayo, PhD

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s a spectator following the new trend in world affairs, it is important to give attention to a recent visit by British Prime Minister David Cameron as he load or jam packed the royal airliner with leading British investors seeking investment from East and Southeast Asian Countries. Prime Minister Cameron headed for Indonesia, Malaysia, Japan and Burma, particularly seeking new investments for the Queen’s nation. In Japan, Mr. Cameron appealed for investments in his country and said countries in East and South East Asia represented a huge investment opportunity for his country. He praised the Japanese carmaker – NISSAN for its plans to build a new factory in Sunderland that could create more than 300 jobs in Britain but also create jobs in supply chain processes. Panasonic is also expected to set-up a fuel research centre in Cardiff while Mitsubishi is setting-up a wind turbine generator

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project in Edinburg. Prime Minister Cameron was seeking contracts for British Companies for a planned decommissioning exercise of Japanese Nuclear facilities following an earthquake and Tsunami which led to the Fukushima Nuclear disaster. A leading Magazine in Indonesia, The Jakarta Post described the visit of the British Prime Minister to Jakarta as a move to seek investment for his ‘under pressure nation’s businesses’. Prime Minister Cameron sought to further strengthen trade links with the world’s most populous Muslim nation which included a deal with the Indonesian carrier Garuda for the purchase of eleven aircraft from the British plane maker Airbus. Cameron

and his team of British Investors were seeking to increase investments in the country which has dropped from a record 1.89 billion to a meager 419million. Prime Minister Cameron also headed for Kuala Lumpur, Malaysia’s for another two days official visit, insisting on greater international trade between the two countries. In 2011 the United Kingdom was Malaysia fourth biggest trading partner, with trade totaling 4.23 billion United States Dollars while Malaysia was the UK second biggest trading partner in the whole of Asia. In the manufacturing sector, investment from the UK stood at around 6.23billion United States Dollars from all implemented and


BUSINESS & FINANCE

approved projects (New Straits Times, April, 2012). The move by the British Prime Minister to the East is just one in a series of moves by western powers seeking new investment in Asia and other developing nations of the world as they leave the economic drought Europe and the United States of America. There has been more trade litigation cases brought against developing countries at the World Trade Organization (WTO) involving unfair trade practices than any time in the history of that organization. But the question is why Europe and United States calling for open markets at this time? These litigations are not actually meant to see a more just market for competition; instead, it is intended to use the World Trade Organization to coerce Developing and emerging countries to immediately open their markets to assist in the current economic difficulties faced by countries in Europe and the United States of America. The European Union has taken more cases to the WTO through the 1948 establishment of the General Agreement on Trade and Tariff (GATT) involving protectionism policies and huge trade barriers such as excessive tariff on the importation of products from these weak economies in Europe created by the crisis. To justify their move to the WTO and place them in a comfortable position, these countries in Europe have taken steps to reduce tariff on the importation of goods in their countries, but unfortunately these European countries are becoming less of a target for developing countries simply because most countries in the world are reluctant to sell their products in an environment where there are big austerity measures-which I call profuse and indiscriminate cuts in overall spending. Today, the Obama administration is pressing Vietnam and Malaysia to open-up for free trade under the Trans-Pacific partnership and is also calling the two governments to reduce monopolies enjoyed by the state corporations in certain sector of the economy. The US government

wants Malaysia to reduce monopolies enjoyed by PETRONAS, a state oil and gas corporation in Malaysia basically due to the fact that the company is standing even stronger than most US-owned oil and gas companies. The company (PETRONAS) profit in 2010 stood at 40billion, 10billion clear of the US oil giant ExxonMobil of 30billion (Foreign Policy magazine, April, 2012).

Strategic Alliance among developing countries: It important to bring out these facts about the current trend in world affairs pointing to many facts that leaders in the developing world can take cue or use as position point to protect their markets from the stress of the economic down-turn, that is currently crippling western economies. Financial institutions in developing countries might not be able to withstand the stress from spilled-over effects of a damaging economic outlook from western countries. The reasons are simple to note, because Africa in particular might not have the infrastructure, solid economy and financial base to

relieve their banks from collapse in the instance where they need funding to survive. Another reason is that Africa for example is still struggling with unemployment and therefore any more economic measure in Africa in the form of austerity will only be a final nail on the coffin for its people. It is therefore important to stop institutions in developing countries from mingling with European institutions to safeguard these entities. Economic policymakers in developing countries should be cognizant of the fact that while these crippling economies in Europe and United States are pressing for open market it is a clear attempt intended to help absorb some of the risk from these economies under the pretext of seeking free trade under the WTO protocols; they are also jealously protecting what is left of their own markets. For example, countries in Southeast Asia are also pressing the United States to open its shoes and clothes industries to the outside world though they are yet to adhere at least for now because there is huge custom duties and tariff associated with importing clothes and shoes in the United States.

There have been more calls from countries in the West for more openness in trade from the Asians and other developing countries in Africa. Sep 2012 | TANZANIA BUSINESS FOCUS | 45


BUSINESS & FINANCE

Now it can be clearly seen that the West is pressing the developing world to live up to WTO protocols, but also closing their markets to the rest of the developing world. It will be cataclysmic if policymakers in the developing world fail to settle down for a 50-50 arrangement where all countries will be treated fairly and all markets are open consistent with Marrakesh, Morocco and the Lisbon, Portugal protocols on fair trade practices. This is why we are constrained to support the Brazilian government’s move to take some protectionist measures to safeguard the Brazilian market by providing new incentives for companies that are 60% Brazilian owned. This is why Professor Michael Porter contends, that companies must first succeed at home before finding solid grounds in the international markets. Japanese companies have succeeded in doing that very well. I am also constrained to support the Argentine President’s move to strengthen businesses in her country. Now the government is asking companies to ensure export must be equal to import mainly from European countries. This has annoyed the European Union, but the Argentine government reason is simple and realistic. European Union countries were basically not buying Argentine products because they don’t have the money, but instead they were exporting into Argentine market. Now what happens as a result of this, is that you are putting Argentina into Balance of Payment deficit because they will be importing more than they will be exporting thereby challenging the strength of Argentine currency. Though realistic, it is almost difficult if not impossible to achieve 50-50 import and export balance, but it is good to export more which, places a country in favourable Balance of Payment in most instances. I burst into laughter recently when the Government in Thailand was shocked after a projected export to European countries felt by 3%, which has worried the government in Bangkok.

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It must be made extremely clear that not all aspects of protectionism are against free trade. It is the responsibilities of governments around the world to promote investments and competition on the home turf. No one should tell the government in Thailand that trade with Europe is in trouble because the government sees economic crises in that part of the world characterized by big austerity (huge spending cuts). It was funny to me, because, why does the Thai government think that people in these countries will continue to buy when there is no money in their pockets or they expect the people to use rocks to purchase? Common logic. Austerity is not just spending cuts on nonessential areas; it includes cutting salaries, increase taxes, cuts in Health care benefits, pensions and also cuts

on education, infrastructure and just everywhere to save money and pay debts. The government in Thailand can basically adopt a strategy of focusing on Domestic Consumption because it has the population or turn to other markets like the African or South American markets or even in the Caribbean until things can stabilize in Europe which I doubt can happen anytime soon. It remains the responsibility of policymakers in these developing


BUSINESS & FINANCE

and emerging economies to argue in a different and strong way before the trade governing body (WTO) that local markets must be protected against an aggression from desperate investors from Europe and the United States who are now looking for more secure ground for investments. There should be no mistake about this; the economic situation in Europe is far from over because institutions are still being downgraded and most banks are still feeling the stress test conducted on the their ability to respond in case of an immediate shock. Today, the fourth biggest bank in Spain, Bankia, is asking for government bailout in the tone of 19 billion United States dollars.

Desperate to save Europe: The simple definition for news in the context of journalism is that news is an unusual event. In this situation, it is no news to see Indonesian President Susilo Bambang Yudhoyono load an Indonesian carrier of investors

to seek investment from Europe or to see Malaysian Prime minister Najib Razak leave Kuala Lumpur to seek investment in London because these are traditional places where developing countries seek investment for their countries. But a Royal Aircraft filled with more than 30 British investors seeking investments in Asia is more newsy than anything else in recent times in the context of the current economic situation in the world. This is a chilling reminder that Prime Minister Cameron can no longer seek economic happiness for his country through the European Union framework with some countries planning a pullout from the organization. Former French president Nicholas Sakorzy openly criticized some countries in the bloc for joining the EU under false pretext and lying about their economic standing. There are good advantages in the Asian and African markets that both continents can tap on for growth and development. European companies too are running from their

own continent because labor is very expensive in the west. The AsianAfro collabo can work around a relatively cheap labor force and heavy population and a reasonable cost of living to increase the productivity of the two continents by investing more in their two continents.

Fear factors: The world has changed and international political players must be willing to accept the changes in world affairs. Unfortunately there are countries mainly in the developing world that are not willing or possibly still living in the past that have refused to follow the inevitable change in world affairs. In the 20th century, the United States and possibly countries in Europe, decided the trend in world trade and were the big brothers in deciding the way the world economy should run. This situation has changed because there are many countries making substantial use of the natural and human resources and can use these to strengthen their position Sep 2012 | TANZANIA BUSINESS FOCUS | 47


BUSINESS & FINANCE

in key decision making aspects of the world-even president Obama and the Europeans are aware of these existing facts. This is why the current U.S administration is seeking international consensus on issues before making decision. In the absence of a consensus, decisions from one end will certainly fail. However, there are still some issues of fear running in the minds of these developing countries about the remaining capacity of the United States or other 20th century power brokers to decide the course of action. Of course, the United States is still a significant force but its power has dwindled in this 21st century. Most developing countries still vote in various international organizations not on the basis of solidarity for fellow developing country but those votes are characterized by vested western interests. These tendencies can only continue to put developing countries in a begging position for a very protracted period of time. The recent election of the KoreanAmerican Medical Doctor to the position of president of the World Bank is a chilling reminder of series of unresolved global issues and the lagadisical attitude of governments in the developing world to stand tall on these issues. The Colombian candidate for the job Jose Ocampo complained on international wires that his own government was not supporting him. It later turned out to mean that the government in Bogota (Colombian capital) was supporting the American candidate; instead, it was the government of Brazil that nominated the former Colombian Finance Minister. The argument here is not to push the United States or Europeans away from decisions related to world economies as these countries or continents remain indispensable stakeholders or shareholders in world affairs. However, it is if understandable to note that, except you are living in utopia, the world has changed. This is a great opportunity for all countries to sit on the table and shuffle the cards 48 | TANZANIA BUSINESS FOCUS | Sep 2012

However, it is understandable to note that, except you are living in utopia, the world has changed. This is a great opportunity for all countries to sit on the table and shuffle the cards evenly in clear view of everyone. This argument is also not meant to say all countries on planet earth can be equal but also there can be times where things can shift from one region to another. evenly in clear view of everyone. Therefore we are speaking of the emerging shift in world economy and politics and it is only but gracious for all to accept these shifts on the world stage. A sneezing America-Euro should not give us cold. Period!

Dr. Hildebrand Shayo PhD is senior executive at enterprise growth market limited and senior Lecturer at the Open University of Tanzania


AFRI BUSINESS

Business card etiquette in China:

Business card etiquette

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business card is a powerful tool for self-advertisement. It lets you market yourself to a wide audience who can open new doors of opportunity for you. After all, when you exchange business cards with someone, you share not just contact information but acquire a possible customer, business partner or investor. So it is important to do it professionally and appropriately. By Tamara Khama

Keeping Up Appearances Your business card should be representative of the image you are trying to get across. Make sure they are never creased, wrinkled, dirty, or scribbled upon. To help your cards remain spotless and crisp, keep them inside a business card case. It is also not professional, and you risk appearing as a disorganised person, when you have to dig, shuffle and turn your bag upside down so as to find a business card to give to highranking executives. So remember to keep your business card in a place you can easily reach. Make sure to always have an adequate supply of business cards so as to avoid a situation where you run out of business cards to give to potential business partners.

Distribute Your Business Card the right way Never pass out business cards like you would pass around sheets of paper or playing cards. More importantly, do not force your business card onto a person. Wait for an opportunity, such as when a question has been asked about your business or when someone specifically asks for your card. Present them in such a way that the recipient can read them right side 50 | TANZANIA BUSINESS FOCUS | Sep 2012

up. Unless a prior arrangement has been made, only give one business card to your contact. Asking a new contact to take more cards from you and distribute to his friends and colleagues is unprofessional.

Receiving a business card with flair If you are the recipient of the card, make a comment in connection with the card before you put it in an appropriate place like a wallet, and never your back pocket. You can complement the logo, comment on the location of the business or repeat the full name of the person to make sure you are pronouncing it correctly.

Tips for Cross-Cultural Card-Giving To make a good impression on business travel abroad, it is important to understand the local culture and norms when it comes to the exchange of business cards, so as to prepare cards that meet the specific business etiquette of the country you are visiting. While in most countries, the exchange of business cards is a simple procedure, there are some countries where certain factors have to be taken into consideration when exchanging business cards. Here are few examples:

• Ensure one side of your card is translated into the appropriate Chinese dialect i.e Cantonese or Mandarin. • Preferably print your card in gold ink as gold is regarded as the colour of success in China • Information such as awards won by your company, the year of establishment or the size of the company can also be included on your business card • Hold the business card with both hands when offering it. • Business cards should ideally be given early on in a conversation

Business card etiquette in India and Arab countries: • Information about your academic qualification can be included on your business card • Your title should be bold and stand out on your business card • Always use only the right hand to give and receive cards

Business card etiquette in Japan: • Give a slight bow when receiving a business card. Business cards are always received with two hands but can be given with one. • Ensure your title is clearly visible as status and hierarchy are important

in Japanese businesses.

• Again, it is important to have the one side of the card translated into Japanese.

Make use of the business card There is no point in collecting the business card if all it is going to do is fill up space in your wallet. In order to capitalise on the meeting, send an email or make a phone call to the person who gave you their contact details. Use this as an opportunity to make a quick recap of the conversation you had and perhaps an update of some information that might be of interest to the person. For entrepreneurs, this update could serve as an opportunity to introduce a new product or service to your contact person. For professionals, this could be an opportunity to share relevant industry information and tips. Making a follow up will also assist your contact to remember who you are and make you stand out from the sea of business cards in their collection.


AFRI BUSINESS

African business this month Business Growth

Tanzania to become one of the World’s Largest Uranium Producer

Transport

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anzania is set to become Africa’s third and the world´s eight largest producer of Uranium by 2014. Agreements signed by stakeholders at the Mkuju River Project (MRP) in the Southern Eastern Tanzania have laid the foundation for the drastic increase in uranium production in the country.

By Tamara Khama

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new budget airline is soon to begin operating in the African continent bringing with it the promise of cheap fares and easier accessibility to cities across Africa. FastJet is aiming to tap into the rising demand of air travel amongst businessmen and individuals travelling between Africa´s growing economies. The airline will be the first to offer low cost flights to millions of people in the continent.

experiencing great Gross Domestic Product (GDP) Growth as well as gas and oil discoveries. Countries that fit this criteria include Ghana, Kenya, Angola and Tanzania. According to Ed Winter, the CEO of Fastjet, the airine will democratise air

travel in Africa through its price, destinations and basic services. The airline aims to carry around 12million passengers a year with Fastjet is particularly interested airfares ranging between $70 - $80 in operating in countries that are before tax.

Technology A Tablet computer made by an African for Africans.

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tablet computer designed specifically for the African market has been launched by a 29 year old Nigerian entrepreneur, Saheed Adepoju. The tablet computer, called the Inye, is said to be Africa´s own version of the famous iPad. What makes the Inye specifically appeal to an African customer is its cost which is around $350, almost half the price of an iPad. It also integrates a device which makes internet accessibility easier and cheaper. When interviewed by the BBC, Adepoju spoke about how the devise

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allows its user to work, play media files, watch movies and easily carry it around. The Inye is about 20cm in length and in the future will introduce apps that will also raise awareness on issues challenging Africa such as HIV, sanitation and unemployment

Apple ipad Touch Screen

The increase in Uranium production comes amidst concerns that the project could bring negative impacts to the environment, people and animals at the nearby Selous Game Reserve. However, the Minister for Natural Resources and Tourism, Mr. Khamis Kagasheki, has assured all that the highest technology that ensures minimum impact to the environment and people will be utilised. The project will also create employment opportunities and bring development to the region which sufferes from high unmployments rates. 1200 jobs will be created during the construction process and 600 permanent jobs will filled during the mines lifespan of 12 years. MRP is expecting an average annual production of 1,900 tonnes of uranium during the first phase hence potentially putting Tanzania ahead of countries such as USA which, in 2011, produced an estimated 1537 tonnes of uranium The government has ensured that safety will be of the highest priority for the project, and that the highest standards of safety will be adhered to at all times. The zone has been given the allowance to pursue mining activities after the UN World Heritage Committee changed the borders of the nearby Selous Game Reserve to prevent any confusion with the mining operation.


AFRIBUSINESS

Luanda, ANGOLA

Second most expensive city in the world

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he capital city of Angola, Luanda, is the second most expensive city to live in the world. This is according to a recent study by Mercer Consulting which analysed the cost of living in 214 cities across the globe using New York City as the benchmark. The survey looked at the cost of factors such as transportation,

food, housing and entertainment. Angola remains the second largest oil producer in Africa and now becomes the third largest economy of SubSaharan Africa, after Nigeria and South Africa. A GDP growth of 12.8% is expected for 2012. The economic boost and its resultant increase in

the number of expats in the country has specifically affected the housing market. An average rent for a well located and fully fitted two bedroom apartment is $5000. A fast food meal can cost as high as $20 while a cup of coffee is just under $4.

Chocolate made in Tanzania Tanzania is set to become the first East African country to produce chocolates for export to Europe.

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anzania´s cocoa industry has been booming with some world leading chocolate manufacturers such as Barry Callebaut sourcing cocoa from Tanzania. Recently, the Swiss chocolate manufacturing company, Neuchatel Chocolates, announced its plans to set up a factory in Dar-es-salaam where it will make chocolates for export to the Swiss market. Samples of the chocolates to be manufactures were already displayed at the 36th Dar es Salaam International Trade Fair (DITF). Production is targeted to begin in September. Tanzanian businesses need to tap into the growing cocoa industry. Demand for cocoa is not only for chocolate production but also for beverages, cosmetics, fertiliser and animal feed industries.

Sep 2012 | TANZANIA BUSINESS FOCUS | 53


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Bright Prospects for Tanzania’s Private Sector It was an incalculable honour and immense reverence to have one of the most distinguished global financial institutions hold its annual event in Tanzania [May 28th –June 2nd 2012]. On behalf of the Tanzania Private Sector Foundation (TPSF) of which I am privileged to be Chairperson, I was delighted to have witnessed this auspicious moment in history. Mrs Esther Mkwizu, Chairperson, Tanzania Private Sector Foundation It is indeed an honour to my country and a privilege to the private sector in the region for the African Development Bank (AfDB)to hold its 2012 Annual General Meeting for the first time in the East African Region, and more specifically in Tanzania.

By Honest Prosper Ngowi

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he fact that such an important event should traverse the landmass from Tunis to Arusha is a clear indication that Tanzania is touching the hearts of many development enthusiasts. Indeed, the efforts of nurturing the country’s private sector to blossom to recognizable heights, is no doubt winning hearts of diverse segments of development partners, including world class financial institutions like AfDB. The bank could not have picked a better venue. Tanzania, and Arusha in particular, are envied destinations the world over. AfDB therefore, not only picked a tranquil venue, but had joined the multitude of enthusiasts who cherish the dream of witnessing world class attractions that include some wonders of the world like the Serengeti, the towering Kilimanjaro and the fabulous Ngorongoro crater. On behalf of the TPSF, I was proud to join my government in welcoming distinguished participants to this great land of Kilimanjaro, Serengeti and Zanzibar. The history of our country has not provided for much growth for the private sector. The sector began from 54 | TANZANIA BUSINESS FOCUS | Sep 2012

humble beginnings in early nineties after the sidelining of centralist economic policies which favoured a more monopolistic public sector. Private sector growth became more pronounced with establishment of the TPSF in 1998 as an apex body, ordered to build on the different synergies between the diverse commercial chambers and outlets. TPSF was founded with the vision of being a private sector apex organization, providing a focal point for the articulation of private sector-led approaches for Tanzania’s economic and social development. A clear vision can only be realized through a well defined mission. Therefore, TPSF’s mission is to promote private sector-led social and economic development by providing member organizations with services they value; by understanding and representing their common interests; and by engaging in effective advocacy with the government. TPSF has forged strength and unity among diverse business organizations and is now capable of representing a vibrant private sector. In the context of TPSF’s mandate, the following has been the core of our focus:

• Maximization of the impact and voice of the private sector to lobby and advocate for issues pertinent to the sector’s growth, • Facilitation of growth of the private sector business through enhancing enterprise competitiveness, and in so doing promoting long term development of the sector in the country, • Policy Impact through raising issues, participating in and influencing government policy formulation in favour of the private sector. The activities with regards this include policy research, private public sector dialogue, and the national business forum. • Membership services such as assisting TPSF members in building their institutional capacities in order to enhance their ability to provide technical support to their members. Membership services are facilitated through networking; strategic planning and capacity development; accessing information and training


FEATURE opportunities; as consultancy and building.

well as consortium

• Outreach and membership, to reach out and support members with a range of standardized and customized private sector services. This has been possible through investing in a membership drive and strategic partnership development, training and capacity building, as well as development of databank. • Programme development, aimed at implementing the enterprise development component of the Private Sector Competitiveness Project (PSCP) in order to improve the capacity of the private sector in the country to respond to local and international market trends. •

TPSF strives to build an effective private sector body that is capable of influencing national policies relating to the development and sustainability the country’s economic development. In undertaking this task, the TPSF aims to create a strong middle class, which can only be possible through the coordinated and well nurtured development of small and medium enterprises (SMEs).

• SMEs are key in our organization’s endeavours to develop a vibrant private sector. They are an important link between entrepreneurs with small amounts of capital and those with large amounts. Properly nurtured SMEs gradually evolve into large-scale enterprises, which contribute significantly to the growth of the country’s economy.

PSDP Private sector development is fundamentally about people realising and harnessing their productive potential as well as the productive use of capital in satisfying their human needs.

known in Kiswahili as MKUKUTA. The second NSGRP (NSGRP II or MKUKUTA II) is a continuation of the government and national commitments to accelerate economic growth and fighting poverty. It is an organizing framework to rally national efforts for next 5 years (2010/11 – 2014/15). It is only a year ago when the president unveiled the first Five

The stage is set for the development of a new Private Sector Development Policy (PSDP), which would take into account the internal evolution and contemporary issues of the private sector. The AfDB event took place at a time when our country has made tremendous strides towards economic growth and alleviating poverty. The National Vision 2025 offers a unique opportunity for the private sector to take the lead as an engine of economic growth. Vision 2025 can be attained with proper implementation of long term interventions like National Strategy for Growth and Poverty Reduction (NSGPR) popularly

Year Development Plan (FYDP) which runs from 2011/12 – 2015/16. The prime aspect of FYDP is the recognition of fast tracking goals of the National Development Vision 2025 which include sustainable and effective utilization of existing human and natural capital, creation of an enabling environment for private sector to invest and participate in a wide range of business opportunities. All these efforts come together well

with the Millennium Development Goals to reduce poverty. The stage is set for the development of a new Private Sector Development Policy (PSDP), which would take into account the internal evolution and contemporary issues of the private sector. The policy should focus on the priority areas: infrastructure; agriculture; industry; human resource development; and tourism trade and financial service. The main tools are Special Economic Zones (SEZs), Public Private Partnership (PPP), institutional reforms, improving the business environment, environmental management and adoption to climate change, enhancing the skill base and adopting technological innovation in all fields. These priority areas will not only bring overall growth, but also pro-poor growth which the poor segment of the population will participate in, contribute to and benefit from as detailed in current policies and plans. In recognition of this important role, the Government has been Sep 2012 | TANZANIA BUSINESS FOCUS | 55


FEATURE

implementing wide ranging institutional and policy reforms to create an enabling environment for private sector development. It has liberalised its economy, amended and enacted a number of investment related laws and policies, undertaken financial reforms, liberalised its trading regime, put in place an attractive investment package and undertaken a number of initiatives to promote and develop the private sector. Tanzania now has one of the most liberal investment regimes in Africa. The private sector has developed institutional mechanisms for interactions and consultations between the government and the Tanzania Private Sector Foundation (TPSF) through the platform of the Tanzania National Business Council (TNBC). The TNBC is the main forum for public-private sector consultations on strategic issues of economic growth and economic development.

The private sector has developed institutional mechanisms for interactions and consultations between the government and the Tanzania Private Sector Foundation (TPSF) through the platform of the Tanzania National Business Council (TNBC).

We are witnessing developments at both regional and global levels, where the private sector is called to play a lead role. As an engine of growth, the private sector is conscious of the words of wisdom by the distinguished founder and chairman of the Daewoo Group, Kim Woo-Choong, who stated that, “People who come up with ‘It may not work’ or ‘What are we going to do if it fails?’ do not have the credentials to be businessmen. If there is only a 1% chance of success, a true businessperson sees that 1% as the spark to light a fire.” So the private sector is fully utilizing the synergies of regional capacities to create strong regional blocks in Southern African Development Community (SADC) and East African Community (EAC). EAC offers a unique opportunity for the people of the region to elevate their way of living through enlarged markets and inherent economies of scale. The EAC aims at widening and deepening cooperation among the partner states in political, economic and social fields for their mutual benefit. The realization of a large regional economic block encompassing

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FEATURE

Burundi, Kenya, Rwanda, Tanzania and Uganda with a combined population of more than 125 million people, a land area of 1.82 million square kilometres and a combined Gross Domestic Product (GDP) of US$60 billion, bears great strategic and geopolitical significance and has the prospects of a renewed and reinvigorated East African Community. This provides a unique opportunity for the future of small and medium enterprises. Tanzania is endowed with diverse energy sources including biomass, natural gas, hydropower, coal, geothermal, solar and wind power, much of which is untapped. Strategies to prepare Tanzania’s economy to accommodate huge investments in the natural gas sector in anticipation of major commercial discoveries in the next five years are underway. The imminent commercial oil and gas discoveries could result in multi-billion dollar foreign direct investments which could add significant revenue flows to the government coffers, as well as make up a big part of the country’s export volumes, the fact that will, in pure technical terms, make Tanzania a gas economy. Extensive gas fields have been identified off the coast at Songo Songo and Mnazi Bay and these are in the process of being developed. The government has placed a priority in the development of surface, water and air infrastructure, and has formulated a number of strategies towards realization of the said priorities. Success of initiatives like Kilimo Kwanza very much depends on reliable infrastructure. TPSF supports the idea of a fully developed port infrastructure, a dependable railway line and connectivity through rural roads. Infrastructure is key to the development of our economy. As we celebrate success of our efforts, investors attach great importance to corporate social responsibility, in the belief that communities around are part of corporate aspirations and ambitions. They therefore deserve a part of the benefits that are derived

Foreign Direct Investors have brought tremendous progress to our people, and we hope more will be realized as investors flock into our country. from corporate profits. CSR has been part of the company obligations at global, national and local level. TPSF also places CSR high on the agenda. The Tanzania Investment Centre (TIC), which has the mandate to coordinate and promote investment, has identified three priority areas for investment: agriculture, tourism and mining. In our view, each of these sectors is promising and requires both government and private sector support. One of the landmark actions of the Government to promote investment is to make TIC a one-stop centre, thereby reducing the time an investor takes to secure licenses. Foreign Direct Investors have brought tremendous progress to our people, and we hope more will be realized as investors flock into our country. Besides investments in mining, tourism, and agriculture, there is a vast potential in telecommunication as indicated in the mushrooming mobile telecommunication systems which have revolutionalized the way people

communicate and conduct business, which has enhanced private sector competitiveness. Mobile banking and mobile money are replacing the face of personal and business banking in Africa. Mobile financial services can be a useful tool to reach out to the financially excluded and informally included. Mobile banking covers a great number of small-scale farmers, traders, artisans and women, other types of small and medium sized businesses who are not connected to the formal banking system. Mobile banking is creating opportunities for the poor to have access to the wider financial services sector in Tanzania. This is a key aspect of helping people out of poverty in developing countries. Access to mobile financial services now means that the poor will have access to small business loans, microfinance, savings accounts, insurance and tailored investment opportunities. There is more in store as Tanzania has unlimited resources and different sectors await investors.

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FEATURE

THE RAILWAY INFRASTRUCTURE: A harbinger of economic advancement

Tanzania’s geographical attributes bear out a strong argument in support of revival and expansion of the railways network. It was not accidental that the colonial administration gave high priority to the railway infrastructure development, principally to open up the hinterland and in particular to stimulate socio-economic development. By Dr. Gideon H. Kaunda

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ndoubtedly, global trends demonstrate empirical evidence of the railways as the kingpin of a country’s economic development. In comparison with roads, the railways are the most ideal and safe mode for bulk transportation of high volume goods and large numbers of people, at a lower per unit costs. By providing a functional and reliable railways network in the country, the ports’ efficiency would correspondingly increase as goods are rapidly cleared for delivery to various 58 | TANZANIA BUSINESS FOCUS | Sep 2012

destinations within Tanzania and neighboring countries. Railways in the modern world are principally the most important means of hauling heavy and bulk freight with a significant element of passenger transportation. Countries that have attained a high level of social-economic development have built a sound network of railways, for example the USA, Western Europe and India. In the USA railways are responsible for moving more than 40% of the nation’s freight and help

to connect business across the country in both urban and rural areas. Freight is also moved in bulk to the ports and dock areas, allowing worldwide shipment of cargo to take place efficiently. One of India’s economic success stories is its effective and extensive railways network, making it the largest in Asia and second largest in the world. Railways support all other sectors of the economy, including stimulating tourism through popular train tours, exemplified by the South African Blue Train and the Australian tourism train.


FEATURE

In the pre-independence era of the East African High Commission as well as during the East African Railways and Harbors Corporation, (EACSO), and the East African Community, the railways operated successfully, providing reliable services to freight and passenger traffic within and beyond the three original members of the East African Community. In turn this obviated congestion and delay at East African ports. East African Railways and subsequently the Tanzania Railway Corporation after 1977, constituted the largest single transport operator in East African and Tanzania, respectively. The economic impact of Tanzania Railways services was evidenced by the increase and volume of passenger and freight traffic, reaching a record high of 683,861 passengers and 1,442,713 tonnes of freight respectively, by 2003. However, this was less than the design tonnage of 5.0 million tonnes for which the network was intended prior to 1990. Following the peak of performance in 2003, the Tanzania Railways rapidly deteriorated with freight traffic dwindling by nearly 50% and passengers’ numbers falling by 1/3. Several reasons account for this poor performance, but more significantly the inadequacy of financial resources to sustain and develop the network, in keeping with growing demand. The decision to restructure the railways was based on the privatization policy, intended to commercialize the system through joint venture concessions, in anticipation for improved funding opportunities in the private domain and high level management skills. Therefore, for a decade or so prior to 2003, the company’s marked improvement was a direct outcome of financial injection and external assistance from CIDA, KFW, DIFD, and the EU, to the extent that the peak performance of 1.5 million tonnes was achieved during that period. Unfortunately, in the latter period for about 10 years, it became necessary to suspend or withhold all technical and financial support, to pave the way for

The economic impact of Tanzania Railways services was evidenced by the increase and volume of passenger and freight traffic, reaching a record high of 683,861 passengers and 1,442,713 tonnes of freight respectively, by 2003. divestiture. It was largely during this period that the railways permanent way and rolling stock steadily deteriorated, exemplified by the poor results of 2010, during which a mere 0.28 million tonnes was recorded, about 19.4% of the 2002 results. The poor state of the infrastructure was largely to blame for the inability to realize targets within the business plan forecast, to the extent that some adjustments had to be made to reduce the annual freight forecast to 2.0 million tonnes by 2017, from the anticipated annual freight traffic of 3.14 million tonnes, with profitable results in the first year of operation. As a principal partner, the Government felt dissatisfied by the revised Business Plan, which appeared not to

take into account the heavy reliance of Tanzania’s economy on the railway infrastructure. Consequently the Government decided to terminate the RITES concession and repossess the Railways, in order to start afresh. Presently, the state of affairs is such that the Company operates with Government subsidy, a substantial part of which goes to staff wages. Other development needs have practically no funds left. Given the economic importance of the railways infrastructure, it is clear that serious action is being considered on how best to revive the system and in that light. Rehabilitate the locomotives which can easily be redeployed; (rebuild or upgrade).

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FEATURE

The following approach ought to be taken into account, in order of priority: 1. Revive the Morogoro Workshop activities for rebuilding and repair work. 2. Consider leasing immediately required locomotives. 3. Introduce technological innovation to optimize on the current fleet of shunters for use on the main line (ad-interim) and the adaptability of leased or new locomotives for use on the meter gauge. 4. Consider medium to long term acquisition of new locomotives to beef-up the fleet. 5. Prepare a plan for a corresponding repair and/or increase of freight wagons and passenger coaches: (There has been a reduction from 1,034 wagons to 638) 6. Work on the long-term construction of the standard gauge network. As the domestic economy and the economies in land-locked states continue to grow and so, correspondingly, will the railways and port opportunities expand. That makes it imperative to consider largescale investment from domestic and regional sources, as well as multilateral financial institutions, within the PPP framework. A comprehensive plan should encourage investment in the central railway line, connecting Dar Es Salaam Port with Central, North and Western Tanzania, extending service to land locked countries. Consideration should also be given to electrifying the network, improve the manpower capability and technical facilities. Finally, there is the lingering question of ownership and management. One school of thought advocates for privatization, at least partially. However, another view is that privatization is no panacea to successful railways management. As a strategic industry, the railways in many countries are under public ownership. Indeed the East African Railways were publicly owned and operated successfully. A notable example in the region is TRANSNET, a public corporation owning railways in South Africa. If some hybrid structure makes the system more viable, so be it. Obviously, separation of ownership and operations can result in better system management, leaving to the Government the ownership and maintenance of infrastructure, while the private sector takes operational responsibility. The RITES Concession has shown how things can go horribly wrong, with all the enthusiasm of privatization. The Railway is one of those strategic industries 60 | TANZANIA BUSINESS FOCUS | Sep 2012

which demand an element of social overhead-costs and therefore broader consideration should be given to striking a balance between the return on investment on one hand, and the overall benefits to the national

socio-economy growth. However, a sufficient degree of management autonomy should be applied to ensure that the railways are strictly run on commercial principles.


ENTREPRENEUR

Being an entrepreneur Often, not only to a layman but also to most experts in any field, the word “Entrepreneur” comes up as an image of a rich business tycoon or a high profile motivational speaker with a magnetic charisma. Well, to me, this does not have to be the case.

Thomas Edison who had failed 1000 times in his experiments, and quotes, “I didn’t fail, I have only found out 1000 ways that won’t work”.

By Roohina Doloo

Then what is to be an entrepreneur?

To be an entrepreneur, one does not necessarily need to be a world famous business magnet like Warren Buffet or an expert motivational speaker like Tony Robbins; it could simply mean that you have an extra source of earning your livelihood that one may refer to as passive income which might also serve as a backup in the event of your full time business breakdown that has been generating your

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active income. An optimistic mind, determination, dedication and hard work, is just what it takes to start off a successful entrepreneurship. Again, this would not have to mean an overnight get-rich scheme or a multinational investment; A mere space to rent for a car park at your residence would do for you to be part of the world of entrepreneurs. Depending on the effort you put in expanding your

entrepreneurship, you would be amazed one day as to how fast your business would have progressed from the renting of a car park to that of fully furnished apartments or even malls. A qualified Medical Doctor working at a government hospital can be called an entrepreneur by having started his personal clinic or dispensary, so can a recent graduate undergoing internship at a web designing company be called an entrepreneur by having started up his own web designing business.


ENTREPRENEUR

There can be several types of entrepreneurs of which social, serial, lifestyle and cooperative are the main ones, each having its own characteristic. One of the main qualities of an entrepreneur is to undertake innovations and transform into economic goods. The key to succeed in entrepreneurship is to never give up upon failure, rather to take the failure as an opportunity for your oncoming success. A good motivational example is by the American inventor and businessman famous for his invention of practical light bulbs, by the name of Thomas Edison who had failed 1000 times in his experiments, and quotes, “I didn’t fail, I have only found out 1000 ways that won’t work”. A common entrepreneurship opportunity currently in the market is E-commerce or electronic commerce. The title would literally mean buying and selling of goods electronically or online but there can be more to it than just buying and selling. Many forms of business opportunities like multi-level marketing (MLM) and others have

Most of the business professionals and billionaires in the world like Bill Gates (Microsoft) or Mark Zuckerberg (Facebook) were just University dropouts but made it to the top and became successful entrepreneurs. been linked to e-commerce which eventually results in financial freedom to an individual in the entrepreneurship line. People gradually fulfill their dreams simply by being free while enjoying automatic generation of income without getting to physically work anywhere. This concept has been there for long in developed countries and it’s even booming in most developing nations. In this present world of high rate of unemployment, not only discouraged graduates from Universities and colleges who fail to get employed but also those professionals who

quit their jobs due to whatsoever reason, have to exploit the world of entrepreneurship. I say that nobody hires me and nobody fires me, what do you say? Most of the business professionals and billionaires in the world like Bill Gates (Microsoft) or Mark Zuckerberg (Facebook) were just University dropouts but made it to the top and became successful entrepreneurs. Most qualified graduates have to build up confidence in themselves and work upon designing websites like facebook, twitter etc as a first step in their entrepreneurship career and also seek finance from lending agencies and government for their projects. Those who own a car can also start up a Taxi business or have it on rental basis. Building up your own good stuff will eventually make others want yours leading to demand and supply chain which is an essential part of any business. Formal education will make you a living; self-education will make you a fortune. – Jim Rohn

Mark Elliot Zuckerberg is an American computer programmer and Internet entrepreneur. He is best known as one of four co-founders of the social networking site Facebook. Zuckerberg is the Chairman and Chief Executive of Facebook, Inc

Sep 2012 | TANZANIA BUSINESS FOCUS | 63


BUSINESS TRAVELER

How to Plan Your

Business Travel Planning a work related excursion needn’t be a stressful endeavor, especially when your mind should be primarily focused on the business aspect of your trip. Therefore, make the travel plans as easy to deal with as possible by learning how to plan your business travel successfully. By Roohina Doloo

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BUSINESS TRAVELER

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nsure that you have the correct details for your business trip, including the dates, locations, times, and other details that will influence your travel plans.

Try to arrange your travel plans for business as early as you can to avoid dealing with unforeseen issues at the last minute. If you are traveling some distance away, whether by car, train, or plane, plan to arrive at your destination with enough time to unpack, settle in, and relax. You don’t want to arrive last minute and rush to your business events flustered and exhausted Check all your necessary travel documents when you arrange work related travel, and make sure they are valid. These may include passport and driver’s license. Additionally, print out two copies of all your travel confirmations and itineraries, divide them, and keep them safe in two locations, just in case you lose luggage or a bag gets stolen. Upload all your meeting materials onto a flash drive, even if you have printed out everything you need for meetings or conferences or have them saved on your laptop. You need a separate back up in case of an unforeseen circumstance that requires you to reprint everything Prepare an itinerary of your trip as a whole and make sure that you leave a copy with your assistant at your office. Make sure it includes flight details and important contact information in case you need your assistant to make changes for you. Evaluate your trip as a whole, and make a list of everything that you will need to pack. Divide your list into categories, such as toiletries, conference attire, formal dinner attire, and laptop accessories. Make sure you are familiar with the security requirements and restrictions if you are traveling by plane Rent a vehicle if your trip calls for you to do so. Make sure that you purchase a package that meets your specific needs during your business trip. If you are not familiar with the

Check all your necessary travel documents when you arrange work related travel, and make sure they are valid.

location that you plan on driving in, then arm yourself with the maps and directions you will need to get you around without a hitch

• Pack all of your personal items in carry-on luggage for short trips. You don’t want to risk your checked luggage getting lost

Confirm your travel information via online check-in tools. Check the status of your business travel details, including travel departure time, prior to leaving for your trip to make sure everything is on schedule.

Warnings:

Tips:

• Opt for refundable tickets when you arrange your business travel, if at all possible. You don’t want to commit to a travel arrangement unless you have the ability to change your plans in the event that your business calls for you to do so. • Consider shipping large presentation materials and other business items that may difficult to carry while travelling. Just make sure that you ship them with enough time to arrive at your destination. If you decide to ship to your hotel, make sure that you contact the hotel and let them know about your shipment.

• Be aware of the customs of different cultures. • Be aware of the airline travel restrictions on such things as pocket knives and bottles of fluid. • Check official government web sites for political warnings. • Watch the itinerary for tight plane change-over, especially when clearing customs.

• Things you’ll need:

• Cash. • Outlet adapters. • Multifunction power charging devices for cell phones, PDA’s etc (USB/AC/cigarette lighter style) • Brief case. • Luggage. • Travel size toiletries. • Zip-lock plastic bags

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BUSINESS LEADER

Sir Richard Branson: An exemplary transformational leader

In his book, Discovering the Essence of Leadership, Tony Manning states that “success as a business leader is not a matter of personality type”. Instead, successful leadership is about having a leader who “has a clear vision about where the company is going, what has to be done to get it there and communicating this vision to a team”. By Tamara Khama

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herefore, a leader is essentially a person who has the ability to motivate, encourage and influence other people to become willing extension of an organization’s goals and thereafter, work to translate a vision into reality. Leadership plays a key role in the success of any business and can determine the success or failure of a business venture. Around the world, there are many notable leaders who have managed to steer their companies from small local enterprises to large multinational companies. Sir Richard Branson is one such notable leader. An article entitled The importance of being Richard Branson, reveals that Sir Richard Branson is the founder and owner of the Virgin Group – an empire

of 350 companies with ventures in the airline, telecommunication, trains, cosmetic, credit card and several other industries. His empire is worth over 7 billion dollars and it employs over 9,000 people in 28 countries. He has also been recognized as one the 25 most influential leaders in the last 25 years. He is a leader who has mastered the ability to build successful brands and the ability to create a common purpose among his followers. At the core of his leadership style, is his belief that people, or more specifically his employees, are the foundation of his company success. A Wall Street Journal poll carried out in 2004 reported the following five characteristics as strengths that make

a good leader; integrity, ability to get along with others, industriousness, intelligence, business knowledge and education. Sir Richard Branson is known as a hard worker. His industriousness nature is often described as workaholic. His intelligence is manifested in his ability to identify good business opportunities and to take calculated business risks that lead to the growth of his empire. He acquires his business knowledge through his ability to build teams of people who are more knowledgeable than him in certain business sectors and he then learns from them while at the same time influencing them to bring into reality his vision. His success in business cannot however be attributed to an impressive educational background. He in fact dropped out of school at the age of 15 and founded his first company, Student magazine, at age 16. He essentially learnt about leadership through trial and error. That he managed to build a successful business empire without any higher education brings into doubt the importance of educational background as a key element to successful leadership. The importance of the leadership element in business has lead to the emergence of different theories about the essence of leadership. One such theory is transactional leadership which attempts to identify the essential role a leader plays in any organization. A transactional leader is therefore defined as a change agent whose main responsibility is to ensure that an organization does not stagnate and that growth and improvement is

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BUSINESS LEADER

little interference from himself on the day to day operations. In addition, for his companies, he insists on a team oriented approach where focus is on fostering a spirit of cooperation in his companies. The fact that his unorthodox method to leadership works, has lead his followers to trust and respect his out-of-norm leadership style.

always visualized by all stakeholders. It is therefore the leader’s task to bring about improvements in productivity. On the other hand, there is the transformational leadership theory. This is a style of leadership in which “the leader empowers workers to achieve an articulated vision of the organization, leading to increases in productivity, better employee morale and job satisfaction as well as greater personal and professional growth”. Transformational leaders tend to adapt quickly to change and tend to be visionary and charismatic in nature. It is the transformational leadership theory that best summarizes Sir Richard Branson leadership style and

Sir Richard Branson’s influence is further idealized due to the charismatic way he leads. For example, he demonstrated charismatic leadership when he gave employees in his airline his personal phone number and encouraged them to contribute ideas and suggestions for areas of improvement by talking to him directly. He then personally attended all phone calls and responded to any text messages that came through as a result of this initiative. In this case, it can be argued, an element of mutual trust between him and his employees was forged as he delivered on his promises while at the same time trusting his employees not to abuse his easy accessibility. This type of openness and accessibility to a leader is often a missing factor in many companies. Sir Richard Branson is not only respected in the business world but also in the society at large. He is leader that cares about the impact

Transformational leadership theory suggests that respect and trust for a leader is likely to result in growth of an organization and empowerment among followers. this is exemplified by his focus to encourage new ideas, innovation and to motivate his staff. This aspect of the theory holds true in Sir Richard Branson’s case. He has clearly abandoned the top down and autocratic style of leadership. He further loathes hierarchy and bureaucracy believing in a flat structure. His non-hierarchal leadership structure is demonstrated in the way he runs his clusters of companies where he allows his managers to operate flexibly with

his business is having to the society at large. One of his visions is to use his business skills to tackle health and ecological problems around the world. These problems include the curbing of the spread of AIDS and reducing deaths caused by malaria as well as investing in research about renewable or clean energy to fight against global warming. According to Daniel Goleman, leaders need to possess a high degree of emotional intelligence (EA) in order to succeed. EA is often regarded to be

more significant that IQ and technical skills in the success of a leader. Sir Richard Branson demonstrates his emotional intelligence skills in his ability to interact with people from different backgrounds. His leadership style is closely tied to his personality which can be described as creative, caring, tough, fun and friendly. He seems to bring these positive elements of his personality to his leadership style. Sir Richard Branson emphasizes the need to care about people in business, especially the employees. He states that “you can’t be a good leader unless you generally like people because that is how you bring out the best in them”. The essence of his leadership lies in the need to treat people with respect and to motivate his employees to give their very best at work as well as in their personal lives. He displays exceptional interpersonal skills which enable him to interact with his employees and inspire them without intimidating them in the process. Ability to take risks is yet another core element of successful leadership. To encourage this element of risk taking, the leader need to create an environment in which employees feel motivated to take risks and come up with innovative ideas and solutions to problems. Sir Richard Branson seems to enjoy taking risks and doing things differently both in his business and personal life. In business he tends to avoid the management role in the companies he own and instead put his focus in public relations. He seems to enjoy publicizing his brand using wit and sometimes flamboyant stunts such as wearing a wedding dress as publicity for his business, virgin brides. He is also taking a business risk by launching the first tourist flight to outer space in 2013. In his book “Screw it, Lets do it” Sir Richard Branson states that staff at Virgin call him Dr. Yes because he “finds more reasons to do things than not to do them”. He goes on to add that rules and the words “can’t” and “don’t know” should not be reasons not to embark on a worthwhile activity or business venture. There is an essence of persistence and drive in the way he operates activities in his companies. Sep 2012 | TANZANIA BUSINESS FOCUS | 67


BUSINESS LEADER

Business leaders must also learn give credit to others for success and to values the opinion of employees. Sir Richard Branson argues that employees often leave companies because they are frustrated by the fact that their ideas fall on deaf ears. He hence emphasizes the need to have an open door policy between employees and management with the focus being the need for constant interaction and communication between the two. In line with the need to portray the importance of internal communication and the value of staff opinions and input in business decisions, Sir Richard Branson himself writes a monthly letter to his staff to tell them what is going on in the company and encourages staff to write back to him with any complaints, ideas and suggestions. He believes in putting employees first, customers second and shareholders third deviating far from the ‘customer is king’ approach to business. He appears to put effort to make sure the people who work for him are enjoying what they are doing.

At best, Sir Richard Branson can be described as a democratic leader and at worst, he is an unstructured leader.

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Employees at the virgin group enjoy other admirable working conditions such as flexible working hours, optimum health benefits and regular parties. He further states that it is important for a leader to “take staff out in the evening and have a few drinks together, talk and party together and not being embarrassed by the staff seeing a weaker side of you. “Staff do not lose respect for you because they see your human side, they actually gain more respect for you”. His need to make his employees feel important was perhaps best exemplified when he won a lawsuit against British Airlines and was awarded $500,000 which he divided amongst his staff. Despite the admirable nature of Sir Richard Branson’ leadership style, there are areas in his leadership that could arguably be improved. The element of informality can hinder the development of a firm structure that is deemed essential in running a successful business in the long run and set a good foundation for the company when Sir Richard Branson

is no longer its leader. In addition, his relationship oriented leadership style is strongly influenced by his personal style and personality which makes it difficult for his successor to adopt. The current level of success at Virgin without Sir Richard Branson as the leading man is questionable. What has evidently appeared in this analysis of Sir Richard Sir Richard Branson leadership style is that transformational business leadership should focusing more on building relationships, maintaining a low-staff turnover and utilizing employees to bring a business vision into reality. The desired reality in business is often growth and increased profits. It is clear that there is indeed a method behind the unusual manner than Sir Richard Branson leads the Virgin group and his leadership style offers key and inspirational lessons for business leaders all over the world.


BUSINESS LEADER

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PERSPECTIVE

Will the Iranian Nuclear Standoff Derail Global Economic Recovery? The global financial and economic crisis began officially on 15th September 2008. This is the date when Wall Street’s 4th largest bank – Lehman Brothers collapsed. After the crisis there have been many responses to the crisis. By Business Focus Special Correspondent

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he responses include economywide stimulus packages and sector and industry-specific bailout plans. By 2010 and 2011 some signs of recovery were seen albeit slow, turbulent, fragile, and uncertain.

Threats by the nuke standoff Among the newest worries in the recovery process is the Iranian nuclear standoff with the West. The latter is persuading the global commodity to boycott buying Iranian oil if Iran keeps on embarking in its nuclear programme which the West argue is not for peaceful use. In the first week of May 2012, the US foreign secretary, Mrs. Hillary Clinton was in India persuading it to reduce its Iranian oil import. If the West gets its way, there may be reduction of oil in the world marker. If the economic laws of supply and demand will be obeyed as is always the case in the oil market, prices will be up, costs of production will increase and may be a disincentive for new and expanded production that is so much needed for recovery. If history is a teacher, the lessons learnt during the Arab spring should be used to understand the current situation.

Iranian oil matters for recovery The unfolding events in Iran indicate that this part of the world matters to the world economy. By extension, the geopolitics and geology of the Arab region matters to the economic recovery process more than many had 70 | TANZANIA BUSINESS FOCUS | Sep 2012

imagined. Iran is among the leading suppliers of oil which is among the key factor inputs in the process of producing goods and services.

Nuke standoff triggers supply shock The West’s call for the world to boycott Iranian oil will trigger supply shock in the oil industry. Oil supply

in the market is affected not only by the actual reduction in production but also by fear of potential future output. The latter is likely to cause hoarding for buffer stock purposes as well as for speculative motives should pump prices keep on skyrocketing. The result is an increase in oil prices so as to obey the law of free interplay of market forces of supply and demand.


PERSPECTIVE

When the Arab unrest in general and the Libya crisis in particular saw the light of the day the price of Brent crude oil went up by 15 percent on February 24th 2011 reaching $120 per barrel. When Saudi Arabia promised to increase production the price declined to $116 on the 2nd of March. With the nukestand-off threatening reduced supply pump prices are likely to point upwards thereby threatening global economic recovery.

Picking a leaf from economic history Borrowing a leaf from economic history, one would see that price of oil went up during the Arab embargo of 1973. It did the same during the Iranian revolution of 1978 – 79 as it did with the Kuwait invasion by

Saddam Hussein in 1990. So long as there has not been fundamental and radical changes in the global dependence of Arabian oil supply in general and Iranian one in particular, the uncomfortable truth is that the current Iran-West nuke standoff will most likely cause higher oil prices thereby derailing global economic recovery that is rather fragile and slow.

So what for economic recovery? The unrest is likely to derail the recovery from the global financial and economic crisis. The possible rising oil prices pose a threat to the recovery process. This is because although the 2008 economic crisis started in the financial sector, it matured and graduated into the real sector of the economy. It is in this sector that goods

and services are produced. Among the key factor of production is oil. When price of this black gold goes up it reduces producers’ appetite to increase production let alone to venture into new ventures especially risky ones. If production stagnates at best or declines at worse, it is likely to have many and far-reaching implications. Unemployment that is already on the higher side due to the crisis is likely to increase. This implies reduced incomes that will translate into reduced aggregate demand. This in turn is likely to cause further reduction in production. The vicious cycle may go on if no innovative and strategic interventions in the world that has almost exhausted all available options to set-in sustainable recovery. A double dip recession – as covered in

Importing Food to Curb Inflation in Tanzania: Good or Bad Economics? Inflation has been among the major headaches for policy makers, captains and titans of the industry, economics and business analysts as well as the ‘common’ citizen in Tanzania. By Honest Prosper Ngowi

an earlier article in this column is not be unrealistic.

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mong other things, the author of this column has made number of debates in this and other media outfits. His central thesis has been that basically that Tanzania suffers from structural rather than monetary inflation. Therefore it is, by and large, structural rather than monetary policy measures that are needed to tame the skyrocketing inflation in this Republic with a policy goal of 5 per cent inflation but with actual scores of over 19 per cent in early 2012. There have been various measures to tame inflation in Tanzania. These have included some monetarist policy instruments such as liquidity

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PERSPECTIVE official opposition in the Parliament. In its outline of alternative budget for 2012/13, according to The Citizen Thursday 7th 2012 (pages 1 and 2), the opposition wanted a reduction or removal of import tax on food, especially rice, for a specific period in order to tame inflation.

Fix what is broken

Among the new developments in June 2012 are proposal to import food in general and at reduced or removed import tax in particular as strategies to curb inflation. control. The author of this article has basically differed with the authorities in applying monetarist solutions to none-monetarist but structural inflation in Tanzania. Although these strategies have some elements of structural base of inflation, it is important to discuss whether they are good or bad economics.

Proposals to import food At least two proposals to import food as a strategy to curb inflation in Tanzania were put forward in the first week of June 2012. According to The Guardian Saturday June 2nd 2012 (pages 1 and 2), the Bank of Tanzania (BoT) whose core functions include prices stabilization, informed that the government may be forced to import food in order to curb inflation. The main food items that the government may import as a strategy to curb inflation are rice and sugar. The reasons given for the intended importation to curb the disturbing double digit inflation include decline in food production due to inadequate rainfall and lack of effective measures to boost agriculture. The other proposal in this context is from the 72 | TANZANIA BUSINESS FOCUS | Sep 2012

The kernel of the matter that is triggering and fuelling high food prices and therefore sky-rocketing inflation in Tanzania are the structural issues related to agriculture. These include the irrigation infrastructure that are not there all together or not in good shape where they exist. This is the core cause for dependency on rain-fed agriculture in Tanzania. This rain-fed agriculture is among the major determinants of food prices. By extension and logically therefore Tanzania suffers from ‘rain-fed inflation’. If it does not rain in the needed quantity, quality and time then food will be scarce, its price will go up thereby contributing into high inflation rates. It would appear logical therefore to fix the supply side of water needed for food production. If no rain is forthcoming in needed quantity, quality and time, then the correct, sustainable and long-term intervention is having alternative water sources to irrigate crops. This include investing in infrastructure that will make possible the use of water from the many water bodies that this country is abundantly renowned with. It does not make much sense that people living few meters from huge water bodies cannot produce adequate food due to drought and therefore food has to be imported, possibly from another continent, to feed them! Other factors fuelling inflation due to food are the bad transport and market infrastructure that partly contribute into high average food prices in the country amidst excess food that cannot reach food-deficit areas due to bad roads and high transport costs. The above are among the key variables in the food supply side of the economy. It would therefore make more sense to fix this side of the inflation equation which is broken rather than resorting to importing which will not fix the core problem.

Ok in short term? It is understood, at least from the opposition budget outline, that food import interventions to curb inflation are supposed to be of short-term nature. However, with what we know and what we do not know about climate change, we cannot tell for sure when we are going to get adequate rain and therefore bumper harvests that will contribute in reducing inflation. What we are sure of is that if we use the money used to import food and the ‘sacrificed’ import taxes to fix the broken variables of the equation, there is very huge likelihood of solving the core problem rather than just addressing the results of the problems as per the two proposals under scrutiny in this article.

Economics of Importing food Importation of goods and services is equivalent to ‘exporting’ jobs. The jobs that would have been done to produce those goods and services within the domestic economy will be availed to the workers of the country from which the imports will come from. Therefore, importing food is equivalent to ‘exporting jobs’ that could be created in a given crop commodity chain domestically. Those who suffer most in the chain are the smallholder farmers in general and women in particular. These produce about 70% of all food in Tanzania. Others who will suffer in the food import proposals are small scale traders, transporters, processors and many others in various nodes of food commodity chain. Also, importing food is equivalent to ‘exporting’ central and local government revenues that were to accrue from various kinds of crops-specific taxes, fees, licenses, levies and crop cess.

It is bad economics It is understood that a lesser evil has to be chosen when caught between a rock and a hard place. In the context of this article, neither the government through BoT nor the official opposition party is getting the equation correct. It is only when and if long term measures to solve inflation are implemented that this economic nightmare will end. Giving short term economic solutions to economic problems that require long term solutions is bad economics.


PERSPECTIVES

Sino-Africa cooperation: Does Africa really need China?

In 1970, the Chinese begun the construction of a railway line, braving the natural elements to help construct what has come to represent one of the great symbols of Sino-Africa cooperation – the nearly 2,000 kilometer Tazara railway stretching from land-locked Zambia through Tanzania to the coast of the Indian ocean.

By Business Focus Special Correspondent

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elivered in the midst of the Cultural Revolution, this gift represents China’s agenda to reach out even during turbulent times in its history. This expensive project also exemplified a major step towards enhancing South-South cooperation, which had been initiated in 1955 at Bandung, Indonesia. China has once again delivered a symbolic structure in the form of a $200 million headquarters to house the African Union. Indeed, this

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superstructure has transformed the skyline of Addis Ababa, but more importantly, has added a crucial layer to the Sino-African discourse – helping connect Africa’s present to its past. From stadiums in southern Africa through government offices and cultural buildings in western Africa to hydroelectric projects in the north of the continent, both proponents and critics of China’s engagements in Africa have found pillars for their arguments in these structures.

Mostly, these passionate arguments focus on issues around the ratio of Chinese to African labor at the sites of these projects, the nature of funding involved in a particular project, the quality of these structures and the motives behind Beijing’s seeming embrace of all things African. These are pertinent discussions to have, but should be well placed in the thicket of poignant messages that these strategically placed contributions (including the AU headquarters) by China send to stakeholders of the African continent. These gestures hold


PERSPECTIVES subtle insights and implications for understanding Sino-Africa relations, particularly for the West. First, the versatility of China’s approach in engaging African countries is partly responsible for its surge as one of the major economic influences on the continent. From its earlier encounters with the continent at the 1955 Bandung Conference to present, China has played different roles in its relationship with African countries. Beijing has emerged from its largely ideologically driven encounters with African countries to become an economically driven pragmatist, which is largely manifested in its resource and market deals as well as its vivid role as “constructor-in-chief.” In September 2011, the world expectantly watched as Zambian oppositionist Michael Sata win that country’s presidential elections riding on the wave of an antiChinese campaign. After the political dust settled, it became clear that the Chinese haven’t been spooked by Sata’s pre-election anti-Chinese rhetoric as Beijing’s interest in the copper industry even further deepened with companies such as Jinchuan Group and Non-Ferrous China Africa (NFCA) bolstering their investments in copper in Zambia. Interestingly, Sata’s harsh antiChinese stance has given way to a more cooperative posture as he emphasizes the importance of foreign investments and cautioned all foreign investors (including the Chinese) to adhere to the labor laws, during his inaugural address. There’s certainly growing opposition to China’s increasing presence in Zambia and other African countries, but China and its investors find some solace in the support from the African elites and large portions of the population who are either content to have a committed partner-in-development or intrigued by the dedication of the Chinese in completing projects on schedule. Many Western policymakers, politicians, and business leaders have viewed China’s engagement in Africa with vituperation, accusing China of extracting Africa’s natural resources on the cheap and exploiting weak political institutions for economic gain while leaving Africans with the

In spite of the challenges that lurk in the margins of China’s resource deals and access to markets, which veritably range from language barriers to organized anti-Chinese protests and kidnapping of Chinese workers, Sino-Africa engagements have progressed well along these contours.

crumbs. Blaming China for Africa’s ills would be naïve. China’s trade relationship with Africa goes beyond the scope of the natural resource extraction industries. Some non-resource rich African nations are huge beneficiaries of Chinese trade relations, and African states would be prudent to adopt Chinese investment policies within their own borders. China became Africa’s largest individual trading partner in 2011, with trade rising from US$129.6 billion in 2010 to US$160 billion in 2011. However, in many cases African leaders have failed to leverage their natural resources (which include oil, precious metals, copper, coal, uranium, cobalt, and diamonds) to promote Africa’s economic development and growth. While China’s human rights record and business practices in Africa have

never been exceptional or transparent, China’s actions in Africa, are, for the most part, within the “rules” of the environment created by Africa’s leadership. Focusing on Chinese trade and investment practices takes attention away from African political elites that have a choice between short-term profit over longterm development for their countries. In many cases, these elites have chosen short-term gain, enabling Chinese firms to extract Africa’s resources with limited accountability to Africa’s political, economic, environmental, and social structures. Sudan, South Sudan, and Angola, three of China’s biggest African trading partners, provide a comprehensive view of how China has used Africa’s weak political institutions

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PERSPECTIVES

Sudan China has been active in the Sudan since the early 1960s. The China National Petroleum Company (CNPC) has been extracting oil and investing heavily in energy infrastructure to secure a steady supply of energy resources and has close linkages to the Sudanese government in Khartoum.

and leadership to its advantage. The Chinese government is often blamed for these outcomes, but the political leaders of the three African countries are the ones truly at fault. China has been active in the Sudan since the early 1960s. The China National Petroleum Company (CNPC) has been extracting oil and investing heavily in energy infrastructure to secure a steady supply of energy resources and has close linkages to the Sudanese government in Khartoum. Seventynine percent of Sudanese oil exports head to Chinese ports. Yet the leaders of Sudan and South Sudan have been incompetent in taking advantage of this relationship—and the subsequent oil revenue—to foster sustainable and effective economic growth. In Angola, China’s top supplier of crude oil, the Chinese government has structured “oil for aid” deals that have allowed the Angolan government flexibility in determining the use of aid funds. Although these funds are earmarked for developmental projects in the healthcare, educational, and infrastructure sectors, pinpointing the exact location and use of the aid is impossible. This lack of transparency 76 | TANZANIA BUSINESS FOCUS | Sep 2012

fosters an environment in which the intended developmental impact must be seriously questioned. In fact, resource-rich economies have only received 37 percent of China’s FDI on the continent. The majority of China’s investments have been in non-resource rich economies, such as Tanzania, Ethiopia and Rwanda. These countries have benefited from China’s focus on sectors like telecommunications and manufacturing. This is a growing trend. China’s own manufacturing base is becoming more innovative and wages are increasing, forcing Chinese firms to seek new manufacturing locations and production centers around the world. As China’s investment portfolio on the continent continues to diversify and expand, African leaders should take advantage of new opportunities and revenue sources for their states. In forming these economic relationships, African leaders would do well to take a leaf from China’s book. The Chinese government makes it extremely difficult for foreigners to wholly own businesses in China, ensuring that local firms grow and benefit from exposure to international

investors. The simplest way for a foreign enterprise to gain equity exposure to the Chinese market is through a joint venture with a Chinese firm or partner. There are, of course, exceptions to the rule, but the main goal of Chinese policymakers is for Chinese companies to benefit from these relationships. Similarly, African firms need to form international partnerships that are advantageous for Africa, allowing it to develop skilled human capital, provide access to knowledge transfer, and capture technical know-how—all crucial for growth on the continent. China’s hunger for African resources is massive. In return, Africa has benefited from cheap and affordable products from China. In short, China needs Africa; and Africa needs China. African leaders, if they are genuine in their desire for Africa’s development, should use China’s reliance on Africa’s resources and leverage their position to negotiate beneficial social and economic agreements with their trading partners. Whether Africa needs China or not is still left to the jury out there as to what legacy the Asian giant will leave.


FEATURE

Reflections on Human and Social Development Development! A word that defines a lot! But what does it exactly means? Development can be broadly defined in a manner applicable to all societies’ at all historical periods as an upward ascending movement featuring greater levels of energy, efficiency, quality, productivity, complexity, comprehension, creativity, mastery, enjoyment and accomplishment. skills and occupational training of the fathers. Though children do not follow their fathers’ footsteps as much as they did in the past, parents do in a big way mould their children’s attitudes and thoughts regarding their careers and future occupations. If we find families taking up the propagation of a new activity, it is a sure sign that the new activity has become an integral part of the society. Family influences through its values, behaviors, beliefs, and customs.

By Roohina Doloo

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evelopment is a process of social change, not merely a set of policies and programs instituted for some specific results. This process has been going on since the dawn of history. But during the last five centuries it has picked up in speed and intensity, and during the last five decades has witnessed a marked surge in acceleration.

Social development can be summarily described as the process of organizing human energies and activities at higher levels to achieve greater results Why do humans behave the way they do? What are the reasons for those behaviors? Whether they are good or bad! We are social people, we interact in every mode of our lives, and that is the most important criteria that influence the development. Social behavior depends on how people are being treated in the society, home, work, schools. How is the relationship between one people to another? Basically our development is influenced by external factors, how we learn from our peers. Peer groups provide new and different learning environment.

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They provide different patterns and structures of interaction and communication that require different style of behavior The purpose of family is protection and nurturing of its members. Functions of family include: means for survival, security, assistance with emotional and social development, assistance with maintenance of relationships, instruction about society and world, assistance in learning roles and behaviors. Families play a major role in the propagation of new activities once they win the support of the society. A family is a miniature version of the larger society and as such the acceptance by the larger entity will find its reflection in the smaller entity also. It is the family that educates the younger generation and transmits to them such social values as selfrestraint, responsibility and the

“A man’s ethical behaviour should be based effectually on sympathy, education, and social ties, no religious basis is necessary. Man would indeed be in a poor way if he had to be restrained by fear of punishment and hope of reward after death.” Albert Einstein Most of the other external and internal factors can influence the development


FEATURE

Education builds up the character of a person and character is the strength behind a person’s will to develop himself. Human and social development can be affected by a number of key money-related or economic factors as well. Peoples lifestyle plays a great role in the development just

example Health means physically, mentally and socially fit. Illnesses have the potential to hinder growth and development. Social Protection; the world today also faces a large number of social protection; Social protection also hinders the development when it intersects with factors such as poverty and vulnerability, pro-poor growth like malnutrition, agricultural development. Class categories, discrimination and rationalism hinder human and social development a lot. A rigid class structure brings insecurity and mistrust and negative impact on development. Unlike a drop of water

which loses its identity when it joins the ocean, man does not lose his being in the society in which he lives. Man’s life is independent. He is born not for the development of the society alone, but for the development of his self. B. R. Ambedkar ‘This is the moment when we must build on the wealth that open markets have created, and share its benefits more equitably. Trade has been a cornerstone of our growth and global development. But we will not be able to sustain this growth if it favors the few, and not the many.’ Barack Obama

like to grow, a plant needs air, light, water, the correct temperature, mineral nutrients, and any of it can be a limiting factor to its growth. “No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable.” Adam Smith, the Wealth of Nations.

One of the major factors that influence the human and social development is Education; Education is a human right with immense power to transform. On its foundation rest the cornerstones of freedom, democracy and sustainable human development. Kofi Annan.

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