• Phoenix rising

    Under new leadership, Tanzania is undergoing social and economic reform – a move that is sure to attract foreign investment

    Phoenix rising

    Samia Suluhu Hassan became Tanzania’s first woman president in March last year after her predecessor, John Magufuli, died only four months into his second term. After less than 18 months in office she has made a distinctive break with the strongman style of her predecessor, and has thus far pursued more tolerant and business-friendly policies.

    Her government faces the task of stepping up Tanzania’s rates of growth and development, and has raised hopes that the country’s great potential, based on location, climate and national cohesion, will at last be realised. Tanzania was not doing too badly before the COVID-19 pandemic struck. It had been one of the fastest-growing economies in the world, expanding at a rate of nearly 7% per annum in the five years before the pandemic.

    This growth spurt enabled Tanzania to achieve an important milestone in July 2020 when the World Bank formally graduated it from a ‘low-income country’ to ‘lower-middle-income country’ status. The World Bank threshold for the upgrade stands at US$1 046, a figure marginally exceeded by Tanzania in 2019 when the country’s GDP per capita rose to US$1 085.9.

    Yet while the landmark may have been cause for celebration, Tanzania is still a relatively poor country and was thus vulnerable to external shocks such as the pandemic. USAID notes that 46% of the country’s population live on less than US$1.90 per day.

    The economy is dominated by agriculture, with the major foreign-exchange earners being cotton, coffee, tea, tobacco and sugar. Mining is also significant, with the country possessing the fourth-largest gold-mining sector in Africa. Gold accounts for about 38% of the country’s foreign earnings. Tanzania is also the world’s only producer of the precious stone tanzanite.

    Tourism, especially foreign visitors to the island of Zanzibar, is also a significant revenue earner. The sector was, of course, hit hard by COVID-19 issues after Magufuli refused to roll out a vaccine programme to contain the pandemic and halted reporting data to the WHO. However, Hassan launched a vaccine programme in August 2021. In the year to May 2022, tourism revenues recovered to US$1.6 billion, up from US$795 million in the previous year.

    Yet, a series of natural gas discoveries since 2011 has offered the country the opportunity to step up to the next level. A gas deal, however, proved elusive under Magufuli, as the late president’s suspicion of international companies disrupted negotiations and spooked potential investors.

    Tanzania’s relationship with capitalism and markets has always been complicated. The country’s iconic first president, Julius Nyerere, who held office from 1961 to 1985, chose to pursue a distinctively African type of socialism, called Ujamaa.

    Tanzania, once a prominent tourism drawcard, is rebuilding the sector while looking to other industries as major revenue earners

    In Tanzania, Nyerere is revered as the father of the nation. Under his rule, the country achieved near-universal literacy and considerable cohesion as a nation thanks to the entrenchment of a single national language, Swahili – originally the lingua franca of the trading coast, and the displacement of traditional leaders by the ruling party, then called the Tanganyika African National Union. The same political party, rebranded Chama Cha Mapinduzi (CCM) in 1977 after merging with the ruling party from the island of Zanzibar, has been in power ever since independence. Although a multi-party system was introduced in 1995, the CCM has won an outright majority in every election since then.

    Ujamaa was much less successful at driving economic growth. When Nyerere retired in 1985, Tanzania was one of the poorest nations in the world. His successors introduced market reforms and set out to attract international investment. The Tanzania Investment Centre was established in 1997 to engage with foreign companies and manage government investment incentives.

    Magufuli was best-known for challenging the conditions of investment offered to international firms since the mid-1990s. He was a man with a blunt and outspoken personal style – as suggested by his nickname ‘the Bulldozer’ – and who believed that Tanzania was not getting its fair share of the revenues generated especially in the gold mining and natural gas sectors.

    His heavy-handed interventions in the period 2015 to 2017 saw corporate taxes hiked and forced local ownership (including compulsory registration on the Dar es Salaam Stock Exchange). His government passed a law giving the Tanzanian Revenue Authority the power to seize the accounts of foreign traders over alleged unpaid taxes.

    Magufuli’s forceful leadership style also challenged corruption and complacency in government. This was popular with many Tanzanians, but it did disconcert potential investors, including the oil and gas majors that were looking at developing the large gas fields found since 2011 offshore of Lindi in the south of the country.

    The 57.54 tcf of proven gas reserves found so far in Tanzania are the sixth-largest in Africa and have the potential to dramatically accelerate the country’s development. The Bank of Tanzania estimates that developing these discoveries would boost GDP by two percentage points.

    The original plan, announced in 2014, was to secure investment of US$30 billion to build two liquefied natural gas (LNG) trains at Lindi, thus positioning Tanzania as a major LNG exporter. Oil and gas majors Royal Dutch Shell and Norway’s Equinor were poised to invest. However, Magufuli changed the rules with the 2015 Petroleum Act and other resources laws, which disrupted negotiations. In 2019, the Tanzanian government suspended talks. In an article published in the local press in response, the two energy companies argued that ‘critical decisions’ were needed imminently and that ‘the window in which to act to develop new resources is limited’.

    In her very first speech in Parliament as president, Hassan spoke of the need to revive the LNG project. ‘We have been singing the LNG song for a very long time. I remember when I was sworn in as vice-president [in 2015] I tried to work on it but discovered it was beyond me and stopped,’ she said.

    Hassan effectively signalled a U-turn, setting out to court international investment, especially in the oil and gas sector. ‘We should offer incentives to strategic investors and dismantle hurdles that stop them doing business in the country,’ she said in her inaugural address.

    The new president re-opened negotiations with the oil and gas firms and ordered her government to simplify the issuing of work permits, among other reforms.

    This more business-friendly approach bore its first major fruit in June this year when government signed a host government agreement (HGA) with a consortium representing oil and gas firms Equinor, ExxonMobil Shell and Ophir Energy.

    A framework deal is a critical moment in the process towards a final investment decision (FID). It defines the fiscal, legal and commercial terms of the onshore (LNG component) of the project and allows front-end engineering and design to begin. An FID is expected by 2025.

    ‘LNG is very unique as it brings both capital and revenue. When completed, the project will change the country’s economic outlook, unlock growth and capture benefits from LNG exporting to the global market,’ Hassan said, when announcing the HGA.

    Under Magufuli, not only had Tanzania become a hostile environment for foreign investors, it had also isolated itself from much of the world. The Washington-based Centre for Strategic and International Studies argues that ‘Magufuli disrupted regional trade and alienated regional leaders with his unconventional approach to COVID-19’.

    When government failed to introduce strong anti-COVID measures, neighbours Zambia and Kenya banned direct flights. Magufuli responded by banning Kenyan carriers and limiting cross-border trade.

    Hassan has rolled back these isolationist measures. In her first four months she visited Uganda, Kenya and Burundi on official visits and attended a SADC emergency meeting on the security crisis in Mozambique’s Cabo Delgado province. In April she met US Vice-President Kamala Harris in the White House, a meeting that appears to signal a change of direction for Tanzania.

    Many of Magufuli’s politically repressive measures are still on the books, including restrictions on the media and NGOs. Nevertheless, Hassan is widely regarded as a more liberal reformer and appears to be much more business-friendly. She has already announced that she will stand for president in the next elections in 2025. That will offer investors continuity and allow her to build on her current impetus.

    By David Christianson
    Images: Gallo/Getty Images