I S SU E 3 77729 T h e Wo r l d B a n k Pove r t y Re d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a Re g i o n Opening the Gates How the port of Dar es Salaam can transform Tanzania May 2013 TH E WORLD BANK GR OUP AFRICA REGION POVERTY REDUCTION & ECONOMIC MANAGEMENT PAGE http://www.worldbank.org/tanzania/economicupdate. http://www.worldbank.org/tanzania/economicupdate a T A N Z A N I A E C O N O M I C U P D A T E • M A Y 2 0 13 , 3 R D E D I T I O N PAGE http://www.worldbank.org/tanzania/economicupdate. b T h e Wo r l d B a n k Pove r t y Re d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a Re g i o n Table of Contents .............................................................................................................................. v FOREWORD. ACKNOWLEDGEMENT............................................................................................................ vi ...................................................................................................................... vii KEY MESSAGES. PART 1: THE STATE OF THE ECONOMY................................................................................. 1 1.1 Recent Developments: Renewed growth, declining inflation, concerns regarding debt sustainability.......................................................................................... 3 1.2 Economic Outlook: A need to improve the business environment, human capital and public administration................................................................................15 1.3 Open Trade: Achieving economic growth, job creation and sustainable development....................................................................................................................22 PART 2: TRANSFORMING THE PORT OF DAR ES SALAAM TO DRIVE GROWTH............29 ..................................................................31 2.1 How bad is the Port of Dar es Salaam?. 2.2 Perverse Incentive Structures: Rewarding inefficiency........................................37 2.3 Resistance to reform: Unequal bargaining power of winners and losers from the status quo...................................................................................................41 2.4 Appetite for Change..................................................................................................42 2.5 Recommendations: How to implement efficiency enhancing reforms.............43 STATISTICAL ANNEXES......................................................................................................... 47 1: Key Macroeconomic Indicators................................................................................................48 ..................................................................................49 2: Growth and Structure of the Economy. 3: Quarterly GDP Growth Rates 2002-2012`.............................................................................50 4: Fiscal Framework as percent of GDP......................................................................................51 ..................................................51 5: Provisional Monthly Government Expenditures 2012/13. PAGE http://www.worldbank.org/tanzania/economicupdate. i T A N Z A N I A E C O N O M I C U P D A T E • M A Y 2 0 13 , 3 R D E D I T I O N 6: Balance of Payments (percent of GDP unless otherwise indicated)...............................52 7: Monthly Imports of Goods and Services 2012-2013 (in USD million)............................53 8: Monthly Exports of Goods and Services 2012-2013 (in USD million)............................54 9: Inflation Rates.............................................................................................................................55 10: Monthly Food Crop Prices (wholesale): Tanzania TSh illings per 100 kg.......................55 11: verage Wholesale Prices (2012-2013): Tanzania TSh illings per 100 kg.........................56 ...........................................................................56 12: Inflation Rates (selected items of the CPI). 13: Exchange and Interest Rates...................................................................................................57 14: Monetary Indicators..................................................................................................................58 15: Dar es Salaam Port: Cargo Traffic (000 tons).....................................................................59 16: Dar es Salaam Port: Container Traffic (000 TEUs).............................................................59 LIST OF FIGURES Figure 1: Annual GDP growth in Tanzania – a steady-state performance close to 7 percent..4 ........ 4 Figure 2: Quarterly GDP Growth -- Faster and less volatile than Kenya and Uganda. ........ 7 Figure 3: Two-third of GDP growth is explained by five sectors of economic activity. Figure 4: Fastest Growing Sectors, average 2008-12................................................................. 7 Figure 5: Tanzania: Stable domestic demand drives economic growth................................. 8 Figure 6: Uganda: Volatile domestic demand and external factors explain GDP fluctuations..8 Figure 7: Drivers of Growth: Domestic Demand and Net Exports in selected East Asian countries............................................................................................................................. 9 Figure 8: Inflation Trend in Tanzania............................................................................................ 10 Figure 9: Inflation in Tanzania compared to Kenya and Uganda............................................ 10 Figure 10: Private sector credit growth: A regional comparison............................................... 11 ........................................................................................... 11 Figure 11: Inflation and Private Credit. Figure 12: Overall Fiscal Deficit back on the rise......................................................................... 12 Figure 13: Lower Current Account deficit and stable international reserves......................... 14 Figure 14: A Gradual shift in the Source of Foreign Capital...................................................... 14 Figure 15: Export Growth, 2011 and 2012.................................................................................... 15 Figure 16: Import Growth, 2011 and 2012................................................................................... 16 Figure 17: The political cycle of public expenditures in Tanzania............................................20 Figure 18 : Tanzania: Increased openness to international trade since 2000.........................23 PAGE http://www.worldbank.org/tanzania/economicupdate. ii T h e Wo r l d B a n k Pove r t y Re d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a Re g i o n Figure 19: Exports trends, 2002-2012, USD Million....................................................................24 Figure 20: Imports trends, 2000-2012, USD Million...................................................................24 Figure 21: Bilateral Trade Costs with China, 2009......................................................................26 Figure 22: Tanzania’ three main hinterland corridors.................................................................28 Figure 23: The chain of transactions in the port.........................................................................33 LIST OF TABLES Table 1: Tanzanians pay more for food than in many other developing countries......... 11 Table 2 : Revenue trends (December actual vs. December target......................................12 Table 3 : Macro-economic projections (% of GDP, otherwise indicated)........................... 16 Table 4: World ranking in four policy areas............................................................................. 18 Table 5: Total additional costs due to the inefficiency of the port compared to Mombasa, (USD per ton or indicated), May-June 2012........................................34 Table 6: Comparison of port efficiency for containers between Dar es Salaam and Mombasa, May-June 2012..........................................................................................36 Table 7 : The global cost associated to the port inefficiency in 2012, USD million..........38 PAGE http://www.worldbank.org/tanzania/economicupdate. iii Abbreviations and Acronyms AfDB African Development Bank BoT Bank of Tanzania CPI Consumer Price Index EAC East African Community EU European Union EUR Euro FDI Foreign Direct Investment GAPCO Gulf Africa Petroleum Corporation GDP Gross Domestic Product ICD Inland Container Depot IGC International Growth Center IMF International Monetary Fund MOF Ministry of Finance MPH Movements per hour NBS National Bureau of Statistics OECD Organization for Economic Co-operation and Development PCS Port Community System PSPF Public Service Pension Fund SDR Special Drawing Rights SUMATRA Surface and Marine Transport Regulatory Authority TANESCO Tanzania Electrical Supply Company TPA Tanzania Ports Authority TRA Tanzania Revenue Authority TICTS Tanzania International Container Terminal Services TSh Tanzanian Shilling UK United Kingdom USAID United States Agency for International Development USD United States Dollars PAGE http://www.worldbank.org/tanzania/economicupdate. iv T h e Wo r l d B a n k Pove r t y Re d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a Re g i o n Foreword When we launched the Tanzania Economic Tanzania has gradually opened its economy Update series in February 2012, we had a since the early 2000s, it is also true that simple objective in mind: to contribute to business coming in and going out of the the policy debate within Tanzania by sharing country remains costly. non-technical economic analysis, preferably with a larger audience. The wide media To reduce trade costs, the priority should coverage of the series as well as the interest be to transform the Port of Dar es Salaam. in the blog show that indeed the debate An efficient port is critical because has been gradually moving from ministerial approximately 90 percent of Tanzania’s corridors to the public arena. international trade goes through its gates. The port also happens to be the gateway This latest update foresees that the for six neighboring countries. Almost all Tanzanian economy will maintain its local firms that responded to the KPMG/ resilience by continuing to grow at about World Bank survey are negatively affected 7 percent in the coming years. If some by the performance of the port. Altogether, clouds are looming on the external and Tanzania and its neighboring countries fiscal horizons, the update argues that the could earn up to USD2.6 billion more per risks they pose should be manageable. A year, only by bringing the efficiency of the KPMG/World Bank pulse check survey of Dar es Salaam Port to the level of the port the economy – whose details are presented of Mombasa. in this report – underpins this optimism. The majority of the country’s top 100 mid-size We suggest that the time for action is enterprises believe that 2013 will be better now. The new ‘Big Results, Now!’ initiative than 2012; and 2014 better than 2013. launched by the Government has put the port of Dar es Salaam at the center of the Nevertheless, a growing consensus today is agenda. This is a welcome development for that Tanzania needs to rely more than today local and regional consumers and firms that on private enterprises to achieve faster and heavily depend on the performance of the more equitable growth, as private enterprises port in their daily endeavors. are the ones that can provide jobs, build infrastructure, and bring new technology to the local economy. Many actions are needed on the policy front, especially to improve the business environment. Local firms need to Philippe Dongier trade across borders in order to develop Country Director for Tanzania, Uganda and their competitive edge and grow. While Burundi PAGE http://www.worldbank.org/tanzania/economicupdate. v Acknowledgement This third edition of the Tanzania Economic the comments shared by Yonas Mchomvu, Update was prepared by Jacques Morisset. Jean-Michel Noel, Martin Humphreys, The author acknowledges the contributions Kristoffer Wielsen, and Thomas Baunsgaard of Victoria Cunningham, Emmanuel A. (IMF). Mungunasi, Goodluck Mosha, Loy Nabeta, Jeff Delmon, Andrea Dall’Olio, and Yutaka Yoshino. The team received guidance from Albert Zeufack and Philippe Dongier. Irfan The report benefited from the insights of Kortschak edited the report, while Agnes several peer reviewers, Jean-Pierre Chauffour Mganga provided invaluable assistance and Tadatsugu Matsudaira, as well as from during its preparation. PAGE http://www.worldbank.org/tanzania/economicupdate. vi T h e Wo r l d B a n k Pove r t y Re d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a Re g i o n Key Messages It is 2030, and a Chinese university lecturer PART 1: THE STATE OF THE ECONOMY is explaining how the economy of Tanzania, Tanzania’s economy has been growing once a poor country, has grown and steadily for the past 10 years. In 2012, the expanded to surpass the East Asian tigers. economy expanded by 6.9 percent, which is To his wide-eyed students, he explains how close to its more recent historical average. the country opened itself to the world in the Most top business leaders believe that 2000s, following which Tanzania’s exports the economy is performing better in 2013 increased by a phenomenal 15 percent each than in 2012 and are positive about the year. prospects for 2014, as revealed by the new KPMG/World Bank ‘Pulse of the Tanzanian He explains how Tanzania leveraged its Economy’ survey. geographical location, modernized its ports, and built roads, making it the regional hub The growth in the economy has been for six landlocked countries. Perhaps the unusually stable, by both regional and global most startling success, he tells his students, standards. This stability is explained by three was the transformation of the port of Dar es factors. First, five crucial sectors have been Salaam from a low base to become the most expanding rapidly, with these five sectors efficient on the African continent. driving almost 60 percent of growth in This scenario for Tanzania’s future is by GDP since 2008. These sectors include the no means impossible; if the appropriate communications sector, whose contribution Most top business actions are taken to improve the port of Dar to GDP has doubled since 2008. leaders believe that es Salaam as a priority by the Tanzanian The growth of this sector has transformed the economy is Government. The inefficient state of the the manner in which Tanzanians trade and performing better port results in missed opportunities for do business by facilitating a revolution in in 2013 than in 2012 local exporters while it imposes extra costs banking. With the rapid spread of mobile and are positive for consumers and investors on imported banking services, an estimated 45 percent of about prospects for goods. Tanzanian adults use their phone to receive 2014. Fortunately, a number of recent initiatives and transfer money, with the cumulative may indicate a brighter future for the port value of these transfers reaching an and, thus, for the entire Tanzanian economy. estimated USD 1.4 billion per month. PAGE http://www.worldbank.org/tanzania/economicupdate. vii T A N Z A N I A E C O N O M I C U P D A T E • M A Y 2 0 13 , 3 R D E D I T I O N Second, economic growth has been fueled 1.5 percent of GDP, mostly with construction by a steady increase in domestic demand, companies. At some point, these will have to with this increased demand resulting from be paid. At the same time, the Government the rapid rate of population growth. With has not met its revenue target, with the its current, constant rate of population shortfall amounting to a sum equivalent to growth of 2.7 percent per year, Tanzania’s 0.7 percent of GDP in December 2012. In population is doubling every 25 years. turn, this has led the Government to limit the execution of public expenditure in the Third, Tanzania’s economic performance first quarter. has been fairly independent from net external trade, which is explained by the The current account imbalance improved country’s relative isolation from world over the year, thanks to increased With its current, markets. growth in the exports of agricultural constant rate of and manufacturing products. However, population growth Since early 2012, inflation has declined, there has been a shift away from aid and of 2.7 percent per dropping to 9.8 percent in March 2013. FDI inflows, balanced by increased non- Lower food prices and prudent monetary year, Tanzania’s concessional borrowing. This shift needs to policy have been the main contributors to population is be properly managed to preserve debt and this welcome development. However, this doubling every fiscal sustainability in the future. inflation rate is still double that of Uganda’s 25 years. and Kenya’s. Furthermore, local food prices The forecast for 2013-15 is positive, with the are significantly higher in Tanzania than rate of growth of GDP expected to continue in a sample of comparable developing along its recent notable trend. The boom countries. in natural gas production may eventually result in an even higher rate of growth, but This specifically harms Tanzania’s poorest this will not occur for 7-10 years. Meanwhile, citizens, as basic foodstuffs constitute more if it follows the example of successful than half of poor households’ consumption emerging countries, Tanzania will have baskets. For example, the local price of no other choice than to improve policy maize is 60 percent higher than in Brazil aspects in the areas of human development and South Africa, while one kilogram of (Tanzania is currently ranked 152nd out of rice is 40 percent more expensive than in 182 countries on the HDI index); its business Thailand. environment (134th out of 185 countries); and government effectiveness (135th out of Fiscal policy appears to be under control. 212 countries). However, there are clouds on the horizon signaling a higher overall deficit in 2012/13 For the last two indicators, Tanzania’s than in 2011/12. The financial crisis in ranking has deteriorated over recent years. TANESCO, the state-owned electricity Corruption is also perceived as the most producer, has necessitated additional severe constraint by almost half of business expenditure by the Government and leaders, a far higher proportion than the will continue to do so in the future. number who identified access to finance The Government has also accumulated and infrastructure deficiencies as severe payment arrears equal to a value of about constraints. PAGE http://www.worldbank.org/tanzania/economicupdate. viii T h e Wo r l d B a n k Pove r t y Re d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a Re g i o n Downward economic risks are partially linked is not a very open country, with its trade to the Government’s spending, which is not openness ratio roughly in the middle of the fully immune from the political cycle. A look pack among 200 countries. at the past 20 years (during which period four national elections have been held) One constraint against the further indicates that public expenditures have expansion of trade has been high transport always grown faster during pre-election and costs. Trade costs are 60 percent higher election years. between Tanzania and China than between Brazil and China where the distance involved Resisting the temptation to increase the is almost two-fold. While a country’s public deficit will be difficult in a period level of competitiveness is determined by when the budget is also under pressure to multiple factors, affordable transport costs close the financial gap in the energy sector, are indispensable to facilitate trade with and to pay arrears to road contractors and international markets. pension funds. Approximately 90 percent of Tanzania’s Fiscal space has been eroded by the surge international trade transits through the in public debt, which has increased from Dar es Salaam port. A significant portion a value equivalent to 30 percent of GDP of regional trade, notably with Zambia and in 2008 to a projected value of 45 percent DRC, also passes through this port. If the of GDP by the end of 2012/13. While this port of Dar es Salaam were to become as level of public debt is not excessive, its efficient as Mombasa’s, the Tanzanian management requires careful attention. economy would gain almost USD 1.8 billion per year, equal to approximately seven For this reason, the authorities will need percent of its current GDP. Regional gains to achieve significant improvements in would be in the range of USD 800 million per revenue collection to finance the ambitious year. This is equivalent to more than USD 40 investment programs for 2014 and 2015. per person, a significant sum compared to Any marked departure from prudent public current average incomes. Tanzania could debt policy could result in fiscal and/or improve its economic balance of payments problems. PART 2: MODERNIZING THE prospects if the DAR ES SALAAM PORT Tanzania could improve its economic country accelarated The port of Dar es Salaam is inefficient. prospects if the country accelerated further further the process Reducing these inefficiencies has been the process of opening up the country to of opening up a priority in recent national strategies. international trade. Over the past decade, the country to However, the implementation of necessary the volume of exports and imports has international trade. policy reforms and investments has been grown by more than 15 percent almost slow. every year. Increasingly, Tanzanian firms and consumers have been looking abroad The lack of enthusiasm for reforms is to satisfy their needs for appropriate explained by the asymmetric distribution of equipment and materials. benefits and costs associated with the current inefficiency of the port, which is exploited by However, by global standards, Tanzania a handful while costing multiple consumers, PAGE http://www.worldbank.org/tanzania/economicupdate. ix T A N Z A N I A E C O N O M I C U P D A T E • M A Y 2 0 13 , 3 R D E D I T I O N firms, and households across the country. 10 days on average to unload merchandise, While 96 percent of the senior managers clearing and transporting it from the port at mid-size firms surveyed by KPMG/World facilities in mid-2012. The excessive dwell Bank state that their businesses are affected time is mainly due to slow processes, by the port’s performance, it represents a including customs clearance processing, major constraint for only one-third of them. and excessive storage periods. However, put together these costs amount to almost seven percent of Tanzania’s Shipper using the port of Dar es Salaam annual GDP. have to pay higher fees than in Mombasa to port operators and agencies for their The performance of the port of Dar es services. The official port fees are on average Salaam has varied over time. As a result of 74 percent higher in Dar es Salaam than in privatization in the 1990s, the port became Mombasa, principally as a result of higher one of the most efficient in Sub-Saharan wharfage charges. Africa, but its performance deteriorated gradually up to the mid-2000s. The slow progress in implementing reforms is largely due to the unequal bargaining The inefficiencies result in long delays, first power between those who stand to win at anchorage, and second in the series of from a more efficient, better managed port operations necessary to exit merchandise and those who stand to lose, never mind from the port (the so-called ‘dwell time’). that the national economy is the overall loser. The port authorities have recently renewed endeavors to implement reforms aimed The first source of gain from the status quo at accelerating operations through, for relates to the existing storage tariff structure instance, the establishment of an electronic at the port, which does not encourage single window system and the facilitation of importers to remove their merchandise the direct delivery of cargo. from port premises in a timely fashion. If the port of Dar es Salaam Comparing the port of Dar es Salaam to The second source of gain from the status were to become that of Mombasa, the total cumulative cost quo results from extremely prevalent as efficient as of the delays and additional monetary costs corrupt practices (although anecdotal evidence suggests this has improved in Mombasa’s Tanzania in the former case are equivalent to a tariff of 22 percent on container imports and of recent months). Rent-seeking behavior would gain almost about 5 percent on bulk imports. has been exacerbated by the use of USD 1.8 billion discretionary rules that contribute to the per year. The first delay faced by shipping companies typical asymmetric information problem is the time at anchorage. As of May/June between administrators and users. 2012, container vessels were queuing for 10 days on average while waiting for a berth in The third source of gain from the status quo Dar es Salaam, while the waiting time was is that it acts as an unofficial tariff barrier less than one day in Mombasa. protecting local producers. For containerized cargo, the inefficiencies of the port facilities Secondly, the port of Dar es Salaam is have the same impact as a tariff of 22 characterized by a long dwell time, taking percent, or about three times the weighted PAGE http://www.worldbank.org/tanzania/economicupdate. x T h e Wo r l d B a n k Pove r t y Re d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a Re g i o n average duty tariff on total merchandise A number of recent initiatives indicate trade in Tanzania. political willingness to implement reforms. A number of recent If further momentum can be achieved and initiatives indicate Most of those benefitting from the current the port improved, this would result in a political willingness inefficient state of the port are among the brighter future for the Tanzanian economy. to implement largest firms in the country, with significant market power and influence. Recommendations to increase efficiency reforms. Yet the cost of inaction is already too great include the following: (a) Increasing end- for Tanzania and its neighbors. If the current users’ awareness of costs related to port situation is not remedied, the port of Dar es inefficiency; (b) reducing the bargaining or Salaam might lose its existing market share monopolistic power of those who currently in regional trade, particularly when other benefit from the status quo; (c) reducing ports and railways become operational in corruption; (d) motivating reformers; and neighboring countries. (e) improving coordination. PAGE http://www.worldbank.org/tanzania/economicupdate. xi T A N Z A N I A E C O N O M I C U P D A T E • M A Y 2 0 13 , 3 R D E D I T I O N PAGE http://www.worldbank.org/tanzania/economicupdate. xii T h e Wo r l d B a n k Pove r t y Re d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a Re g i o n 1 The State of the Economy PAGE http://www.worldbank.org/tanzania/economicupdate. 1 Part I: The State of the Economy • Since 2008, Tanzania’s strong, steady economic growth has been driven by a small number of rapidly expanding sectors (communication, financial services, construction, manufacturing and retail) and by resilient domestic demand. Despite its low growth rate, agriculture is a driver of growth due to its large total share of GDP. The economy has a limited dependence on net external trade. • In recent months, the fiscal and external balances have remained under control. However, this has been threatened by the parastatal electricity producer TANESCO’s financial problems; the growing amount of payment arrears accumulated by the central administration; and the shift towards public non-concessional borrowing. • The forecast for 2013-15 is broadly positive, as long as macro management remains prudent in the run up to the elections. That said, economic growth will remain constrained by Tanzania’s weak performance in policy areas, including the business environment, human development, and government effectiveness. • Tanzania’s prospects would be much brighter if the country were to accelerate further the process of opening to international trade that was first initiated in the early 2000s and were it to capitalize on its move towards world markets. This would bring productivity gains and help the country consolidate its role as a regional hub. • To achieve this, transport costs need to be reduced. In spite of Tanzania’s favorable geographic position, it costs 60 percent more to trade between Tanzania and China, than between Brazil and China where the distance is two-fold. PAGE http://www.worldbank.org/tanzania/economicupdate. 2 T h e Wo r l d B a n k Pove r t y Re d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a Re g i o n The extremely high rate of growth public finances appear under control, in Tanzania’s economy is based on TANESCO’s financial troubles resulted in strong and consistent macroeconomic substantial readjustments to the budget. fundamentals. Growth is largely driven by Lastly, the shift towards non-concessionary a few fast growing sectors and by steady borrowing has raised some concerns about domestic demand, while the contribution the country’s debt sustainability. of net external trade remains marginal. Tanzania’s growth: Key sectors, limited Prospects for future growth are good, so volatility long as fiscal and external vulnerabilities are managed well. Despite the insulating effect In 2012, Tanzania’s rate of economic of the limited exposure to external trade, growth continued to be high, reaching an increased openness to such trade could 6.9 percent (Figure 1). This is close to the help propel the Tanzanian economy on a historical average achieved over the past faster and more equitable growth trajectory, decade and up from 6.4 percent in 2011. facilitating the achievement of double- This rebound has generated increased digit economic growth and middle-income confidence, with 80 percent of surveyed top status. However, at present, one of the major business leaders stating that the economy constraints to expanding the contribution is performing at par or better now than last of international trade is excessive transport year in the new KPMG/World Bank ‘Pulse of In 2012, Tanzania’s costs, which are often significantly Tanzania’s Economy’ (see Box). rate of economic higher than in other successful emerging growth continued economies. Ultimately, a country needs Tanzania’s consistently high rate of to be high, reaching 6.9 percent. to be physically connected to the outside growth is unique by regional standards. world in order to trade internationally. Tanzania’s economy has not been characterized by the same levels of volatility seen in the economies of Kenya, Uganda and 1.1 Recent Developments: Renewed most African countries. This is a testament growth, declining inflation, to the positive impact of the limited use of concerns regarding debt ‘stop and go’ fiscal and monetary policies and sustainability of a relatively stable political environment. The continued expansion of a few fast- Neither was Tanzania’s economic growing sectors and sustained domestic performance significantly impacted by the demand has pushed the rate of growth of recent volatility in the global economy. From GDP to 6.9 percent in 2012, close to historical quarter to quarter, Tanzania’s rate of growth averages and up from 6.4 percent in 2011. in GDP in 2011/12 exhibited a remarkable The rate of inflation has slowed, declining stability, demonstrating the country’s strong gradually to a single digit figure, although resistance to internal, regional and global local consumers and investors are still shocks (Figure 2). affected by relatively high prices. Although PAGE http://www.worldbank.org/tanzania/economicupdate. 3 T A N Z A N I A E C O N O M I C U P D A T E • M A Y 2 0 13 , 3 R D E D I T I O N Tanzania’s Economy: Strong, Consistent Growth Figure 1: Annual GDP growth in Tanzania – a Figure 2: Quarterly GDP Growth -- faster and less steady-state performance close to 7 percent volatile than Kenya and Uganda Source: World Bank, IMF, and MoF The key factors explaining Tanzania’s strong and steady performance include: (a) the rapid growth of a number of economic sectors; (b) the fact that volatility has been confined to sectors with a limited overall impact on GDP; (c) the constant – although weak – growth of the agricultural sector; (d) the steady expansion in domestic demand; and (e) the country’s limited exposure to external shocks. PAGE http://www.worldbank.org/tanzania/economicupdate. 4 T h e Wo r l d B a n k Pove r t y Re d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a Re g i o n THE PULSE OF THE TANZANIAN ECONOMY A KMPG -WORLD BANK INITIATIVE The views of the managers of the top 100 mid-sized companies in Tanzania were collected in early April 2013 (*). Almost half of these business leaders consider that the overall economy is performing better than last year. They are also positive about 2014, for the whole economy and their own business, with two-thirds of respondents believing that they will perform better in 2014 than in 2013. By far, corruption is viewed as the single most significant constraint to doing business, followed by taxes and regulation, access to finance, and trade barriers. By contrast, inadequate infrastructure, security and labor regulation were not regarded as severe constraints by the majority of the surveyed managers. 1. How do you believe the Tanzanian economy is performing Better 37% compared to last year? A total of 43 percent of the 50% Worse respondents feel that the economy is performing better in 2013 than in 2012, while 37 percent feel it is the same and The same 20 percent said that it is now worse than 2012 13% 2. How do you expect the Tanzanian economy to perform in the coming year? There was 37% Better optimism among the respondents, with 50 43% percent believing that the Tanzanian economy Worse will improve in 2014. However, 13 percent of The same respondents believe that the economy will decline 20% and 37 percent believe it will remain approximately unchanged. 3. How do you think that your business will perform during the next 12 months compared to now? 68 30% Better percent of the respondents believed that their business will perform better in the coming 12 months, Worse By far, corruption is while 30 percent believed that performance will 2% 68% The same remain roughly the same. Only 2 percent felt that viewed as the single their business will be worse off in the coming 12 most significant months. constraint to doing 4. What do you see as the most problematic factors for doing business in Tanzania (max. 2 bussiness, followed responses)? Corruption was considered to be the most significant constraint to doing by taxes and business by 43 percent of respondents, followed by tax rates and regulations (29 percent) regulation, access and access to finance (24 percent). to finance and trade 1 Restrictive labour regulations barriers. 2 Crime and thef t 5 Foreign currency regulations 5 Poor work ethic in national labour f orce 6 Insuf f icient capacity to innovate 6 Inadequate supply of inf rastructure 7 Others 8 Inf lation 9 Inadequate educated work f orce 10 Policy instability 15 Inef f icient government bureaucracy 18 trade tarrif s and barriers 24 Access to f inancing 29 Tax rates and regulations 43 Corruption 0 10 20 Units 30 40 50 (*) Data was compiled by KPMG, through electronic questionnaires. Responses were anonymous, with a response rate of 96 percent PAGE http://www.worldbank.org/tanzania/economicupdate. 5 T A N Z A N I A E C O N O M I C U P D A T E • M A Y 2 0 13 , 3 R D E D I T I O N On the supply side, a few rapidly growing manufacturing; and the retail and wholesale economic sectors have made a steady trade sectors have all expanded by more contribution to Tanzania’s growth. The than 30 percent since 2008. These five communications sector has doubled its sectors have contributed to almost 60 levels of activity in the period from 2008 to percent of total GDP growth during this 2012 (see box). period, with the combined contribution of 15 other sectors amounting to 40 percent Similarly, the financial sector; construction; (see Figures 3 and 4). Atmost half of all adults in Tanzania A bank in your pocket: The mobile money revolution in Tanzania in 2011 used mobile The mobile phone is a truly innovative device, facilitating change not just in the way money at least that people communicate and access information, but also in the way that they transact occassionally. business. Mobiles are not only being used as radios and flashlights, they are also dramatically increasing access to banking and financial services by those who urgently need them. Increasingly, people around the world, especially in Africa, are paying their school fees, healthcare and utility bills using mobile phones. Businesses use mobile phones to pay their staff and suppliers. Poor people who have never entered a bank are using mobile services to send or receive remittances and to save their money. ‘Mobile money’, as it has been dubbed, is growing at an amazing pace across Africa, particularly in East Africa, as shown by the following statistics for Tanzania: • The total number of registered mobile customers surged from 14,000 in June 2008 to 19.4 million in November 2011. In the last year alone, the number of users increased by approximately one million, to 20.4 million in November 2012. • The total value of funds stored in mobile accounts increased from Tsh3 billion in June 2009 to Tsh157.8 billion in November 2012. • The total number of monthly transactions increased from 1.9 million in 2010 to 48 million in September 2012. • The value of mobile transactions has increased exponentially, from Tsh1.4 million in 2007 to Tsh1.8 billion in 2010, to Tsh1.7 trillion in 2012. In the month of September 2012 alone, the aggregate value of mobile money transactions in Tanzania was equivalent to the value of approximately 14 percent of total deposits held by commercial banks. Almost half of all adults in Tanzania in 2011 used mobile money at least occasionally. This is a much lower rate than in Kenya (73 percent) but significantly higher than in middle- income countries such as Brazil and Argentina (only 1 percent). The dramatic growth of mobile money has attracted many investors. ‘Big’ communication companies and commercial banks are jumping on the bandwagon, sometimes through the formulation of strategic alliances. At the other end of the spectrum, small innovators have also developed new products, targeting new consumers and creating new ways to do business. PAGE http://www.worldbank.org/tanzania/economicupdate. 6 T h e Wo r l d B a n k Pove r t y Re d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a Re g i o n Another stabilizing factor has been the land, which in turn is highly correlated to constant, albeit weak, performance population growth, rather than by variations of the agricultural sector. This sector, in productivity. In the period from 2008 which contributes to almost one quarter of to 2011, climatic conditions, particularly Tanzania’s overall GDP, has reported little rainfall, have been relatively stable in most variation in its annual growth rate, with this regions1 These factors explain the limited rate ranging from only 3.5 to 4.9 percent volatility of the economic performance over the past few years, barely exceeding of the agricultural sector and its stable the population growth rate. Growth is contribution to overall GDP growth. largely driven by the expansion of cultivable Tanzanian economic growth has been driven by a few, fast growing sectors Figure 3: Two-third of GDP growth is explained by -12 Figure 4: Fastest Growing Sectors, average 2008 five sectors of economic activity Source:NationalStatisticalOffice Expansion To a large extent, Tanzania’s economic the rapid, steady growth in the country’s in domestic stability is explained by the steady population and by the steady growth in consumption expansion in domestic demand over the average per capita incomes over the past has been largely past decade, with growth in domestic decade. Levels of domestic investment driven by the rapid, consumption and investment accounting have been somewhat more volatile than steady growth for almost 90 percent of economic levels of consumption, as the former is quite in the country’s growth in the period from 2002 to 2012 sensitive to fluctuations in the business population and by (see Figure 5). This is somewhat similar environment. However, the decline in levels the steady growth in to the experience of a number of large of domestic investment in the period from avarage per capita developing countries, such as China, at 2008 to 2012 has been offset by a higher incomes over the comparable periods of their economic level of public consumption, resulting in a past decade. development. Expansion in domestic stable contribution of aggregate domestic consumption has been largely driven by demand to GDP growth. 1 FAO’s data indicate that rainfalls were almost constant between 2008 and 2012. As an illustration, in the regions of Arusha and Mbeya –two agricultural centers – rainfall only varied by 18 and 27 percent, respectively, between the minimal and maximum values reported during this period. PAGE http://www.worldbank.org/tanzania/economicupdate. 7 T A N Z A N I A E C O N O M I C U P D A T E • M A Y 2 0 13 , 3 R D E D I T I O N The relatively steady level of growth in the performance of the agricultural sector, domestic demand in Tanzania contrasts which contributes to a much higher with that of neighboring countries such proportion of GDP than in Tanzania – and as Uganda. Up to the mid 2000s, Tanzania variations in fiscal policy (from expansive and Uganda displayed somewhat similar in 2009/11 to restrictive in 2011/12). By patterns of economic growth. However, this contrast, the contribution of Tanzania’s is no longer true. In recent years, Uganda’s aggregate domestic demand to economic aggregate domestic demand has fluctuated growth has remained relatively stable over significantly as the result of dramatic the period (Figure 6). changes in climatic conditions – affecting Tanzania and Uganda: Stability versus Volatility Figure 5: Tanzania: Stable domestic demand drives Figure 6: Uganda: Volatile domestic demand and economic growth external factors explain GDP fluctuations Source: World Bank, IMF, andMoF. Global volatility and other external factors was reflected by variations in its overall GDP have had relatively little influence on during this period. Tanzania’s economic performance. One The marginal negative contribution of reason is that the local financial sector has net external trade to Tanzania’s economic been and continues to be weakly connected performance has to be expected at the to global markets. Another explanation country’s current stage of economic is that despite the recent increase in the development. However, this does not mean volume of international trade, the economy that exports have not expanded rapidly in remains relatively closed, as seen by the Tanzania over the past decade. Rather, it can low negative contribution of net external be explained by the fact that for each dollar’s trade to economic growth (on average a worth of additional exports, there has been negative contribution of 20 percent in the USD 1.4 of additional imports. The high rate period from 2000 to 2011, as can be seen of increase in imports can be explained in from Figure 5). This contrasts significantly terms of the need of the domestic economy with the situation in Uganda, where the for capital goods, fuel, and technology contribution of net exports to GDP growth and of the increased demand for more varied from a positive 83 percent in 2007-8 sophisticated products by consumers. From to a negative 70 percent in 2009-10, which a national accounts’ perspective, it also PAGE http://www.worldbank.org/tanzania/economicupdate. 8 T h e Wo r l d B a n k Pove r t y Re d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a Re g i o n translates into a disequilibrium between significantly to economic growth (Figure 7) the high levels of domestic investment in a number of countries, including Malaysia (equivalent to about 38 percent of GDP and China. Historically, in Malaysia, external in 2012) and the low levels of domestic trade has acted as a buffer, compensating savings (only 20 percent of GDP in 2012), for lower domestic demand in periods of which thus needs to be funded by capital crisis. In China, while aggregate domestic inflows (traditionally aid but increasingly FDI demand has been by far the main source and non-concessional loans). of economic growth, external trade has also contributed significantly to growth. These The relatively low contribution of net examples show that the further extension of external trade to Tanzania’s economic external trade in Tanzania can play a decisive growth contrasts with the experience of role in the country’s effort to accelerate its many successful emerging economies. In economic growth rate. East Asia, net external trade has contributed Figure 7: Drivers of Growth: Domestic Demand and Net Exports in selected Figure 7: Drivers of Growth: Domestic Asian Eastand Demand Net countries Exports in selected East Asian countries China Malaysia Singapore Honk Kong Source:UNCTAD PAGE http://www.worldbank.org/tanzania/economicupdate. 9 T A N Z A N I A E C O N O M I C U P D A T E • M A Y 2 0 13 , 3 R D E D I T I O N High prices: Physical obstacles and tighter monetary policy implemented by the barriers to trade Central Bank. However, in regional terms, Tanzania’s rate of inflation remains relatively Tanzania’s overall rate of inflation has high; it is 6.6 percent higher than the rate in continued to decline over the past few Kenya and 8.9 percent higher than the rate months, down to 9.4 percent in March in Uganda at the end of December 2012 2013 (see Figure 8). This decline is the (Figure 9). combined result of lower food prices and the Tanzania’s rate of inflation is declining, but it is still higher than in Uganda and Kenya Figure 8: Inflation Trend in Tanzania Figure 9: Inflation in Tanzania compared to Kenya and Uganda The tightening of monetary policy led to slowdown in the expansion of credit to the private sector. However, since October 2012 the The Bank of Tanzania has adopted a Tanzania. Over the past three years, the rate of expansion of prudent monetary policy since November local price of maize (the primary staple in private sector credit 2011, contributing to a gradual decline Tanzania) was on average one-third higher has rebounded. in the inflation rate. The tightening of in Tanzania than in Brazil. The gap is even monetary policy led to a slowdown in higher for rice and wheat, with local prices the expansion of credit to the private more than double the price of similar sector from 31 percent in October 2011 to commodities in India and Brazil. approximately 12 percent in October 2012 Persistently high food prices have (see Figure 10). However, since October serious implications for household 2012, the rate of expansion of private sector welfare, particularly amongst the poorest credit has rebounded. During the same households. This is significant, considering period, similar patterns can be observed in that maize, rice, and wheat make up the bulk Uganda and Kenya, with a drastic reduction of food consumed by Tanzanian households. in the expansion of credit at the end of 2011, Typical expenditure on these items makes up followed by a reversal starting in September/ a significant proportion of overall household October 2012 (see Figure 11). expenditures, especially amongst the poor2. Despite the decline in the rate of inflation, A simple quantitative example illustrates food prices remain relatively high in the overall effect of high individual food 2 In 2007, the budget share of food was inversely related to the household’s wealth, declining from 66 per cent for the poorest to 50 per cent for the wealthiest. It was also lower in urban centers (53 per cent) than in rural areas (65 per cent). PAGE http://www.worldbank.org/tanzania/economicupdate. 10 T h e Wo r l d B a n k Pove r t y Re d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a Re g i o n prices: the food basket of a poor household in Tanzania consists of maize (60 percent), rice (30 percent) and wheat (10 percent). With current prices, the poor Tanzanian household would pay 110 percent more (per kilogram) than their counterpart in Brazil3. Impact of Central Bank policies on inflation and private sector credit: Tight money policies followed by a gradual easing. Figure 10: Inflation and Private Credit Figure 11: Private sector credit growth: A regional comparison : Inflation and Private Credit Table 1: Tanzanians pay more for food than in many other developing countries USD per kg (wholesale), average 2009-12 Tanzania Uganda Kenya Thailand Brazil India S. Africa Maize 0.31 0.27 0.34 0.28 0.20 0.23 Rice 0.89 0.91 0.47 0.33 0.39 Wheat 0.64 0.27 0.27 0.40 Source: FAO. The high price of food is driven by a USD 0.31 at an exchange rate of Tsh/USD number of factors that vary depending 3,200. However, this is an oversimplification. on the products and players. One potential First, part of the effect of the devaluation cause of the persistently high cost of food would be transmitted to local prices as the and other commodities in Tanzania might be result of the increased cost of imported goods, such as fuel. Second, even without the relatively high value of the local currency. devaluation, local and international At first glance, this appears straightforward: prices should converge in the absence of if the value of the Tanzanian Shilling was constraints to international trade. Arguably, 50 percent lower relative to the US dollar if the price of rice is significantly lower on (meaning the exchange rate would be equal international markets than in Tanzania, to Tsh/USD 3,200 rather than 1,600), local traders will increase their level of imports, food prices should be lower by 50 percent which would bring local prices down over in US dollar terms and close to levels time by increasing supply. This has not yet reported in other countries. A pineapple occurred, or at least not to the extent that it costing Tsh1,000 costs USD 0.63 at an has significantly reduced the gap between exchange rate of Tsh/USD 1,600 but only local and world prices. 3 For simplicity, we assume that wholesale prices are equal to retail prices. PAGE http://www.worldbank.org/tanzania/economicupdate. 11 T A N Z A N I A E C O N O M I C U P D A T E • M A Y 2 0 13 , 3 R D E D I T I O N High local prices in East Africa, including local factors, such as climate.4 Tanzania, are largely due to physical Fiscal performance: Caution and good obstacles and to tariff and non-tariff management required barriers to trade. Amongst others, these barriers include relatively high transport In 2012/13, the overall fiscal deficit is costs resulting from infrastructure deficits projected to be higher than in 2011/12, in and administrative obstacles. Today, it the range of 5.5 percent of GDP (Figure remains nearly two and a half times more 12). During the first six months of the expensive to import food from Vietnam to current fiscal year, the fiscal deficit was 25 Tanzania than from Vietnam to Germany. percent lower than the initial target (Tsh943 In general, high transportation costs billion vs. Tsh1,247 billion). However, have an impact on food prices not only in fiscal revenues are likely to be lower than international trade but also in domestic anticipated. The growing deficit in TANESCO trade. In isolated regions, there is often a and accumulated arrears has forced the significant variation in food price patterns Government to find additional fiscal space relative to patterns in world or national and will continue to do so into the future. prices, with a higher level of sensitivity to Figure 12: Overall Fiscal Deficit back on the rise Table 2 : Revenue trends (December actual vs. December target Source: MoF By December 2012, the total value of value of non-tax revenues was 34 percent revenue collected by the Government lower than targeted, mostly on account of was seven percent below its budget delays in payments of dividends and land target, equivalent to a gap of Tsh320 and office rents. billion. In terms of revenue from taxes, In terms of expenditure, the authorities revenues derived from income tax were have demonstrated restraint, maintaining eight percent higher than anticipated. By levels of both recurrent and development contrast, revenues derived from VAT were 10 expenditure below their initial targets. percent lower than anticipated, while those While expenditure on wages and interest from international transaction taxes, except payments was right on target, expenditure for the fuel levy, were 8 percent lower. The 4 See Paul Brenton, Defragmenting Africa, 2012. PAGE http://www.worldbank.org/tanzania/economicupdate. 12 T h e Wo r l d B a n k Pove r t y Re d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a Re g i o n on goods and services was down by 10 power to the country, but at a high cost for percent, while development expenditures TANESCO. In spite of a 40 percent increase were down by 11 percent, compared to in the average electricity tariff by January the figures anticipated in December 2012. 2012 and in spite of the quasi-elimination The slower disbursement rate in non- of central Government arrears (by almost wage recurrent expenditures reflects tight TSh 70 billion), the company has continued control by Treasury. The delay in executing to lose approximately USD 30 million every development expenditures, systematic month. The total value of TANESCO’s arrears every year, was nonetheless smaller than was USD 270 million in December 2012. reported in 2011. To some extent, this may Without significant intervention, this is reflect the Government’s willingness to expected to reach USD 500 million by June implement investment projects faster and 2013. donors’ actions to accelerate the availability The Government has been implementing of their funds. measures to ease TANESCO’s financial Globally, the financing of the budget difficulties. The most important move has has been in line with initial plans. By been the design of an exit strategy, which December 2012, grants and concessional will reduce energy production costs by funds were above targets, while external substituting expensive fuel-based plants and domestic non-concessional borrowing with cheaper gas-powered plants. Such were below the ceilings agreed with the a move should bring supply costs to the Most donors have IMF. Most donors have improved the timing level of existing tariffs, thereby eliminating improved the timing of their budget support, disbursing funds in TANESCO’s operational deficit. However, of their budget the first part of the fiscal year. As a result, while this plan is basically sound, it will support, disbursing disbursement associated with externally- be some time before it has an impact, funds in the first funded investment projects has been as the necessary new power and gas part of the fiscal faster than in previous years. There were infrastructure will not become operational year. nonetheless significant shortfalls in the before the beginning of 2015. The challenge disbursement of non-concessional external for the authorities is to make sure these borrowing. Domestic borrowing has been investments are implemented on time. relatively stable, in line with the annual Financing measures to prevent target of one percent of GDP. TANESCO’s collapse has put pressure Over the past few months, fiscal on the Government’s budget and will management has been greatly affected continue to do so into the future. by the financial difficulties of TANESCO, Ultimately, somebody will have to pay for the the state-owned electricity company. measures implemented by the Government. As a result of poor investment decisions This could be existing consumers through by TANESCO, weak management, and higher tariffs; future consumers through possibly poor rainfall, the Government commercial borrowing; taxpayers through was compelled to enter into contracts with government subsidies; or suppliers through private providers to purchase electricity accumulated arrears. During 2012-13, the on an emergency basis in mid-2011. This authorities have utilized all of these potential decision ensured the supply of electrical resources. The Government has increased PAGE http://www.worldbank.org/tanzania/economicupdate. 13 T A N Z A N I A E C O N O M I C U P D A T E • M A Y 2 0 13 , 3 R D E D I T I O N electricity tariffs, which has contributed to GDP, up from Tsh450 billion a year ago. The an increase in TANESCO revenues of about bulk of these arrears are from construction USD 200 million. In addition, it has also works (70 percent). These arrears have helped TANESCO borrow on the domestic declined to TShs. 350 billion in march 2013, market (contributing approximately USD putting pressure on government’s finances 65 million), delayed their payments to over the remainder of the fiscal year. suppliers, and provided fiscal transfers that External balance: Shift in capital inflows will eventually reach a value of approximately USD 300 million. The provision of fiscal During the course of 2012, Tanzania’s transfers, while manageable, has forced external balance remained under control, the authorities to implement a budgetary with a shrinking current account deficit reallocation by cutting non-priority spending helping to compensate for a slowdown Tanzania’s external (USD 200 million) and by marginally in the growth of financial inflows. As balance remained increasing their fiscal space (USD 100 a result, the exchange rate and the level under control, million). of international reserves have remained approximately constant over the past with a shrinking In addition to the situation with TANESCO, 12 months. Despite this level of stability, current account there has been a relatively large increase Tanzanian policy makers decided, in early deficit helping to in payment arrears by the central February 2013, to withdraw SDR 114 million compensate for a Government. By December 2012, the total from the IMF standby arrangement as a slowdown in the value of such arrears was more than Tsh650 precautionary measure. growth of financial billion, a sum equivalent to 1.5 percent of inflows. Figure 13: Lower Current Account deficit and stable Figure 14: A Gradual shift in the Source of Foreign international reserves Capital Current Account (% of GDP), 2011/12, 16.4 Gross Official Reserves (months of imports), 2012/13p, 3.7 Gross Official Reserves (months of imports), 2011/12, 3.5 Gross Official Reserves (months of imports) Current Account (% of GDP) Source: BoT and World Bank PAGE http://www.worldbank.org/tanzania/economicupdate. 14 T h e Wo r l d B a n k Pove r t y Re d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a Re g i o n Fast growing exports and moderate expansion of imports in 2012 Figure 15: Export Growth, 2011 and 2012 Figure 16 : Import Growth, 2011 and 2012 Source: BoT Tanzania’s trade imbalance declined non-concessional borrowing was virtually in 2012, with significant increases in non-existent prior to 2010/11, it increased exports, particularly the export of significantly in 2011/12 and is projected to agricultural commodities. Overall, the total surge to close to USD 2 billion in 2012/13. value of exports increased by 13.2 percent This increase partly reflects Tanzania’s good between 2011 and 2012, a very significant macro-economic and fiscal management, achievement. This increase was largely the which has facilitated the country’s access result of the increased volume of exports of to internal finance markets. However, the agricultural commodities, particularly due to increasing reliance on this source of external the result of an unprecedented surge in the financing will need to be closely monitored sale of cotton, and of an increased volume given its implications for debt and fiscal of manufacturing exports. The increase in sustainability (see more in the next section). manufacturing exports in 2012 follows a Tanzania’s trade decline in such exports of 11 percent in 2011. 1.2 Economic Outlook: A need to imbalance On the other hand, the export of minerals improve the business environment, declined in 2012, remained roughly constant, increasing human capital and public administration with significant by only two percent in 2012. Following In the next few years, the Tanzanian increases in significant increases in 2011, the level of economy is expected to remain on the same exports, particularly imports remained approximately the same trajectory as in recent years. Achieving the export of in 2012, increasing by only five percent, with faster, more effective growth will require agricultural limited changes in their composition. well-planned policy shifts. These must focus commodities. on making the business environment more The external risk for the Tanzanian economy is predominantly embedded in attractive, on improving human capital, the capital account. This is evidenced by the and on making public administration more gradual shift from aid to non-concessional effective. There are a number of downside borrowing over time, in particular in the risks, including risks related to the energy past few years (see Figure 14). While sector, public debt, and pension funds. PAGE http://www.worldbank.org/tanzania/economicupdate. 15 T A N Z A N I A E C O N O M I C U P D A T E • M A Y 2 0 13 , 3 R D E D I T I O N Tanzania has positive prospects for Tanzanian policymakers must strive to economic growth in 2012/13 and ensure broad-based economic growth 2013/14, with the rate of growth forecast by accelerating the transformation of to be around 7 percent. About 50 percent labor-intensive sectors, particularly the of top business leaders believe the overall agricultural sector. New initiatives, such as performance of the economy will improve the Southern Agricultural Growth Corridor in 2014 compared to 2013, while only 13 Project, are expected to boost agricultural percent believe that it will decline (see production though the promotion of KPMG/World Bank’s pulse of the economy). linkages between large agribusiness companies and small holders. The Growth will continue to be driven by the manufacturing sector should be stimulated same rapidly expanding sectors that have by the establishment and operation of new driven growth in recent years and by an Special Economic Zones. The Government increase in public investment (as part of the In particular, the has begun to establish a solid basis for the “Big Results, Now� initiative).5 In particular, communication, optimal exploitation of the country’s mineral the communication, financial, retail trade financial, retail resources into the future. These initiatives and construction sectors should continue to trade and are important, although their benefits will benefit from sustained increases in domestic not be immediate. For example, large-scale construction sectors demand as the result of technological natural gas production is not expected to should continue changes and urbanization. However, due to begin for at least seven to 10 years, while the to benefit from the urban bias of these sectors, this growth next Special Economic Zone, in Bagamoyo, sustained increases may have a limited direct effect on millions should begin operations by 2016, at the in domestic demand of poor rural households. earliest.6 as the result of technological Table 3 : Macro-economic projections (% of GDP, otherwise indicated) changes and 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 urbanization. (p) (p) (p) Real GDP growth 6.5 6.7 6.7 6.9 7.0 7.3 Inflation (CPI, %) 10.5 7.0 17.8 11.7 6.9 5.3 Broad money (M3) 25.1 22.0 11.8 14.5 -- -- Revenue (excluding grants) 15.9 16.4 17.6 17.9 19.3 19.6 Total Expenditure 27.5 27.0 26.3 27.4 28.5 27.1 Overall balance (including grants) -6.4 -6.6 -5.0 -5.8 -5.0 -4.4 Investment 30.6 34.5 38.1 39.2 39.0 38.5 Current account balance -9.0 -9.4 -16.5 -15.4 -15.4 -14.3 Gross official reserves (USD million) 3,483 3,610 3,797 4,230 4,480 4,710 Source: World Bank 5 See footnote 34, for a short description of this initiative. 6 Short term benefits will emerge from FDI inflows necessary to finance the construction of infrastructure and plants around those projects. Although a large fraction of those funds will be used to purchase imports, their magnitude (in the range of USD 4-5 billion per year) means that they will impact significantly on the local economy, especially in the areas surrounding those projects. PAGE http://www.worldbank.org/tanzania/economicupdate. 16 T h e Wo r l d B a n k Pove r t y Re d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a Re g i o n Tanzania should strive to establish sound performance in these areas may promote institutional and governance structures economic growth, it may also be true that it now to manage the exploitation of is easier for rich countries to achieve a high natural resources (mining, natural level of performance. gas, etc.). As a fundamental first step, it However, a number of emerging should take the time to establish long-term countries, including Thailand, Mauritius priorities for an economic development that and Vietnam have recorded dramatic effectively distributes the benefits derived improvements in all four areas over the from Tanzania’s natural resource wealth to past few decades while at the same time all citizens. recording very high levels of economic In terms of the establishment of priorities growth. As Tanzania should note, this for the country’s long-term development, rule holds for countries with rich natural a number of lessons can be learnt endowments. Norway, Chile, Botswana and from both economic theory and from Malaysia have all successfully facilitated a international experience. A country is transition from a dependency on natural more likely to grow faster and better when resources to sustainable, broad-based its people are educated and in good health; growth as a result of parallel improvements when its business environment is favorable in all four areas. to firms’ development; when its economy is How does Tanzania rank in terms of its connected to domestic and global markets; business climate; its human development; and when its public administration is its public administration; and its level of able to manage public funds wisely and In 2011/12, in terms connectivity? In 2011/12, in terms of the transparently. of the quality of its quality of its business climate, it ranked in business climate, There are huge variations in performance the bottom 25 percent of countries around it ranked in the across countries in these four policy areas, the world (134th out of 185 countries). It bottom 25 percent with these variations having a significant recorded an even lower ranking for human of countries around impact on development outcomes (see development (152nd out of 182 countries), the world (134th Table 4). while the performance of its public out of 185 administration was ranked 135th out of 212 In all of these four policy areas, developed countries in 2011. The only relatively bright countries). It countries rank relatively high, as Table spot was its connectivity (88th out of 156 recorded an even 4 demonstrates. Singapore, for instance, countries), thanks to its access to the ocean, lower ranking for is judged to have the best business which gives it a big natural advantage over human development environment in the world (1st), the best landlocked countries. However, even in (152nd out of 182 logistical performance (1st), and one of terms of this last factor, its current level of countries). the most efficient public administrations performance is disturbing, with increased (3rd). Only in terms of human capital delays in transportation that are visibly development does it record a relatively demonstrated by the long queues of vessels low ranking (still 26th out of 182 countries waiting at anchorage at the port of Dar es in 2011). Of course, the sequencing of Salaam. cause and effect is debatable: while good PAGE http://www.worldbank.org/tanzania/economicupdate. 17 T A N Z A N I A E C O N O M I C U P D A T E • M A Y 2 0 13 , 3 R D E D I T I O N Table 4: World ranking in four policy areas Countries 2011 Human 2013 Doing 2011 Logistical 2011 Development Business Performance Government Index Index Effectiveness Tanzania 152 134 88 135 Industrial countries Singapore 26 1 1 3 USA 4 7 9 25 UK 28 4 10 17 Emerging countries Chile 4 45 39 35 Mauritius 77 30 72 55 Malaysia 61 16 29 41 Thailand 103 28 38 86 EAC countries Kenya 143 103 122 136 Uganda 161 125 133 Rwanda 166 63 139 89 Source: (1) hdr.undp.org/en/statistics/hdi/; (2) http://www.doingbusiness.org/; (3) www.worldbank.org/lpi; (4) http://wbi.worldbank.org/wbi/ Not only has Tanzania’s performance in countries since 2005, with the average rate terms of these four factors been poor, of per capita growth in excess of 5 percent. it has made little progress over time. Tanzanian policymakers should remain While the existence In terms of the quality of the country’s clearly aware that economic development of these assets may investment climate, the country’s ranking cannot be measured in terms of the facilitate broad- has actually declined, slipping 21 places over the past five years. The same is true in terms availability of natural resources such as based growth, of rankings for government effectiveness, gold and natural gas. While the existence they by no means where Tanzania has slipped 15 places over of these assets may facilitate broad-based guarantee it. Such the same period. growth, they by no means guarantee it. resources are Such resources are only useful if they help only useful if they A similar lack of progress has also been the country accumulate and develop its help the country reported in other East African economies, assets. It is vital that the country’s leaders accumulate and particularly Uganda and Kenya, with Rwanda understand the challenges associated with develop its assets. being a notable exception to the general facilitating this transformation. rule. In contrast to the other countries, Rwanda moved up from 150th place to Other economic variables, including 63rd place in the Doing Business rankings the inflation rate, are expected to in the period from 2005 to 2013, while also improve into the future. In the absence of recording significant improvements in terms unexpected shocks, the inflation rate should of the effectiveness of its government and continue to decline, and then stabilize at the quality of its human capital. around 5-7 percent over the next few years. As a result, it has registered the highest per The Government should remain capita GDP growth rate among East African committed to fiscal sustainability by PAGE http://www.worldbank.org/tanzania/economicupdate. 18 T h e Wo r l d B a n k Pove r t y Re d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a Re g i o n striving to maintain the overall deficit at FDI inflows result in some uncertainty (see a value equal to 5 percent of GDP in FY14 risks section). and at 4 percent in FY15. The achievement Risks to the outlook: External factors, of these ambitious objectives will require political economy, fiscal risks spectacular improvements in revenue Economic prospects are always subject collection, the value of which is expected to a number of risks. While the Tanzanian to increase from 17.9 percent of GDP in economy is not overexposed to global 2012/13 to 19.6 percent in 2014/15. market volatility, it is not completely Such improvements are expected to come immune. Major fluctuations in commodity from the combination of higher excise taxes prices, notably gold and oil, will affect its and lower exemptions. The achievement of trade balance. The magnitude and timing these goals will help finance the ambitious of anticipated FDI inflows in the natural gas investment programs since the level of sectors will also impact the local economy, public expenditure is expected to increase especially in geographical areas where by two percentage points of GDP from those investments will take place. 2012/13 to 2013/14. The new investments are expected to be While the Tanzania Higher reliance on domestic revenues in the region of USD 4-5 billion per year. economy is not appears necessary in the context of a Even if the majority of these funds are used overexposed to lower level of inflows from grants and to purchase imported goods, as is likely, global market concessionary financing. While the their magnitude will modify the current volatility, it is not Government will continue to utilize non- equilibrium in the domestic financial markets concessionary loans, this source of financing and possibly have an impact on exchange completely immune. will be constrained by the existing level of rates.7 These potential impacts will have to be carefully managed by the authorities. public debt and its associated burden on the fiscal and external balances (see more in the Tanzania’s next national elections are following section, ‘Risks to the outlook’). scheduled for the second half of 2015. These forthcoming elections are already In terms of balance of trade, the current influencing policy making, and will have an account imbalance is expected to stabilize increasing influence as they draw nearer. at a level of around 13-14 percent of GDP. International and past experiences in No major changes are likely in export and Tanzania have shown that fiscal policy is import growth over the next two years, even more likely to be expansionary during pre- though commodity prices and the timing of election periods (Figure 17). 7 To illustrate; if only 20 percent of the annual expected FDI inflows was spent in Tanzania, this would still repre- sent around USD 1 billion, which is equivalent to one-fifth of total banking credit today PAGE http://www.worldbank.org/tanzania/economicupdate. 19 T A N Z A N I A E C O N O M I C U P D A T E • M A Y 2 0 13 , 3 R D E D I T I O N Figure 17: The political cycle of public expenditures in Tanzania Source: MoF Three fiscal risks merit further attention. implementation of the investment program These are: (a) financial distress within would add significant pressure to the the energy sector; (b) the central Government’s fiscal accounts. government’s level of arrears payments, The second risk relates to the including those involving pension funds; accumulation of arrears by the central and (c) excessive non-concessionary Government. To some extent debt and The magnitude borrowing. arrears are similar, as both are aimed at of the projected A brief summary describing TANESCO’s saving by postponing payments. However, gap in TANESCO, financial situation was presented in a their burden is different, since debt is repaid the value of which previous section. In the management by future taxpayers, while the brunt of the will amount to of TANESCO’s financial difficulties, the burden of arrears is borne by suppliers. As approximately Government is facing two inherent described earlier, the value of Government’s arrears has grown substantially, even though USD 300 million uncertainties. First, the magnitude of the significant variations have been observed over the next few projected gap in TANESCO, the value of over time. years, will require which will amount to approximately USD decisive actions. 300 million over the next few years, will The high and growing level of require decisive actions that might not government arrears described above be popular, including possible new tariff fails to incorporate important categories increases or budget reallocations involving of delayed obligations by the State, in significant cuts in other areas. Second, particular to pension funds. The value of the size of the TANESCO deficit is itself these arrears is estimated to be in the region sensitive to a number of factors outside of of Tsh1.2 trillion as of December 2012 (see the Government’s control. For example, an Box). This is already significant, equivalent increase in world oil prices will automatically to about 3 percent of GDP. However, the lead to higher production costs and figure is expected to increase rapidly if the therefore to a higher TANESCO deficit. A Government fails to act, underscoring the combination of bad luck and delays in the need for urgent reforms. PAGE http://www.worldbank.org/tanzania/economicupdate. 20 T h e Wo r l d B a n k Pove r t y Re d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a Re g i o n The Fragility of the Pension System The Tanzanian pension system covers only five percent of the active population, with half of the eligible population being civil servants. In spite of this limited coverage, this system may soon impact the equilibrium of public finances. In short, the Government has been mortgaging its future by preserving a structure that provides a higher level of benefits to contributors than it can actually sustain over time. Two main issues are at stake. First, public employees until 1999 were not required to contribute to their pensions, which were paid directly from the State budget. Unfortunately, so far, the Public Employees Pension Fund (PSPF) has been paying retirees on the Government’s behalf, accumulating a debt estimated by the Controller and Auditor General at Tsh716 billion at the end of 2009/10, as well as extra obligations to the other pension funds to the amount of Tsh1.2 trillion in credit guarantees for loans that were borrowed and may never be paid back. The Government must not only reimburse these debts but it must also pay for pre-1999 pensions, which are projected to be in the range of Tsh300-400 million per year. Second, the current pension system is not sustainable over time – most of the funds are promising benefits that exceed the contributions paid in the medium to longer term. Taken together, these problems will significantly affect fiscal management in Tanzania over the years to come. The authorities will have to reimburse their current debt with PSPF (about nine percent of projected current total expenditures in 2012/13) and continue to pay their pre-1999 obligations to retirees (about 2.2-3 percent of current total expenditures). If the pension system is not reformed, the Government will also have to fill the gap in the future. Over and above these, looms the Tsh1.2 trillion. The acceptable The cost of inaction is simply too high. It is imperative to settle the existing debts and level of debt is to implement reforms of the overall pension system to ensure its sustainability over the determined by a longer term. country’s capacity to repay its The third and final fiscal risk is linked to fiscal constraints. For this reason, a relatively accumulated debt the government’s level of debt, the value prudent fiscal policy is justified for the over time. of which stood at close to 40 percent of near future. The Government is forecast to GDP by the end of 2012. At a casual glance, borrow externally on a non-concessional this level appears acceptable by international basis around USD 1.3 billion during the next standards, with a number of OECD countries two fiscal years, a sum sufficient to finance having debt-to-GDP ratios in excess of 100 a number of new investment projects, while percent. However, the acceptable level of at the same time keeping its debt level to a debt is determined by a country’s capacity sustainable level of 46.8 percent of GDP by to repay its accumulated debt over time. the end of 2014/15. This capacity is limited for most developing countries, including Tanzania, because of the However, keeping the level of debt to a difficulty of refinancing its debt on financial manageable level requires close attention markets at affordable cost and because of from the authorities. Indeed, Tanzania’s PAGE http://www.worldbank.org/tanzania/economicupdate. 21 T A N Z A N I A E C O N O M I C U P D A T E • M A Y 2 0 13 , 3 R D E D I T I O N infrastructure needs are so pressing that the additional revenues from natural gas in the Government might be tempted to borrow future (which might be used in advance to The trade-off more to finance those projects, especially guarantee commercial debt). The trade-off between prudent if the authorities fail to meet the ambitious between prudent debt management and debt management revenue targets of 2013/14 and 2014/15. sustained public investment will have to be and sustained This situation might be further exacerbated closely monitored in the coming years (see public investment by pressures related to the forthcoming Box). will have to be elections and by the prospect of collecting closely monitored in Limited Fiscal Room: The Danger of Excessive Non-Concessionary Borrowing the coming years. In the baseline scenario, prudent fiscal policy is forecast, with the overall deficit contained at five percent of GDP in 2013/14 and at four percent of GDP in 2014/15. This could be achieved by realizing spectacular improvements in revenue collection, which will limit the use of external non-concessionary borrowing to finance the ambitious public investment programs in order to close the fiscal gap. Accordingly, the total public debt to GDP ratio is projected to reach 46.8 percent of GDP by the end of June 2015. Similarly, the debt service-to-revenue ratio would be approximately equal to 15 percent. To illustrate the danger of excessive non-concessionary borrowing, an alternative scenario was simulated in which the Government would opt to run an overall deficit of seven and six percent of GDP in the next two fiscal years respectively (in other words, with the revenue targets failing to materialize). This gap would be entirely funded by additional external non-concessionary borrowing. In that case, the total public debt to GDP ratio would increase by seven percent of GDP by mid-2015, reaching 53 percent. The debt- service to revenue ratio would also surge by 17 percentage points, absorbing nearly one quarter of public revenues. In other words, such borrowing would translate quite rapidly into a heavy fiscal burden, which in turn would limit the Government’s capacity to spend on priority sectors. Importantly, the danger of excessive borrowing lies in its permanent negative impact on public finances. While the Government can decide to adjust its expenses after 2015, the debt-service burden would remain high as it would be paid on the accumulated debt. It would take about 10 years for the Government to return to a debt service level equal to 15 percent of its revenues. Further sensitivity analysis also indicates that the economy would become more vulnerable to shocks such as higher repayment terms on its debt (e.g., an increase in interest rates), slower economic growth, or deteriorating terms-of-trade. 1.3 Open Trade: Achieving economic development. Tanzania should therefore growth, job creation and sustainable continue to implement open trade policies. development To do this, among other measures, Tanzania In Tanzania, well-designed outward needs to improve the country’s level of orientated growth strategies are essential physical connectivity with the rest of the for growth, job creation and sustainable world. In particular, it needs to improve PAGE http://www.worldbank.org/tanzania/economicupdate. 22 T h e Wo r l d B a n k Pove r t y Re d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a Re g i o n the port of Dar es Salaam, where current a significant increase in imports, particularly inefficiency is estimated to cost the country imports of capital goods to sustain their and its neighbors more than USD2.6 billion rising levels of private investment. per year. Tanzania has also opened up to Outward looking, open trade strategies international trade over the past decade. have been implemented by most Not only has its annual rate of growth in developing countries that have exports exceeded that of Brazil, Tunisia, successfully facilitated a transition Mauritius, Malaysia, Korea and Thailand in towards a higher level of economic the period from 2000 to 2012, but also the development. The economies of the East total value of its imports is now equivalent to Asian tigers and dragons grew in tandem more than half of its annual GDP. As a result, with a tremendous and sustained boom while Tanzania was one of the most closed in their exports, as is also the case with countries to international trade in 2000, by emerging countries such as Chile, Tunisia, 2011, it was in the middle of the pack. Its Tanzania’s degree Botswana and Mauritius. Even fast-growing degree of openness to international trade is of openness to ‘big’ countries such as Brazil and China now high by regional standards, although international trade have relied on international trade to develop still low compared to emerging countries in is now high by their economies. In parallel with export East Asia. The graphs below illustrate this regional standards, booms, these countries have also recorded transition. although still Tanzania: Figure 18 :Figure18 Increased : Tanzania: openness Increased international toto openness trade international trade since 20002000 since low compared to emerging countries in East Asia. Source: Word Development Indicators.Tanzaniais in red and the other countries in the East African Community Source: Word Development Indicators. Tanzania is in red and the other countries in the East African are inyellow. Community are in yellow. The growth in Tanzania’s exports has exports rising from USD 383 million in been driven by: 2002 to more than USD 2 billion in 2012. • Higher prices for Tanzania’s products on • An increased level of manufacturing world markets, accounting for two-thirds exports, with such exports growing of the increase in traditional agricultural from seven percent of total merchandise products (coffee, tobacco, sisal). exports in 2002 to 20 percent in 2012, after reaching a peak of 26 percent in • The emergence of gold as a major 2010. Tanzanian export, with the value of gold PAGE http://www.worldbank.org/tanzania/economicupdate. 23 T A N Z A N I A E C O N O M I C U P D A T E • M A Y 2 0 13 , 3 R D E D I T I O N • Diversification of markets away from the of increased dependence on fuel- EU, with the value of exports to the EU powered generation and relatively declining from 50 percent to 30 percent high international fuel prices. The of total exports in the period from 2000 total value of fuel imports accounted to 2011, and towards Asia, with the value The growth in for approximately one-third of total of exports to Asia increasing from 23 merchandise imports in 2012, compared Tanzania’s exports percent to 30 percent of the total over to only 11 percent in 2002. has been driven the same period. Even more markedly, by the emergence • The value of imports of capital goods the volume of exports to African of gold as a major has increased, but at a slower pace countries has increased from 10 percent Tanzanian export, than that of total imports over the past of the total to more than 30 percent. decade. The largest increase has been with the value of • Increased export of services, particularly in construction materials, followed by gold exports rising transportation services (up by a factor machinery. Together, these imports from USD 383 million of 10) and computer and information accounted for approximately half of the in 2002 to more than services (up by a factor of 9) between total import of capital goods in 2012. USD 2 billion in 2012. 2002 and 2012. • Consumer goods imports have increased nearly fivefold over the past decade, In parallel to the dramatic increase with about one-third of the total imports in exports, the volume of imports in this category in 2012 being food increased six-fold between 2001 products. and 2012 as a result of the following • There has been an increase in the factors: import of freight services of more than • The value of imports of fuel surged 500 percent between 2002 and 2012; of from USD 177 million in 2002 to USD communication services by 355 percent 3,380 million in 2012. This increase over the same period; and computer and has accelerated since 2009 as a result information services by 322 percent. Figure 19: Exports trends, 2002-2012, USD Million Figure 20: Imports trends, 2000-2012, USD Million Source: BoT PAGE http://www.worldbank.org/tanzania/economicupdate. 24 T h e Wo r l d B a n k Pove r t y Re d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a Re g i o n Openness to international trade should Local businesses are able to achieve be good news. A significant body of higher levels of sales, despite limited evidence suggests that greater openness to domestic demand, by selling their goods international trade is, on average, associated to consumers abroad. This allows them to with faster growth and increased economic realize economies of scale and expand at productivity.8 lower costs (see Box for coffee and tea). In the process, they improve their capabilities Evidence from a number of countries by learning from their foreign supply and indicates that trade has a direct impact on marketing networks. For example, Murzah incomes: on average, an increase in trade Oil Mills, the biggest producer of sunflower volumes of 10 percent will raise output per oil in Tanzania, has benefitted not just working age person by four percent.9 with the bottom line but also from the experiences of its international counterparts, Furthermore, in the 1990s, per capita from places such as India and Canada. income grew more than three times faster Foreign competition can also generate a for developing countries that had lowered healthy dynamism, forcing exporting firms trade barriers than those who had not.10 to adjust to survive. Evidence from a number of countries Tea or Coffee? Exports are key to expand market size indicates that trade In 2012, coffee accounted for 19 percent of the value of traditional exports, earning has a direct impact over USD 1 billion per annum. Tanzania produces about 50,000 metric tons of coffee on incomes: on per annum, of which 70 percent is Arabica and 30 percent Robusta. Almost all of this average an increase produce is exported. Coffee is grown by approximately 450,000 families and an estimated 2 million people are employed directly or indirectly by the industry. Coffee provides the in trade volumes of main source of income for 6 percent of the country’s population. Tanzania is the 19th 10 percent will raise largest coffee producer in the world. output per working Tea contributes more than USD50 million to Tanzania’s export earnings. More than three- age person by four quarters of Tanzania’s tea is exported. Tea is grown by approximately 50,000 families and percent up to 2 million people are employed directly or indirectly by the industry. Tanzania is the fourth largest tea producer in Africa after Kenya, Malawi and Uganda. It produces about 32,000 metric tons per annum, or about 1 percent of the world’s tea production. Source: IGC (2012), An Enterprise Map of Tanzania. On the import side, benefits are also sector depends on imported equipment, expected through technology transfers, largely from Germany, the UK, China, sharing of international expertise, Malaysia, India and the US.11 Imports create sharing of international management the widest range of inputs at the highest skills, increased information and quality and lowest prices. By exposing increased access to capital goods. For local firms to greater competition, trade example, Tanzania’s telecommunication openness can force firms to lower costs, 8. A. Winters & Masters (2010), Openness and growth: Still an open question. 9 James Feyrer, Trade and Income – Exploiting Time Series in Geography, NBER Working Paper Series, 14910. 10 www.oecd.org/dataoecd/61/57/46353240.pdf. 11 ‘Doing Business in Tanzania: 2011 Country Commercial Guide for US Companies’. PAGE http://www.worldbank.org/tanzania/economicupdate. 25 T A N Z A N I A E C O N O M I C U P D A T E • M A Y 2 0 13 , 3 R D E D I T I O N facilitating improvements in productivity minimal direct impacts on the creation and efficiency. Trade also increases diversity of employment and the development of within the local market, encouraging a wider technology in the domestic economy. In consumption basket. 2012, gold, tobacco and coffee together contributed to 52 percent of the total value Nevertheless, it has to be recognized of exported goods. Four other commodities that openness to international trade has (cotton, cashews, fish and tea) contributed its drawbacks as it can expose Tanzania to 13 percent of the remainder. In the future, to global shocks, both in terms of prices the proportion of the value of unprocessed and quantities. Those risks have become commodities to total exports will increase more visible over the past few years with when exports of natural gas are scaled the successive financial and fiscal crises in up in 2023-25. The lack of diversification developed countries and with the increased is even higher with imports, with oil, volatility in world commodity prices. foodstuff, freight, and transport equipment Tanzania’s level of However, Tanzania’s level of exposure has accounting for approximately half of the exposure has been been relatively limited due to favorable total value of imports. While there is no relatively limited terms of trade movements, with higher gold detailed breakdown of the enterprises that due to favorable prices and stable oil prices on international have imported capital goods, it is reasonable markets, and due to increasing involvement terms of trade to assume that they have been purchased in trade with emerging countries rather than movements, with by a small number of large companies. with members of the OECD.12 That said, the higher gold prices heavy reliance on the export of gold and the At present, Tanzania should diversify and stable oil prices import of oil is currently a risk for Tanzania. its exports and ensure that imports are on international Gold now accounts for more than 40 percent made more accessible and cheaper for markets, and due of the total value of merchandise exports. A a large number of consumers and local to increasing sudden decline in world gold prices would firms. Tanzania should diversify its exports, have a dramatic impact on the total value concentrating on exports involving more involvement in of Tanzania’s exports, with a decline in gold labor-intensive activities. This will ensure trade with emerging prices of 30 percent reducing this value by that the benefits of international trade reach countries rather almost 15 percent. Similarly, with crude oil a wider range of individuals through the than with members making up a third of the country’s imports, generation of employment opportunities. of the OECD. an increase in the price of this commodity Second, imports should be made more could be destabilizing. accessible and cheaper for consumers and local firms so that they can expand their Furthermore, Tanzania may not yet consumption and investment choices at have maximized the benefits associated lower cost.13 To do this, there will need to with openness to international trade. be more efficient value chains for processed One reason is that the vast majority products, improved marketing and logistical of merchandise exports are low value- networks, and increased competition added products, such as minerals and between importers. Nevertheless, even with unprocessed agriculture goods, which have diversified exports and cheaper imports, 12 The risks associated with outward strategies are generally higher on capital flows that are highly sensitive to the condition of the global financial markets. Tanzania has relied marginally on portfolio flow to finance its cur- rent account imbalance and its banking system has remained isolated from international turbulences. For more explanations, see Tanzania’s first Economic Update. 13 The price of basic consumer goods is in general higher in Tanzania than on world markets as reported earlier. PAGE http://www.worldbank.org/tanzania/economicupdate. 26 T h e Wo r l d B a n k Pove r t y Re d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a Re g i o n competitive firms will not be able to access The priority for Tanzania should be to the global market without effective, quick reduce its transport costs to facilitate and low cost transport links. trade with the rest of the world. Since approximately 90 percent of Tanzania’s The need for effective transport links international transactions transit through is backed by both economic theory and the port of Dar es Salaam, improvements international experience. The popular to this facility should be prioritized by gravity model has shown that the intensity policy makers. Although transport costs of trade between two countries is largely are partially determined by factors other determined by distances and transport than the port, it is difficult to foresee a costs between them.14 The two factors are large reduction in costs without a big obviously correlated, but not absolutely. In improvement in port efficiency. particular, virtual connectivity facilitated by the development of new technologies has For example, it is estimated that it takes reduced the importance of distance. on average seven days to transport goods from Dar es Salaam to the Zambian border Also, the most direct route is not the (counting for the poor infrastructure and cheapest one, especially in Africa. It is administrative delays).17 By comparison, currently less costly to take a plane from the waiting time, including anchorage and Dar es Salaam to Maputo via Johannesburg dwell time, at the port of Dar es Salaam was than to fly directly between these two generally higher than 20 days (as of mid- cities, despite the fact that Johannesburg 2012). is located considerably further away. The map in Figure 22 illustrates the trade costs The port of Dar es Salaam is important between China and the rest of the world.15 It not only for Tanzania but also for her can be seen that the cost of trade between neighbors. Access to the ocean is a big Tanzania should China and Africa is higher than between natural advantage for Tanzania, since diversify its exports, transport costs are automatically higher for China and Brazil or France, despite greater concentrating on proximity to the final destination in the Zambia, Eastern DRC, Burundi and Uganda, exports involving former case. with all of these countries having to transit more labor- their merchandise through the port of Dar In 2010, it was nearly 70 percent more es Salaam. As a result, transit trade counts intensive activities. expensive to trade between Tanzania and for as much as 50 percent of exports and China than between Brazil and China, despite 32 percent of imports, making the Dar es Brazil being nearly double the distance.16 To Salaam port the second most important address this, measures to reduce logistical gateway for regional trade in East Africa infrastructure costs and other trade barriers after Mombasa (Figure 22). Source: World must be implemented by the Government. Bank Databank 14 James E. Anderson, The Gravity Model, Annual Review of Economics, vol. 3 (2011), 133-160. 15 Trade costs include exogenous factors such as geographical distance, transportation costs and common fea- tures between trading partners, such as language, history or participation in the same economic community. Trade costs also include endogenous trade costs such as logistics performance, trade facilitation bottlenecks (border control/transit systems with third countries), tariffs and non-tariff measures 16 http://www.distancefromto.net/distance-from/Tanzania/to/China 17 Source: V. P. Msamba, Non-Tariff Barriers along the Dar Corridor, 2012. This is the average time from the gate in Dar es Salaam to Kasumulu on the corridor PAGE http://www.worldbank.org/tanzania/economicupdate. 27 T A N Z A N I A E C O N O M I C U P D A T E • M A Y 2 0 13 , 3 R D E D I T I O N Figure 21: Bilateral Trade Costs with China, 2009 Figure 22: Tanzania’ three main hinterland Figure 21: Bilateral Tra de Costs with China, 2009 Figure 22: Tanzania’ three main hinterland corridors corridors Note: The darkerthecolor, thehighertransportcosts Source:World Bank Databank The priority for Tanzania should be to reduce its Reducing transport costs through the effort to reach out to the world.19 The port of Dar es Salaam could be achieved Government must address the inefficiencies transport costs through the realization of economies in the port to ensure Tanzania and its to facilitate trade of scale and through internal efficiency landlocked neighbors can maximize the with the rest of the gains. Regarding economies of scale, benefits of trade through greater physical world. progress will be difficult to achieve in the connectivity. near future because the volume of trade through this port remains small compared As a preamble to the analysis presented in to large ports around the world. In 2010, the second part of this economic update, Durban was six times busier, while Shanghai, Tanzania and regional countries could earn the world’s busiest port, was nearly 70 times as much as USD2.6 billion per year if the busier than Dar es Salaam. efficiency of the port was equal to that of the Mombasa port. Part of the reason is that Tanzania remains far from the busy international trade routes, These benefits will occur through cheaper being ranked only 86th in UNCTAD’s Liner and more diversified imports, which will shipping Connectivity index,18 behind South translate into monetary gains for local Africa (31st), Ghana (64th) and Kenya (85th) consumers and firms. In turn, this will on the African continent. stimulate the country’s aggregate demand and productivity, resulting in a higher level Improvements in Dar es Salaam’s port of more equitable economic growth. will therefore be critical for the country’s 18 UNCTAD (2012) ‘Review of Maritime Transport 2012. UNCTAD’s liner shipping connectivity index is generated from five components: the number of ships; the total container carrying capacity of the ships; the maximum vessel capacity; the number of services; and the number of companies that deploy container ships on services to and from a country’s port. The data is derived from Containerization International Online. 19 The port of Dar es Salaam is not the only option, as other ports are already operational or are envisaged along the coast in Tanzania. But these alternatives, while useful, will take time to be developed. Improving the efficiency of the Dar es Salaam, on the other hand, is a short-term priority. PAGE http://www.worldbank.org/tanzania/economicupdate. 28 T h e Wo r l d B a n k Pove r t y Re d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a Re g i o n 2 Transforming the Port of Dar es Salaam to Drive Growth PAGE http://www.worldbank.org/tanzania/economicupdate. 29 Part 2: Transforming the Port of Dar es Salaam to Drive Growth 20 • The port of Dar es Salaam is the second largest in East Africa after Mombasa’s. The current inefficient state of the port acts as a constraint against trade and limits economic expansion for both Tanzania and for neighboring landlocked countries. • The port of Dar es Salaam is considerably less efficient than the Mombasa port. In 2012, if the port of Dar es Salaam had been as efficient as Mombasa’s, Tanzania and its neighbors could have gained over USD 2.6 billion. • Although the Tanzanian economy would benefit overall from a more efficient port, there has been resistance to reform by vested interests that are able to take advantage of the status quo. • The authorities have initiated a set of actions, replacing top officials in the Board of the Tanzanian Port Authority and implementing simple but effective actions. These reforms have begun to generate a momentum for change. • Looking forward, further actions are needed, notably by incorporating end- users in the reform decision process, strengthening competition among port operators, and reducing corruption. In June 2012, an observer driving along of individuals and business entities were the peninsula in Dar es Salaam would profiting significantly from the inefficient have seen up to 15 ships waiting in line state of the port. for a berth in the port. While the scene The port of Dar es Salaam, the second was superficially photogenic, with the ships’ largest in East Africa after Mombasa’s, lights twinkling like stars in the night, it was has significant scope for improvements. costing the economies of Tanzania and its The current inefficiencies act as a constraint neighbors more than USD 2.6 billion per against trade and hinder economic year. Paradoxically, however, a small group expansion both in Tanzania and in its 20 This section is based on a recent World Bank study: J. Morisset, C. Moret, J. Regolo, How to Push Efficiency Enhancing Reforms in the Port of Dar es Salaam? The Word Bank, November 2012. The study can be found at www.worldbank.org/tanzania/economicupdate. While references are listed in the text, information was also collected from face-to-face interviews during June of 2012, including with African shipping Limited General Manager, Diamond shipping Services Managing Director, GAPCO Managing Director, Maersk (Nyota) Managing Director, MOL (Inchcape) Operation Manager, NYK (Wosac) General Manager, Rais shipping Services Operations Manager, SDV (AMI) Managing Director, Seaforth Managing Director, Sturrock Operation Manager, Tanzania Freight Forwarder Association Management, Tanzania Railways Limited Managing Director, Tanzania Zambia Railway Managing Director, TICTS Commercial Manager, TPA Principal Planning Officer, TRA Trade Facilitation Manager. PAGE http://www.worldbank.org/tanzania/economicupdate. 30 T h e Wo r l d B a n k Pove r t y Re d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a Re g i o n neighboring landlocked countries. While the authorities, such as the replacement the length of delays at the port fluctuate of five directors of the Tanzania Port over time, average cumulative delays at Authority. This has already resulted into anchorage and dwell time exceeded 20 days significant improvements, reducing delays in mid-2012, compared to an international and, more importantly, reducing corruption. average of approximately 3-4 days. In However, the Government must sustain this addition, official and non-official fees were momentum to address persistent structural high, numerous and inconsistently applied. deficiencies. The inefficiencies of the port also have 2.1 How bad is the Port of Dar es Salaam? a direct negative impact on the daily Approximately 90 percent of Tanzanian lives of Tanzanians. Households consume trade transits through the port of Dar imported wheat and rice that enters the es Salaam. This port is also a gateway country through the port. The same is true for international trade for East Africa’s of cars, gasoline, phones and computers. The port of landlocked countries, including Zambia, Patients in hospitals depend on imported Dar es Salaam, the Uganda, DRC, Rwanda and Burundi.21 The medicines. Farmers depend on fertilizers port’s performance is important for a large second largest in purchased abroad. In total, the value of variety of consumers and firms operating in East Africa after the merchandise passing through the port Tanzania and in neighboring countries. Mombasa’s, has amounted to up to USD15 billion, a sum equivalent to 60 percent of Tanzania’s GDP The recent KMPG/World Bank survey of significant scope in 2012. senior managers at 100 mid-size companies for improvements. indicates that 29 percent of these managers The lack of enthusiasm for reforms is consider the inefficient state of the port to largely due to the asymmetric distribution be a severe constraint. This is lower than of benefits and costs associated with the the proportion that identified road quality current inefficiency of the port. While only as a severe constraint, but about the same a few players benefit from the inefficiencies, as those that identified the efficiency of the real costs are diffused among multiple electrical energy supply and much higher consumers, firms, and households across than the proportion that identified the the country. Other contributing factors state of railways, air transportation and include a lack of awareness of the costs by communications as constraints (see Box). most consumers and firms, the unequal Furthermore, the current state of the port distribution of these costs, time lags between is reportedly affecting all surveyed firms, costs and benefits associated with reforms, although to different degrees depending on and the lack of capacities to coordinate their activities. decisive actions. These factors explain the extremely high level of inefficiency at the Given the strategic importance of the port of Dar es Salaam: they also suggest the port of Dar es Salaam for Tanzania and directions that must be taken to implement the region, it is critically important to efficiency-enhancing reforms. evaluate its performance in facilitating the efficient transit of goods. How does On a positive note, there are signs that it compare with other ports in the region, the Government is willing to implement particularly the port of Mombasa in the necessary reforms. A number of bold, neighboring Kenya? positive measures have been initiated by 21 Of all throughputs, 65 per cent is for Tanzania, 13 per cent for the DRC (mainly Katanga), 12 per cent for Zambia, 8 per cent for Rwanda and Burundi (4 per cent each), 2 per cent for Malawi and 1 per cent for Uganda. PAGE http://www.worldbank.org/tanzania/economicupdate. 31 T A N Z A N I A E C O N O M I C U P D A T E • M A Y 2 0 13 , 3 R D E D I T I O N SPECIAL TOPIC: DAR ES SALAAM PORT A KMPG-WORLD BANK INITIATIVE The majority of surveyed senior managers at 100 top mid-sized Tanzanian businesses believe that in terms of the infrastructure that they require to conduct their businesses, transportation is the most important, considerably more important than energy and communication. Their main concern is the quality of roads (54 percent) followed by the quality of the port (29 percent). The performance of the port of Dar es Salaam affects almost all surveyed businesses (96 percent), with 35 percent of the managers stating that is was ‘extremely’ or ‘considerably’ important. 1. What is the most problematic infrastructure constraint for your business ? With regards to infrastructure constraints to doing business, 54 percent of the respondents stated that the quality of roads was the most problematic factor. The cost of electricity and the quality of the port infrastructure both tied as the second most problematic factors, with 29 percent of respondents stating so. 0 Mobile telephone subscriptions 3 Quality of internet connectivity 9 Others 13 Quality of air transport infrastracture 1 16 Quality of railroad infrastracture 27 Quality of electricity supply 29 29 Price of electricity 54 Quality of port infrastructure Quality of roads 0 10 20 30 40 50 60 Units 2. How do you rate the performance of Dar es Salaam port in early 2013 compared Improved to last year? The majority of the 39% respondents (52 percent) felt that the Worsened 52% performance of the DSM port has remained constant over the last year, while Remained constant over the last year 39 percent felt it had improved and 9 9% percent felt it had worsened. 3. How will the performance of the port Improve over evolve next year? Forty-six percent of the 19% the next year 46% Go down respondents stated that they believed that the Will stay about performance of the port would improve over the 25% the same next year, 25 percent stated that it would stay the 10% Don’t know same, 19 percent didn’t know and 10 percent stated that performance would decline. 4. To what extent does the current state of the port 20% 4% Not at all harm your business? Sixty-two percent of the A little respondents said that the port’s effectiveness harmed their business slightly, 20 percent said extremely, 15 14% Considerably percent said considerably and only 4 percent said that 62% Extremely the port’s effectiveness didn’t harm their business at all. PAGE http://www.worldbank.org/tanzania/economicupdate. 32 T h e Wo r l d B a n k Pove r t y Re d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a Re g i o n An efficient port facilitates the transit of (d) customs clearance, and (e) exiting the merchandise into and out of the country merchandise from the premises. The chain is at the lowest possible cost and in the reversed for exports. The faster the port is in shortest possible time frame. For imports, handling this chain of operations, the lower the transit process is characterized by the the costs for importers and exporters and following chain of operations: (a) anchorage; the greater the benefits for the economy. (b) berthing; (c) merchandise unloading; Figure 23: The chain of transactions in the port Figure 23: The chain of transactions in the port The quality of performance of the port of and secondly in the series of operations Dar es Salaam has varied over time. As a necessary to remove merchandise from the result of privatization in the 1990s, the port port (the so-called ‘dwell time’). Port tariffs The inefficient became one of the most efficient in Sub- were also much higher than in Mombasa. state of the port Saharan Africa. However, its performance For the five operations described above, can be measured deteriorated gradually up to the mid-2000s the total cumulative cost of delays and by the delays and and it is now very inefficient, despite renewed additional monetary payments compared payments that users efforts by the port authorities to implement to Mombasa are equivalent to a tariff of 22 reforms, such as the establishment of an experience in the percent on container imports and of about electronic single window system and the port of Dar es Salaam five percent on bulk imports (see Table 5). facilitation of direct delivery of cargo. compared to those For energy imports, which make up 35.5 The inefficient state of the port can be they would face in percent of total imports, the extra delays and measured by the delays and payments the port of Mombasa. fees on liquid bulk are equivalent to a tariff that users experience in the port of Dar es Salaam compared to those they would reaching up to 37 percent. Inefficiencies for face in the port of Mombasa.22 By mid-2012, exports, however, are lower due to limited the main symptoms of the port’s inefficiency customs processing and cheaper freight were long delays, first at anchorage, rates for outbound cargo. 22 The World Bank Logistical Index provides some information about the efficiency of the port in Tanzania. How- ever, due to its wide scope and limited data availability this indicator remains imperfect for a throughput study of the port of Dar es Salaam. Our methodology is similar to the one adopted by Kent P. E. and A. Fox (2004). “The Broad Economic Impact of Port Inefficiency: A Comparative Study of Two Ports�, USAID. PAGE http://www.worldbank.org/tanzania/economicupdate. 33 T A N Z A N I A E C O N O M I C U P D A T E • M A Y 2 0 13 , 3 R D E D I T I O N Table 5: Total additional costs due to the inefficiency of the port compared to Mombasa, (USD per ton or indicated), May-June 2012 Bulk Container Local Imports Direct monetary costs 11.4 16.2 Cost of waiting at anchorage 8.6 57 Cost of storage in the port None 5.40 Inventory cost 3.4% 15.9% Tariff equivalent (total) 5.2% 21.7% Transit Direct monetary costs 7.9 13.9 Cost of waiting at anchorage 8.6 57 Cost of storage in the port None 2.8 Inventory cost 3.4% 17.6% Tariff equivalent (total) 4.9% 22.8% Note: The tariff equivalent is computed as the sum of the direct monetary costs, the cost of waiting at anchorage and the inventory cost, based on an average value of USD1’358 per ton for container imports and USD1’137 per ton for dry bulk imports The first delay faced by shipping companies involves INEFFICIENCY IN NUMBERS the time at anchorage. As of May/June 2012, container vessels were queuing for 10 days on average, and up The first delay to 25 days, while waiting for a berth in Dar es Salaam. faced by shipping By contrast, the waiting time was less than one day in Mombasa (see Table 6). The delays in Dar es Salaam companies Container vessels queue an average of 10 days for berthing was mainly due to congestion at the berth resulting from involves the time at with another 10 days of well time. non-adapted unloading equipment, such as slow cranes23 anchorage. or too few cranes and to sub-optimal call sequencing of vessels (first come, first serve). Bulk imports were also indirectly affected by the long The inefficiency of the port of Dar es Salaam is equivalent to waiting time for container vessels, since conventional a trade barrier of 22 percent berths have become increasingly congested due to on the merchandise imported by containerized cargo. the relocation of several container services in the TPA conventional terminal. Waiting time at anchorage reaches an average of 4.5 days for dry cargo, while there is no waiting time in Mombasa. This is in part due to a larger number of berths in Mombasa (16 compared to 11 in Dar es Salaam). 23 14 MPH in Dar es Salaam compared to 18 MPH in Mombasa. This is the average net ship working rate at the Mombasa Container Terminal, which only handled 43 percent of all container volumes in the port. These rates can be compared with a net ship working rate of 40 TEU/Hour at Durban (Pier 1) and 47 TEU/Hour at Durban (Pier 2). In terms of annual throughputs by length of quay the Dar es Salaam Container Terminal Handled 451 TEU/m, Mombasa Container Terminal 533TEU/m, Mombasa other berths 356 TEU/m and Durban 694 TEU/m on Pier 1 and 846 TEU/m on Pier 2. PAGE http://www.worldbank.org/tanzania/economicupdate. 34 T h e Wo r l d B a n k Pove r t y Re d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a Re g i o n The second major cause of delays at the clearance process actually seems to have Dar es Salaam port is the excessively long declined in recent years, with only 24 The excessive dwell ‘dwell time’, or the time taken to unload percent of shipments being cleared in 24 time at the port of hours or less in April 2012, compared to merchandise and to clear and exit it. In Dar es Salaam is due mid-2012, the average dwell time at the Dar 87 percent in February 2010. Long storage to slow processing, es Salaam port was 10 days. The delay for periods are partly explained by the lengthy particularly the transit amounted to 17 days on average. customs clearance procedures; low storage processing of By comparison, its takes about 3-4 days in fees; inadequate inland container depots customs clearances, Mombasa (and about 10 days for transit) (ICDs); congestion at the port gate; and and excessively long and only 48 hours in many East Asian ports. customer and agent behavior. storage periods. These average figures mask significant variations, not only on the basis of different These long delays created financial losses types of transactions and processes, but for shippers and shipping companies, also over time. For example, the average resulting in increases to their inventory, dwell time in the TPA terminal was as low as storage and anchorage costs. These costs five days in October 2011, while it exceeded may in turn be passed on to consumers. In 23 days in February 2011. There are some terms of equivalence to tariffs, using the indications that the length of delays has model developed by Hummels for 1,248 declined quite significantly in early 2013, categories of goods (HS4 classification), although it is not clear whether this is a inventory costs were calculated to be sustainable improvement or whether it equivalent to a tariff of 0.76 percent per day merely falls within the widely varying range. for bulk imports and of 0.97 percent per day Surprisingly, there does not appear to be a for container imports.24 Storage fees, which significant correlation between the length are applied during the dwell time, were of delays and the volume of traffic, which estimated to be around USD 5.4 per ton (and could be explained in terms of longer dwell USD 2.8 per ton for transit) given a storage times during periods of intense activity due cost of USD 20 per day for a 20ft container to congestion. (after a free storage period of seven days for local imports and of 15 days for transit). The excessive dwell time at the port of Dar es Salaam is due to slow processing, The total annual anchorage costs were particularly the processing of customs estimated to be around USD 252 million, or clearances, and excessively long storage USD 57 per ton for imported containers and periods. The efficiency of the customs USD 8.6 per ton for bulk imports in 2012. 24 Hummels, D. (2007). “Calculating Tariff Equivalents for Time in Trade,� USAID Report. PAGE http://www.worldbank.org/tanzania/economicupdate. 35 T A N Z A N I A E C O N O M I C U P D A T E • M A Y 2 0 13 , 3 R D E D I T I O N Table 6: Comparison of port efficiency for containers between Dar es Salaam and Mombasa, May-June 2012. Containers Cost/price Waiting time Cargo dwell Gross berth Cost/price for Indicators: for shipping Total cost Total cost at anchorage time productivity shippers companies Unit: days days MpH USD per TEU USD per TEU USD per TEU USD per Ton Exports none 6 14 118.2 263.0 381.2 29.9 Dar Es Salaam Imports 10 10 14 118.2 366.8 485.0 38.1 Import transit 10 17 14 118.2 320.0 438.2 34.4 Exports 0 4 18 128.9 150.0 278.9 21.9 Mombasa Imports 0 4 18 128.9 150.0 278.9 21.9 Import transit 0 9 18 128.9 132.0 260.9 20.5 Note: These figures have been collected during a field mission in May/June 2012 with the collaboration of the main port operators (TPA and TICTS) and interviews with several port users (see references). In addition to the excessive delays, the The magnitude of the potential for cost of fees imposed by port operators corruption within the port of Dar es and agencies in the port of Dar es Salaam can be illustrated by estimating Salaam are significantly higher than in how much an importer would be ready Mombasa. The official port fees were on to pay to reduce delays. In principle, an average 74 percent higher in Dar es Salaam importer with merchandise valued at USD than in Mombasa, mainly as a result of 1,358 per ton may be prepared to pay up to higher wharfage charges, with the port of USD 17.4 per ton to speed up the process Dar es Salaam charging fees in proportion of its container by one day, given that this to the value of the merchandise, while is equivalent to the cost associated with an the port of Mombasa charges simple extra day’s waiting time. For bulk imports, flat fees.25 The total extra direct cost was the equivalent cost of an extra day’s waiting approximately USD 16 per ton for container time for merchandise valued at USD 1,137 is imports and USD 11.1 per ton for bulk USD 10.6 per ton. Corruption is imports in mid-2012. both a source Another way to estimate the possible of inefficiency The relative inefficiencies at the Dar level of corruption in the port is to and direct result es Salaam port compared to Mombasa examine the variations in the valuation of inefficiency, are equivalent to an additional tariff of of import invoices at customs. Data from with non official 22 percent on container imports and 5 the Tanzania Revenue Authority (TRA) show payments becoming percent on bulk imports. However, these that the customs values associated with a neccesssary to costs do not include unofficial payments set of relatively homogenous goods varied facilitate the made by shippers and clearing agents, significantly in 2011. For example, the stated processes. which in the port of Dar es Salaam may be customs value for one kilogram of imported significant. In this case, corruption is both fertilizer ranged from USD 0.39 to USD 5 a source of inefficiency and a direct result per kilogram, while global prices for this of inefficiency, with non-official payments commodity ranged around USD 0.6-0.8 per becoming necessary to facilitate processes. kilogram. The ratio between the highest and 25 Tariff Book of Port Dues and Charges. PAGE http://www.worldbank.org/tanzania/economicupdate. 36 T h e Wo r l d B a n k Pove r t y Re d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a Re g i o n lowest reported customs value was 152 for purchasing power of consumers is eroded. rice and 33 for palm oil. While variations in With the increased cost of imported goods, the actual price of these commodities may the demand for these goods decreases, be attributable to volatility in international resulting in declines to consumption levels prices and to variations in quality, it is and to welfare. Thus, inefficiencies at the reasonable to suspect that such wide- port contribute to a reduction in the value ranging variations may be the result of poor of imported goods by an estimated USD 2.4 In 2012, the total reporting or corrupt behavior. billion, or 25 percent of the total volume of global welfare loss imports in 2012. resulting from 2.2 Perverse Incentive Structures: This lost potential also reduces tariff inefficiencies at the Rewarding inefficiency revenues for Tanzania and reduces benefits port was estimated By mid-2012, the costs associated with for port operators, who handle a lower to reach a value of inefficiencies at the port of Dar es Salaam volume of merchandise than would be the USD 1,759 million were equivalent to a tariff of 22 percent on case were the port managed efficiently. for the Tanzanian containerized imports and five percent on Finally, the inefficiency of the Dar es economy and USD bulk imports. This extra cost has significant Salaam port affects neighboring landlocked implications for the Tanzanian economy and 830 million for countries in a similar way, increasing transit the economies the economies of neighboring countries. costs and thus resulting in a lower volume of neighboring of trade (For a summary of the global costs The cost of inefficiency for the economy countries. associated with the port’s inefficiencies, see At the aggregate level, the estimated total Table 7). welfare loss resulting from inefficiencies at the Dar es Salaam port can be In 2012, the total global welfare loss calculated by examining the impact of resulting from inefficiencies at the port equivalent tariffs on local producers, was estimated to reach a value of USD consumers, and the Government.26 All of 1,759 million for the Tanzanian economy these parties suffer losses as a result of the and USD 830 million for the economies higher final prices and the lower volumes of of neighboring countries. Contributing imports. As a result of the inefficiencies at to these losses, the port’s inefficiencies the port, the cost of imported intermediary resulted in losses to revenues collected by products is higher for local producers and the government agencies (TPA and TRA) to 26 While details on the methodology used to derive those estimated losses can be found in the background technical paper, it is worth emphasizing that the extra-tariff associated to the port inefficiency is assumed to be fully transmitted to end-user prices rather than to be absorbed by a reduction in the margins of intermediaries. This assumption reflects the market power of most intermediaries who are facing little competition from do- mestic producers. The average price elasticity of imports of 0.98 is aligned on the values found in recent stud- ies on Tanzania and other Sub-Saharan economies but welfare losses remain significant for elasticity values ranging from 0.41 to 1.53. Simulations using different import demand price elasticities for specific categories of imports in Tanzania were also conducted with similar results. This approach remains illustrative as it fails to incorporate the multiple dynamic effects that are expected on the Tanzanian economy over time. For example, the port inefficiency increases the cost of imported fertilizers that will be therefore less used by farmers. While this initial cost is calculated, the substitution and complementary effects arising from this first-round impact are not to be included because they would require the use of a complex general equilibrium model. It was also assumed that importers behave the same way independent of the length of the delays and that variations in the port efficiency do not affect other bottlenecks along the trade transaction chain, e.g., congestion outside of the port, on the inland transport side. PAGE http://www.worldbank.org/tanzania/economicupdate. 37 T A N Z A N I A E C O N O M I C U P D A T E • M A Y 2 0 13 , 3 R D E D I T I O N a value of approximately USD 157 million. for the Government in terms of its ability to These losses are equivalent to approximately make additional investments in education, three percent of annual public revenues, health and other vital public services to representing a significant lost opportunity improve Tanzanian citizens’ welfare. Table 7 : The global cost associated to the port inefficiency in 2012, USD million Impact Local Imports Transit Total Welfare loss 1’759.1 830.1 2’589.2 Excluding liquid bulk (petrol) 772.1 297.4 1’069.5 Imports decline 1’758.5 649.8 2408.3  Container 865.2 291.9 1167.1 Bulk 74.6 33.0 107.6 Liquid bulk (petrol) 818.7 324.9 1’143.6 Government revenues losses 154.6 2.4 157.0 TRA 148.8 148.8 Import duties 54.2 54.2 Tax revenues 84.6 84.6 TPA 5.8 2.4 8.2 TICTS revenues losses 12.0 5.4 17.4 Source: Morel, Morisset, Regolo (2012) The costs associated with the inefficiency The impact of the inefficiencies of the port of the port have significant implications on the Tanzanian economy can be further for households. Based on the average illustrated by a more detailed description level of consumption by Tanzanian of two strategic goods. The first example households, it is estimated that these is cement, which constitutes a significant Based on the average households could have saved 8.5 percent proportion of Tanzanian imports. Cement level of consumption of total expenditures, or USD 147 per year, is the main input for a number of domestic by Tanzanian if the port of Dar es Salaam had been as activities, most notably construction (eight households, it is efficient as Mombasa’s.27 This shows that percent of total costs) and for the production estimated that the inefficiency of the port not only has a of glass (five percent). The extra tariff of five these households significant negative impact on the country’s percent due to the inefficiency of the port could have saved economic growth, but also on the welfare increases the price of imported cement, 8.5 percent of total of many Tanzanian households, particularly thereby providing significant protection for expenditures, or USD the poorest ones. The inefficiencies of the local producers, who are able to increase 147 per year, if the port contribute to an increase in food and their prices due to the high cost of imports. energy expenditures that together account port of Dar es Salaam As a result, the price of cement is much for three quarters of low income households’ had been as efficient higher in Tanzania than in Kenya or other consumption basket. as Mombasa’s. producer countries. The close relationship 27 Leyaro V. (2009). “Commodity Price Changes and Consumer Welfare in Tanzania in the 1990s and 2000s�, School of Economics, University of Nottingham, UK. PAGE http://www.worldbank.org/tanzania/economicupdate. 38 T h e Wo r l d B a n k Pove r t y Re d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a Re g i o n between local and imported prices in the and (b) there is limited competition from cement sector has been confirmed by many other ports or other transport networks recent studies. As an example, local cement and between port operators. These two prices decreased from Tsh15,500 in June conditions are met in the case of the port 2008 to Tsh10,500 in October 2009 when of Dar es Salaam. The main stakeholders in the Government decided to temporarily the port of Dar es Salaam are the Tanzania In particular, the remove duty on the importation of cement Port Authority (TPA), which is the landlord storage tariff from outside the EAC in 2008.28 authority and service provider; the Tanzania structure does not International Container Services (TICTS), a For fertilizers, the added cost due to the private container stevedoring contractor; encourage importers inefficiency of the port is equivalent to and the Surface and Maritime Transport to remove their an extra tariff of 5.2 percent. Due to the Authority (SUMATRA), the multi-sectoral merchandise from limited competition faced by importers, regulatory agent. port premises in a this is almost fully passed on to consumers timely manner. through higher retail prices. The increased While there is no doubt that the port of cost of fertilizers leads to their under use, Dar es Salaam is an important source thereby contributing to low productivity and of revenue, it is difficult to determine to lack of competitiveness in the agricultural who benefits from its current state of sector. This sector is central to the Tanzania inefficiency and institutional set-up. Our economy, contributing up to 25 percent analysis suggests that a number of parties of the GDP and providing employment stand to gain significantly from the current to 75 percent of the working population. state of inefficiency as a result of: (a) the This cost also undermines the impact distorted incentive structure at the port; (b) of the Government’s subsidized fertilizer the prevalence of corruption; and (c) the programs. While these programs are extra protection for local producers. aimed at reducing the price of fertilizers for farmers, inefficiencies at the port contribute Some parties may gain from the conflict to increased prices. Therefore, from the of interests in the existing incentive Government’s perspective, it might be more structure at the port. In particular, the rational to improve efficiency at the port (a storage tariff structure does not encourage one-time cost) than to dedicate a significant importers to remove their merchandise from amount of public resources on farmers’ port premises in a timely manner. However, assistance programs every year. this structure benefits the Tanzania Port Authority (TPA), the Tanzania International Gains for targeted groups Container Terminal Services (TICTS) and ICDs, since when dwell time exceeds the Ports are generally good businesses if: (a) free storage period of seven days, each there is a sufficient volume of transactions additional day of storage represents a direct to generate economies of scale and additional profit for them. The total revenue adequate returns on initial investments; from additional storage collected by the 28 Fair Competition Commission of Tanzania, (2010). “Assessment of competition in the Tanzania Cement market�, research and advocacy division. PAGE http://www.worldbank.org/tanzania/economicupdate. 39 T A N Z A N I A E C O N O M I C U P D A T E • M A Y 2 0 13 , 3 R D E D I T I O N TPA and TICTS reached a value of around internal and external supervision is limited, USD 14.5 million in 2011. In addition, many with ineffective appeals mechanisms. As a ICDs generate a profit only when there is consequence, discouraged traders often a long storage time, as it is estimated that prefer to pay unofficial fees negotiated with merchandise must be stored for at least officials. 14 days to cover the operating costs of most ICDs. Another example of perverse Several conflicts of interests facilitate incentives is that the TPA is able to earn the likelihood of corrupt practices. For more revenues when TICTS becomes less example, TICTS is a joint venture between efficient. When the berths managed by an international private company and a TICTS are congested, a portion of container number of local private investors. However, traffic is redirected to the TPA berths, leading there is no clear information regarding to an unusual situation where the landlord is the identities of these investors: in 2008, competing against its own service provider. a major scandal revolved around the The additional revenue generated by revelation that one of these investors was container traffic for the TPA was estimated a top government official. The TPA plays a to reach a value of around USD 36.5 million dual role as both operator and landlord. The in 2011. Surface and Marine Transport Regulatory Authority’s (SUMATRA) limited capacity and Some parties may gain from corrupt knowledge creates a high risk of corruption practices made possible by the level of by agents and operators, since neither the formula nor the benchmark upon which the Rent-seeking inefficiency of the port. Rent-seeking imposition of fees and charges is based on behavior has behavior has been exacerbated by the use is transparent. Other conflicts are found in been exacerbated of discretionary rules that contribute to the the cumulating roles of some local shipping by the use of typical asymmetric information problem agents that are also involved in forwarding discretionary rules between administration and users.29 and ICD operations, in contradiction to Custom duties, invoice valuations, and port that contribute to the Tanzanian law. While there is no reason why rules are frequently modified by agencies shipping agents/lines should not participate typical asymmetric without any detailed explanations. Not in logistical activities, the law should be information only are users not well informed, but many applied clearly and fairly. problem between agents apply unclear or out of date rules. administration This rent-seeking behavior is encouraged Some parties are set to gain as a result of and users. by the quasi-absence of controls and the extra-protection for local producers. For containerized cargo, this protection sanctions and poor enforcement of existing is equivalent to a tariff of 22 percent, or rules. TICTS has no real competitor except about three times the weighted average for TPA. Customs’ officials have substantial duty tariff on total merchandise trade in discretionary powers in terms of clearing Tanzania. Such protection allows local firms goods, since only one quarter of the total to increase their margins or to produce volume of imported merchandise goes inefficiently, with end users having to absorb through the green channel. In addition, the attendant costs. The extra-protection 29 This information asymmetry is exacerbated by the fact that about 94 percent of port transactions (not in value) are generated by small importers (one or two container per year) who are generally much less informed than large companies. PAGE http://www.worldbank.org/tanzania/economicupdate. 40 T h e Wo r l d B a n k Pove r t y Re d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a Re g i o n also favors importers, especially those who cost of reforms could range from USD 1-2 can act collusively. Monopolist importers billion over a period of five years.31 These can take advantage of variations in delays costs include the cost of developing and/ and operating costs by setting their prices or rehabilitating infrastructure within and to the highest possible cost, even if these outside the port and modifying existing costs are variable over time. Such profit systems.32 Despite the large costs involved, maximizing behavior is more likely for goods several private investors and donors have that have relatively low price elasticity already expressed willingness to finance Despite the large values, such as food. With few incentives to most of the investment.33 In addition, there costs involved, remove their goods from storage facilities in are several inexpensive reforms to the soft several private a timely manner, importers could also store infrastructure of the port that could greatly investors and their cargo in the port until the price peaks improve the situation. Such ‘quick win’ donors have in an upward season. They can also create reforms include reforms to the sequencing already expressed artificial shortages in the local market and of vessels to improve the dwell time. The willingness to delay deliveries until market prices rise.30 ‘Big Results Now’ laboratories34 have looked at these in detail. finance most of the 2.3 Resistance to reform: Unequal investment. While financial constraints are part of bargaining power of winners and losers from the status quo the explanation for the slow progress in Tanzania and its neighbors could have implementing reforms in the port of Dar gained approximately USD 2.6 billion es Salaam, the lack of progress is largely in 2012 if the port of Dar es Salaam had the result of the asymmetric bargaining been as efficient as the port in Mombasa. power between winners and losers. In Given that this should be a realistic target in other words, the status quo is to a large the short to medium term, why are policy extent maintained because winners are reforms to enhance efficiency moving more powerful than losers in influencing so slowly? The conventional response decision makers, even if the level of the is that the Government (or TPA) does gains of the winners are much lower than not have sufficient financial resources to the level of losses for the general economy.35 implement the necessary reforms. Several In the port of Dar es Salaam, some major studies have estimated that the total winners are themselves state entities, 30 Arvis, Jean-François, Gaël Raballand, and Jean-François Marteau (2010). « The Cost of Being Landlocked: Logistics Costs and Supply Chain Reliability�, World Bank. 31 Dar es Salaam port identification of key constraints critical for improving economic growth and reducing poverty, January 2009. Tanzania National Audit Office and Public Financial Management Working Group. 32 Feasibility study for new container berths Dar es Salaam, (2009). CPCS Transcom International Limited. 33 Pre-feasibility study, review of PPP options and recommendations concerning the optimum option for establishment of a container freight station in Dar es Salaam (Kisarawe Freight Station), December 2010, Ecorys Nederland BV. 34 To speed up reforms in priority areas, the Tanzanian Government has committed itself to adopt and customize the Malaysian BIG FAST RESULTS model “to suit the Tanzanian environment� and to work with the Malaysian authorities to deliver this. This new approach was initiated in early 2013 through the organization of six ‘labs’ in education, transport, energy, revenue mobilization, agriculture, and water. These labs brought together stakeholders with the objective to identify key actions to be implemented before 2015. These actions will be monitored by the President’s office with high accountability from concerned Ministers. 35 Baldwin R. and F. Robert-Nicoud, (2007). “Entry and Asymmetric Lobbying: Why Governments Pick Losers�, Journal of the European Economic Association, MIT Press, vol. 5(5), pages 1064-1093, 09. PAGE http://www.worldbank.org/tanzania/economicupdate. 41 T A N Z A N I A E C O N O M I C U P D A T E • M A Y 2 0 13 , 3 R D E D I T I O N while stakeholders like TICTS enjoy a failure to incorporate the costs arising from disproportionate amount of clout. Similarly, inefficiency into their decision-making those benefitting from the extra-protection processes. This typical ‘public good’ problem provided by port inefficiency are among the leads to under-investment because the largest firms operating in the country, with negative effects of the port’s inefficiency are significant market power and connections. not taken into account by the port operators. Another example is found in the case of the There are several explanations for the TRA. Improved efficiency at the port would lack of bargaining power of those who enable greater efficiency in tax collection, suffer losses due to the inefficiency of the which in turn would substantially increase port. First, the losses are diffused among tax revenues. However, individual staff may many end-users (consumers and investors) lose as the result of reduced opportunities whose direct connections with policymakers for rent-seeking. Consequently, there is no are limited. For example, in the cement sense of urgency in favor of reforms. sector, losers consist of consumers, the bulk of whom consist of firms and households Finally, the delayed impact of the dispersed across the country. By contrast, benefits to be derived from improved there are only three major local cement port efficiency may partially explain producers, who benefit significantly from resistance to reforms. While the gains the status quo and who have a high level will be significant in the long term, some of influence.36 Second, many consumers actors might lose in the short term. In some are not fully aware of the negative impact cases, this relates to the perverse incentives This typical ‘public of port inefficiency on their own welfare. described earlier. For example, TICTS and good’ problem leads The marketing chain is long, with multiple TPA would benefit from the higher volume to under-investment intermediaries between the port and the of traffic over the long term. However, in the because the negative consumers, including wholesalers and short term, these entities might lose up to effects of the port’s retailers. Third, the magnitude of the USD 14 million per year in revenues derived inefficience are not losses resulting from the inefficiencies from the imposition of fees for storage if varies significantly over time. For example, taken into account by average dwell times are reduced to less the cost associated with dwell time varies the port operators. than seven days, considering that storage substantially across transactions. fees are only imposed for periods in excess of seven days. In addition, there are coordination failures and time inconsistency issues. Coordination failures operate at two levels. 2.4 Appetite for Change The first level is within the port, where the Despite the intrinsic barriers to reform, responsibilities are diffused among different there is now political will for change. Work players, who often play conflicting roles has started at TPA to improve the efficiency (such as in the case of the TPA, who acts and effectiveness of the port. The aim is as both the operator and the landlord of the to design and implement strategies that port). The second level is in port operators’ effectively facilitate the increased volume of 36 Fernandez, Raquel and Rodrik, Dani (1991). “Resistance to Reform: Status Quo Bias in the Presence of Individ- ual-Specific Uncertainty.� American Economic Review, 81(5), pp.1146–55. PAGE http://www.worldbank.org/tanzania/economicupdate. 42 T h e Wo r l d B a n k Pove r t y Re d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a Re g i o n trade and its changing nature through the recommendations of the ‘Big Results Now’ development of an investment plan which transport laboratory. In summary, some makes TPA fully operational. The Minister improvements have been made, but there of Transport has led some initial changes. is still significant scope for positive change. For Tanzanian In early 2013, the TPA Board was dismissed policy makers, the following investigations over the allegation 2.5 Recommendations: How to modernization of the of corruption by some of its members. This implement efficiency enhancing reforms was followed by a restructuring of senior port of Dar es Salaam For Tanzanian policymakers, the management. should be one of modernization of the port of Dar es the top priorities In addition, the Government has Salaam should be one of the top priorities for the economic implemented a number of other reforms for the economic development of the development of the that have had a significant positive impact country. Achieving a level of efficiency in country. on the efficiency of the port. The TPA has Dar es Salaam’s port equivalent to that of purchased three new mobile cranes, leading Mombasa’s, which is of average standard for to a significant increase in moves per hour of African ports, could generate an estimated up to 21 MPH (which is still low compared to USD 1.7 billion in additional revenues for facilities elsewhere in the world). Payments Tanzania, and about USD 800 million for to TPA now have to be made through the its neighbors in the region. At around USD banking system, rather than by cash, 2.6 billion per year, the cost of inaction is theoretically reducing opportunities for already too great. In addition, the port of Dar corruption. As a result of such measures, es Salaam might lose some of its existing TPA’s monthly revenues doubled between market share in regional trade when other September and December 2012. Arguably, ports and railways become operational in average waiting times at anchorage and neighboring countries. dwell times also improved significantly in This update concludes with five the first few months of 2013. However, it recommendations for enhancing the remains difficult to determine if this reflects implementation of reforms in the port seasonal factors, since these waiting times of Dar es Salaam. These suggestions do have been subject to significant fluctuations not list specific technical actions that could in the past, or if these reductions represent be implemented to improve port efficiency progress that can be sustained over time. (For a description of such actions, see the There is still significant scope for further box below). Rather, they propose a means improvements, for example through the for addressing the current low equilibrium provision of newer cranes in the TICTS. and for pushing the rapid implementation A feasibility study has been completed of efficiency-enhancing reforms. While each to identify how to modernize handling objective is important, we believe that their processes in a manner that addresses combined impact is critical. Facilitating changing shipping and freight technology. the achievement of this combined impact The study includes a physical component is central to the Government’s recent ‘Big that examines the viability of strengthening Results Now’ initiative, which has put and lengthening quays. Detailed design improvements to the port at the center of work is ongoing and will take on board the the policy debate. This initiative has helped PAGE http://www.worldbank.org/tanzania/economicupdate. 43 T A N Z A N I A E C O N O M I C U P D A T E • M A Y 2 0 13 , 3 R D E D I T I O N to increase public awareness regarding link. Other elements in the chain also matter, the cost of the port’s inefficiency and to such as transportation into and out of the pave the way for a new wave of reforms by port, notably in the Dar es Salaam area. bringing together port users, port operators, While the Government should prioritize regulators and top policy decision-makers. reforms to the port, it must also keep its eye However, a word of caution is necessary: the on ensuring that the entire logistical chain port is certainly the most important element enables a more efficient port to provide of the logistical chain connecting Tanzania optimal benefits for all stakeholders in to the world, but it is not the only one. A Tanzanian society. There is a need to chain can only be as strong as its weakest better explain and quantify the costs What to do? Potential actions to improve the port efficiency associated with the The discussion of proposed improvements in the port at Dar es Salaam is not a new current situation to conversation, and has been addressed by TPA, the Ministry of Transport, the World Bank, all stakeholders in the EU, AfDB, Trademark EA and more recently in the BRN Labs. The following provides a Tanzania and in the summary aggregation of the key proposals from these various discussions: sub-region. 1) Enhancing operational efficiency • Introducing new standard operating procedures that reward good port-user behaviour, e.g. reducing the time it takes to move goods through the port • 24/7 working windows for key stakeholders • Maximizing spatial efficiency in the port area by restructuring and relocating facilities 2) Upgrade existing port facilities • Construction of new multi-purpose (RoRo) berth at Gerezani • Upgrading of grain silos • Berth 1-7 modernization through concessioning to private operators (PPP), with separate container and bulk handling facilities • Channel dredging works to improve access and efficiency of ship movements • KOJ Relocation (berth 12), to improve safety and allow port expansion 3) Construct new port facilities • Development of freight station at Kisarawe (PPP) • Development of new berths 12-14, through concessioning to a private operator (PPP) • Update the master plan for new capacity requirements, including study of new terminals at Vijibweni/Kigamboni, Tanga and Bagomoyo PAGE http://www.worldbank.org/tanzania/economicupdate. 44 T h e Wo r l d B a n k Pove r t y Re d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a Re g i o n The five recommendations for reform are bang’ approach or through an incremental as follows: approach. The former would involve the introduction of new port operators and/or (a) Increasing end-users’ awareness of the privatization of the operating arm of TPA. costs related to port inefficiency: Many The latter approach could be implemented end users are not aware of the negative by privatizing some activities, such as impact of the inefficiencies at the port handling operations and maintenance, or on their welfare. There is a need to better by modifying some existing practices in the explain and quantify the costs associated port that reduce the level of competition. with the current situation to all stakeholders The following measures could be in Tanzania and in the sub-region. The implemented, in descending order of priority: Government should take the lead in (a) modifying the call sequencing system facilitating economic studies, mobilizing for vessels from the current ‘first come, first consumer groups and small business serve’ system to fixed berthing windows associations, conducting end-user surveys for shipping lines;38 (b) refocusing the role and creating a public awareness campaign of SUMATRA by adopting transparent including an information booklet setting regulations based on benchmarks, rather out key processes and describing who is than on discretionary rules; (c) revising the legal restriction preventing shipping responsible for each of these processes. companies from involvement in logistics (b) Reducing the bargaining power of activities, since the cost of fragmentation of logistics services is a key source of those who currently benefit from the inefficiency (even though it might favor status quo: This objective can be achieved the use of local labor); (d) improving by reducing existing conflicts of interest that the efficiency of freight forwarders and contribute to the risk of collusive behavior at clearing agents by removing inappropriate the expense of end-users. The first action regulations, increasing transparency in their should be to make the connections between tariffs and activities, and penalizing those TICTS and decision-makers transparent. who operate outside the law. There is no This could be achieved by making public clear reason for current regulations that the names of the main local stakeholders of stipulate that only local agents can clear this company. The second action should be cargo in Tanzania and that shipping agents Promoting a higher to eliminate the dual role of the TPA, which and lines cannot participate in logistical level of competition currently acts as both the landlord and as activities. could also reduce the one of the two operators in the port. In monopolistic power addition, measures should be implemented (c) Reducing corruption: This would to promote greater transparency in the involve the imposition of a true zero- of current port financial accounts of the TPA.37 tolerance of corruption policy through a operators. clear commitment from the top authorities, Promoting a higher level of competition with serious monitoring and, when needed, could also reduce the monopolistic credible sanctions. The use of benchmarks power of current port operators. This through an automated system would help can be achieved either through a ‘big monitor the performance of port operators 37 Tanzania Port Authorities, Annual Report and Accounts 2009 – 2010. 38 Of course one also has to ensure that any change from the first come first served principal at the port can be done equitably (and does not prevent new entrants into the market). PAGE http://www.worldbank.org/tanzania/economicupdate. 45 T A N Z A N I A E C O N O M I C U P D A T E • M A Y 2 0 13 , 3 R D E D I T I O N and the TRA. To reduce corruption, (d) Motivating reformers: The staff of procedures should be simplified through the TPA and TRA could be motivated the effective implementation and use of a by the introduction of performance- one-stop clearing process.39 In addition, the based incentives. Such an approach was number of taxes and exemptions should be implemented in the port of Douala in reduced. There is also a need to: (a) provide 2010 with successful results.40 Since the good remuneration packages and working implementation of such a system, the conditions for customs agents to reduce the number of transactions cleared by tax and temptation to engage in corrupt practices; customs administration has increased by (b) intensify internal and external controls; more than 10 percent and tax revenues have and (c) implement credible sanctions in gone up by USD 16.5 million. case of abuses or misuses. Customers should have access to independent and (e) Improving coordination: Coordination inexpensive appeal mechanisms. failures have long been recognized as a cause of inefficiency, with these The methodology used to calculate wharfage failures justifying the creation of the Port fees should be modified from a value-based Improvement Committee that attempts to system to a fixed-rate system. This would regroup the most important players involved spare agents from the need to negotiate in the functioning of the port. However, with clearing agents and importers and this Committee chaired by the TPA is not contribute both to speeding up the process efficient due to the conflicting interests of The fee structure and to reinforcing collaboration between its members and to the dual role of the port should penalize private and public operators within the port. authority. At the same time, there is a need importers who store Another important action would be to revise to involve key players that are not directly their merchandise the structure of storage fees so that the involved in the functioning of the port but for excessive periods, structure encourages importers to minimize who are nonetheless affected by its level of the period in which their goods remain in except if the cause performance. storage. of the delay is due The cost of inefficiency at the port is to lengthy clearance Thus, the fee structure should penalize not absorbed by the port operators or processes. importers who store their merchandise for authorities, but by end-users, including excessive periods, except if the cause of the ordinary consumers, traders and farmers. delay is due to lengthy clearance processes. Our recommendations are to (a) ensure Importers who repeatedly abandon that end-users are represented on the cargo should also be penalized, with the committee; (b) transfer the role of Chairman Government instructing the TRA to auction to the Minister of Transport (or a Champion all abandoned cargo in a timely manner outside of the port); and (c) strengthen and allocating a budget for the destruction the mandate of the Committee, so that of cargo that cannot be auctioned or re- it supersedes that of individual agencies exported to points of origin after a delay. operating in the port. 39 In 2006, Tanzania and Kenya governments commenced the establishment of ‘Port Community system (PCS)’ for both Mombasa and Dar es Salaam Port (financed by the East Africa Trade and Transport Facilitation Project). The PCS is severely delayed in Dar es Salaam port possibly due to lack of commitment by former TPA management.� 40 Cantens T., G. Raballand, N. Strychacz and T. Tchouawou, (2010). « A revised approach to customs reforms in Sub-Saharan Africa based on lessons from a performance contracts pilot in Cameroon? », World Bank PAGE http://www.worldbank.org/tanzania/economicupdate. 46 T h e Wo r l d B a n k Pove r t y Re d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a Re g i o n Statistical Annexes PAGE http://www.worldbank.org/tanzania/economicupdate. 47 T A N Z A N I A E C O N O M I C U P D A T E • M A Y 2 0 13 , 3 R D E D I T I O N STATISTICAL ANNEXES Annex 1: Key Macroeconomic Indicators Indicator Unit 2005 2006 2007 2008 2009 2010 2011 2012* 2013 Proj Population (Mainland)/2 Millions 36.0 37.0 38.0 39.1 40.2 41.3 42.4 43.6 44.8 Per capita Income/2 US$ 381.5 376.1 429.7 514.4 516.6 538.7 545.9 629.1 691.5 GDP Growth/2 % 7.4 6.7 7.1 7.4 6.0 7.0 6.4 6.9 6.5 Gross Domestic Savings/1 (as a % of GDP) 16.2 15.3 13.6 14.6 16.6 19.3 19.3 19.7 22.2 Gross Investments/1 (as a % of GDP) 23.9 26.4 28.7 29.7 29.4 30.6 34.5 38.1 39.1 Inflation/2 (period average) % 4.4 7.3 7.0 10.3 12.1 7.2 12.7 16.0 9.0 Exchange Rate/2 (period average) TZS/US$ 1,128.9 1,251.9 1,245.0 1,197.2 1,320.3 1,410.2 1,573.6 1,583.1 1,624.8 External Sector Exports - Goods & Services (f.o.b)/1 Mil. US$ 2,843.4 3,148.7 3,565.6 4,526.7 4,660.1 5,247.0 6,497.8 6,746.1 6,746.1 Imports - Goods & Services (f.o.b)/1 Mil. US$ -3,852.7 -3,436.4 -4,335.6 -6,020.8 -6,220.5 -6,595.7 -8,011.6 -10,617.3 -11,241.6 Current Account Balance/1 Mil. US$ -703.9 -1,171.7 -1,575.6 -2,109.7 -2,124.2 -2,046.7 -2,214.7 -4,260.5 -4,910.5 Balance of Payments (Overall balance)/1 Mil. US$ 55.5 346.2 232.6 500.2 18.1 477.6 100.7 199.6 285.6 Foreign Reserves/1 Mil. US$ 1,968.6 2,136.9 2,157.3 2,660.0 2,929.8 3,482.6 3,610.0 3,797.1 4,061.4 External Debt/1 Bil. US$/1 8.1 8.2 4.7 5.8 7.0 8.1 9.6 10.4 12.4 Foreign Direct Investment/1 Mil. US$ 689.0 669.3 492.3 914.4 1,100.1 987.7 1,009.1 1,632.6 1,793.4 Tourism Earnings/2 Mil. US$ 823.6 862.0 1,037.0 1,198.8 1,160.0 1,250.0 1,324.8 1,472.0 1,629.6 Monetary Sector Average Deposit Rate/1 % 4.7 5.5 7.4 7.8 6.6 6.3 5.8 7.2 N/A Average Lending Rate/1 % 15.2 15.0 16.4 15.4 15.1 14.7 14.8 15.1 N/A Growth in Money Supply (M3)/1 % 19.6 31.3 20.1 18.1 18.5 25.1 22.0 11.8 17.3 Government Finance Total Domestic Revenue/1 (as a % of GDP) 11.8 12.5 14.1 15.9 16.2 15.9 16.4 17.6 18.8 Tax Revenue/1 (as a % of GDP) 10.8 11.5 13.0 14.7 15.3 14.6 15.2 15.8 16.7 Non-Tax Revenue/1 (as a % of GDP) 1.1 1.1 1.1 1.2 0.9 1.2 1.3 1.8 2.1 Total Expenditure/1 (as a % of GDP) 22.3 22.8 23.0 22.8 26.1 27.5 27.0 26.2 28.1 Recurrent Expenditure/1 (as a % of GDP) 15.4 15.7 16.1 14.9 17.7 18.8 19.2 17.0 18.7 Development Expenditure/1 (as a % of GDP) 6.3 7.1 6.9 7.9 8.4 8.6 7.9 9.2 9.4 Grants/1 (as a % of GDP) 6.8 5.4 4.9 6.9 5.1 4.6 4.7 4.5 3.8 Fiscal Balance (after grants)/1 (as a % of GDP) -3.6 -4.9 -4.0 0.0 -4.6 -6.4 -6.6 -5.0 -5.5 Notes: /1 Fiscal year is used, and it ends June 30 th of mentioned year /2 Calendar year is used, and it ends December 31 st of mentioned year * Preliminary actual Source: IMF, World Bank and Tanzania Authorities (MOF, BoT and NBS) PAGE http://www.worldbank.org/tanzania/economicupdate. 48 T h e Wo r l d B a n k Pove r t y Re d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a Re g i o n Annex 2: Growth and Structure of the Economy Key: * preliminary actual; Proj = projections Source: National Bureau of Statisti cs, IMF and World Bank estimates PAGE http://www.worldbank.org/tanzania/economicupdate. 49 T A N Z A N I A E C O N O M I C U P D A T E • M A Y 2 0 13 , 3 R D E D I T I O N Annex 3: Quarterly GDP Growth Rates 2002-2012 Real estate All Mining Wholesale Hotels and Transport Financial and indust. at and Manufac- Electricity Construc- and retail restau- & Com' interme- business Public Other basic Taxes on Ye a r Quarter Agriculture Fishing quarrying turing and Water tion trade rants cation diation services admin Educat'n services FISIM prices products 2002 4.9 6.8 16.9 7.5 5.6 11.9 8.3 6.4 6.8 10.1 7.1 9.2 7.0 6.0 8.8 7.2 7.2 7.2 2003 3.1 6.0 17.1 9.0 6.7 13.8 9.7 3.2 7.1 10.7 6.5 9.6 2.8 6.0 11.7 6.9 6.9 6.9 2004 5.9 6.7 16.0 9.4 7.1 13.0 5.8 3.6 10.5 8.3 6.8 13.6 4.0 6.0 10.1 7.8 7.8 7.8 2005 4.3 6.0 16.1 9.6 8.5 10.1 6.7 5.6 9.4 10.8 7.5 11.4 4.0 6.1 11.8 7.4 7.4 7.4 2006 3.8 5.0 15.6 8.5 -0.5 9.5 9.5 4.3 8.6 11.4 7.3 6.5 5.0 6.8 14.9 6.7 6.8 6.7 2007 4.0 4.5 10.7 8.7 10.1 9.7 9.8 4.4 10.1 10.2 7.0 6.7 5.5 6.9 15.3 7.2 6.9 7.1 2008 4.6 5.0 2.5 9.9 5.6 10.5 10.0 4.5 10.8 11.9 7.1 7.0 6.9 7.0 11.0 7.4 7.8 7.4 2009 3.2 2.7 1.2 8.0 7.9 7.5 7.5 4.4 11.0 9.0 6.8 4.4 7.1 5.6 8.7 6.0 5.8 6.0 2010 4.2 1.5 2.7 7.9 9.5 10.2 8.2 6.1 12.2 10.1 7.0 6.5 7.3 5.8 9.1 7.1 6.7 7.0 2011 3.5 1.2 2.2 7.8 1.9 9.0 8.1 4.6 11.3 10.7 6.5 6.8 7.4 4.7 11.2 6.4 6.5 6.4 2012 4.3 2.9 7.8 8.2 5.9 7.8 7.7 4.8 12.5 13.2 6.7 5.8 6.5 4.2 13.2 6.9 6.2 6.9 2002 1 1.0 13.1 16.8 3.5 6.2 11.0 1.9 5.4 5.2 27.5 3.9 7.7 8.8 9.3 25.2 4.7 0.7 4.4 2 4.0 12.2 14.9 -0.6 5.0 9.6 7.1 10.9 5.0 11.0 7.0 9.3 6.6 6.0 4.8 5.8 7.5 5.9 3 9.5 2.9 16.1 12.1 -5.4 19.0 6.3 5.5 5.5 3.9 8.1 10.0 5.7 4.5 -3.0 8.8 7.1 8.7 4 0.3 -1.5 20.4 14.0 15.6 8.3 18.0 4.5 11.8 -3.3 9.5 9.8 7.0 4.4 7.8 9.2 12.9 9.5 Annual 4.9 6.8 16.9 7.5 5.6 11.9 8.3 6.4 6.8 10.1 7.1 9.2 7.0 6.0 8.7 7.2 7.2 7.2 2003 1 2.5 3.2 7.8 13.7 0.0 8.1 2.8 4.9 8.5 -15.6 5.7 9.1 1.4 5.3 -20.3 5.4 11.5 5.8 2 2.2 -2.3 15.6 9.4 15.6 20.6 2.9 2.6 11.1 11.9 6.9 9.2 3.1 6.4 10.0 6.3 5.6 6.3 3 4.1 11.1 21.7 5.3 20.6 14.2 11.4 1.6 8.5 21.7 7.2 9.6 4.0 6.5 24.5 7.3 4.4 7.1 4 2.4 14.5 25.2 8.6 -4.7 11.5 19.8 4.0 0.2 34.3 6.3 10.5 2.6 5.9 48.1 8.4 6.8 8.3 Annual 3.1 6.0 17.1 9.0 6.7 13.8 9.7 3.2 7.1 10.7 6.5 9.6 2.8 6.0 11.7 6.9 6.9 6.9 2004 1 4.6 6.8 18.3 7.5 -2.7 30.5 8.9 -0.8 4.5 16.4 6.4 12.2 5.3 5.6 21.2 8.0 4.6 7.8 2 8.8 0.2 18.0 7.7 5.6 4.0 3.2 3.9 2.8 4.8 1.0 13.6 3.1 5.4 6.4 6.4 4.0 6.2 3 5.5 5.5 15.5 14.2 10.6 3.9 2.0 4.4 10.5 3.9 6.0 14.3 3.8 5.9 5.1 6.8 14.9 7.3 4 2.6 15.5 11.8 7.9 15.4 16.6 8.6 7.4 25.9 9.2 13.1 14.3 3.8 6.9 9.3 10.5 7.0 10.2 Annual 5.9 6.7 16.0 9.4 7.1 13.0 5.8 3.6 10.5 8.3 6.8 13.6 4.0 6.0 10.1 7.8 7.8 7.8 2005 1 3.4 16.8 7.5 9.1 11.4 -4.8 3.5 3.6 7.1 1.4 7.6 13.5 3.1 6.8 3.0 5.7 5.4 5.7 2 3.5 12.9 3.1 12.5 5.7 5.1 8.8 5.2 15.7 16.1 7.6 12.0 4.0 6.0 21.5 7.3 12.7 7.7 3 5.8 -7.1 12.3 6.0 6.8 29.8 7.3 2.6 14.2 3.6 14.7 10.8 4.5 5.7 7.5 8.7 3.1 8.4 4 2.9 2.5 44.8 11.3 10.1 12.1 6.9 11.8 1.5 22.2 1.0 9.7 4.5 5.8 15.1 7.3 9.3 7.5 Annual 4.3 6.0 16.1 9.6 8.5 10.1 6.7 5.6 9.4 10.8 7.5 11.4 4.0 6.1 11.8 7.4 7.4 7.4 2006 1 3.3 0.2 17.8 13.5 0.9 25.2 2.8 0.2 22.7 23.1 15.4 7.9 6.8 6.3 25.7 9.7 10.9 9.8 2 6.7 6.5 19.9 10.9 3.3 10.5 21.4 3.3 6.0 0.9 3.5 6.7 5.6 7.1 3.5 8.8 9.5 8.9 3 4.0 20.2 23.7 7.2 2.1 -0.9 9.6 4.8 0.5 19.1 8.2 5.9 5.2 7.2 17.3 5.7 4.9 5.7 4 -2.2 -5.9 3.4 3.6 -7.6 5.9 5.7 8.8 5.6 5.0 2.0 5.5 2.3 6.6 14.7 2.9 3.2 2.9 Annual 3.8 5.0 15.6 8.5 -0.5 9.5 9.5 4.3 8.6 11.4 7.3 6.5 5.0 6.8 14.9 6.7 6.8 6.7 2007 1 3.3 14.4 18.2 4.7 9.7 5.9 16.0 3.8 -14.2 -24.1 3.6 6.2 6.7 6.4 -26.2 4.8 -0.5 4.5 2 3.5 -7.1 8.9 9.8 12.7 -1.5 4.8 4.2 8.0 11.0 15.2 6.8 4.9 6.5 15.8 5.9 4.9 5.8 3 5.3 -4.4 5.2 9.1 7.6 6.2 7.7 6.2 26.0 19.5 2.7 7.0 3.3 6.9 30.2 7.0 10.1 7.2 4 2.0 18.9 11.0 11.0 10.6 28.5 11.5 3.3 25.2 32.7 8.0 6.9 7.2 7.6 38.9 11.2 11.7 11.3 Annual 4.0 4.5 10.7 8.7 10.1 9.7 9.8 4.4 10.1 10.2 7.0 6.7 5.5 6.9 15.3 7.2 6.9 7.1 2008 1 11.2 -21.3 -1.9 7.0 2.7 8.0 10.2 4.5 13.4 18.7 7.3 7.0 2.6 7.8 25.3 6.9 9.1 7.1 2 2.0 13.8 15.3 5.3 -2.1 -1.8 12.2 3.6 9.0 12.7 8.1 7.8 8.0 7.2 11.2 6.9 10.3 7.1 3 1.5 30.8 4.5 10.2 6.3 34.0 12.0 3.5 8.1 11.4 7.7 7.3 8.2 6.8 9.6 9.0 6.4 8.9 4 11.5 -0.5 -6.9 16.2 15.6 2.6 6.6 6.4 13.1 7.9 5.3 5.9 9.0 6.5 5.1 6.4 6.0 6.3 Annual 4.6 5.0 2.5 9.9 5.6 10.5 10.0 4.5 10.8 11.9 7.1 7.0 6.9 7.0 11.0 7.4 7.8 7.4 2009 1 -0.1 11.7 -29.2 8.4 7.0 7.4 11.5 3.0 10.1 9.5 8.7 4.7 7.9 5.9 9.9 5.5 7.3 5.6 2 2.7 7.8 -18.0 8.3 10.7 -0.6 4.7 3.9 13.7 18.3 6.5 3.9 6.8 5.8 20.3 4.0 0.4 3.8 3 6.7 -3.0 29.7 7.3 11.2 -5.4 7.8 4.9 5.7 16.8 3.9 4.0 6.5 5.5 15.8 5.9 2.9 5.7 4 -1.3 -3.6 24.5 8.2 3.4 27.6 6.6 5.6 14.4 -6.1 8.1 5.0 7.2 5.1 -7.6 8.9 12.0 9.2 Annual 3.2 2.7 1.2 8.0 7.9 7.5 7.5 4.4 23.1 9.0 4.9 4.4 7.1 5.6 8.7 5.8 5.8 5.8 2010 1 1.9 9.4 28.3 4.5 5.1 8.6 9.0 3.5 11.3 9.8 13.1 6.5 5.9 5.6 10.5 7.6 9.0 7.7 2 3.0 1.9 20.5 7.5 10.0 24.0 9.6 7.3 6.6 14.6 5.6 7.0 7.1 6.3 12.9 7.3 4.3 7.2 3 5.7 -1.5 -12.3 9.0 13.0 13.2 7.4 7.0 12.9 10.1 3.8 6.7 7.8 6.1 7.2 7.0 2.6 6.7 4 5.4 -3.6 -9.1 8.2 9.7 27.2 7.1 6.5 17.2 6.0 5.2 5.8 8.3 5.2 6.5 6.4 10.4 6.7 Annual 4.2 1.5 2.7 7.9 9.5 10.2 8.2 6.1 12.2 10.1 7.0 6.5 7.3 5.8 9.1 7.1 6.7 7.0 2011 1 -1.2 2.1 0.8 4.6 4.5 0.4 13.7 3.1 15.8 10.0 8.8 6.0 5.7 5.2 13.5 6.2 5.8 6.1 2 5.9 0.3 5.6 8.5 10.1 4.9 5.3 2.7 17.2 10.0 6.4 6.3 5.2 4.0 15.3 6.8 10.4 7.1 3 5.1 1.5 1.2 12.0 -2.8 -5.4 6.6 5.3 11.6 11.0 5.9 6.9 9.4 4.1 8.8 5.7 8.2 5.9 4 -0.2 1.0 1.0 5.8 -3.2 31.8 7.2 6.7 3.4 11.6 4.6 8.0 9.2 5.4 7.9 7.2 2.8 6.8 Annual 3.6 1.2 2.2 7.8 1.9 9.0 8.1 4.6 11.3 10.7 6.5 6.8 7.4 4.7 11.2 6.4 6.5 6.4 2012 1 1.9 2.6 14.3 4.8 9.7 3.7 9.0 3.8 16.4 15.0 8.2 6.4 6.1 5.1 16.0 7.0 9.9 7.2 2 5.6 4.0 1.2 8.2 5.2 4.3 7.2 4.3 14.6 14.1 6.6 5.4 6.7 5.3 14.1 6.8 8.3 6.9 3 4.4 2.3 -2.5 11.6 15.3 6.5 7.0 6.1 10.3 11.4 5.2 P 6.8 4.8 9.3 6.4 7.3 6.5 Source: National Bureau of Statistics PAGE http://www.worldbank.org/tanzania/economicupdate. 50 T h e Wo r l d B a n k Pove r t y Re d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a Re g i o n Annex 4: Fiscal Framework as percent of GDP Source: Ministry of Finance Annex 5: Provisional Monthly Government Expenditures 2012/13 Source: Ministry of Finance PAGE http://www.worldbank.org/tanzania/economicupdate. 51 T A N Z A N I A E C O N O M I C U P D A T E • M A Y 2 0 13 , 3 R D E D I T I O N Annex 6: Balance of Payments (percent of GDP unless otherwise indicated) 2005/06 2006/07 2007/08 2008/09 2009/10r 2010/11r 2011/12r 2012/13* 2013/14 Proj. 1. CA balance (including transfers) -8.2 -10.4 -11.1 -10.1 -9.0 -9.4 -16.5 -15.4 -14.3 Exports of Goods 12.5 13.4 15.3 15.6 16.7 20.7 21.6 19.5 19.8 o/w Gold 4.8 5.4 5.5 4.4 6.5 7.6 8.9 7.6 7.3 Import of Goods -24.0 -28.6 -31.6 -29.7 -28.9 -33.8 -41.1 -37.1 -36.4 Services ( net) 2.1 2.1 2.1 0.8 0.7 0.7 0.5 0.8 1.4 Trade balance - 9.4 - 13.1 - 14.2 - 13.3 - 11.5 - 12.4 - 19.1 - 16.9 - 15.1 Income ( net) - 1.2 - 1.1 - 1.5 - 1.3 - 1.3 - 1.1 - 1.0 - 1.3 - 1.7 Current transfers ( net) 3.4 3.4 4.7 4.5 3.9 4.2 3.6 2.7 2.5 2. Capital and financial account 9.3 9.8 13.9 11.0 12.0 12.0 15.8 16.5 15.1 Capital account 4.1 31.6 3.6 1.8 2.2 2.4 3.0 2.4 2.1 Financial account 5.2 - 21.7 10.4 9.2 9.7 9.6 12.7 14.1 13.0 o/w Direct investment 4.7 3.2 4.8 5.2 4.3 4.3 6.3 5.7 6.8 3. Overall balance 2.4 1.5 2.6 0.1 2.1 0.4 0.8 1.1 0.8 Gross international reserves ( Mil USD) 1863 2157 2660 2930 3483 3610 3797 4230 4498 In months of imports (current year) 4.8 4.6 4.2 4.5 5.0 4.3 3.5 3.7 3.6 Key: * preliminary estimates; Proj = projections Source: National Bureau of Statisti cs, IMF and World Bank estimates PAGE http://www.worldbank.org/tanzania/economicupdate. 52 T h e Wo r l d B a n k Pove r t y Re d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a Re g i o n Annex 7: Monthly Imports of Goods and Services 2012-2013 (in USD million) 2012 2013 Source: Bank of Tanzania PAGE http://www.worldbank.org/tanzania/economicupdate. 53 T A N Z A N I A E C O N O M I C U P D A T E • M A Y 2 0 13 , 3 R D E D I T I O N Annex 8: Monthly Exports of Goods and Services 2012-2013 (in USD million) 2012 2013 Source: Bank of Tanzania PAGE http://www.worldbank.org/tanzania/economicupdate. 54 T h e Wo r l d B a n k Pove r t y Re d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a Re g i o n Annex 9: Inflation Rates CPI (annual average) 5.1 4.6 4.4 4.1 4.4 7.3 7.0 10.3 12.1 7.2 12.7 16.0 9.0 CPI (end- of- period) 4.9 4.4 4.6 4.1 5.0 6.7 6.4 13.5 12.2 5.6 19.8 12.1 7.0 Food ( end of period) 6.1 2.9 5.8 5.0 7.2 6.6 6.6 18.6 14.5 7.3 27.1 13.1 8.2 Non Food (end of period) 1.5 8.8 1.1 2.9 2.0 6.8 6.2 5.8 8.5 3.8 12.6 10.8 6.2 Key * projections Source: National Bureau of Statistics Annex 10: Monthly Food Crop Prices (wholesale): Tanzania TSh illings per 100 kg M aize Rice Whe at B e ans Sorghum Dar es Dar es Dar es Dar es Dar es Month-Year Arusha Salaam Mbeya Arusha Salaam Mbeya Arusha Salaam Mbeya Arusha Salaam Mbeya Arusha Salaam Mbeya Feb-13 70,023 83,545 73,409 174,091 180,682 183,000 78,091 126,364 113,636 105,227 162,273 127,727 60,909 85,136 - Jan-13 70,083 84,292 73,792 171,458 201,625 229,375 75,500 130,417 118,333 126,250 160,417 160,792 54,792 81,542 - Dec-12 67,708 80,045 65,583 172,500 188,409 217,500 76,542 115,000 112,500 117,500 156,818 151,458 56,833 87,182 - Nov-12 61,404 72,769 56,115 162,308 183,269 201,231 73,269 102,115 103,846 115,000 153,462 149,808 50,462 85,385 - Oct-12 55,981 65,192 52,750 160,000 173,654 188,500 74,846 98,462 100,000 114,423 141,731 135,417 52,154 77,308 - Sep-12 54,188 60,000 50,417 155,208 152,083 182,500 63,875 99,167 102,292 106,667 145,833 133,333 50,750 76,458 - Aug-12 53,200 60,250 46,750 148,000 143,350 190,250 78,650 95,000 92,050 99,250 148,300 129,500 56,250 71,050 - Jul-12 54,000 60,692 45,000 145,577 170,385 188,808 83,269 105,654 84,308 116,154 137,500 112,692 60,769 69,038 - Jun-12 51,769 56,519 43,500 160,577 160,385 181,308 79,731 109,038 93,077 134,423 136,538 122,654 62,692 69,077 50,000 May-12 58,885 63,308 45,654 183,462 179,231 182,308 80,846 108,462 127,692 178,346 130,385 114,077 51,462 63,962 - Apr-12 51,727 51,773 39,909 194,091 221,136 216,000 82,045 107,500 125,682 128,273 138,682 110,682 50,909 55,227 - Mar-12 45,286 46,923 40,231 185,714 202,038 206,000 82,679 108,192 125,000 140,000 136,615 139,077 50,500 57,462 70,000 Feb-12 41,654 46,808 40,423 167,115 188,769 202,615 78,654 122,042 108,846 186,154 139,808 164,000 52,654 65,808 - Jan-12 44,500 48,052 40,500 165,962 183,962 183,500 84,038 121,231 100,385 137,308 140,308 160,615 50,731 61,962 - Dec-11 42,500 45,400 40,600 159,000 162,750 170,100 84,000 121,000 98,750 120,800 150,750 155,300 57,100 63,000 - Nov-11 39,846 46,904 40,346 156,923 155,769 175,846 76,423 112,308 92,308 117,885 151,538 149,154 50,769 68,308 - Oct-11 40,250 47,896 39,917 151,458 142,083 148,500 73,542 108,333 93,750 107,083 141,625 143,125 48,833 71,750 - Sep-11 43,308 47,673 38,385 143,462 128,500 114,769 76,154 96,923 83,269 124,808 127,269 121,000 53,000 78,731 - Aug-11 43,778 51,778 37,636 134,444 132,944 109,591 73,889 98,333 77,273 107,222 133,222 121,136 55,611 73,333 - Jul-11 49,636 50,313 37,227 130,000 124,583 108,500 80,000 92,000 89,545 106,000 128,000 115,682 49,688 75,208 - Jun-11 43,000 41,500 33,000 125,000 115,000 90,000 60,000 85,000 45,000 100,000 111,500 120,000 45,000 40,000 - May-11 46,904 44,271 38,375 122,292 122,500 108,125 71,667 86,875 82,083 109,167 127,500 123,292 49,500 65,208 - Apr-11 40,000 42,700 37,135 116,750 128,000 112,250 70,000 84,722 65,500 105,000 112,250 124,500 52,889 59,480 65,000 Mar-11 35,875 40,625 39,206 111,875 115,625 113,125 75,000 75,000 63,438 94,429 128,125 135,000 54,375 57,500 70,000 Feb-11 32,361 39,000 33,500 109,000 111,300 104,650 60,556 79,722 60,100 108,056 109,550 121,000 42,278 57,750 50,800 Jan-11 31,083 35,479 32,208 117,667 99,167 97,833 57,917 93,917 51,375 100,625 99,167 100,938 41,250 65,000 25,000 PAGE http://www.worldbank.org/tanzania/economicupdate. 55 T A N Z A N I A E C O N O M I C U P D A T E • M A Y 2 0 13 , 3 R D E D I T I O N Annex 11: Average Wholesale Prices (2012-2013): Tanzania TSh illings per 100 kg 2012 2013 Jan Feb March April May June July Aug Sep Oct Nov Dec Jan Feb Maize 44,259 42,449 42,919 46,935 52,440 52,326 52,072 50,311 54,291 55,210 65,341 72,880 76,740 Rice 175,178 178,627 191,719 204,025 183,586 165,444 160,325 158,089 163,318 163,244 176,829 185,620 188,418 Beans 132,641 126,981 121,523 229,077 128,113 129,575 124,250 126,323 126,923 123,177 135,724 139,498 144,225 Round Potatoes 67,193 60,939 60,080 62,383 70,651 69,925 75,909 69,915 67,354 67,255 82,315 85,499 82,023 Bullrush Millet 43,697 58,815 57,042 57,769 62,546 62,060 72,807 64,094 61,838 31,440 66,156 74,301 83,102 Finger Millet 76,082 78,364 75,628 78,307 81,506 82,218 89,443 88,832 92,429 93,878 94,003 100,854 110,271 Sorghum 45,585 55,956 55,387 63,630 60,627 65,201 58,975 57,379 61,793 53,356 65,089 75,584 75,279 Wheat 80,709 84,577 99,394 99,692 103,446 106,811 87,829 82,954 83,497 53,916 90,826 93,920 99,889 Annex 12: Inflation Rates (selected items of the CPI) All items ( end period) 19.7 19.4 19.0 18.7 18.2 17.4 15.7 14.9 13.5 12.9 12.1 12.1 10.9 10.4 9.8 Food 26.2 25.5 24.9 24.7 24.5 22.9 20.3 18.5 15.8 15.0 13.7 13.3 12.1 11.7 10.7 Non food 11.8 11.8 11.5 11.3 10.5 10.5 10.0 10.3 10.5 10.1 10.0 10.3 9.3 8.4 8.5 Energy and Fuel 30.1 33.5 29.4 24.9 21.2 20.5 16.3 16.9 19.4 18.4 18.6 17.8 17.4 18.3 22.6 Transport 10.9 10.9 9.7 8.6 6.7 5.9 4.7 3.8 4.8 2.7 2.3 3.2 2.7 2.5 1.3 Housing,water,electricity and Gas 18.8 19.5 17.4 16.2 14.7 14.6 12.5 14.4 16.5 17.4 17.3 17.1 15.3 16.3 20.4 Furnishinng, housing equipment and maintanance 14.4 8.2 9.0 9.1 9.1 9.0 8.7 8.6 8.3 7.9 8.4 8.2 7.2 6.1 5.1 Excluding food and energy 9.0 8.6 8.8 9.0 8.7 8.8 8.8 9.2 8.9 8.6 8.5 8.9 7.9 6.7 5.9 PAGE http://www.worldbank.org/tanzania/economicupdate. 56 T h e Wo r l d B a n k Pove r t y Re d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a Re g i o n PAGE http://www.worldbank.org/tanzania/economicupdate. 57 T A N Z A N I A E C O N O M I C U P D A T E • M A Y 2 0 13 , 3 R D E D I T I O N Annex 14: Monetary Indicators 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 Poj. Monetary agregates M3 as % of GDP 27.5 28.8 28.9 29.6 32.4 34.1 32.5 31.2 M2 as % of GDP 18.7 19.7 21.1 21.8 24.1 24.8 23.8 22.5 M3 growth rate (%) 31.3 20.1 18.1 18.5 25.1 22.0 11.8 14.5 M2 growth rate (%) 25.8 20.4 26.5 19.5 26.2 19.4 12.7 12.4 Domestic credit Total Domestic credit (% of GDP) 11.6 14.4 14.8 18.2 20.6 24.2 23.9 23.1 Total domestic credit growth ( %) 24.8 41.7 21.1 42.5 29.2 36.0 15.9 15.4 Private Sector credit ( % of GDP) 11.2 13.1 15.5 17.7 18.2 18.2 19.8 13.7 Private Sector credit growth ( %) 31.3 34.1 38.6 32.8 17.6 24.3 18.5 17.4 Interest ratse structure/1 Overall Tbills rate ( period average, %) 12.4 13.5 11.2 10.6 5.0 5.3 12.8 N/A Average lending rate (%) 15.0 16.4 15.4 15.1 14.7 14.8 15.1 N/A Average deposit rate( %) 5.5 7.4 7.8 6.6 6.3 5.8 7.2 N/A Source: IMF and BoT 1/ Data in Calendar Year, e.g. 2005/06 = 2006 PAGE http://www.worldbank.org/tanzania/economicupdate. 58 T h e Wo r l d B a n k Pove r t y Re d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a Re g i o n Annex 15: Dar es Salaam Port: Cargo Traffic (000 tons) Type of cargo 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Imports Containerised 727.2 849.7 895.9 1,024.1 1,265.2 1,372.0 1,347.2 1,915.7 2,171.7 2,056.0 2,596.9 2,962.8 General cargo 699.6 555.6 586.7 500.3 652.9 548.1 701.7 557.0 588.8 657.9 563.0 652.0 Dry Bulk 376.9 503.1 544.8 719.1 839.1 972.3 1,115.9 1,129.4 904.3 1,270.1 1,183.0 1,231.0 Liquidy Bulk 1,254.2 1,573.8 1,603.4 1,798.3 2,006.4 1,936.6 2,060.7 2,074.4 2,142.3 2,645.6 3,208.9 3,623.8 Total 3,057.9 3,482.2 3,630.8 4,041.8 4,763.6 4,829.0 5,225.5 5,676.5 5,807.1 6,629.6 7,551.8 8,469.6 Exports Containersied 458.9 458.7 459.5 604.0 673.3 801.2 757.0 987.4 1,068.2 1,067.4 1,309.4 1496.3 General cargo 219.9 168.4 211.2 238.0 187.4 172.8 205.6 282.4 122.0 148.2 78.5 208.6 Liquid Bulk 66.3 38.6 53.6 39.5 54.3 77.2 41.4 47.2 52.6 43.8 66.5 76.9 Total 745.1 665.7 724.3 881.5 915.0 1,051.2 1,004.0 1,317.0 1,242.8 1,259.4 1,454.4 1,781.8 Imports and Exports 3,803.0 4,147.9 4,355.1 4,923.3 5,678.6 5,880.2 6,229.5 6,993.5 7,049.9 7,889.0 9,006.2 10,251.4 Transhpment 31.5 93.4 168.7 245.8 375.6 404.9 428.1 433.8 354.5 213.0 103.4 138.6 Bunkers 1.6 0.3 0.7 - - - - - 16.8 0.9 0.4 - Total Traffic 3,836.1 4,241.6 4,524.5 5,169.1 6,054.2 6,285.1 6,657.6 7,427.3 7,421.2 8,102.9 9,110.0 10,390.0 Container TEU's 124.6 141.7 141.4 167.7 199.3 228.7 240.6 334 373.5 353.7 412.0 476.7 Source: Tanzania Ports Authority Annex 16: Dar es Salaam Port: Container Traffic (000 TEUs) Type 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Imports Full 56.7 60.3 68.6 86.1 99.6 108.8 121.6 147.0 161.4 165.9 208.4 234.7 Empty 5.5 5.3 44.5 4.0 5.9 5.6 3.2 0.7 0.6 1.7 1.2 0.9 Exports Full 26.1 27.7 28.3 39.2 43.9 53.3 49.1 54.3 58.7 63.7 75.2 80.8 Empty 34.4 38.9 38.4 38.4 49.8 59.8 68.8 81.0 95.7 106.0 119.7 149.9 Transhpment Full 2.0 6.3 24.8 36.6 55.6 61.0 60.4 56.8 38.2 16.4 7.9 10.4 Empty - - - - - - - - - - - - Total Full 84.8 94.3 121.7 161.9 199.1 223.1 231.1 258.1 258.3 246.0 291.5 325.9 Empty 39.9 44.2 82.9 42.4 55.7 65.4 72.0 81.7 96.3 107.7 120.9 150.8 Grand Total 124.7 138.5 204.6 204.3 254.8 288.5 303.1 339.8 354.6 353.7 412.4 476.7 Source: Tanzania Ports Authority PAGE http://www.worldbank.org/tanzania/economicupdate. 59 T A N Z A N I A E C O N O M I C U P D A T E • M A Y 2 0 13 , 3 R D E D I T I O N PAGE http://www.worldbank.org/tanzania/economicupdate. 60 T h e Wo r l d B a n k Pove r t y Re d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a Re g i o n PAGE http://www.worldbank.org/tanzania/economicupdate. 61 T A N Z A N I A E C O N O M I C U P D A T E • M A Y 2 0 13 , 3 R D E D I T I O N PAGE http://www.worldbank.org/tanzania/economicupdate. http://www.worldbank.org/tanzania/economicupdate 62