Download 2015 Quarter 1 TANZANIAN SNAPSHOT

TANZANIAN
SNAPSHOT
2015 Quarter 1
Inflation – According to the most recent figures from the National Bureau of Statistics (NBS), Tanzania’s consumer price inflation rate remained largely
stable in March. The consumer price index (CPI) inflation rate reached 4.3% y-o-y in March, a marginal uptick from the 4.2% y-o-y recorded in February. The
transport sub-index continued to record deflation over the month, decreasing by 2.5% y-o-y in March compared to a 1.4% y-o-y reduction in February.
Growth – Tanzania’s economic growth slowed to 6.8% y-o-y in Q3 2014, from a revised figure of 7.4% y-o-y registered in Q3 2013. The statistics authority
partially ascribed the slowdown to weaker growth in the construction, agricultural and transport sectors. The agricultural sector – the largest contributor to
GDP – grinded to a growth rate of 2.4% y-o-y in Q3 of last year, from 4.5% y-o-y registered over the same period in 2013.
National development plan – The International Monetary Fund (IMF) recently completed the first review of Tanzania’s economic performance under the
country’s Policy Support Instrument (PSI) programme. The current PSI was approved by the Fund in mid-July 2014, with the goals of maintaining
macroeconomic stability, the preservation of debt sustainability, and the promotion of more equitable growth and job creation. According to the Fund,
Tanzania’s performance under the PSI has been satisfactory, but has deteriorated more recently due to various fiscal factors.
OPPORTUNITIES
STRENGTHS
Access to a potentially large market. Tanzania has a population of close to 50
million people, while around 150 million people live within the East African
Community (EAC).
Thanks to reforms made to the business environment, it is relatively cheap (in
a regional context) to register a business in the country.
Rich in minerals, including gold, uranium, iron, vanadium, titanium, and coal.
Tanzania also has a significant amount of natural gas reserves.
One of the top tourist destinations in Africa; still significant room for
expansion, especially if tourism infrastructure is improved.
Strong economic growth performance over the past decade, and good
prospects for future growth.
Healthy levels of foreign direct investment (FDI) and a continued good
outlook for this indicator.
Political risk is relatively low in an African context.
Capital market is gradually being liberalised.
VULNERABILITIES
WHAT IS BEING DONE?
A new programme was recently agreed with the IMF, which should help
ensure policy continuity.
Large twin deficits.
The country is vulnerable to weather shocks and fluctuating commodity prices. The government continues to invest in irrigation infrastructure.
The level of socio-economic development is very low, which will place
pressure on public finances for some time to come.
The electricity sector potentially poses a significant contingent liability to the
government.
Authorities are working closely with the IMF to broaden the tax base and
strengthen tax administration.
From 2015 onwards, a new gas pipeline will begin operations, which will
boost the supply of cheaper power.
MEGA TRENDS
Population
49,639,138 (July 2014 est.); Age 15 - 64: 52.5%
Population growth rate (%)
2.8% (2014 est.)
Life expectancy at birth
Total population: 61.24 years; male: 59.91 years; female: 62.62 years (2014 est.)
HIV/AIDS
Adult prevalence rate: 4.95%; People living with HIV/AIDS: 1.4 million (2013 est.)
Adult literacy rate (age 15 and over can read
Total population: 70.6%; male: 75.9%; female: 65.4% (2015 est.)
and write)
Urbanisation
Urban population: 30.2% of total population (2013); Urban population growth: 5.4% (2013)
Population below national poverty line
28.2% (2012 est.)
Unemployment rate
10.70% (2011 est.)
Employment (% of total)
Agriculture: 76.5%; Industry: 4.3%; Services: 19.2% (2006 est.)
Labour participation rate (% of total
population ages 15+)
89.1% (2013)
Business language
English
Telephone & Internet users
Main lines in use: 164,999; Mobile cellular: 27.44 million; Internet users: 2.18 million (2013)
Sources: CIA World Factbook, World Bank, Trading Economics, UNESCO, ITU, UNAIDS & NKC Research
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Total
Tanzania
Corruption Perceptions Index 2014 (1 least, 175 most corrupt)
Doing Business 2015 (1 best, 189 worst)
Global Competitiveness 2014-15 (1 most, 144 least competitive)
Economic Freedom 2015 (1 most, 178 least free)
HDI Ranking 2013 (1 most, 187 least developed)
189
144
178
187
159
0
Source: NKC Research
175
119
131
121
109
20
40
60
80
100
120
140
160
180
200
Risk environment / Risk outlook
Sovereign Risk Ratings
S&P
Fitch
Moody’s
N/R
N/R
N/R
At present, Tanzania remains unrated by any of the major global rating agencies. The government plans to issue a Eurobond after securing a rating from
Standard & Poor’s (S&P), Fitch Ratings, and/or Moody’s Investors Service (two out of the three). Authorities had hoped to obtain a rating by the end of 2013,
but there have been delays. The government has said that the international bond will be issued by June this year. Reports suggest that the size of the issuance
may be around $700m, but the government has noted that it cannot borrow at any cost.
Banking
Sector
Continuity
of Economic
Policy
Infrastructure
Diversity of
the Economy
Poor, but
significant
investments
planned
Agriculture
Underdominates
developed, but
employment;
sound,
Generally stable
services sector profitable, and
growing rapidly
liquid
GDP Growth
Key Balances
Foreign
Investment
Strong
Large twin
deficits
Strong
Market Cap
Socioeconomic
Development
Forex
Reserves
Low
Adequate
Dominant Sector
Daily Trading
Volume
496,133 shares (midApril)
Stock Market
Listed Companies
Liquidity
Dar es Salaam Stock
Exchange (DSE)
14 domestic plus seven
cross-listed
Low
Capital Market
Development
Liquidity
Maturity Range
Municipal Bonds
Corporate Bonds
Yes
Relatively underdeveloped
Limited
35 days - 15 years
None
Very limited issuance
and liquidity
$12.7bn (DSE, mid-April) Food & beverages; banks
Macro-economic overview
Tanzania is a relatively well-diversified, fast-growing economy in Africa’s most progressive trade bloc. The country boasts a stable political environment,
sizeable domestic consumer market, ample natural resources, and strategic location, accompanied by a strong economic growth performance. Prospects for
FDI are positive, and import cover levels are comfortable. As a member of the East African Community (EAC), Tanzania’s market size essentially increases to
a population of over 150 million, and the country neighbours some of the fastest growing economies on the continent. However, these strengths are
counterweighed by weak socioeconomic indicators, structurally large current account and budget deficits, and rising debt levels. The country is highly
dependent on external donor support, and the economy is vulnerable to adverse weather shocks and fluctuating commodity prices. Furthermore, the poor state
of infrastructure constrains the productive capacity of the economy, while recent governance issues have put strain on government finances, and could have a
detrimental effect on investor perceptions if not adequately addressed.
Development of the country’s significant natural gas resources has the potential to transform the country’s economic landscape, and catapult the country onto a
more rapid economic growth trajectory. However, international gas companies are yet to decide on whether to build multi-billion-dollar gas facilities after
finding more than 53 trillion cubic feet of gas, and the recent international energy price slump may delay or moderate investment decisions. The World Bank
estimates that gas-related investments could reach as high as $5bn annually over the medium term, which will be a significant boost to the country’s
development. Although the most optimistic estimates for the commencement of gas exports are for some time close to 2020, the impact on the economy is
already felt in extensive imports to facilitate exploration drilling, as well as establishing offices & housing, operations and support services.
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Economic Structure as % of GDP
2014 Estimate
Source: NKC Research
Agriculture/
GDP
32.4%
Service/GDP
44.2%
Industry/GDP
23.5%
The agricultural sector plays an important role in the economy, both as an employer and foreign exchange earner. Cash crops including coffee, tea, cotton,
cashews, sisal, cloves, and tobacco account for a substantial proportion of export earnings, while around 75% of the workforce are employed in agriculture.
Tanzania has the capacity to become a major regional food-exporter given its abundance of natural resources and agricultural potential. In turn, the industrial
sector is expected to be a key driver behind economic growth in Tanzania, particularly the construction, mining, electricity and manufacturing sub-sectors, as
well as through the development of the nascent natural gas sub-sector. Furthermore, looking at the services sector, Tanzania presents immense opportunities
for consumer-oriented industries when considering the potential market. The country boasts a strong tourism sector and stable financial sector, while there are
considerable opportunities for investment in the telecommunications sector.
Real GDP Growth & Net FDI/GDP
6.5
8.5
Source: NKC Research
8.0
6.0
7.5
5.5
7.0
5.0
6.5
4.5
6.0
4.0
5.5
3.5
3.0
5.0
2009
2010
2011
2012
2013 2014E 2015F 2016F
GDP Growth (y-o-y, %) (lhs)
Net FDI/GDP (rhs)
Tanzania’s GDP figures were recently rebased, with the base year changing from 2001 to 2007. Looking at the most recent figures, the size of the Tanzanian
economy is now estimated at TSh69.9trn (around $43.6bn) in 2013, reflecting a 31.4% increase compared to the previous estimate. The rebasing has also had a
significant impact on historic growth figures, showing a much more volatile real GDP growth performance. While the 2007 real GDP growth figure has been
revised upwards from 7.1% to 8.8%, most other years have seen downward revisions in their growth estimates. The largest downward adjustment involves the
2012 real GDP growth rate, which was cut from 6.9% to 5.1%. In turn, the only other years that saw an increase in estimated growth rates were 2011 (up from
6.4% to 7.9%) and the most recent figure for 2013, with a slight increase from 7% to 7.3%. Turning to FDI, according to local news agencies, the Tanzanian
government may consider reviewing the Model Production Sharing Agreements (MPSAs) to attract more investors into exploration of oil and natural gas. This
has come amid declining international energy prices, prompting many international oil companies to reduce their exploration budgets. The development of the
country’s hydrocarbons sector is expected to be a significant FDI drawing card, not just directly through the extraction of minerals but also through the related
infrastructure and downstream industries.
Exports ($ bn)
Imports ($ bn)
2014E
2015F
2016F
Oil-related
Machinery
Main Imports: % share of total
2014E
2015F
2016F
Oil-related
34.17
29.99
27.70
Machinery
11.59
11.57
11.89
Transport equipment
Building & construction materials
Gold
Transport equipment
11.33
11.52
12.07
Building & construction materials
9.44
9.77
10.24
Main Exports: % share of total
2014E
2015F
2016F
Gold
26.38
25.73
25.70
Tobacco
6.15
5.89
5.67
Fish & fish products
3.41
3.23
3.41
Coffee
2.39
2.56
2.80
Tobacco
Fish & fish products
Coffee
0.0
Source: NKC Research
1.0
2.0
3.0
4.0
5.0
According to the most recent figures from the Bank of Tanzania (BoT), the country recorded an estimated trade deficit of around $5.8bn in 2014, which is 2%
wider than the deficit recorded in 2013. While exports of manufactured goods jumped by a significant 34% last year, reaching $1.4bn, traditional export
receipts dropped by around 9% in both 2013 and 2014, reaching $792m at the end of last year. Most traditional exports performed poorly in 2014, particularly
cotton (-51% to reach $55m), coffee (-29% to reach $122m), and tea (-20% to reach $46m). Turning to imports, intermediate goods (43% of total 2014
imports), particularly oil imports (34%) still dominate import categories. The only import category that recorded a marked increase in 2014 was ‘other
consumer goods’, which increased by 18% to reach just over $2bn.
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Current Account & Budget Balance
(% of GDP)
-5.0
-3.0
-7.0
-3.5
-9.0
-4.0
-11.0
-4.5
-5.0
-13.0
Source: NKC Research
-15.0
-5.5
2009 2010 2011 2012 2013 2014E 2015F 2016F
Current Account/GDP (lhs)
Budget Balance/GDP (rhs)
After donors withheld nearly $500m in aid pledged toward the 2014/15 budget following corruption allegations in the energy sector, the Tanzanian
government has recently announced that it would not plan for any external donor support in the next fiscal budget. According to the finance ministry, the
challenge that the government faced in accessing general budget support in the first two quarters of the 2014/15 fiscal year (starting July) has cast a shadow
over the practicality of projecting future aid inflows, and the government will now only recognise donor support once disbursements are made. Consequently,
that government intends to borrow TSh4.2trn ($2.36bn) from both domestic and external sources the next fiscal year, of which domestic borrowing for rollover
of matured government securities is around TSh1.4trn ($789m). Looking at external balances, Tanzania’s substantial trade shortfall is partly offset by a
positive balance in the country’s services account. More specifically, tourism and transportation services inflows have steadily increased in recent years,
playing a salient role in counterweighing the country’s recurring deficits in the trade and income accounts. Tourism receipts increased by a significant 13% in
2013 and an additional 4% in 2014, reaching $1.95bn by the end of last year. In turn, foreign receipts from transportation increased by 27% and 7% in 2013
and 2014, respectively, to reach just over $853m last year.
Average CPI (% change, y-o-y)
18.0
16.0
Source: NKC Research
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0
2009
2010
2011
2012
2013 2014E 2015F 2016F
The Tanzanian monetary environment has been able to take advantage of lower international energy prices, with the shilling exhibiting some stability in recent
weeks. The shilling endured a rapid spell of depreciation between mid-December and late January, possibly due to capital account liberalisation – since July
2014, residents of the EAC are allowed to participate in the Tanzanian long-term government securities market, and Tanzanian residents are also allowed to
invest in other EAC countries. Shilling weakness prevented lower international oil prices from being fully reflected in Tanzanian inflation figures, but the
recent stability in the shilling exchange rate has facilitated this pass-through effect. The BoT is targeting an average inflation rate of 5% y-o-y for the first half
of 2015. With the recent reduction in domestic fuel prices, as well as no signs of food shortages in the country, the central bank expects to achieve this
objective.
CONTACT DETAILS
KPMG
NKC
NKC Independent Economists CC
David Gachewa – designation is Partner
Tel +255 22 212 0752
Email [email protected]
12 Cecilia Street Paarl, 7646, South Africa
P O Box 3020, Paarl, 7620
Tel: +27(0)21 863-6200
Fax: +27(0)21 863-2728
Email: [email protected]
GPS coordinates
S33°45.379'
E018°58.015'
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such information or opinions.
Tanzania © 2015 KPMG East Africa Limited, a Limited Liability Company and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All
rights reserved
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