Tanzania Business Forecast Report Q2 2009

Publication Date	March 2009
Publisher	Business Monitor
Product Type	Report
Pages	56
ISBN Number	1757-0751
Product Code	BMI03526

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Summary

2009: Deficit Dangers

Financing problems are expected to loom large in 2009. With government revenues forecast to disappoint in this year and the next, Tanzania's authorities now have to either cut expenditure - with attendant risks to political stability - or find new means of financing the deficit. Meanwhile, despite a forecast narrowing of Tanzania's current account deficit, the likelihood that foreign direct investment and international development assistance will fall short in 2009 means we expect a decline in the capital and financial account surplus. This, in turn, leads us to project both a drop in Tanzania's foreign reserves and a depreciation of the shilling. Finally, we examine the prospects for a longer-term deterioration of foreign capital availability in the form of a partial withdrawal of Chinese investment from the continent.

With donor countries now beginning to cut their aid budgets (Ireland is the first to officially do so) and the authorities beginning to revise down real GDP growth forecasts, the Tanzanian authorities are beginning to closely examine their options with regard to a looming budget deficit. International borrowing has been ruled out, and we believe a combination of domestic borrowing, expenditure cuts and tax hikes will be deployed to finance the budget. We do not forecast a significant backlash on the mainland as the government cuts spending, but there is risk of regional instability on the islands of Zanzibar, which look set to face a particularly difficult year, in economic terms.

Real GDP growth is set to slow sharply to 2.7% in 2009, from 7.5% in 2008, as all components of GDP by expenditure suffer slowdowns. As the government finances its budget with a greater reliance on domestic borrowing, it will partially crowd out the private sector, compounding slowdowns in foreign direct investment and the tightening of international credit. The drop in investment-driven import demand, coupled with plummeting oil prices and a weaker shilling will lead to an improvement of the current account. These benefits will be partially mitigated, though, by falling tourism receipts, donor aid and food exports.

Weaknesses in Tanzania's physical infrastructure remain serious. The country's ports remain expensive and inefficient, necessitating a presidential order to clear a major backlog. Meanwhile the national airline required a government bailout and a railway run jointly by Tanzania and Zambia may be privatised, following poor performance. Numerous other shortcomings still need addressing; property rights remain weak, skilled labour is in short supply and labour regulations remain high. Nonetheless, the country still manages to attract relatively high levels of FDI (at least during better global economic climates) on the back of the high growth opportunities, efficient commercial courts, long-standing political stability and a fairly competitive tax regime.

Content

Executive Summary
- 2009: Deficit Dangers
- SWOT Analysis
- BMI Political Risk Ratings
Chapter 1: Political Outlook
- Domestic Politics
- Deficit Woes To Pose Political Challenge
- Tanzania will almost certainly run a large fiscal deficit in 2009 as donor grants and domestic revenue come under
- pressure.
Chapter 2: Economic Outlook
- SWOT Analysis
- BMI Economic Risk Ratings
- Economic Activity
- Growth To 2.7%
- We are forecasting real GDP growth of just 2.7% in 2009, as all components of GDP suffer on the back of the global
- economic crisis and a regional food shortage.
- Exchange Rate
- Balance Of Payments Risk Weighs On Currency
- Despite a forecast narrowing of Tanzania's current account deficit in 2009, we anticipate that pressure on the capital
- and financial account surplus will lead to a shortage of foreign currency, and accordingly, depreciation of the Tanzanian
- shilling to our end-09 target of TZS1,500/US$.
- Balance Of Payments
- Falling Imports To Narrow Current Account
- Primarily on the back of a significant reduction in the cost of imported oil, we see a narrowing of Tanzania's current
- account deficit to 14.6% of GDP in 2009, from 16.3% in 2008.
- China Investment Special Report
- 2009: Don't Rely On China
- High levels of Chinese investment and generous loan facilities are considered to be a major source of capital for many
- SSA governments, which could for some countries significantly soften the negative impact of the global economic crisis.
Chapter 3: 10-Year Forecast
- The Tanzanian Economy To 2018
- Strong Long-Term Growth Expected, Despite 2009 Slowdown
- With telecoms, tourism and mining forecast to drivers of growth in the years ahead, and conditions supportive for long-run
- productivity gains in the important agricultural sector, we are projecting robust economic expansion over the next 10 years
- for Tanzania past 2010.
Chapter 4: Special Report
- China
- A Seismic Upheaval In 2009?
- One of the biggest - and least discussed - 'wild cards' that could rear its head in 2009 is dramatic political upheaval in China.
- United States
- Europe
- Big Trouble For European Banks In 2009
- The deteriorating global macroeconomic outlook, high levels of leverage, and a broken business model will combine to
- spell trouble for the financial services sector in 2009.
Chapter 5: Business Environment
- SWOT Analysis
- BMI Business Environment Risk Ratings
- Business Environment Outlook
- Institutions
- Infrastructure
- Market Orientation
- Tax Regime
- Operational Risk
Chapter 6: BMI Global Assumptions
- Global
- Economic Activity
- Monetary Policy
- Commodities
List of Tables
- Table: Tanzania Political Overview
- Table: ECONOMIC ACTIVITY
- Table: EXCHANGE RATE POLICY
- Table: BALANCE OF PAYMENTS
- Table: TANZANIA Lo ng-Term Macroeconomic Forecasts
- Table: Banks' Leverage Ratios
- Table: Assets As % of Home Country GDP
- Table: Assets As % of Home Country GDP When Eurozone Is Considered 'Home Country'
- Table: Exposure As % of Tot al Exposure To Region
- Table: Banks' Foreign Exposure (US$ mn)
- Table: Exposure As % of National GDP
- Table: BMI Business And Operational Risk Ratings
- Table: BMI LEGAL FRAMEWORK RATINGS
- Table: Middle East & Africa Annual FDI Inflows
- Table: BMI TRADE RATINGS
- Table: Top Export Destinations
- Table: Global Assumptions
- Table: GLOBAL AND REGIONAL REAL GDP GROWTH, % chg y-o-y
- Table: Developed States, Real GDP Growth Forecasts
- Table: Emerging Markets, Real GDP Growth Forecasts
- Table: DEVELOPED MARKET EXCHANGE RATES
- Table: EMERGING MARKET EXCHANGE RATES