Tanzania Business Forecast Report Q3 2008

Publication Date	June 2008
Publisher	Business Monitor
Product Type	Report
Pages	51
ISBN Number	1757-0751
Product Code	BMI02078

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Summary

Strong Long-Term Prospects Over the next several years we see the potential for major changes in the Tanzanian economy.

Tanzania is expected to host one of China's five special economic zones in Africa, and we see scope for substantially increased Chinese investment in the years ahead, especially in the mining sector. Tanzania's relatively unexploited mining sector has the potential to generate major new export revenues, which could, over the next few years, greatly improve our sovereign risk rating for the country. Finally, Telecommunications company Vodacom has started a mobile banking service in Tanzania which we believe may increase savings among Tanzania's rural population, which previously lacked access to most formal financial services. If global food prices continue to remain high and the agricultural sector is able to capitalise on this dynamic by lifting output, we could see increased income among the majority of the Tanzanian farming population (8 % of all workers), in turn increasing savings and investment.

On the political front, tensions have escalated between the ruling Chama Cha Mapinduzi party and the opposition Civil United Front (CUF) over ongoing negotiations for a power-sharing government, culminating in the arrest of 1 elders from Pemba island advocating secession. While we do not see the outbreak of violence as a likely scenario unless the CUF calls national strikes, the prospects for a resolution between the two parties have receded considerably. On foreign affairs, China's relationship with Tanzania continues to grow stronger, with the presidents of the two countries meeting in April and Tanzania hosting the Olympic torch's passage through Africa.

We continue to forecast robust economic expansion, even amid global food and fuel inflation, tightening credit markets and forecast slowdowns in growth in the US and the EU. High prices for gold and agricultural exports, as well as ongoing demand from emerging markets, should help Tanzania's net exports weather weakened demand from the EU and the US and the high cost of imported oil. On the domestic front, high prices are driving up headline inflation, and we expect increased T-bill sales from the Bank of tanzania, which will in turn drive up T-bill rates, as part of its inflation fighting strategy.

The business environment, while still suffering some major weaknesses, is improving. Ongoing efforts to bolster Tanzania's weak physical infrastructure include road repairs, efforts to clear the crowded ports, and the creation of wind-generated power plants. There are still numerous shortcomings that need addressing; property rights remain weak, skilled labour is in short supply and some regulations, particularly the restrictions on hiring foreign workers, are onerous. Nonetheless, the country still manages to attract high levels of FDI on the back of the high growth opportunities, efficient commercial courts, long-standing political stability and a fairly competitive tax regime.

Content

Executive Summary5
Strong Long-Term Prospects
Chapter 1: Political Outlook6
- SWOT analysis
- BMi Political Risk Ratings
- Domestic Politics8
- Tensions Rise Over zanzibar
- Political risk is on the rise in Tanzania following a dispute over a power-sharing agreement on the isle of Zanzibar
- Table: Tanzania Political Overview
- Foreign Policy
- Chinese investment Push in Tanzania?
- While there are no concrete plans, China and Tanzania's political and economic ties have grown closer over the
- past few years, raising the potential for a major investment push by China into Tanzania
Chapter 2: Economic Outlook
- SWOT analysis12
- BMi Economic Risk Ratings
- Economic activity
- Economic Growth insulated From Global Ructions
- In spite of economic slowdowns in the US and the EU, decreased access to credit on international markets, and
- rising food and oil prices, we maintain our forecast for real GDP growth rates above 8% for 2008, 2009 and 2010
- Table: Economic activity
- Monetary Policy
- Inflation To Drive Monetary Policy
- With food inflation forecast to remain high through 2008, we believe the central bank is likely to increase the size
- of its T-bill auctions, which will in turn, lead to higher T-bill rates
- Table: Monetary Policy16
- External Debt
- Upside Risk To ability To Pay
- Tanzania scores a relatively low E+ in our in-house sovereign risk ratings, falling in the middle of our rated East
- African countries
- Table: Balance Of Payments
- Special Report: Mobile Banking
- Mobile Banking, Food Prices Foster Rural Growth
- While we have several caveats, the advent of mobile banking has the potential to fundamentally change saving
- behaviour across rural Tanzania, fostering an expansion of consumption and investment in the long run
Chapter 3: Special Report
- Business Outlook For Global Frontier Markets
- Growing Fast On The new Frontier
- The 41 states that BMI examines in a new report on our online service may make up only a small slice of the
- world economy, but they possess characteristics that will see them gain importance in the eyes of investors and
- global businesses over the coming years
- Table: Frontier Markets - Key Data and Projections For Top 10 Countries
- Frontier investment
- Potential and Pitfalls
- The spectacular macroeconomic performance of frontier markets in recent years has been matched by mildly
- successful efforts to deepen capital markets
- Table: GDP Per Capita, US$ (in Order Of % increase)
- Table: Diversity Through Frontier Markets - Correlation Coefficients January 2004-April 2008
- Table: Frontier Market indices25
- Regional Overview
- From Hidden Dragons To Final Frontiers26
- Laos
- neighbouring Economies The Key To Growth
- Laos's GDP growth has been boosted in recent years as neighbours China, Thailand and Vietnam compete for its
- natural resources
- Yemen
- Huge Potential, But Don't Bank On GCC Membership
- Markets do not come much more frontier than Yemen, and, as would be expected, there is huge potential for
- development, with the prospect of eventual GCC membership likely to act a key investment pull
- Table: Yemen Economic activity
- Democratic Republic Of The Congo
- Mining industry To Drive Growth
- The Democratic Republic of the Congo's mining industry will be a key driver of growth and is likely to attract
- significant levels of FDI, with our real GDP forecasts standing at 8.3% and 7.9% in 2008 and 2009, respectively
- Table: Democratic Republic Of The Congo - Economic activity32
- Cuba
- investment Prospects after Fidel
- The accession of a new leadership structure in Cuba has sparked excitement that the 45-year-old trade embargo
- with the US may be lifted and Cuba may move toward market liberalisation
- Table: Cuba Macroeconomic Data and Forecasts36
- Mongolia
- Minerals To Drive Economic Boom
- Mongolia is in the midst of a massive resource-led economic boom that should lift GDP growth into the double
- digits and underpin robust increases in exports and inflows of foreign investment capital over the long term
- Table: Mongolia - Economic activity
Chapter 4: Business Environment39
- SWOT analysis39
- BMi Business Environment Risk Ratings40
- Business Environment Outlook
- institutions
- Table: BMi Business and Operational Risk Ratings
- infrastructure
- Table: BMi Legal Framework Ratings45
- Market Orientation
- Table: Middle East & africa FDi
- Table: Top Export Destinations
- Operational Risk