How Tanzania’s government can promote Domestic Direct Investment (DDI)

How Tanzania’s government can promote Domestic Direct Investment (DDI)

By Moses Kulaba, Governance and economic analysis centre, Dar es Salaam-Tanzania

Tanzania has wide business opportunities in agriculture, tourism, mining, forestry, services and a large potential for attracting more DDI. Despite the wide endowment, statistics and practice shows that great attention has been on promoting and attraction of Foreign Direct Investment (FDI).  FDI is viewed as the engine of growth and development and attracting it forms the tenor of Tanzania’s economic diplomacy. As the decline in FDI becomes real, with the global aid landscape moving towards aid for trade, it is rational that Tanzania (and all Aid dependent African Countries) should now look else where. Due to public interest , in this slighly updated version of a paper, published sometime ago, I highlight why attracting  DDI is imperative.

Domestic Direct Investment (DDI) can be generically defined as the total movement of capital and assets from within the Country. Domestic direct investment can in simple parlance be described as an act of local or resident entrepreneur or producer placing capital within a country into a project or business enterprise or assets with the intent of making a profit.  DDI has an opposite meaning of Foreign Direct Investment which is defined by the World Bank as the movement of private assets and capital across borders.

According to the Bank of Tanzania and Tanzania Investment Centre (TIC), the total stock of Foreign Private Investments in 2013 amounted to USD15,969.5 million, which was 15.8% higher than what was recorded in 2012 (Tanzania Investment Report 2014: Foreign Private Investment).  The UN Conference on Trade and Development (UNCTAD) reported that Tanzania attracted USD2, 142billion of FDI inflows in 2014, which was 14.5% increase from the previous years. With an accumulated stock of USD14.86billion, Tanzania was the highest in the East African Region (World Investment Report 2015) and came in the 10th position in Africa, ahead of all its East African neighbors (World Bank 16th Economic Outlook Report, 2015).

The Country performed well over the past two years. According to the World Investment Report 2019, the FDI inflow into Tanzania in 2018  reached USD 1.10Bln, pegging a significant increase compared to USD 938Bln recorded in 2017. UNCTAD reported that the current FDI stock is estimated at USD20.7bln representing 35.8% of Tanzania’s GDP. The Mining sector,  the oil and gas industry as well as primary agricultural products (coffee, cashew nuts and tobbaco) have always drawn the most FDI. The Country’s main foreign investors are China, India, Kenya, United Kingdom, Mauritius, Oman, the United Arab Emirates, Canada, the United States, the Netherlands, South Africa and Germany.  In recent years new investors such as Turkey started appearing on the list.

Yet, the mining reforms in 2017 are particularly viewed as potentially a risk to foreign investors could shock and disrupt this trend and contribute towards a  FDI inflow in the future.  According to the World Bank Doing Bussiness Report for 2019,  Tanzania ranked 144th out of 190 countries, having lost seven positions compared to its previous rankings. Investors tend to take note of this report and therefore by any means this is not pleasant news for a country which wants to build an industrial economy by leveraging its resources for investment.

Moreover, despite performing relatively well on the external foreign front in the past years, the figures for DDI are largely unknown. Yet domestically owned enterprises are said to have a larger trickle economic down effect on the Country and the population (UNIDO, 2014). The role of DDI in building an ‘in-house’ national economic base and its associate benefits such as employment creation is significant. This therefore suggests that there is need for concerted government efforts to attract more DDI. The Indonesian and Malaysian governments have been pragmatic on this front and their experience can be drawn for learning. According to available data the Indonesian government registered approximately USD13.2Million in DDI in 2017 (Indonesian Investment Coordinating Board: Domestic and Foreign Direct Investment Realization in Quarter II and January-June, 2017). This therefore demonstrates that is possible to build a national economic architecture which attracts DDI.

The following could be potential strategies to promote DDI in Tanzania. Collectively these would contribute to a good business environment for domestic direct investors and significantly spur DDI flows.

There is need to develop a Domestic Direct Investment Attraction strategy and policy document to guide Tanzania’s priorities and intentions to encourage, attract and regulate DDI. The strategy and policy should be informed by a comprehensive analysis of the Country’s domestic investment needs and priorities. It should identify the challenges, opportunities and incentives for Domestic Direct Investors. Currently, the government investment is within the broad economic development program mirrored under the Tanzania Five Year Development Plan II 2016/17-2020/21 (FYDP II). Investment attraction has been described in general terms and has an inclination towards emphasis on attracting FDI to support government’s development ambitions. The FYDP II under its salient features asserts that policy and institutional reforms have been entrenched and private sector ‘will be called forth’ to lead in investment in industrialization but does not expound on how this will be achieved. It is for this reason that DDI investment portfolio within the country has remained low and largely unknown.

Engage in wide campaigns and about existing opportunities for domestic investment.  Currently, major government efforts have been in promoting investment opportunities abroad with the intention of attracting FDI. The outlook would be equally shifted to promoting opportunities for domestic investment. The extensive use of public advertisement and public diplomacy materials such as procurements on the existing opportunities for Domestic Direct Investment would boost local motivation to invest and extent the frontiers of DDI.

Facilitate domestic investors to access to finance and Capital mobilization to invest. This strategy has been adopted with some level of success by some Countries such as Malaysia. According to the Malaysian Investment authorities (MIDA, 2013), in an effort to promote DDI, the government in 2012 introduced a Domestic Investment Strategic Fund (DISF). The DISF is not a grant but provided on contingent on the investment of the applicant. It is provided in the form of matching funds which are reimbursable after a given period and granted on negotiated terms. Recipients of DISFs are determined on cases by case basis depending on merits, proposals and plans provided. The DISF is also restricted to investment in specific sectors of the economy and high end projects with good economic value to the Malaysian economy. In 2006 Tanzania government introduced a fund to support small enterprises. The fund was also famously known as the ‘ Kikwete 1bln fund’ was disbursed through the selected banks such as the NMB and CRDB. The weakness of this fund was that it had political inclinations, the criterion for beneficiaries and loan repayment requirements were weak. The fund was subject to abuse and as consequence; its benefits were largely unfelt. Review of this initiative based on lessons from the previous scheme and other countries such as Malaysia would inform a new strategy for funding domestic entrepreneurs.

The Tanzanian government should provide Incentives for domestic investors such as tax incentives, incentives for acquiring foreign companies for high technology, incentives for companies in production and mergers among domestic service providers or firms. According to the Malaysian investment Development Authority, a Malaysian owned company ac acquiring a foreign owned company is eligible for an annual deduction of 20% of the acquisition costs for 5 years. The acquirer must be a locally owned company with at least 60% Malaysian equity ownership involved in manufacturing and service activity.

This incentive is aimed at increasing local ownership portfolios in high end technology firms in the Country. Small firms under a specified share capital value are given tax incentives and firms which participate or are desirous to engage in production of promoted products are incentivized.  Currently, Tanzania’s domestic or resident investors can only access government incentives if they registered their projects with the Tanzania Investment Center (TIC) The minimum capital base required to qualify for an Investment Certificate and incentives is high and exorbitant for domestic direct investors.

Ring fencing of economic opportunities and sectors for domestic investors and allowing requiring joint investment ventures in some specific sectors. There have been efforts to ring fence the tourism sector. However these efforts in Tanzania are not widely extended to other sectors. Other Countries have this approach successfully to attract DDI in specific sectors.

Need to establish a dedicated Domestic Direct Investment agency or department within the Tanzania Investment Center, specializing and focusing in DDI promotion, attraction, facilitation and documentation. Currently, Tanzania’s investment attraction agenda is coordinated by Tanzania Investment Center. The centre is one stop center with all major government functions such as business and company registration, immigration and taxation. However, the focus of TIC is on attracting FDI. Yet domestic investors have peculiar needs and thus attracting DDI would benefit from a specialized department.

Make more efficient use of the business incubator model to facilitate the establishment and growth of small and medium enterprises (SMEs).  Business incubators are dedicated and well equipped centers which identify nascent entrepreneurs with innovative ideas with a potential for growth to test their and develop their ideas into functional enterprises.  Where necessary, they provide the nascent entrepreneurs with start-up capital and equipment for growth. It is well established that SMEs play a key role in creating employment, developing a skilled workforce and responding to various market demands. Business incubators have been instrumental in developing the United States Computer and high-tech software industry. California’s Silicon Valley is home to many business incubators providing to young innovative software and hi-tech developers to juggle their ideas into big business. Many computer applications run by computer programs such as Microsoft and Apple are products of business incubators. In Tanzania, so far there is one known incubator hosted at Commission for Science and Technology (Costech). From this incubator innovative software ideas were developed and grew into a leading Tanzanian multinational company called Maxicom Africa. There is need to expand public knowledge and this incubator’s services and so as to encourage new ideas for innovation, technology and investment.

There is need to review the policy and operations of Export Processing Zones (EPZ) and Special Economic Zones (SEZ) with a view of encouraging true domestic investors.  Export processing zones and Special Economic Zones are specialized areas gazette by the government allowing investors and companies to produce manufactured goods in a controlled secure environment for export. Both schemes provide facilitative environment for profitable operations. Export Processing Zones (EPZ) objectives include; attraction and encouragement of new technology, attraction and promotion of investment for export-led industrialization, employment and promotion of processing of local raw materials for export. Special Economic Zones (SEZ) have an objective of promoting quick and significant progress in economic growth, export earnings and employment creation as well as attracting private investment from all productive and service sectors.

They provide generous incentives such as tax holidays and tax breaks to investors and companies using the EPZs to manufacture goods for export.  Examples in Tanzania include the Benjamin Mkapa Export Processing Zone at Mabibo Dar es Salaam and Zanzibar Special Economic Zones. Despite their existence, the volume of DDI investments attracted to these zones is still low and the generous incentives offered by the EPZ and SEZ’s have been abused by the foreign firms operating the EPZ’s. Already manufactured goods from outside the Country are smuggled into the EPZs for label and exported as Tanzanian manufactured goods. Foreign firms have set up subsidiaries in Tanzania’s EPZ so as to benefit from the generous incentives.  The net beneficiaries from the EPZ and SEZ are therefore foreign firms and not domestic investors. A through mapping and review has to be done.

There is need to address nuisances such as corruption, bureaucracy, nuisance taxes and non tariff barriers restrictions which make local investment cumbersome to domestic Investors. According to the World Bank Report Tanzania was ranked 139 out of 189 on the Ease of doing business index in 2015 (World Bank: Ease of Doing Business Report 2015). The report suggests that the business environment in Tanzania is still unfavorable and acts as a disincentive to invest. Tanzania compares badly with its neighbors such as Rwanda and Uganda. The government has strived to improve Dar es Salaam port handling and establishment of ‘One stop borders’ at major customs points to facilitate trade but other non tariff barriers exist and these have to be dealt with conclusively.

Deliberately pursuing a broad based economic growth strategy to allow the economy to expand and create more opportunities for local investment. These are key factors in determining investment decisions.  Despite registering a fast paced economic growth of 6-7% in the past years, the drivers of economic growth has been limited to specific sectors such as telecommunications, mining and construction. These sectors require large volumes of capital and specialized high skills. This can be restrictive to Domestic Direct Investors, whose capital base and technological advancement may be limited. It is important to open up economic growth and investment potentials to other sector.

As stated by Mairo Pezinni, director of OECD Development Center, “Extractives are no longer the main driver to investment. The Continent (Tanzania) is open for new investment fueled by unprecedented domestic demand” (Africa Investment Report 2016). The government should see this as an opportunity to drive Domestic Direct investment into other sectors.

In Conclusion, over the past years Tanzania has committed itself towards building a robust economy through investment. The current government industrialization agenda is based on securing more investment into the manufacturing sector.  From the policy and practice it is evident that the government’s focus has been anchored towards attracting FDI. The volume of FDI inflows into the country as recorded by TIC has increased over the past five years. However, experiences in countries such as Malaysia show that Countries cannot build their economic muscle by depending exclusively on FDI. The challenge of relying on FDI is linked to its characteristics.

FDI is sensitive and subject to cyclical factors such as global economic down turns, global stock and capital market instabilities ,changes in national policy or political environment and foreign investor  interests. It can therefore be erratic unreliable as a platform for building an economy. It is for this reason that the governments appetite needs to be shifted towards DDI. The absence of current figures and a systematic and well articulate government policy on DDI is a major flaw in national development planning.  Tanzania is an endowed with vast resources, a large population and strategically placed as country. Therefore potential for attracting more DDI is evident.  To achieve this potential a number of strategies have to be implemented and other existing ones reviewed as suggested in this paper.

References:

  • Africa Investment Report 2016, Analyse Africa, 2016
  • Indonesian Investment Coordinating Board: Domestic and Foreign Direct Investment Realization in Quarter II and January-June, 2017).Available at http://bit.ly/2YMXgsD
  • World Bank: Ease of Doing Business Report 2015
  • Malaysian Investment Development Authority (MIDA), Maljis Peguam, Malayasia, 20th Novemeber, 2013 available at http://www.malaysianbar.org.my/index.php?option=com_docman&task=doc_view&gid=4361
  • Tanzania Investment Report 2014: Foreign Private Investment
  • URT: National Five Year Development Plan 2016/17-2020/21: Nurturing Industrialisation for Economic transformation and Human Development accessed via: http://www.mof.go.tz/mofdocs/msemaji/Five%202016_17_2020_21.pdf
  • UNIDO: Tanzania Investor Survey Report: Understanding Investment and Foreign Direct Investment, 2014
  • UNCTAD: World Investment Report, 2015

Online Sources

The Citizen Newspaper, Tanzania leads Regional peers in FDI investment available athttp://bit.ly/2WsVRdd

SADC in Economic Meltdown; Can Tanzania be German of the Region?

On Saturday 17th August, Tanzania assumed the chair of the South African Development Cooperation (SADC), amidst disturbing economic figures indicating that the region was facing a serious economic meltdown. Can Tanzania be the ‘German’ of the region, playing the economic big daddy role by calling the other states into political order and bailing out the struggling member states?

By Moses Kulaba, Governance and Economic Analysis Center, Dar es Salaam, Tanzania

The SADC is a 16-member state regional economic block established with among others promoting sustained economic growth and sustainable development amongst its objectives. However, the recent economic data indicates that region is witnessing an economic meltdown with most of its member states, except perhaps Tanzania, positing negative or stunted economic growth over the past years.

According to the economic and social indicators data compiled and released by its secretariat the the SADC region posted an estimated average growth rate of 1.4% in 2016 compared to 2.3% in 2015. At country level Tanzania registered the highest growth of 7% among the member states followed by Botswana with a far below rate of 4.3%[i].  

In 2017 Tanzania recorded an economic growth of 7.1% followed by Seychelles (6.3%) whilst Angola registered negative growth for the second consecutive year in order of 2.5%[ii] The region’s growth was increasing at a decreasing rate since the post global period in 2009.

The region’s economic giant South Africa has witnessed rapid economic slowdown, bring along its small neighbors and trading partners under its weight.  Countries such as Zimbabwe were collapsing under the weight of economic sanctions, Namibia and Angola recorded negative annual real GDP (at market price) of 10.8% and -2.5% respectively in 2017 due to the slump in commodity prices and other related risks. Botswana at 2.4% did not perform well either. The region posted an overall trade deficit with rest of the world of USD6.7bln. 

The AfDB report for 2018 warned that the economic outlook for Southern Africa region was cautious[iii]. Broad based economic activity was expected to recover at slow pace, but the outlook remained modest given the diverging growth patterns for the region’s economies. Upper middle income countries turned in low and declining rates of growth meanwhile lower income transitioning economies recorded moderate and improved growth, albeit at reduced rates.

Despite the improvement, economic performance remained subdued as the region’s economic outlook continued to face major headwinds. High unemployment, weak commodity prices, fiscal strain, increasing debt and high inflation.

Real GDP was estimated to have grown at an average of 1.6% in 2017 before increasing to a projected 2.0% in 2018 and 2.4% in 2019.

The future regional growth was expected to be bolstered with primary expectations of increased investment in non-oil sectors such as electricity, construction and technology in large infrastructure projects, mining as well as continued recovery in commodity prices.

However, the latest figures show that the region was not well on that front either.  The decline in commodity prices in recent years reaching the lowest point in 2015 translated into significant income loses for the economies, implying a negative impact on public and private sector spending and therefore growth in employment.

Before the 2008-2009 global recession, the region experienced moderate growth, though individual countries contributed differently. For example, Angola, Mozambique and Namibia exhibited robust growth that collectively outpaced the regional group.

Thereafter, Angola, the region’s foremost oil producer and former raising economic star received the worst bashing with its economy experiencing adverse economic growth effects due to weak oil prices.

Overall the region experienced negative GDP growth with Swaziland (-10.08%), Zimbabwe (-8.38%),  and Angola (-6.31%)  being among the worst hit[iv]  Other Countries such as Zambia, Namibia , Mozambique and Malawi were not performing better either. South Africa reported the highest public debt soaring in billions dollars followed by Angola.

South African Institute of International Affairs observed that intra-regional investment and trade levels had declined markedly since the commodity slump in 2013. Moreover, the trade and economic growth in the region remained imbalanced, exacerbating political strains among member states. Non-tariff barriers and other factors had adversely affected intra-regional trade and investment in recent years.

Assuming the mantle, at the end of its 39th Summit held in Dar es Salaam, Tanzania’ President John Pombe Magufuli was furious with against the Secretariat for having not provided adequate and alert to the political leadership that the region was experiencing an economic meltdown with reduced or stunted growth and an expanding trade deficit.

Speaking at the SADC People’s forum on the sidelines of the main summit in Dar es Salaam, the South African Professor, Patrick Bond, described the situation as alarming, catastrophic and turbulent and yet no one was bold enough to speak about it.

He was perhaps communist in view and radical in approach, blaming what he described as the capitalistic enterprise and its puppeteers for under mining economic justice, risking lives of by putting profit before the people and causing climate change whose effects were ravaging SADC but remained quite revolutionary in suggesting that the ordinary people perhaps needed to send a clear signal to its political leadership that all was not okay. The economic fundamentals were tattered and the regional leaders needed to wake, Prof. Bond lectured.

Can Tanzania emerge and become the ‘German’ of the region?

With this state of the Union, the question therefore arose can Tanzania emerge and become the ‘German’ of the region, playing the economic messiah role by providing both political leadership and economic bail out to its neighbors. 

In 2013 up to 2015 when the European Union experienced economic turbulence, Brussels turned to German to liberate it from the gigantic economic Dracula which was tearing down its economic block and leaving some of its small states indebted and facing bankruptcy. German wrote cheques in financial bailouts, provided guarantees and political prop up for economically struggling states such as Greece, Portugal and Italy.

German relied on its economic prowess and its political might as the industrial central pillar of the European Union. The charismatic leadership of its Chancellor, Ms Angela Merkel, was a distinct asset. Even at the risk of her own political career and constant onslaught from the German far right, Merkel could not tolerate any nonsense and was not ready to allow Europe to fall back.

In the face of the similar economic doldrums which seems now to face SADC, can Tanzania afford such muscle or a German equivalent?

Tanzania has done it before. In the 1960’s until 1990’s when the region was facing serious political, Tanzania pulled up its resources and committed it to the liberation struggle. It hosted training camps and provided pupilage to thousands of liberation fighters. Dar es Salaam became to the political headquarters of Frontline States where the idea of SADC in its current form was initiated and a spring for independence for many of the current South African states.  For some, therefore SADC at 39 years, just came back home.

In assuming the SADC Chairmanship, President Magufuli warned the Secretariat that it will not be business as usual as of now and for the next one year his interest would be to see that resources placed at the disposal of the Secretariat were not spent on conferences but on meaningful tangible projects which benefited the people. Could this be the kind of approach that region needs to take in order to deal with its increasing economic challenges.

An agile kind of leadership which places the people at the heart of politics and fights with cunning shrewdness against corruption, public waste, nepotism and personal drive to accumulate wealth by those in power.

Over the years these have been some of the vices which have dogged the region and bringing the much needed progress to stagnation and ultimate halt in some member states. Comparatively, perhaps the SADC is the largest economic group in Sub-Saharan Africa. With over an estimated population of 337.1 million people in 2017, is larger than its western equivalent, the Economic Community of West African States (ECOWAS) and obviously bigger than the European Union has a just a fraction of the SADC population yet somehow progress has been considerably steady in the other regions.

According to experts the region was faced by multiple non trade barriers and low intra region trade which still at around 20%.  Technically, speaking, the members are happy to do business with other countries outside the region rather than their economic neighbors partners in SADC. The member states are living alongside each other but not fully economically and trade integrated.

Political uncertainties which has dogged the former economic giants of the region such as South Africa, Zimbabwe, Mozambique and Angola created fertile conditions negative to investment and economic growth.  The governments lost grip on the economic mantle and directed attention towards managing internal politics and mechanics for political survival.  

Xenophobic attacks in South Africa could have also created a sense of fear and caused disarray in a fragile informal sector which was quietly the driving factor or fulcrum on which the South African economy relied. Crushing cost of electricity, turmoil in the extractive sector and stalemate in the platinum industry in 2016 perhaps were also a contributory factor to South Africa’s political woes. 

Overall, according, to Professor bond, the region was just poorly governed and a new leadership impetus led by the people was necessary to bring back the declining glories

For many years SADC was so much preoccupied on political stability. With good success, it has managed to tackle conflicts and bring peace amongst its member states. Overall, political conflict in the form of civil wars in the region has been declining with all except the DRC reporting any semblance of a conventional Civil war in recent years. 

Even, this has significantly been downgraded in recent years. Currently, there is no severe risk of any threat from any member state to destabilize any other through an arms insurrection. The ongoing conflict in the Eastern DRC is largely a war of survival for the remaining tribal and ethnic elements rather than a fully-fledged military configuration to overall and capture power in the DRC. If it can be dealt with, then perhaps the war in the DRC will be over or significantly reduced to minimal levels in many decades.

The future wars of the SADC will therefore be largely economic and perhaps resource based on key issues such as land, water and control of the real means of production and profit. Acute poverty could be the other driver of the masses towards insurrection. For Tanzania therefore, to take up the German challenge will be a touch endeavor.

Tanzania’s economic benefit or contribution to the region is too minimal. According to trade statistics, Tanzania is among the least exporters to SADC and its overall trade balance with its SADC neighbors was still low. It therefore lacks the economic might of German stature.

Over the past three years Tanzania’s political leadership has commitment itself to building its economy first before looking outside. Cutting back on public waste and flogging its population into line to start paying up taxes to finance its public service and infrastructure ambitions, Tanzania is building its economy from within.

Throughout the 1960s to the 1990s Tanzania sacrificed a lot in order to politically liberate virtually all the SADC member states and yet gained very minimal in return.  Political historians have even have even argued with some level of confidence that Tanzania under developed itself in sacrifice for others to develop. Tanzania would be therefore quite cautious in economic diplomatic terms and perhaps uncomfortable at this moment in giving out too much of what it has acquired over the years to salvage its economic neighbors.

The conditions in the region appear to have turned so bad in the past few years with persistent drought raving across the region only to be replaced by wrecking floods leaving behind famine and death in communities along its way.  Approximately over 1000 people dies in the last floods in Mozambique and Malawi caused by cyclone Idai and Keneth. Millions at a risk of starvation.  Essential infrastructure such as road and bridges connecting rural areas to urban centers and across countries such as the port of Beira are badly battered and incapable of supporting economic productivity.

The region has not been able to attract in Foreign Investment into its natural resource wealth and flagship infrastructure projects such as the Mighty Inga dam electro power project in the DRC which would have brought life into the SADC power master plan have remained incomplete for many years now. The region is badly in need of both reconstruction and reconfiguration to sustain itself and its ambitions.

At the end of the summit Tanzania’s former President Benjamin Mkapa advised that SADC member states should stop relying heavily on foreign donors for aid to support or finance their development agenda. Building internal capacity through a reliable market for products from the block, investment in education, technology, domestic revenue collection and unlocking the potential amongst its budging population to drive the economies forward would be a better option. Perhaps the SADC leadership should fine tune an ear to the wisdom of its elders.

The meeting concluded with signing off of three development cooperation programs worth 47 Million Euro deal with the European Union under its European Development Fund (EDF) 11 financing round. According to official statement, the funds will be used over the next five-year period to support improvement in the Investment and Business Environment (SIBE), Trade Facilitation Program (TFP) and Support to Industrial Productive Sectors (SIPS) three programs to be implemented by the SADC over the next five-year period

The SIBE program aims at achieving sustainable and inclusive growth and job creation by transforming the region into an investment zone, promoting intra-regional investments, foreign Direct Investment and a focus on Small and Medium Enterprises. The TFP will contribute to enhance inclusive economic development in the region through deepened economic integration while the SIPs aimed at contributing to the SADC industrialization agenda, improving performance and growth of selected value chains. How this EU injection translates into lifting the region from its economic downward spiral will yet to be found out at the next summit when SADC turns 40. What is clear is that something has to be done.

[i] SADC: Selected economic and social indicators, 2016

[ii] SADC: Selected economic and social indicators, 2017

[iii] AfDB: Southern Africa Economic Outlook, 2018

[iv] https://countryeconomy.com/countries/groups/southern-african-development-community

Elation as Kenya exports Oil; what does it mean for Oil rush in East African region

On 1st of August 2019, President Uhuru Kenyatta announced that Kenya had joined the list of world oil exporting Countries by selling its first crude oil at a cost of 12 Million United States dollars.

While the news reverberated across the Country and the region with elation, it is also possible that Kenya’s announcement could trigger a contagious rush to the bottom with East African Countries jostling to outcompete each other by signing off deals and agreements locking off future markets with potential buyers. Some of these deals may not be necessarily good.

By Moses Kulaba; Governance and Economic Analysis Center

Addressing the cabinet and media in Nairobi, President Kenyatta said Kenya had sold its barrels of crude oil to a buyer whose identity still remained a secret.

“We are now an Oil exporter. Our first deal was concluded this afternoon with 200,000 barrels at a price of USD 12 Million.  So I think we have started the journey and it is up to us to ensure that those resources are put to the best use to make our Country and to ensure we eliminate poverty, said Kenyatta.

The news reverberated in the region and globally with a new player on the market. Obviously there was more excitement and elation in the Lokichar Oil fields where Tullow Oil and its joint partners continue to explore more blocks with more vigour and determination.

Kenya discovered its first Oil in 2012 and since then, explorations have continued in the Lake Turkana basin region with deposits being reported and more projections made to increase. In its previous reports Tullow estimated some 560 Mln Barrels in possible reserves and these are now projected to increase as prospects for more discoveries are higher than before.

This would translate into 60,000 to 10,000 barrels per day of gross production, which is said to be insufficient to warrant the construction of a refinery locally hence the export plans

The sold consignment was delivered by truckers at the Kenya Petroleum Refineries facilities in Changamwe, Mombasa since July last year, under what the government described under the early oil project

What does this mean for Kenya and the East African region?

The deal concludes that Kenya once ruled off as an oil novice in the region, with the lowest volumes of discovered oil is running a head of its East African neighbors in reaching exporting oil country status many months before any of its East African neighbors can sell a drop of oil.

For Kenya, this is game changer in regional geopolitics as not only does the oil revenue bring a new line of foreign exchange earnings into its economy and thus consolidating its position as the regional economic superpower.

Galvanizing on its early market entry status, Kenya could tap the available markets and seal off any available contracts beating off any potential competition from its neighboring countries.

The oil revenues could also breathe some life into its Lamu Port South Sudan Ethiopia Transport (LAPSSET) Corridor development plan which has stalled for among others lack of partners. With oil revenues flowing, Kenya can go alone developing the ambitious infrastructure projects along the corridor all the way to the Ethiopian boarder.

Contrary to nay Sayers, the oil export could be a window to emboldened security in the Turkana area as the government seeks to protect vital oil installations and export routes to the coast.  For many years, Lake Turkana basin has been one of the most volatile and insecure areas in Kenya as marauding armed warriors move from one village to another raiding for cattle. Civilians and military installations have been attacked and people killed.

In June, 2018 Turkana residents stopped five trucks from ferrying crude oil to Mombasa over rising insecurity along the border with Baringo. The resident complained of insecurity in the area but also complained of what they call consider unresolved issues on oil sharing benefits between the National governments, County governments and local communities over the 5% share which they wanted channeled to their bank accounts rather than for development as rallied by a section of leaders.

There is no way we can be a security threat to the oil we have protected and guarded for years. So the specialized and additional security personnel (protecting oil) should head to Kapedo and secure people.

Kenya’s oil export announcement could trigger a contagious rush for oil in the East African region, with each country racing to drill to bottom in search for oil. In an effort to outcompete each other, those already with oil discoveries such as Uganda and South Sudan could race to the market sealing off deals and contracts with potential buyers and agreements for future markets. Some of these deals maybe bad.

 Uganda was the first to strike oil around its Albertine graben in 2005. According to Uganda’s Ministry of energy the petroleum deposit discovered so far were estimated at 6.5barrels of which 1.5bln are considered as recoverable.

The Ugandan oil is supposed to be exported to the global market through a 1,443 electric heated East African Oil Pipeline (EACOP) via Tanzania. The East African Crude oil pipeline is expected to unlock East Africa Oil potential by attracting invest and companies to explore the potential in the region.

According to the project schedule available on the EACOP website the detailed engineering and procurement and early works were supposed to have been made in 2018 and construction started in 2019. The first oil exports were expected in 2020. But it appears all these are behind schedule.

According to Ministry of Uganda expected to conclude its financial deal for its joint pipeline with Tanzania by June, 2019, opening for the way for its construction. According to the information provided by then, Stanbic Bank Uganda, was supposed to be the lead arranger for USD2.5billion funding for the 1,455 km (EACOP) project. The deal was expected to have been concluded in June, 2019.

Kampala was also expecting that the Final Investment Decisions (FID) between the government and the oil partners to determine when funds for the project will be made available, the terms of the financing and when the project execution will commence with a projected timeline between 20 and 36 months

The pipeline was expected to jointly develop the USD 3.5 billion pipeline, described as the longest electrically heated crude oil pipeline in the world. The balance of USD 1billion is expected to come from shareholders in equity

However, by the time Kenya announced its export deal in July, the earth breaking ceremony commencing the start of the EACOP pipeline construction had not started. Negotiations were reported as ongoing. In June 2017, the Daily Business Newspaper carried an article with a headline ‘Uganda’s Oil may not flow by 2020’ as the required infrastructure may not be complete  by then[i]

What this means for Uganda is that time is of essence and the sooner the EACOP project construction takes off the better for its potential oil market.

Figure 3: The Government of Tanzania and Uganda sign the Inter-Governmental Agreement (IGA) for the East African Crude Oil Pipeline (EACOP)  in May, 2017

 

So why do some oil projects like take long to materialize?

Lack of astute leadership, effective institutions and canning ambition to drive the projects to fruition. In some countries the political leadership and responsible institutions can be weak, whereby the essential operational process surrounding the oil projects can be clogged in political rhetoric and undertones which make decision making quite cumbersome, inefficiently slow and less assuring to the investors

Technical aspects such as Quality of crude oil discovered

High Sulphur crude oil can such as the Ugandan and Kenyan crude oil can be waxy and costly to transport via pipeline as it requires constant heating along the route.  This explains why the 1,433 km EACOP is described as the longest electric heated pipeline in the world. This adds to complexity in technology and costs on heating required to operationalize the project. Investors may

Oil reservoir behaviors and recoverable volumes – The discovered oil reserves are not always the same as the recoverable volumes. In some projects the reserves can be large yet due to geological and technological factors the recoverable volumes are low.  The behavior of the oil reservoirs is therefore a significant factor in determining whether the recoverable volumes will be consistent with the early projections and economic models over the plateau period. A change in the recoverable volumes can trigger massive losses and may lead to complete closure of the oil project. Investors are happy to rush projects where recoverable volumes will be sustained

Financing aspects such as financing structure -Lack of financing for some reasons or high interests on the investment loans secured from investment-lending institutions can be a delaying factor.  The decision to invest may therefore take long as the investors or partners to the oil project juggle and weigh the available financial options viz a vis the current and future costs of the project on the country and the investors

Economic metric considerations such as the Net Present Value (NPV), Rate of Return (RoR) and Internal Rate of Return (IRR) of the project.

These are calculations undertaken to determine the economic and financial viability of the project. They are used to determine how much return and how long it will take to recoup the initial investment and starting generating profit.

According to online sources such as Investopedia, the Net present value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows over a period of time. NPV is used in capital budgeting and investment planning to analyze the profitability of a projected investment or project.

The Rate of Return (RoR) is the net gain or loss on an investment over a specified time period, expressed as a percentage of the investment’s initial cost. This simple rate of return is sometimes called the basic growth rate, or alternatively, return on investment, or ROI. If you also consider the effect of the time value of money and inflation, the real rate of return can also be defined as the net amount of discounted cash flows received on an investment after adjusting for inflation.

The rate of return is used to measure growth between two periods, rather than over several periods. The RoR can be used for many purposes, from evaluating investment growth to year-over-year changes in company revenues. Its calculation does not consider the effects of inflation.

The internal rate of return (IRR) is a measure used in capital budgeting to estimate the profitability of potential investments. The internal rate of return is a discount rate that makes the Net Present Value (NPV) that makes the Net Present Value (NPV) of all cash flows from a particular project equal to zero.  It is mathematically calculated as IRR=NPV=t=1∑T (1+r)t −C0 =0)

IRR is the rate of growth a project is expected to generate. The IRR is used in capital budgeting to decide which projects or investments to undertake and which to forgo.

Generally speaking, the higher a project’s internal rate of return, the more desirable it is to undertake. Assuming the costs of investment are equal among the various projects, the project with the highest IRR would probably be considered the best and be undertaken first. IRR is sometimes referred to as “economic rate of return” or “discounted cash flow rate of return.”

Social factors such as land acquisition and due diligence for compensation– The nebulous and intricate balancing act between the local laws and the international standards as guided by the International Finance Corporation can be a hindrance. Quite often the local standards for compensation can be law, corrupt unfair yet the IFC standards requires fair and equity

Negative diplomacy: The oil projects could delay or fail to take off all together due to negative diplomacy. Whereby disgruntled actors such as activists, companies, politicians who may not be excited or about the project may quietly lobby, urge, convince or cajole the financing institutions not to finance the project.

Security Risk:  Oil projects cost lots of money in investment and thus require assurances that financial investments and their installations will be guaranteed.  Oil projects can stall as investors and their partners gauge the security risks

Some or all of these factors could be now at play in the East African region and could be explanatory factors as to why some petroleum projects are progressing at a snail’s pace or stalled all together. Perhaps Kenya’s early oil export could be trigger for its neighbors to start thinking ahead.

 

 

 

[i] https://www.businessdailyafrica.com/economy/Uganda—oil—2020-Standard–Poors-Tanzania/3946234-3982464-j7rbsq/index.html

Why Rules of Origin (RoO) should not be used exclusively to pursue trade policy objectives

This article shades light on a major instrument in international trade and customs management, which has been used by states to achieve multiple trade objectives. The concept of RoO has become controversial in the current interconnected global trading system where the point of production and sale across have become quite seamless and yet international trading rules requires that the definite origin of goods are identified for preferential treatment, statistical and tax purposes. The article argues that despite the implicit functions they play RoO should never be used a tool for negative trade pursuit rather a conduit for trade facilitation. The paper defines rules of origin and trade policy, outlining the objectives of trade policy, explaining the linkages between the two and discusses other instruments which can be used to achieve trade policy objectives

By Moses Kulaba; Governance and Economic Policy Analysis Center

Rules of origin (RoO) are common defined as laws, regulations and administrative criteria applied by a country to determine the country of origin of goods, for tariff preference purposes, subject to specific conditions as defined in WTO agreements and Regional Trade Agreements (RTAs)[i].  The East African Customs Union has summarized the rules of origin as ‘the vital link between the goods and country where they are produced’[1][ii] RoO are categorized as Preferential and non preferential depending on their characteristics and objectives.

Preferential RoO aim at determining whether goods qualify for preferential treatment and while Non Preferential RoO used to determine goods for trade statistical purposes. Rules of origin have significant relation and influence on a country’s trade policy or member countries which are contractually related or mutually obliged under a given contractual or non contractual trade arrangement. Rules of origin also may determine or assist the countries in understanding their comparative and competitive advantage. They are commonly used as a trade policy tool to protect local markets, give preferential treatment and a measure against unfair trade.

Trade policy can be defined as a collection or law, rules and practices aimed at achieving a country’s trade objectives. Tanzania’s trade policy aims to contribute to raising per capital income to levels targeted in National Development Vision 2025, trade development measures to stimulate and expand domestic demand through product and market diversification and limited interim safe guard of domestic economic activity threatened by liberalization, while building economic competitiveness[iii] It seek to achieved sustainable growth rate in trae of not less than 14% and long-term share of exports to GDP  of about 25%, double fold increase in manufacturing and raised value of merchandise export earnings in absolute terms to USD1,700 in the next five years[iv]

The Tanzania government recognizes the importance or Rules of origin as a tool for implementing trade policy objectives and has committed towards using the RoO in a manner that can strengthen the country’s industrial and trade potential. The Tanzanian clearly articulates this position in its trade policy where it states:

The Government of Tanzania will undertake measures to observe RoO preferences requirements prevailing in the different trading arrangements with a view to maximizing benefits accruing in the cause of implementation…with priority focus on building national capacity for effective utilization of this instruments[v]”

While RoO are a common factor in Trade policy, because of the challenges that RoO have in relation to international trade, they are considered as not the tools of most preference in achieving trade policy objectives. Indeed, increasingly governments are being advised that RoO should not be used to achieve trade policy objectives for the following reasons.

Firstly, they can be distortionary and work contrary to trade policy objectives especially where there is no harmonization of trade policy objectives. “If Clear, predictable, transparent and fair, rules of origin and their application facilitate the flow of international trade. Nevertheless, RoO can create unnecessary obstacles to trade and nullify or impair the rights of members in regional and multilateral trading arrangements including the EAC, SADC and WTO. Consequently, RoO have to be applied in a transparent, predictable, consistent and neutral manner so as to avoid their negative effects[vi].

Secondly, rules of origin is also important in facilitating international trade where the objective is free flow of goods, irrespective of trade policies or various countries

It can be sometimes difficult for countries to achieve trade targets in situations where it is a member to multiple contractual obligations which may conflict with its own national trade objectives. This is a common challenge for countries like Tanzania which belongs both to the EAC and SADC and has therefore a challenge in determining or applying RoO for goods originating from both economic blockings

Implementation of rules of origin is sometimes cumbersome and sometimes can be distortionary especially where there is need to determine various technical dimensions to the items for preferential purposes.

Rules of Origin are also not the only instruments for achieving trade policy objectives. They are just one instrument and other instruments could be effectives. These instruments include a combination of other trade policies, which can be elaborated as below:

Trade policy instruments are described as measures taken by governments to influence the direction and pattern of trade development. The application of these instruments in Tanzania is guided by the need to stimulate domestic production, promotion of exports, safeguard domestic industry against dumping practices and protection of consumers. Tanzania exercises these trade policy options in line with its international obligations. These instruments include: Tariff Based (Advalorem) Instruments, NTBs: Trade defense mechanisms; trade development instruments; and international trade policy instruments.

Tariff based instruments, include;

Tariffs, which are major trade instruments for trade policy implementation which are used to achieve duo objectives of revenue generation and protection of domestic industry. Heavy import substitution protection regimes can harm unprotected industry and ultimately reduce consumer welfare. It is for this purpose that Tanzania has been reforming its tariff band structure to a current four band structure (0,10,15 and 25)

Duty Draw Back Schemes (DDB) which are tools for export promotion through refund of import taxes on imported inputs that go towards production for exports. Tanzania has implemented a DDB scheme, although the scheme faces multiple challenges, including difficulties in technical verification. This also includes the mechanisms for VAT refund

Taxation, which comprises of   tax regime characterized by different taxes and levies imposed by the central and local government to achieve a duo purpose of revenue collection and protection used for administration of quota restrictions

Export Taxes which are levied as instruments to discourage export of raw materials in favour of value added products. In Tanzania the use of export taxes has been gradually reduced, with restrictions currently imposed on export of geological or mining products and raw hides and skins.

Non Tarrif Barriers/Measures these are measures aimed the protection of industry that work on the basis of restriction of imports. These instruments include;

Import licenses which is aimed at both controlling and regulation of the volume of imports and also taking track of importers, automatic licences issued automatically without discretionary powers and non-automatic licenses

Reshipment Inspection requirements (PSI) which are sets of activities aimed at the verification of quality, quantity, price, exchange rates, financial terms and customs classification of goods undertaken in the exporting countries

Trade Related Investments Measures (TRIMS)-Local Content Requirements, falling within the WTO TRIMS agreements, which cover a number of restrictive issues on foreign investments in view of their restricting impact. These include conditionalities on local content, local equity, foreign exchange balancing, import obligations and others that are specifically prohibited. This is aimed at enabling local industry to gain the necessary capacity and competence in developing its competitiveness.

Customs Valuation; which involves determination and ascription of value to items based on WTO customs compatible valuation procedures, guided with principles of fairness, uniformity and certainty

Standards-Technical Barriers to trade (TBTs) such as sanitary and phytosanitary (SPS) measures and other standards, used as instruments of trade policy to authenticate the quality and specification of imports and exports in conformity with the international safety requirements and regulations aimed at consumer protection.

State Trading Operations which are undertaken by both Government and Non Government enterprises, including marketing boards, which are granted exclusive special rights or privileges including statutory or constitutional powers in the exercise of which they influence through their purchases or sale the level or direction of imports or exports.  State Trading is clearly different from government procurement.

Government Procurement: This refers to a system which governs or regulates government procurement, requiring it to procure goods and services through a centralized international and national procurements process. It requires this process to be fair, transparent and allow competitiveness amongst suppliers and thus lowering costs. In pursuing trade objectives, the policy of transparence and open competitiveness has to be balanced with considerations for protection or stimulation of local industry.

Administrative procedures. These are other instruments that can be used to achieve trade policy objectives. Administrative procedures prevail in developing economies as a response to difficult situations at times of natural disasters such as the need to ensure food security when grain shortages are envisaged due to shortfalls in production yields. These may applied from one region to another as a way of balancing out the shortages. In Tanzania, this instrument has been used from time to time, especially in the control and regulation of export of maize and coffee to neighboring countries.

Trade Instruments

Trade policy objectives are also achieved through other trade defence instruments which are allowed by the WTO for safeguarding specific economic activities within a limited time-frame through application of  a set of instruments. These include:

Safeguard Measures aimed at protecting a sector or subsector of the economy or domestic industry from suffering from certain consequences. These normally take the form of raised tariffs and temporary relief measures

Antidumping aimed at protecting a country’s economy or industry from being flooded by cheap goods, which have no significant economic value. The WTO prescribes action against dumping

Subsidies and Countervailing duties: These include measures that confer benefits to producers and exporters and exist where a public body or government provides financial contribution to producers in the form of grants, soft loans or equity etc. These subsidies can be categorized into permissible and non specific subsidies that are non-actionable, permissible but actionable subsidies and prohibited subsidies. Currently Tanzania has not developed an export subsidy regime although it is permissible under the WTO arrangement.

Rules of origin are a combination of laws, regulations and administrative criteria used by a country to determine the origin of goods and determines how specific goods should be treated for tax purposes.

Trade Development instruments include:

Export Process Zones–This refers to trade development instruments used to stimulate export oriented economic activities through inculcation of a value addition and import culture, acquisition of appropriate technology

Investment Codes and rules which work through compensation for distortions which impede the flow of foreign investments largely due to market imperfections

Export promotion and market linkages which entails provision of support services to exporters with the objective of expanding trade for existing product lines

Export Facilitation which is pursued through the simplification of trade procedures and reduction of high costs involved through measures such as provision of export credit

International Policy Instruments can also be achieved to achieve trade policy objectives and these include

  • Bilateral Cooperation initiatives amongst willing countries depending on the variant agreements between contracting partner’s states
  • Regional Trade Agreements (RTAs) which have evolved through the growth and expansion of Economic Integration arrangements like the EAC
  • WTO agreements and Multilateral trading system which aims at stimulation of sustainable economic growth through trade expansion, encouraging specialization and opening up of national economies through elimination and reduction of Non Tarrif Barriers (NTBs)

Conclusively, despite the limitations, rules of origin still play an important role in driving trade policy objectives. However, for them to be effective, they need to be applied in a transparent, fair and predictable manner to avoid causing distortionary effects to international trade.

[i] URT: National Trade Policy for a Competitive economy and export led growth, Ministry of Industries and Trade, February, 2003

[ii] East African Community Customs Union Rules of Origin, September 2005

[iii] ibid

[iv] ibid

[v] ibid

[vi] ibid

WB Reports Tanzania Economic Growth was lower , warns Poverty reduction is Constant

According to the World Bank Group, Tanzania’s economy is estimated to have grown by 5.2 percent in 2018, a figure which is lower and in contrast to the government’s National Bureau of Statistics estimates of 7 percent but still more than the Sub-Saharan Africa average of 2.3 percent.

The Tanzania National Bureau of Statistics reports that real GDP growth was 7%, slightly higher than 6.8 percent in 2016, however, the Wold Bank reported, official demand side data including data related to consumption, investment and net trade suggest that growth softened in 2018. This is according to the WB’s latest Tanzania Economic Update report released in July, 2019 titled ‘’Tanzania Economic Update: Human Capital: The Real Wealth of Nations” 12th Edition
Using demand side data World Bank Staff estimate that real GDP growth from 2018 was 5.2 percent lower than the NBS estimate but still more than double the SSA average of 2.3%.

The softening of consumption growth was supported by Tanzania Revenue Authority (TRA) data showing lower consumption tax collection as well as tight controls on public consumption expenditures.
The report is quite critical of government’s investment and fiscal performance, whereby it stated that investment growth remains’ dampened as significant under execution of public development plans, lower levels of FDI inflows and improved but relatively low private sector credit growth.

The trade balance also deteriorated in 2018 with exports contracting by 3.9% in gross value and imports increasing by 7.8%
Mid fiscal year accounts for 2018/19 show a low deficit and significant shortfall in both spending and financing which together with high payment arears raise questions about budget credibility. Whereby, the deficit for the first half of the fiscal year was a low 0.7% of GPD against a budgeted 1.6%. The revenue shortfall relative to budget were even larger than spending shortfalls. Domestic revenues especially tax collections under performed by about 12% against mid-year targets and fiscal external financing under performed by more than 80%. As a result, the budget significantly was under executed for capital projects needed for growth and job creation.

Government arears to contractors and supplies to pension funds by utilities such as Tanzania National Electricity Supply Company (TANESCO) to their suppliers remain unsustainable high at an estimated 5.7% of GDP in mid-2018.
The WB also warned that although the level of public debt currently was sustainable, recent changes in its composition raised concerns about liquidity risks.

The external position was challenged by an expanding current account deficit and declining reserves. The exports had fallen partly due to lower cashew nut exports and imports increased because of capital goods imported to supply development projects. The current account deficit had to 5.2% of GDP for the 12 months ending January, 2019 up from 3.2 percent a year earlier.

Reforms to relieve the regulatory burdens on business was moving slowly. According to the WB government had introduced abruptly new laws affecting mining, public –private partnership and statistics that had raised private sector concerns about policy predictability.
High population growth was undermining the reduction of poverty. Despite efforts between 2007 and 2016 that had reduced the Country’s poverty rate from 34.4% to 26.8% the absolute number of poor people had remained at about 13 million due to high population growth.

Although the most recent poverty measures based on the Household Budget Survey of 2017/18 was still being processed, it seemed likely that the downward trend poverty rate continued but had become more gradual, the WB stated.
The WB report figures raise further controversy on the accuracy in generation of Tanzania’s statistical figures and throw a spanner into the ongoing debate among stakeholders on which statistics should be considered as credible for planning purposes.

The government maintains that its statistics are credible and should be quoted as official and in 2018 passed a law (The Statistics Act of 2018) to enforce this. The Act made it a criminal offence to invalidate, distort or discredit any official data or to collect and publish any statistics which contradicted statistics from the NBS.

However, this law faced criticism from different actors arguing that it gives undue monopoly to government in generating statistical figures and limits room for debate and criticism of official data which may have some errors or generation of alternative statistical data by independent private entities and organisations. Some amendments were made in June to relax on some of the stringent provisions but the Act still requires some kind approval from the NBS.
The report raises significant concerns and challenges on the state of the economy and progress of reforms to improve the business and investment environment.

The latest reported figures which contradicts some of government’s official statistics and economic progress perhaps should serve as a wakeup call to the government to reassess its figures and provide clarity.

Election Coordination Mechanisms: A comparative study of Tanzania, South Africa and Nigeria

Proper election coordination is a major factor in successful elections in a multiparty democracy. The findings and key message coming out of a short policy study and governance practice note by GEPC suggests that there is no universal approach to coordination between Electoral Management Bodies (EMBs) and Office of Registrar of Political Parties (ORPPs). Each country has developed some sort of coordination based on its existing political and legal dispensation.

This short policy study and governance practice note sought to undertake a comparative study of Tanzania and South Africa, Nigeria with a view of contributing towards electoral reforms and minimizing of electoral disputes.

However when ranked on the common standards and guidelines for electoral management and  regulation of political parties, Tanzania scores unfavorably on a number of major aspects; Finality of decisions of its EMB (the National Electoral Commission) and Office of Registrar of Political parties, whereby there decisions are final and cannot be challenged in court,

The appointment of Tanzania’s National Electoral Commission (NEC’s) commissioners is not subject to a parliamentary vetting process, NEC’s mandate is limited to Presidential elections and local elections organised and supervised by local government executives under the Minister responsible for local government. The EMB and Officer of Registrar of political parties’ report to the responsible Minister compared to its comparative Countries such as South Africa and Nigeria where these institutions are answerable to parliament.

Tanzania only ranks in equal measure with its comparative peers EMB and Office of the registrar of its political parties in the as Constitutional bodies and its organs headed by persons of high integrity at a level of a judge or retired judge.

The study therefore recommends that as Tanzania prepares for the next local and general elections, the country should practical measures to

  • Review of current election coordination mechanisms with view of minimizing overlaps and election disputes
  • Implement Court decisions current and previous in regards to election related matters such as independent candidates and role of local government executives in election management
  • Increase avenues for transparent and objective dispute resolution. These should be documented and formalised in law
  • Adopt and adapt best practices from the comparative countries on matters related to election management and coordination, including opportunities to legally challenge the finality of decisions by the election coordination mechanism

 

A table summary of salient features of EMB and ORPP structures, functioning and coordination and our ranking based on European Commission (EC) Common Standards & guidelines for Electoral Management and Political parties Regulations [1]

  1. No Issue Explanation Traffic Signal
    1 Constitutional protection of EMB and ORPP Strengthens independence, confidence and performance Green
    2 Presidential Appointment of EMB Commissioners and ORPP heads Bad practice, Creates mistrust and may encourage patrimony Red
    3 Existence of Nomination Panel or Committee  for EMB Commissioners and ORPP Strengthens political and public trust in the institutions Green
    4 EMB and ORPP Chaired by Judge or Justice of high court May strengthen political and public trust that the actions and decision of these institutions are just and fair, but fair outcome is not guaranteed Yellow
    5 Civil Society involvement in Nomination of EMB Commissioners and ORPP heads Widens participation, increases public trust and credibility of the institutions Green
    6 EMB and ORPP embed Roles within a single institution such as IEC in South Africa or INEC in Nigeria May encourage ambiguity, Best to separate but also depends on accountability structures and clarity of the roles Yellow
    7 EMB and ORPP heads accountable to Minister Bad practice, may encourage direct political interference and patrimony Red
    8 EMB and ORPP heads accountable to Public Service Commission May be subject to limitations of public service administrative codes of conduct and requirements Yellow
    9 EMB and ORPP accountable to Parliament Increases accountability and public  scrutiny Green
    10 EMB and ORPP direct participation in nominations and vetting of candidates Encourages the EMB and ORPP to ensure candidate standing for election meet the eligibility criterion and legal requirements Green
    11 EMB and ORPP direct engagement in development of Party and Membership list for political parties Bad practice, Infringes on right of Political parties to determine their candidates Red
    12 Restriction of EMB and ORPP electoral  organization and coordination mandates to Presidential and Parliamentary elections (Tanzania’s case) Bad practice , may encourage direct political influence, foments elections disputes Red
    13 EMB and ORPP enforcement of Separate Codes of conduct or ethics Good to separate political issues from electoral matters Green
    14 EMB and ORPP separate Management of Party subventions, Financing Largely dependent on accountability structures Yellow
    15 Existence of EMB and ORPP elaborate operational procedures and independent guiding  law Provides clarity in operational mandates Green
    16 Existence of other constitutional institutions to support EMB and ORPP in democracy-such as  in South Africa Strengthens independence, trust and performance Green
    17 Decisions of EMB and ORPP Final on electoral and political matters Bad practice, May defeat justice and Fairness Red
    18 Detailed regulations for EMB and ORPP dispute resolution Provides clarity in dispute resolution Green
    19 Existence of formalised PPLC  and other similar bodies  to work with EMB and ORPP Enhances collaboration and potential dispute resolution Green
    20 Existence of an Independent Electoral Court or Tribunal to adjudicate on matters relating to EMB and ORPP Strengthens performance And expedites justice Green

     Comparative thematic analysis of Tanzania, Kenya, South Africca and Nigeria’s EMB and ORPP institutional setup, functions and our ranking based on European Commission (EC) Common Standard & guidelines for Electoral Management & Political Parties Regulation Standards[2]

    Issue Country Analysis Traffic sign
     

     

    Legal Constitution

    		Tanzania EMB Constitutional body, ORPP enacted by law Green
    Kenya EMB  Constitutional Body, ORPP enacted by Green
    South Africa EMB and ORPP Constitutional bodies Green
    Nigeria EMB and ORPP Constitutional bodies Green
     

     

    Appointments

    		 Tanzania EMB and ORPP Commissioners and heads are presidential appointees, without nomination Red
    Kenya EMB and ORPP heads are presidential appointee , upon nomination Green
    South Africa EMB and ORPP Commissioners and heads are Presidential appointee, upon nomination Green
    Nigeria EMB and ORPP heads are Presidential appointees, upon nomination Green
     

     

    Leadership

    		 Tanzania EMB and ORPP headed by a Judge or Retired justice Green
    Kenya EMB and ORPP headed by  none Judges Red
    South Africa EMB and ORPP headed by a Judge Green
    Nigeria EMB and ORPP headed by a Judge Green
     

     

    Roles

    		 Tanzania EMB electoral mandated limited to Presidential and Parliamentary elections, Local elections organised by Minister Red
    Kenya EMB electoral mandate extended to organise all elections Green
    South Africa EMB mandated to organise all elections Green
    Nigeria EMB mandated to organise all elections Green
     

     

    Accountability

    		 Tanzania EMB reports to the Responsible Minister Red
    Kenya EMB reports to Parliament Green
    South Africa EMB reports to Parliament Green
    Nigeria EMB reports to parliament Green
     

    Jurisdiction

    		 Tanzania EMB organise elections partially in Zanzibar. Zanzibar President and House of Representative elections organised by Zanzibar Electoral Commission Yellow
    Kenya EMB has nationwide jurisdictive coverage Green
    South Africa EMB has nationwide jurisdictive coverage Green
    Nigeria EMB has nationwide jurisdictive coverage Green
     

    Dispute Resolution

    		 Tanzania EMB and ORPP decisions are final Red
    Kenya EMB and ORPP decisions challengeable in court Green
    South Africa EMB and ORPP decisions challengeable in court Green
    Nigeria EMB and ORPP decisions challengeable in court Green

    [1] We developed these common standards and traffic signals based on standard democratic and accountability principles, international conventions, international benchmarks and European Commission (EC) guidelines for Political Parties Regulation.

    [2] Ibid. The European Commission (EC) (Venice Commission) guidelines for Political Parties Regulation guideline provide an overview of issues regarding the development and adoption of legislation for political parties’ regulation in democracies.

    ** The full report of this study can also be downloaded from our reports and publications sections

 

One in four people in Africa pay bribes to access services, TI survey says

According to Transparency International (TI) survey report, more than 1 in 4 people in Africa who accessed public services, such as health care and education, paid a bribe in the previous year. This is equivalent to approximately 130 million people.

The tenth edition of Global Corruption Barometer (GCB) – Africa, released on African Anti-Corruption Day by Transparency International in partnership with Afrobarometer, reveals that more than half of all citizens surveyed in 35 African countries think corruption is getting worse in their country. Fifty-nine per cent of people think their government is doing badly at tackling corruption.

The largest and most detailed survey of citizens’ views on bribery and other forms of corruption in Africa, the survey asked 47,000 citizens in 35 countries about their perceptions of corruption and direct experiences of bribery.

The report also highlights that corruption disproportionately affects the most vulnerable, with the poorest paying bribes twice as often as the richest. Young people pay more bribes than those over 55 years old.

“Corruption is hindering Africa’s economic, political and social development. It is a major barrier to economic growth, good governance and basic freedoms, like freedom of speech or citizens’ right to hold governments to account,” said Patricia Moreira, Managing Director of Transparency International. “While governments have a long way to go in regaining citizens’ trust and reducing corruption, these things don’t exist in a vacuum. Foreign bribery and money laundering divert critical resources away from public services, and ordinary citizens suffer most.”

The police is considered the most corrupt institution, with 47 per cent of people believing that most or all police are corrupt. Many citizens also think government officials and parliamentarians are highly corrupt, at 39 per cent and 36 per cent respectively.

As in the previous edition of the GCB for Africa, the police consistently earn the highest bribery rate across the continent. This may be one of the reasons that two-thirds of those surveyed fear retaliation for reporting corruption. On a positive note, more than half of citizens believe that ordinary people can make a difference in the fight against corruption.

“To reduce the heavy burden of corruption on ordinary people, African states that have not done so should ratify and effectively implement the African Union Convention to Prevent and Combat Corruption,” said Paul Banoba, Regional Advisor for East Africa at Transparency International. “Africans believe they can make a difference. Governments must allow them the space to do so.”

Transparency International urges governments to put anti-corruption commitments into practice and to:

  • investigate, prosecute and sanction all reported cases of corruption in both the public and the private sector, with no exception;
  • develop minimum standards and guidelines for ethical procurement and build strong procurement practice throughout the continent with training, monitoring and research;
  • adopt open contracting practices, which make data and documentation clearer and easier to analyse and ensure transparency in hiring procedures;
  • create mechanisms to collect citizens’ complaints and strengthen whistleblower protection to ensure that citizens can report instances of corruption without fear of reprisal;
  • enable media and civil society to hold governments accountable;
  • support political party funding transparency;
  • allow cross border cooperation to combat corruption.

Authorities should also establish public registers that name the owners of shell companies and adopt and enforce laws that address stolen assets.

Additionally, business leaders and boards of companies, including multinational companies operating in Africa, should effectively and transparently implement the highest international anti-corruption and anti-money laundering standards.

The full report can be accessed via: https://www.transparency.org/gcb10/africa

 

 

A British tax haven, Jersey Island, is returning a Nigerian dictator’s $270 million to his country

As  Africans celebrate the Africa  Anti-Corruption day on 12th July 2019,  the good news for Nigeria in a longtime is that a famous British Overseas territory , Jersey Island, known for its secrecy jurisdiction, as a tax haven,  has announced to return billions of dollars stashed in its offshore banks by late Nigerian Leader, Sani Abacha as reported by Article below by Max de Haldevang, of Quartz online newsletter.

By Max de Haldevang, June 25, 2019

A trio of secretive British tax havens beloved of kleptocrats and money-launderers are facing unprecedented pressure to open their books.

Two influential backbench MPs, Labour’s Margaret Hodge and the Conservatives’ Andrew Mitchell, have been pushing an amendment that would force Jersey, Guernsey, and the Isle of Man to publish a public register revealing who actually owns the roughly 80,000 companies registered on them.

Anti-corruption activists allege that the three jurisdictions dotted around Britain’s coastline, known as the Crown Dependencies, are hotbeds for financial crime and tax evasion. They point to the family of Azerbaijan’s dictator Ilham Aliyev allegedly owning a $25 million house through an Isle of Man shell company, and the notorious wife of a jailed Azeri state banker holding a $28 million golf course through a Guernsey firm.

Last month, after a five-year court saga Jersey announced it was putting $268 million, which had been stashed in a Deutsche Bank account on the island by former Nigerian military dictator Sani Abacha, into an asset recovery fund that will eventually return the cash to Nigeria. The island’s solicitor general said the move showed “Jersey’s determination to deal with international financial crime more generally.”

The announcement was one of several actions taken by various actors seemingly in response to international scrutiny over the Crown Dependencies and other tax havens. The Abacha case dates back to US enforcement efforts under the Obama administration, but the Crown Dependencies only need look at Britain’s Caribbean tax havens—known as the Overseas Territories—to understand the threat posed by Hodge and Mitchell. Last year, the two former government ministers pushed through an amendment forcing the territories, which include the British Virgin Islands and Cayman Islands, to set up a public register by 2020.

Last week (June 19), all three Crown Dependencies promised of their own accord to set up corporate ownership registries. While transparency advocates say the islands aren’t moving as fast or comprehensively as they should, the move in itself is a win for Hodge and Mitchell. “This is [the Crown Dependencies] acting before Margaret Hodge attempted to do anything before Parliament,” says Ben Cowdock, a senior research officer at anti-corruption NGO Transparency International UK. “Rather than face some constant battle with the UK Parliament, they’ve decided to go of their own accord with this announcement.”

Banks have also stepped up their monitoring of accounts in the Crown Dependencies and other European tax havens. At the end of 2018, Lloyds Bank shuttered 8,000 accounts in Jersey, after their owners spent three years ignoring the bank’s questions about their identity, the Financial Times reported in June (paywall). HSBC, Barclays, and Royal Bank of Scotland have also tightened their questioning of customers on the island, according to the FT. Deutsche, which banked Abacha’s money, has warned (paywall) 1,000 of its customers that they may also lose their accounts.

 

How will the South African 2019 Proposed Financing Provisioning Regulations affect mining companies? *

As East African Countries grapple on how best to manage environmental payments for compensation and rehabilitation of decommissioned mining sites, the new legal regime in South Africa could be a development to watch as it provides some drastic measures that have sent shockwaves with in the mining fraternity as reported by Ensight Africa, Online tax bulletin.

By Edwin Berman, Ntsiki Adonis-Kgame and Zinzi Lawrence, Ensight Africa Online Tax Newsletter

In May 2019, the South African Proposed Regulations Pertaining to the Financial Provision for the Rehabilitation and Remediation of Environmental Damage caused by Reconnaissance, Prospecting, Exploration, Mining or Production Operations, 2019 (the “2019 Regulations”) were released for public comment. The 2019 Regulations are informed by industry consultation; however, they still fail to address some of the serious concerns raised by the mining industry and introduce new onerous provisions.

The first attempt at regulating financial provision for costs associated with the remediation and rehabilitation of impacts to the environment associated with mining activities, was through the Financial Provisioning Regulations, 2015 (the “2015 Regulations”). Following an outcry from the mining industry, the 2015 Regulations were amended on 26 October 2016. Since then, two iterations of the financial provision regulations (2017 and 2019) which sought to repeal the 2015 Regulations, have been published.

Some of the effects of the 2019 Regulations on mining companies are the following:

Applicants and holders

Applicants and holders of reconnaissance permits will be required to provide financial provision for rehabilitation. By definition, reconnaissance permits, as contemplated in the Mineral and Petroleum Resources Development Act, 2002, involve non-invasive work and therefore do not lead to environmental harm. Accordingly, there is no basis for requiring holders of reconnaissance permits to make financial provision.

Double provisioning

Regulation 7(3) provides that “funds set aside for financial provision must remain in place until a closure certificate is issued, unless a withdrawal as contemplated in regulation 11 is allowed”. Regulation 11 outlines the procedure for holders to follow when seeking to withdraw financial provision, and provides that the Minister of Minerals and Energy (“Minister”) must approve withdrawals with the concurrence of the Ministers of Human Settlements, Water and Sanitation and of Finance. The withdrawal of financial provision can only occur after the stringent requirements stipulated in regulation 11 are met and are only allowed for decommissioning and final closure and not for ongoing or concurrent rehabilitation.

Since the financial provision is not accessible to the holder for use during the life of the right, the holder has to effectively make double provision (the first being financial provision and the second being actual expenditure incurred for rehabilitation). The implications of regulation 7(3), read with regulation 11, is that there will be a rise in the cost of mining.

Auditing and specialist reviews

Regulation 12(2) prescribes that the determination, review and assessment of financial provision must be undertaken by a specialist. Regulation 13(1)(a) requires that the assessment undertaken by a specialist must be audited by an independent auditor, included in an environmental audit report and must be submitted for approval to the minister. This however places an extraordinarily administrative and cost burden on the industry, more so on junior mining companies.

Value-added tax

Another onerous provision introduced in the 2019 Regulations is the inclusion of value-added tax (“VAT”) in the financial provision calculation. Expanding money for rehabilitation is not a vatable supply as contemplated in the VAT Act, 1991. Inevitably, this will result in a further increased cost of mining in addition to the issues of duplicate funding/double provisioning and the burden of auditing discussed above.

Date of compliance

Holders of prospecting rights and mining rights or permits, who applied for the right or permit prior to 20 November 2015, will be required to comply with the new regulations no later than three months following the first financial year end of the holder post 19 February 2020. Given that the due date for submission of comments to the 2019 Regulations was 1 July 2019, the 2019 Regulations are most likely to be finalised later this year, giving holders insufficient time to comply with the 2019 Regulations. Current financial provision quantum calculations for holders would need to be revised in accordance with the new methodology and this would require existing holders to fund the increased financial provision. Practically, most mining companies will encounter difficulties with complying within the contemplated compliance date.

Penalties and offences

The 2019 Regulations have increased the number of offences tha are punishable, by a penalty of up to ZARR10-million, or up to 10 years imprisonment, or both a fine and imprisonment. The offences include inter alia, the failure to provide funds for annual rehabilitation from the operational budget and set aside funds for financial provision; the failure to provide funds using one of the agreed vehicles and failure to make reviews and decisions accessible to the public.

*This article first appeared in ENSAfrica ENsight Africa online tax bulletin

‘The Corruption Tree’, using innovative local ways to sensitize communities about corruption and local governance-Lessons from EU-KAS ‘Tungane Pamoja’ Project in Tanzania

 

This project demonstrated that community education about corruption should not be an expensive endeavour after all. While governments spend millions of shillings on experts to languish in lavish anti-corruption conferences and to present glossy papers about anti-corruption strategies,  this project’s approach showed  that a culture of corruption and impunity in local village governments can be fought by just having communities sitting under a tree to discuss about corruption in their communities and thereafter planting or adopting a tree to symbolise their eternal rejection of corruption and fleece of public resources by those entrusted to lead

United for Our Rights (also known in its Kiswahili name as Tungane pamoja kutetea haki) Project was anti-corruption and strengthening local governance program executed by the German political foundation, Konrad Adenauer Stiftung (KAS) in collaboration with the European Union (EU) in Tanzania and two local organisations Actions for Democracy and Local Governance and Civic Education Teachers Association (CETA). The project implementation started in February 2017 and completed in May, 2019.

The overall objective of this project was to contribute towards lowering corruptive behaviour of actors in Tanzania on the local level and to foster the cooperation between CSOs and local Authorities in advocating for transparency and accountable political systems.

The project was conceived on the basis of concern that corruption in Tanzania has been a nemesis affecting systems and the ordinary citizens and retarding national development[1].  The fight against corruption in Tanzania was at infant stage and has been largely state driven by government anti-corruption agencies such as the Prevention of Combating of Corruption Bureau (PCCB) and the police.

The population and civil society generally lack the understanding of the demand accountability from authorities with regards to use and allocation of public funds. Public sector corruption was reported to go beyond missing of tax payer funds as reported by the annual Controller and Auditor General (CAG) reports to weak institutions and corrupt civil servants fuelling corruption, inequality and exploitation of their citizens.

Local Authorities especially in rural areas were largely neglected by the central government in effective supervisory terms. The ineffective central government management facilitated corruption as those entrusted with management of public resources and well politically connected, espoused dominant power, by passed the established systems of governance and public administration, created parallel structures to siphon public resources. Bribery thrived, tendering processes were abused and public resources diverted towards private gain.

Local authorities showed lack of capacity, knowledge, resources and demonstrable measures to tackle corruption. Demonstrated commitment and resources were evidently lacking and where it existed, it was haphazard or truncated and ineffective.

CSOs had poor monitoring skills and mechanisms to track public revenues and expenditures, which exacerbated the situation. Systemic corrupt practices existed at different levels of government while CSOs and other non-state actors remained speechless, untrained and incapable of fulfilling their oversight watchdog roles

The project identified a specific objective of strengthening CSOs to lead meaningful dialogues with and between local communities and Local Government Authorities. The project targeted 25 CSOs in 7 regions, covering 40 districts and 85 local elected councilors and technocrats together with local communities in 1055 wards.

Over the two-year period over 800 Community dialogues were conducted in 800 wards reaching close to 500,000 people. The topics ranged from learning about the local government structure, its functions and corruption to the role of citizens in fighting corruption and building stronger local systems.  The citizens’ concerns ranged from lack of regular village meetings to scarcity of vital medicines and quality health services at the local level. Citizens expressed concerns over lack of accountability, transparency and local participation. Other concerns included interruption, influence peddling and corruption in livelihood systems such as local cashew nut auctions

In contrast to other project, ‘Tungane Pamoja’ adopted a unique approach in where by communities either adopted or planted a tree to symbolize their fight against corruption. In total over 2000 trees were planted. Thereafter communities would sit under the adopted tree or next to the planted tree to discuss about corruption in their village and how to deal with it. Corrupt officials were exposed and accountability demanded. Communities also identified priority areas such as education or health deficits which needed their support so as to develop their village.

Corruption was rife at the health centre. We chose to plant the tree in the health centres compound as a reminder to every citizen and staff that corruption was not welcome. Every day they will see it and no doubt change their behaviours.

 The project implementation and monitoring reports enumerated many results of successes but the following could be drawn for future learning.

First, onboarding of partnership with government and relevant government officials before the project starts is vital in successful implementation of accountability projects of this nature. So far, the onboarding the line Ministry for Regional administration and Local Government proved helpful in ensuring that the project was implemented seamlessly

Anti-corruption and accountability projects or interventions such as those implemented under United of our rights project seek to challenge and alter the existing power dynamics in favour of the ordinary citizens. This strategic shift in the axis of power can be uncomfortable in certain instances for corrupt local public officials who as duty bearers nourish on the weak local government accountability systems and ignorant citizens to divert public resources for private gain. In some instances, these corrupt officials will fight back and can frustrate citizens’ efforts. Citizens therefore need constant accompaniment and support to constantly push for accountability

The use of local structures, resources such as conducting meetings under trees and locally available spaces in local language can be helpful in transferring complex concepts such as accountability, corruption to ordinary citizens. The concept of planting and adopting a tree was revolutionary in a way as it helped the local citizens relate corruption with a common item that they see and use on a daily basis.

Communities are motivated and interested to discuss issues which affect their ordinary life situations and problems such as health and education. Linking these directly to corruption can be helpful in explaining the causal and effect relationship between lack of accountability, corruption, exploitation, inequality and poor social service delivery

The Governance and Economic Policy provided the technical support undertaking internal monitoring and results harvesting for this project. The results of this assessment showed and demonstrate that corruption in local governments and at village level can only be addressed when new innovative techniques and strategies directly targeting the ordinary citizens are used.

[1] KAS; Report on the proceedings of the project launch, 24th November, 2017, held at the KAS office, Makuti Hall