MARKET UPDATE – AFRICA | <strong>July</strong> <strong>2015</strong> 03. Tanzania FISCAL PRESSURES COULD DECELERATE <strong>2015</strong> ECONOMIC GROWTH 12 | StratLink <strong>Africa</strong> Ltd. www.stratlinkglobal.com
MARKET UPDATE – AFRICA | <strong>July</strong> <strong>2015</strong> POLITICAL OUTLOOK Controversial Media Law Raffles Feathers A year since the parliament rejected laws that were widely deemed to be inhibitive to media freedom, the country is confronting re-introduction of a similar bill. The Media Services Bill, for instance, provides that “a foreign company may own a media house on condition that the shareholding structure shall not exceed 49.0%”. The move has unsettled many with critics alleging ill-motive by the state. The new bill is further reported to provide that private media houses “join the public broadcaster for prime 8:00pm news every day” 16 a measure that bears disconcerting implications on content control. In January <strong>2015</strong>, the government banned circulation of the ‘East <strong>Africa</strong>n’ weekly publication citing contravention of Section 6 of the Newspaper Act of 1976 on registration. Trying Moment for Tanzania This development comes on the back of a fairly challenging period for East <strong>Africa</strong>’ second largest economy. The postponement of the April <strong>2015</strong> referendum (indefinitely) has stood out as a sore thumb for the government raising political temperatures ahead of the October <strong>2015</strong> election. The proposed media law, widely deemed to be reversing gains made in media freedom, does little to tone down heightening temperatures in the country. CCM’s Increasingly Precarious Position ahead of October <strong>2015</strong> Polls Despite ruling Chama Cha Mapinduzi’s dominance in the political space, we assess that its clout has been eroded over time. In 2010, the party clinched 61.0% of the presidential vote compared to 80.0% in the 2005 poll. Developments in the recent past, such as the postponed referendum, place the ruling party on a precarious position ahead of the October <strong>2015</strong> poll. ECONOMIC OUTLOOK Tanzania Shilling Remains Weak The local unit has remained weak against the USA dollar despite the latter’s loss of ground following indication by the USA Federal 16 Daily Nation May 26th, <strong>2015</strong> BUSINESS ENVIRONMENT Donor Support Shock Still Lingers in the Horizon The country continues to take a beating from the energy contract scandal that saw a section of development partners with-hold budgetary support. The government is reported to have put on hold all new capital projects earmarked for <strong>2015</strong>/16 except those who funding negotiation is at the completion stage 17 . Whereas development spending accounted for 32.4% of the total budget in 2014/15, it has been scaled down to 26.3% in <strong>2015</strong>/16 (at USD 2.6 Billion) indicative of strained purse strings. Is Capital Spending Focus on Decline? Capital expenditure to GDP ratio has been on the decline in Tanzania and could to evoke concern amongst investors. Infrastructure upgrade and expansion has been a vital catalyst in improving the country’s business climate. With economic growth having mimicked trends in capital spending in the recent past, declining focus on the same could dim investors’ sentiment on the country. Recurrent spending is bound to be high in view of the October <strong>2015</strong> election. Bold Targets for Revenue Mobilization In anticipation of funding challenges from development partners, the government has set ambitious targets for domestic revenue mobilization in <strong>2015</strong>/16 - the Revenue Authority has raised its mobilization target by 20.6%, year-on-year, to USD 6.4 Billion. Noting that Tanzania’s tax revenue to GDP stands at 12.6%, against Kenya’s 19.3% 18 , (both cases are considered post-2014 GDP rebasing), we assess that Tanzania could face a tall order beefing up mobilized tax revenue. Budget <strong>2015</strong>/16 proposes doing away with tax exemptions on government projects financed using nonconcessional loans except for those that had the exemptions prior to <strong>July</strong> 01st, <strong>2015</strong> 19 . 17 The East <strong>Africa</strong>n June 13 – 19th, <strong>2015</strong> 18 New Vision February 12th, <strong>2015</strong> 19 FB Attorneys Budget <strong>2015</strong>/16 Focus Budget Breakdown Source: Budget Statement, StratLink <strong>Africa</strong> Capital Spending to GDP Ratio ‘12 ‘13 ‘14 Tanzania 6.6% 6.1% 5.0% Kenya 9.9% 5.9% 6.5% Uganda 7.4% 7.2% 7.4% Source: Business Monitor International, StratLink <strong>Africa</strong> GDP Growth vs Capital Expenditure Source: Business Monitor International, IMF, StratLink <strong>Africa</strong> www.stratlinkglobal.com StratLink <strong>Africa</strong> Ltd.| 13
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