Historically, Tanzania’s agriculture industry has been the backbone of the economy that provides for 80 percent of exports and represents almost half the GDP output. With the great majority of Tanzanians employed through agriculture, are new industries and opportunities on the horizon to diversify and increase national wealth for this economy?
Indeed yes! The currency summary below provides for a compelling debate for the rising fortunes for Tanzania.
POLITICS: stable, thriving democracy although political tensions are prevalent in Zanzibar where it has a history of civil unrest, violence and political instability. President Benjamin William Mkapa is in power since November 1995, next election is scheduled for October 2005. Independence in April 1964 from the United Kingdom.
Zanzibar and the Question of Independence
The island of Zanzibar which is located just off the coast of the mainland is home to a population of about 1 million representing less than 3 percent of the total population of 36 million for Tanzania. Zanzibar has had a long vibrant history of commerce for that of an Arab trading centre primarily in exporting spices to markets in the Middle East and in Asia. Zanzibar is 99 percent Muslim due to its Arab roots. Separatist pressures are evident in Zanzibar where many desire independence. In order to abide by these separatist succession pressures, the mainland and the parliament of Tanzania have allocated Zanzibar approximately 20 percent of the seats in parliament. Many in Zanzibar do have a case for discontent as they are in agreement with the international community sharing a view that widespread voter fraud did occur in the 1995 elections in Zanzibar, this was Tanzania’s first democratic elections since the 1970’s. The independence debate is a similar story to the province of Quebec in Canadian Federation, Zanzibar is perhaps playing the independence card for greater benefits from the national parliament. It has been reported that Zanzibar has been supplied free or subsidized electricity from the mainland for years, other benefits to Zanzibar citizens include greater rights with respect to real estate ownership when compared to those mainland Tanzanian citizens. BI.C predicts that Zanzibar will declare independence in time due to the large cultural differences when compared to the Tanzanian mainland ‘Tanganyika’ where the citizens are mostly Christian and/or follow indigenous beliefs earning their livelihood for the most part in agriculture.
ECONOMY: from 1967 to 1985, Tanzania’s economy followed a socialist centrally planned model and suffered as socialism was a complete failure. During this time, state bureaucrats profited handsomely from price controls, particularly in the coffee industry. Since 1986, market economic reforms began to open up the Tanzanian economy as the government is now smartly laying the groundwork for prosperity by privatizing industry and promoting foreign direct investment. Consequently, GDP/Capita has accordingly doubled from year 1990 at $150 USD to year 2001 at $280 USD. Tanzania over the last 10 years has had very encouraging economic results, international reserves are up, inflation is down, GDP growth is up. Rich in mineral resources, positive foreign investment is now very active into gold mining exploration and development. Agriculture still dominates the economy as it employs 75 percent of population as the Tanzania is rich in agricultural resources including coffee, nuts, cotton, livestock, etc. Tanzania is now realizing a rewarding commodities bull market taking place in precious minerals and amongst many agricultural products. The tourism sector is also rebounding accounting for 15 percent of GDP as many foreigners visit the world’s highest freestanding mountain at Mt. Kilimanjaro at 19,335 feet in northern Tanzania. Lake Victoria is also a popular tourism destination as are Tanzania’s wonderful big game parks including perhaps all of Africa’s best at Tanzania’s Serengeti National Park. With terrific scenery, new resorts and spectacular wildlife, Tanzania is set to benefit from a prosperous tourism industry in the years ahead.
The economy now is performing well as Tanzania seems to be slowly integrating more with Southern African economies than those countries in northern Africa. The majority of Tanzanian state-owned companies are now privatized. The AIDS crisis has also found its way into Tanzania, although infection rates are high at about 10 percent of the adult population, AIDS is still a lower figure than some of the other countries in the region. AIDS is a serious problem, it has reduced the size of the workforce and created significant social problems. Foreign aid and donor assistance is at about 15 to 20 percent of GDP and is predicted to decline with increased economic growth for Tanzania as the nation becomes more self-sufficient as the economy strengthens.
GDP using purchasing power parity is at $20.42 billion USD (2002) with corresponding GDP/Capita using PPP at $600 USD. Market GDP is measured at $8.97 billion USD (2002) or at $280 USD/person. GDP growth rate for year 2004 projected at a booming 6.3 percent, 2003 at 5.5 percent, year 2002 at 6.1 percent, year 2000-01 at 5.1 percent, 1999 GDP growth at 3.5 percent. Inflation is currently running low at 4 to 5 percent level, year 2003 at 5.3 percent, year 2002 inflation at 4.8 percent, year 1997 at 15.4 percent, 1995 at 28.4 percent, 1994 at 37 percent. The trade deficit was at $800 million USD (2001). Current account deficit for 2001 at 9.3 percent of GDP, 2000 at 9.4 percent, 1999 at 9 percent, during the 1990’s the shortfall ranged from 12 to 20 percent of GDP primarily due to the large trade deficit. Overall debt to GDP is at 65 percent (2001) is high but at favorable terms including flexible lenders such as the IMF, etc. The fiscal deficit is at 1 to 2 percent of GDP down due to grants from abroad. Industry composition includes agriculture at 48 percent, industry at 15 percent, services at 37 percent. Exports: agricultural, gold, coffee, manufacturing. Imports: oil, consumer goods, machinery, transportation. Natural resources include: hydropower, natural gas, minerals & metals.
POSITIVE: a stock market is now functioning in the city of Dar es Salaam, IMF financial support & debt concessions, English common law, net exporter of cement. CONCERN: AIDS epidemic has dropped the average life expectancy to 44.5 years, high infant mortality rate, melting of glaciers on Mt. Kilimanjaro, money laundering, transshipment centre for illegal drugs, poor infrastructure - ie. roads, densely populated cities.
BANKING SYSTEM: large potential to develop and modernize. Tanzania’s Central bank is the Bank of Tanzania. Foreign commerical banks that are present in Tanzania include International Bank of Malaysia, Barclays Bank and the Standard Chartered Bank. International reserves at mid 2002 were at $1.2 billion USD representing a very healthy 6 months coverage. A monetary concern to Tanzania’s banking system was the large money supply growth that occurred in 2002 at 22.2 percent growth. Interest rates for 2001 at 4 percent due to low domestic inflation.
KNOWLEDGE: Gold Mining & Untapped Energy Reserves
Tanzania with its revamped progressive mining legislation is now attracting a large amount of foreign monies into this new industry segment. Canadian gold mining giant Barrick Gold is now operating the large Bulyanhulu gold mine in northwestern Tanzania, the first major mine in operation in years for Tanzania. This is just the beginning as many new mines are expected in the years ahead. A selective handful of mining exploration and major mining investors include Anglogold, Newmont Mining, Ashanti Goldfields, Pangea Goldfields, Tan Range Exploration, etc. Tanzania is well on its way of becoming the number three gold producer in continental Africa behind South Africa and Ghana. In addition, many of Tanzania’s gold deposits are near surface and low cost.
Large untapped energy reservs for Tanzania include natural gas, coal, biomass, solar & wind energy, geothermal and hydropower. With no oil reserves and only exploration to date, oil imports cost approximately 50 percent of Tanzania’s foreign exchange earnings. It is government policy to begin the process of substituting Tanzania’s large energy reserves for replacement of oil imports to meet its energy demands. This will help the country’s overall balance of payments position over the long term which will help to provide for appreciation pressures for the shilling.
REGIONAL ANALYSIS: Kenya, Uganda, Mozambique, Burundi, Rwanda,
Congo - DRC, Indian Ocean
Hundreds of thousands of displaced refugees are currently residing in western Tanzania from Burundi, Rwanda. These refugees are providing for a greater social strain to Tanzania. Terrorism threats and attacks from terror group al Qaida in the region including Kenya and Somalia.
CURRENCY: ISO Symbol ‘TZS’, Tanzanian shilling. At time of review on March 26, 2004, the Tanzanian shilling had an exchange value of 1108.14 TZS to 1 US-dollar ‘USD’. The shilling is issued by the central bank, Bank of Tanzania. It is illegal to take TZS out of the country, most tourist activities are paid in hard currencies. The shilling follows that of a floating exchange rate regime.
CURRENCY HISTORY: the Tanzanian shilling was introduced on September 14, 1967 at par with the then East Africa shilling. The shilling fell in valuation to the USD sharply from 2001-03 due to a larger than expected expansion in the Tanzanian money supply. Historical exchange rate valuations include year 1993 at 405 TZS to 1 USD, 1994 at 510, 1995 at 574.8, 1998 at 665, 1999 at 745, 2000 at 800, 2001 at 876.
CURRENCY FORECAST: BI.C is bullish for the Tanzanian shilling going forward particularly due to expected large increase in gold mining output & exploration activities coupled with continued market reforms. The potential for a dramatic improvement in the balance of payments account with increased gold exports is quite attainable. Tanzania has great potential as large amounts of foreign monies are now finding a new home in this rising star African nation.
UPDATED: March 26, 2004