Tanzanian business unfazed by Magufuli win

In a small stationary shop in Tanzania’s economic capital of Dar es Salaam, Adam Sayi is upbeat about President John Magufuli’s contested re-election in October.

Despite claims by opposition parties and international observers that the election was rigged by the ruling Chama Cha Mapinduzi (CCM) party, Tanzania’s controversial leader remains reasonably well liked in the East African nation.

Small-business owners like Sayi believe their lot will improve during another five years under Tanzania’s president, while Magufuli is seen as a dutiful steward of an economy that has maintained steady growth and avoided coronavirus lockdowns.  

“I expect a lot of development in the coming five years of Magufuli,” Sayi tells African Business. “From central development to county development, as we can see from the previous five years we have moved from a low-income country to a middle-income country.”

Sayi is expanding his business to include owning taxis. He reports being able to secure a licence from the government far more easily than under the previous administration and without having to pay a small bribe.

Since Magufuli shot to power in 2015, he has gained the moniker “Bulldozer” for his crackdown on corruption. This has gained him praise from many in the business community who were frustrated in the past by the slow pace and extortionist tendencies of the Tanzanian authorities, they say.

Jumanne Mtambalike, CEO of Sahara Ventures, an accelerator and tech consultancy based in Dar es Salaam, says he is looking forward to more investments in infrastructure over the next five years. Magufuli ran on an infrastructure platform during the election, with many praising the improvement and expansion of roads over the last five years. Mtambalike is also hopeful that the government will make key reforms in sectors concerning the digital economy.

“We will see more investment in science, research and innovation because they [the government] have said that this is one of the high priority areas,” he says. “I also believe that they will focus on revenue generation by creating a large pool of taxpayers because with a country of more than 50m people you have less than 10m paying taxes.”

FDI suffers

However, even though some aspects of the domestic business environment have improved, Tanzania’s disrupted election will likely continue to spook foreign investors who have shied away from the East African nation since Magufuli came to power.

Magufuli first entered office in November 2015. In 2016, foreign direct investment (FDI) fell by 43%, and at $1.1bn last year it was still well below the $1.5bn recorded in 2015. This was largely the result of a number of high-profile corporate shakedowns in which various foreign companies in sectors ranging from tele­coms to mining companies were seen to be harangued by the government.

In 2017, Acacia Mining, Tanzania’s largest gold-miner, was slapped with a $190bn retrospective tax bill for failing to pay royalties on alleged undeclared exports. In January this year, Canada’s Barrick Gold – which gained full control of Acacia Mining in 2019 – agreed to settle the dispute by paying the Tanzanian government $300m and ceding 16% ownership of its three mines in the country.

Mtambalike says that regulatory certainty and robustness will be key to attracting investors in the long run. “If you want to attract more venture capital [VC] let’s say from regional and global VC networks, then you need to make sure that you have legal setups to allow them to exit safely, you have to make sure that you have good policies for capital gains tax.”

Nevertheless, Mtambalike says that Tanzania still offers enticing investment opportunities for foreign companies in a number of key sectors like agriculture, mining, retail and telecoms. The economy has been growing at an average of around 6% over the last five years – backed by strong performances in Tanzania’s key sectors – and it should continue to grow throughout the Covid-19 period despite a small drop-off.

Unlike neighbouring countries that introduced widespread lockdowns, Tanzania implemented very few Covid-19 health measures, which allowed its hospitality sectors and SMEs to continue functioning. Though tourism has been hard hit by international border closures and falling demand for travel, Tanzania has benefited by the dual positive shock of gold prices rising as a gold-exporter and oil prices falling as an oil-importer.

Small-business owner Sayi contests allegations made against the ruling party that it was responsible for police brutality and vote-rigging in certain areas in Tanzania, especially the semi-autonomous region of Zanzibar. It is hard to estimate Magufuli’s popularity due to the lack of credible polling, but it is not a given that Magufuli would lose free and fair elections.

Sayi believes that Magufuli’s CCM will usher in a new period of economic growth for Tanzania. The fast-growing economy, which is not overreliant on any one sector, may be enough to spur sufficient spending and consumption in the local market. This would minimise the negative effect of the reduction in FDI.

Business as usual

In a region where democracy has been slipping over the past couple of years, according to the 2020 Ibrahim Index of African Governance, the allegations of malpractice during the election may not deter key partners from engaging with Tanzania.

Tanzania and Uganda signed a $3.5bn agreement to build a 1,445km pipeline in September, connecting Uganda’s oil fields to Tanzania’s port of Tanga. French oil giant Total is leading the project, which will be East Africa’s first major oil pipeline, along with China’s CNOOC.

Speaking at a recent webinar held by the French Chamber of Commerce in Kenya, Total Tanzania’s managing director Jean-Francois Schoepp remained confident about continuing to invest in Tanzania. The rising middle class has driven greater consumer spending on things like drinks and snacks in many of Total’s service stations across the country, he said.

Presidents from Zimbabwe, Kenya and Burundi were some of the first heads of states to congratulate Magufuli on his win. Meanwhile, other partners such as Canada, the UK and the US have expressed doubts over the credibility of the vote.