#WhatWouldMagufuliDo: Tanzania's commercial future under a new president

PROGRESS TO DATE

In line with his campaign promises, anti-corruption tops Magufuli’s agenda, and the new president has already made examples of some top officials, including, somewhat controversially, colleagues from his own Chama Cha Mapinduzi (CCM) party. In his first three months in office Magufuli has suspended the Chief of the Tanzania Revenue Authority, and both the Chairman and the Director General of the Tanzania Ports Authority. 

Meanwhile, on Magufuli’s legislative agenda are a new anti-corruption bill and promised revisions to the country’s Procurement Act; significant in a country where public procurement currently accounts for nearly 70 percent of government expenditure. Magufuli asserts the current Procurement Act has loopholes which allow for the misappropriation of funds with officials allegedly quoting inflated prices for commodities, driving up the costs of projects. Corruption and inefficient regulation have previously been identified as key hindrances to doing business in Tanzania and Magufuli’s no-nonsense approach in this regard will sit well with investors.

The new president has also called for investigations into historic procurement and privatisation deals. Amongst those under scrutiny for procurement irregularities are state railway assets holding firm, Reli Assets Holding Company (RAHCO) and the Dar es Salaam Rapid Transit Agency (DART), a state transport agency. 

The president has also ordered a review of privatisation contracts in the agricultural and manufacturing sectors, stating during his inauguration speech, that the government would repossess previously state-owned entities that had been ceded to private investors during the country’s privatisation drive between 1993 and 2005, but had failed to develop as agreed. This rhetoric was matched with swift action and on 19 November 2015 the Treasury issued a 30-day ultimatum to investors to submit progress reports. The agricultural and manufacturing sectors jointly account for around 40 percent of Tanzania’s Gross Domestic Product, and as such this initiative has been seen as vital in improving economic productivity and efficiency amid Magufuli’s political supporters. However, little information has been disclosed regarding recourse for the 49 entities found wanting and it remains unclear whether the process will generate stricter regulations for future privatisation contracts. 

STRATEGIC PRIORITIES

Magufuli is prioritising the efficient industrialisation of the economy; a process in which the government seems likely to assume a greater role. Magufuli has acknowledged that such industrialisation is unlikely without foreign investment. Bolstering the manufacturing industry and Tanzania’s production base would help address domestic challenges such as a burgeoning youth population and unemployment rate. However this endeavour is highly dependent on the development of adequate infrastructure, specifically in the power and transport sectors. Furthermore, with six landlocked neighbours, the country is keen to capitalise on its potential as a transit hub. Accordingly, the president remains open to securing investment in such sectors as manufacturing and infrastructure, particularly railways and ports. Nevertheless, while Magufuli’s tenure is likely to be characterised by ample investment opportunities in these complementary and strategic sectors, investors’ interest is likely to be driven by competing opportunities available in the wider global market. 

In addition to a focus on industrialization, the president has on a number of occasions stated that he will ensure that Tanzania’s extractives sector directly benefits Tanzanian citizens, and this objective is likely to set the tone for policy implementation. For example, the 2015 Petroleum Act fails to stipulate government profit share from oil and gas production, and a number of commentators have indicated that under the new petroleum regime profit sharing rates are likely to be directly negotiated with companies by the Tanzanian government. The key challenge for the president will be creating a regime that is attractive to and provides certainty for foreign investors amid the global commodity downturn, whilst ensuring investments translate into the domestic benefits he has been so quick to promise. 

ECHOES OF NYERERE?

Yet, Magufuli’s rhetoric has at times been flagged as overly nationalistic, and without a transparent and established framework outlying a mutually beneficial relationship between big business and the Tanzanian people, it may serve to discourage investment, particularly given the country’s socialist past. Of greater concern will be whether Magufuli can maintain his zero-tolerance, proactive approach while facing external challenges beyond his control. For example, with the low market price of oil and liquefied natural gas (LNG), oil and gas majors are slashing spending and scrapping or postponing uncompetitive projects. In this context the capital costs of new plants are unlikely to be quickly met by investors. Whether Magufuli will be able to counteract the underlying challenges preventing a fruitful sector remains to be seen. 

Furthermore, while Magufuli’s hands-on approach is effective, such individual attention is unsustainable and the president will need to entrust much of the groundwork to appointed officials within appropriate and strong institutions. Replacing top officials may lead to restoring sound practices from above, however, combating institutionalized corruption at lower levels, spurred on by low wages and lax accountability measure will require more long term restructuring, the fruits of which will not be immediately apparent. Slow-delivery on campaign promises could leave Magufuli facing some tough criticism amid high public expectations difficult to shake for a second term. Yet, only in his fourth month in office, Magufuli remains very popular. This coupled with a Tanzanian precedent for two-term presidents, may give the incumbent the requisite time to deliver.