World Bank warns Tanzania against hurting investor sentiment

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John Magufuli, President, Tanzania

REGULATORY change in Tanzania has caught the attention of the World Bank which said in a report today that private sector investment was a key ingredient if the East African country is to grow its economy.

“There appears to have been an overall deterioration in business sentiment due to the perceived risks resulting from the unpredictability of policy actions related to the Government’s intensified efforts to collect revenue and to its anticorruption drive, which has delayed payment of Government arrears to suppliers and contractors and VAT refunds,” the World Bank said in a November update.

“If the policy transition in these key areas is prolonged, a further weakening of private sector sentiment could lead to lower levels of private investment and reduced growth, which in turn would impact on future revenue flows,” it added.

Whilst the World Bank also acknowledged some of the positive steps taken by Tanzanian president, John Magufuli, to modernise the state – he is 18 months into a 10-year plan to transform the country into a semi-industrialised economy by 20205 – there is tacit warning that recent legislative changes will do harm.

Three pieces of legislation, ratified in Tanzania’s parliament in short order during July, have given Magufuli’s administration the right to take a free-carried 16% stake in mining companies in compensation for previously unpaid taxes, and the option of buying up to a 50% threshold. Royalties on revenue have also been jacked up to 6% from 4% previously, while a 1% clearing fee on exports has been imposed.

The ban on the concentrate exports of UK-listed Acacia Mining, meanwhile, is premised on two presidential reports that claim the company under-declared the value of the concentrate over a period of years worth tens of billions of dollars in unpaid taxes – a claim the company has dismissed as an economic impossibility.

Nonetheless, Acacia’s 64.9% shareholder, Barrick Gold, has felt compelled to agree a ‘framework agreement’ with Tanzania in which it will part with a 16% stake in Acacia and have it pay $300m as an act of goodwill ahead of settling the unpaid taxes the government alleges. Acacia shareholders have to approve the agreement first, however.

Tanzania’s economic growth has softened, with the rate declining to 6.8% in the first half of 2017, compared to the figure of 7.7% recorded in the same period in 2016, said the World Bank. Still, the Tanzanian economy remains one of the strongest performers in the region.

The World Bank recommends a number of steps if Tanzania is to realise its industrialisation goals including the acceleration in payments in VAT returns which are long overdue.

This would “… increase liquidity and directly improve the cash positions of private sector enterprises by clearing the backlog of VAT refunds,” said the bank. It would also “… implement measures to ensure a faster repayment process and to conduct risk-based auditing. These measures would support business investments, including by exporting reforms,” it added.

9 COMMENTS

    • these propagandas will not do you any good. Tanzania has discovered itself the way multinational play dirt games. This wont end up with the current president! There are many upcoming leaders whether in ruling party of opposition who have exactly same vision…of ensuring fair share of countries resources. its either you change your attitude or you stay to wait and see if Magufuli leaves in 10yeasr for u do start your games again of which im sure you wont succeed. Tanzania has changed and you have to accept and move on buddies!

  1. I dont agree with World Bank here. It seems to me there is one set of rules for western rich countries and another set of rules for the developing world. What Tanzania is doing is what all African countries should have done it ages ago which to fight corruption and charge appropriate tax on its minerals. The reforms in Tanzania are a model to be copied across Africa espeically on minerals since Africa has lost billions if not trillions of dollars on its natural resources. The world bank does not talk about capital flight, which billions of dollars leave Africa without being taxed a game conducted by so called multinational companies under the cover of investment. So i hope Magufuli ignores the IMF and World and press on with deep reforms.

  2. Nyerere tried to do wave and not listen to world Bank eve Imf the result we have seen total closure of of champion industries in early Nyerere days. The problem here we are to much dependant we don’t have market share in our continent and free open Governise in our country all Gold and other goods and Agriculture we depend to these countries which are not in favor of us. Even our infrastructure eg Rail, Roads, Airport Electricity we much depend to these progandaniest countries what are we depend to in politics foghting? work up and let do together to build our nation don’t care how poor we are

    • Well, if you really do not care about how poor ¨we¨ are, there is not much that can be done for you my friend… I somehow think, however, that your coutrymen would not share your enthusiasm in embracing poverty. If they were told the truth, they would back investors making money from resources if they provided jobs. You see my friend, minerals need to be discovered and mines built costing billions of dollars in investment. Governments do not have the capital nor the expertise to do this. Investors will only invest money if they have trust that they will be able to make a profit and keep it. If not, they will not invest in exploration and building mines. The minerals will be left in the ground and the employment will not be created… This is the part that governments do not understand. You can grab mines that already exist, but you cannot grab resources that have not been discovered yet…

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