World Bank warns Tanzania against hurting investor sentiment

09Nov 2017
The Guardian
World Bank warns Tanzania against hurting investor sentiment

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

President John Magufuli with the head of the World Bank, Dr Jim Yong Kim. In a new report released early this week, the global lender says that the national economy is currently facing two important and related challenges, which are under-execution of the national budget and the decline in private sector sentiment. File photo

“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 the November Tanzania Economic 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 President John Magufuli to modernise the state, there is tacit warning that recent legislative changes will do harm.

Three pieces of legislation, ratified in Parliament in short order during July, have given Magufuli’s administration the right to take a free-carried 16 per cent stake in mining companies in compensation for previously unpaid taxes, and the option of buying up to a 50 per cent threshold. Royalties on revenue have also been jacked up to six per cent from four per cent previously, while a one per cent 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 per cent shareholder, Barrick Gold, has felt compelled to agree a ‘framework agreement’ with Tanzania in which it will part with a 16 per cent stake in Acacia and have it pay US$300m as an act of goodwill ahead of settling the unpaid taxes. Acacia shareholders have to approve the agreement first, however.

Tanzania’s economic growth has softened, with the rate declining to 6.8 per cent in the first half of 2017, compared to the figure of 7.7 per cent 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.

Meanwhile, YPO, the premier leadership organisation for chief executives in the world, has reported that the YPO Global Pulse Confidence Index for Africa edged up 1.2 points to 57.5 in the third quarter of 2017 (3Q 2017).

Economic sentiment among business leaders in Africa is at its highest level since April 2015, however, it remains the second least-confident region in the world. This slight improvement in sentiment was largely driven by a surge in confidence in South Africa, which has the highest weighting in the region, from 54.7 to 60.4.

Other nations also reported more positive outlooks. Nigeria climbed 3.6 points to 60.5, continuing a remarkable two-year rebound, from a low of 30.7 in 2015, when global oil prices hit rock bottom, and Zimbabwe edged up 1.9 points to 58.1, its highest level since July 2013. However, confidence across East Africa waned, sliding into negative territory.

“There are signs that economic conditions are improving in several of the region’s major economies, with the International Monetary Fund showing cautious optimism about growth in Sub-Saharan Africa over the next two years,” said YPO member Mary Bomela, CEO of the Mineworkers Investment Company.

“However, there is still a significant amount of concern around factors such as political volatility, and delays in infrastructure spend and policy reform, as well as uncertainty about the direction of the global economy. Chief executives will continue to be cautious in their decision-making and will try to avoid taking on unnecessary risk as we move towards 2018.”

Key findings in Africa

Almost half (49 per cent) of business leaders in Africa reported that business and economic conditions had deteriorated in the previous six months, while only a quarter (28 per cent) felt that the economic climate had improved.

Looking forward to the next six months, it was a slightly more optimistic picture as 38 per cent of respondents predicted the economic climate would improve, compared with only 27 per cent who expected it to get worse and 35 per cent who felt there would be little or no change.

Looking out 12 months, it was a mixed picture in Africa when it came to movements in the three key indicators of the YPO Global Pulse Index, which track sales, employment and fixed investment.

The YPO Sales Confidence Index for Africa dropped 2.1 points to 65.5. However, most respondents expressed confidence about their organisations’ sales prospects. Almost two-thirds (64 per cent) of leaders predicted revenue growth, while only eight per cent expected turnover to shrink.

Employment confidence jumped 4.0 points to 56.2, with one-third (31 per cent) of respondents expecting to increase headcount, versus six per cent who expected to cut staff numbers. The majority (63 per cent) expected the size of their workforce to stay flat. This is a more positive outlook than the previous quarter, when only 22 per cent predicted increased headcount and eight per cent expected to reduce staff numbers.

The outlook for fixed investment in Africa was almost unchanged, inching up 0.2 point to 59.4. Almost half (45 per cent) of business leaders expected to increase spend in the next year, while 48 per cent believed that investment levels will stay flat, and seven per cent expected to cut investment levels.

Global review

Globally, confidence remained steady at 62.4, now firmly in positive territory for four consecutive surveys, hovering between of 62.0 and 62.5. The United States is the most confident region at 63.5, Canadian confidence also remained positive, declining marginally by 1.1 points to 61.8, and Australasia saw a 3.7-point decline to 63.3.

In Europe, the mood remained upbeat, as the European Union (EU) slipped slightly by 1.2 points to 61.8, and non-EU Europe edged down 1.7 points to 58.6. In Asia, confidence rose 1.3 points to 62.8, driven by an 8.8-point leap in China and improved confidence in the Association of Southeast Asian Nations (ASEAN).

Elsewhere, confidence in Latin America jumped 2.8 points to 62.0, largely driven by Brazil’s 8-point hike in confidence. In the Middle East and North Africa (MENA) region, confidence increased 2.5 points to 53.2, yet it remains the least-confident region in the world.

 

Top Stories