Tanzania can do more to boost Sadc trade opportunities

Thursday August 15 2019

A view of the Dar es Salaam Port. Tanzania

A view of the Dar es Salaam Port. Tanzania continued to be a net exporter to other Sadc countries, recording a trade surplus of $445.5 million in 2017, up from $397.2 million in 2016. PHOTO | FILE 

By Miriam Sudi

According to the 2017/18 Bank of Tanzania (BOT)’s Annual Report, Tanzania was the fastest growing economy in SADC with a GDP growth of 7.1 per cent. Tanzania’s total intra-Sadc trade however declined by 3.5 per cent in 2017 as compared to 2016 due to fall in both exports and imports.

Nevertheless, Tanzania continued to be a net exporter to other Sadc countries, recording a trade surplus of $445.5 million in 2017, up from $397.2 million in 2016. Specifically, Tanzania recorded a trade surplus with South Africa, DRC, Malawi, Mozambique, Zimbabwe, Angola and Botswana. Meanwhile, Tanzania recorded a trade deficit with Zambia, Madagascar, Mauritius, Namibia, Swaziland, Seychelles and Lesotho.

Tanzania’s major exports to the Sadc region were gold, cigarettes, wheat flour, juice, ceramic, fish, glass, cement, soap, footwear, and bricks, while major imports, were motor vehicles, maize seeds, gas, iron sheets, lubricants, beer, apples and sugar.

As per the above statistics, Tanzania can leverage on its membership to trade blocks such as Sadc to achieve further economic growth. However, there are a number of issues that will need to be addressed to further grow intra-Sadc trade in not only goods but also services.

Non-tariff barriers (NTBs) remain a challenge - for example, a recent ban on importation of poultry by Tanzania may be perceived as an NTB.

Other challenges include the lack of harmonisation of sanitary and phytosanitary measures for agriculture and livestock, as well as custom delays including processing export/transit permits.

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Sadc with its combined population of close to 350m people, and with nil/low tariffs on intra-Sadc trade, offers a big market for goods originating from the partner states but so long as these meet the rules of origin criteria.

In particular, goods are said to originate from the partner states if (i) wholly produced in Sadc member state or (ii) have undergone sufficient working or process in a Sadc member state using non-originating materials.

To take full advantage on the second criteria Tanzania will need to increase value addition to its products something that the current industrialisation strategy should facilitate.

Any investor whose business is primarily focussed on exports will then be in a continuous VAT refund position as exports are “zero-rated” for VAT purposes and so input tax incurred will result in VAT credits. In this regard, a major challenge for exporters is timely payment of VAT refunds; in particular, if these are not made on a timely basis then the business may become uncompetitive and so the investor may prefer to focus on the domestic market, or if still wishing to sell to other Sadc markets then to invest in production capacity elsewhere in a Sadc country without the same constraint on timely refunds.

According to the BoT report, transport and storage are among the major drivers for the Tanzanian economy.

Whilst significant volume is already generated from landlocked SADC member states, improvement of transport infrastructure (such as ports, railways and roads) will help further drive this growth.

The services sector is a very important component of GDP in most economies, and whilst the proportion is higher in advanced economies this area is still significant for Tanzania.

In particular, the 2017/18 BOT report shows that service activities contributed about 36 percent of nominal GDP in 2017. However, most of these are locally consumed and consequently there is minimal export of services.

There is a need for Sadc members to consider how to better liberalise trade in cross border services by dealing with regulatory restrictions (for example, in relation to air transport) of tax impediments.

By tax impediments I mean taxes such as withholding taxes - typically charged at relatively high rates by African countries - and that can act as a barrier on free trade in services.

If we have managed to make trade in goods tax free (or with minimal tax) why not do the same with trade in services (namely, apply nil or low withholding taxes on intra-Sadc payments)?

As the saying goes, unity is strength, the role of regional integration in fostering economic growth cannot be undermined. Taking advantage of this unity to grow our industrialization, increase trade and grow our economy is a call we need to make consciously.

Miriam Sudi is Senior Manager - Tax Services. The views expressed do not necessarily represent those of PwC.