Hopes, fears for Tanzania’s industrialization targets

Dar es Salaam. While some critics have expressed doubts whether Tanzania is really likely to achieve its goal of semi-industrialising its economy come 2025 due to the slow pace of the process, the government has allayed the fears - arguing that the country has all it takes to realise the goal.

Industry players say the slow speed in addressing the challenges the sector is grappling with, and too much reliance on foreign direct investments (FDIs), were slowing down the speed of industrialisation.

The impediments, according to them, include delayed refunds of the Value Added Tax (VAT) and 15 percent additional import duty on industrial sugar, as well as delays in the issuance of work permits and electronic tax stamp (ETS) costs.

Others are lack of predictability of policies; lack of incentives designed to attract assemblers and vehicle manufacturers to produce assembly kits, and multi- agency inspections and fees.

The list also includes, abrupt power cuts and double role of the Tanzania Shipping Agencies Corporation (Tasac) which plays as both shipping agency and regulator.

But Industry and Trade deputy minister Exaud Kigahe allayed the fears over the matter, saying with the government’s massive initiatives towards improving business environment, Tanzania will attain the semi-industrialised status by 2025 as planned.

“I take all the challenges you have raised and will share with the respective authorities to see how we can address them. It is our desire to build the export-led economy,” Mr Kigahe told manufacturers who gathered for a meeting last week.

He dismissed the claims that the country was relying largely on FDIs, saying: “We have a number of local investors in the manufacturing sector.”

The concerns over the sector’s unpromising performance was raised a few days ago during the Confederation of Tanzania Industries (CTI) breakfast meeting and an awareness dialogue on the economic performance of the Southern Africa Development Community (Sadc) states.

Some discussants said Tanzania was unlikely to attain the status of semi-industrialised country it envisaged for 2025.

Kioo Limited financial controller Dipen Patel cried foul over delays in repayment of VAT refunds, saying it was eating into their operating capital so did discourage them.

“We are frustrated by delays because it is costly,” said Mr Patel, asking: “With this trend, how can we develop, become competitive and encourage exports-led economy?”

“I know things are working. But how fast?”

CTI executive director Leodegar Tenga called on the government to hasten the repayments of 15 additional import duty on industrial sugar, saying delays are straining cash flow and tying up working capital.

Initially, importers of industrial sugar were being charged 10 per cent duty but the government through the 2015/16 budget raised it to 25 per cent.

They were promised of refunds as soon as the government was convinced that the sugar was indeed imported for industrial production and not otherwise.

According to CTI, outstanding VAT and additional import duty stood at over 79.9 billion and over Sh50 billion respectively over the last three years.

Going by the CTI 2018 study on the performance of the country’s industries, many manufacturers were facing a serious cash-flow problem arising from huge outstanding tax claims or refunds from the Tanzania Revenue Authority (TRA).

“The growth of the manufacturing sector and its contribution to the economy (gross domestic product: GDP) is lower than we expected,” said Mr Tenga.

“If we are to really push industrialisation, the government needs to address the bottlenecks that we are facing.”

In doing so, he added, manufacturers would be able to become competitive enough to compete in the East African Community (EAC) and Southern African Development Community (Sadc)’ markets, as well as the African Continental Free Trade Area (AfCFTA).

Prof Mohamed Bakari of the University of Dar es Salaam seemed to have been reading from the same script, saying despite a host of strategies, the contribution of the industrial sector to GDP remains low.

“The contribution of manufacturing must reach a maximum of 40 per cent of the GDP. This seems to be too ambitious,” he noted.

Official data shows that manufactured goods exports accounted for $985 million or 10 percent of the total value of Tanzania’s exports in 2019 compared to $1.4 billion in 2015, marking a decrease of 30 percent.

Prof Bakari warned that heavy reliance on FDIs for mega industrial projects was a drawback because “FDIs have their priorities”.

Lately, the multinationals behind large investments in the developing countries have their preferences in the extractive sector.

On the question of permits, despite an improvement in the issuance of the permits to expatriates, CTI members, called for expedition of the process.

G&B Soap Industries chief executive officer Godliving Makundi said the question of permits was very serious and that investors were frustrated by delays in the issuance.

“It is natural that we traders are after profit and we would wish to use local experts to minimize costs,” said Mr Makundi.

“We all understand that hiring expatriates is costly, so if we request for the permit you need to understand us that we don’t have any other best alternative.”

Mr Sailesh Pandit - who is the director of Lodhia Group of Companies, which deals with production of steel and plastic products - was speaking the same language, noting that delays were not healthy for the development of the industry.

Mtwara-based Ndanda Springs Limited general manager Mwang’ini Madenge lamented about ETS charges which stood at Sh108 per carton of water, saying they were eating into their current low profit margin.

“Our profit per carton is about Sh200. With additional Sh108 in operational costs, our profit will be adversely affected,” worried Mr Madenge.

“Businesses are dying a slow death.”

Referring to stopping the use of shrink wrap on their multipacks and replacing them with alternative environment-friendly packages like box, beverage manufacturers lamented about policy unpredictability.

Coca-Cola public affairs, communications and sustainability director Salum Nassor called for at least a year before shifting to a new packaging system.

The government has given beverage makers until early next month to either stop using shrink wrap or put their logo on them so that the owners could easily be traced by authorities and get fined.

“We need time. Changing the packaging system is something that needs massive investment,” said Mr Nassoro.

“The actual investment which is not budgeted for is costly.”

On the question of the logo, beverage producers said it was not a good option because it reduces recyclability due to a decreased value.

GF Vehicle Assemblers general manager Ezra Mereng called for incentives to promote the production of assembly kits like exhaust pipes and silencers, seat frames, seat upholstery, radiators, U-bolts and U-bolt nuts and batteries.

He was speaking about how Tanzania will be adversely impacted by the East African Community (EAC) Assembly Framework - a proposal to start taxing imports of assembly kits that are already manufactured locally.

“If regulations go through, the directive to us as the assemblers and vehicle manufacturers would be to pay taxes when we import these items because it will be assumed they can be manufactured locally,” said Mr Mereng.

“As it is, the Tanzanian assemblers will be at the disadvantage compared to other countries like Kenya which manufacture the items locally.”

CTI trade policy specialist Frank Dafa said manufacturers were also complaining about multi-regulatory agencies and fees as well as abrupt power cuts, saying they were adding to their operational costs.

About Tasac, Keds Tanzania Company project manager Diamond Wang said Tasac was not that quick in facilitating vessel berthing for the owners to unload their goods.

“This increases our operational costs and so does the price of the final product,” noted Mr Wang.

But responding to the issue, Tasac director general Emmanuel Ndomba said there was not a single case of delay that was submitted to his office.

“If all documents and procedures are intact, it takes us as a shipping agency less than 24 hours to issue a delivery order to an importer,” said Mr Ndomba.