Samia’s key role in Tanzania’s new positive outlook

President Samia Suluhu Hassan. PHOTO | COURTESY

What you need to know:

  • The American firm Moody's Investors Service has changed Tanzania outlook from stable to positive, saying political risks have lessened under the government's new approach to promoting economic development and engagement with the international community

Dar es Salaam. President Samia Suluhu Hassan’s pro-business approach is sending positive signals across the globe, with Moody’s Investors Service changing Tanzania’s outlook from stable to positive.

“The outlook change to positive reflects Moody’s view that political risks have lessened under the government’s new approach to promoting economic development and engagement with the international community,” Moody’s says in its latest change on Tanzania’s rating which was published last Friday.

Ratings such as those for Moody’s are used by investors globally in deciding on where and why they should invest their money in any particular economy.

Since coming into office on March 19, 2021, President Hassan has effectively managed to distinguish her leadership style from that of her predecessor.

President Hassan took over at a time when relations between the government and some investors were somewhat hostile. Some laws on natural resources that were approved in 2017 were largely viewed by some foreign investors as hostile towards foreign investment.

The sentiment then was that the country was excessively regulating foreign investors, and that Tanzania’s business climate had abruptly become unpredictable.

Having slapped a tax bill of an inconceivable $190 billion on a mining company in 2017, the thinking and belief was that the government was simply getting tough with foreign investors, and that it was adopting indigenisation principles and raising tax rates.

As a result, despite promoting industrialisation, a report by the United Nations Conference on Trade and Development (UNCTAD) shows that inflows of foreign direct investment (FDI) decreased by 24 percent between 2015 and 2017.

With amendments to the Statistics Act, collection, analysis and dissemination of data was centralised and one would only have to do so after seeking the approval of the National Bureau of Statistics.

In 2019, relations between the government and the International Monetary Fund (IMF) soured when the latter criticised the former for its unpredictable economic policies and unreliable statistics.

The IMF report that warned Tanzania of unpredictable and interventionist policies that worsen the investment climate and could lead to meagre [or even negative] growth, was blocked from being published in the country.

But almost 18 months since the change of guard at State House, Moody’s says the government’s efforts to improve the business and investment climate and attract FDI, most notably in the mining and hydrocarbon industries, offers the prospect for higher potential growth and improving international competitiveness.

“Tanzania’s re-engagement with the IMF also has the potential to support higher government revenue generation capacity and unlock greater concessional financing from development partners, supporting debt affordability and increased social spending,” Moody’s says.

It says that such indications that lower political risk may improve the country’s economic and financial environment support Tanzania’s capacity to face the implications of the global shocks following the Ukraine war.

It says in the past, policy uncertainty was most notably impacting investment in the mining sector until a protracted dispute was finally settled in late 2020 and an export ban was lifted.

“After assuming power in 2021, the new presidential administration began actively courting international investors and nascent signs of improving investor sentiment towards Tanzania have since emerged, including several investments in the mining sector and renewed momentum behind the long-delayed energy projects,” Moody’s says.

Sustained foreign investment in export sectors would increase growth potential in Tanzania.

Moody’s adds that the government’s structural reform agenda offers the prospect of delivering lasting improvements to Tanzania’s institutional framework and supporting private sector growth.

“Initial steps to improve the business and investment climate include relaxing regulations for foreign work permits, streamlining VAT refunds, and tabling legislation that supports local businesses,” Moody’s notes.

Ongoing efforts to improve the regulatory environment, reduce non-tariff barriers and improve the quality of national statistics offers the prospect of delivering sustained increases to potential growth, says Moody’s.

Government officials and some analysts say the government has indeed managed to effectively tell the world that Tanzania was open for investments and that its policies were predictable.

“This change is a clear indication that the government’s efforts to create an enabling business environment were being noticed….This will instill confidence to investors that their money will be safe when they invest in Tanzania,” said the deputy minister for Investment, Industry and Trade, Mr Exaud Kigahe.

He said the government will keep on creating a friendly-business and investment climate to convince investors that investing in Tanzania could make them be sure of their tomorrow.

An economist from Mzumbe University, Dr Daud Ndaki echoed similar sentiments, noting that the sixth phase government has achieved a remarkable milestone in building investors’ confidence. “This is a positive development. With this positive outlook, we are likely to attract more investors,” said Dr Ndaki.

In its rating, Moody’s also affirmed B2 ratings for Tanzania. This, Moody’s says, reflects Tanzania’s low GDP per capita and institutional weakness, which undermine fiscal strength, notwithstanding its high growth potential and relatively diversified economy.