Tanzania

Country Summary

Macroeconomic performance

Real GDP growth was estimated at 6.8% in 2019, down slightly from 7% in 2018. A markedly diversified economy, characterized by robust private consumption, substantial public spending, strong investment growth, and an upturn in exports underpinned the positive outlook. Tourism, mining, services, construction, agriculture, and manufacturing are notable sectors. Growth is projected to be broadly stable at 6.4% in 2020 and 6.6% in 2021, subject to favorable weather, prudent fiscal management, mitigation of financial sector vulnerabilities, and implementation of reforms to improve the business environment.

Inflation fell to an estimated 3.3% in 2019 from 3.6% in 2018 due to an improved food supply. The Tanzanian shilling was fairly stable in 2019, exchanging at an average of 2,290 to the dollar, compared with 2,263 in 2018. The fiscal deficit, financed mainly by concessional external debt, stood at 2.0% of GDP in 2019, up from 1.3% in 2018, and is projected to stabilize at 1.9% in 2020 and 2.2% in 2021. External public debt—63% of it concessional—constituted 70.4% of total public debt in 2019. The current account deficit slightly widened to 3.4% of GDP in 2019 from 3.3% in 2018.

Tailwinds and headwinds

Sustained political stability, strategic geographical location, diversified economy with abundant natural resources, and strong record of economic gover- nance point to a positive medium-term outlook that will see progress toward long-term development goals. Public financial management scores have consistently remained above 4 (of 6) since 2013, according to the Country Policy and Institutional Assessment.

The current administration’s ambitious development agenda focuses on creating a better business envi- ronment through improved infrastructure, access to financing, and education progress. It seeks to capitalize on previously underexploited strengths and oppor- tunities. The government prioritizes efforts improving public administration, and managing public resources for improved social outcomes—all geared to restoring public confidence in the state as it implements the Tanzania National Vision 2025.

Early signs of slow but steady structural transformation in key sectors include the continued shift of labor from agriculture to services, and even to industry. Employment in agriculture declined from 71.4% of total employment in 2008 to 66.3% in 2018, while employ- ment in industry increased to 7.1% from 5.7% and employment in services to 26.6% from 22.9%.

Key challenges in the medium and long term include low total factor productivity growth, a substantial infrastructure deficit, considerable poverty, and a skill mismatch in the labor market.

Factor productivity is generally low, particularly in agriculture, where its growth averaged only 0.4% between 2015 and 2017. Tanzania lacks access to the development finance required to bridge the enormous infrastructure gap that comes with its size.

Poverty, inequality, and youth unemployment persist despite recent robust growth. Poverty declined, but at a slower pace of 6.4% between 2012 and 2018 than the 18.0% between 2007 and 2012. Youth unemploy- ment increased from 5.7% in 2012 to 7.3% in 2016. In addition, enrollment in secondary education for young people ages 15–24 declined from 30.0% to 24.7%, calling into question the availability of skills for the job market.

Government policy improving the business and investment climate remains a work in progress, partic- ularly in tax policy and administration, access to affordable finance, and government processes. The 2019 Global Competitiveness Report pointed to some key improvements in ICT adoption, macroeconomic stabil- ity, financial system, and business dynamism.

Health sector preparedness

The 2019 Global Health Security Index ranked Tanzania 101 among 195 countries in health system security and capabilities, with a score of 36.4 of 100, compared with the global average of 40.2. The government has developed a $100 million COVID–19 containment plan, and resource mobilization is underway.

Policy responses

Tanzania has implemented several containment measures, including suspending international passenger flights, clos- ing schools, restricting public gatherings, and imposing mandatory 14-day quarantines for incoming travelers. But the government never instituted lockdowns in any parts of the country and has even allowed gatherings in certain venues to continue normally.

Going forward, several complementary policy mea- sures would be necessary to build resilience. The govern- ment is implementing a monetary stimulus through reduc- tions in the minimum reserve requirement from 7% to 6% and in the central bank discount rate from 7% to 5%. In addition, a loan repayment moratorium was put in place for borrowers experiencing financial difficulties. However, a fiscal stimulus package will also be necessary and could include reductions in tax rates to increase disposable income and protect businesses. Fiscal consolidation with a focus on expenditure rationalization will preserve macro- economic stability. Strengthening public health system preparedness in the short term—and improving healthcare infrastructure in the long term through hiring more health workers, investing in modern laboratories, and expanding hospital bed capacity—remain critical.

Source: African Economic Outlook 2020

Fixed Income

Summary

  • The government securities yield curve extended to 15 years. 
  • The issuance strategy aims to meet government financing requirements, enhance market development and development financing. 
  • Tanzania is 14th in the ABMDI 2017 Ranking Report. 

Issuance strategy 

Issuance strategy in place: to meet government financing requirements, market development and development financing. Objective: increasing the proportion of domestic debt vs. foreign debt; smoothening the government debt profile, widening the investor base, and sustainable debt issuance. 

Benchmark issues 

Although building a yield curve is a consideration for issuance and a REPO market is in place, there are no clear benchmark maturities. The Bank of Tanzania does not reopen bonds. Each issuance is a new issue using the auction method. There is no benchmark yield curve in Tanzania. 

Yield curve 

There is no yield curve in Tanzania currently, although the government issuance strategy includes plans to build a benchmark yield curve. 

Challenges in building an efficient yield curve 

  • Market fragmentation: this is due to the existing small bond issues in the market. 
  • Narrow investor base: Tanzania has partially liberalized the capital account to East African Community (EAC) residents under conditions that have limited the participation of even those EAC residents. The market is dominated by local investors. The absence of foreign investors has limited performance on the secondary market. 
  • Limited and illiquid secondary market: 
  • Pension fund holdings of government securities account for over 40% of outstanding government bonds. These are not made available for sale. 
  • The absence of a horizontal repo market has made government bonds even more illiquid. 
  • The inadequate volume of instruments in the market has led investors to hold on to their securities until maturity. 
  • Lack of transparency: lack of intermediaries giving two-way quotes has limited pricing and transparency in the secondary market. However, all trades in the secondary market have to be reported to the Stock Exchange. 
  • Lack of legal and regulatory framework: absence of legal and regulatory framework supporting both OTC and Exchange trading of bonds   

Guide to Buying Bonds

Procedures for market participation

All Tanzanian residents can participate in the purchase of government securities. They can do so by either bidding directly (primary market) or by contacting a Primary Dealer (secondary market).

Taxation

Tax incentives for investors in listed securities in Tanzanian capital markets and designed to promote activities in the DSE market are:

  • An exemption from stamp duty on secondary market trades.
  • An exemption from the 10% capital gain tax on reselling listed securities
  • A reduction from 10 to 5% of the withholding interest income on listed securities.

Tax incentives for issuers are listed in the Capital Markets Authority website.

Securities longer than 3 years (5-, 7- and 10-year) are exempt from tax. All participants exempt from paying withholding tax must provide tax exemption certificates from the Tanzania Revenue Authority (TRA) to the BoT.

Treasury bills are redeemed by the BoT free of tax.

Settlement cycle

The settlement cycle for bonds is T+1.

Market restrictions

Openness to international investors

On September 2014, Tanzania Capital Markets Authority authorized the participation of foreign investors in local capital markets; they are now allowed to purchase up to 40% of risk-free securities and 60% in equities.

Capital controls 

Substantial FX remittances require documentary evidence and the capital account remains subject to exchange controls.

Foreign Exchange restrictions and profit repatriation

The FX market is readily accessible. Under the current exchange control environment, commercial banks are expected to ensure that all relevant documentation is obtained in support of a foreign exchange transaction. However, convertibility on the capital account remains restricted.

Credit rating

Tanzanian government securities were last rated in 2011; Fitch, Moody’s and S&P gave a rating of B to Tanzania’s creditworthiness; no further rating was issued thereafter. In September 2015, Tanzanian authorities started negotiations with Fitch for a sovereign credit rating in preparation of a Eurobond issuance.

List of Primary Dealers

The list of Primary Dealers (PDs) is provided by the BoT and is subject to change. Currently the PDs are:

1.  Akiba Commercial Bank Ltd.

2.   Citibank Tanzania Ltd.

3.  CRDB Bank Ltd.

4.  Diamond Trust Bank Tanzania Ltd.

5.   Eurafrican Bank Tanzania Ltd.

6.  Exim Bank Tanzania Ltd.

7.   Habidd African Bank Ltd.

8.  International Commercial Bank Ltd.

9.  Kenya Commercial Bank Tanzania Ltd.

10. National Bank of Commerce (NBC) - Tanzania Limited

11. National Microfinance Bank (NMB) Ltd.

12. Stanbic Bank Tanzania Ltd.

13. Standard Chartered Bank Ltd.

14. Orbit Securities Co.Ltd.

15. Rasilimali Limited.

16. Solooni Securities ltd.

17. Core Securities Ltd.

18. Tanzania Securities Ltd.

19. Vertex International Securities Ltd.

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