VZCZCXRO3802
PP RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHDR #0950/01 1861436
ZNR UUUUU ZZH
P 051436Z JUL 07
FM AMEMBASSY DAR ES SALAAM
TO RUEHC/SECSTATE WASHDC PRIORITY 6414
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE PRIORITY
RUEHDS/AMEMBASSY ADDIS ABABA PRIORITY 3221
RUEHJB/AMEMBASSY BUJUMBURA PRIORITY 2560
RUEHKM/AMEMBASSY KAMPALA PRIORITY 3039
RUEHLGB/AMEMBASSY KIGALI PRIORITY 0988
RUEHNR/AMEMBASSY NAIROBI PRIORITY 0704

UNCLAS SECTION 01 OF 03 DAR ES SALAAM 000950 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPT AF/EPS FOR THASTINGS, AF/E FOR BYODER 
ALSO FOR EB 
COMMERCE FOR ITA 
DEPT PASS TO USTR FOR WJACKSON 
ADDIS ABABA FOR AU MISSION 
 
E.O. 12958: N/A 
TAGS: ECON EAID FINE EINV ENRG PREL AA TZ
SUBJECT: UPDATE ON TANZANIAN ECONOMY:  SHORT-TERM GROWTH 
MUST CONTINUE LONG-TERM 
 
SUMMARY 
------- 
¶1. (U)  Tanzania's economy grew by 6.2 percent in 2006 
despite drought-like conditions and a prolonged energy 
shortage, according to second quarter Government of Tanzania 
(GOT) and International Monetary Fund (IMF) reports.  Exports 
continue to rise with minerals the leading growth sector. 
The country's import bill was higher however, partially from 
the need to import more food due to the drought and higher 
world oil prices.  The Tanzanian Revenue Authority surpassed 
its revenue targets through a successful reform program that 
closed important tax loopholes.  However, inflation was 
considerably above the 4.0 percent target set three years 
ago, reaching a monthly average of 5.7 percent in the GOT 
fiscal year (July 1 to June 30).  While the GOT is predicting 
a 7 plus percent Gross Domestic Product (GDP) growth rate in 
2007, 2008 and 2009, both the IMF and senior Government of 
Tanzania officials realize that there needs to be more focus 
on the rate of population growth which continues to rise and 
could negatively impact any gains the economy might make. 
End Summary. 
 
Economic Growth Holding Steady 
----------------------------------- 
¶2. (U)  On June 12, in preparation for her budget 
presentation to the Parliament, the Minister of Finance, Ms. 
Zakia Meghji, discussed the state of the Tanzanian economy. 
Meghii noted that the final calendar year 2006 figures show 
Tanzania,s Gross Domestic Product (GDP) to have grown by 6.2 
percent, slightly above the predicted growth rate of 5.9 
percent.  Meghji stated: "Were it not for drought conditions 
and the power crisis that hit the country in early 2006, the 
economy would have performed much better."  The 2006 growth 
rate of 6.2 percent followed three years of strong economic 
progress for Tanzania:  in 2005, 6.8 percent; in 2004, 6.7 
percent; and in 2003, 5.7 percent.  Minister Meghji said that 
guidelines for the 2007/08 budget now under discussion in the 
Union Parliament, predict Tanzania's GDP growth rate at: 7.3 
percent in 2007; 7.7 percent in 2008; and 7.9 percent in 2009. 
 
IMF Concurs 
----------- 
¶3. (U)  In a mid-May briefing to diplomats and multilateral 
heads, Robert Sharer, Assistant Director in the African 
Department of the International Monetary Fund (IMF), said 
that IMF is in agreement with this prediction.  Sharer noted 
the economy of Tanzania is "going very well indeed," although 
it remains fragile.  Despite continued economic growth, 
Tanzania is a "very poor country and will remain so for the 
next 20 to 25 years," concluded Sharer.  Sharer has visited 
Tanzania three times per year for the last four years and 
shared IMF's assessment of recent economic developments and 
the policies needed to sustain Tanzania's policy reforms. 
 
¶4. (U)  Sharer said that the IMF predicts Tanzania's GDP will 
grow by more than 7 percent in 2007: "Good for any standard 
in the world," Sharer noted.  The UN Economic Commission for 
Africa has predicted an average 5.8 percent growth throughout 
Africa in 2007.  However in Sharer's view, making gains to 
fight poverty in the short-term (two-to-three years) is 
unrealistic since factoring in a two-percent population 
growth rate makes the GNP-per-captia growth only 3.3 percent 
per year.  Sharer said there is a growing sense of concern 
within the Government of Tanzania (GOT) about population 
growth, observing that President Kikwete had commented 
earlier in May that the GOT "needs to get serious" about 
population growth and natural resource management. 
 
¶5. (U)  In February 2007, the Executive Board of the IMF had 
reviewed Tanzania's macroeconomic framework, noting the areas 
where solid gains had been made and encouraging sustained and 
sound economic policies.  At that time, Murila Portugal, the 
IMF Deputy Managing Director, stated that "Tanzania has 
achieved a sustained strong economic performance through 
market-oriented policies within an appropriate macroeconomic 
framework."   His remarks were made at the conclusion of the 
final review of Tanzania's economic performance under a 
three-year Poverty Reduction and Growth Facility (PRGF) 
arrangement.  The review enabled an additional release of USD 
 
DAR ES SAL 00000950  002 OF 003 
 
 
4.2 million, bringing the total disbursement under the PRGF 
arrangement to USD 29.4 million. 
 
Key Sectors are Growing 
----------------------- 
¶6. (U)  A June 4 GOT Ministry of Economy, Planning and 
Empowerment report stated that Tanzania,s exports of goods 
and services in 2006 was USD 3.13 billion up from USD 2.95 
billion in 2005.  Growth in exports was led in 2006 by the 
mineral sector, with a 16.4 percent increase to USD 824.7 
million, up from USD 665.6 million in 2005.  Tourism and port 
services were also important factors in this growth, with the 
export of manufactured goods increasing significantly as 
well.  Tanzania,s import bill was USD 3.9 billion, up from 
USD 3.01 billion in 2005, approximately a 28.9 percent 
increase.  As a result, Tanzania's current account deficit 
increased to 9.3 percent of GDP in 2005/06 as compared to 5.3 
percent of GDP in 2004/05.  According to a GOT Treasury 
report released on June 11: "The projected moderate increase 
in the current account deficit is expected to be covered by 
higher external assistance in the form of grants and 
concessionary loans, as well a continued increased in Foreign 
Direct Investment (FDI)." 
 
¶7. (U)  According to the Treasury report, key export sector 
growth areas include:  mineral exports representing 47.8 
percent of export earnings; industrial products, 11.4 
percent; fish and fish products, 8 percent; tobacco, 3.8 
percent; coffee, 3.6 percent; and cotton, 3.2 percent. 
Tanzania,s export of goods and services are expected to grow 
by an average of 10 percent per year over the next three 
years.  During the same period, imports are expected to grow 
by 12 percent.  The import bill will rise due to investments 
needed in the energy sector and projected higher world market 
oil prices. 
 
¶8. (SBU)  Andrew McAlister, the Canadian High Commissioner to 
Tanzania, noted during Sharer's IMF briefing that growth in 
the banking sector had been impressive in 2006, but still 
only 8 percent of Tanzanians have bank accounts.  McAlister 
also highlighted the "huge revenue losses" associated with 
illegal timber trafficking and issuance of wildlife hunting 
licenses.  Sharer agreed that the allocation of many hunting 
blocks is done in secret, but added that hunting block fees 
would be included in a government study of all revenues other 
than taxes, the terms of reference for which are being 
finalized. 
 
¶9. (SBU) All briefing participants agreed that the 
transparency of the Bank of Tanzania's (BOT) accounts are key 
as all of the formal economy flows through the Central Bank 
accounts.  Sharer said the IMF insisted that an international 
firm audit the BOT and that the terms of reference for this 
audit include every transaction. 
 
Tax Revenue Collection Up 
------------------------- 
¶10. (U) Despite the moderate slow-down in the GDP economic 
growth rate in 2006, the Tanzanian Revenue Authority was able 
to surpass its domestic revenue collection target of 14.5 
percent of the GDP during the 2006/07 fiscal year.  According 
to the Ministry of Finance, the increase reflects "continued 
tax and customs administration reforms and policy measures 
announced one year ago, in the course of the 2006 budget 
deliberations in the Parliament."  Sharer praised the TRA 
calling its reform "by far the most effective, well-organized 
and well-executed reform of a tax administration."  Through 
the TRA's reform efforts, tax revenues went from 11 percent 
of the GDP last year to 16 percent in 2006/07, well-above its 
budgeted performance target (14.5 percent).  This increase 
was attributed to closing existing loopholes rather a hike in 
the tax rates.  Provisional Treasury figures showed that by 
June 30, last day of the GOT fiscal year, revenue collections 
should reach 2.55 Tz shillings (approx. USD 20.3 billion) as 
compared to the target of 2.46 trillion Tz shillings (approx. 
USD 19.60 billion). 
 
...But Inflation on the Rise as Well 
------------------------------------ 
 
DAR ES SAL 00000950  003 OF 003 
 
 
¶11. (U) The Minister of Planning, Economy and Empowerment, 
June Ngasongwa announced on June 8 that the average inflation 
rate in fiscal year 2006/07 was well above the target of 4 
percent that had been set in 2004.  Over the last eleven 
months, the inflation rate averaged over 5.7 percent per 
month.  Drought, which affected both food supplies and energy 
production, coupled with escalating crude oil prices, 
adversely affected the GOT,s efforts to curb inflation, 
according to Minister Ngasongwa.  He noted that prices began 
to decline in the first quarter of 2007, especially the price 
of food items such as potatoes, bananas, beef, beans and 
groundnuts.  In addition, the Bank of Tanzania's May 2007 
monthly report showed that the country's Strategic Grain 
Reserve (SGR) reached 125,509 metric tons in April 2007.  One 
year previously, April 2006, there were only 6,210 metric 
tons in the SGR, during the height of the drought-related 
food shortage that was felt severely throughout most of the 
country.  The GOT has revised the target inflation rate for 
the next twelve months (FY2007/08) to an average of 4.5 
percent. 
 
Constraints 
----------- 
¶12. (U)  While IMF's Robert Sharer believed the GOT is 
serious about economic objectives, the government continues 
to experience capacity constraints and thus, progress is 
"slower than desired."  In his view, despite experiencing the 
2006 drought and energy shortage, Tanzania is still moving in 
the right direction.  However, Sharer recognized that the GOT 
continues to face serious problems, including linking public 
expenditures to government policy objectives, undisbursed 
public funds, and weak internal communications between GOT 
agencies and other entities. 
 
Doing Business in Tanzania 
-------------------------- 
¶13. (U)  Doing business in Tanzania continued to be 
challenging with high costs for labor, electricity and water. 
 Jonathan Njau, Chief Executive Officer of the Dar es Salaam 
Stock Exchange, recently encouraged companies to go public, 
noting the tax incentives that become available. 
Publicly-listed companies pay 25 percent corporate tax 
instead of 30 percent and a 5 percent tax on dividends rather 
than 10 percent.  While no Tanzanian company was ranked as 
one of Africa's Top 200 Companies in African Business 2006 
survey, and only three Tanzanian companies ranked in the top 
50 in East Africa, Njau noted that all three were firms that 
had gone public. 
 
Comment 
------- 
¶14. (SBU) The cautious optimism for Tanzania's economy must 
be tempered by patience, as progress remains slow.  There is 
no silver bullet for economic growth or reform.  For example, 
in April 2007 the World Bank praised Tanzania for being one 
of the ten countries that made the most significant reforms 
among the indicators monitored by its "Doing Business 
Report."  However, even after taking commendable reforming 
strides, Tanzania ranked only 142 out of 175 world economies 
in the "ease of doing business."  Commitment to economic 
reforms must remain steady, as sustained economic growth of 6 
to 8 percent as well as serious attention to slowing down the 
population growth is needed over a period of years and 
decades in order for Tanzania to alleviate poverty among its 
38 million plus citizens. 
RETZER