HIVI NDIVYO JAMAA WANAVYOIONA BONGO YETU... JE! SISI WENYEWE TUNAJITAZAMAJE?
Operational risk: Tanzania
Security risk:
Tanzania has been the subject of a terrorist attack in the past, with the bombing of the US Embassy in 1998 killing 12 people. There has been no major incident since then, however, while the US and all EU embassies have greatly increased security. Crime is a more pressing problem. Most expatriates living in urban areas have responded by signing up with private security companies. Such companies typically connect the household alarm system (and often a panic button) to a control centre, which in turn has contact with rapid response units located on strategic street corners. Some also offer fire and ambulance services (given that the local authority services are so poor). Crime is normally non-violent, however.
Tanzania is one of Africa’s most politically stable countries. This partially reflects the political dominance of the ruling Chama Cha Mapinduzi (CCM) party. After independence the CCM ruled Tanzania as a one-party socialist state, but it has easily remained the overwhelmingly dominant political force since the introduction of multiparty democracy in 1992. On the mainland, opposition parties have complained of official harassment—reflecting the fact that the police tend to be politically partisan—but the semi-autonomous island of Zanzibar is the main source of political violence and instability. Indeed, some governments consider Zanzibar a recruiting ground for terrorists, and the possibility of some sort of terrorist attack on a government institution, probably on the islands, but potentially on the mainland, cannot be discounted.
The government’s ability to implement policy has improved, but there are still long delays in the formulation of policy and between policies being announced and implemented. Dealing with most government ministries and departments is tortuous, but can be speeded up a little by dealing with the Tanzania Investment Centre (TIC), the one-stop shop for foreign investors. The TIC can issue a large number of the required permits and registration certificates, as help in dealing with government departments. Nonetheless, business surveys quoted in the World Bank’s Doing Business 2009 report once again highlight the high level of bureaucracy as a major problem for companies, and there is little likelihood of improvement in the short term. Although there has been some progress in combating corruption, it remains endemic, and bribes are frequently requested by even low-ranking civil servants. Local government can be obstructive and tends to work even more slowly than central government.
Tanzania has an extremely poor judicial system, with cases often held up in courts for years at a time (especially if they go to appeal). For companies, the introduction of a commercial court has speeded the legal process up somewhat, but it is still slow, and the court can deal with only a limited range of cases. Moreover, if there is any appeal against a commercial court ruling the case moves back into the normal judicial system and slows down again. All government regulatory agencies tend to be reactive rather than proactive, often responding to issues in the press rather than initiating their own investigations. They also have extremely limited investigative capacity, and any company which wants to can easily avoid, subvert or bribe its way around existing regulations.
Tanzania’s tax system is not excessively complicated or burdensome, but there are substantial problems with its administration and with corruption. The top rate of income tax is 30%, the same as the corporate tax rate. Most employees pay tax through a Pay As You Earn system. Taxpayers find difficulty in dealing with the Tanzania Revenue Authority (TRA), which collects the majority of taxes, and the Custom and Excise Department, which collects most trade taxes. A special unit established at the TRA to deal with large taxpayers has eased the difficulty for some. However, while investors are offered many incentives within the tax system, the bureaucracy associated with obtaining rebates and the time-consuming nature of the process means that significant amounts of capital can be tied up. Local governments issuing their own levies or taxes on various activities can add to the tax burden. Officially, this practice is no longer permitted, but weak enforcement by the central government allows it to persist.
Difficulties in recruiting skilled labour and building up the productivity of unskilled labour are a major obstacle to investment. The quality of the university and technical education system has declined significantly in the past two decades and no longer produces local graduates of sufficient quality to meet domestic demands, while obtaining work permits for expatriates can be problematic. In the future, the problem should be eased with free movement of labour within the East African Community. HIV/AIDs and malaria lead to high rates of absenteeism, potentially high healthcare costs and low productivity levels. Labour legislation is complex, although not excessively costly. Outside the parastatal sector, the country’s union movement is not particularly strong or active.
Tanzania has a relatively sound financial system which is dominated by a mix of international, local and regional banks. There are around 25 registered commercial banks in the country, though many only have branches in Dar es Salaam. Credit to the private sector is both limited and short term (often in the form of overdrafts being constantly rolled over). Interest rates are generally high, and especially so on long-term loans. Exchange rate risk adds to the cost of borrowing externally.
Poor infrastructure is a major obstacle for investors and businesses. In general the road system is poor, while supply of water and electricity is unreliable. Prolonged supply interruptions are frequent, and service provision is expensive compared to other countries in the region.
1. Security B, 2. Political stability C, 3. Legal & regulatory D, 4. Tax policy B,
5. Labour market D, 6. Infrastructure D
Overall risk assessment C
Source: Economist Intelligence Unit, Risk Briefing.
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