Dar es Salaam. Standard Chartered Bank Plc (SCB) foresees lower macroeconomic prospects for Tanzania this year.
This is contrary to the government’s prediction that the national economy will grow by seven per cent and the cost of living is bound to ease to single digits come next June.

According to the SCB’s research department, Tanzania’s economy will grow by 6.7 per cent this year compared to 6.1 per cent last year with the annual inflation rate standing at 11.7 per cent.
It predicts the country’s gross domestic product (GDP) to improve from next year at 7.5 per cent and slacken a bit to 7.3 per cent in 2014.

According its new report titled Global Focus – 2012: Fragile West, resilient East, the cost of living will return to single digits next year when the inflation rate will decrease to 5.7 per cent and 5.6 per cent in the following year.

The SCB research sees a further weakening of the shilling against the US dollar in 2012 and the following two years. It forecasts it to be exchanged at an average of Sh1,800, Sh1,820 and Sh1,860 respectively per dollar during the three years.

Overall, it says the national economic terrain will be characterised by a cautious pace of liberalisation.
According to President Jakaya Kikwete’s speech earlier this week, the government expects the country’s year-on-year inflation rate to fall to single digits by June this year from 19.2 per cent last November.

On the other hand, the National Bureau of Statistics (NBS) says Tanzania's year-on-year inflation rate rose for the 13th straight month to 19.2 per cent in November from 17.9 per cent in October.

Notes the President: "We are still hopeful that our economy will grow at around seven per cent and inflation will be brought down to single digits by June 2012."

Despite SCB’s gloom prospects of the national economy, some economists say the national economic outlook is less grim this year than it was in 2011. In last December’s letter to the International Monetary Fund (IMF), the minister for Finance and Economic Affairs, Mr Mustafa Mkulo, says the GDP growth for 2012 was projected at 7.2 per cent, with higher growth over the medium term. He says despite power shortages, real GDP grew by 6.3 per cent in the first half of 2011, and most leading indicators were favourable.

He explains that the government has a strong view that the revised six per cent GDP growth projection for 2011 would be achieved and most likely surpassed.

The Treasury had forecast the economy to grow by 6.8 per cent last year. At the same time, the IMF expected Tanzania's economy to grow by 7.2 per cent last year from seven per cent in 2010 before accelerating to 7.5 per cent in 2012.

As for inflation, it expected that it would decline to 5.5 per cent by June 2011, and further go down to five per cent thereafter.But last March, the Bretton Woods Institutions revised the projections. They predicted that the economy would grow at a slower rate than expected in 2011 largely because of the power crisis facing Tanzania, rising prices and accelerating inflation.

Their resident representative, Mr John Wakeman-Linn, says the economy could rebound to its previous growth path of seven per cent this year if the country addresses chronic energy shortages.

SCB notes in the report: “2012 should see an acceleration of GDP growth, thanks to a recovery from the drought, lower inflation, resumption of regional food exports and ongoing momentum in mining, gas, construction and agricultural sectors.

“Despite the robust trend growth of a low base, Tanzania’s economic prospects are constrained by a substantial infrastructure deficit (poor roads, port congestion and intermittent power supply) and a halting approach to liberalisation.”

It says although the country was signatory to the East African Protocol, allowing the establishment of the EA common market, it has resisted many of the liberalisation measures required.
SCB further notes that given the weak external environment, donor financing is likely to be constrained.

With an aid-to-GDP ratio as high as 11.2 per cent, compared to a domestic revenue ratio of 15 per cent, Tanzania is highly donor-dependent.

“Reducing this dependency will be a key challenge in 2012,” it predicts. It says the power sector reform will also feature prominently this year, noting that frequent droughts have highlighted shortcomings of the country’s traditional reliance on hydro-electricity production.

While new investments have reduced the extent of load shedding, the IMF has called for more to be done to strengthen finances of the state owned utility, the Tanzania Electric Supply Company (Tanesco).

Studies suggest that manufacturers lose as much as 24 hours of production each month because of poor power supply. Demand for electricity is projected to triple by 2020, but Tanzania is currently ill-equipped to meet it.

“State dominance of the sector is gradually giving way to more private-sector participation. Establishment of separate transmission and distribution entities may also be required.”

Commenting on this week’s decision by the Energy and Water Utilities Regulatory Authority (Ewura) to raise power tariffs by 40.29 per cent, the chairman of the Parliamentary Committee on Energy and Minerals, Mr January Makamba, says the government should allow more firms to generate and sell power so that  consumers enjoy competitive pricing of power.

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