Transformation for Growth, Employment and

Poverty Reduction
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Hyatt Hotel, Dar es Salaam

28th November, 2016

The role and effectiveness of Special

Economic Zones in Tanzania
Abel Kinyondo, REPOA
Carol Newman, Trinity College Dublin
Finn Tarp, UNU-WIDER and University of Copenhagen

Introduction
Industrialization is an important catalyst for structural transformation,
job creation and growth in Tanzania
Like many other SSA countries, Tanzania uses SEZs as a tool for
stimulating the industrialization process
Firms in SEZs are usually offered a wide range of incentives including tax
breaks, subsidies and superior infrastructure
A large literature exists highlighting the benefits associated with the
clustering of firms in one geographic location (Krugman 1991; Fujita et al. 1999)
Reduces transport costs
Facilitates labour market matching
Facilitates technology transfers and knowledge sharing
There are currently more than 3,000 zones located in more than 135
countries around the world, most are in developing countries

Introduction
Despite their prominence in African industrial policy little is known about
the effectiveness of SEZs
Farole (2011) reviews some of the evidence:
SEZs significantly under-perform in terms of investment, exports and job
creation

Firms in SEZs have few linkages with local domestic firms

SEZs have very few firms compared with those in other parts of the world
Lack of effective planning, weak governance and regional instability are the
main sources of under-performance

Few other studies have examined the success of spatial industrial policies
in SSA, a notable gap in knowledge for what has become a key industrial
policy tool
In this project we set out to examine the performance of SEZs in Tanzania

SEZs in Tanzania
Legislation and coordination:
SEZs were established under the Special Economic Zones Act 2006 and
EPZs under the Export Processing Zones Act of 2002. Economic Zones
Law of 2011 brought the two together
Both are coordinated by the EPZA but fall under different Ministerial
responsibilities
EPZs fall under the Ministry of Trade and Industry
SEZs fall under the Ministry of Planning, Economy and Empowerment
The Tanzania Investment Centre coordinates investment in its totality
Main incentives offered include tax holidays; duty, wharfage and VAT
exemptions on raw materials and utilities; and reduced transaction costs
(documentation for workers and inspections, etc. are done on-site)
SEZs cover: EPZs, free ports; free trade zones; industrial parks; regional
headquarters; science and technology parks; agricultural free zones;
tourism development zones; business incubation centres.

SEZs in Tanzania
Eligibility criteria for EPZ licence:
New investment
At least 80 per cent of goods produced/processed should be exported
Annual export turnover should not be less than US$500,000 for foreign
investors and US$100,000 for local investors.
Eligibility criteria for SEZ licence:
New investment
Minimum investment capital of US$100,000 for local investors and
US$500,000 for foreign investor
Investment project must be located within the designated SEZ area

Sector breakdown of investment in SEZs

Mineral
Processing
8%

Meat
Processing
3%
Engineering
46%

Agroprocessing
43%

Source: Meru (2010).

140 registered companies

44,227 jobs created - mostly Tanzanians
45% of firms are Tanzanian owned

(Mrindoko, 2015)

Data collection
To understand the performance of SEZs we need good quality data
Our aim was to collect primary data on firms and workers in SEZs
Two survey instruments were developed:
Enterprise survey: focus on business networks and linkages, technology
transfers and perceptions of firms in relation to functioning of SEZ

Employee survey: linkages with other workers in the SEZ and the local
community

Sampling:
List of 147 firms provided by the EPZA (population of firms located in SEZs)
Random sample of 50 firms selected to ensure representative of the
distribution of industries and regions in Tanzania

Many firms were not operational and only 18 could be surveyed

Supplemented with an additional 6 firms that were identified in zones but
were not on the original list

Geographical coverage of surveyed firms

Region

Number of firms
sampled
8

Proportion of population of
firms from EPZA list (%)
74.3

Arusha

4.3

Kilimanjaro

1.4

Mwanza

2.1

Shinyanga

2.1

Tanga

2.9

Coast

6.4

Morogoo

2.9

Dar es Salaam

Characteristics of surveyed firms

Almost all managers were male with an average age of 41
The majority (16) were from Tanzania. Other nationalities included UK,
Bulgaria, China, Pakistan and 4 from India.
Well connected in terms of ICT 22 had internet access and an email
address
16 were single entity establishments while 8 were part multiestablishment firms
For 14 firms all (or a large proportion) of the capital is under foreign
ownership with a wide range of nationalities holding the majority of the
foreign share
Most firms (21) first started operating within the zone where they were
currently located; only 2 firms moved from a different location

Characteristics of employees
Attempted to survey 30 employees per firm. Total sample of 379
Type of workers surveyed:
Freq.

Manager

24

6.3

Professional worker

25

6.6

Office worker

30

7.9

Sales worker

1.9

Service worker

57

15.0

Production worker

236

62.3

Total

379

100.00

Characteristics of employees
63% married
57% have at least secondary education and 11% have attended College
or University
For 40% of the sample this was their first job (especially production
workers)
For those who were employed previously, the most frequently cited
reasons for choosing to move jobs were better salary, better working
conditions and better social benefits
Average wages per month are approximately 390,000 TZS
The majority of employees found the job through advertisements in the
newspapers or through the door visit; 39% found the job through a
relative or friend working at the firm

Firm-to-firm interactions
Only one firm surveyed sells output to other firms in the SEZ
Majority of output is for final consumption (88%)
Most produce is sold directly to export markets (78%)
Source of raw materials:
Mean

Max

From Households

7.6

80

Domestic, non-state enterprises in the

SEZ
Other domestic, non-state enterprises

5.2

100

31.1

100

State enterprises in this SEZ

2.4

40

Other state enterprises

1.4

30

Foreign enterprises in this SEZ

1.4

30

Other foreign enterprises

4.8

100

Imported (directly)

48.4

100

Other

2.5

30

Interactions between workers and the local community

Daily

Frequency of
interaction with
colleagues in this
enterprise outside of
working hours (%)
59.0

Frequency of
interaction with
colleagues in other
enterprises within
SEZ (%)
10.4

Frequency of
interaction with
members of the local
community (%)
43.9

Weekly

23.9

6.1

17.0

Fortnightly

5.1

4.0

11.4

Monthly

2.7

6.4

7.5

Once a
year
Never

0.5

1.1

2.1

8.8

72.1

18.1

Expenditure in local community:

25% spend <4,000 TZS per week
On average (weighted) employees in the SEZs spend 16,000 TZS per week or
17% of their average weekly earnings.

Technology Transfer
Technology transfers from input suppliers and customers
9 firms indicated that their relationship with their input suppliers required
additional investments

Of these 8 indicated that this resulted in technology transfers from the

supplier to the firm.

9 firms indicated that their relationship with their customers required

investments that lead to technology transfers

Technology transfers from export markets:

16 firms receive orders for direct export production
Of these 14 receive product specification, designs or materials for
producing the goods

Of these 8 firms indicated that the foreign partners provided technology

and expertise

14 firms indicate that they have an internationally recognized quality

certification which required them to meet certain standards of production

(form of technology transfer)

Reasons for establishing in SEZ

Mean

Access to grant/subsidy

1.68

19

Tax benefits

3.52

23

Access to transportation infrastructure

2.43

21

Access to inputs

2.77

22

Access to customers

2.32

22

Access to skilled labour

1.81

21

Access to unskilled labour

1.48

21

Interactions with other firms in SEZ

1.81

21

Marketing

2.00

21

Access to electricity

2.34

21

Access to water system

2.34

21

Constraints to growth of enterprise

Most important constraints:
Difficulties in hiring waged labour
Accessing power and fuel
Difficulties in getting licenses and permissions from the authorities
Lack of clarity in government policy in relation to SEZs
Bureaucracy very high number of compliance visits
Assistance required from authorities:
Removing bureaucratic requirements and restrictions
Providing assistance with infrastructural facilities

Case Study
NIDA Textile Mills is a 100% privately Tanzanian owned firm joined an SEZ in 2000 but
pulled out in 2004 because of inability to compete on export markets (Mudida, 2006):

Technological disadvantage
High labour costs
Low labour productivity
High utility costs

Once located outside of the zone, NIDA increased profits and began exporting
NIDA subsequently re-entered the zone through a subsidiary to obtain better access to
global markets. Reasons given by current management included:

electricity/gas prices were too high in the zone

energy cuts and rationing were the norm
lack of cheap skilled labour
high costs (price and distance) of inputs, such as raw materials
Poor transport and related inrastructure

Main reasons for success outside the zone included fact that they could choose who to
employ, where to locate the plants and work free of red tape

Policy Lessons
While the sample of firms we surveyed are not representative of the population
of firms in SEZs in Tanzania, the data we gathered provides us with some
interesting insights which can be used as a basis for further research

Lesson 1: Limitations in the coordination and organisation of SEZs in Tanzania.

Firms located in SEZs are overly burdened with red tape and bureaucratic
procedures that add significantly to their cost structure and reduce their
competitiveness

Policy recommendation 1: Review the current management and coordination of

SEZs and find ways of reducing the bureaucratic burden placed on firms within
zones.
A full census of firms located in SEZs is recommended along with a detailed
survey of enterprises and employees along the lines of the protocols designed
for this project.
This will facilitate better coordination and will ease the bureaucratic burden on
firms

Policy Lessons
Lesson 2: Firms located in SEZs, while benefiting generally from better
infrastructure, are constrained by the supply of energy and power

Policy recommendation 2: Investments in energy infrastructure need to be

stepped up for a policy of industrialization, through SEZs or otherwise, to be

successful

Lesson 3: Accessing suitably skilled labour is problematic for firms located in

SEZs in Tanzania

Policy recommendation 3: Consideration should be given to the location of a

supply of waged labour in the spatial planning of zones. Alternatively,

implementing policies that promote labour mobility may help firms better access
the labour resources that they need.

Conclusion and policy lessons

Lesson 4: interactions between firms within zones and with the local community
appear very limited. Firms are, however, benefiting from technological transfers
through the supply chain and from export markets but not from each other.

Policy recommendation 4: Promoting better linkages between firms within zones,

and with other domestic firms has the potential to increase technological
spillovers between local firms.

Access to export markets is an important benefit to firms locating in zones and

further facilitation of entry into global markets has the potential to lead to more
technology transfers that in turn could spill over to other firms in the zones and
local community.

Lesson 5: interaction of workers with the local economy presents an opportunity

for economic development within the local economy around SEZs.

Policy recommendation 5: More research is needed to fully understand the

extent and nature of these interactions and their potential to lead to significant
local economic development.

Thank you
Questions and comments most welcome

Tanzania & Extractives ------ Transformation

or just BIG Numbers?

Alan R. Roe
UNU-WIDER and University of
Warwick

Presentation to REPOA/WIDER Conference

Transformation for Growth, Employment and Poverty
Reduction
Dar es Salaam - November 28 2016

Outline

1. Introduction: Economic Transformation: always the objective

2. Gold Mining 1998-2010: the 1st opportunity
3. Outcomes: Why the disappointments?
4. Natural Gas 2014 onwards : the 2nd opportunity
5. The short-terms benefits: near shore gas
6. Longer term: deep-water off-shore gas
7. Policy challenges

1. Introduction

The First Five Year Plan 1964 -1969 targeted:

Reduction Primary Production share: from 60% to 39% by 1980

Increase in Industrial Activities share (Manufacturing, construction)
from 13% to 27% by 1980 (Table III)

BUT 50 years later as the UN Human Development Report 2014 notes

the share of industry has increased from 18% in 2001 to only 22.1% in
2012. Within this overall increase:
Minings share rose : 1.8% of GDP in 2000 to 3.3% by 2010
Constructions share rose: 8.2% of GDP to 10.8% by 2010
Manufacturings share remained constant at around 8 %
Low productivity rural activities including services remain the
dominant sector
Some transformation Yes but Tanzanias impressive economic
growth in the last decade has failed to translate into meaningful
improvements in human development. (UNDP pg xiii)

www.icmm.com

2. Gold mining 1998 to 2012 the first opportunity

Progress from 1964 onwards in changing the basic structure of the

Tanzanian economy in the manner envisaged by Julius Nyerere and
other leaders had been consistently disappointing for more than 30
years
But there signs of change from the end of the 1990s when gold and
diamond investments resurged
As a result from 2000 MINERAL PRODUCTION rose very rapidly
In terms of EXPORT composition the changes were also dramatic and
were almost entirely associated with minerals (gold and diamonds)
In terms of GDP there was also a visible change to an increased
share of Mining and Manufacturing

Review some of the Facts behind these

statements

Foreign direct investment surged (Source: UNCTAD)

UNCTAD World Investment Report 2014

data tells us that:

Tanzania is already a leading non-oil

destination for FDI in Africa after South

Africa

FDI flows of $10 million or less per

annum in the 1990s have grew ONE

HUNDRED-FOLD to over $2,000 million
per annum by 2013 as gas investments
also materialised!
A large percentage of Tanzanias

total FDI stock > $10 billion is

associated with minerals and more
recently oil and gas.

GDP - No Structural change 1965 to end 1990s

but some visible movement thereafter
2000

2001

2002

2003

2004

2005

2006

2007

1.5

1.8

2.1

2.4

2.6

2.9

3.2

3.5

Total GDP

100.
0

100.
0

100.
0

100.
0

100.
0

100.
0

100.
0

100.
0

Monetary GDP

83.9

83.9

84.2

84.4

83.6

84.1

84.5

84.8

All Agriculture (Monetary)

18.2

17.7

17.5

17.4

17.2

16.2

15.3

15.1

Crop Husbandry

13.0

12.7

12.7

12.6

12.5

11.5

10.6

10.7

Other Agriculture

5.2

5.1

4.8

4.8

4.7

4.7

4.6

4.3

16.9

17.0

18.7

20.1

19.9

19.7

19.6

19.9

Manufacturing

8.8

8.4

8.3

8.3

8.1

7.9

7.8

7.8

Other Industry and

Construction

6.7

6.9

8.3

9.5

9.3

8.9

8.6

8.6

41.6

41.7

40.5

39.3

38.8

39.1

40.0

40.2

Sector Shares since 2000

MINING

All Industry, Mining and

Construction

Services

Sustained gains in per capita incomes followed

Per capita income gains 1950 to 2007

12%

10%

8%

6%

4%
2%

-4%
Tanzania
Founded

-6%

-8%

Source: Angus Maddison and University of Groningen

New Mining
Codes

200

200

-2%

200

200

199

199

199

199

199

198

198

198

198

198

197

197

197

197

197

196

196

196

196

196

195

195

195

195

0%
195

After 2000: a visibly

more successful pattern of
income growth
Since 2007: growth has
remained consistently high
and positive (c. 7% 0r 5%
per capita)
Result: The Tanzanian
people have fared much
better since the 1996
reforms (including of
mining) than in most other
periods of postIndependence history

Also a big increase in government revenues

GOVERNMENT REVENUE
from Mining had to 2008
been very low and was
much criticised (e.g. in
Golden Opportunity Report 2008 )
but by 2010 the natural life
cycle of production and
revenue-take was already
moving that revenue-take
from only $20 million (2% of
total tax revenues) rapidly
upwards
By 2011/12 the TEITI was
reporting mining tax
revenues of $390 million
which was then around 10%
of government total
revenues

Predicted revenue from 5 major mines to 2034

Source: ICMM Mining: What future can we expect, 2008

Exports: Gold overtook traditional exports by 2000

($ million)

1000

Gold

900

Coffee
800

Cotton
Tea

700

Tobacco

Note:
The radical
differences between
1999 and 2008
sustained through
2013

Cashew

600
500
400
300
200
100
0
1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

a tendency sustained to 2012 before falling away

(Source IMF 2014 and 2016)

Gold exports of circa $1.7 billion in 2013/14 fell to $1.2 billion by

2015/16 but gold is still equal to the total exports of all traditional
agricultural products

3. Outcomes: why the disappointments?

So BIG numbers BIG opportunity but outcomes disappointing WHY?

UK and North Sea Oil

Bulyanhulu and Buzwagi (gold and diamond mining communities Geita and Mwadui
mines)
Incomes had increased but local inflation higher
Jobs had been created but much inward labour migration had lessened benefits
to local populations.
Health services better but unequal access created sense of greater inequality
Bigger strain on local public services with no compensating gains in local public
revenues
Some gains in nutritional status for children

So no universal condemnation of the mining companies but no obvious sense that

inclusive growth had been fostered by arrival of mining

Some in Tanzania understood the opportunity

very well
Judge Mark Bomani (Report of the Presidential Committee to Review and Advise
Government on Management of the Mineral Sector 2008) recommended several
improvements in policy, including:

Greater recognition of shared responsibilities of the government working WITH mining

companies to support infrastructure in mining areas covering roads, electricity, water
and social services such as village dispensaries, schools and security services.
Better integrating compensation systems (e.g. for resettlement) with the needs of both
the local communities and the mining companies to, for example ensure new business
start-ups for development based around mines
Improved training: tighter requirements on companies but also more systematic
government-driven arrangements, including larger budgets for existing other training
institutions.
Mining towns their development has been haphazard- the government should work
more closely with the companies to plan and monitor the development of these towns.
Improved policies and programmes to help strengthen any sector working closely with
the mining sector to capture the immense benefits that the growing mining industry
provides.
A better share of mineral revenues to local areas (Ghana-style)

The obvious(?) planning challenge

Multi million dollars of new private
investment in contiguous areas was
surely the basis for systematic
planned development!
-

What are now being called

Resource Corridors or Spatial
Development Initiatives (SDIs)
examples include Maputo
Development Corridor and
Simandou Integrated Mining and
Infrastructure project

But in the event Tanzanian policy

put all its efforts into one other of
the Bomani recommendations a
reform of the royalty system.
- With the benefit of hindsight not
a priority

Major mine locations in Tanzania in 2008

4. Natural Gas 2014 onwards : the 2nd

opportunity
What will this, can this do for the economy?
TWO Answers:
1. Short-term: Onshore or near shore gas discoveries - new
energy-generation possibilities
2. Longer-term: Deep offshore discoveries new export revenues
and new industries?

Oil and Gas in Tanzania

Tanzania currently has no commercial OIL discoveries
but there are at least 4 small producing or imminently producing
GAS fields (Songo Songo since 2004, Mnazi Bay since
2015, Killwani North (Aminex) and Ruvu Basin (Dodsal of UAE)
both from 2016.
Songo Songo is quite small and took decades to bring to
commercial production partly due to
The limited local market
the impracticability of export (in view of the apparently
limited reserves)
In this context more recent gas developments in Mnazi Bay
(since 2015) are significant and already delivering
In addition, there are now much larger, very promising gas
discoveries (but less imminent for production) in the deep Indian
Ocean: offshore blocks have been licensed by the government
to BG, Statoil, Petrobras, Shell and to other international
companies.

New gas initial stage development from 2015

(Source: Wentworth Resources Ltd.)

5. Short-term benefits
1. They have justified the building of a new high capacity $1.2 billion gas
pipeline from Mnazi Bay to Dar financed by China Exim Bank. This will
have substantial capacity greater than that supplied by the early stage gas
2. The 2015 Gas Sales Agreement (between the producer and TPDC) involves
a gas selling price at Mtwara of $3.07 per mcf allowing TPDC to sell that gas
to TANESCO in Dar at around $5.00. This should allow TANESCO to
generate power at nearer 12c/kwh rather than current cost of power
generation of around 35c/kwh - using emergency power (diesel fuel, jet fuel
etc).
3. On this basis with TANESCO previously selling power to their consumers at
around 16c/kwh, the huge Tanzanian government subsidy to TANESCO will
be (has been) significantly reduced (Tsh 399 billion 2013/14 0.5% of GDP
equivalent to 4% of total government revenues.
4. The producers have financed part of their investment cost locally and this
will be a good early stage loan for the restructured Tanzanian Investment
Bank (TIB)

Gas Supply and Demand uses 2010 to 2025

(anticipated)

Production from Songa Songa = < 100 mmscf/d

From 2015 Mnazi Bay Concession Partners (Maurel et Prom and
Wentworth) will add 80 mmscf/d rising to 130 mmscf/d by 2016/17 (GSA):
From late 2016 - Aminex at Killwani North expects circa 20-30 mmscf/d (via
Songa Songa) and Dodsal Ruvu Basis is also coming
So by 2018, enough gas to meet a substantial part Tanzanias rising needs
for energy generation and at lower costs.

Plus some new industrial opportunities

Already we see in 2016 at least some major industrial spin offs

A huge $500 million investment in Cement Production at Mtwara by Dangote
Cement (from W. Africa) which:

will create many hundreds of additional jobs

$500,000 social investment committed to the Mtware community
will use cheap gas from Mnazi Bay to power its own energy generation
will gear it up to provide to meet the huge growth in demand for cement
from the further gas investments post 2018
will reportedly make Tanzania self-sufficient in cement even as demand
rises
Commitment to establish a large Industrial Park as part of the agreement to
provide land for the use of the BG/TPDC plant for LNG near Lindi
Other important industrial investments seem likely once the deep-water gas
begins to produce (see later slides)

Big Results Now 5 million more Tanzanians

with electricity
Generation

Projects
planned
for
delivery

Transmission

Distribution

7 new plants

7 new lines

590,000 new connections

1,310 MW in new
capacity

3100 km of new
high voltage lines

14,000 GWh of
annual energy
generated

236 kWh/capita of
annual energy
delivered

~5 million more
people with electricity
access

Mwanza (HFO)
Kinyerezi I
Kinyerezi II
Kinyerezi III
Kinyerezi IV
Singida Geo Wind Ph.1
Kilwa Energy Ph.1

Backbone
Dar-Arusha
Singida-Arusha
Somanga-Kinyerezi
Makambako-Songea
North West Grid Phase1
Dar-Dodoma

SOURCE: Energy lab

30% electrification access

SSMP I & II
Pending/new Customer
Applications
Urban Network
Expansion
Underline Distribution
Bulyanhulu - Geita Tx line
projects
Electrification of Health &
Education facilities in
rural areas

Backbone Tx (BTIP)
Mini Hydro
ORIO
Electricity V
TAZAMA Fuel Pump
Grid Extension
(Turnkey Phase 2)
Low Cost Design

6. The longer-term and deep-water offshore gas

This gets most of the headlines
huge sums involved
Blocks 1,3 and 4 = BGG
(British Gas Group)- now
Shell/Ophir
Block 2 = Statoil
Blocks 5.6 and 8 = Petrobras
(some with Shell)
Blocks 9,10, 11 and 12 = Shell
( into Zanzibar waters)

BG concessions - offshore deep-water gas

Sixteen successful

wells identified by
BGG

1,400 metres of water

2,000 metres below

the seabed

24

BG project assumptions (some from PSA)

Two-train LNG liquefaction plant onshore
Assumed 5% minimum domestic market obligation
Assumed TPDC takes 12.5% equity on behalf of GoT

Key Assumptions

Production
(MMTpa)

Price
(US$/mmBtu, fob)

High price scenario

7.4

13.00

Low price scenario

7.4

8.00

25

Project timeline
Final
Investment
Decision
Planning
several
years
Exploration,
commercial
evaluation
and design

Construction
45
years
Construction
of pipelines,
building LNG
plant

Operations
2030
years
Production,
liquefaction
and export
of gas

Decommissioning
23
years
Closure of
operations
and
remediation

26

Likely macroeconomic impacts

Investment (Foreign Direct Investment)

Exports

Government Revenue

Jobs

Domestic Gas Supply

A potentially huge investment outlay ($ billion)

Total investment
cost (upstream and
midstream) > $20
billion

will result in a large export expansion (LNG)

US$bn
6

Total exports 2013/14 = $5.6 billon (remember

mining exports that year = $1.7 billion
High price: Exports = $5bn

4
Low price: Exports = $3bn

0
Year 0

Year 5

Year 10

Year 15

Year 20

Year 25

Year 30
29

..and via the PSA an early boost to

government revenues
% of GDP

Construction

Operations

6%
Budget deficit incl grants (5.2%
of GDP in 2013/14)

5%
4%

Grants (3.3 % of 2013/14 GDP)

3%

Government revenue
2%
1%
0%
Year -10 Year -5

Year 0

Year 5

Year 10 Year 15 Year 20 Year 25 Year 30

30

Year -10
Year -9
Year -8
Year -7
Year -6
Year -5
Year -4
Year -3
Year -2
Year -1
Year 0
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
Year 11
Year 12
Year 13
Year 14
Year 15
Year 16
Year 17
Year 18
Year 19
Year 20
Year 21
Year 22
Year 23
Year 24
Year 25
Year 26
Year 27
Year 28
Year 29
Year 30
Year 31

part of early revenues are from PSA

production share (channelled via TPDC)

Government profit share

Royalties
Corporate Income Tax and WHT- BG & TPDC

Annual charges
Personal income tax
Corporate income tax- Local contractors

$2. b

$1.5 b

$1. b

$.5 b

$. b

.but direct JOB creation is mainly significant

in the construction phase

Planning
several
years
Hundreds
of jobs

Construction
45
years
Thousands of
direct jobs
Construction
skills
training

Operations
2030
years
Hundreds of
direct jobs
Industrial
policy and
the supply
chain

32

Ranking of possible uses of gas

Maximum input prices and projected volumes
Residential
US$/
mmBtu Commercial CNG
LNG Fertiliser Power Methanol GTL
(1
mmsc/d)
(70 mmsc/d) )(160mmsc/d) (700mmsc/d
(2mmsc/d)
(1,000mms
10
(60mmsc/d)
c/d)

Gas volumes

9 10
$/mmBtu

1,000 mmsc/d

89
$/mmBtu

78
$/mmBtu

750 mmsc/d

56

$/mmBtu

56
$/mmBtu

45

500 mmsc/d

$/mmBtu

34
$/mmBtu

0
0

10

12

14

250 mmsc/d
50 mmsc/d
33

But the capital cost of different possible uses

also vary widely

Expanding Existing Uses:

1. Power
$500 million for c. 540 MW Usage 250mmsc/d by 2025
2. CNG/NGV
$ <1 m (for 10,000 customers) Usage c. 1 mmsc/d
3. Industrial CNG/NGV $1-2million per station - Usage < 1 mmsc/d

Possible New Uses (all require substantial export markets at this scale):
4. LNG
5. Fertilisers
6. Methanol
7. Gas to Liquid

($8.6 billion for two LNG trains - Usage (1,100 mmsc/d)

($1.6 billion for ammonia/urea Usage 60 mmsc/d)
($1.7 billion for world class plant Usage 160 mmsc/d
($7.5 billion for 70,000 b/d)
- Usage (700 mmsc/d

Gas is key to these desired outcomes

Generating
capacity
MW

Gas volumes
mmscuf/d

Kinyerezi: New gasfired capacity

250

2,500
DMO

IV

2,000

200

IV
III
1,500

II

Kinyerezi:
New gas
demand

I
1,000

III
II

150
Songo
Songo
expansion

100

I
500

Estimated total installed

generating capacity all
energy sources

Current
gas in
power
generation

50

0
2013

2014

2015

2016

demand & supply

post-2020
projections
35

7. The policy challenges

Tanzania shares these challenges with many other countries:
Still growing global demand for minerals, oil and gas: the climate change
agenda notwithstanding
Sources of supply increasingly in low and middle income countries
So large future investments to be expected (Source: McKinsey G I)

New WIDER Project: Extractives and Development

Launched November 2015

Highly relevant to Tanzania and so the REPOA programme
Coordinated by Tony Addison and Alan Roe
Broad-ranging agenda of research issues from the role of extractives in
the new industrial policies (Linn, Stigliz, Rodrik et al), through
macro/revenue management and international initiatives (e.g. EITI and
Natural Resources Charter) to community level management)
34 authors so far recruited from industry, government, regulators,
international agencies, academics
Web site up and running see www.wider.org/e24
First 10 Working Papers to be uploaded in next few weeks

Can Tanzania become an oil and gas economy?

Technical constraints:
Numerous difficult technical problems to solve in extracting gas from several
miles into the Indian Ocean under 1,400 metres of water and a further 2,000
metres of variable sea bed strata
Commercial Constraints:
1. For the Companies can they justify the huge upstream and mid stream
investments given their (changing) expectations of the global market (e.g.
for LNG)?
2. For the Government and TPDC can they finance the very large
infrastructure and supporting investments needed to ensure the delivery
and effective usage of the available gas (and oil)? WHO will coordinate?
3. Will the global demand and supply situation remain favourable to
exploiting the Tanzanian resources?

Critical Issues to be managed to support

transformation this time

Expectations management: A communications strategy is needed

immediately to manage expectations in government, in the affected local
communities and in the country more generally.
Skills development: More needs to be done to develop skills in both the
private and public sectors. Although few direct jobs will be created there are
very large opportunities for indirect job creation through linkages to the rest
of the economy.
Public sector capacity: This is currently weak in the area of contract
negotiation, regulation of the sector, contract management, and
management of the fiscal regime.
The reformed National Oil and Gas company (TPDC) its financing, its
specific roles, building its capacities
Infrastructure development: Government revenues from the gas sector
must be used in part to build the infrastructure needed to attract investment
in other areas - a real but difficult - opportunity to diversify the economy
and contribute to industrialisation

.Continued
Macro-economic and revenue management: The government needs to
exercise caution on the macroeconomic fundamentals to avoid exchange
rate appreciation and damage to traditional export activities. (the Dutch
Disease problem)
Sovereign wealth fund: Should there be one?
Stabilization arrangements against volatile prices: should these be
set up?
Inclusive growth: ensuring that no sector is left behind: The
government needs policies/strategies to ensure that other sectors of the
economy are not left behind. Much of the emphasis must lie in skills and
knowledge and the government should focus on building human capacity in
all sectors.
Transparency and good governance: Tanzania is fortunate to discover
gas now. They can learn from lessons from other countries on the
importance of transparency and good governance.
Above all the politics of the situation: how to protect this unique
opportunity from political opportunism and mismanagement !

Tanzania & Extractives ------

Transformation or just BIG Numbers?

Many thanks
Questions and comments to Alan Roe
alan.roe@opml.co.uk

Behaviour of Banks

Financial Development in Tanzania:

Challenges for industrial development and
job creation

Susan Newman (Univ. of the West of England & Univ. of Johannesburg) &
Blandina Kilama (REPOA Tanzania)
A JOINT REPOA/ UNUWIDER CONFERENCE
Transformation for Growth, Employment and Poverty Reduction
Hyatt Dar es Salaam, Tanzania
28 November, 2016

Outline
Introduction and Background
The Study: Dynamics of Real
Sector vs Financing
Empirical observations
Historical Evolution
Results -Key informants interviews

Conclusion

Introduction
The Share of Agriculture in GDP has been
falling in real and relative terms

The share of agriculture - from 26.8% in 2007 to 31.2% in 2013 (at basic prices),
The share of agriculture - from 26.8% in 2007 to 23.8% in 2013 (at constant prices)

The Share of Industry and Service has been rising

The share of industry - from 20.2% in 2007 to 22.7% in 2013 (at basic prices),
The share of industry - from 20.2% in 2007 to 21.5% in 2013 (at constant prices),
The share of services - from 47.4% in 2007 to 41% (at basic prices) and 48.7 (at constant
prices) in 2013,

Employment:
Agriculture employs the majority- increase employment in informal
sector - secondary activities dominated by construction and mining

The share of employment in agriculture from 84% in 1990/91 to 74.6% in 2010 (note the
change in definition) to 65.6% in 2014
The share of employment in industry observes little change while service experience a small
rise in employed persons.
Of those engaged in informal sector, service accounts for most of the employed persons, with
doubling from 12.4% in 2006 to 26.4 in 2014.
A view of secondary activities offers a different perspective, where construction takes a lead
while on the informal secondary activities mining takes a lead.

Dynamics of Finance and

the Real Economy
Financial development a crucial
determinant of high economic growth
rates.
Tanzania has seen expansion of providers of finance
from registered banks of non-bank depository
organisations, micro lenders and other financial
institutions
Financial intermediation itself, based on its
measured contribution to GDP, has been growing at
an average rate of 10.6% per annum between 2005
and 2010 compared 7.5% for the five years between
1999 and 2004

Dynamics of Finance and the Real Economy-2

The study broadly aims to provide knowledge on types of
financial institutions, financial regulation and industrial policy
that are more likely to support rapid sustainable
accumulation, job creation under improved labour conditions
and relations

Main Questions

How are finance allocated across economic

activities?

What intermediary institutions make up the

Tanzanian Financial Sector and what are their
operation modalities?

What is the relationship between operation

modalities and credit extension?

Deposit Money Bank Assets/ (Deposit Money + Central)

Bank Assets

Liquid Liabilities/GDP

0.6
0.5

1.2
1

0.4

0.8

0.3

0.6

0.2

0.4

0.1

0.2

1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Low income median

Tanzania

1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008

Low income median

lower middle income median

Central Bank Assets / GDP

Tanzania

lower middle income median

Bank Credit/ Bank Deposit

0.18

1.4

0.16

1.2

0.14

0.12
0.1

0.8

0.08

0.6

0.06

0.4

0.04

0.2

0.02
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Low income median

Tanzania

1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008

lower middle income median

Data source: BOT 2013

Tanzania

Low income median

lower middle income median

2.5
2
1.5
1
0.5

Deposits

Domestic credit

Feb-13

Dec-11

Oct-10

Aug-09

Jun-08

Apr-07

Feb-06

Dec-04

Oct-03

Aug-02

Jun-01

Apr-00

Feb-99

Dec-97

Oct-96

0
Aug-95

16000
14000
12000
10000
8000
6000
4000
2000
0

Deposits into and credit extended by all depository

corporations in Tanzania

Jun-94

Billions TSh (current)

Some Observations at the

National Level

Ratio of credit to deposits (right axis)

Data source: BOT 2013

Some Observations at the

National Level
Commercial Banks and the Allocation of Capital in the Tanzanian Economy
75

16,000,000
14,000,000

TSh millions

10,000,000

65

8,000,000
60

6,000,000
4,000,000

55

2,000,000
0

50
2007

2008

2009

2010

2011

Total domestic lending by commerical banks

Securities held by commercial banks (asset???)
Deposits in commercial banks
Lending to deposit ratio (right axis)

Data source: BOT 2013

2012

Percentage

70

12,000,000

Some Observations at the

National Level
Liabilities

Liabilities of Commercial Banks

20,000,000

100%

18,000,000

90%

16,000,000

80%
70%

12,000,000

TSh millions

TSh millions

14,000,000
10,000,000
8,000,000
6,000,000

60%
50%
40%
30%

4,000,000

20%

2,000,000

10%

0%
2007

2008

2009

2010

2011

2012

Deposits

Bank of Tanzania

Due to other domestic banks

Other domestic

Foreign banks

Foreign Other

Capital and reserves

Data source: BOT 2013

2007

2008

2009

2010

2011

2012

Some Observations at the

National Level
Deposits

Commercial bank deposits by depositor type

100%

16,000,000

90%

14,000,000

80%

12,000,000

70%

10,000,000

60%

8,000,000

50%
40%

6,000,000

30%

4,000,000

20%

2,000,000

10%

0%
2007

2008

2009

2010

2011

Central Government

Other Financial Corporations

State and Local Government

Public Nationalfinancial Corporations

Other Nonfinancial Corporations

Other Resident Sectors

Other Depository Corporations

Non-resident

Data source: BOT 2013

2012

2007

2008

2009

2010

2011

2012

Some Observations at the

National Level
Domestic Lending

10,000,000.00
9,000,000.00
8,000,000.00
7,000,000.00
6,000,000.00
5,000,000.00
4,000,000.00
3,000,000.00
2,000,000.00
1,000,000.00
0.00

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

Millions TSh

Millions TSh

Composition of domestic lending by

commercial banks 2007-2012

2007

2008

2009

2010

2011

2012

Loans to the Central Bank

Loans to Other Depository Corporations

Loans to Other Financial Corporations

Loans to Central Government

Loans to State and Local Government

Loans to Public Nonfinancial Corporations

Loans to Other Nonfinancial Corporations

Loans to Other Resident Sectors

Loans to Non-residents

Data source: BOT 2013

2007

2008

2009

2010

2011

2012

Some Observations at the

National Level
Loans to Nonresidents

100%
90%
80%

Loans to Other Resident

Sectors

70%
60%

Loans Other
Nonfinancial
Corporations
Loans Public
Nonfinancial
Corporations
Loans State and Local
Government

50%
40%
30%
20%
10%

Data source: BOT 2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

0%
2001

% of total credit extension by commercial

banks

Lending by Commercial Banks

Some Observations at the

National Level
Commercial bank domestic lending by borrowing sector

% total credit extended by commercial banks)

100%

Personal and other

services
Tourism, hotels and
restaurants

80%

Trade

60%
Transportation and
communication

40%

Building, construction,
real estate and leasing
Mining and
manufacturing

20%

Financial
intermediaries

-20%

Data source: BOT 2013

2012

2009

2006

2003

2000

1997

1994

1991

1988

1985

1982

1979

1976

1973

1970

1967

0%

Agriculture, forestry,
fishing and hunting

From Nyerere to Magufuli

During the reign of Julius Nyerere: (1961 to 1985): Tanzania
was under the plan economy where the government was the
major allocator of resource.

Thus the banking system went hand in hand with the implementation of
the plans envisioned
Industry was the highest priority supported by the funding provided by all
banks towards agricultural and industrial development - manufacturing
and mining.

During Liberalisation - the reigns of 2nd to 4th President we

observe that

The financial sector have increased domestic savings, this has largely not
translated to commensurate increases in productive investment.
Credit expansion has favoured personal services, re-estate and
construction.

The 5th President Dr. J. P. Magufuli reign calls for Industrialisation

Lending by commercial banks

2012

Personal and Other

Services
24%

Health
0%
Education
2%
Water
0%
Gas
1%

Manufacturing**
11%
Building and
Construction
5%

Electricity
4%

Warehousing and
Storage
0% Hotels and

Restaurants
4%

Tourism
1%

Financial
Fishing
Intermediaries
0%
3%
Agriculture, Hunting
and Forestry
Mining and
11%
Quarrying
1%

Trade
21%

Real Estate and

Leasing
5%
Transport and
Communication
7%

2010
Agriculture, Hunting
and Forestry
12%
Personal and Other
Services
26%

Health
0%
Education
1%
Water
0%
Gas
2%
Electricity
3%

Data source: BOT 2013

Financial
Intermediaries
2%

Mining and
Quarrying
1%

Manufacturing**
14%

Warehousing and
Storage
0%
Hotels and
Restaurants
5%

Fishing
1%

Tourism
1%

Trade
17%

Transport and
Communication
9%

Building and
Construction
3%
Real Estate and
Leasing
3%

Structure of TZ financial sector

Total Assets held by bank-financial institutions
in Tanzania on 31 December 2013
4,000,000

(% total assets)

0.20

3,500,000

0.18
3,000,000

0.16
0.14

2,500,000

0.12
0.10

2,000,000

0.08
1,500,000

0.06
0.04

1,000,000

0.02
0.00

500,000

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53

0
1

9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53

Data source: BOT 2013

Structure of TZ financial sector

Asset to deposit ratio for bank institutions in Tanzania (in order of
bank size - largest on the left)
8
7
6
5
4
3
2
1
0

Data source: BOT 2013

Segmentation commercial banks

Concentration: ratio of three largest banks' asstes to total
banking sector assets

Return on Assets

1.2

0.08
0.07

0.06

0.8

0.05

0.6

0.04

0.4

0.03
0.02

0.2

0.01

0
2000

2001

2002

Low income median

2003

2004
Tanzania

2005

2006

2007

2008

2009

0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

lower middle income median

Data source: World Bank Financial Development Database 2013

Allocation of credit to SME

With liberalisation we see the segmented market
that is not wholly supportive of industrial
development and real investment.
Evidence from 20 interviews and secondary data
The top 7 banks support the multinationals institutions
The remaining of the banks, medium and small - provide
short-term and small loans.
Leaving a huge gap between what the top banks provide
and the other 40 banks

SME example :

There are only a handful of financial institutions (FI)

supporting informal SMEs.

Mainly due to informality nature of operations of most SMEs

FI create their own ways of tracking their lenders given gaps
in registrations (civil, property) and labour statistics.

Lending assessment for (informal) SME

First of all you come here we see you, number two you open account, the account you open you sign
background check at reception file then the next morning I call and I tell you if we want to deal with you
or we dont want, so you get something like in 24 hours. So we do work with people they want to work
with us.
[Thus], if you did false declaration or if anything is wrong with your file will call you back the next
morning. We are unlike the banks where one or 3 months waiting is a norm. You come here 24 hours you
know if you have a deal or you dont have a deal.
Now if you have a deal we will dispatch to you a team, and team will go meet you and see your business,
take pictures, see where you are living take pictures, collects documents, collect your story and prepare a
loan application form. This takes about 4 days if you are available, if you are here available within 4 days
your file is ready.
Once file comes to BANK W it will go to a team of credit analysis so those credit analysis will look and
see if your history makes sense. If it doesnt make sense, we will call back the prospective client and find
explanations.
This is what we are doing here and it takes 24 hours, within 24 hours if the business is making sense goes
to the credit committee and the end of 24 hours so the next day we call client and we say you request for
40 million and unfortunately your repay capacity or so what whatever we cannot go more than 25 million,
yes we give to you and you still agreeable yes so we go to lend out. CASH FLOW

Conclusion
1.

Financial development alone does not necessarily result in

an allocation of capital that is conducive to high real
investment, accumulation and employment generation.

2.

A developmental financial system needs to be closely related

to industry and industrial policy.

3.

In particular, medium and smaller banks that serve domestic

enterprises lack long-term funding that would allow for
long-term lending for innovation and industrial
development.

- from our interview, long-term funding was an issue esp. issue of

maturity mismatch.

A credit regime [could entail] micro-banks, more democratic control over national banks and credit
allocation to enforce planningqualitative capital controls; and restructured international agencies
that regulate credit repayment and long term capital flows. Albo 1997, p32

Thank You
REPOA
157 Mgombani Street, Regent Estate
P.O. Box 33223, Dar es Salaam, Tanzania
Tel: +255(0)(22) 270 00 83 / 277 57 76
Fax: +255(0)(22) 277 57 38
Email: bkilama@repoa.or.tz OR repoa@repoa.or.tz
www.repoa.or.tz
Twitter: @REPOA

REPOA/UNU-WIDER Seminar, Nov 2016

The Informal Sector

Tony Addison, Donald Mmari and Finn Tarp

Overview
Informal economy: diversified set of economic activities not
regulated or protected by the state
Not only self-employment in small unregistered businesses
but also wage-employment in unprotected jobs
Major employer of female-labour
Workings of informal sector more complex than stylized facts
suggest

Informal Sector: growing not shrinking

Development economists traditionally viewed the informal
sector as one that shrinks as economies grow (& more people
move into formal employment)
But it is absorbing more & more new labour-force entrants &
40% of Africas GDP
Structural adjustment programmes in 1980s, but also rise in
young workforce & dearth of formal sector opportunities
Also informalization driven by employers wanting to avoid
regulation & taxation leading to casualization of labour

Tanzanias Informal Sector

97% of all businesses & 86% of all urban properties are informal (MKURABITA, 2009)

65% of all informal businesses are in wholesale & retail trade (ILO)

Of 25,000 manufacturing enterprises, 88% are micro-enterprises that engage 1-4

persons (60.3% engage 1-12 persons) (NBS, 2008)

Employs 2.4 million people, 22% of total employment

40% of all households have informal activities

48% of enterprises owned by men (ILO)

Informal sector is often (but not always) associated with low-income much
differentiation across the sector.

Policy Issues (1)

Main challenges: (i) raising productivity (ii) reduce risks & costs of doing business

Specifics:

Macro-economic & business environment

Legislative & regulatory framework

Developing linkages with larger enterprises (success in India). Tanzania: Buyers Forum
large enterprises working with smaller enterprises in the supply chain

Improving infrastructure (e.g. ILO supported programmes for community-based

organizations to apply for public funds for infrastructure improvement)

Policy Issues (2)

Access to education and training. Vocational & technical (VETA in Tanzania)

Access to capital & other financial services (in Tanzania, only 20% of people in informal
employment have bank accounts)

Few lenders will extend credit to businesses that operate on informal premises
(uncertainty & subject to removal) insufficient plots available. BARA enterprise
registration in Tanzania requires businesses have fixed premises before licence

ICT is a very weak area digital economy & links to it, offer much potential (South
Africa has successful programmes to improve small business ICT access)

Business development services (e.g. scheme in Zambia for micro enterprises to access
business development)

Data
Given that the informal sector employs so many
people & contributes significantly to GDP
There is a big need to get better data & information
about the continuing evolution of the sector
Cant understand employment opportunities,
especially for young people, without tracking the
informal sector

Conclusions
Informal sector employs increasing numbers of people
Urgent need to raise productivity in order to raise earnings
Increase linkages to formal economy, participation in supply
chains, and take advantage of export markets
Not just products but also services: challenge is to move into
higher value-added products & services
And eventually, perhaps, informal enterprises will formalize
(including contributing to tax revenues)