Just weeks after taking office, new Tanzanian President Samia Suluhu Hassan has rolled up her sleeves and is reviving a long-mothballed LNG project worth $30 billion. Hassan, who succeeded deceased former president John Magufuli in mid-March, has a more liberal business outlook based on mending relations with the international community than her predecessor and is expected to stress unity rather than the polarization which characterized much of Magufuli’s reign.
Even though Magufuli’s legacy may be tainted by his dismissive attitude towards Covid-19 and a tendency towards authoritarianism, he does deserve credit for enacting a series of economic reforms and consolidating the country’s hitherto notoriously leaky public finances by tackling Tanzania’s long-term problem with tax evasion and lax industrial oversight. As such, Magufuli oversaw the country’s graduation from low- to middle-income status, and considering this success, Hassan would be well-advised to continue on the same fiscal track as her predecessor, even as she steers the ship towards more democratic and diplomatic shores going forwards.
A change of direction for Tanzania
Construction on the new LNG facility is expected to begin next year, with a completion date of 2028 being targeted by Hassan’s government. The facility, which is sitting atop 35 trillion cubic feet of gas, is gearing up to become Hassan’s prestige project and a major monetary windfall for Tanzania. At the same time, she also signaled her intentions to boost the country’s business profile in other industries, most importantly by initiating work on a similarly delayed $1.9 billion fertilizer plant and accelerating talks on several helium and nickel projects involving overseas investors and settling a long-standing dispute with mining tycoons Barrick Gold.
That latter move is particularly welcome for the mining industry, given that Tanzania is home to a plethora of natural resources but recently displaced Venezuela as the least attractive jurisdiction in the world, according to the Fraser Institute. It sets a promising precedent for the rest of the international investment community – one that is mirrored by her ministerial appointees and focus on human rights
For example, Hassan has appointed former Finance Minister Philip Mpango as her Vice President, further proof of her business-friendly, politically-neutral gamebook and lifted a press ban instituted by her predecessor, in order to emphasize the importance of freedom of speech. And perhaps most importantly in the current public health context, she announced a panel of experts to oversee the Tanzanian response to coronavirus in what is a sharp departure from Magufuli’s intransigence on the subject.
Improved tax collection thanks to ETS
Despite the pointed criticism that such policies have prompted towards Magufuli, even his harshest detractors agree that Magufuli was responsible for significant contributions towards the country’s development. He presided over a period of macroeconomic stability and strong growth, with a 5% average increase in GDP across his five-year tenure. His latest election success was built on a campaign of the big-ticket investments that have enhanced Tanzanian infrastructure, including a hydropower dam, railway and revived national airline. Arguably his biggest triumph, however, related to the optimization of the country’s tax revenues.
This was achieved primarily through clamping down on illicit trade dogging many African nations and the lost customs revenue which inevitably accompanies it. In January 2019, the Tanzania Revenue Authority (TRA) introduced Electronic Tax Stamps (ETS) manufactured by Swiss security expert SICPA to track and trace tobacco products and alcoholic beverages, thus leaving little wiggle room for black market suppliers and unscrupulous industry players to avoid their responsibilities. The impacts were immediately apparent: revenues from excisable goods rose from Sh58.2 billion in the period from February to October 2018 to Sh77.8 billion the following year, an increase of 33 percent.
The program was expanded to include soft drinks and bottled water in August of the same year, though its full implementation was delayed until November 2020 due to logistical hurdles. Similarly beneficial results were noted this time round, with the World Customs Organization (WCO) subsequently stressing that Tanzania’s uptake of technology was key to their recent successes. According to media reports, tax collection on soft drinks increased by 18 percent in 2019/2020, compared to the previous year, thanks to a combination of how the ETS allows for more efficient collection of value added tax and the crackdown on corruption that goes along with it.
Strong foundations going forward
Magufuli had hoped to build upon that impressive economic performance by targeting annual growth of 8 percent over the next five years. With the country’s central bank predicting that just starting works on the Lindi LNG project could precipitate a 2 percent growth in GDP alone, Hassan has already set out to build on that groundwork. If she can arrest the slide in FDI experienced under her predecessor – external investment fell from $1.5 billion to $1 billion between 2015 and 2018 – the country will be well-placed to emerge stronger than ever.
Of course, financial performance is important to the success of Hassan’s regime, but she must also ensure that she leads Tanzania away from the close-minded and at times oppressive climate that was fostered under her predecessor. The establishment of the coronavirus task force and the restoration of journalistic freedoms are highly encouraging signs that she intends to do just that, which should, in turn, breathe confidence into overseas investment. It’s early days as yet, but Hassan’s opening gambits as Tanzanian President have given real hope to the country’s inhabitants and onlookers alike.