Semester 1 Examination_SM258 / 263 CASE STUDY – Tanzania: Elephants or Electricity?

SM258 / 263 CASE STUDY – Tanzania: Elephants or Electricity? 2007/8 Semester 1 Examination January 2008 Search is on for some fresh successes

By Tom Burgis, Barney Jopson and William Wallis, Financial Times, Published: Nov 07, 2007

Long a favourite of donors in Africa, Tanzania is accustomed to receiving the plaudits and aid dollars of the international community. Rich in farm land, mineral resources and wildlife, it is free of tribal tensions and has experienced a series of peaceful transitions of power, thanks to a sense of unity forged by Julius Nyerere, its founding father. It also has a stable macro-economic environment and its administration is relatively well-organised: the principal achievements of Benjamin Mkapa, who ruled from 1995 to 2005.

Jakaya Kikwete, who was elected president at the end of 2005, has yet to prove that he can build significant new successes on those foundations. Less than two years into a five-year mandate, even some of Tanzania’s friends are worried that the country is losing direction and momentum. His most obvious challenges are to further invigorate the economy – which has been growing at a healthy annual average of 6.2 per cent in the past five years – and to make inroads into poverty and transform rural lives. Yet while his government has released several policy frameworks and programmes, it has not set clear priorities.

“We are swaying in the wind,” says John Ulunga, executive director of the Foundation for Civil Society, a donor-funded non-governmental organisation. “We don’t have a clearly defined set of steps that will take us to the promised land. We don’t see the direction.”

Tanzania was among the top 10 reformers in the World Bank’s Doing Business survey last year, but slipped back a place this year to 130 of a total of 178. Mr Kikwete’s government’s biggest achievement has probably been the introduction of universal primary education: more schools have been built in the past 18 months than in the previous 20 to 30 years, say officials, although there are now not enough teachers. But in the United Nations’ human development index, which measures standards of living and health as well as education, Tanzania has barely moved.

Andrew McAlister, the outgoing Canadian high commissioner, who first lived in the country in 1977, told a local newspaper: “After years of struggle and effort, Tanzania is still 164th out of 177 on the [index] and hasn’t moved much. Tanzania simply doesn’t belong there…I do wonder why things have not progressed much, much further.”

In rural areas, home to 70 to 80 per cent of the population, life has not changed a great deal since Mr Nyerere’s experiment with socialist collectivisation was abandoned. Most of the population are cashless peasants who produce enough food with their hand hoes to feed themselves, but no more, and are isolated by bad roads and poor public transport. According to the last national household survey, conducted in 2000-01, almost one in five people was receiving less than the minimum calorie requirements. More recent government research showed two-thirds of mainland households did not have access to piped water and 89 per cent were without electricity. The country’s adult HIV/Aids infection rate is 6.5 per cent and in some regions hits 15 to 20 per cent.

In a few business sectors, the trends are more encouraging. The Kikwete government has maintained foreign investment flows that began under his predecessor in the mining, tourism and telecoms sectors, taking advantage of Tanzania’s reserves of gold and precious stones, its wildlife and natural beauty, and the universal appeal of the mobile phone. Overall, foreign direct investment flows into Tanzania have been at least 20 per cent greater than those into Uganda in each of the past three years and at least seven times higher than those going into Kenya, east Africa’s most important economy, according to statistics from the United Nations.

But to achieve meaningful poverty reduction, economic growth needs to be more broad-based. David Stanton, head of the UK’s Department for International Development in Tanzania and chairman of the committee of donors and development agencies, says: “Added value, technology and access to regional markets are critical. But no one is saying that’s going to happen, even in a generation. The growth is going to be coastal and urban and will expand the income gap.” “You don’t see great industrialisation,” says Paul Kunert, who until August was head of Songas, a privately-owned electricity generator.

“Why do people set up industrial activity? They do it to be closer to a market or because there’s something about a nation that makes it good to be there: a workforce or resources. So mines and tourism are here. But you don’t get people clamouring to build cars because the workforce, while cheap, is not very productive.”

Aid, meanwhile, keeps flooding in. Tanzania has received more overseas assistance since independence than any other country south of the Sahara: it accounts for 42 per cent of this year’s national budget. Last month, the US’s Millennium Challenge Corporation approved a 8m, five-year grant for the country.

The government faces a dilemma. It is reluctant to become more dependent and is increasing domestic revenue by collecting taxes more effectively, yet ministers say budgetary constraints are still holding the country back. In her 2007-08 budget speech, Zakia Hamdani, the finance minister, said the resources needed for the implementation of the previous administration’s growth and poverty reduction strategy – known as Mkukuta – “were immensely large compared with the resources available”.

Tanzanians and foreign observers suggest several reasons why Tanzania is not making more determined progress. Helen Kijo-Bisimba, executive director of the Legal and Human Rights Centre, another donor-funded NGO, complains that Mr Kikwete, a former foreign minister, has been on too many overseas trips. “The president has not had time to sit down and think: what do I need to do?” she says. Other explanations conflict: some say Mr Kikwete is a micro-manager and that nothing happens unless he is involved; or that ministers imposed on the president by elders in the ruling Chapa Cha Mapinduzi (CCM) party are dragging him down; or that the money men behind the party are blocking reform. A deeper explanation, critics contend, is that Tanzania lacks political accountability, which means people in power are isolated from the masses. One manifestation of the problem is corruption. Suspicions of high-level graft were stoked by several multimillion-dollar projects that pre-dated the Kikwete era: the acquisition of a presidential jet; the building of a new Bank of Tanzania headquarters; and the purchase of a military radar system from BAE Systems. No wrongdoing, however, has been proved.

In other cases several high-ranking members of CCM have been arrested on corruption charges and Mr Kikwete says: “If people want to get into leadership through corrupt practices, through corrupt means, I think that’s detestable. We have to take action.” A second sign of the accountability deficit is that Tanzania, while notionally a multi-party democracy, has many of the characteristics of a one-party state. The political scene is dominated by the CCM, Mr Nyerere’s party, and in the only region where it faces serious opposition – Zanzibar – its past three election victories have been in polls deemed flawed by independent observers. Ismail Jussa, head of foreign affairs and international relations for the Civic United Front, the main sition party, says: “Everywhere there is a serious challenge to the ruling party, it resorts to intimidation and threats.” The opposition is increasingly vocal in its criticism But as 82 per cent of MPs are from the CCM, parliament still functions primarily as a rubber-stamp institution

One bright spot is the newspapers, which have become increasingly aggressive in their reporting, if sometimes off-target. The number and prominence of civil society organisations is growing. Mr Jussa argues that political accountability is a two-way street that requires the engagement of the people, and most Tanzanians are not in the habit of challenging power. He links this to the impact of the Nyerere era, when the party and the state become one. “Because of that legacy of indoctrination, even when multi-partyism was allowed, people viewed the opposition in a negative way. They equated it with opposing the state.” Some donors are beginning to acknowledge that they bear some responsibility for a weak political culture. The government’s dependence on aid makes the donors the most important check and balance the country has, yet they have focused on economic and administrative issues rather than politics. “We believe in strong government and channelling the bulk of our development assistance through the government structure, but we have probably been too soft in the past,” says Kristin Sverdrup, minister counsellor at the Norwegian embassy. Mr Kikwete, however, disputes the donors’ potential influence. “We design our own [development] programmes, we take leadership,” he says. “Of course the donors come in to support us … Our responsibility to the donors is about accountability; about how we use that money… It’s not a question of being more accountable to them than to our people.”

The daily struggle to meet rising demand for power

By Barney Jopson, Financial Times, Published: Nov 07, 2007

Addressing a London breakfast meeting of business people interested in Africa, the chairman of CDC, a private equity investor owned by the UK government, rolled out a biting anecdote this year. “I was talking a few years ago to a finance minister in a south-east African country and emphasising the vital importance of reliable infrastructure in attracting foreign investors,” recalled Sir Malcolm Williamson. “Then the lights went out.” Knowing members of the audience chuckled wryly. Those operating in Tanzania would have winced.

Last year, due to a drought that withered its hydropower capacity, the country was hit by severe power rationing. At times it could not generate enough electricity to meet even half its needs and the state-owned power utility was providing customers with as little as eight hours a day. For businesses and well-to-do households that had grown dependent on electricity, the black-outs were at best highly inconvenient, at worst devastating. Those that could afford to resorted to chugging diesel generators, which burn cash rapidly at today’s high oil prices. Others were left to sit idly next to dormant computers and machinery. “It was hell, and we raised hell against the government,” says Isaac Dallushi, vice-president of the Tanzania Chamber of Commerce, Industry and Agriculture. “The production costs went up, so we couldn’t compete. And those who couldn’t afford generators had to close down.”

Economic growth, which had been forecast at 7.1 per cent for 2006, instead came in at 6.2 per cent, due to the impact of the drought on both electricity generation and agriculture. To prospective foreign investors, which Tanzania desperately needs, the rationing was highly off-putting. (To 89 per cent of Tanzanians, however, it did not matter a jot because they never had electricity anyway.)

Tanzania is not alone in sub-Saharan Africa. Electricity shortages in the region are the norm, not an exception. But that does not mean they are inevitable. Next to the drought itself, which began in 2003 and continued into 2006, Tanzania’s immediate problem was a heavy reliance on hydro power. Poor management by the Tanzania Electric Supply Company (Tanesco), the state-owned utility, compounded the problem. Tanesco has six hydro plants with a capacity of 561MW. In 2002, when all was well, they met about 90 per cent of grid demand, according to the ministry of energy and minerals. In 2006 they could manage only 20 per cent. In countries such as Canada and Norway, where rainfall patterns are fairly consistent, reservoirs can be tapped continuously without being depleted too much. But in Africa, reservoirs tend to be topped up during the rainy season and then run down gradually during the long dry season. This is inherently risky given the tendency of African rains to be delayed, or to not turn up at all. Tanzania has tended to drain its reservoirs steadily, leaving no margin to cope with failed rains. A severe drought in 1997 showed the country how easily power generation could be crippled..

Tanzania had already initiated two privately-owned thermal generation projects in 2001 and 2004 to reduce its dependence: Independent Power Tanzania Limited (IPTL) (burning heavy fuel oil, capacity 100MW) and Songas (burning gas, 190MW). The fact they did not prevent shortages made the rationing all the more galling. Tanesco’s response last year was to install a number of temporary generators, the cost of which was met by the government. Then, in November and December, it received a gift from the heavens as extraordinarily heavy rains filled the reservoirs back up to the brim. A more fundamental problem is a persistent lack of long-term planning in the face of economic growth and rising power demand, which experts blame on a lack of experience and expertise. So while the UK always budgets to have 20 per cent more generation capacity than it needs, Tanzania is consistently behind the curve.

Running deeper than issues of competence, the power crisis is ultimately the creation of Tanesco and a botched plan to privatise it, which was launched in 1997, dragged on too long, and put a stop to new investment. The drought was the final straw for Tanesco, supposedly the lynchpin of the power sector, and reduced it to a financial basket case. The group has negative cash flow and an accumulated cash deficit that last year exceeded 0m, according to the ministry of energy and minerals. The ministry blames it on several things: the high cost of oil- and diesel-based thermal generation; power seepage due to under-investment in the transmission network; and electricity tariffs that for many years have not been raised to cover operating and maintenance costs.

Tanzania now appears to be tackling the root cause of the power shortages. The government and Tanesco have outlined an ambitious five-year, .3bn capital investment plan which includes funds for new generation, strengthened transmission and expanded distribution. In September, the company secured east Africa’s biggest corporate finance package, raising a government-guaranteed 0m from local banks and pension funds. The government has appointed Idrid Rashidi, a former central bank governor, managing director of Tanesco, instead of a South African management group which left the country earlier this year. The company is to buy out IPTL and convert it to natural gas so the generator becomes a cheaper source of power. It will also raise its own tariffs for customers so they reflect generation costs – not an easy sell given the unreliable supply.

Empire built on chickenfeed

By Barney Jopson, Financial Times, Published: Nov 07, 2007

Like a true entrepreneur, Hillary Shoo lives and breathes his business. But he has little choice in the matter because the air at his factory is thick with the product, which races up nostrils, chafes down throats and impregnates clothes. This is the world of chickenfeed and Mr Shoo, managing director of Hill Animal Feeds, is one of its impresarios. His eight-year-old business is small, employing just 25 people on the outskirts of Dar es Salaam, Tanzania’s commercial capital. But its strategic originality sets him apart from the crowd. Mr Shoo’s experience also underlines the difficulties of running a company in Tanzania.

Hardy-looking young men staff the factory, all of them dusted in a light film of yellow feed. They tip carefully-measured ingredients into four giant blenders (including maize, fish meal, limestone and animal bones from a nearby national park) and haul sacks filled with the output on to trucks waiting outside. One 50kg sack costs about TSh12,000 to make and sells for between TSh13,000 and TSh15,000, Mr Shoo says, but he does not want to reveal any profit figures. As he sips Coca-Cola in his office next door, he explains how the factory has become the centre of a chicken-themed mini-empire. First, he saw that demand for chickens was booming and decided to open his own poultry farm with 8,000 to 9,000 birds. Then, realising the importance of chicken vaccinations and antibiotics, he opened an Agrovet Supplies store so customers could pick up medicines when they came to place feed orders.

His latest idea is to make the polypropylene sacks in which feed is transported, a brainwave that came when his own supplier made him wait three weeks for new sacks because it could not keep up with orders. He has even grabbed the attention of GroFin, a business development and finance group funded by western financial institutions such as the UK’s CDC, which will lend Mr Shoo 0,000 to buy a sack-making machine from India. It is GroFin’s second Tanzanian investment since it set up shop in the country in March. In addition to charging an 18 per cent interest rate, which is not unusually high for Tanzania, it has the right to 2 per cent of annual revenues and is taking property as collateral. “The decision to lend is simply because Hillary is a successful business person,” says Ezra Musoke, GroFin’s investment manager in Tanzania. “There’s a feel-good factor. The vet shop, the poultry farm – they’re complementing the business. He’s done a structured expansion.” Mr Shoo’s existing empire is clearly vulnerable to bird flu outbreaks. But GroFin calculates there is big demand for polypropylene sacks for non-poultry products too, such as maize, rice and sugar. Its projections are that in three years Mr Shoo will be churning out 15,000 a day.

Tanzania, however, does not make running a business easy. Following repeated power cuts last year Mr Shoo is planning to buy a diesel-run generator, reasoning that expensive electricity is better than none at all. And, because he gets only two or three days of water a week from the authorities, he has dug his own borehole. Given Tanzanian bureaucracy, the mention of licences elicits a groan. Mr Shoo needs one from the tax man, one from the Veterinary Council and one from the Food and Drugs Authority. In spite of the time required to secure them, they do not seem to stop other officials from coming round to probe. “They need to centralise it so you can get one ticket that makes it clear you’re allowed to do business,” he says. Financing is another problem, which is why Mr Shoo hooked up with GroFin. He was introduced by a local bank, Eurafrican which, like most of its peers cannot, or does not want to, lend risk capital to start-ups. “Banks will only come when things are good,” he says. He had to start Hill Animals Feeds in 1999 with the money he had saved from a successful bar he once ran. A departure from the poultry theme? “Well,” he says with a grin, “the customers did eat chicken.”

Attempt to catch a new class of traveller

By Tom Burgis, Financial Times, Published: Nov 07, 2007

Elephants, explains Hassan Mwinjuma, spend 18 hours of every day consuming the 300kg of grass they need to sustain their bulk. As if to prove the point, a male of the species chomps laboriously on tuft after tuft just five metres away, one of 60,000 elephants in Tanzania’s Selous game reserve, an expanse of bush and jungle substantially larger than Switzerland.

It is precisely the image the country’s tourist industry wants to project. By day, man and beast indulge in mutual, solitary curiosity. At dusk, the former repairs to the likes of Sable Mountain Lodge – a 0-a-night, solar-powered retreat popular with honeymooners, and owned by the Tent with a View travel company where Mr Mwinjuma is operations manager. The latter, meanwhile, slopes off to rest before another hard day’s eating. The government has made tourism, along with agriculture and mining, a pillar in its blueprint for economic growth. It would have been foolish not to in a country that boasts the Serengeti national park, Ngorongoro crater, the Zanzibar archipelago, Mount Kilimanjaro and the conference resort of Arusha.

In the decade from 1996, annual tourist arrivals have doubled and receipts almost trebled. Further expansion in gross visitor numbers is capped, however, by a deliberate “low-volume, high-value” policy designed to retain the mystique of the 14 national parks, 31 game reserves and a brace of marine parks while maximising income. Intense branding is afoot in an attempt to corner the top of the market. Peter Mwenguo, head of the national tourist board, has at last seen his marketing budget, which had languished at less than m since 1993, rise to .8m for 2007-08. He plans to spend a sizeable chunk of it advertising on CNN and BBC World.

Mr Mwenguo sits on a panel of businesspeople and officials charged with concocting a pithy national tag-line along the lines of “incredible India”, Malaysia’s “truly Asia” or South Africa’s “rainbow nation”. The finished article is expected to be somewhat catchier than the present effort – “Tanzania: land of Kilimanjaro, Zanzibar and the Serengeti” – a legacy of the days when the country’s marketing focused on pointing out that its most precious assets were not, contrary to suggestions from north of the border, in Kenya. The strategy to target a limited number of big spenders – in contrast with Kenya’s mass tourism approach – appears vindicated, however. Mr Mwenguo says it took Kenya 1.2m visitors last year to generate 0m, while Tanzania made m more from just over half as many tourists. Moreover, although the amount each visitor spends daily has been static at about 0 for a decade, the average length of a stay has risen steadily from 7.5 days in 1997 to 12 last year.

“All safari destinations have seen boom times over the last two years,” says Mahmud Jan Mohamed, managing director at Serena, whose seven top-end hotels and lodges in Tanzania make it the country’s biggest private-sector operator. “But we have to understand that every destination is cyclical. There is always a danger when tourism in any area goes through a boom that everybody wants to get into tourism. Then when the chips are down you get a price war and you are back to square one.”

Official figures indicate that the main growth market is Europe, home to one-third of all Tanzania’s visitors. But tapping that pool more deeply will be difficult as long as the paucity of direct flights continues. International airlines flying from Europe and the Middle East favour Nairobi over Dar es Salaam, so much so that Mr Mwenguo had to fight to secure a ticket for his minister on one of British Airways’ thrice-weekly direct flights from Tanzania’s commercial capital. Air Tanzania, the state-owned flag-carrier, has long been a regional laggard, humbled by Kenya Airways, which is expanding its routes rapidly. The latest relaunch furthers the branding exercise by emblazoning on the tails of Air Tanzania’s ageing Boeings a new logo – the peaks of Kilimanjaro and the national icon, a placid but purposeful giraffe.

Yet even as expectations for the sector soar, the state’s stewardship of its four-legged resources has been called into question by a particularly exclusive strand of tourism: big game hunting. It is largely shielded from view, confined to designated blocks of the game reserves and specialist areas of the internet, where satisfied hunters display their trophies. Hunting is legal and, officials say, strictly regulated so that it poses no threat to population levels. Indeed, with newly-raised trophy fees ranging up to ,000 for an elephant, it is potentially very lucrative. Nonetheless, it has been enveloped in a furore born not of squeamishness but of what is seen as opaque licensing and the scant collection of fees. A critical 2004 study published by the International Council for Game and Wildlife Conservation determined that, even as hunter numbers grew by 400 per cent between 1988 and 2001, government income per hunter flatlined. Press investigations into murky allocations of hunting blocks have further stoked outrage. Roads and schools promised in return for concessions have not materialised. In response, the government has raised hunting fees by 500 per cent.

Then there is the so-called Google factor. Tanzania’s efforts to pitch itself as an “eco-destination” to tourists who fret about carbon footprints and endangered species will be sorely hampered if their internet search on Selous yields up hunters’ snaps of bullet-ridden buffaloes. Such obstacles are unlikely to derail the sector’s progress, observers say. The country has set a clear course and can expect more investment. With a quarter of its land devoted to parks and reserves, there is significant room for expansion. In spite of the low-volume policy, officials are moving to accommodate more backpackers and are gradually raising the number of highly prized construction licences.

Serena is finalising plans for two high-quality camps, one in Selous, to cater for what Mr Mohamed foresees as 20 per cent year-on-year growth in tourist volumes. But he counsels that the region as a whole would do well to let rivalries give way to a united front. “As far as I’m concerned, the sooner they [Kenya, Tanzania and Uganda] talk about marketing it as an east African destination, the better.”

 

 

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