With ‘The Bulldozer’ at Tanzania’s helm, big businesses are running scared

Supporters of Tanzania’s President John Pombe Magufuli cheer him after he won the most hotly contested presidential election since independence. (Emmanuel Herman/Reuters)

Some of Tanzania’s biggest foreign investors say they could scale back their operations or expansion plans because of tougher demands placed on companies, including higher tax bills, as part of the president’s drive to overhaul the economy.

At least six companies are rethinking their business and investment plans, according to senior executives at a dozen of the biggest foreign firms or their local branches, in sectors including mining, telecoms and shipping.

Three said they could scale back operations, two said they planned to expand in other countries on the continent and one said it was in the process of withdrawing from Tanzania altogether.

The companies asked not to be named owing to the sensitivity of the matter and because their plans have not been made public.

One firm had not yet made a decision and five companies said their plans were unaffected – including two involved in giant projects, a $30-billion liquefied natural gas plant and a $3-billion fertiliser plant.

Tanzania is more reliant on foreign direct investment than many other regional countries, given the size of its economy. It received just over $1.5-billion last year, into an economy valued at under $45-billion, according to figures from the United Nations Conference on Trade and Investment and the World Bank.

Neighbouring Kenya – with a $61-billion economy – received slightly less than Tanzania, and South Africa, with a $313-billion economy, received $1.7-billion.

Tanzania’s President John Magufuli, nicknamed “The Bulldozer” for his infrastructure projects and pugnacious leadership style, launched his reform drive after he was elected last year, promising to transform an economy hobbled by red tape and corruption and carry out a major building programme.

A strict new tax regime tops the list of companies’ complaints; Magufuli’s government imposed tax hikes this year on mobile money transfers, banking, tourism services and cargo transit services. In some cases, businesses say they have been warned by regulators not to pass the cost on to consumers.

Tax revenues for the 2014/2015 financial year totalled 9.8-trillion shillings ($4.5-billion). In 2016/2017, the target is 15.1-trillion – a jump of more than 50%.

Many of the executives interviewed said they were frustrated by increased tax demands that do not properly correspond to their incomes.

A local franchisee for a global brand said it was in the process of leaving the country after a tax bill this year topped its combined sales for the past five years. It said it had already sold one outlet and closed another.

An executive, whose company has invested hundreds of millions of dollars in the country, said he was now looking at expanding in Kenya or Mali, rather than Tanzania, partly because of the new tax demands.

The government says teething problems with new measures will give way to a fairer, stronger economy, and says it is natural for businesses to feel unsettled during periods of change.

“There have been some complaints but we hear them and we have an open door,” said Adolf Mkenda, permanent secretary at the ministry of industry, trade and investment.

“We are just making sure everyone pays what they should. We are creating a fair and level playing field.”

Richard Kayombo, director of the Tanzania Revenue Authority (TRA), said increased tax income was needed to pay for new infrastructure. The TRA won nine out of 10 recent tax cases, which showed their bills were fair, he added.

The government has also told mining companies to build smelters to refine copper, silver and gold mixed ore in Tanzania, to create jobs, but executives say there is not enough of such ore to make this economically viable.

Major foreign firms active in Tanzania include energy firms Statoil, Royal Dutch Shell, Exxon Mobil and Ophir Energy; engineering firms Ferrostaal Industrial Projects and Haldor Topsoe; telecoms companies Airtel and Vodacom; mining firm Anglo Gold Ashanti; and shipping firms such as Maersk.

Executives in the telecoms and mining sectors, which each account for about 4% of Tanzania’s gross domestic product, are concerned by legal requirements to list large chunks of their businesses on the local stock exchange, saying it is unclear whether there is enough liquidity.

Magufuli says the listing move will bring more transparency and offer the public a share in the industries’ profits.

Businesses have longed for a shake-up of an economy that has lagged behind East African neighbours for decades. Recent years saw strong annual growth of about 7% but it comes from a low base.

But executives say Magufuli’s government risks undermining its economic plans by turning away vital investment and jobs from the poor nation. Some are also worried by recent moves that included banning opposition rallies, placing heavy restrictions on the media and ending parliamentary broadcasts. Most companies welcomed the president’s moves to clamp down on corruption in government and business, which included him sacking scores of officials.

John Corse, chief executive of regional airline FastJet, said the crackdown had meant officials were now more helpful and available, but the reduction in the amount of money circulating had forced him to cut his fleet from five planes to two.

“Prevalent corruption did create cash swirling around and that’s been taken away,” he said.

Source: mgafrica