Protectionist tendencies and erratic policy-making are likely to deter the kind of private investment needed to help Tanzania achieve its industrialisation goal within the next five years, a leading UK think tank has predicted.
In its latest country report for Tanzania published this month, the Economist Intelligence Unit (EIU) also cautions that although President John Magufuli remains a firm favourite to gain re-election, the continued squeezing of political space within the country could fuel public discontent in the run-up to the 2020 general election.
"Tanzania will remain politically stable during the period 2020-24, but we expect some volatility in the political landscape as electioneering picks up next year," the report says.
It asserts that early signs of this have already started emerging "amid speculation about divisions within the ruling CCM party, owing to President Magufuli's centralised style of leadership (as demonstrated by repeated Cabinet reshuffles) and his intolerance to opposing views."
But the EIU is confident that President Magufuli enjoys "sufficient support" within the ruling CCM party to ensure he sails through on the back of the party's "well-oiled party machinery" in 2020.
On the economic front, the EIU believes that while rising public and private infrastructure investment will support average economic growth of 5.8 per cent between 2020-2024, real GDP growth in those years will be lower than the estimated 6.5 percent at present. This is because of declining business confidence.
The Tanzanian shilling will weaken from an estimated Tsh2,289 at present to Tsh 2,641 against the US dollar by 2024, due to twin fiscal and current-account deficits pressure.
However, the EIU cites competition for regional trade between Tanzania and Kenya, and the impediments this is causing to the East African Community integration, as a major risk scenario for Tanzania in the sense of triggering "potential developments that might substantially change the country’s business operating environment over the coming two years."
"Periodic trade disputes between the two biggest EAC economies will curb intra-EAC trade flows (although) the EAC will remain eager to intervene and resolve issues between the two during the forecast period," the report says.
Tanzania also faces other profound risks like the possible enactment of "ill-conceived import and export bans" that would lead to a sharp drop in trade, plus the threat of business taxes being hiked "without prior consultation."
There is also the risk of public corruption rearing its ugly head again and triggering a new round of external aid freezes, although this is one area that even critics of President Magufuli's (hardline) administration say it has managed to control to a large extent.
The EIU says Tanzania's official economic policy agenda will remain at odds with its rhetoric as it continues to lean towards economic nationalism, especially in the natural resources sector.
"Given our forecast that Mr Magufuli will be re-elected in 2020, we expect trade policy to retain a protectionist slant, thereby impeding the government's envisaged growth trajectory. The mining industry will continue to be particularly affected by a strict regulatory framework," the report says.
Other sectors such as natural resources are also expected to continue to suffer from official protectionist policies, although more resilient sectors like infrastructure are expected to continue to attract FDI inflows.
The EIU predicts that services, which contribute almost 40 per cent of GDP, will be another economic driver for Tanzania, spurred by trade, transport and telecommunications.
"A boost to tourism, provided in part by the expansion of Air Tanzania (the national carrier), will also drive growth in services," it said.