The row between the Tanzanian government and the British mining company Acacia Mining is escalating now the government has demanded Acacia to pay taxes and fines for almost USD 200 bn. Acacia, which has three mines in Tanzania, is accused of underreporting the amount of its gold exports. This is a dispute that started in March when President Magufuli imposed a ban on the export of unprocessed metal ore.
Impact on country risk
The current government’s economic policy is sending mixed signals. On the one hand the macroeconomic environment is stable and the government is implementing some positive economic reforms. But at the same time President Magufuli’s interventionist approach, the frequent attacks on his own bureaucracy and his willingness to interfere with economic regulation have worried foreign investors. The ban on the export of metal ore is an example of this. It should be seen in light of the long tradition of economic nationalism in Tanzanian politics. But while the ban has the aim of developing more added value and stimulating domestic processing of natural resources, it risks alienating investors. The recent interventionist approach of President Magufuli is therefore putting pressure on the investment risk in the country at a time when the country is looking for investors for a number of large investment projects. The country hopes to launch several large infrastructure projects, including a standard gauge railway to landlocked neighbouring countries, an oil pipeline from Uganda's oil fields (to be built by Total), and several power-related projects. At the same time the economic outlook for the country remains positive. Between 2005 and 2016 the country has enjoyed high economic growth of 7% on average, which is expected to continue in the medium term if the large infrastructure investment programme materialises. Inflation has been reduced from the high level of 19.8% in fiscal year (FY) 2010/2011 to 5.8% in FY 2016/2017. The country’s structural current-account deficit remains a weakness, however. It reached a high of -12.1% of GDP in FY 2011/2012, but has recently been narrowing and is expected to reach a historic low of -5.4% of GDP in FY 2016/2017. True to his election promise, President Magufuli has cracked down on corruption and tax evasion. This has led to an increase of tax revenues but the increased tax scrutiny has also created uncertainty for local businesses and among investors.
Analyst: Jan-Pieter Laleman, email@example.com