Investment profile: Tanzania

Africa Outlook takes a closer look at Tanzania's business and investment potential.

Writer Ian Armitage

When U.S. President Barack Obama visited Africa earlier this year his whistle-stop tour ended in Tanzania, East Africa's second largest economy.

During his stay, he laid a wreath for the victims of the 1998 US embassy bombing in Dar es Salaam and visited a US-owned power plant after which he pledged $7 billion to double access to electricity in sub-Saharan Africa and help combat frequent power blackouts.

Funds from the initiative - dubbed 'Power Africa' - will be distributed over the next five years.

"We're starting with countries that are making progress already with reforms in the energy sector - Tanzania, Ethiopia, Kenya, Nigeria, Ghana, Uganda, Mozambique and Liberia," he told a business leaders forum in Dar es Salaam, adding that, "Tanzania has the potential to unlock new economic growth not only in this country but all across East Africa."

The world is investing in Africa like never before and many see Africa as the world's next major economic success story. The U.S., China, Japan, and almost everyone else, from almost every sector imaginable, wants to be a partner in that success - keen to establish early-mover advantage. But why Tanzania? First of all, there's an abundance natural resources and Tanzania has an estimated 41.7 trillion cubic feet of recoverable natural gas reserves. The opportunity comes from the fact little of it is pumped out, while economic growth remains constrained by chronic energy shortages that result in frequent power blackouts. This is in part behind Obama's investment.

"With a focus on cleaner energy, we will initially add 10,000 megawatts of new electricity generation, which expands electricity to 20 million homes and businesses," he said.

Just before Obama's visit, General Electric and Symbion Power Tanzania, a subsidiary of the U.S. power company, signed a co-operation agreement to develop a 400MW gas-fired power plant in southern Tanzania's Mtwara region. It will also include a transmission line to Songea, a city near Lake Malawi.

"Tanzania is growing rapidly and to ensure we have an enabling environment that supports sustainable economic growth, we need to overcome inhibiting challenges such as interrupted power supply. This project will do just that," John Rice, Vice Chairman and President of GE, said in a statement.

Discoveries offshore of Tanzania and Mozambique waters have led to predictions the region could become the world's third-largest exporter of natural gas: offshore Tanzania may hold as much as 17 trillion cubic feet of natural gas considering recent discoveries there, says Norwegian major Statoil.

In March it announced with joint venture partner Exxon Mobil that it had discovered at least four trillion cubic feet of natural gas offshore in the Tangawizi-1 well, bringing the total reserve estimate to as high as 17 trillion cubic feet.

"The Tanzania government is pleased to learn about additional gas resources ... and remains optimistic on future developments," Tanzanian Minister for Energy and Minerals Sospeter Muhongo said.

Statoil Exploration Vice President Tom Dodson added that Statoil has completed five wells in Tanzania in the last 15 months. More are planned for this year. "Recoverable gas volumes in the range of 10-13 TCF brings further robustness to a future decision on a potential LNG project," he said. "I am very satisfied to see how the organisation is able to rapidly follow up on the exploration success both by being able to develop a successful drilling strategy and to plan and complete the drilling operations in a safe and cost-effective manner."

Tanzania's booming extractive industry (it also vies with Mali to be Africa's third largest producer of gold) makes it attractive to investors in many places. Yes, there are political schisms and corruption in Tanzania, but the country's stability is important for business and despite the corruption and likely instability in the future, it is a fantastic investment destination.

Tanzania foreign direct investment is expected to grow 10 percent this year from $13 billion in 2012.

New projects are expected in agriculture (for example Carlyle Group has partly funded a $210 million investment which will allow Tanzania's Export Trading Group to open a factory producing soya protein meas) and infrastructure and the country is planning its first Eurobond.

The UK topped the country's FDI list last year with $4.7 billion from companies including BG Group Plc and SABMiller Plc.

SAB India invested $1.8 billion.

Poor infrastructure has made Tanzania a high-cost business area. The World Bank has stated that the country and its East African neighbours could boost their annual GDP by up to $1.8 billion and $830 million respectively by taking measures to improve the efficiency of the Port of Dar es Salaam.

The port is the gateway for 90 percent of Tanzania's trade, clearing $15 billion of merchandise annually. In addition, it provides vital access to Tanzania's six landlocked neighbours: Malawi, Zambia, Burundi, Rwanda, Uganda, and Eastern DRC.

"The Port of Dar es Salaam has enormous potential to contribute to the transformation of the country as its impact cuts across all aspects of life in Tanzania," said Philippe Dongier, the World Bank Country Director for Tanzania, Uganda and Burundi. "For example, medicines are imported through the port as well as some of the food consumed in Tanzania. This underscores why efficient operation of the port should be a concern for everybody."

Tickets recently went on sale for fastjet's new domestic route in Tanzania, between Dar es Salaam and Mbeya.

The low-cost African airline said flights to Mbeya's new Songwe airport will commence on November 1 and initially operate three times a week.

The newly-developed Songwe airport serves not only the city of Mbeya, but also the densely populated cross-border regions of northern Zambia and Malawi.

Commenting on the launch, Ed Winter, fastjet CEO said: "We have been inundated with requests from passengers for fastjet to operate a service on this route, and are extremely pleased to be launching ticket sales today, building on the success of our existing Tanzanian operation. The Government of Tanzania has invested a considerable sum to develop this brand new airport and the regeneration of its infrastructure is due to be completed in October, allowing us to commence flights on the 1st November."

fastjet CCO Richard Bodin added: "The launch of flights between Mbeya's Songwe airport and Julius Nyerere airport in Dar es Salaam demonstrates that we are committed to delivering on our promise to the Tanzanian population to fly to airports that are sufficiently developed to accept our modern jets. We are offering fares starting at our trademark price of $20 (Tsh 32,000) excluding fees and taxes, and are confident that this will not only stimulate both commercial and leisure traffic but also give passengers an alternative to long and arduous journeys by road."

To learn more about investing in Tanzania visit www.tic.co.tz.