Twenty years on from a massof privatisations that beganto separate Tanzania’s futurefrom its statist past, eastAfrica’s most populous coun-

try is set for consistent growth of 6.5per cent this year, buoyed by a grow-ing bounty of natural resource discov-eries.

Labelled by the World Bank as a“top performer” for its macroeco-nomic indicators and as “a model ofsound economic performance”, it hassidestepped most of the inflationarypressures that afflicted its neighbourslast year and foreign investors areforming a tentative queue.

The fiscal deficit is falling, tax col-lection is rising and politics is, by andlarge, stable. It remains beloved ofdonors, who, despite regular and high-level corruption scandals, finance athird of spending and say sometimestense relations are thawing as man-agement of public finances improves.

The government has set its sights onbecoming a middle-income country by2025.

Politically, an increasing number ofthe 46m population have a voice, giv-ing a conservative nation stillattached to the paternalistic, socialistheritage of Julius Nyerere, the presi-dent at the time of independence inthe 1960s, the chance to make greaterdemands on its leaders.

As President Jakaya Kikwete pre-pares to step down in 2015 after twoterms in office, a constitutionalreview is set to address everythingfrom local representation to a longhistory of difficult, sometimes violent,relations between the mainland andZanzibar.

A deepwater port, fertile land and agrowing treasure chest of naturalresources stand the country in goodstead. But Tanzania remains subjectto a dichotomy that pits investmentpotential against a business environ-

ment still wary not only of foreignersbut also of the private sector.

The World Bank describes the busi-ness environment as “poor”. Consul-tancy Ernst & Young classifies Tanza-nia a “moderate risk” on the political,economic and security fronts, but“high risk” as far as legislative, taxa-tion and operational difficulties areconcerned.

“Despite the best attempts of thegovernment to destroy itself, Tanza-nia is booming,” says one business-man, mindful that foreign investorsare increasingly keen to establishearly-mover advantage in a countryset to ride a natural resources boom.

“Because of the arrested develop-ment of so many years of nothinghappening here, there is a lot of scopefor growth and consumption,” saysentrepreneur Ali Mufuruki, head ofthe CEO Roundtable, a business pol-icy forum. “But we are nowhere nearhaving a government that is actuallypro-growth and that appreciates therole of the private sector.”

Today, Tanzania faces its biggesttransformation yet. Gas discoveriesoffshore promise to deliver 33tn cubicfeet to a country still smarting from abadly handled investment policy forthe gold industry that took off in thelate-1990s but only started deliveringsignificant corporate tax this year.Observers say it is the administra-tion’s responsibility to shape thecountry’s path as the next Qatar orthe next Nigeria.

“That is the big elephant in theroom,” says Donald Kaberuka, presi-dent of the African DevelopmentBank, about the prospects for manag-ing popular expectations while bal-ancing the forces of corruption andinvestment.

“We and others are pushing theTanzanian government [to under-stand] that the huge inflow of naturalresource-based income could be ablessing or a big problem for thecountry – the choice will be theirs.”

Already, investors fear the spectreof resource nationalism as tax collec-tors squeeze a small group of payingbusinesses and begin thorny negotia-tions with exploration companies thatare worried whether their contractswill hold.

“The new draft gas policy is so fullof ‘government shall . . . governmentshall . . . government shall . . . ’ but

Continued on Page 3Dar es Salaam, the commercial capital, at the centre of transformation Alamy

Investorsform atentativequeueCompanies are keen to establish early-moveradvantage in a country that is set to ride anatural resources boom, saysKatrinaManson

FT SPECIAL REPORT

Doing Business in TanzaniaFriday December 7 2012 www.ft.com/reports | twitter.com/ftreports

Gold miningState has difficultymanaging abig source offoreign exchangePage 2

Inside »

GasReserve figuresmount ahead ofexpected newlicensing roundPage 2

PoliticsAngry young voiceschallenge an ageingpolitical classPage 3

ChinaBusiness groupsare building onbonds forged inthe 1960s and 70sPage 3

Consumer goodsWholesale andretail put on growthof 8.1%Page 4

When a large US informa-tion technology companytried to set up in Tanzanialast year, it took six monthsand a call to the office ofthe vice-president.

The company refused topay any type of facilitationfee, however small, so aprocess intended to takedays rather than monthsstalled until the break-through phone call, saysAdam Lovett, director oflaw firm Norton Rose inTanzania, who was steeringthe registration.

“If you’re trying to dobusiness ethically here,then it’s extremely tough,”says Mr Lovett, adding thatofficials expect bribes forcontracts to be won andeven just for doing theirjob. “But it’s worked wellbecause now people knowthat we don’t [pay bribes].”

Although the old days ofministers demanding tripsto Dubai, costing a hopefulcompany $20,000 just tosecure a meeting, may havepassed, Tanzania is stilldrenched in corruption,petty and grand. Scandalafter scandal, from port topower contracts, have seenswaths of senior officialsand cabinet membersheaved out of office thisyear alone.

Latest statistics indicatethat the trend is going inthe wrong direction. Tanza-nia fell a place in the 2013edition of the World Bank’sDoing Business indicators,to 134 of 185, ranking it farbelow neighbours Kenyaand Uganda. Everythingfrom access to electricityand finance to protectinginvestors and paying taxeshas got worse.

Despite painfully arduousbusiness conditions, Tanza-nia attracted $1.1bn in for-eign direct investment lastyear, according to the UNConference on Trade andDevelopment. This was halfas much as Mozambiqueand Zambia and twice as

much as Botswana andLiberia.

Besides the obvious andexpensive lure of gas andgold, some governmentefforts in other fields maybe paying off. Bas Bruins, aflower farmer, says beingallotted an export process-ing zone – one of more than50 decreed since 2006 – hastransformed his chrysanthe-mum cuttings company,Dekker Bruins Tanzania.The move awards the com-pany tax concessions onraw materials and profits.

Mr Lovett thinks thingscan only get better. “Whenyou have the likes of [UKgas company] BG comingin, they’re under such scru-tiny, that that is changingthe landscape a little bit,starting to improve it,[while] people and the pressare getting more vocal.”

He also cites a Chinesefund that, keen to one daylist on the stock market,insisted from the outset ofone deal that things “bedone properly”. Mr Lovettalso underlines the impactof new laws on corruptpractices that could see UKresidents imprisoned athome for paying bribesabroad.

Nonetheless, Tanzaniahas a way to go. The statefaces claims of shaky con-tracts and internationalarbitration. Tour operatorsare taking the governmentto court in a class actionafter it hiked national parkfees just months after afive-year negotiation wasmeant to set rates in stone.

Lugala Mining says the gov-ernment terminated itscoalfield project onlymonths after it began workin order to give its resourceto a third party that neededcoke to smelt iron ore. Thecompany has put interna-tional arbitration on hold inthe hope that talks maydeliver an out-of-court set-tlement.

Aside from dealing withbureaucracy, corruptionand expropriation, compa-nies claim the country’svery approach to doingbusiness rankles. “It’s

always kesho kesho polepole [tomorrow tomorrow;slowly],” says one business-man.

“We have to do mindsetchange, teach our graduatesto be courageous and hardworking,” says MarcellinaChijoriga at the Universityof Dar es Salaam. “But canyou do that in a class? Itstarts much earlier, athome.”

Business people worrythat a country that wassocialist little more than 20years ago is slow to accom-modate the notion of pri-vate sector investment.Entrepreneur Ali Mufuruki,

founder of Tanzania’s CEORoundtable, a business pol-icy forum, and who left agovernment job to start uphis first company morethan 20 years ago, saysgoing into business wasuntil recently “looked downupon as a betrayal”.

Tax experts say the gov-ernment regularly penalisescompanies without thinkingof the long term. “They aretrying to slaughter the cowthey want to milk,” saysSilke Mattern, tax partnerat Ernst & Young.

Despite the difficulties,manufacturers exhaustedby erratic power supply,expensive finance, ineffi-cient ports and inventiveand constant tax collectors,find they can still compete.

Paresh Patel, head of the200-member British Busi-ness Group, owns Colours &Compounds, a pigment andpolymers company that hasa turnover of $4m a yearand has started to matchglobal competitors. With aworkforce of 3,000, Colours& Compounds supplies 63Tanzanian companies thatmake everything from bot-tle tops to mosquito nets,plus six companies in thebroader east and southernAfrican region. One inMozambique switched froma supplier in India.

“I limit my growthbecause I don’t have moneyto buy machines – all you’redoing is working for thebanks,” he says of highinterest rates. “But, after allthat, you can compete. NextI want to export to the UK.”

Conditions for contracts showgradual change for the betterInvestment climate

Enterprise battleswith bureaucracyand corruption, saysKatrina Manson

Power point: despite erratic electricity supplies, manufacturers can still compete

Only 20 years sincesocialism, thecountry is slow toaccept privatesector investment

2 ★ FINANCIAL TIMES FRIDAY DECEMBER 7 2012

Doing Business in Tanzania

Abdullah looks up from thegold sludge and mercury hemixes with his bare handsand shrugs when asked if heis aware of the risk the work

poses to his health. “I know it isharmful but I have to fight for mysurvival,” he says.

He is one of dozens of artisan min-ers in Samena, a rudimentary villageclose to the giant Geita opencast goldmine in northern Tanzania. They havecreated a makeshift refinery completewith cement mixers to break up rocksgathered from the nearby mines, andpanning frames to filter out largerfragments of gold with water.

Then come the riskier processes:handling mercury to bind to theremaining gold, draining off the resi-due into the groundwater and burningthe amalgam in fires that spread mer-cury vapour. The result is multipleexposures to a toxic product thatattacks the central nervous system.

Dealing with such artisanal mining– which employs more than 1m Tanza-nians and, some estimates suggest,contributes a fifth of annual gold out-put – is just one of thedifficulties facing the government inaddressing how to manage one of itsleading sources of foreign exchange.The country is one of the continent’slargest exporters of gold.

Others include establishing fairlong-term legal frameworks for larger-scale corporate miners, balancingthem with smaller exploration compa-nies and handling the implications ofshifts in ownership. This includes themooted takeover of African BarrickGold by China National Gold Corpora-tion.

Despite significant gold workingsthat were operated between the 1930sand 1960s in Tanzania by its formerGerman and British colonisers,nationalisation after independence ledto a long gap until the late 1990s,when a new long-term frameworkbrought in several large investors.

Since then, mines such as Geita,operated by AngloGold Ashanti, havestill sometimes had to fight domesticsuspicion.

“There is a misconception that wedon’t pay any taxes,” says RichardDuffy, the company’s executivevice-president for continental Africa.He points to cumulative royalties paidto the state in 2000-11 of $103m. Last

year alone they totalled $23m, withanother $77m in taxes.

Yet there has been concern over theretrospective application of a new“mining development agreement”adopted in 2010, which raised a previ-ous 3 per cent royalty on gold sales to4 per cent. That comes as the govern-ment is seeking to boost mining’sshare of gross domestic product from3.3 per cent to 10 per cent by 2025.

“Short-term improvement in reve-

nues may be detrimental in the longterm for the government as a stake-holder,” says Mr Duffy, who is keenfor a stable agreement in order toencourage large-scale investments.“The sustainability of the sector iswhat is important for us.”

Investors have had to cope withsharp variations in gold prices, alongwith other pressures, including uncer-tain power supplies. Now, the compet-itive situation could change again

with China National Gold’s potentialtakeover of Mr Duffy’s competitorBarrick.

He is guarded on the impact butsays: “We are part of internationalagreements and are listed on stockexchanges that require us to be trans-parent and meet our obligations. Thatcould change.”

His staff in Geita is focused on itsown production as well as handlingthe sometimes tense relationship withlocal villagers.

Alongside significant communityprogrammes, AngloGold employs 500local security staff, who struggle inthe absence of state enforcement tokeep outsiders from sneaking into thevast site.

The intruders risk their lives con-structing makeshift mine shafts totake ore. Many of the 23 deaths thisyear at the site resulted from suchactivities.

Such practices are in stark contrastto the company’s intensive safety pro-cedures for its own staff, including$100 on-the-spot cash fines for anyonedriving at more than 50kph, talkingon a mobile phone while driving ornot wearing a seatbelt.

Amani Mhinda, executive directorof HakiMadini, a non-governmentalorganisation that works with small-scale miners, argues that far greateremphasis in Tanzania should be givento the artisanal sector.

“You cannot just wish it away,” hesays.

“Government policies are based onthe formalised sector and the small-scale groups are looked on as disor-ganised rogues. The ministry doesn’thave any idea how to engage on devel-opment issues.”

Mr Mhinda says artisanal mininghelps to alleviate poverty and reducesthe risk of crime. He adds thatembracing small-scale workings maybe one of the best ways to boost goldproduction to meet official GDP tar-gets, without risking more aggressiveand environmentally damaging meth-ods.

As for those in Samena village, forthe present their lives seem farremoved from such discussions, letalone from talks to finalise an interna-tional treaty on the control of mer-cury. Gold may bring wealth but alllife around its production does notglister.

State struggles to manage its goldMiningThe relationship betweenmultinationals and artisans remains difficult, reportsAndrew Jack

As his passengers swiggedfree champagne after beingchaperoned onboard anAirbus from the VIP termi-nal, Ed Winter picked upthe in-flight phone with agrin and said: “Welcome.You won’t ever be seeingthis again.”

Mr Winter, CEO, washosting the maiden voyageout of Dar es Salaam ofFastjet, his budget airlineon which all drinks andother add-ons will bebilled. But the alcoholhelped, as his guestswaited more than 20 min-utes beyond the scheduleddeparture time for take-off.

The company, backed byLonrho, the Africa-focusedconglomerate, and Sir Stel-ios Haji-Ioannou, easyJetfounder, plans to expandfrom its base serving threeairports in Tanzania, add-ing connections by nextyear to Kenya before link-ing in Uganda, Angola,Ghana and, perhaps, Zim-babwe.

The potential is clear.Africans complain aboutthe high cost of domesticflights and the inconven-ience of having to fly toEurope and back againsimply to reach neighbour-ing countries. They havelong experienced unreliableflights in ageing aircraft.

Fastjet’s strategy is tolure existing business andleisure fliers, as well asothers who use differentforms of transport.

With fares as low as $20for connections from Dares Salaam to Kilimanjaroand Mwanza, it is match-ing prices charged for bustravel, where demand ishigher and the time andinconvenience greater.

It says average fares willbe closer to $80 and couldbe $150 for those who bookat the last minute.

Not everyone is con-vinced the model will work.Many point to the difficul-ties of infrastructure, withcramped airports such asMwanza, the “gold rush”town, struggling to copewith existing passengers.

Equally, the absence oftrains or other efficient,cheap public transport tomost African airportsmeans the journey timeand cost are high and willreduce the relative conven-ience of flying.

Alfonse Kioko, CEO ofPrecision Air, Fastjet’smain rival, argues: “I’mnot saying it’s impossible,but they have not donetheir research.”

He says that, after add-ing in taxes, airport fees,fuel price fluctuations andusual budget airline extras– notably large amounts ofluggage typical in theregion because alternativefreight options are limited– the final fares of hiscompetitor are likely to bemuch higher than quoted.

He also argues thatshort-haul flights areextremely inefficientbecause of fuel consump-tion, and that Precision Airbenefits not only from aregional network but alsofrom capacity that comesfrom transit passengersfrom its alliance withKenya Airways, KLM andAir France.

Mr Winter replies thatthe newer and larger air-craft he is leasing offergreater fuel efficiency and,at 150 seats, provide theright capacity to be profita-ble within six months.

He will face competition.Mr Kioko says PrecisionAir has plans for its ownregional expansion intowest Africa, the MiddleEast, Europe and Asia. Heforecasts 1m passengers for2012. “There is enough foreveryone,” he says.

Big potential forbudget carriersAirlines

Andrew Jackconsiders theprospects forregional operators

Rich pickings:mines such as theGeita opencastoperation havemade Tanzaniaone of thecontinent’slargest exportersof gold

When the Tanzania govern-ment unveiled its draft gaspolicy last month, it pre-sented it not to the inves-tors who have helped dis-cover, so far, an estimated33tn cubic feet (tcf) inrecoverable reserves, but toa gathering of diplomats.

“No company hasreceived the gas policy –they didn’t show it to us.The ministry is so arro-gant,” says a senior gascompany executive.

Such exasperation high-lights quite how longand tortuous the negotiat-ing tactics on the way tocommercial production ofgas are likely to be, even asthe impressive numbersmount up ahead of anexpected new gas licensinground.

The policy itself is a mish-mash of positive sentiments– Tanzania is keen for gasexports to help it become amiddle-income country by2025 – and notions thatscare off the private sector.

“The government shall . . .ensure the domestic marketis given first priority overthe export market,” saysthe policy, a precursor to anact intended to replace anobsolete 1980 law.

The government alsowants “transparency andaccountability”, yet to datenone of 26 production shar-ing agreements with 18exploration companies hasbeen published.

Despite a model contract,each company will negoti-ate its own profit sharewith the government.

“It reads like all the gaswill go to the domestic mar-ket and everything willbelong to the state,” saysthe executive. He is mindfulthat explorers are trying toprove the existence ofenough gas to justify one ormore liquefied natural gasplants – likely to cost morethan $20bn apiece – sometime after 2020.

Many gas operators saythe government is so set onboosting domestic powersupply it has failed to com-prehend that its gas marketwill, of necessity, be export-based. This in a countrywhere only 14 per cent ofthe people have access toelectricity and where scan-dal after scandal, alongsideblackouts and wildly expen-sive emergency generation,has engulfed the down-stream sector.

Donors despair too that agovernment inexperiencedin negotiating complex nat-ural resources deals is sosceptical of taking foreignadvice. Despite the odd visitfrom academic Paul Collierand some Norwegian input,the government has nottaken up a joint offer fromthe World Bank and Afri-can Development Bank toprovide experts to assistpolicymaking and helpnegotiate the best deals.

“The government is anx-ious to avoid the mistakesthat were made in the goldsector, but it’s more a showof how committed they areto getting it right ratherthan actually getting itright,” says Kibuta Ongwa-muhana, managing partnerat Ako Law.

Companies are certainlysitting on some big finds.Among the bigger operatorsare the UK’s BG Group, inpartnership with OphirEnergy, which has so fardiscovered more than 7tcfin recoverable reservesfrom three offshore blocks,

while Norway’s Statoil, inpartnership with Exxon-Mobil, has so far discovered9tcf. Petrobras, in partner-ship with Shell, has drilleda dry well but is still devel-oping two offshore blocks.

The test will be whetherthe discoveries will meritbuilding one or more LNGplants. Investors and thegovernment must alsoagree whether such plantswould be based on or off-shore, and how to feedexport and domestic con-cerns, given the absence of

domestic infrastructure todistribute the gas.

“There are very clearexpectations from theauthorities that this shouldbe land-based develop-ment,” says Tim Dodson,executive vice-president forexploration at Statoil, whosays the company is “tryingto get our head around” thenew gas policy.

“At the moment we’re atthe stage where . . . we don’thave enough gas to supportsuch an onshore develop-ment ourselves. Our goal isto prove up enough gas our-selves because there are no

guarantees that we willmove forward with BG,” hesays of a governmentrequest that Tanzania’s twogas giants co-operate todeliver joint infrastructureas soon as possible.

In any case, Tanzania’sdomestic supply will needaction long before 2020.Power cuts affect every-thing from factories toapartment blocks.

Most of the country’selectricity comes fromhydropower and short-termemergency generators thatguzzle millions of dollars indiesel imports.

However, the governmenthas high hopes for gas. Asecond gas pipeline, in addi-tion to the 232km conduitthat runs from Songo SongoIsland to Dar es Salaam, thecommercial capital and thecountry’s biggest city,should be ready in 2014.

The Chinese have agreedto build and finance the$1.2bn 532km pipeline fromMnazi Bay, in the southeastof Tanzania, to Dar esSalaam, on what oneobserver says are “ludi-crously good” terms, with aseven-year interest-freeperiod before low ratescome into effect over 30years.

But there may not be thegas available to fill the pipe-line and no plan to sellwhat little exists.

Bob McBean, executivechairman of WentworthResources, which exploresin Mnazi Bay, had beenplanning to use any gasfinds together with an exist-ing discovery to power apetrochemical plant tomake Africa’s first home-produced fertiliser.

“We can supply 80[bcf]right away but we’d havemade more money with theplant,” says Mr McBean,whose company has insteadbeen asked to divert its gasfor the pipeline.

It will cost his companyanother $100m to explorefor more gas to fill the pipe-line, which can take 200bcf.Besides that, it is not clearhow to raise money tofinance the plan. “I couldn’tbank one red cent of aTanesco contract today,” hesays of Tanzania’s fund-strapped power supplier.

Long and tortuous negotiationsconfront commercial progressGas

Katrina Mansonreports on thefrustrations faced bywould-be partners

Policy is amishmash ofpositive sentimentsand notions thatscare off business

High hopes: Tanzania has vast reserves of natural gas Reuters

FINANCIAL TIMES FRIDAY DECEMBER 7 2012 ★ 3

Doing Business in Tanzania

this is the 21st century, thisis not the ’70s, this is notthe era of the cold war,”says Zitto Kabwe, opposi-tion politician and presiden-tial hopeful. “This is thetime at which we have toembrace investment andhelp maximise revenue.”

Significant investmenthas already started flowing.BG Group and Statoil, gasexplorers, expect to invest$500m apiece in the nextyear alone.

Such big flows, whichanticipate potential com-mercial production after2020, are already boostingsectors such as real estate,retail, construction andtransport.

Residential blocks havebeen commissioned solelyto house an expected floodof expatriates with families.International law firms andconsultancies are moving inand roads are being built.

But the country has so farfailed to make its improvingeconomy count. Poverty re-mains at nearly a third ofthe population, 75 per centof whom live in the coun-tryside. When adjusted foran expanding population,the economy is growing atonly 3.5 per cent a year.

Most of that comes notfrom broad-based privatesector investment but fromaid-assisted governmentspending.

Despite vast agriculturalpotential, complicated landrights and a failure to putfarmers at the heart ofrural policy means agricul-tural output stood at only3.6 per cent last year.

Some outside investorsfind it hard to crack a tradi-tion of tightly held familybusinesses, keen not to dis-close their accounts andwary of the downsides offoreign funding.

Others find it difficult torecruit staff and evenharder to retain them asnew companies compete forlocal talent, pushing up the

Continued from Page 1price of labour in a heavilyprotected market.

Bosses complain that it isdifficult to fire staff, even incases of fraud. Low-gradeinfrastructure stymiesdevelopment.

Investors are neverthelessbacking everything fromtea bags and toothpaste tonickel and uranium. Con-sultants say thousands ofminers are trying to acquiregold licences.

The Carlyle Group, a$157bn US fund, made itsfirst sub-Saharan invest-ment as part of a $210minjection into Tanzania’sExport Trading Group.

But the country is a lag-gard in the broader region.Capital market regulationsrestrict Tanzanians fromputting their money beyondits borders.

Wary it will be subsumedby sharper trading andlabour from Kenya, Tanza-nia has regularly held upefforts to integrate as partof the east African Commu-nity. Of 80 non-tariff barri-ers in the 133m-consumercommon market, Tanzaniais responsible for 50 of them.

Things improve in apiecemeal, donor-backed,fashion.

The country has halvedthe number of road blockson one stretch, from Dar esSalaam, the commercialcapital, to Rusumo, 1,200kmto the west. Donors havefunded an electronic singlewindow system at the port,along with efforts to intro-duce one-stop customs atsingle border posts.

The impetus to craft alasting legacy may see MrKikwete try to deliver onhopes for the donor-backed“Results Now!” effort toimprove everything fromeducation to power.

But while the notion ofimmediate results may betoo ambitious, investorswho eye the long-termexpect to weather it out.“This country is going to bea slow-burner but a sure-fire burner,” says one.

Investors form atentative queue

As with everything he does,Zitto Kabwe’s short-sleevedkhaki safari suit is deliber-ate. Mr Kabwe, who intendsto run for president in 2015,

has 11 more. “This way I can be nor-mal – I can mingle with the peopleeasily without them feeling like theHonourable is here,” says the coun-try’s shadow finance minister and ris-ing light of the Chadema oppositionparty.

Tanzanians are no stranger to trade-mark suits from their political lead-ers. The Nyerere suit, made famousby Julius Nyerere, the country’sfounding father and pan-African liber-ation leader, was a humble, collarlesscall to the very socialist action thatmany argue entrenched Tanzania’sinefficiencies.

“Corruption in Tanzania is like acultural thing now, socialism is acause,” says Mr Kabwe. “People arenot creating work but expectingthings – instead of enlarging the cake,they just take what they can from thecake.”

Mr Kabwe will be 39 when presiden-tial elections are held in 2015 – a yeartoo young to contest the post, accord-ing to the rules. Willibrod Slaa, hisparty’s leader, may contest again andChadema will be mounting its contestfrom far behind.

Mr Kabwe is counting on a constitu-tional review that will not only reduceor abolish the minimum age to con-test the presidency from 40, but imple-ment its findings ahead of elections.

“CCM [the ruling party] has beenrunning the country for the last 50

years, it is too old and tired – the bestway for CCM to reform itself is bylosing power,” says Mr Kabwe. How-ever, Chadema has long been seen asan unruly activist party too disorgan-ised to marshal the rural grassrootsnetworks that repeatedly return CCMto power. Although it increased itspopular vote fivefold in the 2010 elec-tions, a sign its grievances are widelyheld, it would need to nearly double itagain to secure victory.

Besides that, Mr Kabwe says hisparty is so ill-prepared to govern that,were he to win, he would select amulti-party cabinet of all the talents,drawing from both CCM and CUF,another opposition party, whosestronghold in Zanzibar has nevermade the leap to the mainland.

Despairing columns in local newspa-pers are scandalised by such “YoungTurks” and the prospect of a “genera-tional electoral coup”, but the num-bers are against them. While CCM’sold guard is ageing, 65 per cent of thecountry’s 46m people is under the ageof 24.

“My call is for generational change,”says Mr Kabwe. “Tanzanians are sopro status quo, so you really needvery strong voices for it to reform.”

Selemani Kinyunyu, a 26-year-oldlawyer at the Pan-African LawyersUnion in Arusha, is a case in point.

“The country is going through ametamorphosis. The notion that youare nothing without the party, that itis a baba na mama [father andmother] party is going,” says Mr Kiny-unyu. “The country is democratising.”

Yet Tanzania is not deviating too

far from its old norms. For all theyouthful urge to change, Mr Kiny-unyu is part of the status quo too. Hedescribes himself as a socialist andeventually wants to work for the gov-ernment.

Mr Kabwe has nevertheless raisedhis very strong voice against the sta-tus quo several times already to sig-nificant effect. His call for a vote ofno-confidence in the prime ministerafter yet another corruption scandalprompted President Jakaya Kikweteto shuffle eight politicians, includingthe ministers of finance and energy,out of his cabinet in May. Mr Kabwehas exposed state misspending in eve-rything from power generation to pri-vatisations and now wants to go afterpoliticians’ Swiss bank accounts.

Embracing a youthful populationmore aware and angry about corrup-tion and bad leadership may provedecisive for Tanzania’s political class.Some of the main contenders for theCCM presidential candidacy in 2015,when Mr Kikwete is due to step down,are older than the president’s own 62years. All of those worked underMwalimu (teacher in Swahili) – thedeferential term for Mr Nyerere –while Edward Lowassa, 59, the formerprime minister, is likely to retain hisrole as kingmaker.

Its younger members suggest theruling party, split by divisive chasms,must also take account of changingtimes. Which is why, at a meeting inFebruary, CCM rising star JanuaryMakamba, 38-year-old MP and deputyminister for communications, scienceand technology, said he wanted the

voting age lowered to 16. “It’s up toCCM to lose this election,” he says.

Mr Makamba, who says he will notrun on the CCM ticket himself, isamong a crop of young politicians pro-moted to ministerial positions underMr Kikwete.

This tentative new breed goes farfurther than 30-something politicianswho, like Mr Makamba, embrace Twit-ter and are friends with MTV present-ers. Mr Makamba came second in thepopular party vote to elect the 10-member National Executive Councilat his party conference and spends histime worrying about how to clean upthe public purse without risking ahard-won tradition of stability.

Both he and Mr Kabwe take them-selves off (separately) for writingretreats, set themselves annual tar-gets, read voraciously, fight for publicaccountability and believe in the abil-ity and necessity of their country tochange.

With that shift comes tumult. Policehave twice this year teargassed gath-erings of Chadema supporters agitat-ing for change and against corruption,on one occasion killing a journalist.Photographs of the remains wereprinted in national newspapers toshocking effect.

“This is a country where consensusis valued – calm and peace is a bigdeal. Law enforcement authoritiesprobably need to learn how to dealwith this [new] kind of expression,”says Mr Makamba.

Whether 2015 delivers a young pres-ident or not, Tanzanian politics maybe changing for good.

Young activistsbring a beliefthat thingsmust change

PoliticsOld guard is ageing andmost of thepopulation is under 24, saysKatrinaManson

Called to account:President JakayaKikwete had toshuffle his cabinetafter a corruptionscandal Getty

Fu Jijun bounces down thefront steps of China’sembassy to greet his visitor,and ushers him into a largereception room. The deputymission chief exudes open-ness, part of a new genera-tion of diplomats in Tanza-nia led by an ambassadorwho previously worked inbusiness.

With his country’s pres-ence ever more evident onconstruction sites, streetmarkets, casinos and large-scale investments alike, heis keen to engage in thegrowing debate over itsimpact. “There are sometensions but most high- andmid-level officials, whoknow the benefits, welcomeChina’s role,” he says.

Anyone who imaginesthat such connections arerecent need only visit thePalace of Wonders in Zanzi-bar, the local museum thatcontains fragments of Chi-nese porcelain signalling atrading presence. It dates tothe 12th century.

In modern times, the Chi-nese forged strong bonds inthe 1960s, providing mili-tary training and launchingsignificant financial invest-ments in the newly-inde-pendent country.

They funded and built the1,860km Tazara railwaylinking Zambia and Tanza-nia that opened in the mid-1970s. Designed to exportcopper from its landlockedsouth-western neighbour, itsoon came instead to be

seen as a symbol of poormanagement and mainte-nance, providing only mod-est services. It also claimedthe lives of more than 60Chinese construction work-ers, whose graves in Dar esSalaam diplomats visit eachyear to clean and pay theirrespects.

Today the financial andphysical presence is fargreater, including an esti-mated 30,000 local residents.Official tallies suggest thereare 40 Chinese state-ownedcompanies and a further 80private ones, such asUrafiki, a joint venture tex-tile factory. CCTV, the Chi-nese state television com-pany, recently opened abureau to add to Xinhua,the news agency.

Chinese constructionprojects in Tanzania haveincluded some offered asgifts, including Dar esSalaam’s football stadiumand the VIP terminal at theairport. Many others havebeen tenders won on com-mercial terms for road- andbridge-building. As rivalsvacillated, the Chineserecently successfullyoffered to both finance andbuild a $1.2bn offshore gaspipeline, for instance.

Other investments aremore strategic. There areoperations in sugar andsisal production, and dis-cussions over a bid for anew port and processingzone at Bagamoyo, north ofDar es Salaam. At Mchu-chuma, the Chinese have a$3bn joint venture with thestate for coal and iron oremining, power generationand steel production.

China National Gold Cor-poration is in advanced dis-cussions to purchase Afri-can Barrick Gold in a dealthat could be worth up to

$4bn. That has led to con-cerns over the way inwhich management maychange, including possiblereductions in funding ofcommunity programmesunderwritten by the com-pany to date.

One mining expert sug-gests that could triggerbroader changes, both inthe destination of futuregold sales and over whethersmaller mineral explorationcompanies will start toswitch their listings fromthe Toronto stock exchangeto Hong Kong, to get closerto likely acquirers.

More generally, critics ofthe latest source of invest-

ments have raised concernsover the nature of negotia-tions for contracts, thequality of construction andthe preference for Chineseover local labourers.

But some officials wel-come the fresh competitionto traditional western con-tractors.

Rivals concede that Chi-nese investment to dateremains relatively modest,outstripped by the UK,Kenya and other more tra-ditional sources.

Mr Fu says he has 35 dip-lomatic colleagues in thecountry – a relatively largenumber, but far smallerthan his 200 US counter-parts, for instance.

“It’s a sensitive subject,”says Lazaro Nyalandu, whoas deputy industry ministerlast year criticised the Chi-nese presence as traders inlocal markets.

“We definitely want Chi-nese investment, as long asthey respect the law of theland and follow immigra-tion rules. They teach Tan-zania efficiency, hard workand the spirit of enterprise.They live cheaply – that’sthe secret of their success.”

For ordinary Tanzanians,community relations withindividual Chinese immi-grants could prove asimportant a flashpoint ashigh-level investments.

In Dar es Salaam’s bus-tling Kariakoo market, doz-ens of Chinese traders arein evidence, often sitting atcounters in the rear behindthe Tanzanians they havehired.

“They sell goods at lowerprices but of lower qualitythan we do,” grumbles Fili-peon, a local salesman.“Relations are fine betweenus, but we would preferthem to run factories ratherthan sell here.”

Mr Fu expresses concernabout recent tensionsincluding the killing lastyear of a Chinese business-woman who owned a build-ing materials business, amotorbike factory and prop-erty.

“Our government hasalways encouraged dona-tions to local society. Weneed to educate privatecompanies to do better.”

He remains positive aboutthe future.

“Tanzania has great eco-nomic potential and thepolitical situation is stillstable compared with itsneighbours. Investors wantto know their future.”

Greater Chinese presence builton a longstanding relationshipBeijing bonds

Andrew Jack findscommunity tensionsbut officials welcomebig investments

Katrina MansonEast Africa Correspondent

Andrew JackPharmaceuticalsCorrespondent

Stephanie GrayCommissioning Editor

Steven BirdDesignerAndy MearsPicture Editor

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‘Relations are finebetween us butwe would preferthem to runfactories ratherthan sell here’

‘The notionthat you arenothingwithout theparty . . . isgoing’

SelemaniKinyunyu

4 ★ FINANCIAL TIMES FRIDAY DECEMBER 7 2012

Doing Business in Tanzania

Few tour operators havedifficulty in persuadingvisitors of the lure of theSerengeti or MountKilimanjaro.The only difficulty is that

many imagine theseattractions are located inKenya.Add Zanzibar, an exotic

brand name in its own right,and Tanzania’s three mostimportant touristdestinations share a singleproblem: too few peoplerealise which country theybelong to.“We need to work hard to

improve the brand,” saysLazaro Nyalandu, thecountry’s deputy tourismminister, an advocate ofgreater marketing andpromotion, who concedesthat the 850,000 visitorslast year fell beneath anobjective of 1m. “Tanzania isnot very well known.”Of the total number, he

says 250,000 travelled toKenya with what he calls“unfinished business”,coming over the border tovisit Kilimanjaro and possiblyZanzibar or the Serengetibefore flying back to Nairobior home, rather thanlingering in Tanzania.One factor damping

expansion has been theglobal economic slowdown,which has squeezed visitorsfrom traditional sources inEurope. Mahmud JanMohamed, group managingdirector of TourismPromotion Services, whichruns the Serena hotel chain,says there are fewer UK andother European visitors butnew clients have beencoming from the US andfrom emerging markets.Another concern has been

safety, linked to reports ofcriminality and piracy –something the authorities inboth Kenya and Tanzaniahave worked hard to reducein recent months.Ayaz Ali Jivraj, director of

the Opulent Hotel Group,argues the businessenvironment has improvedconsiderably since he beganopening hotels in Zanzibar,

Tanzania and elsewhere inthe region since the middleof the past decade.That includes the

availability of well-trainedstaff, accustomed to thelevels of service he seeks forfour- and five-star hotels.Bureaucratic burdens havealso eased.Many professionals in the

sector suggest Tanzaniashould do more toemphasise less well-knowndestinations, including parksfurther south in the country.Others point to the scope

for boosting cultural andurban tourism. Dar esSalaam is a port city with ahistoric core, but its strikingnew National Museum is letdown by disappointingold-fashioned exhibits inside.Most would agree on the

scope for attracting newtypes of tourist fromemerging markets, with theauthorities recentlypersuading Turkish Airlinesand Emirates to fly directlyinto the country. They aretrying to cultivate Chinesecarriers too.But that requires fresh

airport infrastructure, withconsiderable scope forimprovement in ill-equipped,small and ageing terminals.Opinion is divided on

pricing and capacity withinthe country, with thenumber of hotel rooms inNairobi alone equivalent tototal beds availablethroughout Tanzania.“The cost of lodges has

to come down,” says MrNyalandu.“We don’t believe in

depleting our resources likethe Serengeti with masstourism as they have donein Kenya. But they are stillunderutilised. Competitionwill do it justice.”Mr Mohamed agrees that

the market has becomemore price sensitive, but hebelieves Tanzania shouldretain its exclusivity andavoid the danger of masstourism. “Kenya has paidthe price for it,” he says.

Andrew Jack

Tourism Exotic attractionsthat share a location problem

My life used to be aboutgold but now I’m just ared and green boy,” saysGeorge Theobald, in adeclaration that might

confuse anyone unfamiliar with Tan-zania’s nascent, fast moving con-sumer goods sector.

The colours refer to the nationwidesystem of price banding – gold andblue for the priciest products, greenand red for the cheapest.

At Chai Tausi, Mr Theobald’s teapacking factory in Dar es Salaam,workers throw into the backs oftrucks red and green boxes packedwith tea that sells at as little as fourpence for enough for five cups.

While herbal infusions and tea bagswith strings and paper envelopesmight serve the highest end of themarket, the basic consumer wantssmall sachets of loose tea, modelledon the one-rupee sachets of India,says Mr Theobald.

A former UK stock broker, he saysthat when he introduced the sachetsin the late 1990s in an earlier venture,it increased the country’s tea marketby more than 20 per cent.

“You want to sell into where thevolumes are,” says Mr Theobald, whoexpects the two-year-old business, oneof several Tanzanian tea packers thatsells to street stalls and basic bou-tiques rather than supermarkets, tobreak even once it is selling 60 tonnesa month.

He is 10 tonnes a month short of thetarget, which he thinks he will reachwith more sales in the Dar es Salaammarket.

In the first nine months of the year,draft management accounts show thatcompany revenues reached $1.3m, upfrom $200,000 in its first year of opera-tion.

“The economy end of the market iswhere you make the money,” MrTheobald says.

Tanzania has 4m more people thanKenya but its economy is two-thirdsthe size, attracting investors keen tomake the most of growth from a lowbase.

The wholesale and retail sectorsgrew at 8.1 per cent last year, outstrip-ping total growth by 1.6 per cent.

“You get a huge early mover advan-tage in a country of 46m – the biggestin east Africa – especially if you’re

selling stuff to the guys at the bottomof the pyramid,” says one privateequity investor hungry for deals inTanzania.

It is an increasingly familiar story.Tanzania’s Export Trading Group

last month won a $210m privateequity investment, part of it from the$157bn US Carlyle Group.

It will start a factory to market bite-size soya protein meals to Tanzania’srising number of consumers who aretoo poor to buy meat and fish.

Chai Tausi’s umbrella company,Tatepa, is also a majority shareholderin smallholder tea plantations andgrows avocados for export.

It has attracted frontier marketinvestors Maris Capital, which holds18 per cent of Tatepa’s shares listedon the small Dar es Salaam StockExchange, with $3.5m market capital.

Another investor, Nairobi-listedTransCentury, bought Chai Bora, MrTheobald’s first tea packing venture,just over two years ago and expects tosell the company next month.

The UK’s Satya Capital and eastAfrica’s $125m Catalyst PrincipalPartners’ funds are among other pri-vate equity groups that have backedthe segment, putting money intoChemi & Cotex Industries, a consumergoods manufacturer whose primeproduct is toothpaste marketed asWhitedent, which now winds up notonly in rural shops but in supermar-kets in South Africa. Catalyst is look-ing at more deals in Tanzania.

So little developed is the marketthat, besides the gaping space todevelop new products, with only twoshopping centres to its name, Tanza-nia also needs more places to sellthem.

“The retail scene in Dar is going tobe transformed over the next fouryears,” says Ankush Shah, managingdirector of Sumaria Group, which isamong a clutch of companies vying tobe the first to open big retail opera-tions.

They plan a $50m venture which, at40,000 sq m, would be the biggest not

only in Tanzania but in neighbouringKenya too.

When it opens by 2015, it will offereverything from international fashionbrands to a cinema and a gym, alongwith restaurants and office space onthe Dar es Salaam peninsula to servea growing number of affluent people,including expatriates who areexpected to flood in to serve the nas-cent oil and gas sector.

Mr Shah also wants to target whathe describes as Tanzania’s risinggroup of “locals with money” wholove international brands.

The omens are decent. When therest of the region’s currencies col-lapsed last year amid spiralling infla-tion, Tanzania weathered the storm.

Ali Mufuruki, who co-owns SouthAfrica’s Woolworths chain in eastAfrica, says while he had to close onebranch in Uganda, all four Tanzaniabranches are still going. “You mayhave some bad seasons but, in theend, retails always works out,” hesays.

Money to be made at grass rootsConsumer goods Groups are keen tomake themost of growth from a low base, writesKatrinaManson

Time for tea: theordinary consumerwants smallsachets of loosetea, modelled onthe one-rupeesachets of India

‘You mayhave badseasons but,in the end,retail alwaysworks out’