The Impact Of Tanzania's Economic Woes On Kenya

Business Special

All signs and indications (from my contacts on the ground) are that the Tanzanian economy's amazing growth rate of recent years will slow down considerably this year. This is not something that Kenya can afford to ignore as the effects of this are bound to be felt in the entire region.

A number of key players in the Kenyan economy export their products to Tanzania and they should now expect the orders to drop dramatically over the next few months as the Tanzanian economy grapples for a solution from a crisis mostly caused by bad luck. Growing markets in Rwanda and new markets rapidly opening up in Sudan for Kenyan products will not quiet compensate for this drop in many businesses.

The main culprits of the problems in Tanzania are the rising price of oil and prolonged drought that ravaged parts of the country and forced heavy expenditure by government to purchase food to save lives. As bad as the drought was, the former is by far the bigger culprit.

An interesting aside here is that the Kibaki administration has been heavily criticized for maintaining a strong shilling (this blogger has been one of the harshest critics). Yet now Kenyans have a lot to thank the strong shilling for because it has averted plenty of problems by cushioning the Kenyan economy tremendously against the rising oil prices. In comparison Tanzania has not been that lucky and what has happened, is that the high oil prices have helped to further weaken the Tanzanian shilling against major foreign currencies.

There is yet another factor that has now started impacting negatively on the previously rapidly growing Tanzanian economy. Pressure from locals for more job opportunities has forced the government to make policies that are now beginning to have a negative affect on the level and growth of foreign investments in the country.

Foreign companies have found it increasingly difficult to obtain work permits for key staff and as a result have dramatically cut back on their investments and projected growth prospects have slowed down considerably.

A perfect case in point is the Nation Media Group. After the high profile expulsions of key members of its' staff by Tanzanian immigration authorities last year, things have never been the same again at the company's Mwananchi Communications venture that publishes several newspapers in Tanzania. The political message has been very clear – that they would have to hire locally for key positions at the company. Training people takes time and the truth of the matter is that the Tanzanian work force coming out of years of a protected economy and socialism, are hardly up to the task at the moment. They will require a number of years to adjust to the realities of the fiercely competitive corporate world.

Little wonder that the Nation Media group in announcing It's results last year used the phrase "[NMG] shrugged off political problems in Tanzania to record increased profits."

The result is that previous high projections are thrown out of the window and so are planned investments for expansion, resulting in slower growth, which in turn also means that fewer jobs are created in the long term. The situation has been very similar with many other foreign investments in the country. The full impact and consequences of this is starting to show and will soon be even more visible.

It is clear that the authorities In Tanzania will have to make some important and decisive decisions over the future of the country's economy and the direction that they want to take. And they will have to make those decisions pretty fast. Indications so far have been that either the government is still unsure of what to do or former President's Mkapa's policies are going to be revised and changed.

It is also just a matter of time before other East African partner states come to the realization that an East African community that does not include Tanzania will move a lot faster since the ordinary Tanzanian on the ground is greatly opposed to it. This means that Tanzanian politicians at the highest level are very reluctant to implement free movement of labour and goods without which they can be no meaningful union.