Speech by the President of the United Republic of Tanzania, His Excellency Mr. Benjamin William Mkapa, at a Luncheon Hosted in his Honour by the Eastern Africa Association, Hyatt Carlton Tower Hotel, London, November 12, 1996

Chairman of the Eastern Africa Association,
Members of the Association,
Distinguished Guests,
Ladies and Gentlemen,

I should like to begin by thanking our gracious hosts, the Eastern Africa Association, for making such hospitable arrangements for my meeting with you this afternoon, and not least for such a sumptuous meal. I hope at the end of it all I shall have done deserving justice to both the meal as well as the subject of our meeting!

But let me also thank you all for coming to this luncheon - to meet me, to eat with me, to hear me out - and to make up your own minds on whether I can deliver on my promise to develop and nurture a genuine and mutually rewarding relationship and partnership between my administration, the private sector in general and foreign investors in particular. I hope to be able to convince at least some of you that I shall indeed deliver and that it is worthwhile for each one of you and us to invest in the new Tanzania.
Distinguished Guests,

Tanzanians are generally very friendly people, and your presence here gives me sufficient courage to call you friends of
Tanzania. Being among friends can be very comforting, but it
also imposes certain mutual obligations, one of which is the obligation to be open and frank with each other. I intend to do that, now and always, and I am confident that you, in your turn, will be equally frank and open in your responses and questions. Only then can our encounter this afternoon be meaningful, rewarding and fruitful.
I have as a matter of fact already experienced your own inclination towards openness and frankness for which I am most grateful. I had a breakfast meeting this morning with Messrs Buckmaster, Gardner, Davidson and Martineau. Between the four of them I could garner what I believe to be a representative cross-section of the views on Tanzania held by the corporate members of the Eastern Africa Association. Not too flattering, I can assure you! But at least it helped me to address some of the issues of concern to you as you consider the new economic and investment climate in Tanzania.

I can see that most of you know Tanzania quite well, having previously invested, or currently investing, in our country or having otherwise been associated with us. I do not, therefore, have to dwell at any length on outlining the abundant, varied and as yet un-exploited mineral wealth; the abundant and as yet under-utilised agricultural potential; the abundant, varied and as yet under-exploited tourism potential; and the abundant and only partially exploited transit trade potential, to mention only a few. You already know all this, and much more.

You also know our short history as an independent nation, and of our well-meaning policy initiatives towards rapid social and economic development in Tanzania. At independence, in 1961, the economies of quite a number of South East Asian countries were not much better off than ours in the then Tanganyika. Today the economy of Tanzania is not much better off than it was back then, while the emergence of the "Asian Tigers" is common knowledge. One has the right to ask why this difference. But to answer that question would entail digressing too far from the theme of my address - a theme that looks not so much to the past, as to the present and the future. We know our past well, and I can assure you that we have learnt well from it. I am a President of the present and of the future.

You also know of the economic policies we pursued over the years - all very well-meaning - but with a regrettable dampening effect on private initiative. An unfortunate image of hostility towards foreign investment developed. It is an image we are still trying to shed. If you think we have not succeeded well enough to do so, I can assure you it is certainly not for the lack of trying. The question whether Tanzania can now be considered safe, secure and profitable for foreign investment seems to have remained unresolved in many corporate minds - in spite of 10 years of economic reform! Extensive administrative and legal measures have been taken to promote and protect foreign and private investments. A thorough review of the national macro-economic policy framework has been undertaken. The role of the private sector as the engine for growth has been recognised in spirit, word letter and deed. An extensive privatisation programme for state enterprises is in its third consecutive year and is slowed down only by a shortage of serious takers. Add to this our clear policy statements and we are perplexed as to why some people do not seem convinced sufficiently that Tanzania now has a reformed economic outlook - a new Tanzania that is truly friendly and welcoming to foreign private investment, one that is going out of its way to facilitate foreign and private investment, and one that is continuously refining its policies and nurturing a healthy and continuous dialogue with the private sector.

I certainly understand the basis of the hesitations in many a boardroom, but all I ask is to be judged not solely on the basis of our history - a history that cannot be re-written - but on the basis of our recent track-record in economic reform, barring solvable problems of transition, and especially on the tremendous progress we have made since I took office one year ago. It is true attitudes change hard, but a clear trend has emerged and our eyes should be focused on this new trend. There is, however, no gainsaying the need for a new boldness - boldness on the part of my Government to take all decisions, however painful, to create an enabling environment for the participation of foreign investors in the realisation of Tanzania's enormous potential for growth; and boldness on the part of investors to shed their stereotypes, judging us for what we stand for and not what we were. Together we can then be pioneers and anchors of a new era in Tanzania's economic history and growth. Together we can create an economic re-birth of Tanzania by the turn of the century, and this is not wishful thinking.

The bold measures we have taken so far have begun to bear fruit. The GDP, which had been decelerating at around 1.0 percent per annum during the early 1980s, has since 1985 averaged 4.0 percent against a population growth rate of 2.8 percent. The rate of inflation which had reached almost 40% two year ago has now fallen substantially to its current level of 15-18%. We are determined to, and we think we can, bring it further down to a single digit level by the end of next year, a level comparable to that of our East African neighbours.

The pervasive foreign exchange controls of the 1970s and 1980s are history now. The value of the Tanzanian Shilling is now freely determined by an inter-bank foreign exchange market. The exchange rate has stabilised. Deposit and interest rates are falling. Current international transactions have been fully liberalised following Tanzania's accession to Article VIII of the IMF Articles of Agreement in mid-July 1996.

Tax administration has improved with the establishment
of the Tanzania Revenue Authority. In this first year of my administration, revenue collection has increased by 60%, from an average monthly collection of T.shs.25 bn. to T.shs.40 bn. at present. We hope to reach the T.shs.50 bn. mark very soon. Deficit financing, that inflationary and common feature of financing the government budget before the adoption of economic reforms, has been virtually eliminated. Budgetary controls are more purposeful, and discipline in expenditure has been enhanced.

The IMF staff-monitored programme we put in place at the beginning of the year was scrupulously adhered to despite the pain it caused to our people, and the straight jacket in which it put the Government. Indeed, we went beyond the benchmarks of the IMF shadow programme. Four days ago an ESAF agreement was agreed upon in Washington between my Government and the IMF, signalling renewed donor confidence and support to my administration. We are now looking forward to a debt rescheduling agreement at the Paris Club in January.

The ongoing institutional reforms have also made it possible for multinational banks to open branches in Tanzania. Ten new private commercial banks have been licensed in the last three years, out of which eight are foreign. Seven of them are already operational. In addition, six new private non-bank financial institutions have been granted operating licences and all, except one, are in operation. The Insurance Business has been, by legal repeal, demonopolised.

A number of foreign companies have established footholds in privatised companies. Between 1992 and October 1996, out of a total of 371 national parastatal enterprises, 141 have been privatised. The returns have been considerable and encouraging. The Government no longer extends any subventions to the parastatal sector. The privatised parastatal
companies are performing well and have already led to increased output and the creation of new jobs. For the first time after a long period of darkness, the revitalised companies have started paying dividends and servicing their own debts.

More deals are in the pipeline for private sector acquisition of interests in a variety of sectors including mining and construction; hotel and tourism; manufacturing and industry; primary agricultural production and agro-processing; oil and gas exploration and exploitation; pioneering work in telecommunications and information technology, and so on.

Between 1993 and 1995, its previous problems notwithstanding, the Investment Promotion Centre approved a total of 763 private sector projects worth nearly $ 2 billion, creating 120,800 new jobs. At the recent International Investors' and Technology Forum held at the Sheraton Hotel in Dar es Salaam, 5 - 8 November, 1996, four contracts and 75 letters of intent covering investment projects worth USD 786 mi. were signed.

Mr. Chairman,
It should be apparent, therefore, that many possibilities exist for private sector participation in the Tanzanian economy. The economy is clearly opening up and business opportunities are emerging. The government is keenly aware of the need to further improve the investment climate. For, we recognise that over and above our positive attributes of the abundance of un- or under-exploited natural resources, and of unparalleled political stability, peace and security, potential investors also want certain standard guarantees on reasonable and sustainable returns on their investments. The dialogue I wish to encourage between us will increase our knowledge of your concerns and, with the high level of political commitment I have for this process, enable us to address them to the best of our ability.
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My visit to London and my encounter with you has facilitated this dialogue and increased my understanding of your unhappiness with some mechanisms and processes in Tanzania. Similar concerns were raised during the Investors' Forum held in Dar es Salaam last week. In my address to the Forum participants I assured them, as I assure you today, that we will immediately work on further improving the investment climate in Tanzania. We recognise and concede the problems, and we are willing and ready to address them.

In the next few months, and certainly before the next budget, we shall make the necessary legal and administrative reforms that will make the Investment Promotion Centre a more effective, efficient and truly one-stop centre for foreign investors. We will also get rid of all remaining and unnecessary controls and bureaucratic hurdles that impede the speed at which we would like investment decisions to be made. And, as you must have also heard, the onslaught on corruption is a key component of my administration's priorities.

Another area of concern to you and which we are currently working on is taxation. I have heard complaints, both from local business people as well as from foreign investors, that our taxation system is arbitrary and too complex, our taxes too many and too high, all generally putting us at a disadvantage with our competitors for foreign investment. I have, therefore, directed the Treasury to form a Task Force on Tax Rationalisation composed of representatives of the business community, the Tanzania Revenue Authority, and the Treasury, to look into the matter and propose ways to institute an investor - friendly tax regime. They have been instructed to report by December 31st. Their proposals will be taken into account in the next budget.

The question of infrastructure is also high on our priorities as we try to minimise inconveniences to foreign investors and our business people. The supply of electricity has improved and stabilised. New projects are being implemented to further improve the situation including the development of the Kihansi Hydroelectric Power Project, the gas-to-electricity Songo Songo project, creating a regional power pool, and several others. Private sector participation in power generation is being encouraged, as well as in shipping, air transport, railways, insurance and even urban water supply.

The entry of private investments in the telecommunications sector has led to improvements through the introduction of two mobile cellular phone networks, card-phone services, and data transmission networks. We hope to realise similar improvements in other infrastructural sectors as competition through private sector involvement increases.

At the policy level, we have recently adopted a National
Industrial Policy to guide investments in the sector for the next 25 years. It is a policy that recognises private sector involvement as the main agent for its realisation and puts in place an enabling environment, appropriate incentives, legal and regulatory mechanisms, and promotional provisions for this purpose.

Similar policy reviews are currently being made on Land Policy, Tourism Policy and Mining Policy. In each case the interests and concerns of investors will be fully taken into account.

Adjudication of commercial disputes is an area of concern not only to business people but to the Government as well. I have raised this matter with our Judiciary, with a view to creating commercial courts specifically to hasten the hearing and disposition of commercial disputes. There are veritable budgetary constraints, but we hope to make progress on this matter soon as financial and human resources permit. These are but a few of the many measures we are willing to take to make Tanzania a more attractive destination for foreign capital.

On my part, as President, I want to assure you that my administration will do all in our power to make it easy and profitable for you to invest in our country. We also know that it is equally important for you to have reliable and large markets. That is why in collaboration with other countries in the region, we are increasing the level of regional co-operation and integration. Tanzania is an active member of the Southern Africa Development Community, which only three months ago signed, among others, a Trade Protocol that seeks to create a free trade area of over 150 million people. In addition, with our immediate neighbours we are reviving East African co-operation that will result in another market of almost 70 million people. With such an assured market access to Southern and Eastern Africa, investing in Tanzania puts investors in touch with a preferential economic space of 220 million people.

Mr. Chairman,
The United Kingdom has always been a major and important commercial and trading partner of my country. A few British companies have been active in cementing these relations. Some never abandoned us even during the most difficult years. I have a special word of thanks for them. The wealth of experience they have accumulated in working with us, and their intimate knowledge of the country, should put them at an advantage as the environment for investment improves. It is an advantage they fully deserve. It is an advantage I want them to take. They have in me and my administration a well-wisher and a committed facilitator.

In the last few years these old companies have expanded their investments, and new companies have tacitly entered the
scene. We are thankful to them all and here I should like to mention a few of them such as British Petroleum, Commonwealth Development Corporation, Lonrho, Samax, Standard Chartered Bank, and Unilever. We, in Tanzania, value greatly these new investments and the opportunities for growth and employment they offer. But we also recognise that these new investments constitute a vote of confidence in the new Tanzania. This should engender a positive reaction by other foreign investors who do not know us well enough as you do, and who look to you for guidance. For this reason, we renew our disposition to encourage you, to help you, and to make sure you succeed. Your success has great promotional value for us.

Mr. Chairman,
I am told it is not wise to speak for too long at meal times. But I hope your guests have enjoyed as much of the food for thought I have provided them this afternoon, as they have the real food you arranged for us. I thank you for your hospitality and I thank all the distinguished guests for enduring my attempts at blowing my own trumpet. But this was all in the worthy cause of attracting increased British private investments to Tanzania!!
Enjoy your meal, and I thank you all for your kind attention.