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Tuesday, June 21, 2016

President Magufuli: Tanzania’s Robin Hood!

President John Magufuli may be reducing corruption and security risks but has also influenced a trend toward increased risk of expropriation, creating uncertainty for foreign investors.
By Elliot Kratt ~ From Global Risk Insights

Tanzania’s government has commenced a national project which will see undeveloped land larger than 20 hectares seized from investors and given to farmers. In May 2016 alone, the government expropriated over 1,800 hectares of land and allocated it to poor Tanzanians; 80% of whom rely on agriculture for their livelihood.

The programme is being implemented because of the widespread problem of investors in agriculture and energy not meeting the requirements of their title deeds, which stipulate that a title holder should develop land within three years rather than holding onto it for ‘speculative value’.

William Lukuvi, Minister for Lands, Housing and Human Settlements Developments, claims that this policy will reduce security risks, such as clashes between communities competing over scarce resources.

The government and particularly President Magufuli have also made significant efforts to curb corruption, which has generated substantial popular support and impressed international donors. He has removed 10,000 ‘ghost workers’ from the government payroll and has on multiple occasions fired officials on the spot for suspected corruption or poor work-ethic. Most recently, he fired Charles Kitwanga, Minister of Home Affairs, on May 20th for attending parliament whilst drunk.

Such policies are undeniably beneficial for marginalised Tanzanians, but have at the same time led to uncertainty in the business environment – a trend that has characterised Magufuli’s presidency since he stepped into office in November 2015.

Understanding Magufuli’s mentality

For investors struggling to understand what influences his decisions, it may be helpful to think of him as a politically astute Robin Hood. Whilst he makes good political decisions in the interests of a poor population, they often have serious economic implications for those with capital, namely foreign companies.

However, Daudi Riganda, the Public Relations Manager of the Tanzanian Investment Centre, has recently stressed that since Magufuli has stepped into office, the number of investment projects in the country has increased by 20%. Evidently, the country remains an attractive destination for foreign investors but this is not without risk.

For agricultural or energy investors to effectively manage political risks, notably expropriation associated with the President’s mode of rule, it is important to understand his relationship to the political environment.

As an outsider during the leadership selection process, Magufuli has since made a conscious effort to assert his authority within the government. In order to manage political divisions in his party Chama Cha Mapinduzi (CCM) without resorting to corruption, he has employed a strategy of offering no carrot but a big stick (the potential for rapid redundancy and political alienation). The President seems to be ruling Tanzania through a negative or inverted patronage system. How sustainable this is remains to be seen.

Magufuli’s various crackdowns and policies may help him make gains politically – through generating popular support from Tanzanians and enforcing loyalty within the cabinet – but they also threaten to alienate key political figures whilst increasing political risks for investors.

Robin Hood’s impact on investors and economy

Tanzania’s economy may take a hit from political bullishness and various interventionist policies. The Tanzanian shilling is expected to experience a slowdown in depreciation. As a result, the government reportedly want to curb inflation and cut interest rates through controversial means, such as regulating the dollar accounts businessmen, forcing individuals to comply with new transparency principles and justify to the Bank of Tanzania their reasons for opening these accounts.

Magufuli’s policies often seem to spell trouble for investors. With little warning, the President is prone to make high-impact decisions with ostensibly little commercial consideration. In this respect, the expropriation, particularly of land, is rapidly increasing in frequency.

To manage risks and uncertainty in Tanzania, foreign investors should pursue a dual strategy of strict compliance with local laws and effectively engaging stakeholders to build strong political relationship with the government. This will be key in shielding investments from Magufuli’s fearless approach to “Robin Hood-onomics” of taking from the rich – in his view, investors that do not add value and corrupt government officials – and giving to the poor, his electorate, the Tanzanian farmers.


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