2013-01-01 02:37:56 - Tanzania Business Forecast Report Q4 2012 - a new country guide report on companiesandmarkets.com

We believe that falling inflation in Tanzania will allow the authorities to gently loosen the reins on monetary policy during the final months of 2012 and into 2013 and that the Tanzanian shilling is likely to drift lower as a direct result. Ruling Chama Cha Mapinduzi (CCM) is likely to continue losing ground to opposition Chama Cha Maendeleo Na Demokrasia for the foreseeable future despite the governing party´s efforts to reassert its dominance. That said, CCM´s existing parliamentary majority combined with the fractured nature of the political landscape mean that Chadema is unlikely to win power in the 2015 election unless it works more closely with other opposition movements and/or CCM is hit by an overly divisive succession struggle.

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Forecast Changes

Recent data showing that the Tanzanian economy has been more resilient to the effects of high inflation than we had anticipated have led us to upgrade our 2012 growth forecast to 7.0% from 5.5% previously. Our 2013 forecast remains at 7.4% and we believe that the economy has the potential to sustain annual expansion rates in the 7.0-8.0% range over the medium term. We have made some upward revisions to our forecasts for Tanzania´s current account deficit over the coming years on the back of newly released data. We now see the shortfall growing to US$4.6bn (16.0% of GDP) in 2012 and to US$5.6bn (14.2%) by 2015. Despite these weighty deficits, we believe that foreign direct investment, external borrowing and multilateral support mean that the risks of a balance of payments crisis are remote at this juncture.

Key Risks To Outlook

The major risk to our outlook comes from the weather. Poor rains would not only exacerbate tight food supplies (food price inflation has been the major driver of rapidly rising headline inflation) but would also once again hamper hydroelectricity production, raising costs for businesses and, by extension, consumers. The country´s infrastructure deficit is another concern; a failure to make significant progress would likely hold the economy back from reaching its significant potential.

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