Can you give us some background information on the confederation in terms of its structure and its historical background?
The Confederation of Tanzanian Industries was formed in 1991. After many years of socialist development in this country, it was found necessary to liberalise our markets as we started the transition to be a free market economy. In the last 8 years since we have been formed we have grown from strength to strength. We are a lobby organization to support the manufacturing sector in this economy and our members constitute manufacturing companies, as well as manufacturing support companies. Currently we have about 200 members on our register. Our aim as we progress is to have about 300-400 members on our register within the next two years.
Are your members only local companies or do you include international companies?
Any company which is involved in the manufacturing sector of this economy whether they are local private, local parastatal or multinational are members of CTI.
What are the main activities and responsibilities of the CTI?
Apart from the normal service we provide which is supporting or giving advise to our members in terms of updating them on what is going on in the economy with specific regard to the manufacturing sector, answering their queries, giving them support, the most important activity of the confederation is policy analysis and advocacy. This is what the members require the most. When we talk about policy analysis, we are talking about inputs to the budget process where we have a task force which was formed by the government about four years back. The confederation is represented with two representatives on this task force which deals with the revenue side of the budget and fiscal policy. We also give our inputs when it comes to the EAC and the SADC negotiations. Anything which has an impact on the industrial sector the confederation passes information from its membership on to the government respective departments and at all levels of the government, including up to the President.
Can you give us an insight of the development of the industry and manufacturing sector in the last couple of years and what is most needed to revive it again?
In the past 5 years, the industrial sector has gone through a lot of transformation. If you go back in history, this was a socialist command economy and a lot of manufacturing companies were owned by the government and called parastatals. There was a relatively large but inefficient private sector which was engaged in manufacturing. Most of the manufacturing which has been set up were import substitution industries and they were started mainly in the 1970s and 1980s. The process of liberalization started in 1985, when we had the liberalisation of trade, of the exchange rate to the privatisation of parastatals and institutional reforms which we are seeing now. In the last 5 years, a number of parastatals which have been privatised were bought by multinational companies. The best examples are the Tanzania Cigarette Company, the Tanzania Breweries and the cement sector where all the three plants that belonged to the government have been privatised. Another example is the sugar industry, where three factories of the government have also been privatised. These companies came into the scene about five years back. Some of them were associated with parastatals before because they had management contracts, but many of them came on the scene in the last 5 years, so what we are now seeing is a total transformation where the parastatals sector is taken over by, in most cases multinationals and in some cases, by smaller local companies. You have a situation now where the manufacturing sector contributes 1.25 billion dollars in turnover to the economy. We are looking at an employment of 100000 and 35% of the total government revenue comes from the manufacturing sector. You have all types of companies; some of them are local resource based like sugar, cement, agro processing, tobacco processing. Some of them depend a lot on imports and have a lower amount of manufacturing or value addition locally. The breakdown between the multinationals and the local manufacturing companies is about 50-50 in terms of revenues.
To what extend are you involved in promoting the sector and in attracting foreign investors into the sector?
If you extend our responsibilities, we are supposed to pressurise the government to create an enabling environment whereby the current industries which are already operating are enabled to be competitive. You must understand that the pressure in the world today is to open up your markets. Opening up our markets is something we subscribe to but at the same time, every country in the world including the United States of America will try to ensure that at least the potentially competitive units operating within the economy are enabled to be competitive so that you have a liberalisation process which goes side by side with incentives to become competitive. What we are telling our lawmen is, let us do a proper review of the industrial sector, let us look at the units which are potentially competitive, the sectors which are potentially competitive, let us do everything we can to review the cost of doing business, to improve our tax administration, to improve our fiscal policy, to improve the power tariffs and energy costs and so on, so that these companies are able first to compete within the regional grouping, which is EAC, the sub regional grouping which is SADC and then these units can be global players. Rome wasn't built in a day. Unless you are able to compete effectively when you open up under the EAC free trade area, you can't go to the next step, which is SADC and you can't go to the next step which is being globally competitive. It will take us a long time, but we have to start the process. That is what we are telling the government.
What are the reasons for Tanzania to pull out of the COMESA?
The reason why we pull out of COMESA is because Tanzania in the past was a socialist command economy and each decision to be part of any regional grouping was a political decision. The business community was not represented at all, so we became members of COMESA, SADC and anything else which was going within Africa. Tanzania would be the first country to put its signature. Now, what we are saying is that we can not realistically and rationally be members of each and every grouping which you have in Africa. We have to put priorities and we believe that based on Tanzania's traditional trading partners, which are mainly EAC and then SADC countries, there is no need for us to duplicate and continue to remain in COMESA because the countries which are not in EAC or SADC and which are members of COMESA are countries like Eritrea, Ethiopia and Somalia, with whom we don't have traditional trading relationships. It also requires a lot of technical expertise to deal with regional trade protocols. In the case of COMESA, it is a single dimensional strategy whereby the COMESA objective is free trade between member states by October 2000. We believe that if we have a free trade area without understanding the impact on each country and without going on to have a common customs external tariff for the customs union, you are going to support the better industrialised countries and the less industrialised countries will continue to remain the market. Every country will not be a World Investment News Ltdr. You will have some losers when you open up but you have to rationalise and to make sure that you put yourself in a position whereby you are not at a disadvantage.
| How would you describe the positioning of the manufacturing sector of Tanzania within the SADC and by when do you expect Tanzania to be ready for open trade within SADC?
There are different levels of liberalisation pressures. There is pressure through IMF, the World Bank and the donors. There is also pressure through the membership of WTO and through the regional groupings. When it comes to Tanzania, the first threat of competition is going to come under the EAC because as part of the negotiations on the trade protocol within the EAC treaty, within the next 5 years approximately, we are going to have total internal free trade within the EAC. During this 5 year period what would happen is, because the balance of trade between Tanzania and Kenya and Kenya and Uganda is very much in favour of Kenya for historical reasons, Kenya would open up its trade from Tanzania or Uganda to zero tariff from day one. We would gradually reduce our tariffs until we come to year five and all of us are trading with zero tariffs. In the meantime we must also assure that simultaneously, from day one, we have an agreement on common external tariffs. We also have an agreement on no-export incentives for intra EAC trade. In many countries, including Tanzania, you have what is called a duty remission scheme or a version of a duty drawback. If you have the same external tariff and there is no drawback of duties, you are not disadvantaging any manufacturer in one of the three countries. Then you have a reduction of tariffs and you are helping the disadvantaged nation giving it a time period to complete its part. That is why it is easier to negotiate with three countries then to negotiate with 21 countries which COMESA is made up of. After that, we will then be looking at SADC. The SADC trade protocol is expected to be signed by the end of this year. Under SADC there are three categories of products; category A, B and C. Category A is immediate liberalisation. What does category A include? Every country gives its negotiating position, one is for SACU and the second is for the rest of SADC. Each country multiplied by the number of countries gives a negotiating position, so it becomes quite a complex arrangement to be negotiated. Category A would be capital goods and inputs for industry where we say immediate liberalisation is not a problem. Category B are maybe some other products where we don't have the comparative advantages, so we go for gradual liberalisation within the first 8 years. Category C are the sensitive industries like cement, sugar, textiles, beer or cigarettes, where we have got a large presence of competitive players. Those are for liberalisation in years nine to eleven. The bulk of the sensitive sub sectors within the manufacturing industry in Tanzania would be category C, which means EAC: free competition by year 5; SADC: between 9-11years and then everything else follows. So we have a window of opportunity. What we are telling our government is, let us examine the factors which are impacting the cost of production in Tanzania vis à vis our regional and sub regional competitors.
In the last four years it is widely recognized that Tanzania has done extremely well in terms of stabilising the macro fundamentals. That is one of the reasons why Tanzania is now looked at much more favourably then in the past. The government has now got to look at the micro drivers of growth. At the micro level, you have to look at where the cost of production should be brought down. For example, cement has got very high energy costs. The power tariff is very high and it is not reliable. The energy cost in terms of thermal oil is also high and the import tariffs on inputs are high. We should look at South Africa and Kenya and look at all potential competitors and make sure that these costs are equalised as far as possible. Once equalised, you are not going to change the size of the Tanzanian market, which is about 800000 metric tons. South Africa's cement market is maybe 15-20 times more, so then the firms which are involved will have to take a decision on how they can improve their economies of scale either by mergers and acquisitions or by trying to export within the framework of the SADC and the EAC Treaties. That is the type of route we should take. It has got to be done professionally and logically.
Can you give us some more information about CTI itself in terms of how you generate funds and what is your number of straff?
The first and foremost thing is that we are a membership driven organisation. The respect which we enjoy with the government and the donors is high. We are one of the serious lobby organisations, so we have to depend on our membership subscriptions. The membership would support you provided they get a benefit out of the membership. Our membership numbers are growing at 30-40% every year in the last 2 years. We expect this to continue. In Tanzania in the past, lobbying through associations was not common. It is something which has now become much more common. We also get support out of DANIDA. We have an understanding with the Danish Confederation of Industries and we have a capacity building project with them for a three year period, which has allowed us to improve our membership services by recruiting three additional professional staff. This has enabled us to undertake a number of activities like opening up regional outreaches and so on. That support will expire by the end of next year. In the mean-time by increasing the fee income and the number of members, we would have become much more self sufficient then in the past. The next phase is to build our capacity within the secretariat for policy analysis, because our presentations have to be much more professional when you are dealing with the World Bank and the IMF. We probably will set up a policy unit with some economists recruited locally as far as possible. We also have some support from UNIDO. Last month, we started our own website through the support of UNIDO.
What would be your final message to our readers?
This country is ready to do business. You can see it from the FDI figures of the last 5 years. When we started it was about 20m $ , now it is close to 200m$ every year. Before that, for 20 years we had virtually no FDI at all. We started from a zero base and are doing the best we can. There is no problem in terms of policy direction. This country is doing its best to improve the environment for the existing investors and to promote priority sectors. This country offers a lot of potential in the mining, tourism, agriculture, manufacturing sectors, and many others. Tanzania is worthwhile looking at and we welcome everybody who is interested in investing here. |
