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Cablegate: Tanzania December 2007 Economic Roundup: Eu Trade

R 070915Z JAN 08
FM AMEMBASSY DAR ES SALAAM
TO SECSTATE WASHDC 7198
INFO AMEMBASSY NAIROBI
AMEMBASSY KAMPALA
AMEMBASSY KIGALI
AMEMBASSY BUJUMBURA
DEPT OF TREASURY WASHINGTON DC
DEPT OF COMMERCE WASHINGTON DC

UNCLAS DAR ES SALAAM 000014

SIPDIS


DEPT AF/E FOR JLIDDLE, ALSO FOR AF/EPS FOR ABREITER

E.O. 12958: N/A
TAGS: ECON EFIN ETRD TZ
SUBJECT: TANZANIA DECEMBER 2007 ECONOMIC ROUNDUP: EU TRADE
AGREEMENT, GOVT BORROWING, GDP UP, COUNTERFEITS


-------------------------------
December 2007 Economic Issues
-------------------------------

1. In this issue:
- Concerns on EU Trade Agreement
- Government Heavy Borrowing
- GDP on the Rise, Standard of Living Stagnant
- Counterfeit Mobile Phones Flood Shops


-------------------------------
Concerns on EU Trade Agreement
-------------------------------

2. Following the signing of an interim trade framework agreement
between member states of the East African Community (EAC) and the
European Union, there is now a shift of focus to how the various
sectors will adapt to the new realities. Key among these is the
financial sector, which includes commercial bank lending,
microfinance lending, and increasingly, share trading at a primary
level.

3. The first item on the agenda following the signing of the
Economic Partnership Agreement (EPA) framework was a clear
reaffirmation of the EAC Customs Union framework. Now EAC
institutions--such as the Customs Union and the common market, which
many EAC member countries previously viewed as optional---are
becoming increasingly important. Discussing various issues with
newspaper editors, President Kikwete explained that the Ministry of
Trade and Industry has been directed to start an awareness campaign
of the parameters and significance of the EPA accord(s).

4. Tanzanian intellectuals, including University of Dar es Salaam
professor, Mwesiga Baregu, are criticizing the Government of
Tanzania (GOT) on its decision to accept the EPA, saying the
agreement was misleading and will not benefit Tanzania or the other
African countries supporting it.

5. Baregu also expressed skepticism over Foreign Affairs and
International Cooperation Minister Bernard Membe's statement that
Tanzania would join either the Southern African Development
Community or East African Community economic partnership agreement,
depending on which offered more to the nation. Baregu stressed: "It
should be understood that [the] EPA... diverts Africa's attention
from its plans to unite Africa and its regional blocs... [The] EPA
is something planted by EU in Africa [that] has no meaning to Africa
at all." Baregu said if Tanzania or Africa wants an economic
relationship with the EU then it has to be a mutually beneficial
agreement. "That relationship has to be built anew with regard to
the basics of Africa, not otherwise," he said.

6. Ernst and Young submitted two reports on the Bank of Tanzania's
(BoT's) External Account on December 23, 2007: one on the Economic
Partnership Account (EPA) and the other on a review of the 2005/6
audited accounts. The Controller and Auditor General said he is
reviewing the reports and will submit them to President Kikwete in
early January 2008.


----------------------------
Government heavy borrowing:
----------------------------

7. GOT officials cite heavy government borrowing from domestic
financial institutions in the last quarter as one of the chief
causes of rising commodity and service prices. The Bank of Tanzania
(BoT) October report indicates that inflation rose from 7.8 per cent
in August to 8.3 in September 2007. Pressure on the inflation rate
is building up against the backdrop of an increase in the government
deficit. The BoT report shows that of the Tsh 346.9 billion total
resources that were made available for government budgetary
operations during August 2007, Tsh 276 billion were from domestic
revenues and Tsh 70.9 billion came from grants from development
partners.

8. The BoT report shows that during the month of August the
government financed the deficit by borrowing Tsh 359.9 billion from
foreign sources while in September the deficit was financed by
borrowing Tsh 65.7 billion from both domestic and foreign sources.
Domestic borrowing is carried out mainly through the sale of
government papers, like Treasury bills and bonds.

9. According to the National Consumer Price Index (NCPI), the
inflation rate for November 2007 went up because some prices of both
food and non-food items had increased, especially in the categories
of soft drinks, mineral water and alcohol. The prices of food items
including rice, maize grain, maize flour, wheat flour, bread,
spaghetti, cassava, potatoes, cooking bananas, vegetables, meat,
cooking oil and coconuts, are also on the rise. The prices of
certain non-food items including clothing, furniture, hair creams,
bicycles, car batteries and umbrellas have also increased. The
increase in prices of essential items caused public concern and
skepticism over the government's figure for the current inflation
rate (currently between 7.1 and 7.3 percent).


---------------------------------------------
GDP on the Rise, Standard of Living Stagnant:
Whither the benefits of economic growth?
---------------------------------------------

10. Dr. Ngasongwa, the Minister for Planning, Economy and
Empowerment, painted a rosy picture about the country's economic
performance on December 20, 2007. He noted, for example, that while
the current average Gross Domestic Product growth for African
countries stands at 5.5 percent, Tanzanian's projected performance
at the end of the current fiscal year (June 30, 2008) is 7.3
percent. While the country's economy is growing, the growth is yet
to be reflected in the people's standard of living.

11. Ngasongwa noted that while the inflation rate is currently
ranging between 7.1 and 7.3 percent, there are indicators that it is
going down and may settle at around 6.8 percent by the end of this
fiscal year. The country's foreign reserves are enough to
facilitate importation of goods for about 5 months. The
contribution of the agricultural sector to the economy has declined
as the contribution of other sectors to the GDP continues to rise.


--------------------------------------
Counterfeit Mobile Phones Flood Shops
--------------------------------------

12. Tanzania is considered among the countries in Sub Saharan
Africa with highest number of mobile phone subscribers. This may be
partially attributed to counterfeit cell phones that are imported or
smuggled into the country, mainly from the Far East, and sold at
much prices much lower than the market price of brand-name mobile
handsets. The number of mobile phone subscribers has gone up from
two million in 2004 to almost eight million by November 2007. The
GoT alleges that in most cases the fake mobile handsets are ordered
by the importers, who take samples to China and have them
reproduced.

13. The Fair Competition Commission has initiated amendments to the
outdated Merchandise Marks Act, which provides the legal framework
for handling counterfeits. The amendments provide for the
appointment by the Minister of Trade of a Chief Inspector to conduct
investigations into suspected importers or shops.


GREEN

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