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Cablegate: Agoa Eligibility Review

VZCZCXYZ0001
RR RUEHWEB

DE RUEHDR #0675/01 2890835
ZNR UUUUU ZZH
R 160835Z OCT 09
FM AMEMBASSY DAR ES SALAAM
TO RUEHC/SECSTATE WASHDC 8933
RUEHNR/AMEMBASSY NAIROBI 1399
RUEHKM/AMEMBASSY KAMPALA 3520
RUEHJB/AMEMBASSY BUJUMBURA 2984
RUEHLGB/AMEMBASSY KIGALI 1448
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS DAR ES SALAAM 000675

SIPDIS

DEPT FOR AF/S AND AF/EPS GABRIELLE MALLORY
STATE PASS TO USTR FOR CONSTANCE HAMILTON
COMMERCE FOR KEVIN BOYD
TREASURY FOR ANTHONY IERONIMO

E.O. 12958: N/A
TAGS: EAGR EAID ECON ETRD PHUM ENRG TZ
SUBJECT: AGOA ELIGIBILITY REVIEW

1.(U)Country Background Summary: Tanzania remains AGOA-
eligible. Tanzania has sustained high rates of broad-based
economic growth with generally low inflation over the past
decade due to sound macroeconomic policies and structural
reforms, as well as a favorable global environment and debt
relief. Real GDP growth averaged about 7 percent a year
during 2000?08; however, the Bank of Tanzania has forecast a
slowdown to 5% in 2009, due to the impact of the global
economic crisis. However, foreign reserves remain strong,
tourism appears to be rebounding and banks are well-
capitalized. Inflation was kept solidly in check for much of
the last decade, but accelerated in 2008 (13.5 percent at
year-end), driven mainly by effects of the spike in
international food and fuel prices and adverse regional food
supply shocks. Inflation has remained in double digits in
2009 due to drought in many food-producing regions. In
contrast, non-food inflation has remained modest at
5.8 percent. Over two decades, Tanzania has been transformed
from a centrally planned/command economy to a more market-
oriented system, through successful implementation of trade
liberalization measures. The government has taken deliberate
steps to encourage private sector-led growth through
restoration of market forces and reduced interference in
commercial activities; however, there was little progress on
reforms in 2008-09.

2.(U)Despite strong macroeconomic performance, progress on
poverty reduction has been mixed. From 2001-2007, there were
substantial improvements in education and health outcomes, a
significant increase in household assets, and improved
residences, but the incidence of income poverty declined only
modestly.

3.(U)The Government of Tanzania (GOT) is a stable, multiparty
democracy. The ruling party (former single party) dominates
the executive and legislative branches. Tanzania continues to
make progress in strengthening its market-based economy and
eliminating barriers to U.S. trade and investment. The GOT
pursues economic policies to reduce poverty, encourage good
governance, and protect worker rights. Despite these efforts,
poverty is widespread and corruption remains a major problem.
Tanzania's $698 million Millennium Challenge Compact entered
into force in September 2008. The Compact aims to remove
constraints to economic growth through targeted investments in
Tanzania's transport, energy and water sectors.

Comments on Eligibility Requirements

I. Market based Economy

Major Strengths Identified

4.(U)Performance under the IMF?s Policy Support Instrument has
been broadly satisfactory and the program remains on track.
In particular, the floor for net international reserves was
surpassed by a wide margin and the exchange rate has remained
stable. Central Bank governor Benno Ndulu credits IMF
pressure for helping GOT keep to a very conservative
regulatory stance, which left Tanzanian banks with very high
liquidity ratios and low non-performing loan percentages
through the global economic crisis.

5. (U)Regional integration remains an important objective.
Negotiations within the East African Community (EAC) toward
the establishment of a common market have progressed, with a
projected entry into force in January 2010.

6. (U)FDI grew to USD 744 million in 2008, continuing several
years of steady growth, but is expected to decline in 2009
because of the global financial crisis.

Major Issues/Problems Identified

7.(U)Tanzania?s business environment remains difficult, in
part because of bureaucracy and corruption. Efforts to reform
business regulations have slowed. Poor infrastructure in
transport, communications and energy remains a major
bottleneck. Businesses, farmers and households, particularly
in rural areas, lack access to credit. Less than 10 percent
of Tanzanians participate in formal banking, agricultural and
commercial interest rates often reach 20 percent, and the use
of land for collateral is difficult due to complex ownership
laws. Several privatization efforts of large parastatal
companies failed in the last several years; the government has
reassumed control over national airline ATCL, national telecom
utility TTCL, and Kilimanjaro airport manager KADCO among
others.

II. Political Reforms/Rule of Law/Anti-Corruption

Major Strengths Identified

8. (U)The Tanzanian press has reported freely on cases of
alleged corruption. The government is following up on the
findings of the Public Procurement Regulatory Authority
(PPRA), which has stepped up its audits of procurement
agencies, with the objective of better enforcing existing
regulations. Following the introduction of a reinforced legal
framework, the Prevention and Combating of Corruption Bureau
(PCCB) is investigating several cases of alleged grand
corruption.

9. (U)The Government of Tanzania attacked the problem of
counterfeit products with vigor, including by confiscating
illicit goods. Through public reports and seminars, the
government sensitized the public to the cost of counterfeits
in terms of harmful side effects and lost revenues.
Additionally, the Tanzania Bureau of Standards introduced an
Import Standardization Mark to verify the quality of imported
products.

Major Issues/Problems Identified

10. (U)The national judiciary is formally independent, but
remains underfunded, corrupt, inefficient, and subject to
executive interference, especially in the lower courts.
Corruption and impunity within the police force continue to be
problems. However, the Inspector General of Police has made
the fight against corruption as well as the
professionalization of the police force top priorities.

11. (U)Foreign investors and businesses, including U.S. firms,
continue to report encountering pervasive corruption in
Tanzania. Few corruption cases result in arrests or
convictions. The national anti-corruption authority PCCB has
no jurisdiction in the autonomously-governed archipelago of
Zanzibar.

III. Poverty Reduction

Major Strengths Identified

12. (U)The country is making progress towards achieving MDG
targets (consistent with targets articulated in Tanzania?s own
poverty reduction strategy), especially in reducing child
mortality and increasing access to primary education. With
the majority of the population engaged in smallholder farming,
an increased focus on rural growth, and the implementation of
improved policies, strengthened institutions, and additional
funding under the new ?Kilimo Kwanza?, or ?Agriculture First?
initiative, the MDG goal of eradicating extreme poverty and
hunger is more likely to be achieved.

13. (U)With donor support, Tanzania continues to increase
government investment in health, education, and sectors that
stimulate economic growth, especially infrastructure. More
than half of USG?s Millennium Challenge Compact funds will be
spent to build and upgrade critical roads that will help rural
farmers access markets, clinics and schools.

Major Issues/Problems Identified

14. (U)GDP per capita remains low, at USD 442; recent economic
growth has yet to make significant inroads in reducing rural
poverty. Infant and child mortality rates are still among the
highest in the world, literacy rates are still low, and more
than one third of all children under five years of age are
malnourished. Tanzania?s annual population growth rate of
about 2.9 percent will put pressure on existing social service
delivery and employment.

IV. Workers? Rights/Child Labor/Human Rights
Major Strengths Identified

15. (U)The Trade Unions Act of 2000 recognizes workers'
freedom of association, the right to bargain collectively, and
the right to strike, and these rights are generally respected.


16. (U)The government of Tanzania continued to make
substantial progress under the auspices of the International
Program for the Elimination of Child Labor. During the year,
the government developed a child rights curriculum, the first
of its kind in Africa, which will be used in training
institutions, government agencies, and other organizations.
In 2009, the government drafted a National Plan of Action on
Child Labor, began formulating an implementation plan for its
Child Development Policy, and drafted a unified law on
children's rights.

Major Issues/Problems Identified

17. (U)Police officers tortured, threatened, and otherwise
mistreated suspected criminals and prisoners during the year.
There were reports of killings in police custody. Prison
conditions remained harsh and life threatening. Prolonged
pretrial detention remained a problem.

18. (U)Tanzanian law prohibits forced or compulsory labor and
prohibits the exploitation of children in the workplace. The
Employment and Labor Relations Act of 2004 establishes 14 as
the minimum age for contractual employment. However, child
labor remains a problem. Girls are often forced to work as
domestics and boys in agriculture.

V. International Terrorism/U.S. National Security

Major Strengths Identified

19. (U)Tanzania has put in place the necessary legal
foundation for the criminalization of money laundering and
terrorist financing as well as measures to report suspicious
transactions. A comprehensive Anti-Money Laundering Law and a
National Anti-Money Laundering / Counter Terrorism strategy
was established in 2006 with support from USG. Tanzania
established a legal institutional framework and launched an
operational Financial Intelligence Unit (FIU) within its
Ministry of Finance and Economic Affairs. The Tanzanian FIU
is now functional and is receiving, analyzing and
disseminating suspicious transaction reports on Money
Laundering / Terrorist Financing. Through various seminars
and workshops, Tanzania is raising awareness and enhancing
understanding of AML/CTF.

20.(U)Tanzania has ratified United Nations Conventions against
illicit traffic in narcotics Drugs and Psychotropic substances
(the Vienna Convention) as well as the UN Convention Against
Transnational Organized Crime (the Palermo Convention). The
GOT continued its participation in several multi-year programs
to strengthen law enforcement and military capacity, improve
aviation and border security, and combat money laundering and
terrorist financing. Tanzania cooperated with the United
States and complied with its obligations under UN Security
Council resolutions.

Major Issues/Problems Identified

21. (U)The government of Tanzania has yet to prosecute a
single money-laundering case under its new law. Zanzibar
still does not have an Anti-Money Laundering law.

ANDRE

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