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Section 3: Infrastructure in Tanzania

Fitch Solutions Logistics Risk Index

  • Tanzania is placed in fifth position out of 11 East Africa states and in 157th position out of 201 states globally in the Fitch Solutions Logistics Risk Index.
  • Tanzania's Logistics Risk Index score just outperforms the East Africa average, given its extremely strong score for the transport network component. However, in terms of the utilities network and trade procedures and governance components, the country underperforms regionally.
Chart: Logistics Risk, 2019
Chart: Logistics Risk, 2019

Logistics Risk Index: Methodology and Components

  • 100 = Lowest risk; 0 = Highest risk
  • The Logistics Risk component is calculated using the average of the Transport Network, Trade Procedures and Governance and Utilities Network scores.
  • Transport Network: this indicator assesses the extent and quality of road, rail, air and waterway transport networks within a country, which indicate capacity and ability to transport raw materials and finished goods around a country.
  • Trade Procedures and Governance: this indicator assesses the time and cost required to import and export goods by container. In addition, a country's air freight volumes and connectivity to shipping networks is used to gauge its potential as a shipping or freight hub. An ideal market would have strong freight connections and low levels of trade bureaucracy.
  • Utilities Network: this indicator assesses the quality and availability of electricity and fuel, and their costs, and considers the availability of water, industrial usage, and evaluates the quality and extent of the telecommunications networks and internet penetration. A well-developed utilities sector enables the smooth running of supply chains.

Electricity Supply and Costs

Tanzania's electricity supply is not adequately and reliably available (the country has an electrification rate of just 33%). The country's ageing grid network and persistent underinvestment in generation capacity means that the system is unable to cope with the rising demand for power. This leads to frequent power cuts that can leave businesses without electricity for hours. Low electrification rates, combined with volatile supply, forces many businesses to invest in private sources of power such as diesel-fired generators, which increase operating costs.

The current estimated aggregate cost of electricity is US$0.07/KWh, which places Tanzania fourth out of 11 states with the lowest electricity tariff in East Africa. Nevertheless, the tariff structure remains opaque. Despite receiving limited electricity some days, businesses may be charged a fixed tariff rate.

The country is highly reliant on hydropower, leaving it vulnerable to drought. In the long run, the electricity sector will receive a boost from the increasing integration into the regional power pool, ongoing domestic capacity upgrades, the exploitation of renewable energy sources and the discovery of natural gas that will promote the development of thermal power stations.

Chart: Electricity Cost and Electrification Rate
Chart: Electricity Cost and Electrification Rate

Fuel Costs

Tanzania is heavily dependent on imported refined oil products, increasing its vulnerability to shortages in the event of disruptions to the fuel supply chain. High import reliance also means that fuel prices rise and fall in tandem with global oil prices, as the state has limited fiscal capacity to insulate the market from sharp exogenous price shocks. Transport-reliant and energy-intensive businesses will have to maintain private fuel storage capacity in order to mitigate the risk of shortages and sporadic scarcity-induced fuel price shocks, the frequency of which are heightened outside of major urban areas.

Transport Network

Tanzania's strategic geographical location along the Indian Ocean gives the country access to international maritime routes and makes it well positioned to emerge as a transit and trans-shipment hub in the region. That said, to fully capitalise on this geographical advantage, investment into the country's transport network will need to continue at pace to ensure domestic and regional connectivity improves.

At present, the transport network in Tanzania is limited and lacks the capacity to accommodate the country's growing needs due to years of underinvestment in infrastructure. Businesses operating in the country are largely reliant on an ailing road network characterised by few major highways and severe congestion in major cities such as Dar es Salaam and Dodoma. Much of the railway network was built during the colonial era with the system currently performing well below potential. Meanwhile, the aviation sector mainly caters for passenger freight, although it still lags behind that of regional peers such as Ethiopia and Kenya.

Over the longer term, large rail developments, combined with significant port and road upgrades under the country's industrialisation agenda, are set to significantly boost the country's logistical appeal.

There are some flagship transport projects in the pipeline, including:

  • The 2,561 km Standard Gauge Railway (SGR) project. This will mainly involve revamping the existing infrastructure and upgrading the tracks to a standard gauge in four phases over a three-year time frame. This will link the port of Dar es Salaam with Mwanza on Lake Victoria and Kigoma on Lake Tanganyika respectively. There are plans to extend it to regional neighbours such as Burundi and Rwanda.
  • The US$10 billion Bagamoyo Port project involves construction of a port in Bagamoyo, 75 km north of Dar es Salaam. It includes an industrial zone as well as rail and road links to exploit new oil and gas finds. A framework agreement was signed in 2013 with China Merchants Holdings International (CHMI) to build the port and a SEZ. However, in May 2019, negotiations between the Tanzanian government and CMHI had reportedly broken down, with the two parties unable to agree on financing terms. The project is now stalled.

Supply Chain Logistics

Tanzania is a regional gateway to international destinations via maritime routes and well placed for trade with Rwanda, Uganda, the Democratic Republic of the Congo and Burundi. Dar es Salaam is Tanzania's main port, receiving around 95% of all Tanzania's export and import volumes. Nevertheless, like the country's other sectors, port infrastructure is inefficient and despite modernisation, severe congestion increases delays and costs for supply chains. As part of the country's Vision 2025, the government is seeking to increase its port capacity to 28 million tonnes by 2020. Construction is underway at Dar es Salaam Port and the Bagamoyo Port project is planned.

Businesses in Tanzania face costly and time-consuming procedures when trading across the border, particularly in terms of imports, where it can take up to a month to complete documentary and border compliance procedures – far higher than neighbouring countries in East Africa. The main impediments to trade efficiency are severe congestion at the port of Dar es Salaam, the frequency of road accidents, the presence of multiple checks on roadways and the overall poor quality of the transport system.

Investors in Tanzania will, however, benefit from an increasingly competitive export system by regional standards over the medium-to-long term. This is as a result of the country's membership of regional and international trade blocks, in addition to a high-value infrastructure development project portfolio.

Chart: Time to Export and Import, 2017
Chart: Time to Export and Import, 2017

Tariffs and Trade Regulations

Currently, Tanzania places in the lower end of the regional pack for its trade barriers, with an average tariff rate of 6.5%. Tanzania is part of the EAC customs union, and imposes the EAC common external tariff on all goods originating from outside of the EAC. The tariffs range from 0% for raw materials to 10% for industrial goods and 25% for consumer goods. An additional 18% VAT is also charged on all goods originating from outside the EAC.

Tariffs have generally declined in Tanzania but non-tariff issues continue to present challenges, notably due to corruption and inadequate port and customs processes. Exporters are commonly required to move from one government institution to another to obtain information, raising costs for exporting firms.

 

Manufacturing in East Africa: Tanzania

Section 1: Industrial Manufacturing Focus
Section 2: Labour & Land Resources
Section 3: Infrastructure
Section 4: Regulations & Tax Incentives
Appendix: Relevant Government Bodies
        
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Content provided by Picture: Fitch Solutions – BMI Research
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