TANZANIA: INPUT FOR 2007 PRESIDENT'S REPORT ON AGOA

UNCLAS SECTION 01 OF 03 DAR ES SALAAM 000355 SIPDIS SIPDIS DEPT FOR EB; AF/E FOR BYODER, AF/EPS FOR THASTINGS ADDIS FOR AU MISSION PASS TO COMMERCE/ITA MCC FOR GBREVNOV DEPT PASS TO USTR FOR WJACKSON E.O. 12958: N/A TAGS: EAID ECON ETRD TZ SUBJECT: TANZANIA: INPUT FOR 2007 PRESIDENT'S REPORT ON AGOA REF: STATE 022438 DAR ES SAL 00000355 001.2 OF 003 Summary -------------- ¶1. In calendar year 2006, Tanzania's exports under the African Growth and Opportunity Act (AGOA) still hovered at approximately USD 3.7 million in AGOA-qualified exports to the United States. The U.S. Congress' December 2006 extension of the third country fabric provisions could boost Tanzania's textile and apparel industries' output in 2007, particularly if the electric power supply problems that plagued the manufacturing sector in 2006 do not reoccur in ¶2007. Other than textiles and apparel, which together represented about 79 percent of the country's total 2006 AGOA exports, Tanzania also exported agricultural and forestry products, minerals, and handicrafts under AGOA. Tanzanian exporters faced certain constraints, including logistical hurdles on the supply side, lack of accessible financing opportunities for small and medium businesses and compliance with phyto-sanitary requirements. Nevertheless, the Ministry of Industry and Trade, under the guidance of Minister Basil Mramba, newly appointed in October 2006, has made it a Ministry priority for 2007 to reassess and revise the GOT's AGOA strategy in order to significantly increase AGOA exports in the next 12 to 24 months. End summary. Status -------------- ¶2. Tanzania is AGOA eligible, including for textile and apparel benefits. AGOA Trade and Investment -------------- ¶3. United States Trade Representative office will update this section with 2006 information. Market Economy/ Economic Reform/ Elimination of Trade Barriers -------------- ¶4. After embarking on a comprehensive economic reform program in the late 1980's, Tanzania achieved strong macro-economic performance over the past several years with an average Gross Domestic Product (GDP) growth rate of approximately six percent and inflation around five percent. In 2006, the GDP fell slightly to 5.8 percent due primarily to a drought and subsequent problems to maintain stable production of electric power to the major cities. In recent years, the Government of Tanzania (GOT),in partnership with donors, has made significant progress to reduce or eliminate state controls and regulations. Agricultural marketing has been liberalized, foreign exchange controls lifted, and prices deregulated. With the exception of major utility and infrastructure parastatals, almost all state-owned enterprises have been privatized. ¶5. The GOT continues to upgrade its investment policies to improve Tanzania's competitive advantage and to benefit from investment flows targeting the East African region. In January 2005, the East African Community (EAC) Customs Union entered into force, under which tariffs between Tanzania, Uganda and Kenya will be phased out over five years. The Customs Union also set a common external tariff that generally lowered Tanzania's overall tariffs, although tariffs were raised on some U.S. exports. In November 2006, the heads of state of the three EAC nations agreed that Burundi and Rwanda be admitted to the EAC by July 1, 2007, if all pre-conditions are met. From that date, Burundi and Rwanda would become full participating members of the Customs Union. ¶6. Tanzania's new investment code has offered competitive incentives and in 2006, progress was made toward single licensing for businesses. However, U.S. investment is still hindered by bureaucratic inefficiencies, corruption, and poor infrastructure including the unreliable power supply. Requirements to own land or use it as collateral also remain an key impediment to new investment. Trade Liberalization -------------- DAR ES SAL 00000355 002.2 OF 003 ¶7. Continued banking reforms during 2006 helped increase private-sector growth and investments. Lower tariffs on certain basic materials, increasing levels of foreign investment and trade with the EU, the U.S., India, China and other partners, contributed to Tanzania's improved economic indicators. The WTO Trade Related Intellectual Property Rights (TRIPS) agreement was signed into law in 2006. Political Pluralism Rule -------------- ¶8. Tanzania opened the door to multi-party democracy in 1992 and has enjoyed an unbroken string of relatively peaceful transfers of power since independence. The December 2005 elections for Union president and members of parliament were considered by international observers to be generally free and fair. In October 2005, the semi-autonomous archipelago of Zanzibar held separate elections for the Zanzibar president and councilors that were marred by violence and serious irregularities. The opposition parties on both the Mainland and in Zanzibar were allowed to register as legal parties and participate in the political process, although opposition leaders complained of an uneven playing field due to lack of resources. Rule of Law and Anti-Corruption -------------- ¶9. The law provides for an independent judiciary; however, the judiciary suffers from corruption, inefficiency and executive influence. Criminal trials are open to the public and the press. Tanzania has improved its arbitration of commercial disputes, establishing a Commercial Court in 1999. While the GOT took steps in 2006 to address judicial inefficiency and corruption, in particular, by increasing the budget of the judicial branch, overall the judiciary remains understaffed, a key cause of delays within the court systems. ¶10. Since his election in December 2005, President Jakaya Kikwete has taken a strong public stance against corruption. He named a new head of the Prevention of Corruption Bureau (PCB),an agency under the President's Office, and replaced the Director of Public Prosecutions (DPP). However, few high-level corruption cases went to trial in 2006. The GOT took steps to revise the current anti-corruption law by adding stronger penalties, protection for whistle-blowers, and giving the PCB power to prosecute senior-level government officials without permission from the DPP, as is currently the case. In February 2007, the anti-corruption bill was tabled in the parliament for a first reading and will be discussed in full parliamentary session in April 2007. The GOT sits on the World Bank Anti-Corruption Commission and has participated in the Millennium Threshold Account program since May 2006. Tanzania qualified for a Millennium Challenge Corporation (MCC) Compact in November 2005 and submitted a proposal to the MCC in August 2006 which is now in the final stages of the due diligence process. Poverty Reduction -------------- ¶11. In the last three years, Tanzania has shown steady economic performance, with macro-economic stability, consistent GDP growth, adequate reserves, and a sustainable external debt position. In 2006, the overall balance of payments position remained positive due to inflows of donor assistance and debt relief of USD 3.8 million under the Multilateral Debt Relief Initiative (MDRI). However, inroads against poverty have been minimal. In 2005, Tanzania completed its Poverty Reduction Strategy Paper which identified four key priority areas for poverty reduction: (i) education; (ii) water; (iii) roads; and (iv) energy. The GOT included in its MCC compact proposal large infrastructure projects for water, roads and energy, which will potentially accelerate poverty reduction. Labor/Child Labor -------------- ¶12. Tanzania has ratified all eight International Labor Organization (ILO) core labor conventions including Conventions 138 and 182 on minimum age and the worst forms of child labor. The GOT passed new labor laws in 2004 DAR ES SAL 00000355 003.2 OF 003 strengthening workers' rights and prohibitions against child labor. The new law prohibits forced or compulsory labor, including forced labor by children. Implementation began in 2006 with the recruiting and training of more labor officers and inspectors. The law provides for collective bargaining in the private sector, and workers and employers practiced it freely during the year. While the law allows workers to form and join unions without prior authorization, in practice, many in the private sector adopted anti-union policies or tactics that limited this right. Tanzania does not have a law to protect workers form from anti-union discrimination. ¶13. Tanzania continues to participate in the ILO's "Timebound Program to Eliminate the Worst Forms of Child Labor". A second phase of this project, funded in 2005, will broaden the project's scope to include combating exploitative child land in fishing on both the Mainland and in Zanzibar. The minimum employment age remains inconsistent with the age for completing educational requirements since the law provides for seven years of compulsory education through the age of 15. AGOA Successes -------------- ¶14. On May 11 and 12, 2006, post coordinated with USAID's East and Central African Trade Hub in Nairobi, to implement a successful two-day AGOA workshop in Dar es Salaam on "Enhancing Trade Capacity and Competitiveness." Representatives of nearly 80 Tanzanian exporters and businesses attended the focus sessions on buyer-seller linkages, phyto-sanitary standards, and shipping, logistics and customs. The outcomes included better understanding among the attendees of financing options and of U.S customs regulations, including the Container Security Initiative; improved communication and subsequent cooperation among small handicraft producers in Mainland Tanzania; and the introduction of Zanzibari spices and essential oils as a potential AGOA export products. ¶15. One Tanzanian company, Cello Industries, Ltd. which was introduced to AGOA through the workshop, began exporting plastic products (lawn furniture, kitchenware, etc.) in mid-2006. As of March 2007, the company is selling 60 types of plastic products to U.S. buyers under AGOA. The company presently employs 300 workers, but if the sales to the U.S. continue to rise, has plans to expand the factory and employ up to 500 workers by 2008. Cello Industries also successfully markets its products in Dubai, the East African Community countries and the Common Market for Eastern and Southern Africa (COMESA) countries. DELLY