The projects to be financed under the recently signed Millennium Challenge Corporation (MCC) Compact agreement have been disclosed.

The agreement with Tanzania, approved last September and signed in Dar es Salaam on February 17, 2008 during Presidents George W. Bush’s historic state visit to the country, is valued at $698.1 million covering a 5 year period. This is the largest Compact ever issued by the United States through its MCC agency. The money will help Tanzania “reduce poverty and stimulate economic growth by increasing household incomes through targeted investments in transportation, energy, and water”.

Most of the money will go to transport projects ($373 million), to energy projects ($206 million), to water projects ($66 million) while $53 will be used for program administration.

The identified projects are:

a) Construction of Mainland Trunk roads:

(i) Tanga-Horohoro (68 km)

(ii) Tunduma-Sumbawanga (224 km)

(iii) Songea-Namtumbo (61 km)

(iv) Peramiho-Mbinga (78 km)

b) Improving of up to 35 km in five rural roads in Pemba Island as part of Zanzibar Rural roads component.

c) Improving aviation and public safety facilities at Mafia Island Airport.

d) Laying a new submarine electric transmission cable from the mainland to Unguja island, Zanzibar, to improve and support the existing cable that is reaching its limits in both capacity and lifespan.

e) Construction of a small hydro-power plant on the Malagarasi river and the extension of a mini-grid system in Kigoma Region.

f) Rehabilitation and extension of electricity distribution system to unserved areas in six regions identified as priority areas.

g) Improving water supply infrastructure in two cities of Dar es Salaam and Morogoro. This will involve expanding the Lower Ruvu water treatment plant capacity from 180 million liters to 270 million liters per day; and improving efficiencies in order to reduce physical leakages and commercial losses (biling, collection and theft) that cause about 60% of Dar es Salaam water to be lost before it reaches customers.

Each county signing a Compact is required to establish an entity to coordinate the implementation of the selected projects. In October of 2007 President Kikwete consequently appointed Bernard Mchomvu, a long serving Permanent Secretary and technocrat, to serve as CEO of Millennium Challenge Account-Tanzania (MCA-T). Tanzania qualified for the Compact after two years of implementing the Threshold Program that was valued at $11.15 million.

Lately there has been contradictory media statements on whether the ongoing violance in Kenya would benefit or harm her neighbouring economies.

However, most pundits agree that in the short-term, Kenya’s neighbours have the opportunity to rake in economic benefits from the Kenyan upheavals. The extent of this gain certainly depends on the duration of the crisis — it could prove substantial if the situation does not return to normal soon. Kenya’s economy is known for its resilience and will most likely bounce back fast to its pre-election levels if situation is contained soon. Early last month, Kenya’s Finance Minister Amos Kimunya was quoted as saying that the “post-election violence may cost the economy up to $1 billion but it could be recovered within a year”. A month later, this statement still holds water.

Uganda’s Finance Minister, Dr. Ezra Suruma, also expressed caution, saying “Uganda’s growth projections are within reach if the disruption is contained. But if the situation worsens, that would raise a question of the impact it would have on the economy.” Uganda’s economy was expected to grow at 6.9% this year. In both Tanzania and Uganda, production chains have been interrupted due to unavailability of raw materials, packaging materials and other inputs in the production processes of goods. This has underscored the importance of Kenya as a regional economic powerhouse. 

The short-term gains to Kenya’s neighbours would also depend on how fast they remove drawbacks that restrict their ability to take full advantage of the growing opportunities. For instance, it is reported that Dar es Salaam port is “unable to cope with the sudden demand for services” and it “needs to perfect its clearance system” in order to make the port of Mombasa irrelevant. Also, the Tanzania Ports Authority and the Tanzania Railways need to improve very fast the handling of cargo destined to landlocked countries .

Delays at Mombasa port led to diversions to Tanzanian ports as alternative routes to the landlocked countries of Rwanda, Burundi, Uganda and eastern DR Congo. According to Kenya Transportation Association (KTA), transportation movement in Kenya has gone down “to less than 50%” and its taking longer to deliver goods to the Great Lakes region. Nairobi’s “Business Daily” reported this week that “The illegal roadblocks set up by mobs in the Rift Valley and Western Kenya…had affected the turnaround times and significantly increased operational costs….the number of trucks crossing from Kenya to Kampala had gone down to less than 200 vehicles from 745 vehicles that crossed there daily…”

Two weeks ago, a section of the Kenya-Uganda railway was vandalized, suspending shipment of fuel and cargo to Uganda, its primary gateway. The repairs were expected to take at least one week to complete.

A major drop in tourist arrivals in Kenya has also been reported due to violence and travel advisories issued by western countries, and there are fears of wide reaching hotel closures and industry job layoffs. One tour operator reported up to 85 percent loses in clients for the year because of cancellations, with Kenyan guests opting instead for a Tanzania safari, Uganda safari or even Zanzibar where they can still enjoy other East Africa’s superb attractions.

In the midst of all the bad news from Kenya, Rwanda went ahead and launched their first stock exchange market this week, called the Rwanda Over-The-Counter Market (ROTCM). In other good news, Rwanda and Tanzania finalized plans to commence the construction of rail link extending central railway line from Isaka in western Tanzania to Kigali (expected to be completed by year 2013). Skipping Kenya, George W. Bush is also expected to arrive in the region next week to promote his AIDS initiatives, Millennium Challenge Corporation activities as well as foreign direct investments.

east africa rail links

city water

 A tap which used to provide free water for the residents of Manzese Squatter area and has been closed by the private water company, City Water.

This week, a London tribunal operating under the laws of United Nations Commission on International Trade Law (UNCITRAL), threw out a case against Tanzania brought by City Water Services, a subsidiary of British company Biwater. The tribunal consequently awarded the Tanzanian government $6 million in damages, and $1 million in legal costs.

The ruling is a small victory in a complex legal battle still being fought in other courts. It however vindicates the Tanzanian government, which terminated City Water’s contract to run water system in Dar es Salaam in 2005 after poor performance. It also vindicates local and international campaigners who are against water privatization plans in poor countries.

Despite public outcry that water supply should never be privatized due to its sensitive nature, Dar es Salaam’s public water utility company, DAWASA, handed over its operations to City Water in 2003 with the expectation that the approximately 3 million residents of Dar es Salaam will get improved water supply. Instead, within the 2 years of City Water, water availability in the city actually got worse compared to DAWASA days.

According to the London based Water Development Movement, “water privatisation was imposed on that country [Tanzania] by the World Bank in return for much needed debt relief”. Another campaign group, Food and Water Watch stated that, “Biwater benefited from a non-competitive contract process and financial backing from the World Bank [as well as the UK government], but it still managed to mismanage the project”.

Ruling is expected anytime this year in a separate legal case lodged by Biwater at the International Centre for the Settlement of Investment Disputes (ICSID) against the government of Tanzania. The case is being held in secrecy at The Hague and is thought to involve a claim for approximately US$20 million.

The negative experience in Tanzania is not an isolated case. In many poor countries, for example, Bolivia, Mali and The Gambia, water privatisation has consistently failed to deliver clean, affordable water to the poor.

Bank of Tanzania

 Bank of Tanzania “Twin Towers” in Dar es Salaam.

President Jakaya Kikwete yesterday fired the Governor of Bank of Tanzania (BOT), Daudi Balali, after an audit investigation uncovered fraudulent transactions involving the repayment of the country’s external debt.

A press release from Ikulu (State House) stated that “the president has been deeply angered and disappointed with what has happened” at the central bank, and acted to “revoke” Balali’s appointment after he received a damning audit report prepared by the global accounting firm, Ernest and Young, that revealed more than $116 million had been improperly paid to 22 firms through BOT’s external payment arrears account (EPA) in one financial year alone.

The EPA account was originally set-up the Government to help service balance of payment, whereby local importers would pay into the account in local currency and foreign service providers would then be paid back by BOT in foreign currency. However, due to poor foreign currency availability in 1980s and 1990s,  the debt within the account ballooned to $677 million by year 1999. Efforts under Debt Buyback Scheme and cancellations negotiated under Paris Club helped to reduce the debt level to $233 million in 2004.

Despite these efforts, unscrupulous officials and businesses were able to take advantage of one of the plans devised to reduce the account debt, whereby a creditor could endorse debt repayment to a third party. The audit report, sanctioned by the Government’s Controller and Auditor General (CAG) covering Bank of Tanzania’s 2005/2006 financial books, revealed that 13 companies used falsified records and claimed third party status and received BOT payments, while 9 companies couldn’t substantiate payments they received. Among these, 2 companies were not even registered by BRELA – Business Registrations and Licencing Agency. These companies are owned and operated by some of the most prominent business people in Tanzania.

Daudi Balali has been Governor since 1998. The President replaced Balali with one of his two deputies, Prof. Beno Ndulu, who before joining BOT was a senior official at World Bank offices in Tanzania and lectured at the University of Dar es Salaam. Recent media reports claimed that Balali, (who has been out of the country for a couple of months now since the investigation started — reportedly in Boston, USA for medical reasons), had written a letter of resignation, but no one in the Government was ready to confirm receipt of the letter, even after some newspapers published its entire contents.

In his most brutal crackdown on corruption ever since he came to office in 2005, President Kikwete also directed the Attorney General, the Inspector General of Police and the Director of anti-corruption bureau to take appropriate legal steps to bring to justice all the individuals and companies implicated in the EPA scandal. He also directed the Board of Directors of the central bank to study the report and take appropriate reprimand actions to all Bank officials involved in the scandal.

The scandal started after Controller and Auditor General (CAG) finished its annual auditing of BOT books in August of 2005. Following a public outcry that was echoed by the Bunge (National Parliament) and the IMF over the findings, the President and CAG ordered an external investigation conducted by Ernest and Young from September to December of last year.  The public had been eagerly waiting for the contents of the audit report to be made public. It is still unclear if there will be investigations of BOT accounts in years prior to 2005/2006. Concurrently, Bank of Tanzania has been dogged by another investigation over the inflated cost of constructing the Bank’s headquarters, the Dar es Salaam’s 20 storey Twin Towers pictured above, which cost $25.48 million according to Group Five construction company).

What are your thoughts on this scandal and the way President Kikwete has reacted to the report? What do you think should be Balali’s fate? Should he be arrested and put to jail? Who else would you like to see taken to task? Please leave your comments.

Due to an untimely death in the family, this blog is currently on hold.

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Under pressure from environmental groups, the Tanzanian government seemed to have backed down, at least for now, from endorsing a proposed soda ash factory near Lake Natron in Arusha that could have threaten the survival of lesser flamingos.

Following a meeting last week between the Tanzanian ministry of environment, National Environmental Management Council (NEMC) and 14 environmental conservation groups, it has been reported that the soda ash project has been thrown out pending further environmental studies by the developer, Lake Natron Resources.

The developer was also told to look for alternative locations for the project. Majority of those who attended the meeting are said to have demanded that “the development should be rejected because of the risk of driving away the flamingos, harming other species and irreversibly damaging Lake Natron, which is protected by international law”. The light pink birds flock in their thousands to the lake from far-away places to breed every year. The flamingos are an important wildlife spectacle in the Great Rift Valley lakes in Tanzania, Kenya and Ethiopia.

Lake Natron Resources, a joint venture between National Development Corporation (NDC) and Tata Chemicals, a subsidiary of Indian conglomerate Tata Group, was planning a $400 USD investment to extract 500,000 tons of soda ash from the lake every year. Soda ash, or sodium carbonate, is an important ingredient in the making of glass, detergent, textile processing, metal refining, cosmetics, paper pulp and other industrial goods. On their corporate website, Tata Chemicals claims that they are recognized as “one of the most energy efficient and environmentally responsible companies in India.”

In the last few weeks, notable conservation groups such as Wildlife Conservation Society of Tanzania (WCST), BirdLife International and Royal Society for the Protection of Birds had vigorously campaigned against the project insisting that it will threaten the eco-system of the region.  They said that drastic human activity on Lake Natron (which accounts for half a million or 75% of world lesser flamingos and is a critical breeding ground for these birds for the last 45 years), could lead to complete extinction of the birds by altering the alkaline lake’s chemical balance, destroying the spirulina, a type of bacteria on which the flamingos feed, giving them their distinct rose-pink plumage. It will also disrupt the lives surrounding of nomadic Masai communities.  

According to The EastAfrican, the project would have involved pumping 100,000 litres of fresh water into the lake and 550,000 litres of brine (saltwater) from the area every hour, for the production of soda ash.

Initially, it was reported that the Tanzanian government had brushed away the environmental concerns over the project, emphasizing instead on the economic benefits of the project, such as a new access road, power plant, railroad, pipeline grid and later a pipeline for fresh water across the lake, houses for an estimated 1,225 construction workers and 152 permanent staff and their families.

 The decision to stop this project on its track and reevaluate its environmental concerns is a crucial victory to all those who would like to see sustainability issues take center stage in  investment decision making process.

 What are your thoughts? Are you happy with the decision to stop this project or would you like it to proceed? Do you think the economic benefits of the project are more important that the environmental concerns?

The chairman of Tanzania Mines and Construction Workers Union (TAMICO), Mr Mbaraka Igangula, was quoted over the weekend saying that wage disparity between foreign and local workers was one of the key reasons for the worker strike at Barrick Gold’s Bulyankulu gold mine. He said the weeklong strike will continue until workers’ grievances on pay, health and risk allowances are met.

According to an article published by Reuters over the weekend, “about 1,000 of its 1,971 workers had walked off the job last Thursday [October 25th] in what Barrick termed as an illegal strike. Barrick said it had fired half of the mine’s work force, and production had been halted”. Igangula denies that the strike was illegal and said all correct legal procedures were followed in organising the strike.

According to Igangula,

… a foreign worker earned 24 million Tanzania shillings ($20,820) a month, while a local worker took home a minimum wage of 200,000 shillings [$180]. A Tanzanian professional worker received $4,000 a month, he said. Foreign workers also received a bonus of 20 percent of their salaries, which is denied to local workers, Igangula added…local workers did not receive any risk allowance for exposure to hazards while working in the mine.

News of the strike come as a surprise considering how Barrick Gold Tanzania and the Tanzanian Government have always touted job creation and social responsibility work by mining companies as some of the key benefits the country is enjoying from the growing mining sector. To the extent that over one third of workers at Bulyankulu are unsatisfied with their working conditions gives credence to the growing public outcry that a “win-win” situation is yet to exist between mining investors and the country. The great disparity in wages indicated above revives the question of whether Tanzanian workers are being treated fairly by major foreign companies in the country.

The strike also raises the question of whether our labour laws, mining laws and mining contracts sufficiently protect local workers in foreign corporations and whether the Ministry of Labour is sufficiently empowered to ensure fair compensation scales and standards, if available, are being enforced by the private sector. However, the recent introduction of minimum wage rates for various private sector areas is a step in the right direction. The question of enforcement of these minimum wages still remains unanswered, and this has allowed many private businessness to ignore the new Government directive.

What are your thoughts on the Bulyankulu strike and the new private sector minimum wage rates? Do you think the strike is fair? Or would do you agree with Barrick that current wages are competitive enough to local workers?