EU-Tanzania seal $205m investment deal

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President John Magufuli calls the money proof of good relations between his country and the EU. Photo: State House/Daily News

African Business Magazine | 11 Apr 2017

EU-Tanzania seal $205m investment deal

Neil Ford

The European Union has agreed to provide the Tanzanian government with TSh487bn ($205m) in budget support over the next four years ending in 2020.

The money will be used to finance priority expenditure in the Second Five Year Development Plan, particularly in the agriculture, energy, health and industrial development sectors. The first tranche will be dispersed this year, as the two sides have managed to separate the grant from their long-running dispute over the proposed Economic Partnership Agreement (EPA).

Doto James, the Permanent Secretary in the Ministry of Finance and Planning, said: “This confirms EU as one of our strategic and reliable development partner in terms of amount, reliability, predictability and amount of financial support as well as alignment of the support to country’s plans and strategies. The partnership has remarkably enabled the government to implement its development strategies and plans.”

In return for the financial support, the government has agreed to maximise its own domestic revenue raising. The head of the European Union delegation in Tanzania, Roeland van de Geer, added: “We’re committed to supporting the government to address the challenges they are facing.”

Trade Pact

Tanzania’s relations with Brussels over the past year have been punctuated by negotiations over the EPA between the European Union and the East African Community (EAC). In November last year, Tanzania’s parliament, or Bunge, voted for the country not to sign the EPA.

MPs were – and remain – concerned about the impact of the deal on domestic producers. EAC states can already export goods to the EU duty-free but this advantage would work both ways if the EPA were adopted. The EPA was supposed to have been signed in July 2016 but Tanzania asked the EU to extend the deadline.

Kenya has both signed and ratified the EPA, while Rwanda has signed it. Burundi cannot sign it as the EU has suspended relations with its government. Some Ugandan politicians and businesses share Tanzania’s concerns, but Kampala says that it will sign it. Tanzania has been less than enthusiastic and its government insists that all five member states should sign together or not at all. Talks on the EPA took eight years to negotiate and were finally signed in 2015.

At an EAC trade and industry ministerial meeting in February, Tanzanian representatives appealed for a wide-ranging study into the impact of the EPA on the region. In a statement, they argued: “The results will guide the ministers’ and presidents’ decision on the EPA in the next summit or even at a later stage. Signing a bad EPA will set a bad precedent, which will compromise the region’s interests in subsequent Free Trade Area negotiations.”

The concerns partly centre on the slow pace of trade integration within the EAC. The agreement with the EU is based on the premise that goods traded with the EU will circulate unimpeded within the EAC but some duty barriers still have not been lifted. The Tanzanian government has also complained that the issue of EU sanctions on Burundi has not been properly addressed.

The former EAC director of trade and customs Peter Kiguta said: “If Tanzania doesn’t sign the EPA and others do, this means the deal cannot be operationalised. It means EAC countries shall trade with EU under different trade regimes that are unilateral and can be changed by EU any time. This is not good for attracting investors into the region.”

Wider cooperation

However, it does not appear that the dispute has affected wider relations between the Tanzanian government and Brussels, as the EU has continued to back other schemes in the country. Most recently, in February, it provided the World Food Programme (WFP) with a €9.5m grant towards the €24.5m cost of a nutritional programme in parts of Dodoma and Singida regions in Central Tanzania.

The WFP country representative, Michael Dunford said: “The project will work to improve knowledge on nutrition, dietary diversity and practices in water and sanitation hygiene.” Brussels is also helping to fund the development of ecovillages in Tanzania under the Global Climate Change Alliance

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