Tanzania

As I mentioned in a previous post, ‘What to Expect in 2006 ?’ , Tanzania , along with India and China will be one off the few countries that are growing at close to ten percent, infact the only African nation that might be close to those levels. What is it that makes Tanzania so special? Does it have the right infrastructure? A strong economic backing? The right minds?

Tanzania is a beautiful country in East Africa; Tanzania is bordered on the south by Mozambique, Malawi, and Zambia; on the west by Zaire, Burundi, and Rwanda; on the north by Uganda and Kenya; and on the east by the Indian Ocean. Tanzania is the largest of the East African nations. The mountains, Mt. Meru (14,979 ft/4,566 m) and Mount Kilimanjaro (19,340 ft./5,895 m), the latter of which is the highest point in Africa and possibly the most breathtaking mountain imaginable. Serengeti National Park , one off Africa’s largest nature reserves with the highest number off migratory game animals. Serengeti National Park also houses the Olduvai Gorge, the place where the first fossils off Homo sapiens was found. West off the Serengeti is Lake Victoria, the largest lake on the continent and one of the primary headwater reservoirs of the Nile. Southwest of Lake Victoria, and forming Tanzania's border with Zaire, is Lake Tanganyika, the longest and deepest freshwater lake in the world. Tanzania has the highest and lowest points on the African continent. The mystic Zanzibar is also a part off Tanzania.

Tanzania has always been a trading country, one with a rich history and diversity. As early as 900 AD, the people off Tanzania have been known to be engaging in overseas trading. Around the time, they also attracted immigrants from India and other parts off southwest Asia. There are known links of direct trade with countries as far as China. The Portuguese arrived in Tanzania around the 15th century and further developed trade, they were eventually chased out by the Omani Arabs around 1700 and they proceeded to further develop trade. It was during this time that Zanzibar gained its legendary status as a center for the ivory and slave trade, becoming in 1841 the capital city of the Sultanate of Oman. Tanzania fell under German control in 1886, but was handed over to Britain after WWI. Present day Tanzania is the result of a merger between the mainland Tanganyika and Zanzibar in 1964. Tanzania, like any other African country went through a lot off strife after independence.

Tanzania has a total are off just under one million sq.km, and a long coastline off about 1500 sq.km. It’s a country that is rich in natural resources like Hydropower, tin, phosphates, iron ore, coal, diamonds, gemstones, gold, natural gas and nickel. Its arable land is only 5%, as against India’s 55% and China’s 16%. Tanzania has irrigated land off only 1500 sq.km. The population off Tanzania is about forty million people, 46% off who are dependent on the other 54%. The net migration rate is –3.11 and the average life expectancy is 45 years. The country has one off the highest fertility rates, nearly five children per woman. Nearly 9% off the population is infected with HIV / AIDS which is one off the largest problems in the country. The literacy rate is about 80%. Literacy in Tanzania is defined as “someone with age 15 and over can read and write Kiswahili (Swahili), English, or Arabic”.

The capital city is Dar es Salaam; note - legislative offices have been transferred to Dodoma, which is planned as the new national capital; the National Assembly now meets there on regular basis.
Tanzania is one of the poorest countries in the world. The economy depends heavily on agriculture, which accounts for almost half of GDP, provides 85% of exports, and employs 80% of the work force. Topography and climatic conditions, however, limit cultivated crops to only 4% of the land area. Industry traditionally featured the processing of agricultural products and light consumer goods. The World Bank, the International Monetary Fund, and bilateral donors have provided funds to rehabilitate Tanzania's out-of-date economic infrastructure and to alleviate poverty. Long-term growth through 2005 featured a pickup in industrial production and a substantial increase in output of minerals, led by gold. Recent banking reforms have helped increase private sector growth and investment. Continued donor assistance and solid macroeconomic policies supported real GDP growth of more than 6% in 2005

The GDP is approximately at 26 billion USD according to the PPP method. Agriculture contributes 44% to the GDP, Manufacturing 17% and the Service sector 39%. The labor force is roughly estimated to be twenty million people off whom sixteen million people are directly or indirectly employed in agriculture. 36% off the nation lives below the poverty line. Tanzania must be commended for keeping their inflation rate to a meager 4% per annum. Its public debt is only 5% off the GDP. Agricultural products include coffee, sisal, tea, cotton, pyrethrum (insecticide made from chrysanthemums), cashew nuts, tobacco, cloves, corn, wheat, cassava (tapioca), bananas, fruits, vegetables; cattle, sheep and goats while the major industries are agricultural processing (sugar, beer, cigarettes, sisal twine), diamond, gold and iron mining, soda ash, oil refining, shoes, cement, apparel, wood products, fertilizer and salt. Industrial Production is growing at close to 9% every year.

Tanzania must also be lauded for meeting their electricity requirements of about three billion K Wh per annum. Tanzania also focuses massively on hydropower. There are no known oil reserves and consumption is twenty two thousand barrels a day. Natural Gas reserves are about eleven billion cubic meters. Forex Reserves and gold are at about 2.4 billion USD but external debt is at 8 billion USD. Exports are at 1.58 billion and the major trading partners are India 8.9%, Spain 8.2%, Netherlands 6.3%, Japan 5.7%, UK 4.9%, China 4.7% and Kenya 4.7%. Imports amount too 2.39 billion USD and the major trading partners are South Africa 12.7%, China 7.8%, India 6.4%, Kenya 5.4%, UAE 5.3%, US 4.8%, UK 4.6%, Zambia 4%. Tanzania receives close to one billion USD in aid every year.

Telecommunications, something that really interests me, simply because for the lack off them running on full capacity. A very fair system operating below capacity and being modernized for better service. There are only 150,000 telephone users in Tanzania. Considering that the average family size is 7 , there’s are scope for the industry to grow another 3000 % ! Cellular phones though are close to one million in number, that’s about a 2.5% population coverage. A VSAT (very small aperture terminal) system is under construction as well. Open-wire, microwave radio relay, tropospheric scatter, and fiber-optic cable provide trunk services. They are working on making some links digital as well. They also have two satellite earth stations, one Indian Ocean and one Atlantic Ocean. There are about 25 radio stations including FM, AM and short distance but only three televisions broadcast stations. There are about 5000 internet hosts and half a million.

Infrastructure. The most important aspect off a country that will stimulate and facilitate economic growth. The country can boast off 123 airports, but only 11 with paved runways. Gas and Oil pipelines are about 1000 km in total. Railways lines are spread across the country and measure 3,690 km. Tanzania also has about 100,000 km off roadways. Lake Tanganyika, Lake Victoria, and Lake Nyasa principal avenues of commerce with neighboring countries, but the rivers that flow through Tanzania are not navigable. The main ports are Dar es Salaam, Mtwara, Zanzibar City.

Tanzania as a country, according to me, is placed for take-off. Over the next decade , it will grow at an average off 10% per annum. Infrastructure will grow, and so will Foreign Investment in the country because off the stable government that seems to be forming. Easy access to the country and an easy visa regime will also fuel the growth off tourism in the country. Overall, I forecast the growth off exports from the country and a ten-fold increase in their exports over the next decade.

What are the negatives? Well, a language barrier for one, secondly the territorial dispute with Malawi and growing role in transshipment of Southwest and Southeast Asian heroin and South American cocaine destined for South African, European, and US markets and of South Asian methaqualone bound for southern Africa. Money laundering is also a big problem; with the new economic reforms and privatization off banks, the problem should be easily countered.

It is a country that I would like to visit in the near future, The only constraint would be time, but hopefully we can sort that pretty soon, as the proverb from tanzania goes 'One who bathes willingly with cold water doesn't feel the cold.'

FDI - China and India

I spent the evening discussing with a friend, Foreign Direct Investment (FDI) in India in comparison with China, was a great evening and I enjoyed doing what I do best, talking economics.

To start off with, the International Monetary Fund (IMF) has twelve criteria which can be included in FDI inflows,

Inter-company debt transactions
Short and long-term loans
Financial leasing
Trade credits
Grants
Bonds
Non-cash acquisition of equity (tangible and intangible components such as technology fee, brand name, etc.)
Investment made by foreign venture capital investors
Earnings data of indirectly-held FDI enterprises
Control premium
Non-competition fee
Imported equipment
Foreign Equity Capital

Now out off these classifications, the Reserve Bank off India (RBI) considers only the last one, Foreign Equity Capital, as FDI. The rest appear in trade and debt statistics. But China considers all the twelve as FDI; hence the large gap on paper. Now china started their ‘Open Door Policy’ in 1979, as against 1991 for India. Therefore fourteen year lead on India which is a pretty big lead.

At the time, both India and china were traditional countries with basic economic models, china took the fast route, FDI Driven, mainly helped by their wealth expatriates who were more than happy to invest in their homeland and a totally export led market which was helped by cheap labour. This laid a foundation to the Chinese manufacturing industry, compulsory education and improvement off labour skills. With compulsory birth control, china was able to bring in a low dependency ratio which led to thrift in the savings ratio hence facilitating economic growth due to increased capital formation and investment in infrastructure to further boost productivity.

India on the other hand started in 1991, nearly a decade and a half after china did. But before they started, they were faced with many problems, a high dependency ratio, and low savings ratio. The Indian expatriates were cash poor but intellectually wealthy. India had to adopt a slower growth model, they developed institutions which would facilitate growth, market regulators and encouraged local entrepreneurs as against FDI.

China’s FDI consists off ‘round tripping’ off money into the country through Hong Kong and Macau due to the tax breaks and other benefits offered for FDI into the country, this accounts for nearly thirty percent off China’s FDI.

Another genuine reason for china’s higher FDI inflows are the Non Resident Chinese (NRC) , who are prepared to invest wholeheartedly into the motherland, as against Non Resident Indian’s (NRI’s) and PIO’s (Person off Indian Origin). The NRI’s and PIO’s alone could contribute USD 320 Billion to the GDP, but they are afraid due to poor governance, high regulation and taxation. Last year, NRC’s invested USD 70 Billion into China, NRI’s only invested USD 0.2 Billion. India needs to do something to funnel the money parked outside the country back to the homeland

India also has its many faults, a high traffic regime, poor infrastructure and a regulatory system unfriendly to businesses. Also, a reservation policy based on caste instead off class which creates inflexible labour laws. The government budged deficit prevents necessary investment in improving infrastructure.

According to Purchasing Power Parity (PPP) , India stands at fourth in the world and China at second. Naming India and China as the new tigers of Asia, the Morgan Stanley report says their economies have been growing twice as fast as the rest of the world over the past two decades. If the present trend of growth continues, China’s economy should leave that of the US far behind and India’s should be bigger than Japan’s (using PPP) in a decade

Tariff Reforms is the most obvious reason that China gets more FDI inflows than India. The average Most Favored Nation (MFN) tariff Rate is at about 15.3% in China as against 50% in 1980. India’s MFN is at about 32.3% as off date which is one off the highest in the world. India also has a Special Additional Duty (SAD) that increases the customs by nearly 35%. Tariff Reform would normally be very easy in a country off India’s size, but sadly the constant deterioration in the fiscal deficit.

In certain surveys carried out by the World Bank Group. It was found that takes 10 permits compared to 6 in China, and 90 days in India relative to 30 days in China, to start up a new business. The World Bank surveys estimate that in India it takes on average 16 per cent of senior manager’s time to deal with government officials compared with 9.9 per cent of management time in China.

The very rapid build up of FDI in the Chinese car industry is occurring within a framework of 50-50 joint ventures and illustrates some of the dynamics behind overproduction bubbles. Within this government-determined framework, each of China’s top four (state-owned) carmakers has ties with at least two global players. Such is the attractiveness of margins in the Chinese car market; foreign carmakers are willing to tolerate these very unusual arrangements. By 2006, China’s capacity will have risen to at least 4.5m passenger cars implying more than a trebling of current domestic demand. There are apparently few complaints about the lack of an efficient market for corporate control in China while domestic markets are growing rapidly; China’s lax intellectual property regime may also cause problems for companies unable to control the leakage of IP to their joint venture partners. “Shanghai International Automobile City” (SIAC), a 68 square kilometer corporate park that is already home to German auto maker Volkswagen and several major auto component suppliers, including TRW and Delphi of the US.
Apart from the manufacturing areas, the project – expected to cost at least USD 6 Billion – includes research & development facilities, a commercial centre, residential housing and even a new golf course. In short, SIAC hopes to offer everything a foreign investor needs to feel comfortable in China when it is finished in 2010.

India on the other hand, is very much similar to china except for the fact that the local car manufacturers are only growing at a very small scale. It is the larger Multi nationals that are making huge inroads into the ever growing automobile market. In automobiles, Suzuki, now fully in control of Maruti Udyog, decided to set up a diesel engine plant in Haryana, which will absorb no less than USD 800 million That as well as the steel projects signal the new-found confidence in India's competitiveness as a manufacturing base. Automobile companies have decided to open up an India presence, and companies like Hyundai are rapidly expanding capacity.

Telecommunications are highly developed in India, as compared to china. The spectacular growth in the Indian software and IT industry has enabled faster and more reliable growth in the telecom sector. FDI inflows into Indian telecom are varied and large, Bharti Tele-Ventures, a large private telecom player offering varied telecom services and the largest GSM cellular operator, currently has foreign partners holding a combined stake of 47.3 per cent in the company; these include SingTel (with 28.5 per cent), Warburg Pincus, International Finance Corporation, Asian Infrastructure Fund Group and New York Life Insurance. Hutchison Whampoa has a 49 per cent stake in Hutchison Telecom, the second largest GSM cellular operator in India. Distacom has a 42 per cent stake in Spice Communications.
AT&T Wireless has a 33.3 per cent stake in Idea Cellular. Resently , Maxis off Malasiya offered to take over Aircel , another leading GSM provider while France Telecom holds a 26 per cent stake in BPL Mobile. Meanwhile, the Chinese authorities have sold to foreign investors a small stake in the state-owned China Telecom and raised considerable funds to undertake network expansion, besides ensuring competition among state-owned telecom companies. In nine years of existence in China, wireless services, were able to garner about 6.8 million subscribers by 1996. In comparison, India starting late - in 1995, had managed to enroll 28 million wireless subscribers by the end of 2003.

Whatever said and done, India has a more business rich and well trained community than China’s. Knowledge off the art off business has been passed down generation after generation in India, whereas the Chinese only have liberty to do business on their own after 1979. Even then, the FDI inflows made the Chinese dependent businessmen, but India has more reliable businessmen to take care off the FDI’s and survive and do very well without foreign management. This can be seen , HOPE group, China’s largest business house is ten times smaller than the TATA group, India’s largest business family. India’s restrictive policies on FDI may in the end be more beneficial, after all what good is a country with money, but with no one to make proper use off that money and channel it in the right places?

What to expect in 2006 ?

With the New Year just arriving and calendars world over being changed to feature the year 2006, what exactly are we to expect during the coming year. Let me be honest, I’m not an expert on predicting anything, but a few things that will happen are certainly running through my head, then again, this is my perspective. What to expect, and also, what not to expect.

The year 2006 will not see any big technological developments, and by big I mean something that will change the way we live. WE have the internet already; people are just going to be working on better optimization off the Internet. Internet Security and Privacy are going to be a large issue that will be worked on all along, especially with the increased use off PDA’s and Smart phones. Along with this, Mobile Commerce, which is basically using chips on your PDA’s to serve as your digital wallet, just flash your phone and your bills are paid, will grow tremendously in the rest off the world; it is predominantly present in certain parts off Europe.

The year 2006 will see a lot off people retiring, especially the baby boomers from the Second World War. It’s going to be harder to find good experienced employees, most companies are going to have a massive drop in their experience levels and its going to be very hard to find good replacements. The positive side is that there will be a lot off available jobs, but it’s the companies and the state that are going to bear the brunt. More Pensions, retirement funds and new salaries. But the increase in man power cost will be equally offset by the ever growing economy.

Developing Nations will grow at nearly three times the pace off developed nations. Countries like India, China, Tanzania will be growing at about 10% whereas the US and UK will not get past 4%, even that would be a tough task. This in turn will lead to a booming stock market. But according to me, real estate prices have to drop, they are already pretty overpriced.

I don’t think there will be any new major political developments either, unless something radical happens. Most off the year will be spend with diplomats shuttling around the place making new ties and straightening old ones. You will see a lot off speeches and statements by Head off States.

Commodity prices will move up and down thought the year, Gold, silver and platinum will end 2006 at the same levels as present, but there will be massive instability. Other industrial metals will move a little to the upper side, but will be only a measured increase.

VoIP will take the market by storm. With the number off companies providing services increasing by the day, and prices dropping, it seems to be the thing off the year. Something to really look forward too personally because I belong to the industry as well. Of course, dropping bandwidth costs are going to help the process even more. The year 2006 will change the way the layman communicates.

The number off vehicles on the road will either go up or down, especially with most countries announcing and starting off new and highly reliable public transport systems. They work, but the question is, are people prepared to walk that last mile? 2006 will see air fares dropping like never before. The world is literally going to be a global village.

We will also see companies increasing their spends on online advertising, moving away from the traditional print media. Along with this increased online advertising, you will see that user generated online content is going to be highly valued. Usage off Blogs and instant messaging will explode.

The weather and nature…. I don’t want to predict anything on that; I’m not the guy who spins the Cosmo’s .Something to think about, what happens if that guy decides to spin us around a little quicker or for that matter a little slower…..

Red Bull

First, would like to wish everyone a very happy New Year. 2006 is a year to look forward too, 2005 has been a year relentlessly affected by natural disasters world over, hurricanes, floods, earthquakes and what not. Probably the only thing to be cheerful about are the booming markets, be it funds, equity or just real estate.

The city is celebrating the New Year ahead as I write this sitting in my bedroom. I’m working tonight as well, but its just some light call monitoring as the traffic today is immense compared to normal levels. But I am exhausted, I want to relax, yet I want to work, I want to party like the world outside me, but I also just want my space. So what does a guy like me, who works the New Year eve, doesn’t drink but wants something to do to keep awake so his work can be done.

The answer comes in a nicely packed can off an Energy Drink called Red Bull. As I have already had two cans off Red Bull, my energy levels are higher so I decided to do a little research on the ingredients.

TAURINE: This is stuff found in loads off baby food! It’s apparently an Amino Acid that is required by your body as it helps in detoxification and also acts as an antioxidant. When you are undergoing mental or physical stress, a lot off Taurine is eliminated from the body, but our bodies are not capable off producing them that quick, more the Taurine, the more the excretion. So Red Bull actually replaces a lot off the Taurine’s

GLUCURONOLACTONE: It’s a carbohydrate that helps in the detoxification process and also supports eliminating waste substances from the body.

CAFFEINE: It apparently has benefits to a person’s mental and physical function. Research has also proved that it improves reaction, speed and concentration. Caffeine also burns up the excess fat that your body stores instead off requiring new fat to burn for energy. The fact that red bull contains caffeine explains why I like the drink so much!

NIACIN: Niacin is a group B vitamin. These vitamins help and stimulate energy metabolism like burning down fat, carbohydrates and proteins.

PANTOTHENIC ACID: Very similar function as Niacin, but it also helps to support physical and mental performance.

VITAMIN B6 AND B12: These two reduce stress and anxiety, and a combination off the two on regular basis help to reduce risk factors and overall risk off a heart disease. Certain researches claim that they also reduce the chance off Lung Cancer and also control Blood pressure.

SURCOSE AND GLUCOSE: Known carbohydrates, sucrose is common table sugar and most commonly used industrial sweetener. Glucose is normal blood sugar which is the immediate source off energy.

According to the can that I have in front off me, the drink has many benefits. It increases performance, concentration and reaction speed. It also helps vigilance and a person’s mental status. The can also says that it helps in metabolism. Now all this is great, and it seems to work on me as well!

I have been drinking Red Bull for the past six months, nearly forty cans a month. But the price is a little on the higher side, seventy five rupees (USD 1.70 or GBP 1.0) for a can for 250 ml (8.3 oz) it’s an expensive buy that most in a country like India cant afford everyday. But there’s good news as well, the markets are opening up with at least 150 new companies offering ‘energy drinks’. Yes, Red Bull is the pioneer in the industry and nothing beats the packaging that these guys offer, but it’s only a matter off time before the price war starts. But in the end the ‘Red Bull culture’ is here to stay.

On my third can for the night, and I am all pumped up and probably ready to work for another 12 hours, though I only need to work three hours more and then have a Sunday ahead off me to rest.As the can says, 'Vitalizes body and mind.' Will wind up on that note. Wishing you all a very happy New Year!