FACTBOX-Key political risks to watch in Tanzania

By Fumbuka Ng’wanakilala

DAR ES SALAAM, Oct 22 (BestGrowthStock) – Tanzania, east Africa’s
second largest economy, holds a general election on Oct. 31,
with President Jakaya Kikwete of the ruling Chama Cha Mapinduzi
(CCM) party seeking re-election for a second and final term.

Kikwete is expected to win easily but with less than the
80.3 percent he landed in 2005.

The election is seen as a test for the ruling party’s
dominance in Tanzania, which has been struggling with poverty
and underdevelopment. [ID:nLDE69L0P2]

POLITICS AND THE ELECTION

Two opinion polls this year show Kikwete, 60, would beat
opposition candidates comfortably. A poll by the University of
Dar es Salaam in April showed 77.2 percent support.

Synovate said in June that Kikwete’s popularity had declined
to 69 percent from 73 percent previously. This partly reflected
criticism of how he handled threats by labour unions of a
nationwide strike over pay and conditions.

What to watch:

— Growing support for opposition presidential candidate
Willibrod Slaa of Chadema party. Slaa, 62, has been drawing huge
crowds at campaign rallies across Tanzania, with promises to
tackle poverty, improve social services, clean up corruption
among politicians and restore public trust.

He is seen as Kikwete’s strongest challenger and has pledged
to review all mining contracts in Africa’s third largest gold
producer if elected.

— Conduct of vote. Opposition parties have alleged fraud in
previous elections and say vote rigging by the ruling party
might be repeated this year.

Law enforcement agencies and state-run media have
traditionally favoured the ruling party during election periods.
The National Electoral Commission is seen lacking the
independence to oversee a truly free and fair vote.

— Disputed results. The declaration of presidential results
by the electoral commission is final and cannot be challenged.
But political observers expect a wave of legal actions to
challenge the results of parliamentary elections.

— Electoral violence. Skirmishes might occur between
supporters of the main political rivals — CCM and Chadema — in
some closely contested parliamentary constituencies. However,
mainland Tanzania is expected to hold a largely peaceful poll.

— Zanzibar. A close result is expected on the
violence-prone Indian Ocean archipelago. Seif Sharif Hamad,
leader of the opposition Civic United Front (CUF) party, is
locked neck and neck for the Zanzibar presidency with the ruling
CCM party’s Ali Mohamed Shein.

Zanzibar’s outgoing president, Amani Abeid Karume, has
approved a constitutional amendment that will force the rival
parties to share power. The reform, passed in a referendum,
follows a gradual rapprochement between the CCM and CUF.

However, the parties could be hard pressed to persuade
hardliners to accept the outcome and agree to take part in a
coalition government, so bouts of unrest cannot be ruled out.

— Kikwete’s health. Kikwete is widely expected to win, with
the ruling party maintaining its majority control of parliament,
even though opposition parties are expected to win more seats.

However, Kikwete has collapsed in public at least times
since 2005, raising questions about whether he is fit enough to
run the country. The government says Kikwete is in “perfectly
good health” and blames the incidents on fatigue.

MINING LEGISLATION

Tanzania’s parliament passed a new mining law in April that
increases the rate of royalty paid on minerals such as gold from
3 percent to 4 percent and requires the government to own a
stake in future mining projects. [ID:nLDE63N047]

As part of the new legislation, Tanzania will not issue new
gemstone mining licences to foreign companies, while current
agreements with foreign mining companies remain unchanged.

The government says the reforms are aimed at ensuring the
country gets a better share of its resources by creating a
“win-win” situation for both mining firms and the country.

African Barrick Gold (ABG.L: ) has four gold mines in Tanzania
while Australia’s third largest gold miner, Resolute Mining
(RSG.AX: ) and South Africa’s Anglogold Ashanti (ANGJ.J: ) also have
gold operations there. British mining company African Eagle
(AFE.L: ) is raising funds for its nickel project in Tanzania.

What to watch:

— Investor reaction. Mining companies have rejected the new
law, saying it would further erode investor confidence. They
described the legislation as “distorted” and warned that it
would curtail future mining projects. [ID:nLDE63R2IO]

— The government is in talks with mining companies on plans
to abolish tax exemptions on fuel imports.

— Progress on development of uranium deposits in Tanzania

— Further offshore discoveries of oil and natural gas.
Whether recent attacks by Somali pirates off the Tanzanian coast
were aimed at exploration operations. [ID:nLDE68Q27Q]

ECONOMY

A Reuters poll of nine economists showed in August the
economy should grow 6.3 percent this year and 6.8 percent in
2011, thanks to robust activity in all sectors, while inflation
will stay in single digits through to 2011. [ID:nSLAHJE6A9]

But government critics say poverty remains widespread among
the population of 40 million, with the benefits of economic
growth yet to trickle down.

The economy depends on tourism, mining and agriculture and
is attracting investor interest in telecommunications, energy,
manufacturing, financial services and transport.

What to watch:

— Widening current account deficit. Analysts expect the
deficit to widen to 8.0 percent of GDP in 2010 and to 9.2
percent in 2011, although the rising price of gold and higher
exports should cushion costly oil imports.

Gold export earnings rose 15.4 percent in 2009 to $1.1
billion and had climbed to $1.38 billion by the end of June this
year. [ID:nLDE67F1KK]

— Debt sales. Tanzania plans to issue a debut $500 million
Eurobond after it gets a sovereign rating. Plans to issue a
sovereign bond were shelved because of the financial crisis but
revived this year. [ID:nLDE64T0GE]

In May, the finance minister plugged a financing deficit
with syndicated loans. Analysts say the government has shown a
bigger appetite for treasury securities in recent months.

Some analysts say that Tanzania will probably have to
liberalise its capital account to get a sovereign rating, a move
that could boost investor interest in its financial markets.

— Weak currency. The shilling (TZS=: ) has been easing
steadily since the start of 2010. The weakening shilling and dry
weather are expected to put pressure on consumer prices.

Inflation fell to a five-year low of 4.5 percent in
September from 6.6 percent in August. Inflation in east Africa
often depends on weather because food carries significant weight
in consumer price baskets. The region relies on rain-fed
agriculture and recent droughts have hit its economy badly.

— Donor funding. Foreign donors slashed contributions to
budget funding by $534 million in May on concerns about the slow
pace of reforms and graft. Further reductions could put pressure
on the shilling and on government spending plans.

— Social tensions. Teachers and other civil servants are
demanding a salary hike and may stage nationwide protests.
(Editing by Richard Lough)

FACTBOX-Key political risks to watch in Tanzania