Tanzania: Potential As EAC Gateway, But Considerable Challenges To Be Overcome

Tanzania holds significant potential for autos logistics development, with the country benefitting not only from strong domestic demand for automotives, but also as a gateway into the East African Community (EAC). With this potential Tanzania faces equally great obstacles; its development as a major maritime gateway for the East Africa region has not been matched with investment. This has led to bottlenecks and congestion at the country's ports and on its transport network, delaying shipments and increasing logistics costs - problems that are only now starting to be addressed. BMI warns that Tanzania's bureaucratic environment will also need to be dealt with, as currently it is obstructing business development. BMI believes that Tanzania has the potential to develop into East Africa's key autos gateway, but unless radical changes and investment is made that mantle will go to neighbouring Kenya.

Key Points

  • Well-positioned for gateway role for EAC countries and landlocked African states;

  • Tanzania faces stiff competition for this role, with neighbouring Kenya is developing as a gateway for goods into the region;

  • Congestion at ports is the major challenge, but problem is being addressed with plans for a super port in the pipeline;

  • Rail over road view in internal transport sector, with rail boasting better infrastructure;

  • Import sector is of primary concern for automotive firms. Tanzania's imports are relatively slow and laden with bureaucracy;

  • Container imports are cheaper than global average;

  • Export over import view, with exporting of goods quicker and cheaper than importing.

Ports Facing Congestion Challenge

Tanzania's main port of Dar es Salaam has developed beyond catering for Tanzania's trade demands and forms an entry and exit point for goods entering and exiting the EAC trading bloc (whose members are Burundi, Kenya, Rwanda, Uganda and Tanzania), as well as functioning on the supply chain of Tanzania's neighbouring states of Malawi, Democratic Republic of Congo (DRC) and Zambia and even South Sudan and Ethiopia.

Geographically Perfect Location For Gateway Role
Tanzania and Its Neighbours and Fellow EAC States

The port of Dar es Salaam's role in this multi-country supply chain at first glance is very appealing from a logistics point of view, with a base in Tanzania offering firms exposure to the domestic market, the EAC and Africa's landlocked states. However, the port's position in this supply chain has led to rapid throughput growth.

BMI highlights that between 2000-2011 container throughput at Dar es Salaam increased by 281% from 124,648 twenty-foot equivalent units (TEUs) in 2000 to 475,000 TEUs in 2011 (last available data). BMI expects growth to continue at a similar pace given the macroeconomic outlook for Tanzania and the wider region; as the number of African consumers grows, so will the demand for containerised imports, while emerging manufacturing industries will also boost exports of boxed goods.

Strong Throughput Growth
Port of Dar es Salaam Container Throughput (TEU) and y-o-y % Change

However, this growth in throughput at Tanzania's key port has not been matched with investment and expansion, with Tanzania's port infrastructure scoring low, both globally and regionally. The underdeveloped nature of the country's ports is well highlighted by its position on the World Economic Forum's Global Competitiveness Index of port infrastructure. Tanzania's port sector ranks low, in global comparison, ranked in 117th place, out of 144 countries globally. In comparison with the other Sub-Saharan African states that BMI is analysing for their auto logistics potential (Angola, Botswana, Ghana, Kenya and Nigeria) Tanzania's port also ranks low, in last position out of its peers (no rank is available for Angola).

High growth, low investment is a mixture which means that Dar es Salaam is blighted by congestion, a factor importers (such as automotive suppliers) will be wary of, as it causes delivery delays, destroys reliability and drives up costs. While some level of investment in new equipment has boosted vehicle imports by 50% between July 2012 and February 2013, more is required to enable growing vehicle demand to be met.

BMI believes congestion is the major factor behind the low level of connectivity at the port, with shipping lines prepared to forgo greater exposure to this developing market until they can be assured the problem of bottlenecks is being addressed. Out of seven Sub-Saharan African states that we are analysing Tanzania is ranked sixth by UNCTADstat's Liner Connectivity Index, last out of its seven peers, with Botswana not ranked, as it is landlocked.

Investment Needed To Tackle Congestion And Attract Container Lines
LHC: Global Competitiveness Report Port Infrastructure Rankings. RHC: UNCTADstat Liner Connectivity Ranking

Tanzania's relative lack of liner connectivity will be a worry for firms, as a low level of shipping connections makes reliability difficult to ensure and also means there is a lack of operators to choose from, driving down competition and pushing up transport costs.

In the short term Tanzania is addressing the problem of congestion at its ports with the development of inland container depots. These facilities enable containers to be moved away from Dar es Salaam in order to address bottlenecks at the port by freeing up space. However, BMI asserts that this is only a short-term solution, as the strategy only serves to move the issue of congestion further up the supply chain.

Longer-term solutions are in the pipeline, such as plans for a port at Bagamoyo and a new port of Tanga - due to be developed as a means of easing the pressure on Dar es Salaam.

The development of a port at Bagamoyo holds considerable potential as the facility has gained the backing of China and is set to become Africa's largest port.

The Tanzanian president, Jakaya Kikwete, and his Chinese counterpart, Xi Jinping, signed a number of agreements during the Chinese premier's state visit to the East African country in March 2013; these paved the way for the construction of the new port at Bagamoyo, which will be developed at a cost of US$10bn, starting in 2015.

According to Tanzania's ambassador to China, Philip Marmo, the new port will be able to handle 20mn containers a year, far surpassing the box throughput at the current top port in Africa, Durban in South Africa. Durban has a current handling capacity of around 3mn TEUs per annum, and although it is undergoing significant expansion works it will still be eclipsed by the new Tanzanian development.

The launch of this new port (due at least one year after construction begins in 2015), will mean companies will have to wait some time to witness any concrete improvement in Tanzania's port sector and by this time firms in the automotive sector might have already chosen their bases elsewhere.

Rail Freight: The Transport Mode Of Choice

Internal logistics links like Tanzania's ports are underdeveloped, but BMI highlights the country's rail sector as the outperformer when compared to the country's road network. According to the World Economic Forums' Global Competitiveness Index, Tanzania's road infrastructure ranks fifth out of its six peers, with Nigeria in last place and no rank for Angola available. In terms of rail infrastructure Tanzania ranks third out of its six peers, again with no rank for Angola.

Rail Over Road
LHC: Global Competitiveness Report Road Infrastructure Rankings. RHC: Global Competitiveness Report Rail Infrastructure Rankings

This data highlights BMI's finding that Tanzania's railway network connectivity is relatively well developed, not only internally, but also with neighbouring countries. Tanzania's rail links benefit from the fact that the country operates the same railway gauge system as its neighbours and fellow members of the EAC - narrow gauge. One of the country's rail networks, the Tanzania Zambia Railway Authority, connects Dar es Salaam with Zambia and onwards to the DRC, Zimbabwe, and South Africa.

EAC States and Beyond Railway Network Overview
Country Railway Network Length (km) Railway Gauge
CIA World Factbook
Tanzania 969km Narrow Gauge
Kenya 2,066km Narrow Gauge
Uganda 1,244km Narrow Gauge
Rwanda No railway network No railway network
Burundi No railway network No railway network
Zambia 2,157km Narrow Gauge
Malawi 797km Narrow Gauge
DRC 3,882km Narrow Gauge

The need to ensure landside links for new port developments to make sure new facilities are well connected to the country's transport network is highlighted in the development of a new port at Tanga. As part of the development plan for this facility the Mwambani Port and Railway Corridor Company (MWAPORC), will via rail connect Tanzania to Uganda, the DRC and via the DRC port of Banana to the Atlantic Ocean.

BMI believes that Tanzania's relative rail strength over that of road will see companies importing into the country seeking to manage their logistics requirements by rail. In light of this, automotive companies seeking to break into Tanzania might wish to ensure their manufacturing hubs have proximity to rail terminals, ensuring they are not overly reliant on the country's road network.

Major Import Challenge: Excessive Bureaucracy

Due to the development of Tanzania as an auto assembly hub, automotive logistics demands are concentrated on imports. Auto kits are shipped in from abroad via container for construction in country. Tanzania is already wooing some big names in the sector with the major Chinese truck manufacturer SinoTruck announcing in 2012 that it would develop a heavy duty truck assembly plant in the country. Honda Motor is also adding to the growing number of motorcycle producers assembling in the country, such as Bajaj Auto and TVS Motor.

To ensure Tanzania can attract further big name players more needs to be done to ease the imports procedure into the country.

Tanzania is weighed down in this regard by an excessively bureaucratic procedure for the import of goods. According to the World Bank, 10 documents are needed to bring imports into Tanzania, placing the country joint bottom of our seven with Nigeria. This high amount of paperwork affects both costs and time related to imports.

Slow And Bureaucracy Heavy
LHC: Lead Time To Import (Median Case Days). RHC: Documents To Import (Number)

Tanzania is further let down by its lead time to import - a measurement of how long it takes goods to arrive at the consignee from the port of discharge - and this can in part be attributed to the high number of documents required. At 7.1 days, Tanzania is in the bottom half of six of our countries (Botswana is unmarked). With our outperformer Namibia, Nigeria, and Kenya all taking three or four days, this gives these countries a considerable advantage over Tanzania in terms of time. If Kenya and Tanzania are going to compete for the same hinterland transit trade in the coming years, the three days less that it takes to import in Kenya could become key in decision making and strategy development. Tata Motors quoted the better-developed infrastructure as a factor in choosing Kenya over Tanzania as its local production base.

Below Global Average Despite Time And Bureaucracy Challenges
Cost to Import (US$ Per Container) and Global Average

In terms of cost, according to the World Bank importing a container into Tanzania costs, on average, US$1,565. This does make Tanzania cheaper than the global average of US$1,747 per container (measured across 184 countries), yet it is still more expensive than both Ghana and Nigeria, putting it in third place out of our seven countries. This could be a result of the bureaucratic hurdles required to be jumped in Tanzania - both Ghana and Nigeria require less documents to import than Tanzania. Tanzania could potentially reduce both costs and lead time to import through simplifying its import process.

Longer-Term Consideration: Exporting Easier And Cheaper Than Importing

Currently automotive firm's key logistics requirements in Tanzania are on the import side, but as the country potentially develops as an assembly point the relative ease of exporting compared to the importation of goods, will make it relatively easy for firms to distribute products around the EAC and potentially further afield.

BMI believes that the more favourable export environment is in large part a function of the much simpler bureaucratic environment. Compared to the 10 documents required to import, to export just six are required. This places Tanzania at joint top of the table of our seven countries, matching Botswana. Bottom-placed Angola requires 11 documents to export.

Exporting Easier
LHC: Tanzania Lead Time To Export and Import (Median Case Days) and Tanzania Documents to Export and Import (Number). RHC: Tanzania Cost to Export and Import Container (US$ per Container).

This feeds through into other benefits. The lead time to export is just 3.2 days, compared to 7.1 days for imports. This puts Tanzania just behind the joint top three of Ghana, Kenya and Namibia, all of which take just two days.

An Export Outperformer
Cost to Export Container (US$ per Container)

It is in the cost to export that the difference is really stark. The cost to export a container is just US$1,040, putting Tanzania in second place out of the seven sub-Saharan African markets we are analysing, behind only Ghana (US$815 per container), and considerably cheaper than third-place Nigeria (US$1,380). This makes it 33.5% cheaper to export a container from Tanzania than to import.

This article is tagged to:
Sector: Autos, Freight Transport, Shipping
Geography: Tanzania, Tanzania, Tanzania, Tanzania

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