Tanzania Autos Report Q4 2012

Includes 3 FREE quarterly updates

Executive Summary

BMI believes that challenging macroeconomic dynamics in 2012 could prove to be a major deterrent for strong vehicle sales growth in Tanzania during 2012 and, accordingly, forecast a slowdown in new sales growth down from an estimated 20% year-on-year (y-o-y) growth in 2011 to 10% y-o-y in 2012. Of particular concern to us are the inflationary pressures in the country, which are likely to remain stubbornly elevated during the year.

We believe inflation will decline only very slowly over the course of 2012 as falling food prices and improving base effects are partially offset by high energy prices. Although our relatively high end-2012 inflation forecast of 13.1% is largely driven by supply-side considerations, we expect that the Bank of Tanzania will keep the reins tight on monetary policy to stave off the prospect of demand-pull inflation and to support the currency.

Poverty in the country is high - with GDP per capita estimated at US$561 in 2011. Tanzania's road coverage is better than the regional average, with an average 8.9km of road per 100km2, compared with 6.6km/100km2 in East Africa. However, these roads are in extremely poor condition - only 8.9% are paved, compared with 23.2% for the region. Furthermore, these roads can become impassable in rains, and floods can completely wash them out. Tanzania's road safety record is very poor, too - so bad that buses are not allowed to operate by night.

Equally discouraging is the anaemic growth outlook for Europe, which will also weigh on exports and hence demand.

On the plus side, we expect Tanzania's economy to recover in 2013 and forecast 7.5% growth, up from an expected 5.5% in 2012. Underpinning our forecasts is an expectation that falling inflation and recovering power generation will lead to an improvement in the domestic macroeconomic climate, while an increase in gold production and healthy economic outlooks for Tanzania's neighbours will boost the external sector as well.

Tanzania has also emerged as one of Sub-Saharan Africa's top foreign investment destinations, pulling in an average of US$627mn a year in recent years, which places it firmly in the continent's top echelon of foreign direct investment (FDI) performers. The country's strengths include a relatively efficient commercial dispute arbitration system, favourable investment laws and declining corruption. Inflation will decline only very slowly over the course of 2012 as falling food prices and improving base effects are partially offset by high energy prices. Although our relatively high end-2012 inflation forecast of 13.1% is largely driven by supply-side considerations, we expect that the Bank of Tanzania will keep the reins tight on monetary policy to stave off the prospect of demand-pull inflation and to support the currency.