The Zanzibar Business Forum: Insights from public-private sector dialogue in Zanzibar

This year’s National Annual Business Forum of Zanzibar intended to provide mutual perspective into how the engagement of the private sector in the Blue Economy could be enhanced to bring prosperity in Zanzibar.

One important explanation for adopting such an approach is payoffs of industries constituting the Blue Economy potentials that include coastal and marine tourism, fisheries and aquaculture, marine transportation, and on offshore oil and gas exploration. Empirical evidence suggests that each dollar correctly invested towards the ocean economy typically yields, on average, five dollars in return.

In the existing legal setting, the National Business Forum is hosted and convened by the Zanzibar National Business Council (ZNBC) annually. The meeting precedes and sets the agenda for the annual open forum.

Both important events are chaired by the sitting President of the Revolutionary Government of Zanzibar. The 14th business forum titled “Enhancing Private Sector Engagement in the Blue Economy” took place on October 12, 2024. It was chaired by His Excellency Dr. Hussein Mwinyi the President of Zanzibar and attended by diverse actors from the private sector and senior government officials.

The Blue Economy provides livelihoods for many people in Zanzibar, mostly through fishing, aquaculture and maritime transportation. It generates around 29% of Zanzibar’s GDP and 33% of total employment generated by the Blue Economy, according to the Investment Guide with Sector Profiles issued by the Zanzibar Investment Promotion Authority (ZIPA) in 2023.

It is logical that Zanzibar places more emphasis on leveraging the lucrative ocean-based sectors as they are expected to double their worth from the USD 1.5 trillion in 2010 to reach USD 3 trillion in 2030 globally. A big part of this growth will happen in Africa where the Blue Economy is projected to create USD 405 billion and 57 million jobs by 2030, as ascertained by the OECD.

By examining the various opportunities, challenges and actionable steps, this most important national dialogue poised to demonstrate specific policy and regulatory measures and actions to be taken to instigate more private sector engagement in the Blue Economy. These efforts go beyond improvement of an enabling business environment.

Discussions during Zanzibar’s Business Forum were anticipated to explain why and how institutional arrangement can address the dearth of capital for local investors, talent and knowledge gaps, and an apparent low digitalization and technology application.

Push by the trade industry to continue shaping the business agenda as done customarily, the forum received updates on the implementation of resolutions set by the ZNBC, and most issues based on challenges rooted from inadequate port services, tax burden and multiplicity, unreliable electricity and unregulated tourism services.

While the efforts to build modern and multi-purpose ports infrastructure at Mangapwani and Maruhubi are on-going, it was reported that operations at Malindi has improved massively and operationalization of Fumba Port (Unguja) and Mkoani Port (Pemba) have effectively addressed the challenge of port congestion.

Between 13th and 14th National Business Forums, tax payment systems were mainstreamed through Tanzania Customs Integrated System (TCIS), the customs processing fee was removed for goods shipped between Zanzibar and Tanzania. Also, the virtual Fiscal Management System (VFMS) for issuing tax receipts has improved and scarcity of USD is being lessened.

The government in collaboration with the private sector continues to improve electricity reliability by investing in reliable energy and enforcement of tourism regulations to make tourism a more pleasant experience. During the same period, many other steps have been taken to create a more enabling environment in both importation and local manufacturing.

As is often the case, the update provoked many comments and reactions from participants. They were, however, very much skewed on issues related to trade importation, low speed of accessing land deeds, and preservation of Zanzibar’s culture in face of the growing tourism industry.

Some traders aggressively pushed for lowering of import duty for processed powder milk, framing it as an essential product. This was difficult to comprehend given processed products are the threat of leaving the local dairy industry unprotected.

Hopefully, the disputed tax will be maintained by the government. Notably, issues related to investments were limited to access to land lease deeds. Resolutions from the ZNBC on specific issues and actions, either to be implemented by the government or to be pursued mutually by public and private sectors, to improve the enabling environment and ease of doing business in Zanzibar.

The resolution list included:

1. The creation of government team to be led by e-GAZ to remove all payments challenges facing the single window system at ports for international trades;

2. The Ministry of Tourism and Heritage to channel resource to the Tourism  Diplomatic Police so that it can perform its function properly; the same Ministry was tasked to collaborate with the private sector to ensure jet ski activities are well regulated;

3. The private sector was ordered to review and comment on the self-ranked report on the Zanzibar’s Ease of Doing Business conducted in 2021; and

4. The Zanzibar National Chamber of Commerce (ZNCC) was asked to find ways to identify and guarantee business that can get loans under generous terms, using government backing, then prevailing interest rates charged by banks.

To discuss the theme of the day, the stage was set for ZIPA and ZNCC to conduct two presentations focusing on opportunities, challenges and key steps to foster more active private investments in the Blue Economy.

ZNCC presentation disentangled potentials of the Blue Economy on industry bases, highlighted challenges, including limited access to capital particularly amongst SMEs, skills and tech gaps, and low involvement of local private investors in strategic investments.

The existing capital markets inefficiency and other underlying factors make financing cost in Zanzibar, as is the case for the United Republic of Tanzania, significantly higher than from developed economies. Consequently, local investors incur a ridiculously high cost of capital when making investments using debt financing from banks.

A tale of two industries

Providing evidence for enhancement of Zanzibar’s private sector, especially the local content which is lethargic, to make large investments within the Blue Economy is not an easy task. A correlation between the trade transactions and investment does not necessarily mean that there are direct causality relationships between these variables.

The trade that is purely based on importation without any value addition differs from investment in many ways – indeed unregulated importation of cheap finished products deters local investment, rather than complimenting it.

This could be one of reasons for relatively low investment by the private sector in the blue economy. Import trade, for instance, negatively affects investment in products that can feed into tourism, rather than supporting value addition within and between sectors.

Observations from the 14th Business Forum, relatively speaking, suggest that Zanzibar’s local investors are struggling to make strides in investments connected to value addition. Why is this? The answer is not very simple – it requires a broader and more scientific platform to come up with a thorough analysis.

Nonetheless, one can easily point out that Zanzibar’s historically was a trade hub, and therefore the  local businessmen are accustomed to carrying out basic trade without adding any value to the traded goods. If the business people are enjoying quiet lives and making easy money by importing goods, why should they be bothered to undertake investments in more complex and riskier ventures?

There are numerous attractive investment opportunities to be explored by the local investors but unfortunately their view is myopic and stagnant on quick benefits of importation trade. Investments in deep-sea fishing, fish-processing for importation and to cater for the expanding tourism industry, plant to build fishing gear, and construction of cold storage facilities, have not been explored.

Building on the remarkable government support that has been given to seaweed farmers, the private sector could seek for further support in extending access capital to local small and medium enterprise (SMEs). These enterprises should be elevated to invest in value addition​ across the seaweed industry, sea cucumber farming and marine hatcheries.

In maritime transportation, huge investments made by AZAM Marine and ZAN FAST FERRIES exemplifies the ability of the local based investors to invest in the Blue Economy with profitability. Future investments can focus on further investments to acquire ships for serving the Unguja and Pemba route and factories for manufacturing boats and, maintaining and repairing ships.

The generation technology driven and capital-intensive offshore energy production​ off-shore renewable energy projects in wind, and oceanic wave energy are mentioned as potential areas for private sector investment.

However, the onshore energy production like the Power Purchase Agreement (PPA) between the government and private investors – i.e. Mauritius-based Generation Capital Ltd and Tanzania’s Taifa Energy – to build its first large-scale plant (30MW solar PV solar power plant that will cost USD 140 million) is a more sensible route to pursued by the private sector at this moment, which yet to happen

Recently, the government has announced two onshore oil and natural gas blocks, inviting large investors. ​Local content of the private sector can consider shifting their focus to the oil and gas industry in areas such as, employment, knowledge; technology transfer, services provision in local financial, banking, insurance, engineering and legal industries; and​ procurement of local goods.

Crucially, they contemplate how local investors can also enjoy the piece of the cake through ownership of these natural assets.

Local investors may individually be incapable of investing in the oil and gas industry, but collectively through the Zanzibar Petroleum Development Company (ZPDC) or Special Investment Vehicle they can increase their wealth by having a minority ownership.

Navigating the trade importation trap Zanzibar’s economic development is geared to leverage on the Blue Economy, among other strategic sectors, to take off, and this means that local investors must “level up their game” in terms of mind-set, skills, and financing for them not to be left behind in this journey.

Preparedness of the local private investors to navigate from basic importation to making investments with the focus of value addition and creation of innovative products is a key step to navigate the trade importation trap in Zanzibar.

Both ZNCC and the government need to commit to reshaping the agenda and set a clear focus on where the economy is heading. They can show that change is possible and that the new economy will not continue to be dominated by importation of basic goods. Instead more focus should be placed on investments that will lead to wealth creation for local investors, and when this is achieved the private sector can truly be the engine of Zanzibar’s economy.

Meanwhile, what is extremely encouraging and exciting progress is that among steps proposed by the ZNCC, the President of Zanzibar has pointed out that the government will facilitate, and invest, in the creation of a special vehicle/investment bank for pooling capital and savings from diverse sources to broaden participation of local investors in strategic investments. Skills Development Levy (SDL) will be earmarked to narrow the existing human capital gaps across key sectors, including the Blue Economy.

Additionally, digital transformation will be among the top priorities to enhance the quality and efficiency of public service delivery and improve the business environment.

My two cents on the 14th national business forum is that a lot of work still needs to be taken before the private sector, especially the local investors, becomes a well-functioning engine of Zanzibar’s economy.

However, the openness and commitment that has been shown by the current government of Zanzibar to create a more enabling business environment, bring digital transformation and elevate the role of local investors in transforming Zanzibar’s economy is remarkable. This definitely drives Zanzibar to achieve its development sooner rather than later.

Dr. Twahir M. Khalfan

PhD Financial Economics (Investments,Corporation Finance, Public Finance & Social Security)
Email: twahir.mohammed@zrcp.org