Domestic Politics

Throughout the year, political life was preoccupied with preparations and the campaigning for the general elections, scheduled for 30 October. Presidential, parliamentary and local council elections for the institutions of the union were to be conducted by the National Electoral Commission (NEC), while elections for Zanzibar institutions fell under a separate body, the Zanzibar Electoral Commission (ZEC). After two terms in office, President Benjamin Mkapa was constitutionally barred from seeking a new mandate. The selection of his successor thus became the single most important issue.

Pre-election activities began with amendments to the electoral laws, passed in January in parliament with ease by the large CCM majority. The formation of a coalition government was ruled out in respect of the union. The attorney-general argued that any party unable to win a majority of votes should not have the chance to come to power through the back door. Also, the inclusion of an opposition member on the NEC was not foreseen, although this was already the case for ZEC. The frequently raised request that independent candidates be allowed to participate was once again rejected. Hotly discussed was the confirmation of the legality of ‘takrima’ (Swahili for hospitality), which had been declared a traditional value before the 2000 elections. However, NGOs, academics and opposition parties criticised the practice of handing out small presents to voters during election campaigns as just a veiled form of corruption.

The establishment of a permanent voters' register was the most important innovation. Government spent about $ 30 m and donor countries $ 9 m on this exercise. The registration process was accompanied by numerous irregularities and violent squabbles. About 2,000 people were, upon verification, identified as having registered twice, while many thousands were assumed not to have registered at all, mainly because of transport problems or the restricted opening hours of the registration centres.

Following the Kenyan example of 2002, some feeble attempts were made by the opposition parties to form an alliance to challenge the ruling party with a single strong presidential candidate. However, these efforts failed owing to the personal ambitions of the leading politicians in the opposition camp. Ironically, the result was an even greater split within the opposition. Whereas in both previous elections Mkapa had to face three competitors, the votes were now split among nine opposition contestants. Running for a third time were Ibrahim Lipumba, chairman of the primarily Zanzibar-based Civic United Front (CUF), who had been the strongest opposition candidate in 2000, and Augustine Mrema from the Tanzania Labour Party (TLP), who had finished second in 1995. John Cheyo from the United Democratic Party (UDP), who had also run twice but never gained much support, withdrew his candidacy. ‘Chama cha Demokrasia na Maendeleo’ (CHADEMA/Party of Democracy and Development) for the first time fielded a candidate, its chairman Freeman Mbowe. Sengondo Mvungi of the National Convention for Construction and Reform – Change (NCCR-Mageuzi) was supported by four smaller parties (FORD, NRA, UMD, UPDP). Another five very small parties, not represented in parliament, put forward their own candidates, among them the first female presidential candidate in Tanzania's history. Only four of the 18 fully registered parties (‘Sauti ya Umma’/Voice of the Community was only registered in February) did not nominate presidential candidates.

The nomination process for CCM's presidential candidate attracted major attention. Whereas only a small group of persons had made these decisions in the opposition camp, the CCM process followed strict rules and involved a considerable number of party members and organs. Fierce infighting had begun long before the official process started in March. Members of the National Executive Committee (CCM-NEC) felt obliged to appeal to the party membership to beware of some prominent figures touring the country and attempting to buy votes in order to obtain the necessary 2,000 signatures from supporters in at least ten different regions, two of which had to be on Zanzibar. By 15 April, 11 candidates had successfully submitted their applications. Among them were several political heavyweights, such as CCM vice-chairman and former Prime Minister John Malecela, representing the traditionalist wing of the party; former OAU Secretary-General Salim Ahmed Salim; Prime Minister Frederick Sumaye; several ministers and Foreign Minister Jakaya Kikwete. Other contenders were less well known.

The 36-member CCM Central Committee (CC) selected five of the candidates on 2 May after an ethics committee had met the day before and made recommendations to the CC. The successful contestants were Sumaye, Salim, Kikwete, Planning and Privatisation Minister Abdallah Kigoda and Communications and Transport Minister Mark Mwandosya. Subsequently, CCM-NEC eliminated two more, Kigoda and Sumaye, who were both considered Mkapa's favourites. The final step on 4 May was the official nomination by a special party congress of 1,800 delegates. As was widely expected, Kikwete easily obtained a clear majority (64%), followed by Salim (29%) and Mwandosya (7%). All the unsuccessful candidates accepted the verdict of the party organs and promised to support Kikwete loyally, except Malecela, who filed an appeal claiming foul play. However, the special committee that heard his case upheld the CC's decision.

Kikwete's nomination was no surprise. In 1995, when Mkapa was chosen, Kikwete had already been the favourite of the party membership. It was only ex-President Julius Nyerere's intervention that stopped Kikwete from becoming the presidential candidate. Then, aged 45, Kikwete was the candidate of the youth and – thanks to his pleasant public appearance – of women, an image that he has been able to preserve. He was, however, also acceptable to older party members since he had served the party for many years. Unlike many other current top politicians, Kikwete was a well-connected CCM cadre. He had joined the army after leaving university in 1975, risen through the party ranks, had been an MP since 1988 and had served in various posts as deputy minister or minister. As foreign minister for the past ten years, he had been able to keep out of internal power struggles and scandals.

The economic reforms of the Mkapa government had left many Tanzanians in doubt about the social consequences of these policies, so an open confrontation between a reformist and a conservative party wing had been expected to dominate the nomination process. Even a possible party split had not been completely ruled out as a result of the selection of one or the other side's candidate. This would have posed a far greater threat to the CCM than all the efforts of the opposition. However, the CC left no doubt that it wished for a reformist candidate. All five selected contenders favoured continuation of the reforms. The early rejection of Malecela's candidacy – as the most prominent representative of the conservative wing – precluded heightened conflict between the ideological wings.

Since Mkapa was a Christian from the mainland, demands had been heard that his successor should be a Muslim from Zanzibar. An unwritten law was cited that the presidency should alternate between a Christian and a Muslim and between a mainlander and a Zanzibari. In the absence of a strong candidate from Zanzibar (Salim, from Pemba, was regarded with suspicion by many inhabitants of the main island, Unguja, and was also perceived as an outsider to Tanzanian politics owing to his long absence at the OAU), the selection of the ‘moderate Muslim’ Kikwete, who kept good relations with the Christian churches and had adopted a modern lifestyle, was acceptable to almost everybody in the party. With the nomination of Vice-President Ali Mohamed Shein as his running mate, a Zanzibari was indeed included in the team that aspired to the top leadership of the country. Thus, Kikwete appeared a good candidate to bridge the major divides in the party as well as in the country.

CCM was the only party able to nominate candidates for the parliamentary seats in all 232 constituencies (182 on the mainland, 50 on Zanzibar). The local constituency nominations were heavily contested. Because of CCM's clear dominance in most constituencies, party nomination almost guaranteed that the nominee would win a lucrative parliamentary seat. Nominations took place through competitive primaries at the constituency level. All candidates, however, had to be vetted by CCM-NEC, which rejected 16 primary winners because of doubts about the correctness of the electoral process at the lower level. Seven sitting parliamentarians refrained from a re-nomination, including Prime Minister Sumaye after his failure to win the presidential nomination. About 50 MPs failed in their re-nomination bids. The most prominent ‘victim’ in the local nomination process was Energy Minister Daniel Yona. CUF managed to nominate candidates in 212 constituencies, CHADEMA in 167, TLP in 111, and NCCR-Mageuzi in 69. Each of the 18 fully registered parties nominated at least a handful of candidates.

The electoral campaigns, which started officially on 21 August, proceeded largely peacefully, barring some minor incidents. CCM clearly dominated the field and took advantage of its close relationship with the state organs and its incumbency in office. In addition, it had far superior material resources as a result of the state subsidies all parties received in accordance with their share of votes in the presidential election. However, despite these obvious advantages, CCM's major strength derived from its good organisational presence throughout the country, which none of the opposition parties had succeeded in matching since the introduction of the multiparty system in 1992. Also, the opposition parties in their election manifestos were unable to portray a genuine political alternative to CCM. In their campaigns, opposition parties mainly criticised the shortcomings of the economic reforms, especially their failure to reduce poverty, the rising gap between rich and poor, the problem of corruption and the growing influence of foreign companies in the economy. However, these populist criticisms did not offer a consistent and convincing alternative to the government's economic and social policies. All parties bar TLP signed a code of conduct that obliged signatories to treat each other respectfully during the campaign.

The elections had long been scheduled for 30 October. However, only three days before that date, CHADEMA's vice-presidential candidate died. In accordance with electoral regulations, the elections were postponed to 14 December. The extension of the campaign period posed particular problems for the opposition parties, which had exhausted their meagre financial resources. For the union government, the postponement was less inconvenient, and the Zanzibar elections proceeded as scheduled (see below).

CCM obtained overwhelming victories in all three (presidential, parliamentary and local) elections. Kikwete won the presidential election with 80.3% of the vote, topping even Mkapa, who got 61.8% and 71.1% in 1995 and 2000 respectively. As in 2000, CUF's Lipumba was in second place, but with only 11.7%. Mbowe of CHADEMA finished third with 5.9%. In 2000, CHADEMA had not put up a candidate and had supported Lipumba. Mrema of TLP, who had been Mkapa's strongest challenger in 1995 with almost 28% of the votes, now received only 0.75%. All other candidates won below 1%. Turnout was given as 72.4% of the 15.6 m registered voters, 12% lower than in 2000.

The results of the parliamentary elections presented a similar picture. CCM won 206 of the 232 constituencies, a slight increase on the 202 seats five years earlier. CHADEMA was the only opposition party able to increase its seats, from four to five. It was able to retain the two seats of Moshi Urban and Karatu. The loss of Hai (Kilimanjaro region) and Kigoma Urban constituencies (both to CCM) were offset by victories in Kigoma North, Tarime (Mara region) and Mpanda Kati (Rukwa region), all previously held by CCM. TLP, which had held four seats and UDP (three), won only one seat each. TLP lost all its seats in Kilimanjaro, Mara and Kagera regions to CCM, but gained one from CCM in Biharamulo (Kagera region). UDP Chairman Cheyo was able to retain his seat in his home constituency of Bariadi East (Shinyanga region). NCCR-Mageuzi lost the single seat it had won in 2000. As before, CUF remained the strongest opposition party although it lost its two mainland constituencies to CCM, winning 18 seats on Zanzibar's Pemba Island, where CCM failed completely, and one in Zanzibar's Stone Town. The number of seats held by the opposition on the mainland had dropped steadily from 22 (1995), 14 (2000) to only seven, while CUF kept its stronghold on Pemba and had a strong minority position in Unguja.

Observers from EAC, SADC and AU as well as local NGOs expressed full satisfaction with the conduct of the elections – despite minor problems. A number of defeated contestants fruitlessly challenged the results, among them TLP's presidential candidate Mrema.

The overwhelming majority of CCM parliamentarians was further increased through the ‘special seats’ for women. In order to increase the representation of women in parliament, 75 additional seats (30% of directly elected MPs) were allocated to parties that had won seats in the house according to their relative strength. Thus, CCM got 58 of these seats, CUF 11 and CHADEMA six additional seats. Another five MPs (three from CCM, two from CUF) delegated from the Zanzibar house of representatives complemented the parliament, plus the attorney-general in an ex officio capacity.

At the first meeting of the new parliament on 28 December, Samuel Sitta was elected unopposed as speaker, after having been pre-selected by CCM-CC and CCM's parliamentary faction. He had previously held ministerial positions and was the director of the Tanzania Investment Centre. He had supported Kikwete's ambitions and was expected to establish a close link between parliament and the president. Anna Makinda was elected as the first female deputy speaker. Pius Msekwa, who had been speaker for eleven years, tried to be nominated again, but given the discontent over his handling of the role that had repeatedly been expressed by CCM MPs, he was not able to muster much support.

In exercising the president's privilege to appoint ten additional members of parliament, Kikwete on 29 December nominated three female and three male parliamentarians, among them Zakia Meghji (who subsequently became minister of finance) and the veteran CCM politician and chief strategist, Kingunge Ngombale-Mwiru, who had been special advisor to former presidents Nyerere and Mkapa. Four seats for nominated MPs remained to be filled.

The close cooperation among opposition forces in parliament advocated by CHADEMA and UDP failed to materialise owing to the unwillingness of the strongest group, CUF. This was the only opposition party to have won more than the necessary 30 seats to form a parliamentary faction, and decided to pursue its own political agenda and formed a shadow cabinet without including members of the other three opposition parties. CHADEMA and UDP were critical of the fact that opposition in the national parliament was now mainly voiced by MPs from Pemba.

Elections for local councillors (for town and district councils) also took place on 14 December. Councillors were elected in 2,552 wards. Although councils have increasingly become decision-making bodies at the local level under the policy of decentralisation and local government reform, not much public attention was given to these elections. Isolated published results indicated a clear sweep for CCM, surprisingly even in major urban centres like Dar es Salaam, which normally tend to be opposition strongholds.

The formation of the new government started with Kikwete's inauguration as president on 21 December, followed on 29 December by Kikwete's nomination of Edward Lowassa, the current minister of water and livestock development, as prime minister, thereby ending feverish public speculation. His selection was overwhelmingly confirmed by parliament, in which only two members voted against Lowassa. He had been most often mentioned as the favourite and he had long kept close contact with Kikwete, although they had been competitors in 1995 for the CCM presidential nomination. Like Kikwete, Lowassa had the image of a young and reform-oriented politician. The new cabinet was not announced before the end of the year.

The political situation in Zanzibar, a semi-autonomous part of Tanzania since 1964, had all along been very different. Since the introduction of the multiparty system, the electorate had been almost equally split into two camps, vehemently and sometimes violently confronting each other. The smaller island of Pemba was an absolute stronghold of CUF, whereas the main island of Unguja was predominantly CCM, but with a considerable CUF minority. None of the other 16 parties played a relevant role. Zanzibar has a political culture distinct from the mainland, and this distinction is also reflected in the political parties. The Zanzibar wings of both dominant parties enjoy considerable autonomy and follow different rules and agendas from their parent bodies at the union level.

The implementation of the reconciliation agreement (‘Muafaka’) of 2001 was seen as a precondition for maintaining the fragile peace between the two parties. In accordance with ‘Muafaka’, CUF representatives were admitted as members of ZEC, which had previously been accused by CUF of clearly favouring the ruling party. CUF, however, criticised the fact that their members constituted only a minority in ZEC and were overruled by the CCM majority. ZEC is completely independent from NEC and responsible for all electoral affairs relating to government institutions in Zanzibar, whereas NEC was charged with all elections for union institutions – even in Zanzibar. A permanent voters' register was also established. CUF in particular complained of numerous irregularities. Some of their supporters had allegedly been denied registration in their home constituencies. CUF also protested against the registration of army and police personnel that were newly stationed on the islands, particularly in Pemba. According to Zanzibar's electoral laws, a Zanzibari voter must have resided on the islands for three consecutive years, and anyone from the mainland for ten consecutive years. Even CUF's presidential candidate Hamad was initially denied registration in April, on the grounds that he had been out of Zanzibar several times. Only after public demonstrations in Dar es Salaam did ZEC agree to register him. Hamad claimed that 32,400 Zanzibaris had been denied registration. He called upon them to follow his example and file appeals. CCM complained that their voters had been denied registration in Pemba, where they had been allegedly intimidated by CUF paramilitary forces. Various NGOs, foreign envoys and representatives of international organisations criticised the election preparations. Based on the 2002 census, ZEC redrew the constituency boundaries. The number in Pemba was reduced from 21 to 18, whereas the Unguja constituencies were increased from 29 to 32. In the prevailing tense circumstances, this adjustment appeared to CUF as obvious manipulation in CCM's favour.

The CCM nomination process for the Zanzibar presidency saw the appearance of an unexpected rival to President Amani Karume, who stood for re-election. Mohammed Gharib Bilal, Zanzibar's chief minister (1995–2000) under former President Salmin Amour, challenged Karume, despite a tradition of not standing against an incumbent. It was only during the CCM congress in early May that Bilal was forced to withdraw. He justified his initial move on the basis of the discontent among party members and the electorate over government policies, clearly indicating continuing rivalry between a moderate party wing supporting Karume and a group of Amour supporters who advocated a more autonomous Zanzibari stance vis-à-vis the union. Karume was perceived as a much weaker president and dependent on the mainland CCM. As in 2000, Karume's nomination was secured by the national CCM leadership rather than by its Zanzibar branch. Bilal's withdrawal did not, however, precipitate a split in the party.

CUF's secretary-general, Seif Shariff Hamad, a former CCM Zanzibar chief minister, was nominated unopposed. After two unsuccessful attempts at winning the presidency, Hamad's dominant role had in recent years been subject to criticism, particularly his conciliatory course towards CCM. He was, however, seen as a possible door-opener to bring CUF into a coalition government with CCM, a possibility that had been discussed since the ‘Muafaka’ agreement. Four other aspirants from small parties remained insignificant during the campaign.

The elections were held on 30 October as scheduled. Tension was very high for several preceding weeks and on election day, with a heavy police presence at some polling stations. An outbreak of violence was feared based on the experience of the 2000 elections.In the event, election day passed without major. However, after ZEC declared Karume the winner, opposition supporters clashed with CCM militia and the police. CUF declared the elections flawed and claimed victory for Hamad. The leadership, however, appealed to supporters to refrain from violence. Instead, a strategy similar to the ‘orange revolution’ in Ukraine was advocated, but never carried out. After a few days, the situation again calmed down. As soon as the official results were announced, CUF declared it would not recognise Karume's government and threatened to boycott the house of representatives. It quickly softened this stance and then decided to participate in house business. Opposition spokesmen alleged that the ruling party had sent groups of supporters from one polling station to the next to vote. However, national and international election observers (AU, SADC) declared the elections generally free and fair, despite minor irregularities such as double voting and the lack of transparency of the voters' rolls. The results were seen as a realistic reflection of the voters' will. Also, the running of the elections by ZEC had much improved compared to previous elections. Only in one Unguja constituency were the polls annulled by ZEC because of irregularities, and the vote was repeated on 14 December. Other observers (US-based National Democratic Institute, Commonwealth observer group, Electoral Institute of Southern Africa) were more critical, reporting numerous irregularities, biased media coverage, overreaction by police forces and a continuing close alliance between senior members of the police and army and the former state party.

The official results gave Karume 53.2% of the votes (2000, 67%), Hamad 46.1% (2000, 33%) and the four other candidates a combined total of 0.7%. In the contest for the 50–member house of representatives, CUF won all 18 constituencies on Pemba and one on Unguja (in Zanzibar town). CCM obtained 30 of the 32 constituencies on Unguja. Zanzibar was thus completely divided between one island clearly dominated by CUF and one dominated by CCM. However, even in Unguja about 30% of the voters opted for CUF. Voter turnout was 80% of the 510,000 registered voters. In addition to the 50 directly elected seats, parliament was supplemented by 15 women from the party lists for ‘special seats’ (CCM, nine; CUF, six) and five persons appointed by the president. As on the mainland, the election of 139 local councillors attracted little attention.

Karume was sworn in on 3 November. He confirmed Chief Minister Shamsi Vuai Nahodha in his position. An only slightly changed cabinet was immediately announced and consisted of 13 ministers, including three women. This quick move was somewhat surprising, given that ever since the 2001 ‘Muafaka’ a coalition ‘government of national unity’ had frequently been discussed as a possible means of preventing a renewed outbreak of political turmoil and violence following another CUF electoral defeat. In his first address to the union parliament, President Kikwete promised to find a lasting solution to the political divisions and rivalry on the two islands. For this he received praise even from CUF.

Although the tensions between the rival parties did not result in fatalities similar to those in 2000, at least four people (two civilians and two soldiers) were killed and nearly 200 people were injured in election-related violence. At least another 20 people were wounded in unrest during the December elections, which sent hundreds of villagers fleeing their homes on Tumbatu island. Already on 6 March, CCM and CUF supporters had clashed during electoral rallies, with 14 people wounded, several cars destroyed and three CUF offices set alight. In early April, about 400 people tried to occupy a registration centre but were beaten back by the police. A few days later, the house of a CUF leader was set on fire. Later that month, a CCM office was bombed and the dead body of a CCM official was found. Further clashes occurred in September and October, when about 70 people were injured in various incidents.

On the mainland also political tensions led to some violent disturbances. In June, a CCM office in Bagamoyo was set on fire and Kikwete's house was invaded. During that incident, some of his family members were injured. In Marangu (Kilimanjaro region), several persons were severely injured in a clash between supporters of TLP and CCM in July. Clashes and riots occurred in several other locations throughout the country.

The limited international support for Tanzania's large refugee population remained a problem. About 400,000 refugees, mainly from Burundi (240,000) and DR Congo (150,000), continued to live in camps in western Tanzania. In March, the World Food Programme announced that its latest appeal had not been as successful as required. Instead of the $ 34 m needed, only $ 23 m had been raised. As a result, the food supply to refugees was drastically reduced, which led to increased theft of food from the villages surrounding the camps. As in previous years, prevailing attitudes favoured restricting the refugees. Refugees in the camps were still denied farmland, thus contributing to the food shortage.

Foreign Affairs

As in previous years, Tanzania maintained good and cordial relations with all neighbouring states, as well as with donor countries. The election to the presidency of Kikwete, who had been the foreign minister for ten years, guaranteed a continuation of this situation. One focus was the integration process of the EAC . The slow implementation of the new customs union protocol, in force since 1 January, was a source of political contention. Tanzania was accused by Kenyan business circles and politicians of obstructing exports to Tanzania and was urged to eliminate trade barriers immediately. Tanzanian business leaders, on the other hand, tried to revive a debate about rejoining COMESA , membership in which had been terminated by government in 2000.

Tanzania continued to be an important player in the settlement of the conflict in Burundi and was fully supportive of the new Bujumbura government installed in August. It was hoped that most of the Burundian refugees would be able to go home. However, a mediation attempt in mid-May in Dodoma to bring the last remaining rebel group FNL (‘Forces Nationales de Libération’) into the peace process failed owing to FNL intransigence.

President Mkapa had a busy travel schedule visiting many countries, particularly in Africa, as a farewell gesture before the end of his term. In Zimbabwe, to the surprise of many observers, he enthusiastically supported the internationally criticised policies of President Robert Mugabe, who was also official guest of honour at the Zanzibar revolution day celebrations on 12 January.

A potential source of conflict with donor countries was avoided by the relatively peaceful elections in Zanzibar. Since 1995, the political turmoil on the islands had always caused some contention. An official EU statement about the elections expressed satisfaction with their general conduct, but also expressed concern about the continued political confrontations on Zanzibar. Reports about plans for an arms factory in Mwanza with the assistance of a Belgian company led to a temporary diplomatic row with Belgium, since Brussels feared the repercussions for the regional conflict situation.

Tanzania was a low-profile member of the UN Security Council for the first year of its two-year membership. Mkapa was one of the few African members of the Commission for Africa, initiated by British Prime Minister Blair, which submitted its report in mid-March.

A demonstration by young Muslims protesting against the presence of US soldiers in Muslim countries and the presumed denigration of the Koran in Guantanamo went ahead peacefully. A delegation of the demonstrators was received by representatives of the US embassy and the incident did not affect the generally good relations between Tanzania and the US.

Socioeconomic Developments

Macroeconomic performance continued to be quite satisfactory and to confirm Tanzania's image as one of the more successful reform countries in Africa, even though it remained very poor in absolute terms ($ 300 per capita in 2004) and despite a rapidly growing gap between the beneficiaries and relative losers of the strictly market-oriented policies. Preliminary data for 2005 indicated a good GDP growth rate of 6.8% in continuation of the trend since 2001, a stable low inflation rate of 4.2%, a narrowed but still considerable trade deficit (exports $ 1,595 m, imports $ 2,378 m) and an acceptable current account deficit of about 4.3% of GDP. Foreign reserves of $ 2 bn were sufficient for eight months import coverage. The exchange rate of the shilling, with some fluctuations, remained virtually stable over the year and did not even experience a temporary drop as a result of anxiety over the elections. Rather, the high level of aid inflows kept the shilling at an artificially elevated level.

Towards the end of the year, a lack of rain in parts of the country led to warnings about impending partial food shortages and problems for regular power and water supplies as a result of low water levels in dams and rivers.

The policy of strict fiscal discipline was continued with notable success. For the fiscal year 2004–05, the revenue collection target was slightly surpassed (mainly on account of income tax and VAT), while total expenditures remained somewhat below target. All revenue collected during the year reached an average of TSh 145 bn per month, a fourfold increase on the situation ten years earlier, and the tax ratio had been raised to 13.8% of GDP. The overall budget deficit, nevertheless, was of the order of 3.8% of GDP (11.8% without accounting for external grants). Surprisingly, the new 2005–06 budget introduced in parliament on 8 June did not contain any measures to please the populace ahead of the elections and was generally short on significant new tax initiatives. Emphasis was laid on further increasing the efficiency of the Tanzania Revenue Authority (TRA), with a target for the tax ratio of 14.3% of GDP. Despite this ambition, external aid resources were still expected to meet 41% of all envisaged expenditures, largely in the form of budget support. The IMF expressed its appreciation for the intended slowing of the rate of expenditure increases, fearing a lack of implementation and financial control capacity. A share amounting to 4.5% of all external budget support finance was to be passed on to Zanzibar, where the government introduced its own separate budget on 16 June.

Tanzania was among the countries included in the new debt relief initiative of the G8 in July for 100% multilateral debt stock cancellation. On 22 December, the IMF formally decided to cancel outstanding debt of $ 336 m, while the ADB and World Bank still had to follow suit. Total external debt at the end of 2005 was about $ 7.7 bn, almost 70% of it multilateral. In February and July, the IMF carried out two fully satisfactory reviews on the progress of the current PRGF (expiring in August 2006) and released two further tranches of $ 4.2 m each. On 8 September, the World Bank approved a new PRSC of $ 150 m for direct budget support. Tanzania also qualified for funding from the new US Millenium Challenge Account.

In June, the government launched its new National Strategy for Growth and Poverty Reduction (Swahili acronym: MKUKUTA), in preparation since 2004 as a second-generation PRSP. The new, more comprehensive orientation was focused on three main pillars: growth and reduction of income poverty, improvement of quality of life and of social development and good governance. Over half the expenditures in the new budget were earmarked for these three cluster areas. More attention was to be given to the stimulation of domestic savings and the promotion of private investment. Mkapa advocated the idea of a so-called Mini-Tiger Plan 2020, attempting to emulate Asian experiences, to serve as the implementation vehicle for MKUKUTA and to create a conducive legal and regulatory framework. The treasury in May published the draft of a Joint Assistance Strategy (JAS), intended to provide a basis for more harmonised and better coordinated ways of dealing with the multitude of external donors and envisaging a rapidly increasing role for financial budget support, rather than traditional project or programme aid.

Mkapa repeatedly stressed the need for the continuation of the economic reform policies and defended the positive effects of privatisation and of attracting foreign investors against recurring public criticism about the lack of visible effects, and advocated a policy of stricter indigenisation. Even in the budget speech, some hints were made about a possible rethinking of the approach hitherto pursued. This led to some anxiety in the private business community, worried about the potential fall-out from antagonistic election-related campaigns. In 2004, Tanzania had again attracted much higher foreign direct investments of $ 470 m than Kenya and Uganda, most of them in the still-growing mining sector, where the country was ranked eighth worldwide as investment destination. Many critics, however, suspected that the contracts were far too generous to the multinational companies and that Tanzania did not benefit enough. A worldwide study by the World Bank of the business climate showed that procedures and bureaucracy in Tanzania were particularly cumbersome, but that some improvement was noticeable.

The privatisation policy continued to be very contentious. Particular attention was drawn to the sudden cancellation on 13 May of the management contract with a British-led consortium to operate the water supply for Dar es Salaam. The consortium was accused of poor performance and failure to fulfil promised tasks, and the ensuing dispute was eventually submitted to an international arbitration panel. The case, however, also raised questions about government's ability to conclude unambiguous contracts for such complex subjects. Other remaining major privatisation items also proved difficult. The Parastatal Sector Reform Commission (PSRC) was not yet able to bring the long-delayed tender process for the Tanzania Railways Corporation (TRC) to an end. In September, PSRC announced the sale of 49% of the shares of the National Microfinance Bank (NMB) to a consortium led by the Dutch Rabobank, but soon a controversy erupted about the financing and distribution of shares among the envisaged local partners. Of the shares, 30% were to remain with government while 21% were expected to be sold to the general public. Mixed results from the South African management of the power utility TANESCO left the extension of the contract somewhat in doubt. In the telecom sector, an earlier deal was partly undone in July when the management of the land-line operator Tanzania Telecommunications Co. (TTCL) was returned to government, leaving only the mobile operations with Celtel International.

State-employed doctors in major hospitals demanded better pay and went on strike in June and again, on a larger scale, in November. The government reacted harshly by sacking them and offering re-employment for the majority only after formal apologies. Students at various universities and colleges also initiated several strikes to demand better conditions and payment of their loans. In October, government clashed with a local NGO, Hakielimu, and threatened its deregistration after the publication of a very critical report about the primary education programme.