The total value of net credit to the private sector in the country has increased from 1.4trn/- in 2005 to 5.2trn/- in 2010, a new World Bank report released mid this week has said.
According to the report, entitled 'Tanzania Economic Update', such an increase, while still marginal by regional standards, demonstrates the growth and profitability of the financial sector, with increasing competition among banks.
In addition, as in many African countries, alternative forms of financing have become available, including micro credit for small firms and regional stock markets for large enterprises, it said.
The report said new sources of finance have become available for large projects in infrastructure, agriculture, mining and manufacturing activities.
Chinese investors, for instance, the report said, have become active business partners in a number of significant Tanzanian enterprises with recent deals amounting to more than USD5 billion.
These new developments may help relieve the country’s financial constraints and encourage further private sector development, the report said.
Citing an example, the report said China’s Sichuan Hongda Co. Ltd. last year signed a USD 3 billion contract with Tanzania to mine coal and iron ore in a deal that has been dubbed as the single-biggest investment transaction in East Africa.
In parallel, China and Tanzania have signed a USD 1bn loan agreement to build a major natural gas pipeline that will lay a 532-kilometre pipeline from Mnazi Bay and Songo Songo Island in southern Tanzania to the country’s commercial capital, Dar es Salaam, the report said.
However, the report said the private sector is generally better than the government at identifying opportunities for growth.
In recent years, according to the report, Small and Medium Enterprises (SMEs) and manufacturers have been expanding, with the expansion expected to continue into the future as the result of demographics.
For the government, it said, policy should focus not so much on encouraging the establishment of small innovative businesses, but on staying out of the way to allow them to expand and become competitive.
The report said there is evidence to suggest that policymakers can assist innovative businesses by facilitating access to credit, information, skills, and markets.
Such assistance should be provided in a fashion that encourages competition: otherwise, it may have a negative impact on productivity, productivity growth, and product innovation, the report said.
In other terms, said the World Bank report, targeted assistance should not occur in sector with low competition or should not be concentrated on one or small number of firms in the sector.
However, the report asked the government to develop skill and technology transfers and provide financing.
The Government should establish the appropriate regulatory and institutional framework to minimize possible conflicts of interests and abuse of powers in sectors with quasi-natural monopoly structures and to encourage skill and technology transfers, it recommended.
Encouraging the provision of skills to and training of local workers should be a top priority of Tanzanian policymakers, as these workers will become an important part of the nation’s human capital and provide a basis for ongoing, future growth, the report said.
As the experience of the Asian tigers demonstrates, the report said, every trained employee has the potential to serve as a teacher and/or entrepreneur.
The appropriate transfer of skills through partnerships will result in a upgrading of the country’s skill base and will how to get long lasting benefits from foreign investors.