How important is the financial sector to improving the welfare of the people, or is the focus more properly directed at agricultural inputs, education, health and road construction to improve life’s chances for a larger number of people? These questions will remain unanswered as there is probably no school of thought which can claim to have resolved the issues, despite that attention is often carried to what seems to be most urgent at a particular moment.
That is how one could evaluate Mwalimu’s once a decade intervention in economic policy, when the third phase government, on the basis of massive World Bank pressure, agreed to privatise the National Bank of Commerce (NBC), apparently the crown in the jewel of Mwalimu’s whole economic edifice, which he had pains to see being let off ‘to the dogs’ as it were. As nothing has been formally said on this issue, no debate has come about Mwalimu’s role either.
On the whole Mwalimu is being credited or rather he was credited with splitting up the NBC and selling it in pieces, in more or less the format that he wanted, though the government altered it significantly. Mwalimu had sought a three-tier split of the bank, first a corporate bank the way NBC became after it was sold to Amalgamated Banks of South Africa (ABSA) group in 1997, then a commercial bank for industrial and agricultural lending of sizeable levels, and then a microfinance bank that should cater for the needs of the poor.
It is clear that Mwalimu saw all those needs, and in particular empowerment of poorer sections of the social fabric or economy generally, within the wider ambitions of the NBC – which is debatable as to whether in its earlier functions it was all these things at the same time, and equally so! The point is that the earlier period of economy had the NBC as banker to the government, loaning all its parastatal organizations, assisted by ‘surrogate’ banks like the Tanzania Investment Bank or the CRDB.
That is the first question that one would pose, as to whether Mwalimu’s intervention was economic,, to save the poorer sections of society from impending orphanage in the financial sector where no bank was disposed to take care of their needs, or alternatively it was political, to stave off implied embarrassment of the wider edifice of socialism, and stopping the shift in ideology or policy from going too far from the mark.
As retired chairman of the ruling party, he may have feared for consequences when the state has no levers over the financial sector, that this could prepare a situation where even policy making is taken away from the government, and it is ineffective in rushing to the aid of the poor even if it so wishes.
But in the final analysis was there any credible argument in such concern, as Mwalimu had retired from both the presidency and the chairmanship of the ruling party, in which case he could offer advice on this or any other matter – but breaking ranks and intervening was a different matter, needing clear motivation.
Equally difficult to ascertain is the proper impact of Mwalimu’s intervention, as to whether it actually led to the creation of the National Microfinance Bank (NMB) instead of the NBC going in one piece, and if this situation has made an unexpected contribution had NBC been privatized differently.
On the whole opinion is ranged in support of Mwalimu’s intervention, for its having created the NMB as a popular bank that is concerned with lending to the microfinance sector, unlike NBC’s corporate concerns. But at the same time the tearing apart of roles reduced the NBC value, thus touching off a totally new debate.
For many years after the sale of the NBC, perhaps up to the past general elections, there were still pundits demanding the re-nationalisation of the NBC because its privatization was a mistake, in like manner as quite a few remained vocal about the sale of government quarters, also during the third phase administration – something Mwalimu did not have opportunity to comment about.
For those who see a special place of the NMB in the financial sector, this could only be due to Mwalimu’s intervention but there are question marks either about the role of the NMB or Mwalimu’s role thereof. For once, the NBC should have been privatized more or less rapidly after 1992 when a new financial sector enabling law was passed by Parliament, and indeed at that time it would have received its proper financial value as it would retain its role as banker to the government and parastatal organizations, nearly lost by 1997.
The point is that from 1992 to 1997 plenty of banks set foot, some of them surefooted and others rather experimental, like Meridian Biao Bank, while large corporate banks that were coming in tended to prey on the traditional government banking territory dominated by the NBC, under which the best strategy commercially would be to sell early.
It would be a matter of foresight that finally the NBC is inconsistent with the new financial sector architecture that had already been adopted into law, in which case in a proper business context it would be fetch more money and its privatization more successful if it was sold earlier than later.
But the government bureaucracy, the CCM rank and file as well as social unions especially in the church fraternity were not in that mood, seeing all this as selling the country, resisting – in which case NBC sale came up in 1997 when the World Bank could not stand the policy lag anymore.
In other words, it is one thing to see Mwalimu’s role in the matter as having brought about the NMB and seeing it positively as a banker to the poor – though there are quite a number of banks and other social lending outlets like savings and credit societies.
The latter tends to heighten their lending rates because they specialize in risky population groups, and perhaps on that account they also have a loan sharking mentality because there are no fully commercial entities like banks which can credibly led to the same population groups which come to them, and these societies are neither too many nor open to outsiders.
A person needs to be refereed or tied up in a group with other borrowers who pay up any installment that their group member has failed to deliver, which exercises considerable peer pressure to repay the loans on time,, unlike a commercial bank where one pays in his own scheduled time, or is asked alone.
All the same other proper commercial banks specializing in the informal sector came up, like Akiba Commercial Bank, and at the same time, one would ask if anything in the old NBC really disposed it to finance the poor, or Mwalimu was worried that plenty of parastatal companies could be closed up not because of policy but simply because there was no longer any credible bank to lend them money, and those foreigners who pick up the NBC’s shares are there to make ‘maximum profits’ and export the cash instead of playing a proper role in financing ‘development,’ that is, the needs of parastatal companies.
That is the first point of confusion, as to whether Mwalimu’s intervention was meant for the poor, that is, chiefly informal sector producers, or really meant to shore up his important clientele in parastatal organizations which were being wound up rather rapidly at that time for losses and inept leadership.
In that case closing the vital state run bank would eliminate whatever source of credit could still be found if it was in the government was at least willing to consider the loan, for instance the debate about getting some 500bn/- loan for Tanesco last year, and the Treasury recently signed up for 100bn/- or so for the loan guarantee, not by going to NBC or NMB where it has significant shares but through Stanbic Bank.
Indeed the proper banker to the government in the past few years, outside the central bank’s sale of Treasury Bills and government bonds periodically, has been Stanbic Bank rather than NBC or NMB. The reason could not perhaps have been appreciated by Mwalimu since he had a different set of problems in mind, where his answer – maintaining NBC at all costs, or splitting it – made sense in relation to those needs, as lending to parastatal organizations is one thing and lending to the government is another.
The presence of NMB or NBC in its older format would enable the government to allow the bank to issue a credit line when direly needed, as privatizing a parastatal, especially those in the ‘commanding heights’ of the economy wasn’t an option to Mwalimu, even if this was a subsidy that wasn’t going to be paid, a typically inflationary outlook of the early 1980s, leaving people walking without proper clothing, and queuing for all essential commodities. Few of Mwalimu’s supporters point at this glaring policy deficit.
Stanbic Bank has been banker to the government because when the government is in proper short of cash what it needs is being lent in foreign exchange and making the sort of guarantees that would be needed in a sovereign bond float, the difference being that the lending bank is operating locally so it also needs government goodwill in its various operations.
As such it is unlikely to make Shylockian terms for a major loan in foreign exchange, and on the whole the Stanbic facility – even before thinking of similar credit lines from Stanchart or Bank of Africa if the government asked for – looked rather low in the estimates of a few people in the cabinet, such that a plan came up to raise a sovereign bond in EU markets.
The World Bank gave muted criticism on the issue as it would place the country on Shylockian liabilities that could prove a disaster in budgetary terms as has often happened in South America and elsewhere, but the crisis of 2008 and now the limited EU-wide crisis made banks lose all appetite for lending to countries that are not pursuing reform, and think up huge borrowings by mere credit rating!