TanzaniaInvest had the pleasure of interviewing Oscar Mgaya, CEO of Tanzania Mortgage Refinance Company (TMRC), a private sector financial institution established in 2011 to support banks in mortgage lending by refinancing their mortgage portfolios.

Mr Mgaya discusses the progress TMRC has made over the past few years and talks about the strategies that can be employed to further develop the housing sector in Tanzania.

He also identifies the best investment opportunities, which lay in developing affordable housing projects to supply the huge demand.

Mr Mgaya also revealed that now TMRC lends to non-member banks in addition to its member banks.

TanzaniaInvest (TI): How successful has TMRC been in supporting mortgage lending in Tanzania?

Oscar Mgaya (OM): At the end of 2013 the total outstanding mortgage debt in Tanzania was TZS156b, while in 2016 it is TZS481b[+208%].

Additionally, the number of banks offering mortgage products in Tanzania rose from 3 in 2010 to 18 in 2013 and 28 in 2016.

From this, it is clear that the mortgage market is growing in support of the housing market.

On its side, TMRC was able to provide refinancing of TZS53b, compared to only TZS17b in 2013 [+212%].

Also back in 2013, we had about 11 member banks. Currently (2016), we have 12 member banks (borrowing investors) and 2 non-borrowing investors: Shelter Afrique and National Housing Corporation (NHC).

It is then clear that the mortgage market in Tanzania has much improved and that TMRC has been a part of this success story.

Nonetheless the current total debt outstanding mortgage of TZS481b remains very small, at about 0.50% of the GDP of Tanzania.

So we are moving in the right direction but still have a long way to go.

TI: Which other issues still undermine the development of the Tanzanian housing sector?

OM: High interest rates and lack of affordable housing remain the major constraints to the Tanzanian housing market.

Also, titling is still an issue with unit titles been processed very slowly.

Hence we could further accelerate the growth of the housing market by improving the process of granting unit ownership since most of the projects today are of multi-unit nature.

TI: How has TMRC evolve since it establishment in 2011 and what is your strategy for the future?

OM: TMRC used to be a solely member-based institution, as initially we were not lending to non-members.

We now give lines of credit to non-members as long as they are financial institutions licensed by the Bank of Tanzania (BoT) and engaged in the mortgage business.

The move to open up to non-members has been deliberate to gear up growth in mortgages as we can now impact the entire market.

Also, the Africa Development Bank (AfDB) approved a partial credit guarantee of up to USD4m to TMRC in May 2016.

This has been a milestone in our planned bond issuance, which will take place in 2017, where a bond guarantee from AfDB, typically incentivizes investors to invest in TMRCbond.

We appreciate AfDB’s confidence in us and our intention is to attract other Development Financial Institutions (DFIs) to invest in TMRC.

We are very excited by the progress we’ve made so far and for the foreseeable future we plan to grow further.

We are aiming at turning TMRC into the catalyst for growth of Tanzania’s housing and finance sectors.

For this, we want to be the institution of choice for the banking community and the financial services community for their long-term funding support.

To achieve this, we aim to attract more investors, whether borrowing or non-borrowing.

TI: Why invest in Tanzania, in housing?

OM: Tanzania offers a unique opportunity to investors since the potential of its housing sector is huge and has not been capitalized upon.

The housing sector is very important to the country as it impacts socio-economic aspects such as health, education and employment.

This is why I invite both the private and the public sector to look closely at housing in Tanzania and determine the role they can play in its development.

TI: Where do you see the most interesting investment opportunities in housing in Tanzania?

OM: The biggest investment opportunity in housing in Tanzania is in the supply side, especially in affordable housing.

There is a shortage of 3 million housing units in Tanzania, hence the demand is huge, particularly for affordable housing.

However, most of the developers focus on luxury housing because affordable housing carries tight profit margins.

This is why affordable housing is usually done with assistance from the government, in the form of incentives or subsidizes.

Private developers in Tanzania should work on large-scale projects and the government should provide incentives to make affordable housing commercially viable for developers.

I am confident that over the coming years, we will see more affordable housing projects in Tanzania.

TanzaniaInvest had the pleasure of interviewing Lawrence Mafuru, Treasury Registrar at the Tanzania Treasury Registrar Office (TRO), the entity in charge of monitoring and evaluating the performances of all state-owned companies, and to invest or dispose investments in these companies.

Mafuru clarifies the privatization strategies and modalities of the current government, and the upcoming available opportunities.

TanzaniaInvest (TI): Tanzania went through the privatization of state-owned companies in the 1980s and 1990s. However, the government is aiming at retaking control and privatizing them again. Why is that?

Lawrence Mafuru (LM): Post-independence from the British government, in the 1960s until late 1970s, nationalization took place, with a view of the government to take control of the economy.

Like many other African countries, Tanzania wanted to make sure that the economy is indigenized.

However, after nationalization, it became very clear that with industries that are only focusing internally, input substitution policy would not work.

Tanzania was a very small market by then, and it couldn’t really afford multimillion-dollar investments in industries just serving the Tanzanian population.

Then, in the 1980s, the global socioeconomic platform changed, moving away from state-owned economies and enterprises towards free market economies led by the private sector.

It was a global move, and Tanzania was no exception.

So, the focus changed from owning companies 100% to allowing the private sector to bring in capital.

This happened in the 80s, early 90s, when the Tanzanian economy started being liberalized with private players coming in.

This is when banks like the National Bank of Commerce (NBC) were privatized and many other privatizations took place, under the coordination of the Presidential Parastatal Reform Commission (PPRC).

There were certain areas where the government wanted to let go of everything, and there were other areas where the government realized these were strategic areas, and therefore, it was advisable not to privatize entirely.

Sensitive sectors like telecommunications and transportation were kept within the portfolio of the government, but a number of other parastatals were partly privatized, under many different ways of privatization.

Some state-owned companies were sold to employees and some were sold to foreign investors.

Some were partly financed by the government and the private sector.

As a result, some privatizations were more successful than other.

Now, the government wants to open up a process which will bring serious strategic investors who can actually turn around underperforming companies that were privatized.

Most of these were sold through tenders and bids. There were privatization agreements, asset sales agreements, and there were all sorts of commitments that were included.

There were a number of key objectives in these privatizations that were agreed upon: injection of capital, modernization of the industry, creation of jobs, and increased production and exports.

But if you look at the results, these are not always in line with what was committed by the investors.

Investors breached the agreements, and so, in those cases, the government wants to bring new investors who can turn around these companies. The government does not to want to own them.

TI: The upcoming privatizations are being carried out by the Treasury Registrar Office (TRO), which you represent. What are the other functions of the Office?

LM: After PSRC delivered its mandate, its role was moved into the Consolidated Holding Corporation (CHC), whose function was to continue and finalize what PSRC started.

Before 2010, the ownership role of government investments in all these state-owned companies was undertaken by the Office of the Treasury Registrar, a department within the Ministry of Finance & Planning.

The new Act changed the office into an independent autonomous body, TRO, still under the Ministry of Finance, but as a standalone corporation.

TRO key functions are the ownership, but also supervision of all the entities that the government owns.

In 2012-13, the government decided to bring CHC functions to an end, and its roles were now included in TRO.

TI: Can you clarify how many companies you’re monitoring and looking to reprivatize? What is the strategy?

LM: There are nearly 300 entities across all sectors, that the government is looking to make available to investors.

TRO monitoring and evaluation process takes place on a regular basis.

After we identify that an entity is not developing as agreed and planned, we prepare a cabinet paper for the government where we include our recommendations, after which the company will be opened for other investors to come.

So we are currently waiting for clearance from the cabinet, to put those entities in the market.

We already have a number of companies available to investors: a tea factory in Lushotho, tanneries in Mwanza, and we most likely will have a textile industry here in Dar es Salaam.

TI: How will you ensure that the mistakes in the past privatizations will not be repeated?

LM: Lack of transparency and not-so-clear processes of procuring investors had indeed cost Tanzania.

To avoid this we want to ensure that privatization will be a very competitive process.

We want to involve as much as we can, the Tanzania Investment Centre (TIC), in the process, because they’ve proved to have a better way of bringing in investors in the country.

So, some of these investment opportunities will be placed to TIC for them to secure investors.

The objective is to have all these companies perform in a manner that a business entity is supposed to.

They should stop being a burden to the central government and relieve this treasury from writing checks for their salaries and losses, and if they have surplus funds, these have to come back to the government, to finance other projects.

The contribution that is expected to come from all those companies is estimated to be around TZS1.3tn in the 2016-17 financial year, from half a trillion this year. This is more than 100% increase.

And if that happens, it will be almost 1% of GDP non-taxed revenue – a contribution from parastatals unheard of for this country.

TI: To conclude and clarify, what are the respective role of the private and public sector under this new government?

LM: This government has made the decision that both the public and private sector will develop the Tanzanian economy.

The government will focus on those areas that the private sector is not interested in.

The challenge in the past has been with some private investors who have come to Tanzania but have not been very transparent when dealing with the government.

Therefore, there’s always been some suspicion in how business is done.

But also, there’s been an unjustified suspicion on the government’s side, suspecting that every businessperson is not trustworthy.

I think the truth of the matter is, somebody who is going to invest in Tanzania is here to make money, and this is not a bad thing.

I think what is key is making money in a manner that makes everybody comfortable and does not leave any suspicion.

And that, I think, will be the key fundamental if the private sector is going to be successful in working with the government of Tanzania.

TanzaniaInvest had the pleasure of interviewing Dr. Adelhelm Meru, Permanent Secretary of the Tanzania Ministry of Industry, Trade and Investments.

Dr. Meru explains the current government’s focus on industrialization, its key subsectors, and the opportunities available to investors.

TanzaniaInvest (TI): Dr. Meru, the current development of Tanzania is based on a very clear vision spelled out in three documents: Vision2025, the current 5-year development plan, and the recently-approved 2016/17 budget, whose title is “Industrial Growth for Job Creation.” Why is there such a big emphasis on industrial development?

Adelhelm Meru (AM): It is indisputably clear that many countries that have developed strong economic bases, have done so through emphasizing on industrialization.

That being the case, Tanzania cannot be an exception. Industries create jobs, generate revenue, stimulate introduction of new technologies and motivates trade in industrial products.

For many years Tanzania had been a victim of exporting raw materials thereby losing money, jobs, technology and foreign currency.

We have now decided to proudly say “enough is enough”!

Tanzania has many forms of raw materials which could be added value thereby promoting industrialization, such as a variety of agricultural products, a variety of minerals resources, forests, livestock.

It is through this background that our 2^nd Five years Development Plan 2016/17 – 2020/21 gives strong emphasis on industrialization.

The aim of the Government is to ensure full utilization of the available natural resources by benefiting from the long value chains and ultimately fast-tracking our socio-economic development.

The Government’s industrialization target is to raise the contribution of the industry sector to the GDP from the current 7.4% to 15% by the year 2020.

Further, the Tanzania National Development vision 2025 has as one of its core objectives to transform Tanzania from a low agricultural economy to a semi-industrialized nation by 2025.

It is our Ministry that has the noble task of ensuring fully implementation of these targets and we are doing all what we can to make no mistake.

TI: Which sectors of the Tanzanian economy present the greatest opportunities for value addition?

AM: According to our industrialization strategy, sectors for value addition are several; however, the predominant sector is agriculture.

Agriculture has an advantage of having long value chains thereby creating many jobs.

In the agriculture sector, value addition opportunities are available in the processing of agro products such as cotton to clothing, cashew nuts, edible oil, fruits and vegetables, rubber, sugar, wood products just to mention a few.

Value addition opportunities are as well in the livestock sub sector.

Tanzania is a second livestock keeper in Africa, next to Ethiopia with 21.5m cattle, 15.4m goats and 5.9m sheep.

The availability of this large stock of livestock provides value addition opportunities in meat processing, dairy processing as well as leather processing.

Another sub sector that is potential for value addition is fishing. Tanzania is well endowed with the blue economy as 6% of the country is covered by fresh and sea water in which fish catching is predominant.

This provides a clear investment opportunity in fish processing. Forestry is another sector which has a high potential for value addition.

Opportunities are in the production of wood chips, wood pulps and furniture.

The next potential sector is mining. Tanzania is a mineral rich country; available minerals include metals, non-metals and natural gas.

Value addition opportunities exist in mineral processing including steel production, cement production, game stone cutting and polishing, jewellery and processing gas products.

TI: What will be the destination of the goods manufactured in Tanzania?

AM: The markets for Tanzanian manufactured goods are several. Most importantly is the local market.

Tanzania has a population of about 50m people, which ensures a good market for the manufactured goods.

Also, Tanzania is a member of the East African Community (EAC) and the South African Development Community (SADC) in which goods are sold without duties.

EAC includes 6 countries and has a population of about 120m people, whereas SADC includes 15 countries and has a population of over 300m people.

Tanzania has as well bilateral trade arrangements with various countries and blocks in which several items can be sold duty free and quota free.

Such counties and blocks include the USA through the African Growth and Opportunity Act (AGOA); the European Union through the Everything But Arms (EBA) initiative; China; Japan; Canada; India and Turkey.

With such diversified markets, whoever opts to set up a factory in Tanzania for production of industrial goods will never regret.

TI: Tanzania has decided not to sign the long negotiated Economic Partnership Agreements (EPA) with the EU. What is the rationale behind this decision?

AM: It is true that Tanzania did not sign the Economic Partnership Agreement with the EU which was scheduled for signing in July this year.

The rationale behind the decision was just the timing. The Government was still new in office by then; it subsequently needed a little more time to consult and formulate the country opinion.

TI: What are the challenges you are faced with in developing the industrialization of Tanzania?

AM: There are a number of challenges that undermine our industrialization plans.

However, the government is doing all that it can to mitigate them in good time.

The biggest challenge is the limitation in serviced land for setting up factories.

A few existing industrial parks that were fully developed are now full, thereby making it difficult to secure fully serviced industrial plots to investors.

In order to address this challenge, the Government is now seriously implementing the Special Economic Zones (SEZ) concept by setting aside land for industrial development.

Land for SEZs and Industrial parks has so far been set aside in Bagamoyo, Kigoma, Songea, Tanga, Mtwara, Mwanza, Mara, Dodoma ad Singida.

Plans to develop basic on site infrastructure in these Zones are underway.

The next challenge is infrastructure (roads, railways, ports, power, water, gas and telecommunications).

Again, the Government is already addressing several hard and soft infrastructure challenges.

For example, power generation has been substantially increased and gas and water availability have, as well, been significantly improved.

Construction of a standard gauge railway line is already underway and road networks are being improved in various parts of the country.

The other two challenges are availability of new technologies and skills labor force.

The issue of technology is being addressed by empowering our R&D Centres namely TIRDO, TEMDO, CARMATEC and COSTECH, whereas on skills labour, special attention is being put on institutions that are providing technical skills namely the University of Dar es salaam, the Dar es salaam Institute of Technology (DIT), the Vocational Education and Training Authority (VETA) and Small Industrial Development Organisation (SIDO).

TI: How are you financing the required infrastructure development for the industrialization of Tanzania? What are the investment opportunities available?

AM: Infrastructure development is being financed through 3 models. The first model is for the government to finance infrastructure projects through its own budget or loans.

A good example is the gas pipeline project from Mtwara to Dar es Salaam, Kinyerezi power projects and a standard gauge railway line.

The second model is through Public Private Partnerships (PPPs). With the establishment of the PPP Act, a good number of PPP projects are already in place.

Examples of such projects are the Mchuchuma and Ngaka power projects and the Bagamoyo SEZ project.

The third model is private sector financed projects. Such projects include the Kamal Industrial park, Kisongo Industrial park, and Global industrial park.

The investment opportunities available in infrastructure development include development of Industrial parks, construction of industrial sheds and warehouses, provision of utility services (water, power, gas and telecommunication systems) in industrial parks and Special Economic Zones, as well as joining hands with the Government in undertaking PPP projects in construction of roads, ports and power projects.

TI: What role the private sector is expected to play in the industrialization of Tanzania?

AM: The private sector has the biggest role in the industrialization process.

The role of the government is just to create an enabling environment through policy development, regulation, development of basic infrastructure and provision of facilitation services.

However, the major role in the industrialization process, which includes investing in manufacturing or processing operations, construction of industrial parks as well as providing industrial related consultancy services, lies entirely in the hands of the private sector.

The Government understands the challenge of access to finance which the private sector is facing.

In addressing this challenge, the Government is planning to establish an Industrial Development Bank that will specifically finance industrialists and SME operators who would like to invest in industrial related projects.

TI: To conclude, what makes Tanzania a preferred spot for investing in industries?

AM: Tanzania has several competitive advantages which makes it an ideal spot for industrial related investments.

First and foremost is the availability of a variety of raw materials for production which guarantees continuous production operations.

Second is the market opportunities starting with the local market, the regional markets and other international markets where investors can export their industrial products duty free and quota free.

Third is the competitive legal framework with good investment policies and attractive incentives.

Fourth is the best facilitation services offered by our investment promotion agencies namely TIC and EPZA through their One Stop Service Centres.

And fifth is the peace and political stability which Tanzania has been enjoying since its independence in 1961.

With all these (and many more) comparative advantages at hand, Tanzania is certainly a preferred spot for investing in industries.

TanzaniaInvest had the pleasure to interview Tonia Kandiero, Resident Representative in Tanzania of the African Development Bank (AfDB). Kandiero discusses AfDB’s past, present and future in Tanzania and the USD1.1 bn assistance package for Tanzania approved in 2016. 

ACHIEVEMENTS

AfDB CSP 2011-15 for Tanzania was articulated around two strategic pillars: (1) infrastructure development focusing on transport, agriculture, water and energy, and (2) governance with emphasis on the enabling institutional and business environment.

However the recently approved AfDB Country Strategy 2016-10 for Tanzania, indicate that despite the country sustained economic growth, it is still struggling in translating this into economic transformation, faster poverty reduction and improvement in the livelihoods of its population.

TanzaniaInvest: How would you describe the overall achievement in Tanzania of the AfDB CSP 2011-15?

Tonia Kandiero: The Bank recorded significant achievements in Tanzania during the CSP 2011-15 period, including: the upgrading of more than 777 km of road to bitumen standard and rehabilitation of more than 31,000 water points serving about 8.8 million people in rural areas; construction and rehabilitation of more than 50 market facilities; and the training of hundreds of microfinance borrowers, health workers, farmers’ facilitators and 11,000 farmer groups.

Other achievements consist of the construction of 2,500 micro infrastructure facilities such as grain milling stations and cattle dips and over 100 Vocational Education Training Authority (VETA) and health facilities.

Also, the Bank’s operations facilitated the connection of 612,890 new customers to the national grid and more than 100,000 people gained access to micro-credit, 50 percent being women borrowers.

TI: Which lessons has AfDB learned on how to maximise AfDB’s impact in Tanzania? 

TK: The key lessons and experiences that were drawn from the previous CSP to maximize AfDB’s impact in Tanzania include the following: (a) an impartial approach to country dialogue enhances the Bank’s role as a trusted and honest broker; (b) complementarity of lending and non-lending activities (which include analytical work, advisory services and technical assistance) is key for subsequent effectiveness of operations, (c) coherence and synergy of the Bank’s assistance program with Government led initiatives, increases visibility and fast-tracks implementation progress; (d) high project quality-at-entry expedites implementation progress and delivery of development results for Bank operations, and; (e) selectivity with a focus on fewer but big and catalytic transformative interventions will increase the alignment of the Bank’s assistance program, and maximize the overall development impact.

TRANSPORT AND ENERGY

TI: Transport and energy have been identified by the Government of Tanzania as the key growth binding constraints. On line with that, transport and energy currently for 49% of AfDB’s on-going portfolio for Tanzania. What are the priority projects?

TK: The projects include: Road Sector Support Project (Phases I and II); Dar es Salaam Bus Rapid Transit Project; Arusha-Holili/Taveta-Voi Road Project; Electricity V project; Kenya- Tanzania Interconnection; and Rusumo Hydropower Project.

INFRASTRUCTURE

TI: According to AfDB, given the size of the Tanzanian economy, more investment in infrastructure is needed to achieve sustainable economic transformation. How such additional investment is to be achieved? 

TK: Financing of infrastructure investment in Tanzania has, in the past, been largely through concessional resources both from Multilateral and Bilateral Development Partners.

However, following the recent revision of Bank’s credit policy, Tanzania can now access semi-concessional resources from the African Development Bank (ADB window).

This will significantly help to reduce the infrastructure financing gap.

Also, the Government of Tanzania is in the process of securing credit rating, which will enable the authorities to borrow on commercial terms from the international financial markets (Eurobond).

TI: How is the remaining 51% of AfDB budget for Tanzania being used? 

TK: The remaining 51% of the Bank’s commitment for Tanzania is in: Public Financial Management Reforms (through General Budget Support operation, and Institutional Support Project for good governance); Marketing infrastructure to support agriculture sector; Rural and Urban water supply infrastructure – both in Tanzania Mainland and Zanzibar; Skills development – (involving: alternative learning and skills development; support to technical and vocational training and teacher education; as well as specialized centre of excellence for skills and tertiary education)

TI: Which role is the private sector expected to play?

TK: Tanzania’s private sector is expected to play a major role as an engine of growth, since it employs an estimated 95% of the workforce and accounts for about 75% of gross fixed capital formation.

Also, going forward the private sector is expected to play an important role in infrastructure financing.

In 2016, the Bank has planned two private sector operations – a partial risk guarantee for Mortgage refinancing (approved), and Line of credit operation to support private sector participation in infrastructure investment.

AfDB TANZANIA STRATEGY CPS 2016-20: INFRASTRUCTURE, GOVERNANCE AND ACCOUNTABILITY

TI: This CSP is articulated around the Infrastructure development, and strengthening governance and accountability. What need to be achieved in terms of governance and accountability in Tanzania? 

TK: Under the governance pillar the expectation is to achieve improvements in public sector accountability, transparency and institutional capacity to efficiently and effectively manage public resources.

In this respect, the Bank will support the key oversight institutions, including Audit, Procurement and Anticorruption bodies.

TI: What is AfDB view of Magufuli’ government austerity measures and its current impact on the local economic activity?

TK: Our view is that, to a large extent, what the Government has done is ‘reallocation of spending’ rather than ‘squeezing of spending’.

Resources that would have otherwise been spent on travel abroad, hotel expenses for workshops, seminars, etc., have been re-directed to other uses, including construction of roads and delivery of services in health and education.

The biggest reallocation has involved shifting resources from ‘non-priority recurrent spending’ to development spending (including road construction).

Despite the observed temporary shock (most likely for some businesses like big hotels, overseas travel companies, etc.) this measure will have a long-term positive impact on local economic activity.

TI: What are the main projects you will finance? 

TK: The main projects include:

Transport:

Transport sector support project

Burundi/Tanzania: Manyovu Kasulu Kigoma Road Project

Malindi-Mombasa-Lunga-Lunga/Tanga-Bagamoyo Road Project

Energy:

Malagarasi Hydro Power Project

Kakono Hydropower Project

Urban Power Distribtion

North-West Transmission Grid

Governance/Reforms

Energy Sector Reform Program

Governance and Private Sector Development Program

Institutional Support Program – focusing on Domestic Resources Mobilization and Natural Resources Governance

GENDER EQUALITY AND EMPOWERMENT 

TI: AfDB CSP 2016-20 for Tanzania has introduced several innovations. For instance, key priorities such as green and inclusive growth as well as gender equality and empowerment. Why these new priorities?

TK: These priorities are in line with both, the Government of Tanzania’s focus and the Bank’s Ten Year Strategy  through five key operational priorities (High 5’s): Light up and Power Africa, Feed Africa, Industrialize Africa, Integrate Africa, and Improve the Quality of Life for the People of Africa.

Tanzania’s economy has grown robustly over the past decade, with annual average real GDP growth exceeding 6%.

However, this high growth has not sufficiently translated into faster poverty reduction outcomes, and about 28% of Tanzanians continue to live in poverty.

This reality calls for new approaches in development programming to ensure more inclusive growth.

More importantly, the growth of Tanzania’s economy continues to depend heavily on primary resources and climate sensitive sectors, which makes it inevitable to focus on transition to green growth.

And, closely linked to the above issues, continued focus on gender equality is important for sustainable development outcomes.

AfDB & TANZANIA: FUTURE

TI: AfDB commenced operations in Tanzania in 1971. Tanzania is the second largest beneficiary of the concessionary funding window of the Bank, the African Development Fund (ADF). Why is Tanzania so important to AfDB?

TK: It goes both ways – Tanzania is important to AfDB just like AfDB is important to Tanzania.

The Partnership started since 1971, and Tanzania has remained committed as a key Regional Member country since then, while the Bank has also been with the Country all the way as a trusted partner.

Also, Tanzania is one of the key champions of regional integration which the Bank continues to support strongly.

TI: What is you view on the future of Tanzania and its role in the African continent? 

TK: With all the opportunities available in the country, Tanzania has a great future in African continent.

The country has the potential to sustain the current growth momentum, attract more investment and transform into middle income country before 2030s.

With its geographical location, peace, and political stability, the commitment of Tanzania to regional integration will position the country as a very important player in the economy of African in the near future.

TanzaniaInvest had the pleasure of interviewing Jay Bhattacherjee, CEO of Aminex plc (LON:AEX), and Neil Ritson, Chairman of Solo Oil Plc (LON:SOLO). Aminex is an Africa-focused oil and gas exploration and production company with two operated discoveries in Tanzania.

Solo Oil is an oil and gas investment company with a diverse global portfolio of oil and gas assets in Tanzania, West Africa, the UK, and Canada.

Jay and Neil share with TanzaniaInvest their experience in investing in Tanzania, their current projects and operations, and their expectations and strategy for this emerging oil and gas market.

TanzaniaInvest: Tanzania shares with Mozambique vast offshore natural gas reserves. Why did you decide to invest in Tanzania?

Jay Bhattacherjee (JB): Aminex has been in Tanzania for 14 years.

We were the first license holders to go through the entire exploration process in Tanzania: Production Sharing Agreement (PSA), appraisal, development, and now production.

Tanzania’s oil & gas sector presents plenty of growth potential and opportunities.

But the biggest and simplest reason for our decision to invest in Tanzania over Mozambique is that in Tanzania there is infrastructure in place for gas.

The new 532m gas pipeline connects Mtwara in Tanzania’s southern region to the commercial capital Dar es Salaam, and it is combined with two processing plants that are already in operation.

That’s pretty trailblazing for sub-Saharan Africa. What is needed now is to distribute the gas to the end users.

Only 36% of Tanzanians have electricity [Tanzania Ministry of Energy 2014 data] and oil and gas companies operating in Tanzania like Aminex, are going to play a big part in the country’s future energy growth.

[The Tanzanian government is currently implementing a national energy policy, which aims to increase the country’s overall electricity connectivity to 50% by 2025 and to at least 75% by 2033].

TI: Solo Oil has partnered with Aminex in two projects in Tanzania and you currently have no other investments in this market. Why such strong focus on Tanzania and on Aminex?

Neil Ritson (NR): Tanzania is one of the best options we have on the African continent.

Tanzania is full of opportunities, has gas discoveries, has infrastructure, a track record of stable governments, and the country is now sorting out its energy policy in a sensible way.

Tanzania has all the elements in place and this is why Aminex is progressively focused there, and this is why Solo Oil invests in Aminex’s projects.

The philosophy of Solo Oil is to invest in projects which need capital, but also need some expertise that Solo’s management can provide.

We are very active investors. Solo Oil is run by oil people, not by bankers.

We co-invest, we put in the time and effort to help the investment be successful by providing guidance on strategy, technical expertise and other support.

Solo Oil does not invest in companies scattered all over the world. We invest in companies that focus on what they do best and for Aminex that is Tanzania.

Solo Oil shares the same philosophy and ideology as Aminex, with whom we have been working in Tanzania for five years.

As a result, we are a partner with Aminex in Kiliwani North [Aminex 54.575%, RAK Gas 23.75, Bounty Oil & Gas 9.5%, Solo Oil 7.175%, TPDC 5%] and in Ruvuma [Aminex 75%, Solo 25%].

In Tanzania, we have signed the much-awaited Gas Sales Agreement (GSA) with the Tanzania Petroleum Development Corporation (TPDC) for the Kiliwani North gas project.

Gas is now flowing.

In Ruvuma we were technically involved in helping make the gas discovery.

That’s why our track record of drilling successful wells is very high.

Solo Oil has invested elsewhere in Africa, namely in Nigeria [Solo Oil has a 20% stake in Burj Petroleum Africa], but this has proved more challenging than investing in Tanzania.

KILIWANI NORTH

TI: Following the signing of the GSA for Kiliwani North, you started delivery of gas to TPDC on 4^th April 2016. Are you confident that the much-negotiated payments terms and guarantees will sustain your cash flow expectations?

JB: As a result of the GSA, TPDC will pay us at the end of each month.

The first payment is due mid July 2016, the second in August 2016, and thereafter at the end of each month.

On our end, we are ready to deliver as much gas as needed to TPDC [which in turn provides the Tanzania Electric Supply Company (TANESCO) with gas for power production].

NR: Commissioning of gas isn’t covered by the same payment guarantees included in the GSA, but we have submitted invoices and we certainly expect that they will be paid.

TPDC has indicated that they will pay, and we see absolutely no reason why they won’t.

RUVUMA

TI: Aminex made onshore gas discoveries in Ruvuma at Ntorya-1 in 2012. How far are we from the actual commercialisation of the gas?

JB: Ruvuma early stage production can be somewhere as soon as 12 months from the announcement of a commercial discovery.

Ultimately, as we drill and develop that basin, going forward, that gas is going to be utilised in the national pipeline.

NR: At the moment, we have found 100 billion cubic feet (BCF) but we think there could be ten times that.

We’ll get the appraisal wells down, and then we will decide on what kind of development scheme we are going for.

TI: And do you also have the financing needed to develop Ruvuma?

JB: No, we don’t.

NR: And we don’t need it. We need to appraise the discovery first.

After we have the gas volume approved, we’ll decide what to do: dive into the project with financing investors, or raise the bank finance necessary to continue.

But first we need to complete the appraisal and this is our job for the rest of this year [2016].

TI: Will there be a similar GSA in place with TPDC for Ntorya-1?

JB: The structure of the GSA will be the same, but the pricing mechanisms will depend on where the delivery point is.

One of the biggest advantages that we have with Kiliwani is that our delivery point is right at the outlet flange of the wellhead, thanks to the fact that TPDC, through government initiative, built that infrastructure right to us.

In the case of Ruvuma, we will either build a centralised gas gathering facility in Ruvuma and then connect it to a processing plant; or TPDC will build the infrastructure for us.

All of that will be built into the pricing mechanism that we will structure with TPDC.

So it will very much depend on where and how the gas will be delivered, and on who’s building the necessary infrastructure.

NYUNI

TI: What about Aminex’s third license in deep-water Nyuni basin? What is the current situation in terms of exploration?

JB: We are currently focused on production, development and appraisal opportunities.

Nyuni is a valuable piece of acreage, but our priorities are Ruvuma and Kiliwani right now.

The Tanzanian government wants us to develop Ruvuma to deliver its gas in the near-term to fill in the pipeline.

If Kiliwani can provide less than 10% of the energy mix of Tanzania, Ruvuma could easily provide 30% or 40% of that energy mix.

We also want to develop Ruvuma as soon as possible, since it will enhance our cash flow.

TI: Has the support of the Tanzanian government been adequate so far? And have you noticed any change since the new government has been in place?

 JB: We have been in Tanzania for almost 14 years. We and our partners have invested over USD150mbillio.

Since 2002 Aminex has drilled six wells, five as operators, and out of those five, we made two discoveries, one of which is in production.

That is quite a record for onshore exploration and it couldn’t have been achieved without the support of the government.

That being said, we have noticed, in the last three years, an increased focus from the Tanzanian government on business policies and on the commercialisation side of the gas.

As a result, the government has put the infrastructure in place and has been engaging with companies, moving things as fast as possible.

We have seen a bit more initiative of late, but I think it has more to do with the fact that gas is now flowing in the pipeline [from Kiliwani North].

As a result, businesses are coming to Tanzania, fertiliser companies are winning tenders, and power plants are being established.

In a few years from now, the country will be powered with gas, and that’s what we want to be part of.

TI: Do you think Tanzania is on the right path in developing its oil and gas industry?

NR: Definitely. There is a large domestic and regional market and they are taking advice from other countries which have been through the energy revolution.

And they are committed to building infrastructure, which is key in developing the gas market/industry.

TI: And how do you explain Tanzania to your investors? What does it represent in Solo Oil’s portfolio?

NR: Usually, when the projects we invest in reach a value point we move on and reinvest somewhere else; we act as a seed investment fund.

But Tanzania offers such a big prize over the long-term, and that is why we are heavily invested there and continue to do so.

Tanzania is an anchor country for Solo Oil and as such, it’s a country we will stick with.

Other investments will come and go, but Tanzania is part of the fabric of Solo Oil’s investment model.

Tanzania is full of opportunities and has proven to be a lot easier to invest in effectively compared with West Africa, mainly because of the policies and support by the government.

Tanzania has a track record of stable governments, and the country is now sorting out its energy policy in a sensible way.

What Tanzania needs now is gas in its energy mix, and for that, the missing component is distribution; it is not supply, and it’s not transport infrastructure but delivering to customers.

Tanzania is going to be cash-generative for Aminex and Solo Oil for the long-term, and therefore, we are not so likely to look for an exit from that.

As we are planning to be in Tanzania for the long run, we are beginning to think outside the Aminex box.

We have a very good relationship with Aminex, but there are other projects in Tanzania in which we can invest.

There’s more we can do in Tanzania and in the short-term, we’ll look for additional opportunities.

But first, we need to get some milestones behind us.

Getting a GSA was big; getting the first gas moved was important.

Getting our first sales is going to be big; getting long term commercial gas is going to be a big catalyst, together with the appraisal of Ruvuma.

The geology will dictate whether there’s a trillion cubic feet (TCF) of gas in Ntorya or not, but the only way to find out is by drilling wells.

That is why Solo Oil and Aminex are working to drill a new well at Ntorya by the end of 2016.

Tanzania is a genuine long-term investment for Solo Oil.

Tanzania has discoveries, it has the infrastructure, it has a market, and all we are doing is assisting in the process of connecting those elements together in a way that generates money for Tanzania and our shareholders.

This connection between supply and demand and the infrastructure in place is a rare opportunity.

TanzaniaInvest interviewed Thomas Abraham-James, CEO of Helium One, an exploration, development and, ultimately, hopeful producing company of liquid helium from Tanzania.

Helium One recently estimated 54 billion cubic feet (Bcf) of helium resource near the Lake Rukwa area in Southwestern Tanzania.

The company is now looking for investors to finance the exploration program from now until end of 2017.

TanzaniaInvest (TI): Helium One is focused on helium exploration in Tanzania. Why helium, why Tanzania?

Thomas Abraham-James (TAJ): There was a severe shortage of helium between 2011 and 2013, and this has resulted in a sharp increase in helium prices and difficulties in obtaining the gas.

During that period, I was involved in geological surveys for gold explorations in Tanzania, and together with Josh Bluett, [Technical Director of Helium One], I became aware of some Tanzanian helium measurements from reports published in the late 1950s.

These indicate that helium concentrations were very high at multiple locations in Tanzania.

The potential for helium in Tanzania is unique because the country has the perfect geology for helium accumulations, sourced from some of the oldest rocks on the planet.

It is actually the old rocks that produce helium over time, in very small amounts.

In other regions around the world, helium remains trapped in the rocks, but Tanzania is in the East African Rift, and this has let the helium escape to the surface.

Helium is traditionally produced as a by-product of natural gas production but in Tanzania, there are no fossil fuels attached to the helium. It has the potential to be a green project.

We actually looked at other countries in the East African Rift like Malawi, Uganda, Zambia and Kenya, but we realized that these countries don’t have the right geological ingredients for helium exploration as Tanzania does.

The combination of helium shortage and the unique helium potential in Tanzania represented an opportunity that we decided to pursue.

TI: You recently estimated 54 billion cubic feet (Bcf) of unrisked prospective recoverable helium resource next to Lake Rukwa in Southwestern Tanzania. How accurate are these estimates?

TAJ: We know that in the Rukwa area, there are a number of reservoirs that have the potential to hold gas.

This was identified via pre-existing seismic and drill data that was acquired by an oil explorer in the 1980’s. Hot springs within this area of interest have been sampled and contain high helium concentrations.

Therefore, there’s a high chance that those reservoirs contain helium, which we call resources and have been independently verified by consultants in the USA.

These estimated resources are part of a range of which 54 Bcf is the 50% probable helium occurrence.

In the same range, there is 10% probability that the resource is 175.9 Bcf and 90% probability that the resource is 17.7 Bcf.

Now we need to convert these resources into reserves and to do that we must undergo additional exploration by drilling these reservoirs.

If by doing so we reach helium and we convert it into helium reserve, then we can assess how economically viable production will be.

We will be finishing exploration at Rukwa by the end of 2017, when we expect to have reserves.

TI: How are you financing the additional exploration at Rukwa?

TAJ: We are currently in the process of raising capital, on a private equity basis for now.

The capital raised will be used to collect additional seismic data, undergo airborne gravity survey and ground geochemistry.

By March or April 2017, we intend to commence drilling, and by the third or fourth quarter of 2017, we will hopefully have reserves.

This is when the final investment decision as to whether or not to enter production will be taken, but we are already open to investors.

TI: What is the minimum amount of helium reserves needed to make the Rukwa project commercially viable?

TAJ: We consider a minimum of 10 Bcf to be reasonable target to warrant the capital expenditure required for a large scale helium plant.

It is worth mentioning that we are optimistic that our current resource estimate is just the starting point and that we anticipate it to grow as we conduct the additional exploration activities.

As we are still in the process of converting resource to reserve, investing in a project like ours can be compared to investing in an early stage gold mining project: the dynamics and the risk profile are similar.

TI: What is the size of the capital you are looking to raise?

TAJ: Our estimated costs at the Rukwa project from now until the end of 2017 are USD40m.

This will be conducted via private equity finance, however we are keeping an open mind to listing.

TI: In addition to Rukwa, you have other prospective licenses in Tanzania, in Eyasi and Balangida. What is the current status of these projects?

TAJ: Rukwa is the most advanced of our projects. For Eyasi and Balangida we have to collect seismic and drill-hole data.

Our intention is to get those projects up to speed with Rukwa by quarter two of 2017.

TI: Are you pursuing any other helium projects in or outside of Tanzania?

TAJ: No, we are only focused on helium, in Tanzania.

TI: In a nutshell, why invest in helium in Tanzania with Helium One?

TAJ: At the moment, global annual demand for helium is approximately 6 Bcf, but it is growing.

Helium is not comparable to oil or natural gas in regard to revenue, but it is a niche market with plenty of upside potential.

Helium is very much used in high-tech industries and its applications are increasing.

After the helium shortage of 2011–2013, the certainty of its supply has been lacking since then.

We believe that Tanzania has the potential to produce large reserves of helium and the country could greatly add to the helium global supply.

Tanzania shows the perfect geology for helium. This means that we can more easily increase or decrease the helium production to match the demand.

Last but not least, Tanzania has the right legal and investment framework.

TanzaniaInvest had the pleasure of interviewing Clifford Tandari, Chief Executive of the Tanzania Investment Centre (TIC), the primary agency of the Government to coordinate, encourage, promote and facilitate investment in Tanzania.

Mr Tandari highlights the most interesting sectors in which to invest and the benefits of doing so via TIC.

TanzaniaInvest (TI): Many developing countries are competing to attract Foreign Direct Investments (FDI), key to their further development. What makes Tanzania particularly attractive to investors?

Clifford Tandari (CT): Tanzania is a growth pole, one of the few growth poles in the world, and Tanzania has been growing consistently for the last fifteen years, with a GDP of 7% and above.

Natural resources and touristic attractions abound in Tanzania.

Tanzania is also a gateway to the East African Community, with five other member states, and to fifteen other member states within the SADC region.

In addition, Tanzania is very peaceful. We have a democratic government, and we are party to the international treaties.

So, anyone who invests in Tanzania stands to benefit a lot and to recoup their investment very rapidly.

TI: What are most interesting sectors of the Tanzanian economy investment purposes?

CT: We are currently focused on promoting investments in manufacturing, agriculture—where the majority of Tanzanians are involved – real estate, construction, infrastructure, tourism, and hospitality.

TI: And why invest via TIC? What are the incentives in place?

CT: There are several fiscal and non-fiscal incentives available to investors interested in Tanzania.

Fiscal incentives include tax exemptions on capital goods.

When investors bring in capital goods, they are exempted from some taxes since they form an input into the production of the investment undertaken in Tanzania.

Non-fiscal incentives relate to immigration visas and residency permits.

In addition, investments in Tanzania via TIC are guaranteed against nationalisation and expropriation.

Tanzania is a member of both the International Centre for the Settlement of Investment Disputes and Multilateral Investment Guarantee Agency (MIGA).

These incentives are available to investors who apply for a Certificate of Incentives at TIC.

In fact, the TIC acts as a one-stop centre, for investors to streamline the entire investment process through TIC.

For example, investors can also take care of their company registration and business licensing at TIC.

TI: How are you ensuring that foreign investors are aware of the investment opportunities available and of TIC?

CT: One of the measures that we are employing is conducting business-to-business investment forums.

We recently held the Tanzania-India business forum and the Tanzania-Poland business-to-business forum to promote FDI from these countries.

We also have a comprehensive website with regulations, guidelines and procedures, and where we are unable to reach, we advertise using companies like TanzaniaInvest.com.

So, we are promoting, as well as facilitating, and these are the measures that we are currently undertaking.

TI: What would be your piece of advice to investors having decided to come to Tanzania?

CT: I would advise incoming investors to come and register their companies within TIC, so that they are recognized.

In this way, we are able to monitor and build an alliance with them so that if there are any challenges, TIC is there to support and help them.

TIC acts as a bridge between the investors and the government, and so, it’s very beneficial for them to pass through TIC.

TI: You were appointed Executive Director of TIC recently. Under you leadership, what do you want TIC to achieve?

CT: First of all, I would like to see TIC doubling the amount of investment that we are receiving per year.

We are currently receiving about USD2.1bn in FDI per year, and I would see TIC doubling this amount within a short timeframe.

For instance, reaching USD4bn to USD5bn per year would be a vision that I would envisage for.

Then, I would like to see job creation for the youth in this country and I would like to see TIC contributing positively to the industrialization agenda.

Industrial development is at the core of our 2025 Vision to become a middle-income economy, of the National Five Year Development Plan 2016/17-2020/21, and of the National Budget 2016-17.

So, I would like to see TIC being on the forefront of implementing this industrialization agenda.

TI: And where do you see Tanzania within the next ten years?

CT: I would like to see Tanzania being an industrial country and a middle-income economy by 2025.

I would like to see poverty being reduced in Tanzania, and young people getting jobs through the industries coming up.

I would like to see Tanzania as a country where its citizens contribute positively to the growth of the economy.

I would also like to see Tanzania with sufficient and adequate infrastructure for transport to decongest our cities, for rural-urban linkages strengthened so that goods from the rural areas could arrive at urban centers, and then, products from the cities and urban areas would reach the rural areas.

TI: Anything else that you would like to add, Mr Tandari?

CT: I appreciate your coming, and I would like to cooperate very closely with TanzaniaInvest in promoting, across the globe, the opportunities available in Tanzania.

So, we welcome TanzaniaInvest to come and work closely with us so that we can attain the industrialization goals and objectives that have been clearly stated in our blueprints.

TanzaniaInvest interviewed Frank Kanyusi, CEO of Business Registrations and Licensing Agency (BRELA).

BRELA is mandated to issue industrial licenses, register companies, business names and intellectual property rights such as patents of inventions, industrial designs, trade and service marks.

TanzaniaInvest (TI): What is the current level of perception of these issues by the Tanzania public?

Frank Kanyusi (FK): To a large extent the Tanzania public is aware of the initial processes of establishing companies and business names although they lack awareness on the part of post registration activities such as timely filing of annual returns and proper filing of different changes undertaken by the companies in the lifetime of the companies.

On the part of intellectual property, public awareness is still minimal to the creators, inventors and users of Intellectual Property assets.

TI: Most of Tanzanians small/micro business remains unincorporated. Can you explain the advantages of registering as a formal business, with BRELA?

FK: First, it has to be noted that once the company is incorporated it does not start the business on the spot, it has to obtain other clearances from the Tanzania Revenue Authority (TRA), Business Licensing authorities and Regulatory authorities, if required.

Formalization of a business is like a big set with several subsets within it, registration of company/business name being one of them. One of the advantages is to give an identity to your business.

Formal firms have better access to credit and markets, all of which may in turn have a positive impact on the entity’s profit and national economy at large.

It also assists the central government and local government to know entities and firms which are in formal sector especially when planning.

TI: According to the latest Doing Business ranking by WB, Tanzania has improved one position between 2015 and 2016 to rank 139^th. However, in relation to starting a Business it has worsened from 122th to 129^th.

Looking in details, BRELA, the first step, takes only one day. How easy it is registering with BRELA?

FK: It is nowadays easy compared to previous days. Some of the services like name clearance for both Limited companies and Business Names are provided online together with the forms.

Investors can liaise directly with BRELA without requiring assistance of Middle-men or Agents.

And most of the payments now are done online through mobile phones and electronic banking transactions.

Moreover TRA has opened up a window at BRELA offices whereby company TIN numbers can now be obtained at BRELA soon after registration of a company.

It is my belief that automation of processes, online service provision and electronic integration among the key players, particularly Government institutions responsible for starting up business, can further ease and improve the process of setting up business in Tanzania.

TI: Can investors liaise directly with BRELA or do they require the assistance of corporate lawyers or service providers?

FK: Investors can liaise directly with BRELA, however in preparation of documents they either do it themselves if they have the knowledge or require the assistance of professionals.

TI: What needs yet to be streamlined to fasten and further ease the process of setting up a business in Tanzania?

FK: In order to further ease the process of setting up a business in Tanzania, relevant laws and regulations need to be amended to incorporate the requirements for online registration also to facilitate submission of documents for formalization of businesses at one point.

Currently, in order to start a business one is required to visit a number of institutions to obtain necessary documents.

The starting of a Business is a process there is a need for other institution like TRA to be streamed lined and access BRELA service

TI: Large investors are usually catered by Tanzania’s investment authorities, the Tanzania Investment Centre (TIC) and the Export Processing Zones Authority (EPZA).

How do you ensure effective liaison with TIC and EPZA?

FK: First of all the Authorities you have mentioned are both under the same Ministry, which is the Ministry of Industry, Trade and Investment.

Secondly, BRELA has an officer who is stationed as a liaison officer at TIC.

These facts make it very easy when it comes to the issues of communication and coordination.

Moreover, with the introduction of the online registration system all these institutions will be linked hence liaison will be enhanced.

TI: Foreign businesses entering Tanzania have the option to incorporate a subsidiary or register as a branch. Which option is best?

FK: To me both options can work. It depends on the choice and interest of the concerned person after exploiting the pros and cons of each.

TI: Tanzania’s GDP is growing consistently at 7%. What is your strategy to ensure that BRELA becomes synonym of doing business in the country?

FK: Our vision is to be world class customer focused business regulatory and facilitatory Agency; so one of our strategies is to make sure that we apply current and modern ways of serving our customers to make sure that they get quality, quick and timely services.

This can, for example, be achieved by the provision of all our services online, a dream that we have started to work on it.

Another strategy is to propose legal and regulatory framework review to suit the reforms and initiatives that the Agency is undertaking and also to eliminate the current bureaucracy in formalization of a business in the country.

TanzaniaInvest had the pleasure of interviewing Ken Cockerill, Chief Executive Officer (CEO) of Stanbic Bank Tanzania.

Cockerill discusses the goings-on in the banking industry of Tanzania, the bank’s expansion strategy and the current trends in the Tanzanian economic and business climate.

TanzaniaInvest (TI): Standard Bank Group (JSE:SBK) is the largest African bank by assets, and operates in 20 countries across Africa.

The group has been operating in Tanzania under the Stanbic Bank brand since 1995, following the acquisition of Meridien Biao Bank.

What is the importance of the Tanzania market for the group?

Ken Cockerill (KC): We see Tanzania as an important growth opportunity.

If you look across the African continent, countries in East Africa, and in particular Tanzania, have reflected consistently high growth rates over the last decade, and we expect that to continue in the years ahead.

The Tanzanian economy is diversified, and that’s currently an advantage, as opposed to certain other countries that are more reliant on oil and other primary commodities.

TI: What are your main goals in Tanzania?

KC: First and foremost, we need to achieve an acceptable return on equity (ROE), in excess of 20% over the next few years.

We intend to achieve this by consistently delivering exceptional customer experiences, and thereby growing our customer base and market share.

At the same time we recognize that in order to achieve our aspirations, it is imperative that we contribute to the long-term viability and success of the communities in which we operate, by facilitating economic growth and social development.

TI: In which sectors of the Tanzanian economy is Stanbic focusing?

KC: Our focus is on all the key growth sectors: agriculture, telecommunications, oil and gas, power and infrastructure, fast-moving consumer goods etcetera.

But if you look at the opportunities for public-private partnerships, we believe the main ones reside in power and infrastructure in the short term, and probably oil and gas in the years to come.

TI: With more than 50 banks operating in Tanzania, what are your key focus and competitive advantages?

KC: The Tanzanian financial services sector is very congested. The market looks overbanked, but we still see opportunities for us.

There are few banks in Tanzania that can effectively compete with us in the corporate segment, because of the group’s extensive footprint on the continent, our sector and product expertise, and our cross border capabilities.

Our cross-border capabilities allow us to provide multi-country banking solutions, with access to the group’s larger funding and capital bases offshore, together with the international capital markets.

We also have the backing of the Industrial and Commercial Bank of China (ICBC), the largest bank in the world, which has a stake of 20% in Standard Bank Group.

That gives us a major competitive advantage because it affords us the opportunity to partner with the public sector and private corporates on all the large infrastructural deals and other investments.

TI: Talking of the public sector, what is your take on the impact on business of the austerity measures and aggressive reforms being introduced by the current government?

KC: The new country leadership has outlined ambitious plans to tackle corruption, improve public sector efficiency and boost living standards, but fiscal limitations remain an impediment to achieving these aspirations.

Whilst we believe that the reforms underway are well intended, the execution has been problematic, and this has created significant headwind for the business community and a general slowdown in economic activity.

There could be more consultation with the private sector and other stakeholders before implementation. There is thus work to be done to transform the current situation into an environment that’s more conducive to doing business.

Many of our customers are adopting a wait-and-see attitude, postponing investments, because of the uncertainty around changes that are coming very rapidly and are quite difficult to adapt to.

Having said that, we believe that because the intent is good solutions will be found that will be beneficial to the business community in the medium to longer term.

TI: In addition to corporate banking, your core business, which other segments are you looking to expand in Tanzania?

KC: We will be looking to leverage off our existing position within the corporate and commercial segments, in order to capture the associated value chains – personal customers, suppliers, buyers and other stakeholders.

We also intend to grow our retail and SME customer segments, with greater use of smart technology and digital platforms.

The number of active users of mobile banking in Tanzania is growing very rapidly, whereas the growth in traditional bank accounts has been much less impressive.

Technology enhancements and the right partnerships are thus key focus areas for us going forward, to enable us to deliver convenient and affordable financial services.

TI: Tanzania’s rural population is fast migrating to urban centers. This is putting pressure on the housing market, as well as generating opportunities.

However, access to finance is still a challenge. How is Stanbic participating in the real estate sector in Tanzania?

KC: We have been active participants in housing finance in Tanzania for many years, and we will continue to play a significant role going forward.

If you look at the value of mortgage financing, we reside in the top three lenders, and we were one of the first to offer that product.

There are some challenges, such as the judicial system and how easy it is to realize mortgaged assets when something goes wrong, and the domestic currency interest rates are quite high. These will hopefully be addressed over a period of time.

The Tanzania Mortgage Refinance Company (TMRC) has played an active role by creating awareness about mortgage financing, but also in terms of providing long-term funding to the commercial banks to support them in the mortgage lending game.

The rapidly urbanizing population in Tanzania, combined with a rapidly growing middle class, is leading to a greater demand for housing and robust growth in mortgage financing, albeit off a relatively small base.

TI: Nonetheless, some argue that there are signs of slowdown in real estate in Tanzania. What is your take on that?

KC: The Tanzanian property market has been very buoyant for many years, but there’s been a distinct slowdown in recent times.

I think this is partly due to a slowdown in the offshore gas sector, as there was frenetic activity during the exploration days, with strong demand for both retail and commercial real estate.

In addition, the general slowdown in economic activity as a result of the current reforms underway has also had an impact, together with a slowdown in regional trade as a result of certain neighboring countries feeling the effects of a worldwide slump in commodity prices.

TI: Do you think that the two credit bureaus that have been operating in Tanzania in the last two years have eased the lending process and lowered the high cost of borrowing?

KC: It’s taken a while for the banking industry and credit bureaus to build comprehensive and reliable databases, but substantial progress has been made and the industry and the market in general is now starting to reap the benefits.

We believe that the credit bureaus will assist in effectively reducing non-performing loans and credit loss rates, which should in turn reduce the overall cost of borrowing and make it more affordable to borrow for a greater section of the market.

TI: To conclude, what is your view on the role of Stanbic/Standard Bank in Tanzania?

KC: Being part of the Standard Bank Group we see Africa as our home, and our primary purpose as driving its growth.

We are committed to raising education standards in Tanzania, as we strongly believe that investing in education is the cornerstone for future growth and prosperity of the country.

With this in mind we recently handed over TZS50m for the development of Magomeni Primary School in Mtwara, and our intention is to continue to be involved with schools in the years ahead.

TanzaniaInvest had the pleasure of interviewing Col. (Retd.) Joseph Leon Simbakalia, Director General, Export Processing Zones Authority (EPZA).

He talks about the government’s industrialization agenda, the role EPZA in bringing this industrialization agenda into fruition, and the current large industrialization projects available to investors.

TanzaniaInvest (TI): You have recently returned from a road show in China. What are your expectations on China’s role in the industrialization of Tanzania?

Joseph Leon Simbakalia (JLS): We recently went to China to meet with prospective investors, financiers, and government officials, to invite them to develop industries in Tanzania.

The meeting was under the auspices of the Forum for Cooperation between Africa and China (FOCAC) that took place in December 2015, where China pledged USD60bn in grants, concessional and commercial loans.

Tanzania has ambitions for rapid industrialization, while China is looking to establish industries offshore., into low-cost labor areas.

So, we want to capitalize on that and create a platform for world-class trade and logistics hubs that will attract industries.

These will process the raw materials, and then export value-added products to feed distribution centers.

For this to take place, we have to attract more investment, develop further and larger industrial projects.

This is why at EPZA, we are moving away from small Export Processing Zones (EPZs) and Special Economic Zones (SEZs) to the development of larger industrial projects.

TI: What are the largest industrial projects that you are currently developing and which are open to investors?

JLS: We are currently developing the following SEZs:

• The Bagamoyo SEZ, 75 kilometres north of Dar-es-Salaam, which is going to be run by the Tanzanian Government with China Holdings Limited and the State General Reserve Fund of Oman. This satellite town will include Development of Industrial Parks, Trade Parks, Technological Parks, Tourism Industry, Real Estates, Logistics Centers, Financial Institutions as well as the construction of an Airport and Port.
• The Tungi SEZ in Morogoro, in Eastern Tanzania, 170 kilometres west of Dar es Salaam, a 10,000 hectares SEZ Project developed with 100% private financing from Tanzania and Singapore. Tungi is the largest industrial, commercial and Residential development project under SEZ Investment Scheme developer by the private sector.
• The Mtwara Freeport Zone, a 110 hectares area to service companies engaging in oil and gas exploration in the Mtwara region. This project is also developed by private financing.

TI: What are the incentives that EPZA gives to investors coming to the SEZs and EPZs?

JLS: Fiscal incentives are provided to reduce the financial risks. These include tax reliefs and tax allowances for 10 years to allow for recouping of investments.

But we also provide non-fiscal incentives i.e. infrastructural support such as access to water, roads, and electricity.

In addition, the Tanzanian Government can provide ad-hoc fiscal incentives for particular investment with high financial risk to make the project bankable and commercially sustainable.

TI: All in all, why invest in Tanzania?

JLS: Anyone looking to invest in Africa should look first at Tanzania because it has a lot of potential for development, combined with a track record of 50 years of political stability.

Tanzania is also the only country in Africa that integrates the East African Community (EAC) and the Southern African Development Community (SADC).

Tanzania faces the Indian Ocean, which is the only barrier to the Asia markets.

Tanzania is strongly focused on achieving its industrialization and development goals, and I believe the current government is able to mobilize the country’s resources to achieve that.

I strongly recommend investors to look at www.TanzaniaInvest.com to get updates about our country and the numerous investment opportunities available.

TanzaniaInvest had the pleasure of interviewing Oscar Mgaya, CEO of Tanzania Mortgage Refinance Company (TMRC), a private sector financial institution established in 2011 to support banks in mortgage lending by refinancing their mortgage portfolios.

Mr Mgaya discusses the progress TMRC has made over the past few years and talks about the strategies that can be employed to further develop the housing sector in Tanzania.

He also identifies the best investment opportunities, which lay in developing affordable housing projects to supply the huge demand.

Mr Mgaya also revealed that now TMRC lends to non-member banks in addition to its member banks.

TanzaniaInvest (TI): How successful has TMRC been in supporting mortgage lending in Tanzania?

Oscar Mgaya (OM): At the end of 2013 the total outstanding mortgage debt in Tanzania was TZS156b, while in 2016 it is TZS481b[+208%].

Additionally, the number of banks offering mortgage products in Tanzania rose from 3 in 2010 to 18 in 2013 and 28 in 2016.

From this, it is clear that the mortgage market is growing in support of the housing market.

On its side, TMRC was able to provide refinancing of TZS53b, compared to only TZS17b in 2013 [+212%].

Also back in 2013, we had about 11 member banks. Currently (2016), we have 12 member banks (borrowing investors) and 2 non-borrowing investors: Shelter Afrique and National Housing Corporation (NHC).

It is then clear that the mortgage market in Tanzania has much improved and that TMRC has been a part of this success story.

Nonetheless the current total debt outstanding mortgage of TZS481b remains very small, at about 0.50% of the GDP of Tanzania.

So we are moving in the right direction but still have a long way to go.

TI: Which other issues still undermine the development of the Tanzanian housing sector?

OM: High interest rates and lack of affordable housing remain the major constraints to the Tanzanian housing market.

Also, titling is still an issue with unit titles been processed very slowly.

Hence we could further accelerate the growth of the housing market by improving the process of granting unit ownership since most of the projects today are of multi-unit nature.

TI: How has TMRC evolve since it establishment in 2011 and what is your strategy for the future?

OM: TMRC used to be a solely member-based institution, as initially we were not lending to non-members.

We now give lines of credit to non-members as long as they are financial institutions licensed by the Bank of Tanzania (BoT) and engaged in the mortgage business.

The move to open up to non-members has been deliberate to gear up growth in mortgages as we can now impact the entire market.

Also, the Africa Development Bank (AfDB) approved a partial credit guarantee of up to USD4m to TMRC in May 2016.

This has been a milestone in our planned bond issuance, which will take place in 2017, where a bond guarantee from AfDB, typically incentivizes investors to invest in TMRCbond.

We appreciate AfDB’s confidence in us and our intention is to attract other Development Financial Institutions (DFIs) to invest in TMRC.

We are very excited by the progress we’ve made so far and for the foreseeable future we plan to grow further.

We are aiming at turning TMRC into the catalyst for growth of Tanzania’s housing and finance sectors.

For this, we want to be the institution of choice for the banking community and the financial services community for their long-term funding support.

To achieve this, we aim to attract more investors, whether borrowing or non-borrowing.

TI: Why invest in Tanzania, in housing?

OM: Tanzania offers a unique opportunity to investors since the potential of its housing sector is huge and has not been capitalized upon.

The housing sector is very important to the country as it impacts socio-economic aspects such as health, education and employment.

This is why I invite both the private and the public sector to look closely at housing in Tanzania and determine the role they can play in its development.

TI: Where do you see the most interesting investment opportunities in housing in Tanzania?

OM: The biggest investment opportunity in housing in Tanzania is in the supply side, especially in affordable housing.

There is a shortage of 3 million housing units in Tanzania, hence the demand is huge, particularly for affordable housing.

However, most of the developers focus on luxury housing because affordable housing carries tight profit margins.

This is why affordable housing is usually done with assistance from the government, in the form of incentives or subsidizes.

Private developers in Tanzania should work on large-scale projects and the government should provide incentives to make affordable housing commercially viable for developers.

I am confident that over the coming years, we will see more affordable housing projects in Tanzania.

TanzaniaInvest had the pleasure of interviewing Lawrence Mafuru, Treasury Registrar at the Tanzania Treasury Registrar Office (TRO), the entity in charge of monitoring and evaluating the performances of all state-owned companies, and to invest or dispose investments in these companies.

Mafuru clarifies the privatization strategies and modalities of the current government, and the upcoming available opportunities.

TanzaniaInvest (TI): Tanzania went through the privatization of state-owned companies in the 1980s and 1990s. However, the government is aiming at retaking control and privatizing them again. Why is that?

Lawrence Mafuru (LM): Post-independence from the British government, in the 1960s until late 1970s, nationalization took place, with a view of the government to take control of the economy.

Like many other African countries, Tanzania wanted to make sure that the economy is indigenized.

However, after nationalization, it became very clear that with industries that are only focusing internally, input substitution policy would not work.

Tanzania was a very small market by then, and it couldn’t really afford multimillion-dollar investments in industries just serving the Tanzanian population.

Then, in the 1980s, the global socioeconomic platform changed, moving away from state-owned economies and enterprises towards free market economies led by the private sector.

It was a global move, and Tanzania was no exception.

So, the focus changed from owning companies 100% to allowing the private sector to bring in capital.

This happened in the 80s, early 90s, when the Tanzanian economy started being liberalized with private players coming in.

This is when banks like the National Bank of Commerce (NBC) were privatized and many other privatizations took place, under the coordination of the Presidential Parastatal Reform Commission (PPRC).

There were certain areas where the government wanted to let go of everything, and there were other areas where the government realized these were strategic areas, and therefore, it was advisable not to privatize entirely.

Sensitive sectors like telecommunications and transportation were kept within the portfolio of the government, but a number of other parastatals were partly privatized, under many different ways of privatization.

Some state-owned companies were sold to employees and some were sold to foreign investors.

Some were partly financed by the government and the private sector.

As a result, some privatizations were more successful than other.

Now, the government wants to open up a process which will bring serious strategic investors who can actually turn around underperforming companies that were privatized.

Most of these were sold through tenders and bids. There were privatization agreements, asset sales agreements, and there were all sorts of commitments that were included.

There were a number of key objectives in these privatizations that were agreed upon: injection of capital, modernization of the industry, creation of jobs, and increased production and exports.

But if you look at the results, these are not always in line with what was committed by the investors.

Investors breached the agreements, and so, in those cases, the government wants to bring new investors who can turn around these companies. The government does not to want to own them.

TI: The upcoming privatizations are being carried out by the Treasury Registrar Office (TRO), which you represent. What are the other functions of the Office?

LM: After PSRC delivered its mandate, its role was moved into the Consolidated Holding Corporation (CHC), whose function was to continue and finalize what PSRC started.

Before 2010, the ownership role of government investments in all these state-owned companies was undertaken by the Office of the Treasury Registrar, a department within the Ministry of Finance & Planning.

The new Act changed the office into an independent autonomous body, TRO, still under the Ministry of Finance, but as a standalone corporation.

TRO key functions are the ownership, but also supervision of all the entities that the government owns.

In 2012-13, the government decided to bring CHC functions to an end, and its roles were now included in TRO.

TI: Can you clarify how many companies you’re monitoring and looking to reprivatize? What is the strategy?

LM: There are nearly 300 entities across all sectors, that the government is looking to make available to investors.

TRO monitoring and evaluation process takes place on a regular basis.

After we identify that an entity is not developing as agreed and planned, we prepare a cabinet paper for the government where we include our recommendations, after which the company will be opened for other investors to come.

So we are currently waiting for clearance from the cabinet, to put those entities in the market.

We already have a number of companies available to investors: a tea factory in Lushotho, tanneries in Mwanza, and we most likely will have a textile industry here in Dar es Salaam.

TI: How will you ensure that the mistakes in the past privatizations will not be repeated?

LM: Lack of transparency and not-so-clear processes of procuring investors had indeed cost Tanzania.

To avoid this we want to ensure that privatization will be a very competitive process.

We want to involve as much as we can, the Tanzania Investment Centre (TIC), in the process, because they’ve proved to have a better way of bringing in investors in the country.

So, some of these investment opportunities will be placed to TIC for them to secure investors.

The objective is to have all these companies perform in a manner that a business entity is supposed to.

They should stop being a burden to the central government and relieve this treasury from writing checks for their salaries and losses, and if they have surplus funds, these have to come back to the government, to finance other projects.

The contribution that is expected to come from all those companies is estimated to be around TZS1.3tn in the 2016-17 financial year, from half a trillion this year. This is more than 100% increase.

And if that happens, it will be almost 1% of GDP non-taxed revenue – a contribution from parastatals unheard of for this country.

TI: To conclude and clarify, what are the respective role of the private and public sector under this new government?

LM: This government has made the decision that both the public and private sector will develop the Tanzanian economy.

The government will focus on those areas that the private sector is not interested in.

The challenge in the past has been with some private investors who have come to Tanzania but have not been very transparent when dealing with the government.

Therefore, there’s always been some suspicion in how business is done.

But also, there’s been an unjustified suspicion on the government’s side, suspecting that every businessperson is not trustworthy.

I think the truth of the matter is, somebody who is going to invest in Tanzania is here to make money, and this is not a bad thing.

I think what is key is making money in a manner that makes everybody comfortable and does not leave any suspicion.

And that, I think, will be the key fundamental if the private sector is going to be successful in working with the government of Tanzania.

TanzaniaInvest had the pleasure of interviewing Dr. Adelhelm Meru, Permanent Secretary of the Tanzania Ministry of Industry, Trade and Investments.

Dr. Meru explains the current government’s focus on industrialization, its key subsectors, and the opportunities available to investors.

TanzaniaInvest (TI): Dr. Meru, the current development of Tanzania is based on a very clear vision spelled out in three documents: Vision2025, the current 5-year development plan, and the recently-approved 2016/17 budget, whose title is “Industrial Growth for Job Creation.” Why is there such a big emphasis on industrial development?

Adelhelm Meru (AM): It is indisputably clear that many countries that have developed strong economic bases, have done so through emphasizing on industrialization.

That being the case, Tanzania cannot be an exception. Industries create jobs, generate revenue, stimulate introduction of new technologies and motivates trade in industrial products.

For many years Tanzania had been a victim of exporting raw materials thereby losing money, jobs, technology and foreign currency.

We have now decided to proudly say “enough is enough”!

Tanzania has many forms of raw materials which could be added value thereby promoting industrialization, such as a variety of agricultural products, a variety of minerals resources, forests, livestock.

It is through this background that our 2^nd Five years Development Plan 2016/17 – 2020/21 gives strong emphasis on industrialization.

The aim of the Government is to ensure full utilization of the available natural resources by benefiting from the long value chains and ultimately fast-tracking our socio-economic development.

The Government’s industrialization target is to raise the contribution of the industry sector to the GDP from the current 7.4% to 15% by the year 2020.

Further, the Tanzania National Development vision 2025 has as one of its core objectives to transform Tanzania from a low agricultural economy to a semi-industrialized nation by 2025.

It is our Ministry that has the noble task of ensuring fully implementation of these targets and we are doing all what we can to make no mistake.

TI: Which sectors of the Tanzanian economy present the greatest opportunities for value addition?

AM: According to our industrialization strategy, sectors for value addition are several; however, the predominant sector is agriculture.

Agriculture has an advantage of having long value chains thereby creating many jobs.

In the agriculture sector, value addition opportunities are available in the processing of agro products such as cotton to clothing, cashew nuts, edible oil, fruits and vegetables, rubber, sugar, wood products just to mention a few.

Value addition opportunities are as well in the livestock sub sector.

Tanzania is a second livestock keeper in Africa, next to Ethiopia with 21.5m cattle, 15.4m goats and 5.9m sheep.

The availability of this large stock of livestock provides value addition opportunities in meat processing, dairy processing as well as leather processing.

Another sub sector that is potential for value addition is fishing. Tanzania is well endowed with the blue economy as 6% of the country is covered by fresh and sea water in which fish catching is predominant.

This provides a clear investment opportunity in fish processing. Forestry is another sector which has a high potential for value addition.

Opportunities are in the production of wood chips, wood pulps and furniture.

The next potential sector is mining. Tanzania is a mineral rich country; available minerals include metals, non-metals and natural gas.

Value addition opportunities exist in mineral processing including steel production, cement production, game stone cutting and polishing, jewellery and processing gas products.

TI: What will be the destination of the goods manufactured in Tanzania?

AM: The markets for Tanzanian manufactured goods are several. Most importantly is the local market.

Tanzania has a population of about 50m people, which ensures a good market for the manufactured goods.

Also, Tanzania is a member of the East African Community (EAC) and the South African Development Community (SADC) in which goods are sold without duties.

EAC includes 6 countries and has a population of about 120m people, whereas SADC includes 15 countries and has a population of over 300m people.

Tanzania has as well bilateral trade arrangements with various countries and blocks in which several items can be sold duty free and quota free.

Such counties and blocks include the USA through the African Growth and Opportunity Act (AGOA); the European Union through the Everything But Arms (EBA) initiative; China; Japan; Canada; India and Turkey.

With such diversified markets, whoever opts to set up a factory in Tanzania for production of industrial goods will never regret.

TI: Tanzania has decided not to sign the long negotiated Economic Partnership Agreements (EPA) with the EU. What is the rationale behind this decision?

AM: It is true that Tanzania did not sign the Economic Partnership Agreement with the EU which was scheduled for signing in July this year.

The rationale behind the decision was just the timing. The Government was still new in office by then; it subsequently needed a little more time to consult and formulate the country opinion.

TI: What are the challenges you are faced with in developing the industrialization of Tanzania?

AM: There are a number of challenges that undermine our industrialization plans.

However, the government is doing all that it can to mitigate them in good time.

The biggest challenge is the limitation in serviced land for setting up factories.

A few existing industrial parks that were fully developed are now full, thereby making it difficult to secure fully serviced industrial plots to investors.

In order to address this challenge, the Government is now seriously implementing the Special Economic Zones (SEZ) concept by setting aside land for industrial development.

Land for SEZs and Industrial parks has so far been set aside in Bagamoyo, Kigoma, Songea, Tanga, Mtwara, Mwanza, Mara, Dodoma ad Singida.

Plans to develop basic on site infrastructure in these Zones are underway.

The next challenge is infrastructure (roads, railways, ports, power, water, gas and telecommunications).

Again, the Government is already addressing several hard and soft infrastructure challenges.

For example, power generation has been substantially increased and gas and water availability have, as well, been significantly improved.

Construction of a standard gauge railway line is already underway and road networks are being improved in various parts of the country.

The other two challenges are availability of new technologies and skills labor force.

The issue of technology is being addressed by empowering our R&D Centres namely TIRDO, TEMDO, CARMATEC and COSTECH, whereas on skills labour, special attention is being put on institutions that are providing technical skills namely the University of Dar es salaam, the Dar es salaam Institute of Technology (DIT), the Vocational Education and Training Authority (VETA) and Small Industrial Development Organisation (SIDO).

TI: How are you financing the required infrastructure development for the industrialization of Tanzania? What are the investment opportunities available?

AM: Infrastructure development is being financed through 3 models. The first model is for the government to finance infrastructure projects through its own budget or loans.

A good example is the gas pipeline project from Mtwara to Dar es Salaam, Kinyerezi power projects and a standard gauge railway line.

The second model is through Public Private Partnerships (PPPs). With the establishment of the PPP Act, a good number of PPP projects are already in place.

Examples of such projects are the Mchuchuma and Ngaka power projects and the Bagamoyo SEZ project.

The third model is private sector financed projects. Such projects include the Kamal Industrial park, Kisongo Industrial park, and Global industrial park.

The investment opportunities available in infrastructure development include development of Industrial parks, construction of industrial sheds and warehouses, provision of utility services (water, power, gas and telecommunication systems) in industrial parks and Special Economic Zones, as well as joining hands with the Government in undertaking PPP projects in construction of roads, ports and power projects.

TI: What role the private sector is expected to play in the industrialization of Tanzania?

AM: The private sector has the biggest role in the industrialization process.

The role of the government is just to create an enabling environment through policy development, regulation, development of basic infrastructure and provision of facilitation services.

However, the major role in the industrialization process, which includes investing in manufacturing or processing operations, construction of industrial parks as well as providing industrial related consultancy services, lies entirely in the hands of the private sector.

The Government understands the challenge of access to finance which the private sector is facing.

In addressing this challenge, the Government is planning to establish an Industrial Development Bank that will specifically finance industrialists and SME operators who would like to invest in industrial related projects.

TI: To conclude, what makes Tanzania a preferred spot for investing in industries?

AM: Tanzania has several competitive advantages which makes it an ideal spot for industrial related investments.

First and foremost is the availability of a variety of raw materials for production which guarantees continuous production operations.

Second is the market opportunities starting with the local market, the regional markets and other international markets where investors can export their industrial products duty free and quota free.

Third is the competitive legal framework with good investment policies and attractive incentives.

Fourth is the best facilitation services offered by our investment promotion agencies namely TIC and EPZA through their One Stop Service Centres.

And fifth is the peace and political stability which Tanzania has been enjoying since its independence in 1961.

With all these (and many more) comparative advantages at hand, Tanzania is certainly a preferred spot for investing in industries.

TanzaniaInvest had the pleasure of interviewing John Lentaigne, Chief Underwriting Officer of the African Trade Insurance Agency (ATI).

ATI was launched in 2001 as a multilateral financial institution providing insurance products to support African investments and trade.

ATI addresses the concerns of investors by insuring their transactions against a range of investment risks such as payment default by the Government or a Government agency.

Mr. Lentaigne discusses the role of ATI in facilitating investments and trade in Tanzania, as well as the opportunities and challenges ahead.

TanzaniaInvest (TI): How would you assess Tanzania’s investment risks?

John Lentaigne (JL): From the perspective of an international investor, Tanzania bears political and economic risks.

For example, the country has no external credit rating from any of the major rating agencies and even if it had, it would likely be in the single B region.

Therefore, for any international bank lending to the Tanzanian government or companies within Tanzania, the capital charges for such lending will be high.

ATI’s ‘A’ rating from Standard & Poor’s allows the investor to substitute the sub-investment grade rating of Tanzania for ATI’s rating, which can substantially lower the cost of financing.

Similarly for an equity investor, utilizing ATI’s insurance to mitigate investment risks can enable the investor to lower their return hurdles, thereby making the investment proposition more viable.

TI: You recently hosted a conference in Dar Es Salaam on “Unlocking Investments to Maximize Tanzania’s Energy Potential”.

What are the investment challenges in Tanzania’s energy sector?

JL:  International investors are aware of the well-publicized cases of international arbitration and the historically poor payment track record of the Tanzania Electric Supply Company (TANESCO).

This is discouraging to potential investors, despite the evident need for more private sector involvement in Tanzania’s power sector.

To address these issues, TANESCO is moving towards a sustainable tariff and a number of smaller independent projects are not experiencing payment delays.

Furthermore, Tanzania is currently not reliant upon expensive emergency power producers, so there are investment opportunities in low-cost gas-fired and renewable power.

Aside from power, other sectors of interest include agriculture, finance, infrastructure and oil & gas.

Overall, Tanzania has high investment appetite since it has the the 10th largest GDP in Africa.

 TI: At the conference, you mentioned that ATI “can make a transformational investment proposition for Tanzania.” How?

Projects often fail to reach financial close due to lack of political and credit risk insurance cover.

The reason that ATI can be transformational is that by using ATI’s insurance, investors are able to make investment decisions that would not be possible in the absence of that insurance.

Accordingly, ATI can help Tanzania unlock hundreds of millions of dollars of investments.

With broader acknowledgment of our role by the Government of Tanzania, ATI will be able to significantly increase its risk coverage in Tanzania.

TI: What does Tanzania represent in the portfolio of countries ATI covers?

JL: Tanzania is a founding member of ATI and historically ATI has supported hundreds of millions of dollars of investment into Tanzania.

The country represents about 7% of ATI’s current portfolio of exposures, yet it is our third largest current member country by GDP (behind Ethiopia and Kenya).

As such, we think Tanzania has large trade and investment potential that we can support.

However, there is a lack of understanding as to the importance of institutions like ATI.

So, we came to Dar es Salaam to increase awareness of our functions among investors and the Government.

TI: You joined ATI on September 30th, 2016 to further enhance the company’s growth.

 What is your overall strategy to achieve that and what are the challenges ahead?

 JL: Many African economies are struggling due to increased debt burdens.

Moreover, depressed copper and oil prices are negatively affecting sovereign revenues and the economies of some countries.

Governance and transparency meanwhile remain ongoing issues and there are a myriad of other challenges to face.

ATI’s mission is to facilitate trade and investment in our member countries, so the challenge is how to do this at a time of increased risk.

One of our key priorities is to continue to increase the number of ATI’s member countries.

Recently, for example, Ethiopia and Zimbabwe have joined in late 2016.

One of my aspirations is to see ATI become a truly pan-African institution.

Finally, we need to boost our profile within our member countries, in particular at the Governmental level, because for far too long we supported investments in silence behind the scenes.

We feel that with increased awareness of ATI, we will be able to better serve the full range of underwriting enquires we see within our member countries.

TanzaniaInvest had the pleasure to meet Ashutosh Jog, Owner and Founder, and Dhruv Jog, Owner and Director of Advent Construction, one of Tanzania’s largest civil and building construction companies.

Dhruv Jog discusses the opportunities in real estate in the country and the outlook of the construction sector.

TanzaniaInvest (TI): The value of the construction industry in Tanzania was USD6b in 2015, compared to only USD1.6b in 2010, representing a growth of 275%. Is such intense growth sustainable in the future?

Dhruv Jog (DJ): 2016 has seen fewer projects being launched as compared to previous years due to a realignment of the industry and key sectors of development being adjusted to better suit the long-term strategic objectives of Tanzania as a whole and the demand drivers in the construction sector in particular.

However, this realignment will result in the value of Tanzania’s construction industry increasing substantially in 2017 and beyond to much higher levels and unprecedented growth.

The growth achieved so far will certainly be eclipsed by several multiples in the next year and at least in the next two decades, given that the current environment is better suited for the long-term strategic objectives and requirements of Tanzania as a growing economy, in order to achieve our national objective of being a middle-income economy by 2025.

TI: With a population of about 52m and growing, Tanzania has a housing shortage of 3m houses. In which segment do you see the most interesting opportunities?

DJ: Currently, the most interesting opportunities lie within the middle and lower middle sectors of housing to cater for the rapidly emerging middle class and the immense influx of Tanzanians into urban environments.

However, the two primary challenges we face that hampers the development of these sectors of housing are infrastructure to cater to these housing projects and high costs of borrowing that discourage the mortgage product from kick-starting our housing market.

Any mid-market housing development project that addresses these obstacles in the form of providing internal infrastructural requirements by developing satellite cities or similar models and providing access to subsidized housing funding would be immensely successful.

TI: You are involved in the construction of the Peninsula Plaza Shopping Mall in Dar es Salaam, which is set to be the largest mall in Tanzania.

What is the timeframe for completing this project and what will be the offering?

DJ: Peninsula plaza is slated to be Tanzania’s largest shopping center and one of the largest in the region.

When it will be completed, within 30 months of commencement construction, it will introduce global brand leaders in the retail, wholesale and entertainment sectors as well as a state of the art office complex.

The project meets international standards of design, health and safety and security while incorporating the most modern technology to be energy efficient.

What are the other most exciting projects you are currently working on in Tanzania?

We are working on several extremely interesting projects at the moment which include high end hospitality sector developments as well as industrial developments like cement factories and marine facilities.

We also have several extremely interesting and large projects that will have a major impact on our country’s overall offerings in the global market that are slated to break ground in the first quarter of 2017.

Infrastructural developments and large civil and Industrial projects are currently heavily present on our order book and projects pipeline and we are extremely excited about the coming two decades.

TI: What is your development strategy for the years ahead and what are the main challenges you are facing?

DJ: We have a strategic 10-year plan that focuses on our core competencies.

Being one of Tanzania’s largest and fully local civil and building construction companies, we want to participate in the success of major projects that require local execution teams.

As with any growing economy, we face certain challenges such as access to highly technically skilled human capital and financial resources coupled with experience in large infrastructure development projects.

However, our strategic international alliances allow us to overcome these challenges relatively easy.

TI: Are there opportunities for partnership with Advent Construction in Tanzania and what are the advantages of doing so?

 DJ: By partnering with Advent, you align yourself with a 22 year old company that is built on the foundations of reliability, integrity and the highest quality of construction in the country and is known nationwide for these values.

Advent is the first ISO certified construction company in Tanzania and is one of the few companies in the country that meets the demanding standards of the oil and gas industry.

We also meet the global standards of construction, health, safety and transparency.

Given that local construction companies are required to be part of every major construction project slated to be executed here onwards in Tanzania, we boost key advantages for tier one international partners looking to form strategic alliances in Tanzania.

TI: To conclude, why invest in Tanzania and why in real estate?

DJ: Tanzania is one of the fastest growing countries in the world and boasts a large population that is rapidly growing and an economy that is becoming stronger by the day.

Tanzania is already a regional favorite for FDI, given its political stability, regionally strategic location and the business incentives offered.

The new government determined to create a conducive business environment for multinationals to enter the market and be a part of our growth and flourish in the process.

Given that our large population continues to grow rapidly, real estate will certainly be a key part of our national growth and is certainly a very interesting sector to invest in.

TanzaniaInvest had the pleasure of interviewing Bhaswar Mukhopadhyay, Resident Representative of the International Monetary Fund (IMF) in Tanzania.

Mukhopadhyay talks about Tanzania’s progress in terms of macroeconomic performance, the country’s 2025 vision of becoming a middle-income country and the challenges it entails.

TanzaniaInvest (TI): The fifth review of the IMF in Tanzania concluded that the country’s macroeconomic performance remains strong. What are the main findings of the review?

Bhaswar Mukhopadhyay (BM): I should note first that the fifth review of Tanzania’s program with the IMF under the Policy Support Instrument (PSI) has not as yet been concluded.

The mission that was here in October held discussions with the authorities and is now preparing the report to be presented to our Board in early January 2017.

The program review can only be concluded after the report has been considered by our Board.

But to return to the substance of your question, Tanzania has progressed a lot in terms of infrastructure, construction, and business in the last few years.

While there are challenges in terms of doing business that apply to different degrees to all low-income countries, when you look at the long-term progress achieved in Tanzania, you realize how far the country has come.

One of the key aspects of a conducive business environment is macroeconomic stability and this is also the area where the IMF is most closely involved in interacting with the Government and providing policy advice.

And in terms of macroeconomic performance, Tanzania has been remarkably stable for quite some time now.

For instance, the PSI through which the IMF supports Tanzania, is a non-disbursing instrument, i.e. there is no financial support associated with it.

This is because Tanzania does not need financial assistance for maintaining macroeconomic stability.

The country is not facing pressures on its balance of payments and its debt is at safe levels.

Inflation is low, and the exchange rate has stabilized after a depreciation in 2015.

Overall, these broad indicators of macroeconomic stability show that Tanzania is on the right track.

Another area, in which the IMF is directly involved in supporting the Tanzanian authorities, is revenue collection and tax administration.

The current Tanzanian administration of President Magufuli aims at eliminating corruption and raising revenue collection, and it is actually making progress.

In the 2016 World Bank’s Doing Business Survey, Tanzania ranks 139 out of 189 countries, and “Paying taxes” is mentioned as one of the biggest issues for businesses.

So the next step for Tanzania is to advance the progress made in creating a modern tax administration where tax collection is streamlined, and the cost of tax compliance is lowered, a more light-touch tax administration if you like.

Once achieved, this will contribute to a more favorable business environment in the country.

To help it achieve the desired improvements in tax administration, the IMF is providing a lot of technical assistance to Tanzania, both from headquarters and through our regional technical assistance centre located right here in Dar es Salaam.

TI: In July 2016, Tanzania introduced VAT on tourism services and commission-based financial services. Could this impact the competitiveness of the country in terms of doing business?

BM: I would like to underline that there is a common misconception about the VAT on tourism.

In general, people think that the tourism sector has not been taxed at all before the introduction of the VAT and that is not true.

The VAT is a tax on the value added to tourism services. Previously the tourism sector was exempt, which means that the value added in the tourism sector was not taxed, but that all of the inputs used by the tourism sector were being taxed.

What is different now is that the additional value added is also being taxed.

Moreover, the VAT is a consumption tax, so the tax is paid by the consumers and not by the companies.

Finally, the VAT is a tax that provides a strong incentive for businesses along the value chain to require receipts of VAT paid from the suppliers of inputs in order to claim their refunds.

In this manner, the VAT is a “self-enforcing” tax. Exemptions create holes in that self-enforcement net and for that reason are costlier than just the value of the exemption itself.

Moreover, companies need much more than tax exemptions; it is more important to them to have a predictable business environment with simple regulations.

For instance, there are a great number of small taxes, many collected by local Governments, which bring little revenue to the country but are very costly for businesses to comply with.

Rationalizing those small taxes in a revenue neutral manner, including for local governments would reduce compliance costs and significantly improve the business environment.

This is what the business community has also been calling for and I was encouraged to see that the government intends to move in that direction.

So, to summarize, a good business environment goes well beyond tax exemptions, which compromise revenues and an effective tax administration, and I believe that Tanzania has to focus on delivering that to the business community.

In this regard, the country is increasing its investment in infrastructure, and there will be a significant impact on the availability of power in the country in the coming years.

From my perspective, this matters much more for improving the business environment.

After that, the Government of Tanzania can work on improving the dialogue with the private sector for an efficient interaction.

TI: Following the fifth review of the PSI for Tanzania, you noted that current spending has been lower than programmed, which had led to a fiscal surplus in Q1 of fiscal year 2016-2017.

The IMF commended the Tanzanian authorities’ efforts to improve the efficiency of spending but noted that this should not compromise the delivery of essential services. Can you elaborate on that?

BM: We were looking at the first quarter of the fiscal year and normally, during that period, the country runs a deficit of around 1% of its GDP. And this is with capital spending that is usually low in Q1 because budget procurement takes time.

This year Tanzania’s revenue collection is up significantly relative to previous years.

I should note that this represents a good beginning and bodes well for realizing its still considerable untapped revenue potential in the coming years.

Apart from that, Tanzania has made significant efforts to curb current spending, which is below what we have seen in past years, while capital spending, for the reasons I just mentioned, has not picked up yet.

As a result, the Tanzanian Government actually ran a fiscal surplus of about 0.3% of GDP in Q1.

So, we commend Tanzania’s efforts in the area of fiscal control, but we want to make sure that capital spending will pick up to avoid problems related to low aggregate demand in the economy as this could be a drag on growth in case of significant fiscal consolidation.

Overall, it is good that Tanzania is making an effort to cut wasteful expenditure as long as it is not affecting the delivery of essential services.

TI: According to the 2025 Vision, Tanzania aims to become a middle-income country by that year, for which its GDP has to grow at 10% per annum.

Based on the IMF analysis of Tanzania’s macroeconomics, do you deem this feasible?

BM: Annual GDP growth of 10% is an ambitious target but even if it is not achieved, sustaining a 6–8% growth per year would also be very impressive.

Tanzania has sustained high growth rates, in the range of about 7%, for a long period of time and it is now planning to further improve its infrastructure—this is a priority in the country’s 2016/17 budget and the FYDP II.

If the country manages to realize what has been planned and improve the business environment, I don’t see why growth rates of 7% and higher would not be feasible.

TI: What role do you see Tanzania playing in the future of Africa?

BM: Within Africa and within the East African Community (EAC), Kenya, Rwanda, and Tanzania, have made significant progress.

They are on the way to building more diversified economies, with manufacturing sectors beginning to develop.

So many African countries are either dependent on agriculture or on minerals and mining, and I think that economic diversification is crucial for the future of Africa.

The progress that Tanzania makes in terms of economic diversification in the coming years will serve as an example for other countries in the region.

Given Tanzania’s strategic location that facilitates the transport of goods, I hope to see Tanzanian industry become part of global value chains, which will help it move from a low to a middle-income country.

TanzaniaInvest had the pleasure of interviewing James Kilaba, Director General of the Tanzania Communications Regulatory Authority (TCRA).

Kilaba talks about the development of Tanzania’s telecom sector, as well as the challenges and opportunities in its future outlook.

TanzaniaInvest (TI): Tanzania is the second largest telecoms market in East Africa behind Kenya with a penetration of 79% of the total population in 2015. What are the drivers of this progress?

James Kilaba (JK): Teledensity increased at an annual average growth rate of 6% during the period of five years from 2011 to 2015.

Penetration increased by 20% from 59% in 2011 to 79% in 2015 and stood at 80.2% as of September 2016 with 40,110,187 subscribers.

Drivers of the progress include:

• Competition in the telecom sector which necessitate innovations, expansions and marketing to increase subscription base;
• Expansion of mobile coverage to underserved/remote area as facilitated by National ICT Broadband Backbone (NICTBB) and Universal Communications Services Access Fund (UCSAF);
• Affordable tariffs for telecom services facilitated by introduction of bundle pricing of telecom services;
• Affordability of telecom devices.

TI: What are the ambitions, strategy and challenges in terms of the use of telecom services in Tanzania?

JK: Our ambition is to achieve 100% teledesity in the near future with all Tanzanians having access to the communications services including broadband coverage.

Our strategy includes continued expansion of the mobile network coverage to underserved areas through UCSAF and other initiatives, promoting innovations in the telecom sector, and enhancing the regulatory framework.

However, current challenges in Tanzania’s telecom sector include cybercrime, lack of knowledge in the use of telecom services, and misuse of communication services.

TI: The GSM Association (GSMA) indicates that mobile is one of the most heavily taxed sectors in Tanzania with the second highest tax burden relative to the cost of mobile ownership in Africa, after Gabon, and this burden is twice the global average.

The GSMA suggests that by eliminating airtime excise on mobile broadband will add 1m mobile broadband connections and deliver USD113m in additional revenues to the industry. What is your take on that?

JK: It is true that the GSMA February 2015 report on Digital inclusion and Mobile Sector Taxation in Tanzania reported that consumer taxes create barriers to affordability and therefore the use of telecoms services.

Introduction of VAT to mobile services and a specific excise tax of 17% have been mentioned as among challenges to the uptake of telecom services.

Tax reforms have started in the East African Community (EAC) and the South African Development Community (SADC) to achieve a level playing field to mobile operators in the region and facilitate establishment of one area network.

Taxation may impact growth negatively and that is why harmonization is done regionally and every year there is review of taxes in all sectors.

TI: Tanzania’s new Finance Bill enforced on July 1st 2016 requires Tanzanian telecom companies to list at the Dar es Salaam Stock Exchange (DSE) by the end of 2016. What is the rationale behind this bill and how do you expect it to positively impact the industry?

JK: The rationale for telecom companies to list on DSE is to empower local Tanzanians. The move will have a positive impact on the industry due to:

• Increased transparency in company affairs;
• More capital to the operators hence more investments in their networks;
• Expanded ownership, which will increase trust on mobile network operators.

Furthermore, Tanzania has the market capacity to absorb the listing.

Tanzanians are encouraged to buy mobile shares individually or in Groups/Saccos/Associations.

TI: Tanzania is on the path of becoming a middle-income country by 2025. Which roles are the telecom sector and TCRA going to play?

JK: The telecom sector was fully liberalized since 2005 through introduction of the Converged Licensing Framework which has positive benefits in terms of increased investments, products and services and as contributing factor to the success of other sectors of the economy.

Currently, TCRA is reviewing its regulations to enhance a level playing that will foster competition, increase revenues etc.

TI: Where do you see the most appealing investment opportunities in telecoms in Tanzania?

JK: Current investment opportunities in Tanzania’s telecoms include:

• Establishment of training centres for ICT application innovations and multimedia;
• Development of local content;
• Establishment of ICT Business Processing Outsourcing (ICT-BPO) to take advantage of availability of cheap ICT labour force and time difference;
• Establishment of electronic waste management/recycling plant;
• Deployment of communication satellite for the United Republic of Tanzania; and
• Establishment of an assembling plant for mobile phones and its accessories.

TanzaniaInvest had the pleasure of interviewing Byford Mutimusakwa, CEO of Alliance Life Insurance Tanzania.

Life insurance (long-term assurance) represents 11% of the total Gross Premium Written (GPW) of the Tanzanian insurance industry.

Alliance is one of the leading insurance and financial services companies in East Africa, with its headquarters in Dar es Salaam.

Mutimusakwa discusses the life insurance sector in Tanzania and the company’s plans for the future.

TanzaniaInvest (TI): Life insurance and insurance in general is still in its infancy in Tanzania. Why is that so and which opportunities do you foresee?

Byford Mutimusakwa (BM): The insurance concept is not appreciated in Tanzania.

There is a cultural aspect where the community believes that once you insure yourself, you are inviting bad luck.

Despite all the efforts made towards raising awareness of the insurance concept, the level of understanding in Tanzania is still very low.

Therefore, we need to educate people about insurance on a very basic level.

All in all, currently insurance is an offer-driven product in Tanzania, i.e. we have to push the products to the people to increase the market penetration.

Nonetheless, there are vast opportunities in the life and general insurance industry in Tanzania.

In the life insurance business, opportunities lay both in individual and group life insurance; however, selling life insurance to corporates is much easier than selling to individuals.

The challenges arise from the fact that corporates in Tanzania are not obliged by law to provide life insurance to their employees.

To overcome these challenges, I believe that the Tanzania Insurance Regulatory Authority (TIRA) should introduce regulations that oblige employers to provide life insurance.

Nonetheless, there is huge potential in individual life insurance in Tanzania but we can sell group life only to corporates that are interested in offering competitive benefits to their employees.

However, there are not many large corporates in Tanzania because  businesses are centred on individuals

Consequently, because there aren’t many buyers of life insurance, price undercutting occurs which leads to a price war.

And buyers don’t look at the benefits being offered with the insurance but buy from the insurer who offers the lowest price.

TI: Some Tanzanian banks have started selling insurance products to their clientele. How is this impacting your distribution model?

BM: Bancassurance is a big boost to selling individual life insurance but the commissions are higher than those given to brokers.

We are considering partnering with banks, which have a wide branch network but other options for distribution of individual insurance include selling through direct agents and partnering with mobile companies.

However, for this you need about 400–500 sales agents to really make an impact and push through the market.

This calls for opening a number of branches and strategic centres, which adds to the cost.

The cost of the software needed is also quite expensive.

Hence, the upfront investment for selling individual life insurance is quite high but the profitability after 4–5 years will be higher than what you get from selling group insurance.

TI: How attractive is the insurance market in Tanzania when compared to the African market in general?

BM: The Tanzanian insurance sector is very attractive if there is a client-centric decision-making process.

The Tanzanian market is a long-term one, which requires a lot of investment and hard work.

Tanzania’s insurance market is competitive but market penetration is low.

The potential is unlimited for insurers selling individual life insurance as long as they put in place a sound business model.

Currently, 10–20% of government workers have individual life insurance so the market is set.

TI: With only 5 insurance companies selling life products in Tanzania, how competitive is your segment?

BM: Indeed, there are only 5 companies in Tanzania offering life insurance with a population of 50m, while in a country like Ghana, there are 21 with a population of 25m.

This tells us that there are very few buyers and that the insurance industry has to work together to develop the market.

Another challenge in Tanzania is that banks as well as some financial institutions are doing self-insurance.

TI: Do you expect new players to enter life insurance in Tanzania?

BM: I expect more players to enter the industry, mainly offering individual life insurance.

These will be big players with large capital bases and high skills.

So, the life insurance sector will grow, which is a necessity to the Tanzanian society.

Overall, the driver of growth in individual insurance is awareness, while in group insurance of corporates, it is regulation.

TI: What role do you see Alliance Life Insurance playing when these big players come in?

BM: We hold the third place in Tanzania in relation to corporate clients.

We already have the brand and the relationships, and we intend to continue leveraging on that.

This is why I believe that newcomers selling group insurance will be facing tough competition but those focusing on individual insurance can be successful.

TanzaniaInvest had the pleasure of interviewing Frank Nyabundege, Managing Director of TIB Corporate Bank.

TIB Corporate Bank is a government-owned development bank in Tanzania, providing strategic commercial banking services to the general public.

Nyabundege discusses the role of TIB in Tanzania’s industrialization agenda.

TanzaniaInvest (TI): Following the restructuring of Tanzania Investment Bank, three distinct, but related institutions were formed: TIB Development Bank, TIB Corporate Bank and TIB Rasilimali. Can you clarify the role of each?

Frank Nyabundege (FN): TIB is the policy bank of Tanzania, and our main mandate is to implement the government’s development goals.

The restructuring of TIB aimed at creating a ‘one stop shop’ where clients can access financial advisory services, working capital requirements and long term development financing.

The parent company, TIB Development Bank, offers long-term financing and equity services for projects with a focus on infrastructure, industrial, mining, oil and gas and services sector.

The commercial banking arm, TIB Corporate Bank provides the working capital requirements for projects as the bank is set up to complement the services of TIB Development Bank.

TIB Rasilimali is a financial advisory and securities dealing company.  It also operates as a licensed broker/dealer and investment advisor for retail and institutional clients and is a member of the Dar es Salaam Stock Exchange (DSE).

In fact, the establishment of TIB Corporate Bank follows the realization that the projects previously financed by TIB Development Bank, which supplied development financing, lacked the necessary working capital.

For the past two years, we were able to lend a total of USD30m to various projects initiated by TIB Development Bank.

In addition, we apply relatively subsidized interest rates as we are looking beyond making profit but also assess the development impact of projects.

TI: Does TIB Corporate Bank only finance projects which have been previously taken up by TIB Development Bank?

FN: At TIB Corporate Bank, we might take projects that have not been financed by TIB Development Bank.

As bankers, we serve the general public, and in that regard, we also independently assist businesses that require working capital.

However, we are different from other commercial banks in that our aim is to partner with the government in the economic development of the country.

Another difference between TIB and commercial banks is in the expertise of project preparation in assessing a project’s viability as we take a longer term view than the average commercial bank.

We can also assist in improving the viability of a project and currently, our appetite is on industrial projects as the country’s focus is industrialization.

TI: According to Tanzania’s five-year development plan, the industrial sector share of GDP will increase to 23.7%, and manufacturing to 12.5% by 2020. How feasible is this?

FN: I deem this feasible because we have strong political will, which is very important.

President Magufuli is also encouraging a working mind-set among Tanzanians. People are now working and being held accountable for their actions.

I believe this is possible also because Tanzania is endowed with mineral resources and also because of its strategic geographic location with the port serving our neighboring land locked countries.

In addition, major infrastructural projects, such as the USD7b standard gauge railway (once completed) will allow cargo coming from Dar es Salaam to be transported directly to Kigoma, and shipped to the Democratic Republic of Congo (DRC).

The Acting CEO of the Tanzania Investment Centre (TIC) pointed out that with the measures that we have put in place, the ranking of Tanzania in the Ease of Doing Business report by the World Bank will improve from 132 to 100.

This will happen because in addition to political will, TIB will provide financing for viable projects.

The government has committed to capitalize TIB in order to accelerate its development goals in the FYDPII.

In 2020, I see a different Tanzania, with a burgeoning industrial sector that will have a significant multiplier effect on the economy in terms of employment, rise in incomes, and improvement of social services for the betterment of people’s lives in Tanzania.

TI: What are your ambitions going forward and the challenges ahead?

FN: Our ambition for TIB Corporate Bank is to be a tier-one bank, i.e. one of the top ten biggest banks in Tanzania.

This is feasible as government owned banks have more financial muscle.

One of the bank’s highlights this year is the partnership with Tanzania Ports Authority (TPA) as their collection agent for cargo clearing and related charges.

The challenges for the banking industry in general are that Tanzanians consider loans from banks as subsidies; of course, some debtors fail to pay due to business failure but others have not formed the habit of paying back their loan obligations.

That is a very big challenge for us, and we need to be very strict and restrictive.

In Q3 2016, the aggregate Non-Performing Loans (NPLs) in Tanzania reached 8.6% when they are supposed to be less than 5%.

However, thanks to the introduction of credit bureaus in Tanzania, those who have not been meeting their loan obligations are going to be blacklisted from the banking system.

TanzaniaInvest had the pleasure of interviewing Ali Mufuruki, Founder, CEO and chairman of Infotech Investment Group.

Infotech is a group of companies with interests in ICT, media, telecoms, private equity, retail and real estate across a number of countries in Africa and beyond.

Mufuruki is also a co-founder and chairman of the CEO Roundtable of Tanzania, a policy dialogue forum that brings together more than 100 CEOs of leading companies in Tanzania.

Mufuruki discusses the impact of the government’s measures on the business climate in Tanzania and on Infotech.

TanzaniaInvest (TI): President Magufuli’s government is channelling its efforts to eliminating corruption and optimizing budget expenditure. This is clearly impacting the business climate. To which extent?

Ali Mufuruki (AM): I measure the impact of policy on the business framework mainly by looking at how it has affected my own businesses, and by listening to my colleagues, particularly from the CEO Roundtable.

What we have seen so far is that President Magufuli’s reduction of government spending has negatively impacted businesses that depend on consumer expenditure.

This shows that a big amount of money feeding those businesses actually came from the government.

For example, the number of air passengers has been affected since Magufuli banned unnecessary trips of government officials.

However, I believe that this is not necessarily bad since our economy wasn’t sustainable and wasn’t based on fair competition.

Now, we are going to have a more efficient, competitive and sustainable economy, and as a society, we are going to adjust to this new environment with less money in circulation. Accordingly, the population is reducing its spending.

TI: And how has this affected Infotech so far?

AM: In general, retail has not been impacted that badly, which is a very good indicator of economic performance and consumer behaviour.

Within our group, we are currently slightly below budget, but we are ahead of last year, so I suspect this is seasonal and we should recover soon.

I think that solid businesses will last, especially businesses that were loan-free.

TI: The current cash crunch is also impacting Non-Performing Loans (NPLs) whereby in Q3 2016 many banks in Tanzania have shown NPLs above 5%. Do you see this negative trend to continue?

AM: I suspect that we will further see some residual NPLs that were not covered in Q3 2016.

And I believe that we will witness similar NPL levels in the coming quarters because not many businesses have the capacity to recover within the space of 90 days.

For instance, if there is a company that is 100% dependent on government funding, and the government cuts off funding from that particular sector, then this company will have to restructure its business, which may not be sufficient to pay off the company’s loans.

So, I think that there will be quite a significant increase in NPLs in the near future.

TI: There are 60 banks and non-banking financial institutions operating in Tanzania. Given the current climate, do you foresee a consolidation?

AM: One of the reasons why these NPLs are threatening banks is because many of these banks are undercapitalized.

Many banks in Tanzania have capital bases of USD7.5m or USD5m, which could lead to a crisis.

Hence, consolidation could be a solution. I think what Tanzania needs is the Nigerian type of consolidation that occurred about 15 years ago where the statutory minimum reserves were increased.

At the same time the central bank advised banks to collaborate and merge to better withstand and absorb the shocks.

TI: The current government has made the decision to move its headquarters to the capital city Dodoma. How will this impact real estate in Dar es Salaam?

AM: I think this poses a big opportunity for Dar es Salaam.

Dar es Salaam is struggling to develop and one of the biggest obstacles is the government since it occupies most of the real estate in the city.

And the government was never interested in renovation or improvement of the buildings it occupies.

President Magufuli has said that he intends to auction and sell those buildings to private developers, which means that they are probably going to be available at a very low price.

TI: All in all, do you see the current government undertaking the right steps for the social-economic development of Tanzania?

AM: I think that what has been done in relation to eliminating corruption was absolutely necessary, and it needs to continue, because the consequences were beyond economic.

However, I think that the government also needs to create an economic stimulus, which will counterbalance the cash crunch that we are all facing due to the fight against corruption.

Tanzania depends a lot on the actions of the government and this government has managed to sustain the pressure on corruption for 12 months now.

If this continues, I believe that Tanzania will turn into a country where people will have to work to earn money, and where money will actually have value.

All we need for this transition to happen is the GDP growth to continue and reach double digits.

For this, there are a lot of infrastructural projects that the government has agreed to spend money on; these projects include the railway line for USD7.5b, the crude oil pipeline from Uganda to Tanga for USD3.5b, the LNG plants, and the gas pipelines.