How Tanzania can tackle the Infrastructure deficit

March 4, 2014

United Republic of Tanzania is one of the wealthiest mineral resource countries in Africa and with that has come the infrastructure challenge across mainland and island of Zanzibar. A few years ago, African Development Bank study showed that between 2008 and 2018 Tanzania needed to invest about $6 billion just to keep up with expected infrastructure needs. Since that study was published, the country has remarkably invested in arguably East Africa’s beautifully designed and well built roads, revamped rail services in commercial capital of Dar Es Salaam. However, the government is struggling just like other developing country to attract investments large enough to make any inroads into growing infrastructure deficits. Tanzanian governments clearly need to spend more on infrastructure with airports and railway topping the list together with road network even though the task is too big for government to tackle alone and that’s why I think public private partnership is the best option. There is scope for the fast growing Tanzania’s private sector to play a key role in building and operating economic infrastructure that can generate an acceptable rate of return for investors like proposed airports in Mbeya, Kigoma, Dodoma, Tanga and Arusha that either need to built afresh or expanded. That would make Tanzania’s infrastructure markets work better.

Since tenders for public financed infrastructure in Africa are often awarded to the lowest bidder, there is always a risk that the process will fail to generate appropriate incentives for bidders to internalize lifecycle cost considerations which is an important factor in ensuring long term service quality. The other problem relates to a lack of suitable investment vehicles for different types of investors and lack of appropriate instruments to meet investor requirements. Government of Tanzania needs to improve the investment climate in a way that attracts greater private-sector participation. In my opinion this would includes reforms and investments in institutions that are capable of developing a pipeline of genuinely bankable projects like the recently launched Mtwara- Dar Es Salaam gas project. After the reported drop in gold earnings, Tanzania should not struggle with balancing short and long term spending priorities, as there are plenty of revenue streams the country can rely on. There is no need for Tanzanian technocrats to be bias towards short-term spending by elected governments to the detriment of much-needed infrastructure investment, which are generally long-term in nature like the proposed $11b Bagamoyo Port to be funded by the Chinese government. Public financed infrastructure in Africa lacks certain features that are needed to maximize efficiency and quality in infrastructure service delivery and Tanzania is no exception.

Private investors are increasingly aware that infrastructure is a promising new asset class and in Tanzania there are considerable impediments to overcome before investors will be willing to increase their involvement. Most of investment studies on Tanzania have revealed failure to have a suitable investment climate in general is the country’s main problem. To gain access to Tanzania markets, foreign investors are sometimes forced to accept a lower rate of return. Unfortunately, it is difficult to do this in infrastructure, where investments are usually large and can take many years to become profitable in a developing country like Tanzania. A particular problem in Tanzania is an absence of well-designed projects that can be viewed by the private sector as safe investments. In Tanzania and Africa as whole, bidding arrangements are often opaque and delays within governments with poor institutional linkages mean that investments can end up taking many years to achieve financial closure. Looking ahead, the Jakaya Mrisho Kikwete led government will need to focus energy on building capacity for both long term infrastructure planning and delivering high quality investment opportunities for the private sector.

That means public officials in Tanzania need to have adequate skills to manage all aspects of projects, from conception through to implementation.
 There is scope for enhanced international cooperation to help mobilize resources like is the case with Bagamoyo port project and knowledge to help develop Tanzanian economy to create appropriate capacity to prepare and deliver successful projects. This kind of capacity needs to be developed across government systems rather than focusing on specific project deals like expansion of Julius Nyerere International Airport that saw thousands of people relocated from Kipawa area few years ago. Tanzania need to create a public-private partnership to help its economy to develop capacity to create pipelines of bankable infrastructure projects. The country can also open up new opportunities to scale up infrastructure development in regional areas like Arusha, Mwanza, Mbeya, Tanga and leverage private sector resources to kick-start expensive infrastructure projects. Technocrats need to encourage governments to take a longer-term lifecycle approach to funding expensive and long-lasting assets in the public interest with Bagamoyo port being a prime example. For Tanzania to realize its dream of being the biggest economy in East and Central African region by 2025, the government advisors must help mobilize and leverage knowledge and best practices in the country to support good infrastructure practices as I had argued on how Tourism can create jobs and increase earnings .

Contador Harrison