4 March 2014
Few countries have enjoyed as robust recent economic growth as Tanzania. But, as Finance Minister William Mgimwa suggests, there is still much more to come
It’s a good time to be Tanzanian. Sound social and economic policies, able leadership, increased private sector participation and investment, as well as peace and improved democracy, have helped deliver rapid economic growth that is in the process of transforming the country. Reforms are ongoing, however, as its Government sees improved infrastructure and policies as catalysts for further economic growth.
Take the energy sector for example. The country’s Finance Minister William Mgimwa explains that it has emerged as a key priority. “We are currently dependent on heavy fuel sources, but they are very expensive,” he says. “The recent discovery of natural gas is where we are focusing. We are investing substantially to make sure the natural gas source is really utilized as an alternative to the heavy fuel.”
This will then make it substantially easier to do business, he continues. “The critical reason is that the production cost of one kilowatt of gas is between US$0.06 and US$0.08, compared with US$0.44 for fossil fuel. So this will shoot down the cost of doing business in Tanzania when it has been properly extracted. We have invested US$1.25b dollars and we are also constructing a gas pipeline from the South of Tanzania to Dar es Salaam, creating an opportunity for distribution as a source of energy for industrial production, domestic use and for conventional transfer-tovehicle use.”
This focus on securing sustainable energy supplies is one of the reasons why Tanzania is forecast to be one of the fastest-growing economies in the world. It also has a relatively well-educated labor force, is politically stable and, as a result, is attracting increased investor attention from around the world. Following the UK as Tanzania’s most important FDI partners are the emerging markets of India and fellow African countries Kenya and South Africa. And recent investment from Canada, too, has led to substantial gains in job creation in the mining sector.
This level of investment is testament to the strong progress that Tanzania has made in recent decades. However, as a small country, the Minister concedes that it lacks the financial capacity to immediately address all of its priorities. “We’re doing our best, but financial challenges mean we can’t address these priorities at the speed we would have wanted,” he says.
In response, he and his colleagues in government are tapping into three different sources of finance. “The first is our own local budget,” he says. “The second is development partners who see sense in teaming with us to assist us to some extent. Their grants are not substantial enough to be significant for financing infrastructure, but they’re useful. The third is loans — we are doing our best to raise sustainable levels of borrowing so that what we are borrowing can only be strategically directed toward priority sectors, and not consumer purposes.”
With such long-term planning in place, Tanzania’s rapid economic progress looks set to continue into the future.
This feature was first published in the December issue of EY's Dynamics
