Why public-private partnerships are not flourishing in TZ

Dar es Salaam. Capital crunch and lack of fiscal imperatives hamper public-private partnerships (PPPs), the executive director of the Tanzania Private Sector Foundation (TPSF), Godfrey Simbeye, told Business Week.

Noting that big projects invariably need huge sums of money which is hard to source from local banks, Mr Simbeye said a bankable feasibility study for a project worth $300 million (about Sh669 billion) would cost Sh2-to-5 billion to finance – a sum which cannot be easily sourced.

The government itself had fewer incentives to use PPP to finance infrastructure because the country’s Treasury coffers are out of cash.

Mr Simbeye was reacting to proposed plans by the acting director-general of the Tanzania Airports Authority (TAA), Richard Mayongela, to use the PPP approach in undertaking various projects. The projects include a Sh15 billion four-star hotel and a special economic zone at the Julius Nyerere International Airport in Dar es Salaam, as well as convention centres and a hotel at the Arusha and Mwanza airports.

Other projects-in-the-making are the construction of a $200 million airport at Msalato in Dodoma; a $1 billion airport for Bagamoyo in the Coast Region, as well as three-star hotels at Songwe and Mtwara airports.

“There is not enough money for long-term private infrastructure investment. However, I see this as a temporary setback, as the rationale for PPPs remains ‘best practice’ globally,” noted Mr Simbeye.

To overcome financing shortfalls, he called on the government to turn to international development institutions that would guarantee private sector loans for PPP projects.

He suggested that, for example, the TIB Development Bank could raise money from foreign sources – including the African Development Bank (AfDB) and the European Investment Bank (EIB) – to on-lend to companies involved in PPPs at a relatively low interest rates of 2-4 per cent.

“If we are to boost infrastructure financing, bank loans for earnings-based PPP infrastructure projects under concession agreements should be treated as ‘secured advances.’”

Mr Simbeye cautioned that high costs of borrowing would scare away private investors in PPP projects.

He also proposed that the procurement processes for PPP projects – which, according to him, take up to three years – be streamlined.

That can be done by reducing bureaucracy, he volunteered.

“PPPs in countries such as China and Turkey have proved successful, partly because they don’t feel the pinch of sharing the risks with the government. The private sector in those countries has matured.”

In that regard, he called upon the government to take a leaf from out of China’s book, wherein the China-Africa Development Fund has supported Chinese investors in Africa.

“Our hopes remain on venture capital and private equity to enable (the implementation of) big projects to gather speed.”

The ‘361 Degree Africa’ managing director, Mustafa Hassanali, has a similar view.

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Mr Hassanali attributes the credit crunch to untruthfulness of Tanzanian businesses, stating this in a panel discussion on how small- and medium-size enterprises feature in the local content policy and Tanzania’s industrialization journey.

“Banks (have lost) confidence in businesses because the majority of them are dishonest,” Mr Hassanali argued during an event to release the findings of a survey into the ‘Tanzania Top 100 Mid-Sized Companies,’ the brainchild of Mwananchi Communications Limited (MCL) and KPMG.

Noting that “the situation was hindering the promotion of local content in big projects such as those in oil and natural gas,” Mr Hassanali said “contributions of multilateral agencies play a key role in improving the investment climate, and fostering private sector participation. It’s high time we made them have confidence in us.”

Last week – just before he was shifted to the Foreign Affairs Ministry – the-then permanent secretary in the Ministry of Industry, Investment and Trade, Prof Adolf Mkenda, spoke about the government’s efforts to address challenges that confound the private sector, including especially illiquidity and the tax burden.

He said illiquidity challenges emerged after the government launched a campaign against grand corruption and rampant tax evasion.

“This is just a transition period,” Prof Mkenda said, adding that “you need to change your mindset and pay taxes accordingly.”

He also took the opportunity to assure one and all that the government would soon streamline charges levied by regulatory bodies in an effort to ease the tax burden on businesses.