Dar es Salaam. Tanzania is home to over 50 financial institutions but access to finance by industrialists is still difficult.
It’s estimated that financing industrial projects as outlined in the second five-year development plan would require Sh48 trillion which is larger than the total balance sheets of the top three banks in the country.
Banks have identified challenges that, unless fully addressed, the industrialisation dream would be difficult to realise. Some of the challenges are within the banks’s ability but some require joint efforts by the government and other stakeholders to address.
The NMB head of Wholesale Business Mr Filbert Mponzi who spoke about Tanzania’s banking sector at the Mwananchi Thought Leadership Forum (MTLF) last week said lenders are already participating but they have challenges that they should address to move on.
“The issue is that the largest share of the money that we have is from short-term deposits which are not suitable for long-term loans,” said Mr Mponzi. “Most deposits are in current accounts which can be moved out of the banks anytime…We cannot use such deposits to finance industrial projects which need over five years to repay,” he added. Banks are doing something to address that issue.
“NMB, for example, has been working with foreign development finance institutions (DFIs) and managed to mobilise Sh300 billion,” he said. Most Tanzanian banks do not have the adequate skills to assess long-term loans, Mr Mponzi said. “There are specialized skills which are required when it comes to assessing long-term projects and majority of banks do not have that,” he added.
The industrial sector which is dominated by manufacturing is the third recipient of the credit extended by commercial banks according to official statistics. According to the Bank of Tanzania, manufacturing accounted for 10.9 per cent of the credit extended by banks to major economic activities in the year ended July 2018.
The rate compares poorly with 27.8 per cent and 19.7 per cent for personal and trade activities respectively. Tanzania has only three Development Finance Institutions namely Tanzania Agricultural Development Bank (TADB), Tanzania Mortgage Refinance Company (TMRC) and TIB Development Bank.
“These banks are not enough to take us to the industrial economy we want,” said Tanzania Private Sector Foundation (TPSF) executive director Mr Godfrey Simbeye who was one of the speakers in the MTLF.
The forum brought together government officials, industrialists, experts and ordinary Tanzanians to deliberate on opportunities and challenges towards implementing the much-touted industrialization drive. A participant introduced as Gabriel Ango advised local banks to join hands and form a special window which will help financing of the industrial projects in Tanzania.
“The government through the Ministry of Finance and Planning can support the window and attract international development financial institutions as well as multilateral institutions such as the World Bank to inject long-term financing which also have lower interest rates,” he said.
What more should be done?
Experts say a number of things should be done to help mobilise financial resources for industrialisation. Sensitive people on savings
Many Tanzanians do not have the habit of putting their money in the banking system. In the book Tanzania Industrialisation Journey, 2016-2056, Ali Mufuruki and others say Tanzania’s savings as a proportion of the Gross Domestic Product (GDP) is lower than the investment rate, which is not healthy for financing industries.
“The total country’s savings as a proportion of our GDP is 20 per cent per annum, while our investment rate per year is 30 per cent of GDP. We finance the gap using foreign sources of capital in the form of loans and grants. We need to gradually reduce this gap,” book reads in part.
The book says it requires a cultural re-orientation as a people and as a nation, from a cycle of low savings and high consumption to high savings and high investment.
“The government through the Central Bank and the Treasury can create monetary and fiscal policy tools that can encourage savings and eventually create a culture change in this area,” the books reads.
But the book also says that there is need to diversify sources of finances to relieve the banking sector. It includes attracting more Foreign Direct Investments (FDIs) to build quality industries.
“In 2015, FDI flow to Tanzania was about 3 per cent of the total FDIs to Africa. Our target should be between 5 per cent and 7 per cent. This will mean attracting between US$ 3 billion to $5 billion per annum,” the book reads.
The other option is to develop and increasing the depth of capital markets.