Construction financing: How Tanzanians are benefiting

Sunday August 16 2020
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Dar es Salaam. The robust growth that’s being witnessed in Tanzania’s construction industry has ripple effects that trickle down to the ordinary citizen. But the big question still lies; how would a normal Tanzanian benefit if more money is sent into the construction industry?

“Growth in construction financing has a direct impact on individual citizens, both directly and indirectly,” says the Deputy minister for Works, Transport and Communication, Mr Elias Kwandikwa.

According to the deputy minister, “Increase in financing reflects the increasing number of small and large construction projects which have created growth opportunities for the public”. Such opportunities can be seen in areas such as employment.

Speaking to The Citizen, Mr Kwandikwa was clarifying on the Bank of Tanzania (BoT) report that the construction industry leads in economic activities with the strongest annual credit growth received from commercial banks in a period from January to June 2020.

By the first quarter the sector led with an annual growth of 43 per cent of all the total banks’ credits to the private sector followed by agriculture and trade activities which stood at 15.3 and 14.3 per cent respectively.

The minister further stated that the industry contribution to the nation’s economy is expected to rise and reach 14 per cent.

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Apart from leading in the first quarter, the construction sector, in the year that ended June 2020, also led the economic activities with the strongest annual growth in terms of credits from commercial banks by 31.2 per cent.

“When there is infrastructure, real estate and other built assets designed, constructed, operated and maintained consistently a large portion of the country‘s workforce will be employed,” he said.

Some industry experts also say that the increase in construction financing reflects an upsurge of developers who continue to borrow from the commercial banks and initiate construction projects in growing cities such as Dodoma, Arusha, Mwanza and Mbeya.

Efforts to develop a number of housing projects by developers continue with a special focus on housing projects in Dodoma as the government continues with the relocation of its administrative functions to the nation’s capital city.

According to the deputy minister, the development of the sector also benefits the producers of building materials by creating a ready-market for their products.

“With several projects underway, producers of cement, metals, roof, interior designers and other suppliers tap in and benefit from the business opportunity,” he said.

The informal sector participation in the industry is extremely significant since it provides housing and other infrastructure facilities to the 80 per cent of the population which lives in the rural areas.

The exportation of building and construction materials for supporting the ongoing infrastructure projects also boosted the country’s goods exports during the quarter ending March 2020.

What stakeholders say

A realtor from Ujenzi Builders Company (UBC) Mr Godfrey Malechela said from the beginning of the year 2020, players in the construction sector experienced an increasing number of construction projects in the country’s busy cities such as Dar and Dodoma.

Mr Malechela, whose company has offices in both regions, said the projects were only halted temporarily during the Covid-19 pandemic period where people were advised to stay indoors to mitigate the spread of the virus.

“People’s capacity to fund and manage construction projects have been high this year, and since the government announced that businesses should go back to normal there are even higher numbers as we go toward the end of this year,” he said. Economically, he said the industry is a fundamental economic sector which permeates most of the other sectors and its own sub-sectors as it transforms various resources into constructed physical economic and social infrastructure necessary for socio-economic development.

A realtor from DECO Consultancy Agency, Mr Malik Abbas, said the available financing has benefited the youth more because through the different projects whether done by individuals or by the government different employment opportunities have been created.

“When there are big and small construction projects, young people in that region or district are going to be recruited to do different activities or provide manual labor and earn some income,” he said.

He added that to extend the public benefits from these projects, the government must condition that local people be given employment priority.

Demand

The Bank of Tanzania (BoT) reports that there is a fast growing demand for the country’s housing sector driven by the growth in Gross Domestic Product (GDP) and the fast growing population.

The central bank says the country’s population is estimated to more than double by 2050 and the government is in efforts to partner with global non-profit organizations and foreign governments to meet the growing demand of affordable housing.

“The Tanzanian housing demand is estimated at 200,000 houses annually and a total housing shortage of 3 million houses”, says BoT report. The demand has also been boosted by easier access to mortgages, with the number of mortgage lenders in the market increasing from 3 in 2009 to 34 by March 31 this year and the average mortgage interest rate falling from 22 per cent to 15 per cent.