The African Development Fund, after receiving the final confirmation from its Board of Directors has approved more than $50 million as a saving grace for the Tanzanian economy. These funds will be dedicated to the socio-economic as well as political recovery of the region. The pandemic has taken its toll on Tanzania’s localized economy as well as a very central government. Every minute issue with the handling of COVID-19 was a serious blow to the current government, putting them on their toes just months before the elections.
Now elections are coming up within days, forcing even more action on the government. But thankfully, adding the current $50 million to the existing $100 million COVID-19 recovery budget is going to ensure that at least some parts of the country will be revitalized.
Why so much damage?
The main issue was not that COVID-19 was a devastating blow to Tanzania. The main issue was the already flawed economic and business landscape for the country. Due to controversial business policy, Tanzania’s president John Magufuli campaigned on promoting local business. He has more or less delivered on that promise, but not in a way that many were anticipating. After his swearing into office, dozens of foreign firms either withdrew from the country or canceled their plans for integration.
Most of it revolved around the relatively predatory stance that the Magufuli administration had towards foreign corporations. FDI fell by nearly 47% making the local economy additionally vulnerable to something as unanticipated as a global pandemic.
Due to this lack of foreign investment, many local startups didn’t have the resources required to actually hit the market. Many had to be canceled in their infancy. Furthermore, most of these startups revolved around the physical business. Things like agricultural innovation, basic services, and robotics were the primary focus for Tanzanian entrepreneurs. Unfortunately, most of the businesses revolving around these particular sectors had to be closed down during the pandemic, slowing growth or snuffing out those with little funds to survive on.
Is it enough to fix everything?
No. A $150 million budget is not nearly enough to fix all of the damage that the pandemic has caused. It is certainly not enough to fix the currency as well. During the march lockdown, the Tanzanian Shilling took some serious beating relative to the USD. But it was not the only one in this regard. Almost every currency in the world suffered some kind of hike. But this one is a bit different. The Shilling corrected itself but is now again on its way to the exchange rate it got during the first days of the lockdown.
Tanzania is also known for the best forex brokers for beginners, which were seen sending their traders signals to either stop their trades in their tracks during a hide or go short as soon as possible. Nowadays, the financial analysts of these companies are not so sure about the currency as well. Their stance on the Shilling is still very bearish. Nearly all of them continue to send signals to their traders about an anticipated continuation of the bulked-up inflation rate.
No matter how much the ADF donates to Tanzania, the local economy is going to take at least 1-2 years to recover fully. In the meantime, the Shilling will continue to inflate without the government having too many options to control it. Sure they may try intervening with interest rates as much as they can or directly tie it to a stronger currency. But we all know how that ended with Thailand’s Baht. If the country had not received billions in FDI and revitalized its tourism industry, it would have still been suffering the sting of a USD peg.
It is simply impossible for Tanzania’s economy to keep up with the USD’s strength. There are simply not enough foreign reserves to support this system. What this means is that prices will most likely start to rise soon unless local manufacturers aren’t returned to work soon. As long as Tanzania can maintain some sort of self-sustainability, it should be able to navigate the murky waters of a post-COVID-19 economy. Should it rely on imports too much, there will simply be no equilibrium in the economy. Inflation rates will continue to increase even further as prices keep on rising for the local population. Considering that wages will likely remain the same, it’s going to be quite a challenge for the majority of the population that gets its salary in Shillings.
Those that work on USD may receive an absolutely unfair advantage over the rest of the country leading to even further wealth inequality in the country.
Overall, the $50 million donation is more than welcome, but not nearly enough to get the economy back on track.