World Bank chief lauds economic growth but calls for key reforms

QUESTION: It has been a little over a year since you were appointed the World Bank Country Director for Tanzania (also overseeing Malawi, Zambia, and Zimbabwe). Considering the current global dynamics, tell us what has been on top of your agenda this past year and what has kept you awake at night.

ANSWER: Not much keeps me awake at night in Tanzania, because it is one of the better-performing economies in Africa. But that doesn’t mean that there isn’t a lot that can and should be done. But generally speaking, what we see in Tanzania is an economy that is stable, with a robust macroeconomic situation compared to its neighbours, and the growth is moving in the right direction.

The last couple of decades have been very positive for Tanzania. The one area where it has been less positive is in how inclusive poverty reduction has been. While economic growth numbers are higher than in most countries, poverty hasn’t gone down at the same pace. So if there is anything that would keep me awake, it is how we can make this growth more inclusive so we can see more Tanzanians reaping the benefits of a stronger economy. That is the focus of all the work that we are doing on the reform agenda with the government as well as our investments.

According to the World Bank's Country Economic Memorandum, Tanzania’s growth over the past 20 years has been characterized by a shift towards increased dependence on public infrastructure investments, slowing structural transformation, and a diminishing export role. These trends risk jeopardising the sustainability of growth. What is your take on this report?

When we look back over the past two decades, one thing that we’ve noticed is that structural transformation is not happening. That is a reason for poverty reduction not to happen as fast as we would like. In the early 2000s, poverty reduction was happening at a greater pace than it is today for precisely the reasons you have mentioned: the public sector infrastructure investment, the correlation to job creation impacting on the livelihoods of the poor is less, because most of those investments, while fuelling the economy, are not necessarily touching a wider part of the population. For example, if we saw a lot more transformation in agriculture, we would obviously see higher rates of poverty reduction. This is why the government has also seen this as a challenge and seen the need to place greater attention on looking at how to invest more in primary sectors to make them more pro-poor and conducive to growing and improving the livelihoods of Tanzanians.

Despite the caution issued by the World Bank on increased investment in public infrastructural projects, there still seems to be interest from development partners issuing loans to support such projects in developing countries. Is it your opinion that the World Bank will now be less positive about supporting such projects?

Our strategy in Tanzania right now is very much correlated with the government’s strategy in the sectors in which we have agreed to cooperate. Let me start with the reform agenda. We have substantial engagement with the government on advancing critical reforms in a couple of key areas. First and foremost, there is private sector development. The president has been very clear on the need for the private sector to become more dynamic. We all know that countries grow on the backs of the private sector, and Tanzania has huge potential, but the ecosystem supporting private sector development is not as pro-business as it should be; licensing, registration, and tax policies are not where they should be. For that reason, we are working with the authorities to try to streamline these and make them more pro-business and enable them to transact more and boost trade by reducing trade restrictions.

The second part is on expanding access to finance, which is a critical impediment to lots of businesses, from small to medium-sized enterprises. The extent to which we can improve access to finances will directly contribute to the expansion of the private sector.

The third is digital. The faster digitalization can happen, the greater the transparency and efficiency, as well as the greater the revenues for the government and private businesses.

Also read: World Bank tips Tanzania on inclusive economic growth

In one of your updates, you advised Tanzania to improve its tax productivity by increasing the effective tax rate on large corporations and the wealthiest households. Do you think the government will readily embrace this approach as it tries to implement friendly fiscal policies to attract businesses and foreign investors?

I think we should look at the totality of our analysis of the needs of the private sector and the tax regime. What is important to note is that the tax regime needs to be consistent, broad-based, and transparent. If that is the case, investors would be much more interested and willing to come in and invest because they understand what their requirements are. What is important is to have a business environment that is friendly and pro-investment, one that will enable businesses to start up with ease and transact with ease under clearly defined rules of the game. By digitalization, I think it becomes a friendlier atmosphere that is responsive to the needs of the country as well.

Also read: World Bank proposes more taxes for the rich

Poverty elasticity in Tanzania is said to be one of the lowest in the world, with many in the country falling in and out of poverty due to exposure to income shocks. What are your comments on the country's social protection system, and how can it be improved?

There are five priority policy actions that come out in the report. The first is how to improve the business environment. The second is how to address the underlying poverty dynamics while promoting the business sector. For this, we believe the country must have a robust social protection program. We realized that there are the poor and vulnerable that exist and will exist because of natural reasons. As a result, it is important that Tanzania has a good social protection system that needs to be adequately financed.

The third recommendation of the report is on the agriculture sector, where the majority of employment comes from. Reforms and investments in the agricultural sector can be transformational, and we also need to make sure they are climate-smart.

Also read: WB flags inadequate economic inclusivity in Tanzania, reveals persistent poverty traps

The fourth is the tourism sector. A lot of investment is needed in the sector, both in infrastructure and the enabling environment. All this needs to be done in a sustainable manner, looking at the environment and financial sustainability, but also making sure that it is inclusive and benefits all communities.

The last is using Tanzania’s incredible geographic location, its massive coastline, and its ability to access all these countries around it. So there’s a need for structures to be put in place to facilitate trade cooperation with the neighbors. We believe that these overall actions would help boost prosperity in the country and ultimately drive down poverty.

Tanzania is projected to have one of the world's highest populations in the coming years. However, despite the government's dependence on the domestic market to drive growth, purchasing power remains extremely low. What key steps can the country take to boost a robust domestic market and enhance human capital?

I will respond to your question by looking at it through the lens of the Africa Continental Free Trade Agreement. We have done some simulations and models on how the AfCFTA will impact Tanzania. From our simulation and analysis, we think it will be really positive for the country. For example, we believe that should this come into effect, Tanzania’s exports could increase by almost 43 percent and its GDP by almost 7.5 percent just in the next 10 years. This, in itself, could be a major game changer for the country. But in order to realize this, there are actions that the government would need to take, for example, non-tariff measures to facilitate trade. These actions would directly improve livelihoods and poverty numbers in return.

The Msimbazi River Basin continues to pose a great risk and challenge for Dar es Salaam commuters and nearby residents as floods become more severe. After committing $200 million for the infrastructural project through IDA, what's the assessment of the project's implementation pace in light of hurdles stemming from compensation grievances?

First of all, we need to be sensitive to the fact that there are lots of people that reside in those areas, and there are lots of businesses in those areas as well that need to be addressed very carefully.

Also read: All is set for Dar’s Jangwani Bridge as government gets funding

The second point is that climate change is real. Dar es Salaam residents face this every day. In the recent couple of weeks, we have seen how the impacts of the rains are affecting our daily lives. For that reason, all investments and activities that we are undertaking need to have a solid climate lens by looking at how we can best address and mitigate the impact of climate change while at the same time responding to the needs of the people.