Why Tanzania needs cautious approach on all megaprojects

An economics professor from Oxford University, Stefan Dercon gestures during an interview with The Citizen’s Managing Editor, Mpoki Thomson. PHOTO | MICHAEL MATEMANGA


  • Oxford University economics Professor Stefan Dercon says Tanzania needs a cautious approach to implementing megaprojects, advising against embarking on too many at once and calling for sensible management

Tanzania is optimistic about its economic growth despite the IMF’s forecast of a slowed global economy. What are some of the salient features that give Tanzania its optimistic approach?

The global economy is in recession; it has taken a hit from multiple crises, such as Covid and the geopolitical situation around the world. But at the same time, Tanzania can be quite bullish because there is definitely a pickup in recovery in areas such as tourism. As a structured economy, it means that it might not be as susceptible to the same fluctuations. Maybe this is something Tanzania can be complimented on. Unlike some other countries in the region, it has actually built up a system of sensible microeconomic management, creating microeconomic stability. As a result, it has come out of the Covid crisis without critical debt levels or a serious issue from the fiscal and monetary point of view. This is a positive sign.

The Ministry of Finance has laid out its economic strategy for 2023, choosing pro-growth policies as its core focus. How can Tanzania mitigate rising disruptions and still maintain a healthy economic growth rate?

The first principle has to remain being relatively cautious. Resilience to future possible shocks has a lot to do with how you’ve built your reserves and balance of payments—keep them in a healthy position. So I don’t believe Tanzania needs to do anything particularly creative or adopt a novel operating style. In the microeconomy, it has developed a reasonable level of resilience. Relative to other countries in the region, Tanzania can take pride in the position that it finds itself in.

But let’s not make a mistake: global growth is slowing down, and this is going to have an impact on this economy, but it’s all about an issue of economic and microeconomic management. So the Bank of Tanzania can be quite proud of themselves for how they managed this.

With rising concerns about debt distress in Africa exacerbated by Covid-19 borrowing spree, is there a way Africa can dig itself out of impending debt distress?

There are certain countries that have already reached this level of debt distress. There are a number of countries, such as Zambia, that have resorted to the economic framework arrangement of the G20 to try to get a deal that will relieve that distress. The prudence that we’ve seen here is quite helpful.

However, Tanzania is still embarking on a very ambitious, resource-intensive development programme. The previous president had started all these large infrastructural programmes. Keeping these manageable is going to be key in determining how much of a buffer you can build and how you can avoid future debt. So, there needs to be caution in deciding which big projects to prioritize relative to others. This is not only important because the country is trying to avoid debt distress, but it’s important because if you do too many of these projects, experience from other countries shows that costs will overrun very quickly and inefficiency will creep into the system, and you’ll find that you can’t deliver them all. What you should hate about infrastructure is having to pay twice as much as you thought you’d have to pay.

So are the ongoing projects in Tanzania economically viable?

It’s a matter of getting the check list right and investigating just how viable some of the projects will be. Let’s take some lessons from Ethiopia. Within their own domestic savings rates and resource mobilization, Ethiopia embarked on too many projects, and they ended up having to be too dependent on debt from overseas. Now, when the projects and the revenue flows go a little bit slower due to internal and external factors, you find that the country has not insulated itself against these eventualities. You have to be cautious and clear about the mobilization and the speed of the project’s implementation. If you want something quickly delivered by an outside contractor, it will cost more money. Big infrastructural projects have a lot to do with sensible project management, sensible monitoring systems, and, within them, being willing to learn and monitor your progress.

This applies to any economic development project in this country; success depends a lot on your willingness to learn whether you are succeeding at what you think you are doing, not on being stubborn but on actually being able to monitor and make decisions such as halting the project where necessary if you see there aren’t sufficient delivery methods to get the job done.

Is there a way for Africa to be economically independent?

We will have to go back in history for this. When East Asian countries embarked on an infrastructure-led development model, similar to what Ethiopia and Tanzania are doing now, they did it in situations where their private savings rates, combined with the taxation that the government collects, accounted for 40 percent of the GDP. So they were doing the projects with good savings rates. There is no country elsewhere in the world that can do an East Asian infrastructure-led development model with the savings rates they have. This means that you can’t do an East Asian-style infrastructure-led development model with African savings. In Tanzania, under the previous government, resource mobilization was a big thing, in fact, to the extent that some businesses might have even complained, but they were still at very low levels. So, my answer is that I don’t think you can replicate someone else’s model because the circumstances are different. For African countries, infrastructure matters, but they need to be careful because if you want to go too fast, you create dependence. The current president really gets it, going by her public pronouncements. For this reason, a development model that has a bigger place for the private sector becomes an obvious answer.

When you attract foreign direct investment, it doesn’t create liabilities for the private sector. So, private investment from overseas and from here is your alternative.

So would the best option then be a public-private partnership?

I would still want to be careful about that arrangement. The idea that the public and private sectors come formally together as a form of PPP is not easy to pull off. It is one thing for the government to be supportive of the private sector, which I would always appeal for, but there is another form where you want them to actually get married, which is what happens in PPPs, and this doesn’t always work well. I would rather slow down than believe that the PPP will provide you with an answer.

What are the key challenges for economic development in developing countries?

In my book “Gambling on Development: Why Some Countries Win and Others Lose,” I state that there are many countries that have actually been successful by using lots of different models. First, you cannot sustain growth and development unless there is peace and stability. And the stability includes microeconomic stability. Two, you need to have a state that is self-aware of what it can and cannot do; it needs to be aware of its own capabilities. Thirdly, you need to have a state that is willing to learn. In Africa, most states want to serve the elites in society and push for state-led development. Unlike China, you cannot develop with that model in Africa.

I have studied Tanzania for a very long time. I have huge respect for Mwalimu Nyerere in the early years of independence. Overall, I have huge respect for what the country has been able to achieve. Tanzania has peace and stability; what it lacks is a conscious government that knows what it can and cannot do. But I’m encouraged that the state is now realizing that. That’s why, when you listen to the president, you will hear her refer to the private sector in terms of cooperation.

Tanzania is, however, at a crossroads at the moment. There is a consciousness in the senior levels of government; they know that they need to learn to work with others, so this realization needs to trickle down to other state actors.

How can economic diplomacy be made more sustainable?

There is a little risk here, which I think even the president might feel embarrassed about at times: A contract is signed, and then nothing happens for a year. The important part of economic diplomacy is how much actually gets implemented. To me, the biggest problem I see on the FDI side is not the first attraction, but rather: A) completing the deal, B) making sure there are no further surprises, and C) the after-care. People forget that in most countries, success in FDI rarely has to do with the first investment an investor makes; that is usually them trying to test the ground. Success is about the second investment an investor makes. 91 percent of investments in Tanzania are “green field,” meaning they are first-time investments. That is far too high.

If you were to write a book about Tanzania’s economic reform, what would it be titled?

It’s a tricky question. I would wait a few more years to write it. But it would be something like “Tentative Transformation” or “The Unnoticed Transformation.” Here’s why: What I find interesting about Tanzania is that a lot of the progress when it comes to the economy has gone unnoticed internationally, yet the country has done quite well. It performs well under the radar; it doesn’t appear in the press or make much noise internationally. On the tentative aspect, it is not quite clear whether there is enough energy to actually make it happen.