Tanzania needs to invest more on infrastructure and human capital to improve its competitiveness and create more productive jobs

While Tanzania continues to record  strong economic performance, approximately 12 million of its citizens still live in dire poverty, according to the World Bank’s latest economic update for the country.

According to the eighth Tanzania Economic Update (TEU): The Road Less Traveled: Unleashing Public Private Partnerships in Tanzania, growth was around 7% in 2015, and inflation was contained within single-digit levels. However, the country has the fourth largest population living under poverty in Africa, according to the report. In addition, the report notes that a significant portion of the non-poor population lives just slightly above the poverty line, and risks falling back into poverty with the slightest level of disruption unless proper measures are in place.

“Tanzania needs to increase investments in infrastructure and human capital to further unlock its growth potential while enabling the private sector to create more jobs,” says Bella Bird, World Bank Country Director for Tanzania. “This will not only have a stronger impact on poverty reduction but it is also consistent with the new government’s priorities and its commitment to the achievement of the country’s Vision 2025 goals. The needs are many but the resources are limited and a focused approach in which key development priorities are fully financed will be needed to achieve the desired results”.

The report also identifies more and better infrastructure and human capital investment as key to unlocking Tanzania's economic potential,  create more productive jobs, accelerate economic growth and reduce poverty.

A simulation analysis using a macro-econometric model for Tanzania indicates that an increase in public investments in infrastructure to a value of approximately 1.2% of gross domestic product (GDP) in one year could result in an increase of 1.7% to GDP in the following year, according to the report.

Attaining this goal would call for prioritizing of new investments and committing full funding towards them, the report notes, as opposed to the significant financing constraints experienced with the government’s Five-Year Development Plan, which left its priorities underfunded by about 50%  until 2014/15.

Building on the seventh economic update theme of raising the resources needed to finance economic development, the latest TEU suggests tapping into alternative avenues such as the private sector, especially through Public Private Partnerships (PPP).

“Tanzania needs to improve overall business environment, including through improved access to finance and electricity, for private sector development,” says Emmanuel Mungunasi, World Bank Senior Economist and co-author of the report. “Further development of the private sector will be key to accessing the needed resources including financing and creating more employment opportunities which are critical for poverty reduction.”

This would not be entirely new terrain for Tanzania. Key policy documents such as its Vision 2025; the 15-year Perspective Plan (2010-2025); the First Five-Year Development Plan (2011-2016); MKUKUTA (2011-2015); and the Big Results Now (2012-2015) have all identified PPPs as a means to attract new investments in order to address the infrastructure gap more efficiently. Several PPPs were implemented in line with these strategies, but without much success.

“Tanzania has had a mixed experience with public private partnerships,” said Jeffrey Delmon, the World Bank’s senior PPP specialist and co-author of the report. “What is needed now is to embrace these important past lessons and combine them with best practices from the largest emerging economies such as Brazil, Chile, Mexico and India and develop a strong PPP program that addresses the country’s infrastructure development challenges and generates jobs.”

The report makes the following key recommendations towards a new direction that could ensure PPPs deliver for Tanzania as they have with other countries:

 

• Strengthening project identification, preparation and oversight: Careful selection of projects to be implemented as PPP as this mechanism is not a panacea.

• Selected projects need to be prepared well, with the appropriate allocation of financial and human resources, including access to expert advice. The Government must address funding and financing issues related to PPPs by developing and implementing clear and transparent approaches, including working with domestic financial institutions to gradually develop local currency financing for PPPs.

• Increasing competition and improving transparency: Investors should be selected through competitive procedures. Projects that are awarded on a non-competitive and non-transparent basis are considerably less likely to succeed;

• Providing a strategic and high level of commitment from the highest levels of government is key to ensuring the success of a PPP program.

The Tanzania Economic Update is a biannual report published by the World Bank with the aim of fostering constructive policy dialogue between stakeholders and policymakers and stimulating debate on essential economic issues in the country.

» Download: Tanzania Economic Update, 8th Edition