News that Tanzania is eyeing loans and grants amounting to $3 billion (about Sh7 trillion) from the Arab Bank for Economic Development (Badea) in Africa in the next five years was welcomed by some analysts and the business community, all of whom are optimistic that the monies will stimulate economic growth.
The Ministry of Finance and Planning said in a statement that the Arab lender agreed to give the money to finance various development projects, including roads, energy, education, agriculture, and private companies’ capacity-building programmes.
The bank arrived at that decision following talks between Tanzania’s Finance and Planning Minister Mwigulu Nchemba and Badea’s Director General, Dr Sidi Ould Tah.
The statement went further to explain that the money will be disbursed over five years of implementation of the country’s third Five-Year Development Plan (FYDP-III: 2021/22–2025/26).
“We have had detailed and meaningful discussion with the Tanzanian Finance and Planning minister and his delegation and have decided to dish out $3 billion to cement our relationship with the government of Tanzania,” Dr Tah noted in the statement.
“We are committed to cooperating with Her Excellency President Samia Suluhu Hassan to enable her to realise her plans of bringing about development for her people.”
Dr Nchemba commended the bank for its support, saying the monies would aid Tanzania in bringing quick development for her people through the implementation of the strategic projects in question.
He said Badea is a large country’s development partner – and, so far, it has dished out over $2.24 billion (about Sh5.2 trillion) in loans and grants for the implementation of development projects, including Mwanga-Same (Kilimanjaro) mega water project.
Dr Nchemba went further, expounding that the monies would be spent on improving energy, construction of over 14 irrigation schemes and livestock keeping projects.
They would also be used for the construction of roads which were likely to open up economic opportunities.
“The portion of money will also be used to strengthen the private sector by the government injecting part of the monies into commercial banks so that they can be dished out to the production sector and thus create jobs,” noted Dr Nchemba.
Zanzibar’s Minister of State in the Office of the President for Finance and Planning, Jamal Kassim Ali, said Zanzibar would also benefit from the loan and grant.
“Some $450 million will be used for implementing numerous strategic projects,” unveiled Dr Ali.
The projects to be touched include the construction of the Pemba airport’s runway and terminal building, the construction of the Binguni Referral Hospital, five Vocational Education and Training Authority (VETA)’s colleges and fuel depots.
“The new move will contribute to stimulating the country’s economy in tandem with creating more employment which is a huge challenge that we are grappling with,” noted the minister.
Stimulate trade, investment
The economist and trade expert, Dr Donath Olomi, commended the move, saying it would broaden the scope of lending to the private sector.
This in turn, he explained, would stimulate trade and investment.
“One of the biggest challenges that are currently impeding trade and investment is the failure of banks to offer long-term loans, basically due to their reliance on short-term deposits,” stressed Dr Olomi.
Tanzania Private Sector Foundation (TPSF) executive director, Francis Nanai, welcomed the new development by Badea and the government.
However, Mr Nanai said for it to have a quick reap, the best area to focus on when it came to lending with low interest rates should be Small and Medium-Scale Enterprises (SMEs).
He defended his recommendation on the ground that SMEs were a large employer, accounting for about 84 percent of formal employment.
But the same group, said Mr Nanai, has been grappling with a challenge to access capital due to lack of collateral and good track record.
“I am optimistic that by setting a stage for SMEs to access loans, more jobs will be created and thus taking down the level of poverty,” he exuded his optimism.
Again, he added, the SMEs’ contribution to the Gross Domestic Product which is currently hovering around 30 to 35 percent will go up.
The Tanzania Business Community director for communications, Mr Stephen Chamle, applauded the move by Badea, saying the low interest rate on the loan would take down operational costs.
“We suggest this to be sustainable. The government, through the BoT (Bank of Tanzania), needs to re-look its regulations governing interest rates,” said Mr Chamle, while recommending a single digit interest rate.
The business community has said that interest rates on loans are as high as 20 percent. Mr Chamle said it was hard for local businesses to compete with foreign investors, say from China, who were accessing loans at two percent from their countries.
Further, he suggested that the government needed to step in and alleviate unnecessary red tape in accessing loans from commercial banks.
“We, the business community, recommend that traders who invest in the manufacturing sector should get government guarantee for them to be able to access loans easily,” Mr Chamle said.
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