Tanzania can do its math. It has built an admirable
macroeconomic record through the central bank’s absolute commitment
to price stability. Central bank reserves are at $1.9 billion and
rising. Inflation has stabilized at around 4 percent, following a
gradual decline from 28 percent over the past eight years. With better
harvests and lower food prices, it could drop further.
Tanzania was also the best African market in 2002 in terms of portfolio
investment with returns on the dollar at 44 percent. Even following
two years of drought and poor agricultural performance, gross domestic
product growth is expected to remain above 6 percent.
In 2000, Tanzania
became the fourth country in the world to qualify for debt reduction
under the Heavily Indebted Poor Countries (HIPC) initiative, reducing
its debt burden by more than 40 percent. Proceeds from HIPC debt
relief are enabling the country to commit its resources to reducing
poverty and improving the delivery of education
and health services.
Tanzania has now had seven uninterrupted years of reform tied to
IMF and World Bank support and has met its targets all the way, notes
central bank governor Daudi Ballali. “Everyone wants to know
how we did it and we’re attracting high-level visitors from
a number of countries, wanting to see for themselves.”
Ballali
adds that Tanzania’s successful relationship with the World
Bank and IMF is partly due to its own proactive approach. One of
the only countries in Africa to draft its own letter of intent, they
prepared well for IMF/World Bank visits, and negotiations were based
on thorough research. “We had done our homework,” he
notes.
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Children’s
rights: the government is banking on the introduction of universal
education in Tanzania as a policy that will pay long-term dividends
in poverty alleviation |
Twenty-five years of homework to be exact. Ballali
was stationed in Washington with the IMF for this period of time
prior to his current role, perhaps explaining his thorough understanding
of and readiness to cooperate with these key organizations.
To underscore the strong relationship with multilateral institutions,
Tanzania hosted both World Bank President James Wolfensohn and IMF
former Managing Director Horst Koehler two years ago, the first time
both men had visited an African country together.
Now there is every chance that the stability Tanzania has instilled
at the heart of East Africa can extend throughout the region. Tanzania
is ideally placed to play a transforming and supportive role for
its African neighbors, by acting as an example of good practice,
according to Ballali.
“I think our financial services are quite a model, particularly
in micro finance. We are a leader in tackling micro finance at the
national level,” he adds.
If supporting small businesses is
key to tackling poverty in Tanzania, educating tomorrow’s entrepreneurs
and workers is equally important. The government is banking on the
introduction of universal education in Tanzania as a policy that
will pay long-term dividends in poverty alleviation. Introduced in
phases and now in its second year, the system is working well. “By
the third year, at least at the primary school entry point, we will
have all children in school,” says Ballali.
A more productive workforce will in turn help attract overseas investment,
and with better manufacturing boost exports, explains Ballali. High-profile
areas such as mining have attracted strong investment but there is
also interest in manufacturing, tourism, telecommunications and financial
services.
While key reforms have already been made over the past year to improve
the investor climate, much more needs to be done, especially on the
legal front, Ballali says.
The effects of September 11 and the U.S. war on terrorism have hit
Tanzania hard, reducing the willingness of some U.S. investors to
look positively on the region.
“Our tourism is not going as
fast as it used to before that period, and there are some investors
who are no longer coming to this part of the world for a number of
reasons,” says Ballali.
Misconceptions about Africa remain rife and damage potential investors’ perceptions
of Tanzania. One of the country’s greatest challenges is to
assert its own identity and avoid being typecast with the rest of
the continent. “The trouble is that Africa is looked at as
being one country,” observes Ballali. “Africa has many
different countries, different regimes and different problems.”
Tanzania is a totally different investment bet than many of its neighbors.
Ballali points out that U.S. investors in particular could do well
to look at gaps in its energy, tourism and hotels sectors, noting
that large U.S. brands such as Marriott are still missing from Tanzania’s
nascent tourism industry.
U.S. companies might also find it more costeffective to transfer
their manufacturing to Tanzania, which could then benefit by exporting
the finished products back to the U.S. under the Africa Growth and
Opportunity Act (AGOA).
While a rush of investment from the U.S. has not happened yet, there
have been tentative signs that opportunities will arrive, Ballali
says. A few years ago, U.S. power firm AES was planning a gas project
in Tanzania, but pulled it following the collapse of Enron.
Although the war in Iraq has sidelined many African issues, the continent
has gradually been finding its way back onto the Washington agenda.
President Bush has built on AGOA, while the Millennium Challenge
Account rewards good practice politically and economically on the
continent, drawing the attention of American businesses to Africa.
And drawing attention globally is exactly what Tanzania needs right
now. The country has done all the basics to put its house in order – it
has the approval of multilateral organisations and is emulated by
others in the region. But until it can attract investment into a
broad range of sectors, it will lack the truly robust economy that
could transform perceptions of the continent.