EXCLUSIVE: Inside IFC’s strategy to boost investments in Tanzania

What should Tanzanians expect from your first visit as the IFC Managing Director?

The first message is that we (IFC) are here to stay. Our discussions with Madam President (Samia Suluhu Hassan)were extremely fruitful. We focused on the major sectors that need to be improved to keep Tanzania on the development path. Tanzania has been resilient during Covid; the economy is doing well, the deficit has been contained, inflation is under five percent, and a debt which is not too high. We are in a situation where there are good macro-economic conditions for the private sector. So we discussed a number of issues on how to improve the business climate so that we can attract more investors by looking at specific sectors, for example, we talked about the health sector, transportation, blue economy, and how to have inclusive growth by increasing financing for women, particularly those working in the small and medium enterprises.

How much of the IFC’s $31.5 billion in total commitments around the world pledged in the 2021 Financial Year is earmarked for Tanzania?

Last year, we committed around $280 million, we are ramping that up because we are looking at new opportunities and we would like to double or triple it by investing more. Continued improvement of the business climate would be a very important factor to attract more investors. In the coming months, the IFC will send two large missions to do some project identification and engage sponsors who are interested in investing in the various sectors we discussed with Madam President, which would give us an opportunity to significantly increase our portfolio. Financing in the banking sector is already increasing with the issuance of new bonds.

As a multilateral lender: what needs to be done to bring about stability and growth to Tanzania’s private sector amid concerns of high interest rates on loans from banks and other financial institutions?

The factors which affect interest rates are many, one of them is the size of the deficit. A big deficit makes the government borrow more on the market, limiting resources for the private sector, hence pushing interest rates up. So the more you control your fiscal deficit, the less pressure you have on interest rates.

The second one is competition in the banking sector. The more you have competition in banking, the more you will have a reduction in the premium which is attached to investment that the banks are making.

The third element is reducing the level of uncertainty. When people lend money and put a premium on the base interest rate they do so to capture the uncertainty and economic risk. So the more you reduce that risk, the more you will reduce the premium. Put together, all these elements help to reduce high interest rates.

On our part as IFC, we provide more liquidity to banks to mitigate liquidity constraints in the financial sector. We also provide more long-term resources to deal with situations where there is a mismatch between the currency and maturity, as a result, this increases the cost of investment. So by bringing in some long-term resources particularly on local currency will reduce investors’ cost of financing.

Tanzania recently handed over its AfCFTA ratification instruments. What are your thoughts on AfCFTA, and the potential opportunities and challenges to look out for as a country?

IFC is pushing hard to increase intra-Africa trade. I think the biggest lesson from this Covid crisis is that we need to strengthen regional and sub-regional value chains. Africa doesn’t trade enough, and it’s the private sector that trades. So one of the things we have done, for instance, to support the AfCFTA is through trade financing. Most of the trade financing that was made available to banks was for people who were trading with entities outside Africa. We are launching an initiative that will be focusing mainly on trade financing within the continent. This will allow Tanzanians to export to Senegal and vice versa.

Second thing is we need to have more specialization of economies in order to build value chains and products which are competitive internationally. To achieve this, all non-tariff barriers need to be removed in order to expedite trade and delivery of goods from one African country to another.

What is the IFC’s advice to the young Tanzanian ‘creatives’ in the innovation space who lack support and access to capital?

Working with that demographic is one of the IFC’s priorities. We know that in many African countries half of the population is comprised of individuals younger than 21 years old. As such, we need to work with the youth so as to come up with products which are relevant to them. So the IFC is providing technical assistance, helping them structure their companies, give them the best practice in the way they can operate their businesses. We have a whole part of the IFC which provides advisory service.

We also provide capital that is needed for them to take their companies to the next level. We do this either directly or through the banking sector.

We are also trying to enter into areas in which we are not traditionally investing, like the creative industry. We know that a lot of young people are in that space. We are now engaging young people in that space to understand their needs.