Could you give us a brief historical background of the Bank of Tanzania?
The Bank of Tanzania is the central bank of Tanzania. It started in 1966 but before that we had the East Africa Currency Board (EACB) with one common currency. The EACB was formed before independence. After Tanzania's independence in 1961, followed by Uganda in 1962 and then Kenya in 1963 there were prospects of a federation and some of the common services were maintained. It was decided that this federation would not start immediately, a decision was made to start separate central banks within the region. In 1963 the three countries established their own separate central banks.
The Bank of Tanzania is an independent central bank; it has had valued changes and has gained more independence overtime.
In 1995 the Bank of Tanzania act was amended to give it greater autonomy, full independence, and also to define more precisely the functions of the central bank. The maintenance of price stability was specifically mentioned as the priority function of the central bank. This is where we are now.
Besides taking care of price stability we are the lenders of last resort for commercial banks. We are the managers of the country foreign exchange reserves. We are the economic advisors to the Government. We also carry out bank supervision and supervise the entire financial system in the country. These are our core functions in Tanzania and we are in the forefront of implementing the macroeconomic program that is going on now.
As you might have heard, we have this program which is supported by the IMF, the World Bank and other donors. It has been going on since President Mkapa came to power in 1995. We have implemented this successfully without a hitch and this year we have qualified for the HIPC initiative. The HIPC initiative intends to reduce debt to the poorest countries of which Tanzania is one. This is the first time that multilateral debt is being reduced or rescheduled.
We still went to Paris after the HIPC last month. We obtained also the debt reduction for non-rescheduled debt and also enhancement up to 90% for that supposed period you risked. At the end of this exercise (18 months) the net result will be that Tanzania's debt will be almost be cut into half. The debt reduction will be slightly more than $ 2 billion in net present value and about $3 billion in nominal terms. Our debt right now is slightly over $ 6 billion
When President Mkapa's third phase government came to power in Tanzania the rate of inflation was 30%. Now it has been cut down to slightly over 6% and this is the first time we are having an inflation rate that is less than 7% in more than 30 years.
What are your expectations in terms of inflation control?
We still try to push it down although we have been slow in doing so recently because of the rise in prices of oil but now it is about to come down. We think we can reduce it further.
During this year, we had a target of 5% inflation. I think it is achievable but we will not reach it until the end of the year. Our overall objective is that inflation rate should be less than 5% at any time. There have been a lot of dividends because of the improved climate.
The emphasis on the program has not only been in macroeconomics stabilization but also in structural reforms. The most important structural reforms that have been put into place are first, the privatization program. We are almost towards the end of the program. Most of the public enterprises are being privatized.
Now we are going through huge utilities that are also being privatized like telecommunication, power, the water system, harbors and railways. These are the last ones still to be privatized. The manufacturing and so forth have already been privatized. We have got very good quality investors from America, Europe and Asia and many of the loss making public enterprises are now making profit, contributing to the government revenue through taxation and are doing very well.
The other aspect that has been very important apart from privatization is to improve the climate for investment. We have a new investment code that has attracted substantial investment and more importantly we have a new mining code that has attracted the big gold miners into the country. We have four mines coming up, one is operational and three will be producing soon. When all four mines will be in production we will be the second largest producers of gold in Africa after South Africa. Right now the second largest producer is Ghana which produces more than 1 million ounces. At the end of our program in 2 to 3 years we will be producing more than 2 million ounces of gold. This has received a lot of response.
Another sector that has received substantial response is the tourist sector. Our tourist sector is growing at the rate of 20% per year since 1995. I think now we need a lot of investment because the excisting capacity has reached the breaking point. So we will welcome more investment in the tourist sector and we already have potential in the area.
Other areas that could benefit a lot from investment are companies of manufacturing for export. Previously we had an inward looking industrial strategy but now we have reversed the trend and we are seeking more investment that could be export oriented.
We have potential in fisheries as well. We are exporting fish from Lake Victoria mostly to Europe. We have two other lakes, Lake Tanganyika and Lake Nyasa and of course the Indian Ocean therefore, there is a lot of scope in this already.
In the mineral sector besides gold that has received a lot of investment we have a large potential in colored stones for example; tanzanite, ruby, sapphire, ... We also have some potential in base metals like coal that is receiving particular attention through a project called the Mtwara Corridor. Next to the coal mine there is an iron reserve and then in the Northeast we have the cobalt and nickel reserves. These probably are the next generation projects that will supplement the government revenue.
There are a lot of changes that have been going on through the liberalization of the financial sector and a lot of foreign investors are coming in as well. How would you describe today the competition climate in the sector? Do you anticipate mergers of smaller banks in order for the financial sector to take off?
The financial sector is the sector that has seen great transformations since we started. In 1993 precisely seven years ago we had only one large commercial bank and that year we liberalized the financial sector. First of all we invited a lot of private investment into the banking sector and we opened it up for foreign entry. As a result now we have twenty commercial banks and seven non-banking financial institutions. Most of the government owned banks have been privatized. The largest commercial bank that accounted for 90% of the business was broken into two: the macro-finance bank to deal mostly with regional and rural finance and the National Bank of Commerce which is the largest commercial bank. We completed the privatization of the bank in March and it has been taken by a large banking group from South Africa ABSA. We had an earlier privatization of the rural credit bank that is now called the CRDB. It is a very dynamic bank, and it was privatized locally. | The financial sector is doing very well and is becoming more and more competitive. More quality banks are coming in, we have City Bank, Standard Chartered Bank, and Stanbic Bank which are already in the country and Barclays who are setting up their business facilities. It is a sector that has been dynamic and the central bank has been key in promoting this.
We are in charge of bank supervision. As more banks are coming in it becomes very important to maintain financial stability. We have trained a lot of inspectors; we have a very strong bank supervision system in the country. We are the strongest in the region as some people say. We keep building it. We are not where we want to be but we will continue building it.
What would you say are the three reasons foreign investors should come to Tanzania or look at Tanzania as an investment destination?
First of all, we know that the rate of returns in Tanzania is very high, our labor costs are very low, we have a residue of educated people who can be very productive once they are employed and properly trained.
Second, the investment climate has so far improved because of the liberalization of the system. The Tanzanian economy is one of the three most liberalized economies in the SADC area. The first most liberalized is Mauritius followed by Zambia. These countries have more liberalized economies than South Africa. Third, there are absolutely no restrictions at all for import and export of capital and for dividends. In fact we allow foreign accounts to be opened domestically and you can either keep Tanzanian shilling balances or any other currencies you want and you are free to move it in or out as you wish. Our taxes have been lowered very much and are especially favorable for foreign investors. The tax holidays are long. Fourth, we have a very large resource base in whatever sector you go. You will have a lot of reasons to be in Tanzania because of the large resource base of the country.
What could you say are the main areas you are working on to improving the attractiveness of Tanzania as a destination for investors?
There are some areas that need improvement. First there is bureaucracy. We have improved a lot on the red tape although it is still there. As a former socialist oriented country we had a lot of controls and so forth and a lot of people are still in that mood. We still have to work a lot to reduce the bureaucracy. The first report that came out of Tanzania said investors would take months before they get what they want, but now through the Tanzania Investment Center that is a one stop center we have compressed that period to two weeks. We still think it is too long. Second is corruption. With transformation from a socialist to a capitalist free enterprise economy there are habits of capitalling and the government has been working very vigorously in order to stamp out corruption and I think it is working. There are instances of corruption that are known but they are more or less in the past than in the present. There is still pretty much corruption going on.
The third area that we need is improving our utilities. A few years ago we were short on electric power and we had a black out but now that is a thing of the past. We have excess capacity because we have come up with new plans on electricity. This sector has been taken care of. There has been a lot of improvement in telecommunications, telephones particularly and you will find out that telecommunication in Tanzania is no major difficulty whether by fixed lines or through cellular phones. It has improved tremendously.
We need to improve on our water system. We are in the process of privatizing the water system that is now being taken by a French company and a lot of investment will go into that, and water will be readily available at reasonable rates. We also need to improve on our port facilities. We have just privatized the container terminal and soon we will privatize the rest of the port. The government is quickly getting out of business. After power has been privatized at least we are going to unbundle the power sector into production, transmission and distribution. I think through efficiency that will come with the unbundling we will be able to reduce the costs of electric power. We also need to attract investment in order to expand the capacity in the tourist sector.
We recently talked to the Capital Market and Security Authority and the Dar es Salaam Stock Exchange. How do you see the future of the Tanzanian capital market, which is a new concept in Tanzania, in the next couple of years?
I think we should move very quickly towards making it a vibrant stock exchange. The stock exchange is only two years old. We are in the process of training brokers and other people who will operate the stock exchange. So far we have only three companies voted in the stock exchange. We are also putting the ground rules for the regulatory system in order to open it eventually to foreigners. We have a timetable of two years before we open the Dar es Salaam Stock Exchange for foreigners for participation.
Tanzania also is a key player in the COMESA, some officials have mentioned that Tanzania wants to pull out of the COMESA. What is the situation and what would be the circumstances if you pull out?
Tanzania is for regional groupings which are working towards the same thing. We are in the SADC; EAC and we are in COMESA. Some countries have opted only for one like Botswana and South Africa they belong to SADC. I think the government made a decision that we should drop out because it is very difficult for a country to participate in four communities at the same time. This is the basic reason.
How do you see Tanzania in the next three years with all this potential for investors?
I am very optimistic about the future and I think in three years time you will see a lot of changes. Between now and the year 2003 there will be major changes. We have completed the stabilization process for the economy and we are entering the growth phase. I believe that this growth phase will pick up very quickly.
Our readers are top businessmen, and members of government. What message would you like to send to them?
Please look at Tanzania. Tanzania is one of the most attractive investment destinations in Africa. We are becoming more aware of our potential and therefore we want to make it known by talking to foreign journalists, and by participating in things like the World Economic Forum that will take place in Dublin in June. We are working on a project called the Mtwara Corridor it is in the south and there are about five very large companies like Siemens, Anglo-American, Stein Energy and Duke Power. We have a gold mine called Razor Gold that will produce 200,000 ounces of gold, it was developed by a small Australian company but a bigger company called Ashanti came and bought half of the stakes. The same happened to our Ulyankulu mine that will produce a million ounces of gold. It was developed by Suttan Resources a small Canadian company but has been bought out by a bigger company Barrick.
So we are getting bigger and bigger players. The climate looks good. |
