Tanzania’s position [on business competitiveness index] leaves a lot to be desired at both the world state and particularly in comparison to other East African nations.
By TZ Business News Staff.
The Tanzania Planning and Finance Minister, Dr. Philip Mpango, has praised Banks in the country for resilience amid serious global and local challenges, but he has also identified banks as the lead stumbling block stifling business competitiveness in the country.
In his opening speech at a two-day conference of financial institutions which started in Arusha, northern Tanzania November 24, 2016 to brainstorm on the country’s industrialization, facilitation of international trade, transformation of agriculture and the challenges facing the financial sector, the minister said the banks have been very resilient but they have also been “constraining” business in the country.
Although the level of financial access to small and medium enterprises (MSMEs) has improved, Tanzania holds position number four in East Africa on the World Economic Forum (WEF) business competitiveness index, beaten by Rwanda Kenya and Uganda mainly because banks are the stumbling block the minister said, quoting a current WEF report. Chairman of the Tanzania Bankers Association, Dr. Charles Kimei was in the audience listening.
On average, the financial sector has been growing at 13.9 percent per anum and a large contributor to GDP growth rate, with the main driver of growth being financial innovation manifested in a wide range of services amidst daunting challenges including the global financial crisis of 2008-09, and the recent slump in commodity prices.
The size of the banking sector has grown immensely as manifested in the ratio of bank credit to GDP, which rose from 4.0 percent in 1995 to 23.1 percent in 2015. The level of financial access to small and medium enterprises (MSMEs) has improved as well, Dr. Mpango said. According to FinScope Survey (2013), about 73 percent of MSMEs had access to banking and non-banking financial services with mobile money being the main driver of success. The data also indicates that financial access to subsistence farmers is quite high at 41 percent, suggesting that progressively, the rural population, is transforming from using rudimentary means of payment, funds transfer and saving money to becoming somewhat more sophisticated.
But the Minister identified serious challenges facing the banking sector that need serious attention. The challenges have been identified by the World Economic Forum (WEF) as part of a world-wide study of business competitiveness. WEF publishes an annual report which ranks countries on the Global Competitive Index (GCI) scale.
The index looks at data on areas as varied as the soundness of
banks, to the sophistication of businesses in each country. It then uses the data to compile a picture of the economies studied and countries are then ranked according to 12 pillars of competitiveness, which include macro-economic environment, infrastructure, health and primary education, and labour market efficiency.
“Tanzania on the global competitive index has remained stagnant!”Dr. Mpango said. “The position that Tanzania has held in the recent past is as follows: In 2012/13, the country ranked 120 out of 144; in 2013/14 it ranked 125 out of 148; in 2014/15 it ranked 121 out of 144 and in 2015/16 the rank was 120 out of 140.”
Tanzania’s position leaves a lot to be desired at both the world state and particulary in comparison to other East African nations, he said. In East Africa, the first position is held by Rwanda, which is ranked 58 out of 140; the second position is held by Kenya (99 out of 140); Uganda is third at position 115 out of 140 while Tanzania holds the fourth position with its rank of 120 out of 140. The last country in the region is Burundi at position 136 out of 140.
The minister told the financial experts the WEF index has identifies the Tanzania banking sector as a major stumbling prohibiting improvement of the country’s business competitive index. The indeces point to some of the factors that pose as a stumbling block; the limiting factors are given scores and presented as “most problematic factors of doing business in Tanzania.
The list of the most constraining “two-digit-score” problem factors with their respective scores is as follows: (i) access to financing (17.8); (ii) corruption (14.8); (iii) inadequate supply of infrastructure (12.4); and (iv) tax rates (12.2).
“By now you already know why I have belaboured to share with you the global competitive index rankings and the hindering factors for success in doing business in Tanzania,” Dr. Mpango said. “To put it bluntly, the elephant in the room is limited access to finance!”
The minister challenged financial sector practitioners meeting in Arusha to fix the problem. “I am sure the finance gurus attending this conference can significantly help to fix [this problem]. The importance of access to finance cannot be over emphasized. We all know that lack of access to finance is a binding constraint on the growth of small and medium size enterprises.
“While some people may think creating or expanding economic opportunities is a responsibility of the Government, the contemporary global environment is characterized by a symbiotic relationship between the Government and private sector, so that “it is the responsibility of all of us to explore every opportunity for growing the national economy” Dr. Mpango said.
“I recall from my undergraduate studies in monetary economics that the role of the financial sector is to transfer funds from surplus units to deficit units, thereby promoting greater efficiency and economic growth by channeling funds from people who do not have productive use for them to those who do,” he added. “The [Tanzania] financial sector cannot be spared from this noble responsibility.”
In most of the countries that graduated to middle Income country status in the past 50 years, financial institutions played a creative role in the promotion of new industries and coordination of industrial investments. The Minister challenged bankers to identify what needs to be done to play the needed catalytic and active role in promoting industrialization in Tanzania as envisaged in the Second Five Year Development Plan (FYDP II) 2016/17 – 2020/2021.
“Access to finance is critical to unlocking Tanzania’s growth potential, job creation and in facilitating the sharing of growth. On its part, the fifth-phase government has committed itself to creating an enabling environment for financial institutions to expand the scope and depth of their business and thereby scale up the supply and quality of financial services to the populace,” he said.
As regards the problems of corruption, inadequate infrastructure and the tax regime, Dr. Mpango said “the fifth phase Government under the very able leadership of His Excellency Dr. John Pombe Joseph Magufuli, [is committed] to stamp-out corruption, abolish nuisance taxes, instil fiscal discipline and accountability, and investing in building infrastructure.
The Government strongly believes that success of the efforts to fight bribery in Tanzania, streamlining the fiscal regime and sustaining financial sector reforms will unlock the much needed resources to accelerate economic growth and improve service delivery, he said.
On agriculture, the minister said Agriculture transformation in Sub-Saharan African Countries can only become a reality through industrialisation and inclusive finance. The minister challenged bankers to identify during their deliberations in Arusha, in which ways the financial sector in Tanzania is positioned to improve financing of the entire agro-value chain, from production to end use of products.
“I have been informed that only 10.3 percent of total domestic lending by banks over the past five years went to agriculture! Not only that, I am told that over 90 percent of the credit that went to agriculture, was actually used for trade and less than 10 percent was used in actual agriculture production activities.
“How are the financial institutions positioned to help the country leapfrog from an agrarian economy to industrial-based one?” the minister asked. “ Can the financial institutions package credit that can be accessed to support long-term investment not only for agribusiness but also for bolstering SMEs and industrial development?”
The Minister also challenged bankers to consider financing businesses that tap on international trade.Tanzania borders eight sovereign states and has natural harbors that can significantly support the import–export port services to the neighboring countries, of which six (Uganda, Rwanda, Burundi, Eastern part of DRC Congo, Zambia, Malawi) are land locked. The country is situated halfway between the Horn of Africa to the North East and the Cape of Good Hope to the South, with direct access to the Indian Ocean and a long coastline (about 1,424 Km including Zanzibar and Pemba).
As such, Tanzania has the potential to become an International shipping gateway as well as a facilitation hub of the Great Lakes Region as it links up with global markets. Imports and export of goods and services notably of Uganda, Rwanda, Burundi, Eastern DRC, Zambia and Malawi can access the rest of the world through the gateway of inland and sea ports of Tanzania, the Minister said.
“This implies that Tanzania can become a multi-modal transportation and logistics hub with a wide scope for regional and global trade facilitation, presented with advantages for shipping, warehousing and bulk storage, serving the aforementioned neighboring countries in the hinterland,” he said. “I particularly believe that investment in logistics and infrastructure (energy, transport and ICT) would act as a natural magnet to attract manufacturing and processing industries.”
The Minister then challenged conference participants to ponder on “how and to what extent are financial institutions [may be] prepared to support investment in logistics, warehousing and bulk storage to enable Tanzania to catch the opportunities arising from her strategic geographical location in serving the neighboring countries that lack direct access to the ocean”.
The 18th financial institutions conference which started November 24, 2016 at the Arusha International Conference Centre (AICC) with the conference theme ‘Harnessing Tanzania’s Geographical Advantage: The Role of Financial Institutions’ was planned to close November 25.