…But Announces Commitment to Change approaches as World Bank Calls for Transparency and Competitive Bidding in Future PPP Agreements.
By Jaston Binala.
The Tanzania Government has admitted failure to foster Public-Private-Partnerships (PPPs) in the past, committing itself to a new orientation in which it now will allow for competition and transparency when seeking partnerships with the private sector.
The Vice President Samia Suluhu Hassan made the admission to past failure and commitment to a new orientation at a World Bank workshop in Dar es Salaam, where the Breton Woods institution advised the Government to become more transparent in its PPP agreements and to allow competition.
The workshop was organized by the World Bank to present their views on the Tanzania economy, and to suggest the way forward. The Conference theme was “Unleashing Public Private Partnerships in Tanzania.”
“As you know, PPPs are nothing new to Tanzania, but they have not yet achieved the hoped-for advances, investments or spending efficiencies,” the Vice President said. “We need to approach PPP in a completely different way, by adopting the best practices of countries with PPP success stories. We will develop clear strategies and ensure that PPP projects are selected, prepared, and implemented in a competitive and transparent manner.
“But this commitment has to be shared by everybody,” she said. “We have to learn from our previous mistakes and look at the PPP as a more smart movement than before.”
Contributing to this debate at Hyatt Regency Kililimanjaro Hotel in Dar es Salaam, Adolf Mkenda, the Permanent Secretary in the Ministry of Industry, Trade and Investment, pointed out that the private sector was as equally to blame for PPP failures in Tanzania as the government was. Mkenda recalled an instance in which the Government had failed to conduct due diligence on a PPP partner who entered into the agreement believing the project would be wholly funded by the Government.
But PPPs are joint ventures in which the private sector brings resources into a project to partner with the Government which also contributes resources, the Permanent secretary said. Another contributor said private sector participants should also “dress” themselves better to be picked for partnership with the Government to beat cut throat competition in PPP projects.
A senior Economist with the World Bank. Emannuel Mungunasi, identified two critical challenges in the Tanzania economy at present—challenges which called for private sector participation through PPPs if they are to be resolved successfully.
Investments in infrastructure and human capital are critically important if Tanzania is to unleash its economic potential and to generate a greater number of productive jobs while increasing the productivity of its domestic industries, Mungunasi said in a presentation.
He also warned the rate of unemployment was extremely high, with 800,000 new job seekers coming into the labor market every year. To facilitate rapid poverty reduction, it is also vital to modernize the agricultural sector; to expand health, education, and water services; and to extend the coverage of productive safety nets.
But given the limited availability of public resources to finance development, the private sector should play a much more significant role in accelerating economic growth and creating jobs the World Bank economist said. But for this to occur, constraints to prívate sector growth need to be resolved—which will call for significant improvements in the business environment, particularly the problems of affordable access to finance; expanding access to reliable infrastructure such as power supply and good roads and railway networks; and improving the education and training system to produce skilled workers.
The Government is constrained can not deal with the critical problems in the economy single handedly, Mungunasi said. Over the past four years, Tanzania’s fiscal deficit has declined steadily, from 6.8 percent of GDP In 2011 /12 to 3.3 percent In 2014/15.
However, this reduction has mainly been achieved through the imposition of painful cuts to development expenditures and through the accumulation of a high level of arrears. As of June 2015, the Government had accumulated arrears to a value of approximately TZS 5 trillion (6 percent of GDP) with suppliers and pension funds, including arrears with suppliers. The fiscal deficit in 2014/15 increased to [around] 4.5-5.0 per cent of GDP.
The State owned power company TANESCO has accumulated a significant level of arrears, the value of which is estimated to reach approximately TZS 1 trillion (1.2 percent of GDP), while the situation of other parastatal entities, such as REA and DAWASCO, remains unclear.
The skyrocketing cost of debt service creates additional fiscal challenges with debt service currently consuming approximately 25 percent of domestic revenues.
Mungunasi said while economic performance has remained strong in the recent past, the new administration comes into power in the context of increasingly significant external, risks which include China’s economlc slowdown, the decline in commodity prices; volatile global financial markets; and a further decline in aid inflows.
In her welcome address, Bella Bird, the Tanzania World Bank country representative said the Tanzania Government must provide conducive environment for the private sector to grow and generate the needed jobs.
The Tanzanian Economy continues to record a good economic performance. The economy grew at 7 per cent during 2015—the same rate as in 2014. This was good news for Tanzania at the time when Africa as a whole faced a decline in growth rate from 4.8 percent in 2014 to 3.2 percent in 2015 due to low commodity prices at the global level.
Services such as financial services, construction, hotel and restaurants and trading continued to post double-digit growth in Tanzania. Inflation rate remains low at a single-digit level thanks to prudent monetary policy and low fuel prices.
But it is important to recognize that there are still a substantial number of people living under poverty—12 million—the number which is almost unchanged since 2007 due to high population growth, she said. Also, a large number of people are vulnerable to future poverty: Non-poor people are just above 10 per cent or less from the national poverty line. In an event of major economic shock, these nearly 10 million people could easily fall below the poverty line, she said.
The country representation then outlined the role of the private sector in helping the government build the economy through Public Private partnerships (PPPs).
There is very clear evidence from experiences around the world that infrastructure and human capital development are two critical elements in improving investment climate and accelerating growth. The question in Tanzania is how to finance such necessary investments in infrastructure where the Government faces tight fiscal space.
Tanzanias tax revenue was only 12 percent of GDP in the last fiscal year, lower than the Sub-Saharan Africa average, she said. The overall level of aid is declining both in absolute terms and relative to the total budget— from 47 per cent of total budget in 2004/05 to only 14 per cent in the 2014/15 budget. The Government could secure only a half of the required financing under the first Five Year Development Plan.
Improving domestic revenue collection is one solution. The Government has made a record-level of revenue improvements earlier this 2016 by taking sweeping measures to cut down corruptions and tax evasion.
But taxes must be collected based on a system that is affordable with less transaction costs, a system that is perceived fair by tax payers, and a system that is transparent. Tax revenue will not grow unless the Government provides a proper business environment for the private sector to grow and by providing the right incentives for the private sector to participate in the tax system.
While raising domestic revenue will create more fiscal space for public investments, the Government could also partner with the private sector to develop and implement projects, Leveraging their financing through Public Private Partnerships (PPPs)….. the special theme of the 2016 World Bank Economic Update on Tanzania.
But partner investors should be selected through competitive procedure. Experiences has shown that projects in which investors were selected through non-competitive process without transparency were less likely to succeed, she said.
Many countries in the world have started using PPPs to attract private financing for investments that are typically considered for government investments. Countries like India, Mexico, Chile, and Brazil have mobilized 25 to 30 per cent of their investment needs from the private sector.
As Tanzania approaches to the middle income country level of per capita income, the Government should aim to work more closely with the private sector to finance investments. Global experience shows that well-designed and properly implemented PPPs can make significant economic contributions through improved efficiency and greater innovation those projects will bring.
For instance, privately-managed infrastructure services have been shown to facilitate the delivery of 12-29 per cent more connections per worker to power and water services and bill collection rates are 85 per cent higher than public services. Global experience also shows several key success factors for PPPs. Strong Government leadership and commitment are essential for the success of projects.
The Government needs to select projects carefully since not all projects fit well for PPP scheme; and those selectedprojects need to be well prepared with adequate allocation for funding and staffing from the Government, The World Bank Country Director said.
The Tanzania Vice President said “for its part, the Government restates its strong commitment towards supporting PPP at all levels. In addition, we will work towards putting in place a robust financing framework for PPPs.
“The President of the United Republic has mandated the Ministry of Finance and Planning to drive the PPP agenda. In the past, the PPP agenda was split amongst different parts of Government, with little coordination. The current administration makes a clear attribution to the Treasury, to build on its experienced team to deliver successful PPPs across Tanzania.
“The Government will ensure that resources are available to develop high quality PPP projects, including from the PPP Facilitation Fund and the World Bank.
“For local government PPP, the President’s Office, Department of Local Government has created a PPP unit that is mandated through the PPP regulations to support local governments in implementing PPP, and to approve “small” PPP projects.
“The PO-RALG PPP unit has been working with a group of local governments, providing training, identifying potential projects and preparing selected projects for best practice implementation. These are supported by the World Bank and DfID,” the Vice President said.