Tisikile Kibonde, the resident underwriter for the Africa Trade Insurance Agency, spoke to Beatrice Materu on strategies for attracting investment to Tanzania
How would you describe the current investment environment in Tanzania?
For more than 20 years, the country has had a favourable attitude towards both domestic and foreign investments. Measured by the gross capital formation to GDP ratio, investment has increased fairly rapidly.
The 2017 World Investment Report of UN Conference on Trade and Development says that Tanzania attracted $1,365 million in foreign direct investment (FDI) inflows in 2016 with accumulated stock of $19,818 million, the highest in the East Africa region. This was attributed to the fairly high GDP growth rates and a stable political environment.
However, the 2019 UNCTAD report shows there has been a slight decline in the country’s investments. The government is addressing this by developing market promotion programmes, establishing an integrated information system and facilitating the development of marketing infrastructure. Ultimately, the government aims to remove unpredictable policy and create a competitive business environment.
During the implementation of Tanzania’s second five-year development plan 2016/17–2020/21 (FYDP II), the government sought to attract investments in both productive and service sectors, including agriculture, manufacturing, tourism, infrastructure development and mining, using the private sector as an engine of economic growth.
How is Africa Trade Insurance helping the government of Tanzania attain its development goals, and attract more investments?
We are providing insurance cover for ongoing projects, including the expansion of the Dar es Salaam port and rail and road transport projects. We have also facilitated the flow of sizeable amounts of financial resources for the implementation of the projects.
Based on our experience in other countries, we are providing specialised solutions by offering ATI’s products as an alternative to sovereign guarantees. Many African countries cannot issue sovereign guarantees because they increase the national debt. ATI’s products help to enhance governments’ letters of comfort and to lower the debt ceiling.
We are also increasing the investment insurance capacity, which is a real problem for African countries, including Tanzania. The effect of this capacity squeeze is that banks lend less, or, if loans do proceed, rates are higher than the country’s projection. Additionally, foreign equity investors also require the protection of investment insurance, in particular for larger investments or those with a longer-term horizon, so again, a shortage of capacity impacts FDI flows.
Tanzania has abundant and diverse indigenous energy resources that are yet to be exploited. By insuring independent power producers,
ATI’s regional liquidity support facility, a unique energy guarantee product designed by ATI and German’s Development Bank KfW, guarantees independent power producers (IPPs) in the renewable energy sector in ATI’s member countries. This facility ensures that IPPs can function in situations of payment delays by the energy off-taker. We are following up with the government to implement this solution.
With regard to exports, although ATI’s primary focus is attracting inward investment, we also act as a substitute or a partner for an existing domestic export credit agency. ATI offers a product that insures exporters against the risk of non-payment, either for single transactions or on a portfolio basis.
And finally, because they are considered high risk, we help local companies and small- and medium enterprises access finance through banks. ATI has developed a number of products to make it easier for banks to finance these prospective clients.
What is ATI’s area of focus for Tanzania this year?
The area of focus is aligned with the national development frameworks, such as the Tanzania Development Vision 2025 and the FYDP II. In the past four years, ATI has supported trade and investment in the country to the tune of $3 billion as of December 2019, about three per cent of GDP.
There is potential for increased business considering the size and diversity of the economy compared with Ethiopia and Kenya. In 2018, ATI supported the Standard Gauge Railway project, valued at over $1 billion as part of the national development plans. ATI is presently looking at major deals in Tanzania with a total value of about $1 billion in infrastructure, mining, financial services, trade and manufacturing.
The objective is to help the government obtain cheaper financing with longer tenures, thereby cutting debt servicing costs.