HAVING reliable infrastructure remains to be the priority for poor nations to achieve economic growth which is crucial in the efforts to alleviate poverty.
Infrastructure development is at the heart of economic growth that reduces cost of doing business, attract private sector investment, enables production and social services delivery, links market centres and contribute to the sustainability of the quality of life.
Despite the government's efforts to improve the infrastructure, for example, extending road network to rural areas where the majority of poor Tanzanians reside and carry out substantive economic activities has been a major challenge.
According to the Five Year Development Plan 2011/12 to 2015/16 around 24 per cent of the country's rural population lives within two kilometres of an all-weather road, thus making the flow of goods and services to and from the countryside difficult and expensive. Similarly, in urban areas, traffic congestion has become a chronic and costly transport impediment as the investment has not been in line with population increase.
The FYDP says railways could have been the most affordable way of transporting inland cargo from ports to the country's hinterland and to neighbouring land-locked countries. Unfortunately, the unsatisfactory performance of the railways has forced companies to rely on the relatively more expensive road transportation to move their goods, including heavy and bulk goods. This is also likely to shorten the lifespan of the expensively constructed tarmac roads.
The government relentless commitment to invest in infrastructure development has resulted into positive achievements where, for example, more than 10,000 kilometres road networks are under construction at different stages. Since financing infrastructure remains to be an expensive undertakings that require massive funds, the government has been using various sources including own revenues from road funds and loans from lending institutions.
A primary obstacle is that the traditional official bilateral and multilateral sources of sub-national financing require sovereign guarantees, which are often unavailable due to fiscal constraints at the national level. Seeking less expensive sources of financing the government is currently finalising the issuance of Eurobond to invest in its infrastructure development projects, especially its vast roads and rail network.
If the deal becomes successful, Tanzania will be joining other African nations such as Zambia, Angola, Rwanda and Kenya that plan to raise capital in global markets. "We are keen on this to be done as soon as possible, perhaps later this year or next year, but there are some technical matters that are currently being worked out," the Minister for Finance and Economic Affairs, Dr William Mgimwa, told the 'Daily News.'
However, the minister did not elaborate on technicalities being worked out, stressing that a team of local experts and a consultant were handling the matter. "It is true that the signing of the contract with the consultant has been long overdue, but the government is vigilant to ensure that Eurobond plan is successful," Dr Mgimwa said in an interview.
In April, last year, the government announced that the country might soon issue a debut Eurobond of between US$ 700 million (about 1.1trn/) and US$ 1,000 (about 1.6trn/) to finance infrastructure projects. A senior government official was quoted as saying that HSBC, Europe's largest bank, has agreed in principle to facilitate the process.
The agreement on issuing of the Eurobond with pay-back period of between 50 and 60 years was reached early last year during talks between President Jakaya Kikwete and HSBC Chief Executive Officer (CEO) for South Africa and co-head of Africa sovereigns, Mr Andrew Dell. The bond will be issued once the Bank of Tanzania (BoT) and other relevant institutions have laid-down the conducive environment for securing the loan, including rating.
"The president has directed the Central Bank Governor (Prof Benno Ndulu) to complete all relevant conditions that will lead to the issuance of the bond as soon as possible," the official said. The government allocates over a half of monthly revenue collection for the road fund. Monthly revenue collection is around 500bn/-. In 2008, the country shelved its plans to issue a Eurobond following global financial crisis.
A source in the Treasury had earlier last year said that it would take between one year or 24 months until the Eurobond is finally issued. "We don't think we can go below category B in the credit rating," he said. However, some financial analysts say the country's large fiscal deficit and significant structural current account shortfall present downside risks to the rating process.
Having multiple sources of financing would help to construct a wide network of well maintained and all-weather roads, through sustainable expansion and rehabilitation initiatives, in order to ensure an uninhibited movement of people and goods in the country, with emphasis on strategic economic areas.