16 August 2018

Tanzania: Building, Construction Financing Falls Despite Credit to Private Sector Rising After Slowdown

Dar es Salaam — The financing of building and construction has entered contraction in the wake of recovering banks' credit to private sector.

The economic activity joins agriculture and trade which are also still recording negative growth.

Building and construction has been growing in the recent months and grew by 15 per cent in the year to March 2018 before slowing to five per cent during the year ending April.

The Bank of Tanzania's monthly economic review for June indicates that the activity had contracted by 6.7 per cent this May compared to 5 per cent growth in the year to May 2017.

Some industry experts say the contraction reflects reluctance of developers to continue borrowing from the commercial banks after learning that there is fall of occupancy rate in the available buildings.

There have been reports that the number of unoccupied buildings, especially in the Tanzania's commercial capital Dar es Salaam, is increasing as government functions are moved to the nation's new capital Dodoma. There is also possibility that companies are looking for cheaper options or even closing shops in the current liquidity-tight business environment.

"Developers are basically the suppliers of the buildings and when they learn that there is fall in occupancy rate, they may use that info to make decision. Probably they are slowing down to balance supply and demand," says Watumishi Housing Company chief executive officer Fred Msemwa.

Watumishi Housing Company is a property developer and the main implementer of the Tanzania Public Servant Housing Scheme tasked with building 50,000 housing units in five phases from 2014/2015.

Dr Msemwa was recently quoted as also saying that most customers in his company's Gezaulole project had changed mind after they were transferred to Dodoma.

Credit recovering

According to the central bank report, credit to the private sector continued to recover after growing by 2.6 per cent in the year to May 2018 compared to an annual growth of 0.8 per cent in April 2018.

Personal loans are leading the banks' credit to major economic activities. Personal and trade activities accounted for the largest share of outstanding credit to the private sector at 27.3 per cent and 20.6 per cent, respectively.

The personal loans also grew at 49.2 per cent while the growth of credit to trade was negative 3.2 per cent.

Credit to agriculture is also still registering negative growth since January this year and contracted by 5.6 per cent in the year to May 2018.

Mining and quarrying also registered a faster growth of 29.2 per cent during the period under review.

Tanzania

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