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Tanzania 2014 | ECONOMY | INTERVIEW

TBY talks to William Mgimwa, Minister of Finance, on managing a growing economy, FDI, and the objectives of Vision 2025.

William Mgimwa
BIOGRAPHY
William Mgimwa holds degrees in finance and banking from the Institute of Finance Management, as well as an MBA in finance from the Institute of Development Management. He worked with Tanzania’s National Bank of Commerce (NBC) for 20 years, rising from an accountant to become a Director of the Bank. In 2010, he was elected to Tanzania’s parliament, and was appointed Minister of Finance in 2012.

What financial policies have made Tanzania's rapid growth possible and, going forward, how do you manage the risks of a fast-growing economy without jeopardizing its health?

Tanzania is one of the fastest growing economies in Africa. We experienced very high average growth of 6.9% to 7% between 2000 and 2012. However, this has not served adequately in terms of reducing poverty. During the same period, poverty has declined at a rate of 2% to 3%. We have discovered that the fastest growing sectors like construction, transportation, and finance will not employ as many people as agriculture, which has been growing at an average of 4.3% for the past decade. The second issue to consider is political tranquility. Tanzania enjoys a climate of political stability, which has made it possible to plan our programs and implement them without interruption. Also, our economic program has been reinforced by strong monetary and fiscal policies. A third element is sound financial management, which we have also improved, and which has led to a concomitant improvement in the financial sector's performance. Studies have shown that where there is an improvement in the financial sector, there is a positive correlation with economic performance. We have experienced a rise in both the number of commercial and community banks, along with new financial institutions, such as the Tanzania Investment Bank (TIB). We are also in the process of opening the Tanzania Agricultural Development Bank (TADB). These are forecast to give the economy an opportunity to guide investment. Meanwhile, we have enjoyed a relatively positive performance in terms of social security funds, which have really contributed to the financing of other sectors, particularly on the investment side. All of these have contributed to the wellbeing of society. The final factor that has contributed to our success is our focus on investment; we have been doing our best to invest in strategic areas. Our task is to identify strategic projects that will support the development of other economic sectors. We emphasize energy generation and infrastructure, which involves seaports, airports, roads, and rail, including the modernization of all of these modes of transport. By focusing on these three factors, we can drive the economy forward. We have also invested a great deal in the provision of social services, particularly in water and road infrastructure, both of which add economic value through the integration of rural and urban communities. This has allowed us to drive the economy forward at a reasonable pace.

As Tanzania is now one of the top three destinations in East Africa for foreign investment, will capital controls be reviewed?

The future of investment in Tanzania is positive because of our clear investment policy. We are also looking at how to liberalize our capital account. We are still considering certain parameters, as we are not completely liberalized. In particular, we are looking at an optimal position that will enable us to attract more investment by redesigning policies geared toward improving the economy.

Which of your policies could incentivize investment in Tanzania?

We are looking to the recovery of gas reserves as one of the main drivers of the economy. Currently, we are spending almost $0.44 to generate 1 kWh of electricity. However, once we have the ability and the infrastructure required to deliver our gas reserves to users, we will be able to generate electricity at between $0.04 and $0.06 per kWh. This will enable us to reduce the cost of doing business in Tanzania, and is therefore a key consideration. The second factor is that by reducing utility costs incurred by industry employment can grow, thereby creating wealth for a broader swathe of the population. Therefore, these instruments will assist us in managing the economy properly by reducing the cost of doing business.

“ The future of investment in Tanzania is positive because of our clear investment policy. "

Affordable credit is a major issue in Tanzania. How are you addressing the inability of most individuals and SMEs to obtain financing?

The widening of the financial base can only take place if we first introduce a regulatory authority to safeguard service providers for the benefit of all parties. The second consideration is the setting aside of a sufficient budget to ensure that the nationwide personal identification scheme is completed no later than 2015, which we have done. This will provide an interface for the link between service providers and their beneficiaries, whereby a single identification list will be available to facilitate all processes in the country, including banking. In fact, the national identification system and the widening of the financial base go hand in hand. Licensing financial institutions can be quick, easy, and affordable, which means that the expansion of financial services takes place quickly in centers of high population.

Where does international aid fit in with the new dynamic of rapid economic growth generating wealth in the country?

We are making efforts to reduce our dependency on foreign aid, currently at a rate of 5.5% of GDP, to 5% for 2014. This will be a serious step toward improving and relying on our own resources. We will maintain a mixture of FDI or grants where we cannot manage alone. Yet both sources must be targeted at investment in economically crucial areas that offer greater opportunities for growth.

Vision 2025 declares Tanzania's ambition of becoming a middle-income country. How do you plan to facilitate this?

Firstly, the goals of Vision 2025 cannot be met without a realignment of the capacities of certain key sectors. The goal of the financial sector in a developed economy is to facilitate the funding of robust human capital and requisite technology through investment. By improving the role of the private sector and banking system, as well enhancing the public sector, public management, and accountability, we can build the instruments to create rapid economic growth and achieve the goals of 2025. Our manifesto and five-year development plan must reflect the spirit embodied by Vision 2025. In this manner we can realize all of the objectives that will transform Tanzania into a middle-income country.