THE government plans to spend 4.9tri/- to boost infrastructure development in the 2016/2017 financial year. BUSINESS STANDARD Financial Reporter, ABDUEL ELINAZA interviews Dr Hildebrand Shayo, on how the budget would contribute to country development and particularly the vision to develop a semi-industrialised economy.
Question: What specifically will
be the return on spending almost 46 per cent per cent of national
budget for infrastructure development in the 2016/2017 fiscal year?
ANSWER: In my analysis, 2016/17, the 4.9tri/- budget to boost infrastructure is an essential part of the Tanzania economy.
Many studies have found evidence of
large private sector productivity gains from infrastructure investment
and in many cases with higher returns. Research also show that
well-articulated infrastructure investment can raise economic growth,
productivity and raise land value while also providing significant spill
over and reap effect to areas such as economic development, energy
efficiency, public health and manufacturing that align well with 5th
phase government vision.
Many will agree with me that investing
rationally in infrastructure is critically important because it will
provide opportunities for the private sector to invest in public
infrastructure. There is currently very little direct private investment
in our national’s main road and regional systems due to the existing
systems of funding infrastructure, which in my judgment lack operational
instrument to entice and repay direct private investment in specific
infrastructure projects.
The role to be played by designated
financial institution the like of TIB as Development Bank can create in
support for projects that I believe will produce greatest returns to
Tanzania society and most likely to deliver long-run economic benefits
that will justify the up-front investments proposed in this year’s
budget.
QUESTION: Looking at the budget
proposal statement that 46 per cent of this year’s budget is set aside
for infrastructure, how this spending is going to help the Tanzanian
middle and lower class?
ANSWER: Investing in
infrastructure will create middle class employments. I am confident and
this has been proved elsewhere that up to 61 per cent of the job is
created just by investing in infrastructure especially in construction
sector. Similarly up to 12 per cent will be in the manufacturing sector
and small proportion of 7.0 per cent in retail trade. Total 80 per cent
job establishment whether direct or indirect isn’t a small thing to our
country. Based on analysis on percentile of the national distribution of
wages nearly 90 per cent of the jobs to be created in the three sectors
most affected by infrastructure spending would be middle class jobs
paying between 20th and 80th percentile of the national distribution of
salaries. Priority areas outlined in the budget speech by Prof Mbarawa
spanning from standard gauge railway, acquisitions of new flights for
ATCL, airport improvement around the country, port improvement, relying
of central line with 80 pounds/yards, ferry rumps, bridges, government
houses, decongestion of major city such as Dar and rehabilitation of
roads stretches covering various levels of roads across the country and
so forth, will all make it possible to create high multiplier effect
with big impact on middle class. These projects altogether fulfill what
was promised by President John Magufuli during last year campaign.
QUESTION: Based on your research
and analysis are you persuaded investing such trillions in
infrastructure is going to have a bearing impact in the country?
ANSWER: The average
unemployment rate among Tanzania is current around 12 per cent. With the
construction sector where the majority of direct employment will occur
as a result of infrastructure investment the unemployment could fall to a
single digit. Instituting foundation that would make it possible to
attain single digit in as far as unemployment is concerned is a big
achievement, I believe.
QUESTION: Why do you think
4.9tri/- infrastructure investments spending appropriate and beneficial
for the Tanzania economy now than it has never been before?
ANSWER: Appraisals of
economically reasonable investment and free opinion from many of us in
investment shows that Tanzania infrastructure is not keeping pace with
the need of our economy and the desire of the Tanzanian people. There
are also underutilized resources that can be used to build
infrastructure. Given, LGAs and municipals through own resource
generation and intergovernmental resource transfer typically fund a
significant portion of infrastructure spending, but are currently
strapped for cash, the central government has a constructive role to
play by stepping up to address the anticipated shortfall and provide
more efficient financing mechanisms to fill the gap. In fact,
government’s plan since President Magufuli came to power, addresses
these issues with seriousness-longstanding need for more infrastructure
investment amplified by funds. For example reallocated funds earmarked
for national Uhuru Day to improve Mwenge - Morocco stretch of road in
Dar es Salaam, and a stretch of road from Mwanza Airport to Ghana avenue
through effective use of Union Day allocated funds. Through such
examples it is clear, in my view, that targeted investment in
infrastructure would generate both short term economic benefits. It is
important to note, however, that transforming and investing more into
infrastructure system will require not only greater investment but also
more efficient use of resources, because simply increasing funding
doesn’t guarantee economic benefits. This idea is well embodied in the
President view as he tries to establish good governance in entire system
of the government especially in the public offices that oversee funds
designated for these projects as highlighted by Prof Mbarawa’s budget
speech.
QUESTION: What demand-side and supply side aspects that you think influence the 4.9tri/budget?
ANSWER: On demand side
rich validation informed by research across the global has seen the
sights link between infrastructure investment and economic growth
suggest that the economic benefits from various infrastructure projects
vary widely. For the reason I will not deal in trying to re-invent the
wheel, instead I can say that investment in infrastructure allows goods
and services to be transported more quickly at a reasonable cost,
resulting in both lower prices for consumer and increase profitability
for firms. On supply side, is that building on demand side aspects, in
my opinion, for Tanzania is a particular opportune time to invest in
infrastructure because the availability of underutilized resources
especially labour implies that the opportunity cost of infrastructure
investment is current well below its typical level. Enough literature is
available on these issues but in short supply side aspects have
implications on lower project costs.
QUESTION: Centred on positive
influence brought by investing in infrastructure are you envisioning
that one day Tanzania will have national infrastructure bank?
ANSWER: Currently
Tanzania has TIB Development Bank that can fill the gaps in
infrastructure funding system. Normally TIB’s annual report(s) do
indicate where much of investment has gone. There is current very little
direct private investment in Tanzania on this area that I consider it
is caused by the current method of funding infrastructure which lack
effective mechanisms to attract and repay direct private investment in
specific infrastructure projects. Should there be a National
Infrastructure Bank in Tanzania? The answer is Yes and No. If yes, I
would like it to develop a framework to analytically examine potential
infrastructure projects using cost-benefit analysis and hence evaluate
the distributional impact of both the costs and benefits. Of course at
national level not all costs and benefits can be quantified. I trust
rigorous analytical process would support for projects that will yield
the greater returns to society and the economy.
QUESTION: Will aggregate amount that the government invests in infrastructure be our national goal?
ANSWER: As stated
earlier on, economic analysis of infrastructure investment is known and
evidence is accessible. My opinion and position is selecting projects as
presented by Prof Mbarawa that have the highest payoff is critical to
me, as it will provide opportunities for the private sector to invest in
public infrastructure. But significant needs for greater investment,
the government cannot, and shouldn’t be expected to be the sole source
of providing investment funds. Innovative better way are available that
include effective leveraging merger government resources and the private
investment to meet the challenges the country face in expanding our
infrastructure system. Investment in infrastructure today will employ
resources when they are underutilized and raise the nation’s
productivity and economic potential in the future. I am persuaded, the
government philosophy to increase investment in infrastructure coupled
with broad-based reforms that include instituting good governance,
efficient resource use and so forth would have a significant and
positive economic impact in the short and long-term impact. Outcome will
lead to raising nation’s economic output, creating quality middle-class
employment opportunities and enhancing Tanzania’s regional economic
competitiveness.
Dr Hildebrand Shayo has more than twenty
years of research on economic matters. Views expressed in this
interview do not necessarily reflect those of his establishment. Can be
reached at shayohill@yahoo.co.uk
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