Economic View


On inclusiveness in the private sector

What role is the private sector playing in 2017, and how do you see this developing?

ALI MUFURUKI: The central prerogative of the private sector is to have the government be more open to engagement and dialogue – to appreciate the fact that this is a partnership, while understanding that due to the history of our country, such a relationship is complicated. Previously there was not a lot of faith in the private sector, but now there is a serious need for cooperation to plan for the future.

The government has a number of plans aimed at moving the country in a new direction; for example, they are taking steps to achieve middle-income status, a market economy and semi-industrialisation. The rules of the game have changed: this means the private sector’s plans are dependent upon the government’s priorities, and the latter gets to define the relationship it wants and needs from the former. 
One example of this is the government’s movement of its offices and day-to-day operations from the commercial centre of Dar es Salaam to Dodoma. The private sector now has to decide how much it will invest in construction and infrastructure –building houses and offices, and eventually schools and health care facilities – in the capital. 

Indeed, the construction sector, which is large and wide in scope, supports a number of local industries and generates a great deal of tax revenue and employment. However, Tanzania also needs to foster construction activity because of the vital infrastructure it creates.
That being said, the government still owes the private sector a great deal of money, estimated at around TSh6trn ($2.7bn). Two-thirds of that originates from the construction sector, which remains incredibly important at this stage of the country’s development. In light of the large amount of debt owed, along with issues of transparency and corruption, and, most importantly, financial institutions’ hesitancy to continue lending to construction companies, it is clear the country needs to start fresh.

One key element of this is transparency. It is very important to know the government’s future plans, because the private sector may be able to contribute a great deal of aid, salaries and services. The government has to engage the private sector and create a mutually beneficial relationship; this will increase tax collection, public-private partnerships and loan facilities. When both the public and private sectors are involved, particularly in the case of loan facilities, these endeavours also harbour less risk. 

How can the government create incentives to create a robust local private sector?

MUFURUKI: Incentives are normally built into agreements, which are an important part of the government’s investment framework. They cannot be reneged upon, which has happened in the past, and has caused the private sector to lose faith in previous agreements. 

In May 2017 private sector operators met with President John Magufuli, as well as the minister of finance, and the minister of industry and trade. At this meeting, both private operators and public officials agreed on the need for a very strong and clear statement to the investment community: they are keeping an open dialogue as well as stamping out corruption. Both parties find these steps crucial for future investment in the country.

 The government needs to voice its commitment to these particular principles and make clear that Tanzania is open for business. Losing investors to other East African or Southern African markets that are more investor- and tax-friendly would be detrimental to all parties involved. This diplomatic and public relations move is meant to recognise those who are contributing to the overall health and well-being of Tanzania’s developing economy: this would be very much welcomed by the private sector community.