MINISTRY ROUNDTABLE HIGHLIGHTS NEED FOR INFRASTRUCTURE

UNCLAS SECTION 01 OF 02 DAR ES SALAAM 000335

SIPDIS

DEPARTMENT FOR AF/E JLIDDLE; INR/RAA FOR FEHRENREICH; AF/EPS
STATE PASS USAID, USTDA

E.O. 12958: N/A
TAGS: EAID ECON EFIN EIND TZ
SUBJECT: MINISTRY ROUNDTABLE HIGHLIGHTS NEED FOR INFRASTRUCTURE
FINANCING

REF: A) Dar es Salaam 154

DAR ES SAL 00000335 001.2 OF 002



1. Summary: On April 23, the Ministry of Infrastructure Development
(MOID) hosted a roundtable discussion focused on the current state
of infrastructure and infrastructure financing in Tanzania. The
meeting, co-chaired by Omari Chambo, Permanent Secretary, MOID and
Enrico Strampelli, EC Head of Cooperation, was well attended by GOT
officials, donor countries, and the private sector. Main
conclusions were: a) that Tanzania ranks poorly in essential
infrastructure even among other low income countries (LICs); b) that
port congestion is one of the most pressing constraints; and c) that
Tanzania currently underfunds infrastructure development and
strengthening domestic capital markets is necessary to meet funding
requirements. Although the need for infrastructure development and
the difficulties associated with the port of Dar es Salaam are well
known, the MOID roundtable marked the first time that integral
sector stakeholders focused specifically on financing options. End
Summary.


2. A presentation by the World Bank underlined Tanzania's poor
performance in infrastructure development and maintenance, even
relative to other LICs. Only 10 percent of the population has
access to power while, within the LIC group as a whole, it is 15
percent. Tanzania's piped water supply and access to clean water
has actually declined over the past decade. Within the ICT sector,
the country has very limited international bandwidth - only 2.7
Mbps/capita in contrast to 5.8 Mbps/capita for LICs as a group
(although this will likely change when the Seacom and EASSy undersea
cables are operationalized). While progress has been made in roads,
the goal to pave all trunk roads by 2018 is now 10 years behind
schedule, and the poor condition of railways contributes to
significant road damage as bulk cargoes suitable for rail transport
are diverted to road routes on heavy trucks. Finally, the port of
Dar es Salaam is far underperforming. Increased congestion has
forced shippers to use alternative ports, depriving Tanzania of
revenue.


3. A second World Bank presentation detailed the challenges arising
from the extreme congestion at the port of Dar es Salaam. It
identified four main causes of congestion - lengthy customs
clearance procedures, storage of containers in the port,
difficulties of container off-take, and generally inefficient use of
space. Lengthy dwell times result in significantly higher costs for
shippers thereby decreasing the attractiveness of using Dar as a
port. The cost of freight constituted 21 percent of the value of
containerized merchandise in 2008, 2-3 times more than the average
in other LICs and 5 times more than world averages. The port of
Mombasa handled 16 million metric tons of cargo last year, far
surpassing the 7 handled in Dar.


4. According to the presentation, port authorities and stakeholders
must take remedial action to remove containers from the port,
prevent recurrence of congestion, decrease dwell time, and invest in
systems that will continue to improve the capacity of the port.
Specifically related to infrastructure, it stressed improvement of
the rail system to facilitate container movement (re-laying the
railway tracks into a loop layout to replace the current
first-in-last-out configuration); improved road access to the port
by widening the main port road; and investment in more or better
ship-to-shore gantry cranes. The presenter stressed that investment
in infrastructure was only one part of the solution. Relevant
stakeholders must also make a series of managerial improvements,
without which it will be impossible to find a sustainable solution
to the congestion. Comment: While some of the specific investment
recommendations are new, the overall analysis of Dar's port needs is
widely shared among users of its services and donors(See ref A). End
Comment.


5. In recognition that structural improvements in Tanzania will be
impossible without increased investment, Yuzuru Ozeki of Japan
International Cooperation Agency (JICA) presented an overview of
infrastructure financing in Tanzania as well as several alternative
means of financing infrastructure development. Tanzania's funding
needs for water energy and transport over the next 10 years total
USD 34 billion, or approximately 15 percent of GDP. The country
currently spends about 10 percent of GDP on infrastructure, leaving
a 5 percent gap. If recurrent expenditures and implementation
shortfalls are included, the true funding gap may be closer to 10
percent. Insufficient investment in infrastructure, he said, should
be viewed as an opportunity cost in the form of lost income and

DAR ES SAL 00000335 002.2 OF 002


lower standards of living, health, and welfare.


6. Ozeki emphasized the importance of developing the capacity of
Tanzania's domestic capital markets including the creation of long
term benchmark securities, opening government bond markets to
foreign investors, and continuing pension regulatory reform to
foster a domestic long term investor base. Given the large
infrastructure funding gap, he recommended that Tanzania develop and
implement a legal and institutional framework for public private
partnerships (PPPs) in order to attract private sector funding for
priority infrastructure projects in key sectors. He also mentioned
sovereign bond funding as a possible future alternative which was
not currently viable given the continuing global financial crisis.
In the ensuing discussion of the presentation, US Treasury Advisor
concurred with the importance of domestic bond market development
and pension reform and highlighted the usefulness of opening the
domestic government bond market to foreign investors as a means of
accelerating long term bond market development. Finally, he
mentioned that PPPs were only one mechanism for attracting foreign
investment and that other means should also be pursued.

ANDRE