Tanzania: Domestic and Foreign Investments Spur Eco-Growth

Tanzania: Domestic and Foreign Investments Spur Eco-Growth

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In: Tanzania Foreign Investment News

ACCORDING to the Bank of Tanzania, economic growth in Q1-24 is estimated at 5.1 per cent, backed by increased domestic and foreign investments.

This was underpinned by the notable private sector credit growth which remained in double digits for the last two years. Headline inflation saw a slight increase of 10bps in the year ending April 2024, standing at 3.1 per cent, from 3.0 per cent in March.

Despite the slight increase, inflation remains with the central bank’s target range of between 3.0 per cent and 5.0 per cent. Stable inflation stems from stabilised food prices as the non-core inflation stood at 1.4 per cent, 50bps higher than February.

The Unprocessed Food Index saw a slight annual deflation of 0.5 per cent in April from 0.6 per cent in March and 0.1 per cent in February. However, the index saw a 1.0 per cent inflation on a monthly basis, down from 1.9 per cent for March 2024 due to seasonal movements.

The period between February and April is historically known to have the highest monthly food inflation being far from harvest seasons.

Considering the weight and significance of food products in the consumption basket of the Tanzanian community, along with significance of agriculture as a sector in the balance of payment, employment, and its share to GDP, the government has been taking a number of initiatives to improve the agriculture sector and domestic food security, partially leading to the recent stability in food prices.

Some of government’s initiatives include providing a 1.0tri/- agriculture facility at the central bank available to commercial banks, to lend to the sector at less than 9.0 per cent since 2021. In the same vein, the Bank of Tanzania further waived the statutory minimum reserve requirement for credit extended to agricultural activities.

The government also provided subsidies in agriculture inputs such as fertilizers to alleviate input prices during the pandemic and global supply shock experienced since the end of 2021. Moreover, in 2023, the Ministry of Agriculture oversaw the establishment of the Tanzania Agriculture Insurance Consortium (TAIC) which is a collaboration between the government, agriculture stakeholders, and insurance companies.

The primary objective is to empower farmers against the risks surrounding agricultural activities, while simultaneously attract financing into the sector.

Furthermore, in his budget speech, the Minister for Agriculture hinted on the Ministry finalizing talks with NBC Bank in regards to the National Food Reserve Authority (NFRA) issuing a Food Security Bond so as to ensure sufficient domestic food supply.

Despite this being a notable development for the sector, and a demonstrator of how capital markets can be utilized for economic development, generation of NFRA’s cashflows for debt service is a crucial question to be poised, so as to avoid addition of debt burden. We wait for the final structure of the programme.

While non-core inflation was minimal, energy inflation was flaming as the Energy, Fuel and Utilities Index went up 9.3 per cent in the year ending April 2024, the highest pace among all inflation consumption basket segments. This follows rising fuel prices following geopolitical tensions in the Middle East and Europe. Notably, the index’s annual inflation rose from 5.1 per cent in December 2023.

Energy inflation is backed by the 16 per cent approximated increase of domestic fuel prices as published by EWURA. On a monthly basis prices went up 1.7 per cent and 4.0 per cent since the beginning of the year. The annual increase is echoed by the 11 per cent global crude oil price increase according to Trading Economics.

Global fuel prices have seen slight volatility in the last few weeks as increased global supply suppresses prices, while geopolitical tensions, especially in the middle east push prices higher. Core inflation stood at 3.9 per cent, highly influenced by personal care, social protection, and miscellaneous goods and services segment which was up 7.5 per cent in the year ending April.

Other influential segments in the core inflation were Transport (4.35 per cent) lifted by the rise of fuel prices, and Restaurants and Accommodation Services segment (4.05 per cent) as tourism sours following the government’s promotion and continued recovery from the pandemic.

Despite subdued inflation, the Bank of Tanzania raised the central bank policy rate (CBR) by 50bps to 6.0 per cent in April, as a pre-emptive measure against lingering inflationary pressures mostly stemming from persistent foreign exchange challenges facing developing countries.

The Federal Open Market Committee (FOMC) in the meeting held on 1st May 2024, maintained interest rates at 23-year high amid stubborn inflationary data in February and March. This is contrast to expectations in the beginning of the year when markets anticipated at least three rate cuts in 2024.

Despite elevation of the CBR by the Bank of Tanzania, it is still the lowest rate in the region, demonstrating relatively subdued inflation and diversified sources of foreign inflows. Moreover, the central bank has suppressed Treasury yields throughout the month of April, by accepting less than target amounts, despite hefty oversubscriptions, especially in the long-term tenor auctions.

Suppression of Treasury yields is crucial in the maintenance of sufficient liquidity in the banking sector as government’s efforts to encourage investments have elevated the demand for credit, while the overall loans to deposits ratio remains above 90 per cent for the last eight quarters.

The demand for credit is demonstrated by the banking sector performance which saw the overall net loan portfolio grow by 22 per cent y-o-y in Q1- 24 while total assets went up 17 per cent. Similarly, the overall net profit for the quarter grew by 51 per cent compared to Q1-23.

Source: allafrica.com

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