Enhancing infrastructure financing in Tanzania

By Specialist Sapientia Balele , The Guardian
Published at 08:00 AM May 16 2024
Sapientia Balele is the financial specialist based in Dar es Salaam
Photo: File
Sapientia Balele is the financial specialist based in Dar es Salaam

ONE of the obstacles to growth in sub-Saharan Africa is the lack of large-scale infrastructure, which limits the economic prospects of individuals, communities and nations. Access to capital is key to addressing this challenge and unlocking critical economic development.

Given the long-term nature and complexity of large-scale infrastructure projects, it has historically proven challenging for governments in Africa to obtain the right level of financing from investors – but progress is being made.

In February 2020, the Government of Tanzania Ministry of Finance signed a facility agreement with a local bank for a US$1.46 billion term loan financing to fund the construction of the Standard Gauge Railway – the country’s largest ever infrastructure project.

This is a flagship project that has overcome the common financing challenge experienced by many Governments in the region and one, we believe, can serve as a blueprint for other major infrastructure investment projects, both in sub-Saharan Africa and other developing regions.

The value of the railway in Tanzania and beyond

Economic development in the interior of Tanzania, including around the capital, Dodoma, is highly restricted by a lack of reliable and efficient transport links to Dar es Salaam.

The existing railway between Dodoma and Dar es Salaam was developed in the early 1920s, with limited speed and capacity, and runs alongside a highway that is often gridlocked with trucks, cars, cycles and pedestrians, creating hazardous conditions and long delays.

By expanding capacity and providing essential connectivity between the cities of Dodoma, Morogoro and Dar es Salaam, the development of the Standard Gauge Railway project will support the Government’s ambition to leverage major investments in infrastructure to boost economic growth and promote sustainable development across Tanzania and the region.

The line from Dar es salaam to Morogoro with total span of 722 kilometres (541 km of mainline and 181 km of sidings), with subsequent phases extending the network into Burundi, the Democratic Republic of Congo Uganda and Rwanda, providing landlocked countries in Central and East Africa with vital coastal access.

The project therefore has the potential to create a wide range of benefits for people and businesses in Tanzania as well as neighbouring states. 

By connecting the interior of the country with the coast, communities along the length of the railway could benefit from better access to social services, healthcare, education as well as improved trade and commerce, with freight costs reduced by up to 40 per cent. Today, more than 31,000 direct jobs have been created as result of the project.

Furthermore, the electrified railway has the potential to take up to 500 lorries off the road for every train journey – thereby reducing road freight emissions and mitigating related pollution.

A thoughtful approach to development

Careful thought has been given around how to manage the potential impacts of the project on local communities and the natural environment. This includes thoughtful planning to ensure local communities who need to cross the track to access water sources, schools, markets and workplaces – as well as migratory animals, including wildebeest, zebras, gazelles and elephants – have access to safe passageways.

A key condition for the investors and Export Credit Agencies involved was that the project should not only mitigate potential risks but seek to make a positive contribution to local livelihoods and biodiversity protection and restoration – and all parties are continuing to monitor this closely.

The Ministry of Finance has also been proactive in strengthening capacity and ensuring compliance with international law for this project, including by commissioning independent monitoring, as part of its ambition to become a regional leader in promoting environmental and socially responsible practices.

A blueprint for sub-Saharan Africa and beyond

To date, the project has been the largest syndicated transaction in sub-Saharan Africa outside the oil and gas sector. Most importantly, it has showcased that such deals can be structured, with effective risk management, to balance economic, social and environmental objectives.

This has significant implications for future infrastructure projects in Africa and beyond. 

With heavy oversubscription, the project demonstrates that there is investor appetite for well-planned, well-executed projects that meet international standards and have demonstrable potential to create economic value to communities, whilst giving careful consideration as to how to protect community and conservation interests.

Sapientia Balele is the financial specialist based in Dar es Salaam