Tanzania's Eurobond to facelift infrastructure

Tanzania is set to have the most reliable and efficient infrastructure networks in the East African region following concerted initiatives and efforts to find new and alternative sources of finance.

Through the Big Results Now (BRN ) initiative, the government last month showcased some mega infrastructure projects worth over 10 billion US dollars to large scale financial institutions for potential consorting through equity or favourable debt considerations.

But another initiative in the pipeline is the plan to raise 1 billion US dollars by floating the Eurobond for long term infrastructure investments, having an ultimate goal of unlocking and connecting remote key production area and markets.

The implementation of the initiatives will definitely impact into an efficient and improved railways, ports, road networks and power projects.

Moreover, it is from the initiatives witnessing the close involvements of the private sector in the form of public private partnerships (PPP), in raising funds for infrastructure development instead of leaving everything to be done by the government.

Some of the projects shortlisted in the BRN scheme included the upgrading to Standard Gauge of the 1,263 kms Dar es Salaam-Kigoma railway line (at estimated value of 3.4 billion US dollars), 378 kms Tabora-Mwanza line (1 billion US dollars).

Others are the deepening of Dar es Salaam port berths 1-7(500 million US dollars), the modernisation of Mwanza South Port (400 million US dollars).

Also, the construction of Dar es Salaam-Chalinze Expressway (519 million US dollars), the 105kms Arusha-Moshi-Himo Junction Dual Carriageway (363 million US dollars) makes the top list. Power projects outlined are the 320 MW Kinyerezi 3 Power Plant (368 million US dollars), 330MW Kinyerezi 4 Power Plant (410 million US dollars).

Speaking on the issuance of the Eurobond last week, the Finance and Economic Affairs Minister, Ms Saada Mkuya Salum, said “the responsibility for meeting the enormous demand for new and better infrastructures remains to be of paramount importance owing to increased population and fast growing economic activities.”

Poor and unreliable infrastructure networks are always associated with high cost of doing business, an aspect that eats business profitability and ultimately discourages investors.

She said the government was finalising important processes that will lead to floating the Eurobond to finance infrastructure projects to be outlined in the next budget.

She added, “We expect all the processes needed in floating the Eurobond to be ready by March, next year before the next budget session.

We needed to put our house in order before floating the Eurobond to avoid mistakes done by other Sub-Saharan countries.” The government has picked out three international sovereign rating agencies - Fitch, Standard & Poors and Moodys.

Credit rating is important because lenders use it to determine borrower’s credit risk. Key issues to be considered in the credit rating process include economic growth rate, control of financial markets, inflation and balance of payment.

Tanzania needed most of the money to fund infrastructure projects, crucial for speeding up economic growth and achieve improved living standards. According to analysts, the Eurobond would help fill up the gap amid the decreasing donors’ support of the development budget.

Eurobonds are attractive financing tools as they give issuers the flexibility to choose the country in which to offer their bond according to the country’s regulatory constraints. Usually, a Eurobond is issued by an international syndicate and categorised according to the currency in which it is denominated.

Tanzania’s plans of the Eurobond have been a longdrawn out affair. The process started in 2008 but was postponed in the wake of global financial crisis.

The process was restarted four years later and it was expected the country would issue the eurobond during the 2012/13 financial year.

In 2011, the government appointed Citibank Group of the UK through the Bank of Tanzania (BoT) as a transaction advisor. The plans to issue the bond were, however, shelved in the wake of shocks caused by the global economic crisis.

In 2007, Ghana became the first African beneficiary of debt relief to tap international capital markets, issuing a $750 million 10-year Eurobond.

Rwanda became the first East African nation to raise money through a Eurobond, when it raised 400 million US dollars last year and Kenya recently raised 2 billion US dollars through debt instrument.

Therefore, it is from the above initiatives that would see the country’s infrastructure networks become the most reliable and efficient in the region, reducing the cost of doing business and becoming significant incentive in attracting new investments.
Source: Daily News, reported by Sebastian Mrindoko from Dar es Salaam, Tanzania
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