This op-ed was originally published in The Citizen.
Tanzania is sometimes referred to as a “Lion Economy” due to the rapid economic growth of nearly 7% that the country has witnessed since 2000. This is underpinned by a burgeoning young population, vast agricultural potential, and abundant natural resources. After two decades of sustained growth, Tanzania reached an important milestone in 2020, when it formally graduated from low-income to lower-middle income country status.
However, exogenous events, such as COVID-19 and the war in Ukraine, have resulted in economic shocks that have dampened its growth trajectory. According to the African Development Bank (AfDB), the country is projected to grow at 5.7% in 2024 as compared to 5.3% in 2023. Returning to pre-COVID-19 growth rates will hinge on the country shifting to a private sector-led growth model.
Tanzania’s Ministry of Finance as part of its Alternative Project Financing Strategy and FYDP III financing strategy has identified blended finance as an important non-traditional financing tool to mobilize private capital. As traditional sources of financing (on the balance sheet and Official Development Assistance) become more limited, Tanzania’s new economic blueprint needs to identify blended finance as a means of leveraging private capital to achieve its development objectives. The opportunity is there. According to Convergence, the global network for blended finance, Tanzania ranks fifth in Sub-Saharan Africa on the frequency of blended transactions.
During our recent UNDP supported mission to survey innovative financing transactions in Dar es Salaam and Zanzibar, we were encouraged by the various blended finance innovations we encountered. What is noteworthy is that these transactions have been executed within the traditional financial architecture which, in our opinion, provides greater room for scaling private capital mobilization.
Take the banking sector for example, two of the largest banks, CRDB Bank and NMB Bank, have used blended finance to bring down the cost of their listed bond issuances. CRDB Bank issued a $300 million green bond listed on the Dar es Salaam Stock Exchange (DSE), where the International Finance Corporation (IFC) acted as an anchor investor with a $20 million subscription. Similarly, NMB Bank’s $17.4 million gender bond and $159 million sustainability bond (issued in 2022 and 2023 respectively) were also anchored by IFC.
In both cases IFC’s participation was supported by the International Development Association's (IDA) Private Sector Window Local Currency Facility, through which it leverages the IDA’s concessional resources and blends it with its own account to bring down the overall pricing of bond issuances where IFC is participating. Both banks on lent the proceeds to development-oriented sectors such as renewable energy, energy efficiency, green mobility, and women-led/women-owned small and medium enterprises which erstwhile have struggled to secure appropriately priced capital.
The country’s national development bank i.e., Tanzania Agricultural Development Bank (TADB), fully owned by the government, has been instrumental in using blended finance to deliver development impact. The need for appropriate collateral is often a barrier for smallholder farmers when it comes to securing financing from financial institutions. In response TADB operates a smallholder credit guarantee scheme where it provides partner financial institutions with 50-70% of cash cover to guarantee their loan portfolio.
This de-risking approach has led to approximately $117 million of additional financing being disbursed across over 23,000 direct beneficiaries. Additionally, through partnerships with private sector financial institutions, TADB engages in co-financing arrangements. This allows TADB to play a catalytic role by mobilizing resources from its own balance sheet and blending these funds with financing from commercial banks and development partners in the form of debt, equity, and/or grants to support agri-sector projects.
There are also more examples of smaller scale deals aimed at catalyzing private finance. Daraja Impact, a project supported by the Swiss Agency for Development and Cooperation (SDC), uses impact-linked financial instruments and technical assistance to catalyze private sector funding. Private Agricultural Sector Support (PASS) Trust and Aceli Africa, both supported by a range of donor agencies such as Sweden International Development Agency (Sida) and Global Affairs Canada (GAC), provide partial portfolio credit guarantees (and origination incentives in the case of Aceli) to financial intermediaries to de-risk their lending to the agriculture sector.
Additionally, The Africa Enterprise Challenge Fund, which supports agriculture and renewable energy enterprises, provides catalytic patient capital to commercialize new business models, companies, and technologies through a challenge fund approach.
There is also scope for the Government of Tanzania to play a more active role in using its own sources to blend its financing with that of the private sector. We can look to Ghana and Rwanda for inspiration, where government/quasi-government agencies have played key roles in private capital mobilization.
The Ghana Infrastructure Investment Fund (GIIF), set up in 2021, is a permanent vehicle seeded with $345 million of funding from the Ghanaian government that de-risks and invests alongside private capital. In Rwanda, the Rwanda Green fund, has the mandate to provide growth capital to high impact ventures to mobilize additional green investment and build an ecosystem. Both examples can help shape how the Tanzanian government uses blended finance to stimulate economic growth and create impact.
With a government that is attuned to economic growth and committed to uplifting living standards, Tanzania is on the cusp of economic transformation. With a coordinated effort between private, public, and philanthropic institutions and de-risking support from development agencies, blended finance can play a pivotal role in enabling Tanzania to achieve its true potential and taking its rightful place as Africa’s economic powerhouse.
