Sunday, December 28, 2008

Getting them done...



I had an interesting debate with one fella recently at a party: whether, if you have minimal resources and really have to prioritize, you would go for education or for roads. I wouldn't want to say here where I stood.

Anyway, education and roads are all important. We talked about education here earlier in the month. Let us now talks roads. The image you see is a little outdated but give a near accurate picture of the state of our roads.

If you take a look at the 2007/2008 Global Competitiveness Report published by the World Economic Forum, Tanzania ranks 94th out of 131 countries in overall quality of infrastructure. Specifically, in the quality of road infrastructure, we ranked 87th out of 131 countries.

Consider these other facts:

•With an area of 364,900 sq m (945,000 sq km), we have a total road network of 53,655.7 miles (85,849 km), of which only 7.4 per cent (3960 miles) is paved. And only 70 per cent of the paved roads are in good condition.

•11.7 per cent of our road network consists of trunk roads (6299 miles) that are also used by six landlocked countries for their international trade. Only 49 per cent of these trunk roads are paved. How can we be competitive in international trade with such roads? The cost of transporting a container from Kigali in Rwanda to the port in Dar es Salaam is almost $1.9 per mile compared to $0.03 per mile in the more efficient railway line between Durban in South Africa and Maseru in Lesotho.

•22.3 per cent of our road network (11,966 miles) consists of regional roads that would normally link and interconnect the country into a functioning national market. Only 3.26 per cent of such roads (391 miles) are paved. And of those that are paved only 85 per cent are in good condition. How can we create a functioning and efficient national market with such roads?

•66 per cent of our road network (35,391 miles) consists of district, urban and rural roads. These are the ones linking the productive areas of a predominantly agricultural economy to the national, regional and international market. Besides market access, such roads are necessary if farmers are to diversify into higher-value economic activities to augment incomes. But only 1.4 per cent of these roads (494 miles) are paved. Overall, only 14 per cent of this category of roads is considered in good condition and only 41 per cent in fair condition. Only 38 per cent of the rural population lives within 1.25 miles (2km) of an all-season road. How are we going to efficiently and cost-effectively link the producers with the market with these kinds of roads?

Now, like with all major public investments, the question eventually comes to funding. I am told that for US $1 billion, you can build up to 700 kilometers. We probably need $3-4 billion to sort out all of our major roads. There was a point where we wanted to go to the markets, just like Ghana and Gabon did, and do a sovereign bond and rake at least $2bn. But the market, as you all know, went bust. You can't get that kind of money at 6, or 7, or 8 percent. In fact, Ghana got I think a billion for 7 percent, but now they have to pay 13 percent. And Gabon's rate has gone up too. Now, how do you raise $3 billion at the current environment?

19 comments:

salama said...

January,

Reading this gave me butterflies in my stomach with a mh! gesture.
How do you even start thinking what to do to raise $3 billion(with a 'B') in the country like ours with this Economic turmoil around the world?

I once heard that we're like almost 400 years behind the westerns infrastructure wise. Now it make some sense.

If, and only IF, we could invest big time in that, our children's children will be able to enjoy and be proud Tanzanians, just the way western counstries like US are benefiting from the work done in 1800s, of incredible state to state, cross-country highways.

Well, couldn't come up with anything but, to politics/economics junkies, am thinking the P word to our infrastructure with some tough sanctions to whoever will take the bill. But, mh! who can WE give sanctions?? or at least draw some attention??

May be if we tell them that we going Nuclear. It's working for Iran and North Korea.

I'm disturbed Y'all, this is very depressing. Oh! the P word I was thinking is PRIVATIZAITON

(I know am gonna get hit with this but, what should we do if we can't do it ourselves?)

misokasick said...

How can you create infrastructure if you do not have an educated society. Infrastructure need engineers. Zfor the time being I would say they go hand in hand. As you improve your infrastructure, then you need to improve the quality of education. I think in terms of education, the Government seems to emphasize more on quantity and not quality. You can not have education without a stable economy. With the nature of our natural resources Infrastructure is the key to our economic performance which willl lead to perform well in other sectors such as Education. Therefore improve our infrastructures since that is key to our economic performance. Read a book by jane jacobs" death and Life of america cities. she basicall talks on how the following are important in building up an economy of the city. She talks on the importance of the following ommunity and family, higher education, science and technology, governmental representation, and self-regulation of the learned professions. I think that her strategies have been adapted in some existing cities of our time. Not suggesting that it would work in Tanzania, but her ideas are pretty basic. For me when she talks about technology I equate technology to Infrastructure and other key ingredients in building a sustainable economy. High investments in technology is what brought salvation to singapore.n It brought independence for a land with no natural resource. May be it works best once you know you got nothing else to boost your economy. It makes people think critically for other alternatives. I guess the ghost of natural resource haunts us as well. Peace!

Anonymous said...

Hi there,

I just read Salama's comment. A quick note about the US highways - The United States Interstate Highway System is only just over 50 yrs old. They say this has arguably been THE biggest interstate commerce booster in the last 50 yrs or so. I always feel pity whenever I compare anything in Tanzania with whatever Americans have done or are doing. We all know the worlds in between where these guys are and where we are.

Unless we Tanzanians figure out a way to do the heavy lifting ourselves when it comes to highway construction, centuries from now we still will be way behind.

Someone tell me if this is too simplistic: Highway Construction Equipment Rental Services -- Owned by a truly Tanzanian Company - party funded and owned by the Government -- with 5,6,7 or more regional locations thru out the country - EQUIPMENTS AVAILABLE FOR RENTAL TO QUALIFYING TRULY LOCAL TANZANIAN COMPANIES. If this can be put in place, highways would "eventually" be built rather more cost effectively and most importantly, we would not have to pay foreign companies to come back for major repairs PLUS most of the funds would remain in the country. Apart from purchases of such equipment, paying for whatever consultancy we will need and whatever else we would be importing for construction, all the rest of expenditure would be within the country.

Most of us would see obstacles that would make something like this impossible. First off, I would imagine one would have to bribe generously to have an idea like this looked into. Plus all the negative thinking most of us have -- i.e how about maintaining such equipments, cause we have tried this kind of stuff and failed. We do have brains and probably there are lessons we did learn from what went wrong back then. You put the right brains to work on this proposal and they can pull it off.

We have to wake up and really do something for ourselves people.

When shall we as a people, really push back against all these foreigners exploiting us. We know whats happenig and we are so good at pointing out how evil they are (that IMF/ World Bank post), yet we just stand aside and look, just talk, complain etc, etc

We happen to be more than happy to borrow for quick results no matter how much it eventually cost us.

Construction equipments are not that expensive here in the US -- especially lightly used ones. Im a truck driver here and I've even looked into the logistics of getting such equipments to ports and its not that expensive either.

I know its hard to bring to life but it can be done

Naomba kuwakilisha.

GAME THEORY (GT) said...

sALAMA,

I beg to disagree with you. How dare you mention privatization as our way out!



We all know privatisation has become a byword for cock up, collusion and extortionate costs!



All those promises of better services and fairer prices, what utter nonsense! Services are worse than ever and cost twice as much!


Pia usisahau kuwa Public services such as roads that JM talked about are not meant to be run for profit. While efficiency can be applauded, it is the SERVICE which is the primary reason for them existing.



Any degrading of the service means the public has been failed. Public services should be allowed to run at a loss, because profit isn't the point. How could anyone in their right mind expect a school or a hospital to run at a profit?



The primary driver of privately run companies is profit and returns to investors, so why would we want to trust them with functions which should be in the public interest first and foremost.



Let me be a little emotional for just a second: any goverment that supports privitisation should be charged and punished for betraying the citizens they are supposed to support.



Dont get me started with how DFID and WB pressured us in the privatization of DAWASA

misokasick said...

Game theory, You can not serious look at privatization as a doom. Please give us an alternative. I would agree with everything you have touched upon, but I do not think we can get any further without privatization. I think you should at least emphasize on Privatization on sectors that we are still not well equiped to do on our own. I would like to believe you are not suggesting privatization is completely a waste. Thanks for your critical comments.

salama said...

@
Anon and Gt,

Thanx guys, I appriciate your experties. I know that there really brilliant people in our country who, if given a chance and resources, will be able to come up with a great plan.
I know that issue like this one is not for profit making, but I remember January posted a while ago about if we need dictatorship to put ourselves in a straight line, this is a very good example of why do we always need some kind of help from the outside world to even, very sensitive issues!

I understand our place, economically, socially and by no means I was trying to compare us with the developed world. That's like 'ndoto ya alinacha'
What am trying to say is, everybody started somewhere. It's not the overnight thing. May be we need some kind of a push. Important thing is, put some ideas out there you know, lets use the good ones and discard the once we think they're of no use.

Why is South Africa has such incredible roads? at least in their big cities, kwa sababu wametawaliwa mpaka juzi juzi?
Yale yale, do we need dictatorship?

Seriously, this doesn't make no sense at all. We'll have to do something, at leas start somewhere.

Rash said...

There is a study that i looked at over the weekend. With the good infrastructure we can boost that GDP by 2% more annualy. Mauritius ranks on top five on the best infrastructure and that has boost their economical growth big time.

On the other side Education is better, but i think this two things works hand in hand. I think it is a matter of deciding what needs more money, and to my opinion i think infrastructure is on top of my list.

We can rise this money like what Congo did. We still have a lot of natural resources that we didn't tapped it yet. For instance we do have a lot of undeveloped natural gas, so let us handle that baby to China in exchange to high standard roads and bridges.

This is a long term project, we will create more jobs to our choric unmployment problem. More money will circulate in our economy. Also we will reduce car accident death rate that no one knows how many people died on those crap roads, but the number is high for sure.

Infrastructure problem is a national security issue. January mentioned that Rwandan spending about $2 per mile from Kigali to Dar. So, what Rwandan think now is how they will lower that cost. One of the option is to use another country which has the best infrastructure. I guess January is aware that Tazara is in big trouble, you know why? Because Msumbiji is investing massive on infrastructure.

More than 50% of Tanzanian are farmers, so more than 50% of our man power stays in village which has poor infrastructure. That caused high cost in either export their products or importing raw materials. On the other side that more than 50% is a a generetor of our poor GDP.

Majority of the investors are thinking twice to Invest in Tanzania, and the reason behind is poor infrastructure.

I think our investment on education is not that bad compare to infrastructure. So, let us pour more money on roads, bridge and freeways.

Anonymous said...

January, you have hit the issue on the head – how to raise money in order to build our infrastructure. I think the main question here is: currently how does Tanroads get funded? On its website, Tanroads declares that it is mostly funded by GOT and other development partners.

I remember reading somewhere that Tanroads receives a specific tax from petrol sales. If this is true – that our hard earned money is what funds the development and maintenance of the road system – then the problem can be partially fixed by thinking a little bit more creatively.

Why don’t Tanroads get an authority to be an independent “sub-sovereign” status and therefore is able to issue its own bonds backed by direct tax from the sale of petrol. In addition, Tanroads can also get the power of creating “toll roads.” Toll roads should be used for major cross-provinces through-ways. This way the cost of construction and maintenance of roads will be directly linked to the usage of roads.

The creative part is: now we collect tax and then piece-meal build and service roads. Let’s borrow, build the roads, and collect from the road usage to pay back. We will have higher income since we’ll have better roads.

A word of caution, the bonds that I am suggesting have to be in local shillings and not in foreign currency like Ghana and other countries as described by January. The main issue here is the exchange rate risk; is not worth taking. The shilling has always had only one way direction compared to the dollar – which is down.

In a municipal finance literature, these kinds of bonds are called revenue bonds (as opposed to general obligation bonds). That means these bonds are purely backed by the revenue that will be received from the project – there will be no profit made but also the bonds will not be backed by general income tax of the public.

But who will buy these bonds?

The natural investors are pension funds (NSSF, PPF etc) and insurance companies – especially life insurers. These two categories are always looking for long term investments. People retire after 30 to 40 years. So is life insurance: a long term investment. One can hope that the financing is structured so that the tax and toll income can be sufficient to cover the cost in less than 40 years. If not reissue the bonds.

But also, the government can make it a tax free investment for the public in general; creating an Incentive for people to buy them and participate in building a country instead of going to concerts and paying hundreds of thousands of shillings to listen to fift’y cent and other super stars we get now.

Donors can also help our initiative. Especially institutions like the Japanese government will love to augment our efforts so we can buy more cars from them. I am not kidding!

Tanzanians have money, don’t be deceived by public statistics, the problem is that the government has yet to figure out how to best organize saving vs. utilization of private money. The banking system is not enough. If you want proof look at every IPO history of the Dar Stock exchange: they were all highly oversubscribed. People don’t know where to put their money in order to save. Official inflation is at 11% while savings account rates are less than 5% -- a negative real rate of return. That means if you put your cash in a savings account you are actually losing money.

So for not properly organizing our own society, we are actually destroying our own wealth.

Maybe our generation will be the one to save our selves!

JSM

Anonymous said...

January, you have hit the issue on the head – how to raise money in order to build our infrastructure. I think the main question here is: currently how does Tanroads get funded? On its website, Tanroads declares that it is mostly funded by GOT and other development partners.

I remember reading somewhere that Tanroads receives a specific tax from petrol sales. If this is true – that our hard earned money is what funds the development and maintenance of the road system – then the problem can be partially fixed by thinking a little bit more creatively.

Why don’t Tanroads get an authority to be an independent “sub-sovereign” status and therefore is able to issue its own bonds backed by direct tax from the sale of petrol. In addition, Tanroads can also get the power of creating “toll roads.” Toll roads should be used for major cross-provinces through-ways. This way the cost of construction and maintenance of roads will be directly linked to the usage of roads.

The creative part is: now we collect tax and then piece-meal build and service roads. Let’s borrow, build the roads, and collect from the road usage to pay back. We will have higher income since we’ll have better roads.

A word of caution, the bonds that I am suggesting have to be in local shillings and not in foreign currency like Ghana and other countries as described by January. The main issue here is the exchange rate risk; is not worth taking. The shilling has always had only one way direction compared to the dollar – which is down.

In a municipal finance literature, these kinds of bonds are called revenue bonds (as opposed to general obligation bonds). That means these bonds are purely backed by the revenue that will be received from the project – there will be no profit made but also the bonds will not be backed by general income tax of the public.

But who will buy these bonds?

The natural investors are pension funds (NSSF, PPF etc) and insurance companies – especially life insurers. These two categories are always looking for long term investments. People retire after 30 to 40 years. So is life insurance: a long term investment. One can hope that the financing is structured so that the tax and toll income can be sufficient to cover the cost in less than 40 years. If not reissue the bonds.

But also, the government can make it a tax free investment for the public in general; creating an Incentive for people to buy them and participate in building a country instead of going to concerts and paying hundreds of thousands of shillings to listen to fift’y cent and other super stars we get now.

Donors can also help our initiative. Especially institutions like the Japanese government will love to augment our efforts so we can buy more cars from them. I am not kidding!

Tanzanians have money, don’t be deceived by public statistics, the problem is that the government has yet to figure out how to best organize saving vs. utilization of private money. The banking system is not enough. If you want proof look at every IPO history of the Dar Stock exchange: they were all highly oversubscribed. People don’t know where to put their money in order to save. Official inflation is at 11% while savings account rates are less than 5% -- a negative real rate of return. That means if you put your cash in a savings account you are actually losing money.

So for not properly organizing our own society, we are actually destroying our own wealth.

Maybe our generation will be the one to save our selves!

JSM

Mchangiaji said...

Excellent Discussion and very good and sensible ideas, Lets role them out!

Chinese Foreign Minister was once asked by Western African leader, why they had such astonoshing economic growth in their perspective country this recent years, this is what he had to say then, "there are three important priorities, which brought us where we are now!"

Namely, 1. INFRASTRUCTURE, 2. INFRASTRUCTURE, 3. INFRASTRUCTURE.

Suggestions on this particular issues :-

1. Why dont we start with rebuilding these trade routes first(railways and Roads) linking, the like of Uganda, Rwanda and Burundi, and others,

2. Put our resources, ie funds in revamping and rebuilding our ports, not only Dar, but also Tanga. if these projects are under way, let speed them up. I presume a study has already been done on this, in regarding expected output in 10-15yrs time, in relation with trade growth within and with our neighbouring countries.

3. Building a very good communication system, particulary in IT infrastructure, therefore shifting completely from paper works and others

4. Fourth, Separate these Revenue creating machines, such as ports, TANROADS and others from TRA as suggested by others, I will explain the reason nxt time.

5.Eventually, streaming government responsible bodies/entities, small but effective,

6....

By Mchangiaji

January Makamba said...

This is a great debate. JSM, hats off for some creative thinking on funding infrastructure projects. I very much like the idea that those using a certain public utility (say roads) should bear the most burden for its upkeep. So, road toll should be the way to go. Not so sure whether the Lords over here would accept that TANROADS be a "sub-sovereign" entity. On "petrol tax" for our Road Fund, I still have a question: how good as an idea to tax one item for a particular expenditure. I thought the principle of taxation and budgeting requires that you pull the money together in a basket and spend accordingly.

In any case, you really hit it home on a broader point: that the way we organise our society is key to [the success or failure of] whatever we do. I think you [JSM] should post something on this. Email me at jmakamba@gmail.com

Someone talked about technology as our salvation. Good point. I think, as we go along, technology for everything improves and eases the burden and eventually cost of doing stuff. That can be true for construction as well. Roads, these days, are constructed under a much shorter period of time than it was in the past as construction technology has improved. The hope is that it is going to be cheaper one day.

Otherwise, and at least for now, the question of longer term financing (as so well articulated by JSM) will remain.

Mchangiaji, welcome back!

GAME THEORY said...

salama

The whole concept of privatisation is based on total lies and deception - fraud on a grand scale perpetrated on the citizens of this country by the arch enemy of the people - UBEPARI - policies taken to the bosom of NEW TURKS CCM by Ali Hassan Mwinyi like a viper to the breast of Cleopatra.



It disgusts me to the point of nausea that the stupid idiots in the chama cha mapinduzi STILL HAVEN'T LEARNED A THING - privatisation only 'works' if you quadruple the amount of money screwed from the taxpayer - to line shareholder's pockets ONLY - It has nothing to do with providing a better service for the WATANZANIA.



Sad enough, wanasiasa wetu think that companies develop a product or service and then to stay ahead of the competition they hone and refine their business model to make it more efficient and cost effective, therefore providing the best customer service.



In reality what they do is develop a customer base for their product or service and then reduce their unit cost to increase profits, sometimes by increasing efficiency but usually by lowering standards of customer service. They rely on customers either being contracted to stay with them or too lazy to leave.




This idea that people working for private companies being more hardworking and motivated than those working for state run companies is nonsense - people are just people. In fact, in my experience people are more motivated to work low paying jobs when they feel they're working for the public good.



The main difference between privatised and nationalised public services is that for every quid we put into a privatised public service someone skims 10 shillings (or something) to go into their own pocket rather than using it to run our schools or hospitals. Why do politicians fall for the scam? Because of their rich mates telling them it's what they should do, and because they're too lazy and egocentric to question it.

GAME THEORY said...

MSIOKASIC...
You want EXAMPLES but will only give you one...DAWASA PRIVATIZATION.

WHY?

Because water privatisation is being adopted as the reform method in many African countries but there has been little research into its impact. What evidence is emerging suggests that the methods used to privatise have been problematic. In particular:



1)The institutional framework has meant that there has been confusion regarding responsibilities for maintenance and investment;



2)The government has been powerless to regulate the private firms and the private investors have failed to cooperate with the regulators;


3)The use of a lease contract means that government still has responsibility for capital investment;


4)Privatisation has failed to make the public sector pay its bills. The private sector claims compensation by paying less to the government asset holding institution which then has less funds for investment.


Privatisation then fails to address one of the core investment financing issues;

5)It is not clear that the water sector is any better off financially aside from the large loans received from donors because of complying with conditionality.

Now questions you should have asked me are:

a) was it transparent enough?

b) Was it competitive enough?

c)Were enough preparations made before privatization?


Since there is a good section of people who argue that privatization of DAWASA was bound to failbecause of inadequate preparations. They argue that Dawasa was not ripe or attractive enough for privatization. This perhaps explains why there was virtually no competition Most of bidders were not interested in DAWASA because of its inherent problems. If that is the case, would the outcome had been different if the Government had decised to "dress the bride" aka MWALI (kwa kiswahili) before offering her for marriage?


Some of us feel that there was need for the Government to address the problem of
infrastructure which DAWASA had for many years before embarking on privatisation

Anyway i dont want to divert the discussion from roads to DAWASA privatization but thought i should make my points alittle bit clearer

Rash said...

Good debate guys,
Yesterday i defend the argument of infrastructure, however after spend sometime and went through some data i decide to change my position. This is the reason,

For the past three or four budgets Ministry of Infrastructure Development has outnumbered Ministry of Education roughly by 3 to 1. You can look the data, Tanzania invest about $3.4 Million to our infrastructure on the other side they invest about $1.1 Million on Education.

I think the problem is not money, the problem is management. We need to close all loopholes that drained our resources. Then find a smart way to fund infrastucture projects.

I support all other approch including local investor to pour their resources on infrastructure in return to revenue bonds which will be funded by toll road revenue. However, all this need a new management strategy which will erase the money bleeding problem.

I am skeptical however on how revenue bond is going to work in our system. Most of this bonds are developed by municipal government, in our case we need central government to develop it, which will be a chaos. Most of the investor will worry about the liquidity of that thing, how quick you can convert your bond into cash or you have to hold until it expired.

So, let us revamp our management system before any futher approch.

Inno said...

Game Theory,

This is not to defend Salama, but I want to add something on Salama's comments on privatization because I feel like you don't necessarily disagree with her, it's that her privatization point was not elaborated enough. But at least Salama can point at countries which privatization has worked for them. Could list a few countries that have remained undiluted socialist (by remaining tenacious to their socialist game theories) and now enjoy the economic prosperity that liberal market oriented economies do?

Socialist theories have proved impractical and that's why every country in the world is now going the pro-market way. Could you come up with a few countries other than North Korea and Cuba that aren't undergoing economic reforms to liberal markets? And by the way, North Korea and Cuba chose to remain the icons for socialism just for the hell of it but there is a big price these countries are painstakingly paying by remaining antagonistic. The problem is it is its people who are feeling the pain, not their bully leaders.

Let me put it this way: Privatization as a recipe for economic prosperity is not a bad idea. Rather, how it is being implemented is what is problematic. And your disagreement with Salama is based on poor implementation of privatization based on Tanzania experience. But you were too circuitous to make a point and that is when I felt compelled to intervene. So leave Salama alone, let's talk about how Tanzania has been screwed up by poor implementation of privatization and what we can do to fix the problem. It wrong to draw the Tanzania experience on privatization as a global problem!

Happy New Year, Game Theory!

Mchangiaji said...

January,

sometime, it is very wise to listen what others have to say, and it is equally very important to read what others have written, bigger things always come from very small idea.

I would suggest one more important aspect of these discussions, these ideas should not be left just on blog postings and buried in archive, but should equally be pinged to the authority and to the people involved, it only needs an individual or two who can listen and read through ideas of what people of have to say, and propelled it across to GREATER THINGS.

It took Pharaoh, Khufu-2560BC, 20years to build the Great PYRAMID in ancient civilisation,145.73 Meters High, Tallest structure for 43 centuries


I have peculiar idea,
Looking back at history, I suggest Kikwete should summon his leadership in one of a tomb of great pyramid of GIZA, and start looking for answers from ancient history by understanding the construction of the Great pyramid which was built by bare hands in 2000BC(Can you imagine that), and start ask themselves, Do we underestimate our capability as human being, I said YES, can we do what are really our own PRIORITIES for SURVIVAL as a nation, I said YES.

BBC: Building the Great Pyramid - 1 of 6
By Mchangiaji

misokasick said...

Game Theory,

a)was it transparent enough?
That’s an issue that you should raise. Instead of completely arguing against privatization based on a project that had failed in one country. A failure in a project in Tanzania does not completely convince me that privatization is a failure. I think how privatization has been handled and implemented in Tanzania is a varied question. Do we just jump into projects without fully assessing the cons and pros?
b) Was it competitive enough?
What do you mean by competitive enough? By the way isn't water a basic human right? So why does it have to be competitive. If you ask me about the firm, then I guess the answer would be NO, but how could it be competitive enough if it’s operating as a monopoly. How many water companies are operating in Tanzania? When you have just one company operating then your doubt about its efficiency is complete varied.

c) Were enough preparations made before privatization?
The answer is no and this is a lesson we ought to learn instead of not attempting privatization. Before privatizing any public sector the government is responsible to make it public known and to also allow the public to play a role in analyzing the projects. At the end you talked more on how our egocentric leaders have failed us, that I would agree with you 100%, but note it was not because of privatization, it was our leaders who are to blame and not privatization.

Privatization of water supply companies that were once state owned is still a controversy in many countries that tried to privatize. Your question on who confusion regarding responsibilities for maintenance and investment, I think the answer is the firm has responsibility. As I said in the above paragraphs it’s an issue of competition. If there was another water supply company in Tanzania we would not worry about maintenance and investment.
Conclusion
I strongly believe that Privatization is an ideal choice for our government but the process has to be managed well and there is a need of an appropriate institutional framework to facilitate the process.
Happy New year !!!!

Anonymous said...

The question of taxation is a valid one. I agree that once you introduce the notion of taxing a specific item for specific utilization you are introducing “externalities.” However, in practice this is done all of the time. From property tax, to specific tax on cigarettes to cover the medical cost of lung cancer. So, yes, if we are to introduce a specific petrol tax it will change the consumption patterns of car utilization: people might use more public transport or car pooling. In the mean time better road network will create new levels of efficiencies: cheaper cost of transportation per mileage, less repair work on the vehicle, less travel time. Therefore there will be a balance between the negative externalities and new level of efficiencies.

As for the sub-sovereign status of Tanroads, there are many reasons for this suggestion however the main two are to level the competition for funds and to give Tanroads flexibility on funding.

It is unfair to expect that once you introduce market based funding structure that small cities like Kigoma or say Sumbawanga will be able to compete with Dar or Arusha for funding. Clearly investors will prefer to fund a toll road in Dar then in Ruvuma (holding everything else constant). So by having one road authority – which Tanroads already is – have the capability of dishing out the funds according to main economic needs/benefits regardless of the region will be useful.

Second, if I am an investor then I would want to buy bonds of an institution that has the flexibility of adjusting its own funding structure. Tanroads should be able to increase or decrease the amount of tax/toll without going back to the legislative authority (i.e. Bunge). These powers will give an assurance to investors that Tanroads has the ability to manage its own balance sheet.

Hopefully, these two reasons will translate to less risk in the road investment and therefore lower interest rates.

By giving Tanroads sub-sovereign status I am not suggesting that they will be free of oversight. I still think that every bond issuance should be authorized by the public. Therefore every five years when we go to vote for our political choices, there should be a section of voting for new road bond issuance. This will further facilitate Tanroads direct reporting to the people hence bringing higher levels of disclosures.

Rash’s question on efficient management is paramount. But as we have seen in the guy who managed Malaysian Airlines, it is possible to run a state agency in a very efficient manner.

The truth is this is not such a novel idea. I am just trying to turn it on its head. We already charge toll (they don’t call it that way) to get on the Kigamboni Pantone and other ferries around the country. Actually it is very expensive and always there are long lines of cars and people waiting to use the Pantone and cross through.

In the mean time the new Kigamboni bridge will be constructed by NSSF funds. If this bridge was to be build using a revenue bond there will be a diversification of risk to the rest of the economy and not concentrated in the hands of NSSF only.

Aluta Continua!

Happy New Year to all.
JSM

Anonymous said...

I’m currently working for a Health Organization, which has opened my eyes to the value of appropriate social infrastructure planning in society. The well being of all Tanzanian citizens will benefit from appropriately planned and incorporated systems that address five broad social sectors:
a)Health and Social care (the U.S. is really struggling with this right now, and change is proving difficult)
b)Education (early years, primary, secondary, adult)
c)Community services (Libraries, clinics, immunization awareness and provision)
d)Emergency and essential services
e)Leisure activities (cultural engagement)

African governments would be well served to look at China’s infrastructure design. You can’t rebuild all the roads at once, but planned infrastructure will generate revenue that may go towards building other areas, one step at a time. Assuming you got one billion, instead of the desired 3.5 – the government should conduct a needs and prospective assessment of what areas (if roads are built) increase commerce locally, regionally, and internationally, and by how much. What’s their current economic output and what are their potential market/economic output. Who is likely to invest there and what could you realistically charge (a surcharge tax) to maintain the roads. Incremental steps to fix a situation that has evolved over many years should be the strategy. There is also a benefit to progression approach – the government may use an outcomes based/lessons learned approach as it moves forward to avoid wastage and address problems before moving onto another project.