Speech by the President of the United Republic of Tanzania, His Excellency Benjamin William Mkapa, at the Annual Dinner of the Tanzania Bankers Association, Sheraton Hotel, Dar Es Salaam, 14 December 2000

Minister of Finance,
Hon. Basil P. Mramba, MP;
Chairman of the Tanzania Bankers Association;
Mr. Anthony Singleton;
Governor of the Bank of Tanzania,
Mr. Daudi Ballali;
Association Members;
Invited Guests;
Ladies and Gentlemen.

When I accepted the Governor's invitation to dinner - an invitation extended on your behalf - I had no idea I would have to pay for it with a speech. That shows how uninitiated I am about the inner workings of the people who make money their business. Apparently they always make you pay back what they give you; with interest! And, more often than not, they demand payment when it is most inconvenient. Which must have produced the definition of a banker attributed to Mark Twain that says, "A banker is a person who lends you his umbrella when the sun is shining and wants it back the minute it rains."

But, more seriously, I am here to make a proposition to you. I am a man in a hurry, for I have only 5 more years to make a lot of dreams I have for this country and its citizens a reality. I cannot succeed without your support. So my proposition to you is that we build a productive partnership - I dream, and you help me make those dreams a reality, with my support and that of my Government. Tonight, I am going to talk to you about some of those dreams. For, I want you to be the leading light of the enterprise to make Tanzania one of the fastest growing economies in sub-Saharan Africa, to mutual benefit.

But before I do that, let me say how pleased I am to be with you at the 2000 Annual Dinner of the Tanzania Bankers Association (TBA), an Association that illustrates the progress we have made in reforming the financial and banking sector. Your membership has grown three-fold from 7 banks when the Association was formed in 1995 to the current 23 banks and non-bank financial institutions. Regrettably, I am not allowed to go and cash a cheque at a bank, but I am informed that there has also been a marked improvement in the quality of operations and services in the banking sector. For that, I commend you.

This remarkable progress was made possible by the favourable environment for investment created through our economic reform programmes. We worked hard to establish macroeconomic stability and implement key structural reforms aimed at reducing inflation and strengthening our growth prospects. At 5.8 percent, we have today the lowest rate of inflation since the mid-1960s, and at an average of 4 percent the highest continuous growth rate for many years.

We have practically done away with the relatively large budget deficits of the early 1990s, and reduced the previously large stock of domestic debt, while at the same time opening up opportunities for increased bank lending to the private sector.

Our gross foreign exchange reserves have risen more than three times from USD 271 million in December 1995 - equivalent to less than 2 months of imports - to over USD 900 million at present - equivalent to nearly 5 months of imports. In US dollar terms, this is the highest level of reserves ever attained in the history of our country, and in terms of months of imports, it is the highest level since the coffee export boom of 1976/77.

Meanwhile, the balance of payments position has strengthened despite a slump in exports over the last two years following unfavourable weather conditions and a fall in world prices for our major traditional exports.

We have also improved the investment climate and stepped up the privatisation process. Many loss-making public enterprises, some of which had survived only through Government subsidies, are now privately owned, operating profitably and contributing significantly to the value-added of the economy, and to Government coffers.

The 1998 Mining Act has helped to attract investment in the mining sector. Tanzania is now poised to be a significant player in the league of the leading gold producers in Africa, and perhaps in the world before too long.

Other measures and regulations have been put in place in the fiscal and legal areas to create a suitable environment for business. These range from external reforms, to reducing excessive and harmful protection, and to the establishment of commercial courts and speeding up the adjudication of commercial disputes.

We have clearly set the stage for more rapid growth, and towards that end have now moved to a new generation of reforms - reforms intended to accelerate growth in order to enable us to broadly reduce poverty; thereby making the reforms relevant to the ordinary man, woman and child in Tanzania. We are counting on the financial sector to play a key role in consolidating our macro-economic performance and strengthening our growth prospects.

For, we need to implement a programme that will answer the constantly asked and valid question: "If inflation has been so significantly reduced and macroeconomic stability achieved, how come my standard of living is not improving?" The answer, indeed the only answer, is to engender stronger and more sustained growth, at approximately 8 per cent, under conditions of financial and price stability.

We will continue to keep a tight rein on macroeconomic stability, and complete the remaining structural reforms, including privatisation, while embarking on new measures to bolster economic growth. These will require additional public and private investment resources. Our international development partners are expected to provide increased support, including in the context of the Enhanced HIPC Debt Relief Initiative, Paris Club debt relief, the Poverty Reduction and Growth Facility, and bilateral aid flows.

We will also, on the Government's part, work harder to promote Tanzania as a good place to invest. You are aware that the Africa Competitiveness Report 2000-2001, which was released at the World Economic Forum in Durban in June this year, placed Tanzania as number 1 in Africa for effecting the greatest improvement in the shortest time; and number 2 in the Optimism Index. There is no reason why anyone among you should become any less optimistic about our collective future, especially if you are still interested in investing profitably!

But to succeed we need the support of the banking and financial sector. We cannot make significant progress in raising our growth rates and reducing poverty unless the financial sector moves with us. I challenge the Tanzania Bankers Association to join the government in renewed efforts to strengthen economic performance and reduce poverty. This, I am sure, is also in your long-term interest.

Mr. Chairman,
We need collective resolve to address the remaining rigidities in the banking sector. The financial sector has to act as a lubricant in the economy. To do that it has to have developed systems with the sophistication, the diversification and the specialisation for broad market intermediation. There is need for enhanced efficiency in financial intermediation. Access to credit and working capital at reasonably competitive prices is essential to economic expansion. But, regrettably, it is not so easy to get credit out of our banks for most of our people. Which is perhaps why one wisecracker once said, "If it is as easy to borrow money from a bank as its advertising claims, why should anyone want to rob it?"

I am not, of course, suggesting that the only way to get capital is to rob a bank! But I have to express my concern, shared widely across the country as I found out during the election campaign, that our lending rates have stagnated at a very high level, while returns on deposits continue to decline.

While inflation has fallen from 30 percent in 1995 to less than 6 per cent at present, the lending rates have declined only from 37 percent to 19-20 percent. Deposit rates on the other hand have declined substantially. In the current year, for example, the average savings deposit rate has fallen from 7.2 percent in January to 5.4 percent in October, making returns on financial savings most inadequate and discouraging. A spread of almost 15% cannot be justified or explained away. It will continue to nag and be a sore point in our relations. It is frustrations with market imperfections such as these that have driven other countries to take the desperate step to revert to fixed interest rates, something I would hate even to contemplate!!
Mr. Chairman,

Perhaps I am too old-fashioned, living in a time warp of my own, long forgotten. But my understanding of a bank is a place where you deposit money so that it will be there when other people want it. In other words banks are expected to compete in providing people with incentives to save with them, and compete equally in making it as easy to borrow as possible. But in Tanzania it is as if the competition is in the opposite direction - a competition to make it difficult for the ordinary people to save, and even more difficult for them to borrow. This, of course, does not apply to all banks, but I am speaking only in general terms.

With a lending rate of 20 percent, many good businesses outside the trade sector cannot afford credit. It is in the self-interest of banks to do everything possible to lower lending rates so as to expand the clientele to include businesses engaged in production. I know you have a long list of reasons why lending rates are high. But I also know that you are not doing enough to reduce the cost of credit in the economy. In the course of 2001, I appeal to the ingenuity of the banking community in bringing the cost of credit down in the economy to reasonable levels.

Perhaps you can make more money, more easily, from other non-productive activities. But I urge you to be engaged with Tanzania and Tanzanians for the long haul, not for speculative escapades. The future is bright, but we must build it together. And one of the dreams I have is for you to help me build a savings culture among our people, a culture of trusting and utilising bank intermediation. At the beginning of the new millennium my people still believe in cold cash, in the feel and smell of legal tender. While the rest of the world is into plastic and electronic money, Tanzanians do not even believe in old-fashioned cheques! Sometimes, not ever a cheque from the State House!

As a result there is still too much cash outside the formal banking system, and you know very well that is not healthy in a modern economy. Business, even worth tens and hundreds of millions, is sometimes transacted in cash. Last season, when cashew nut prices were very high, some farmers were paid tens of millions of shillings in cash; with no bank - not even a mobile bank - to save them from this invitation to crime they keep in their huts.

I ask you to reach out even to the lowest paid employee, the smallest farmer and the smallest entrepreneur. Perhaps I should illustrate this imperative with a story, the authenticity of which I cannot vouch for.

A young teacher went to draw money from her bank. "I hope you are not afraid of microbes", apologised the paying teller as he cashed the schoolteacher's cheque with soiled currency.
"Don't worry," said the young lady, "a microbe couldn't live on my salary".

Mr. Chairman,
That is the spirit, and that is my dream. Every amount of money should be accepted with a smile by a bank. Yes, even an amount too small for a microbe to live on.

Yes, I have a dream, Mr. Chairman, that you will help me build a culture of savings, and of confidence in bank intermediation. One man once said, "A bank is the place you borrow money from when you can't get it from a friend". And since we all believe in the proverb that "A friend in need is a friend indeed", then surely a bank needs to be an even greater friend in need for its current and prospective clients.

Mr. Chairman,
The second challenge for the banking community in 2001 is to work together with the Government in creating a machinery for the promotion of entrepreneurship, and supporting small, medium and new businesses. You should work to identify, grow and nurture future customers as I am told it is done in many other countries.

This naturally breeds trust and confidence between a banker and his or her client. Such relationships of loyalty are often long and enduring. One man, a manufacturer who rose from rags to riches, thanks to the support and abiding loyalty of his bankers, was on his deathbed. On being asked for his views, he named six bankers as his pallbearers, explaining that as they had carried him for so long, they might as well finish the job!

We want you to lend more, but we also do not want you to go on a slippery slope, by embracing borrowers that are not up to scratch. But I believe there have begun to emerge in Tanzania businesspeople with a foot in the door, who with your support can truly go far. Please identify and pick them out from the crowd, and support them.

Mr. Chairman,
I know that micro financing is now considered a specialised field of banking, and not everyone in this room may be interested in it. But for those that do, I also have a dream I want you to help me realise. That is to design and implement a credit delivery system to bank the normally unbankable - to provide banking services targeted to the low-income earners, the informal sector and the rural poor, on terms and conditions that are both appropriate and reasonable.

The founder of the Grameen Bank Project in Bangladesh, Prof. Yunus Muhammad, put the challenge in the following terms. He wanted to create a credit system, he said,
"… that will help create opportunities for self-employment for the vast multitude of unemployed people, and reverse the vicious circle of 'low income, low savings, low investment' into a virtuous circle of 'low income, injection of credit, investment, more income, more savings, more investment and more income.' "

I am determined that, with your support, we should design and build in Tanzania such a system. Towards that end you have my unqualified attention and full support.

The third important challenge for the future, and my other dream, is for the banking community in Tanzania to work together to alleviate the current paucity of long term financing. I was encouraged by the creativity of the East African Development Bank in successfully floating a T.shs. 10 billion bond on the Dar es Salaam Stock Exchange.

In my speech to Parliament last month, I encouraged the establishment of housing loan schemes, and the evolution of a primary and secondary mortgage market. I want to repeat that call to you tonight. For, it is downright primitive for our people to try and build houses from deep down their shallow pockets. In addition, the absence of a mortgage market not only ties down a lot of capital in real estate, but it also encourages taking to the lining of pockets among public servants who find the vice as the only way to own a home.

I am told the CRDB has launched a Housing Loan Scheme for Public and Private Sector Employees. I commend them, and I commend any others that have begun such schemes. I was equally encouraged, while attending the World Economic Forum Summit in Durban last June, when the Group Chief Executive of ABSA, Mr. Nallie Bosman, mentioned their plans to introduce mortgage financing at NBC. I know they can do it because ABSA is the leading player in mortgage financing in South Africa, including for low and medium income people. That is the kind of enterprise I want established here, and that is my dream.

I am committed to facilitate a process that will make as many Tanzanians as possible homeowners. I am aware of the concerns of banks and other financial institutions that our new Land Act still deters lending to would be homeowners, and the emergence of a primary and secondary mortgage market. This is a matter that will be looked into urgently. I am sure the Minister of Finance is listening, and I am sure that he welcomes your Association's suggestions on the best way forward.

Mr. Chairman,
I am posing these challenges to you because they are essential for growth and are beneficial to the financial community and others as well. To attain a growth rate of 8 percent, the private sector has to invest massively, including in agro-processing, which will be a priority in the next 5 years. But this can only happen if the banking community is able and willing to raise resources efficiently for the private sector.

We in Government will move quickly to remove whatever you justifiably indicate as impediments to credit expansion at lower cost. You should do likewise in enabling yourselves to identify potentially good borrowers through working with the Bank of Tanzania to establish a "Credit Information Bureau". You should also work toward funding the newly established large companies, many of which now borrow from abroad. The current effort by some of you to refinance Kilombero Sugar Company's large external loan, if successful, will be a good beginning and example.

I understand that the biennial Bank of Tanzania sponsored Financial Institutions' Conference will be held during the first half of 2001. I have been informed that the theme will be "Financing Growth for Poverty Reduction". I am hopeful that in the context of the Conference you will work hard on the challenges that I have posed to you tonight.

Mr. Chairman,
It has been said that, "If you don't change today, your tomorrows will be like your yesterdays".

We, on the part of Government, and you on the part of the banking and financial sector, must both change today, so that our tomorrows will be better than our yesterdays.

It can be done, and I am sure we can all end up winners. You have in my Government and I committed and supportive partners as we all seek and strive to change for the better. I am sure we can strike sparks off each other in a fertile association that will ensure our economy is brought up to speed in the shortest possible time.

And now, hoping I have paid for my dinner with ample interest, I hasten to bring my speech to a close. For I was once counselled that a good speech, like a woman's skirt, should be long enough to cover the subject, and short enough to create interest. So before you lose interest, I want to thank you for your kind attention, and to say, "Bon Apetit !!".

I thank you for your kind attention.