Access to capital drives development journey

DAR ES SALAAM: ON 30th December 2025, discussing business issues and finance, I outlined my outlook for 2026, emphasising that uncertainty demands strategic adaptation.

Without going into the details of what I have already discussed, in 2026 and beyond, unless we think differently, access to capital will remain the missing engine in Tanzania’s development journey.

From the perspective of an economist and investment advisor with over a decade of hands-on experience in these issues, it is evident that few challenges impede Tanzania’s economic transformation as significantly and consistently as the limited availability of affordable, long-term capital for businesses.

Those directly involved would likely concur that, although policy documents articulate a vision for private-sector-led growth, job creation, industrialisation and youth empowerment, the financial framework needed to translate these ambitions into tangible outcomes remains fundamentally lacking.

At the heart of this challenge is a rather complex reality. While we often observe that recent auctions in Tanzania are oversubscribed, the availability of capital remains limited, costly, short-term and predominantly directed towards imports and short-term lending.

Much as there could be an explanation for the outcome of the last BoT’s 17th December 2025, the lack of alternative low-risk investments will continue to constrain the availability of capital for meaningful investment in Tanzania.

Why? The recent oversubscription in Treasury bond auctions in Tanzania reflects a complex interplay of macroeconomic factors, market liquidity and investor behaviour.

In my view, monetary policy constraints and a scarcity of lowrisk alternative investment opportunities have compelled banks, pension funds and institutional investors to allocate a larger share of their resources to government securities.

Treasury bonds are regarded as a reliable store of value, offering consistent returns, particularly during periods of exchange-rate volatility and moderate inflation.

Furthermore, enhanced confidence in fiscal governance and adherence to debt-servicing protocols has bolstered investor interest.

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For many institutional investors bound by regulatory portfolio mandates, government bonds remain the most appealing risk-adjusted alternative, resulting in robust participation and bids significantly exceeding the available amount.

But importantly, the elevated yields presented in recent auctions have heightened demand, as investors endeavour to secure advantageous interest rates before any prospective adjustments.

The involvement of non-bank investors such as investment funds and high-net-worth individuals has significantly broadened the investor base.

Concurrently, constrained issuance volumes relative to market liquidity may create a supply-demand imbalance, thereby intensifying competition for the securities that are available.

The anticipation of prospective capital gains arising from forthcoming fluctuations in secondary market prices further invigorates speculative interest.

Collectively, these elements indicate robust domestic liquidity and rising trust in government securities as a favoured investment option, thereby fostering ongoing oversubscription at Treasury bond auctions.

Amidst these dynamics, capital will continue to be the essential force behind development.

The trajectory of economic history is clear: no nation has achieved industrialisation or economic diversification without the deliberate, focused and sustained investment of capital in productive sectors.

The sectors of agriculture, manufacturing, agro-processing, housing, tourism, renewable energy, transportation, digital technologies, telecommunications, logistics and the digital economy, as outlined in the Dira 2050 document, ISBN 978-9912-43-001-3, pg 57, talking of potential sectors towards 2050, requires more than mere policy statements to advance them.

They necessitate access to credit that is both affordable and predictable and that aligns with the overarching national priorities.

Currently, in Tanzania, the majority of enterprises, small and medium-sized face lending rates that often exceed 18 per cent, with loan terms rarely extending beyond three to five years.

These circumstances are inherently at odds with productive investment.

They promote trading and speculation at the expense of production, prioritises consumption over capital formation and favour short-term gains over long-term value creation.

The implications of maintaining a policy-neutral stance could vary significantly if not approached with careful strategic planning.

In the absence of sector-specific lending objectives or varied regulatory motivations, commercial banks tend to favour government securities, characterised by their low risk and exceptional liquidity, or financial transactions related to trade, the importation of goods and lending focused on consumer consumption or temporary arrangements characterised by rapid turnover and limited exposure.

In the interim, sectors essential to national advancement agriculture, manufacturing, housing finance, small and medium-sized enterprises, start-ups and renewable energy continue to face persistent under funding.

The outcome is an economy characterised by structural imbalances: A significant reliance on imports, feeble domestic production capabilities, ongoing trade deficits and constrained opportunities for job creation. What is the significance of sectoral lending targets?

Sectoral lending targets do not signify a regression to imprudent directed credit practices.

When meticulously crafted, they serve as a developmental instrument employed by numerous prosperous economies to rectify market inefficiencies and align financial resources with national objectives.

Such objectives, in my view, help articulate national priorities to the economic system with clarity and mitigate over concentration in government securities.

In addition, promote the development of specialised knowledge and enhanced risk-evaluation capabilities within banking institutions and facilitate the emergence of synergistic institutions, including credit guarantees, development banks and blended-finance mechanisms.

Countries at comparable levels of development have employed diverse iterations of this strategy often supported by partial guarantees, concessional refinancing options, or risk-sharing frameworks to attract private investment into productive sectors.

Whether we like it or not, the missing middle is development finance architecture. Drawing on more than ten years of experience in the field, the lack of sectoral lending targets reveals a more profound issue.

Tanzania lacks a cohesive ecosystem for development finance. The absence of a fully functional development bank, well-resourced and capable of unlocking untapped potential, is evident, as is the lack of a mortgage refinancing institution to provide housing finance to individuals in the middle-income bracket.

Furthermore, there is a scarcity of risk-sharing instruments for small and medium-sized enterprises and agribusiness ventures.

In this void, commercial banks are compelled to assume a function for which they are not inherently equipped. Anticipating that they will fund long-term development initiatives devoid of policy backing, assurances, or refinancing strategies is both impractical and inequitable.

This does not advocate for the Central Bank to forsake its commitment to prudence. The Central Bank is urged to harmonise stability with developmental progress.

Central banks across Africa are progressively adopting a dual mandate, focusing on preserving macroeconomic stability alongside facilitating inclusive growth.

Regrettably, if one does not exercise sufficient caution, the IMF’s recommendations may become immutable.

Practical measures may include introducing indicative sectoral lending benchmarks aligned with the National Development Plan, establishing preferential refinancing windows for priority sectors, supporting credit guarantee schemes to mitigate risks in SME and agricultural lending, encouraging longer tenors through regulatory incentives and, crucially, collaborating with development partners to mobilise blended finance more strategically.

In the absence of decisive measures and given the prevailing global financial frameworks and constraints, Tanzania risks being ensnared in a cycle characterised by low investment and low productivity.

Youth unemployment is likely to persist, the pursuit of industrialisation may continue to elude us and our reliance on imports and external assistance is poised to intensify.

The absence of financial alignment will inevitably lead to ongoing disappointments in policy coherence.

In my view, access to capital is not merely an ancillary concern it is the driving force behind transformation.

By advocating for a more intentional, development-focused financial policy framework incorporating sectoral lending targets and enhancing the development finance architecture the government can unleash Tanzanian enterprise, invigorate local production and set the economy on a truly inclusive growth trajectory.

The private sector, particularly domestically developed entities, appears poised for action. What is required is investment that fosters development rather than hinders it.

Financial institutions in advanced economies extend credit based on the borrower’s integrity.

In contrast, the majority of Tanzanian banks prioritise security in the form of collateral, collateral and more collateral. It is time to adopt a different mode of thought.