THE Bank of Tanzania (BoT) has called for hefty investments to enhance domestic capacities as a way of containing possible effects of the current global financial crisis.
BoT Governor Prof. Benno Ndulu said in Dar es Salaam on Saturday that more needs to be done as a measure of preparedness.
He was speaking shortly after the sixth Gilman Rutihinda Memorial Lecture 2011 presentations which was also graced by the Governor of the Central Bank of Ireland, Prof. Patrick Honohan.
"The first economic crisis hit hard on lending institutions, but the second crisis touches governments which fail to hold up their debt financing," said Prof Ndulu.
As the emerging economies shake up, the market for the products, mostly raw materials, becomes slim. This is being witnessed by the price cut of cotton in the world market that has affected greatly local farmers' earnings.
According to the Tanzania Cotton Board (TCB), the cotton buying season started on June 20, 2011, with the growers expecting to earn at least 300bn/- from the sale of more than 250,000 tonnes at an average farm gate price of 1,100/- per kilogramme.
But farmers would fetch only 800/- per kilogramme due to pricecuts in the world market. Last week, the government expressed hope to peg the shilling's stability against other major currencies on cotton.
The emerging crisis is even more alarming as the world economy is yet to recover fully from the 2008 economic meltdown.
Uncertainty remained over just how bad things could get in the Euro Zone as there was no imminent solution to the debt crisis. The United States and Greece have managed to undertake difficult decisions to counter debt crisis.
The European Central Bank (ECB) opted to buy Italian and Spanish bonds to keep their funding costs sustainable and worries of a global slump do persist.
Prof. Ndulu said, for example, that investor confidence on government securities in the most affected countries was on the decline despite being risk free in nature. Issuance of bonds was one of the options used by most governments to raise investment fund.
For Tanzania, he said the government should continue with the various reforms geared at improving the investment climate to attract more Foreign Direct Investment (FDI).
According to the 2011 World Investment Report released last month, Tanzania attracted FDI worth 700 million US dollars (about 1.09tr/-) in 2010, an increase of 8.5 per cent.
To realize local benefits, Prof. Ndulu said, more emphasis should be placed on public-private partnership (PPP) projects which would have direct impact into the national economy.
He said as some lending instruments in the first world have begun to take precautionary risk measures, there was need to develop local capacities to finance the greater part of its economic activities.
"We should increase savings to build domestic investment basket that once depended on borrowing from foreign instruments," he said.
He also said that current efforts to commercialize agricultural sector should be geared at satisfying the growing demand for food in the world market.
Similar emphasis should be placed on the mining sector to satisfy the soaring demand for gold, uranium, oil and natural gas and other gemstones in the world market, he said.
He mentioned tourism and natural resources as crucial segments in earning the country massive foreign currencies. He commended the development of export processing zones to enhance industrial growth.
However, Prof Ndulu cautioned that real development would not be attained without substantial investments in infrastructure. "Tanzania could reap enormous benefits by improving its infrastructure that would serve landlocked countries," he added.
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