The Outgoing Resident Representative of the African Development Bank (AfDB), Dr. Tonia Kandiero has made an appeal to the Management and Staff of Tanzania Agricultural Development Bank’s (TADB) to utilize prudently the funding amounting USD 93.51 million (equivalent to TZS 204 billion) from AfDB in order to bring rapid economic growth and poverty reduction in Tanzania.
This appeal was made on 28th December 2016 by Dr. Tonia Kandiero when she visited TADB in order to give a farewell address to the Management and Staff of TADB. Dr. Kandiero will soon relocate to South Africa after being promoted by AfDB to the position of Director General for the Southern Africa Regional Development and Business Delivery Office.
Dr. Kandiero said: “The Board of Directors of the African Development Fund (ADF) has approved a loan of UA 67.27 million (USD 93.51 million) to Tanzania. The funds will be disbursed through Tanzania Agricultural Development Bank (TADB) in order to ease access of farmers to medium to long-term finance. The funds will contribute to supporting Tanzania’s agricultural sector and achieving the country’s development goals.”
Speaking during the visit, TADB’s Acting Managing Director, Mr. Francis Assenga said that TADB is geared towards increasing productivity in the agriculture sector and transforming smallholder farmers from subsistence to commercial farming; the Bank is also providing policy advocacy and catalyzing other Financial Institutions to lend to the agricultural sector. Therefore, the funding from AfDB will enable TADB to scale up its capacity to lend to the agricultural sector in the country.
Agriculture in Tanzania is an important sector of the economy as it accounts for 26% of the country’s GDP and employs 67% of its population. The sector is also an important source of export revenues. Despite its significance to livelihoods and to the overall economy, the agriculture sector remains hampered by widespread underinvestment. As a result, it continues to operate largely at subsistence levels and its potential to bring commercialization to scale remains for the most part unrealized.
A major problem facing the agricultural sector is the unavailability of finance (particularly medium to long-term) to support agricultural production, processing and marketing. As of December 2015, a mere 8% of commercial banks’ lending went to the sector with most of which went to large companies operating in Tanzania. As a result of this underinvestment, production in the agriculture sector has not increased significantly over the past decades.
Tanzania has huge potential to produce both food and non-food crops for the domestic and export markets if access to term (medium to long-term) finance is improved. The availability of such finance will enable farmers to reduce their exposure to the cyclicality and seasonality of agriculture, to make investments in crops with long gestations periods and to acquire farm machinery and inputs, irrigation equipment, storage and processing facilities thereby transforming the sector and increasing its contribution towards economic growth. Access to term finance is critical for the growth of the agriculture sector and the shift from subsistence to commercial agricultural production.
Commercial banks in Tanzania are reluctant to expand their lending to the agriculture sector which they view as risky. This deprives the sector of the much-needed funds to boost production, processing and marketing. The commercial banks tend to fund themselves with short-term deposits limiting their incentive to extend term finance to a sector that they consider as risky although it is not necessarily riskier than other sectors; Further, these banks, having found their niches, have not done enough to adequately structure their lending to the agriculture sector taking into account risk factors such as seasonal variations which can be addressed through the provision of medium to long-term lending.
It is against this background, and for sustainable economic growth in the country that, the Government of Tanzania has decided to establish the TADB so as to address the observed bottlenecks and enhance access to credit in the agriculture sector. The TADB has been established as a national Development Finance Institution with a key role of being a catalyst for delivery of credit facilities for the development of agriculture in Tanzania.
Mr. Assenga said the funding from AfDB will enable TADB to play a key role in achieving TADB’s goals namely, promoting food self-sufficiency and security in Tanzania and supporting the transformation of agriculture from subsistence to commercial farming. Mr. Assenga commended the outgoing Resident Representative of the AfDB and said: “Dr. Tonia Kandiero will be greatly remembered in Tanzania because of her dedication, enthusiasm and insight toward African development.”