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       Chapter IX: Economic Aspects of Capital City Development

Financial Implications

This is a menu of the topics on this page (click on any): FINANCIAL IMPLICATIONS General Considerations    National Fiscal Characteristics    Capital City Development Costs    Sources of Financing   .


General Considerations

The construction of the Capital City is such a complex undertaking, that it is hardly possible to prepare a finite analysis of its financial implications. The project is such an integral part of the national and regional development programmes, that it is often difficult to determine to what degree a specific investment component relates to the city, or to the region or nation. The goals of developing the Capital are political, economic and social, and again, certain development expenditures may have greater or lesser ramifications in one or another of these three areas.

For example, what proportions of the cost of improving Dodoma's airport should be assigned to the city, the region or to the nation? The city is intended to function as a regional growth centre and, therefore, must have certain industrial, commercial and social facilities, while its function as the National Capital calls for other types of urban components and priorities; the financial implications of these two functions are almost impossible to separate. As a matter of fact, the financial expenditure and revenue aspects of the political and social elements of the project cannot be expressed in meaningful monetary terms, nor can their short or long-term effects be quantitatively measured. The magnitude of the project, however, makes it essential to devise a financial planning and budgeting programme, which will permit the Government and its agencies to make responsible and yet imaginative forecasts of the necessary funds and to control expenditures within the context of national, regional and local priorities, from time to time. To this end, an economic financial model for the Capital City is currently being prepared.

The balance of this chapter will only review some of the principal components and relationship of the general subject.

National Fiscal Characteristics

In terms of conventional methods of fiscal measurement, the Tanzanian situation, from 1963 to 1973, appears to suggest a degree of uncertainty, particularly with respect to international transactions and debt financing. However, this monetary policy did achieve an important goal, in that Tanzania's gross fixed capital formation almost quadrupled during the decade.

In its report on Tanzania of 1972, the International Bank of Reconstruction and Development made two significant statements, indicating that a simplified statistical analysis is not entirely applicable. Reporting on rural development, the Bank wrote, "It is typical of the Tanzanian approach to rural development that most attention is concentrated on the poorest areas. The actual development in those areas is difficult to measure with conventional statistical methods. Much of the initial progress is reflected in improved nutrition and health, better housing, better water, higher literacy rates and increased motivation towards achieving further improvements. Such progress is not necessarily reflected immediately in increased production for the market, which is the most important conventional yardstick for measuring development."

In dealing with Tanzania's international credit, the Bank wrote, "Tanzania is receiving aid from a large and growing number of donors. Supplier credits have been kept to a minimum. In view of Tanzania's commitment to development and its generally favourable development performance, the aid pipeline will probably continue to grow, along with actual disbursements." The report goes on to point out that "The external debt service is currently around 8 per cent and should remain within manageable proportions for the foreseeable future, provided foreign donors are prepared to continue lending on concessionary terms and that exports will grow at not less than 6 per cent p.a. However, the slow growth of exports in recent years makes it somewhat doubtful that this rate will indeed be achieved."

Tanzania's outstanding performance in the areas of rural and agricultural improvement, coupled with its realistic programme of building urban growth centres as a foundation for industrial and commercial development, provide the answer to the question raised in the I.B.R.D. report. From an analysis of Tanzania's fiscal policies and programmes, three important conclusions emerge:

Capital City Development Costs

In March of 1975, the report Capital Development Programme, First Five Years (1975-1980) was adopted by the Board of Directors of the Capital Development Authority. It contained detailed cost estimates for comprehensive implementation of the Capital's construction programme.

The total cost of the 5 year programme (1975- 1980) was estimated at approximately 2.5 billion shillings, at 1975 prices. In the national context, this represented about 10% of the total development budget estimates for the third Five Year Plan. The estimates included all the costs involved in constructing the city, such as housing, roads and transportation, water and sewerage services, social facilities, government offices and so on. The total cost of the first year's building programme (1975-1976) was estimated at 350 million shillings.

By far the largest component of the proposed development budget for the Capital consisted of the costs of housing, related engineering services and utilities, and social and community facilities. The cost of the ministry offices and other public buildings, to be developed during the first five years, represented only 4% of the total budget; and for the first year, only 6% of the total.

It should be pointed out that, in the light of Tanzania's population growth trends, the projected expenditures for housing and related services will be required, regardless of the new Capital. Whether they are to live in Dodoma or Dar es Salaam, the new families will have to be accommodated.

However, in view of Tanzania's current financial constraints, which also caused the preparation of the nation's third Five Year Plan to be postponed, the Government decided to reduce the Capital City's first year budget from 350 million shillings to approximately 100 million shillings. It is intended, however, that this will only be a temporary delay.

Sources of Financing

The Capital Development Authority, under the direction of the President as Minister for Capital Development, is the agency charged with the responsibility of building the Capital City. It has, by legislation, been given a variety of avenues to finance its mandate; it can hold and lease Sand and buildings, enter into a wide variety of national and international financial agreements and receive funds from Parliament. A number of ministries and other public agencies, parastatals, private enterprises and others will finance their own buildings and facilities, but the CDA will have to perform a coordinating role, to ensure an efficient and economical programme.

At least initially, the CDA will be largely dependent on Parliament as its principal source of funding, under the provisions of the Capital Development Authority (Establishment) Order 1973. In addition, Section 10 (2) of the Order implies potential participation by the national banking, insurance and other financial institutions and parastatals.

The Government should consider a policy whereby the CDA is annually provided with a block grant, to cover its share of the Capital's total construction and operating costs. Such an approach would be more flexible than if the Government were to allocate funds individually for different projects and programmes.

In the long-term, CDA's most substantial and enduring source of revenue will be the leasing of lands and buildings. The ownership of all the land in the Capital will be vested in the Authority and it can lease this, with or without services and buildings, to generate a constant income for the purpose of financing the construction and operation of the city. The rental or lease value of any property will be based on its development and construction costs, plus its share of the city's operating and maintenance costs. In other words, the rental will be a percentage of the property's assessed value, to be established by the Authority. The Government may contribute to the costs of operating the city, to ensure that the residents will not pay any inequitable amount, in view of the city's function as the National Capital.

In addition, the Authority may enter into jointventure, concession, or similar arrangements with parastatals and private enterprises, as another means of obtaining ongoing revenues; such arrangements could be made with hotels, manufacturers of building materials, shopping centre owners, etc.

During the construction phase of the city, there will be substantial requirements for foreign exchange, to finance the purchase of building materials, equipment and expertise from abroad. This will make a close relationship between the CDA and the ministries responsible for external financing and trade essential. However, the CDA may be empowered by the Government to enter into direct relations with foreign sources of financing. Such foreign funding could be in the form of long-term, low interest loans, grants or direct investment in development projects.

Bi-lateral aid from a specific country could finance, or provide materials, equipment or technical assistance for certain elements of the city's requirements, such as the water supply system or another utility, the public transportation system, and the forest exploitation and wood products industry.

A number of donor countries have demonstrated a preference to assist in rural and regional development programmes, instead of urban projects. They appear not to appreciate the close relationship between the Capital City and the growth of its surrounding region. The Tanzanian Government has clearly recognized that building urban growth centres is an integral and essential component of rural economic improvement; establishing the Capital City at Dodoma is, to a very large extent, the most effective means to accomplish the objective of regional betterment. Donor countries should be aware of this close relationship between urban and rural development, when considering their aid programmes.

Tanzania has the right to request financial support from agencies of the United Nations. Indeed, such assistance is currently being negotiated and the UNDP/UNEP has already provided expert planning advice. Following are some examples of potential U.N. programmes:

In discussing such assistance programmes with the individual U.N. agencies and countries, it may be possible, and it would certainly be desirable, to produce a comprehensive urban or regional development "package."

Notwithstanding the priority assigned to the building of the Capital City, the financial wellbeing and stability of Tanzania as a whole will continue to be the Government's primary concern. The pace of building the city will, therefore, be dependent on the Nation's resources and requirements. Time horizons are not as important as the assurance that, whatever is done, will be to the greatest benefit of the people of Tanzania and the Capital City's regions and to the citizens of Dodoma itself.

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Copyright: Project Planning Associates Limited, Toronto, Canada, directed by Mr. Macklin Hancock and recipient "The Government of Tanzania, Capital Development Authority under the auspices of Mr. George Kahama.".