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World Bank Finances Trade Project to Raise Country's GDP

Discussion in 'Biashara, Uchumi na Ujasiriamali' started by Invisible, Mar 21, 2010.

  1. Invisible

    Invisible Admin Staff Member

    Mar 21, 2010
    Joined: Feb 11, 2006
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    Written by Orton Kiishweko

    THE implementation of the 52bn/- housing finance credit project in Dar es Salaam by the World Bank is expected to raise the country's GDP by one per cent, according to the project's blueprint.

    The document projects the Gross Domestic Products (GDP) to grow by 0.46, 0.55, 0.66 and 0.79 per cent in the first, second, third and fourth year, respectively. It will grow by 0.95 per cent in the fifth year.

    The project appraisal document, passed by the bank's board of directors, shows that the three-phase project will result into increased GDP as a result of expanding mortgaging market.

    Tanzania's GDP, the total value of goods produced and services offered during a year, is currently estimated at 24 billion US dollars (about 32tr/-).

    In the first stages of developing the local mortgaging market, Tanzania Mortgage Refinance Company (TMRC), will be created and developed with an initial capital of 6bn/-, to provide medium and long term liquidity to mortgage lenders.

    Tanzania is the latest project joining 24 others under the Breton Woods Institution, with a net commitment of 2,512.38 million US dollars (over 3tr/-).

    The blue print, passed by the WB Board last week states that over time, the TMRC will combine the International Development Association( IDA) credit, offered through BoT with market funding - as it will start issuing bonds.

    The credit will support the initial, start up phase of the company's operations as a second tier, wholesale, market-based liquidity facility focused on refinancing longer-term residential mortgage loans originated by the lenders.

    The company will soon begin issuing bonds in the capital market, to help fund its operations on a market sustainable basis.

    Some 12.5 per cent or USD 5m of the credit will assess the potential to develop a Housing Microfinance and examine how a Fund could help in providing longer term funds, to allow loans of up to five years or longer to be granted.

    Among the critical risks and possible controversial aspects expected include a high risk premium for capital market funding where, pension funds, for example, demand a minimum of 3 per cent over Treasury Bills for even highly rated corporate bonds, which would make funding for mortgages too expensive.

    The banks will also not be able to use the facility for refinancing as the mortgage liquidity facility will operate on a market basis and will face risk that is not able to offer pricing, which is attractive enough to entice banks to participate.

    It notes that inadequate land titling and registration may hinder 'effective demand' for mortgage loans.

    For an underdeveloped land and property market, the risk mitigation measure it suggests is to establish a Business Plan for National Housing Corporation with a transparent framework for procurement, development and sale of land.

    The BoT will help to bring down the cost of the bond funding by using a Spread Reduction Account (SRA).

    In the next five years, it is estimated that market funding of TMRC will prevail with IDA lending share in TMRC funding at 40 per cent and bond issuing share at 60 per cent.

    TMRC would have provided around 105bn/- of mortgage loan refinancing which represents 20 per cent of the estimated mortgage market, a solid market which results in return of equity of 10.2 per cent and in return of assets of about 1.1 per cent.

    With a few or no housing options in the formal sector, the vast majority of the people in Dar es Salaam reside in informal settlements which is 70 per cent.

    Source: Daily News - 18, March 2010
  2. PatPending

    PatPending JF-Expert Member

    Mar 21, 2010
    Joined: Aug 17, 2007
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    I wish the cynic in me wouldn't dictate my thinking towards this project. Aargh what the heck, another theoretically sound idea that will yield miserable returns and inflate the already artificially expensive housing market.