MZUMBE UNIVERSITY

SCHOOL OF BUSINESS (SOB)

STUDENT NAME : LOVENESS .V. MTEI

REGISTRATION NO : 1739029/T.22

PROGRAMME : BAF PS 3A.

COURSE NAME : PUBLIC SECTOR ACCOUNTING

COURSE CODE : ACC 325

COORDINATOR : MR EMMANUEL MTUI

NATURE OF TASK : INDIVIDUAL ASSIGNMENT

SUBMISSION DATE :28 APRIL 2025.

QUESTION The World Economic Forum (WEF) estimates global infrastructure investment
demand at 4 USD trillion with a gap of at least 1 USD trillion every year until 2030 (WEF 2015a).
In Africa delved The Infrastructure Consortium for Africa ICA (2017) reported total infrastructure
investment of 62.5 USD billion in Africa in 2016. The statistics are incomplete, especially when it
comes to smaller projects in Africa, certainly according to International Monetary Fund (IMF)
data (Dornel 2014), sub-Saharan Africa (SSA) recorded 158 project finance transactions
totalling 59 USD billion between 2003 and 2013 which representing only 3% of global
transaction volume.

Required:(a) Since Tanzania doesn't have a widely known VGF program in place but considering
the success of VGF schemes in other countries, would the Tanzanian government be interested
in implementing a similar program? In which ways the public sectors do you think would
benefits from a VGF program in Tanzania.(b) While Viability Gap Funding (VGF) offers a solution
for financially challenged projects, discuss other THREE (3) potential approaches that
governments or development agencies can utilize to achieve similar development goals in
Tanzania

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(a) Viability gap funding (VGF) is like a frameworks to stimulate investment in socially
significant yet financial constrained projects .This highlighted the importance of viability gap
funding (VGF) mechanism that aligns with special development goals . However many projects
face financial viability challenges due to high capital costs, extended paybacks period and
uncertain revenue streams, state government has there for introduced a new scheme for
extending financial support to such PPP projects (WN. Deulkar) that is viability gap funding
(VGF).

Viability gap funding (VGF) serves as a crucial financial mechanism to bridge this gap,
incentivizing private sector participation while ensuring the execution of essential project.

Viability gap funding (VGF) program could be an attractive option for Tanzania, especially given
the country on going efforts to enhance infrastructure development through public private
partnerships(PPPs), so yes Tanzania should be interested in implementing similar program.

Public sector would benefit from viability gap funding (VGF) program through the following
ways:

Optimizing public resource.Rather than fully financing project through public fund, viability gap
funding (VGF) permit the optimal allocation of governmental resources while harnessing private
capital . Also by reducing government burden allowing funds to be allocated efficiently across
multiple development initiatives. In Tanzania it may help to support renewable energy project
.(Hodge and Greve,2017)

Enhancing commercial viability. By support infrastructure and development project that are
essential but may struggle to atract private investment due to high initial cost and uncertain
return. Through strategic financial assistance, viability gap funding (VGF) helps bridge funding
gap, making project more attractive to investor while ensuring long term sustainability. In
Tanzania this play a crucial role in Public private partnerships(PPPs) particularly in sectors like
transportation, energy and urban development. By reducing financial risk and accelerating
project execution, viability gap funding(VGF) fosters economic development. (Yescombe,2017)

Accelerating infrastructure development. By resolving financial constraints, viability gap

funding(VGF) facilitate the expited implementation of critical infrastructure projects that might
otherwise remain unexecuted.

Encourage private sector participation. Viability gap funding (VGF) amplifies the confidence of
private entities by mitigating initial financial risks and ensuring a sustainable return on their
investment.( World bank,2021)

Ensuring affordability and accessibility. Numerous infrastructure ventures, including urban

transportation and water supply system, require viability gap funding (VGF) to maintain
affordability for the public while guaranteeing cost recovery.

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(b) Viability gap funding(VGF) is a useful tool in supporting development within a country but it's
not the only approach for development, there are other alternative approaches that government
or development agencies can utilize to achieve similar development goals in Tanzania. Here are
the three approaches that government or development agencies can use in Tanzania

(I) Availability based payment.

The governments pays the private operator a fixed fee for the availability of the project,
regardless of its actual use, this is the type of financial mechanism where the government
compensates a private entity based on the availability of an asset or service rather than its
usage. This can simplify the finance project, reduce risk for the private sector and ensure
service delivery. For example a toll road where the government pays a monthly fee for the road's
maintenance and availability even if traffic is light.

(ii) Government Guarantees.

The government provides a guarantee to the private investor to protect against specific risks,
such as currency fluctuations or change in regulations. They can pose significant risk if not
properly managed,so risk assessment methods and mitigation strategies might be in place to
minimize financial exposure. This attract investment that as a result it stimulate the
development of the government.

(iii) Public private partnership

A public private partnership (PPP) is defined as a contract between a public sector institution
and a private sector party, where the private party performs a function that is usually provided
by the public sector and use state property in terms of the PPP agreement. In a traditional
government project, the public sector will deliver the public goods and services while also
paying for the capital and operating costs and carrying the risk of cost overruns and late delivery
( National treasury,2021). For example in South Africa, the PPP strategy has become
successfully with 35 PPP projects having been completed from 1998 to 2022 with an overall
value of R91,4 billion (National treasury,2022). So Tanzania may be successful by using this
approach in terms of government development.

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 REFERENCES

Hodge, G. A., & Greve, C. (2017). The challenge of public-private partnerships: Learning from
international experience. Edward Elgar Publishing

World Bank. (2021). India’s Smart Cities and PPP: Lessons for Sustainable Urban Development.

National Treasury. 2021. ANNEXURE E: Public‐Private Partnerships. Retrieved September 8,

2022

National Treasury. 2022. Public‐private partnerships Annexure E. Retrieved from

https://www.treasury.gov.za/documents/national%20budget/2022/review/Annexure%20E.pdf

Yescombe, E. R. (2017). Public-private partnerships: Principles of policy and finance.

ButterworthHeinemann