Cool and Hard Heads; Warm and Soft Hearts: Economic Reforms for a Just Society in Tanzania

Prof. Ibrahim Lipumba

Prof. Ibrahim Lipumba

“Policy makers should realise that macro-economic fundamentals are necessary but not sufficient to ensure pro-poor sustainable growth. Indeed Tanzania has been able through the reforms to sustain macroeconomic stability in the last 5-7 years but essential as they might be, the response at the micro and meso-level seem to have been limited. The modest growth that has been attained at the macro level has been accompanied by increasing income inequity and marginalisation of some groups in the society at the micro-level. Given the objective of poverty reduction, strategic pro-poor development approaches are required to ensure that economic growth significantly contributes towards poverty reduction.”

A Synthesis Paper by Prof. Ibrahim Haruna Lipumba at the Inaugural Tanzanian Development Forum on June 2004

I. Introduction

The Economic and Social Research Foundation (ESRF) in collaboration with the Research on Poverty Alleviation (REPOA) and The President’s Office Ministry of Planning and Privatization held the first biennial development Forum on April 24-25 2003. The overall objective of the forum was to reassess the development policies of Tanzania in order to delineate policy recommendations on how to accelerate development in this country. The sponsors of the forum noted that many development strategies have been implemented in Africa since independence, but the continent still faces economic and social stagnation. Over the past forty years Tanzania has adopted two contrasting strategies: Post Arusha and Post Structural Adjustment. In both periods, there have been some successes but neither strategy has transformed Tanzania into an African Lion to match the Asian Tigers. The country remains foreign resource dependent, with half of the population living in abject poverty. What has been missing? What was done right and what was done wrong? What are the strategic actions that now required to get the economy on a higher growth path and to significantly reduce poverty?

The specific objective of the forum included to provide an opportunity for policy actors to assess the impact of the country’s development policies in stimulating higher economic growth and poverty reduction, to generate information that may help policy makers in Tanzania and other countries with better understanding of development challenges facing Tanzania and to disseminate to the local policy community and others, the achievements and inadequacies of development paths taken over the last forty years.

The discussion and deliberations in the forum was organized around six sub-themes:

  • Is a high rate of Sustainable Growth Achievable?
  • Poverty – Eradication or Deterioration?
  • Children and Young People: Tanzania’s Future
  • Globalisation – or Marginalisation?
  • Good Governance and the Rule of Law: Utopia or Reality?
  • Human Capabilities and National Productivity– a Foundation for Self-reliant Growth?

In each sub-theme a number of papers were presented for discussion to guide deliberations that resulted in specific policy recommendations. The challenging overall guideline for the deliberation of the forum was given by a comprehensive opening address of the forum delivered by his excellency President Mkapa titled Reform, Growth and Poverty Reduction.

Papers were invited for each of the above-mentioned sub-themes with the objective of answering the following questions: –

Sub-theme 1: Is a high rate of Sustainable Growth Achievable?

Repeatedly in plan documents and vision statements, high growth targets have been set.

  • Can they be achieved?
  • What are the likely scenarios facing the Tanzanian economy and society over the coming generation?
  • How can the economy achieve sustained annual growth of 6% plus?
  • How can the economy grow without destroying the environment and livelihoods options of the poor?
  • Gold boom – and bust? (Will Tanzania catch the Dutch disease?)

Sub-theme 2: Poverty – Eradication or Deterioration?

A good deal of lip service has been paid to poverty alleviation, by government and donors, but the existing pattern of growth does not provide sufficient opportunities for the poor to improve their lot.

  • What has been the trend in poverty?
  • Is the existing pattern of growth pro- or anti- poor?
  • Is Tanzania becoming more or less unequal?
  • What is the impact of government poverty eradication programs?
  • What can be done towards a strategy, which is more pro-poor?

Sub-theme 3: Children and Young People: Tanzania’s Future

  • How can we ensure that children and young people are provided the requisite priority in national strategies and plans?
  • How will we ensure that young people are provided with access to more skills enhancing opportunities and productive resources – use of land in their own right?
  • How can the development processes be more inclusive of the voices of children in young people issues which are of direct concern to them (e.g., reproductive health services etc)

Sub-theme 4: Globalization – or Marginalisation?

  • How does Africa move from its current marginalisation to becoming a serious player in the world economy? Is there any alternative to global participation?
  • How is Tanzania’s position in the Global Economy changing?
  • Diversification of output and exports was set as a key objective by Tanzania soon after Independence. Why has so little been achieved?
  • Why did industrialization in the 1970’s fail?
  • What lessons are to be learnt from successful exporting nations?
  • Was liberalization/privatization an adequate response to failure?
  • Regional integration – what is the best grouping? How best to can we avoid a repeat of earlier failure?

Sub-theme 5: Good Governance and the Rule of Law: Utopia or Reality?

  • Everyone agrees that good governance and the rule of law are desirable, but is this just rhetoric?
  • What is the proper role of the various actors in the policy process in enhancing government accountability (political leaders, the Bunge, political parties, the civil service, NGOs, the press, etc)?
  • Is the governance agenda donor- driven? How far it is widely understood and how far does it respond to concerns of the Tanzanian public?
  • Corruption – how pervasive is it? Are anti-corruption efforts working? What more should be done?
  • NGOs – Whom do they represent? Where are the ordinary people? Does Civil Society have any operational meaning?
  • How are conflicts between the interests of different groups in society to be handled?
  • How do we recognize the rights of children and young people to participate in decision-making according to their evolving capacities?
  • How can the Private Sector be best guided to effectively deliver social objectives?

Sub-theme 6: Human Capabilities and National Productivity– a Foundation for Self-reliant Growth?

Development depends on the full development of national human capabilities.

  • National Entrepreneurship: Where is it and how to develop it?
  • How do you create the national technical/entrepreneurial capacity to industrialize?
  • What will be the impact of HIV/AIDS, and how do we deal with it?
  • Is there a conflict between developing national entrepreneurship and promoting foreign investment?
  • How to develop healthy, well-educated and skilled human resources consistent with the challenges of the global economy?
  • How can the effectiveness of the public service be enhanced?

II. President Mkapa Sets the Stage

President Mkapa took the deliberations of the forum seriously and welcomed the Forum participants “to help lift the burden of leadership for reform, for growth and for poverty reduction.” He considered his opening speech similar to a defence of his thesis on economic reform and poverty reduction of the Third Phase Government.

The President challenged the Forum participants who were from the intellectual cream of Tanzania society including government, academia, politics, civil society and mass media to ask the right questions and provide honest answers on issues of reform, growth and poverty reduction. The participants should make an honest evaluation of the impact of reforms on poverty without forgetting the economic and social situation of the 1980s when shortages were rampant and even when you had money there were no goods to purchase. People had to bribe in order to purchase essential foodstuffs and basic goods. Economic reforms particularly the liberalization of trade and markets have made all goods available and you do not need to bribe in order to purchase any good.

“And yet there are people, supposedly learned and informed people, who would say the situation of poverty and corruption in Tanzania is worse today than it was two decades ago. It is not true. We are still poor, and there is still corruption. But not worse than what it was ten years back.”

The President is pained by those Tanzanians who do not acknowledge the successes and accomplishments of economic reforms implemented by his administration.

The President tackled head on the main issue of the development forum on “why Tanzania, despite all her efforts at policy experimentation and reform, has not transformed into an African Lion to match the Asian Tigers.” He found the answer in analysis done by the Asian economists at The Asian Development Bank. He extensively quoted Quibria paper entitled “Growth and Poverty: Lessons from the East Asian Miracle Revisited” which argues that the most important causes of the economic miracle of East Asian were rapid capital accumulation that sustained by a combination of market-oriented policies and enabling institutions. Government policies and institutional framework supported openness to the external world and provided incentives to domestic entrepreneurs to save and invest in productive activities. The openness policy facilitated the tapping of international trading opportunities in the world economy and to access new technology. The enabling investment climate in the domestic economy was supported by policies promoting macroeconomic stability, labour market flexibility, good economic governance, and legal and political institutions that encouraged production instead of rent-seeking. These policies and predictable rules of the game led to high investment rates and efficient use of accumulated capital that caused rapid growth of output, increase in employment, and fast reduction of poverty.

The President argued that Tanzania has not been transformed into an African lion because for most of our independent nationhood “We have a very low savings rate, and yet we are apprehensive of foreign capital.” If rapid economic growth requires high rates of capital accumulation, how could we have grown fast with low rates of saving and a dislike of foreign investment? Tanzanians have been half hearted reformers. They have not fully embraced and make the best of market-oriented policies and institutions that have been implemented by the Third phase government. Asians unlike Tanzanians worked hard not whined, saved, not engaged in conspicuous consumption every time they made a surplus; sent their children to school, not out to work or get married prematurely; and opened doors to capital and technology, not complained about the externalisation of the economy; and built good infrastructure, not ridiculed government efforts in that regard.

Macroeconomic Stability and Economic Governance

The President explained the success of his administration in bringing fundamental changes in the management of the economy. He “attached great importance to macroeconomic fundamentals as a necessary condition for investment, for trade and growth, and hence for job creation and poverty reduction.” He argued, “The pursuit of macroeconomic stability, and especially of low inflation, is good for growth and poverty reduction.” Inflation has declined from over 30 percent in the early 1990s down to 4.4 percent by end of December 2002. The success of reducing inflation has not been attained at the expense of economic growth. There has been a steady increase in economic growth reaching 6.2 percent in 2003, a rate that has never been attained in the past twenty years. Having attained low levels of inflation, “we can afford to debate the desirable balance between price stability as a goal, and other equally important goals such as job creation, investment credit, and faster economic growth.”

Economic reforms has addressed other issues including fiscal management and structural and institutional reforms, including deregulating investments, divestiture of public enterprises, liberalization of markets, and restructuring the financial sector. These reforms have contributed to government revenue quadrupling over a period of 7 years, reducing budget deficits and stabilising the economy.

When President Mkapa took over the leadership of the country in 1995, Tanzania relation with its bilateral and multilateral donors was bad. The government was seen as corrupt and incompetent. The improvement in macroeconomic management was critical in rectifying for the better the relation between the Tanzania government and bilateral and multilateral donors. Development partners were impressed by the determined leadership of the President in economic reforms that led to macroeconomic stability. Tanzania became the first country to qualify for the extended HIPC debt reduction initiative.

The President emphasized that after receiving debt relief we must promote sustainable high rates of growth and a better management of our national debt in order to have a sustainable debt profile in future. The National Debt Strategy that was promulgated in 2002 provides a comprehensive approach to managing both our external and domestic debt.

The management of public expenditure has been improved by the utilization of the Integrated Financial Management System (IFMS) that has been extended to all ministries and sub-treasures that has enabled the exchequer to manage and monitor the flow of all central government resources. The Public Expenditure Review Process has involved a wide range of stakeholders. The Public Expenditure System is increasingly becoming transparent by publishing budget execution reports in newspapers, and disseminating information on budget execution down to the village level. The government is now directing its effort to improving budget management to local authorities.

All the efforts in improving macroeconomic fundamentals, an effective national debt management, and a better and transparent public expenditure management have been taken to create the basis for rapid economic growth and a better utilisation of scarce resources that will have an impact in reducing growth if not immediately at least in the medium and long term.

Harmonization of Development Assistance

The government is committed to attaining self reliance, but the realities of the current situation, is that Tanzania will depend critically on sustained and targeted development assistance to achieve her development goals. The government has implemented policies to improve the management and effective utilization of development assistance. Tanzania is now considered as a good example of effective harmonization of development assistance. We have been able to improve the harmonization of development assistance by first, owning our development agenda. Second having a serious and honest consultative mechanism between Tanzania and her development partners. Third, to insist on effective and efficient aid delivery mechanism including predictability of timing and levels of aid flows. Integration of aid into the Exchequer, and rationalization is important in improving the efficiency of aid by reducing the burdensome multiple and overlapping administrative processes of missions, reviews, meetings, studies and reports. The fourth component is national capacity, in terms of policies and strategies, and in terms of accountability.

Tanzania has been able to instil confidence among our development partners that we have established an Independent Monitoring Group headed by a Tanzanian, Prof. Wangwe to regularly review progress in the harmonization of development assistance.

Financing Development

The President strongly argued that Tanzanians have to change their mental framework and shift “from discussing desirables in development and poverty reduction, to discussing doables based on our own capacities.” We tend to see ourselves as victims “that our poverty is the fault of the government, or some other external factor to ourselves.” The government can only create a conducive environment for growth and self-development. Individuals, firms and households have to effectively utilise the opportunities that have been created by working hard, saving and investing. We want the easy way out but there are no short cuts to development. Can we become an African lion by whining!

Ultimately, development has to be financed, either by domestic saving or by that of others. For the government to be able to finance development expenditure it must increase domestic revenue collection without suffocating productive capacity. Although the collection of government revenue has increased four fold in the last seven years, government revenue as a percentage of GDP “has actually declined from 12.6 percent in 1997 to 12.2 percent in 2002, a rate that is among the lowest even among comparable economies.” Tanzania should increase the share of GDP that is collected as government revenue without discouraging investment, enterprise and economic growth. We need to increase the tax base, reduce taxation on production, and focus more on taxing profits and consumption. The government tax reforms aims at streamlining and rationalising taxation, improving tax administration, and reduce nuisance taxes, including in the agricultural sector.

The second way of financing development is to increase private savings and investments. The President was frustrated by the fact that, we do not sufficiently discuss how to increase domestic savings and accumulate capital nationally as a basis for promoting growth and economic sovereignty. Tanzania has a very low saving rate. We made some “progress” of increasing our saving rate “from 7.2 percent in 1996 to 11.1 percent in 2002. And yet, we wonder why Tanzania has not become an African Lion!!”

The President challenged the seminar participants to come up with concrete recommendations on how the domestic saving and investment rate can be increased in Tanzania.

While our domestic saving rate is low and hence can only finance a low rate of investment, we are also hostile to foreign direct investment. With our economic nationalism and a low saving rate how can we attain a sustained growth rate of 6-8 percent that is necessary to reduce poverty?

In order to have a high growth rate of 8 percent we need to invest 25 percent of our GDP. Thanks to FDI that rose from USD 20 million in 1994 to USD 192.8 million in 2000, Tanzania investment rate has increased from 14.8 percent in 1997 to 17.4 percent of GDP in 2001 still 8 percentage points below the 25 percent minimum target.

The third way to finance development is through export revenues, from the export of both goods and services. In addition to domestic revenues and savings, export revenues are a strong pillar of promoting national development. They are the best way to attain sustained high levels of growth, job creation and economic sovereignty. He challenged the economic nationalists among us would be serving our country better if they would focus on how to move faster on these three points: domestic revenue, the gross national savings rate, and export revenues for both merchandise, and for services such as tourism and transit trade.

We can not escape the fact that if we want to haul ourselves up by our own bootstraps, our options can be distilled into two: either we generate our own resources to finance development or we become good at attracting external finance, and be ready to pay the price in a competitive world.

The fourth way of financing development is external financing. Having come to terms with the reality of a huge resource gap, this government focussed on maximising external financing as the only way to meet our national development goals

The President emphasized “external financing, whether private or official, can only be attracted to our country if certain basic preconditions are in place. One is good governance and political stability. The other is macroeconomic fundamentals and stability. Another is investment in upgrading economic infrastructure and human resources.” He argued that “the indomitable political will for economic reform was perhaps the single most significant factor that ensured Tanzania received increased levels of private external financing at a time when the share of sub-Saharan Africa in total capital inflows to developing countries declined from more than 20 percent in the 1980s to 10 percent in 1990s.”

Tanzanians “have to come to terms with the real world – a world of fierce, often ruthless competition, regionally and globally. Sentimentalism has little value in such a world. Success depends on cool and hard heads in terms of economic policies and strategies. The private sector is good in that area. But we are also human beings, and some of us are still socialists at heart. So we need a government that can counterbalance hard heads with soft hearts, balancing hard-headed economic reform with the human dimension of development to ensure the benefits are spread more widely, property rights are protected, social and economic justice prevails, equal opportunities for self-development abound, and economic activity is regulated fairly, creating level playing fields. But the state cannot take over the people’s responsibility for self-development. It can only facilitate it.”

We have to realise that the public sector led economic development has failed in Africa and private sector is the driving force of economic development particularly given the rise of globalisation. Although the decision to privatise was made a decade ago, the President was exasperated “in the media and various fora you still hear Tanzanians debating the merits and demerits of privatisation, as though we have not yet made up our minds.” He was also “concerned about the xenophobic tendencies of some of our leaders. On average, about USD 200 million are now invested in Tanzania as FDI in a year. It is progress taking into account where we came from. But in global terms this is peanuts, especially for a country our size. Yet, already you hear people saying this government is selling everything to foreigners. Such sentiments, in an era of globalisation and competition, are patently unconducive to rapid growth and poverty reduction.”

The President agreed with and extensively quoted Oswaldo de Rivero who argues that: –

“The underdeveloped countries, with their lack of national capitalism, huge rates of unemployment, high demographic growth, and raw material exports at unprofitable prices, have no choice but to seek productive transnational investment. Only in that way can they hope to reduce somewhat their unemployment, increase the technological level of their production, and develop new exports with comparative advantages. For these reasons, there is at present a dearth of transnational investments in all the countries of the world. It is not an easy task to become the country chosen for investment by the much-sought-after and spoiled aristocrats of the global economy”.

The President complained that while he was working hard to make Tanzania attractive for foreign investment, some people were accusing him of “selling the country to foreigners, and yet they expect somehow Tanzania to benefit from globalisation, and become an African Lion in the process. What other realistic route to that end is there?”

He emphasized that “economic reforms are not expected to directly solve our growth, unemployment and poverty problems. The raison d’être for economic reform is to create a domestic structural and policy environment that can make it possible for activities to take place that will ultimately increase growth, reduce unemployment, and conduce to poverty reduction…. That environment is necessary, but not enough. It can only result in growth, in job creation and in poverty reduction if it is used.”

There is no shortcut to development and poverty cannot be eliminated over a short period. The role of the government is to put in place the legal and physical infrastructure, a policy and institutional framework conducive to growth and self-development. That is what the Third Phase government has done.

The government is putting in place a framework to improve conditions for growth including legal reforms and new laws to facilitate the workings of a modern economy and a regulatory framework for a competitive market economy. The government is also addressing supply side constraints by rehabilitating roads and building new ones and bridges. The performance of ports and telecommunications has been improved. Primary schools have been rehabilitated and new classrooms constructed. There is increased enrolment in primary and secondary schools. The health delivery system has been rehabilitated, and the government has introduced health insurance schemes to finance it sustainably and improve access. We have attained good macroeconomic fundamentals that are universally acknowledged to be pro-growth, and hence, ultimately, pro-poor. “It is true much remains to be done to engender that level of economic growth that can turn Tanzania into an African Lion. But that cannot be done by whining or by trying to blame the government for everything that goes wrong, or for every failure to reduce poverty.”

The President concluded by stating, “Your job and mine today is to change Tanzania. It is to move the land God gave us closer to the best it can be by pushing ourselves, and our people, to be the best we can be, individually and collectively.”

To summarise, the President appealed to Tanzania to change their mindset embrace globalisation and the market and take advantage of the opportunities created by market reforms and stop whining. To increase growth and reduce poverty we need to increase saving and investment. The domestic saving rate is still low. What can we do to increase it? Although tax revenues have increased, the government expenditure is still highly dependent on external loans and grants. What should be done to increase the share of GDP collected as government revenue? To promote growth and self-reliance we need to increase our exports. Macroeconomic stability has already been achieved, what else is needed to promote the growth of exports? Foreign Direct investment has increased but it is still low and largely concentrated in the mining sector. We should continue promoting more Foreign Direct investment particularly in manufacturing. There is also an astonishing disconnect. The economic reforms are widely praised abroad particularly by international financial institutions but do not receive a similar accolade from Tanzanians particularly the local press. The economic reforms have to be owned not only by government but Tanzanians in general and must be popularised among the public.

III. Promoting Growth and Sustainable Development

Tanzania is, by international standards, still ranked as one of the poorest countries in the world. The Poverty and Human Development Report (PHDR) 2002 noted that there has been no significant decline in income poverty in Tanzania apart from (Dar es Salaam) between 1991 and 2001, notwithstanding the improvement of macroeconomic performance during the 1990s. This raises concerns that possibly there are missing links for the reforms that have been implemented since the mid 1980s to promote pro-poor sustainable growth.

The failure of most policies to promote pro-poor growth may be attributed to lack of effective policies to resolve market failures such as access to credit, technology and markets by small and micro enterprises that could raise incomes of the poor majority. The result is a proliferation of informal sector not as a growth promoting entrepreneurial activity but rather as survival strategy for those who are adversely impacted and left out by mainstream reforms.

In recent years there have been initiatives that attempt to formulate comprehensive development plans for specific sectors of the economy such as education, health and medical care, agriculture, etc. Yet despite these initiatives there are still several flaws that need to be critically addressed, e.g. lack or coordination between the central and local government responsibilities in the implementation of such programmes, lack of capacities to implement the strategies, limited financial resources for implementation of such programmes and lack of appropriate institutions for managing liberalisation at the micro level.

Economic growth matters for development and poverty reduction, but its sustainability depend on the one hand on evolving nature of Tanzania’s trade integration within world markets. On the other it depends on the characteristics of employment it brings in its wake and on the ability of the evolving strategies to allow full participation of the private sector in the “official economy”.

Sustainable Growth in Tanzania can be achieved if the necessary pre-conditions and supportive infrastructure is put in place. The key factors that the extensive literature on economic growth considers to be essential and need to be given due attention includes:

  • Macroeconomic stability
  • Investment in human capital
  • Research and development
  • Strategies to achieve pro-poor growth
  • Depth of financial intermediation
  • Good governance
  • High and adequate government expenditure on strategic infrastructure;
  • Degree of openness to trade
  • Promotion of human resource development to improve capacities

Policy makers should realise that macro-economic fundamentals are necessary but not sufficient to ensure pro-poor sustainable growth. Indeed Tanzania has been able through the reforms to sustain macroeconomic stability in the last 5-7 years but essential as they might be, the response at the micro and meso-level seem to have been limited. The modest growth that has been attained at the macro level has been accompanied by increasing income inequity and marginalisation of some groups in the society at the micro-level. Given the objective of poverty reduction, strategic pro-poor development approaches are required to ensure that economic growth significantly contributes towards poverty reduction.

Policies that empower the poor to participate and benefit from the liberalization of the economy at the micro level are important. These include: increase in investment in human capital of the poor, agriculture research and effective extension, enhanced availability of financial services for development, promotion of labour intensive manufacturing, creating an enabling environment for micro, small and medium scale enterprises, finance; good governance; adequate investment in physical and economic infrastructure necessary for economic growth; and strategic enhancement of the degree of openness to trade.

Tanzania has embarked on a growth approach that emphasizes the targeting of public expenditures for poverty reduction through pro-poor sectors. The sustainability of this approach however, is likely to be limited since our own country’s resources are not adequate to sustain its implementation and is thus forced to continue to depend on donor finance. This imposes a great challenge in our efforts to promote pro-poor growth. Promotion of strategic export led growth through empowerment of the private sector to participate in both agriculture and light manufacturing is likely to be more sustainable for a poor country like ours. We need to promote growth of large-scale agriculture and small and light industrial manufacturing, which in addition to increasing export earnings will provide employment to unskilled labour.

For Tanzania, a balanced growth strategy that does not marginalize the development of any sector is needed. However identification of niche areas from amongst the key sectors of the economy (agriculture, manufacturing, mining and the service sectors including trade and tourism) is essential to enable us to strategically focus on areas where we have a competitive advantage with the external world.

The agricultural sector in Tanzania is largely dominated by small-scale agricultural production. It has absorbed the poor for employment and therefore is considered as the most pro-poor sector of the economy. It can be argued that pro-poor growth in Tanzania should be led by rural agriculture because it is the only sector in the country where the majority of the poor are employed. The development of the sector is however limited by a number of constraints, which if not adequately addressed, will limit the contribution of agriculture to economic growth. The constraints include:

  • Under investment in the sector;
  • Inadequate budgetary allocations for development of the sector;
  • Poor agricultural support services, limited availability of financial services and near absence of agricultural extension services;
  • Traditional nature of agriculture: over dependence on rain fed agriculture, low level of usage of modern agricultural technologies in which the hand hoe is the predominant implement.
  • Poor state of physical infrastructure, rural roads, storage facilities as well as agro processing facilities;
  • Multiplicity of burdensome taxes;
  • Unfavourable international prices for Tanzania’s main export primary export commodities.

Other sectors of the economy are not contributing adequately to the creation of employment opportunities. These sectors include manufacturing, mining, and the service sector including trade and tourism. Although the services sector has flourished in recent years, its contribution to the country’s earnings still needs to be enhanced as Tanzania to date is a net importer of services.

The manufacturing sector has a potential to contribute to export led growth and diversifying the country’s exports. The experience of East Asian Economies pro-poor growth provides an example where manufacturing industry played the leading role in creating jobs for the poor. It is also known that the industrialisation occurring in East Asian economies in 1970s and 1980s was led by export oriented manufacturing industries where unskilled labour intensive technology was utilised. This export oriented development approach was accompanied by gradual liberalization and opening up of the economies to enable these economies ride the wave of globalisation and compete effectively. The manufacturing sector in Tanzania faces several constraints to its growth. These include:

  • Limited depth of financial intermediation in the economy;
  • Lack of appropriate incentives for its development;
  • Weak local entrepreneurial capacity;
  • High costs of production and ineffective control of quality standards, which limit competitiveness of locally manufactured products in the world market; and
  • Drastic economic liberalisation policies that failed to take into account the need to build local competitiveness and productive capacity to cope with the challenges of globalisation.

In short we do not have a sustainable strategy for the development of manufacturing sector in the country. This has led to limited growth of the sector and thus its little contribution towards pro-poor and sustainable growth. Local private investment ventures have failed to grow fast enough to contribute to employment while the government seems to have put too many expectations on private foreign investment.

As for the mining sector, while fast growth has been experienced in recent years, its contribution to socio-economic development is limited. There have been several complaints about marginalisation of small-scale miners and the local communities not benefiting from the large-scale mining activities. Moreover there have been several complaints regarding the ineffectiveness of the incentives accorded to foreign investors in promoting corporate social responsibility. This signifies that the government needs to undertake effective targeting and interventions to ensure that mining contributes optimally towards socio-economic development. The fiscal regime for the mining sector is too generous in the form of extensive medium term tax exemptions that the sector is not contributing much to government revenue.

The service sector has also evolved fast in recent years. Tourism sector has grown fast and it is currently seen as potential sector for contributing towards overall growth. The critical issues are how the sector is linked to other productive sectors of the economy and the extent to which tourism in Tanzania is pro-poor. While the infrastructure facilities for transport and communication have improved considerably in recent years, there are areas that still need improvement. Further efforts are also needed to ensure that the growth of tourism sector is not only pro poor but is also eco-friendly. The benefits of local communities near tourist attractions and activities need to be improved. The backward linkages of the tourist to local agriculture, manufacturing and services should be enhanced in order for growth in tourism to promote overall growth.

The challenge is for the private sector and the government to take their active roles in the development process: the private sector as the engine of growth in the transition towards a market oriented economy and the government as a regulator and provider of the necessary infrastructure to stimulate private sectors interest in investment activities in various productive sectors of the economy.

Key Recommendations

For a sustainable poverty reduction, it is estimated that Tanzania requires a growth rate of at least 6% and above. Achieving such a growth rate is contingent upon the adoption of an economic development strategy that provides incentives to entrepreneurs in all sectors and assurance of a predictable policy environment. The rules of the game should not be changed arbitrarily. Political sustainability of the economic strategy is equally important, that is the extent to which the economic strategy generates growth that is generally equitably shared by the various regions and social groups will promote social peace and political stability.

It is recognised that a number of strategies and programmes have been articulated in order to revamp agriculture as well as other sectors of the economy. However a number of outstanding actions still remain:

The future of agriculture for instance will first require addressing the existing constraints both of short term and long term nature.

In the short term, policies should focus on prioritisation of sectoral allocations in government budgets in favour of agriculture; rationalisation of taxes and tax rates in the agricultural sector; improving access to financial services and availability and affordability of agricultural inputs.

In the long term, actions should include investing in agro processing industries, improving rural infrastructure, increasing investment in agricultural skills development, research extension, and promoting irrigation farming technology. These actions presuppose that at the macro level macroeconomic stability will continue to be sustained

For the manufacturing sector, there are also challenges that need to be addressed if the sector is to grow faster and contribute to sustainable growth. Among these are:

(i) The need to improve quality standards and therefore competitiveness of manufactures output in the country and abroad;

(ii) Addressing the factors that act as impediments to the growth of local entrepreneurial capacity;

(iii) Availing incentives for domestic industries for best practices;

(iv) Modernising local indigenous knowledge in the context of the global development challenges;

(v) Identifying niche areas in other sectors and investing in them for higher and quality productivity for instance by exploiting potential offered in mining and tourism industries.

While mining sector has grown very fast in recent years. Its contribution to the social development is very small and the government may need to undertake more effective interventions to ensure that the benefits emanating from foreign investors mining activities are felt by the society. The benefits resulting from mining activities are also recognised to be more of long-term nature. Promotion of environmentally sustainable practices in the mining industry is another challenge that needs to be adequately addressed.

For tourism, the sector has the potential to contribute to faster income generation and therefore contribute to the betterment of the lives of the Tanzanian community. This is possible only if there is supportive infrastructure including transport and communications and better policies to guide the sectors development. The challenge is to design those policies that would ensure that the Tanzanian communities living in areas surrounding major tourist attractions in the country get benefits emanating from tourism. The major questions include:

  • How to promote eco-tourism
  • How to improve local entrepreneurial capacity in the tourism industry and enable them to take advantages of the opportunities available in the industry

The need to promote partnerships (foreign-local and public private) in investment in the sector so as to benefit the local communities

The major challenge is thus on how to ensure that we have in place a strategic development approach that will enhance the capacity to manage liberalisation at the micro level for fast and sustainable growth while ensuring equitable income distribution and poverty reduction. To attain this, comprehensive reforms are necessary not only at the macro-level but also at the micro institutional levels. Capacity building initiatives to cope with the challenges of transition to a market led economy are already in place but they need to be enhanced.

IV. Poverty Reduction

The 1990s have not brought significant net gains in the reduction of income poverty for the majority of the population. Income poverty has only significantly declined in urban areas. While the proportion of people living below the poverty line has decreased, their number has increased. Moreover the decrease in the proportion of people living below the poverty line from 39 percent in 1991/92 to 36 percent in 2000/01 is not statistically significant. Unless the rate of decline in poverty headcount ratios is accelerated significantly as a result of implementing the Poverty Reduction Strategy, it will be impossible to meet the very ambitious target of halving the proportion of people living below the poverty line by 2010. HIV/AIDS, which increasingly affects rural productivity, is an important obstacle for the reduction of income poverty.

It is important to design a pro poor growth strategy that will make economic growth translate into real gains for the poor. This growth strategy should focus on increasing agricultural productivity in rural areas and creating non-agricultural employment in both rural and urban areas.

The key medium term poverty reduction strategy targets include:

  • Reduce the proportion of the population below the basic needs poverty line by half by 2010
  • Reduce the proportion of the population below the food poverty line by half by 2010
  • Reduce the proportion of the rural poor by half by 2010

Status and trends:

Poverty headcount ratios:

Table 1 show that there has been very limited improvement of the income poverty status of Tanzanian households over the 1990s. It is only in Dar es Salaam that a statistically significant improvement is observed.

Table 1: Poverty headcount ratios 1991/2-2000/1


Basic Needs










Other Urban















Source: Household Budget Survey 1991/92 and 2000/01

If we assess the trend in the headcount ratios during the 1990s against the Government’s commitment to halve the proportion of people living below the food poverty line by 2010, it is clear that progress is not nearly as good as desired. The target is only likely to be reached in Dar es Salaam. The actual trend for Dar es Salaam is better than the trend required for the achievement of the 2010 target. In fact, the target was already nearly achieved in 2000/1. Progress towards the target is lagging behind significantly for other urban areas and even more so for rural areas. Particularly for the rural areas, where the majority of the population lives and where poverty is most widespread, this is a message of great concern. Given the observed trend, reaching the food poverty target in the rural areas and, as a consequence, for the country as a whole, by 2010 will be very challenging.

The acceleration of poverty reduction required to meet the target is very daunting. This is particularly clear when the impact of HIV/AIDS on rural productivity is considered. When mortality and morbidity increase as a result of HIV/AIDS, this has devastating effects on the chances of affected households to get out of poverty.

It is important to note that the most recent HBS reveals that inequality in Tanzania is growing. There are growing differences in poverty status between the inhabitants of Dar es Salaam, other urban areas and in rural areas, with Dar es Salaam making the most progress in poverty reduction, and the rural areas the least. But even within the various strata, inequality is increasing slightly, as shown by the Gini coefficient. Table 2 compares the Gini coefficient for all three strata in the 1991/2 and 2000/1 HBS.

Table 2: Comparisons of Inequality






Other urban









Source: Household Budget Survey 1991/2 and 2000/1

The growing inequality in Tanzania, both within and between strata, can only lead to the conclusion that the economic growth achieved in Tanzania over the past few years has not promoted a more equal distribution of wealth. Economic growth has favoured urban areas and particularly Dar es Salaam. Within all strata, those who are relatively better off have gained more from economic growth than those who are less well off.

Efforts to address poverty in Tanzania over time has put too much emphasis on direct and targeted public expenditure for the poor in order to reduce poverty. Strategies to address poverty in Tanzania should focus on broader aspects of poverty reduction efforts. The economy should change its development path towards pro-poor growth that allows both rapid economic growth and equal income distribution.

Factors to achieve pro-poor growth in Tanzania

Participants noted that there is a combination of factors that will achieve rapid development in Tanzania and hence reduce and eventually eradicate poverty in all or most spheres. These include:

  • The continued promotion of primary education,
  • Agriculture development,
  • Macroeconomic stability,
  • Good public policies,
  • Creation of competitive exchange rate policies,
  • Creation of export processing Zones; and
  • Extension of low cost export credit

Employment of the Poor

Although the PRSP does not have an explicit employment strategy, labour is a factor of production, which most of the poor (with exception of handicapped), abundantly posses. The earnings of labour are critical for the poor to survive. In Tanzania, agriculture sector is currently absorbing much of the labour force. The sector employs about 80 percent of rural population in Tanzania and hence plays a critical role in the development process. An agriculture development strategy that increases labour productivity is essential for poverty reduction. The development of agricultural processing industries in rural areas will increase income-earning opportunities of the rural poor.

Export-led and Labour Intensive Industrialisation Strategy

Efforts should be geared towards attracting the establishment of the export-oriented industries in rural, peri-urban and urban areas. There is therefore a need for the government to create conducive investment environment in so that both private local and foreign investors could be attracted to operate in these locations. This can be achieved by improving infrastructure, providing tax holidays, removing trade barriers and by eliminating anti-export bias of import protection measures to ensure neutrality of incentives between local and foreign of inputs for export products in the initial years of operations. After these industries have grown out of the infancy stage some of the export-led orientation measures could be relaxed like introducing lower tariff rates, export taxes as well as other forms of export-import restrictions.

The export led industrialization strategy entails the establishment of both processing and manufacturing industries using technology that intensively use unskilled labour where in the initial stages wages are low but rise as the demand for labour increases as the economy grows. For instance, the government could create conducive environment for the establishment of textiles industries in cotton growing areas in the country. This initiative will help to absorb large part of unemployed and unskilled rural population. In this case, since most of Foreign Direct Investment would like to concentrate itself in urban and Per-urban areas where infrastructure is more developed and is easily accessible, local private investors must be guaranteed with incentives that will attract investment in the rural areas.

It was also recommended that it is long over due for the government to provide a vision for the local private sector to allocate resources, by formulating feasible and effective economic plans and helping the private sector to build confidence and develop along the government indicative plan.

Participation of Stakeholders and Citizens

Tanzania should work hard to widen participation of NGOs and CBOs, academic and faith organisations whose visions focus on broader sustainable development agenda. It will be a task of the relevant authorities to work closely with these institutions to identify the right ones for collaboration. This will require relevant ministries and departments to plan regular meetings with NGOs, forum for regular consultations so as to promote dialogue and enhance cooperation with these organisations.

Support to Priority Issues and Sectors

Basic Primary Education

The education sector is one of the first to show some real results of the Poverty Reduction Strategy. Enrolment rates are showing an impressive rise. There is, however, a large group of children whose right to education is at risk because they are ‘over-age’ and cannot presently be accommodated in primary schools. It is crucial that complementary education schemes such as COBET are expanded dramatically to cater for them. As enrolment levels rise, the quality of education remains a concern, which is growing because of the extra strain the increased enrolment puts on the system.

As a result of the abolition of fees for primary education, a move that was introduced in the PRSP in 2000, a significant increase in enrolment figures can be seen since the year 2000. The increases in 2001 and 2002 are by far the largest for over a decade. The conclusion is that the move to abolish primary school fees was a welcome one and has led many parents to enrol their children in primary school. The longer term Millennium Development Goal for education is to achieve universal primary enrolment by 2015. The target for 2015 for net enrolment is 100 percent. If the recent gains in enrolment can be sustained, Tanzania is in a good position to achieve this goal. The objective of gender parity in enrolment has already been achieved.

The PRSP sets a very ambitious target of eradicating illiteracy by 2010. The 2000/1 Household Budget Survey shows that in Tanzania, 28.6% of the population cannot read and write in any language. There is more illiteracy among women (36.0%) than among men (20.4%). Dar es Salaam shows the lowest proportion of illiteracy (8.7% of the population). The highest level of illiteracy is found in the rural population (33.1%). Rural women are the population group with the highest incidence of illiteracy (41.2%, compared to 23.9% for rural men). Illiteracy among parents has important consequences for the education of their children, as illiterate parents are less likely to be able to provide support to their children in the education process. As such, high illiteracy rates among rural adults, in particular women, form an obstacle for other education targets.

Total enrolment in functional literacy classes has dropped from 1.7 million in 1997 to just 0.8 million in 2001. Enrolment in post-literacy classes has dropped from 0.8 million in 1997 to 0.2 million in 2001. There is also a steep decline in teaching staff for adult literacy programmes. The intention in the PRSP to expand adult education programmes is yet to translate into results.

Health and Medical Care

Poverty and lack of development affects people’s health in Tanzania. Efforts have to be made to improve health indicators in Tanzania. It was recommended that there is a need for primary health care to be made available to the greatest number of people with a special target to rural population. HIV/AIDS pandemic and other infectious diseases like tuberculosis and malaria are claiming many lives all over the country. This presents serious obstacles by severely undermining people’s health and their ability to work. The government should therefore identify strategies to promote health care in health facilities that will include among others, reviewing policy formulation process and improvement of capacity building initiatives. Also, local government should pursue community participation in collaboration with NGOs whose vision and objectives focus on Health and Medical care.

Economic and Social Infrastructure

The maintenance of sustainable economic development constitutes an essential requirement in promoting social development and poverty alleviation programmes. Tanzania is urged to continue its support for the development of social and economic infrastructure including transportation, communication, electric power generation and where possible irrigation facilities.

V. Managing Globalisation To Promote Growth And Poverty Eradication

It was generally argued that Globalisation has its potentials and risks and what is required is to optimise on its potentials and minimise its costs and risks to the country. Globalisation has produced losers and gainers and the challenge is to ensure Tanzanians are not the losers but the beneficiaries of the process.

The government has done well in terms of economic reforms at the macro level. However, macro economic stability is necessary but not sufficient condition for making Tanzanians benefit from the globalisation process. Currently, the government has not put in place any efforts or policy measures to enhance capabilities of Tanzanian farmers, firms and individuals to be able to compete in the global market. How could Tanzanians participate in the globalisation process with little or limited capacity? It was therefore suggested that the substantial progress and achievements made at macro and micro economic levels can only achieve full success and sustainability if they will be backed up by deliberate measures to create a dynamic and vibrant private sector that is substantially indigenous, modern corporative, ethical, responsible and responsive. It was noted that, currently the individual entrepreneurs are not assisted in Tanzania. The government has put much effort on promotion of foreign entrepreneurs and neglect the local ones.

For Tanzania to participate into globalisation, the country must have people with education, skills and competency. It was noted however that the current education system is more theoretical than practical. This being the case, the country produces job seekers instead of job creators. Most of them have little competency and thus fail to meet demands for skilled workers. It was stated further that, students spend a lot of time in primary education without learning any skills. The government should therefore transform the education system to foster skills and entrepreneur development. Moreover, it was noted that globalisation provides opportunities and avenues for improving human capital.

The Financial sector was identified as a brain of the economy. Market failure characterise the financial sector particularly in less developed countries. It is an area where market intervention is very common. Tanzanian firms and entrepreneurs don’t have access to credit and financial services. They cannot effectively participate in the global economy if they don’t have access to financial services. The policy issue is that given the realities of Tanzania what should the government do to make sure that credit is available at reasonable cost for enterprises including small enterprises operating in Tanzania.

Globalisation exposes Tanzania’s political and economic system to greater external influence. To manage this external influences to the advantage of Tanzanians, the country need to invest heavily in social capital. This is because market forces work well only where government is effective in ensuring the rule of law, specifically in creating and fostering a competitive environment. This is more so with respect to the powerful multinationals corporations that may come to invest to Tanzania following globalisation. Tanzanians need to develop trust in the socio-economic system.

Tanzania’s success in attracting FDI does not necessarily imply that the people of Tanzania are the beneficiaries of this investment. FDI has neither increased employment opportunities nor invest on priority areas such as agriculture. The development of the agricultural sector is a necessary condition for most Tanzanians to benefit from the globalisation process. The government ought to create an enabling environment to promote investment in agriculture including setting up agro-industries. In addition, it was suggested that more studies are required on the impact of FDI in the local economy.

The privatisation process should not be selective and confined to the productive sectors. Rather, it should embrace all areas including social sectors such as education and health. A proposed guiding factor for the process should be its attractiveness to private capital in terms of commercial viability and safeguarding national security. The government was advised to build its capacity to regulate the private sector to foster competition and ensure that incentives faced by the private sector are compatible with social objectives including corporate accountability, respect of consumers and workers’ rights and fair competition.

In order to increase and diversify Tanzania’s exports we need specific programmes for products in which we have comparative advantage such as food processing, textiles and foot wear. We need to enhance the capabilities of firms in these sectors and remove policy and institutional constraints that inhibits their competitiveness. It was argued that exports drive should be promoted by, among others, investing in agro processing industries in order to increase value added to the agricultural produce. This will make the country more competitive in the world market and hence increase foreign exchange and improve the balance of payments position. In addition, it was noted that smart public private sector partnership (PPP) is necessary for attaining the objective of increasing and diversifying exports.

Effective physical and social infrastructure is a necessary pre-condition for promoting sustained economic growth. The government should allocate more resources to infrastructure investment particularly roads to enhance productivity.

The debate on globalisation has tended to forget the local people, who are marginalized by the process. The Public should be educated about the benefits and costs of globalisation and why there is no alternative to participating in the globalisation process and how the government and society at large will mitigate the adverse impact of globalisation. Furthermore, there is a need to combine issues of globalisation and localisation such as how to empower the local people? We should build capacity and space of local people to play a role in the globalisation process. The people especially in the village need information, knowledge, skills and capital to be able to use local resources effectively and cope with challenges that come with globalisation. Thus, if we want to compete in globalisation, we need to strengthen local people “the villagers”- should also be able to “think globally act locally”. It was emphasised that globalisation should facilitate a peasant to shift from a hoe to a tractor.

Promotion of ICT is imperative in Tanzania’s economic development. Currently Tanzanians have inadequate skills in using ICT. A strategy for promoting ICT should be given high priority in our development strategy. Without clear policy on science and technology we cannot benefit in the globalisation process.

Tanzanians need to prepare and build capacity on negotiations in the WTO and other international trade fora. We should understand our national interests and design strategies to ensure Tanzania effectively participates in the multilateral trade negotiations. Tanzania’s participation in the WTO and other fora should not be passive but active. The government negotiators need to ensure that policies made at the WTO are of benefit to the country and not a burden. Tanzanians also need to understand the rules governing multilateral trade.

The role of women in economic development needs to be clearly understood and appreciated. Redressing gender imbalance by empowering women will unblock huge human resources and unleash energy in the economy that will increase the capability of exploiting the advantages of globalisation.

In designing development policy in a globalising world the government should understand and take advantage of positive inter-sectoral linkages. For example, growth of tourism should benefit farmers by being able to supply food to hotels and restaurants. The development of the mining sector should be beneficial to the social sectors through the tax revenues received by the government.

In order for the globalisation process to benefit the people of Tanzania, the economy should be more efficient, more productive and more competitive. Tanzanians have to change their attitude from considering themselves as helpless victims of an unfair global system to being aggressive in using what we have labour and land including minerals to acquire what we don’t have such as Capital, technology and know how.


A consensus was reached that Globalisation has its potentials and risks and what was required is to optimise on its potentials and minimise costs and risks to the country. In this regard, many recommendations were put forward on how Tanzania can participate in the globalisation process.

Generally, it was recommended that the globalisation phenomenon particularly the dynamic interplay between and among its major drivers need to be adequately understood and appreciated. This will help the government formulate appropriate responses and initiatives that would enable Tanzania to effectively face the enormous challenges and exploit the vast opportunities that are located in the globalisation process. This process covers a range of areas- political, economic, social, science and technology, arts and culture, including sports.

The key factors determining whether Tanzania can respond to globalisation in ways that will enable her to use globalisation to promote development are:

(a) Ownership of policies

The ability to establish and implement appropriate policies- particularly those fostering free trade, capital inflows, stimulating private sector activity and laying the groundwork to attract foreign direct investment. Ownership of policies would enable the country to be able to play its role and focus on critical areas in attaining high growth of per capital income. Tanzania needs better economic management and more trade liberalisation. These changes will enable it to be part of the new economic partnership offered by globalisation and so increase economic growth.

(b) The role of Domestic Private Investment

The government should devote more attention and support to improving the environment for Domestic Private Investment (DPI). There is a need to recognise that Foreign Direct Investment (FDI) and DPI can complement each other. As it is well known, FDI does not go to all areas; rather it tends to concentrate in major urban areas where markets tend to be larger and where infrastructure tends to be better developed, whereas most of Tanzanians especially the poorest tend to live in more remote rural areas. FDI is also attracted to mineral rich areas. FDI can only complement but not supplant domestic private investment that tends to be more widely spread throughout the country. To promote broad based growth and poverty reduction Tanzania should strongly encourage the development of a healthy and competitive domestic private business sector. Domestic Investment should not be ignored in favour of foreign investors rather the government should empower local investors through information dissemination, facilitating access to finance, building entrepreneurs skills and facilitating voice.

The focus of policy should be to improve investment climate for domestic private investors. If local entrepreneurs are enthusiastic about investing in the local economy, foreign investment will also be attracted because foreign investors prefer countries with vibrant local investors. There is a need to recognise that foreign direct investment and local investment can complement each other.

(c) Establishment of Social Safety Nets

It is also essential for the government to establish social safety nets and other institutions to ensure that the poor are able to cope with the social instability resulting from sudden economic downturns associated with globalisation process.

(d) Participation in the globalisation process

Tanzania should have a market friendly industrialization strategy that promotes investment in manufacturing sector in areas which Tanzania has comparative advantage. Specific manufacturing sectors proposed are:

(i) Agro process industry – will help agricultural sector because of its forward and back linkage, and

(ii) pharmaceuticals- because Tanzania is very rich in biological resources

(iii) Labour intensive textiles and garments that have linkages with cotton

(iv) shoes and footwear and other leather products that have linkages with livestock industry.

(e) Improve human capability

The government should transform the education system to foster skills and entrepreneur development. It should further put much emphasis on quality education –technical know how and practical education. Investment and innovation in training is needed to rapidly develop and improve skills of Tanzanians.

The government should make deliberate national efforts to identify and develop talents at all levels of the society.

Cost sharing in training, appropriate incentives for investment in education and training facilities are also necessary.

The government should promote investment in technology that is crucial for human development.

(f) Capacity building at the firm level

The role of the state should now extend from economic reforms to the micro level with a view to facilitating enterprises to build capacity to compete in the global economy. The government should intervene in the capacity building of local firms to be able to participate effectively in the global economy. The strategies to facilitate firms to acquire the necessary capabilities to compete should give priority to three areas: human resource development, access to financial services and providing support services to business enterprises such as marketing, and technology acquisition.

The capacity building process at the firm level should concentrate in few areas that are strategic and where Tanzania has comparative advantage such as agro processing, pharmaceuticals, garments and textiles, and shoes and footwear industries.

(g) Economic empowerment of nationals

The government should create an enabling environment for local investors and entrepreneurs to participate effectively in the global economy.

The government should assist local entrepreneurs and investors by information dissemination, facilitating access to finance, building entrepreneurs skills and facilitating voice. Economic empowerment of SMEs should particularly focus in the agro-processing industry.

The government should institute and effectively enforce fair regulations to ensure fair competition.

(h) Financial Intermediation

The government needs to play a role to make sure that local enterprises have access to credit and other financial services. Foreign owned banks are not providing credit to local entrepreneurs. Medium and long-term finance is not available. If we want sustained growth, the government cannot escape the responsibility of facilitating the establishment of development banks.

(i) Prioritisation of economic sectors

Government interventions need to be selective, picking up areas in which Tanzania has a comparative advantage.

(j) Social trust and stability

There is a need for a system where corruption is punished swiftly and severely. And there is transparency in conducting all public affairs

Globalisation offers opportunities of accelerating economic developing by taking advantage of global markets, investment finance, technology and knowledge. However, Tanzania is not getting a good deal from globalisation, that is, it is marginalized. This means that Tanzania is not fully integrated into the global economy. To take advantage of potential opportunities of globalisation requires improving domestic institutions, policies and capabilities. Without these, Tanzania will continue to be marginalized by the globalisation process.

VI. Good Governance for Growth and Poverty Eradication

Sustained economic growth and development occurs in “countries where investors feel secure about their property rights, the rule of law prevails, private incentives are aligned with social objectives, monetary and fiscal policies are grounded in solid macroeconomic institutions, idiosyncratic risks are appropriately mediated through social insurance, and citizens have recourse to civil liberties and political representation.” This requires the existence of good governance. It is universally agreed that good governance is an important component in maintaining macroeconomic stability, developing infrastructure, providing public goods, preventing market failures and promoting equity. The government and political elite should promote good governance, as it is critical in managing the development process. The principles of good governance include:

  • Efficiency and cost effectiveness in civil service and public institutions
  • Attentiveness and responsiveness i.e. paying attention to what people are saying or requesting and then responding quickly to the people needs
  • Rule of law – treating all people equally.
  • Basic rights – reflecting the rights stipulated in the constitution.
  • Legitimacy – both legal and popular legitimacy
  • Transparency and accountability
  • Participation to ensure ownership and leadership
  • Equity – benefits of economic growth are equitably shared.

These principles are essential for promoting private sector development and enhancing public-private partnership. They are also essential for promoting interaction between public sector, private sector and civil society as well promoting involvement of citizens in the development process. They are principles that should be adopted at the central government level down to the local government level as well as by private actors and CSOs. The principle of good governance should lead into setting rules and institutions that create a framework for operations of public and private sector activities.

A well-established institutional framework is an important factor in the development process of the country as it helps in coordination of different activities done both by the government and other non-state actors involved in the development process. With weak institutional framework, the principles of good governance and hence economic growth and development become unsustainable. Studies done in East Asia have supported this argument by relating the dynamism and growth of private sector and overall economic growth to good governance resulting from strong institutional arrangements. Such studies have shown that a better functioning market economy mostly depends on good governance, which holistically, involves all spheres of the government, private sector, and civil society.

Key Issues

Participants noted that governance in Tanzania is still weak despite the decentralization and democratisation process and reforms that have been in place since mid 1980s. This has partly been a result of weak institutional arrangements. The institutional arrangements that could promote new partnership between the public and private sector, and increase their interaction in all spheres of development have lacked coordination and both human and financial resources capacities. With weak institutional framework, efforts of getting “policies right” have been difficult to realize. In particular, good governance is not achieved in Tanzania because

There is an increased level of corrupt practices in most public institutions, making them relatively ineffective. The service delivery sectors especially health sector, judiciary and police were pointed out to highly corrupt. The efforts made so far to fight corruption including the enactment of Public Procurement Act, 2000, have not been effective.

There is ineffective participation of different stakeholders in policy formulation leading into disjuncture between policy formulation and implementation in different sectors. This disjuncture has affected the entire development process, which lacks local legitimacy that is necessary for the private sector as well as local communities to flourish. Although East Asian Countries that achieved superb economic performance were not democratic representative regimes, they were consultative polities where governments consulted the private sector in formulating their policies.

Though political and socio-economic reforms have been carried out in Tanzania, the management of the reform process and their outcomes has been inadequate. This has been a result of weak institutional framework that could ensure effective participation of different stakeholders in the development process. It is also due to lack of both human and financial resources.

Increased bureaucracy and lack of transparency in most of the public institutions is a common phenomenon. This situation leads into increased corrupt practices and poor public disclosure. Increased bureaucracy and lack of transparency has entrenched itself because of weak “Watchdog Institutions” both from the state side (e.g. the Parliament, Commissions and Bureaus, the judiciary and courts of law and the police) and the public side (e.g. CSO, the media and political parties).

There has also been a low level of efficiency and effectiveness in the delivery of services in civil service and public institutions. This problem is more serious in local government authorities where human, financial and physical resources are inadequate. Weakness in this area has affected the implementation of on-going Primary Education Programme (PEDP) where much still needs to be done to increase efficiency in building class rooms and distributing learning materials and making efficient use of PDEP funds.

There is poor participation of citizens in all development aspects. The role played by CSOs has tried to bridge the gap but much remains to be done. CSOs enjoy good reputation with the public and have a high probability of receiving impartial information on controversial issues such as corruption and human rights violation, the information that the government agencies or a business corporation cannot easily access. A vibrant civic society is a necessary for the development of democracy.


Recommendations that take cognisance of the experience of East Asian Countries include:

  • The government should institute a well functioning institutional framework that could promote a new partnership between the government and private sector and increase public- private interaction and involvement of citizens in the development process. This partnership will help reduce duplication of roles and bureaucracy, which are some of the key stimuli of corrupt practices. Experience from the Asia Miracle economies have proven that a well-established institutional framework of public-private partnership is essential for promoting economic agents involvement and commitment to the development process.
  • The government should adopt cross-sectoral approaches to formulate national strategies and plans for sustainable development.
  • The public “Oversight Watchdog Institutions (OWI) should be strengthened through capacity building as a means to promote accountability of government and other public institutions and encourage the general public confidence in government and its ability in implementing development policies and strategies.
  • Promote Civic Social Organizations (CSOs) to collaborate more seriously and effectively with the government to changing the culture of corruption at the grass-root level. This exercise is likely to be effective through public campaigns done in unison between CSOs and the government. Such campaigns should aim at increasing people’s ‘awareness’ and ‘resistance’ against corrupt practices.
  • Maintain coherency and consistency in policy formulation and implementation. This is necessary to avoid contradictions that may arise when implementing different sectoral policies.
  • Reduce bureaucracy and promote transparency. The government should encourage information flow between private and public sectors. This strategy should be complemented by wealth sharing mechanisms including land reform, rural infrastructure development, and promotion of small and medium size enterprises.
  • NGOs and CSOs need to be given conducive working environment and be supported in developing their human resource capabilities. These organizations have effective mechanism that allow for on going input into decision-making and policy formulation through participatory approach.
  • Ensure Local Government Reform Programme (LGRP) target local communities e.g. villages/streets and localities. This is envisaged to increase participation and accountability of both the government officials who are on the supply side and local communities who are on the demand side.

There is also a need for greater information dissemination, re-enforcement of civic education, empowering the voice of “Wananchi”, enforcing accountability of both public officials and the citizens, ensuring meaningful participation rather than window-dressing consultations at all levels. Levelling the political playing ground among political parties particularly with respect to elections at all levels is essential for promoting democracy and good governance.

Good governance should also be monitored and evaluated. So far, there are no reliable benchmarks for monitoring and evaluating good governance. This calls for the establishment of benchmarks for good governance that reflect the national values. Such benchmarks should evaluate changes as well as publicize what practices conform to good governance and what are not. The Vice President Office, Poverty Eradication Division (PED) that has designed poverty eradication indicators, can develop the good governance indicators. Again, CSOs have a key role to play in monitoring and evaluation.

VII. Human Capabilities and National Productivity

Human capabilities are the key for raising national productivity, which is the basis for self-reliant growth. Raising human capabilities at all levels should thus be one of the main strategic actions that Tanzania has to take to get the economy to a higher growth path in order to significantly reduce poverty. Appropriate policies and strategies for increasing human capabilities are, however, lacking in many areas and there is a big mismatch between what is demanded and what is being supplied

The experience of East Asian countries shows that investment in human capabilities was critical for promoting sustained and shared growth. Tanzania can learn from the experiences of these countries.

There is probably no easier way to combine equity and rapid economic growth than investment in education. The East Asian economic miracle is largely attributed by among other things, the region’s sustained level of investment in human capital over a long period. In fact, education was behind the economic miracle. Education is a necessary, but not a sufficient condition for sustained economic growth, for the reduction of poverty and improvement in income distribution. Under-investment in education results in severe losses in economic growth and development. While investments in education have been central to the economic success of the East Asian economies, it is widely acknowledged that the fast economic growth in these economies also enabled them to maintain a high level of investment in human capital. Thus, an important lesson for Tanzania and other developing countries is that faster economic growth is possible and better performance will depend on, among other things, investment in human capital – specifically education.

Tanzania’s system of education has to be reformed to reflect the current policy regime of free trade policies and a market economy that is embracing globalisation.

The kind of human capabilities given in our centres of training is supply driven and outdated and not demand driven. As a result those who are coming out of these schools and training institutes are not entrepreneurial and cannot compete in international markets. Locally educated and trained Tanzanians are perceived by foreign and local firms to be inefficient, unreliable and lack initiative. It is for this reason that many foreign owned firms prefer foreigners and foreign trained Tanzanians to local workers and managerial staff.

One key area for raising human capabilities is raising entrepreneurship. In Tanzania entrepreneurship both in the public and private sector is very low because of our past socialist policies. Lack of entrepreneurship culture is higher in public sector than in private and at top managerial levels than in lower levels. Foreign owned enterprises justify their preference of foreigners to locals because the later lack enterprising and innovative spirit. Our schools and training institutes fail to impart the appropriate capabilities because of outdated curriculum and training programs as well as lack of financial resource and physical infrastructure.

Improved human capability at individual, corporate and national level is very critical for improving the performance of the economy and raising the national productivity. Individual entrepreneurs behaviour include: taking initiative; being innovative and creative; independent; risk taking; opportunity alertness, aggressiveness and hard work and perseverance.

Other identified shortcomings that face human capabilities include: lack of national capacity to cope with the economic changes and globalisation, lack of control and monitoring mechanism on imported manpower by FDI, low women capabilities, non-use of local graduates by foreign investors and the low participation of the private sector in funding higher education.

Besides the foreign investors’ preference to employing foreigners to the locals, many graduates like doctors, teachers, engineers and geologists are not absorbed in the different sectors of the economy. Many of the Tanzanian doctors are employed in Zambia, Malawi, Botswana and Namibia. It is important to create good employment conditions to be able to absorb the trained manpower in the country and reverse the existing brain drain.

Foreign and local investors who are the major beneficiary of improved productivity should contribute towards developing human capabilities. With good policies and leadership, the private sector has the potential to improve individual, corporate and national entrepreneurship.

HIV/AIDS is a national catastrophe that badly affects human capabilities in Tanzania. It has a huge impact from individual and household levels to the national level as it affects people at productive and reproductive stage. This leads to a combined effect in production, investment, saving and consumption. In Tanzania some of the studies conducted have shown that HIV/AIDS affects human capabilities and about 8% of skilled professionals in Tanzania would have lost their lives by the year 2020. It affects all sectors of the economy.

The efforts of the government to fight HIV/AIDS such as the establishment of TACAIDS have been inadequate. The concern is that much of the campaign against HIV/AIDS has been left to NGOs and involvement of the private sector is quite minimal.

People’s health, just like education is a critical element for developing human capabilities. Tanzania lacks an appropriate policy to ensure access to basic health services for all. Policy such as user charges in some facilities is having a negative impact on access to services critical for developing human capabilities such as health and education.

Key Recommendations

The success of East Asian economies in building huge stocks of human capital and in utilizing this capital for national development could be explained in terms of a “national obsession” with education. Tanzania and other developing economies have to note that investment in human capital-particularly education needs to be regarded as a critical factor for development. National economic policies have to accordingly pay due attention to the education sector. When education is viewed as an integral dimension of economic development strategies, success in human capital formation can be achieved, and this capital can be directed to economic development. Education has to be moulded as an effective instrument for reducing income inequalities, and for fostering economic growth and social development

Once education is regarded as a critical factor for development, this has to be reflected in the pattern of resource allocation. In particular, economies that do not have the historical advantage of having made huge investments in education in the past have to allocate a reasonably high proportion of their national income (up to 6 percent), and a reasonably high proportion of their government budget (about one-fifth to one-fourth) to education.

Generally it is argued that the higher the level of the Gross National Product (GNP) per capita, the higher is investment in education, stressing the point that it is economic growth that helps education systems flourish. The East Asian experience shows that this is only partially true. For example, Korea at the time of its takeoff in the early 1 960s lacked every factor that is normally associated with such output, except for an educated and skilled labour force, which made all the difference for its growth in subsequent decades. The same is true to varying degrees in the cases of Taiwan and Singapore. So even economically poor developing economies like Tanzania can afford to make huge investments in education and thereby create an economic miracle.

The pattern of intra-sectoral allocation of resources is also important. Unit cost ratios between different levels of education in East Asian economies have been somewhat modest, reflecting a balanced education system. The resource allocation should therefore aim to promote a balanced investment in education in the country as well as produce a balanced education pyramid.

Primary and secondary education was greatly emphasized in East Asia. Public investments were poured generously into school education. It is evident that developing economies and Tanzania need to accord high priority to primary and secondary education. Almost all the economies in the region (except Singapore) have passed legislation making education compulsory. The duration of the compulsory cycle is 9 years, which is beyond the length of Tanzania’s primary education. Developing economies that aim at promoting universal basic education, Tanzania needs to enact compulsory education laws and those that currently exist should strictly be enforced.

The expansion of secondary education has paid rich dividends in East Asia. Higher rates of public investment in secondary education early on in East Asia were an important determinant for sustained high rate of growth and equitable income distribution. In order to promote economic growth it is not adequate to exclusively concentrate on primary education and ignore secondary education.

In addition to providing access, the quality of education is a crucial issue that, among other things, (a) influences demand for education, and (b) improves the contribution of education to development. In addition, equity in education needs to be ensured. The quantity, quality, and equity aspects in education have to be given high priority. It is important that adequate investments are made in the inputs that have significant potential of enhancing the quality of education. Such inputs are textbooks and other teaching and learning materials, and well-trained and highly motivated teachers.

The East Asian evidence is clear with respect to the importance of teachers. Small pupil-teacher ratios (number of pupils per teacher) are necessarily good. Tanzania has alarmingly high pupil-teacher ratios in primary schools. The government has to increase the supply of teachers.

East Asian economies have demonstrated the potential of vocational and technical training for promoting economic growth. Tanzania should learn from East Asia and give due priority to vocational and technical training that is not provided in formal secondary schools.

Investment in higher education in East Asian economies is stupendous. Tanzania can ignore higher education to its own peril. In the context of globalisation and international competition, higher education also becomes critically important. Higher education cannot wait until primary and secondary educations are completely universal or well expanded. While primary education serves as a threshold level of human capital development for economic growth it is secondary and higher education (including investments in science and technology) that accelerates and sustains high economic growth. In addition, due emphasis on vocational-technical education and adequate investments in R&D are important. Otherwise, in the technologically competitive world economy, Tanzania may lag far behind.

While some of the East Asian economies such as Japan and Korea highlight the importance of the private sector in higher education, other economies such as Singapore stress how important it is for the government to finance higher education. Thus the evidence on the role of the private sector in higher education in East Asian economies is mixed. Initial government investments on a large scale are important in primary, secondary, and higher education, but after some time and after a certain level of educational and economic development has been attained, private sector could complement state efforts in higher education to some extent. This also depends on the role of the private sector in economic development in general.

While Tanzania can learn from the East Asian experience, each country has to make its own appropriate policy choices based on its own socio-political and economic contexts. International experience provides only guidelines, not exact prescriptions. The success of certain policies depends on history and institutional set-up; indiscrete replication of policies imported from other economies may not produce the same results.

Other General Recommendations made in the discussions:

Tanzania has to nurture her human resource that is essential in promoting and building a vibrant market oriented economy. It is necessary to continue implementing appropriate policies that will promote further liberalization of trade and investment.

The government should improve the legal system and administrative institutions that support the implementation of the policies that ensure adequate protection for intellectual property rights.

The government should ensure creation of proper institutions to enable the adoption and adaptation of the globalisation process.

There is a need to build tangible and intangible human networks to share information and knowledge.

Conduct a comprehensive human resource capability assessment and establish a comprehensive human resource database.

Introduce Entrepreneurship programmes in all educational levels.

Inculcate the entrepreneurship culture in both the public and private sector.

Establish control and monitoring mechanism for all human resource importation by foreign investors. This should include establishing proportions to be filed by locals and foreigners.

Establish a human resource development fund, which foreign owned companies and the local private sector should be required to contribute to.

Support increased capability building for women.

Increase financial support to higher learning institutions and facilitate capacity in such institutions to respond to current labour market needs and demands.

We need to establish a national framework that will involve all stakeholders in the country to make entrepreneurship development a critical national issue.

To compete in the globalised economy, our training need to be changed towards demand driven, targeting the right skills and knowledge that is needed to excel in international markets.

Tanzanians attitude has to change, especially we should stop whining and complaining and instead we should start using whatever resources we have to promote our own development. Foreign support should only fill in the gaps.

As a major consumer of knowledge and skills, ways has to be put in place to ensure that private sector contributes towards training programmes in the country.

There is a need to use the existing policy framework to allow nationals gain knowledge and skills from foreign investors.

Mitigation, curative and preventive measures as well as rehabilitative measures are critical to counter the impact of HIV/AIDS on productive and reproductive segment of our population. Intervention at work places such as providing financial support to acquire Anti-Retro Viral (ARVs) therapies is necessary to fight the AIDS pandemic. ARVs should also be distributed and made available in the rural areas.

It was also suggested that there is a need of strengthening labour market information system in Tanzania so as all stakeholders such as parents, trainers, government, job seekers, employers, etc get the information that will help them to make appropriate decisions.

The government has been urged to speed up the reforms it is pursuing especially reforms relating to employee motivation, mind set and cultural change, on job training. Best practices from other countries including the Asian tigers should be imitated taking into consideration Tanzania realities. The need of using open and distance learning strategies to train and raise entrepreneurship at managerial and other levels was also emphasized.

VIII. Involving Children and Young People in The Development Process

The key issues on children and young people in the development process are; first how can we ensure that children and young people are provided the requisite priority in national strategies and plans. Second, how can the development process be more inclusive of the voices of children and young people issues, which are of direct concern to them such as provision of good education and health services? Addressing these issues is hampered by lack of a legal framework that defines a child or youth at the community, national (Tanzania) or even International level (UN). This has made children and youth disappear in national plans and policies. For example in Tanzania, a youth is defined as aged between 15-35 years. Considering that the average life expectancy for a Tanzanian is 51 years, there is little difference between a Tanzanian adult and a youth.

In most African context children are a sign of virility and fecundity for men and women respectively and safety nets for old age. Hence, the woman is given more attention during her reproductive period. Children are also observed as a window through which a man is seen and valued. This boils down to the political level whereby youths have to prove their worthiness for power sharing and transfer. There is however, the wait attitude from adult and impatience from children and youths as well as those who fight for their rights.

Gaps and key recommendations

There are many gaps in policy and actions that impede the participation of youths and young people in the development process. These gaps include health policy does not cover youths and there are no health, insurance and education subsidies for youths. The official youth policy does not reflect the realities that youths experience in their daily lives. Issues and problems affecting the youth are given low priority in policy and resource allocation. Tanzania lacks a comprehensive Early Child Development (ECD) policy that will recognize the central aspect of early years of a child in building a good foundation for the future.

The workshop participants recognised that children and youth are a force to recon with. Children have the capability of taking part in development process if they are given a chance and the capacity to do so. The youth should be given the opportunity to participate in the development process now and not wait in the future as is common in the statement that youths are leaders of the future.

In order to address problems of the youth and the prevailing negative and dis-empowering attitudes the following need to be done:

  • Proper socialization processes particularly imparting proper life skills and building parental capacity
  • Developing opportunities for value adding dialogue
  • Identification of opportunities for income generation, distribution and sharing
  • Institutional and policy accountability
  • Setting sensible agendas
  • Change in policies by way of un-blocking the challenges, developing new policies, and harmonizing existing ones so as to give voice to children and youth
  • Build local and national capacities to bring on board children and youths in local and national policy processes and implementation strategies

In order to improve the participation of the youth in the development process we need to increase investment in quality education that is of international standards that will enable Tanzanian youths to enable them to compete in the East African Community and global job market.

There is need to improve the curriculum that gives self-esteem to nationals through skills development for self-reliance. VETA Act should address the challenges of traditional life skills phenomena and open institutions and courses that are tailor made or meet skills demanded in the market place. Hence, VETA should avoid creating technical schools that do not train youths with skills required in the market place. It should conduct frequent job market survey and be guided by these surveys in designing its training programmes.

Education should also emphasize quality and not simply quantity of graduates. There is need to re-activate youth values and dreams of the TANU, Ujamaa and CCM youth wing era. The demise of Ujamaa seems to have silenced the voices of the youths.

Education reform is needed to make children learn life skills instead of learning for examinations only. After completing school, the youths should have skill and outlook that will enable them to be employed in fisheries, agriculture, mining, manufacturing industries and trading activities.

Children completing school at 13 to 14 years of age are too young to enter the labour market. Compulsory education should be at least nine years so that primary school graduates are old enough to join the labour market.

The government should realize that machingas, and other special groups such as street children, orphans, and children with disabilities are largely a consequence of poverty. There is a need of a deliberate policy to provide them with access to skills, opportunities and productive resources.

The Information and Communication Technology provides ample learning opportunities for the youth. Tanzania should invest to make the youth computer and Internet literate and encourage the development of websites that are relevant for the young people of Tanzania.

The national youth and junior councils established by the government imitative is not appropriate because they are seen as government outfits and lack legitimacy among the youth. Instead, efforts should be made to coordinate the mushrooming of NGO’s for Children and Youth. The media should learn what and how to communicate on youth and children issues.

The Policy Challenges facing Tanzania on youth and children issues include:

  • Giving a voice and making youth concerns and needs visible.
  • Reducing ambiguity pertaining to obligations by stakeholders.
  • Lack of a policy on media for youth and children.
  • Build the local capacity for Government and NGO for policy implementation and monitoring.
  • Policy formulation should be participatory and not top down.
  • Develop policy document on youth issues that are easy to read and understand.
  • Youth Policy should be comprehensive and cross cutting among relevant sectors.
  • Children and youth concerns are cross cutting and should be integrated in all policy frameworks.
  • Develop a legal framework that harmonizes all aspects of children issues.
  • Policies should be holistic and cover all aspects of child survival protection and developing.

In order to develop policies to improve the conditions of children and the youth the government should work with the community and civil society and encourage donors to provide technical and financial assistance to youth and community based organizations.

IX. The Way Forward

What should be done to transform Tanzania into an African Lion to match the Asian Tigers? Does globalisation offer Tanzania an opportunity to leapfrog several decades of development if they combine their low wages with basic education, technical skills and export-led growth to take advantage of the rapidly opening global markets? Can globalisation be managed to promote pro-poor growth that utilises abundant labour, generates employment and avoids ruthless growth that increases income inequality and the ranks of the poor?

To promote broad-based growth that eradicates poverty; Tanzania does not have a choice to disengage from the global economy. We should stop whining and move away from the blame syndrome of always considering our selves as victims.

The challenge at the national level is to design policies that take advantage of the opportunities offered by the global economy while minimising the risk of inappropriate exposure to global currents.

Macroeconomic Stabilization

The most important achievement of the Third phase government is on the inflation front. Inflation has been reduced from an average of over 30 percent in the 1980s and an average of 27 percent in 1990-95 to 4.4 percent in September 2002. The sharp deceleration of inflation to single digit levels was attained while growth performance modestly improved. The use of the cash budget and sticking to the aggregate levels of government expenditure and refraining from using the Central Bank to finance government deficits contributed to the commendable achievement.

It will be wrong to conclude that Tanzania has attained sustainable macroeconomic stability. The fiscal situation is still precarious with a very high level of dependence on foreign aid. Fiscal discipline has been overly dependent on the cash budget system with adverse impact on using the budgetary process to determine public expenditure allocation.

The measure of macroeconomic stability in countries that have reduced inflation by the use of the cash budget must the ability to raise adequate revenue to finance the government budget and actual expenditures in different sectors should in general reflect budgetary allocation. Collecting at least 20 percent of GDP as government revenue is generally considered as an appropriate benchmark for poor countries such as Tanzania. Annual tax revenues in the past five years have not exceeded 13 percent of GDP. A gradual increase of tax revenues towards 20 percent of GDP is a necessary policy target for attaining sustainable macroeconomic stability.

Revenue Mobilization

Despite the introduction of the Tanzania Revenue Authority, the tax collection and administration is still weak and “has not kept pace with the rationalization of the tax system and tariff reform.” Exemptions and overly generous tax incentives particularly for the mining and tourism sectors have reduced tax revenue

One of the major reason for lack of growth of tax revenue as a percentage of GDP is overly generous tax concession to large corporations. Although corporation income tax rate is 30 percent many large companies that have recently invested in Tanzania are exempted from paying profit taxes as part of incentives for investing in Tanzania.

If Tanzania has to attain the objective of collecting 20 percent of GDP as taxes, the Tanzania Investment Act and other laws such as the Mining Act need to be reviewed and amended to remove the excessive tax concessions.

Mobilising Domestic Saving

Economic growth is associated if not caused by accumulation of physical capital. Empirical analysis of growth across countries show that in the long-run, the investment rate turns out to be he most robust correlate of growth. Saving, either from domestic or foreign sources must finance investment. A high investment country that invests 25 to 35 percent of its GDP cannot expect foreign saving to finance more than a fifth of its investment over a long stretch of time. Domestic savings must finance a large share of investment.

Moreover foreign savings have to be repaid. Running a persistent current account in excess of 5 percent over many years will be courting disastrous debt crisis. Mobilising domestic saving is critical for sustained high rates of investment and economic growth. Empirical evidence show that increases in growth usually precedes increases in saving rates. Lagged income growth exerts a statistically significant positive effect on the private saving rate. Increases in saving appear to be the outcome of economic growth, not a fundamental determinant of it. We need to focus on initiating economic growth and saving will increase. A network of branches of financial institutions will be handy in mobilising saving and promoting investment once growth is initiated.

Exchange Rate Policy

The foreign exchange market is fully liberalised at least for current account transactions. The parallel market premium that was more than 400 percent in 1985 has virtually been eliminated. The elimination of the parallel market premium and the unification of the foreign exchange market removed a major source of corruption and governance problems.

The amount of foreign exchange reserves has climbed from about 6 weeks of merchandise imports in 1995 to more than 20 weeks in the past two years. Although there is no official statement of liberalization of the capital account, there are no effective restrictions preventing Tanzania residents purchasing financial assets abroad.

Ironically while the official devaluations and the crawling peg succeeded in depreciating the real exchange rate, the unification of the foreign exchange market and the adoption of a freely floating regime have led to an appreciation of the real exchange rate. The increase in foreign exchange earnings from gold exports is likely to cause a sharp appreciation of the real exchange rate that will undermine the profitability of the agriculture and manufacturing sectors. The strategy of depreciating the real exchange rate by focusing on reducing inflation may not work given the attainment of inflation of below 5 percent. With inflation rate at 4.5 percent, very small depreciation can be achieved by more stringent disinflation policies. Policy makers need to seriously think about targeting the real exchange rate to maintain it moderately undervalued real exchange rate to increase the competitiveness of tradable goods. The so-called corner solution of either a hard fixed peg or a freely floating exchange rate regime is unlikely to maintain the real exchange rate moderately undervalued. Some form of a managed floating or a crawling peg may be indispensable (Williamson 1999).

Export led Growth

For small economies, such as that of Tanzania, growth of exports is necessary for financing imports of capital goods and intermediate inputs needed for the expansion of the production capacity and full utilization of existing capacity, and the tapping of economies of scale. Countries that have successfully integrated into the global economy have recorded a high growth of manufactured exports and have increased their share in total exports. Tanzania has not yet exhausted the potential expansion of agricultural exports, but it also needs to diversify away from tropical beverages into manufactured goods without losing (and in fact increasing) its market share of agriculture exports.

Foreign Direct Investment

Tanzania mineral resources have not been fully utilised. Foreign investment is indispensable for the exploration and exploitation of these resources. It is however important to adequately tax the rents to support human development, which is an end in itself but will also, create new areas of more rewarding comparative advantage.

Special efforts are however needed to attract foreign direct investment (FDI) in export-oriented manufacturing. Investment in infrastructure including telecommunication, power, water supply, roads and ports is prerequisite. The private sector may provide part of this investment particularly in telecommunications, but the public sector will have to be responsible for other investments, particularly road infrastructure.

Although the share of global foreign direct investment inflows to Sub-Saharan Africa has been decreasing, Tanzania has attracted increasing amounts of FDI in the 1990s. Improved macroeconomic policies and political stability are perceived as the main attraction for foreign direct investment. The fiscal regime is particularly attractive to the mining sector that has tax holidays of at least 5 years and royalty payments of only 3 percent of total sales. Moreover given lack of regulatory capacity, mining companies have ample opportunities for over-invoicing capital expenditure to reduce their tax obligations.

Access to private foreign capital can facilitate the transfer of technology necessary for sustaining economic growth and structural transformation.

Many potential foreign investors still argue that “Tanzania has in place an extensive set of policies, regulations and procedures that greatly influence trade, commerce, employment and resource utilization. Many of these provisions are outdated and reflect conditions from the colonial era; many others reflect socialist-era circumstances and have yet to be adjusted to serve the needs of a liberal market based economy. Also, the justice system functions slowly and imperfectly and is easily influenced or manipulated by unscrupulous individuals. These factors increase the cost and difficulty of doing business in Tanzania.” Meanwhile local entrepreneurs maintain that the investment and policy climate discriminate against them and favour foreigners.

Designing Tanzania Development Strategy

Tanzania needs to design its own development strategy that takes into consideration its own realities without falling into the trap of believing that “open trade and investment policies are the surest ways to achieve economic growth and poverty alleviation.” Tanzania should forge a domestic growth strategy, relying on domestic investors and domestic institutions.” Policy makers should aim at improving the investment climate facing their own small and medium-scale enterprises rather than providing subsidies and tax breaks to attract foreign investment. At our current level of development, however, foreign capital can supplement domestic savings. Official development assistance is likely to continue decreasing despite major improvements in our economic policies.

In the past seven years coinciding with President Mkapa leadership there has been a modest improvement in economic growth. Moreover, large fluctuations of growth have been replaced by steady but modest increases in growth rates. Trend growth rate of GDP in 1995-2003, is however, only 4.8 percent is similar to the trend growth rate of 4.5 percent in 1985-90. This is too low to significantly reduce mass poverty facing Tanzania that needs a sustained annual growth rate of not less than 8 percent per year in order to reduce the 1990 levels of poverty by half in 2015.

One positive aspect of growth in 1995 –2002 is that there is a discernible increase in the efficiency of investment. The incremental output capital ratio seems to be increasing. It seems there has been a positive move towards a more efficient market oriented economy. This new feature of efficient use of investment resources should be consolidated as we strive to increase the investment rate.

Economic development is an internal process of learning by doing. Learning and knowledge accumulation is the bottom line in fostering economic development. There are no easy fixes and shortcuts. Foreigners even in the era of globalisation cannot develop a country. Globalisation provides opportunities of access to foreign savings and investment, technology, management techniques, markets and marketing skills. The challenges of development policy is to design appropriate local institutional framework that will facilitate the learning and knowledge accumulation process of local entrepreneurs managers, workers, farmers and the population as a whole.

There are, however, many sound principles that can be derived from economic analysis and should be included in any sensible development program. They include protecting property rights and ensuring the rule of law so that actual and potential investors can have the confidence of retaining the return to their investments; creating an enabling environment that not only recognize the importance of private incentives but also aligns them with social costs and benefits to ensure efficiency in the utilization of resources and the management of financial and macroeconomic policies to promote macroeconomic stability in the form of low to moderate inflation, competitive exchange rate, sustainable internal and external debt and avoidance of financial crisis.

Sustained economic growth is a necessary condition for eliminating mass poverty. A growth program for Tanzania requires first, an investment strategy in the short-run to kick start growth; and second an institution building strategy in the medium and longer run to give the economy resilience in the face of volatility and adverse shocks.

An investment strategy must aim at getting domestic entrepreneurs excited about investing in the home economy. Encouraging foreign investment or liberalizing everything and then waiting for things to happen will not work. An effective investment strategy must have a carrot that will encourage investments and a stick that will weed out projects that fail. In Tanzania investing in agriculture will be the foundation for a growth strategy.

The focus of Policy should not be on how to make foreigners like to do business in Tanzania but how to enhance and develop the entrepreneurial sprit of Tanzanians. We should focus more on improving the investment climate of smallholder farmers, small and medium scale enterprises and micro enterprises. We have to understand the specific problems and constraints facing local people who want to expand their economic activities.

Despite many policy statements to support rural development, the overall impact of government policies has led to the neglect of the agricultural sector and direct and indirect taxation of peasants. Economic development in rural Tanzania that was gaining momentum in the 1960s was arrested by misguided policies as a result rural Tanzanians are very poor. The 2000/01 Household budget survey shows that 70 percent of the population is employed in agriculture. Among the population that is classified as poor, 81 percent depend directly on agriculture as a source of livelihood. Agriculture in Tanzania is rain fed labour intensive and uses a few rudimentary tools. Increasing agricultural productivity and incomes of those employed in agriculture can only reduce poverty.

Smallholder farmers are generally efficient producers given the nature of agriculture production function and decision-making and the resource endowment of Tanzania. Agricultural production is spatial and is not amenable to bureaucratic decision-making. In the 1950s and 1960s, smallholder agriculture showed its potential of fast growth. The realization of this potential was arrested by the socialist experiment of implementing Ujamaa from above.

A broad-based agriculture development strategy requires equitable distribution of land. It is absolutely important to prevent land grabbing and concentration of land ownership in order to promote a poverty eradicating agricultural development strategy. Recognizing and protecting property rights and land ownership of smallholder peasants is crucial in promoting equitable and broad based economic development.

Private sector marketing in agriculture has gained momentum, but the rules of the game are not yet stable. Poor infrastructure, physical and financial constrains the development of competitive markets in rural areas. The lack of effective regulatory framework undermines the development of markets with low transaction costs and rich in information.

In all successful agricultural transformation the state has played a leading role in creating rural infrastructure, establishing research and extension services, extending credit to farmers, regulating markets including establishing and enforcing standards. Globalisation will not create rural infrastructure and extend farming information and credit to smallholder farmers. The state has to perform a leading role in transforming agriculture in Tanzania. The government lacks a vision for agricultural development. The levels and shares of government expenditure to support the agriculture can only be termed as scandalous for a country vowing to reduce mass poverty. In the past seven years it has allocated only 3.1 percent of total government expenditure to directly support the agricultural sector. During the same period the agriculture sector received only 3 percent of the total investment in the economy. An investment strategy that can kick start growth should focus on the agricultural sector.

In line with the policy stance of the Bretton Woods institutions the government does not have an industrialization strategy. Rapid growth and structural transformation necessarily involves industrialization. Agricultural transformation that is not entirely dependent on foreign markets for exports requires growth of effective demand for food. Creation of non-agricultural employment increases the demand for food and availability of low priced food reduces the cost of labour and increases its demand. Improvement in agricultural productivity and increase in non-agricultural employment are therefore interrelated. Import substituting industrialization led to the fast growth of value added in the manufacturing industry during the 1960s and 1970s. In the 1980s, growth rates of this sector sharply declined. Tanzania industrialization strategy has not succeeded in increasing manufactured exports and industrial employment. The increase in the demand for intermediate imports without increasing manufactured exports contributed to the balance of payments crisis. Most industries have tended to be capital intensive, established as turnkey projects by foreign firms with low transfer of technological capability to local managers and technicians. Past industrialization programs have tended to concentrate on expanding manufacturing capacity without building an institutional set-up and local capabilities to effectively utilize the created industrial capacity.

Protecting domestic industry is necessary for the accumulation of knowledge based assets, such as production, project execution and innovation capabilities. We have potential comparative advantage in early stage industrialization sectors including food processing, textiles and clothing, shoes and foot wear, leather goods etc. We need to design development programs for the industrial sectors that we e are likely to have comparative advantage, emphasizing creating an enabling environment for the accumulation of production and project execution capabilities. Foreign direct investment in manufacturing should be promoted taking into consideration the objective of increasing local industrial capabilities.

The industrialisation strategy should take into consideration direct and indirect impacts of its policies on export promotion.

An appropriate industrialization strategy should also focus on the linkage between agriculture and industry and promote small and medium scale industries that play a leading role in meeting local demands. Investment in infrastructures that link rural areas to townships, and electrification that increasingly include rural areas, provide an enabling environment for the development of small and medium scale industries.

The development strategy pursued by the government must be popularised and owned by Tanzanians as a whole. Political leaders have to work on changing the mindset of Tanzanians. We need to embrace and understand the logic of the market economy.

APPENDIX: Papers Presented and Tabled at the Development Forum


(i) A.V.Y. Mbelle, “Prospects for Sustained Higher Economic Growth in Tanzania: Past Lessons and Future Actions: An Empirical Investigation.

(ii) Marc Wuyts, “Economic Growth, Trade Integration and Employment: Reflections on Tanzania”

(iii) Tamim Amijee, “Domestic Wealth Generation Stifled by Non Supportive Macroeconomic Policy Regime: Analysis of Applied Monetary and Fiscal Policies and its Impact on Domestic Investments”

(iv) Evelyne A. Lazaro and Andrew Temu, “Economic Growth or no Growth: Who Cares?”

(v) Adolfo Mascarenhas, “Indigenous Knowledge, Livelihood and Development”

(vi) Timothy Ranja, “Is the State an Impediment to the Growth of National Entrepreneurs? The Case of the Tourism Sector in Tanzania”

(vii) Josaphat Kweka, “Tourism and the Economy of Tanzania: A CGE Analysis”


(i) “Status of Poverty” By Dr. C. Chami

(ii) “Geographical Diversion of Poverty” By Mr. L. Katera

(iii) “Chronic Poverty: Experience from Tanzania and Key lessons” By Dr. C. Chami

(iv) “Economic Empowerment of Tanzania and Poverty Alleviation” By Mr. L. Katera

(v) “Road Improvement in Tanzania using Sisal fibres Geotextiles” By Mr. A. Mwasha and Prof. R. W. Sarsby

(vi) “Poverty Reduction in Tanzania: The Role of Private Sector” By Prof. H. P. B. Moshi.


· “How can development processes be more inclusive of the voices of children and young people’s issues, which are of direct concern to them?” By Anne Loyya Lembo, Kuleana Centre for Child Rights, Mwanza

· “Child Participation: Platitude or Reality?” By Kate McAlpine Mkombozi Centre for Street Children, Moshi

· “The future now: Tanzania and its young people –towards holistic growth”. By Fr. Sahaya Selvam, Don Bosco College, Moshi.

· “The foundation of Tanzania’s future development; prizing the upcoming Generation”. By Salma Maoulidi, Sahiba Sisters Foundation, Dar-es-Salaam.

· “Youths and Children as Partners in Development” By Dotto Athumani, Student


  • Globalisation and Economic Development: Can Tanzania Avoid Marginalisation (Prof. Ibrahim Lipumba),
  • Globalisation or Marginalisation? Past Strategies. Lessons and Way Forward (Prof. Samuel Wangwe), and
  • Globalisation in Tanzania: the Case of South Africa Investments (Mr. George Kabelwa).
  • “Cities and Economic Development: The future of Tanzania’s Cities in a Globalising world” by Mr. Colman Titus Msoka


  • S. Mushi “Good Governance and Rule of Law: Utopia or Reality”
  • Mushi “NGOs: What is the Source of Their Legitimacy: The Role of NGOs Through Participatory Democracy for Development”
  • J. Makongo & M. Mbilinyi “Democratization of Education Governance: Experience at Local Level
  • E. Kallonga, Alan Rodgers, F. Nelson, Y. Ndoinyo and R. Nshala “Reforming Environmental Governance in Tanzania: Natural Resource Management and Rural Economy”


  • Human Capabilities and National Productivity: A Foundation for Self Reliant Growth by Dr. M. Chijoriga
  • The Impact of HIV/AIDS on Human Capabilities and National Productivity in Tanzania by Dr. P. Mujinja
  • Full Development of National Human Capabilities: The Savvy and Substance of National Development by Dr. H. O. Moshi
  • Coping with User Charges in Social Services in Tanzania: A Case of Health Services in Igunga District by Dr. J. Msuya


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