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Are you saying there is Economic Growth in Tanzania? Show me the Money?

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Tanzania has consistently recorded some impressive economic growth over the past two decades. In fact, the Gross Domestic Product (GDP) growth has averaged 6% over the same period. To appreciate this level of growth, one needs to grasp the definition of sustained economic growth as provided by the likes of Arrighi (2012).

He argues that sustained economic growth is attained when a country experiences a consistent growth pattern ranging between 3.5% and 5% over a period of 10 years. Tanzania has more than achieved this milestone.

It is thus in order to congratulate the government of Tanzania for the ongoing growth. Nevertheless, the talk around streets and media in Tanzania is rather darker than the rosy picture painted above. Indeed, if there is one most common question posed by Tanzanians today is that; if we really have such an impressive economic growth, why is the situation among people not improving? Is the data about economic growth cooked? Just where is the money?

The government point of view on the matter has been straight forward. The growth is real, and the evidence is there to be seen by everyone. At times the argument goes to the level of accusing those complaining about the questioned growth as those who benefited from corrupt deals in previous governments.

To the government’s credit, international organizations such as the World Bank, International monetary Fund, African Development Bank, just to mention but a few, have all indicated that the growth in Tanzania is as impressive as the government claims.

But the question still lingers: just where is the money? Why is the considerable number of Tanzanians, by and large, still poor?

Well, the one fact that we all ought to understand is that while economic growth is a necessary condition for poverty reduction, it is never a sufficient condition for the same. Meaning you can have an economic growth but one that is not inclusive. There are many reasons that can make the growth non-inclusive. What are some of these reasons, one may ask:

Firstly: This situation is entrenched within the definition of the GDP itself. Indeed, by definition, GDP aggregates all outputs (incomes) produced in the economy regardless of who produces them (local or foreign).

The aggregation actually means that the growth of the economy as measured by GDP can be inflated by the wealthy few (local or otherwise) rather than by Tanzanians in their totality. It is not surprising then to see the haves enjoying the growth while the have-nots wonder if the growth exists in the first place.

The fact that the GDP measure disregards some important aspects of work e.g. housekeeping; and the general well-being of people e.g. access to quality health and education makes GDP a very misleading measure of economic growth especially when one considers the inclusivity of the said growth.

Secondly: This pertains to sectors that contribute to the growth itself. According to the data from the National Bureau of Statistics, the agricultural sector that accommodates the majority of Tanzanians (66.3%) contributes only 26% to the growth of GDP.

This implies that most people in Tanzania share a smaller cake of the nation as compared to the privileged few. The only way around this would be for the agricultural sector to undergo transformation in such a manner that more (agricultural products) is produced by fewer people thereby allowing the rest to move to other sectors in the economy preferably manufacturing sector which can accommodate the workforce with limited education qualification.

This would also entail raising education levels for people working in the agricultural sector as well as intensifying the establishment of manufacturing firms across the country.

Thirdly: Understanding the plight of the majority of Tanzanians failing to enjoy the fruits of the economic growth warrants an acknowledgment of income inequality problem in the country. Indeed, the data made available by the National Bureau of Statistics, shows that little to no progress has been made with regards to reducing inequality.

In fact, the data on inequality (Gini coefficients based on expenditure distribution) indicates that inequality in Tanzania has increased from 1991-92 to 2000-2001, remained at this slightly higher level from 2001 to 2007, and returned to the 1991-92 level in 2011-12. In other words, from 1991-92 until 2011-12 (a period of 20 long years), inequality has not decreased in Tanzania.

If authorities such as the Nobel Prize Winner in Economics, Amartya Sen, are to be believed when they argue that poverty reduction is impossible in the presence of deep income inequality, then Tanzania still has a long way to go before its impressive economic growth can be reflected in its people.

It is no wonder then that the data on poverty made available by the National Bureau of Statistics, shows that the percentage of Tanzanians who lived below the poverty line with regards to basic needs has been decreasing very sluggishly.

Specifically, 38.6 percent of the Tanzanian population lacked basic needs in 1991-92, the percentage declined to 35.7 in 2000-01, it declined further in 2007 and reached 28.2 percent of the population in 2011-12. That’s a 10 percent drop in 20 years; this happening at the time when the economic growth in Tanzania at times shot as high as 8% per annum. Surely, the problem of inequality needs to be tackled head-on if the situation has to improve in the country.

An important point to make at this juncture is that as pretty as economic growth numbers have looked over the two decades, we ought to keep in mind that development is about people. While impressive, an average of 6 percent growth means little if a pregnant mother dies on the way to the health centre located 10 miles from her home; if a kid has to walk 10 kilometers to get to a school with no books, enough teachers and other necessary amenities; if there are no efforts to improve productivity in agriculture; if basic necessities such as water and electricity are still a luxury to the majority of Tanzanians etc.

Put differently, efforts to make lives and not things better are where the real jackpot is. So, yes, we need planes, fly-overs, bridges, standard gauge railways, tarmac roads etc. However, in the midst of all these, the basic needs of human beings have to be given their due priority.

The late Mwalimu Nyerere gave us necessary priorities in ensuring inclusive growth when he talked about ‘the three enemies of development’; so we need not to re-invent the wheel. These include ignorance (improve the access and quality of education), diseases (improve the access and quality of health services) and poverty (pursue inclusive growth by fighting inequality).

Although Tanzania has recorded some impressive economic growth over the last two decades, it should be noted that the said growth has not been inclusive. It is therefore not surprising to find that most Tanzanians question the authenticity of the growth being proclaimed time and again.

While there is no question whatsoever about the growth numbers in Tanzania, the government ought to realize that economic growth is never a sufficient condition for growth to be translated to development at the micro level. It is in this context that propositions for transformation of the agricultural sector and curtailing of income inequality have been made.

Prioritizing quality service delivery such as that in education and health would also go a long way to ensure that people get to ‘feel the growth in their pockets’. Indeed, that’s where the money is, and the core responsibility of the government is to show it to the people that put government in power in the first place.

 

About the author

Dr. Abel Kiyondo is a Principal Research Fellow at REPOA,
an independent institution based in Tanzania.

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1 Comment
  • You don’t need a complicated answer …. Growth does not create wealth , production does , so if you consume more than you produce you will create poverty. The only cure is ” produce more than you consume ” …. Get back to basics and make at home rather than import

Tanzania

Tanzania’s economy to grow by 6.8% in 2019

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The World Bank suggests Gross Domestic Product (GDP) growth in Tanzania to likely slowdown to 6.6% for the year 2018 from a 7.1 per cent expansion in 2017.

This year 2019, the Bank estimates that Tanzania’s economy will grow by 6.8 per cent and rise to 7.0 per cent in 2020.

But the government expects Tanzania’s economy to grow by 7.2 per cent in 2018 and accelerate to 7.3 per cent in 2019, despite a slowdown in credit to the private sector and rising bad loans in the country’s banking sector.

The state-run National Bureau of Statistics (NBS) said in December that Tanzania’s GDP grew by 7.0 per cent in the first half of 2018 from a 6.7 per cent rise in the same period a year-ago, while the country’s inflation rate dropped to a 10-year low in November, helped by slower rises in food prices.

National Bureau of Statistics – Tanzania

“In fast-growing countries, such as Rwanda and Tanzania, the (economic) expansion will be supported by public investment in infrastructure and strong agricultural growth,” said the World Bank in it 264-page report.

“Inflation is expected to pick up across the (Sub-Saharan Africa) region in 2019, reflecting the pass-through of currency depreciations during 2018 and domestic price pressures among metals exporters and non-resource-intensive countries … price pressures are likely to intensify in Kenya, Tanzania and Uganda.”

Tanzania’s annual headline inflation rate rose marginally to 3.3 per cent in December from 3.0 per cent in November, the lowest inflation in a decade.

The International Monetary Fund (IMF) warned last month that a credit squeeze coupled with a slowdown in government spending could dampen prospects for faster economic growth in Tanzania.

The lender, which warned that nearly half of Tanzania’s 45 banks are vulnerable to adverse shocks and risk insolvency, forecast the economy by 6.8 per cent this year.

The government plans to raise spending by 2.4 per cent in the 2018/19 fiscal year with the fiscal deficit expected to increase on the back of higher infrastructure spending.

The fiscal deficit is seen reaching 3.2 per cent of GDP in 2018/19 fiscal year (July-June), up from around 2.1 per cent in 2017/2018, according to data from the Ministry of Finance and Planning.

Elsewhere, the growth of the global economy is expected to decelerate to 2.9 per cent this year compared with the three percent in 2018, the World Bank said in the report, citing elevated trade tensions and international trade moderation.

A slump in the global economy will continue in the coming year, with 2020 growth estimated at 2.8 per cent, according to the report.

“Risks to the regional outlook are tilted to the downside. On the external front, slower-than projected growth in China and Euro Area, which have strong trade and investment links with Sub-Saharan Africa, would adversely affect the region through lower export demand and investment,” the World Bank said.

“Moreover, Sub-Saharan African metals producers would likely be among the hardest hit by escalating trade tensions between China and the United States, as metals prices would fall faster than other commodity prices as a result of weakening demand from China.”

Sharp currency declines would make the servicing of foreign currency-denominated debt, already a rising concern in the sub-Saharan African region, more challenging, the Bank said.

Overall, real GDP growth is estimated 6.6% in 2018, down from 7.1% in 2017. The services sector was the main contributor to GDP (39.3%). Private investment was the main demand-side contributor (63.9%). The external sector stymied economic growth as the current account deficit increased (despite the real depreciation of the Tanzanian shilling), due to a higher volume of imports in 2018 than in 2017. The increase is due largely to increased imports of transport equipment, building and construction materials, industrial raw materials, and petroleum products for large public investment projects, such as the Standard Gauge Railway. The import bill also increased as a result of the rise in the price of key commodities, such as crude oil.

The fiscal deficit increased to an estimated 3.9% of GDP in 2018, due to increased capital spending on infrastructure projects. Public debt increased to an estimated 39.3% of GDP in 2018 from 38.2% in 2017. External debt accounted for about 74.9% of total public debt in 2018. The risk of debt distress remains low because public external debt, at 34.5% of GDP, is mostly concessional.

Monetary policy was more accommodative in 2018 than in 2017. This increased domestic liquidity and reduced lending rates, leading to greater private credit supply. Due to improved food supply, inflation eased to an estimated 3.5% in 2018.

Tailwinds and headwinds

The medium-term outlook is positive, with growth projected at 6.8% in both 2019 and 7.0 in 2020, supported by large infrastructure spending. Headline inflation is projected to marginally increase to 5.2% in 2019 and 5.1% in 2020 due to increased government spending.

But the positive outlook faces several downside risks: growing private sector concerns about economic policy uncertainty and increased domestic arrears that could derail the government’s fiscal consolidation and harm the private sector.

Key economic development challenges include slow progress towards inclusive growth, infrastructure bottlenecks, and vulnerability to climate change. Poverty and income inequality remain high despite high economic growth. Infrastructure bottlenecks are most notable in the transport and energy sectors. Reliance on rain-fed agriculture has exposed farmers to income shocks. And inefficient public enterprises present a fiscal risk. One of the development challenges on the social front is youth unemployment, which increased to 7.3% in 2016, compared with 5.7% in 2012.

Key opportunities include peace and political stability, abundant natural resources, a strategic geographic location, and immense development potential for tourism. The Export Zone Processing Agency established in 2008 to accelerate manufacturing exports and help the country achieve structural transformation has helped attract close to $1 billion in foreign direct investment and revive the manufacturing sector into one of the fastest growing in Africa.

 

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