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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 Economy to decline to 6.6% in 2019

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Tanzania’s economy remains buoyant, thanks to the stability of major macroeconomic indicators, according to a Bank of Tanzania report. Inflation remained in single digits, while money supply in the economy rose during the year ending May 2019, the BoT says in its Monthly Economic Review (MER) for June 2019. Another notable development during the period was the rise in the importation of capital goods for ongoing mega infrastructure projects.

This is in line with President John Magufuli’s endeavor to build world-class infrastructure, which is expected to greatly reduce the cost of doing business in the country. The projects include the 2,100-megawatt Stiegler’s Gorge hydroelectricity station and standard gauge railway. With the government embarking on various measures to improve liquidity in the economy, the cost of borrowing also went down, BoT figures show, while food prices were generally stable.

These positives outweighed the impact of a fall in exports of goods and services, as well as shrinking foreign exchanging reserves and increased national debt, among others. The review shows that the annual inflation rate remained at 3.5 per cent, which was below the targeted five per cent, and this helped to maintain the stability of prices of goods and services.

Tanzania is also currently food sufficient, although increased demand for maize in neighboring countries is putting pressure on prices of the commodity in the domestic market. According to the review, the extended broad money supply growth jumped to 5.8 per cent in May this year from 4.8 per cent recorded during the year ended in May 2018.

The improvement of broad money supply was a result of the growth of domestic credit to both the government and private sector. The recovery of the domestic credit market indicates increased lending to the private sector. The BoT review shows that credit to the private sector grew by nine per cent from 2.9 per cent, indicating borrowers’ increased confidence in the banking industry.

This was experienced as individual banks were lowering their interest rates as part of implementing an accommodative monetary policy by the BoT. The review shows that the average interest rate dropped to 17.17 per cent from 17.53 per cent, thus stimulating borrowers’ appetite. A decreased was also recorded in gross official reserves, which amounted to $4.3billion, covering about 4.2 months of projected imports of goods and services.

However, this was above the country’s benchmark of not less than 4.0 months, but below the East African Community’s 4.5 months. Another indicator which fell slightly during the period under review was exports of goods and services, which dropped to $8, 514.4 million from $8, 578.7 million.

Exports of traditional crops declined to $533.9 million from $1,140.3 million, manifested in all traditional crops, except coffee and cotton. However, non-traditional goods exports, which account for 78.9 per cent of goods exports, increased to $3, 499.2 million from $3, 142.7 million, largely driven by gold exports.

The value of gold– which accounted for 38.6 per cent and 48.9 per cent of total goods and non-traditional exports, respectively – grew by 15.4 per cent to $1, 716.7 million on account of increased volume. Domestic revenue realized by the government in May 2019 amounted to Sh1.28 trillion from Sh1.30 trillion. Out of the collections, Sh1.2 trillion was collected by the central government and Sh50.4 billion was local government authorities’ collections from own sources. Tax collections amounted to Sh1.1 trillion, accounting for 87.4 per cent of domestic revenue.

In May 2019, expenditure amounted to Sh1.8 trillion, of which recurrent expenditure was Sh1.06 trillion and development expenditure was Sh741.7 billion. The level of external debt stock, comprising public and private sector debt, amounted to $21.6 billion, having increased by $1.07 billion from May 2018. The increase was mainly on account of new disbursement, with recent sustainability reports indicating that Tanzania’s debt is still stable.

Tanzania’s economic growth slowed to 6.6% year on year in the first quarter of 2019 from 7.5% in the same period a year earlier, official data shows, weighed down by softer construction, agriculture and manufacturing activity.

A leaked report from the IMF said earlier in 2019 that Tanzania’s economy has not been expanding as fast as official figures suggest. It said lower growth was partly due to President John Magufuli’s “unpredictable and interventionist” policies.

In the first quarter, construction, the biggest driver of GDP, grew 13.2%, compared with 15.6% a year ago, the state-run national bureau of statistics said.

However, growth in the mining sector, which has been the target of repeated government interventions, rebounded to 10.0% from a 5.7% decline during the same period in 2018. Tanzania is Africa’s fourth-largest gold producer.

“The growth of the mining sector was mainly due to an increase in production of gold, coal and diamonds,” said the bureau.

Magufuli embarked on an ambitious programme of industrialisation after coming to power in late 2015, investing billions of dollars in infrastructure, including a new rail line and a major hydropower plant and reviving the national airline.

But critics say government intervention in mining and agriculture have discouraged investment. Foreign direct investment has slumped and private sector lending growth dropped below 4% in 2018, from an average of 20% from 2013-2016.

Agriculture, which accounts for about a third of economic activity, also slowed in the first quarter of 2019, with crop production growing 6.0% compared to 8.9% in the same period in 2018, the statistics bureau said.

In 2018 the government sent the military to seize the cashew harvest, the main export crop, after complaints by farmers that prices offered by brokers were too low. Manufacturing, another key GDP contributor, grew 4.8% in the first quarter compared with 5.3% a year earlier.

Tanzania’s economy grew 7% in 2018, according to the government, which has forecast 7.1% growth in 2019. Earlier in July, however, the World Bank released its own estimates that said Tanzania’s economy grew 5.2% in 2018.

Following the World Bank report, Tanzania said it might revise its 2018 GDP growth rate after meetings in August. In April, a leaked report from the IMF predicted lower growth of about 4%-5% in the “medium term”. The IMF report said there were serious weaknesses in Tanzania’s official data.

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