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Making Sense of Economic Growth in Africa: The Case of Tanzania

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Economic growth has been a subject of public interest and discourse in a number of countries and contexts. This is the case in Africa in general and Tanzania in particular now as it has been in the past and as will be in the future. There are various issues around this broad theme of economic growth.

Issues include non-poverty reducing, non-jobs creating and non-inclusive growth. In what follows are some information on various economic-growth issues in Tanzanian context.

Economic growth concept

Economic growth is the increase of the real output of goods and services of an economy over time. It is usually measured in monetary terms over a period of one year or even quarter. Economic growth is supposed to contribute into general prosperity of the people by way of increasing quality of live. This quality of live can be measured by the quantity and quality of goods and services consumed in a given period of time. At times, economic growth in Africa in general and Tanzania in this case has not been translated into improved life for various reasons.

Growth in Tanzania

Growth in Tanzania has been among the best in Sub Sahara Africa in the recent past. The East African country has been posting growth to the tunes of about 7% consistently over years. In 2017 however there was a derailing from what has been impressive growth trend. Available information shows that Gross Domestic Product (GDP) grew by 5.7% in the first quarter of 2017 compared with 6.8% in the same period in 2016.

This is a drop by 1.1% in a year. There are several possible reasons for the observed decline. These included slowing in production and growth in the mining sector and businesses generally. It is to be noted that the country’s target is to post a 7% growth figure at the end of the 2017/18 fiscal year. It is likely to be a tall order to attain this figure from the observed 5.7%. It means we have to increase growth by a whole 1.3% in order to reach 7%. The key issue is to know the root cause of the slow growth and fix the same. For fiscal year 2017/18 Tanzania posted a comfortable growth of 7.1% and the policy goal for 2018/19 fiscal year is to touch the 7.2% economic-growth mark.

Distribution of the grown cake

It takes distribution and re-distribution for everyone to benefit from the national cake that is reported to increases as a result of increased economic growth. This is because various economic actors contribute differently in increasing the size of the national cake. Distribution and re-distribution of the national cake is normally done through fiscal policy and its various policy instruments especially taxation. A good tax system is supposed to distribute and re-distribute the wealth that accrues from economic growth. Tax revenue should be put in the government coffers for distribution and re-distribution to the general population by ways of providing public goods and services inter alia.

If and when the tax system is not efficient, it fails to collect adequate revenues. The implication is inability to distribute and re-distribute benefits of economic growth. Therefore one may see increased economic growth but if the results of that growth are not equally and equitably distributed and re-distributed the majority may not feel and enjoy the growth.

Population growth

For one to benefit from the increased size of the national cake, the mouths eating slices from it should be proportional to the increased growth. In countries where population grows faster than the extent to which the economy can support, one may fail to enjoy the results of the growth. If the cake grows at a smaller rate than its eaters then its growth may not be felt. It will be illogical therefore to expect reduced poverty and increased standards of living if the population grows faster than the national income.

Source of growth

Economic growth is a result of economic activities conducted by various actors in various sectors of the economy. These actors and sectors of the economy contribute in different proportions to the size of the national cake. Therefore there are many sources of economic growth. Some sectors and individuals may contribute more to the growth. If these are proportionally rewarded for contributing more they will feel and enjoy more the results of growth. In a Foreign Direct Investments (FDIs) led growth, the results of increased growth may not be well felt into the local economy. Other factors that may explain the paradox of poverty amidst increased growth include inflation which makes the monetary value of the national income look big but in real terms it is not.

Equitable Growth

On the 30th April and 2nd May 2018 economics and development stakeholders in Tanzania and beyond had a very rare opportunity to listen to and engage with some of the leading economists in the world. On the 30th, Professor Joseph Stiglitz from Columbia University and Nobel Laureate in Economics together with Professor Kaushik Basu from Cornel University delivered a public lecture at the University of Dar Es Salaam. On the 2nd May the duo were joined by Professor Sabina Alkire from Oxford University at the 7th annual conference of the Economic and Social Research Foundation (ESRF) in Dar Es Salaam.

The theme of the conference was Equitable Growth and Human Development in Resource Based Economy: Dialogue on Stockholm Statement for Tanzania. Key discussion issues revolved around the axis of equitable economic growth. Apart from the trio, there were other leading economists who have worked deeply on the theme of the conference.

They included Professor Robert Solow, a Nobel Laureate in economics and Professor Paul Krugman. Having participated in the debates of these great minds, I intend to interrogate the concept of equitable growth in Tanzanian context based on the Stockholm statement.

Stockholm statement

The Stockholm statement of November 2016 is based on the ideas of 13 world’s leading economists, including Professor Joseph Stiglitz and four former Chief economists of the World Bank. The statement has a set of principles to help frame country-level policies in a rapidly changing and globalizing world. The key issues in the statement in the context of this narration include the view that traditional economic thinking no longer applies.

Inequality within countries is threatening social cohesion and economic progress and development needs to be seen in a broader perspective in order to achieve more equitable and sustainable results. According to the statement, inclusive economic development is the only socially and economically sustainable form of development. It emphasizes the importance of policies that tackle inequalities. It sees trickle down growth policies where the state has a minimal role and the rest is left to the market as not being sustainable.

Inequality

The key aim of equitable growth is to address inequality with its many negative social, economic, political and even security implications. Extreme inequalities with very high Gini Coefficient are unhealthy and should not be tolerated. For example, a Gini Coefficient of one means that one person has total control over all the income or consumption of country or region.

One does not suggest a perfectly equal society economically where Gini Coefficient is one either. However, one suggests reduced inequalities where extremes tend to move towards the centre. Theoretically, this can be achieved by moving up those in the lowest economic ladder or moving down those at the top or both. Pareto optimality however, requires that no one should be made better off by making others worse off. Therefore moving those at the bottom up the ladder seems to be a better option.

Issues of discussion within the inequality space include the reasons of inequality. If it is due to those at the bottom being systematically left out by the way policies, laws, regulations and practices are designed and implemented, then it is bad. If they are at the bottom for their own mistakes such as not bothering to work has to make most out of existing opportunities, they may have themselves to thank for observed inequality. However, Mother Theresa reminds us to uplift them not necessarily because they deserve but because they need it.

Government interventions

Governments can and should intervene strategically and carefully in bringing about and sustaining equitable growth. They can do this through various policies. Among these include fiscal policies and their various instruments that ensure distribution and redistribution of the grown slice of the national cake.

Taxes and subsidies are among the fiscal policy instruments to distribute and re-distribute in pursuit of equity. No one expects distribution and re-distribution that gives a Gini-Coefficient of zero that implies total inequality. Issues of discussion include how much growth should a country experience before it starts to distribute and re-distribute and what rations of the national cake should go to various expenditure posts including recurrent and development and their many sub components.

 

  • Professor Honest Prosper Ngowi,

Pngowi@mzumbe.ac.tz

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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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