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Tanzania’s agricultural sector decline impedes quality of growth of the economy

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Recent macroeconomic trends in Tanzania show a sustained GDP growth rate averaging 7% per annum over the past one and a half decades. However, the rate of poverty reduction in the country has remained dismal, leading to questions regarding the quality of its growth, including its sectorial composition.

A notable feature of this trend is slow growth in agricultural sector, averaging 4% during the same period, which is much below the targeted growth of 10% needed to induce significant reduction of poverty. The relationship between agricultural growth and poverty reduction is rooted in economic structure that allocates factors of production, particularly labor and capital, and the underlying technology conditions that determine labor-output and earning relations.

In a country like Tanzania, where its labor force is predominantly (66.3%) engaged in agriculture and 85% of all the poor (who fall below the poverty line) is in rural areas, growth in agricultural sector is necessary for poverty reduction.

Various studies have established that agricultural productivity growth is a central condition for economic growth and transformation in developing countries. This is because agriculture provides for the best opportunity for the majority of the workforce in developing countries such as Tanzania to not only get employed but also trade their way out of poverty.

Indeed, research has shown that agriculture driven growth is up to four times more likely to reduce poverty than growth generated from any other sector in developing economies. Efforts to improve efficiency and productivity in Tanzania’s agricultural sector are therefore crucial for transforming livelihood at the bottom of the pyramid.

Based on the results from a Survey conducted in 2016 by OXFAM Tanzania, findings revealed that improving farmers’ livelihoods would entail concerted efforts by the government to avail to farmers, quality and affordable seeds, fertilizer, agricultural infrastructures, subsidies, extension services, markets, information alert, affordable loans, and areas for pastures.

The survey was conducted following critical challenges of poverty reduction Tanzania has been facing despite a remarkable GDP growth over the past two decades. This is because economic growth in Tanzania is not inclusive, in that sectors contributing to this growth employ fewer people.

Meanwhile, agriculture continues to employ the majority of people in Tanzania. It is against this background that any efforts to improve livelihoods of the people should thus be geared towards transforming the agricultural sector with special attention on smallholder farmers who occupy a significant portion of the workforce of the economy.

Every solution designed by the government must therefore be geared towards addressing such challenges confronting peasant farmers in the country. In this context, a study was set out to examine the challenges facing farmers and their respective solutions.

Sustainable Livelihood Framework was used to inform the analysis of the study. Findings, however, show that a typical smallholder farmer in Tanzania is youthful, married, poor, equipped with low level of education, and having many children (at least four). These characteristics usually entangle farmers in the vicious cycle of poverty.

Transforming agriculture is thus the only way out for most of these farmers. Further, farmers face diverse challenges on daily basis. It was thus logical to draw these challenges from farmers. Some of the challenges drawn from these farmers were as follows:

  • Lack of access to loans
  • Inadequate subsidies
  • Access to market
  • Information alert on agriculture-related issues
  • Persistent drought
  • Availability of quality and affordable seeds
  • Access to pastures
  • Availability of technical advice
  • Availability of quality and affordable fertilizers
  • Availability of agricultural infrastructures and
  • Availability of water.

Approaches farmers employ to solving their problems

Some of the solutions suggested by farmers to address this challenges they face are by and large neither sustainable nor appropriate for productive farming.

Also, coping mechanisms that farmers use to solve their challenges include:

  • Securing loans from friends and relatives
  • Migrating to access markets and pastures, fertilizers and water
  • Using readily available inputs such as natural fertilizers
  • Prioritizing only important needs
  • Cultivating crop which are drought resistant
  • Forming groups for both animal keepers and farmers for easy access of loans and helping them in case needs arise
  • Applying irrigation
  • Avoiding to burn crop remnants so as they can be recycled as fertilizers
  • Selling some of kept animals and
  • Borrowing from relative and friends.

Ways government can solve challenges

It is interesting to note that the majority of farmers continue to place their trust on government when it comes to problem solving. Priority areas that these farmers would like the government to concentrate on while helping them include ensuring:

  • Availability of quality and affordable seeds
  • Availability of advice from experts
  • Availability of quality and affordable fertilizer
  • Availability of quality agricultural infrastructures
  • Availability of subsidies
  • Access to markets
  • Availability of information alert
  • Availability of affordable loans
  • Availability of pastures for feeding animals and
  • Access to water.

Priorities of smaller scale farmers

Farmers’ priority areas could only be met if the government allocates enough funds to agricultural sector.

However, the government has not only failed to adhere to its commitment on the Maputo Declaration that requires African Union member states to allocate at least 10% of national budget to agricultural sector but also an alarming declining trend on funds allocated to agriculture can be observed over the course of past four years.

The decline in budget allocation to agricultural sector in real terms has meant that some of the key services cannot be accessed by farmers. Such services include:

  • Subsidies
  • Quality seeds
  • Quality pesticides and insecticides
  • Extension services
  • Information alert relevant to farming
  • New/improved agricultural infrastructure
  • Farming techniques training
  • Accessibility to markets and
  • Availability of loans.

It is therefore strongly argued at this juncture that the government of Tanzania needs to rethink its position and allocate more funds to the agricultural sector. In fact, doing so will be in line with Tanzania’s Vision which aspires that Tanzania should become a semi-industrialized country by 2025 with agro-processing being at the center of the said industrialization process.

It is also remarkably interesting to note that farmers cultivate crops and keep animals that fall under priority agricultural products that have been earmarked in the Second Five Years Development Plan as raw materials for envisaged industries.

Therefore, to understand the challenges and priorities of farmers in their activities, the government must be involved in their activities in terms of ensuring availability of subsidies, loans, quality inputs, infrastructure, information alert, extension services as well as access to markets by farmers.

As has been stated time and again, transforming agriculture is the only way to achieve inclusive growth and in turn improving livelihoods of the poor more especially the farmers. Investing in agriculture should thus be a no brainer to the government of Tanzania.

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Tanzania

Shilling Fluctuation, a seasonal phenomenon?  

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The debates about the depreciation of shilling against the US dollar are unprofessional, as the fluctuating dollar exchange rates are global and seasonal.

Contrary to what analysts and a section of the media argue or wish the public to believe, experts in economics and financial matters hint that there are well balanced reasons to that.

Having analyzed such baseless debates, I argue that this situation needs to be explained scientifically and economically rather than being blown up unnecessarily.

It should be noted that not only the Tanzanian shilling has slightly depreciated against the US dollar but also other currencies in the world.

Why? Did they fail to export cashew nut as some would argue here? Why the US dollar outperforms other currencies?

According to the ET Markets (2018), in this year (2019), the US dollar was forecasted to outperform many other currencies because of the interest hike.

The ET Markets report which is also supported by the Bank of Tanzania (BOT), states that last year, the US economy continued to strengthen.

This strength caused the US Federal Reserve to increase interest rate in December 2018. The US Fed increased 25 basis point hikes in December, so interest rate differential widened further to 2.65-2.90 per cent.

Euro and US inflation stabilized nearly 2 per cent, but there was a difference in GDP growth and unemployment rate.

GDP growth is higher in the US and unemployment rate is lower compared with the euro, which naturally makes the dollar stronger against the euro and other currencies in the world, including Tanzania.

Economically and financially, this development has contributed to rise in demand for the US dollar from investment side, consequently causing the US dollar to appreciate against most currencies, including the Tanzanian shilling.

The US Dollar is the benchmark pricing mechanism for most commodities which are global assets.

Base Metals that trade on the LME and precious metals such as gold, silver and energy including oil and natural gas use the dollar to price.

The rising dollar has significant consequences on commodities, as higher dollar tends to weigh on commodity prices.

Production cost of raw material in other countries, including Tanzania rise because of a strong dollar and weighs negative on demand.

In the stock market, a higher US dollar weighs on US multinational companies, as they have to compete globally with strong currency.

According to the latest forecasts from Barclays (2019), the dollar will remain the dominant force in the currency market this year and the pound sterling will succumb to another dose of ‘Brexit uncertainty’ while the euro will reach new lows.

Barclays says in its 2019 outlook that as the Fed drives the dollar to new levels of overvaluation and political factors keep Sterling and the Euro on the proverbial back foot, the Fed will go on raising its interest rate in a sustained manner this year, contrary to what other forecasters have begun to anticipate.

The strength of the US dollar against others as said above, the interest hike by FED has depreciated other currencies in the world, including the Tanzanian shilling.

The Bank of Tanzania (BoT) report indicates that from 22nd February 2018 to 21st February 2019 (one year period), the value of the shilling against the US dollar declined by 3.8 percent.

The BOT reports that the value of the US dollar on Developed Market currencies was also put in pressure in the same period.

The British Pound against the US dollar declined by 6.7 percent, the euro by 8.1 percent, the Australian dollar by 9.6 percent and the Chinese Yuan by 6.4 percent.

Moreover, the emerging markets (EM) have been badly affected by the strength of the US dollar. the Brazilian Real is down 18.4 percent, the Russian Ruble is down 14.75 percent, the Pakistan Rupee is 9.7 percent and the Indian Rupee by 8.9 percent year-to-date (YTD) against the dollar.

The Turkish Lira and Argentinian Peso have been the biggest losers, both down close to 40 percent since the beginning of the year.

Comparative analysis in the African region also provides a gloomy picture. Are measures taken by BOT commendable?

Despite the FED factor, I agree with BoT report (2019) indicating that the current movement in the exchange rate in Tanzania is a seasonal phenomenon related to low foreign exchange earnings from tourism and export crops.

This is true because currency hike may be mitigated by a number of facts. “Customarily, from January to May each year, it is a low tourist season and export crops where the country receives low exchange earnings. This is a common trend that usually normalizes in the second half of the year when earnings from tourism and exports pick-up,” states the report.

I commend BOT, for among other things, implementing monetary policy aimed at maintaining price stability and ensures that inflation remains within the target of single digit intended at stabilizing the value of the shilling.

This can be achieved through maintaining the appropriate level of liquidity in the economy. I understand that BOT is also participating in the interbank foreign exchange market (IFEM), in order to smoothen excessive volatility of the exchange rate.

In doing that, the Bank of Tanzania sold USD 528.6 million in 2018, which is more than double the amount sold in 2017.

In 2019, the Bank of Tanzania continued to sell the foreign exchange in order to reduce its shortage in the economy.

Moreover, the BOT must monitor foreign exchange business in order to ensure that rules and regulations are adhered to, including maintaining foreign currency Net Open Position of commercial banks equivalent to 7.5 percent of core capital.

Factors that could lead the dollar to collapse/depreciate more so to what BoT is mitigating, two conditions must be in place before the dollar could collapse.

First, there must be an underlying weakness. Between 2002 and 2018, the dollar has declined 6 percent according to the U.S. Dollar Index.

This is because the U.S. debt almost more than tripled during that period, from $6 trillion to $22 trillion.

The debt-to-GDP ratio is now more than 100 percent. That increases the chance the United States will let the dollar’s value slide as it would be easier to repay its debt with cheaper money.

Second, there must be a currency alternative for everyone to buy. The dollar’s strength is based on its use as the world’s reserve currency.

The dollar became the reserve currency in 1973 when President Nixon abandoned the gold standard.

As a global currency, the dollar is used for half of all cross-border transactions. That means central banks must hold the dollar in their reserves to pay for these transactions.

As a result, 61 percent of these foreign currency reserves are in dollars. The two situations above make a collapse possible.

But, it won’t occur without a third condition. That’s a huge economic triggering event that destroys confidence in the dollar.

Altogether, foreign countries own more than $6 trillion in U.S. debt. If China, Japan or other major holders started dumping these holdings of Treasury notes on the secondary market, this could cause a panic leading to collapse.

China owns $1 trillion in U.S. Treasury’s. That’s because China pegs the Yuan to the dollar.

This keeps the prices of its exports to the United States relatively cheap. Japan also owns more than $1 trillion in Treasury’s.

It also wants to keep the yen low to stimulate exports to the United States. These facts considered, I reiterate the possibility of a conspiracy theory on the dollar-shilling debate in Tanzania.

The hikes are normal and seasonal, but you still find some people raising unnecessary alarm into markets.

 

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