73346 T h e Wo r l d B a n k Po v e r t y R e d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a R e g i o n I S SU E 2 Spreading the Wings: From Growth to Shared Prosperity October 2012 TH E WORLD BANK GR OUP AFRICA REGION POVERTY REDUCTION & ECONOMIC MANAGEMENT PAGE http://www.worldbank.org/tanzania/economicupdate. http://www.worldbank.org/tanzania/economicupdate a TA N Z A N I A E C O N O M I C U P D AT E s N O V E M B E R , 2 0 1 2 , E D I T I O N 2 PAGE http://www.worldbank.org/tanzania/economicupdate. b T h e Wo r l d B a n k Po v e r t y R e d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a R e g i o n Table of Contents ACKNOWLEDGEMENT ................................................................................... iv FOREWORD....................................................................................................... v KEY MESSAGES ............................................................................................... vii PART 1:THE STATE OF THE ECONOMY .......................................................... 1 1.1 Recent Developments up to mid 2012 .........................................................................................................3 1.2 What’s Next: Economic Outlook ..................................................................................................................13 1.3 Toward Pro-poor Growth ................................................................................................................................21 PART 2: FIGHTING RURAL POVERTY: NO OTHERWAY AROUND FORTANZANIA ...26 2.1 Three transformational forces to �ght rural poverty .............................................................................28 2.2 Force 1: Agriculture Commercialization ......................................................................................................30 2.3 Force 2: Diversi�cation from traditional crop production ...................................................................39 2.4 Force 3: Migration to urban centers .............................................................................................................43 STATISTICAL ANNEXES ................................................................................. 47 1. Key macroeconomic indicators .........................................................................................................................48 2. Growth and structure of the economy .........................................................................................................49 3. Quarterly GDP growth rates 2002-2012 .....................................................................................................50 4. Fiscal framework as percent of GDP ..............................................................................................................51 5. Provisional Monthly Government Expenditures FY 2011/12 ................................................................51 6. Balance of Payments (percent of GDP unless otherwise indicated) ..................................................52 7. Monthly Imports of Goods and Services 2011-2012 (in US$ million) .............................................53 8. Monthly Exports of Goods and Services 2011-2012 (in US$ million) .............................................54 9. Inflation rates ............................................................................................................................................................55 10. Monthly Food Crop Prices (wholesale) in Arusha, DSM and Mbeya: Tshs per 100 kg.............55 11. Average wholesale prices (January 2011 to July 2012): Tshs per 100 kg........................................56 12. Inflation rates (selected items of the CPI basket) ...................................................................................56 13. Exchange and Interest rates. ............................................................................................................................57 14. Monetary Indicators ............................................................................................................................................58 PAGE http://www.worldbank.org/tanzania/economicupdate. i TA N Z A N I A E C O N O M I C U P D AT E s N O V E M B E R , 2 0 1 2 , E D I T I O N 2 List of Tables Table 1: Macroeconomic indications: recent trends and projections. ......................................................13 Table 2: Tanzania is a poor rural country ............................................................................................................25 Table 3: Diversi�cation away from subsistence agriculture: Kenya vs. Tanzania (% of total production, otherwise indicated) ..........................................................................................................................39 List of Figures Figure 1: GDP Growth has shown remarkable resilience...............................................................................2 Figure 2: …even though inflation has been on the rise… .............................................................................2 Figure 3: The �scal de�cit declined for the �rst time since 2007/8… ........................................................3 Figure 4: ….while the Balance of Payments remained under control ........................................................3 Figure 5: Higher and more stable GDP growth in Tanzania than in Kenya and Uganda .....................4 Figure 6: GDP quarterly growth, Jan – Mar 2012 ..............................................................................................4 Figure 7: The Public sector as the driver of growth...........................................................................................5 Figure 8: Inflation up and down ................................................................................................................................7 Figure 9: Food prices in East Africa .........................................................................................................................7 Figure 10: The Stabilization of the Budget in recent years...........................................................................10 Figure 11: In a sounder �scal environment ........................................................................................................10 Figure 12: Import growth, 2011/12 ......................................................................................................................11 Figure 13: Export growth, 2011/12 ......................................................................................................................11 Figure 14: Higher development spending with a shift toward non-traditional funding ....................15 Figure 15: Controlled recurrent expenditures with flat wage bill but growing interest payments15 Figure 16: The rising external debt stock and annual debt service, in % of GDP ...............................18 Figure 17: More growth, less poverty in successful countries during the 2000s .................................21 Figure 18: Different paths of economic development...................................................................................28 Figure 19:....entrenched in divergent patterns of agriculture growth, diversi�cation and urbanization .................................................................................................................................................28 Figure 20: Tanzania --Low agricultural production growth, little rural poverty alleviation ...............30 Figure 21:One of the lowest agricultural productivity in the world ........................................................30 Figure 22: Distance to Roads matters for sellers ............................................................................................32 Figure 23: Linkages between farm and off-farm activities ............................................................................40 Figure 24: Job Pro�le by location, in % of total employment......................................................................43 Figure 25: Synergies between rural and urban world ...................................................................................43 PAGE http://www.worldbank.org/tanzania/economicupdate. ii T h e Wo r l d B a n k Po v e r t y R e d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a R e g i o n Abbreviations and Acronyms ASDP Agricultural Sector Development Project FAO Food and Agriculture Organization FDI Foreign Domestic Investment GDP Gross Domestic Product ICT Information Communication Technology IMF International Monetary Fund OECD Organization for Economic Cooperation and Development REPOA Research on Poverty Alleviation SAGCOT Southern Agricultural Growth Corridor of Tanzania TPDC Tanzania Petroleum Development Corporation TANESCO Tanzania Electric Supply Company TSHS Tanzania Shillings USD United States Dollars VAT Value Added Tax PAGE http://www.worldbank.org/tanzania/economicupdate. iii Acknowledgement This second edition of the Tanzania Lopez and Milan Brahmbhatt, as well as Economic Update was prepared by Jacques from the comments shared by David Morisset. The author acknowledges the Rohrbach, Barjor Mehta, Zainab Semgalawe contributions of Waly Wane, Emmanuel and Thomas Baunsgaard (IMF). A. Mungunasi, Josaphat Kweka, Goodluck Mosha, Thomas Danielewitz, and Yutaka The team received guidance from Albert Yoshino. Zeufack and Philippe Dongier. Irfan Kortschak edited the report, while Agnes The report bene�ted from the insights of Mganga provided invaluable assistance several peer reviewers, including Humberto during its preparation. PAGE http://www.worldbank.org/tanzania/economicupdate. iv T h e Wo r l d B a n k Po v e r t y R e d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a R e g i o n Foreword Tanzania continues to stand out as a as in speci�c debates of topical importance model of sound economic performance in in Tanzania. The current issue seeks to get the African continent, with a growth rate the discussion going on how to achieve of over six per cent in 2011 and 2012, the structural transformation of the rural surpassing other regional economies and economy so that rural households can demonstrating impressive resilience to the also bene�t from the country’s remarkable global economic crisis. In addition, the �scal growth performance. de�cit declined in 2011/12 for the �rst time in four years to 5.0 percent of GDP. The experience of some successful countries, notably Vietnam and Malaysia, Yet individual rural families tell a different has shown that widespread rural poverty story: the failure of growth to impact those does not have to be enduring. The present who make up 80 per cent of the population update points to three forces that have in Tanzania. Despite impressive macro-�scal the potential to produce transformational performance, and decades of concerted impact in Tanzania. These are agricultural efforts to lift rural masses out of poverty, commercialization; diversi�cation toward agricultural incomes have stagnated, with high value products and off-farm activities; aggregate agricultural production growing and migration toward urban centers. The barely faster than the population. Growth Update frames questions and attempts in Tanzania has been concentrated in a few to provoke debate on one of the most capital-intensive sectors such as mining and important and until now intractable telecoms, and soon natural gas – failing to challenges facing Tanzania. As a partner of produce widespread job creation, failing to the country, our sincere hope is that the raise incomes of the masses, and failing to Update will offer valuable input into a reduce poverty. fruitful conversation. This is the second issue of the ’Tanzania Economic Update Series‘.The series aim to Philippe Dongier engage a broad audience in a discussion of Country Director the state of the economy in general, as well Tanzania, Burundi and Uganda PAGE http://www.worldbank.org/tanzania/economicupdate. v TA N Z A N I A E C O N O M I C U P D AT E s N O V E M B E R , 2 0 1 2 , E D I T I O N 2 PAGE http://www.worldbank.org/tanzania/economicupdate. vi T h e Wo r l d B a n k Po v e r t y R e d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a R e g i o n Key Messages In terms of macroeconomic indicators, and Vietnam, which in the past had very Tanzania has been a top performer. Over similar characteristics to Tanzania have the past year, its economy has grown at a achieved inclusive growth of this sort. In rate of more than six percent. It has achieved these and other similar cases, three factors signi�cant reductions in its �scal de�cit. played a critical role in bringing about Despite some volatility at the end of 2011, positive transformation: i) agricultural its �nancial indicators, with the exception of commercialization; ii) diversi�cation toward the inflation rate, are now mostly indicative high value products and off-farm activities, of good economic performance, as they and iii) migration toward urban centers. have been throughout much of its recent history. Given the current global context, Part 1: The state of the economy: Tanzania’s economic performance must be recent developments and short- applauded. term outlook „ In economic terms, Tanzania was a rock However, there is another side to this story. of stability in 2011/12. It recorded solid Growth has been increasingly concentrated growth and strengthened �scal discipline and it is generated through a limited despite increases in the rate of inflation. number of capital-intensive activities. In addition, growth has become increasingly Tanzania recorded a rate of economic dependent on Government spending growth of 6.5 percent in 2011/12, rather than on private investment and much better than the rate recorded by job creation. And despite the economy’s regional economies. The Government growth, poverty remains prevalent and demonstrated great flexibility in the face stagnant. of emerging signs of fragility and started to adjust its �scal and monetary policies Tanzania must leverage its remarkable in November 2011. As a result of these macroeconomic stability to achieve more adjusted policies, the overall �scal de�cit inclusive growth. This can be achieved by declined for the �rst time since 2008/9, integrating rural households, constituting to 5.0 percent of GDP. The balance of approximately two thirds of the total payments remained under control, with population and 80 percent of the poor, relatively stable international reserves, with into the country’s growth processes. higher capital inflows compensating for the International experience shows that a deterioration in the trade balance. number of countries, including Malaysia PAGE http://www.worldbank.org/tanzania/economicupdate. vii TA N Z A N I A E C O N O M I C U P D AT E s N O V E M B E R , 2 0 1 2 , E D I T I O N 2 In 2011/12, the Government stabilized Similarly, international food prices could the level of its expenditures, focusing less have a signi�cant impact. These prices on recurrent expenditure and more on increased by more than 30 percent in development spending, with signi�cant the period from June to August 2012. The allocations to the development of impact on Tanzania, however, is dif�cult to infrastructure. Tax collection levels were predict due to the uncertainty surrounding high due to a combination of improvements domestic harvests, but with food accounting in administration and the broadening of the for half of the Consumer Price Index, tax base as a result of the higher rate of these increases will almost certainly affect inflation and increased imports. domestic inflation. The inflation rate reached two-digit �gures „ In 2012/13, �scal policy will remain the in 2011/12, peaking at almost 20 percent at main instrument to promote economic the end of 2011. By August 2012, this rate growth, through the combination of higher had declined to approximately 15 percent, spending and an increasing shift towards a lower deceleration than anticipated expenditure on infrastructure. The private given the prudent monetary policy. The sector’s expansion should remain biased explanation for this could be the volatile toward capital-intensive sectors with The economy food and energy prices as well as inertia the exception of the construction sector is expected to in some other domestic prices. Prevalent which will bene�t from the Government’s continue to expand uncertainties on world food and energy infrastructure program and from along its recent markets and pressure on the Government increasing FDI in extractive industries. historical path so to increase wages in the public sector may long as there are no prevent inflation from returning to single The recently approved 2012/13 budget has signi�cant changes digit �gures before 2013. reaf�rmed the Government’s willingness and as long as it to commit to a higher level of expenditure is not impacted „ Tanzania’s economic prospects look on infrastructure projects. The main by signi�cant positive over the period for 2012-14 breakthrough is the explicit use of non- exogenous shocks. when its GDP is forecast to grow at a traditional sources of funding, including rate of 6.5-7.0. However, the threat of non-concessional sources, to �nance the exogenous risks cannot be ignored. new pipeline project between Mtwara and Dar es Salaam. As a result, development The economy is expected to continue to expenditures are expected to account for expand along its recent historical path so more than 40 percent of the total budget, long as there are no signi�cant changes and the highest level recorded since 2000. as long as it is not impacted by signi�cant While the priority placed on infrastructure exogenous shocks. will help close the existing gap in the energy and transport sectors, this expenditure However, the economy remains vulnerable must be balanced with the need to allocate to climatic conditions and commodity price resources to the education and health fluctuations. A close monitoring of gold sectors. Finding the right balance between and crude oil prices is warranted, given expenditure on infrastructure and the social the importance of gold prices on export sectors will be a central issue for Tanzanian performance and of crude oil prices on policymakers in years to come. import performance. Over the next two to three years, PAGE http://www.worldbank.org/tanzania/economicupdate. viii T h e Wo r l d B a n k Po v e r t y R e d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a R e g i o n economic expansion will be driven by the external �nancing will become constrained banking, mining and telecommunications by pressures resulting from the rapidly sectors. The construction sector will increasing level of debt service payments. bene�t from the high levels of public expenditure on infrastructure. Higher FDI In view of the declining proportion of in extractive industries will also lead to an the budget constituted by aid inflows and increased number of large construction limited domestic resources, access to projects. However, the growth rate of new sources of funding for infrastructure labor-intensive sectors such as agriculture projects is a welcome development. and manufacturing is not expected to However, the optimal use of such funds increase signi�cantly, especially if local �rms is heavily dependent on the capacity to continue to suffer from energy shortages. select and implement appropriate projects. Many initiatives currently being developed, The use of such funds also requires careful including those related to the Special debt management. As a matter of urgency, Economic Zones and SAGCOT, are not the Government must strive to improve its expected to have a signi�cant impact on the capacities in these areas through technical country’s growth for at least the next three assistance programs and a reinforcement to four years. Similarly, activities related of the legal and institutional frameworks, to the exploitation of Tanzania’s massive amongst other means. natural gas reserves will not commence for at least seven to ten years. The experience of successful emerging countries shows that �scal transparency is „ To ensure �scal and debt sustainability the best safeguard against excess borrowing and the optimal use of public resources, and inappropriate use of public resources. close monitoring of public accounts is Comprehensive monitoring and reporting is required. This monitoring should extend to particularly vital for the energy sector, given public agencies and enterprises operating the projected level of gas revenues and in the energy sector such as TPDC and the uncertainty surrounding the �nancial TANESCO, which account for a large situation of the public agency, TANESCO. share of public spending. „ Economic growth has not yet reduced Although the Government improved its poverty rates, especially in rural areas. The prospect of �scal position in 2011/12, signi�cant �scal Broadening the growth base will bring increasing tax risks remain. The prospect of increasing the bene�ts of economic growth to all revenues in the tax revenues in the short term is limited, Tanzanians. short term is unless the Government acts to eliminate or reduce existing tax exemptions. The Rapid economic growth and stability has limited, unless the Government has, however, not included generated high dividends for Tanzania in Government acts measures to address this issue in the recent years, driving increases in per capita to eliminate or 2012/13 budget, relying instead almost income of 70 percent over the past decade. reduce existing tax entirely on the imposition of higher tax rates. However, these bene�ts have not been exemptions. The level of of�cial foreign aid will continue evenly shared. Many households have been to decline as a proportion of the total left out, as seen from the poverty rate budget, as it has since 2008/9, although it which has remained stagnant at around will remain approximately constant in dollar 30 percent of the population since 2001. denominated terms. Finally, domestic and Not only does this create equity and social PAGE http://www.worldbank.org/tanzania/economicupdate. ix TA N Z A N I A E C O N O M I C U P D AT E s N O V E M B E R , 2 0 1 2 , E D I T I O N 2 concerns, it ultimately threatens future houses, and no access to roads. The major economic growth. Pro-poor growth has improvements over generations are limited played a vital role in driving the economic to a signi�cantly increased primary school successes of Brazil, Malaysia, Vietnam and enrolment rate and to increased access to other emerging countries. telecommunications facilitated through the extensive use of mobile phones. To leverage growth and to reduce poverty, Tanzanian leaders should focus on facilitating „ Successful economies have implemented increased access to employment. Growth in systems to connect their farmers to GDP alone will not be enough to reduce markets. To facilitate growth and equity, poverty and to facilitate a comprehensive they encourage the cultivation of high- socio-economic transformation. With the value, non-traditional crops and manage vast majority of Tanzania’s poor living in migration flows toward urban centers. rural areas, it is imperative that strategies are implemented to engage rural households Thirty and 40 years ago respectively, more fully into income generating processes. Vietnam and Malaysia had a socio- economic pro�le similar to Tanzania’s Rapid economic Part 2: Fighting rural poverty: no today. However, these two countries growth and stability other way for Tanzania managed to achieve rapid and broad-based has generated high economic growth by developing income- dividends for Tanzania „ Tanzania’s macroeconomic success has generating opportunities for their rural not been felt by the majority of the rural populations. The average rate of growth in recent years, population that is still living in extreme in the agricultural sectors of the two driving increases in poverty. countries has been 2.5 times higher than per capita income of Tanzania remains today a poor and in Tanzania today. Their farmers have also 70 percent over the predominantly rural country with gradually diversi�ed and ventured into the past decade. However approximately 30 million people, or about cultivation of high value products and in these bene�ts have 75 percent of the total population living non-farm activities. Concurrently, increased not been evenly in rural areas. These rural households urbanization in these countries has created constitute 80 percent of the country’s poor. new job opportunities for rural migrants. shared. Reducing rural poverty has proven to be an In addition, urbanization has helped to elusive goal, despite the country’s impressive establish backward and forward linkages macroeconomic performance and despite between the rural and urban areas. the attempts by the Government and donors to boost agricultural production „ Rather than minor adjustments, over the past decades. Since 2001, the �ghting rural poverty requires a major level of poverty in rural areas has remained policy shift that involves: (i) agricultural stagnant at around 37-40 percent. commercialization; (ii) diversi�cation; and (iii) urbanization. While the rate of poverty is subject to debate, there is no doubt that most Tanzania has made some progress in rural households live today in similar all of these three areas. However, much conditions to those of their parents or more needs to be done. The successful even their grand-parents in decades commercialization of agriculture will require past. Most rural households have no a concerted effort to reduce transport electricity, no motor vehicles, no concrete costs; to assist farmers to acquire new PAGE http://www.worldbank.org/tanzania/economicupdate. x T h e Wo r l d B a n k Po v e r t y R e d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a R e g i o n technologies through innovative market „ The challenge for Tanzanian policymakers based mechanisms, and to develop a cost is to stimulate these three transformational effective logistical chain. It also requires forces and to manage them appropriately the consistent implementation of the over the long-term. appropriate macroeconomic and �scal policies. For Tanzania to successfully diversify There is no single blueprint for the its economy, it must push the development achievement of socio-economic of livestock and �sheries and encourage transformation that applies to all countries innovative activities on and off farm. and each country, including Tanzania, needs to de�ne its own path. Indeed, although The rate of urbanization in Tanzania has urbanization has been a major driver of the accelerated over the past few years development process in many emerging creating new opportunities for rural countries, including China and South Korea, migrants. This has helped to moderately others like Vietnam, India and Thailand improve their living conditions. However, have de�ed this trend. These have instead more can be achieved through the proper continued to expand their rural labor management of this phenomenon by: (i) force over the past few decades and have the development and implementation of achieved signi�cant economic growth in safety net systems for the migrants who do the process. However, based on its natural not succeed; (ii) the improvement of the endowments and its enormous agricultural business environment for individual and potential, Tanzania can �nd inspiration in small and medium enterprises operating the experiences of successful countries. in cities; and (iii) the implementation of Learning from these countries will help innovative mechanisms to encourage Tanzania to de�ne its own path to a �nancial and technological transfers from successful socio-economic transformation. urban to rural areas. PAGE http://www.worldbank.org/tanzania/economicupdate. xi TA N Z A N I A E C O N O M I C U P D AT E s N O V E M B E R , 2 0 1 2 , E D I T I O N 2 PAGE http://www.worldbank.org/tanzania/economicupdate. xii T h e Wo r l d B a n k Po v e r t y R e d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a R e g i o n 1 The State of the Economy PAGE http://www.worldbank.org/tanzania/economicupdate. 1 Part 1: The state of the economy Main points „ Tanzania’s economy performed extremely well in 2011/12, recording solid growth and �scal discipline despite rising inflation. „ The country’s economic prospects are positive with its GDP forecast to grow at a rate of 6.5-7.0 over the period 2012 - 2014. However, the exogenous threats cannot be ignored. „ In 2012/13, �scal policy will remain the main instrument to promote economic growth. This will be achieved through a combination of higher spending and increasing prioritization of expenditure on infrastructure. The expansion of the private sector will continue to be in capital-intensive sectors, except for the construction sector which will bene�t from the Government’s infrastructure development program and from foreign investments in the extractive industries. „ To secure �scal and debt sustainability and to ensure the optimal use of public resources, close monitoring of public accounts is required. This monitoring should extend to public agencies and enterprises operating in the energy sector, particularly TPDC and TANESCO, which account for a large share of public spending. „ For now, economic growth has not had a signi�cant impact on reducing poverty rates especially in rural areas. Broadening the growth base will ensure that more Tanzanians bene�t from economic growth. PAGE http://www.worldbank.org/tanzania/economicupdate. 2 T h e Wo r l d B a n k Po v e r t y R e d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a R e g i o n In terms of its macroeconomic Growth must become more indicators, Tanzania has achieved inclusive. Not only will this facilitate the impressive results in an uncertain achievement of social equity, it will also global context. With a GDP growth drive rapid and sustainable economic rate of 6.5 percent during 2011/12 and development into the future. Despite its manageable �scal and current account economic achievements, Tanzania has failed de�cits, Tanzania has performed better in to achieve pro-poor growth. A signi�cant these terms than most developed countries proportion of rural households remain and better than many fast emerging poor, with little or no expectation of economies, including China, India, and improving their circumstances. Not only is Brazil. In addition, the Tanzanian authorities this wrong and inequitable, it also acts as a demonstrated a high degree of flexibility constraint against future economic growth by adjusting their �scal and monetary making it dif�cult to achieve without the policies appropriately in response to full participation of a greater proportion of changing conditions in November 2011 Tanzanians. To overcome this constraint, the when inflation rose and the exchange rate Government should place a higher priority suffered increased volatility. on job creation and poverty alleviation especially for those who live rural areas With the recent discoveries of and/or for new migrants to urban centers. signi�cant gas reserves in addition In terms of its to its mineral resources, Tanzania’s macroeconomic long-term economic prospects 1.1 Recent Developments up to mid indicators,Tanzania appear promising as these assets are 2012 has achieved already attracting potential foreign Over the past �scal year, Tanzania’s impressive results investors. However, the bene�ts derived macroeconomic performance has been in an uncertain from the exploitation of these natural impressive with the economic growth rate global context. resources will not materialize in another maintained at a respectable 6.5 percent seven to 10 years and close attention to and the �scal de�cit reduced for the �rst macroeconomic management during the time since 2008/9 (Figures 1-4). These interim period is crucial. Over the next results were achieved despite a backdrop couple of years, the rate of economic of increased domestic inflation; a volatile growth should reach 6.5 to 7 percent, external environment characterized by consistent with the performance in recent unstable commodity prices, the OECD �scal years. However, this forecast assumes crisis, and a general slowdown in the East both the absence of major domestic and African Community area; and despite severe external shocks and the implementation energy shortages and massive flooding that of appropriate �scal policies. Such policies ravaged the highly populated business capital require �nding the right balance between of Dar es Salaam. borrowing to �nance infrastructure Fiscal and monetary policies projects and ensuring the sustainability of were signi�cantly transformed debt. The Government will also have to in November 2011. After years of maintain its commitment to prudent �scal accommodating policies, the authorities and monetary policies in an increasingly adopted a policy of �scal prudence in politically charged environment, with response to growing inflation, an unstable the next presidential and parliamentary exchange rate, and increasing �scal elections scheduled for 2015. PAGE http://www.worldbank.org/tanzania/economicupdate. 3 TA N Z A N I A E C O N O M I C U P D AT E s N O V E M B E R , 2 0 1 2 , E D I T I O N 2 pressures. These policies helped to stabilise At the structural level, since 2008, most �nancial variables as seen from the economic growth has become fact that since the beginning of 2012, these increasingly driven by a few non- have returned to the positive state that has labor-intensive sectors and by �scal been typical of recent years. However, some expansion rather than through threats to the economy remain, especially broad-based private investment. the �scal balance that remains fragile and the Not only do these signs of fragility require inflation rate that has declined more slowly increased monitoring and vigilance they than expected. In addition, a lower rate of also suggest that a number of policy actions growth in the volume of manufacturing are required if economic expansion is to exports might suggest a diminishing level of facilitate more job creation. competitiveness. Figure 1: GDP Growth has shown Figure 2: …even though inflation has been remarkable resilience on the rise… Figure 3: The �scal de�cit declined for the Figure 4: ….while the Balance of Payments �rst time since 2007/8… remained under control Source: World Bank, IMF, and Ministry of Finance PAGE http://www.worldbank.org/tanzania/economicupdate. 4 T h e Wo r l d B a n k Po v e r t y R e d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a R e g i o n Economic growth: a remarkable resilience from external �nancial shocks. Since the beginning of the global crisis After a brief dip in 2010/11,Tanzania’s in 2008, Tanzania has demonstrated economy has bounced back over remarkable resilience with the the past few months. Partly driven economy continuing to expand by the high level of performance of the rapidly and failing to succumb to telecommunications, banking and mining the high degree of volatility that sectors, the quarterly rate of growth in Since the beginning most developing countries have GDP was 7.1 percent for the period from of the global crisis experienced. Unlike in neighboring Kenya January to March 2012. This is up from 6.1 in 2008,Tanzania and Uganda, the rate of growth of GDP has percent for the same period one year ago has demonstrated remained relatively high and stable over the (see Figure 6). However, the agricultural, remarkable past three years (see Figure 5). Amongst manufacturing and construction sectors resilience with other factors, this remarkable stability recorded lower rates of growth than the the economy has as its basis the rapid and constant overall economy. The rates of growth continuing to population growth, which fuels constant recorded by the real estate and wholesale expand rapidly. aggregate demand growth; a high level of trade sectors also declined by 0.6 and 4.7 political stability; and the relative isolation percentage points respectively over the of the Tanzanian economy that protected it same period. Figure 5: Higher and more stable GDP growth Figure 6: GDP quarterly growth, Jan – Mar 2012 in Tanzania than in Kenya and Uganda Source: World Development Indictors (2012) and National Bureau of Statistics. PAGE http://www.worldbank.org/tanzania/economicupdate. 5 TA N Z A N I A E C O N O M I C U P D AT E s N O V E M B E R , 2 0 1 2 , E D I T I O N 2 In terms of demand, the rate of Tanzania’s remarkable macroeconomic growth is less driven by the private performance has to be quali�ed on sector and the export sector. Rather, two counts. First, the increase in GDP it is increasingly being driven by the public appears less impressive when adjusted sector (see Figure 7). The Government’s to take into account the rapid expansion contribution to demand has increased, of the population. The per capita GDP accounting for more than half of economic growth which stood at around 3.5 percent growth during 2009-11. This compares to in 2011/12 is just above the average rate the period from 1998 to 2008 when the for the Sub-Saharan Africa region. Secondly, The expansion of the Government’s contribution accounted with the exception of the construction telecommunications, for only one third of growth. In the same industry, economic growth has been banking, and period, the contribution of the private concentrated in capital intensive rather transportation sectors sector declined signi�cantly. This decline than labor intensive sectors. The expansion has had a number was mostly due to the lower level of of the telecommunications, banking, and of positive impacts private investment resulting from the more transportation sectors has had a number of on the economy, but volatile environment; the lack of signi�cant positive impacts on the economy, but these these sectors make a improvements in the business climate; sectors make a relatively insigni�cant direct relatively insigni�cant and possibly from crowding out by the contribution to employment creation. direct contribution to Government in the �nancial sector with In total, these sectors employ less than employment creation. the Government borrowing extensively one percent of Tanzania’s workforce. By on the domestic market in 2009/10 and contrast, the relatively weak agricultural 2010/11. The contribution of the external (including �sheries) and manufacturing sector has declined as a result of the larger sectors account for more than 80 percent trade de�cit, which increased by 40 percent of formal and informal employment. in the period from 2009 to 2011. Figure 7: The Public sector as the driver of growth Source: Ministry of Finance PAGE http://www.worldbank.org/tanzania/economicupdate. 6 T h e Wo r l d B a n k Po v e r t y R e d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a R e g i o n Note: This �gure measures the changes in indicators to extrapolate production growth the contribution of each component of GDP between two benchmarking exercises. between the 2000-08 and 2009-11 periods. For example, the public sector has increased Shortcomings in the measurement of its contribution to GDP growth by 1.50 GDP in Tanzania between these two periods, growing from 37 percent to 55 percent. Measuring GDP and GDP growth requires a benchmark that de�nes the structure of the As is the case everywhere, measuring economy. Subsequently, an array of indicators economic growth in Tanzania is is used to capture the evolution of the dif�cult. Detailed and comprehensive data economy over time. Today, the methodology are needed to draw a meaningful picture used in Tanzania suffers from two major of economic activities over time. Currently, shortcomings: GDP growth in Tanzania is measured on the basis of the economic structure that Outdated characterization of the structure of prevailed in 2001 (see box). At that time, the economy: The last benchmarking of the the mobile telephone and mining sectors Tanzanian economy was conducted in 2001 at were still relatively nascent, while the service a time when there were almost no cell phone industries (tourism, banking) were also just companies; only a few mining operations; and emerging. The informal economy which with the services industries in their infancy. may account for up to 56 percent of of�cial A larger share of the population was living GDP is also by de�nition not well captured in rural areas. It is necessary to characterize by of�cial data.1 Finally, the evolution of the structure of the economy and to de�ne most activities between two benchmark years is captured by proxies that are often the share of each sector and the relations inadequate and outdated. between them more meaningfully as well as to reconcile supply and demand sides of Tanzania’s National Bureau of the economy at the industry and commodity Statistics with the support of the level. International best practice suggests that World Bank and other partners such a process should be conducted at least has launched a new benchmarking every �ve years. exercise to more accurately characterize the structure of the Inadequate indicators for annual and quarterly economy. This exercise may result in projections: Only one-third of total economic signi�cant changes to the manner in which growth is measured by observed data, while national GDP is calculated. A similar exercise the remainder is estimated by proxies of resulted in a dramatic re-evaluation of the unequal quality. For example, TANESCO economy of Ghana where the value of GDP data is used to measure energy output, was revised upwards by 60 percent raising while the contribution of other more recent the country’s estimated per capita income electrical power generating operators is from USD 753 to USD 1318.2 Concurrently, not included. Similarly, the growth of the Tanzanian authorities need to use better telecommunications sector is de�ned by a 1 See, H. Ahumada and F. Alvaredo, The Monetary Method proxy based on postal activities and not by and the Size of the Shadow Economy,: A critical Assessment, cell phone activities. Agricultural outputs are Review of Economy and Wealth, Serie 53, N. 2, 2007 or F. Schneider and D. Enste, Shadow Economies around generally based on routine crop reports the World: size, causes, and consequences, IMF working which are generally acknowledged to be paper, 00/26 inaccurate. 2 For details, see http://www.statsghana.gov.gh/doc�les/ news/Rebasing_of_Ghana’s%20National_Accounts_to_ Reference_Year_2006.pdf PAGE http://www.worldbank.org/tanzania/economicupdate. 7 TA N Z A N I A E C O N O M I C U P D AT E s N O V E M B E R , 2 0 1 2 , E D I T I O N 2 Double-digit inflation: one time event dramatically because of the relatively poor or structural phenomena? local harvests in 2010/11; the lower level of food imports; the food production de�cit Double-digit inflation occurred in the in Kenya that stimulated (of�cial and non- last quarter of 2011 in Tanzania after of�cial) exports; and the lagged impact of a decade of relatively stable prices.3 regional and world food prices (see Figure 9). Between August and October 2011, the During this quarter, the rate of inflation value of the local currency depreciated by surged to almost 20 percent, driven mainly about 20 percent, resulting in higher prices While the by higher food and energy prices. In recent for imported goods. increased inflation months, the rate of inflation has pulled back from this peak, although not as rapidly as rate was primarily The decline in the inflation rate initially expected. In August 2012, the rate the result of over recent months has been the still stood at 14.7 percent (see Figure 8). higher food and combined result of the imposition energy prices, to of a less accommodating monetary While the increased inflation rate a less extent the policy and of falling energy and food was primarily the result of higher depreciation in prices. Monetary expansion (M3) has food and energy prices, to a less the value of the fallen from more than 25 percent to about extent the depreciation in the value local currency also 10.0 percent over the past six months. Over of the local currency also contributed. contributed. the same period, global energy prices have When inflation was measured without declined, impacting energy prices locally. reference to energy and food prices, the Local food prices have also decreased by a rate rose considerably less dramatically, cumulative 6 percent since early 2012. This from 7.2 percent to 8.8 percent between has been the combined result of the higher July 2011 and 2012. level of higher food imports (with increases Energy prices increased as the combined of more than 40 percent compared to result of higher global crude oil prices the �rst six months of 2011); improved and the hiking of the domestic tariff on domestic harvests; and lower international electricity. Food prices which account for food prices. half of the Consumer Price Index increased 3 The only exception is 2008 when prices rose by 13.5 percent. PAGE http://www.worldbank.org/tanzania/economicupdate. 8 T h e Wo r l d B a n k Po v e r t y R e d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a R e g i o n The high inflation rate has had a market, was contained in 2011/12. This real impact on the lives of many was a welcome development particularly Tanzanians. The accumulated increase considering that public debt increased by in food prices of more than 50 percent in the value equivalent to 12 percent of GDP the period from December 2011 to May in the period from 2007/8 to 2010/11. 2012 translated to a real fall in poor urban households’ income of up to 25 percent The Government continued to (assuming that they are not food producers). increase the value of its domestic By contrast, the income of net agricultural revenues with this value increasing producers should have increased during this by 25 percent in nominal terms period. On the other hand, the increase in during the last �scal year. Intensi�ed energy prices did not have such a signi�cant tax collection efforts, particularly in the and direct impact since the rate of access mining sector; the higher value of imports; to electricity amongst the 60 percent of and inflation played a signi�cant role in poorest households is a mere two percent. achieving this increase in domestic revenues. In particular, these last two factors resulted At least in the short term, the in an automatic broadening of the tax Government has bene�ted base. In fact, when adjusted to account signi�cantly from the surge in for inflation, VAT revenues grew slower in inflation. Firstly, the Government was able 2011/12 than in 2010/11, suggesting an to collect a higher level of taxation revenue, increase in the value of tax exemptions since higher prices automatically increase (notably on imports).4 the value of the tax base. Secondly, the real value of wages paid to public servants The Government stabilized the declined because of the absence of total value of public expenditure at indexation during the year. Thirdly, inflation a sum equivalent to 26.5 percent of led to lower real interest rates thus reducing GDP in 2011/12 but the adjustment the public sector’s borrowing costs. These effort was unequally distributed three factors assisted the Government to across Ministries. The total budget was Tanzania’s overall only executed at 75 percent compared to �scal de�cit implement the �scal adjustments that took place during the last six months of 2011/12. the level initially approved by Parliament, declined for the down from 93.5 percent and 83.5 percent �rst time since Fiscal performance under control in 2009/10 and 2010/11 respectively. Five 2007/8, returning ministries and the unallocated spending to its historical In terms of �scal performance, category ‘debt and government services’ levels of 5.0 percent Tanzania did better this year than in contributed to half of the total �scal of GDP after a previous years. Tanzania’s overall �scal adjustment throughout the �scal year. signi�cant increase de�cit declined for the �rst time since These �ve ministries were by decreasing in the period from 2007/8, returning to its historical levels of 5.0 order Finance, Water, Health, Education 2009 to 2011. percent of GDP after a signi�cant increase in and Energy.5 When the comparison is done the period from 2009 to 2011. This decline for the level of executed expenditures by in the �scal de�cit was the result of higher than expected Government revenues and 4 For example, the total value of imports (excluding oil) of largely successful endeavors to control in local currency increased 1.6 faster than VAT receipts collected on imports during 2011/12. This difference recurrent expenditures. As a consequence can only be explained by an increase in the level of of these combined factors, public exemptions. borrowing, principally on the domestic 5 These �gures exclude the Ministry of Defense, the State House, the President’s of�ce, and the National Service. PAGE http://www.worldbank.org/tanzania/economicupdate. 9 TA N Z A N I A E C O N O M I C U P D AT E s N O V E M B E R , 2 0 1 2 , E D I T I O N 2 Ministries (not taking into account their , while current grants and subsidies to weight in the budget), the largest cuts public agencies and other parastatals as well were found in the Ministry of Water (40 as interest payments were fully paid. The percent of approved budget), the labor and transfers to local governments were also commercial Courts (around 50 percent reduced by about 18 percent compared each), the Ministry of Finance (60 percent), to the level approved initially by Parliament, the Ministry of Justice (60 percent) and the with a proportionally bigger cut in the Ministry of Labor (60 percent). By contrast, regions of Dar es Salaam and Arusha. The the Ministries of Transports, of Work and large decline in maintenance and transfers Home Affairs were allowed to fully spend to local governments might have been their initial budgetary envelop. Among the justi�ed to stabilize the budget in the short other important spending Ministries, the term but, if maintained, will affect negatively execution level of expenditures was equal the country’s stock of human and physical to approximately 85 percent in Education, capital and so offset the current effort to Agriculture and Energy while it was only 73 invest more in infrastructure. percent in Health. Expenditure on infrastructure The stabilization of public development increased by 1.7 expenditures was achieved through percent of GDP over the past year control of the wage bill and through despite the Government’s tight The stabilization of a large cut in non-wage recurrent money policies. By decreasing order, public public expenditures expenditures. The Government reduced investment was executed by the Ministry of was achieved its level of expenditures on transfers to Work (37.2 percent of total), Finance (16 through control public agencies and local governments percent), Energy (12.7 percent), Health of the wage bill and on goods and services by a sum (6 percent), Agriculture (5.4 percent), and and through a equivalent to approximately 2 percent of Transports (4.9 percent) – counting for 82 large cut in non- GDP compared to 2010/11. The measures percent of total development expenditures. wage recurrent implemented to achieve this reflect the This increased expenditure was principally expenditures. Government’s willingness to limit non- funded by domestic �nancing with the priority spending amidst the severe level increasing by a value equivalent to cash constraints encountered during 1.8 percent of GDP compared to 2010/11. the year. However, the reduction was The total value of externally �nanced unequally distributed with signi�cant cuts development projects remained stable at a in maintenance and equipment spending sum equivalent to approximately 5 percent (only 50 percent of the level approved by of GDP. While this is slightly lower than Parliament in August 2011) followed by in previous years, external �nancing still allowances (65 percent) and education as accounts for approximately 60 percent of well as health materials (around 75 percent) total public sector development. PAGE http://www.worldbank.org/tanzania/economicupdate. 10 T h e Wo r l d B a n k Po v e r t y R e d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a R e g i o n Figure 10: The Stabilization of the Budget in recent Figure 11: In a sounder �scal environment years Source: Ministry of Finance The Government improved the While the level of public debt sustainability of �scal policy by: has remained under control, reducing the level of recurrent an increasing proportion of expenditures as a proportion of external �nancing consists of non- the budget; and increasing the level concessional borrowing (see Figure of expenditure on development, 16). The proportion of external �nancing particularly infrastructure. The consisting of of�cial aid declined from its strength of �scal accounts is generally peak of 45 percent of total expenditures measured by: (i) the ratio between in 2007/8 to 28 percent in 2011/12. This domestic revenues and recurrent decline is principally the result of rapidly expenditures; and (ii) the ratio between growing public expenditure rather than a recurrent expenditures and development lower level of inflows of aid in absolute, expenditures. dollar-denominated terms. With improved access to international private capital, the The �rst indicator captures the golden Government borrowed a proportionally rule that borrowing should only be higher value of non-concessional funds used to �nance investment spending, to close the gap. The value of such non- while the second indicator measures concessional funds increased from Sh the Government’s contribution to the 154 billion in 2010/11 to Sh 801 billion in accumulation of physical capital in the 2011/12. Despite this increased borrowing, country. These two ratios improved in the total value of loans remained under Tanzania during 2011/12, in contrast with the ceiling agreed upon with the IMF. Net the trend observed between 2008/9 borrowing on the domestic market did not and 2010/11 (see Figure 11). The rate of exceed a value equivalent to one percent of expansion in development expenditures GDP even though short-term re�nancing (56 percent in nominal terms) was three needs increased dramatically, by up to 15 times faster than in recurrent expenditures percent, due to previous debt. (16.8 percent in nominal terms). PAGE http://www.worldbank.org/tanzania/economicupdate. 11 TA N Z A N I A E C O N O M I C U P D AT E s N O V E M B E R , 2 0 1 2 , E D I T I O N 2 One threat to public �nance is may become a source of concern for the the fragile �nancial situation of authorities. These concerns may involve the the energy sector. As the situation relative real appreciation in the value of the is not accurately characterized by the local currency; the decline in the value of Government’s accounts, the precise costs manufacturing exports; and the growing incurred by the emergency power plan are sensitivity of the trade balance to changes unknown. In addition, the public enterprise, in gold and crude oil prices on international TANESCO, also suffers from a chronic markets. operational de�cit and accumulated arrears which may not have been completely The trade de�cit worsened mitigated by the 40 percent increase in signi�cantly over the past year electricity tariffs imposed in January 2012. mainly as a result of the increased Ultimately, these accumulated de�cits level of imports (up by 30 percent, may have signi�cant costs for the Central see Figure 12). The surge in the value Government in view of its contingent of energy imports, which increased by liabilities. 66 percent, was necessary to offset the decline in output from hydropower. At Higher trade de�cit but funded the same time, the higher value of capital by capital inflows goods imports is linked to FDI inflows resulting from expenditure by mining and The deterioration in the current gas companies on material and equipment account de�cit by an equivalent 4 One threat to unavailable in Tanzania. The increase in the percent of GDP was balanced by public �nance is value of imports of consumption goods can higher capital inflows, resulting in the fragile �nancial be explained by the increased food prices, stable international reserves over situation of the which increased by more than 40 percent the past year. However, this apparent energy sector. in the �rst six months of 2012. stability masks a series of movements that Figure 12: Import growth, 2011/12 Figure 13: Export growth, 2011/12 Source: Ministry of Finance PAGE http://www.worldbank.org/tanzania/economicupdate. 12 T h e Wo r l d B a n k Po v e r t y R e d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a R e g i o n The rate of growth in the value of authorities will use to promote economic growth exports declined to one third of but also on the need to broaden its basis toward the �gure recorded in 2010/11 (see more labor intensive sectors. Figure 13). This disappointing performance was mainly the result of the decline in Prospects for 2012/13 and the volume of manufacturing exports; a 2013/14 decline amounting to 13 percent in the The Tanzanian economy is expected period from 2010/11 to 2011/12. Slower to continue to expand at the rate of growth in regional economies has been an approximately 6.5 to 7 percent in the exacerbating factor, limiting the demand next few years, which is consistent for Tanzanian products. Concurrently, with its performance over the past the appreciation in the value of the local decade (see Table 1). This forecast is currency by approximately 15 percent over based on recent trends. The acceleration the past six months, and unreliable electricity in quarterly GDP growth during January- supply has contributed to a decline in the March 2012 seems to have been continued level of competitiveness of many Tanzanian in more recent months. Over the period manufacturing industries. from April to July 2012, the economy has The actual and potential values of seen simultaneous increases in the value of Tanzania’s mineral resources are manufacturing exports (up by 23 percent); extremely high. The attraction of these of capital goods imports (seven percent); resources has pushed up capital inflows of Value-Added Tax receipts (14 percent); from USD 2.1 billion to more than USD and of development expenditures (91 3 billion in the period from 2010/11 to percent). In principle, all these factors 2011/12. Encouraged by recent discoveries, closely correlate with economic growth in private companies operating in the mining Tanzania.6 The only negative factor has been and gas/oil sectors have increased their level the reported deceleration in M3 growth of investment to approximately USD 1.5 (-5 percent). billion. This amount is still low for a natural The Central Bank’s commitment to resource based economy although the reducing inflation is strong. Despite this value of investments could rise dramatically commitment, it is likely that only a gradual in future years. The Government has also decline in inflation will be achieved. Food increasingly borrowed from foreign banks, prices have again jumped on international with the value of these loans up by USD markets, increasing by approximately 25 630 million in the period from 2010/11 to to 30 percent in the period from June to 2011/12. August 2012. The impact of these increases will be transmitted to local markets in 1.2 What’s Next: Economic the next few months. Energy prices have Outlook 6 Recently, the IMF has statistically found that variations Barring detrimental changes to policy and in quarterly GDP in Tanzania are well captured by the combination of �ve indicators: manufacturing exports, exogenous shocks, Tanzania’s economic capital imports, development spending, M3, tourist performance should remain stable over the next receipts and VAT receipts. This combination reflects the importance of trade liberation as well as �scal and few years. The short to medium term outlook monetary policies on economic growth. Source: M. is reviewed below along with the risks and Opuku-Afari and S. Dixit, Tracking Short-term Dynamics of Economic Activity in Low –Income Countries in the opportunities. The discussion focuses in particular Absence of High-Frequency GDP Data, IMF Working Paper, on �scal policy as the main instrument that the wp/12/119 PAGE http://www.worldbank.org/tanzania/economicupdate. 13 TA N Z A N I A E C O N O M I C U P D AT E s N O V E M B E R , 2 0 1 2 , E D I T I O N 2 remained volatile on world markets, been growing demand from public servants increasing by approximately 10 percent in the education and health sectors for at the end of August 2012. Domestically, increased wages. All these factors may upward pressures on prices have become make it dif�cult for the Government to apparent in the cost of restaurant meals, achieve its goal of a single digit inflation rate clothing and leisure activities. There has also by the end of 2012. Table 1: Macroeconomic indications: recent trends and projections. 2008/9 2009/10 2010/11 2011/12 2012/13 2013/14 Real GDP growth 6.2 7.3 6.5 6.4 6.7 7.0 Inflation (CPI, %) 11.8 10.5 7.0 17.2 10.8 8.0 Broad money (M3) 18.5 25.1 22.0 11.8 17.3 17.5 Revenue (excluding grants) 16.2 15.9 16.5 17.5 18.8 18.8 Total Expenditure 26.1 27.5 27.0 26.4 28.1 26.5 Overall balance (including -4.6 -6.4 -6.6 -6.4 -5.5 -4.5 grants) Investment 30.6 30.6 34.5 38.2 39.1 37.2 Current account balance -9.0 -9.0 -9.4 -16.2 -16.2 -14.0 Gross of�cial reserves (US$ 2,930 3,483 3,610 3,779 4,061 4,370 million) Source: World Bank and IMF. Highlights from the 2012/13 Budget The approved 2012/13 Budget demonstrates �scal restraint, with a projected de�cit of 5.5 percent of GDP. This level of de�cit is in line with the IMF program. The �scal framework is built on the combination of: s!SIGNIlCANTINCREASEINDOMESTICREVENUESBYPERCENTINREALTERMSCOMPARED to the executed 2011/12 budget); s!MODESTEXPANSIONOFRECURRENTEXPENDITURESINPARTICULARTHEWAGEBILL OFONLY 3 percent in real terms; s! DECREASE IN THE LEVEL OF DEVELOPMENT EXPENDITURES IMPLEMENTED BY THE Government (by 5 percent in real terms) as a result of declining aid inflows; s!COMBINATIONOFDOMESTICANDFOREIGNlNANCING INLINEWITHTHECEILINGAGREEDUPON under the IMF program. The above budget framework, however, does not capture all public expenditures. In particular, it does not include expenditures by public enterprises and agencies. For example, the Tanzanian Petroleum Development Corporation (TPDC) will execute a new pipeline involving a total expenditure of USD1.2 billion, of which $ 800 million (or 10 percent of total public expenditure) will be spent during 2012/13. If the TPDC’s expenditure on the pipeline is taken into account, total public expenditures increase by 13.7 percent in real terms, while the consolidated �scal de�cit of the State will reach 8.3 percent of GDP. PAGE http://www.worldbank.org/tanzania/economicupdate. 14 T h e Wo r l d B a n k Po v e r t y R e d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a R e g i o n Infrastructure spending and economic growth The stock of infrastructure in Tanzania is one of the lowest in Sub-Saharan Africa, slightly above the level reported in Madagascar and Burkina Faso. Tanzania has 2.1 times fewer paved roads than Uganda; it produces 10 times less electricity per capita than Mozambique, and owns 15 times fewer �xed phone lines per capita than South Africa. These shortfalls are major bottlenecks for economic growth as they make it more dif�cult for �rms to do business given the constraints with regard to moving goods and people. The Government’s effort to focus on the development of infrastructure is warranted given the success of most emerging countries that have allocated a signi�cant share of their resources for this purpose. For example, Korea, Malaysia and Chile have each spent roughly two dollars on infrastructure projects for each dollar spent within the social sectors in their early stages of their development, with this ratio becoming more balanced in subsequent stages. Using the calibration results from a World Bank’s paper, it is estimated that Tanzania could increase its per capita growth by 2 and 5 percent respectively if it could reach the level of infrastructure development in Uganda and South Africa. These �gures are indicative, and do account for quality of spending but merely illustrate the close relationship between the stock infrastructure and economic growth. Source: C. Calderon et L. Serven, Infrastructure and Economic Development in Sub-Saharan Africa, World Bank Working Paper Series, N. 4712, 2008 or B. Moreno and N. Bayraktar, How Can Public Spending Help You Grow?, World Bank Policy Research Working Paper 5367, 2010 As in recent years, �scal policy experience of many emerging countries. If will remain the main instrument Tanzania was to expand its infrastructure to to stimulate economic growth. the level reached by Uganda and Vietnam The recently approved 2012/13 Budget in the telecommunications, energy and includes measures to facilitate both �scal roads sectors, Tanzania’s annual growth rate As in recent expansion (with expenditure increasing could increase by 3 percent and 5 percent years, �scal policy by 14 percent in real terms compared respectively (see box). will remain the to the 2011/12 budget) and a shift from recurrent expenditure toward The Government is allocating an main instrument development expenditures (with the increasingly large proportion of to stimulate its expenditure on infrastructure proportion of the latter increasing from 36 economic growth. spending, if the planned pipeline percent of the total to 43 percent when the projected pipeline project is included project is included. The Government in total expenditures). The objective of this will facilitate this increased expenditure by budget is to boost the aggregate demand in using non-traditional sources of �nancing the short-term and to boost the aggregate (see Figure 14). The major breakthrough supply in the longer-term. This will be consists of the use of non-traditional funds achieved through major improvements to build the new pipeline, with the total value in infrastructure. This strategy appears of the project standing at USD 1.2 billion. appropriate, based on the successful At the same time, recurrent expenditures PAGE http://www.worldbank.org/tanzania/economicupdate. 15 TA N Z A N I A E C O N O M I C U P D AT E s N O V E M B E R , 2 0 1 2 , E D I T I O N 2 will be maintained at a constant level in The level of tax exemptions is not real terms, with a slight increase in the expected to decline signi�cantly, despite wage bill. This increase amounts to only 3 the recent statements by the Controller percent in real terms (see Figure 15). The and Auditor General’s Of�ce and despite only exception will be the relatively large the Government’s commitment to reduce increase in interest payments (up by 36 these exemptions to a value of 1 percent percent in real terms) due to the rapid of GDP by 2015. Tax collection remains increase in the public debt stock over the highly concentrated on a few �rms around past few years. the Dar es Salaam agglomeration. While more than 800,000 �rms are registered Driven by projected economic at the Tanzania Revenue Authority, only a growth and by policy and small fraction of these �rms currently make administrative reforms, real signi�cant contributions to tax revenues. domestic revenues should increase Approximately three quarters of all tax by approximately 16 percent in revenues are collected from businesses 2012/13. Unfortunately, the increased based in the Dar es Salaam region. While revenues will be principally derived through such a degree of concentration is not the introduction of new taxes or increases unexpected in developing countries, in the rates of existing taxes, rather than the it indicates that there are signi�cant elimination or reduction of tax exemptions. opportunities for expanding the tax base. Figure 14: Higher development spending with Figure 15: Controlled recurrent expenditures a shift toward non-traditional funding with flat wage bill but growing interest payments Source: Ministry of Finance PAGE http://www.worldbank.org/tanzania/economicupdate. 16 T h e Wo r l d B a n k Po v e r t y R e d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a R e g i o n The private sector will continue to The general business environment expand over the next 2 to 3 years. remains poor. Tanzania’s failure to However, growth will be concentrated improve in this regard is reflected by its in capital intensive rather than stagnant Doing Business ranking. While labor intensive sectors. In particular, the Government has implemented some driven by increased demand and improved promising initiatives to encourage private technologies, the telecommunications business activities, the results of these and banking sectors should continue initiatives are not expected to become to grow at a relatively rapid pace. With manifest for at least three to �ve years. One interest from foreign investors and with such initiative involves the development of the expectation that mineral prices will the special economic zone in Bagamoyo, remain high on global markets, the mining which will be the �rst of such zones. However, sector should also continue to expand. The this zone is not slated to become operational construction boom is expected to continue before 2016/17. The development of given the rapid and ongoing urbanization, large commercial agriculture zones (e.g. With interest from particularly in Dar es Salaam, and with the SAGCOT) will take several years to reach Government’s commitment to increased completion because of the complexity of foreign investors expenditure on infrastructure. Apart from these projects and due to the requested and with the the construction of the proposed pipeline, level of investment in infrastructure. The expectation that it is dif�cult to calculate the impact of FDI boost in public infrastructure resulting from mineral prices will in the gas sector on construction activities, the Government’s increased allocation remain high on because the timing and magnitude of to development, particularly in the global markets, the cash flows associated with these area of roads and energy, is a welcome the mining sector investments remain uncertain. In line with development. However, new projects, such recent trends, other sectors that will make as the pipeline, will not reach completion should also increasingly signi�cant contributions include for at least 2 to 3 years.The expected boom continue to expand. tourism and retail trade. in the mining and gas sectors will not have a signi�cantly large short-term impact on the The manufacturing and agricultural local economy, except in the construction sectors employ approximately 80 sector and for a limited number of local percent of the total labor force in suppliers. Tanzania. However it is not expected that these two labor-intensive sectors The external balance is expected will record an increased rate of growth to remain under control, with the in the near future. While there are some current account de�cit in the range incipient indications of trends that may of a value equivalent to 16 percent lead to increased growth in the future, of GDP. The main uncertainty relates to particularly the use of new technologies imports whose prices are directly impacted and agglomeration effects resulting from by energy prices. In terms of exports, the urbanization and regional integration, their manufacturing sector is likely to recover impact on Tanzania’s economy is likely to and record improved performance as a only become apparent in the medium term result of increased regional demand and future.7 the stabilization of the real exchange rate. The volume of other exports is expected 7 For more details on those trends, see First Tanzania Economic Update, February 2012. PAGE http://www.worldbank.org/tanzania/economicupdate. 17 TA N Z A N I A E C O N O M I C U P D AT E s N O V E M B E R , 2 0 1 2 , E D I T I O N 2 to increase in line with recent trends, in public expenditures in case of natural barring major changes in commodity prices catastrophes. Unfortunately, �scal buffers especially gold prices. Capital inflows will have been almost completely depleted as a increase as a result of a gradual increase result of the rapidly increasing public debt. in FDI inflow and a higher level of public This will be exacerbated by the expected borrowing on foreign markets. While slowdown in aid inflows over the next few substantial investments in the gas sector are years. Domestic borrowing is also highly Tanzania remains expected, the timing of these investments constrained by the shallowness of the local vulnerable to the remains uncertain. In any case, most of the �nancial market. To illustrate the public impact of external increase in FDI will have a neutral impact on accounts’ sensitivity to a shock, it has been and domestic the balance of payments. For each dollar of estimated that a decline of 10 percent in shocks. FDI, it is estimated that approximately USD domestic revenues would result in an 0.8 to 0.9 will be used to �nance imports, increase in the �nancing gap of almost Tshs especially in the early stages of large mining 1 trillion. This is equivalent to an overall projects. de�cit of 7.3 percent of GDP, or 10.1 percent if the expenses associated with the Risks to the outlook pipeline are included in public accounts. Tanzania remains vulnerable to the The �scal framework is also impact of external and domestic vulnerable to endogenous risks shocks. In addition, deviations by embedded in the strategic choices policymakers from the appropriate �scal adopted by the authorities. These and economic policies could have serious include the following: (i) the excessive use of negative consequences. Despite its non-concessionary �nancing for investment relative isolation, the Tanzanian economy projects and possibly the increasing risk of is vulnerable to exogenous shocks. These quasi-�scal crisis in the energy sector; (ii) shocks include changes in climatic conditions, the unbalanced allocation of resources volatile commodity prices, and decreased between infrastructure and social sectors; aid inflows. The impact of a slowdown and (iii) internal pressures on wages. in the global economy was discussed in the �rst Economic Update. In particular, The Government’s access to new the balance of payments is vulnerable sources of �nancing for infrastructure to global fluctuations in gold and crude projects is a positive development. oil prices on world markets since these However, for such �nancing to have the commodities account for approximately most bene�cial impact, two prerequisites one third of the total value of exports and must be ful�lled. The �rst is the existence imports respectively. The management of of the capacity of public administration these macroeconomic risks requires �scal to manage public investment projects prudence, including the maintenance of ef�ciently. In particular, capacities are suf�cient international reserves to manage required to address the following issues: (i) pressures on the local currency. the marginal productivity of infrastructure: this capacity relates to the Government’s ability Exogenous shocks have the potential to select good projects and to the (relative) to impact the �scal balance. In scarcity of infrastructure services; (ii) the particular, these shocks could result in a user cost of public infrastructure capital: this lower than expected level of tax collection capacity relates to the ef�ciency of public because of a decline in growth or increases procurement (e.g., waste and corruption), PAGE http://www.worldbank.org/tanzania/economicupdate. 18 T h e Wo r l d B a n k Po v e r t y R e d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a R e g i o n the marginal cost of borrowing, and Experience in other countries has shown maintenance costs; and (iii) the Government’s that the authorities are sometimes tempted ability to capture returns on investment: this to borrow excessively from private markets capacity relates to both cost recovery at non-concessionary terms. achieved through the implementation of user fees and tax collection capacity.8 In Tanzania, this risk might be exacerbated by the prospect of signi�cant future gas After years of neglect, the priority for revenues and by political pressures in the Tanzania should be to strengthen capacities context of the forthcoming Presidential in these areas in the Ministry of Finance and elections in 2015. The achievement of in-line ministries (or agencies).9 In addition short-term �scal sustainability is often the to capacity building, associated institutional main challenge due to the rapidly increasing and legal frameworks need to be subject debt service payments (see Figure 16).10 to analysis and perhaps reform in order Equally worrisome for Tanzania is that to better demarcate and de�ne the accountability is diffused among several responsibilities of the various associated entities, resulting in sub-optimal debt ministries and agencies. monitoring and evaluation. In addition, there are a number of out-of-budget loans and The second prerequisite relates to contingent liabilities that are not included in the Government’s ability to maintain the public debt �gures. debt and �scal sustainability over time. The achievement of short-term �scal Figure 16: The rising external debt stock and annual debt service, in % of GDP sustainability is often the main challenge due to rapidly increasing debt service payments. 10 The total debt service payment will reach 2 percent of 8 For more details, see L. Serven, Fiscal Discipline And GDP by 2016, up from 0.8 percent in 2010, and back to Infrastructure Spending, July 2008. the levels recorded in the early 2000s. This projection is 9 For example World Bank’s 2010 Public Expenditure based on prudent behavior from the authorities since Review and World Bank/IMF joint mission in February the debt to GDP ratio is assumed to remain around 45 2012) percent from 2013 onwards. PAGE http://www.worldbank.org/tanzania/economicupdate. 19 TA N Z A N I A E C O N O M I C U P D AT E s N O V E M B E R , 2 0 1 2 , E D I T I O N 2 The best means of achieving will account for approximately 10 percent sound �scal policy is through the of total public expenditure in 2012/13. implementation of systems to Another top priority is the inclusion ensure transparency. Following good of the �nancially fragile state-owned practices elsewhere, the Government electricity company, TANESCO, which also should make information related to the implements a signi�cant proportion of the integrity of public sector operations readily country’s public investment program. available for public perusal. In particular, all information related to borrowing terms The second �scal risk arises from the and the viability of publicly �nanced projects priority given to the development should be available so that key stakeholders of infrastructure, perhaps at the can monitor how the Government is expense of the development of the utilizing public money, both at present education and health sectors. The and in the future. This basic principle of 2010 World Bank’s Public Expenditure good governance recommended by the Review (PER) and the �rst Tanzania IMF manual on �scal transparency and by Economic Update examined the challenges OECD governance guidelines has been facing the education sector and the implemented by many Latin American increasing importance of ensuring the countries, including Costa Rica and El quality of the outputs of this sector. Similar Salvador, as well as many Asian countries challenges and issues are also apparent including Malaysia and the Philippines. in the health sector, as is discussed in the However, this principle has not yet been forthcoming 2011 PER. In both sectors, the Following implemented in the vast majority of African Government can obtain better value for good practices countries. This includes Tanzania.11 money with existing levels of expenditure. elsewhere, the However, to achieve the required results, Government should The Tanzanian authorities should it will also need to increase expenditure move toward a consolidated to �nance the development of additional make information presentation of their �nancial schools, equipment, teachers and medical related to the accounts. Speci�cally, this should include staff, amongst other priorities. Increasingly, integrity of public those of the main parastatal agencies the Government will face a high level sector operations operating in the energy and mining of dilemma related to the allocation of readily available for sectors. Focusing exclusively on the central resources between infrastructure and social public perusal. Government �nancial accounts will become sectors in the most cost effective manner. increasingly misleading, as illustrated by the recent example of the pipeline project in The third �scal risk relates to the the 2012/13 budget. In order for Tanzania need to control the expansion of the to strengthen the oversight of the parastatal public sector’s wage bill. While this is a sector and to better manage �scal risks, vital goal, it is also extremely challenging.The it is vital to improve the monitoring and Government has announced that the real evaluation of the �scal performance in wage bill will remain almost flat in 2012/13. the wider public sector. In particular, such At the same time, the rapid inflation rate monitoring and evaluation should cover has eroded the purchasing power of many TPDC’s �nancial accounts, as this entity civil servants. As a result, civil servants are increasingly demanding higher wages, 11 http://www.oecd.org/dataoecd/33/13/1905258.pdf. This would be not only good management but it would also particularly those civil servants employed in be in line with the Open Government data initiative as the education and health sectors. In addition, well as Budget Transparency. PAGE http://www.worldbank.org/tanzania/economicupdate. 20 T h e Wo r l d B a n k Po v e r t y R e d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a R e g i o n the authorities have also announced that spending may enhance the human and they will hire 75,000 new civil servants. capital stocks in the country and so These recent developments emphasize the stimulate long-term productivity gains. In urgent need to implement a number of the transition, however, complementary measures, including a detailed examination actions will be required to ensure a broad of the salary structure and incentive system participation in the growth process and a within the public sector. concurrent reduction in poverty rates. In the short to medium-term, 1.3 Toward Pro-poor Growth Tanzania’s growth trajectory might The Tanzanian economy experienced strong, also be perturbed by the country’s rapid growth over the past decade. As a result, structural de�cit in energy. Not only the country’s per capita income increased few �rms and households have today from USD 310 in 2000 to more than USD access to electricity (approximately 16 540 in 2010.12 Macroeconomic stability has percent) but supply has been periodically also brought signi�cant dividends in terms of affected by the ongoing �nancial and economic growth, perhaps as much as 1.3 management shortfalls in the public percentage points in annual per capita GDP enterprise TANESCO. Insuf�cient and growth.13 However, despite this sustained unreliable access to energy will reduce the growth and stability, Tanzania is still a poor competitiveness of the private sector, while country, with approximately one third of its TANESCO’s �nancial distress may force the population living below the subsistence level. Government to intervene by borrowing or subsidizing excessively this sector, putting How long can Tanzania’s economy a strain on the budget. In the longer term, continue to grow without achieving the Government should develop and signi�cant reductions in poverty? implement an investment strategy that Successful developing countries, particularly will make the effective use of recently in East Asia, have experienced economic discovered natural gas reserves, together growth and reductions in poverty at the with hydropower and other energy sources same time. However, this correlation that are abundant in the country. remains elusive in Tanzania. Over the past decade, the country’s rapid and constant Finally, Tanzania’s growth may suffer economic growth has resulted in only from negative consequences as a marginal reductions in the poverty rate.This result of excessive dependence on is in sharp contrast with Brazil and Malaysia, Tanzania’s growth or even poor countries such as Vietnam, the public sector. The expansion of may suffer the public sector is unlikely to lead to the Uganda, and Ghana (see Figure 16).This lack from negative creation of the necessary number of jobs of inclusion of poor Tanzanians in economic consequences as a in the short to medium terms. On the growth has been a missed opportunity, result of excessive other hand, public spending particularly which threatens to undermine Tanzania’s dependence on the with a stronger emphasis on infrastructure goal of becoming a middle income country may facilitate the development of private by 2025. public sector. activities. Thus, a higher level of public 12 As measured by the World Bank’s Atlas methodology. 13 For a summary, see. N. Laoyza et al., Macroeconomic Volatility And Welfare In Developing Countries: an introduction�, The World Bank Economic Review, vol. 21, n.3, 2007. PAGE http://www.worldbank.org/tanzania/economicupdate. 21 TA N Z A N I A E C O N O M I C U P D AT E s N O V E M B E R , 2 0 1 2 , E D I T I O N 2 Figure 17: More growth, less poverty in successful countries during the 2000s Source: World Bank, 2012 There are two main – and possibly improvements to translate into productivity interacting – explanations for the gains and to facilitate comprehensive social limited impact of economic growth and economic transformation. According to on poverty rates in Tanzania. Firstly, this view, poverty rates will decline more economic growth has been largely driven rapidly when the country has reached a by capital-intensive sectors, particularly suf�cient level of human development and the mining, telecommunications, and income per capita. In short, the �rst view banking sectors. These sectors have had calls for speci�c actions to promote job only a marginal effect on employment, creation, while the second argues that pro- which means they have not facilitated poor growth will automatically become a broad-based participation. The low level self-reinforcing process. of correlation between GDP growth and poverty reduction can be explained by the Pro-poor growth, or inclusive relatively slow expansion of the agriculture growth, is important in terms of and manufacturing sectors, with these the achievement of social justice. sectors providing employment for almost However, it is also a signi�cant factor for the four out of �ve workers in Tanzania. achievement of sustainable growth. There are at least three arguments to support The second explanation is that the case that the prevalence of poverty economic growth will indeed have acts as a constraint to economic growth an impact on poverty, but that this in a country such as Tanzania. The �rst impact will be delayed. According to argument is that generalized poverty results this view, the Government’s high level of in weak demand. Indeed, by de�nition, the investment in social services, particularly poor have unful�lled demands. They do not education and health, will improve the spend to meet these demands because of country’s human capital stock in the cash constraints. This limits the impact of longer term. It can be argued that it will their expenditure on overall consumption take roughly one generation for these levels and on overall demand. This effect investments in education and health partially explains the relatively weak rate PAGE http://www.worldbank.org/tanzania/economicupdate. 22 T h e Wo r l d B a n k Po v e r t y R e d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a R e g i o n of growth expenditures related to personal enjoying the bene�ts of economic growth, consumption. The rate of growth in such it is likely that they will stop supporting the expenditures has been consistently lower economic reforms that generate growth. than the rate of growth of GDP in Tanzania. This effect is most apparent among the These arguments help explain how poorest segments of the population, or poverty in Tanzania is preventing the those classi�ed as being in a condition of economy from achieving the growth extreme poverty, comprising approximately rates that would propel it towards 16 percent of the total population. emergence. To illustrate the magnitude of this phenomenon, it has been estimated that The second argument relates to a 10 percentage point decrease in poverty supply, notably the supply of two would increase annual per capita growth major factors of production, capital by 0.8 to 1.1 percentage points. If Tanzania and labor. Indeed, the capacity of the were able to reduce its poverty level to the poor to save and thus make productive equivalent of Uganda’s, its per capita growth investments is weak (see Sachs et al., rate would have been 0.9 percent faster.16 2004). This is not compensated for by With a poverty rate equivalent to that of access to �nancial credit since the poor are Vietnam’s, it would have been possible generally excluded from �nancial markets to increase its per capita growth rate by for reasons related to risk and lack of approximately 2 percent per year. Of course, guarantees (moral hazard).14 Similarly, the these simulations should be interpreted poor generally have fewer opportunities to with caution. However, they illustrate the invest in human capital, which is considered magnitude of the harmful effects of the lack by many economists to be of primary of pro-poor growth in Tanzania. importance for the achievement of long- If Tanzania were term economic growth. This constraint To harness growth for poverty able to reduce its limits their capacity to adapt and to use alleviation, Tanzanian leaders should poverty level to new technologies. In addition to the cash focus on speci�c reforms to achieve the equivalent of constraints, the poor are more vulnerable this goal. The gradual improvements in the to risks that oblige them to abandon their stock of human capital and of infrastructure Uganda’s, its per studies. These factors explain why skilled and the increased deployment of new capita growth rate technologies will help broaden the workers in Tanzania make up less than would have been growth base in Tanzania. However, these 5 percent of the total labor force. It also 0.9 percent faster. suggests that the economy will remain on a effects will become manifest only in the sub-optimal growth path over time, unless longer term. The experience of successful this issue is addressed.15 countries, most notably in East Asia, but also in Africa (for example, Mauritius and The third argument relates to the Tunisia) have shown that growth in GDP political economy of poverty. If a alone is not enough to achieve poverty substantial part of the population remains reduction and fundamental socio-economic in a permanent state of poverty, without transformation. Speci�c reforms are needed to ensure inclusive growth and the creation 14 J. Sachs et al, Ending Africa’s Poverty Trap, Brooking Papers of increased opportunities for the majority on Economic Activity, I, 2004. 15 For a macro-economic model that takes into account 16 H. Lopez and L. Serven, Too Poor To Grow, World Bank the effects of poverty on the savings rate and on 2005. Their simulations underestimate the total effect investments in physical and human capital, see Galor et of poverty on growth as they do not take into account Zeira, Income Distribution and Macroeconomics, Review the indirect effect of poverty on education and on of Economic Studies, 1993. access to infrastructure. PAGE http://www.worldbank.org/tanzania/economicupdate. 23 TA N Z A N I A E C O N O M I C U P D AT E s N O V E M B E R , 2 0 1 2 , E D I T I O N 2 of Tanzanians. on the manufacturing sector, given the role of this sector in the successful transition There are many complementary of many emerging countries.18 These policy options that Tanzania could conclusions are also drawn on the basis use to promote pro-poor growth. of the perceived comparative advantages These include the improved control of of many African countries, with relatively population growth, particularly in the abundant cheap unskilled labor. In Tanzania, poorest households; improvements in the this focus on the manufacturing sector may general business climate to encourage the not be entirely appropriate. Most Tanzanians establishment and expansion of businesses; are still employed in the agricultural sector, the development of more inclusive �nancing while potential manufacturing jobs will mechanisms; and initiatives aimed at better emerge in urban centers. Such spatial redistributing the bene�ts of growth. dichotomy must be integrated into the Amongst other means, a broader based design of pro-poor growth strategies in redistribution of the bene�ts of growth Tanzania. could be achieved through improved tax collection systems and through the Since the vast majority of poor implementation of measures speci�cally Tanzanians live in rural areas, intended to bene�t the poor. Amongst strategies should focus on how to others, such measures could include safety integrate rural households into nets to protect rural migrants to urban income-generating processes. The Most Tanzanians centers. However, these crosscutting next section will explore three channels by options should be accompanied by speci�c which this may be achieved, and these are: are still employed actions to promote the development of (i) raising agricultural productivity, as this in the agricultural labor-intensive activities in the country. remains the most direct means to increase sector, while Ultimately, economic growth will only rural households’ income; (ii) diversifying potential translate into material bene�ts for the the activities of rural households away manufacturing majority of the population through from the cultivation of traditional crops jobs will emerge employment income. Thus, the challenge and towards the cultivation of high-value in urban centers. facing the Government is to ensure that products and off-farm activities; and (ii) economic growth is leveraged to create managing rural migration to the cities employment opportunities for a far greater more effectively, as this migration may be proportion of Tanzania’s population. leveraged to promote synergies between urban and rural households. These three An increasing number of studies factors have played a signi�cant role in the have focused on the promotion of development of many successful countries activities to foster job creation in and are already beginning to impact on Africa, including in Tanzania, over the development patterns in Tanzania. The main past few years.17 Most of these studies challenge for the Tanzanian Government attempt to identify speci�c labor-intensive is to leverage these forces and to manage sectors on which the Government should them so that they complement each other focus its policy actions. In general, these to facilitate the goal of transforming Tanzania studies concluded that the focus should be into a middle-income country by 2025. 17 See for example, the recent The African Economic 18 A recent World Bank’s study, makes a speci�c case for Outlook 2012: Promoting Youth Employment, African speci�c actions on �ve sectors: textile, leather, meat Development Bank and OECD, 2012. McKinsey Global processing, agribusinesses and wood processing, see Institute, Africa At Work: Job Creation And Inclusive Growth, Africa Development Forum, Light Manufacturing in Africa, 2012. H. Dihn, V. Palmade, V. Chandra, and F. Cosar, 2012. PAGE http://www.worldbank.org/tanzania/economicupdate. 24 T h e Wo r l d B a n k Po v e r t y R e d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a R e g i o n 2 Fighting rural poverty: no other way around for Tanzania PAGE http://www.worldbank.org/tanzania/economicupdate. 25 Part 2: Fighting rural poverty: no other way around for Tanzania Main points „ In macroeconomic terms, Tanzania is a success story. However, its success has not translated into improved conditions for a large proportion of rural households, who constitute approximately 30 million people or about 75 percent of the total population. A signi�cant proportion of these households live today under conditions very similar to their parents or even their grandparents. „ Successful countries are those that have connected their farmers to markets, encouraged them to produce high-value products rather than traditional crops, and managed migration flows toward urban centers. „ Fighting rural poverty requires a major policy shift. Simply tinkering at the edges will not do it. The shift must be toward: (i) agricultural commercialization, (ii) diversi�cation and (iii) urbanization. „ The challenge for the Tanzanian policymakers is not only to stimulate these three transformational forces, but also to manage them appropriately over time. Poverty arithmetic is an important tool as rural poor (see Table 1). The high level of rural for the comprehensive evaluation of the poverty persists despite the fact that the country economic performance of a country. This is, arguably, blessed with good rains and fertile is particularly true in Tanzania, where, despite soils, and that it has placed agriculture at the the impressive macroeconomic performance, center of successive national strategies. more than 11 million individuals can be classed Table 2: Tanzania is a poor rural country 1992 2000 2007 Share of rural population (%) 80.5 77.7 74.9 National poverty rate (%) 38.6 35.6 33.4 Rural poverty rate (%) 40.8 38.6 37.4 Poor (mil.) 10.5 12.1 13.7 Rural poor (mil.) 8.9 10.2 11.5 Source: Word Development Indicators PAGE http://www.worldbank.org/tanzania/economicupdate. 26 T h e Wo r l d B a n k Po v e r t y R e d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a R e g i o n As elsewhere in the world, the level connectivity prevents most households and extent of poverty in Tanzania is from taking advantage of their improved subject to debate. More comprehensive educational attainments or from responding data to describe the situation in Tanzania appropriately to market incentives. will be generated from the 2012 Household survey. However, regardless of the results of How does a rural household live? this survey, there is little doubt that most „ No electricity (96.6 percent of total rural rural households are living today under population) conditions similar to their parents or their „ No refrigerator (99.2 percent) grandparents of generations past (see „ No television (96.4 percent) box). The vast majority of rural households „ No motor vehicle (96 percent) do not have access to electricity and „ No bank account (92.8 percent) piped water. These households do not „ No concrete floor (80.5 percent), no use cars or motorcycles. Without radios concrete walls (94.2 percent) and televisions, they do not bene�t from information provided through these means. Source: NPS and DHS, 2010 The only notable area in which dramatic improvements have been made is through To include rural households in the rapid and growing use of mobile phones, growth processes, Tanzania’s policy which are now utilized by approximately 50 makers should seek inspiration percent of rural households. from the experience of countries Living conditions in rural areas that had similar characteristics to of Tanzania have not improved Tanzania’s before their economic because many households have transformation. Successful emerging not been included in the economic countries of this sort show that growth patterns. Sectors that have transformation is predicated on rural driven economic growth, such as �nance, households being able to: i) produce more Rural households are construction, telecommunication, and agricultural products and so to generate living today under higher incomes; ii) diversify, particularly mining, have not created a signi�cantly large conditions similar number of jobs in rural areas. As yet, with by producing high-value products rather to their parents or the exception of the impact of increased than traditional crops and by generally their grandparents mobile telecommunications coverage and being more creative. This is a vital means of generation past. deployment, these sectors have not had of enabling rural households to generate a signi�cant indirect impact on the rural additional value added and to diversify the population. Farmers are still isolated due risk associated with too great a dependence to insuf�cient roads that make it hard to on a limited range of activities; iii) migrate sell their produce and/or to purchase to cities, as rural migration provides a direct necessary inputs. Only 5 percent of rural way to escape poverty by improving access households live less than 2 kilometers from to jobs and basic services. a paved road in poorer districts.Trunk roads Facilitating the inclusion of rural are generally in a poor condition and result households into the country’s in most areas being inaccessible during the growth process should be at the rainy season. Despite the dramatic increase core of the policy debate in Tanzania. in the use of mobile phone technology, the Facilitating broad-based inclusion will lack of connectivity continues to impact become even more important with the development in rural areas. This lack of PAGE http://www.worldbank.org/tanzania/economicupdate. 27 TA N Z A N I A E C O N O M I C U P D AT E s N O V E M B E R , 2 0 1 2 , E D I T I O N 2 recent discoveries of natural gas reserves, high dependence on traditional crops; and as experience shows that without proper a predominantly rural population. Forty management, the activities of extractive and 30 years later respectively, these two industries can exacerbate income inequality. countries report a per capita income that Thus, the authorities should implement is respectively 14 and 2.5 times higher than a redistributive �scal policy through the that recorded in Tanzania (see Figure 18). ef�cient management of revenues derived from gas. While the revenues derived from In terms of their respective the exploitation of these reserves are not development patterns, the expected to be available for seven to 10 divergence between Tanzania and years, the role of �scal policy in the context these two successful Asian countries The experience of of investment allocation needs to be can be explained by the differences in their patterns of agricultural successful emerging addressed before this occurs. production; the degree to which they countries shows have implemented diversi�cation; that simultaneous 2.1 Three transformational and the manner in which they have increases in forces to �ght rural poverty handled urbanization (see Figure 19). agricultural The experience of successful emerging countries Malaysia and Vietnam have seen rapid production; shows that simultaneous increases in agricultural increases in their agricultural production, diversi�cation production; diversi�cation from traditional crop with Malaysia’s value added per worker growing by 5 percent per year and from traditional activities; and urbanization can facilitate pro-poor Vietnam’s by more than 3 percent. By crop activities; and growth. contrast, Tanzania has recorded increases urbanization can The combined effect of these three in agricultural value added per worker of facilitate pro-poor factors has enabled countries such only 1.5 percent per year over the period growth. as Malaysia and Vietnam to reduce from 1990 to 2010 period.19 Malaysia and poverty while at the same time Vietnam have also diversi�ed more rapidly, achieving rapid economic growth increasing their level of non-traditional over the past decades. In the early crop production by 18.9 and 22 percent 1960s and 1970s, these two countries respectively per year. Finally, the urbanization shared many of the same characteristics rate of these two countries has been 1.6 that de�ne Tanzania today. These include times faster in Malaysia than in Tanzania and a large, unproductive agriculture sector; a 1.2 times faster in Vietnam. 19 The comparison using the FAO agricultural production indexes provide the same differences, with Malaysia and Vietnam growing 1.8 and 2.1 faster per year than Tanzania respectively over the past 40 years. PAGE http://www.worldbank.org/tanzania/economicupdate. 28 T h e Wo r l d B a n k Po v e r t y R e d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a R e g i o n Figure 18: Different paths of economic Figure 19:....entrenched in divergent patterns development. of agriculture growth, diversi�cation and urbanization Source: World development and FAO Arguably, these three factors have livelihood will almost certainly involve one facilitated Malaysia’s and Vietnam’s or more of the three following behaviors: successful reduction in poverty. (i) increased production; (ii) diversi�cation Each factor has not only had a signi�cant to include new activities; and (iii) migration impact on economic growth patterns, their to a new location where members of the combined effect has had a signi�cant impact household expect to �nd opportunities on the poverty landscape. These factors to increase their income. This implies that have mutually reinforced each other: the rural households should attempt to spread increase in agricultural production has their earning activities over a range of helped ensure food security in urban areas, on-farm and off-farm activities in order while successful migrants have helped to minimize their risks and to raise their generate productivity gains in agriculture returns to available labor. However, while activities through �nancial and technological it may be rational for households at the transfers.20 The economic diversi�cation of individual level to improve their livelihoods farmers has strengthened the link between in this fashion, attempts to implement the rural and urban worlds by developing them without proper coordination may upstream and downstream activities in be detrimental at the macro-level. For labor-intensive sectors such as agro- example, an excessive number of individuals processing and in the retail trade sector. might decide to move simultaneously to an urban center in the belief that there are job These factors operate at the vacancies.21 Such an uncoordinated action household level. For a poor rural might endanger agricultural production and household, the path to an improved food security in cities. It could also result in 20 China’s rural migrants sent home nearly US$30 billion 21 Individuals may decide to migrate because previous in 2005. To provide context, this sum is more than the migrants from the community will reduce their initial amount that China or any other country receives from job search costs in the cities. For more details, see S. international cross-border flows during that year. Source: Rozelle, E. Taylor, and A deBraw, Migration, remittances R. Murphy, Domestic Migrant Remittances in China: and agricultural productivity in China, The American Distribution, Channels, and Livelihoods, IOM, 2007. Economic Review, 89 (2), 1999. PAGE http://www.worldbank.org/tanzania/economicupdate. 29 TA N Z A N I A E C O N O M I C U P D AT E s N O V E M B E R , 2 0 1 2 , E D I T I O N 2 congestion as well as other risks associated of achieving this goal is to increase agricultural with having an increased number of newly production, given that the vast majority of rural arrived migrants forced into urban poverty households are employed in the agricultural sector. without the appropriate safety nets. Vietnam doubled its level of per capita agricultural production in the period from 1990 to 2010.23 The three factors may interplay Over the same period, it reduced its level of rural in a different fashion in different poverty from 66 percent to 18 percent of the rural contexts and in different countries. population. Therefore, there is no single blueprint for their management. For example, urban The level of per capita agricultural migration has been the driving force in production in Tanzania has remained China. However, for countries such as stagnant since 1970, despite the fact Tanzania, with rich natural endowments of that the country now produces more arable land and favorable climatic conditions, maize and less cassava (see Figure 20). urban migration may not be such a vital Today, the level of per capita agricultural factor. This is demonstrated by the case of production in Tanzania is one of the lowest Thailand, where the number of stable jobs in the world. The yields of maize which in the agricultural sector grew from 519,000 constitutes the main crop in Tanzania, are in 1960 to almost three million in 2008.This on average almost half, three or 3.5 times was the result of continuous expansion of lower than in Zambia, Vietnam or Malaysia agriculture onto previously uncultivated respectively (see Figure 21). land and a focus on labor-intensive crops such as rice.22 Therefore, the challenge for In Tanzania, as in many Asian Tanzanian policymakers will be not only countries, smallholders’ farms are generally at least as productive as The level of per to stimulate these three forces but also to large farms.24 This is in principle good capita agricultural manage them appropriately over the long- term. news given that the vast majority of the production in rural population derives its livelihood Tanzania has These differences emphasize from such farms and cannot therefore be remained stagnant that Tanzanian policymakers discounted in any effort to improve the since 1970. face signi�cant challenges in the country’s agricultural productivity. However, management of these factors. These for a number of reasons, these farms have policymakers need to establish clear made little progress in terms of improving directions to determine how these three the conditions of the rural poor. The list of transformational forces can create new explanations for this is long, including the opportunities for the country in their own limited use of modern tools; the limited speci�c context. A few possible means for use of fertilizers; unreliable irrigation achieving this goal is set out in the following schemes; and unsecure property rights. sections. These reasons are all valid. However, they can also be described as the consequence rather than the cause of the current state 2.2 Force 1: Agriculture Commercialization 23 As measured by the FAO’s per capita Production Index (FAOSTATS). To reduce rural poverty it is vital to increase the 24 «The inverse correlation between productivity and income of rural households. The most direct means farms’ size has been reported in many countries, including in Tanzania. For more details, see D. Larson, K. Otsuka, T. Matsumoto, and T. Kilic, Should African Rural Development 22 McKinsey Global Institute, Africa At Work: Job Creation Strategies depend on Smallholders Farms?, World Bank, Policy And Inclusive Growth, 2012. Research Working Paper, 6190, September 2012. PAGE http://www.worldbank.org/tanzania/economicupdate. 30 T h e Wo r l d B a n k Po v e r t y R e d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a R e g i o n of disarray in rural areas. In other words, it strategies and massive �nancial support remains to be explained why many farmers from development partners over the past have failed to acquire the above mentioned decades. technologies despite successive national Figure 20: Tanzania --Low agricultural Figure 21:One of the lowest agricultural production growth, little rural poverty productivity in the world alleviation Source: FAOSTAT and Word Development Indicators Note: Crop production is measured in quantity, while rural poverty �gures have been extrapolated for missing observations using a weighted-moving average Limited opportunities for The attitude is: Why should we strive to commercialization are at the increase production if we cannot make heart of small farmers’ problems signi�cant pro�ts from our hard work? in Tanzania. At present, most farmers do not commercialize their production. There is strong evidence that Approximately three quarters of all maize opportunities for commercialization and approximately a half of all paddy is and increased productivity go consumed within the village in which it is together.25 For example, it has been produced. In fact, most small farmers do not found in countries as diverse as Madagascar, produce enough to sell; their entire output Colombia and Guinea that connected is barely suf�cient for their own use (auto- farmers are up to twice as productive as consummation). When they do produce isolated ones.26 In Tanzania, the regions with an excess, farmers face high transport and the highest level of connectivity and the marketing costs. greatest opportunity for commercialization have also been the most productive. The Those constraints against underlying principle is that smallholder commercialization point to a deeper farmers are more motivated to increase problem with Tanzania’s agricultural development. Many smallholder farmers 25 For a critical view, see for example, H. Biswanger and M. Gautam, Toward an Internationally Competitive Tanzanian do not see the bene�ts in increasing their Agriculture, March 2010. production by acquiring new technologies. 26 Source: The World Bank, Agriculture Markets in Madagascar: Constraints and Opportunities, 2011. PAGE http://www.worldbank.org/tanzania/economicupdate. 31 TA N Z A N I A E C O N O M I C U P D AT E s N O V E M B E R , 2 0 1 2 , E D I T I O N 2 their productivity when they are likely to Objective 1: Connect farmers by earn increased incomes from so doing. reducing transportation costs. This evidence suggests that “The majority of rural roads are impassable, increased income for farmers can making it dif�cult to take our coffee to be achieved through a combination markets�, lamented Mr. Sibuti, a farmer in of incentives and actions aimed at Tarime. His sentiments echo those of encouraging market access and many farmers. On average, a Tanzanian higher productivity. This implies the rural household is 32.5 km away from the achievement of four objectives: nearest market place. In addition, only 0.8 percent of these households own a truck 1. Connect farmers by reducing or a car to transport their output. Overall, transportation costs; transport costs for farmers are 1.4 higher in 2. Help farmers to acquire Tanzania than in Kenya and 2.3 times higher “The majority technology; than in Uganda.27 In 2007, the Government conducted a ’view of the people’ survey that of rural roads 3. Make sure that the logistics are impassable, found, in rural areas, the lack of roads was chain is working; perceived as the most signi�cant problem. making it dif�cult 4. Ensure consistency in This was followed by issues related to the to take our coffee Government policies. availability of basic goods, food prices, the to markets�. Those objectives are not necessarily availability and/or cost of �rewood, access new for Tanzanian policymakers to markets and access to electricity, in that who have integrated them in various order. initiatives at different points in time. Lower transportation costs However, if each objective is important help increase the level of individually, combining them effectively commercialization of agriculture.The is critical for developing agricultural propensity of Tanzanian rural households to production. For example, stimulating the commercialize is higher when they are closer use of improved inputs by subsidies might to a road (see Figure 22). Similar results be a waste of public resources if farmers were found in Colombia where a reduction are then penalized by roadblocks and in transit time led to a 50 to 200 percent excessive taxation. The priorities will also improvement in yields. Not only do lower differ depending on variations in crops transports costs help farmers to transport and locations. In some regions, water their products from the farm to markets, management is the main issue, while in but they enable sellers to reach them more other areas, transportation costs are a more effectively. These combined effects create signi�cant factor. These examples illustrate a virtuous circle, with increased access to the need for the authorities to think flexibly markets and inputs increasing productivity and to be responsive to context in the and income which in turn provides traders formulation and implementation of policy with increased incentives to meet the needs to achieve these objectives. Below are a of farmers through the provision of inputs, number of possible directions based on which in turn results in further increases in international experience and on the results productivity. of past initiatives in Tanzania which may still apply in different contexts. 27 Source: Tanzania Growth Diagnostic, Partnership for Growth, 2011. PAGE http://www.worldbank.org/tanzania/economicupdate. 32 T h e Wo r l d B a n k Po v e r t y R e d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a R e g i o n Figure 22: Distance to Roads matters for sellers % of Maize Sellers and Distance to Road 1 .8 % of Producers Sellers .6 .4 .2 0 0 100 200 300 400 Distance to All Weather Road (kms) Source: Author’s Calculations using Kilimanjaro Ruvuma Panel survey 2003-2009 Note: The size of the bubble represent the percentage of production that is commercialized The road network is seriously sector.28 Comprehensive improvements to underdeveloped in rural Tanzania. the transportation infrastructure will also The road density is three times lower than require improvements to the ports and in Kenya and Uganda. Not only is the extent railways, which are crucial for successful In the Kilimanjaro of the road network extremely limited, agriculture commercialization. Railways are region, as recently the quality of this roadwork is also often the cheapest and most effective means of as 2009, only one extremely poor, with only an estimated overland transportation while the ports, �ve percent of the road network being in especially Dar es Salaam, facilitate the household out of good condition. When they do exist, roads importation of required inputs and the �ve lives within are often of limited utility (5 percent are in export of agricultural and other produce. two kilometres of a good conditions). As a result, small farmers paved road. cannot transport their goods, bring in inputs, Investments in the building and and bene�t from market developments. rehabilitation of rural roads This lack of mobility is illustrated by the fact probably offer the highest rates of that in the Kilimanjaro region, as recently return, at least for public investment as 2009, only one household out of �ve projects.29 In terms of transportation lives within two kilometers of a paved road. costs, it is often the ‘�nal mile’ connecting Similarly, in the poor region of Ruvuma, a primary producers to networks that is most mere �ve percent of the population has signi�cant. While the unit cost of building such access. and maintaining those roads is relatively low, Since 2008, the Government has 28 Up to 2000, Tanzania had about 4,000 kilometers of paved national roads; in 2005 it was about 5,000 placed increased emphasis on road kilometers and currently there are more than 7,000 building and maintenance. Since that kilometers of paved national highways. About 3,000 kilometers of ongoing upgrading projects are likely year, the budget allocation for roads has to be completed by 2015. Most of the upgrading increased �vefold, reaching Tsh 2.1 trillion in projects are within the main transit corridors and roads connecting regional centers to Dar es Salaam. the 2011/12 budget. This sum is equivalent 29 “Public Expenditure, Growth and Poverty Reduction in Rural to the budget allocation for the education Uganda�, Fan S et al., (IFPRI, 2004). PAGE http://www.worldbank.org/tanzania/economicupdate. 33 TA N Z A N I A E C O N O M I C U P D AT E s N O V E M B E R , 2 0 1 2 , E D I T I O N 2 the number and extent of roads required addition, remittances from urban migrants is so vast that the Government will have can be used creatively (see more in a later to prioritize expenditure in this area. In the section). Finally, neighboring partners or determination of priorities, the authorities regional bodies may be involved in the co- should focus on locations where roads �nancing of regional corridors. are expected to produce the largest short Transports costs can also be term positive impact so that the support reduced by eliminating unnecessary for road building is consolidated through a roadblocks and delays, including demonstration of its bene�ts. A number of delays at the port. In spite of progress clusters have already been identi�ed by the over the past decade, transportation of Government. However, authorities should merchandise within Tanzania continues also balance their expenditure on new roads to be hindered by numerous avoidable with investments in the maintenance of the obstacles. A recent study on the so-called existing road system.This is often neglected, Dar corridor found a total of 36 police with only �ve percent of the national checkpoints, six weighbridges and two road network considered to be in good customs checkpoints between Dar es condition. The temptation for policymakers Salaam and Tunduma on the border with is often to prioritize new projects, as these Zambia.30 The average waiting time at the projects are higher-pro�le and more visible, port of Dar es Salaam (including anchorage The Government at the expense of maintenance. and dwell time) exceeded 20 days in 2012. should �nd Such obstacles are often unnecessary and additional sources The Government should �nd illegal, and more characteristic of rent- of funding to additional sources of funding to seeking behaviors and corruption than of a facilitate road building. Roads are facilitate road rational way for the Government or groups public goods and will continue to depend building. to collect revenues.The Government needs largely on public �nancing. However, there to strengthen its efforts to eliminate those are opportunities for public-private and obstacles through better cooperation other partnerships. Potential partners in with local authorities who remain largely the private sector include large farmers dependent on revenues derived from such and potential investors. Joint infrastructure destructive means. projects (road, ports) should also be at the center of the ongoing discussions with Lastly, high transport costs are mining and gas companies. Of course, these also due to the low volumes of companies will build new infrastructure transactions and the fragmented primarily for their own needs. However, transport chain. The small scale and with the right incentives, they could be fragmented structure of crop production encouraged to extend such infrastructure makes it necessary to assemble larger to bene�t other local users. The Rio Tinto volumes for wholesale trade from a project in the South of Madagascar has number of farms and this can be achieved developed a series of such joint initiatives by improving storage capacities (see below with the central and local authorities and on warehousing). Overall, this and other the initiatives are improving electricity bene�ts might be achieved by organizing and transport networks in the region. In farmers in associations. 30 V. P. Msamba (2012), Non-Tariff Barriers Along the Dar Corridor, Baseline Survey. PAGE http://www.worldbank.org/tanzania/economicupdate. 34 T h e Wo r l d B a n k Po v e r t y R e d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a R e g i o n Objective 2: Help farmers to acquire the price of fertilizers. The Government technology also sponsors community-driven programs to build new infrastructure in villages. At While reducing transportation present, the Government is considering costs will work towards motivating the establishment of a new public owned farmers to increase their agricultural bank to provide cheaper credit productivity, additional measures are to farmers. At this stage, there is a need also required. Reduced transportation to evaluate the cost-effectiveness of such costs will enable farmers to access markets programs. For example, voucher programs and reduce the cost of their inputs, thus designed to subsidize the use of fertilizers helping them to increase their productivity. by farmers have been criticized in Tanzania While reducing transportation costs is a and in other countries on the grounds vital prerequisite, additional measures are of the dif�culty of effectively targeting required to assist farmers to improve their bene�ciaries and of avoiding the political productivity. Without these measures, there capture of the process.31 These evaluations is a danger that improved roads will remain should examine the concrete results of an underutilized resource. these programs on the ground and compare The vast majority of farmers their cost effectiveness with other options, operating in Tanzania are small including public investments in rural roads crop-holders who use obsolete and in improving storage capacities. technology, barely producing enough The Government should consider to feed their household. As mentioned the use of mobile telephone earlier, small farmers lack modern tools, technology as a means to deliver good seeds, fertilizers, and reliable irrigation assistance. Mobile phone use is booming, schemes. The immediate key target must with 50 percent of people in rural areas now therefore be to move these farmers ‘from using them. This facilitates new methods Small farmers lack hoe to plough’, utilizing either animal-drawn of conducting business by farmers and or tractor services. In the medium term, if modern tools, good other rural dwellers, utilizing virtual rather Tanzania wants to compete internationally, roads, fertilizers than physical connectivity. With mobile farmers will have to (i) adopt the best and reliable telephone technology, previously isolated new varieties for every major crop; and (ii) farmers are now only a button away from irrigation schemes. improve water and fertilizer use through receiving money or information regarding the maximization of fertilizer and water use markets trends and prices. Through the use ef�ciencies. However, Tanzanian farmers do of mobile technology, and consistent with not need a radical jump in productivity to the results found in Mozambique, Kenya, and gain additional income from agriculture. To Uganda, it has been shown that farmers in illustrate, if their average yields in maize were Rungwe district have signi�cantly increased to reach those reported today in Zambia or their levels of marketed production.32 It in Vietnam, their level of production would has been shown that these farmers have multiply by 1.7 and 2.9 respectively. managed to sell at higher prices through For many years, the Government has 31 Source: L. Pan and L, Christiaensen, World focused on direct state interventions Development, WHO is vouching for the input voucher to reduce the cost of the inputs used Policy Research Working paper, The World Bank, N. 5661, May, 2011. by small farmers. In particular, subsidies 32 The reverse causality is also true since cell phone are still widely used in Tanzania to reduce coverage is better in areas with higher population density, and so better market linkages. PAGE http://www.worldbank.org/tanzania/economicupdate. 35 TA N Z A N I A E C O N O M I C U P D AT E s N O V E M B E R , 2 0 1 2 , E D I T I O N 2 the use of cell phones because they have initiative launched by the Tanzanian better access to price information and thus Government (see box). Large scale better bargaining power.33 New technology farms can help provide technology also enables small farmers to reach out to (including services) and �nancial transfers markets. Recent initiatives have shown, for to the entire rural community. They can example, that the virtual distance between also create economies of scale that will services providers (banks and wholesalers) reduce transportation and marketing can be reduced signi�cantly with these costs by integrating smallholders into new communication tools. In Sri Lanka, the major international supply chains. Lastly, partnership between CISCO and village they can create new job opportunities communities contributed to the connection in rural areas if investments are directed of 1,000 villages in 2009. at utilizing previously unexploited arable land.34 However, the integration of large Assistance to farmers can also scale and smallholders’ farms will require be provided through facilitating the formulation of appropriate policies on farming contracts with large land rights, integrated water management, farmers. Contracts of this sort are used access to inputs and �nance, distribution to link smallholder farmers with large infrastructure, and trade policies. farmers and/or processing companies. Small farmers can obtain cheaper inputs, Southern Agricultural Growth improved access to modern technologies, Corridor of Tanzania (SAGCOT) and the use of transportation and Initiated at the World Economic Forum marketing channels previously only available on Africa in May 2010, SAGCOT is an to large farmers. The large farmers and/or international partnership of global agriculture The development processing companies bene�t from higher businesses such as Unilever, Yara International, of ICT and farm quality, more stable outputs from small Diageo, Syngenta, Dupont, Monsanto, donor farmers. Contract farming is still a nascent contracts, as a agencies including USAID, the World Bank, phenomenon in Tanzania involving only 1.4 and the Alliance for a Green Revolution in mean to assist percent of farmers. Africa, the Food and Agriculture Organization farmers, is linked to and the Tanzanian Government. market incentives. However, contract farming has produced promising results in the SAGCOT’s main objective is to provide tobacco and, more recently, the opportunities for smallholder producers to cotton sectors. For example, contracted engage in pro�table agriculture. Approximately farmers in the tobacco industry are 350,000 hectares are expected to be brought using more chemical fertilizers, receive into pro�table production, leading to 420,000 new employment opportunities created in more credit, and have better access to the agricultural value chain, and annual farming new technologies. As a result, they have revenues expected in the range of $1.2 billion been selling more of their products and per year. generating higher incomes. The development of ICT and The synergies between smallholders farm contracts, as a means to and large farms should be at assist farmers, is linked to market the center of the new SAGCOT incentives. Thus, they require the State 33 For details, see A. G. Mwakaje, Information and 34 Recent estimate for Africa is that large scale farming Communication Technology for Rural Farmers market has the potential to create up to six million additional Access in Tanzania, Journal of Information Technology jobs. See McKinsey Global Institute, Africa At Work: Job Impact, vol. 10, n.2, 2010. Creation And Inclusive Growth, 2012. PAGE http://www.worldbank.org/tanzania/economicupdate. 36 T h e Wo r l d B a n k Po v e r t y R e d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a R e g i o n to play a new role. Rather than intervening In Tanzania, logistical costs are directly, the authorities should become generally high, with low volumes regulators, playing a role to address market preventing the emergence of de�ciencies, such as the lack of access to economies of scale. This is a signi�cant reliable information by cell phone users or reason for the absence of large wholesalers the asymmetric bargaining power between and traders in many rural areas. For many small and large farmers. Concretely, the role small farmers, gaining access to markets of the Government should be to facilitate remains a remote possibility. Even when the formation of farmers’ communities or wholesalers and traders visit their locations, associations (af�nity based, resource-based they pay low prices to farmers because of or activity based) so that smallholders can high �xed costs that reduce their margin.36 better defend their rights and interact Partly for this reason, the state has often more effectively with large investors. Well played a direct role by buying grain (NFRA) managed, the use of ICT and farm contracts or setting floor prices (cashew). can help increase the quantitative and Traders may take advantage of their qualitative supply response of farmers to dominant position relative to small improved market access, including those In Tanzania, farmers. Small farmers are generally not who currently survive through subsistence logistical costs well informed regarding market prices farming. The success of similar initiatives are generally high, and have little or no bargaining power. in India and Sri Lanka has enabled billions with low volumes This lack of bargaining power explains that of smallholder farmers, including women, poor producers of maize and sorghum preventing the to move out of poverty by creating receive a farm-gate price that is 30 and 80 emergence of partnerships between farmers, wholesalers, percent lower respectively than that paid economics of scale. and service providers. Such partnerships to wealthier farmers.37 Another example is have proved to be more cost-effective and that farm-gate prices were on average 30 sustainable than direct interventions by the percent lower for Tanzanian coffee farmers State.35 in Kagera compared to farmers operating in an adjacent valley in Uganda Rakai in Objective 3: Ensure that the logistics 2008-10.38 chain is working effectively The appropriate response is to The next step is to make sure that encourage economies of scale the entire logistics chain, from by pushing up the volume of farmers to wholesalers, retailers, transactions and empowering small and customers, is working properly. farmers. One way to achieve this goal is Of course, the chains are a diverse mosaic, to increase storage capacity. This will not and vary signi�cantly for different groups only enable the scaling up of volumes, it of farmers, products, and locations. A few would also enable farmers to wait for the common patterns can nonetheless be optimal moment to sell their products. A identi�ed. 36 Small farmers are dealing with collectors, who are intermediaries with larger wholesalers. Those are small, and so have high �xed costs. 37 The situation differs widely across crops, with almost no price differences between poor and rich farmers in paddy, groundnuts, and bean. Source: National Panel 35 See for example, A. Brizzi, The Power Of Community Survey, 2008/9. Driven Innovations: The Power Of Voice And Scale, the 38 Source: World Bank, background study for Poverty World Bank. Stockholm, 2009. Assessment, 2011 PAGE http://www.worldbank.org/tanzania/economicupdate. 37 TA N Z A N I A E C O N O M I C U P D AT E s N O V E M B E R , 2 0 1 2 , E D I T I O N 2 complementary means of achieving this to achieve improved dissemination of goal is to encourage cooperation between information. For example, the Government small and large farmers, as discussed earlier, could publish a monthly report card to particularly those of the latter group who publicize the margin between the prices have already developed their own logistics charged by intermediaries at each step channel. This can be achieved through the of the value chain. Promoting systems to use of smart cost sharing arrangements, facilitate data distribution through mobile including those involving matching grants or phones would help foster a high level of warehouse receipt systems (see box). Such transparency and improve competition. arrangements, which should be based on Homogenous information is a primary market incentives and close partnerships condition for ensuring fair trade. The between partners, will probably be more publication of such information would help cost effective than direct interventions reduce farmers’ perceptions that they are from the State. often cheated by traders and would help to correct market imperfections. To achieve Warehouse receipt system this, it is necessary to set and implement regulations, particularly to de�ne areas Through the Agricultural Sector of responsibility for the publication of Development Programme (ASDP), the this information. At present, it is not clear Government introduced Warehouse receipt which regulatory agency is responsible System (WRS) to help farmers address some of the access to market challenges. In for monitoring and correcting market WRS, farmers are organized to form primary imperfections or abuse in marketing channels in Tanzania. The Government Promoting systems cooperatives societies, provided with storage facilities linked to Warehouse Receipt System should focus on demarcating these to facilitate data (WRS).In the WRS cooperative societies information and regulatory responsibilities distribution receive seasonal loans from commercial and refrain from direct interventions in the through mobile Banks using their crop in storage as collateral. logistical chain to the fullest extent possible. phones would help The loan is used to pay farmers 60 percent of what is projected as selling prices after 3-4 Step 4: Ensure consistency in foster a high level months, depending on the crop. When the Government policies of transparency drop is sold farmers receive the remaining and improve To a signi�cant degree, production share, less operational costs. competition. and marketing decisions are The recent review indicates encouraging dependent on the quality of policy- preliminary results. For example, in the making. While farmers are affected by Singida and Iramba districts, farm gate price a wide range of policies, two policies in for sunflower increased from about Sh 210 particular have attracted much attention per kilogram in 2009/10 to over Sh 650 per over the past years, these being export kilogram in 2010/11. Similar positive impacts bans and local taxation. These policies have also emerged in others crops such as not only penalize farmers, they are also cashew nuts and coffee. inconsistent with the Government’s strategy of promoting commercial agriculture. Secondly, the low level of competition needs to be addressed by closer In recent years, the Government, as monitoring and the implementation in a number of other countries, has of the appropriate regulations. This periodically banned the export of its needs to be complemented by systems staple crop, maize. This ban, recently PAGE http://www.worldbank.org/tanzania/economicupdate. 38 T h e Wo r l d B a n k Po v e r t y R e d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a R e g i o n eliminated, has been justi�ed for a long justi�ed in terms of achieving hygiene and time as a measure to ensure national food other standards, but others are redundant security and to protect citizens from food or excessive.The local tax (“cess�) imposed prices increases. Such a ban might arguably on grain movements by districts, and even be justi�able as a means of protecting villages, amounts to no more than 1.5 to consumers in the short term. However, it 2 percent of the wholesale value for each creates signi�cant costs for farmers who transaction. This may sound insigni�cant. lose revenues as a result. It also undermines However, if a farmer’s pro�t amounts to incentives to increase their production in only 10 percent of its production value, the longer run, leading to signi�cant losses the cess is equivalent to 20 percent of the in potential production levels, in the range pro�t. Worse, its multiplicity contributes to of 8 to 10 percent for maize by 2017.39 Bans delays and illegal rent seeking. This local tax are also inconsistent with the use of public also contributes to the bias against rural money to support programs for farmers. For activities, since SMEs in urban areas are not While the example, in 2010/11, many villages located required to pay a similar tax. An effective government has in close proximity to the borders with tax system involves not only low rates but provided small DRC, Zambia, or Kenya recorded increased also, and above all, simplicity, neutrality, and farmers with levels of production of maize as a result clarity. vouchers to enable of good rainfalls and the increased use of them to purchase fertilizers as a result of the voucher subsidy system. However, these farmers could not 2.3 Force 2: Diversi�cation cheaper fertilizers, from traditional crop sell most of their increased output because at the same time, of the export ban and were only able to production it has negated make sales through informal channels with Throughout rural Africa, successful the bene�ts of a relatively high degree of risk. This resulted transformation has been predicated on this through in huge losses for farmers and wasted the diversi�cation away from traditional crop �nancial resources of the Government. production. For example, the success of the imposition Rather than through such bans, poor urban Kenya’s horticulture exports has been broadly of excessive consumers should be protected through acknowledged. Other examples of successful and multiple transformation of rural areas involving such direct transfers. Such direct transfers would taxes as well as be more equitable for consumers and diversi�cation are seen across the continent. cumbersome would penalize farmers less. These include Mali’s mango exports and procedures. Burkina Faso’s green beans production. In Local taxation is often excessive and many African countries, rural households have penalizes small farmers. While the started to engage in productive activities other Government has provided small farmers than farming. For example, such activities with vouchers to enable them to purchase have involved �nding jobs in the hospitality or cheaper fertilizer, at the same time, it has mining industries. negated the bene�ts of this through the imposition of excessive and multiple taxes Tanzania’s rural households have not as well as cumbersome procedures. There bene�ted from such opportunities, are multiple non-tariff measures applied although encouraging signs are on agricultural products. Many of these are emerging through pilot projects in various locations in the country. Such 39 For more details on costs and bene�ts associated to export bans in Tanzania, see X. Diao, A. Mabiso, A, pilot projects should be scaled up if they Kennedy: Economywide Impact of maize Export Banks on are to have a signi�cant impact on rural Agricultural Growth and Household welfare in Tanzania – A dynamic CGE Model Analysis, June 2012. poverty patterns in the near future. PAGE http://www.worldbank.org/tanzania/economicupdate. 39 TA N Z A N I A E C O N O M I C U P D AT E s N O V E M B E R , 2 0 1 2 , E D I T I O N 2 The lack of diversi�cation of the of its agricultural production output. By Tanzanian agricultural sector contrast, the picture has remained almost contrasts sharply with the case unchanged in Tanzania. Diversi�cation to of Kenya, which is perhaps the non-food products (such as meat, honey) “champion diversi�er� in Africa. In and high value items (such as tomatoes, 1970, both countries relied overwhelmingly avocados) has enabled Kenya to increase on traditional crop production, with its overall agricultural production 2.5 times such crops accounting for two thirds of faster than Tanzania. Diversi�cation is not production in Tanzania and four-�fths in merely about substitution, but rather about Kenya (Table 3). Forty years later, in Kenya, complementarities, which acts as a catalyst traditional crops constitute only one third for the whole agricultural sector. Table 3: Diversi�cation away from subsistence agriculture: Kenya vs. Tanzania (% of total production, otherwise indicated) TANZANIA KENYA 1970 2010 1970 2010 Crops (maize, wheat, coffee, etc.) 62 63 82 32 High value products (vegetables, fruits, flowers, etc.) 15 10 6 16 Non crop (meat, �sh, honey, etc.) 24 27 12 53 TOTAL (USD million) 1868 5473 915 5673 Source: FAOSTAT In Tanzania, farming continues to 1970s to more than 40 percent in recent be the main occupation of the vast times. The expansion of non-farm revenues Diversi�cation is majority of households in rural areas. is useful to complement agricultural income not merely about Approximately 8 out of 10 rural households and can serve as a hedging strategy in times substituition, own their own farm or are employed on of distress. but rather about another farm, and engage in almost no other income generating activities. Only Shifting production toward high complimentanities, the wealthiest households engage in non- value agricultural products or off- which acts as a farm activities, amongst which such activities farm activities is likely to create catalyst for the contribute to approximately one quarter of more jobs and incomes in rural whole agricultural their income. The non-farming occupations areas. Staple foods such as grains and sector. in which such households engage generally sorghum employ between ten and 50 include retail trading and low-skilled people per 1000 hectares. The production manufacturing, such as brick making and the of horticultural commodities is much more construction of small-scale infrastructure. labor-intensive: growing 1000 hectares of Ghana, by comparison, reports a higher olives or oranges requires 300 and 800 rate of off-farm activities in its Northern people, respectively.40 Off farm activities, rural areas, where such activities contribute such as hospitality and retail services, are to approximately one third of incomes. In labor-intensive and so will increase wage Thailand, the proportion of income derived payments and create job opportunities for from non-farming activities in rural areas rural households. grew from approximately 20 percent in the 40 Source: McKinsey, Africa at work, op. cit. PAGE http://www.worldbank.org/tanzania/economicupdate. 40 T h e Wo r l d B a n k Po v e r t y R e d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a R e g i o n Diversi�cation should not threaten information and skills gaps requiring domestic food security. Experience Government partnerships and possibly has shown that traditional agriculture, high strategic interventions to close. In many value crops, and off farm activities can cases, transformation should be based not reinforce rather than substitute for each on radical departures, but on encouraging other. On the one hand, off-farm activities rural households to develop on existing activities. Thus, diversi�cation could involve: Figure 23: Linkages between farm and off-farm activities % The development of Non-farm enterprises are created with agricultural profits traditional activities other than crops, such as �shing and 100 livestock; 80 % Encouraging farmers to be more innovative and 60 to explore new high-value 40 products; 20 % Encouraging non-farm activities that are emerging in 0 Kilimanjaro Morogoro Mtwara Mbeya Tabora Kigoma Kagera rural areas, including tourism Ag. Profits Sav. Non Ag Family Other and mining, which offer new Source: Author's Caluculations using Tanzania's Rural Investment Climate Survey 2005 opportunities for employment and linkages. can increase and stabilize farmers’ incomes, As a basis for developing traditional with these farmers being able to use activities other than agriculture, additional income to purchase equipment Tanzania has the third largest stock and input for their farming activities. On the of livestock in Sub-Saharan Africa. other hand, off-farm activities are often built In addition, �shing is a signi�cant traditional on successful agricultural activities, since activity, with Tanzania having approximately Breaking Tanzania’s approximately half of the funds necessary to 1,424 km of oceans coastline and viscious circle of fund start-ups are derived from agriculture borders on two of the largest lakes in low diversi�cation pro�ts (see Figure 23). This double causality the continent. Despite these assets, these is well illustrated by Kenya, where overall sectors contribute to only 3.7 and 1.4 can bring agricultural production and diversi�cation percent respectively of the country’s GDP. signi�cant bene�ts have both increased much faster than in Tanzania is a net importer of milk and meat to Tanzania’s rural and exports four times less �sh products Tanzania since 1970. economy. than Senegal. This is a lost opportunity at Breaking Tanzania’s vicious circle the macroeconomic level and for rural of low diversi�cation can bring households. Expanding these sectors signi�cant bene�ts to Tanzania’s would enable farmers to improve their rural economy. Access to markets and incomes and hedge their risks. It would productivity gains are both required to also create new market opportunities push farmers into diversi�ed activities. for downstream activities, such as wood, However, this may not be enough. For �sh or meat processing. Utilizing these many rural households, there are obvious assets, diversi�cation would create job PAGE http://www.worldbank.org/tanzania/economicupdate. 41 TA N Z A N I A E C O N O M I C U P D AT E s N O V E M B E R , 2 0 1 2 , E D I T I O N 2 opportunities both in villages and in urban Examples include the development of centers. In order to ensure sustainability, this successful start-ups of modern avocado diversi�cation would have to be managed farms in Mbeya, flower farms in Arusha, in an environmentally friendly manner. and the butterfly farms in East Usambara Mountains (see box). The success of such programs could create a virtuous circle, Thinking out of the box: The success leading to the emergence of new activities of butterfly exports in Tanzania on a larger scale. Twice a week, representatives from the Amani New opportunities for increased Butterfly Project collect butterfly pupae from non-farm revenues are emerging in member farmers in the East Usambara Mountains. The collected pupae are sorted the tourism, mining and gas sectors, and packed into cardboard boxes for export and from the ‘green economy’. The to European and US markets, where each is level of investment required to support sold for between $1 (about Sh1,600) and job creation in those sectors is relatively $2.50 (Sh4,000). In a community where low once problems related to land use households typically earn less than $400 a and development rights are solved. Building year in cash income, income derived from linkages with the tourism industry and the sale of this product is signi�cant. mining companies should create job opportunities and result in increased In 2010, the Amani project was selling a incomes for rural households. Similarly, total of 50,000 pupae a year. At the prices the higher level of attention given to the stated above, this generated total revenues sustainable management of protected of between $50,000 and $125,000, of which areas should create new employment Building linkages approximately 70 per cent went to farmers. opportunities for local communities. Such with the tourism activities not only create jobs directly, industry and Tanzania should gradually diversify they also encourage the development of into higher value agricultural mining companies secondary activities. For example, tourism products. After two decades of efforts to should create job and mining may stimulate local agricultural achieve diversi�cation, Kenya has emerged production levels, since tourists and mining opportunities and as one of the leading producers of beeswax employees may create an increased demand result in increased (ranking sixth in the world), avocados (9th) for particular food products. To meet this income for rural and citrus fruits (10th). However, the lesson demand, hygiene and quality standards must households. to be learned from Kenya’s experience be improved to satisfy these potential new is to start small and to build gradually to consumers. While meeting the standards avoid unrealistic expectations.41 Tanzania’s may be challenging, it also encourages rural agricultural sector has already begun households to expand their skills sets and to move towards a similar process of capacities. diversi�cation, albeit starting from a low base. 41 In Ethiopia, the horticultural exports started when one person started a rose farm. Today, 75 farms produce US$200 million in exports and have created 50,000 jobs. PAGE http://www.worldbank.org/tanzania/economicupdate. 42 T h e Wo r l d B a n k Po v e r t y R e d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a R e g i o n 2.4 Force 3: Migration to Migration from rural areas is often urban centers motivated by a search for higher “It has been hard to set up a life here,� Rolens incomes. On average, migrants are more says. “I came here by myself and had to wait likely to be employed in wage employment until I had enough money to bring my wife than those remaining in the countryside or and family. We all live in one room, but it is even those who are already urban residents. better life than in the village.�42 Similar stories Migrants who have lived less than �ve years are told by countless rural migrants to Dar es in the city have nine times the chance of Salaam. �nding wage employment than those In Tanzania, as elsewhere in the remaining in rural areas, and 1.5 the chance On average, living world, one of the means for rural of a non-migrant urban worker (see Figure conditions are 24). Non-migrants in rural areas remain signi�cantly better households to move out of poverty is to migrate to an urban center. On employed on farms, while non-migrants in in urban areas than urban areas are predominantly employed in average, living conditions are signi�cantly in rural areas. better in urban areas than in rural areas (see non-wage activities. box). The growing influx of rural Tanzanians to Dar es Salaam and to other secondary At �rst glance, the success of rural cities is driven by a search for better living migrants, particularly relative to conditions. As a result of this influx, Dar es non-migrant residents, may appear Salaam is the ninth fastest growing city in surprising. However, this relative success the world.43 can be explained by the migrants’ general pro�le. Such migrants generally have a Rural-Urban Divide higher than average level of education. They are also highly motivated to �nd a By living in an urban center, a Tanzanian job because of their responsibilities to their household is not only on average 3.4 km households, including those who stayed closer to health facility but on average it will in rural areas.44 In Tanzania, as in most of also have: Africa, the decision to migrate is made not s  TIMES MORE CHANCES OF BEING so much of the individual level, but at the connected to the national electricity grid collective level, usually to maximize the s  TIMES MORE CHANCES OF ACCESSING bene�ts for the larger family group. Thus, piped water a collective decision is made for the most s TIMESMORECHANCESOFHAVINGABANK account likely candidate to succeed to migrate, s  TIMES MORE CHANCES OF USING AN because such a candidate will bring a higher improved pit latrine level of bene�ts to the family. Of course, s  TIMES MORE CHANCES OF COMPLETING migration is not always the result of a secondary and higher education rational decision. Rather, it can be the result of push factors such as sudden catastrophes Source: DHS , 2010 (at the individual level or at the community level) or of individual preferences. 44 Already in the late 1990s, two researchers of the University of Dar es Salaam had found that over 90 percent of migrants had completed primary education and one quarter of them had attended secondary 42 Source: BBC new magazine, July 31 2012. http://www. schools. Source: A. Liviga and R. Mekacha, Youth bbc.co.uk/news/magazine-18655647 Migration And Poverty Alleviation: A Case Study Of Petty 43 Source: http://www.citymayors.com/ Traders, REPOA, Research Report No. 98.5. PAGE http://www.worldbank.org/tanzania/economicupdate. 43 TA N Z A N I A E C O N O M I C U P D AT E s N O V E M B E R , 2 0 1 2 , E D I T I O N 2 Figure 24: Job Pro�le by location, in % of total employment # %$# !#*%! "!*  (!  Source: The Household Enterprise Sector in Tanzania, J. Kweka and L. Fox, World Bank, 2011 Figure 25: Synergies between rural and urban world lack of access to basic services such as education, water and Uncontrolled health. Such symptoms are urbanization already readily apparent in many Tanzanian cities, including presents the Dar es Salaam. The divisions in risk of increased Tanzania’s lopsided economy, congestion with a tiny rich elite and a vast exacerbated by the poor majority, are reflected in lack of access to its cities. The poorer residents, basic services such while living better than in as education, water villages, crowd into dilapidated downtown areas or sprawling and health. slums, many without running water or basic services. The accomplishment of many migrants does not mean that they International experience shows will all succeed in cities. Unfortunately, that the linkages between urban urban misery is visible in the streets of many and rural areas are consolidated neighborhoods of Tanzania’s large cities. by successful migration. On the one Such poverty is often more dramatically hand, agriculture enables the feeding of the shocking than rural poverty because of urban population.Thus, it is vital for national the absence of traditional safety nets. food security. In addition, agriculture can Uncontrolled urbanization presents the risk also contribute to the development of of increased congestion exacerbated by downstream agribusiness activities which PAGE http://www.worldbank.org/tanzania/economicupdate. 44 T h e Wo r l d B a n k Po v e r t y R e d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a R e g i o n create additional jobs in urban centers.45 viewed as the reallocation of labor from On the other hand, urban households the underutilized agricultural sector to can contribute to the expansion and more productive activities in manufacturing improvement of the agricultural sector. In and services in urban areas. In China, such a Tanzania, the level of internal remittances shift has resulted in increased GDP growth from urban to rural areas was approximately and lifted millions of households out of Sh21,500 per year in 2010. While this is poverty.48 Leveraging similar patterns of still relatively low, in the Kilimanjaro region, migration could enable Tanzania to come for example, internal remittances make closer to achieving the same level of up almost half of the monetary income of employment opportunity creation as many rural households.46 A portion of this income East Asian countries and other successful may be used to improve the productive emerging markets. capacity of these rural households.47 Urban To facilitate the successful households can also facilitate the transfer transformation of Tanzania’s rural of technologies and create new market economy, Tanzanian policymakers opportunities for farmers. These synergies can help through three main policy are illustrated in Figure 25. directions. The �rst involves supporting At the household level, rural migrants to �nd jobs and adequate conditions Urban households migrants often generate signi�cant when they arrive in cities.There is an urgent bene�ts for their own households. At need to improve the business environment can also facilitate the macro level, rural migrants also for small and medium enterprises by the transfer of generate broader economic bene�ts reducing the costs of registration of such technologies and to the economy. Economic theory states businesses. Skills training programs coupled create new market that output growth can be generated from with programs to facilitate access to �nance opportunities for the reallocation of resources into higher should be implemented to encourage farmers. productivity activities or from productivity young entrepreneurs. Concurrently, gains within sectors. Urbanization can be the Government should ensure that 45 To take the illustration of the flour industry, wheat infrastructure and services are adapted counts for two-thirds of the production costs and to meet the needs of these newcomers, is today 60-90 percent more expensive per ton in Tanzania than in China. In spite of its natural to guarantee their smooth social and comparative advantages and cheap labor, no industry economic integration into urban centers. will blossom as long as Tanzania cannot bring cheap commodities to urban centers where manufacturing Of course, such actions may encourage plants are expected to be located. Source: The World a higher level of migration to the cities. Bank, Light Manufacturing Study, 2011. However, the costs of inaction are likely to 46 In China, domestic remittances contributed approximately 20 per cent of total rural income in be even greater. Otherwise, large numbers 2004 and 2005. Source: Huang, P., and S. Zhan, Internal of dissatis�ed, unemployed youths could Migration In China: Linking It To Development, In Migration, Development and Poverty Reduction in Asia, F. Laczko and become a signi�cant cause for concern, I. Pinto-Dobernig (eds), Geneva: IOM Research and with the potential to create or exacerbate Publications Department, 2005 social and political unrest in urban areas. 47 For a positive view on the contribution of remittances to agricultural productivity in Mexico, see J. Edward In addition to improving the Taylor and Alejandro López-Feldman, Does Migration Make Rural Households More Productive? Evidence from business environment, it is necessary Mexico, ESA Working Paper No. 07-10 www.fao.org/ to help rural migrants who fail to es/esaMarch 2007. Many migrants remit money not only to care for their rural family members but also to maintain a stake in the rural community and its 48 For more details, see Barry Bosworth and Susan M. resources for when illness, the lack or failure of an Collins, Accounting for Growth: Comparing urban job, family circumstances or old age force them China and India, Journal of Economic Perspectives—Volume back to the village. 22, Number 1, Winter 2008. PAGE http://www.worldbank.org/tanzania/economicupdate. 45 TA N Z A N I A E C O N O M I C U P D AT E s N O V E M B E R , 2 0 1 2 , E D I T I O N 2 �nd decent employment in urban Thirdly, the Government should areas. While most migrants are likely to adopt measures to stimulate the succeed in cities, some will not manage the synergies between the urban and transition successfully. Simple arithmetic can rural worlds. Such measures are important illustrate the potential magnitude of this for managing the flow of migration to cities problem: if only one out of �ve migrants and for limiting the possible ‘brain drain’ in fails to �nd employment or to establish a rural areas. Economic opportunities can be business and falls into urban poverty, this enhanced in rural areas by facilitating the would amount to an additional 40,000 creation of linkages between businesses urban poor every year, or 200,000 after established by migrants with agricultural �ve years. The authorities need to step production centers. in, perhaps through partnerships with the In Thailand, programs have been private sector, to build decent infrastructure implemented to establish a connecting While most and housing. There is also an urgent need infrastructure between villages and migrants are to establish adequate safety nets for those secondary cities. The flow of remittances likely to succeed who fail to secure a living. In urban centers, from urban households can be effectively in cities, some traditional solidarity mechanisms operate used to �nance farmers and/or to build to a signi�cantly lower degree than in rural will not manage infrastructure in villages for the bene�t of areas. Of�cial social security programs are the transition the community. extremely limited, and are mainly intended successfully. to bene�t workers in the public sector. The authorities can help promote the As shown by the experience of many ef�cient use of such funds through the countries, targeted community-driven development of incentive systems. The social programs can be a useful means to Government could also coordinate manage urban poverty, including urban the use of such transfers to overcome poverty created by a sudden influx of rural the serious risk of underinvestment in migrants. Such programs may bene�t the collective infrastructure or social projects urban poor by providing jobs to members (e.g., storage/processing facilities, schools, of vulnerable groups and by helping to build health centers or road maintenance) or or maintain small infrastructure projects at other projects unlikely to be sponsored by the community level. individual migrants. PAGE http://www.worldbank.org/tanzania/economicupdate. 46 T h e Wo r l d B a n k Po v e r t y R e d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a R e g i o n Statistical Annexes PAGE http://www.worldbank.org/tanzania/economicupdate. 47 TA N Z A N I A E C O N O M I C U P D AT E s N O V E M B E R , 2 0 1 2 , E D I T I O N 2 1. Key macroeconomic indicators Indicator Unit 2005 2006 2007 2008 2009 2010 2011* 2012 Proj Population (Mainland)/2 Millions 36.2 37.5 38.3 39.4 42.9 43.7 45.0 46.3 Per capita Income/2 US$ 390.7 382.2 439.3 525.4 498.1 524.0 523.6 540.0 GDP Growth/2 % 7.4 6.7 7.1 7.4 6.0 7.0 6.4 6.5 Gross Domestic Savings/1 (as a % of GDP) 16.2 14.5 12.8 16.1 17.0 19.3 20.1 19.9 Gross Investments/1 (as a % of GDP) 25.1 27.6 29.6 29.8 29.0 30.6 34.5 38.2 Inflation/2 (period average) % 4.4 7.3 7.0 10.3 12.1 7.2 12.7 15.1 Exchange Rate/2 (period average) TZS/US$ 1,128.9 1,251.9 1,245.0 1,197.2 1,320.3 1,410.2 1,573.6 1,586.0 External Sector Exports - Goods & Services/1 Mil. US$ 2,843.4 3,148.7 3,565.6 4,526.7 4,660.1 5,247.0 6,497.8 6,746.1 Imports - Goods & Services/1 Mil. US$ -3,852.7 -4,679.6 -5,684.5 -7,541.9 -7,875.9 -8,334.4 -9,919.7 -10,460.3 Current Account Balance/1 Mil. US$ -703.9 -1,171.7 -1,575.6 -2,255.7 -2,237.9 -2,047.0 -4,214.0 -4,909.0 Balance of Payments (Overall balance)/1 Mil. US$ 55.5 346.2 232.6 500.2 18.1 478.0 101.0 200.0 Foreign Reserves/1 Mil. US$ 2,247.4 1,863.2 2,157.3 2,660.0 2,930.0 3,483.0 3,610.3 3,779.0 External Debt/2 Bil. US$/1 8.1 8.2 4.7 5.8 7.0 8.2 10.0 9.2 Foreign Direct Investment/1 Mil. US$ 689.0 669.3 492.3 490.8 1,100.0 998.0 1009.0 1633.0 Tourism Earnings/2 Mil. US$ 823.6 862.0 1,037.0 1,198.8 1,160.0 1,250.0 1,324.8 1,472.0 Monetary Sector Average Deposit Rate/1 % 4.7 6.7 8.7 8.3 8.0 6.6 6.2 N/A Average Lending Rate/1 % 15.2 15.7 16.1 15.0 15.0 14.5 15.0 N/A Growth in Money Supply (M2)/1 % 26.8 25.9 20.5 26.6 19.5 26.2 19.1 14.5 Government Finance Total Domestic Revenue/1 (as a % of GDP) 11.8 12.5 14.1 15.9 16.2 15.9 16.4 17.5 Tax Revenue/1 (as a % of GDP) 10.8 11.5 13.0 14.7 15.3 14.6 15.2 15.5 Non-Tax Revenue/1 (as a % of GDP) 1.1 1.1 1.1 1.2 0.9 1.2 1.3 1.7 Total Expenditure/1 (as a % of GDP) 22.3 22.8 23.0 22.8 26.1 27.5 27.0 26.4 Recurrent Expenditure/1 (as a % of GDP) 15.4 15.7 16.1 14.9 17.7 18.8 19.2 16.9 Development Expenditure/1 (as a % of GDP) 6.3 7.1 6.9 7.9 8.4 8.6 7.9 9.6 Grants/1 (as a % of GDP) 6.8 5.4 4.9 6.9 5.1 4.6 4.7 4.9 Fiscal Balance (after grants)/1 (as a % of GDP) -3.6 -4.9 -4.0 0.0 -4.6 -6.4 -6.6 -5.0 PAGE http://www.worldbank.org/tanzania/economicupdate. 48 T h e Wo r l d B a n k Po v e r t y R e d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a R e g i o n 2. Growth and structure of the economy Source: NBS, IMF and World Bank estimates Key: * Preliminary actual, Proj= Projections PAGE http://www.worldbank.org/tanzania/economicupdate. 49 TA N Z A N I A E C O N O M I C U P D AT E s N O V E M B E R , 2 0 1 2 , E D I T I O N 2 3. Quarterly GDP growth rates 2002-2012 Real estate All Mining Wholesale Hotels and Transport Financial and indust. at and Manufac- Construc- and retail restau- & Com' interme- business Public Other basic Taxes on Ye a r Quarter Agriculture Fishing quarrying turing Electricity tion trade rants cation diation services admin Educat'n services FISIM prices products 2002 4.9 6.8 16.9 7.5 5.6 11.9 8.3 6.4 6.8 10.1 7.1 9.2 7.0 6.0 8.8 7.2 7.2 7.2 2003 3.1 6.0 17.1 9.0 6.7 13.8 9.7 3.2 7.1 10.7 6.5 9.6 2.8 6.0 11.7 6.9 6.9 6.9 2004 5.9 6.7 16.0 9.4 7.1 13.0 5.8 3.6 10.5 8.3 6.8 13.6 4.0 6.0 10.1 7.8 7.8 7.8 2005 4.3 6.0 16.1 9.6 8.5 10.1 6.7 5.6 9.4 10.8 7.5 11.4 4.0 6.1 11.8 7.4 7.4 7.4 2006 3.8 5.0 15.6 8.5 -0.5 9.5 9.5 4.3 8.6 11.4 7.3 6.5 5.0 6.8 14.9 6.7 6.8 6.7 2007 4.0 4.5 10.7 8.7 10.1 9.7 9.8 4.4 10.1 10.2 7.0 6.7 5.5 6.9 15.3 7.2 6.9 7.1 2008 4.6 5.0 2.5 9.9 5.6 10.5 10.0 4.5 10.8 11.9 7.1 7.0 6.9 7.0 11.0 7.4 7.8 7.4 2009 3.2 2.7 1.2 8.0 7.9 7.5 7.5 4.4 23.1 9.0 6.8 4.4 7.1 5.6 8.7 6.0 5.8 6.0 2010 4.2 1.5 2.7 7.9 11.7 10.2 8.2 6.1 12.2 10.1 7.0 6.5 7.3 5.8 9.1 7.1 6.7 7.0 2011 3.6 1.2 2.2 7.8 1.9 9.0 8.1 4.6 11.3 10.7 6.5 6.8 7.4 4.7 11.2 6.4 6.5 6.4 2002 1 1.0 13.1 16.8 3.5 6.2 11.0 1.9 5.4 5.2 27.5 3.9 7.7 8.8 9.3 25.2 4.7 0.7 4.4 2 4.0 12.2 14.9 -0.6 5.0 9.6 7.1 10.9 5.0 11.0 7.0 9.3 6.6 6.0 4.8 5.8 7.5 5.9 3 9.5 2.9 16.1 12.1 -5.4 19.0 6.3 5.5 5.5 3.9 8.1 10.0 5.7 4.5 -3.0 8.8 7.1 8.7 4 0.3 -1.5 20.4 14.0 15.6 8.3 18.0 4.5 11.8 -3.3 9.5 9.8 7.0 4.4 7.8 9.2 12.9 9.5 Annual 4.9 6.8 16.9 7.5 5.6 11.9 8.3 6.4 6.8 10.1 7.1 9.2 7.0 6.0 8.7 7.2 7.2 7.2 2003 1 2.5 3.2 7.8 13.7 0.0 8.1 2.8 4.9 8.5 -15.6 5.7 9.1 1.4 5.3 -20.3 5.4 11.5 5.8 2 2.2 -2.3 15.6 9.4 15.6 20.6 2.9 2.6 11.1 11.9 6.9 9.2 3.1 6.4 10.0 6.3 5.6 6.3 3 4.1 11.1 21.7 5.3 20.6 14.2 11.4 1.6 8.5 21.7 7.2 9.6 4.0 6.5 24.5 7.3 4.4 7.1 4 2.4 14.5 25.2 8.6 -4.7 11.5 19.8 4.0 0.2 34.3 6.3 10.5 2.6 5.9 48.1 8.4 6.8 8.3 Annual 3.1 6.0 17.1 9.0 6.7 13.8 9.7 3.2 7.1 10.7 6.5 9.6 2.8 6.0 11.7 6.9 6.9 6.9 2004 1 4.6 6.8 18.3 7.5 -2.7 30.5 8.9 -0.8 4.5 16.4 6.4 12.2 5.3 5.6 21.2 8.0 4.6 7.8 2 8.8 0.2 18.0 7.7 5.6 4.0 3.2 3.9 2.8 4.8 1.0 13.6 3.1 5.4 6.4 6.4 4.0 6.2 3 5.5 5.5 15.5 14.2 10.6 3.9 2.0 4.4 10.5 3.9 6.0 14.3 3.8 5.9 5.1 6.8 14.9 7.3 4 2.6 15.5 11.8 7.9 15.4 16.6 8.6 7.4 25.9 9.2 13.1 14.3 3.8 6.9 9.3 10.5 7.0 10.2 Annual 5.9 6.7 16.0 9.4 7.1 13.0 5.8 3.6 10.5 8.3 6.8 13.6 4.0 6.0 10.1 7.8 7.8 7.8 2005 1 3.4 16.8 7.5 9.1 11.4 -4.8 3.5 3.6 7.1 1.4 7.6 13.5 3.1 6.8 3.0 5.7 5.4 5.7 2 3.5 12.9 3.1 12.5 5.7 5.1 8.8 5.2 15.7 16.1 7.6 12.0 4.0 6.0 21.5 7.3 12.7 7.7 3 5.8 -7.1 12.3 6.0 6.8 29.8 7.3 2.6 14.2 3.6 14.7 10.8 4.5 5.7 7.5 8.7 3.1 8.4 4 2.9 2.5 44.8 11.3 10.1 12.1 6.9 11.8 1.5 22.2 1.0 9.7 4.5 5.8 15.1 7.3 9.3 7.5 Annual 4.3 6.0 16.1 9.6 8.5 10.1 6.7 5.6 9.4 10.8 7.5 11.4 4.0 6.1 11.8 7.4 7.4 7.4 2006 1 3.3 0.2 17.8 13.5 0.9 25.2 2.8 0.2 22.7 23.1 15.4 7.9 6.8 6.3 25.7 9.7 10.9 9.8 2 6.7 6.5 19.9 10.9 3.3 10.5 21.4 3.3 6.0 0.9 3.5 6.7 5.6 7.1 3.5 8.8 9.5 8.9 3 4.0 20.2 23.7 7.2 2.1 -0.9 9.6 4.8 0.5 19.1 8.2 5.9 5.2 7.2 17.3 5.7 4.9 5.7 4 -2.2 -5.9 3.4 3.6 -7.6 5.9 5.7 8.8 5.6 5.0 2.0 5.5 2.3 6.6 14.7 2.9 3.2 2.9 Annual 3.8 5.0 15.6 8.5 -0.5 9.5 9.5 4.3 8.6 11.4 7.3 6.5 5.0 6.8 14.9 6.7 6.8 6.7 2007 1 3.3 14.4 18.2 4.7 9.7 5.9 16.0 3.8 -14.2 -24.1 3.6 6.2 6.7 6.4 -26.2 4.8 -0.5 4.5 2 3.5 -7.1 8.9 9.8 12.7 -1.5 4.8 4.2 8.0 11.0 15.2 6.8 4.9 6.5 15.8 5.9 4.9 5.8 3 5.3 -4.4 5.2 9.1 7.6 6.2 7.7 6.2 26.0 19.5 2.7 7.0 3.3 6.9 30.2 7.0 10.1 7.2 4 2.0 18.9 11.0 11.0 10.6 28.5 11.5 3.3 25.2 32.7 8.0 6.9 7.2 7.6 38.9 11.2 11.7 11.3 Annual 4.0 4.5 10.7 8.7 10.1 9.7 9.8 4.4 10.1 10.2 7.0 6.7 5.5 6.9 15.3 7.2 6.9 7.1 2008 1 11.2 -21.3 -1.9 7.0 2.7 8.0 10.2 4.5 13.4 18.7 7.3 7.0 2.6 7.8 25.3 6.9 9.1 7.1 2 2.0 13.8 15.3 5.3 -2.1 -1.8 12.2 3.6 9.0 12.7 8.1 7.8 8.0 7.2 11.2 6.9 10.3 7.1 3 1.5 30.8 4.5 10.2 6.3 34.0 12.0 3.5 8.1 11.4 7.7 7.3 8.2 6.8 9.6 9.0 6.4 8.9 4 11.5 -0.5 -6.9 16.2 15.6 2.6 6.6 6.4 13.1 7.9 5.3 5.9 9.0 6.5 5.1 6.4 6.0 6.3 Annual 4.6 5.0 2.5 9.9 5.6 10.5 10.0 4.5 10.8 11.9 7.1 7.0 6.9 7.0 11.0 7.4 7.8 7.4 2009 1 -0.1 11.7 -29.2 8.4 7.0 7.4 11.5 3.0 10.1 9.5 8.7 4.7 7.9 5.9 9.9 5.5 7.3 5.6 2 2.7 7.8 -18.0 8.3 10.7 -0.6 4.7 3.9 13.7 18.3 6.5 3.9 6.8 5.8 20.3 4.0 0.4 3.8 3 6.7 -3.0 29.7 7.3 11.2 -5.4 7.8 4.9 5.7 16.8 3.9 4.0 6.5 5.5 15.8 5.9 2.9 5.7 4 -1.3 -3.6 24.5 8.2 3.4 27.6 6.6 5.6 14.4 -6.1 8.1 5.0 7.2 5.1 -7.6 8.9 12.0 9.2 Annual 3.2 2.7 1.2 8.0 7.9 7.5 7.5 4.4 23.1 9.0 4.9 4.4 7.1 5.6 8.7 5.8 5.8 5.8 2010 1 1.9 9.4 28.3 4.5 5.1 8.6 9.0 3.5 11.3 9.8 13.1 6.5 5.9 5.6 10.5 7.6 9.0 7.7 2 3.0 1.9 20.5 7.5 10.0 24.0 9.6 7.3 6.6 14.6 5.6 7.0 7.1 6.3 12.9 7.3 4.3 7.2 3 5.7 -1.5 -12.3 9.0 13.0 13.2 7.4 7.0 12.9 10.1 3.8 6.7 7.8 6.1 7.2 7.0 2.6 6.7 4 5.4 -3.6 -9.1 8.2 9.7 27.2 7.1 6.5 17.2 6.0 5.2 5.8 8.3 5.2 6.5 6.4 10.4 6.7 Annual 4.2 1.5 2.7 7.9 9.5 10.2 8.2 6.1 12.2 10.1 7.0 6.5 7.3 5.8 9.1 7.1 6.7 7.0 2011 1 -1.2 2.1 0.8 4.6 6.6 0.4 13.7 3.1 15.1 10.0 8.8 6.0 5.7 5.2 13.5 6.2 5.8 6.1 2 5.9 0.3 5.6 8.5 10.3 4.9 5.3 2.7 16.6 10.0 6.4 6.3 5.2 4.0 15.3 6.8 10.4 7.0 3 5.1 1.5 1.2 12.0 -4.3 -5.4 6.6 5.3 11.7 11.0 5.9 6.9 9.4 4.1 8.8 5.7 8.2 5.8 4 -0.2 1.0 1.0 5.8 -3.6 31.8 7.2 6.7 4.2 11.6 4.6 8.0 9.2 5.4 7.9 7.3 2.8 6.9 Annual 3.6 1.2 2.2 7.8 1.9 9.0 8.1 4.6 11.3 10.7 6.5 6.8 7.4 4.7 11.2 6.4 6.5 6.4 2012 1 1.4 2.6 14.3 4.8 9.0 3.7 9.0 3.8 16.4 15.0 8.2 6.4 6.1 5.1 16.0 6.9 9.9 7.1 Source: National Bureau of Statistics PAGE http://www.worldbank.org/tanzania/economicupdate. 50 T h e Wo r l d B a n k Po v e r t y R e d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a R e g i o n 4. Fiscal framework as percent of GDP Source: Ministry of Finance 5. Provisional Monthly Government Expenditures FY 2011/12 Source: Ministry of Finance PAGE http://www.worldbank.org/tanzania/economicupdate. 51 TA N Z A N I A E C O N O M I C U P D AT E s N O V E M B E R , 2 0 1 2 , E D I T I O N 2 6. Balance of Payments (percent of GDP unless otherwise indicated) PAGE http://www.worldbank.org/tanzania/economicupdate. 52 T h e Wo r l d B a n k Po v e r t y R e d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a R e g i o n 7. Monthly Imports of Goods and Services 2011-2012 (in US$ million) 2011 2012 Source: Bank of Tanzania PAGE http://www.worldbank.org/tanzania/economicupdate. 53 TA N Z A N I A E C O N O M I C U P D AT E s N O V E M B E R , 2 0 1 2 , E D I T I O N 2 8. Monthly Exports of Goods and Services 2011-2012 (in US$ million) 2011 2012 Source: Bank of Tanzania PAGE http://www.worldbank.org/tanzania/economicupdate. 54 T h e Wo r l d B a n k Po v e r t y R e d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a R e g i o n 9. Inflation rates CPI (annual average) 5.1 4.6 4.4 4.1 4.4 7.3 7.0 10.3 12.1 7.2 12.7 14.0 CPI (end-of-period) 4.9 4.4 4.6 4.1 5.0 6.7 6.4 13.5 12.2 5.6 19.8 9.0 Food ( end of period) 6.1 2.9 5.8 5.0 7.2 6.6 6.6 18.6 14.5 7.3 15.1 9.6 Non Food (end of period) 1.5 8.8 1.1 2.9 2.0 6.8 6.2 5.8 8.5 3.8 9.7 8.6 Source: NBS Tanzania * Projections 10. Monthly Food Crop Prices (wholesale) in Arusha, DSM and Mbeya:Tshs per 100 kg M aize Rice Whe at B e ans Sorghum Dar es Dar es Dar es Dar es Dar es Month-Year Arusha Salaam Mbeya Arusha Salaam Mbeya Arusha Salaam Mbeya Arusha Salaam Mbeya Arusha Salaam Mbeya Aug-12 53,200 60,250 46,750 148,000 143,350 190,250 78,650 95,000 92,050 99,250 148,300 129,500 56,250 71,050 - Jul-12 54,000 60,692 45,000 145,577 170,385 188,808 83,269 105,654 84,308 116,154 137,500 112,692 60,769 69,038 - Jun-12 51,769 56,519 43,500 160,577 160,385 181,308 79,731 109,038 93,077 134,423 136,538 122,654 62,692 69,077 50,000 May-12 58,885 63,308 45,654 183,462 179,231 182,308 80,846 108,462 127,692 178,346 130,385 114,077 51,462 63,962 - Apr-12 51,727 51,773 39,909 194,091 221,136 216,000 82,045 107,500 125,682 128,273 138,682 110,682 50,909 55,227 - Mar-12 45,286 46,923 40,231 185,714 202,038 206,000 82,679 108,192 125,000 140,000 136,615 139,077 50,500 57,462 70,000 Feb-12 41,654 46,808 40,423 167,115 188,769 202,615 78,654 122,042 108,846 186,154 139,808 164,000 52,654 65,808 - Jan-12 44,500 48,052 40,500 165,962 183,962 183,500 84,038 121,231 100,385 137,308 140,308 160,615 50,731 61,962 - Dec-11 42,500 45,400 40,600 159,000 162,750 170,100 84,000 121,000 98,750 120,800 150,750 155,300 57,100 63,000 - Nov-11 39,846 46,904 40,346 156,923 155,769 175,846 76,423 112,308 92,308 117,885 151,538 149,154 50,769 68,308 - Oct-11 40,250 47,896 39,917 151,458 142,083 148,500 73,542 108,333 93,750 107,083 141,625 143,125 48,833 71,750 - Sep-11 43,308 47,673 38,385 143,462 128,500 114,769 76,154 96,923 83,269 124,808 127,269 121,000 53,000 78,731 - Aug-11 43,778 51,778 37,636 134,444 132,944 109,591 73,889 98,333 77,273 107,222 133,222 121,136 55,611 73,333 - Jul-11 49,636 50,313 37,227 130,000 124,583 108,500 80,000 92,000 89,545 106,000 128,000 115,682 49,688 75,208 - Jun-11 43,000 41,500 33,000 125,000 115,000 90,000 60,000 85,000 45,000 100,000 111,500 120,000 45,000 40,000 - May-11 46,904 44,271 38,375 122,292 122,500 108,125 71,667 86,875 82,083 109,167 127,500 123,292 49,500 65,208 - Apr-11 40,000 42,700 37,135 116,750 128,000 112,250 70,000 84,722 65,500 105,000 112,250 124,500 52,889 59,480 65,000 Mar-11 35,875 40,625 39,206 111,875 115,625 113,125 75,000 75,000 63,438 94,429 128,125 135,000 54,375 57,500 70,000 Feb-11 32,361 39,000 33,500 109,000 111,300 104,650 60,556 79,722 60,100 108,056 109,550 121,000 42,278 57,750 50,800 Jan-11 31,083 35,479 32,208 117,667 99,167 97,833 57,917 93,917 51,375 100,625 99,167 100,938 41,250 65,000 25,000 Source: Ministry of Trade, Industries and Marketing PAGE http://www.worldbank.org/tanzania/economicupdate. 55 11. Average wholesale prices (January 2011 to July 2012):Tshs per 100 kg 56 PAGE 2011 2012 Jun July Aug Sept Oct Nov Dec Jan Feb March April May June July Aug Maize 41,915 44,639 41,994 42,195 42,453 42,381 42,970 44,259 42,449 42,919 46,935 52,440 52,326 52,072 50,311 Rice 112,200 126,505 121,561 129,661 143,233 154,469 164,221 175,178 178,627 191,719 204,025 183,586 165,444 160,325 158,089 Beans 110,667 112,420 116,519 119,917 124,831 130,469 132,200 132,641 126,981 121,523 229,077 128,113 129,575 130,790 126,323 Round Potatoes 49,737 49,737 60,189 59,205 59,770 64,742 66,665 67,193 60,939 60,080 62,383 70,651 69,925 79,904 69,915 Bullrush Millet 56,773 67,526 65,284 59,166 67,642 68,199 59,361 43,697 58,815 57,042 57,769 62,546 62,060 72,807 64,094 Finger Millet 68,750 78,486 71,047 69,542 74,426 75,817 78,456 76,082 78,364 75,628 78,307 81,506 82,218 89,443 88,832 Sorghum 54,821 59,133 53,589 53,839 54,671 54,582 53,550 45,585 55,956 55,387 63,630 60,627 65,201 58,975 57,379 Wheat 78,875 89,977 86,354 81,252 81,139 88,128 88,154 80,709 84,577 99,394 99,692 103,446 106,811 87,829 82,954 Source: Ministry of Trade, Industries and Marketing 12. Inflation rates (selected items of the CPI basket) All items ( end period) 6.4 7.5 8.0 8.6 9.7 10.9 13.0 14.1 16.8 17.9 19.2 19.8 19.7 19.4 19.0 18.7 18.2 17.4 15.7 14.9 Food 6.7 8.6 8.3 9.2 10.1 11.7 14.8 17.4 21.3 22.8 24.7 25.6 26.2 25.5 24.9 24.7 24.5 22.9 20.3 18.5 http://www.worldbank.org/tanzania/economicupdate. Non food 6.1 6.1 7.7 7.8 9.3 10.0 10.8 10.2 11.5 12.2 12.6 12.7 11.8 11.8 11.5 11.3 10.5 10.5 10.0 10.3 Energy and Fuel 19.1 13.0 17.2 22.1 24.5 29.0 34.2 30.1 33.1 37.4 39.2 41.0 30.1 33.5 29.4 24.9 21.2 20.5 16.3 16.9 TA N Z A N I A E C O N O M I C U P D AT E s N O V E M B E R , 2 0 1 2 , E D I T I O N 2 Transport 17.7 11.1 13.6 13.4 15.7 18.8 21.3 19.7 21.7 22.0 23.5 24.8 18.8 19.5 17.4 16.2 14.7 14.6 12.5 14.4 Housing,water,electricity and Gas 7.2 13.9 14.5 13.6 14.1 14.4 14.5 13.9 14.2 15.4 15.3 14.6 14.4 8.2 9.0 9.1 9.1 9.0 8.7 8.6 Furnishinng, housing equipment and maintanance 0.3 0.3 3.3 3.9 8.0 8.4 9.9 8.8 10.8 11.8 12.0 11.2 10.9 10.9 9.7 8.6 6.7 5.9 4.7 3.8 Excluding food and energy 4.4 5.2 6.3 5.7 7.1 7.2 7.4 7.3 8.2 8.5 8.8 8.7 9.0 8.6 8.8 9.0 8.7 8.8 8.8 9.2 Source: NBS Tanzania T h e Wo r l d B a n k Po v e r t y R e d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a R e g i o n 13. Exchange and Interest rates. 7SYVGI-1*ERH&S8 4IVMSHEZIVEKI  PAGE http://www.worldbank.org/tanzania/economicupdate. 57 TA N Z A N I A E C O N O M I C U P D AT E s N O V E M B E R , 2 0 1 2 , E D I T I O N 2 14. Monetary Indicators Source: IMF and BoT 1/ Data in calendar year, e.g 2005/06= 2006 PAGE http://www.worldbank.org/tanzania/economicupdate. 58 T h e Wo r l d B a n k Po v e r t y R e d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a R e g i o n PAGE http://www.worldbank.org/tanzania/economicupdate. 59 TA N Z A N I A E C O N O M I C U P D AT E s N O V E M B E R , 2 0 1 2 , E D I T I O N 2 PAGE http://www.worldbank.org/tanzania/economicupdate. 60 T h e Wo r l d B a n k Po v e r t y R e d u c t i o n a n d E c o n o m i c M a n a g e m e n t U n i t A f r i c a R e g i o n PAGE http://www.worldbank.org/tanzania/economicupdate. 61 TA N Z A N I A E C O N O M I C U P D AT E s N O V E M B E R , 2 0 1 2 , E D I T I O N 2 PAGE http://www.worldbank.org/tanzania/economicupdate http://www.worldbank.org/tanzania/economicupdate. 62