Tanzanian Economy Research Articles

The effect of a budget deficit on inflation: The case of Tanzania

The Tanzanian economy has remained one of the limited numbers of countries that has experienced a relatively high inflation rate, accompanied by high fiscal deficits for a prolonged period in the absence of any hyperinflation. This paper examines the deficit-inflation relationship in the Tanzanian economy and establishes the causal link that runs from the budget deficit to the inflation rate usingcointegration analysis over the period 1967-2001. Some dynamic simulations are done to gauge the effect of a change in the budget deficit and gross domestic product on inflation over time. Due to monetisation of the budget deficit, significant inflationary effects are found for increases in the budget deficit.

The economic potential of tourism in Tanzania

AbstractFor sub‐Saharan African countries with few evident opportunities to diversify export earnings away from primary commodities, tourism has emerged as an option to contribute to economic growth. This study uses input–output analysis to estimate the economic impact of tourism and assesses its potential contribution for the Tanzanian economy. The results show that tourism has a significant impact on output and incomes, especially taking into account the strong inter‐sector linkage effects, although this has not been translated into corresponding employment gains. The tourism sector also contributes to tax revenue and foreign exchange earnings. Overall, tourism is shown to make a significant economic contribution. Copyright © 2003 John Wiley & Sons, Ltd.

Emerging Relationships between Poor Countries and External Sources of Finance

CRANFORD PARTT'S WORK IN TANZANIA is probably best known through his published writings, especially his great book, The Critical Phase in Tanzania, 1945-1968, and his service as the first vice-chancellor of the University College, Dar es Salaam. But this discussion of Tanzanian events relates more to another of Cran's contributions in that country - one that is less well known and, sadly, less obviously and immediately successful. It concerns relationships between very poor countries and powerful external sources of finance, upon which poor countries, not least Tanzania, are heavily dependent. In the current jargon, it has to do with local 'ownership,' the degree to which the recipients of external financial assistance are (or are not) in the 'driver's seat' in the design and implementation of development programmes within their own countries.There have been some positive recent developments that build on Pratt's little-known, and less evidently successful, activities in Tanzania in the early 1980s. (I have to confess that I, too, was somewhat involved in these early failures; but also, a little, in the later more positive experiences.) Those recent experiences have, for the most part, gone unnoticed; they deserve to be better known.Consider first Cranford Pratt's role in mediating Tanzania's relations with powerful sources of external finance in the early 1980s. Following a series of serious exogenous shocks to the Tanzanian economy that began in 1979, the government began to run into very serious macroeconomic problems and, as so frequently happens in such times, disagreements with the International Monetary Fund (IMF). The president, Julius Nyerere, always more honest and direct than the average politician, took it upon himself to ask, in a public speech, who exactly had elected the IMF as the finance minister for every country in the world! Relations between his government and the IMF thereafter went steadily downhill.Indeed, they became sufficiently difficult that Robert McNamara, then president of the World Bank and an admirer of Nyerere, initiated a 'mediation effort' between the Tanzanians and the IMF. It took the form of the appointment of 'three wise men' (as they became known locally), acceptable both to the Bank and to the government of Tanzania, to draw up, together with the Tanzanians, a Tanzanian stabilization and adjustment programme that might be acceptable to (or, as we would now say, 'owned by') the Tanzanians, a programme that obviously would be an alternative to the one the IMF had planned for them. Cran Pratt was one of the three. (So was I.)The programme was tortuously constructed over the course of nearly a year. It involved a more gradual effort than the IMF's proposed 'Big Bang' approach and, above all, it tried to preserve, during the difficult stabilization and adjustment process, the goal of economic equity, which was so central to Nyerere's conception of socialism. One could even have called it a 'Poverty Reduction Strategy Paper' (PRSP), such as the IMF and Bank now require of all poor countries seeking their assistance. The programme's attention to genuine local ownership and equity in burden-sharing was also decades ahead of its time. But it failed to impress the IMF. Nor did the government of Tanzania fully endorse all of the recommendations of the wise men and their team. The attempt at genuine mediation, therefore, failed. The recognition of the ultimate need for local (Tanzanian) ownership was not yet in vogue in the international development community. Aid flow subsequently crashed - and so did the Tanzanian economy.But here is the good news. Twenty years later, this pioneering effort has to be seen as an important forerunner of today's so-called Tanzanian Assistance Strategy (TAS). This new approach probably leads Africa and the rest of the aid-recipient world in terms of a genuine shift towards a locally owned, rather than a dominantly aid-donor and IMF/Bank-driven, development effort. …

Thug Realism: Inhabiting Fantasy in Urban Tanzania

One of more compelling developments in contemporary sociocultural anthropology is its increasing attention to the imagination. From most spectacular fantasies to most mundane reveries, imagining world as it is and as it might be seems to be a rapidly expanding form of activity. Such imaginative acts are now held to be relevant-indeed necessary-not only to such predictable endeavors as consumption and leisure but to fields as diverse as construction of civil society (Comaroff and Comaroff 1999a), production of biomedical knowledge (Martin 1998), and nuclear proliferation (Gusterson 1999). This move towards all things has further been characterized by an important kind of reflexivity, as exploring complexities of imagined requires exercise of imagination. Indeed, even a cursory review of current ethnographic observations might lead us to conclude that nothing is now unimaginable. In this article I will examine imaginative implications of contemporary Tanzanian economy and society for a select, but by no means peripheral, group of young men living and working, mostly in barbershops, but also in other businesses in city of Arusha, one of largest cities in Tanzania. The expansion of this informal sector in urban Tanzania and diverse modes of imagining that characterize it are clearly emergent under conditions of what has been described as globalization, and it is intersection of these rubrics-the imaginary and the global-that I intend to explore. I would suggest as a point of theoretical departure that analytical coupling of to processes of globalization has often obscured ways that imaginative acts are in fact materially grounded in social activities. While calls for localization and attention to lived experience have been legion, too often act of imagining is unmoored from specific forms, times, and places through which persons project their possible lives. Thus, it is possible for Abu-Lughod to insist that viewers of Egyptian soap opera are part of same cultural worlds we inhabit-worlds of mass media, consumption, and dispersed communities of imagination (Abu-Lughod 1997:128). Surely forms of global connectivity exemplified by soap opera establish, or at

Structural adjustment and soil degradation in Tanzania A CGE model approach with endogenous soil productivity

AbstractIn this paper, a model of the nitrogen cycle in the soil is incorporated in a Computable General Equilibrium (CGE) model of the Tanzanian economy, thus establishing a two‐way link between the environment and the economy. For a given level of natural soil productivity, profit‐maximising farmers choose input levels – and hence production volumes – which in turn influence soil productivity in the following years through the recycling of nitrogen from the residues of roots and stover and the degree of erosion. The model is used to simulate the effects of typical structural adjustment policies like a reduction in agro‐chemicals’ subsidies, reduced implicit export tax rate etc. After 10 years, the result of a joint implementation is a 9% higher Gross Domestic Product (GDP) level compared to the baseline scenario. The effect of soil degradation is found to represent a reduction in the GDP level of more than 5% for the same time period.

Effective VAT Rates on Selected Sectors in Tanzania: An Input-Output Approach.

One of the key issues in designing a VAT system is the desirability or otherwise of a uniform rate structure. From an economic efficiency point of view, as well as distributional considerations, non-uniformity is deemed more attractive than uniformity. Administrative feasibility, on the other hand, usually poses a strong case in favour of uniformity. In Tanzania VAT is imposed at a uniform rate of 20 percent on all taxable supplies of goods or services, except exports, which are zero-rated. This study estimates, by the use of an Input-Output approach, the extent of variation in the effective VAT burden falling on different sub-sectors of the Tanzanian economy. Since optimal taxation theory implies the superiority of rate differentiation over rate uniformity it is important to establish empirically the extent of effective non-uniformity in a tax system that is mainly statutorily uniform like the Tanzanian VAT. In the final analysis, indeed, what actually matters to economic entities is not the rate of tax specified in the legislation (i.e. statutory rate), but rather the burden borne by the entities in different sectors or sub-sectors of the economy. African Journal of Finance and Management Vol.7(2) 1999: 144-153

African Industry in Decline: The Case of Textiles in Tanzania in the 1980s

Introduction - Micro- and Macro-theoretical explanations of Industrial Performance - The Textile Sector in International Perspective - Policy and Performance: The Textile Sector of Selected Countries - Tanzanian Economy and State - Performance of the Textile Sector in Tanzania - Macro-, Meso-, and Micro-Factors Affecting Performance - Performance Analysis of Textile Firms in Tanzania - Conclusions - Appendix - References - Index

Consumption and poverty in Tanzania in 1976 and 1991: A comparison using survey data

The paper tests the hypothesis that given the significant decline of the Tanzanian economy in the early 1980s and the mediocre performance in the post-1986 adjustment period, household real incomes should be lower and the level of poverty should be higher in the early 1990s compared to the precrisis boom period of the mid-1970s. The analysis is done by comparing real household expenditures from two national surveys, in 1976 and 1991. The results suggest that real per capita expenditures in both rural and urban areas are higher in 1991 compared to 1976. Furthermore, the level of poverty in both rural and urban areas is lower in 1991. The results, which refute the stated hypothesis, are tested under alternative assumptions and are found robust.

Modeling the macroeconomic effects of AIDS, with an application to Tanzania.

The 1956 Solow growth model is expanded to study the effects of the AIDS epidemic on the growth path of the economy and per capita GDP (gross domestic product). AIDS and no-AIDS scenarios are compared analytically and via simulations based upon Tanzanian demographic and macroeconomic data. The 1st section discusses various channels through which AIDS might affect the macroeconomy and describes its expected demographic impact in Tanzania. The model incorporating these key channels is then developed in the 2nd section. It is employed specifically to discuss the likely effect on the ratio of capital to labor and on output per capita as the economy moves from a no-AIDS situation toward a new steady state in which AIDS is assumed to be endemic. A simple simulation model in the 3rd section forecasts the time paths of macro aggregates in Tanzania as the prevalence of AIDS increases. These time paths are then compared with simulated results for a no-AIDS situation to determine the severity of the impact of the disease on the growth path of the Tanzanian economy, Bulatao's 1990 demographic scenarios are input in the simulated version of the model. The 4th section concludes by considering the policy implications of the analysis. The analysis indicates that without decisive policy action AIDS may reduce the GDP of Tanzania in the year 2010 by 15-25% over what it would be if AIDS did not exist. Per capita income levels are expected to fall by 0-10% by the year 2010.

Aid and Exchange Rate Adjustment in African Trade Liberalisations

Most African governments must, except for short periods of time, set macroeconomic policies which are compatible. That is, trade restrictions, the exchange rate, and budgetary-cum-monetary policy must be coordinated in such a way as to avoid depletion of foreign exchange reserves. Often, the potential for departure from compatibility is minimal: for example, for some years the Tanzanian economy was run with reserve cover of only a few days of imports.2 Trade liberalisation must, therefore, involve continuous coordination with other policies so as to maintain compatibility. One theoretical possibility is for a gradual creep towards liberalisation with coordination achieved by ex post 'fine tuning'. However, recent surveys of numerous non-African trade liberalisations (Papageorgiou et al. i99i) conclude that large, abrupt liberalisations have proved more sustainable. Apart from economic considerations, it is quite possible that for political reasons gradual trade liberalisation is not feasible in Africa: transient political windows of opportunity are either seized with an abrupt liberalisation or missed altogether. Further, donors may insist on liberalisation being abrupt. Such a liberalisation starkly poses the coordination problem, and this paper uses a simple computable general equilibrium model (CGE) to explore alternative compatible strategies in an Africa-type economy. The essence of the compatibility problem can be seen by considering the consequence of a liberalisation in which no other policies are changed. The reduction of tariffs, or more commonly the relaxation of quotas will lower the domestic price of importable goods and thereby reduce the demand for money.3 Being a stock effect, in the short term this will dominate any changes in the money supply brought about by the fiscal implications of liberalisation, since these are flow effects. Hence there will be an excess supply of money and so a payments deficit. The paper investigates three alternative strategies which prevent such an outcome, each maintaining compatibility. The first (Section 2) is to achieve an offsetting increase in the demand for money through devaluation. The second (Section 3) is to. use programme aid to finance a deficit until the money supply is sufficiently depleted. These two extremes respectively characterise the post-I986 Nigerian trade liberalisation and all

The unmaking of Tanzania and the march towards capitalism?

Tanzania continues to occupy an important position in debates on African development and to generate numerous studies, many of which still, to paraphrase Bienefields's assessment of a decade ago, generate more heat than light (1982: 294). Current debates and research, as represented in the publications reviewed here, contain their share of illumination, obfuscation and confusion about Tanzanian political economy. At the risk of oversimplification, and in spite of the range of disciplines and subjects represented in the books in question, the authors share a common concern with the processes of development and the context within which it has or has not taken place. More specifically, a central theme which underlies their work, albeit less explicitly and consciously in some, is what might be called the impact on Tanzanian society of externally induced trade and markets, and the manner in which local political structures have evolved to counter and/or collaborate with such forces. While

Supply constraints in the Tanzanian economy: Simulation results from a macroeconometric model

Economic events of the 1970s and early 1980s (world recession and disruption of international trade and finance) hit sub-Saharan Africa particularly badly. There has been heated debate as to the role of additional external resources and domestic adjustment measures in economic recovery. This paper uses a supply constrained macroeconometric model of the Tanzanian economy to simulate the effects of several alternative strategies. The results highlight the problems of either a strategy of devaluation or of more external aid alone. One inexpensive policy advocated is that of freeing project aid for general balance of payments support.

Tea in Tanzania

Tea has been grown in Tanzania for more than 60 years. After a period of relative stagnation, it is now set to make a positive contribution to the national income, both in the public and private sectors. This article reviews the past, present and likely future contributions of tea to the Tanzanian economy.

The Collapse of the National Road Haulage Company in Tanzania

The post-colonial evolution of the Tanzanian economy has been strongly influenced by public policy, notably since the adoption of the Arusha Declaration in 1967,1 which established the following guidelines:1. Self-reliance, albeit not self-sufficiency or autarky, since, at least in theory, selected foreign assistance may be the catalyst rather than the basis of development.2. General social equality, aimed at regional, inter-personal, and rural—urban equity.3. Socialist and co-operative economic activities, emphasising priority for rural development per se, with a bias towards co-operative work through communal ujamaa villages.4. Public ownership and control of the ‘commanding heights’ of the economy.

Inter-industry linkages of forestry and forest industry sectors in the Tanzanian economy.

Inter-industry linkages of forestry and forest industry sectors in the Tanzanian economy.

Tanzanian grain supply: Peasant production and state policies

This article discusses the problem inherent in the development of the Tanzanian economy with respect to the primary reliance placed on peasant commodity production of grain for the provision of the national grain supply. The discussion includes issues related to structural features of the Tanzanian economy, the nature of state intervention and the development of labour productivity in peasant agriculture. A mutually servicing relationship between peasant producers and state agents providing marketing and productive infrastructure is critical to the resolution of the current national grain supply problem.

Rural differentiation and class‐formation in Tanzania

The article looks at various specific processes of differentiation in rural Tanzania and attempts to relate these to the overall emergence of classes within the Tanzanian social formation and to its incorporation within the international capitalist system. After a brief introduction and outline of some important aspects of the Tanzanian economy and political structure, and a still briefer discussion of ‘Chayanovian’ proposals about an undifferentiated peasantry, the article outlines the developments of the colonial period and their implications for the patterns of differentiation observed. This is followed by a consideration of some of the more important specific processes. The final section attempts to pull this together into a coherent, though admittedly undertheorised, picture, focusing upon the ambiguous relationship of what is termed the ‘state class’ and the rich peasantry.

The Impact of Colonialism on Health and Health Services in Tanzania

This article is about the problems of malnutrition and disease in a rural area of an underdeveloped country, Tanzania. The particular way in which health problems were conceptualized during the colonial era, the structure of the medical services established, and the effects of health care on the health status and size of the rural population of Songea District in Tanzania are shown in the article to have been determined by the economic, social, and political requirements of German and British colonial rulers rather than by the health needs of the African population. Colonial economic policy emphasized the production of cash crops for export, whether by African peasant farmers or by European plantation owners. To provide workers for the plantations, a system of labor migration was instituted. Songea District became an area that supplied male workers to other parts of the country, with grave consequences to the health and nutrition of the women and children left behind. Domestic food production was neglected by Africans forced to migrate in search of cash to pay taxes and by those enganged in the cultivation of cash crops. Extensive malnutrition and persistent ill health related to poor diet are thus traced directly to capitalist underdevelopment of th Tanzanian economy and the structural distortions of a dependent relationship between Tanzania and the metropolitan power.