BoT chief: This is how to grow Tanzania’s economy

Dar es Salaam. Tanzania must undertake four major reforms if it is to grow the economy and achieve the middle-income status in line with the country’s development vision, the Bank of Tanzania (BoT) governor has proposed.

Prof Benno Ndulu writes in a book titled Tanzania: The Path to Prosperity that the country will have to increase value added to agriculture.

In a chapter he co-authored with a Senior Economist at the International Monetary Fund (IMF), Ms Nkunde Mwase, Prof Ndulu also wants Tanzania to utilize natural resources to stimulate heavy industrialisation and labour-intensive manufacturing sector while also paying special emphasis to promotion of service-based industries as well as investing in infrastructure and in human capital.

Prof Ndulu’s views come at a time when the country is promoting industrialisation as the best way to achieve the desired economic growth rates and put Tanzania on the right footing to attain a middle-income country status come 2025.

It also comes at a time when the government is in the second year of implementing the country’s industrialization roadmap as outlined in the Second Five-Year Development Plan (FYDP2) which runs from financial year 2016/17 to 2020/21. Under the FYDP2, Tanzania needs a total of Sh107 trillion – to be sourced from both public and private sectors – to industrialise the country during the period between financial year 2016/17 to 2020/21 as part of a wider goal of attaining the middle income status by the year 2025.

Agriculture

In the book, co-edited by a Professor of Development Economics at the University of Oxford and Research Associate at the Centre for the Study of African Economies, Christopher Adam; Professor of Economics and Public Policy at the Blavatnik School of Government at the University of Oxford, Paul Callier and Prof Ndulu himself, the key argument is that focusing on agriculture would have a high impact on poverty alleviation.

“Policy intervention in agriculture and agro processing should focus on improving factor productivity, capital accumulation particularly in transportation and irrigation infrastructure to enhance growth, resilience to climate change shocks and increasing access to markets,” Prof Ndulu says. Specifically, Prof Ndulu – who has successfully managed to rebuild public trust and confidence in the BoT since he came to the helm of the Central Bank in 2008 - says special emphasis must be put on disseminating new agricultural techniques and investing in research and development.

This, he says, will support a move to a more modern and efficient production and storage techniques.

Similarly, government’s efforts must be directed towards improving incentives for increased production. This, the authors argue, would entail improving rural infrastructure to increase physical access to domestic, regional and international markets.

To achieve this, Prof Ndulu and Ms Mwase urge that Tanzania will require what they term as an ‘aggregate strategy’ to develop an efficient transportation network that links rail, air and port networks as well as the logistical capacity for linking the various components of the value chain.

Establishing of viable agro-processing industry also appears high in Prof Ndulu’s plea for value added agriculture. It is a viable agro-processing, according to Prof Ndulu, that will eventually boost the returns from the sector and support entrance into regional and global value chains.

“This will entail an education policy that bolsters human capital and also an agricultural policy initiative that supports a move up the value chain, including through enhancing linkages with the domestic economy – for example, the tourism sector,” the two write.

Natural resources

While recognising the fact that many developing countries have been plagued by resource curse – a paradox that countries with an abundance of natural resources tend to have less economic growth, less democracy, and worse development outcomes than countries with fewer natural resources – Prof Ndulu and Mwase believe that Tanzania still has the opportunity to utilise its God-given richness to its advantage.

To achieve this however, the country will need to have a clear strategy for the use of natural resource ‘windfalls’.

“It will have to ensure that relative wages and cost of business remains competitive and that governance and the business environment remains supportive. This entails fostering an efficient business registration process and reducing red tape involved in business operations,” the book reads.

Service industry

A special emphasis on promoting the services sector, according to Prof Ndulu, would also help Tanzania to maximise its economic growth potential.

Of particular importance is the need to increase the value added from tourism and Information and Communication Technology (ICT) based services.

Analysts contend that tourism is one of those areas that have not been fully utilised and Prof Ndulu and Ms Mwanse also share the same sentiment.

Actual figures from the Ministry of Natural Resources and Tourism show that tourist arrivals rose by 12.9 per cent to reach 1,284,279 in 2016 from 1,137,182 tourists in 2015.

Similarly, revenues from tourism have been increasing year after year to reach $2 billion in 2016 against $1.9 billion in 2015.

The sector contributes about 17.5 per cent to Tanzania’s gross domestic product and 25 per cent to foreign currency earnings.

At least 500,000 people are directly employed in the tourism industry while one million more people are self-employed in the sector.

According to Prof Ndulu, to further boost the services industry, attention should be directed towards deepening financial instruments in support of financing the sector. He is of the view that given the lower capital cost of start-ups, the sector will likely be dominated by small and medium enterprises (SMEs).

He proposes the need for Tanzania to emulate the example of Germany in finding the right way to finance SMEs.

In Germany, according to Prof Ndulu and Ms Mwase, asset securitisation provides a viable option for financing SMEs’ operations. Asset Securitisation is the process of taking an illiquid asset, or group of assets, and through financial engineering, transforming them into a security.

A typical example of securitisation is a mortgage-backed security (MBS), which is a type of asset-backed security that is secured by a collection of mortgages.

They also want Tanzania to learn from Brazil and Australia on how to transition the economy and move up the value chain without hampering the tourism sector.

Infrastructure and human capital

To make sense out of infrastructure development, the two economists contend that the improvement should be supported by a comprehensive policy mix to reinforce what they term as the backward and forward linkages of infrastructure investments in the economy.

Considering the high cost associated with infrastructure development, the authors propose that the government should adopt a strategy that would unlock additional sources of financing.

In this aspect, domestic revenue mobilisation, coupled with innovative sources of external financing to leverage potential funds that Tanzania could obtain from official sources and borrowing from capital markets could be helpful.

What others say

A number of policymakers and other analysts have already voiced their views on how to achieve the goals, with the latest in the line being prominent businessman, Ali Mufuruki; Dar es Salaam Stock Exchange chief executive officer, Mr Moremi Marwa; business development manager at General Electric, Mr Gilman Kasiga and a student pursuing a Masters in Economics and Global Affairs Degree at China’s Tsinghua University, Mr Rahim Mawji.

Like Prof Ndulu, the four have put their views in writing through a book titled Tanzania’s Industrialisation Journey, 2016-2056.

The four urge that to industrialise Tanzania, the country needs to adopt a strategy that will ensure that it imports only those goods and products that are not readily available locally and regionally.

Citing at the 2014 example, they write that during that year, Tanzania imported consumer goods amounting to $2.6 billion which was 23 per cent of the total value of goods imported into the country.

Mr Mufuruki, Mr Marwa, Mr Kasiga and Mr Mawji however are of the view that many of these products could be clearly and easily manufactured domestically.

Similarly, the country’s intermediate goods and capital goods importation stood at $4.8 billion and $3.5 billion respectively.

“Some of these such as fertilizers, some industrial raw materials and some building and construction materials, can easily be produced in Tanzania….With these industries, Tanzania could also produce parts of machineries and transport equipment,” reads a statement in the book.

Similarly, the authors believe that a deliberate move by the government to purchase much of its requirements – including furniture office stationeries, water and tea for consumption building materials and protective helmets for their road and building projects – locally bring the much-needed boost to local industries.