Current and future challenges and opportunities in Tanzania
POVERTY AND INEQUALITY: HIGH GROWTH, BUT NOT FOR ALL
Tanzania has been a macro-economic success story for nearly two decades. The rate of economic growth increased from 3.5 pct. in the 1990s to 7 pct. in the 2000s. Despite the global financial crisis, growth rates have been remarkably stable over the last decade, and they are expected to continue or even increase in the foreseeable future. At the same time, the country has experienced high population growth – from 11 million people in 1963 to around 45 million in 2012. Population growth remains high, at nearly 3 pct. annually. If this growth rate continues, there will be 53 million Tanzanians in 2018 and 100 million in 2042.
Economic growth and decades of massive international aid have created many good results, but it is important to recall that the growth began from a very low starting point and that poverty in Tanzania has proven extremely stubborn. With an annual GDP per capita of USD 532 (2011) and a Human Development Index rank among the lowest 20%, Tanzania is one of the poorest 15 nations in the world. More than two-thirds of the population live below the internationally recognized income poverty line of USD 1.25 per day and almost 90 pct. live on under two dollars per day. Around one-third live below the "basic needs poverty line" corresponding to around USD 0.96 per day.1 Measured by this limit, official poverty levels declined slightly from 39% of the population in 1992 to 34% in 2007, to 28% in 2012. Due to population growth, however, this relative decrease still means that the actual number of people living below the poverty line has remained relatively constant level of 11-12 million Tanzanians. Official surveys show a constant level of inequality from 2001 to 2007 (Gini 0.35). Other calculations, however, show a 20% increase in inequality in the same period.2 The degree of inequality can be illustrated by the fact that the richest 20% of Tanzania’s population accounts for 42% of total consumption, whereas the poorest 20% consume only 7%.
The modest reduction in poverty illustrates that economic growth has not been sufficiently broad-based. Growth is concentrated in telecommunications, financial services, retail trade, mining, tourism, construction and manufacturing. While growth was formerly driven largely by public spending and international aid, this is no longer the case. Growth today is generated mainly by the private sector, but the sectors with the highest rates of growth are predominantly capital-intensive and concentrated in large urban areas. Growth has largely failed to affect the great challenges, generating more employment and additional jobs in all parts of society and improving incomes for the vast majority of the population.
One major cause for the lack of poverty reduction despite economic growth is that Tanzania has not succeeded in raising productivity in agriculture over the last decades. Tanzania remains predominantly agricultural, with three quarters of the population living in rural areas. Eighty percent of Tanzania’s poor live in rural households. Growth in the agricultural sector remains low, at around 4% per year, and in the rural areas the growth in productivity can barely keep up with population growth. The birth rates in rural areas are high (6.1 births per woman compared to 3.7 in the urban areas).
While donors and the government have used significant resources to improve the social sectors, similar necessary support has not been given to agriculture and other productive sectors. Lack of secure land tenure to ensure that the traditional users in the rural districts do not lose their land is one of the most essential issues, constraining investments that could enhance productivity. Processing of food and other agricultural produce and other forms of manufacturing is also very limited in the rural areas creating very few additional employment opportunities.
For the same reason, Tanzania is experiencing significant out-migration of young people from low productivity agriculture to urban informal service sectors, where productivity is just as low. Unemployment is high and growing rapidly, especially in the urban areas and among youth. The official unemployment rate is 12% and is highest in the cities, reaching 32% in Dar es Salaam (2006). In addition, one-third of those employed are so-called "working poor": technically employed, but whose income is less than the basic needs poverty line of USD 0.96 per day. They often work either in farming or in the urban informal service sector in low-productivity, part-time jobs. An estimated 700,000 new young job-seekers enter the labour market each year, but only a fraction of them have a realistic possibility of obtaining a stable job that can give them the possibility to provide for a family. The flow from countryside to city of rural-urban migration will continue in years ahead, and Dar es Salaam is already one of the fastest growing cities in Africa.
In sharp contrast to the largely stagnating extreme poverty, Tanzania has seen the emergence of a small, but growing urban middle class. It is a relatively small group, only around 10% of the population, but it has growing purchasing power, substantial political influence, and it has posed political and economic demands - for cheap electricity, imported goods, and better urban social services and infra-structure in the urban areas. The Government is working hard to meet these demands, through for instance, large subsidies for cheap electricity, comprehensive tax exemptions to foreign and national companies as well as government employees, and large non-taxed per diem allowances for civil servants. These government’s attempts to satisfy the middle class run the risk of further increasing, rather than reducing, the inequality in society. This can threaten the continued peace and stability as well as social cohesion in Tanzania.
With the recent discoveries of significant gas reserves in addition to its already large mineral resources, Tanzania’s long-term economic prospects appear promising, and these resources have already attracted foreign investors. However, the benefits to be derived from the exploitation of natural resources will not significantly materialize for another 10 years or so, and it is crucial to ensure macroeconomic management. In recent years, the Government has increased its use of both interest-bearing and low interest concessional borrowing. As a result of the increased borrowing, Tanzania’s public debt has jumped from 28% to 40% of GDP in only four years. The debt continues to grow rapidly, with corresponding increase in debt servicing and repayment. The country’s financial sustainability is not yet threatened, but debt management has become increasingly more important, and there is a strong need for significant strengthening of control of public investments. There is especially a need for greater openness in public contracts and procurement.
SOCIAL DEVELOPMENT
Poverty cannot be measured simply by examining income distribution and distribution of assets alone. The official statistics focus only on private consumption and therefore underestimate the importance of consumption of public goods. The statistics thus underestimate the improvements achieved in recent years. The Tanzanian government has chosen to spend significant resources on provision of public goods to the population. As a consequence, access to water, education and health services have improved substantially over the last decades. As a result, Tanzania has moved up seven places on the Human Development Index (HDI) from 2006 to 2013, an index published by the United Nations Development Programme (UNDP). Tanzania has also made progress in its efforts to meet the UN’s Millennium Development Goals (MDGs).
Tanzania has placed special emphasis on education, and great improvements have been made in the population’s access to primary education. Today, Tanzania is one of the few low-income countries that are close to achieving universal primary education. Progress has also been made in efforts to reduce inequalities between girls and boys in access to education and in the struggle against HIV/AIDS, malaria and several other diseases. In the health sector, general success has been achieved in extending access to basic health services, and the results can be seen in the increasing number of children who survive. There have been declines in both infant mortality rate (the official child mortality rate) as well as in mortality for children under five years of age. However, there continue to be major challenges in reducing maternal mortality. Public spending on education has increased substantially in recent years, whereas health expenditures have declined, both in absolute value and as a share of the national budget.
Across all social sectors, there are major and sustained needs to increase the quality of services offered. The massive expansion of coverage and the attempt to reach out to everyone with education and health services, has reduced the quality of services across the board. Recent studies show comprehensive and persistent quality problems in both primary and secondary education, the consequence being that pupils leave school with entirely inadequate skills. In 2012, 60% of the students failed the public secondary school examinations.
The quality of primary health care has been negatively affected by a range of factors, including shortage and poor distribution of health workers, poor access to essential medicines and poor infrastructure. This situation is further affected by the rapidly growing population. One of the signs that the quality of healthcare services is inadequate is seen in the fact that there has been only a very slight increase in the proportion of women, who give birth at a public health institution. In 2004, 47% of Tanzania’s women gave birth in public health clinics. Six years later in 2010, the proportion had increased to only 50%.
Over the past years, the government of Tanzania has managed to reduce the proportion of unfilled health worker positions from 65% in 2007 to 41% in 2011. This is a significant improvement, but it is still just over half the positions which are occupied.
Access to social services continues to be unequally distributed. For both health and education, there are significant disparities in access to services and in the distribution of public expenditures to different groups in society. This concerns differences between rich and poor, where one lives in the country and differences between rural and urban areas. For example, the number of nurses in the health services per capita is 30 times greater in the best endowed district in the country than the worst. More than half of all Tanzania’s physicians work in Dar es Salaam. It is therefore not surprising to see that the proportion of women who choose to deliver their babies in health clinics is also three times greater than in the rest of the country. This shows how important it is to have strong focus on improving the quality and equal access for the population to social services. These factors that have been somewhat overlooked by the MDG’s focus on achieving as many targets as possible.
ZANZIBAR: A SPECIAL CASE
The complex relations between the semi-autonomous Zanzibar and the union which comprises Tanzania is an important theme in Tanzanian domestic politics, not least in the context of changes in the constitution. Many Zanzibaris hold strong ambitions for increased autonomy for Zanzibar. The existing structure, where the union has responsibility for key areas such as foreign and security policy, is encountering increasing popular resistance. Due to significant gas reserves off Zanzibar’s coast, there is a special dissatisfaction that the union also has overall responsibility for the natural resources.
The independence party, Civic United Front (CUF), has traditionally been the main opposition party in Zanzibar, but in 2010 it entered into a unity government with CCM. While the government could initially be satisfied with the strong popular support, the coalition is now increasingly perceived as inefficient. At the same time, the participation of CUF in the government has weakened popular support for the party. The CUF is marked by internal conflicts and a political vacuum in the opposition’s politics has emerged. Populists movements are seeking to fill this vacuum, and there is a risk that the political scene in Zanzibar will be overtaken by proponents of radical organisations, such as the increasingly popular Uamsho movement, which promotes Islamic principles and total independence for Zanzibar. Zanzibar is thus currently witnessing increased religious tensions and several violent clashes between radical Islamic groups and the authorities. The revision of the constitution, expected when a government commission has submitted its report in late 2013, is likely to result in a more autonomous Zanzibar, and beyond the political changes will also create a significant change in the islands’ economic situation, especially if the changes lead to an end to the tradition of subsidizing Zanzibar’s economy with funds from the union budget.
HUMAN RIGHTS AND RULE OF LAW
From a regional perspective, Tanzania continues to have a relatively positive human rights record. Tanzania has ratified most of the international human rights instruments and established institutional frameworks to support democratic governance and the implementation of human rights. After the UN’s most recent Universal Periodic Review from 2011, the Tanzanian government accepted several of the recommendations made by the review. This can be seen as a sign of the Tanzanian government’s continued commitment to improve the human rights situation. However, despite the positive general framework, there remains considerable scope for very significant improvements in the actual human rights situation for the population in general.
The constitution provides for basic civil and political rights, including freedom of assembly and freedom of speech. Civil society and media outlets have played a much greater role in domestic politics in recent years, and this has led to increased surveillance of media by the government. However, freedom of expression, access to information and media freedom are regulated by outdated legislation, that enables the government to ban critical newspapers, and several have been banned for various periods of time. Self-censorship is also occurring. The judiciary remains largely independent, but there has been concern over incidences of Tanzania not having lived up to international standards of fair trial, while corruption continues to be a major challenge. Lack of capacity and resource constraints, including legal, are a further obstacle for the majority of citizens gaining effective access to the rule of law, based on timely and just treatment of their cases. In addition, there occur occasional incidents of mob justice and extra judicial killings.
While efforts have been made to promote the practical implementation of economic, social and cultural rights, the full realization of these rights continues to be a major challenge. Unemployment is high, and international labour standards are not effectively implemented or enforced effectively. Gender inequalities are deeply rooted in socio-cultural traditions, and violence against women and children, including domestic violence, female genital mutilation, and child labour continue to be widespread. There is also widespread continuing concern over lack of secure sexual and reproductive rights, the result of which are continued high rates of preventable infant, under-five and maternal mortality. There are also very high rates of teenage pregnancies, and women lack access to information and assistance in family planning and other reproductive health care services.
Further, some minority groups like LGBTIs (lesbian, gay, bisexual, transgender and intersex), people with albinism and indigenous groups continue to face discrimination in Tanzanian society.
GOOD GOVERNANCE, PUBLIC SECTOR CAPACITY AND PROBLEMS WITH CORRUPTION
In terms of good governance, Tanzania achieves average scores in global rankings. One sign of progress is that citizens are beginning to demand more insight and influence than previously. Citizens, parliament, media and civil society are increasingly demanding that the government act responsibly, and that it be accountable to the population. Tanzania has also recently seen improvements in budget transparency and people’s access to information, but the political environment continues to be dominated by a top-down approach.
The government is constantly challenged on issues of effectiveness and rule of law, and the fight against corruption continues to be one of Tanzania’s major challenges.
Decades of reforms in the public sector have resulted in Tanzania scoring relatively better than most other African countries on Public Financial Management (PFM). A wide range of laws, regulatory bodies and systems have been enacted and implemented over the last 15 years. Procurement regulation is of international standard, but it continues to be a challenge to ensure compliance with these standards. Public budgets have become more transparent and open, but the citizens’ active engagement in these issues continues to be modest. The oversight capacity of the National Audit Office continues to improve, and its reports are being discussed among the public and in parliament, but following up the Audit Office’s recommendations continues to be a challenge.
Over the past decade, the government has been successful in increasing tax revenues, partly through more effective tax administration. Collections correspond to almost 18% of GDP, which is high by African standards. A challenge for the future is to revise tax policies so that the tax burden is distributed more broadly in society. Of particular concern is the large amount of tax exemptions, which is estimated to cause annual losses of almost 4% of GDP. In addition, the complex and non-transparent system of exemptions contributes to corruption. Rationalizing of the system and reducing the number of exemptions requires a comprehensive technical and professional effort and capacity, but political will and resolve are equally important.
Corruption remains a central and serious challenge for Tanzania, in terms of both good governance and for the entire social development. The levels of petty and grand corruption identified in international and domestic surveys continue to be of considerable concern and affect all sectors of the economy from public service delivery to natural resource exploitation, industrial production and business. The formal anti-corruption legislation and anti-corruption institutions in Tanzania are comparable to those of most other African countries. Hence, in principle, there should also be good possibilities to initiate a far more effective struggle against corruption, but this requires a combination of political commitment and increased engagement from the media, civil society and the parliament. There have been some positive developments in recent years, but key challenges remain in implementing and enforcing the legislation. Similarly, it is a great problem that very few of the corruption cases end up being prosecuted in the courts.
New major opportunities and initiatives are underway. Steps have been taken to implement legislation and to meet the standards promoted by organisations such as the Extractive Industries Transparency Initiative (EITI). This entails strengthening of domestic revenue and financial management, and positive developments within PFM reforms. Crucial, however, is a continued strengthening of the systems and mechanisms for openness, accountability and transparency in the public system.
NATURAL RESOURCES MANAGEMENT
Tanzania is rich in natural resources and has one of the highest forest covers in East and Southern Africa. The wildlife is rich, and the tourism sector is growing rapidly, currently contributing with 18% of the country’s GDP. The mining industry has experienced high, but greatly fluctuating growth rates in the last decade with an annual average growth rate of 15% per year. However, it should be noted that the growth departs from a low base, and that the mining industry constitutes less than 5% of Tanzania’s GDP. The government expects that the mining sector will grow to 10% of GDP by 2025. Natural resources already account for a large proportion of Tanzania’s exports. In 2010, mineral export alone accounted for almost one-third of Tanzania’s total exports.
The recent discoveries of very large off-shore reserves of natural gas and potentially oil will make the extraction industry in Tanzania even more important. The expected intensified extraction, export and domestic exploitation of Tanzania’s natural resources holds great economic potential. It could contribute to solving the country’s long-standing energy crisis and significantly boost domestic revenue. Current estimates are that when gas exploitation reaches full production, incomes from extraction alone will be more than three times current ODA to Tanzania. Over the short to medium term, however, revenues from the natural gas will not be significant, and it is possible that the government may choose to mortgage its future income in order to satisfy short term needs. This tendency is already evident from the increase in government borrowing.
Based on current experience from the mining industry, there is no certainty that the exploitation of natural gas will generate large numbers of new jobs, unless significant new policy measures are taken to ensure this. The government is aware of the potential benefits to the nation’s economic development if linkages between gas exploitation and the local economy can be established, e.g. through local processing and subcontracting. Existing tax policies are being reviewed in order to use international experience to ensure national public revenues from exploitation of the gas reserves. In 2012, Tanzania’s policies in the extraction sector were declared compliant with the EITI standards, and implementation of the necessary legislation has begun.
ENVIRONMENTAL CHALLENGES AND CLIMATE CHANGE
Tanzania’s economy remains vulnerable to the environment. The country has relied heavily on hydropower to meet its electricity needs, but in recent years, electricity production generation has proven insufficient, due partly to poor rainfall and depletion of hydro reservoirs. The impact of climate variability Tanzania’s predominantly rainfall-based agriculture is also very evident. Most of the country’s agriculture is directly dependent on annual rainy seasons, and there is a close relationship between variations in the amount of rainfall and differences in the country’s annual economic growth. Agricultural production accounts for nearly half of Tanzania’s GDP, and reduced agricultural productivity has already occurred as a result of changes in rainfall patterns. In some regions, this has created problems for the total food production and food security. In early 2013 Tanzania adopted its first ever strategy to reduce the negative impact of climate change.
REGIONAL INTEGRATION: SADC AND EAC
Regional integration plays an increasingly important role, both politically and economically, in terms of reducing the risk of regional conflicts. Economically, it concerns pooling resources and markets for achieving economies of scale, with the possibility for specialization and greater competitiveness. Politically, Tanzania continues to be oriented mainly southwards, toward the Southern African Development Community (SADC), while in terms of economic activities, it is linked to the East African Community (EAC), which was re-establishment in 2000.
There are expectations regarding Tanzania’s capacity to assume political leadership in solving some of the region’s political crises. Tanzania has sent troops to deal with the conflicts in Sudan and the Democratic Republic of Congo, and this is seen as an expression of a willingness to assume such a role.
EAC is critical to achieve regional economic integration. The cooperation currently includes a customs union and a common market. The customs unions, when finally implemented, will lead to common external tariffs and free movement of goods within the region, and a common market will entail the creation of a single regional market with free movement of factors of production, including labour and capital. Plans are in place for a monetary union, with the ultimate goal of a political federation. However, the main emphasis is currently on economic integration. The individual East African economies are still quite small. The total GNP of all the EAC countries taken together (i.e., Kenya, Uganda, Rwanda, Burundi and Tanzania, with about 135 million inhabitants) is only one-fourth that of Denmark, and Tanzania’s GNP is but 7% of that of Denmark, despite Tanzania having a population that is eight times that of Denmark. Increased regional economic integration thereby holds great potential for improved competitiveness and will also mean that the individual firms gain access to a larger domestic market.
Tanzania has chosen a cautious approach to the integration process, as many Tanzanians desire more time to prepare the country for the free movement of goods, labour and capital. Sectors such as migration and land ownership are especially sensitive issues in Tanzania. Despite this, Tanzania is moving forward on the EAC reform agenda, and a number of promising steps have already been made. However, it should not be ruled out that EAC may evolve unevenly, with some countries moving faster in the process of integration than Tanzania.
EXTERNAL ASSISTANCE TO TANZANIA
High economic growth and domestic revenue partly in the form of taxes have resulted in some reduction of Tanzania’s historically high aid dependency. However, aid continues to finance nearly one-third of all public expenditures (corresponding to almost 8% of GDP). This may change drastically over the next decade, where continued high growth and increased revenue from natural gas may reduce the importance of development assistance.
Tanzania has been at the forefront of the global move towards enhancing aid effectiveness. A central element of this effort was a move towards general budget support (GBS) to the government from 2000. While the share of GBS in the total aid package has not increased as much as expected, more than two-thirds of all reported ODA flows through government systems in various ways, and a third of this is GBS proper. While overall ODA to Tanzania has continuously increased over the past five years, the proportion between modalities has changed, with GBS declining relatively, baskets remaining stable and project support increasing.
Studies of the impact of development assistance to Tanzania show that it has made a real difference in the areas where the resources have actually been targeted. This is especially true for the social sectors, where aid from abroad has also led the government’s to prioritize use of its own resources, and where the total aid effort has contributing to improvements in sectors covered by the MDGs. The aid, especially in the form of GBS and Basket modalities, has also led to demands and has contributed to improved national financial systems and stronger management and accountability in public administration.
PRESSURE FOR AND PACE OF REFORMS
In cooperation with its development partners, Tanzania has been implementing core economic and public sector reforms for many years. After achieving good results in the early years, many of the core reforms have been stagnating in recent years. This can be partly explained by the fact that the second generation reforms are often more difficult to implement, and that capacity in the systems remains limited. However, there is also a certain degree of reform fatigue within many parts of government apparatus. Recognizing that ineffective implementation of the reforms is one of the major bottlenecks in the country’s efforts to achieve its development objectives, the Government of Tanzania has recently adopted the so-called "Big Results Now" (BRN) approach to the reforms in order to speed up implementation in selected and strategically important sectors.
The idea for the BRN strategy comes from Malaysia, and it is implemented as a top-down approach under the direct control of the President. The goal is to achieve a clear sequenced prioritization of policy actions and linked to strategic resource allocation to the prioritized sectors, and a strong focus on the implementation and monitoring of the results. Six sectors have been selected as priorities for the first wave of results: energy and power generation, transport, agriculture, education, water and resource mobilization. It is expected that the next wave will also include the health sector. The decisions about the new way of implementing the reform process is very new, but it is possible that the BRN approach can lead to genuine changes and to positive results, especially if the government succeeds in creating a strong institutional mechanism that ensures management and control, and that the public sector genuine delivers the planned results.