THE ROLE OF COMMERCIAL BANKING IN RECOVERY FROM ECONOMIC DISASTER IN GHANA, TANZANIA, UGANDA AND ZAMBIA. Charles Harvey. Institute of Development Studies. May 1993.
In this paper Charles Harvey examines the deterioration of the banks in four African countries and the slow progress of reform. He provides a lucid discussion of the economic and historical context and identifies a number of key themes which explain the enormous obstacles to creating sustainable and efficient banking systems.
Harvey focuses on three different types of banks. In Tanzania the expatriate banks were effectively nationalised after independence and it is only in the last year that commercial banks have re-entered the market. The first two, Standard Chartered and Meridien are dwarfed by the 100% government-owned National Bank of Commerce (NBC) and the smaller but substantial Cooperative and Rural Development Bank.
The author suggests that the colonial period did not leave any effective legacy of banking supervision and that the lending policies of expatriate banks in the countries where they continued to operate, still largely exclude most businesses aimed at and managed by Africans. At independence it was scarcely surprising that governments became closely involved in the direction of bank credit towards the needs of the newly created parastatal companies.
As a mechanism for directing credit, each of the four governments created new 100% owned government commercial banks. The intention was to provide more credit than before to borrowers previously neglected. This was bound to be hazardous because the new banks were pushed into the riskier and more marginal lending business. In Tanzania, for example, the banks built up significant exposure to the marketing boards and cooperative societies.
In African economies trying to build economic growth a major part of the economic strategy is to rely much more than in the past on the private sector which, in turn, will need a banking sector if that strategy is to succeed. The author suggests that to meet this role a banking sector must provide efficient financial intermediation and a payments mechanism. He concludes that in the countries under focus the banks have failed to perform these basic functions. In part defence, it is worth pointing out the constraints to performing these functions in a country such as Tanzania. These include the lack of a securities market (which would provide alternative and additional sources of liquidity to banks and operations) and the problems created by the lack of properly functioning telecommunications at a national level.
In the period since their formation most of the government owned banks allocated credit using non-commercial criteria; for example to loss making parastatals according to instructions from the government, or to their own directors and their businesses. Government pressure on the new commercial banks to lend to politically favoured customers created significant problems. The fact that the loans were made under pressure from governments or simply under orders, meant that the banks felt little need to evaluate the loans or to press for loan servicing. Failure to service bank lending was regarded as the government’s, not the bank’s problem. This led to reckless lending and borrowing.
The effect of this was to create an increasing government liability. Governments had either to create grants to repay their commercial loans, or to recapitalise their commercial banks after writing off their loans to parastatals. One way or another it became impossible to reform the banking system without at the same time doing something about the parastatals. Meanwhile, the quality of lending to parastatals reduced the credit available to the rest of the economy. Harvey picks out Ghana as being furthest along the way to banking reform and Tanzania as being at the earliest phase.
The main features of banking reform that he identified are:
- the transfer of non-performing assets to an assets recovery trust with interest bearing bonds being issued on these to the originating banks;
- replacement of the senior management and boards of directors of parastatal banks, while giving a mandate to the replacements to improve lending policy and practice, with the main emphasis on profitability;
- the establishment of new banking laws covering licensing, capital requirements, capital adequacy ratios, and portfolio concentration, to be enforced by central bank supervisory departments; and,
- the introduction of international accounting and audit principles.
The author sees Tanzania’s position as being particularly difficult due to the extreme concentration of the banking market in the hands of the NBC, the precarious economic situation of the parastatals and the legacy of subversion of the credit process away from commercial criteria and towards other goals. In the period up to 1992 NBC’s lending effectively became an extension of the government budget, with the banking system failing to direct lending to those who could make productive use of credit.
He describes the reform of Tanzania’s banking system as an impressive attempt to sort out an impossible mess, depending on the simultaneous reform of the commercial banks and the parastatal sector. He is less optimistic about Tanzania than the other countries, primarily because government did not just interfere but completely took over the allocation of credit. As a result employees have had little or no experience of commercial lending decisions for twenty years or so. Effective change will therefore depend on significant cultural change and a substantial investment in training a new generation of staff .
The author concludes that the transition to self-sustaining recovery from recovery strongly dependent on aid will take a very long time, much longer than was thought by the donors when structural adjustment programmes were first agreed. The slowness of commercial bank reform is not the only reason for this but the paper argues convincingly that it is an important contributory factor.
THE ANTICLIMAX IN KWAHANI, ZANZIBAR. PARTICIPATION AND MULTIPARTISM IN TANZANIA. M Mmuya and A Chaligha. Fredrich Ebert Stiftung/Dar es Salaam University Press. 1993. 145 ps.
The first parliamentary by-election under multi-partyism was held in the Kwahani constituency in Zanzibar on April 18th 1993. It was an anti-climax because all the eleven opposition parties except one (the small Tanzania Peoples Party – TPP) boycotted it because of what they described as an intransigent and belligerent CCM regime in the Isles.
But the book itself is far from being an anti-climax. One cannot but be impressed by the sheer quantity of facts and figures and the skillful analysis of the political scene in Tanzania which is squeezed into this modest little publication; about the tangled politics of Zanzibar and how people still tend to be categorised as either supporters of the revolution or supporters of the former Sultan; the ideological vacuum; the Union issue; the powerful influence of the main opposition party the CUF: the religious factor; the effectiveness of CCMrs well-organised campaign; the part played by flags/dress/poetry/dance/music/gifts in the election; the details of the electoral process (including government funding) which had been laid down in the Political Parties Act No. 5 of 1992; the determined and successful efforts of the Electoral Commission to ensure a free and fair election; and, a lot of sound advice to aspiring opposition politicians.
Above all, the book gives an analysis of the significance of the 205 different ‘Maskani’ (neighbourhood meeting places which have become associated with the traditional and radical CCM at the grassroots) and how they are becoming a problem both to the CCM leadership and the new opposition parties. And the result of the by-election? The CCM candidate won with 89.3% of the votes cast. This is an essential read for anyone interested in politics in Tanzania in 1995 – DRB.
A COORDINATING AND PARTICIPATORY APPROACH TO MANAGING CITIES: THE CASE OF THE SUSTAINABLE DAR ES SALAAM PROJECT IN TANZANIA. Francos Halla. Habitat International. 18. (3) 1994. 12 pages.
This paper begins by demolishing the supporters of the ‘Master Plan Approach’ to town planning. The author quotes approvingly another writer’s criticism of it – ‘misleading in stated objectives, unrealistic in expectation of future conditions, invalid in diagnosing underlying causes of the most pressing problems, irrelevant in choice of major professional concerns, inflexible and static in methods and procedures, ineffective in influencing the direction of public resources or interventions …. We learn that Dar es Salaam has been ‘master planned’ (‘futile preoccupation’) in 1948, 1968 and 1979.
By contrast, after only two years, the pilot ‘Sustainable Dar es Salaam Project’ (SDP) with technical assistance from UNCHS (Habitat) is pronounced a success. The SDP seeks to ‘coordinate the development activities of all the key actors and promote their participation in all sector’s of the city’s community – popular, private and public’. The procedure involves four stages:
- preparation of the city’s environmental profile;
- consultation on environmental issues;
- preparation by working groups of action plans;
- strategic planning framework as a policy document for an increasingly effective management of the city;
The paper records achievements to date but indicates also some of the practical and institutional constraints. For example, unsuitable offices, the bureaucracy of both central and local governments, lack of funds, the dominance in working sessions of the public sector, the tendency for some of the actors to be entrenched in the orthodoxy of urban planning, and, most disturbingly, the author’s statement that ‘the continued existence of the approach has to a greater extent depended on the determination of the technical support team and financial support by international donors. Is this another imported project destined to disappear when the funds run out? – DRB
INSECT MAN: A FIGHT AGAINST MALARIA IN AFRICA. Alec Smith. Radcliffe Press. 1993.
This is one of a series of a dozen very personal memoirs of the lives of British expatriates in Africa at the end of the colonial era. Alec Smith spent the decades before and after independence in Tanzania working on the mosquitoes which carry disease and on insecticidal methods of controlling them. In 1950 he went to Ukara island in Lake Victoria to work on the mosquitoes which carry filarial worms, the cause of elephantiasis. There he first acquired the nickname Bwana Dudu from which the book’s principle title is derived. He then went to the Pare district to participate, during the late 1950ts, in the important Pare-Taveta scheme, in which residual deposits of the insecticide dieldrin were sprayed on the inside surfaces of the walls and roofs of houses to kill mosquitoes as they rested before or after biting. It is rather shaming to present-day medical entomologists to note that the Pare-Taveta scheme, with 1950′s technology, did a better job in suppressing malaria and the child mortality which it causes than anything which has been achieved in recent years anywhere in tropical Africa.
Around the time of Tanzanian independence Alec Smith and his wife moved to Arusha where he was on the staff, and later Director, of the Tropical Pesticides Research Institute. This Institute is intended to act as a base for evaluating insecticides, herbicides etc. for use throughout Africa, and beyond, against insects of medical importance, as well as agricultural pests of all kinds. Among his other achievements Alec Smith developed ingenious designs of experimental hut for the thorough evaluation of insecticides which repel and/or kill mosquitoes. Groups of these huts were built at Magugu, beside the road from Arusha towards Dodoma, and at Taveta on the Tanzania-Kenya border. These huts, built in the early 1960rs, are useful to researchers to this day.
Despite the book’s subtitle ‘a fight against malaria in Africa’, these important achievements are dealt with quite briefly and most of the book is devoted to an often very detailed account of what it was like for a young British couple to live in upcountry stations and in Arusha in colonial Tanganyika and in newly independent Tanzania. Matters such as amateur theatricals and tennis tournaments which apparently occupied much of the spare time of the hard-working British expatriates of yesteryear, are given much prominence. After leaving Tanzania in 1973 Alec Smith took up W.H.O. postings in southern Africa, Nigeria and Geneva. The period was very productive – the still current W.H.0 manual on chemical control of vector insects was compiled at this time by Alec Smith. He also claims credit for the idea of impregnating mosquito bednets with pyrethroid insecticides, which is the currently most popular, and rapidly spreading, method of protection against malaria mosquitoes. The roots of this idea can (as with most good ideas) be traced to several sources (repellent treated clothing in the USSR and USA , DDT treated bednets used in the Second World War, pyrethroid treated clothing in North America and insecticide treated bednets in China and in francophone Africa). However, Alec Smith certainly deserves credit for presenting the idea to a W.H.O. meeting and having it endorsed and propagated through widely-read W.H.O. manuals.
LAND TENURE REFORM IN EAST AFRICA: GOOD, BAD OR UNIMPORTANT? T C Pinckney and P K Kimuyu. Journal of African Economics. Vol 3. No 1. March 1994. 28 pages.
Despite its ambitious title this 1991/92 study was based on only about 115 households each in similar coffee-growing communities with very different historical backgrounds in Kenya and Tanzania. The authors compare the individual smallholder property rights developed in Kenya, which they conclude were cost ineffective, with the policy of abolition of private land titles by Tanzania after independence. Coffee had been developed in Tanzania as an African cash crop from about 1905, with its greatest expansion after 1920 whereas in Kenya it was developed as a ‘European’ crop, with prevention by the ‘settlers’ of ‘African’ development pre-1946 except in the remote districts of Meru and Kisii. Thereafter expansion was inhibited by the Mau Mau Emergency and the government’s programme of consolidating the numerous fragmented smallholdings.
The surveys were chosen from clusters which had been sampled in national surveys in the late 1970′s and again in 1982-83 in the Kenya district of Murang’a and above Moshi in Tanzania. The land holdings averaged two acres in Murangfa and four acres on Kilimanjaro, half in the coffee/banana zone and half below where annual crops are grown. The purpose of the study was to compare the individual land tenure under Kenya’s programme of consolidation of fragmented smallholdings, which was aimed at encouraging effective crop husbandry through possible access to credit and better security of investment, with Tanzania’s nationalisation and prohibition of purchase, sale or rental of land. While the Kenyans appreciated land consolidation, the authors consider that the funds needed for the subsequent land registration could have been much better spent because land titling did not lead to any increase in land-secured credit, partly because of failure to develop it. The authors did not examine the issue of indigenous tenure systems versus individualisation. The argument is about small farm tenure. Kenya embarked on its programme of consolidating densely fragmented smallholdings and the registration of land titles in 1956 and the prograiame has continued to this day, .even in remote areas. They started in areas with good potential for cash crop development – coffee, tea, pyrethrum and export of horticultural crops. The study does not consider or evaluate the benefits of economic crop development.
The authors find that densely populated communities as in Kenya may lead to landlessness and poverty. In Tanzania, the emphasis was on equity which demanded that land should became state property leaving a situation of laissez faire. In fact, in the area of Tanzania under study, land under permanent cultivation (coffee/bananas) was personalised for people to cultivate as long as they wished and land was still inheritable by sons, thus the tenure was as good as freehold. So, while the two countries have pursued extremes in land policy, the authors have come down on the side of Tanzania!
R J M Swynnerton
ARCHAEOLOGY IN THE NGUMI HILLS: IRON AGE AND EARLIER CERAMICS.
Carolyn Thorp. Azania. Vol 27. 23 pages. 1992 DRIVE SLOW SLOW – ENDESHA POLEPOLE. Carlotta Johnson.1994. 91 pages. £6. Obtainable from Jane Carroll, Britain-Tanzania Society (which will receive receipts from sales), 69 Lambert Road, London SW2 5BB. An account of a return to Tanzania after 17 years. The author describes it as a very personal account of belonging and not belonging and recommends it to anyone who recalls their own youthful contribution to the country, how little they learned at the time and how much they have realised since.
STYLISTIC APPROACHES TO E KEZILAHABI’S NOVELS AND POETRY.
Elena Bertoncini-Zubkova. Afrikanistische Arbeitspapiere. Vol 31. 1992. 62 pages.
MOSQUES, MERCHANTS AND LANDOWNERS IN ZANZIBAR STONE TOWN.
Abdul Sheriff. Azania. Vol 27. 1992. 20 pages.
DECENTRALISATION, PARTICIPATION AND SPATIAL EQUITY IN RURAL
TANZANIA: A COMMENT by Joseph Semboja and Ole Therkildsen. World Development. Vol 22. No 5. 1994. 4 pages.
THE SOUTHERN AFRCIAN ENVIRONMENT: PROFILES OF THE SADC
COUNTRIES. P O’Keefe and others. Earthscan Publications. 1993. 354 pages. Environmental problems faced by nine countries including Tanzania.
CHANGES IN BLOOD TRANSFUSION PRACTICES AFTER THE INTRODUCTION
OF CONCENSUS GUIDLINES IN MWANZA REGION. J Vos and others. AIDS Vol 8 No 8. August 1994. 6 pages.
A COMMUNITY MODEL OF AFRICAN POLITICS: ILLUSTRATIONS FROM
NIGERIA AND TANZANIA. G Hyden and D C Williams. Comparative
Studies in Society and History. 36. (1). January 1994. 28
EAST AFRICA: A TRAVEL SURVIVAL KIT. G Crowther. Lonely Planet.
1994. 32 pages.
COMMUNITY NUTRITION FOR EASTERN AFRICA. Ann Burgess and
others. African Medical and Research Foundation (AMREF). 286
pages. 1994. f 4.65 + p&p from TALC, P 0 Box 49, St Albans,
Herts AL1 4AX. A short up-to-date low-cost practical nutrition
manual for community-based workers.
THE POLITICAL ECONOMY OF LAND REFORM IN ZANZIBAR. I F Shao.
Dar es Salaam University Press. 1992. 106 pages. £6.50.
AIDS EDUCATION FOR PRIMARY SCHOOL CHILDREN IN TANZANIA: AN
EVALUATION STUDY. Knut-Inge Klepp. AIDS 9 (8) August 1994. 6
INDIGENOUS FARMER-MANAGED IRRIGATION IN SONJO, TANZANIA.
Geographical Journal. 160 (1). March 1994. 15 pages.
COST-EFECTIVENESS OF CHEMOTHERAPY FOR SPUTUM SMEAR-POSITIVE
PULMONARY TUBERCULOSIS IN MALAWI, MOZAMBIQUE AND TANZANIA.
Eric de Jonge and others. International Journal of
Health Planning and Management. 9 (2). April-June 1994. 30 ps.
(Tanzanian Affairs has information about many more recent publications but due to pressure on space these will be listed in the next issue – Editor)