The shortage of foreign exchange resources that Tanzania is able to generate by the sale of exports lies at the centre of Tanzania’s acute economic problems . As a result of this shortage, the purchase of consumer goods abroad has been drastically curtailed and of luxury goods virtually eliminated by government action with a view to concentrating such overseas resources as it is still able to command on capital goods, industrial spares and industrial raw materials. So acute, however, is the shortage of foreign exchange that it is doubtful whether Tanzania is able to hold the economy to its present albeit much reduced level of activity. The impression is created of an economy that is slowly running down.
The causes of the foreign exchange crisis are complex. Among the most obvious is the formidable increase in the sums claimed by petroleum purchases since 1974, despite a reduction of the volume consumed. Another is the world economic depression, the consequent flagging of demand for many Third World products and the resulting fall in prices, alongside the rising cost of imported manufactures caused by inflation. But the most fundamental cause of the crisis is the decline in the volume of exports(1). Between 1910 and 1979 merchandise exports from Tanzania, of which 90% consisted in primary products, fell in volume by an average of 6.6% per annum, in contrast to an average annual increase of 3.4% in the previous decade. The dramatic fall in world demand for sisal after 1910, Tanzania’s largest agricultural export in 1965, accounted for much of the decline, but the production of cotton and cashew nuts also fell substantially. Coffee production just held its ground and only tea and tobacco showed an increase. However, by 1980 tobacco exports had also sagged on account of an increase in home consumption.
The reasons for this general decline in exports are somewhat complex. The suggestion made in some quarters that government backing for primary exports was half-hearted on account of their association with colonial economic relationships is difficult to substantiate in the face of the close attention to measures to improve the export position found in the various Five Year Plans and in the budget speeches of economic ministers. A much more likely explanation is the growing preoccupation of government, especially after the years of drought 1913-4, with the serious problem of food production for the rapidly growing population, the restoration of food self-sufficiency and the avoidance of costly imports of food. The census of 1918 has shown a very high current rate of population growth of 3.4% per annum, representing a doubling of the population in 21 years and a projected total of 35 million in the year 2,000. Providing for such a population without recourse to external supplies will confront any government with formidable problems.
There are, however, other causes of the setback in the production of export crops. The World Bank (2) lays much emphasis on the inadequate compensation paid to producers and attributes this largely to inflated rates of exchange, resulting in a low shilling equivalent to sales income, and to inefficient and costly crop collection and transport. The Bank and the IMF have urged devaluation as a means of paying incentive prices to producers without financial cost to the government.
This argument may well contain some truth. The President’s remark at the Commonwealth Conference in Melbourne that industrial import prices reflect the costs of production, while the prices of exports are determined by market decisions in far away capitals, suggests that the market value of exports converted into shillings at current exchange rates are not enough to meet production costs. Depreciation could solve this problem by increasing the shilling proceeds of sales. It was in fact the expedient resorted to by the Tanzania Government in October, 1915 and January, 1919, but the adjustment of 15% was not enough to remove the wide B8.P between Tanzanian costs and world prices and was not, therefore, effective in providing for adequate rises in producer prices.
The other burden on producer prices, the growing percentage of earnings absorbed by inefficient transport and marketing organisations, notably the National Milling Corporation, has greatly exercised government and has led to strong measures in an attempt to rectify the situation. The causes of inefficiency are not all managerial, however, and stem in part from the cost and difficulty of administering a transport system with insufficient and deteriorating vehicles and fitful supplies of fuel.
In the face of the foreign exchange crisis the Bank and the Fund lay great emphasis on depreciation as a remedy for declining exports. But such a policy overlooks the grave repercussions on imports and therefore on the replacement and maintenance of machinery and transport. Depreciation raises import costs and cannot fail gravely to exacerbate the already formidable struggle to maintain the country’s physical assets. The Bank’s solution to this problem is to impose still stricter controls on imports (3) and to direct them still more rigorously towards productive purposes; but Tanzania has long introduced a regime of the strictest priorities emphasising industrial and agricultural needs and the scope for a further curtailment of imports must now be insignificant. The Bank’s emphasis on measures to stimulate exports, moreover, can only significantly increase export earnings in the comparatively long run owing to the time taken for new planting to bear fruit, depending on the crop. Thus, the Bank’s prescription must mean still greater austerity during the period taken for export stimuli to take effect and such austerity must greatly accelerate the rundown of the economy and place further obstacles in the way of recovery of exports by inflicting further damage on transport vehicles and roads, the supply of fertilisers and protective chemicals and the smooth operation of processing factories.
So far as Tanzania is concerned, the remedies favoured by the Bank and the Fund would be more practicable if it could be assured of a ‘massive transfer of resources’ as advocated in the Brandt report. This would entail sums larger than are needed to compensate for the higher cost of imports over the next few years. For a radical rehabilitation of transport and maintenance systems and the restoration to full working order of industries serving agriculture are essential ingredients of the export recovery process. Without such assured support, it is difficult to see how Tanzania can accept devaluation as the answer to the export crisis.
J. Roger Carter
(1) This decline was common to many countries in Africa and in fact 19 African countries had negative export growth rates in the seventies, including Kenya, Uganda, Zambia, the Sudan, Ethiopia and Mozambique.
(2) in Accelerated Development in Sub Saharan Africa: an Agenda for Action: The World Bank, 1981.
(3) Tariff terriers are preferred to direct import controls, but this is a separate issue.