ECONOMIC RECOVERY – THE INTERMEDIATE STAGE

A general description of Tanzania’s Economic Recovery Programme was given in Bulletin No 25. Five months after the Paris conference at which final agreement on the package was reached, limited progress has been made in formalising the contributions of multilateral and bilateral agencies. Agreement for a standby credit of 70 million dollars was reached by the Board of Directors of the International Monetary Fund on 28th August, but the final approval of the Executive Board of the World Bank for a structural adjustment loan of 130 million dollars was only given at the end of November. Meanwhile the various bilateral donors were proceeding with varying alacrity. The United Kingdom moved quickly to finalise the details of the first 810 million in the approved aid program. West Germany, on the other hand, was slow to complete the necessary formalities.

One result of the agreement with the IMF was a meeting in Paris on 18th September with Tanzania’s main creditors to consider the rescheduling of official debts. Unfortunately, it was left to Tanzania to negotiate an agreement with each creditor country individually. The result inevitably is some delay in securing relief from the debt burden and the imposition of a considerable administrative burden on the Tanzanian Government.

At the end of November, therefore, Tanzania finds itself at an intermediate stage of its recovery programme. On the one hand, prices have responded to devaluation with increases of 100% or more in the case of imported items. Since transport is a substantial cost item affecting many home-produced products, itself depending heavily on imports, the prices of commodities of domestic origin have been affected, sometimes drastically. On the other hand, foreign exchange relief and industrial revival have hardly begun to result from the new inflow of resources. During this interregnum, therefore, many of the social costs of the recovery programme in terms of higher prices and budgetary stringency are being exacted without the compensating benefits of industrial rehabilitation and revival.

Looked at in this way, this intermediate stage is essentially an urban phenomenon. In the rural areas where most families grow crops for their own subsistence, the situation wears a somewhat different aspect. The steep increase in producer rewards seems to have induced, at least in some areas, a spirit of optimism and to be stimulating production. Prices in the village dukas may be high, but there is now money in the pockets of many farmers. In this situation the presence of incentive goods on the shelves of the village shops is of considerable importance and the fact that in some areas distribution has been unsatisfactory due to the country’s formidable transport problems has been recognised by the authorities as meriting urgent attention.

A modest attempt has been made to blunt the edge of the price explosion in the towns by increasing de facto the minimum wage and the rates of salary paid to civil servants on a declining scale in the higher ranges. Strictly speaking, salaries were themselves unaffected, but were topped up by an ‘allowance’ as an interim measure of relief pending the report of the Nsekela Commission on Public Service Salaries, the results of which are also likely to affect incomes in parastatal and private industry and other forms of employment But the amount of the ‘allowance’ even at its proportionately highest level fell short of the shift in the cost of living and therefore failed to avert a further fall in living standards. It my seem surprising, therefore, that fears of civil commotion resulting from agreement with the IMF do not appear to have been fulfilled.

There seem to have been three possible reasons for the absence of any noticeable reaction to inflation. The first is that two good harvests in succession have restrained the increase of food prices, which are now expected to remain fairly steady, subject to local variations, well into the new year, For the first time in a number of years the Rational Milling Corporation has been buying grain for store and, unless there is serious damage from insects, the unloading of these stocks should exercise a steadying influence on prices before the next harvest. There are, of course, dangers lurking in the shadows, such as the Greater Borer Beetle, but precautions are being taken. Let us hope that they will be effective.

The second reason for the absence of unrest may be the fact that before devaluation most purchases were already being made at highly inflated prices in the black market. As in Uganda, and subsequently Ghana, the practical effect of devaluation may thus have been merely to bring the official price structure into line with that of the alternative economy.

Thirdly, it appears that the inflation provoked by the package has not been as severe as was commonly feared and that already there are signs of prices levelling off. Some further modest increase is expected in 1987, but given reasonable harvests it is hoped that towards the end of the year the growing capacity utilisation of industry will help to restrain further rise.

It is difficult at this stage, in the absence of reliable statistical information, to pronounce with certainty on the effects of the Economic Recovery Programme. Nevertheless, it is perhaps significant that there appears to be a favourable psychological climate beyond previous expectations, considering the difficulties imposed by the interregnum. There are signs of an emergent spirit of enterprise, particularly in the export sector. This may be part of the consequence of what is known as the ‘liberalisation programme’, which allows exporters to retain a proportion of their foreign exchange earnings to pay for their industrial raw materials and machinery spares and, within prescribed limits, to buy foreign consumables for the domestic market This programme was not a part of the IMF agreement, but had been announced some time previously. It is clear that entrepreneurs have recognised in the more relaxed approach to the proceeds of foreign trade new commercial opportunities and there are some signs that new entrepreneurial talent my be emerging. There will no doubt be bankruptcies and individual attempts to exploit the new freedom beyond the intended limits; but in the end the programme will be judged by its total effect on foreign exchange earnings and the penetration of foreign markets.

However, notwithstanding these developments in foreign trade, to which the variety of goods in the shops bears witness, and the more favourable outlook for primary producers, it is realised by those at the centre that a long and hard struggle lies ahead.

First, these changes have not yet made significant inroads on the formidable adverse balance in the foreign exchanges. At present the proceeds of sales abroad account for less than half of Tanzania’s minimum foreign exchange requirements and the reversal of this situation will depend critically on the external economic environment and the results of sustained effort over many years. Tanzania is not alone in facing this problem, which is shared by many other countries in Africa and elsewhere, and at this stage it is impossible to feel confident that it will be successfully resolved.

Secondly the entire transport system of the country lies in a serious state of disrepair and imposes a heavy charge on all production. Economic recovery depends critically on the ability to move products and supplies easily, rapidly and at minimum cost, a problem exacerbated by the sheer size of the country. An attack on this problem receives high priority in the Economic Recovery Programme.

Thirdly, the rehabilitation of industry and achievement of satisfactory levels of capacity utilisation will take time to accomplish and it is unlikely that significant developments will be noticeable before the latter part of 1987. In the allocation of new resources now becoming available it will also be necessary to consider priorities owing to the interconnection between different industries For example, the promotion of certain exports will be fruitless until suitable containers have become available in the requisite quantities.

In conclusion, of the immense difficulties ahead there can be no question, but there are grounds for optimism. First, there seem to be a wide measure of political support for the programme both in the Government and in the Party. There seems no doubt about the commitment of President Mwinyi, or the support of the Chairman of the Party, Mwalimu Nyerere. That is a very great advantage in prosecuting a policy so radical and so far-reaching in its repercussions. But secondly, the general atmosphere appears to be not devoid of hope and hope is an important pre-requisite of success. Moreover, there is now ground to expect that the severe difficulties of the interregnum will gradually be eased now that production gets under way. When this takes place and employment picks up progress will become visible for all to see. The success of the Economic Recovery Programme will depend not only on the rewards for individual enterprise, but also on a public perception of benefits widely dispersed. Fortunately, in Tanzania these things are well understood.
Roger Carter

RSS feed for comments on this post · TrackBack URL

Leave a Comment

You must be logged in to post a comment.