NYERERE AND THE WORLD BANK

Extracts from a paper presented by Ron Fennell at a Britain-Tanzania Society seminar on Mwalimu Nyerere on March 11.
‘Confrontation’

An extreme version of the relations between the World Bank and President Nyerere might be:

Nyerere knew little about economics. He refused to address macro-economic policy issues, and failed to accept that state management was stifling growth. The Bank, on the other hand, did not appreciate the cost of nation building and the impact of external events. Since 1977 Tanzania had been battered by external events over which it had no control including in 1977 collapse of the East African Community (cost $100m) and collapse of the coffee boom (cost $100m); in 1979/81 the war against Uganda ($500m plus $100m assistance to Uganda);the 1979/80 oil price increases (cost $150m); the 1979 flood damage ($l00m) leading to imports of food (cost $50m).

While there is some truth in both viewpoints, they oversimplify the relationship between the World Bank and Tanzania, whose ultimate policy maker was Mwalimu Nyerere. We get a better understanding of the relationship if we look at the different phases through which that relationship passed:

1961 to 1967. Independence to the Arusha Declaration
During the first six years of independence relations between the Bank and Tanzania were cordial but low key. Good prices were obtained for export crops -sisal, coffee, tea and cashew nuts. Import capacity, measured in real terms by export earnings, reached its peak in the mid 60s. Industrial investment grew by 18% encouraged by government policies that safeguarded foreign investment and limited public sector involvement. The World Bank’s 1961 economic report outlined a strategy for the improvement of peasant agriculture. It had a significant influence on the first two five-year plans. Bank activity in Tanzania was influenced by the wish to establish a flourishing East African Community. Consequently, lending in Kenya, Tanzania and Uganda was seen as a total package. Lending concentrated on infrastructure and education. There was less attention in the Bank to possible flaws in national economic policy because it was assumed that the three countries were moving towards a common monetary and fiscal policy.

The McNamara/Nyerere alliance 1968 to 1973.
In 1968 Robert McNamara became President of the World Bank. A close relationship developed between McNamara and Mwalimu based upon mutual respect. McNamara saw that Tanzania was a stable country in a huge continent that seemed to be dominated by Cold War rivalries and coups. Its leader was highly intelligent, honest and charismatic and there was a reasonable prospect of political continuity. Nyerere managed to charm people with very different political philosophies ranging from those of Henry Kissinger to Chairman Mao. The Arusha Declaration of 1967 was a major policy statement as well as a skilful piece of political propaganda. Many of the principles of the Declaration -rural development, equity through basic education.’ ­matched McNamara’s concern for basic needs and smallholder agriculture. McNamara’s determination to triple the Bank’s lending programme and give increasing emphasis to Africa was a significant change in Bank policy. Lending concentrated on development projects rather than budgetary support. However, there was insufficient emphasis on economic and sectoral analysis. So began a series of operations in Tanzania supporting integrated rural development and export crop parastatals. Between 1970 and 1980 the Bank (IBRD and IDA) provided $256 million for agriculture, mostly in support of crop parastatals. Unfortunately, a retrospective evaluation of these projects showed that they generally performed poorly. This was partly because of crop production failures and partly because they did not anticipate the full effects of the government’s villagisation and internal trade policies. The Bank channelled nearly half of its total commitments in the agricultural sector to parastatals thereby reinforcing their dominant position. Out of ten agricultural projects audited by the Bank’s own Operations Evaluation Department, only two had an economic rate of return of over 10 percent, one had a rate of return of 4 percent and 7 had negative rates of return. Projects sometimes failed to take into account the social structures in the rural community.

Thus, for a variety of complex reasons many projects failed to bring the production response which had been expected.

The National Industrial Policy. 1973 to 1979

In 1973 the government turned its attention to improving the industrial base of the economy. Its Basic Industry policy -to improve self-sufficiency -received the support of many donors, including the World Bank, Sweden and China. Investment in that sector increased by 11 % a year but the rate of growth of production was sluggish. The share of the public sector in industrial employment rose from 15 to 50 percent and the number of enterprises ­mostly parastatals -tripled between 1967 and 1979. The national leadership, after making decisions about industrial investment, failed to monitor implementation and find out how they worked in practice. Nyerere himself noted in 1975 that Tanzania Breweries was only using 65% of its capacity.

In the enthusiasm for investment in new factories and facilities many in the international development community lost sight of the continuing import requirements of factories and their recurrent costs. Nyerere said ‘we must run while others walk’, meaning there was much to be done to raise the standard of life. But the development community was enveloped in an atmosphere of hectic activity and failed to detect the warning signals or foresee obstacles. Five years later, in 1985, I visited the impressive Mufindi Pulp and Paper Mill which was considerably delayed in start-up and was yet to achieve any of its targets. Building the access road from the main timber source on the plateau encountered major technical problems because the European contractor failed to consult local geologists and went bankrupt. Failure to reach agreement on use of the TANZAM railway proved to be another impediment.

The Industrialisation Policy assumed a large regional market: Kenya, Uganda and Tanzania as an economic community to provide a springboard for exports to more countries in the region. The East Africa Community collapsed in 1977. The efforts by each of the three countries to build their own industrial capacity after the collapse contributed to the poor rates of return of Tanzania’s new industrial enterprises.

Frequent changes in the organisation of rural administration were very disruptive. For example, the switch from district councils to regional Party structures, from cooperatives to marketing boards and back to cooperatives undermined the management capacity of Tanzanian officials. A concern for political correctness tended to undermine the freedom of senior bureaucrats to execute development projects. The increasing power of Party apparatchiks in the regions tended to divert resources to lower priority activities.

The nationalisation of the trucking fleet made evacuation of crops difficult and Tanzanians in the rural areas found it increasingly difficult to get essential goods from the government run stores. Before 1974 private truckers provided all the commercial freight haulage. By 1977 this share had declined to about half of the total market. Truckers left the agricultural industry and concentrated their operations in urban areas, leaving rural areas to parastatal trucking.

The collapse of the economy (1979 to 1982)
Between 1979 and 1982 the economy showed increasing signs of malaise but insufficient attention was given to macro-economic policy and balance of payments issues. Nyerere failed to appreciate that the overvalued shilling in the late 70s and early 80s and the inefficiencies of parastatal marketing were reducing farmers’ incomes. For example, coffee growers in Arusha were digging up coffee to plant tomatoes because the latter were more profitable.

Nyerere always had genuine difficulty in accepting the IMF’s draconian policies. This was partly a reaction to the Fund’s insistence on the inherent value (almost moral virtue) of devaluation and to the multiple conditionalities which he felt reflected arrogance.

Between 1981 and 1984 there was a prolonged debate in the Party about alternative economic policies -whether to go with structural adjustment and the IMF or to go it alone. This delay led to a further decline in the economy. Faced with no practical alternative from the Party hardliners, Nyerere, after three years trying to get consensus, reluctantly accepted that he had to deal with the IMF. The parallel economy -trading outside official channels at ‘black market exchange rates’ -was becoming essential for survival. The Economic Saboteurs Act of 1983 caused great resentment among small businessmen and among many senior civil servants who had started their own business to cover family expenditures. It was a clumsy attempt to stamp out survival entrepreneurship. The President realised that changes had to come.

The necessity of reform 1983 to 1985
When I was sent to Dar as World Bank Resident Representative in January 1984, Ernie Stem, the Bank’s Senior Vice President, made it clear to me that all Bank lending to Tanzania would stop after the approval of the Mtera Power Project in early 1984 unless the government entered into a more active dialogue with the World Bank on economic reform. Times were hard. People were suffering. The picking of tea in the Mufindi plantations fell behind because the women pickers were unable to get sugar to put in their own morning tea, which constituted their main source of energy in the fields. There was a severe shortage of basic consumer goods.

But there were some positive signs:
During the previous two years the Tanzania Advisory Group, an independent team of reputable international economists, financed by the World Bank and ably assisted by Tanzanians from the University of Dar es Salaam, had put together an action plan. This turned into the government’s Structural Adjustment Programme which Nyerere recognised as a necessary prerequisite for a dialogue with the IMF.

The government grudgingly agreed in 1984 to permit ‘own funded imports’-i.e. financing of imports from the proceeds of unofficial exports of gold and agricultural produce which found its way across the Kenya border. In the fITst year about $100 million dollars worth of essential goods (like salt and sugar) were imported.

Until 1984 a private individual was not permitted to carry more than two bags of maize in a vehicle. The Party hard-line ideologists thought that maize fanners had to be protected from rapacious traders who would offer them a low price and that farmers would end up starving in the hungry season. Prime Minister Salim successfully argued in Cabinet that the restriction on the movement in maize should be lifted in order to ease the food supply in the urban areas. People began to discuss reform more openly. The University arranged a public workshop in 1984 that gave people an opportunity for debate.

There were Tanzanians in the university and business who were capable of giving the government sound economic advice. Gradually the government took these people into their counsels, often against the wishes of the Party ideologues. The World Bank’s insistence that policy change should come before Bank funds were released weighed heavily on Finance Minister Msuya in his efforts to convince more conservative cabinet ministers on the need for reform. But measures which he had introduced in June 1984, particularly own funded imports (two years before the start of a Bank funded Economic Recovery Programme) brought improved supply of textiles, clothing, vegetable oil and pick-up trucks.

Conclusion
There is no doubt that mistakes had been made by both sides. The Bank itself went through major changes in its approach to development assistance over the period. There was a move away from project specific lending unless it was based upon a more thorough assessment of sector policies, incentive systems and financial performance. In the early 80’s the Bank recognised that budgetary support, based upon programmes of structural adjustment, was necessary to help economies hit by adverse terms of trade and external events. But these changes in Bank strategy and the time taken to agree on policy packages increased the uncertainty about overall donor assistance.

Nyerere himself was slow to recognise that parastatal inefficiencies were having such a detrimental impact on peasant farmers -his favoured beneficiary. The drive for villagisation was accelerated by over enthusiastic regional administrators competing against each other. Nyerere did little to slow the pace. He refused to accept the need to devalue the shilling until donor consensus and the parlous state of the economy made it unavoidable. Nyerere himself admitted: “There are certain things I would not do if I were to start again. One of them is the abolition of local government and the other is the disbanding of cooperatives. We were impatient and ignorant’.

Structural adjustment is a phenomenon in all societies but developing countries often lack the necessary financial resources to cushion society against the shocks. In Tanzania adjustment has gone on slowly ­probably too slowly at times Tanzania and the Bank continue to work together to strengthen government institutions and to assist the private sector to play a greater role in development.

The work of the World Bank: has been made easier by the friendliness of the people of Tanzania and a stable political environment -a rarity in Africa -and by a commitment to consensus building. All these are part of Nyerere’s legacy to Tanzania
R. Fennell

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