Exchange Rates (April 1995):
US$ = Shs 560 – 570
£ Sterling = Shs 850 – 910

The WORLD BANK, advised by its representative in Dar es Salaam (who was accused of interfering in Tanzania’s sovereignty) and supported by TANESCO’s Board of Management and the press, has forced the government to change the decision it had made on the award of a tender. This was for the Emergency Power Supply Project urgently needed to relieve the electric power shortages which have been crippling industry during recent months. The Canadian firm Ocelot won the tender. A combined Irish, South African and Malaysian tender had been favoured by the government – Business Times.

Although heavy rain during the last few weeks has led to improved electricity generation TANESCO has warned that rationing will continue because water levels in the main dams had not yet risen substantially – Daily News.

SOUTH AFRICA’S PROTEA HOTELS has recently taken over the management of 20 African hotels outside South Africa including four formerly state-owned hotels in Tanzania – Johannesburg Star.

INFLATION had reached 39.5% by the end of January and there are fears that it will reach 45% by budget time in June; food prices increased by almost 20% during the five months after September 1994 – Business Times.

The TANZAM Railway Authority plans to layoff a third of its 6,000 workers in the next 14 months because of severe competition – Business Times.

Volume 1 of the Presidential Commission of Inquiry into Land Matters* has been published recently. Its Chairman, Professor Issa G Shivji has made available to Tanzanian Affairs a copy of an interview he gave to HARAMATA (a quarterly published by the IIED) in which he explained the Commission’s recommendations. There follows a summary of the interview.

The Commission found that the land tenure regime in Tanzania was in a mess. The last major review had been the East African Royal Commission in 1953-55. All lands were then declared ‘Public lands’ vested in the Governor. Indigenous land users continued to be governed by their customary law so long as it was in the interest of the state

This regime continued after independence. In fact, the control of land by the Executive led to enormous abuses, contrary to the interest of rural land users and the long run interest of the nation. Some major changes in the structure of the government – decentralisation (1972)’ villagization (1972- 74) followed by reintroduction of local governments a decade later etc. led to total disruption of land administration.

SUMMARY OF THE COMMISSION’S MAJOR RECOMMENDATIONS
a) The tenurial status of all lands would be declared constitutionally to be either national or village lands; in urban areas the present system of allocation through rights of occupancy would continue;

b) national lands would be vested in a National Land Commission independent of the Executive, accountable to the Legislature and overseen by a reconstructed Judiciary; village lands would be vested in Village Assemblies;

c) dispute-settlement machinery would be reorganised by creating Elders Councils at the village level and Circuit Land Courts at a higher level in which elders would participate; community values would be brought to bear on decision-making by magistrates and judges;

d) a limited land market would be created which would guard against anarchic tendencies and socially disruptive effects by providing for overall control by the community through the village assemblies (in the case of village lands) and elected ward and district committees (in the case of national lands);

The Commission’s recommendations were based on certain underlying principles:
a) to encourage agrarian accumulation from below based on a vision of an autonomous national development (albeit capitalist) as opposed to the current practice of incautious opening up of the country to predatory merchant and compradorial capital, both local and domestic;

b) to break up the monopoly of radical title in the executive arm of the state and diversify it in a way which would permit control and administration of land from below and to create countervailing forces against abuses by monopolistic state organs; and,

c) devise procedures which would be legitimate, accessible, open and transparent.

Land would be placed squarely in the public domain under the broad regime of public law (constitution, basic law etc.). Our proposals assume a strong political will on the part of government to implement them. If the government were to implement them it would garner strong support from the people. It would also face strong opposition from vested interests.

Asked about the next steps at a meeting in London sponsored by OXFAM on March 19th this year Professor Shivji said that Mwalimu Nyerere had advised the Commission to ensure that the report was published. If the people knew about it they would make sure that some action would be taken.

He also said that the IMF/World Bank had brought considerable pressure to bear on the subject of land tenure. They wished to see arrangements made for privatisation so that owners would have an incentive to invest. But their wish was not supported by the people in the villages who were suspicious of attempts to take away their land.

* REPORT OF THE PRESIDENTIAL COMMISSION OF INQUIRY INTO LAND MATTERS. Volume 1. Land Policy and Land Tenure. Scandinavian Institute of African Studies. Uppsala. Sweden. 350 pages. f 28.95. (Volume 2 is an analysis of 40 land disputes selected on the basis of their illustration of important socioeconomic trends and legal problems. As it contains sensitive matters its circulation will be limited).

Exchange Rates (December 2, 1994):
US$1 = Shs 530 – 550
f Sterling 1 = Shs 835 – 890

BANK FLOATS SHARES. When the Cooperative and Rural Development Bank (CRDB) floated 250,000 shares President Mwinyi and his wife Sitti bought the first 20 worth TShs 200,000. The bank has restructured and reduced its staff from 1,600 to 1,000 and its directors from 27 to 12 – The East African.

SPEEDING RAIL TRAFFIC. The Tanzania-Zambia Railway Authority (TAZARA) has signed an agreement with the South African Railway Network to promote cooperation and allow for freight wagons to move freely throughout central and southern Africa.

REDEPLOYMENT OF RETRENCHED CIVIL SERVANTS. 117 Redeployment Councillors have been trained to help retrenchees to make rational choices about alternative income-earning activities.

IFAD LOAN. The International Fund for Agricultural Development has granted Tanzania a $18 million loan to help small-scale farmers in the Shinyanga, Dodoma, Tabora and Mwanza regions. The funds will be channelled through the Cooperative and Rural Development Bank at lower than commercial interest rates.

BRITISH AID. Tanzania has received a grant of £4.7 million for the rehabilitation of Tanga Port.

MASSIVE NEW TELECOMMUNICATIONS PROJECT. Contracts were signed for this TShs 7,144 bn project on November 15th. Two firms will implement the project which will install 6,000 trunk and 24,416 exchange lines in Dar es Salaam – Mitsubishi of Japan and Segitel International of Canada – Daily News.

ROAD IMPROVEMENT TO CONTINUE. Ten international donors have agreed to go ahead with the second phase of the Integrated Roads Project (IRP). US$ 338 million has been pledged for 785 kilometres of new roads (mainly for the Dodoma-Mwanza section) and 885 kms of roads which will be rehabilitated. But, according to some sources, there will be delays in implementation because the Tanzanian Treasury cannot meet credit conditionalities – Express.

BANK OF TANZANIA (BoT). The IMF has recommended that the BoT should be transformed from an agency for execution of monetary policy into a viable and credible source of finance. The IMF report is based on the desire of the Tanzania and Zanzibar governments to retain one currency, monetary and bank supervisory authority. At present there is no bank-customer relationship between the Zanzibar Government and the BoT and foreign exchange reserves are not centralise at the BoT.

BANK PROFITS. The Meridien BIAO and the National Bank of Commerce have announced substantial profits for the year ending June 1994 – Business Times.

The CAPITAL MARKETS AUTHORITY commenced operations on October 1st. It will launch and supervise capital and securities markets comprising shares of private and parastatal companies.

INVESTMENT IN ZANZIBAR. 37 projects worth $89 million have been approved during the last four years by the Zanzibar Investment Centre. 33 of the projects were in tourism.

The BUREAU OF STATISTICS has changed the base year on which future price trends will be based from 1977 to 1992 – B. Times

Just after they had been celebrating the 1994 New Year – on January 2nd – Tanzanians woke up to a shock. Finance Minister Prof. Kighoma Malima suddenly announced a new budget – it became known as the ‘mini-budget’ – to deal with a financial crisis. There had been a severe shortfall in revenue collection and expenditure was surging ahead. Details were given in Bulletin No 48.

As Roger Carter explained in the last Bulletin, when a government cannot balance its books there are all kinds of unhappy consequences. The government must borrow more – public debt in Tanzania increased by 20.3% in 1994/95 compared with the previous year; the government owned National Bank of Commerce, which is the banker for numerous loss-making parastatals, has just had to raise its interest rates from 30% to a prohibitive 39%; the value of the currency will fall – in Tanzania it has fallen from TShs 475 to the dollar in December 1993 to TShs 520 to the dollar today; inflation will increase – it has increased from 19% in 1990 to 23.5% at the end of last year.

CLOSING THE GAP BETWEEN REVENUE AND EXPENDITURE

So, when Finance Minister Malima examined the books before planning his main budget statement in June he again had to deal with the large gap between revenue and expenditure. His budget for 1994/95 envisages the following:

Revenue 292,310 mill TShs
Expenditure 514,284 mill TShs – 20% more than last year
Gap 221,974 mill TShs

The main cause of the proposed increase in expenditure has been internal and external debt servicing and the cost of the restructuring of the financial and parastatal sectors.
The minister announced that he was determined to reduce dependency on foreign donors for recurrent expenditure but he anticipated TShs 168.846 billion still coming from donors in 1994/95 leaving a gap of TShs 53.128 billion. Sweden has indicated that it will contribute TShs 16 billion.

To avoid an increase in inflation the minister stated that he would not borrow any more from the banking system and, in fact, to indicate his determination to deal with the bulging public debt, he intended to reduce his accumulated bank borrowing by shillings 20.16 billion in 1994/95. This, of course, would increase the gap again to TShs 73.288 billion. To reduce it, the minister would raise TShs 36.319 billion by continuing to auction Treasury Bills (a procedure first adopted last year) and thus reduce liquidity and hopefully, inflation; his ambition to bring inflation down from 23% to 10% in one year seems unlikely to be achieved.

The budget gap was now down to TShs 36.978 billion and this last part would have to be raised by painful measures to increase revenue and reduce expenditure.

A whole range of such measures were announced. These included broadening the sales tax base so that contractors, accountants, consultants, tour operators and many others would now pay this tax; an increase in customs tariff from 40% to 50% and reduction in import duty on industrial imports from 10% to 5% to help local manufacturers; a 5% levy on petroleum products to stop smuggling to neighbouring countries; an increase in road toll from TShs 30 per litre to TShs 40 to help cover road maintenance costs; strengthening supervision of collection of revenue, although this is not going to prove easy given the extent of the temptation to corruption it offers; reducing the number of government ministries; strengthening the unpopular ‘cost sharing’ policy (payments made for some previously free education and medical services); and a substantial reduction in the number of government operated vehicles (a particularly heavy drain on the exchequer).

To tighten up revenue collection, regulations governing the use of custom bonded warehouses would be amended; a Revenue Board to scrutinise all tax exemptions would be set up; every taxpayer would be given an identification number; fines for offenders would be increased;

CONFUSION ON INVESTMENT INCENTIVES AND TAX EXEMPTION

The minister was less sure footed in his budget speech when he came to dealing with tax exemptions allowed under incentive schemes to attract foreign investment. These were being misused and abused he said. The minister first said that he was going to abolish all tax exemptions except for a short list including diplomatic establishments, recognised foreign NGO1s, religious institutions and very large new investments (US% 10 million or more). Responsibility for exemptions was being moved from the Investment Promotion Centre to the Minister of Finance who would have sole authority.

BACKTRACKING

Later however, it had to be admitted that where there had been unpalatable tax exemptions these had been authorised by the Ministry of Finance and not by the Investment Centre. Under heavy attack from investors and the press the ministry back tracked on July 14th. All investors whose projects had been approved and been issued with tax exemption certificates before the budget were to be tax exempt. But, future tax exemptions would be ‘expost facto’ i.e. exemption would be granted only after completion of the project and the beginning of production or of delivery of the service. Raw materials, consumer items including spare parts, projects related to transportation of transit cargo, banking, radio, television, restaurants, casinos and tour operators would not qualify for tax exemption. Exemptions would be given for new projects worth more than US$ 5 million or, in the case of projects involving rehabilitation/expansion where they were worth US$ 2.0 million or more.

These instructions disturbed an already not very favourable environment for attracting investment so on August 10th there was further backtracking. ‘Business Times’ reported that President Mwinyi had ordered a revision of the Finance Bill to restore the tax exemption authority to the Investment Promotion Centre. To add to the confusion it was announced that a number of other changes would be made in the budget including the $10 million and $5 million minimum tax exemption qualifications.

It was also decided to amend or repeal the Exchequer and Audit Ordinance so that the Minister of Finance would remain one amongst other institutions and not first among unequals in tax administration. Incentives would also be restored for imports of spare parts and raw materials.

News that an electricity rationing scheme would have to be introduced in Dar es Salaam on August 15th because of the low level of the Mtera dam which provides hydro-power must have sent a further shiver down the spines of investors but longer term prospects for electricity supplies are good with many projects under way and new ones starting.

DRASTIC CUTS IN DIPLOMACY AND VEHICLES

Tanzanian diplomats received a shock when Foreign Affairs
Minister Joseph Rwegasira announced on August 9th that six of Tanzania’s 26 foreign missions would close shortly including, it is believed, Ottawa, Geneva, Paris and Harare following the closure in 1993 of the embassies in Angola, Zaire and Rwanda. In the remaining missions staff would be reduced and no more than four diplomats would man the largest. It was hoped to save $10 million per year. A new embassy has been opened in South Africa.

The government has also announced that three-quarters of its 18,000 vehicle fleet would be earmarked for sale through public auction. There would be a loan scheme for certain government officers. Two vehicles would remain in pools for each ministry and government department.

REVENUE COLLECTION SUCCESS

By late July there was good news. Revenue collected during the fiscal year 1993/94 had reached TShs 242.4 billion, ahead of the government’s target; it was the largest collection ever and gave general satisfaction all round – DRB.

The creation of state enterprises, whether by nationalisation or new starts, was an important instrument of policy in Tanzania for over two decades until the mid-1980’s. Most such firms enjoyed a combination of a monopoly position and preferential treatment with lack of accountability for results that has been characteristic of public enterprises worldwide. Multilateral and bilateral donors and their advisers assisted many such enterprises and share responsibility for results.

AIMS OF THE STATE ENTERPRISE POLICY
The aims of policy were many fold, including: gaining national control and thus pursuing self-reliance; taking initiatives to promote development where the private sector was seen as inactive; broadening the indigenous managerial base; achieving widespread regional development, and employment creation. Substantial progress was achieved towards many of these goals but by the late 1970’s it had become clear that commercial results and prospects were poor: on the one hand consumers’ interests were not being served, and on the other, most enterprises would neither be able to replace their initial capital nor create savings for the future.

RESPONSE OF THE GOVERNMENT TO PROBLEMS FACED
The response since the mid-80’s has been fourfold.

Firstly, parastatals in a monopoly position have gradually been expected to meet competition, often for the first time, as in the case of agricultural marketing bodies. An example is Tanzania Hides and Skins which, as a private purchasing and processing firm in the early 70’s had achieved around a 60% market share. Once nationalised it was given a monopoly and was profitable, but when the internal market was opened to new entrants in the mid-1980’s its 100% market share slid until the early 90’s when it almost hit zero; rental income from properties leased to competitors was sufficient to sustain the remaining staff houses and vehicles.

The second response has been to introduce external competition through liberalised imports, which has tested private and public sector firms alike. For some commodities, such as beer and clothing, import duties have in practice not been fully collected so import penetration has accelerated and public enterprises such as TEXCO have been hard hit: 13 of TEXC0’s 14 textile businesses are technically bankrupt.

Thirdly, the commercial banks – primarily the NBC and CRDB – have been expected to exercise commercial judgement in extending credit, and the share of parastatal firms in lending has dropped accordingly. Many firms, aware of the restructuring that must be undertaken if they are to be commercially viable, are unable to proceed because they have neither the reserves nor credibility in the eyes of lenders to be provided with further resources.

This constraint is paralleled by the fourth policy response by government which is, under the ‘hard budget constraint’, to decline to provide subsidies or additional share capital to public enterprises. This has affected marginal businesses such as Southern Paper Mills which, despite investment of over $400 million (in today’s prices) has yet to become profitable – but many other firms depend on it.

CONSTRUCTIVE INITIATIVES
This competitive commercial environment has led to many constructive initiatives by firms themselves, their holding companies (there are 28, some providing services of uncertain value) and potential buyers or joint venture partners. The emergence of the latter is the result of the latest policy thrust which complements those taken earlier. Divestiture of parastatals to private owners is actively being sought by the Presidential Parastatal Sector Reform Commission (PSRC) set up in 1992, whose policies have been set out in the Parastatal Privatisation and Reform Master Plan, published by Government in August 1993, and updated by the 1993 Review and Action Plan for 1994 and 1995, which was scheduled to be published in mid- 1994.

Divestiture has begun to take a variety of forms: in 1993 some 20 firms were sold, either through outright sales or joint ventures with a (majority) trade partner, or leases. A further two dozen firms were placed in liquidation or closed, and the assets put to alternative use. Sales included most firms in the leather sector; Carnaud Metal Box (T) Ltd reverted to the control of its former parent as a result of dilution of the government shareholding; the largest sale was that of Tanzania Breweries Ltd in which Indol 1nternational B.V. a subsidiary of South African Breweries, obtained a controlling interest by competitive tender which included assurances about rehabilitation as well as construction of a long-awaited brewery in Mwanza. In addition, Kunduchi Hotels, Mafia Island Lodge, the Mount Meru Hotel and Serengeti Safari Lodges have been leased to the French Accor (Novotel) Group.

BRINGING UNPALATABLE TRUTHS TO THE SURFACE
Divestiture as a process has the characteristic of bringing unpalatable truths to the surface – like, in the UK, the full cost of decommissioning nuclear power stations. A couple of Tanzanian examples will suffice. Firstly, in textiles, apart from the problem of protection mentioned earlier, divestiture requires the resolution of awkward questions on outstanding unserviceable debts, and raises the question: given the original (often erroneous) choice of location, inputs, technology and product mix, what can be done to help attract a buyer? Secondly, in the case of a firm supplying good quality professional services, the management wishes to purchase the company from the Government – an attractive MBO proposition. The assets comprise a solid, experienced team and some equipment in a leased building. A perfectly feasible proposition until it was realised that the main assets in fact comprised some three dozen executive and staff houses, undervalued, and rented to employees for between £1 and £2 per month. The business could not sustain the cost of purchasing or maintaining such a property portfolio. The solution? That requires another article!

By the end of 1993 almost 120 further enterprises were under consideration for divestiture. Other businesses which will remain under public ownership for the time being, such as Tanzania Harbours Authority, are likely to enter into Performance Contracts with their parent Ministry, spelling out their commercial and other objectives and accountabilities. Others, like Tanzania Telecommunications Limited, are divesting non-core functions such as subscriber premises wiring and preparation of directories, while inviting private firms to supply new services e.g. card-operated public call boxes and cellular networks.

PARASTATAL POLICY CHANGE WITHOUT A CHANGE IN RULING PARTY
All told, policy towards the parastatal sector has changed as dramatically and almost as rapidly in Tanzania as similar policies in Hungary or Poland but without a change in ruling party. Progress in ownership change, as a tool of parastatal reform rather than as a goal in itself, is likely to continue, but not at a breakneck pace. Reaching a consensus on the best courses of action requires consultation with managers, employers, the holding company and within Government.

Experience to date suggests that employees and their OTTU (Trade Union) representatives are well aware of the need for structural and management change including, often, an interim reduction in employment. However, the benefits of any programme of enterprise reform inevitably tend to emerge only over a period. So far though, the level of commitment to the programme remains high. 1994 should reveal whether enterprise buyers are similarly enthusiastic.
Bevan Waide

Exchange Rates (August 12 1994)
US$1 = TShs 512 – 530
£ Sterling 1 = TShs 760 – 820
The unofficial ‘black’ market in currency, which came to an end last year with the introduction of Bureaux de Changes has reappeared with the dollar rate at TShs 600 – Express.

MINIMUM WAGES RISE.
The minimum wage in Zanzibar has been raised to TShs 6,000 per month – an increase of 2.5% but education, medical and water services are to remain free – Daily News. The minimum salary for civil servants on the mainland has been raised to TShs 10,000 ($20) from TShs 5,000 per month – Express

COFFEE PRICE RISE
The price of coffee in the World market has increased by 40% over the last six months to some $2.40 (TShs 1,200) per kilo as a result of frost in Brazil. As the increase in likely to be only temporary, Tanzania may not obtain substantial benefit as much of its coffee is sold on the futures market. Coffee production has been falling – from 65,000 tons in 1986/87 to 45,000 tons in 1990/91. Kagera is the main region with 38% of total output followed by Kilimanjaro (23%), Mbeya and Ruvuma 13% each – Business Times.

THIRD PRIVATE BANK.
The International Finance Corporation (part of the World Bank Group) has announced that it has approved an equity investment up to US$ 0.8 million and a loan of US$ 5.0 million to help finance the creation of a third private bank in Tanzania – Eurafrican Bank Ltd. The bank is being sponsored by Banque Belgolaise in Belgium – Express.

INCREASE IN INTEREST RATES.
The National Bank of Commerce (NBC) ‘in an apparent attempt to stay alive’ has suspended overdrafts and raised its interest rates on lending from 30% to 39%. Overdrafts are being suspended except for export production and crop financing. The Managing Director Donald Kamori said that the Bank’s liquidity was satisfactory and deposits had increased by 20% between June 1983 and June this year but that the Bank of Tanzania had been pursuing a very tight monetary policy. The NBC was also still the Bank of the non-performing parastatals – Business Times.

The other banks also increased their lending rates. Standard Chartered Bank stated that it had done business to the tune of TShs 30 million since opening in November last year – Business Times.

RELAXATION OF BORDER CONTROLS.
Following a meeting in April between the Governors of the East African Central Banks, the Bank of Tanzania has announced that, to facilitate border trade between Tanzania and contiguous countries, transactions can now be settled in either shillings or the currency of the neighbouring country and there is no longer any limit on the amount in Tanzania Shillings or the other currencies used in border trade. Exports and imports other than those in border areas continue to be governed by existing regulations – Daily News

ANOTHER NEW BANK.
The first private indigenous bank to be licensed in Tanzania – the First Adili bank – is to open shortly and will emphasise merchant and investment banking according to Chief Executive Godfrey Chamungwana. The National Provident Fund is investing TShs 300 million in the new bank.

DONOR AUDITS.
Foreign aid donors are planning to join with the
Tanzanian Controller and Auditor General to conduct audits of donor funds rather than conduct separate audits. USAID has already signed an agreement on these lines and other donors are expected to follow – Business Times.

GRADE ONE COTTON PRICES 1994/95: TShs 125 at ginneries (compared with TShs 85 last year) and TShs 120 at marketing centres (TShs 80).

ZANZIBAR’S GROSS DOMESTIC PRODUCT grew at a rate of 3.3% last year compared with 3.04% in the previous year. The agricultural sector contributed between 42% and 46% of the GDP while construction, trade and hotels contributed 25-28% Population now totals 742,500, but is increasing. Trade between Zanzibar and the mainland has flopped. Exports to the mainland comprised only coconut oil, fruits and re-exported goods worth TShs 4,831.1 million last year – Daily News.

DODOMA. Individuals and institutions have invested about TShs 60 billion under the government’s plan to transfer the capital to Dodoma. The Minister of Works, Communications and Transport has said that the state would continue to improve the social infrastructure there to speed up the transfer. During this financial year emphasis would be put on roads in industrial areas and on sanitation. Some of the institutions with big investments in Dodoma were the National Provident Fund and the National Insurance Corporation.

ZANZIBAR POWER. The African Development Bank and the British Government have given TShs 2.4 billion to the Zanzibar government to finance rehabilitation of thermal power stations and the electricity distribution system in Zanzibar and Pemba.

SMALL BUSINESS. A small enterprise promotion programme named FAIDA (Finance and Advice in Development Assistance) has been inaugurated in Arusha. It aims at establishing a regional framework to support small enterprises and to contribute to methodologies and support mechanisms that are cost effective and can be applied elsewhere in Tanzania.

Newspaper headlines

Finance Minister Professor Kighoma Malima shocked Tanzanians on January 2nd 1994 when he announced a series of drastic measures in a mini-budget designed to balance government income and expenditure and deal with a serious shortfall in revenue. He proposed to cut expenditure by no less than 40%.

In the following article Roger Carter explains the background to the financial crisis and the measures the government is taking.

LONG TERM INTERESTS AND SHORT TERM NECESSITIES

In common with other Countries at a similar stage in development, Tanzania is faced by a continuing conflict between important long term interests and urgent short term necessities. There can be little doubt that the expansion and enrichment of primary education and the extension of primary health care are among the prerequisites of rapid economic growth. The road and rail systems need radical improvement, the telephone network to be more reliable and responsive. Much capital investment of this kind, for example on schools, health centres, or roads, brings in its train new charges on the recurrent budget for the purposes of operation and maintenance. But it is these costly services that are being starved of resources on account of the pressing need to balance the budget and to bring down inflation.

CONTROLLING INFLATION

Inflation has immensely damaging consequences. As wage increases lag behind price rises, inflation impoverishes the wage earning section of the population and may well cause social unrest. As an indicator of the government’s inability to fund its expenditure out of revenue, inflation undermines investor confidence both at home and abroad. Inflation introduces uncertainties into all forward planning and complicates the task of exporters. As inflation means that the value of the currency is falling, bank balances and contracts denominated in local currency lose some of their value and saving is discouraged.
The importance of controlling inflation has been acknowledged in successive budgets. One major cause of inflation has been the willingness of the government and the National Bank of Commerce to finance the deficits of lossmaking parastatals, notwithstanding warnings by the government that the practice must end. Having no idle surpluses, the government and the Bank have been obliged to rely on inflationary measures involving the creation of new money to meet this need. There are of course circumstances in which a parastatal is providing an essential service and cannot be replaced in the short run. In the case of some crop parastatals the first step has been to remove their monopoly powers and to expose them to competition. Survival then depends on the ability of these parastatals so to reorganise themselves as to operate efficiently without government subventions. The government has set up a Parastatal Sector Reform Commission to advise on the future of parastatals generally, whether by reorganisation as joint venture companies, outright sale to the private sector, or in some cases liquidation. In this matter the government is guided by the intention in the medium term to divest itself of direct responsibility from all productive enterprises.

THE SHORTFALL IN REVENUE

The immediate goal, then, is to end support for loss-making concerns and to balance the budget without resort to borrowing from the Bank, or other inflationary devices. Unhappily, this aim has received a setback with the discovery for the second year running of a serious shortfall in revenue, notwithstanding measures announced in the budget speech to enhance collection and improve motivation among collectors. It was estimated that income by the end of the financial year on 30th June would be some 12% short of the budget figure of Shs. 235.6 billion. Expenditure was also running ahead of estimates. A major cause of the shortfall in revenue is believed to have been inadequate collection of customs duties and steps have been taken to ensure strict adherence to the customs tariff and to put an end to illegal import practices. Increases in customs duties on commodities otherwise produced locally were announced and a 10% duty on industrial raw material, lifted in the budget, was reimposed. On the expenditure side, a decision to undertake the phased closure of 12 embassies and to begin the process by a reduction of home-based and local staff was announced. Foreign visits by government officers funded by government and all transfers of civil servants were suspended. Departmental accounting officers were to see that budget provision was not exceeded; cheques and warrants not covered by balances into the Paymaster General’s account would not be honoured.

The government hopes that these measures will restore revenue collection to the level foreshadowed in the budget without significant damage to current economic reforms. Understandably the reaction of the trading community was one of shock. Some of the increases in duties, such as those on drugs from 10% to 40%, were seen as favouring the rich, while the proposed 10% duty on industrial raw materials was a setback for the domestic economy. Representatives of the Confederation of Tanzanian Industries and of the opposition party CHADEMA led by Mr. Edwin Mtei, the former Governor of the Bank of Tanzania, took the view that the budgeted revenue target would be reached if adequate steps were taken to deal with tax evasion and corruption. The government’s proposals met with a hostile reception in Parliament. Summing up for the government the Minister for Finance announced reductions in the rates of duty previously announced. Imported drugs were now to face an import duty of 15%, while duties on raw materials used for the local manufacture of medical and veterinary drugs were to be limited to 5%.

Any substantial increase in rates of duty must have two adverse consequences for the economy. First, it is likely to create difficulties for industrial concerns already experiencing cash flow problems, with a risk of insolvency in some cases. Secondly and more importantly, by increasing costs it will tend to put up the rate of inflation and in this way to frustrate a primary object of government policy. The government is aware that morale in the public service is just as important as fiscal changes. Rewards in the public service are now much too low as a result of the decline in the value of the currency and the result has been a tendency towards poor performance, absenteeism, and unpunctuality in an environment offering temptations for corruption, while overstaffing has created a financial burden well beyond the government’s means. It is planned to reduce the size of the service during the current financial year by 20,000 civil servants, taking advantage of the progressive reduction of government responsibilities in the productive sector. It is expected that it will be possible to create a more adequate salary structure when the public service has been reduced to a more sustainable size.

NOT ALL GLOOM

In spite of these problems Tanzania has been able to record some notable achievements. The administration of foreign exchange under the supervision of the Bank of Tanzania is going well. The rehabilitation of the road network is proceeding with energy. As a recent World Bank report shows, agricultural production has been increasing at an average annual growth rate of 5.3% between the years 1987 and 1991. Associated with this rate of growth has been an 8.3% real increase in producer prices between 1981-83 and 1989-91, followed by further increases in subsequent years. The ending of the marketing monopoly of the National Milling Corporation has given farmers direct or indirect access to local markets and cash on the nail instead of the long, discouraging delays in payment that previously often prevailed. An important consequence of the rise in rewards for agricultural producers has been a wider dispersal of the proceeds of production among the population in general.

So in spite of immediate problems all is not gloom. But the revenue crisis has once again illustrated the immense difficulties faced by a country at Tanzania’s stage of development in undertaking the capital and recurrent financing of vital infrastructure and services in the face of immediate demands on resources. Such crises can arise in a variety of ways. In the previous financial year, the government was obliged to resort to inflationary borrowing, as drought had undermined the electricity supply at Kidatu dam, bringing industry repeatedly to a standstill over a period of several months and seriously interfering with tax revenues. Before that, serious floods in the Lushoto and Korogwe areas forced the government to make provision for emergency relief. Over all of these unexpected demands on resources hang the increasing needs of a population estimated to be growing at about 3% per annum.

As successive finance ministers have shown, balancing the budget comes high in their lists of priorities. Some of the measures needed to be taken, such as the reduction in the size of the civil service, are inevitably unpopular. But it is clear from the budget speech and its endorsement by Parliament that the nettle has been grasped and that a fall in inflation, bringing with it important benefits both to the economy and the population in general, could now be a realistic expectation.

J Roger Carter

DAMAGE TO SCHOOLS

As a reflection of the financial situation some schoolchildren have been protesting violently about the ‘bad food’ being provided in schools – Uqali and beans every day. Ifakara secondary school students have set fire to school buildings and have caused Shs 6 million damage. Kwiru school had to be closed after serious vandalism and 46 students at Arusha school were suspended after unrest in the school.

Exchange Rates (April 14, 1994):
US$ = Shs 502 – 513
£ Sterling = Shs 745 -764

EAST AFRICAN BANK GOVERNORS REACH AGREEMENT.
Governors of the central banks of Kenya, Uganda and Tanzania have reached agreement on a series of measures on inter-state trade and the removal of currency restrictions. It is not known how long it will take to implement the governors’ recommendations.

LESS RED TAPE NEEDED.
Speaking at a dinner meeting of the Tanzania-UK Business Group in London, Mr Patrick MC Laughlin, the Minister with Special Responsibility for Africa in Britain’s Department of Trade and Industry, said that Tanzania’s economy could reap big benefits if the authorities dispensed with current bureaucratic practices when doing business with foreign investors. If it did not, “UK Investors would continue to find the pursuit of many opportunities a wearisome task” he said.

PACE OF PRIVATISATION.
Among recent investments in Tanzania are the five-star hotel under construction on the golf course in Dar es Salaam (financed by the Aga Khan Fund for Economic Development and Britain’s CDC), provision of a local and international mobile telephone service (Tanzania Posts and Telecommunications and a Malaysian firm, Technology Resources Industries) and a restructuring of the Ministry of Agriculture (Islamic Development Bank). But, Arab and Asian investors have expressed the view that the pace of privatisation has been slow in Tanzania because there are not enough black African entrepreneurs involved to satisfy oldguard socialists who fear a return to market control by ‘outsiders’ – African Business, March 1994.

BUSINESS SERVICES CENTRE.
A USAID sponsored Business Services Centre will be opening in Dar es Salaam shortly. It is designed to help the local private sector through a combination of training, advisory and information services – Business News, March 4.

STOCK EXCHANGE.
Dr. Charles Kimei, Director, Economics and Statistics at the Bank of Tanzania, has stated that Tanzania has embarked on a law to enable the licensing of securities and capital market dealers. “We are looking towards forming a stock exchange in about two years time” he said and added that a public training programme to this end had already begun – Lloyd’s List February 21.

PRETENDING.
Business Times columnist Joe Dotto has been writing about the recent strikes amongst teachers, medical staff and other workers. ‘Everybody knows’ he wrote ‘that public employees in Tanzania have been on strike for twenty years. The strike began with the famous Clause 15 of the then TANU Party guidelines which threw out of the window the rules of office discipline and overthrew the office boss in favour of the liberation of the workers.. . . .on its part, the government then decided to pay back in kind’. It had started to pay its workers monkey wages – peanuts. A government employee summed up the situation – ” the government pretends to pay us and we pretend to work for it”.

AMERICAN MULTI-NATIONAL COMES TO TANZANIA.
A new multi-billion shilling company by the name of Colgate-Palmolive (Tanzania) Ltd has been established. It is a partnership between the well-known American consumer products company that operates in 170 countries and IPP in Tanzania – Family Mirror

STOWAWAYS.
According to the South African-based Managing Director of P and I Associates (Marine Surveyors) the initial reason why they opened an office in Tanzania before Kenya was the high level of stowaways coming from Tanzania. Once we managed to deal with that problem we found that our services were more in demand from shippers dealing with trade with South Africa – Lloyd’s List February 21.

INCREASING IMPORTANCE OF INFORMAL SECTOR.
Dar es Salaam University economist Nathanael Luvunga has stated that informal sector employment in Tanzania now covers 22% of total employment. There are 1,402,000 informal sector enterprises employing more than 2.5 million people he said. The sector’s contribution to GDP increased from 10.3% in 1985 to 32% in 1991

CHARGES RAISED.
Air Tanzania Corporation (ATC) raised fares and cargo charges for domestic routes by 30% with effect from April 1st because of what the managing director described as the continued depreciation of the Tanzanian shilling against the US dollar and £ sterling.

WITHOLDING TAX.
The Dar es Salaam Merchants Chamber has complained bitterly about the government’s introduction of a 2% witholding tax on the private sector because it involves a lot of extra paper work. But the Commissioner of Income Tax has pointed out that parastatal companies have been paying this tax for some time and that the protests probably reflect a lack of a ‘tax compliance culture’. Honest businessmen would be helped because tax would be payable in instalments rather than in a lump sum at the end of the year. The latest development, as the Bulletin goes to press, is an apparent admission by the Attorney-General, after a request for clarification from the Confederation of Tanzania Industries, that applying the tax to private business would be contrary to the provisions of the income Tax Act (1973). The Government is also said to be considering the introduction of a Value Added Tax to replace sales taxes for industrial and other firms – Business Times.

PRE-SHIPMENT INSPECTION.
The government has appointed Cotena Inspection SA on a three-year contract to carry out preshipment inspection, tax-collection and monitoring of the tax collection services. The aim is to protect Tanzania’s foreign exchange resources and to increase the amount of customs duties collected.

NEW BANK.
A private indigenous bank – the First Adili Bank – which is to emphasise initially merchant and investment banking is hoping to start operations within the next few months.

EXPORT PROCESSING ZONE.
Officials of the Zanzibar Investment Promotion Authority (ZIPA) and the Zanzibar Free Economic Zone Authority (ZAFREZA) report that some 208 projects designed to generate up to 6,000 jobs have been approved. But most of the projects have not gone beyond the feasibility stage. Consultants have expressed reservations about the idea of turning Zanzibar into a free port because of the lack of a core of local investors, managerial ability and a developed labour force. There was also the possibility of processing zones being established around Dar es Salaam where the environment would be more suitable – Business Times, March 4.

Exchange Rates (December 1 1993):
US$ = 475 – 490 Shillings
£ Sterling = 680 – 730 Shs.

IMPORT AND EXPORT LICENCES NO LONGER NEEDED. The Government has revoked the system which required licences for the import of all goods except for a few related to health and safety and also eight luxury items. Importers will now have to fill in forms available at banks and foreign currency shops but these will be needed only for statistical purposes and will not involve permits. The Customs Department will not in future be able to delay or halt the transport of goods outside the country – Radio Tanzania.

TRAVELLING ALLOWANCE INCREASED. citizens travelling to neighbouring countries will in future be able to take up to US$5,000 instead of US$500. Those travelling longer distances will be entitled to have up to US$10, 000 compared with US$ 3,000 – Radio Tanzania.

LICENSING REMOVED. All licences for the export of goods have been removed. Reporting to the National Assembly on the Government’s intention to raise the country’s tourism potential the Minister, Mr Juma Hamad Omar, said that 43 out of the 63 applications for tourist development received by the Investment Promotion Centre in 1992/93 had been accepted. Some 23 international airlines had applied for commercial service. There had been an increase in the number of tourists from 186,800 in 1991/92 to 201,744 in 1992/93 and this had earned the nation US$120 million compared with US$94 million in the previous year – Daily News.

TANZANIA ALIGNS CURRENCY. The Bank of Tanzania has announced a harmonisation of its exchange rates. The ‘official’ rate, previously used for a range of government imports, western aid and items such as oil will in future conform with market rates used by the private sector since last year – Financial Times.

SECURITIES MARKET. The Governor of the Bank of Tanzania has announced that capital and securities markets, designed ultimately to lead to the establishment of a Stock Exchange in Tanzania, will be established early in 1994 – Business Times.

COTTON MARKET LIBERALISED. The Government has waived price control on cotton; authorised marketing agents and other buyers are being encouraged to offer competitive prices to cotton producers – Sunday News.

ALL IMPORTS SUBJECT TO PRIOR INSPECTION. All imports, not just those of more than US$5,000 in value, as previously, will be subject to pre-shipment inspection in future, the Governor of the Bank of Tanzania has stated. The move is aimed at curbing tax evasion and foul play, he said – Daily News.

FROM QUITE GOOD TO VERY BAD. In a report on World Bank projects in Tanzania, which have cost US$ 1.5 billion between 1961 and 1987, the Bank’s Operations Evaluation Department has summarised the variable success rate which has been achieved. Major problems causing difficulties have included bad project design and preparation, lack of skills and deficient staffing in the Bank and on the Tanzanian side, inadequate government support, undue haste in launching follow-up projects, Tanzania’s inadequate absorptive capacity, and powerful pressures within the Bank to lend more – The Express.

SANCTIONS LIFTED. Tanzania lifted sanctions on trade with South Africa on November 11. 1993. They had been in force since 1963 – Daily News.

A VENTURE CAPITAL FUND LAUNCHED. At the launching of a new Tanzania capital Venture Fund (TVCF) the Chairman of the Parastatal Sector Reform announced that multilateral firms operating in Tanzania would, in future, be exempted from the requirement to pay uniform taxation. The new Fund will participate in equity and quasi-equity joint venture investments in local companies with high potential. Most of the TVCF investments will be in existing businesses seeking second-stage expansion capital. Maximum investment will be US$500,000 – Business Times.

179 UNDER INVESTIGATION. The Minister of Home Affairs and Deputy Prime Minister, Augustine Mrema, has stated that 179 companies and individuals are under investigation for alleged misuse of donor funds. He said that his ministry had received numerous complaints from members of the public and Parliamentarians over rampant embezzlement and swindling of donor funds. He cited the funds as being the Open General Licence (OGL), Commodity Investment Support (CIS) and the Debt Conversion Programme (DCP). Dubious means had been employed to obtain precious foreign exchange. He listed the names of the individuals and firms involved – Daily News.

DE BEERS IN CONTROL. The South African firm Willcroft Ltd, a subsidiary of the De Beers corporation , now holds 75% of the ordinary shares of the Shinyanga-based Williamson Diamonds Limited. Its previous shareholding had been 50%. For the last twelve years Williamson Diamonds has been making losses on its annual production of 70,000 carrats of diamonds. Willcroft will pump in about US$3.5 million to rehabilitate the mine – Business Times.

PRICE CHANGES. The price of cement was reduced by 150 shillings per 50-kilo bag and the price of petrol and diesel increased by from 12 to 23 per cent at the beginning of October – Daily News.

FERTILISER SUBSIDY ASSURED. Prime Minister Malecela announced at the end of November that the government would import 185,000 tons of fertiliser for the forthcoming farming season and it would continue to be subsidised at 25%. He said that the national annual demand was 260,000 tons and that 60,000 tons had already arrived. He said that importation of fertiliser remained a headache to the Government because of fluctuating prices – Daily News.

MOBILE PHONES. Tanzania Posts and Telecommunications Corporation and Millcom International have formed a joint venture company to implement and operate a cellular mobile telephone network in Tanzania – Business Times.

NEW INVESTMENT AREAS. The Government has released a new list of 82 areas for investment by local and foreign investors in a revised edition of the Investment and Promotion Act. A detailed list was published in the Business Times indicating that 16 areas were reserved for local investors, 12 were under the ‘ controlled and reserved’ category and 54 were in the general investment category – Business Times.

AVOID THE WORD ‘NDUGU’ IN OFFICIAL CORRESPONDENCE
Public servants should avoid addressing people with political pomposity like ‘Ndugu’ or ‘Comrade’ in official correspondence because this was against Standing Orders, declared Mr Robert Kisususu, an official in the Office of the Prime Minister and First Vice-President. Officially the style should be ‘Mr’ or ‘Bwana’.

A Member of Parliament should be addressed as ‘The Honourable’ and not ‘the Honourable Mr’, a judge of the High Court should be addressed as ‘The Honourable Mr Justice X’. Mr Kisusu said that terms like ‘capitalist’ and ‘imperialist’ had no room in official public service correspondence and should be reserved for political platforms.

STRONG WORDS FROM CATHOLIC BISHOPS
According to a news agency report at the end of November Catholic Bishops in Tanzania have issued an unprecedentedly critical letter under the title ‘Sincere Intention, the Compassion of Our Nation’ expressing concern about government accountability. They spoke of a nation bankrupt and squandering the public’s assets. This had been caused, the Prelates said, by the greed of a few people seeking to benefit themselves at the expense of others.

The bishops said that the government had ignored the public’s views on the squandering of public assets including land, minerals and wildlife. They called for legal action against those involved.

‘The nation has no orientation because the perception of socialism and self-reliance, which had the intention of guiding the nation towards cooperation, love, mutual respect, and mutual assistance in elevating development, has now been usurped by a community of people who have responsibility and ability with which they are biting off the assets of the nation between themselves’.

Tanzania, like many other countries in the Third World, suffers from a heavy burden of foreign debt. The causes are complex. Some imprudent borrowing may have occurred during the seventies, when records of foreign debt and debt servicing were inadequate and uncoordinated and an overview of the nation’s obligations would not have been possible, while assumptions about economic growth were made that in the event proved much too sanguine. But the main cause was the severe economic recession of the eighties, leading over a number of years to a negative growth rate per head and an economy increasingly unable to bear the weight of debt. As a result, much bilateral debt, especially that owing to countries outside the main industrial group, and many commercial obligations have fallen into arrears, giving rise to the imposition of penalties and leading to the accumulation of new debt by capitalisation of the arrears.

DEBT TAKES 59% OF REVENUE FROM EXPORTS
By 1991 Tanzania had acquired the unenviable status of a ‘low income, debt-distressed economy’ and was no longer able unaided to work its way out of its difficulties without the prospect of further widespread and extremely damaging default on existing obligations. Tanzania’s total external debt, which at the end of 1986 amounted to about $3.9 billion, by the end of 1992 had passed the $6 billion mark. In 1991, expressed as a percentage of gross national product (GNP), the average stock of foreign debts in all countries of the world amounted to 37%, in Sub-Saharan Africa as a whole 109% and for Tanzania no less than 256%. Notwithstanding some alleviation as a result of rescheduling and other relief measures, debt service obligations still remained at 59% of revenue from the export of goods and services in 1990-91. Tanzania’s indebtedness had thus reached crisis proportions and was exercising a damaging influence on the prospects for economic recovery.

In Tanzania arrangements for the recording and handling of foreign debt have hitherto proved ineffective as a control mechanism in the absence of a single authority for the recording, monitoring and supervision of debt and debt servicing. As a result, there could be no clear picture of the extent and nature of the country’s present and prospective external obligations. This situation has now been remedied by placing the responsibility for the monitoring of all external debt and advising the Government on debt management in the hands of the External Debt Department of the Bank of Tanzania. At the same time, with the help of the Commonwealth Secretariat, new computerised procedures for the recording and analysis of debt and debt-related matters have been instituted, using CS-DRMS software.

The central problem facing Tanzania is the insupportable volume of debt and the need to bring it within reasonable limits. The importance of this goes beyond a reduction of debt servicing to the point where it constitutes a reasonable charge on export revenues. An excessive debt burden leads inexorably to default and default undermines confidence and imposes higher and unnecessary costs on commercial transactions. It also discourages foreign investment. Hitherto it has been necessary for each instalment of interest and capital on foreign debts to be the subject of a separate application for foreign exchange and some commercial creditors have been waiting many years for a posi ti ve response, even where debtors have met their obligations in local currency. It is therefore essential to reach a situation in which, once a credit deal has been approved, all subsequent debt servicing is automatic.

At the end of 1991 Tanzania, with one or two exceptions such as the East African Development Bank, the League of Arab States and the OPEC Special Fund, was up-to-date in honouring its obligations to the main multilateral financial institutions, notably the World Bank, and to the principal industrial donor countries. The country’s obligations to the multilateral bodies constitute about 35% of the total external debt, some 90% of which is on concessional terms I free of interest with fifty year periods of maturity. Nevertheless, with the progressive ending of grace periods, the servicing of concessional debts is expected to rise from $19 million in 1992 to $49 million by the year 2000. The servicing of much of the remaining 10%, which is on quasi-commercial terms, will be assisted by the World Bank’s concessional wing, the International Development Association (IDA), under the Special Programme of Assistance for Africa and by bilateral donors. IDA debt, under current rules, cannot. be waived or rescheduled.

REDUCING THE DEBT RATIO
That part of intergovernmental debt that is owing to the Principal industrial countries (about 40% of the total in 1991) has already been rescheduled four times, providing relief in respect of debt service obligations. In January 1995, it is hoped that it will prove possible to include within the scope of the new arrangements what is known as the ‘Trinidad terms’. This plan, originally put forward by the UK Government in 1990, provided for the writing off of two thirds of the stock of non-concessional inter-governmental debt. The effect of this measure, if confirmed, has been estimated to bring Tanzania’s stock of debt as a percentage of GNP down to a level marginally below the average for Sub-Saharan Africa. Further growth of the economy on present prospects should reduce the ratio to below 60% by the year 2000. Debt cancellation would also reduce the annual cost of debt servicing to the region of 20% of the earnings from the sale abroad of goods and services by 1996 and to the region of 10% by the end of the century. It is hoped that in the meantime debt to countries not included in the above arrangements can be rescheduled on similar lines.

Some of the outstanding commercial debts have been protected by export credit guarantee arrangements in the creditor countries and therefore in effect rank as official debts, subject to the arrangements described in the foregoing paragraph. Arrangements are now in train to redeem the remaining uninsured debts and outstanding suppliers’ credits by means of a buyback scheme operated under the IDA Debt Reduction Facility. The effect of the buyback scheme is to purchase debts in convertible currency at discounted rates by means of an IDA loan, thus converting the obligation into a highly concessional debt of 50 year maturity.

It is hoped that the complex of measures described in this paper will enable Tanzania within a few years to regain control of its foreign debt servicing to a reasonable charge on its external resources. Such an outcome can powerfully stimulate the economy by releasing valuable foreign exchange hitherto used for debt servicing, but more importantly, by restoring Tanzania’s reputation as a good trading partner. Essential to the changes now in train is the new centralised system of debt management, which will enable the Government, to forestall any future tendency towards over-commitment.

While the reduction of the debt stock to a manageable size and the restoration of automatic debt servicing is likely to provide a boost to the economy, the newly imposed self-discipline will also restrain over-hasty development. Almost all new development increases the demands made on the external sector of the economy, but any attempt to meet such external obligations by borrowing beyond prudent limits cannot fail to damage economic prospects. It is thus necessary for planners to calculate the foreign exchange implications of all major planning proposals, including the subsequent external requirements for maintenance purposes. Data of this kind is as essential for orderly debt management as it is for successful economic development.
J Roger Carter