Following the publication of the Arusha Declaration on 29th January 1967 the foreign banks hitherto operating in Tanzania were nationalised and responsibility for commercial banking vested in the National Bank of Commerce on the mainland and the People’s Bank of Zanzibar on the islands of Unguja and Pemba. In June 9967 the National Bank of Commerce operated from 35 branches and total deposits amounted to TShs. 763 million. By June 1991 there was a network of 198 branches and 239 mobile offices accepting three times the volume of deposits in real terns. Growth of this dimension was in itself a remarkable achievement, but it was accompanied by serious and growing defects, which considerably reduced the bank8s ability to meet the demands made upon it for the purposes of economic recovery and development.

The first problem was in part a result of the bank’s own phenomenal growth. While lending in the private sector (14% of the total loan portfolio) was well managed, private deposit banking procedures developed in the days of small scale banking proved unable to meet the needs of a rapidly growing and increasingly moneterised population. The result has been growing delays, poor customer performance, inadequate internal controls and an increased resort by the public to cash transactions. There are in addition special problems arising from the parlous state of the telephone system, which affects communications with branches using telex or fax, and postal delays caused by the unreliability of the overstretched air services, It is clear that there is in the immediate future no perfect answer to the problem of organisation. Nevertheless, it is believed that the introduction of computerisation combined with measures to improve staff skills and attitudes could greatly improve standards of performance.

The tribulations of the commercial banks have, however, been compounded by circumstances beyond their control. Their role as an engine of development by financing economic enterprises has always been acknowledged, but the autonomy of the banks in deciding on the commercial justification for loans has been seriously restricted by the Government and the Party, who from time to time have insisted on loan facilities in loss making circumstances. The result has been the accumulation of bad debts which, in the case of the National Bank of Commerce, amounted in December 1989 to TShs 68,500 million. This access to loan finance for loss making parastatals, crop marketing boards and cooperative unions has acted upon these bodies as a disincentive to putting their own houses in order. Ss far as the National Bank of Commerce was concerned it has had the result that the bank was only saved from insolvency by the intervention of the Bank of Tanzania. Money creation for such purposes is a serious cause of inflation. Moreover, since the parastatals, cooperative unions and crop marketing bards accounted for 86% of outstanding bank credit, the bank’s ability to meet the needs of growth in the private sector was severely limited.

In July 1988 President Mwinyi established a Presidential Commission of Enquiry into the Monetary and Banking System of Tanzania. The Commission, working under the chairmanship of Mr. C.N. Nyirabu, a former Governor of the Bank of Tanzania, submitted its final report on 19th July 1990. The report, which, unhappily, has not yet been published, was wide-ranging and covered the entire financial sector. Since the future performance of the banks depended on Government policy with respect to the crop marketing boards among other changes external to .the banks themselves, the Commission did not hesitate to offer advice in these areas also. Above all, the Commission called for a reconsideration of the role of Government in economic affairs. It recognised the Government’s overriding responsibility by the passage of laws and the provision of the institutional framework to determine the general character and direction of economic activity, but having set up the machinery and decided on the broad lines of policy it was the duty of Government to leave commercial decisions to the banks and other financial institutions each in their own allotted spheres of activity.

The Commission recognised that the commercial banks could not operate effectively as engines of development so long as their loan portfolios remained encumbered by a very large volume of non-performing credits. Following the Commission’s advice, a Loans and Advances Realisation Trust (LART) endowed with powers as receiver and liquidator has been set up and all such loans, including assets lodged with the hanks as collateral, have been transferred to it.

Outstanding among the numerous recommendations of the Commission was their belief in the benign influence that competition could have on the standards of performance of the commercial banks and other financial institutions. This opinion was shared by the Government and resulted in the enactment of the Banking and Financial Institutions Act 1991. This Act empowered the Bank of Tanzania to license any bank, including a foreign or joint venture bank, subject to the fulfilment of certain conditions, to operate in Tanzania. So far, only the Standard Chartered Bank has been thus licensed, though other applications are believed to be in the pipeline, It is understood that Standard Chartered was intending to begin operations in 1993 and that its operations for the time being would be confined to Dar es Salaam. Provision has also been made in the 1991 Act for foreign banks not intending to transact business with Tanzania to open representative offices, Hitherto only the Equator Bank has been authorised by the Bank of Tanzania under this provision. A decision on the recommendation of the Commission to divide the National Bank of Commerce into three separate banks is understood to be in abeyance.

Owing to the overriding importance to Tanzania of the export drive, the Commission looks to the competing commercial banks to improve their procedures and to be innovative in their response to the needs of exporters. To this end they advise that the commercial banks should be allowed to hold portfolios of foreign exchange and be recognised dealers on behalf of exporters.

It is hardly surprising that far-reaching changes of the kind recommended by the Commission are taking some time to implement. They are, however, of critical importance to the country as it struggles to surmount the daunting difficulties of economic regeneration, While it is unlikely that the recommendations of the Commission will be carried out in every detail, it has certainly performed a great service in its analysis of the serious problems affecting the financial institutions of Tanzania, The changes now in train are being supported by a World Bank Financial Sector Adjustment Credit.
J. Roger Carter

The World Bank Mission in Tanzania has issued proposed guidelines for what was described in the BUSINESS TIMES (December 4) as a programme for Government withdrawal from the running of economic enterprises.

The Bank was said to consider that the programme would be a formidable challenge but could bring Tanzania to the forefront of the process of ‘divestiture’ in Sub Saharan Africa.

According to the guidelines, more than half of the regional cooperative unions would be liquidated, most regional trading companies would be auctioned and many regional transport companies would be sold by tender.

Only the Tanzania Cigarette Company and the Mtibwa Sugar Estates would remain relatively unchanged by the privatisation exercise because they are scheduled to make part of their shares available to private investors. Air Tanzania Corporation and Tanzania Breweries would undergo partial trade sale.

Several other good performing companies would be subject to full trade sale including MECCO, the Friendship Textile Mills, National Pharmaceuticals, Williamson Diamonds, Tanzania Distilleries, Minjingu Phosphate Company, Sabuni Industries, Mwanza Textiles, Tanzania Sheet Glass and Nyanza Glass Works.

Enterprises scheduled for sale by tender include Darbrew, Tanzania Hides and Skins, National Steel Corporation, and the National Engineering Company.

Several other enterprises would enter into a lease of assets – Musoma Textiles, Morogoro Polyester Textiles and Southern Paper Mills.

Enterprises scheduled for liquidation include the Tanzania Shoe Company, Tanita, Rubber Industries and Tanzania Instant Coffee.

Joint venture arrangements are already under way in the case of the New Africa Hotel, Tanzania Railways Hotels, Tangold Products Ltd and Landrover Tanzania Ltd.

CHANGES AT AIR TANZANIA
The Government has retired seven top executives (including the General Manager and the Director of Finance) and has demoted the Di rector of Operations and the Technical Director of Air Tanzania Corporation. This action followed within a few days of the appointment at the beginning of June of a new Chairman of the Board of Directors – Principal Secretary in the Ministry of Communications and Transport, Mr Richard Mariki.

The Government has also taken over Shs 12.4 billion accumulated debt. It is believed that a substantial percentage of the work force will be laid off and private investors will be invited to buy shares in the company.

The Corporation has announced increases in domestic tariffs of between 50 and 100% effective August 10, 1992 – Dally News.

THE 1992-93 BUDGET
The budget speech of the Minister for Finance was delivered in the National Assembly on June 18 1992 by Professor K A Malima who had recently exchanged jobs with Mr Steven Kibona as Minister of Planning. Thus, as Professor Malima generously acknowledged in his speech, a large part of the preparatory work had been supervised by his predecessor.

The underlying purpose was stated to be to continue the reforms towards greater market orientation and institutional financial responsibility set in motion in successive economic recovery programmes. Inevitably, therefore. a considerable part of the speech was devoted to a survey of reforms already begun or accomplished. The object of these changes was to open up the economy to private enterprise, to reorganise parastatal organisations on self-sustaining commercial lines, to expose the banking system to competition, to remove from the banks the severe handicap of non-performing assets and to institute various measures aimed at trade liberalisation and a wider access to foreign exchange. The full effect of these changes was likely to become visible only in the medium term. but already some encouraging results were emerging. In comparison with the previous year. the dollar value of exports was expected to show an increase of 7.4% Agricultural production was showing encouraging signs of expansion.

At the centre of the reforms needed was a progressive reduction of the Government’s dependence on external financing to balance not only the domestic budget , but also the country’s foreign trading and payment s account. Revenue in 1991-92 only financed two thirds of recurrent expenditure. the balance being made up out of foreign loans and grants, while export earnings only paid for about a third of minimal import requirements. The bulk of these deficiencies will eventually be made good as a result of economic growth, but a significant contribution was expected as a result of the institutional reforms now in train, or in prospect, and a generally enhanced regard for efficiency and productivity.

The continuing expansion of Government activities in recent years, beyond the limits of available revenue has led to a deterioration in the quality of Government services. an increase in the number of incomplete projects and neglect of preventive maintenance. It was therefore intended that the role of Government should be redefined with the aim of reducing its scope to a size capable of being financed out of revenue based on a small and highly efficient civ11 service. Government would withdraw from activities that could effectively be carried out by the private sector. Central to the remaining functions of Government will be law and order and the provision of economic and social services. In the case of the social services an element of consumer contribution is envisaged.

An element in the reform of Government business is the search for simpler procedures. In future the customs tariff will only contain four rates instead of five and excise duty only two in place of eight. But a notable change announced in the speech is a substantial reduction of customs duty, sales tax, income tax and company tax. The objectives here are to reduce costs of production, to alleviate the burden on consumers and bring about a reduction in tax avoidance . The effect on consumers is of special significance in view of the adverse effect of inflation on personal incomes. The abolition of customs duty and sales tax on all industrial raw materials will not only reduce costs, but also help industries to compete effectively in home and overseas markets. Other taxes have been abolished either because they are obsolete or because they are at odds with present policies. Examples are the 20% levy on the value of air tickets for foreign travel and a 1% tax on share capital.

A number of reasons were given in the budget speech for the decision to reduce taxes. It has been observed that, in view of the narrow tax base and the constant increase in Government services, it had become necessary to raise taxes by substantial amounts in order to balance the books. The result had been a marked reduction of the take-home income of the workers and a decline in revenue collection through tax avoidance. The tax burden was also adversely affecting industrial productivity.

The widespread reduction of customs duties and sales taxes and their abolition on certain items has prompted the Government to discontinue all exemptions hitherto enjoyed by Central Government, Local Government, political parties, religious institutions (except for items used in worship), Non-Governmental Organisations and charities. Local NGO’s and charities will not, however, have to pay tax on materials and commodities given them as donations to be passed on as free gifts to the needy and the poor.

The budget included the customary civil service salary increases to compensate for inflation. It was admitted that salaries were inadequate in view of the high cost of living and that efficiency had been impaired by a lack of appropriate working tools and poor remuneration. While little specific provision appears to have been made in this budget to ameliorate these underlying problems, it may be assumed that planned reduction in the scope of Government services will provide the necessary opportunity.

The budget is a courageous sequel to previous budgets and, in its fiscal provisions , a daring attempt to grapple with deep underlying problems. As a forecast of budgetary performance much reliance is placed on expected psychological reactions, which may or may not eventuate in whole or in part, but the attempt was certainly worth making. Will the new tax structure enhance production , increase efficiency, reduce absenteeism and raise expectations as a result of improvement in morale? Will the more moderate level of taxes reduce tax avoidance? Will simplification of Government procedures result in greater efficiency? All of these outcomes are justifiable hopes and it will be profoundly interesting to read in next year’s budget speech how far hope has been transformed into fact.
J Roger Carter

SOME OTHER BUDGET HIGHLIGHTS
– Minimum wage for civil servants raised from Shs 3,500 to Shs 5,000 (approximately £9 or US $17!) per month; – Abolishing excise duty on locally produced sugar, textiles, garments and cement ; Reducing corporate tax for local firms from 45% to 35%; foreign firms from 50% to 40%;
– Increasing licence fees for birth, death and marriage
– 10% income tax (15% for foreigners) on bank deposit interest ; 20% (once and for all) income tax on dividends;

Until the middle eighties, importers and others requiring foreign exchange had to apply to the Bank of Tanzania and to make out a case for an allocation in competition with other applicants. In practice this procedure had two main disadvantages in conditions of extreme foreign exchange shortage delays were inevitable and widespread and foreign trade was severely hampered; and, centralised allocation was not always found to be an appropriate mechanism for adjudicating between rival claims. With minor exceptions, all foreign exchange holdings had to be surrendered to the Central Bank, or to the National Bank of Commerce, in exchange for local currency.

In 1985 the central control of foreign exchange allocation was breached by removing the legal bar on the possession of foreign exchange in certain circumstances (‘own funds scheme’) and allowing exporters to retain a proportion of their foreign exchange earnings (‘retention scheme’) to meet the cost of importing machinery and raw materials and to import certain consumer items within a specified list deemed to raise public morale and offer an incentive for greater production (‘ incentive goods’) . The combined effect of these measures was to fill the shelves of the shops with goods, albeit generally at a higher retail price in shilling terms, and to raise spirits and expectations.

While these measures bypassed the bureaucratic process for the procurement of some of the imports needed to sustain industrial production, they were not sufficiently wide-ranging to deal with all urgent requirements of foreign exchange. Furthermore, black market dealings , though they provided an informal means of access to foreign exchange, were nevertheless illegal and were depriving the established channels of scarce foreign exchange.

Early in 1992 a new Foreign Exchange Act vested responsibility for management of the country’s foreign exchange in the Bank of Tanzania , including the power to make regulations. It became legal for any person to hold any amount of foreign exchange and to buy and sell it in the open market. In March 1992 the Foreign Exchange Regulations and the Foreign Exchange Bureau de Change Regulations were published in the Official Gazette. Bureaux de Change were set up in Dar es Salaam thus providing a legal basis for most of the transactions hitherto performed illegally. The device was not new, having been tried in a number of countries including Ghana and Uganda to good effect. It was hoped that this mechanism would go far towards undermining the black market and would draw into the public domain resources hitherto sidetracked into black market obscurity.

The rate of exchange is determined solely on a market basis at weekly auctions. As foreign exchange remains a scarce commodity, it is expensive and figures in excess of Shs 700 to the £1 have been quoted. Such figures reflect not only the scarcity of foreign currencies, but also provide holders of foreign currency with a strong motive for selling it to the Bureaux. At the same time, the official rate of exchange fixed from time to time by the Bank of Tanzania continues to govern applications for normal trade purposes through the banking system. This rate is in the region of Shs 500 to £1, revealing a substantial gap between the two rates. The official rate, which, under present policy, is moving slowly upwards in accordance with the rate of inflation, will tend towards stability as inflation is reduced to a figure comparable with that of Tanzania’s main trading partners. The Bureau rate, however, will continue to be the value at which supply is in equilibrium with demand in the Bureau market and in the immediate future is likely to remain well above the official rate.

It would be a mistake to designate either rate as the ‘right’ one as they are the result of different mechanisms and serve differing purposes. The Bureau rate reflects the extreme scarcity of foreign exchange and depends solely on the interplay of supply and demand. Under the present policy, on the other hand, the official rate is much nearer to the value at which the purchasing power of the shilling is in approximate equilibrium with the purchasing power of the dollar. It is the official rate that governs most commercial transactions, while the Bureau rote provides a useful safety valve in cases that cannot command commercial priority, such as international travel costs and overseas purchases for non-commercial purposes, It is, however, the Bureau rate that has less claim to underlying validity , as it is inflated by the present scarcity of foreign exchange.

With the expansion of Tanzanian exports and the progressive narrowing of the unfavourable balance of overseas payments, the difference between the official and the Bureau rates will diminish. Ultimately, when Tanzania’s foreign payments account reaches equilibrium, the exchange rate gap will disappear and present arrangements for the publication of an official rate will be discontinued. As scarcity of foreign exchange will no longer influence dealings, the market rate, as determined by auction, will fall to meet the official rate and thenceforth all dealings, apart from minor adjustments to different transaction costs for different sizes of transaction , will be based on the interaction of supply and demand .
J Roger Carter

(Eight Bureaux de Change now advertise their services in the Dar es Salaam press – Editor)

BIG ATTENDANCE AT LONDON INVESTMENT PROMOTION SEMINAR
A two-page spread in The Guardian called ‘Special Report: Tanzania’, greeted me on Thursday 21st May 1992. A handful of articles and several advertisements extolling the virtues of doing business in Tanzania, were a real surprise to me since I had never seen anything similar before; Nigeria, Kenya or Uganda perhaps, but never Tanzania. I soon realized that this was part of Tanzania’s investment campaign taking place in London with a Confederation of British Industry (CBI)/East African Association Seminar arranged for the following day.

‘The Changing Face of Tanzania: Business Prospects’ stimulated a huge interest. From Tanzania, the Prime Minister John Malecela, brought four ministers, the Governor of the Bank of Tanzania, George Kahama, Director of the Investment Promotion Centre (IPC) , plus numerous other officials. All the senior diplomats were assembled from the Tanzanian embassies in Europe. More than double the usual number of participants at CBI seminars were enrolled. The Conference Administrator reported that the phone had never stopped ringing with enquiries. When asked to explain the popularity of th s conference, she suggested it was due to the friendliness of the Tanzanians.

So, the following morning I joined the 230 men and 5 women to attend the conference at Centre Point. I had discovered a special entry rate of £30 plus VAT was available for members of the Britain-Tanzania Society (BTS) as the regular fee of £282 is certainly beyond my means. Also present from the BTS were Roger Carter and Trevor Jagger. The format of the day was speeches and questions, very ably and smoothly chaired by Tom Brazier, Chairman of the East African Association. Sir David Gilmore started proceedings with a very informative and welcoming speech. This was followed by presentations by the Tanzanian team.

Quite clearly, everything is changing. Tanzania is very keen to welcome business to its shores . Time and again we were reminded of the glorious scenic beauties of Tanzania from Kilimanjaro to the Indian Ocean, from historic Zanzibar to the Serenget1. We were also told of the vast potential for agriculture, fisheries, minerals and natural resources. The businessmen were told several times about the fiscal changes, no tax for five years, freedom to remit profits and dividends, and the assistance available to establish new work in Tanzania.

During the afternoon I attended a Workshop on Industry and Agro-Industry. There was a question posed which for me illustrates in cameo the issues ahead; “I am in the fisheries business based for many years in Mombasa, Kenya. Two years ago, I moved down to Tanzania and am now based in Dar es Salaam. I have orders for ten tons of octopus a month but my current fishing fleet capacity can deliver only one ton a month. I have discovered three fishing vessels in Dar es Salaam that were part of an aid package from Italy some years ago. They are operating at only one tenth of their capability. I need ships, they need more work; how do we create a successful partnership?”

This also illustrates dramatically, the ecological and social issues which were conspicuously absent from the day’s deliberations. Only Alistair Boyd from the Commonwealth Development Corporation spoke of the need to take into account the social and ecological consequences of economic development. This example leaves me asking many questions:

-Will Tanzanians benefit from this change of economic policy?
-Do Tanzanians want all their octopus taken?
-Do Tanzanians want any of their other natural resources exploited?
-Does Tanzania have safeguards in place to protect it from over development ? (which means money and people to monitor activity).
-Who benefits and who loses out?
Judith Holland

POINTS MADE BY PARTICIPANTS:
– Tanzania produces 1% of the total world output of coffee, cotton and tea . Coffee estates are up for sale. Investment is required for cashew nut and pyrethrum processing. Sisal is Tanzania’ s number four foreign exchange earner; Tanzania is soliciting the private sector to purchase or enter into joint ventures with sisal estates – Investment Promotion Centre
– The UK is still Tanzania’s leading trading partner with a 22% share of the market . Our closest competitors are Italy (16%), Japan (13.3%) and Germany (11.7%). In 1991 we exported goods to the value of some £73 million and imported £21 million – mostly tea and coffee. Britain’s Area Advisory Group for the Department of Trade and Industry has designated Tanzania as one of its ‘markets to watch’ and it is possible that it will consider an investigative mission in 1993. Tanzania’s remarkable stability gives it advantages over many of the neighbouring states. It is to be congratulated on its marketing and cooperative reforms, political pluralism, independent press, the record in human rights . . .. But it is a competitive world. There have been changes in banking but no foreign banks are yet operating in Tanzania; none of the parstatals have been sold or liquidated yet; there is need for progress on a double taxation agreement and there is the problem of outstanding commercial debts dating back to 1979 – Sir David Gilmore, Permanent Under-Secretary of State at the Foreign and Commonwealth Office.

– Many people neighbouring Tanzania have found the country to be a safe haven whenever they felt severely threatened in their own countries .. . even the wild game have the same feelings . It is no wonder that Tanzania has 25% of her territory reserved for game parks … ,. It is our intention to make the Investment Promotion Centre a ‘One-Stop-Centre’ to speed up the process of approving investment projects .. . . Between 1990 and April 1992 some 35 projects which are wholly owned by British firms or in partnership with Tanzanian counterparts have been set up …. I really hope that you will be able to look into new possibilities – John Malecela.

– The factors which were most influential in our deciding to increase our investment in Tanzania were the stability and remittability of funds but …. we have encountered some resistance from minor offici also to the implementation of IPC investment approvals and there is continuing uncertainty on who in Government is responsible for privatisation and who we should negotiate with – Tom Brazier, Chairman, Brooke Bond Ltd.

MASSIVE COTTON CROP
Although final figures were not available at time of going to press it is apparent that the 1990 – 1991 cotton crop has been the highest in nearly three decades. By November 11th the Tanganyika Cotton Marketing Board had collected some 458,000 bales and the General Manager of the Board, Mr Timothy Shindika, said that the total could reach 500,000 bales.

PRIVATE SECTOR EXPORTS UP
Businessmen in the private sector exported goods worth US$ 169.34 million in the 1989/90 and 1990/91 financial years, the Minister of State in the President’s office , Prof Kighoma Malima, has announced. This was, he said, 19% above the target.

The Professor went on to say that the Investment Promotion Centre had so far approved 22 projects from foreign investors, 53 joint ventures and 97 others from local entrepreneurs. 47% of the projects were in the industrial sector, 17% in agriculture, 15% in tourism, 10% in natural resources, and 6% in transportation – Daily News

FIRST SOUTH AFRICAN PLANE
The Daily News reported in its November 1st issue that a South African Airways (SAA) plane was expected in Dar es Salaam – the first flight to the country since Tanzania’s independence. The plane came to collect more than 100 exiles living in Tanzania.

Meanwhile, the Business Times, in a front page article quoting the Director General of the Board of External Trade, wrote that Tanzania was running out of time to penetrate the important South African import/export market. Others were reported to have said that, as late comers, Tanzania could find most of the trade and economic opportunities taken up by competitors. Tanzania, unlike other SADCC countries , was said to be placing politics above economic realities.

SIDA AND USAID UNHAPPY
Representatives of two donor agencies have been making some surprisingly critical remarks recently.

The Swedish Development Agency’s Head of Development Cooperation, Mr Bo Westman, announced in September that SIDA was temporarily blocking funds meant for development activities in Tanzania, pending publication of all grants in public accounts and explanations on the ‘misallocation of funds by the Treasury to unintended projects’.

And the outgoing Director of the US Agency for International Development (USAID) Mr Jo Stepanek, in a ‘Monograph on Tanzania’s Development’ stated that ‘the corrosive forces of population growth and public corruption are severely undercutting Tanzania’s ability to produce and to govern. Donor dependence sustains the elite as it threatens sovereignty’.

It seems to be the exception rather than the rule for a railway to be self-financing and it is certainly true that the Tazara Railway depends heavily on government support. Nevertheless, in the long term, it would seem likely to provide an essential service to Tanzania in linking up Dar es Salaam with the potentially highly productive Southern Highlands. One of Tanzania’s greatest problems lies in the great distances that separate the most productive areas from potential markets and export outlets. Among the most important questions facing the Tazara Railway is its long term financial viability. Bilateral donors and the World Bank certainly did not consider its future prospects to be sufficiently bright to justify their financial involvement. In the end the Railway was built with Chinese capital and employing Chinese technical and managerial know-how. But the justification was not based solely on a careful evaluation of financial prospects. An overriding consideration was the short-term need to provide land-locked Zambia with an outlet to the Indian Ocean as an alternative to South African ports and in view of the liberation struggle in Mozambique.

The railway was handed over to the governments of Tanzania and Zambia as a going concern by the Chinese in 1976 with a rated freight carrying capacity of 2.5 million tonnes per year. However, a maximum of 1.273 million tonnes in 1977/78 has never again been approached and in 1982 goods carried reached only 796 million tonnes or 32% of rated capacity. In 1989 goods carried amounted to 1.044 million tonnes on a declining trend (1.143 in 1988, 1.185 in 1987).

The reasons given by the Government for this poor performance were insufficient motive power and rolling stock together with technical and manpower constraints. Inadequate maintenance of the permanent way over the years has contributed to the Railway’s difficulties. A consequence of this deterioration, exacerbated by a landslide between Mlimba and Makambako in 1989 was a reduction in the speed of trains. An increase in the turn-around time of wagons from 13 days in 1988 to 18 days in 1983 further exacerbated the problem. Shortages of spare parts and accidents have contributed to the problems of the Railway Authority. In contrast to the declining trend in the amount of freight there was a continuing increase in the number of passengers. The growth has been continuous since 1985 and by 1989 had reached 1,704 million, a 5.2% increase over the previous year. On the Tanzanian side this increase was attributed to the shortage of buses, the poor condition of the roads and the favourable level of rail fares in comparison with those charged on buses (1).

Under the terms of the Tanzania-Zambia Railway Act 1975 the ultimate responsibility for the railway lies with the Joint Council of Tanzanian and Zambian Ministers set up under an agreement between the two governments on 2nd May 1975. The running of the railway was to be en trusted to a Tanzania-Zambia Railway Authority under a Board of Directors and constituted as a body corporate under the laws of both countries. The Council consists of three Ministers appointed respectively by each government, and is required to meet not Less than twice a year and to consider and determine all questions of policy and, in particular, to approve all major changes in tariffs charged and services rendered by the Authority; any major revision in salaries and conditions of service; all development plans; capital works costing more than five million shillings, or such higher sum as the Council may determine; the construction of new branch lines and the raising of capital. Thus the Council retains extensive and explicit powers of control. Being a political body, there is a clear danger of attaching too great an importance to short-term and political considerations.

In the context of these powers the Authority is required to conduct its business in accordance with commercial principles and to ensure that, taking one year with another, revenue is sufficient to meet its outgoings, including proper allocations to reserves, provision for the depreciation of capital assets, the servicing of loans and the financing of pensions. The Authority is also liable to repay to the two governments any amounts contributed by them to the Authority’ s resources and the loan obligations to China (2).

STIFF COMPETITION
Financial viability in the sense thus required by law has never been attained and there is at present little prospect of commercial balance. With the restoration of Zambia’s access to the ports of Beira and Nacala and the opening of the highway between Dar es Salaam and Lusaka the railway now faces stiff competition in its cross frontier business. Moreover, the use by Zambia of South African ports is no longer avoided with the same tenacity as before and is likely to increase. The shortage of wagons led recently to an accumulation of 90,000 tonnes of Zambian cargo at the Port of Dar es Salaam of which 41,500 tonnes consisted of fertiliser and the rest wheat, vegetable oil, detergents, equipment and spare parts (3). Such delays are hardly likely to improve the Authority’s commercial reputation. Moreover, the effectiveness of the Board of Directors as commercial managers could be attenuated unless there is a definite policy of restraint on the part of the Council of Ministers or indeed, perhaps a change in the law. For example, a marked improvement in the salaries and status of maintenance staff might be judged necessary to overcome problems with the permanent way which have bedevilled the railway from the outset. But, as things stand, any such decision would require the consent of the Council.

In existing circumstances the longer term prospects for the railway are bound up with economic developments on both sides of the border. Much of the Mbeya Region has considerable economic potential, which would be greatly enhanced by efficient rail communications. Such services will require improvements in the supply of wagons and motive power and a determined effort to reduce the turn-around time at the termini. The arrival, towards the end of 1990 of 17 diesel electric locomotives from America will have helped to relax the strain on existing resources but more will be needed. So far as the financial administration of the Authority is concerned, growing pressure by the Treasury will help the drive towards greater efficiency.

(1) Hali ya Uchumi wa Taifa katika Mwaka 1989: Mpigachapa wa Serikali. Dar es Salaam. 1990.
(2) The Tanzania-Zambia Railway Act. 1975.
(3) Tanzanian Economic Trends. Vol 1. No4. January 1989.

J. Roger Carter