In his budget speech on June 16, 1988 the Minister for Finance, Economic Affairs and Planning summarised the situation reached at the end of the second year of the three year Economic Recovery Programme as being ‘generally on track’, though some fundamental economic programmes persisted and would take time and perseverance to overcome. For the second year running the economy as a whole grew faster than an increase in population estimated at 3.3% p.a. Growth at 3.9% indeed fell short of the rate 4.5% envisaged in the Programme, still more of the 5% average rate assumed in the Five Year Development Plan beginning in July 1988.

There is, however, a possibility that the official calculation of growth rate (GDP) underestimates the true position owing to the emergence of small scale and informal activities, which are not adequately represented in the published statistics.

Important Gains
At this stage certain important gains can be recorded. The production of food crops is substantially greater than in previous years and the prospects for further growth are good if the weather holds. Consumer goods are again widely available. A tentative start has been made with the rehabilitation of industry, with textile production increasing from a very low level by over 20% above the previous year, rubber products by 49% and cement by 15%. Industry’s contribution to export earnings, though still modest, rose by nearly 75% between fiscal 1986-87 and fiscal 1988, partly stimulated by the search for foreign exchange to finance industrial raw materials (the ‘Export to Import’ scheme). A beginning has also been made with the rehabilitation of internal transport by giving priority in the allocation of foreign exchange to the purchase of spare parts for the railways and for road vehicles and the procurement of 1,040 new lorries. In general, expectations appear to remain buoyant.

Communications Infrastructure
But against these positive manifestations of recovery some very serious problems lie ahead. Long stretches of the main trunk roads are in a deplorable condition and deteriorating, necessitating in some areas complete relaying and exacting a fearfull toll on vehicles. Parts of the central railway line are in a poor state, resulting in derailments and the number of locomotives in working order fell from 134 in 1986 to 111 in 1987. In view of the critical importance of communications in Tanzania the rectification of this situation is clearly an urgent necessity

The grave difficulties in the way of closing the gap between imports and exports have been explained in some detail in Bulletin No. 28. The programme envisaged an increase of 11.6% in export earnings in 1987; in fact the foreign exchange income from this source during 1987 remained almost the same as in 1986, though it appears that in the following half year an improvement was recorded, showing a 9.3% increase in fiscal 1987-88 over the previous year. It seems, therefore, that the measures taken to boost export earnings, such as the ‘Export to Import’ scheme and the ‘Own Funds’ scheme may be yielding some results. Nevertheless, the trade deficit of $ 745 million remained at nearly twice the size of export income. These figures probably deserve some correction owing to the unrecorded income believed to have slipped through under the trade liberalisation scheme.

Agriculture
Export volumes of all the main items traded except cotton, sisal and tea fell during 1987, due in large measure to the deterioration of roads and vehicles, and a serious reduction in earnings was only averted by a dramatic rise of 37% in the volume of cotton exported, resulting in a 37% increase in dollar earnings from this source. Sisal, on the other hand, despite a 50% increase in the volume exported, suffered an 8% reduction in earnings on account of a 39% fall in world price. In the case of coffee, a 20% fall in the volume exported encountered a 39% drop in world prices, producing a fall in dollar earnings of 51%. This reduction has been attributed to the coffee berry disease, an insufficient supply of fertilisers and a shortage of vehicles. These experiences well illustrate how unsatisfactory it is to rely predominantly on the traditional commodity markets and demonstrates the urgency of export diversification.

Cotton provides a typical example of the difficulty. Production in 1987 was unexpectedly high and the prospects for further enhanced production encouraging. But processing was held up by the inability of the ageing ginneries to operate at full capacity and delivery was impeded by tbe shortage of lorries and rail wagons. As a result, raw cotton has cluttered up the warehouses and village stores, getting in the way of the 1988 crop. The UK Government has offered help with the improvement of ginning capacity in the hope of getting the 1987 crop out of the way before the 1988 harvest.

The increase in stocks also had its implications for the money supply. Substantial funds at high rates of interest had to be found to finance these stocks, with the result of a large and unwelcome increase in bank credit fuelling inflation. It is indeed a paradox that any increase in export commodities is liable to make fresh demands on the money supply and to counteract the government’s efforts to bring inflation under control. The only solution to this problem lies in increasing dramatically the supply of consumer goods, but the concentration of resources on export industries and the rehabilitation of the infrastructure renders such measures highly unlikely for the time being. As in so many aspects of economic policy, the Government has had to seek a balance between competing objectives.

HIGHLIGHTS OF THE 1988-89 BUDGET
– wage increases; new Government minimum wage Shs 1,644;
– Reductions in income tax; minimum taxable income Shs 1,500;
– No duty on agricultural inputs and drugs;
– 100% duty on luxurious and conspicuous consumption goods;
– day school fees up (Shs 750 to 1,500 p.a.); boarding Shs 3,000;
– beer up Shs 5 to Shs 91; cigarettes up Shs 1 per packet;
– airport service charge increased to Shs 300;
– increase in cost of visas, plane charters, road tolls;
– new tax of Shs 20 on each video rental;
– price controlled items reduced from 22 to 12.

Inflation and Defence Against its Effects
The choice for the government is further complicated by the dangers inherent in the continuing 30% annual increase in the cost or living experienced by urban dwellers in mainland Tanzania. With the continuing slow drift downwards in the value of the shilling some inflationary pressures are inevitable, but the level of the index is much more dependent on the price of food and consumption goods, many of which are now outside the scope of controls. The target inflation rate of 25% by June 1988 in the Economic Recovery Programme has not been reached. High inflation increases costs, jeopardises efforts at industrial Rehabilitation, whittles away the incentive advantages of increased Producer prices for agricultural products and, finally, and most seriously, threatens whole populations with destitution unless countervailing measures are taken. The government has taken some steps to mitigate the effects of inflation on urban dwellers. First, on two occasions, reductions in income tax have left all wage earners with more take home pay and further changes in the tax structure will raise the tax threshold to Shs 1,500 per month. Secondly, a 20% increase in the lowest salaries has been announced, with smaller percentage increases in the higher ranges culminating in a 10% rise in salaries above Shs 6,000 a month. Thirdly, following the recommendations of the Nsekela Report, fringe benefits will be paid to government servants consisting of a Rent Assistance for those not in government houses amounting to 10% of salary and a Transport Allowance for government workers in Dar es Salaam of Shs 350 per month. These measures will help significantly to offset the higher cost of living for the time being.

However, the most important defence against the effects of inflation has consisted of measures taken by the people themselves by seeking extra opportunities for employment (moonlighting), or by cultivating a patch of ground. It is striking how far such measures are being espoused by middle and upper income employees, who have benefited least from a succession of salary changes. Such activities gain in importance as inflation bites into spending power and even causes troublesome absenteeism during office hours. No government can ignore these effects and the dangers of social unrest that may result from inflation. On the other hand. too generous a compensation for a fall in the standard of living could seriously unbalance the budget and generate new inflationary pressures. Here again, government must seek a middle path.

On the whole, in spite of disappointments, the Minister was justified in describing the Economic Recovery Programme as ‘on track’. Where performances fell short involved important aspects of government policy, such as export generation and the control of inflation. But the experience of the programme so far has drawn attention to three aspects that must be kept in mind. First, there is the development of unexpected consequences like the side effects of a healing drug. The log jam in the processing and transport of cotton and its effects on the inflationary trend is a case in point. Secondly, it is always hard to estimate the time scale involved in the implementation of policy decisions. At this two-year juncture in the Programme many developments are in train that have not yet been revealed in the official figures. One example is export promotion, the results of which are only just beginning to show up in the statistics of foreign exchange earnings. Breaking into foreign markets with new products is always a tricky business and in Tanzania the necessary skills are in short supply. Diversification calls for what may a:most be described as a cultural shift and such changes in outlook are not encompassed quickly or easily. Thirdly, no new decisions about exports can be taken in isolation from decisions in other spheres. Money for export may be flowing from the hives but the flow may be wholly dammed up by the absence of special export containers. Cotton may be there in profusion, but the bounties of nature will not reach the ports unless something is done about the ginneries.

SUMMARY OF UK AID – £70 MILLION SINCE THE IMF AGREEMENT
– Spare parts and equipment for road and rail transport;
– Veterinary drugs and agricultural chemicals;
– Rehabilitation of the Tanzania Railways Corporation;
– Second Phase of the Southern Region Health Project;
– English language teaching programme;
– Links between British and Tanzanian universities;
– Maintenance of the Songea-Makambako road;
– The medium term National AIDS Plan;
– Help to improve ginning capacity;
– Land planning, crop storage, pest control, agricultural research.

With all these considerations in mind, the impression remains that the government is managing the Economic Recovery Programme with skill and fortitude in the face of intense difficulties. One essential component is of course the support from outside, which has so far been generous in intention, but in some cases slow and cumbersome in implementation. The reduction of bureaucratic delays and further steps to relieve the debt burden (Bulletin No. 30) will notably assist in securing a successful outcome to the government’s efforts. It is hoped that these improvements in the performance of the international community will be forthcoming.
J. Roger Carter

Letters from Tanzania suggest that the decline in the economy has ‘bottomed out’ and that there are definite signs of incipient recovery. There is certainly more activity among producers and traders, while the response of farmers to the provisions of the economic recovery programme has caused serious crop storage and movement problems. However, in spite of this more hopeful picture, the persistent trend of price inflation remains a serious worry, particularly to those on fixed salaries. Though hitherto the Government, aided by reasonable harvests, has been successful in sustaining morale and avoiding a food crisis, it would be rash indeed to assume that the Economic Recovery Programme has surmounted the formidable obstacles that lie in its path. Of these, th8 two most urgent and perplexing are the problems confronting the rehabilitation of exports and the debt overhang.

Except in 1968, Tanzania enjoyed a favourable balance of trade throughout the first decade of independence. But thereafter, for reasons that are too complex to discuss here, the trading account was consistently in the red and in 1986 export revenues at US$ 348 million were no more than one third of the cost of imports at US$ 1,047 million. This very serious outcome was the sequel to a fall in export volumes of sisal, cotton and cashew nuts, but other products increased in export tonnage, notably coffee, Tanzania’s largest export crop. For the moment the outlook for coffee is promising and indeed in 1986 a 15~ increase in exports was matched by a 130% increase in prices, resulting in a growth in earnings of 167% in shilling terms. But coffee is subject to seasonal fluctuations and in 1986 the difficulties encountered by the Brazilian crop created exceptional, though temporary, market opportunities. Over coffee, as with most of Tanzania’s traditional export commodities, hangs uncertainty about future total world demand, while increasing competition among Third World primary producers anxiously trying to rectify their trade deficits and fund their increasing burden of external debt casts additional doubt an the prospects for Tanzania’s staple export. This means that Tanzania can only hope to return to balance on her trading account through a resolute policy of export diversification in the years to come.

While the trade deficit imposes an intolerable burden on Tanzania’s balance of payments, it is also the debt overhang that gives rise to special anxiety. At the end of 1986 Tanzania was in debt to the rest of the world to the extent of nearly four billion dollars . Leaving aside private and short-term obligations, about two thirds of the outstanding public debt was to other governments and one third to the World Bank and the IMF. The interest and repayment of external public debt i n 1986 consumed 15% of the income from Tanzania’s exports, a burden which , although much less than that suffered by the Sudan, Somalia and some other countries, is likely to increase with the expiry of grace periods on multilateral loans and rescheduled debts in the nineteen nineties. Same of this burden can be relieved by converting bilateral loans into gifts. The United Kingdom has already done this, but with an outstanding bilateral debt in 1986 of US$ 2.112 million there is obvious scope for further relief along similar lines. Of the debts outstanding to the World Bank, US$ 656 million was due in respect of IDA (interest free) credits, which will fall for repayment in the next thirty or forty years as grace periods expire. But no less than US$239 million was borrowed in the early seventies on so-called IBRD terms, that is, at substantial rates of interest. Some consideration is now being given to the means of alleviating this debt burden, though it is far from clear what options will be open. Of the remaining debt burden, US$ 186 million represented accumulated commercial debts subject to export guarantee schemes, that is, in effect debts taken over by governments. It is believed that the U.K. would be willing to extend maturity periods and reduce rates of interest, but the implementation of such a proposal seems to depend on an agreement in the Paris Club (the main industrial nations) and there appears to be doubt about the willingness or the legal ability of the United States to co-operate.

It is of course difficult to foresee in this uncertain world the future outlook for Tanzania’s efforts at economic renewal. A downturn in the economies of the industrial nations could seriously jeopardise the prospects for many Third World countries dependent for their livelihood on the export of raw materials. The solution to the formidable balance of payments problem is still far away and exportable items and necessary commercial skills remain inadequate for the ‘purposes of a vigorous export programme. Underlying all efforts at economic renewal is the restoration and development of communications – roads, railways, port facilities, telephone and telex systems – a programme that will require years rather than :months to produce significant results.

But in spite of these hindrances and hasards, Tanzania possesses two important advantages, a stable government and a buoyant state of morale. Although the short term burden of reconstruction is falling disproportionately on the urban wage earner and his dependents, the absence of ostentatious private wealth and policies such as the minimum wage legislation help to offset, if only partially, the rigours of the recovery programme. These advantages cannot be assessed in developmental terms, but they create a favourable environment for growth. It must be our sincere hope that the benefits of structural adjustment, to which the Government has committed itself, will soon accrue to those who are paying the price.
J. Roger Carter

(Extracts from a feature article in the Daily News)
THE TANZANIA HARBOURS AUTHORITY was established in 1977 to take over from the East African Harbours Corporation when it collapsed. There have been some fairly massive investments during the last 10 years to cope with growing demands. Current projects include:
– conversion of cargo berths nos. 9,10 and 11 into a modern container terminal;
– rehabilitation of berths 1 to 8;
– rehabilitation of the Kurasini oil jetty;
– construction of a new grain terminal; the above, all in Dar es Salaami and,
– strengthening of jetties at Kilwa and Lindi.
Nothing is planned for Mtwara as it is running below capacity; studies are underway for developments at Tanga .

THE TANZANIA RAILWAYS CORPORATION was also established in 1977.
Its Lake services include:
– on lake Nyasa , the mv Iringa (80 passengers) and the mv Songea which can carry 125 tons of cargo;
on Lake Tanganyika, the German built mv Liemba (700 passengers), mv Mwongozo (400 passengers) and an oil barge – the mv Sangara.
on Lake Victoria , the mv Victoria (750 passengers), mv Bukoba (400 passengers), mv Butiama (160 passengers) and mv Clarias (290 passengers); there are also one wagon ferry (the mv Umoja), two motor vessels, each with a capacity of 200 tons, the mv Ng’ombe which can transport 100 head of cattle, two tugboats, an oil tanker and a lighter.

The rail service is faced with very serious problems including low availability of locomotive power and rolling stock and short-ages of spare parts. Thus, for example, passenger train frequency has had to be reduced from daily to four times a week on the Central line and to three times per week on the Link Line (to Moshi and Tanga).

The road service to the Southern Highlands has 60 buses, 30 trucks, 10 tankers and six trailers. It is intended to introduce new routes to Malawi, Zambia and Kenya in the near future.

AIR TANZANIA CORPORATION was formed in 1977. It started with two Fokker Friendships inherited from the defunct East African Airways Corporation and a Boeing 737 leased from DETA of Mozambique. Today there are eight aircraft – 3 Twin Otters, 3 F27-600’s, and 2 Boeing 737’s bought gradually during the last 10 years. The airline serves 21 domestic airports and 12 regional destinations including Maputo, the Seychelles, Lusaka, Muscat, Dubai and Gaborone. Passenger numbers have increased from 85,000 in 1977 to 441,000 in 1986. The airline claims to be operated by 99.9% Tanzanian personnel.

THE TANZANIA POSTS AND TELECOMMUNICATIONS CORPORATION came into being in February 1978 and has gradually expanded its services during the last 10 years. In 1978 Tanzania had 562 post offices with 45,444 letter boxes. Today the Corporation operates 740 post offices with some 82,000 post boxes. But this growth follows far behind the demand. Over 40,000 people are on waiting lists for post office boxes because of lack of wall space in existing buildings and shortages of locally made boxes and locks.

The greatest advance in telecommunications was the commissioning in 1979 of the first satellite ground station at Mwenge, Dar es Salaam which has 60 voice grade circuits to handle telephone, telex and telegraph traffic. The Mwenge station has access to the INTELSAT satellite over the Indian ocean thus providing links between Tanzania and the rest of the world.

A further important development was the completion in 1982 of the Tanzanian part of the Pan African Telecommunications Network (PANEFTEL). The microwave link stretching from the Namanga border in the north to the Tunduma border in the south has greatly improved the quality of the country’s telecommunications services with Kenya, Uganda, Zambia and Ethiopia.

In February 1987 the Corporation signed a contract for 514 million shillings for the installation of a new Grade A ground satellite station at Mwenge which should result in further improvements in service.

(Extracts from an article in ‘Habari’ the journal of the Svensk-Tanzaniska Foreningen translated by J. Roger Carter)

Tanzania’s sole state-owned commercial bank, the National Bank of Commerce recently celebrated its 20th anniversary. The Bank was established as a sequel to the Arusha Declaration by the nationalisation of the existing foreign commercial banks. The largest of these were Barclays Bank, the Standard Bank and National and Grindlays Bank. In addition there were certain Indian banks, the Bank of India and the Bank of Baroda together with a number of small establishments of various ownership.

The Bank had, among other things, invited to its celebrations certain foreign guests among whom were to be found some of us ‘faithful servants’ from the Nordic countries.

It was a fantastic week. The programme included everything an old friend of Tanzania could hope for. Visits to game parks, cultural events, social gatherings and last, but not least, opportunities for discussion about the Bank’s achievements in the last 20 years and its prospects in the difficult economic circumstances in which Tanzania finds itself.

The Bank’s growth has been tremendous. Before nationalisation there were about 50 branches mainly concentrated in the main towns supplemented by ‘mobile branches’, vehicles that drove around smaller places one or more times a week. Now there is an established representative and one or more branches in every district in the country. In addition, there continue to be a large number of mobile branches serving the smaller localities.

This expansion has naturally created a big demand for staff training and development. The initial internship scheme has grown considerably and the Bank now operates its own college in Iringa. Side by side with this, and for higher training there is the Institute of Finance Management which operates in conjunction with the country’s public financial institutions.

The Bank’s personnel appear, however, to be unusually stable with little turnover. It was extremely satisfying to return after nearly 20 years and find so many old colleagues still in post. Many of our erstwhile young friends have now developed both in experience and stature and become important personalities in the Bank. This is important for the branches where so much of the activity of the Bank rests on knowledge of people, confidential and personal contacts, not least where foreign business is involved.

A great deal of the merit for these developments must be attributed to the present Chairman of the Bank, Ambassador Amon J. Nsekela. Under his leadership there has grown up an atmosphere and working conditions in the Bank, which have clearly proved stimulating for the staff.

The rapid expansion has also caused difficulties with the handling of the growing volume of transactions. All of us who have stood in the queue at the Bank’s counter seeking attention for the withdrawal of part of our balances know this situation well. One must, however, have some understanding of the need for a control mechanism that ensures reasonable security. The absence of a functioning communication system, not to mention mechanised accounting techniques, preclude an effective banking system of the kind to which we are accustomed. Add to this the fact that the tendency towards pilfering, unfortunately present also among certain members of the staff, can be substantial in a community living on the fringes of poverty and one has much of the explanation for the, at times, cumbersome and time-consuming procedures with which the Bank’s customers are confronted.

One of the Bank’s present problems is to decide precisely what technical apparatus it should now go in for. Accounting and book-keeping in general are not yet computerised. Old fashioned recording equipment of the fifties and sixties continues to be used. The problem is that servicing and spare parts are no longer available. One is compelled to go over to something else. Should one computerise in a society in which the infrastructure, energy supplies etc. are so unreliable? Otherwise, how can one manage to tackle the constantly increasing volume of transactions? That is bound to be one of the big questions for the coming years.
Sven Ohlund

THE ECONOMY 1. NYERERE CLARIFIES STAND ON IMF
Mwalimu Nyerere has refuted allegations that he is opposed to certain decisions made by the second Phase Government, particularly the agreement with the International Monetary Fund (IMF. He said that all along he had been defending the Government decision to agree to IMF conditions in the absence of an alternative. “The Government was right to sign the agreement with the IMF” he stressed.

“Not even in my sleep can I oppose the Government for it is the CCM Government” Mwalimu told Sumbawanga Party members on June 5th 1987. He had been asked by a Party member why he had been denouncing the IMF publicly although the Government had already agreed to the Fund’s conditions. The member felt that such public criticisms could scare the Government from making decisions necessary for the development of the nation.

Mwalimu said that he had never changed his position regarding the IMF. It was an institution of the rich nations which was used to disrupt the economies of poor countries. “I have never spoken in favour of the IMF” he emphasised adding that instead he had been attacking its policies which were directed at suppressing the people even when he was President. “Why should I change my position now?” he asked. Mwalimu said the agreement with the IMF did not change the evils suppressing the poor nations – Daily News

THE ECONOMY 2. TANZANIA FORCED TO SIGN – MWINYI
Speaking at the Peasants Day celebrations in Shinyanga on July 7th 1987 President Mwinyi said that people should not lose hope because of the current economic hardships but rather they should face them squarely. Tanzania would succeed in building a strong economy if the people worked hard.

The Government had been forced to sign the IMF agreement because it could not meet its foreign exchange requirements. He said that signs of recovery could now be seen, as evidenced by the availability of clothes, cement and other consumer goods. Although prices were high, at least the situation was better than a few years ago when people had to buy items such as soap at hiked black market price’s. “People used to carry money in their stockings because there was a lot of it but very little to buy” he said. – Daily News

THE ECONOMY 3. AN INTERIM SITUATION REPORT
There has been a distinct improvement in Tanzanian economic performance over the year and a half beginning in February 1986. Goods are less unavailable, basic services are under less strain, food prices fell seasonally, and then rose slowly, morale has improved. Over the same period Tanzania has concluded two successive Economic Recovery Programme agreements with the World Bank and bilateral donors, a standby facility with the IXF and two rescheduling agreements of the bulk of its bilateral debt with the Paris Club (OECD governments).

The speed of the shift is related to the atypical background to the international endorsement of Tanzania’s structural adjustment and rehabilitation programme. Following a failed 1981-82 programme, when World Bank and bilateral negotiations collapsed after an IMF standby had been negotiated, Tanzania has had three further structural adjustment programmes.

The 1981-82 programme was centred on export rehabilitation. It raised export volume 30% in 1981 but as prices fell 20% the net foreign exchange gain was negligible and unable to sustain the programme. 1983 saw the adoption of the report of the ‘Three Wise Men’ jointly appointed by Tanzania and the World Bank. In retrospect this was a time wasting digression for all concerned. The report pleased nobody, had no physical or sectoral base and ignored both budgetary and price imbalances.

In 1984 the basic elements of the 1986 strategy (except the rolling exchange rate adjustment component) were put in place. The lag in negotiating international backing resulted from the unfortunate interaction of a slow World Bank response and the approaching elections. As a result, as of early 1986, Tanzania had had three years of positive GDP growth behind it; a relatively stable (25 to 35% range) inflation rate, falling government bank borrowing, bank credit growth in the 15 to 20% range and a number of efficiency reforms (eg. in crop pricing and marketing) plus an agenda for rehabilitation and reutilisation of capacity. What it did not have – and could never get from the export and infrastructural base – was the foreign exchange to finance imports to put the rehabilitation exercise in high gear. One element in achieving the latter was a shift to regular, moderate adjustments of the exchange rate. It moved from about Shs16 to the US dollar in February 1986 to Shs32 in June. After a 25% devaluation to Shs 40, adjustments were made to offset Tanzanian inflation and to slowly bring the effective rate back to late 1970’s levels. By mid 1987 the rate was around Shs 62 to the dollar which had itself fallen 25%. In terms of the pound (a less unstable currency) the change was from about Shs 20 in early 1986 to Shs 104 in mid-August 1987.

The devaluation has had limited inflationary impact. The changes up to June 1986 were largely absorbed into the actual retail prices which valued imports at something nearer the parallel rate (currently Shs 190 to the pound Editor) rather than the official rate. Since then however, the portions of consumption linked to imports have risen about as rapidly as the number of shillings needed to buy a dollar. 1986/87 Cost of Living increases are of the order of 30~ overall but probably 50% plus on the two fifths of goods and services with significant import content.

The relatively good price trends are related to the good 1985 and 1986 harvests – the first good ones since 1978. Food prices actually fell in the second half of 1986 and rose perhaps by 10% during 1986/87. Similarly the fall in world all prices in 1986 helped dampen the impact of devaluation on transport costs. The good harvest allowed of the establishment of a grain reserve of perhaps 100,000 tons. If the 1987 crop year has been average, which seems likely (several good, several normal zones and only the Kilimanjaro and coast regions having suffered) food scarcity should not hamper recovery or affect inflation in 1987/88. The key problems will be the restoration of manufactured output levels (now perhaps 35% of those in 1978) and the halting of the erosion in real wages. The 1987 minimum wage increase is 30% and the target for inflation in 1987/88 is from 20% to 25%.

Whether these goals can be achieved depends on how fast and how fully the agreed foreign resource flows arrive. Normal time lags from agreement in principle through detailed negotiation, procurement and delivery have meant that, as of mid-1987, external support for the recovery programme has played little part in economic improvement although it has helped to restore morale.

In 1986 GDP is estimated to have risen by 3.6% led by agriculture and services. The 1986/87 target of 4.5% should be attained.

The external side of the programme is – unusually – built around the accumulated minimum import requirements for current sectoral production and rehabilitation targets. It is well designed, has been well received and should have begun to payoff by the April/June 1987 quarter.

To date. IMF targets have largely been met. The Recurrent Budget deficit (certain grants being included as recurrent revenue) was over estimated largely because of late financing of 1985/86 overruns and defence bills related to solidarity with Mozambique. Excluding the former, domestic government bank borrowing fell dramatically to Shs1.2 billion, if it is included, the level was Shs3.4 billion compared with a target of Shs 2.5 billion. Total bank credit rose about 20% of which 60% (Shs 5.3 billion) went to enterprises. The overrun was related to a sharp rise in cotton production, delays in processing and transporting, exacerbated by falls in world prices and the rather unexpected acquisition of the 100,000 ton grain reserve, In this context credit ceilings were renegotiated with the IMF during the first half of 1987.

The debt rescheduling programme buys some time. Bilateral principal and interest (including arrears) for 1986/90 have been rolled forward to 1991/99. This is not a permanent solution but, taken together with the recovery programme commitments, results in the most positive import capacity expansion of any major structural adjustment programme.

Tanzania’s stubbornness in sticking to its strategy during the 1980 to 1986 IMF negotiations did cost time but it also led to successive refinements of domestic strategies and significant improvements in the conditions surrounding external support. Uniquely among large structural adjustment programmes the Tanzanian programme has a relatively small IMF component (10% odd). Tanzania does not believe that six year money at 8% can be a basic means of financing a six to ten year recovery programme nor to reducing the external debt problem to manageable levels.

The health sector, particularly at rural and urban clinic level, has been substantially though not fully rehabilitated. A Danish/UNICEF project has filled basic drug gaps and related support has allowed for renewed vaccination of young children.

Education faces more problems. Enrolment is falling at primary level even though fees are automatically waved for children of families unable to pay.

The 1986/87 recurrent budget estimated outturn and the 1987/88 estimates show a real increase in health, education and other government spending for the first time since 1978/79. This is a major turn-around if it can be maintained.

The long term weak link in the strategy remains exports. On optimistic projections the present programme might raise exports (including recaptured smuggled ones) from $400 million in 1985 to $800 million in 1990. However, with at least $200 million current account debt service and $1,200 million imports needed to sustain a 5 to 6% growth rate in output (a rate likely to be achieved in 1987) there remains a current account gap of about $700million, (Future prospects are discussed in more detail in the article which follows – Editor).

Domestic manufacturing’s slow revival seems to be related to lags in disbursement of most import support grants and soft loans. The world Bank and UK contributions are exceptions to this. As a 10 to 15% output recovery in 1987/88 will be crucial to raising GDP from 4.5% to 5% and to achieving the target of a 20 to 25% rise in cost of living (thus making the 30% minimum wage increase translate into a real increase of 5% (the first real increase since 1973/74) this gives cause for concern.

One hazard to the renewed balance of the recurrent budget is the renewed need to provide solidarity forces – of perhaps 6000 – to Mozambique. They have been crucial to reversing the tide of the ‘bandidos armados’ (MNR) advance in northern Mozambique but they do represent a substantial budgetary burden. It is an unavoidable one. Neither Tanzanian principles, Tanzanian’s self respect nor stability and security in southern Tanzania are consistent with failing to avert a collapse of Mozambique’s northern provinces into anarchy or MNR rule.

In short, 1986/87 has seen significant economic recovery. This has been built up from the slow but real partial stabilisation and growth of 1983/85. Funds and a framework for utilising them to sustain that recovery in 1987/88 and 1988/89 are pledged and/or in place.
Reginald Herbold Green

JUNE 18, 1987. BUDGET HIGHLIGHTS
– Minimum wage for civil servants raised from Shs 1,055 to Shs 1,370 per month – equivalent, at official exchange rates, to £13.17
– Substantial increases in the tax on fuel,
– Customs duties up by 10 to 15%
– Driving licences to cost Shs 1,000
– 10% sales tax at restaurants.
– Hotel levy increased by 5%
– Two new road toll stations introduced on the Mwanza-Musoma and Isaka-Lusahunga roads.
– Prices of detergent powder, cotton yarn, blankets, plastic containers, salt, radio sets, cooking oil and match boxes decontrolled.
– No increase on beer, cigarettes or spirits.

THE ECONOMY 4, FUTURE PROSPECTS
In the years between the wars there was a widespread belief in certain quarters that, with adequate economic support, economies could be both planned and managed by centralised organs of state, The second world war, involving rigorous planning for a limited objective, appeared to lend some colour to this view, But the experience of the USSR and elsewhere has shown clearly that economies are not machines producing predictable results at the press of a button, They are on the contrary profoundly influenced by the decisions and reactions of millions of people, In common parlance these are referred to as ‘market forces’, though the phrase suggests some anonymous reagent and obscures its real character as the sum of decisions taken by many individual human beings.

The ‘rediscovery’ of market forces has been a salutory lesson for the planners, but the current popularity of this style of economic democracy has gone too far in some quarters. Market forces, correctly interpreted, are an important prime mover in any economy, a fact that must never be forgotten; but untutored, unguided and unaided by the state they are likely to remain a somewhat anarchic influence incapable of solving the country’s most urgent problems.

For Tanzania by far the most pressing and immediate problem is that of the foreign exchange gap. Tanzania is spending abroad three times as much as she is earning by her exports. In 1986 she was $700 million in the red on her trading account, Even then her imports had been reduced to the barest necessities, much less than would be required by any self-sustaining and developing economy. Development, it must be remembered, almost always makes new demands on the foreign exchange account.

The shortfall in Tanzania’s foreign exchange earnings represents not merely a grossly inadequate income from the sale of exports and services to finance the purchase abroad of es.sentia1 imports, but also insufficient resources for the funding of external debts, including debt service arrears of $900 million. Fortunately, the debt problem has been relieved for the time being by agreement with Tanzania’s main creditors, as indicated in the article above. This concession does not extend to obligations due to the IMF which makes the full payment of arrears a first charge on any new loan – a process known as ‘rolling over’. These alleviations provide a valuable respite in the administration of Tanzania’s foreign exchange and have the additional merit of removing a barrier to natural trade relations. But it is essential to bear in mind that, unless further concessions are made, the burden of servicing and repayment will reappear in the early years of the coming decade, considerably increasing the obligations that will at that juncture have to be financed by the sale of goods and services.

The debt overhang, though removed from the present economic context, remains a serious threat to future recovery. It is a problem that Tanzania alone cannot solve cither than by a self-defeating policy of debt repudiation, What is needed is international agreement on the writing off of debts, or their conversion into long-term loans at concessionary rates of interest as proposed by the United Nations Economic Commission for Africa at Abuja in June. It seems likely that the South Commission shortly to meet for the fifth time under the chairmanship of Mwalimu Julius Nyerere, will consider this matter as one of high priority.

What are the prospects for Tanzania’s exports? At present over 80% of the foreign exchange earned by the export of commodities comes from the sale of traditional items, namely, coffee, cotton, sisal, cloves, cashew nuts, tea, tobacco, and diamonds. It cannot be said that the present prospect for any of these items is encouraging. The bargaining position of the producer countries of such primary products remains in most cases weak and attempts to rectify this situation by forming producers’ cartels have hitherto been disappointing. Recently the coffee conference ended in failure to reinstate a quota agreement between producers that had been abandoned in the previous year. The problem of the producing countries is not simply the inadequate prices of their exports, but violent price fluctuations. These are well illustrated by the case of Tanzania’s cotton exports, the volume of which rose by 43% between 1985 and 1986, while the proceeds of sales grew by only 3% due to a drastic fall in price. On the other hand, cashew nuts, where crops were declining on account of the ageing trees, disease and inadequate husbandry, earned 30% more in the same period on account of steeply rising prices, despite a fall in export volume of 25%. It is one of Tanzania’s misfortunes that it has not been in a position to take advantage of the favourable opportunities offered by the market for this commodity.

Apart from the severe difficulties caused by world price fluctuations, competition between Third World countries, all desperately trying to solve their acute foreign exchange problems by increasing the volume of their traditional exports, is tending in some cases to result in oversupply and a consequent downward pressure on prices. Weak coffee prices provide an example of this tendency in the absence of agreement between producers on production quotas.

The government’s target is an 11.6% increase in exports in 1987, a 19% increase in 1988 and a further 19% in 1989. There is, however, no firm basis for assuming, on present evidence, except in a wholly unusual set of circumstances, that an increased revenue from exports of anything like this amount could be earned solely on the basis of traditional items. This means that export growth in other areas has assumed special importance.

Industrial exports might seem to provide just such a resource. There are few industrial products that are being exported, mainly to Tanzania’s African neighbours, but at present the dollar rates of such exports is less than half the level achieved in 1980. Tanzania’s present concentration on import substitution makes it unlikely that industry’s contribution to export earnings will be significant for some time to come.

In the case of non-traditional rural and agricultural products, however, the prospect is a great deal more hopeful. Changes in food habits in European countries have greatly increased the demand for products hitherto often regarded as rather specialised health foods to which the shelves of the supermarket bear witness. Honey, a product of Tanzania’s vast miombo forest hinterland, is a case in point. An astute and timely response to such unfolding opportunities could yield for Tanzania a handsome return in foreign exchange earnings. But there are difficulties in the path of such a development.

First, some investment capital is almost certainly required, part of which may well have to be in foreign currencies. The government has a ‘seed-corn’ scheme for advancing foreign exchange against later foreign earnings, but it is desperately short of such resources and the hand-to -mouth existence led by the foreign exchange account makes this scheme into a somewhat limited source of initial capital. This is an area in which foreign aid could play – and in some cases already does play – a vital part.

But, secondly, a much more intractable problem is the shortage of entrepreneurial capacity. A successful export programme calls for special insights and abilities as well as knowledge of the mechanics of the export trade. Exporters have to learn about quality control and the importance of delivery dates, packaging and meeting the often exacting requirements of foreign importers. They have to know about, and conform with, any official regulations, such as those in the United Kingdom under the Food and Drugs Act 1955. To meet these requirements calls for high organisational capacity and sufficient financial knowledge to avoid difficulties with cash flow. A Tanzanian exporter has, moreover, to face problems not so seriously present in European countries – a labour force imperfectly acclimatised to the demands of modern industry and commerce, an over loaded telephone system, subcontractors with uncertain delivery dates, interruptions in the supply of essential inputs, and so forth. It is clear that the task of identifying and training potential entrepreneurs is one of exceptional importance at the present time. A valuable contribution is already being made by bodies such as the Institute of Finance Management, but practical experience is an essential ingredient of any training and this, in the present depressed state of the economy, is not easy to provide within Tanzania. Carefully chosen opportunities for experience overseas might make up, in part at least, for their shortage, though they are no adequate substitute for exposure to the very special problems of the Tanzanian exporter.

Finally, tourism is often mentioned as a neglected earner of foreign exchange. Of Tanzania’s potential for tourism there can be little doubt. with game parks and game reserves second to none, a long safe coast line and fascinating offshore islands. Moreover, the political stability of Tanzania is a great asset to any tourist industry. The fact that Tanzania has not prospered has been due principally to the shortage of funds affecting in particular transport, market promotion and hotel management. In 1985 out of 82 vehicles belonging to the State Travel Service, which caters for tourists, only 37 were in use and plans to buy a further 40 vehicles had to be abandoned for lack of funds. However, a modest programme for the rehabilitation of 12 tourist hotels was supported by a loan from the World Bank.

An effort is now being made to rectify this situation, though at this stage resource limitations are bound to slow down the pace of advance. However, fuel supplies, which are essential both for transport purposes and for the maintenance of tourist hotels in the game parks, are now easier, while spare parts for vehicles and other purposes are more easily secured under the export support scheme announced in the 1986 budget speech. Under these arrangements operators in the tourist industry can retain up to 50% of their foreign currency earnings in an external account at the National Bank of Commerce and use them to finance their import requirements without reference to the Bank of Tanzania.

The foregoing paragraphs provide little certainty at this stage that the country’s foreign exchange account will be in balance within five or six years , the period suggested by the Minister of Finance and there is no doubt that the struggle to achieve economic viability will be hard and long. However, there are encouraging signs of progress. The policy of entrusting trade to monopolistic state corporations has given place to official recognition and support for a variety of agencies, such as cooperatives, small companies and even groups of individuals. The result has been the emergence of commercial enterprise for which previously there has been no outlet. The extent of such hidden talents remains to be seen and no doubt some enterprises will end in bankruptcy. But the renewed interest in foreign trade creates an environment favourable to the success of the government’s export drive.

It remains to be seen whether the integrity of the Arusha principles will be maintained in their essentials. The impulse towards diversification derives from economic rather than political causes and is a response as much to the growing complexity of the economy, for which monolithic solutions were becoming increasingly unsuitable, as to the influence of external pressures. The measures now in train are part of an evolutionary process and it is devoutly to be hoped that they will prove effective without sacrifice of the idealism of the earlier years.
J.Roger Carter.

President Mwinyi has expressed Tanzania’s appreciation for British assistance to the country’s economic recovery programme, particularly in the agricultural and transport sectors. The President conveyed the message to the Governor of the Bank of England, Sir Robin Leigh-Pemberton who visited Tanzania recently.

The discussions centred on a number of issues including the on-going project to rehabilitate British made vehicles and tractors in Tanzania as well as monetary issues.

The Bank of Tanzania which had invited Sir Robin, maintains cordial relations with the Bank of England which has provided training for a number of Tanzanian bankers. The Bank of Tanzania has recently opened an account with the Bank of England in accordance with the requirements of the Paris Club – Daily News.

Mr Christopher Patten, Britain’s new Minister for Overseas Development announced, during his March 1987 visits to the two countries, new British aid grants of £50 million to both Kenya and Tanzania. £25 million of Tanzania’s allocation had been announced earlier during the IMF negotiations. During the last five years Tanzania received £144.93 million in aid (£30m in 1981, £27m in 1982, £39m in 1983, £30m in 1984 and £17m in 1985). Kenya has received over £200 million during the last six years and has been the largest recipient of British aid in sub-Saharan Africa.

£12 million of the new aid for Tanzania is to be for expenditure over the next few years on development projects to be agreed between the Tanzanian and British Governments. £5 to £6 million will be for the railways and the remainder will be additional programme aid, subject to Tanzania maintaining its agreement with the IMF on the programme of economic reforms.