Tanzania Daily News (Dar es Salaam)

8 January 2013

Tanzania: Call - Design Policies to Curb Resource Curse

THE negative effects of the resource curse can be minimized or entirely eliminated with the help of proactive policies and the establishment of efficient fiscal and governance institutions, cautions the Tanzania Industrial Competitiveness Report 2012.

Released at the end of last year, it notes that in view of the recent natural gas discoveries which open up the possibility of huge tax revenues. It says Tanzania may be exposed to several features of the resource curse, if not to all of them, it warns, adding that the negative effects of the resource curse can be minimized or entirely eliminated.

The regulatory framework, including gas Revenue Management Bill, Gas Master Plan and Gas policy are expected to be ready this year, according to authorities. On infrastructure bottlenecks, the report points out that the development of the resource-based industries will depend on the improvement of this aspect to cut down production and supply costs.

The report notes the need to expand and improve roads, railway networks and power sources and supply mechanisms. The report recommends that the government should find ways of cooperating with potential investors in order to open up capital intensive industrial sector.

On the other hand, the report says resource extraction and processing industries must have limited direct linkages to the local economy compared with the expansion of labour-intensive manufacturing industries. On the same note, it adds that special efforts must be undertaken to establish more linkages to the local economy by encouraging local inputs purchase and creation of more downstream industries that can provide value addition to the processed minerals.

It adds insight noting that after decades of macro-economic stability, trade liberalization and regional integration and despite improvements in the 2000s, the performance of Tanzania's manufacturing sector remains unimpressive. Tanzania lags behind regional role models both in terms of the quantity and quality of industrial goods produced and exported. It continues to rely heavily on an unproductive agricultural sector, the extractive sector and low value added manufacturing," it adds.

It notes that Manufacturing Value Added (MVA) is the difference between the current market value of a firm and the capital contributed by investors, as a share of GDP has mostly stagnated at roughly 9.5 per cent between 2000 and 2010, which is still below the average for the region, making Tanzania one of the least industrialized countries in the world. Manufacturing value added is also highly concentrated in a few low-tech sectors, making Tanzania's industry vulnerable to international competition and limiting its ability to improve through learning and innovation.

It underscores that food and beverages alone account for nearly half of total manufacturing value added, followed by non-metallic mineral products (11 per cent), tobacco (7 per cent) and textiles (5 per cent). Industrial activity is largely concentrated in Dar es Salaam (more than half of all large manufacturing establishments are located there) and to a lesser extent in Arusha.

It adds that the remaining 14 per cent is spread out between Mwanza, Singida, Tanga, Kagera and Kilimanjaro. Accounting for 91 per cent of all manufacturing establishments, privateowned companies dominate the manufacturing sector. As a consequence of the privatization process, large public-owned enterprises have seen their numbers dwindle to 56, which corresponds to around eight per cent of all manufacturing enterprises, with the remaining enterprises being mixed," it observes.

Large-scale industry is fairly limited in Tanzania. Enterprises with fewer than ten employees account for 97 per cent of all manufacturing enterprises and according to the NBS Business Survey 2007/2008, most of them are family-owned firms with less than five employees.

Yet manufacturing is not the preferred option of business start-ups which usually seek to engage in commercial activities that generate petty income. The distance to African comparators like South Africa or Mauritius is still considerable and Tanzania's growth would need to be sustained for many years to come within levels of lower middle income countries such as Indonesia.

The report, produced jointly by the United Nations Industrial Development Organisation (Unido), the Ministry of Industry and Trade and the President's Office, Planning Commission also cautions that industrialisation would not be able to bring about the transformative structural change envisaged in vision 2025, without a clear top priority status in the national policy framework.

This means that there should be a clear linkage between policies that govern industries with those that guide other productive sectors like agriculture, trade, infrastructure and macroeconomic management. "The essential requirement is to ensure that all other related policies are supportive of industrialisation," the report adds. It also calls upon Tanzania's donors to support development of the country's industries.

According to the report, donor support should not come with clauses that force the government to channel a good chunk of the money into the social sector and governance at the expense of the industrial sector. The report advocates protection of certain industries and encouraging export-oriented industries to perform better - along with creation of synergies between its investment policies and industrialisation.

The government's intervention in macroeconomic policy, including the exchange rate, should be done in such a way that it facilitates the growth of industries. The report proposes that Tanzania initiates an action plan on how to develop its industries. "The action plan should carefully detail the roles of different line ministries to facilitate industrialization," it states. The last factor had to do with ways to develop the industrial sector in an environmental friendly manner.

The report wants the government's environmental regulations to be transparent and strictly enforced. "There should be no loopholes for corruption or rent seeking," it reads. The other aspect that is strangling the development of Tanzania's industries pertains to reliable electricity supply.

However, experts are confident that completion of the Mchuchuma- Liganga projects, currently slated for 2015, will make power problems a thing of the past. The completion of the two projects, estimated to cost $3 billion, is expected to generate 1,000 Megawatts which in turn will boost power generation for industries.

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