Tanzania' s Landscape

Tanzania' s Landscape

Wednesday, December 9, 2009

Works Cited

1. CUTS Centre for Competition, Investment & Economic Regulation. "Investment
Policy in Tanzania." N.d. CUTS International. Web. 9 Dec. 2009.

2. "Information Technology in Sub-Saharan Africa." African Studies Center, University of Pennsylvania. Web. 09 Dec. 2009. .
3. Mankiw, N Gregory. Principles of Economics. Mason: Cengage Learning, 2008.
Print.

4. Mbelle, A.V.Y. "PRODUCTIVITY PERFORMANCE IN DEVELOPING COUNTRIES." N.d. Unido
Report. Web. 30 Nov. 2009. 60400_05_Tanzaniarevised.pdf>.

5. Kilindo, A.A.L. "Fiscal Operations, Money Supply and Inflation in Tanzania."
Letter. 11 July 2003. TS.

6. Mwanjali, S. Memo. June-July 2005. World Bank. Web. 9 Dec. 2009.
.

7.United Nations Development Programme. "Tanzania - Promises and plans: New Hope
for Unemployed Tanzanians." N.d. UNDP. Web. 1 Dec. 2009.
.

8."Tanzania / Policies." Server root. Web. 10 Dec. 2009. .

9."Development policy: Tanzania - Ministry for Foreign Affairs of Finland: Development policy: Tanzania." Ulkoasiainministeriƶ. Web. 10 Dec. 2009. .

10. Hoseah, Edward. Corruption in Tanzania. 2008. Print.

Amit's Amazing Policy

Policy Recommendation
Tanzania’s policies are aimed at reducing poverty and increase growth in the long-term future. One of Tanzania’s policies is the National Development Strategy which is derived from a policy called Development Vision 2025 (U.N. Economic and Social Council). The goal of the policy is to become a middle-income country instead of a developing country and have the low agricultural dominated economy to a semi-industrial economy with new forms of technology. The final outcomes in 2025 claim to be effective education for the younger generations, good governance, and a strong, competitive 21st century country. Another one of Tanzania’s government’s continuing policies is bilateral development cooperation which is managing strong aid relationships with other countries. For example, in 2001 direct budget support was about 1 billion. Direct budget support is federal aid given to help the government of Tanzania without any “strings attached” meaning Tanzania doesn’t have to do anything in return for a specific country (U.N. Economic and Social Council). In 2005, this number increased to 1.7 billion so building and creating these relationships with these countries is a crucial and important relationship to sustain as the development period continues. Another one of the most important plans Tanzania has constructed is the District Agricultural Plan to improve its agricultural sector by improving rural roads, providing subsidies for farmers of improved seeds, increasing the area under irrigation, and also implementing Trust Funds which allows farmers to start their business. The agriculture sector is a major area that needs improvement because of its slow growth and its impact on the GDP. A growth in the GDP has been proven to show that reduction in poverty will follow. Agriculture serves up to 70% of the livelihood of people in Tanzania (U.N. Economic and Social Council).
Finally another important policy that has been emphasized is the policy to expand education in Tanzania. One target is to eliminate illiteracy by 2015 yet this remains challenging due to rural women not getting the education they need. In policy terms, poor families are allowed to send their kids to school free yet in practice this policy is difficult to enforce because of the limited spots of children to one school. Another challenge remains to have teachers well-trained when training is expensive and very hard to commit to. The Primary Education Development Program removed fees at primary schools and this raised the enrollment rates considerably (U.N. Economic and Social Council).
There would be 4 main policies I’d like to recommend for Tanzania. I base all these policy decisions on my knowledge of short-term aggregate supply, aggregate demand, and productivity. The first policy decision I would implement would be anti-corruption laws which would mandate corrupted officers and government officials to step down. I would achieve this goal by rejecting aid from one country and instead ask for the personnel to have a thorough investigation of the government. In the book Corruption in Tanzania Hoseah explains how some amount of corruption has taken the money out of the poor. This is intolerable in a developing country and this reduces productivity. To have a strong performing country, its base must be good government and this is one of the reforms I would implement.
Another policy I’d implement would be to invest in more technology. I would this by gathering 10 scientists from a developed country such as the United States and figure out ways how the farming initiative can be taken to a whole new level. This would entail less poverty in the long-haul. Yet an adverse affect would be less people needed to do farming which would result in more people unemployed. But more unemployment would have to be sacrificed as the poverty line would decrease while more exports can exported.
Another policy I’d implement is to have monthly summits where leaders of the Tanzanian government figure out how the industries will prosper. A productive country has diversified industries which range from many businesses (Wall Street Journal). Tanzania must attract large companies to directly invest in their country. Tanzania will have to have gain relationships with countries to offer more incentives to their companies. Many companies respond to the incentive of lower cost. Since Tanzanian citizens are willing to work for less, companies can invest in their production facilities there in Tanzania while cutting costs to their companies.
Finally a policy that would help Tanzanian’s poverty line would be to have HIV/AIDS centers all around the country to help and educate people of its vast consequences. It is a movement that must be entailed. This movement will be both educational and will give health benefits of those who have AIDS. Hopefully one will see an improvement in human capital because of the improvement of the well-being of people. The adverse affects would be higher spending but Tanzania’s debt isn’t ranked high in the world and their inflation rate continues to be solid.

Money Money Money

Money Discussion
The currency in Tanzania that is used is the Tanzanian shilling. As of today, the exchange rate is 1,358.16 Tanzanian Shillings equal 1 dollar. Tanzania is operated by a central bank that is called the Bank of Tanzania. In 1995, the Tanzania government thought that too many responsibilities were put on the central bank so its only primary goal was to regulate monetary policy (Kilindo, A.A.L.). This was done because the bank got too involved and tried to give more policy decisions which the public was not pleased to. The government issued a law in 1995 revoking the Central Bank’s rights and allowed them to focus and monetary policy and setting confidence in the banking system. The inflation rate reached its peak in the 1980’s with a 40% inflation rate (National Bureau of Statistics of Tanzania). In that type of economic climate, the shilling was not a good store of value, medium of exchange, or unit of account. It was not a good store of value because as inflation increased the price level, the value of money declined so it wasn’t a good store of value compared to other foreign currencies. Yet recently in the 2000’s the inflation rate has stabilized to 10.3 percent because steps taken by the central bank to improve monetary aggregates and open new commercial banks in the region. This was backed by increasing privatization investment in the banking system. Privatization included different new companies opening up individual banks creating more credit available in the monetary system (Kilindo, A.A.L.). Interest rates and lending rates have been kept stable with the inflation rate so unexpected inflation has not occurred. Interest rates have been kept stable through keeping people demanding less money also known as less money demand. The Central Bank tried to keep the price level down by keeping the money supply fixed and stabilizing the money market. This is one of the reasons why money demand is sloped downwards. The Central Bank urged people to keep money in the banks to gain interest off their money. This incentive led to increased investment at lower interest rates.

Unemployment Problems in Tanzania

Unemployment
There is no current record of the unemployment rate in Tanzania. The last record shown was in 2005 showing the unemployment rate at 12.9 percent and declining to 11 percent in 2006. Yet these numbers are not entirely accurate because of the reason that these are survey statistics taken by the governments and these statistics could be biased showing improvement in 2006. I do believe that the statistics are not credible because of such a large decrease in the unemployment rate in such a short span of one year. This survey was taken by the National Bureau of Statistics in Tanzania. As of 2007 the labor force consisted of 20.04 million people (CIA World Fact Book). The total labor force participation rate was 79.5%. The labor force participation rate was 81% for men and 73% for women as of 2007 (Bureau of Statistics). Men have increasingly been involved more because of increasing pressure from the global recession to look for a job in Tanzania.80 percent of people work in the agricultural sector while only 20 percent work in industries (A.V.Y Mbelle). Also the Integrated Labour Force Survey concluded that as a growing trend, more women are in the agricultural force than men because of their growing duties to their families. Men are inclined to do jobs with higher level of education such as industrial work. Women work because it is ideal for the survival of their family. The typical woman has about 6 kids so when they become older, these kids can take care of the elderly. This is not the only reason why Tanzanian women have more kids. A family can grow more crops when there are more kids. Another obvious reason is how there is a shortage of birth control pills in sub-Saharan Africa. Institutions such as the Red Cross are also trying to give as much as aid and sex education that they can supply.
One problem that the Tanzania government is trying to tackle is the growing problem of the number of young Tanzanians getting unemployed. In the 10-34 age group, unemployment has hit this group the most severe (Mwanjali , S). The reason why the youth have hit the hardest in unemployment is because of their lack of further education compared to the adults in Tanzania. Tanzania has implemented bold policies in the last 6 or 7 years to boost employment in the agricultural and industrial sectors. Vocation education and training programs have been implemented to boost youth employment President Jakaya Kikwete’s promise to the Tanzanians in 2006 was 1 million jobs by the end of the year in 2010 (Mwanjali , S).The National Employment Policy had four main objectives to increase unemployment and in turn reduce the large 30 percent poverty line. These objectives included private sector development, skills development, employment intensive works, and measures to support the labor market. The Tanzanian government believes that the increase of privatization and creation of small businesses will be the future of the backbone of Tanzania (United Nations Development Programme). Most of all these jobs available in Tanzania are all unskilled jobs because of the lack of education provided to everybody and the low literacy rate. Tanzania fears that some companies will invest somewhere else because of their lack of education. Their supply of labor is plentiful but the amount of high skilled workers is limited. Tanzania suffers from structural unemployment because of the high supply of workers and low demand for workers. The definition of structural employment is unemployment that results in labor markets insufficiently providing jobs for everyone who wants one (Mankiw, Gregory). Most workers are individuals who create their own crops and sell them individually to a number of small companies. Minimum wage laws, unions, and efficiency wages are not applicable to Tanzania because of the low productivity.

Trade Discussion

Trade Discussion
The main exports for Tanzania include gold, diamonds, other gemstones, and coffee, good and other beverages. Major imports include machinery, manufactured goods, chemicals and related products, and many fuels (CIA World Fact Book). The Tanzania Trade policy was passed in 2003 to have four main goals (CUTS Centre for Competition, Investment & Economic Regulation)
1. Carefully place tariffs and taxes but not too excessively. The reason for this was because of the rights to the consumer. If excessive tariffs were placed, then the consumer could not buy the foreign good if it was cheaper. This is an unfair trade barrier so no excessive tariffs could be placed.
2. Place measures such as pre-shipment inspection and custom evaluations. This was in order to improve the transparency of the exporting process. An increasing number of exporting zones were being built in Tanzania along the coastline.
3. Create safeguards, subsidies, and anti-dumping rules. This was in policy to keep shipping companies in check to keep harbors safe and usable for the population. These rules prevented the increasing pollution problem in Tanzania.
4. To create more tools to regulate the trade market with EPZ, export facilitation, and special processing zones. This was done to attract more foreigners to buy Tanzania’s products because of this safe and transparent way of shipping goods.
Tanzania has achieved more openness with trade by participating in bilateral trade agreements to allow more trade in the sub-Saharan part of the world (CUTS Centre for Competition, Investment & Economic Regulation). These efforts were put together to increase exports and decrease imports yet diversification still appears to be a problem in Tanzania. As 80% of the population of Tanzania works in the agricultural sector, only 20% work in the industrial sector (A.V.Y Mbelle). Tanzania still needs to find a way to diversify their economy to improve productivity and growth in the future. In the 21st century, relying on one cash crop will not lead to a prosperous nation. Another problem is that increased openness has caused more imports to rise. An increasing problem in Tanzania is the concept of comparative advantage. Tanzania does not have the physical capital instilled to have a comparative advantage in goods. Many economists believe that most exports are to other sub-Saharan countries (A.V.Y Mbelle). This problem in diversification and comparative advantage has led some to believe why Tanzania has maintained its large unemployment rate.

Savings and Investment

Savings and Investment
There are 4 main components of productivity that Tanzania has been investing in. These are human capital, physical capital, infrastructure, and technology. An important policy was passed in 1990 to cope with the investment and savings issue. The goal was to get more companies and internal companies to invest in the 4 determinants of productivity. Some main goals included discourage of debt accumulation, maximum usage of the nation’s natural resources such as the lakes and rivers, and fostering appropriate technology brought into Tanzania. In 1990 Tanzania also passed a new Investment and Promotion and Protection Act that offered incentives and legal guarantees for companies and individuals. These incentives included tax holidays, exemptions, foreign exchange benefits and the rights to lands. This act also provided the first legal framework for investments in Tanzania. This meant more privatization to invest in the industry and agricultural sectors. In 1996 a New Investment and Policy suggested that more promotion of exports and less imports were in order. Efforts to establish export processing zones in new areas were under way to expedite the process. To enforce more incentive options, the TIC, a government group working for the Labor Department, made sure these incentives were protected. More incentives included deductions and allowances on industrial buildings (CUTS Centre for Competition, Investment & Economic Regulation). More incentives included reduced import tariffs on companies that would bring in foreign investments.
Now looking on its infrastructure, the structure of the GDP and economy has not changed in the past 15 years even though investors have been given incentives to diversify the structure of the economy. There have been significant changes in one industry which is the mining industry where incentives to mine were given. The incentives included corporate tax breaks. The structure has been relatively the same with the agricultural sector as its vital component to the GDP. Since Tanzania’s only industrial performance comes from the food and beverage industry as their lead exports, this is why they need to diversify their economy to have more exports. High productive countries such as the United States and England have metals and engineering as their top sectors in the manufacturing industry. One of the troubles in the lending process is the unbelievable high interest rates that continue to skyrocket so this makes lending less desirable. Many economists say that more incentives should be given to companies to invest in the future.
As for technology, Tanzania is offering incentives to foreign companies to build corporations in Tanzania for a cheaper price. Another problem that Tanzania continues to face is the competition aspect. Consumers are buying goods that are cheaper and that seems to be the foreign goods. This needs to change in the future to enable Tanzania’s consumers to buy more domestic products. This is why Tanzania must invest in their people by offering incentives to companies. One of the latest things Tanzania is doing is offering incentives to businesses who train their workers which is surpassing the secondary school level to increase education and output in the long run (CUTS Centre for Competition, Investment & Economic Regulation).

Productivity

Productivity Summary and Analysis of Tanzania
The productivity of a country is strongly linked to its standard of living so analyzing the four determinants will strengthen our knowledge of Tanzania’s well-being. Firstly, Tanzania’s GDP is 54 billion and is the 88th in the world. It is a developing country as its GDP real growth rate is 7 percent and it continues to rise in the past 10 years or so. Most of Tanzania’s economy revolves around agriculture because agriculture accounts for 40% of the GDP, provides 85% of the exports, and employs about 80% percent of the workforce. So looking at an initial glance, it seems apparent that Tanzania must diversify its economy and try to invest in more industries in the 21st century. Since technology is such a huge part of a country’s productivity, Tanzania must improve this area to increase GDP and the lifestyle in Tanzania. The University of Pennsylvania says that “Africa is the lost continent of Information technology. Tanzania spends about .2 % of its GDP research and development in technology which is much lower than the average 1% in sub-Saharan Africa (A.V.Y Mbelle). Technological advancement has been a problem for Tanzania because of growing monetary problems and the growing global recession. The government is trying to attract foreign companies with subsidies to invest new technologies in Tanzania and that continues to be a growing issue. A major policy called the Education and Training Policy in 1995 was passed to promote higher education in the technological education and scientific knowledge. This policy encouraged and gave incentives for businesses to invest in private and public education. As a result a decade later, privatization occurred and primary schools increased by 30% and secondary schools increased by 195%. Enrollment for higher education increased from about 8,000 to about 25,000. Tanzania has also invested in better healthcare for the public because better healthcare can easily improve productivity. The numbers of health centers and health facilities have increased tremendously. The challenges still remain due to the growing poverty that continues to exist in this tough global recession. Tanzania must still invest more in healthcare because they are falling behind compared to its sub-Saharan neighbors in the life expectancy numbers
Relating to human capital, there is a shortage of investment in higher education such as engineering and the sciences which I will be discussing about more in the Savings and Investment section. Another main challenge is the poverty level in Tanzania which is stated at 36% of people living below the poverty line. This is due to the increase in HIV/AIDS over the years which hinders productivity and shortens the life expectancy which is at 51 years and is about the bottom 5% in the world. This hinders productivity because a healthier population will lead to a more productive nation. HIV and Aids increase the rate of malnutrition because of how deadly and easily the virus can be passed onto other people. Due to limited financial resources, health care and education continue to be difficulties in productivity but more investment continues to be underway in both categories. By investing in major policies of primary and secondary schooling, human capital will raise productivity (A.V.Y Mbelle). Tanzania nowadays have jobs that don’t require much skill and this is the reason why an investment in the education will help create more jobs with a higher level of education to compete in the 21st century global market.
Much of the physical capital in Tanzania is measured in total capital formation and this has doubled in the last ten years due to investment in human resources. Much of the increase in the capital formation is due to industrial equipment in direct production of goods. Tanzania must give its country the tools for workers to maximize output in a tough global recession. Physical capital ties much into the technology being used because more efficient workers will use better equipped tools with higher levels of technology to get the job done. Much of the manufacturing industry comes from the food and beverage market. Comparing to the United States, the reason why there is a huge productivity gap is due largely to its lack of technology. The United States has funded much long-term investment in technology to get to the point where they are at. One doesn’t see that many farmers using plows but more tractors because they want to create the maximum efficiency of output (A.V.Y Mbelle). Finally, one of the most outstanding things about Tanzania is its reliance on its local natural resources. Much of the population relies on fisheries, forestry, and wildlife as their resources. It is a coastal country next to the Indian Ocean which covers about 64,000 kilometers of marine life. Yet sometimes, the lack of proper management hinders more growth in the GDP as fisheries take about 1.6% of the GDP. Even though Tanzania has some natural resources, it still must import many of their natural resources such as oil, coal, and other commodities. The catch-up effect takes a huge role in the economy of Tanzania because a poorer country’s increase in the amount of capital per worker will substantially raise worker’s productivity in the long-term (Mankiw, Gregory). Even though Tanzania’s productivity appears to be low, it has taken huge strides in the past 20 years to be a stable country in the future.