A few weeks ago (I write in early January 2012) Tanzania celebrated 50 years of independence.
There is little doubt that the nation, its people and leadership have gone through a remarkable trip. In the short span of five decades they have gone through a veritable rollercoaster and have experienced a succession of situations that many nations have never faced, or have not faced during such a short period of time. The country has been through severe crises and miraculous recovery, broad nationalizations and socialist policies, and major market oriented reforms. At the same time as going through the experiences described above, during its life as an independent nation Tanzania has managed to avoid the scourge of tribalism and civil strife, and the horrors of coups and counter coups. This, indeed, sets the country apart from its Sub Saharan neighbors. All of this makes its story unique, and its experience worthwhile
120 (World Bank, 2010)
analyzing in great detail. There are important lessons here for other poor countries – African and non African alike.
Is Tanzania a success story? And, can the aid agencies – both multilateral and bilateral – claim to have played a role in this success? As it is often the case in the real world, the answers to difficult
questions are not straightforward.
From a strict medium term perspective – and this is, indeed, the perspective taken by most of the aid organizations, including the IMF and the World Bank --, Tanzania looks, indeed, like a success story.
Since 1995 – the year president Benjamin Mkapa took power – GDP per capita has increased by almost 65% (which is significantly faster than the average for SSA), inflation has been kept in check, expenditure in social programs has increased markedly, macroeconomic stability has been preserved, the reforms have been furthered, and the relationship with the donor community has been constructive and cordial. It is indeed this picture what has prompted authors such as (Robinson, et al., 2011) to talk about success.
Within this perspective, where the world (or, at least, Tanzania’s world) begins around 1995, the aid organizations can claim to have played a very constructive role in this story.
However, as one takes a long view, as I have done in this paper, and considers the fifty years since independence, a more nuanced picture emerges. Of course, the fact that the economy has done very well during the last 15 years (with the caveat of data quality) remains true. However, it is also true that the country collapsed completely in 1980-1985, and that it took many years (about a decade) for it to find its stride and begin to recover in earnest. In addition, and as the discussion in this paper clearly shows, the disintegration of the economy was the result of misguided policies and of a remarkable inability to change directions even in light of overwhelming evidence of failure. Also, the analysis in this paper shows that the international aid organizations and aid agencies in the advanced nations were accomplices in generating the collapse of the Tanzanian economy.
A simple way of illustrating this point is by performing very simple counterfactual exercises that compare the evolution of income per capita with alternative scenarios where the economy would have avoided the great crises of 1973-74, 1979, 1981-85 and 1991-1994, and instead would have grown at a steady and rather mediocre rate. Of course, in these non-crises counterfactual scenarios the boom of the last 15 years would not have taken place. I consider three such counterfactuals; all of them, of course, assume changes in policies that would have implied an early abandonment of the principles of the Arusha Declaration.
Counterfactual 1: Starting in 1970, that is three years after the Arusha Declaration, GDP per capita growth is 1.3% per year. This lukewarm rate continues until 2010.
Counterfactual 2: Starting in 1975 – that is after the 1973-1974 drought, and the clear signs that things were not going well, at all – growth becomes 1.3% per capita.
Again, it assumes that after 1975 there are no crises or majors declines in GDP.
Counterfactual 3: This assumes that policy rectification takes place in 1980, at the time the IMF was thrown out of the country, and that from 1981 onward GDP per capita growth was 1.3% per year. Again, no crises after that point.
In all three simulations the point of departure is 1965, two years prior to the Arusha Declaration.
The results of this exercise are reported in Figure 5. As may be seen, the first two counterfactuals would have resulted in a higher income per capita in 2010 than what was actually observed. Counterfactual 3, on the other hand, results in a GDP per capita level in 2010 virtually identical to actual, observed GDP.
When one takes the longer view, as I argue one should, Tanzania doesn’t look quite like a successful story. It rather looks like a case of a remarkable recovery, but this is not the same as success.
Indeed, if one takes the present value of the yearly income gap between any of the counterfactuals and the current situation, the values are enormous, indicating that the accumulated cost – in terms of losses of accumulate wealth and well being – of the experiment was enormous. It is possible, of course, that Tanzania will continue to grow at a very fast rate – a rate similar to that of the last 15 years --, and that the
“accumulated” present value of the GDP per capita gap will be, eventually, eliminated. However, until that happens it is difficult to label the experience a success; it may be a “success in the making” or a
“promising” case of reform, but not a stellar success.
A comparative analysis on the pace of poverty reduction also suggests that it may be premature to refer to Tanzania as a clear-cut success. Comparative data indicate that, in spite of having posted fast (official) rates of growth, Tanzania has reduced poverty at a slower clip than Uganda and Ghana. The poverty headcount in Tanzania declined by 2.4 percentage points between 1991 and 2007. During
approximately the same period poverty headcount fell 25 percentage points in Uganda, and 23 percentage points in Ghana. Moreover, while in 1991 both Uganda and Ghana had a higher poverty headline than Tanzania (55.7% and 51.7%, versus 38.6%), in 2007 they had a lower incidence of poverty than Tanzania (31% and 28.5%, versus 38.6%).121 Other poor countries that have experienced similar growth as
Tanzania, but have reduced the incidence of poverty much faster are India and Vietnam. These data suggest that, either the data on growth in Tanzania has been overestimated, or the development strategy followed in the last few years has not been as “pro-poor” as the government and the multilaterals (and, in particular, the World Bank) have argued, or both. Disentangling these effects is beyond the scope of this paper, but when taken in conjunction they suggest that both the data should be interpreted with care;
further they suggest that the enthusiasm emerging from what in Section II I called the “official story” has to be tempered.
121 The data for Uganda are for 1991 and 2006, while that for Ghana are for 1992 and 2005. See http://www.povertymonitoring.go.tz/
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Figures
Figure 1 ‐ Tanzania: Per Capita Net Official Development Assistance (Constant 2007 US$)
Source: WDI
0 10 20 30 40 50 60 70 80 90 100
1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
Figure 2 ‐ Tanzania: Net Official Development Assistance (% of SSA)
Source: WDI
Figure 3 – Tanzania: Black‐Market Exchange Rate Premium
Source: Author's calculations based on World Currency Yearbook (various issues) and IFS
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
Tanzania Ghana
Kenya Rwanda
Uganda
0%
100%
200%
300%
400%
500%
600%
700%
800%
0 100 200 300 400 500 600
Mar‐71 Feb‐72 Jan‐73 Dec‐73 Nov‐74 Oct‐75 Sep‐76 Aug‐77 Jul‐78 Jun‐79 May‐80 Apr‐81 Mar‐82 Feb‐83 Jan‐84 Dec‐84 Nov‐85 Oct‐86 Sep‐87 Aug‐88 Jul‐89 Jun‐90 May‐91 Apr‐92 Mar‐93 Black Market Premium, %
Nominal Exchange Rate, TSh/US$
Official Exchange Rate (left) Black Mkt. Exchange Rate (left)
% Black Market Premium (right)
Figure 4 ‐ Moving averages of producer prices in three agricultural crops, relative to export prices
Source: Bank of Tanzania, 1984
0 20 40 60 80
1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979
Coffee MA
Coffee MA
0 10 20 30
1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979
Cotton MA
Cotton MA
0 10 20 30 40 50 60 70
1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979
Tobacco MA
Tobacco MA
Figure 5 ‐ Counterfactual GDP per capita Growth Simulations
Source: Author’s calulations
80 100 120 140 160 180 200
1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009
RGDPpc RGDPpc 1 RGDPpc 2 RGDPpc 3
56 Table 1 ‐ Tanzania: Economic and Social Indicators, 1996‐2010
Economic Indicators Source 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Real GDP Growth (%) (1) 4.5 3.5 3.7 4.8 4.9 6.0 7.2 6.9 7.8 7.4 6.7 7.1 7.4 6.0 7.0(*)
Per Capita GDP Growth (%) (2) 1.7 0.9 1.2 2.3 2.4 3.4 4.5 4.2 5.1 4.6 3.9 4.3 4.5 3.1 4.1(*)
Gross fixed capital formation (% of GDP) (3) 16.5 14.7 19.6 17.1 16.4 17.0 18.7 20.0 21.2 22.5 23.8 25.0 26.3 29.3
External Debt (Total, long‐term, % of GDP) (4) 94.7 78.1 67.5 65.5 58.6 53.2 55.4 51.4 54.7 49.5 21.2 23.3 22.2 24.6 27.1(*) Revenue, Cash (Budgetary Central Govt., after
(excluding exceptional financing, % of GDP) (9) ‐6.4 ‐5.7 ‐7.5 ‐8.0 ‐4.2 ‐3.8 ‐0.4 ‐1.5 ‐3.8 ‐7.9 ‐7.7 ‐10.8 ‐13.0 ‐8.5 Net official development assistance received (% of
GDP) (10) 13.4 12.3 10.7 10.2 10.4 12.3 11.7 14.8 13.8 10.6 12.8 16.8 11.3 13.7
Per Capita Net Official Development Assistance
received (constant 2008 US$) (11) 38.7 44.8 46.1 45.0 46.9 56.6 56.0 62.2 56.5 45.3 52.5 72.9 54.9 69.7
Inflation, Consumer Prices (annual %) (12) 21.0 16.1 12.8 7.9 5.9 5.1 5.3 5.3 4.7 5.0 7.3 7.0 10.3 12.1 5.4
Money and Quasi Money (M2) Growth (%) (27) 8.4 12.9 10.8 18.6 14.8 34.2 25.6 18.0 13.5 34.8 21.5 20.5 19.8 17.7
Official exchange rate (TSh/US$, period average) (28) 580 612 664 744 800 876 966 1038 1089 1128 1251 1245 1196 1320 1409
Official exchange rate (TSh/US$, period average) (28) 580 612 664 744 800 876 966 1038 1089 1128 1251 1245 1196 1320 1409