Tanzania the path to prosperity

Tanzania


Africa: Policies For Prosperity Series
Series Editors
Christopher S. Adam and Paul Collier
For the first time in more than a generation, sustained economic growth has
been achieved across Africa—despite the downturn in global economic
fortunes since 2008—and in many countries these gains have been realized
through policy reforms driven by the decisive leadership of a new generation of
economic policy makers. The process of reform is continuous, however, and
the challenge currently facing this new generation is how to harness these
favourable gains in macroeconomic stability and turn them into a coherent
strategy for sustainable growth and poverty reduction over the coming
decades. These challenges are substantial and encompass the broad remit of
economic policy. Each volume in this series brings leading scholars into the
policy arena to examine, in a rigorous but accessible manner, the key economic
challenges and policy options facing policy makers on the continent.

BOOKS PUBLISHED IN THIS SERIES
Kenya: Policies for Prosperity
Edited by Christopher S. Adam, Paul Collier, and Njuguna Ndung’u
Zambia: Building Prosperity from Resource Wealth
Edited by Christopher S. Adam, Paul Collier, and Michael Gondwe
Tanzania: The Path to Prosperity
Edited by Christopher S. Adam, Paul Collier, and Benno Ndulu


Tanzania
The Path to Prosperity

Edited by Christopher S. Adam, Paul Collier,
and Benno Ndulu

1


3

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Series Preface

Policies for Prosperity
Since the mid-1990s the economic prospects for Africa have been transformed.
The change has been uneven: some countries remain mired in conflict and
economic stagnation. But for many macroeconomic stability has been
achieved—even through the global financial crisis and its aftermath– and farreaching policy reforms have been put in place. For these countries, growth
prospects in the first quarter of the twenty-first century are much brighter than
at any time during the final quarter of the last century. But converting good
prospects into sustained growth and decisive poverty reduction requires a
degree of good luck, good policy formulation, resources, and a lot of good
economic management. For policy improvements to be sustained they must
be underpinned by more fundamental shifts in political power; sectional
interests ruling through patronage must be defeated by the public interest.
And for the shift in power to be decisive, the achievements of individual
reformers must be locked in through the development of effective institutions
in both the public and private sectors. The challenges are formidable: they
range beyond the conventional agenda of macroeconomic management,
infrastructure provision and the improvement of the investment climate. For
example, land policy, which has usually been left dormant, will need to be

rethought in the face of high population growth rates and rapid urbanization;
trade and industrial policies will need to be rethought so as to engage more
effectively with changing global opportunities; and the continent will need to
develop adaptive policies in the face of rapid climate change.
Many of the successes of recent decades have been wrought by the progressive leadership of a new generation of policy makers. To build on these
successes, this same generation needs both the support of, and restraint by,
an informed and engaged society. This is the fundamental philosophy of this
series: informed societies are strong societies. If citizens are to hold governments to account they require information, debate and dispassionate analysis
on the challenges and choices confronting countries and their people. This is
especially relevant in the realm of economic policy where path-dependency is
powerful and the consequences of choices are far-reaching and long-lasting.


Series Preface

In many industrialized economies there is a long tradition of informed debate
and analysis sustained in large measure by high-quality financial journalism. In
Africa, by contrast, while a dynamic and often fearless free press is now quite
widely established, it still lacks a tradition of solid, durable, and independent
writing on economic policy. As a result local debate is too often ill-informed or is
perceived to be driven by the agendas, and chequebooks, of sectional interests
and international organizations.
There is now considerable academic research on the issues that matter for
Africa and it could potentially inform Africa’s debates. But to date it has been
disconnected from them. Increasingly, academics write only for other academics rather than to inform the public. With this series of books we seek to
build bridges between the evidence from solid research and contemporary
policy debates. Each book aims to bring together the best international and
domestic scholars with policy makers working on economic policy issues
across the continent. Throughout, our contributors are required to write
with clarity, avoiding academic jargon, but equally avoiding advocacy. Focusing on the key issues that matter for a society, each chapter aims to leave

readers better able to draw their own conclusions about important choices.

vi


Acknowledgements

This book is the outcome of an active collaboration amongst a wide range of
scholars, officials and policy makers working on the economics of Tanzania.
Its origins lie in the close relationship forged over the last eight years between
the Governor and staff of the Bank of Tanzania and the International Growth
Centre (IGC). The IGC, of which two of us are members, is an international
research network partnership hosted by the London School of Economics and
the University of Oxford, and funded by the UK Department for International
Development. The IGC’s core objective is to promote sustainable growth in
developing countries by providing demand-led policy advice based on frontier
research. The Bank of Tanzania’s commitment to promoting researchinformed policy, both within its own domain and also across the whole of
the economic policy spectrum in Tanzania, has made it a natural partner for
the IGC and, indeed, many of the chapters in this book emerge directly from
work done under the aegis of the IGC and in close collaboration with the
Bank. We are particularly grateful to the Bank for hosting a highly productive
authors’ writing workshop in Stone Town, Zanzibar, in June 2015. We thank
the IGC in London for its financial support to the project and the current
and former staff of the IGC-Tanzania office in Dar es Salaam—Pantaleo
Kessy, Anne Laski, Joshua Chipman, Claire Lwehabura, Benjamin Langford,
Angela Ambroz, Ambassador Charles Mutalemwa, and our non-resident
Country Director, John Page—for their support and assistance as this project
has evolved.
As the Series Editors stress in their preface to this volume, the fundamental
idea underpinning the Policies for Prosperity series is that an informed society

is a strong society. This principle is central to the new dynamism in Tanzania
and it has been our privilege to have been able to draw so deeply on the
talent and insights from a wonderful set of authors based in the universities,
research groups, institutes, think-tanks, and official institutions in Tanzania.
We thank all these institutions for their commitment to the book. We also
extend a special note of thanks to the Honourable Minister for Finance and
Planning, Dr Philip Mpango, who was an important supporter of this project
during his time as Executive Secretary of the President’s Office Planning
Commission.


Acknowledgements

Our final thanks go to our colleague, Rose Page, for her superb work
behind the scenes in managing the process of turning our often chaotic
contributions into a volume of which we can all be proud. Rose has been our
managing editor since the inception of this series. It has been a great
pleasure working with her and, as with the previous volumes, her guidance,
support, and unfailing good humour has made our jobs as editors immeasurably easier.

viii


Contents

List of Figures
List of Tables
List of Boxes
List of Abbreviations
List of Contributors

1. Introduction: Productivity, Organizations, and Connectivity
Christopher S. Adam, Paul Collier, and Benno Ndulu
2. The Building Blocks towards Tanzania’s Prosperity: Lessons
from Looking Back, and the Way Forward
Benno Ndulu and Nkunde Mwase

xi
xv
xvii
xix
xxv
1

9

3. Managing Hydrocarbon Resources
Mark Henstridge and Dennis Rweyemamu

49

4. Transforming Dar es Salaam into a City That Works
Paul Collier and Patricia Jones

86

5. Trade, Logistics Infrastructure, and Regional Integration
Charles Kunaka, Olivier Hartmann, Gaël Raballand,
and Rukia Shamte
6. Agricultural Transformation in Tanzania: Linking Rural to

Urban through Domestic Value Chains
Douglas Gollin and Radhika Goyal

105

132

7. Unlocking Tanzania’s Manufacturing Potential
Margaret McMillan, John Page, and Samuel Wangwe

151

8. Building a Skills Agenda towards Productive Employment
Mahjabeen Haji and Jacques Morisset

170

9. Growth and Poverty: A Pragmatic Assessment and
Future Prospects
Channing Arndt, Vincent Leyaro, Kristin Mahrt, and Finn Tarp

190


Contents

10. Public Investment and Fiscal Reforms
Christopher S. Adam, Jehovaness Aikaeli, and Anne Laski
11. Monetary Policy in Tanzania: Accomplishments and the
Road Ahead

Pantaleo J. Kessy, Johnson Nyella, and Stephen A. O’Connell

214

241

12. Financial Sector Development and Financial Inclusion
Natu Mwamba, Nangi Massawe, and Kennedy Komba

271

Index

291

x


List of Figures

2.1.

Trends in commodity prices, 1960–2013

14

2.2.

Trends in global output, 1963–2014

14

2.3.

Trends in terms of trade, 1967–2013

15

2.4.

Trends in key output and production, 1960–2014

16

2.5.

Trends in export source markets, 1960–2014

25

2.6.

Trends in exports, 1960–2014

29

2.7.

Trends in imports, 1960–2014

29

3.1.

Asset transformation

51

3.2.

Natural gas in Tanzania

53

3.3.

Timeline for risk-free LNG

55

3.4.

Principal revenue streams from gas and LNG

60

3.5.

Revenue projections

62

3.6.

The authorizing environment for the transformation of a natural asset

67

3.7.

LNG in the balance of payments

70

3.8.

The sequencing of project impact on jobs

70

3.9.

Macroeconomic policy choices

76

3.10.

Scenario for borrowing in advance

77

3.11.

Scope for increased public sector pay

78

4.1.

Urbanization and economic development

87

4.2.

Urbanization in Tanzania and other countries

87

4.3.

Population density in Dar es Salaam, 2002 and 2012

90

4.4.

Means of transport to work

91

4.5.

Urbanization and industrialization

92

4.6.

Urbanization and industrialization in SSA

93

4.7.

Share of firms by sector

95

4.8.

Business local among informal enterprises

96

4.9.

Household sanitation in Dar es Salaam

97

Household water supply in Dar es Salaam

98

4.10.


List of Figures
4.11.

Map of the locations of the 20,000 plot areas

100

5.1.

Container throughput comparisons in 2012

107

5.2.

Share of Dar es Salaam in East Africa transit trade

108

5.3.

Traffic 2014 in Dar es Salaam—transit versus local cargo (million tons)

109

5.4.

Transit for petroleum products in 2014

109

5.5.

Transit for containers in 2014

109

5.6.

Evolution of transit and local containerized traffic in Dar es Salaam

110

5.7.

East Africa containerized trade and share of Dar es Salaam

111

5.8.

Transshipment traffic in the ports of Dar es Salaam and Mombasa

113

5.9.

LSCI for selected countries of the Western Indian Ocean coastline

114

5.10.

Crane productivity in Dar es Salaam, net moves per hour

115

5.11.

Berth occupancy and pre-berthing delays at the container berths

116

5.12.

Container dwell time in Dar es Salaam

118

5.13.

Evolution of the modal share rail–road in Tanzania

119

5.14.

Zambia trade volumes through Dar es Salaam Port

121

6.1.

Coffee production in Tanzania

136

6.2.

Urban population share in Tanzania

141

7.1.

Productive heterogeneity of small firms

161

8.1.

Tanzania employment categories

173

8.2.

Cross-country comparison of earnings per worker (2012)

174

8.3.

The predominance of self-employment and young firms

176

8.4.

Returns to education are low at lower levels (2010/11)

178

8.5.

Skills that are scarce in Tanzania (% firms)

180

8.6.

Distribution of training modes in the informal economy by sector

182

9.1.

Real crude oil prices

202

9.2.

Index of real prices received by farmers in the United States

203

10.1.

Tanzania debt dynamics

220

10.2.

Tanzania and the EAC big three

223

11.1.

Inflation and growth in Tanzania, 1984/85–2014/15

243

11.2a.

Targeted and actual real GDP growth in Tanzania, 1995/96–2014/15

246

11.2b.

Targeted and actual real CPI inflation in Tanzania, 1995/96–2014/15

247

11.3.

Fiscal-year reserve-money growth targets in Tanzania

248

11.4.

Relation of reserve money growth to nominal income growth

249

11.5.

Reserve-money targeting in Tanzania

252

11.6.

An interbank market with and without standing facilities

255

11.7.

Interest rates and monetary transmission in Tanzania

257

xii


List of Figures
11.8.

Volatility of monthly interest rates: Tanzania vs. nine other SSA

258

11.9.

Financial deepening: Tanzania vs. Other SSA

259

12.1.

Treasury bills market performance

277

12.2.

Access and usage of financial services in Tanzania, 2009–13

280

12.3.

Status of finance and investment protocol implementation
by country (using country-level commitments)

284

xiii



List of Tables

3.1.

Tanzanians employed in relation to Block 1, 3, and 4 during

exploration, 2012–13

56

3.2.

Summary of project and revenue projections

59

3.3.

Indicative estimates of direct labour demand by project phases

72

4.1.

Urbanization in Tanzania across time

88

4.2.

Firm productivity and city size

103

5.1.

Distance comparisons for DRC, Zambia, and Malawi

111

5.2.

Container freight rates in Dar es Salaam, 2010–12

111

5.3.

Aggregate delay between unloading from vessel and final delivery
to the client in Dar es Salaam Port, September–November 2008

117

5.4.

Possible advantages/costs of traffic in transit

120

5.5.

Estimate of total employment generated by trucking industry

126

6.1.

Long-term patterns of cereal yield

135

7.1.

Labour productivity growth in Tanzania, 2002–12

153

7.2.

Structure and growth of Tanzania’s economy (in constant prices)

154

7.3.

Benchmarking Tanzanian manufacturing

154

7.4.

Firms in the in-between sector by line of business

163

8.1.

Movement between employment sectors in Tanzania

176

9.1.

Households not deprived by welfare indicator (per cent)

195

9.2.

Households by number of deprivations in welfare indicators (per cent)

195

9.3.

Temporal net FOD comparisons, households (probabilities)

196

9.4.

2010 Bootstrap spatial FOD comparisons, households (probabilities)

197

9.5.

Spatial FOD ranking and probability of net domination by region
and year at household level

198

9.6.

Structure of the Tanzanian economy in 2007

205

9.7.

Indices of real-world prices (2007=100)

207

9.8.

Comparison of macroeconomic indicators for model and reported data

208

10.1.

Public investment, O&M and distortionary taxation

232

10.2.

Fiscal reforms

234


List of Tables
11.1.
11A.1.

Responses to deviations from the reserve-money ceiling

251

Aspects of the legislative mandate of the Bank of Tanzania

265

12.1.

The progress of selected financial market infrastructures in Tanzania

279

12.2.

Status of microfinance institutions in the country as of December 2014

281

xvi


List of Boxes

3.1.

Natural gas—terms and units

52

3.2.

Instruments for revenue from hydrocarbons

58

5.1.

A question of vocabulary—Transshipment hubs, logistics hubs,
and maritime gateways

110

5.2.

TICTS (Tanzania International Container Terminal Services)

114

List of Abbreviations

AICD

Africa Infrastructure Country Diagnostic

ASDP

Agricultural Sector Development Programme

ASIP

Annual Survey of Industrial Production

BAFIA

Banking and Financial Institutions Act

BIS

Basic Industrial Strategy

boe

barrels of oil equivalent

BoT

Bank of Tanzania

BRN

Big Results Now

BRT

Bus Rapid Transit

CAADP

Comprehensive Africa Agriculture Development Programme

CBD

central business district

CCBG

Committee of Central Bank Governors

CCTTFA

Central Corridor Transit Transport Facilitation Agency

CGE

computable general equilibrium

CGIAR

Consultative Group for International Agricultural Research

CIT

corporate income tax

CMSA

Capital Markets and Securities Authority

CNG

Compressed Natural Gas

COMESA

Common Market in East and Southern Africa

CPI

consumer price index

CRDB

Cooperative and Rural Development Bank

CSD

Central Depository System

DAC

Development Assistance Committee

DHS

Demographic and Health Surveys

DMO

Domestic Market Obligations

EAC

East African Community

EACB

East African Currency Board

EACSCO

East African Common Services Organization


List of Abbreviations
EAMU

East African Monetary Union

EFT

Electronic Fund Transfer

EPIC

Energy Policy Institute of Chicago

EPZA

Export Processing Zones Authority

ERP

Economic Recovery Plan

ESAAMLG

Eastern and South Africa Anti-Money Laundering Group

EWURA

Energy and Water Utility Regulatory Authority

FAOSTAT

Food and Agriculture Organization of the United Nations Statistics

Division

FBS

Food Balance Sheets

FDI

foreign direct investment

FEED

Front-End Engineering and Design

FID

Final Investment Decision

FOD

first order dominance

FSAP

Financial Sector Assessment Program

FYDP

Five-year Development Plan

GDP

gross domestic product

GIIP

gas initially in place

GIZ

Deutsche Gesellschaft für Internationale Zusammenarbeit

GSS

Government Securities System

HBS

Household Budget Survey

HDI

human development index

HGA

Host Government Agreement

HFP

Housing Finance Project

HIPC

Heavily Indebted Poor Countries

HIV

Human Immunodeficiency Virus

ICDs

inland container depots

ICT

Information and communications technology

IGC

International Growth Centre

IIDS

Integrated Industrial Development Strategy

IIR

institutional investor ratings

ILFS

Integrated Labor Force Survey

ILO

International Labour Organization

IT

inflation-targeting

IMF

International Monetary Fund

KK

Kilimo Kwanza

xx


List of Abbreviations
LMIC

lower middle income country

LNG

Liquified Natural Gas

LPG

Liquefied Petroleum Gas

LPI

Logistics Performance Index

LSCI

Liner Shipping Connectivity Index

LTPP

Long-Term Perspective Plan

MAC

Monetary Affairs Committee

MCF

marginal costs of funds

MDGs

Millennium Development Goals

MDRI

Multilaterial Debt Relief Initiative

MEM

Ministry of Energy and Minerals

MKUKUTA

National Strategy for Growth and Poverty

MLSC

Measuring Living Standards within Cities Survey

mmbtu

million British thermal units

MMT

millions of tonnes

MOF

Ministry of Finance

MSME

Micro, Small, and Medium Enterprise

MTEF

Medium-Term Expenditure Framework

MSC

Mediterranean Shipping Company

mscuf/d

millions of standard cubic feet per day

NACTE

National Council for Technical Education

NBC

National Bank of Commerce

NDC

National Development Corporation

NEDF

National Entrepreneurs Development Fund

NEMC

National Environment Management Council

NEPAD

New Partnership for Africa’s Development

NGOs

non-governmental organizations

NHC

National Housing Corporation

NMB

National Microfinance Bank

NOC

National Oil Company

NSSF

National Social Security Fund

NTB

non-tariff barrier

ODA

Official Development Assistance

ODCYs

off-dock container yards

OECD

Organisation for Economic Co-operation and Development

O&M

operations and maintenance

xxi


List of Abbreviations
PAYE

pay-as-you-earn

PEPA

Petroleum (Exploration and Production) Act

PMAESA

Port Management Association of Eastern and Southern Africa

POPC

President’s Office Planning Commission

PPP

purchasing power parity

PRSPs

poverty reduction strategy papers

PSA

production sharing agreement

PURA

Petroleum Upstream Regulatory Authority

RECs

Regional Economic Communities

RTG

rubber tyre gantry cranes

SACCOS

Savings and Credit Cooperative Societies

SADC

Southern Africa Development Community

SAGCOT

Southern Agricultural Growth Corridor of Tanzania

SAP

Structural Adjustment Programme

SELF

Small Entrepreneurs Loan Facility

SEZs

special economic zones

SIDO

Small Industries Development Organisation

SIDP

Sustainable Industrial Development Policy for Tanzania

SIRESS

Southern African Development Community Integrated Regional
Settlement System

SME

small–medium enterprise

SMEDP

Small and Medium Enterprise Development Policy

SSA

sub-Saharan Africa

SSRA

Social Security Regulator Authority

STS

ship-to-shore

SWIFT

Society for Worldwide Interbank Financial Telecommunication

TAFSIP

Tanzania Agriculture and Food Security Investment Plan

TASAF

Tanzania Social Action Fund

TCF

trillion cubic feet

TDHS

Tanzania Demographic and Health Surveys

TEUs

twenty-foot equivalent units

TFP

total factor productivity

TICTS

Tanzania International Container Terminal Services

TIRA

Tanzania Insurance Regulatory Authority

TISS

Tanzania Interbank Settlement System

TMRC

Tanzania Mortgage Refinancing Company

xxii


List of Abbreviations
TNBC

Tanzania National Business Council

TPA

Tanzania Ports Authority

TPDC

Tanzania Petroleum Development Corporation

TRA

Tanzania Revenue Authority

UN COMTRADE United Nations Commodity Trade Statistics Database
UNU-WIDER

United Nations University World Institute for Development
Economics Research

USAID

United States Agency for International Development

VETA

Vocational Education and Training Authority

VICOBA

Village Community Banks

VPO

Vice President’s Office

VSLA

Village Savings and Loans Association

VSO

Voluntary Service Overseas

WAY

weighted average yield

WDI

World Development Indicators

WHC

Watumishi Housing Company

xxiii