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Are our development priorities wrong?
2007-04-08 10:42:31
By Theo Mushi
In the socialist era of centralised planning agriculture was declared to be the backbone of the economy but priority in terms of allocation of resources was put to the industrial sector or more specifically manufacturing.
The sector received 20 percent of gross domestic product in public investments in the period 1970-79.
Ujamaa villages were expected to speed the pace of development of agriculture but it was heavily affected by poor planning, marketing and lack of mechanisation cooperative unions faired badly in delivery of farm inputs to farmers and also in marketing their products as they could not pay farmers for produce in time.
In the era of trade liberalisation the key players in purchase of crops from farmers are the registered private companies. These have formed oligopolies or cartels in most sub-sectors especially coffee, cashewnuts and tobacco purchasing from farmers.
They collude in fixing of prices of fertilizers sold to farmers by credit but also fix at a lower lend than the ruling world market price for commodities and hence farmers are not paid well enough to cover their costs of production and distributions.
This has been a disincentive as the farmers shift to those non-traditonal crops which are not much affected by volatile prices in world commodity markets.
The government has allocated $2.5billion in agricultural sector development to modernize agriculture by increased mechanisation, irrigation and use of better seeds.
The strategy now should be complementarily in development of industry and agriculture in terms of priorities in policy decisions and allocation of resources.
A developed agricultural sector ensures supply of raw materials to the manufacturing sector. When labour becomes highly mechanised surplus labour will be released to work in industry and especially as SME operators.
Some of the agricultural sector inputs like pesticides and fertilizers are produced by the industrial sector.
If cash crops performance is good leading to increased exports and foreign currency earnings international reserves will be boosted to import raw materials, intermediate goods and capital goods needed by local and foreign investors in the industrial sector Tanzania has experimented with socialist system and it is now in the era of market economy with the private sector as the engine of economic growth in agriculture, industry, mining, tourism, fisheries and woodworking industries.
Tanzania has been attracting foreign Direct Investment to the tune of $350m per year for the past five years.
The major share of increased FDI has been going to the mining sector which accounts for only 3% of GDP although it has been growing at a rate of 17% for the past 10 years.
With tax holiday and capital allowances given by the 1991 generous mining Act the government has not realized much in corporate tax and royalities which are at a lower rate of 3% of Net Revenue.
It is reported that despite these allowances the cummulative loss of the sector has been put at over Tshs 1 trillion.
After the recent negotiations with the mining companies some like Barrick has agreed to pay $200,000 per year to three district……… in Kahama and the government is to get $7 million annually paid to the Treasury.
The Ministry of Energy and Minerals says that the sector has been using over 40% of its revenue in local purchases and this has made the settlers of goods and services to the mining sector to pay revenue to the government.
The mining Act was reviewed two years ago by a team of experts who visited many countries in Africa and Latin America led by the respected Economist Dr Jonas Kipokola of LART but the findings have not yet been made public.
The issues at stake is the rate of royalties and compensation of small scale miners who have been displaced and have to search for other income generating opportunities.
It is also reported that the appointed auditor of the mining sector Alex Stewart is yet to make final submissions but has paid been nearly 2/3 of royalties which should have gone to the government coffers.
A review of the mining sector Act has to be done for the benefit of socio-economic development of the country which will be realized by more revenue from the sector which will finance economic and social infrastructure.
There is a need to articulate assistance to small scale miners as part of development of the small and mediam enterprises (sme) sub-sector. Small scale miners need better technology for higher mineral recovery, training in mineral identification and valuation, marketing and enterpreneurship.
What should be our development strategy? There is need to realize the difference between economic development and GDP growth and per capita incomes.
Tanzania GDP is estimated to be $10 billion while the GDP per capita is $280 and inequitable distribution of income and poverty are still prevalent what is needed is pro-poor economic policies that will attain high growth rates and more equitable distribution of income and this is the only way to make poverty reduction strategies to work and improve the welfare of majority of Tanzanians. It is time to review it if open trade and investment policies are the surest ways to achieve growth and poverty allevation.
The focus should be to improve the investment climate for SME instead of giving priority to foreign investors by subsidies and tax breaks. Development of SMEs is the surest way for Tanzania to forge a domestic growth strategy that puts emphasis on domestic investors and domestic institutions.
However, FD inflows should continue to complement domestic savings needed for new investments there should be emphasis on rural development to end the neglect of the agricultural sector. agriculture in Tanzania is rated, labour intensive, and uses rudimentary tools.
Policies to increase Agricultural productivity and incomes can lead to poverty reduction. Agricultural development has to involve the private sector in large commercial farms to increase cash and food crops production.
Private sector marketing has now started but has been affected by poor infrastructure, physical and financial constraints which have hampered the development of competitive markets in the rural areas.
Lack of effective regulatory frameworks undermines the development of markets with law transaction costs and rich information.
Economists have noted that Agricultural transformation that is not entirely dependent on foreign markets fore-exports requires growth of effective demand for food which is caused by increases in non-agricultural development and hence development of local resource based industries.
Protecting domestic industry selectively may be necessary for the accumulation of knowledge - based assets, such as production, project execution and innovation capabilities.
As it has been noted earlier an appropriate industrialization strategy should also focus on the linkage between agriculture and industry and promote small and medium industries. Improved physical infrastructure and rural eletrification will lead to more investment in rural industrialization.
Development of high Value Added Industry requires the promotion of education, there is need for increased school enrolment and practical education in vocational training centres which is what quality education is all about.
This can easily be achieved by increased investment in colleges and higher institutions of learning as investments are attracted where there is abundant skilled labour, especially HITECH Industries.
Governance should be part and parcel of economic development with more transparency and accountability.
Openness will increase the ability of government agencies to communicate with one another, and help to decrease duplication of efforts in policy and even counter productive efforts by different agencies.
This will decrease corruption as public scruitiny enabled by transparency is a strong check on corruption. The public watchdogs like PCB should be strengthened to fight corruption.
Corruption discourages both official development assistance for development partners and increase the cost of doing business and slows the flow of foreign direct investment into the country.
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