Tanzania moving up the categories from low income to middle income

03Jan 2017
Muharram Macatta
The Guardian
Tanzania moving up the categories from low income to middle income

There are quite a few examples of countries moving up the categories from low-income to middle-income, or from middle-income to emerging-market, or emerging-market to develop even higher and beyond.

Innovation usually requires the application of knowledge which is acquired through education.

The best example off the top of our heads would be South Korea. Immediately following the Korean War they were low-income. A set of policies focused on funneling resources to high value industries to promote development.

Then focusing on export promotion as they gradually opened their own markets to investment and trade has brought South Korea up to the upper end of emerging-market, with the future looking bright.

Japan has followed a similar trajectory, with a similar growth strategy. Botswana has grown from one of the poorest to one of the richest African countries over the past 50 years.

China's jumped from low-income to emerging-market quite quickly. Dubai's explosive growth has certainly moved them up the ranks. To massively simplify development, the common narrative for effective low-income countries to grow seems to be a mix of pushing investment towards high-value areas for export.

While simultaneously, eliminating barriers to entrepreneurship, developing an educated workforce, and controlling corruption protecting property rights.

The successful newly industrializing economies in the last century have succeeded due to disciplined and hard-working labour forces, value placed in education, high rates of personal savings, government sponsorship and good technology.

So basically, government support, value in education and hard work, (hapa kazi tu) as philosophised by President Dr John Magufuli and it is a precedent to follow, we think.

For small trading nations, buy cheap and sell dear works. Basically value added if it involves manufacturing. China, being a big nation became a manufacturing nation using its cheap labour but it also used its own created money to fund all infrastructures. It gained both ways, keeping all employed and improve the infrastructure by generous deficit spending. It earned a lot of US$,

Innovation usually requires the application of knowledge which is acquired through education. As an individual, take every opportunity to educate yourself and as a country, make educating citizens your top priority. Make education freely or cheaply available to anyone who is willing to apply her and him.

Don't make the mistake of restricting education to a particular class of people. Everyone has potential and their value to society will increase with knowledge.

Enterprise is the creation of an organised, purposeful entity that adds value to society and enriches all the participants in the enterprise as well as the other enterprises and individuals with whom it interacts. As an individual, get involved in an enterprise, either as a creator or a member.

Put your skills, talents and energy to work through the cooperative effort of the other members of this enterprise. Cooperative effort is usually are much more effective than individual effort.

As a country, encourage enterprise. Don't put up a lot of bureaucratic obstacles to the creation of enterprises. Don't overly tax enterprises or discourage them in other ways through excess regulation.

Investing starts with saving. Don't spend everything you make and put some of it aside or invest this money to work directly, by lending it to enterprises or buying a piece of an enterprise, or indirectly through a bank savings account or some other savings vehicle like Saco’s.

This will have the double benefit of encouraging the growth of enterprises and also rewarding you through interest or dividends earned on your invested capital. Savings equals capital. Countries, encourage saving and investing. Don't over regulate it or over tax it.

If you are dependent on cheap labour to make manufacturing your way out of being a poor country, you will find the middle-income trap arrives when you get decreasing benefit from rising wages. Avoiding the middle income trap entails identifying strategies to introduce new processes and find new markets to maintain export growth.

Ramping up domestic demand is also important—an expanding middle class can use its increasing purchasing power to buy high-quality, innovative products and help drive growth.
The biggest challenge is moving from resource-driven growth that is dependent on cheap labour and capital to growth based on high productivity and innovation.

This requires investments in infrastructure and education—building a high-quality education system which encourages creativity and supports breakthroughs in science and technology.
A high income economy requires both human capital (educated people) and investment from capital markets. Natural enemies of capital investment are government corruption, drugs, and poor infrastructure.

Broad economic stability, competitive markets, and public investment in physical and social infrastructure are widely recognised as important requirements for achieving sustained economic growth and a reduction in rural poverty.

In addition, because the rural poor's links to the economy vary considerably, public policy should focus on issues such as their access to land and credit, education and health care, support services, and entitlements to food through well-designed public works programmes and other transfer mechanisms.

To understand poverty, it is essential to examine the economic and social context, including institutions of the state, markets, communities, and households. Poverty differences cut across gender, ethnicity, age, location (rural versus urban), and income source.

In households, children and women often suffer more than men. In the community, minority ethnic or religious groups suffer more than majority groups and the rural poor more than the urban poor, among the rural poor, landless wage workers suffer more than small landowners or tenants. These differences among the poor reflect highly complex interactions of cultures, markets and public policies.

A country in which poverty is concentrated in urban areas; in almost all countries, the conditions—in terms of personal consumption and access to education, health care, potable water and sanitation, housing, transport, and communications—faced by the rural poor are far worse than those faced by the urban poor.

Persistently high levels of rural poverty, with or without overall economic growth, have contributed to rapid population growth and migration to urban areas.

In fact, much urban poverty is created by the rural poor's efforts to get out of poverty by moving to cities. Distorted government policies, such as penalising the agriculture sector and neglecting rural (social and physical) infrastructure, have been major contributors to both rural and urban poverty.

The links between poverty, economic growth, and income distribution have been studied quite extensively in recent literature on economic development. Absolute poverty can be alleviated if at least two conditions are met:

Economic growth must occur—or mean income must rise—on a sustained basis; and
Economic growth must be neutral with respect to income distribution or reduce income inequality.

Generally, poverty cannot be reduced if economic growth does not occur. In fact, the persistent poverty of a substantial portion of the population can dampen the prospects for economic growth.

Experience has shown that if a country puts in place incentive structures and complementary investments to ensure that better health and education lead to higher incomes, the poor will benefit doubly through increased current consumption and higher future incomes.

The pattern and stability of economic growth also matter. On the one hand, traditional capital-intensive, import-substituting, and urban-biased growth—induced by government policies on pricing, trade, and public expenditure—has generally not helped alleviate poverty.

On the other hand, agricultural growth—where there is a low concentration of land ownership and labour-intensive technologies are used—has almost always helped reduce poverty.

Finally, sharp drops in economic growth—resulting from shocks and economic adjustments—may increase the incidence of poverty. Even when growth resumes, the incidence of poverty may not improve if inequality has been worsened by the crisis such as floods, earthquakes, civil wars or droughts.

Cultivators, who form the bulk of the rural poor in developing countries, are directly engaged in producing and managing crops and livestock.

Since these households cannot sustain themselves on the small parcels of land they own or cultivate, they provide labour to others for both farm and nonfarm activities inside and outside their villages.

Some members of these households migrate to towns or cities on either a rotational or a long-term basis. In many countries, both small landowners and tenants are under increasing pressure to get out of the agriculture sector altogether.

Needless to say, unfair laws or poor enforcement of existing laws, exclusion of the poor from decision making; pervasive corruption in the public sector are no less detrimental to the well-being of the poor than they are to the country's overall economic growth.

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