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Macro-economic trends in the Tanzanian economy

The recent economic history of Tanzania can best be seen in the light of its growing population. From a total of approximately 9 million people at the time of independence in 1961, the population of Tanzania has been growing inexorably at a rate of over 3 per cent per year, until it has reached at the present a figure of nearly 27 million. This is a trebling in population: the economy must have trebled in order simply to have maintained income per capita.

Maintaining income per capita is all the Tanzanian economy has been capable of doing. Initially, in its first decade, the economy was able to expand at a rate faster than the population grew (see Table 5.1), so that GDP per capita (Table 5.2, column 2) rose, in terms of constant prices of 1987, from approximately TSh900, to a peak, in the years 1975/6, of TSh985 per year. At the present, income per capita is back at its original level. There are three times as many Tanzanians as at the time of independence, but individual Tanzanians, on the average, enjoy no higher a standard of living. In per capita terms, Tanzania's is not a growing but a static economy.

Other economic data, appearing in Tables 5.1-5.3, reveal that the era of rising incomes per capita, from independence until the mid-1970s, coincided with a growth of the industrial sector, whose share of GDP reached a peak of nearly 13 per cent during the same period. Over the next ten years, industry declined in absolute amount: it is only in the Latter half of the 1980s that the output of the industrial sector resumed its rise, although it has still to reach its peak of the mid-1970s as a proportion of GDP.

Table 5.1 Tanzania: GDP 1971-1991

Source:
1971-1991: World sank, World Tables 1991, 1993
1992, 1993: Planning Commission/Ministry of Finance, n.d. Table 4.5, p. 19 and Table 4.2, p. 15
Note:
p preliminary

Table 5.2 Tanzania: GNP per capita 1971-1991

Sources:
1971-1991: World Bank, World Tables 1993
1992, 1993: author's estimates

Table 5.3 Tanzania: GDP by sector 1971-1991

Source:
1971-1991, columns 1, 2, 4, 6, 8: World Bank, World Tables, 1991, 1993
1992, 1993: column 2: Tanzania, Ministry of Agriculture, Livestock and Cooperatives, 1991
Note:
p preliminary

The decline of industry is one reason; many other reasons are given for Tanzania's relative decline since the mid-1970s, and some of them are quite obvious - a relative fall in the prices of Tanzania's agricultural exports, particularly that of coffee; the sudden eruption of war with Uganda in 1978/9 and the continued claims of the expanded Tanzanian army upon the output of the country; and the shortages, particularly of imported raw materials and spate pasts, accompanying the reduction in foreign earnings. But, even severally, these explanations do not appear to be completely adequate; some blame must be levelled at the transfer of resources into the meeting of social needs, particularly that of employment in the cities. Here the figures in Tables 5.4-5.6 are revealing, for they show that an ever-increasing fraction of government expenditures are devoted to meeting current consumption. It is not that government expenditures as a whole have risen rapidly, nor that the government's budget deficits have increased substantially, but that increasing amounts of what the government is able to raise and to expend are devoted to meeting the costs of ever-expanding employment in the public and para-statal sectors. That these expenditures are at the expense of the development of the Tanzanian economy can be seen both in the total figures on gross investment (the final column of Table 5.4) and in the shares of total government expenditures allocated to those activities which raise productivity (the columns headed Agriculture, Education and Health in Table 5.6). Focusing on government expenditures, the shares of the total represented by expenditures on agriculture and education have both fallen proportionally by nearly half, from 14 per cent to 7 per cent and from 14 per cent to 8 per cent respectively. The main increases are in Defence expenditures and in the 'Other' in Table 5.6, which includes the wages and salaries of most civil servants and the amounts by which the para-statals fail to cover their wage and salary bills.

Tanzania's external accounts reveal the difficulties already mentioned. Looking at imports and exports (see Table 5.7) we see that exports in terms of current US dollars rose year by year to 1981. Simultaneously' imports rose, and by a much more rapid rate, so that in the year in which imports peaked, 1980, the country's balance of payments deficit was US$628 million, 75 per cent of export earnings. Thereafter, export earnings declined from the peak of US$809 million to a low of half that amount in 1985; subsequent years have shown little real improvement. Imports contracted by a lesser amount, but have resumed their rise and are now at their highest level ever. In spite of growing remittances from abroad, the deficit in the balance of payments seems inexorably to rise.

To explain why imports have been able to rise more rapidly than exports, and particularly why they rose again after 1983 when exports were barely increasing, one must turn to Tanzania's foreign borrowings and repayments. The deficit in the balance of payments over the years has been financed almost entirely by long term borrowings. These borrowings have been mainly official, through the offices of the international financial agencies and developed countries (see Tables 5.8 and 5.9). The IMF has accounted for a very small portion of this; the World Bank for a larger portion, averaging approximately one-fifth. The remainder of the borrowings have been primarily bilateral, at least a substantial portion which have been in the form of export credits. External debt continues to rise, standing now at nearly US$7 billion. This represents roughly three times Tanzania's GDP. Relative to total exports, the servicing of Tanzania's debt comes out at approximately one-half, a figure higher than that of the other countries we have studied; relative to GDP to over 10 per cent (see Table 5.9), again higher than comparable countries.

Table 5.4 Tanzania: public, private and total investment as a percentage of GDP 1964/5-1991

Source:
Public and private, as a percentage of GDP: Ndulu, 1988, Table 2, p. 46
Total, as a percentage of GDP: World Bank, World Tables 1991,1993

Table 5.5 Tanzania: government revenues, expenditures, and total investment 1971-1991

Sources:
1969-1989: World Bank, World Tables, 1991, 1993
1992/93, 1993/94: Planning Commission/Ministry of Finance, n.d., Table 12.1, p. 99

Table 5.6 Tanzania: central government expenditures, share of total expenditures (%) by function 1976-1985

Source:
IMF, 1990, Government Finance Statistics Yearbook 1990, Washington DC International Monetary Fund

Table 5.7 Tanzania: balance of payments 1911-1991

Sources:
1971-1991: World Bank, World Tables 1993

If the servicing of its debt is one of Tanzania's main problems, the relation that this bears to the inflow of capital to the country is another. On balance, as Table 5.10 reveals, capital continued to flow into the country until 1986. In the following year, there was a reversal, so that capital flowed out of the country in almost exactly the same amounts as had flowed inwards in previous years. This reversal of capital flow has occurred on both official and private transactions. Instead of Tanzania, a country in which capital is scarce, receiving capital from abroad, it became and has continued to be up to the present a net exporter of capital. In meeting its international financial obligations, Tanzania is acting as a good citizen of the world; in supplying capital to capital-rich institutions in the developed countries, Tanzania is perverting the world's allocation of resources.

Table 5.8 Tanzania: debt 1971-1991 (millions of current US dollars outstanding at end of year)

Source:
1971-1991: World Bank, World Tables 1993

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