The Industrial Experience of Tanzania

This collection of articles focuses on an analysis of the industrial experience of Tanzania since independence in 1961. Tanzania is taken as a case study of industrialization in sub-Saharan Africa because it represents many of the common features of industrialization processes in other African economies. What we need to understand is why some developing economies, which started from low levels of per capita income in the post-war period, achieved some measure of success in industrialization and economic development, while others did not. In this context the experiences of some Asian countries contrast sharply with the experiences of the majority of countries in sub-Saharan Africa. As Tanzania in many ways represents one of the models of African economic development, a careful analysis of its industrial experiences, and in particular the role of policy in these experiences, contributes to a better understanding of both Tanzanian and African economic development.

Throughout the past decades the economic and industrial performance of less developed countries in sub-Saharan Africa can be captured in three words: boom, crisis and adjustment (Little et al., 1993). The sequence of rapid growth, followed by crisis and an ongoing process of structural adjustment, has received a great deal of attention, both from neo-liberal and structuralist points of view. Neo-liberal doctrine emphasizes the primacy of markets and the negative effects of excessive state intervention in the process of economic development. Structuralists, on the other hand, seek explanations of economic underdevelopment in the combination of negative external influences, unfavourable initial conditions and a variety of structural and institutional constraints that developing countries have had to face (Lensink, 1996; Szirmai, 1997a) Overcoming these structural constraints requires active intervention on the part of governments.

In most of the sub-Saharan African economies neither the levels of total factor productivity (TFP) nor the growth rates of TFP in manufacturing have been high. All studies of cross-country performance find that the sub- Saharan African economies are the largest bloc of nations that have not converged on the US. Most of the inter-country explanations have focused on easily measured aggregate variables such as the ratio of investment to GDP, education levels, and, in some models, proxies for political stability (Barro and Lee, 1993; Easterly, 1993). These models have as their underlying theoretical framework a view that the national economy can be modelled with a set of multiplicative inputs – an increase in the right hand side variables such as the investment rate or education level will produce an increase in growth rates. However, as is increasingly recognised, by, among others, the authors of the many papers on convergence, the particular specification of the implied production function is open to question, and the right-hand-side variables may themselves be endogenous. Moreover, in the case of the African nations, close observers question whether a simple increase in investment rates will generate the impact implied by the crosscountry regressions – many countries have experienced growing marginal capital–output ratios over the last two decades (Husain, 1993).

Tanzania is a late late-comer to the process of industrialization: the first steps towards industrialization were taken after World War II. These took the form of processing for export markets. The expansion of manufacturing activities for the local market started in the mid-1950s. This late start is illustrated by the modest numbers of manufacturing establishments in Table 3.1. Of the establishments with ten or more persons engaged in operation in 1961, only 101 predated 1945. Including small scale establishments, the number of establishments in 1933 was 321 (Silver, 1984, p. 42). According to official figures, the manufacturing sector contributed 3.5 per cent to GDP at factor cost in 1961 (Central Statistical Bureau, 1964b).1 Since independence, the number of establishments increased sharply to 569 by 1965, peaking at 1282 in 1978 and subsequently declining to 886 establishments in 1989. In 1961, the large- and medium-scale manufacturing sector (10+) employed 22,000 persons. Manufacturing employment increased to 110,000 in 1978, in which year the sector registered a peak share of 12 per cent of GDP. In 1989 employment in medium- and largescale manufacturing had increased to 124,000 persons, while its share in GDP dropped to 8 per cent.

Over the past decade or so, the economic performance of the Southeast Asian NICs, particularly their performance in the export of manufactured goods, has exercised a considerable influence on policy thinking in developing countries. In many countries there is the hope that the remarkable demand growth generated in export markets might be emulated and lead to similar achievements to those of the NICs in terms of full employment accompanied by rising real wages and labour productivity. Admittedly, the desirability of an NIC pattern of development may be more questionable now, in the wake of the Southeast Asian financial and economic crisis, but the attraction of some, if not all, elements of what is seen as NIC exportpromoting policy still has strong influence elsewhere in the world.

The public choice approach has already been used in the African context to explore the political rationality of policies that seem difficult, if not entirely impossible, to justify on purely economic grounds. A well-known study by Robert Bates (1981), for example, sought to explain why governments in Africa tend to adopt agricultural policies that are blatantly harmful to the interests of most farmers in the region. More recently, rent-seeking behaviour was used by Gallagher (1991) to explain variations in growth rates across a wide range of African countries. What has not been applied to any of those countries, however, is the area of public choice theory that deals specifically with the preferences and behaviour of government bureaucrats: the so-called political economy of bureaucracy. Yet, as we shall argue below, this important strand of the public choice literature helps to explain some of the most paradoxical aspects of technology and industrialization in the public sector of one particular African country, Tanzania.

Development experience has shown that the countries that have undergone fast economic growth and structural change in the second half of the twentieth century are those that have based their productivity growth on rapid absorption of foreign technology and on increasing efficiency in the use of technology over time, and that have successfully developed and applied innovation through learning. Generally, the scale of operation, firm size, organisational structure, characteristics of the market, industrial policies, infrastructure, resource availability and the supporting institutions are crucial factors determining the nature and level of innovative activities. At the broader level, human resource development and access to finance and the legal and regulatory framework contribute to innovative achievement.

In the context of late industrialization the effective transfer and adaptation of technology is of great importance for economic development. International technology transfer is not a costless process, but requires considerable technological effort and investments in the development of technological capabilities (Lall, 1999).

Only two decades ago the search for factors determining national economic competitiveness led to the introduction of the concept ‘technological capability’. Like technology, technological capability is a complex concept comprising both the utilisation and development of technologies, either through indigenous efforts or through international technology transfers. The search for useful definitions and operational indicators has yielded an extensive body of literature.

Although the nature and extent of the role of education in the successful transition from a dominantly agricultural society to a dominantly industrial one are still debated (Szirmai, 1997a), in general one can say that knowledge and skills – primarily gained by various forms of education – were among the key variables in achieving the second phase of the Western transition. Against the back ground of a dramatic increase in the pace of technological innovation in the industrial, agricultural and service sectors of the economy in the highly industrialized countries since the late 1980s, and the fact that many developing countries, particularly in Africa, cannot keep up that pace by far (Castells, 1997), knowledge and skills are probably more important than ever in developing countries.

The key environmental issues for Tanzania are: land degradation, lack of accessible water supply and poor water quality, deterioration of aquatic systems, loss of wildlife habitats and biodiversity, deforestation and environmental pollution (Division of Environment, 1995). These environmental problems have evolved over a long period of time throughout the country.

The Energy Policy of Tanzania (MWEM, 1992) clearly specifies the important role energy plays in the development process: ‘Energy is a prerequisite for the proper functioning of nearly all subsectors of the economy. It is an essential service whose availability and quality can determine the success or failure of development endeavors’ (par. 2). ‘There cannot be sustainable development and the satisfaction of basic needs of society without sufficient and efficient supply and use of energy’ (par. 26). Since Tanzania does not (yet) have at its disposal many indigenous energy sources, the use of energy, however, is a heavy burden on the balance of payments and thus on the national economy as a whole. While the long-term strategy of the National Energy Policy is the reduction of dependence on external energy sources and the exploration and rational management and utilisation of the country’s own resources, the short- and medium-term strategies include, among others, more efficient use of energy in the transport and industry sector.

Industrialization refers to the course of transition from a preceding dominantly agricultural society towards an industrial one. In the course of this transition large-scale industry becomes the most characteristic form of production, a form in which the simplification of work to make it better manageable (rationalization), the replacement of manual labour by that of machines (mechanization) and the shift of control, correction and feedback activities from peoples to machines (automation) become increasingly important. Rationalization, mechanization and automation usually go hand in hand with the concentration of labour in larger working units. Concurrent with the shift from agriculture towards large-scale industry, far-reaching changes take place in almost all other spheres of life (Lapperre, 1992).

After a decade of ‘de-industrialization’ during the 1980s, there are new hopes for the Tanzanian manufacturing sector for the 1990s and beyond. The Sustainable Industrial Development Policy for Tanzania, 1996–2020 (URT, 1996a), spells out the mission of the sector as making contributions to the achievement of overall long-term development goals and enhancing the sustainable development of the sector itself. The Development Vision 2025 for Tanzania (8th version, URT, 1998) sets more ambitious targets. In 2025 Tanzania should be a diversified, semi-industrialized economy with the industrial sector (manufacturing, mining, construction and utilities) accounting for 40 per cent of GDP (against 16.5 per cent in 1998).1 In addition to this, the sector is expected to form the basis for broad-based growth, income generation, employment creation and foreign exchange earnings.

This chapter discusses the potential contributions of the urban informal sector to socioeconomic development. It presents a discussion of studies of the Tanzanian informal sector in the context of a review of comparative data on the informal sector in developing countries.

The main objectives of public-sector reforms, including the restructuring of public expenditures and reforming the framework for public enterprise management, ownership and operation, are: to increase the efficiency of the productive sector and raise economic growth; to reduce government budgetary costs and increase revenue, thereby improving the fiscal balance; to broaden direct private ownership and control of productive assets; and to reduce and reorient the role of government to that of providing social and economic infrastructure and implementation of economic policy, rather than to being involved in direct production.

The post-independence period was perceived by African countries as an opportunity to develop their economies. Impressed by the development experiences of advanced economies, where the patterns of development had demonstrated the increasing importance of industry and manufacturing, in particular as income per capita rises, industrialization came to be perceived as an integral part of the development agenda. The desire to replicate development patterns in the advanced countries was supported by dual economy models portraying the desire to replace traditional sectors of the economy by modern sectors, which were supposed to possess characteristics, institutions and values similar to those found in developed economies.

In 1996 Tanzania launched the Sustainable Industrial Development Policy (SIDP), 1996–2020, to succeed the basic industrial strategy (BIS), 1975–95. The BIS was Tanzania’s first long-term industrial development strategy since independence in 1961. However, the government had already began to pay serious attention to industrial development during the second fiveyear development plan (1969–74), when it designated ten towns as urban ‘growth centres’ to which ‘suitable new factories and employment opportunities will be diverted’ (URT, 1969). The expiry of the BIS in 1995, and the economic crisis facing the country, necessitated the formulation of a new policy that would take cognizance of the emerging macroeconomic environment. This paper presents the salient features of the new policy, paying special attention to the implementation mechanism, which is a major departure from the past.