Transcript What Must Be Done to Sustain Economic Growth

Tanzania Economy and
Development: A Review
Paolo Zacchia, Lead Economist
Journalists Brief
June 18, 2006
Dar es Salaam, June 4,2007
© World Bank – East Africa PREM
Outline
 Tanzania’s Recent Macro Performance
 Some of the factors which explain
Tanzania’s Recent Acceleration in Economic Growth
 Has the Accelerated
Economic Growth Translated into Reduced Poverty?
 What Must Be Done to
Sustain Economic Growth That Is Pro-Poor?
 National anti-Poverty strategy: status and prospects
Tanzania: Background 1994 -2005
1994
2005
GDP per capita (US$)
157
336
Total public debt (% GDP)
93.7
Foreign Direct Investment net
inflows ($m)
151
(1995)
26.7
24.6
(2006)
325
Population (million)
38.3
Tanzania’s Recent Macro Performance
• High annual growth rate of gross domestic product of
6.0 percent (average) between 2000 and 2006
• Growth was spread across all sectors – industry (8.7
percent), services (5.9 percent), and agriculture (4.8
percent)
• Inflation has been contained to average of 5-6 percent
between 2000 and 2005, as a result of prudent monetary
and fiscal policy, but signs of overheating since 2006
Tanzania’s Recent Macro Performance ctd
• Credit to the private sector has been growing by more than 30
percent and continuing grow rapidly, following financial sector
reforms
• High foreign direct investment (FDI) of 4 (average) percent of
GDP between 2000 and 2006. Most of FDI went to investments in
mining sector, tourism and major privatizations.
• Official development assistance (ODA) has been high (more
than 10 percent of GDP) more than 50 percent being budget
support.
Some of the factors which explain
Tanzania’s Recent Acceleration in Economic Growth
• Implementation of a comprehensive set of
macroeconomic and structural reforms laid the
foundation for economic growth through enhanced
incentives for private sector activities and improved
efficiency of resource allocation and use in the
economy
• Large inflows of private and public capital that were
triggered by the reforms undertaken by government, in
particular strong focus on macroeconomic stability and
public financial management has triggered large donor
inflows
Tanzania has started to regain global market share,
but is still way below its 1980s level
Tanzania’s exports of goods as share of world merchandise
trade (% of US current dollars)
0.03%
0.03%
0.02%
0.02%
0.01%
Share in world
merchandise exports
0.01%
Source: © Bank staff calculations, based on data from IMF World Economic Outlook
04
20
02
20
00
20
98
19
96
19
94
19
92
19
90
19
88
19
86
19
84
19
82
19
19
80
0.00%
Total External financing , % GDP, 99/06
14.0
12.0
% of GDP
10.0
8.0
Actual Donor Support
6.0
4.0
2.0
0.0
1
9
99
/00
2
0
00
/01
2
1
00
/02
2
2
00
/03
2
3
00
/04
2
4
00
/05
2
5
00
/06
Some of the factors which explain
Tanzania’s Recent Acceleration in Economic Growth ctd
• Increased Government spending as a result of large donor
inflows has contributed to around 2-3 percentage points of
growth.
• Improvements in the business environment, as well as sectorspecific reforms—especially in the mining sector—have triggered
an increase in foreign direct investment (FDI) and higher growth
in mining sector.
• Informal sector has also grown rapidly as a result of liberalization
of the economy, the tolerance of many informal sector activities
that were previously illegal, the need for laid-off government
workers and migrants to generate new income-earning
opportunities.
Some of the factors which explain
Tanzania’s Recent Acceleration in Economic Growth
Figure 1. Contribution of Public and Private Expenditure
to Economic Growth, 1990–2005
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
-1.0%
-2.0%
-3.0%
5.3%
4.9%
4.5%
3.8%
1.0%
-0.9%
-1.1%
-2.1%
1990-94
1995-99
-2.1%
2000-05
Private Consumption and Investment
Public Consumption and Investment
Net exports and statistical discrepancy
Source: © WB staff calculations, based on United Republic of Tanzania various years.
Has the Accelerated Economic Growth Translated into
Reduced Poverty?
Poverty Status in Tanzania, 1991/92–2000/01
Location
Tanzania
Rural areas
Other urban areas
Dar es Salaam
Zones
Coastal
Northern Highlands
Lake
Central
Southern Highlands
South
Population share (%)
2000/01
1991/92
100
100
79
82.1
13.6
12.6
7.4
5.3
12.8
10.1
35.1
9.4
15.3
11.9
12.8
11
37.4
8.3
14
9.1
Poverty headcount (%)
2000/01
1991/92
35.3
38.6
38.6
40.8
25.9
28.7
17.6
28.1
40
20.2
37
48.8
46.6
43.9
34.7
36.1
39
42.4
25.8
43.2
Source: Based on Household Budget Survey 1991/92 (National Bureau of Statistics
1993) and Household Budget Survey 2000/01 (National Bureau of Statistics 2002).
Note: Bold typeface indicates that the difference between the two surveys is
significant at the 5 percent level.
Has the Accelerated Economic Growth Translated into
Reduced Poverty?
• Modest per capita GDP growth rates during the early 1990s
resulted in equally modest (stat. insignificant) poverty
reduction (as shown in above table)
BUT
• Ownership of assets such as improved housing, radios, and
bicycles by the poor has increased.
• The expansion of access to free primary education has also
clearly benefited the poor.
Has the Accelerated Economic Growth Translated into
Reduced Poverty?
WHY?
• Decline in poverty was concentrated in Dar es Salaam: it was
faster than other urban and rural areas (table above) due FDI
(50% in Dar) and aid inflows
• Insufficient agriculture growth which averaged 3.5 between 1991
and 2001
• Shift from agriculture to non-agriculture activities in rural areas
may also have contributed to poverty reduction in rural areas
What Must Be Done to
Sustain Economic Growth That Is Pro-Poor?
Three reform areas are critical
• Enhancing international competitiveness and
accelerating diversification
• Focusing economic reforms in sectors were poor are
working (agriculture, livestock, forestry)
What Must Be Done to
Sustain Economic Growth That Is Pro-Poor?
Enhancing international competitiveness and accelerating diversification
•
Support identification and exploitation of growth opportunities by private
sector in order to diversify the range of goods and services produced
•
Resolve infrastructure bottlenecks including recurrent energy shortages,
transport together with appropriate policy and regulatory framework for
private sector participation
•
Appropriate governance to ensure effectiveness of the government
interventions including fighting corruption, particularly with respect to key
PPI transactions
•
Greater attention to fostering structural transformation by scaling up
investment in higher education, technology transfer through FDI, strengthen
research and development in agriculture , and greater access to ICT
especially in rural areas.
•
Develop an urban strategy which aim at marking urban centers hubs for
economic activities.
What Must Be Done to
Sustain Economic Growth That Is Pro-Poor?
Focusing on pro-poor sectors
• Ensure reforms benefit rural areas by improving access to market for
agricultural produce, access to credit, improvement of local
infrastructure and service delivery, agriculture productivity growth
through research and extension/irrigation and better integration of rural
areas in growth process
• Better management and exploitation of natural resources
• Encourage micro-, small-, and medium-size enterprise activities and
supporting informal sector activities and its transition to formal sector.
• Great attention to the effect of social expenditures to ensure that
increased social spending do benefit the poor
National Strategy for Growth and
Reduction of Poverty (MKUKUTA; 2005-10)
3 clusters
• Growth and reduction of income poverty
• Improving the quality of life and social well-being
• Governance and accountability
Broadly consistent with MDGs, although sometimes
more ambitious (e.g poverty), sometimes less
(e.g. education)
Tanzania : poverty & social indicators
1994 - 2005
1991
2001
Poverty incidence
39
35
Rural poverty
41
39
Gross primary school enrolment
(%)
68
112.7
(2006)
112
(2004)
578
Under five child mortality (per 1000) 147
Maternal mortality
529
MUKUKUTA: prospects - 2010
Significant progress in many areas, but reaching ambitious
targets problematic
• Income poverty: likely to be reduced, but probably not by half.
Results of poverty assessment in mid-2008
• Primary education: enrollment up, but attendance a problem.
MUKUKUTA targets may be reached, but not MDG
• Health: Under five and maternal mortality, uneven progress, reaching
targets problematic
• Governance: modest improvement, and sustainability a challenge