CLUSTER 1

GROWTH AND REDUCTION OF INCOME POVERTY:

ACHIEVEMENTS, CHALLENGES AND THE WAY FORWARD

Dennis RweyemamuResearch on Poverty Alleviation (REPOA)

CONTENTS

1. Introduction

2. Macro-economic and Other Key Indicators

3. Poverty Status

4. Unemployment

5. Food Security and Smallholder Agriculture

6. Road Network & Energy

7. Conclusion – Policy and Operational Issues

Introduction • The broad outcome for Cluster I is to achieve and sustain

broad-based and equitable growth.

• The supporting goals are:

i. Ensuring sound macro-economic management; ii. Promoting sustainable and broad-based growth; iii. Improving food availability and accessibility at

household level in urban and rural areas; iv. Reducing income poverty of both men and women in

urban and rural areas; v. Provision of reliable and affordable energy to consumers

• Cluster I has a set of cluster wide indicators, together with indicators for individual goals.

Macro-economic IndicatorsOverall Growth

• Growth appears to have increased steadily since 1993, but its trajectory over time of steady but slowing growth is of concern.

Real GDP Growth 1993-2006 (1992 constant prices)

• Challenge - sustaining and increasing growth

Sectoral Composition of Growth

• Sectoral growth rates show slight fluctuations across the board from 2000 to 2006.

• Growth of the agricultural sector averaged 4.7% , not sufficient to meet the ambitious poverty goals embodied in MKUKUTA.

• Mining has been the most dynamic sector, expanding rapidly at an average growth of around 15% as several gold mines started production.

• The manufacturing sector has started to recover, growing at an average of 7.5%. Its contribution to GDP, however, has remained low at around 8 percent.

• Trade, hotels and restaurants, which partly reflects the tourism sector, had an average growth rate of 7.3%.

Inflation, Fiscal Deficits, and the Trade Balance

• All showing signs of slippage originating from as early as 2002/03.

Rate of Inflation 2000 - 2006

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Fiscal Deficit as a % of GDP (2000/01 – 2006/07)

• The fiscal deficit as a % of GDP (after grants) has been widening since 2001/02, but more so since 2002/03;

• Thus, despite revenue increases, public expenditure as a proportion of GDP is also on the increase.

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Trade Balance and Reserves (2000 – 2006)

• Although exports have been rising rapidly, this has been more than offset by the increase in imports, resulting in an increase in the trade deficit particularly since 2002

• Foreign currency reserves have also been declining continuously from 9.2 months of imports (2003) to 5.3 (2006)

• Thus, a main challenge for the Tanzanian economy remains to strengthen its export competitiveness

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Other Key IndicatorsCredit to the Private Sector

• Credit to the private sector has maintained an upward trend since 2000,

• However, credit is still limited to a small number of enterprises with solid collateral, while small and medium enterprises and firms located outside the urban areas are virtually excluded.

• The financial system is ineffective in supplying long-term funds to the local private sector and a large portion of bank liquidity is invested in government securities.

• The spread between lending and savings rates decreased from 16.6% (2000) to 11.8% (2003). It then started to increase slightly from 11.9% (2004) to 13.3% (2006).

• This reflects a continuation of the high cost of borrowing, which in turn is a reflection of the banks’ perceptions of the high risks of lending.

• These high rates will continue to deter investments especially by small and medium scale enterprises.

Investments

• Percentage increase in new foreign direct investment has been slowing down from 25.6% (2000) to about 7.0% (2005).

• FDI remains heavily concentrated in the natural resource sectors such as mining and tourism.

• These inflows need to be beneficial to the whole economy, by adding to the capital stock, and spilling over to other sectors of the economy.

• In that respect, FDI is capable of ‘linking up’ with other investments, and stimulating the establishment of new businesses through a “crowding-in effect.”

• However, this crowding-in effect, does not seem to have been tapped sufficiently, as is shown by the rather stagnant share of gross domestic investment in GDP.

• Hence, the major challenge now is to stimulate investments beyond the natural resource sectors and generate a higher level of linkages in the economy.

Status of Poverty• Poverty estimates are based on income and consumption

data available through Household Budget Surveys and the 2007 HBS is now underway.

• Nonetheless, a simulation exercise to estimate a possible trend of poverty since the 2000/01 provides some indication.

• The simulation results based on the real GDP per capita growth indicate that poverty may have declined slightly from 36% in 2001 to 21% in 2007.

• When basing the simulation on per capita growth in real household consumption, the indication is that poverty may have declined slightly from 36% in 2001 to 25% in 2007.

• It is essential, however, to use such simulation information with extreme caution and await the results of the analysis of the HBS before drawing conclusions.

Unemployment• The economy has managed to slightly reduce unemployment in both

rural and urban areas.

• According to the ILFS 2006, total unemployment (of the population aged 15 years and above measured by the national definition) was 12%.

• The unemployment problem is most severe among the youth who are a majority of new entrants into the labour market, and tend to lack skills and experience

• Overall, gender disparities in employment particularly in urban areas continue to persist.

• While the share of public sector in total employment has increased slightly, that of agriculture has declined.

• The share of agriculture in total employment has declined by 7.7 percentage points, showing that employment growth has been shifting away from this sector

• Informal sector employment has expanded and more households both in urban and rural areas are undertaking informal activities.

Food Security and Smallholder AgricultureFood Security

• Analysis of the SSR since the 1999/00 season indicates that the country was self sufficient in food by between 88% and 112%.

• It should be noted however that these are national aggregates and there are significant variations in the food security situation between regions and districts.

• There are also variations between seasons depending on the amount of rainfall.

• In seasons when there is adequate rainfall, the country is able to produce enough food to meet its requirements, and export excess to neighboring countries.

• Arusha, Dodoma, Kilimanjaro, Mara, Morogoro, Mwanza, Singida, Shinyanga, Tabora and Tanga, fail to meet aggregate regional food requirements from domestic production in two out of five years, and most food aid received by Tanzania is targeted to these areas.

Smallholder Agriculture• The small size of cultivated plots of land, reliance on the hand hoe and traditional

rain-fed crop husbandry practices characterizes smallholder agriculture.

• With some crops, contractual arrangements have been initiated mostly by private agri-business companies to secure access to smallholder produce.

• Of the total large scale farms, only 25 percent provide services to out-grower farmers. Most of these farms are crop based.

• There is 29.4 million hectares (31%) of land that is suitable for irrigation development with varying potentials.

• Despite this potential, only 275,388 hectares were under irrigation in 2006.

• It is proving extremely challenging to tap into the irrigation potential as long as so much production is undertaken by individual smallholders

• Only 3% of the total number of agricultural households has access to credit (formal and informal), out of which only 1.6% has access to formal credit.

• About 41.6% households have one member involved in off-farm income generating activities, 21.2% have two members, 9.1% have more than two members. However, 28% of the households have no off-farm income generating activities

• MESSAGE - Poverty is anchored on the fact that about 75 % of the population depends on underdeveloped smallholder primary agriculture production.

Road Network & EnergyRoad Network

• Percentage of trunk and regional roads in good and fair condition increased from 51% (2000) to 78% as of December 2006.

• These are roads under the jurisdiction of TANROADS.

• There is still no data on the condition of the road network under the jurisdiction of local government authorities, which includes district, feeder and improved unclassified roads.

• However, a greater part of this network is still in poor condition.

• Modalities need to be worked out to widen the resources available for road rehabilitation and maintenance.

• In order to assist the Road Fund to meet increased road maintenance costs, the Government in its 2007/08 budget, increased the fuel levy paid by road users.

Energy• About half of all power generated in Tanzania is utilized by households, and

the other half by (light) industries and service providers.

• Use of domestic electricity is almost exclusively concentrated in urban areas (municipal areas and towns).

• Of the 20 districts with the highest degree of connectivity to the grid, only two are rural districts: Mwanga and Hai, while the 20 districts with the least access to electricity are exclusively rural.

• Out of the 118 districts identified in the 2002 population census, only 18 districts have more than 20 percent of households accessing electricity.

• In 31 districts electricity is such a rare phenomenon that more than 99 percent of all households lack access.

• Amongst those connected to the grid, poor households have the least access.

• The number of customers connected to the national grid and off grid for the period 2000-2006 increased by 43%.

• There is still a huge gap between capacity and actual generation of electricity with the latter being no more that 40% of the former since 2000.

Conclusion• The review of progress in Cluster 1, highlights some achievements

and outstanding issues.

• There is need to underpin Tanzania’s development with faster and more sustainable growth.

Policy and Operational Issues

i. Sustaining commitment to macro-economic stability through sound fiscal and monetary policies as the foundation for sustained economic growth.

ii. Identifying potential growth drivers based on an accurate analysis of the comparative and competitive advantages of the country;

iii. Increasing levels of investment and productivity which entails continued efforts to improve: human and capital resources, physical infrastructure, administrative infrastructure, information infrastructure and scientific and technological infrastructure.

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