Tanzania Declines Outside Aid

Tanzania’s Finance & Planning Minister Philip Mpango left a few observers somewhat perplexed lately when he seemed to say that he won’t be looking for aid from outside!

At some point, someone said the next government budget for the 2016/2017 financial year is likely to be 80 per cent self-reliant – which, on the basis of economic events taking place, didn’t quite clash with the Minister’s affirmation.

The point is: there is aid that is likely to flow in by itself… Or, if one prefers, investments by various multilateral banks and Funds, not more – and they don’t wait for phone calls!

There were reports of new loan arrangements from the African Development Bank (AfDB). But, it is uncertain how much of this stemmed from the Minister’s efforts – or it is now the AfDB which is looking for ways of engaging with Tanzania, that is: investing in the country!

Not much has so far been heard of Tanzania’s traditional development partners – apart from AfDB and the World Bank, which can predictably act on their own.

Several others are bilateral aid organisations which need to be sounded out, perhaps by NGOs this time around, as it seems!

How far this is the mood across the whole of the government is so far uncertain – as it depends on how rapidly they can complete acceptable Budget proposals for the national Legislature, with the month of May as the deadline, without having to actively seeking out bilateral aid agencies.

So far, however, the government has been able to vastly improve the potential flow of development expenditure compared to the past, and it is this sphere which more or less depended on foreign aid for years! Aid fatigue, rising gold earnings led to some rethinking.

While the much-vaunted gas economy is not coming ashore as rapidly as many would wish, the Budget mentality – tied up with a gas economy – is more or less in place: the whole idea of questioning whether Tanzania is a poor country!

Still, it isn’t what Tanzania has in the ground which makes it less poor than before but what it can collect in revenues, and how far this meets basic or reasonable expectations among the people. MPs won’t settle for less than that!

Tanzania’s place on the global natural resources map has been wobbling, what with divestment in the gold sub-sector owing to declining prices, declining yields and aggressive taxation both at the central and local government levels.

At present, with key mining companies having become more localised as Acacia took the place of Barrick Gold-Africa, and the State Mining Corporation (StaMiCo) trying to fill the vacuum left by other divestments, the picture is different. The gold tag is shifting to lower levels, while the gas label is sticking!

Reports on even greater discoveries of natural gas potential or confirmed reserves only helped to boost the country’s investment picture in the area, with little or no budgetary impact at the moment.

That – and capital gains tax (CGT) from the sale of British Gas to Shell, which no one knows if it will clock the potential US$200m some think it will, or shoot above that figure. And it now seems Tanzania is a bit conservative in the capital gains tax slot at 20 per cent. Kenya’s rate shot from a mere 5-to-35 per cent, while Uganda’s rate stands at 30 per cent!

Analysts are still baffled at the manner in which Kenya’s policy stance has shifted – and how this squares up with existing scenarios for East African integration. The latest Summit meeting of Heads of State had some peculiar ideas both for strategies of integration and the budgetary picture as it emerges, as the presidents seem to be converging on the idea of eliminating secondhand clothing imports. The reasoning for such a move is a bit easy to sketch out, but at East Africa level, rewinds sore issues of which local industries to protect!

While the Heads of State seemed to be thinking that employment was the key reason why secondhand clothing should be removed from the East African market so that the zone can use its cotton to develop its internal clothing industry, the dangers were lurking in the corner. It was clear that selling used clothing is such an important anchor of urban life in Tanzania (and elsewhere in the region) that touching it with a ban could easily spark riots.

The government was still smarting from its move to ban cheap sugar from outside, and then blame traders for hiking the price!

The new protectionist mood in East Africa seemed to augur badly for the completion of moves to cement the European Union’s Economic Partnership Agreement (EPA) with the EAC, already signed in late 2014. The grace period before making budgetary reckoning is mid-2016 – and. we now see a sort of volte face!

As if the Heads of State were listening, retired Tanzania President Benjamin Mkapa took up an invitation to the University of Harare where he delivered a lecture blasting plans to reach an economic partnership accord with the EU!

The more enthusiastic partner states were Kenya and Rwanda, with Uganda a fellow traveller while Tanzania has always been cool to the project – but signed on the bottom-line back in November 2014! It was the same period that the idea of an East African Monetary Union by 2024 was also formally endorsed!

Yet, there is a ‘Mazruian’ situation that comes up, in having a less liberal EAC policy outlook forming a new framework for integration, as it risks bringing the EAC itself to collapse, when each country starts protecting its cloth, tyre and other factories.

The government of Tanzania has released money not just to purchase the 26 per cent shares held by Continental-AG in the Arusha-based General Tyre (EA) factory. It will also be pumping large amounts of money in to revamp it. That means it also lays the rule as to which tyres are sold on the local market: its own first!

As the EAC partner states are sugar importers in the main, rising protectionism may not change things on the ground, although it brings up strenuous policy issues at the local level, especially with regard to inflation. With the inflation rate standing at 6.5 per cent for one or two months now, it is unclear if the pricing of sugar will remain the same when current stocks dry up and new ones are sold. Ministry officials seem to suggest that local producers aren’t hiking prices but it is traders!

In that context, a less liberal government in Tanzania is influencing other countries in the sub-region to practise less liberalism, seek what are usually called ‘local solutions,’ instead of being given policy slates from the EU and the World Bank to follow.

But, precisely on that account: why should East Africa itself have a Common Market, organised on the basis of competition of firms and not planning at a sub-regional level as this failed in 1965? Is it relevant?

Just as there is no panacea for illiberal policies at the local level which reduce the market sphere in favour of planned economy – protecting local industries – so will it be for the sub-region. The sugar firms will have the market to their bidding for a while… But, if they hike prices (as they have always wished) against cheap (or ‘silly’) foreign sugar, it will boomerang.

Cabinet changes will follow, and that won’t be just the restoration of formal liberalism but other ‘vices,’ too!