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Contributor: James Ogunleye
Putting Tanzania Back On The Map

Ali Hassan Mwinyi, Tanzania's out-going president must be wondering how his Kenyan and Ugandan counterparts have managed to steal the limelight in the all-important business of attracting foreign aid and foreign direct investment. He has every reason to be worried. In the past few years Tanzania has been virtually wiped off the regional map. Gone are the days when it used to compete for attention in East Africa.

Tanzania's problem is not one of lack of improvement in macro-policy: If anything, improvement in its macroeconomic environment has seen the economy growing at a average rate of 4.2 per cent since 1990. The problem is one of unending structural and financial difficulties. This is aggravated by what the World Bank recently called "deeper problem of corruption" that have continued to keep investors at bay despite the simplification of investment procedures. Even though the economy is growing, lack of clear-cut support from the Bretton Woods institutions (IMF, World Bank) and bilateral donors remains a sign-post for foreign investors. And that's why they're taking their cash to neighbouring Kenya and Uganda.

Of course Tanzania has scored some success since the introduction of the structural adjustment programme in 1986. Aside from a sustained period of GDP growth mentioned earlier; export earnings are up from US$362 million in 1991 to an estimated $533 million in 1994. This has had a positive impact on external cash reserves which went up from $204 million in 1991 to an estimated $332 million by the end of 1994. What's more, Tanzania achieved her relative success against the background of sustained political stability.

What is keeping investors at bay, however, is the perception that the country's economic reforms are faltering. Even though a recent World Bank study on SAP in Africa gave Tanzania kudos for achieving improvement on macro-policy stance, the fact that for the third year running the country has been denied access to IMF funds speaks volumes of donors' (and investors') scepticism about the reform.

The challenge to Mr Mwinyi's successor will be to get the economic fundamentals right. One specific macro-policy area - easily the Achilles heel of the domestic economy - is inflation. Older Tanzanians can only remember with nostalgia the last time their country enjoyed low inflation. Since the beginning of the 1990s, persistent high price increases have kept inflation at an average of 24.5 per cent, and the prospect for the 1995/96 fiscal year does not look much brighter. A recent Bank of Tanzania report indicated an inflation rate of 42 per cent for the first quarter of 1995, at the same time the downwardly mobile Tanzanian Shilling fell 5 per cent (Tsh500 to a dollar) on the foreign exchange market. Indeed, inflation is central to macroeconomic stabilisation and getting it down must be a priority for the new government. This can be done through the twin-measures of monetary and fiscal restraint.

The drive for revenue must also be intensified. Planning Minister Horace Kolimba, in his 1995/96 Budget (released in May) talked of financing the Tsh171,700 million deficit - a hefty 27.4 per cent of the total budget - through a mixture of donors cash, loans, and local non-bank borrowing. Economic observers in Dar es Salaam say the deficit might not have arisen had the Government been frugal. They have a point. Last November, Mr Mwinyi admitted - in a grovelling statement - that the State lost a whopping Tsh70 billion (US$173.2 million) in tax revenue, in 1993, due to institutionalised fraud.

Tackling the deficit will demand a major crackdown on tax evasion and illegal tax exemptions (which, incidentally, is one reason why donors' cash is being withheld). Another way to boost government coffers, and - by extension - reduce fiscal deficit, is to sell off many of the money-guzzling

state enterprises. For instance, University of Dar es Salaam analyst Michael Kishimba calculates that State-owned enterprises have accumulated a public debt of Tsh1.5 trillion as at December 1994. What's more puzzling, observers say, is that a high aid-dependent economy like Tanzania still subsidises a mammoth 325 state firms.

An improvement is also vital on the external front. For instance, running a current-account deficit of $425 million (annual average) since 1990 certainly cannot be healthy for such a weak economy.

Perhaps the most important battle yet for the new government is the curbing of unbridled public corruption. The World Bank was spot-on when, in a recent press release, it expressed concern about this cankerworm (indeed, in November 1994, non-project aid was suspended due in part to accusations of corruption). That's why a chain-saw massacre of deadwoods in government is crucial if the battle against economic stagnation is to be won.

Tanzania, Mr Mwinyi once declared, is "ready to do business and extends a warm invitation to [foreign investors to] join her." Timely invitation no doubt, but unless Tanzania is ready to put itself back on the map, foreign investors may not be in a hurry to answer that call.
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