RESTR I CTED FILE CAPY Report. No. AE-26 This report is for official use only by the Bank Group and specifically authorized organizations or persons. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION THE ECONOMIC DEVELOPMENT AND PROSPECTS OF TANZANIA (in four volumes) VOLUME I THE MAIN REPORT May 22, 1972 Eastern Africa Department CURRENCY E4UIVALENTS 1 Tanzanian Shilling U.S.$0.14 1 U.S. Dollar =h 7.14 This report is based on the findings of a mission which visited Tanzania during August/September 1971. The mission consisted of the following: Messrs. Iyle M. Hansen (aission Chief); Pieter Bottelier (general economics); John Cleave (agriculture); Andrew Hayman (tourism); Esref Erkmen (power); Raimundo Guarda (consultant on housing and urban development). TABLE OF CONTENTS VOLUME I THE MAIN REPORT THE ECONOMIC DEVELOPMENT AND PROSPECTS OF TANZANIA Page No. BASIC DATA SUMMARY AND CONCLUSIONS ....................... INTRODUCTION AND BACKGROUND ................... General .....................................1 Political Conditions and Socio-Economic Goals .1 Tanzania's Socialist Philosophy ..........2 Ujamaa Villages ...............................3 Relations with Zambia and East African Community Partners ..........................4 The Asian Community ...........................4 Private Investment ............................4 Capacity for Planning and the Decentralization of Government ...............................5 RECENT ECONOMIC DEVELOPMENT ...................7 Introduction .......................... . 7 Overall Growth of the Economy ............... 7 Investment ............................ 8 The Pattern of Investment ................ 9 Consumption and Saving ........... .. ........... 10 Government Capital Expenditure and Its Financing ....... ........................ 11 Parastatal Investments and Their Financing .... 13 Tan-Zam Railway ................ ............... 14 Recurrent Government Revenue and Tax Policies . 14 Government Recurrent Expenditure .............. 15 Balance of Payments ............ .. ............. 16 External Reserves ............... .............. 17 Exports and Their Composition ................. 17 Terms of Trade ................. ............... 18 Money and Credit ................ .............. 19 Prices, Cost of Living ........... .. ........... 20 Employment, Wages, Productivity ............... 21 Income Distribution ............ .. ............. 22 TABLE OF CONTENTS (Cont'd) Page No. III. SUMMARY REVIEW OF SELECTED SECTORS .... ......... 24 Agriculture .................................... 24 Industry ........ ............................... 26 Transport ................................... 28 Education ..................................... 29 Water and Sanitation ........................... 30 Urban/Regional Development and Urban Housing ... 31 Tourism . , ......... 32 Power ......... ................................. 33 Health ......... ................................ 34 IV. FUTURE PROSPECTS ............................... :35 The Rate of Investment ......................... 35 Investment, Savings and Growth .... ............. 36 Public and Private Investment .... .............. 36 Financing Public Investment .... ................ 37 External Assistance ............................ 37 Balance of Payments ............................ 38 Resource Gap Projections and the Need for Export Promotion and Diversification .... ..... 40 Creditworthiness ............................... 42 V. STATISTICAL APPENDIX ........................... 44 llap ANNEXES I-III (in VOLUME II) AN1JEX I Agriculture and Rural Development ANNEX II Tourism ANNiEX III Urban Development and Housing ANNEX IV (VOLUME III) Water Supply and Sewerage Sector VOLUME IV A PROGRAM OF PREINVESTMENT STUDIES Tourism; Power; Urban Development and Housing BASIC DATA A Areas 937,062 sq. kns. (including 53,L83 eq. kms. of water area) Population: (1971) 13.2 million Rate of Growth: 2.7 percent p.a. Population density: 15 persons per square km. (land area) Average life evpectancy at birth: 41 years Political Statuss Indeendent since December, 1961 Uhion with Zanzibar since April, 1964 Member of Commonwealth and East African Community National Income in current prices at factor cost (1970): Total ONP Sh 8205 million Total GDP Sh 8232 million Per capita GNP Sh 636 (=US$89) Contribution of subsistence sector to Nationsl Income about 29 percent Anmual rates of growth in real terms 1964-1970 trend 1969 1970 Total GDP 5.4% 1.4% 5.2% Monetary GDP 6.0% 3.5% 5.9% Monetary agriculture 3.6% 7.9% 3.4% Non-Monetary agriculture 2.7% -5.5% 3.6% Manufacturing 12.9% 10.8% 6.2% Construction 14.1% -6.2% 7.3% Per capita GDP 2.7% -1.3% 2.5% Per capita consumption 4.0% 1.4% 4.8% Private consumption 3.5% 0.5% 4.9% Relative sector contribution to GD? 1964 1970 Agriculture 49 ba Manufacturing 5% 8% Mining 2% 2% Construction 3% 5% Transport, storage and commanications 6% 8% Al1 other sectors 35% 37% Percentage of Monetary GDP at current market prices 1964 1970 Gross capital formation (monetary sector) 11.1% 22.2% Total consumption ( " " ) 80.3% 84.2% Private consumption ( " t ) 66.7% 68.3% Government consumption ( " " ) 13.6% 15.9% Exports of goods and services 39.7% 33.2% Imports of goods and services 35.0% 38.6% Tax revenue 13.3% 19.6% A1 After this Report was written the Government of Tanzania published a revised series of national accounts statistics covering the period 1964-70. Most revisions are minor and do not conflict with the conclusions of this Report. The revised statistics will be included in the next Bank Economic Report on Tanzania. Public Finance (St? million) 1963/64 1971/72 Central Government current revenue 718 1,823 current expenditure 709 1,725 Surplus on Current Budget 9 100 capital expenditure 145 768 Externally financed portion of central Government capital expenditure (excl. Tazara) 36% 49% Money and Credit (end of month) (Sh million) June June 1970 1971 Total money supply T1,49 1 Time and savings deposits 741 855 Domestic credit 1,134 1,712 Foreign exchange 505 517 Balance of Payments (Sh million) 1968 1969 1970 Merchandise exports 1,606 1,583 1,675 Merchandise imports 1,836 1,738 2,315 Net invisibles 21 65 60 of which net factor income -28 -21 -50 Balance on current account -132 -11 -503 Commodity concentration of exports Sisal 10% 10% 10% Cotton 18% 15% 14% Coffee 16% 16% 18% Diamonds 8% 11% 9% Cashew nuts 7% 7% 7% External Public Debt (US $ thousands) December December 1968 1969 Total debt outstanding T,nnzania debt 212.1 276.9 One-third of EACSO debt 70.2 72.1 Total debt service Tanzania debt 9.0 15.8 One-third EACSO debt 11.4 5.4 Debt service ratio 7.1% 6.9% External Reserves December December December 1969 1970 1971 Total value (including SDR's and IMF gold branche; in US $ million) 80.2 65.0 59.9 Months of commodity import 4.8 2.8 n.a. Selected Social Indicators 1960 1967 1970 Birth rate (per 1,000 population) 47 47 1) Death rate (per 1,000 population) 22 20 1) Infant mortality (per 1,000 live births) 225 165 Maternal mortality (in clinics, per 1,000 live births) 4.7 2.7 Population under 15 years old (percentage of total) 44 Population in towns of more than 10,000 inhabitants (percentage of total) 4.0 5.1 5.7 1) Population per hospital bed Dar es Salaam 265 252 2W4 Rest of country 935 896 810 Population per dispensary 10,000 9,670 9,250 Population per licensed doctor Dar es Salaam 1,400 1,550 Rest of country 43,000 34,000 Primary school enrolment (perceiitage of age group entering first grade) 47 Secondary school enrolment (percentage of age group enter- ing first year of high school) 2.5 Total enrolment adult education programs 750,000 Average annual cash income of male wage earners (US$) 45o 576 Percentage of senior and middle grade civil service posts held by nationals 27 73 86 1) estimate SUMMARY AND CONCLUSIONS 1. Tanzania has experienced a slowdown in economic growth in recent years in spite of an increase in investment. Production in nearly all sectors is behind the targets of the Second Five-Year Development Plan (1969-74). This is partly due to the pattern of investment which has shown a heavy concentration in social and economic infrastructure, including a number of large transportation projects serving neighboring landlocked Zambia, which needed an alternative outlet to the sea following Southern Rhodesia's unilateral declaration of independence. It is expected that these projects will eventually bring commensurate benefits for the Tanzanian economy but the gestation period is likely to be long. During the first two years of the Second Plan the economy grew slightly faster than half the target growth rate of 6.5 percent. It is expected that economic growth during the remainder of the Plan will continue to be below this target. 2. The slow growth of agricultural exports (representing about 80 per- cent of total exports) in combination with rapidly growing imports of capital equipment and intermediate goods has put the balance of payments under severe strain. By the end of 1971 external reserves had fallen to the equivalent of 8 weeks' imports in spite of the fact that net medium and long term capital inflows continued to exceed current account deficits. The fall in reserves was attributed to private capital flight, unrecorded imports and to a change- over from credit to cash payments for imports by the State Trading Corporation (STC). The Government has taken appropriate remedial measures. Reserves have improved during the first quarter of 1972. 3. The slow growth of production and the low profitability of many state enterprises led to a shortfall of national savings. The Government was quick to realize the need for a reduction in public sector spending. The development budget of most Ministries was cut during the second year of the Plan while credit restrictions had the same effect on parastatal in- vestment. 1971/72 budget appropriations for capital expenditure are about 10 percent below the actual level of the preceding year. Defence appropri- ation, however, increased siRnificantly. A shortage of savings is likely to remain a constraint on economic development for some years. Hence the need for increased savings, particularly in the public sector, which, following the nationalization of most important industrial and commercial companies, is chiefly responsible for the mobilization of savings and the allocation of investible resources. To increase public savings will require tighter control of non-development recurrent expenditure, and some increase in the profits of parastatal operations. Although the tax rate is already high, additional taxation may be necessary to maintain a stable investment rate of about 19 percent of monetary GNP (at market prices). 4. Since the Arusha declaration of 1967 which was an important de- claration of socialist principles, private sector investment has dropped sharply as was exnected. The Government now owns or controls nearly all the - ii - important industries, banks, insurance companies, transport companies, hotels, trading companies, and large scale farms, including the major sisal planta- tions. Take-over negotiations have been substantially completed; compensation payments are being made on schedule. The most recent addition to the series of nationalization acts since Arusha is the Acquisition of Buildings Act of April 1971. Under this Act the state may acquire rental properties over a certain value (Sh 100,000 = $14,000) and about 3000 properties, mostly be- longing to Asian residents, have been acquired under the Act so far. An important feature of the Act, distinguishing it from previous nationalizations, is that the formula for compensation is spelled out in the Act itself. The take-over of rental properties has significantly accelerated the emigration of Asian residents which also means a loss of skills and private investment. 5. Another important aspect of Tanzania's socialist development is the recently renewed emphasis on agriculture and rural development. A significant effort is being made to reduce the gap between rural and urban standards of living. The chief instrument for rural development is the promotion of co- operative or 'ujamaa' villages. There are no close parallels in Africa or elsewhere for this ujamaa movement and it is too early to assess its eco- nomic implications. In June 1971 an estimated 8 percent of the rural popu- lation lived in ujamaa villages at various stages of cooperative develop- ment. Most of these villages have been established in relatively poorer areas where resettlement could be expected to bring tangible benefits in the form of improved Government services. So far the movement has not met with much response in the richer areas with well established cash crops such as cotton and coffee. The ultimate aim is to transform ujamaa villages into credit-worthy multi-purpose cooperative societies practicing communal pro- duction methods. A recently announced decentralization of Government aimed at giving greater power and responsibility for project planning to regional authorities is part of the general rural development strategy. Another as- pect is the Government's intention to locate new industries in nine urban centers other than Dar es Salaam. 6. In the light of the overall resource constraint, particularly the shortfall of national savings, that forced the Government to put the brake on investment in the second year of the Plan, the authorities have undertaken a mid-Plan review aimed at reshaping development policies and priorities. It is expected that this review will establish guidelines for implementing an earlier announced policy to shift the emphasis of investment from infrastruc- ture to more directly productive operations in agriculture, industry and mining. This will be necessary in order to achieve the same or a higher growth rate with less investment. Since state enterprises are the largest actual and potential source of public savings, great emphasis has to be placed on increasing their efficiency and improving the quality of their new investments. 7. There is a premium upon improved economic coordination, including the use of appropriate prices for products and factors of production. The new policy of uniform national prices for selected commodities, although understandable from an equity viewpoint, may result in a misallocation of resources. The price of capital is too low relative to the price of labor - iii - to facilitate labor-intensive investments. There are problems of coordina- tion between agencies. For example, the import procedures of STC have caused some disruption of the market for products manufactured by state enterprises and hampered production through delayed supply of raw materials and spare parts. There continues to be uncertainty regarding investment criteria between the parastatals and the supervising ministries. The authorities are aware of these problems and expert advice has been sought. As many of these problems result from the speed and coverage of the socialization measures taken since 1967, a period of consolidation may provide the oppor- tunity to improve management and coordination. 8. Tanzania has been very successful in attracting external aid on concessionary terms. Supplier credits have been kept to a minimum. The debt service is modest in comparison with many other developing countries but could increase rapidly if the growth of exports continues to be as sluggish as in recent years. Export promotion is the most important priority along with increasing national savings. Projections indicate that Tanzania will continue to depend on external aid for at least 40 percent of public sector investment assuming that the investment rate will not fall below 19 percent of monetary G1NP. In view of the country's limited debt service capacity it is desirable for as much new aid as possible to be on conces- sionary terms. I. INTRODUCTION AND BACKGROUND General 1. Tanzania 1/ is situated just south of the equator on the Indian Ocean and has common borders with Kenya, Uganda, Rwanda, Burundi, Zaire, Zambia, Malawi, and Mozambique. Most of the country with the exception of a coastal belt is part of the central African plateau lying at altitudes be- tween 1,000 and 1,500 meters and enjoys subtropical to temperate climates. Most of the population, estimated at 13.2 million in 1971, is concentrated in a few areas that are geographically widely dispersed: the coastal belt around and north of Dar es Salaam, around Moshi and Arusha in the north, the areas west and south of Lake Victoria, the entreme west around Kigoma and the extreme south-west around Mbeya. It is estimated that two thirds of the people occupy only 10 percent of land areas. The rest of the population is widely scattered. The non-African population amounts to less than 1 per- cent of the total and is mostly of Asian origin. The average population density is only 15 per square kilometer which compares with 19 in Kenya and 51 in Uganda. 2. Tanzania is essentially a peasant society. Not more than 6 percent of the population lives in cities and towns. Ninety percent of the economi- cally active population is engaged in agricultural activities. Agriculture contributes about 40 percent of the country's GNP (1970) and 80 percent of commodity exports. The value of agricultural production is about equally divided between cash crops and subsistence crops. Smallholder farming is the dominant form of agriculture. The most important factor causing varia- tions from year to year in the income and well being of the majority of the population is the weather. In many parts of the country rainfall is irreg- ular and unreliable. There is still ample unused land that could be brought under cultivation. The occurrence of tsetse and scarcity of water in large parts of the sparsely populated southern and western bushland are principal obstacles to development in those areas. Political Conditions and Socio-Economic Goals 3. Since attaining independence in December 1961 Tanzania has made considerable progress on economic as well as social fronts. President Nyerere is the architect of the country's independence and founder of the only remaining political party TANU. A lingua franca (Swahili) and the ab- sence of important tribal conflicts has contributed to national unity and has given the country a clear identity and sense of purpose. Tanzania's leadership enjoys wide popular support in its commitment to development within the framework of a socialist economy. 4. Tanzania stands out as one of the few African states which emerged with a one-party system based upon a united nationalist movement developed during the struggle for independence. The system was consolidated after 1/ All references and statistics in this report refer to mainland'Tanzania and not to Zanzibar, except where explicitly stated. independence and the principle of a one-party state was incorporated in the constitution (1965) after the remaining minor opposition parties collapsed in the election of 1962. TANU embraces a wide spectrum of views. Elections continue to take place and the method used for the nomination of candidates was designed to ensure that politicians are responsive to popular opinion. TANU is actively engaged on a grass root level in the promotion of popular involvement in the national development effort. Other important interest groups such as the centralized trade union movement and the Cooperative Union of Tanzania are closely affiliated with the party. Tanzania's Socialist Philosophy 5. The practical meaning of Tanzania's socialist philosophy is grad- ually taking shape. The country aims at the simultaneous achievement of rapid economic growth and an egalitarian society without tribal privileges or economic exploitation. Since the Arusha Declaration of 1967 the Govern- ment has taken over or acquired a controlling interest in nearly all impor- tant industries, banks, insurance companies, transport companies, hotels, trading companies and the major sisal plantations. Take-over negotiations have now been substantially completed and compensation payments are being made on schedule. Most industries continue to be run under expatriate man- agement but Government's policy is to Africanize top positions as fast as reasonably possible. 6. The most recent addition to the series of nationalization Acts since the Arusha Declaration is the Acquisition of Buildings Act of April 1971. Under this Act, which is designed to eliminate landlordism, the State may acquire any rental property over a certain value ($14,000). An important feature of this Act, distinguishing it from all previous nation- alization Acts in Tanzania, is, that the formula for the calculation of the amount of compensation is spelled out in the Act itself. All previous Acts were based on the principle of a negotiated settlement between buyer and seller. Compensation for buildings taken over by the State will be equal to the original construction cost minus 10 percent for each year that the owner has owned the building. An Appeal Tribunal has been established to deal with problems over compensation and individual hardship cases. About 3,000 properties, mostly belonging to Asian residents, have been acquired under the Act so far. No estimate is available of their total value or the total amount of the compensation calculated according to the formula pre- scribed in the Act. 7. A plan for the expansion of Government's capacity for the mainte- nance of newly acquired properties is being worked out. It is not know whether the Government's financial position will show an immediate improvement as a result of the Acquisition of Buildings Act. The costs of compensating prev- ious owners, administration, maintenance, together with the costs of servicing outstanding mortgages are unknown as is the additional rental revenue accruing to the Treasury. 8. The Acquisition of Buildings Act is part of a series of measures aimed at the transformation of the Tanzanian economy into a socialist state - 3 - where all important means of production are collectively owned. In order to ensure consistency between socialist objectives and practice the Arusha Dec- laration of 1967 also prescribed a code of behavior for political leaders and senior public sector personnel which is strictly enforced. In 1966 the sal- aries of all civil servants and politicans above a certain income level were cut by up to 20 percent. Their salary scales have not been raised since. Meanwhile, taxes on luxury consumption have been significantly increased. Wages of low income earners have been allowed to increase about 5 percent or mDre per annum. The importation of motor cars for non-essential private use was restricted in November 1971. The latter decision was partly mo- tivated by the need to conserve external reserves which had dropped to a low level owing to a sharp deterioration of the trade balance in combina- tion with illegal private capital flight. Although exact calculations are difficult to make, the impression is that the various measures taken have reduced inequalities of income within the category of employed workers. This in itself is only a small minority of the total working population. It is much more hazardous to attempt to measure relative changes in the rural/urban gap. However, Tanzania is certainly making progress towards the improvement of incomes and living conditions in the rural areas. Large scale urban unemployment has so far been avoided but this could become a problem in later years because the urban population is growing at a higher rate than urban employment. Ujamaa Villages 9. Perhaps the most important aspect of the Government's socialist development policies is the increasing emphasis on agriculture and rural development. About 93 percent of the people live on the land and peasant agriculture is the backbone of the Tanzanian economy. In recent years the rural development strategy has focused on the establishment of cooperative or ujamaa 1/ villages throughout the country. Though most of these villages will be engaged in farming, there are also plans for the establishment of ujamaa villages specializing in fishing or small industry. There are no close parallels in Africa or elsewhere for this ujamaa movement and it is too early to assess its economic implications. It is estimated that about one million people or 8 percent of the rural population have so far settled in some 3,000 ujamaa villages. Most of these villages have been established in the relatively poorer areas where farmers traditionally lived on scattered homesteads and where resettlement could be expected to bring tangible benefits in the form of improved Government services. In more densely populated and relatively richer areas such as the main cotton and coffee growing belts, ujamaa has so far not met with much positive response. The Government em- phasizes that ujamaa is a voluntary movement based on a maximum of self-help and self-reliance. The ultimate aim is to transform ujamaa villages into production based multi-purpose cooperative societies practicing communal pro- duction methods. So far, the amount of government resources used in the pro- motion of ujamaa villages has been limited but the intention is to increase 1/ Literally ujamaa in Swahili means 'familyhood'. - 4 - the effort considerably, possibly with foreign assistance. (The ujamaa pro- gram is described in greater detail in Annex I (Volume II) to this report). Relations with Zambia and East African Community Partners 10. The unilateral declaration of independence by Southern Rhodesia in November 1965 has had major implications for Tanzania's pattern of in- vestment in subsequent years. It is estimated that more than half of the capital expenditure for economic infrastructure since 1966 has been allo- cated to projects creating and improving communication links with landlocked Zambia in order to enable that country to reduce its dependence on Southern Rhodesia and Mozambique. In the long term these investments are expected to entail commensurate benefits for Tanzania but this does not alter the fact that during the past 5-6 years Tanzania's investment pattern has been sig- nificantly affected in order to accommodate Zambia's difficult position. The viability of investments in the oil pipeline, the tarmac trunk road and the Tan-Zam railroad between Dar es Salaam and the Zambian Copperbelt as well as the planned expansion of Dar es Salaam harbor, depends heavily on Zambia's continued use of these facilities. 11. Tanzania continues to be committed to the promotion of the East African Community. However, the change of government in Uganda of January 1971 created a number of problerns and retarded the implementation of some important projects because of a dispute between Tanzania and Uganda. The dispute has led to a disruption of economic relations between the two coun- tries. Communication links that were cut after some shooting incidents across the common border have been restored and trading relations are now back to normal. The Asian Community 12. Various socialization measures in recent years, especially the building take-over, have had a particular impact on the Asian community which has traditionally supplied a high proportion of medium and top level skills in industry, trade, banking and professional services. Many Asians feel that they are being discriminated against and considerable numbers have left the country during the past year; estimates range between 15-20,000. The associated loss of skills and private investment is a significant cost to the economy. One important effect of the Buildings Acquisition Act is that many private businessmen have lost their main or only collateral for bank loans and overdrafts. Chis has inevitably caused a certain amount of dislocation in trade and industry. Private Investment 13. The role of private investment has been significantly reduced. Most new orivate investment takes the form of joint enterprises with the state or public corporations as majority sharelholders. The relative con- tribution of private investment to total capital formation has dropped from - 5 - about 60 percent in 1965 to 18 percent in 1970 and may fall further. 1/ The Second Five Year Development Plan (1969-1974) expected that 27 percent of total investment would be privately financed. It is unlikely that this tar- get will be achieved during the remainder of the Plan. The remaining areas suitable for purely private investment are virtually limited to small scale agriculture, small industries and workshops, retail trade, road transport, some hotel business and professional services. Even in these fields the local credit institutions give strong preference to cooperatives over indi- vidual entrepreneurs. Capacity for Planning and the Decentralization of Government 14. The socialization process in Tanzania means that the responsibility for the allocation of the nation's investable resources now rests predominant- ly with the Government. The establishment of national investment priorities and the formulation of economic policies that are consistent with the dual goals of social equality and economic growth is a complicated task in an open economy like Tanzania. The Government's capacity for planning the economy and implementing projects and policies compares favorably with most African countries and is steadily improving but much reliance is still placed on ex- patriates in key technical positions. 15. Early in 1972 the Government announced a decision to decentralize a number of important government activities. A major reorganization of the relationship between regional authorities and the central government in Dar es Salaam is being prepared with a view to increasing the effective power and responsibility of regional authorities for the formulation and execution of regional development plans. Under this decentralization scheme, the coun- try's 18 Regions and 64 Districts will be given substantial power to control budgets, personnel, programs and planning in their jurisdictions. The scheme complements and parallels the Government's priority for rural development and is designed to improve project preparation and implementation at the grass roots. 16. Implementation of the scheme is the responsibility of a special task force under the Prime Minister. A substantial number of experienced Tanzanian officials in Ministry headquarters and parastatals is being transferred to the Regions and Districts. An inevitable by-product of these transfers is that the staff of several Ministries in Dar es Salaam is seriously depleted which may cause a shortage of administrative capac- ity at the center over the short run. It is expected that the workload at the center will gradually decrease as Regional and District authorities will start functioning within the new system. 1/ The share of private minority partners in investments by state enter- prises is statistically treated as public investment in the Tanzanian national accounts. - 6 - 17. The decentralized system of Government will be inaugurated on July 1, 1972,. Each Region will have its own budget, the implementation of which will be the responsibility of a Regional Commissioner (of Cabinet rank) and a Regional Development Director. The latter will supervise a technical staff who will be directly responsible to the Regional authorities and not to their various Ministries in Dar es Salaam as under the present system. This struc- tural pattern is repeated on the District level. 1972/73 will be a transi- tional year in the sense that Regional budgets are still drawn up by the Min- istries in Dar es Salaam. Thereafter Regions and Districts will prepare their own budget proposals within general guidelines to be laid down by the center. - 7 - II. RECENT ECONOMIC DEVELOPMENT Introduction 18. During the first two years of the Second Five Year Development Plan (July 1969 to June 1974) the growth of the economy in real terms was on average only about half the Plan target of 6.5 percent and substantially below the 1964-1970 trend growth rate of 5.4 percent. While the growth of production and exports lagged behind Plan targets, public sector investment continued to increase sharply and in the case of some important parastatal enterprises exceeded Plan expectations. Increased investment was not at the expense of consumption which grew more rapidly than production, but was fi- nanced partly with the aid of larger external capital inflows and partly by the use of external reserves. Monetary savings as a percentage of disposable monetary income have shown a tendency to decline slightly in recent years. 19. The development of a substantial external trade deficit and an upward pressure on prices, particularly strong in the building and construc- tion sector, was, in these circumstances, inevitable. The balance of payments problem was aggravated by illegal private capital flight and unrecorded im- ports from neighboring countries. Such unrecorded imports also lead to a re- duction in Tanzania's share of revenues collected by the East African Customs and Excise Bureau. The overall balance of payments in 1970 showed a substan- tial deficit for the first time since independence. 20. In the middle of 1970 the development of a severe financial con- straint became apparent and the Government promptly took corrective action in order to restore a balance between public sector investment and available resources. The first measure was the imposition of a ceiling on domestic credit expansion, in September 1970, followed by the introduction of addi- tional foreign exchange controls in March 1971 and a downward adjustment of central government capital expenditure in March. A major financial and for- eign exchange crisis was thus successfully averted. Overall Growth of the Economy 21. The overall growth of production in real terms has not been com- mensurate with increased investments and averaged only 3.3 percent of G.D.P. in the two-year period 1969-70. In the monetized economy the average over- all growth rate for these two years was 4.7 percent which compares with a Plan target growth rate for monetary G.D.P. of 7.6 percent. The growth of production in real term during the years 1964-1968 which cover most of the First Plan had been about 6.5 percent in the economy as a whole and 7.4 per- cent in the monetized sectors. These high overall growth rates during the First Plan were achieved while the investment ratio was lower than at present and in spite of a sharp drop in world market sisal prices from 1964 which led to production cutbacks in Tanzania. The lower growth in recent years is mainly due to a failure of the main agricultural crops to reach production targets. For some crops the weather is partly the cause but a more fundamental reason - 8 - seems to be that the Government has not so far provided the necessary condi- tions and incentives to which vast numbers of peasant farmers would respond by increasing their production. (For a comparison of actual and projected sectoral growth rates see Table 5 of the Statistical Appendix.) Investment 22. Total gross fixed capital formation in 1969 was slightly below the level achieved in 1968 both in absolute terms and as a proportion of G.D.P. This decline was mainly due to the completion in 1968 of a number of big projects such as the oil pipeline to Zambia and the Friendship Textile mill. 1970 witnessed a strong increase again and total investment in the monetized economy (including construction of the Tan-Zam railway) as a proportion of monetary G.D.P. at factor cost rose to a new record high of about 26 percent (21 percent excluding the Tan-Zam railway). The long-term objective is to raise the investment ratio to 27-28 percent of monetary G.D.P. at market prices which in Tanzania is the equivalent of about 31 percent of monetary G.D.P. at factor cost. This ratio is not expected to be reached until the Third Plan. The actual investment ratio achieved in 1970 (excluding the railway) is about halfway between the investment ratio at the beginning of the First Five-Year Development Plan (14.5 percent) and the ultimate target ratio. This ultimate target ratio is high by any standard and may have to be revised downward in view of the difficulty of increasing domestic savings. 23. Capital expenditure by the central government increased by 33 per- cent during the first year of the Second Plan and by a further 37 percent in the second year. A large part of these big expenditure increases took the form of increased central government transfers to the parastatal sector. The amounts of these transfers were much larger than what was anticipated in the Plan. Without these transfers central government capital expenditure was more or less in line with the Plan targets. Investments in Tanzania by the East African Community Corporations were slightly lower than expected but this is a reflection of a slowdown in project implementation rather than a change in plans. 24. There is some uncertainty with regard to the magnitude and phasing of capital formation actually achieved by the parastatal sector during the first two years of the Plan. Reports on their activities are incomplete. Some parastatals report investments only for the years in which their proj- ects are completed. An improvement in the reporting of parastatals is neces- sary for a more effective monitoring of progress made under the Plan. 25. Private investment was expected to contribute about 27 percent to total monetary investment during the Second Plan. Private investment has de- clined since 1968 both in absolute terms and as a proportion of the total. 1/ 1/ See footnote to paragraph 13. - 9 - In 1970 this proportion fell to 18 percent of total investment (including Tan-Zam railway construction). The prospects for a revival of private in- vestment seem slight and the Plan targets may have to be adjusted downwards especially in transport, building, and construction. 26. It is difficult to compare actual investment performance with Plan targets because the latter are expressed on a financial year basis (July- June) whereas the performance reporting for most actual investments is on a calendar year basis. The indications are that capital formation in financial terms during the first two years of the Plan lagged about 10-15 percent be- hind the Plan target. However, insufficient information is available on project implementation in physical terms. Tanzania's planning authorities are improving methods for the collection and processing of data necessary for a more accurate and up-to-date measurement of physical Plan implementa- tion. The impression is that with the important exception of the Tan-Zam railway, construction of which is ahead of schedule, Plan implementation in physical terms is lagging further behind Plan targets than is indicated by expenditure figures. A number of projects are known to be faced with sub- stantial cost overruns due to price increases and in some cases to insuffi- cient project preparation. The Pattern of Investment 27. The heavy concentration of Government's investment program in eco- nomic and social infrastructure is probably another important factor explain- ing the lack of immediate response in the directly productive sectors to the higher overall investment levels. Since the Rhodesian unilateral declaration of independence of November 1965, more than half of Tanzania's capital ex- penditures for economic infrastructure and a sizable proportion of the coun- try's total investments have been allocated to projects creating and improv- ing communication links with Zambia, enabling that country to reduce its dependence on the minority governments in Southern Africa. The oil pipeline was completed in 1968. The main road link is expected to be completed by 1974 while most of the Tan-Zam railroad construction in Tanzania is scheduled for completion in 1973. The expansion of Dar es Salaam harbor to accommodate the needs of Tanzania and Zambia as well as minor users (Eastern Zaire, Ruanda and Burundi) is a continuing process requiring heavy investments throughout the present decade. 28. The Government has indicated its intention to shift the emphasis in its investment program to more directly productive projects, especially in the fields of agriculture and small industry. A major shift of this na- ture will not be possible until after the completion of a number of big con- struction projects that presently absorb a large proportion of resources available for investment. These projects include the main road connection between Dar es Salaam and Zambia, the Kidatu power project and a major sec- ondary school building program. The completion of most of these major in- frastructure projects in 1972 and 1973 should release significant amounts that could be used for investment in other sectors. The manpower constraint that was responsible for slow progress in the mounting of agricultural in- - 10 - vestment in recent years has somewhat eased. A number of important new agri- cultural projects in the fields of livestock, timber, cotton, vegetables, dairy, etc. are being prepared and in 1-1/2 to 2 years' time the Government should be able to allocate a larger proportion of its total resources to agricultural development than at present. The continued rapid expansion of tea and tobacco is part of this program. Barring adverse weather it may be expected that the growth of agricultural production will accelerate in re- sponse to the intended shift in emphasis in Government's investment programs towards the end of the Plan. In view of the slow start, agricultural output at the end of the Second Plan is, however, likely to remain below target. Consumption and Saving 29. Since the beginning of the socialization process in Tanzania, the relative contribution of the private sector to capital formation in the mone- tary sector has declined. One implication of this development is that the distribution of income between consumption and saving has become almost en- tirely the result of central government decision making. When the average level of income is very low, as in Tanzania, the need to improve consumption standards, is naturally a very pressing one. The achievement of rapid in- creases in total investment in recent years has not been at the expense of consumption. On the contrary, total as well as private per capita consump- tion have been increasing faster than per capita G.N.P. During 1969-70 per capita private consumption in real terms in the monetary sector of the econ- omy increased at an annual rate of about 3 percent which is below the Plan target rate of about 4 percent but far in excess of the real growth in per capita marketed output of 0.6 percent during those years. The simultaneous achievement of a higher investment rate and a real per capita consumption growth in excess of per capita G.N.P. growth was made possible by increasing external capital inflows and a reduction in external reserves. Inevitably this combination of investment and consumption growth rates will eventually require adjustments in the overall level of spending. 30. While the Second Plan aimed at a gradual increase in the overall savings ratio, total domestic savings as a proportion of disposable monetary income fell from an average of 11.9 percent during the period 1966-69 to 10 percent in 1970. Given the stagnation in savings, the rapid increases in to- tal investment and the limited foreign capital inflows, the emergence of a financial constraint on development was inevitable and this became apparent during the second year of the Second Plan. The squeeze was reflected in an unprecedented expansion of domestic credit, including large central bank ad- vances to the Government. A complication was the simultaneous drop in ex- ternal reserves due to illegal capital flight and unrecorded imports. It should be stressed that the fall in external reserves was not attributable to a widening of the external resource gap because net public capital in- flows in 1970, as in previous years, were more than adequate to cover the deficit on the current account of the balance of payments. 31. The development of a financial constraint had been expected from the third year of the Plan. In the event the constraint arose sooner and - 11 - was more severe than had been expected. Faced with this situation the Gov- ernment had to take corrective action by reducing overall spending in the economy. This was achieved through the prompt introduction of a credit ceiling followed by cuts in Government development spending. The foreign exchange problem was tackled through the imposition of more stringent ex- change controls limiting private capital outflows and curbing unrecorded imports. 32. It is perhaps not realistic to suggest that a downward adjustment of total spending could have been accomplished through a reduction in Govern- ment 'consumption' expenditure. Both private and public per capita consump- tion levels in Tanzania are still very low by any standard, whereas the over- all tax burden is already high. A reduction in development spending was the only realistic option open to Government under the circumstances. It would in fact be undesirable to cut Government consumption except when a reduction could be achieved through efficiency improvements in Government administra- tion and the provision of services or by reducing the increase in non-devel- opment recurrent expenditure. The distinction between Government consump- tion and Government capital expenditure is often misleading in so far as it suggests a difference between their effects on economic growth. Both types of expenditure are equally necessary for and conducive to development, de- pending on their nature and the balance between the two. Though a cut in Government consumption was not a realistic possibility a significant reduc- tion in the rate at which recurrent expenditure is growing was in fact achieved in the second year of the Plan. This rate fell from 28.8 percent in the first year to 6.7 percent in the second. (The high rate of increase during the first year of the Plan was partly due to a transfer of responsibility for certain types of recurrent expenditure from local authorities to the Central Govern- ment.) Government Capital Expenditure and Its Financing 33. During the first two years of the Second Plan recurrent budget surpluses financed 8 percent of Government capital expenditure, much less than the Plan target of 17 percent. Domestic borrowing and central bank advances together financed 62 percent and external loans and grants the re- mainder or 30 percent (compared to an average Plan target of 43 percent). Initially, the inflow of foreign capital was lower than expected partly be- cause of delays in the preparation and implementation of foreign-aided proj- ects and partly because of difficulties in finding suitable projects for the utilization of tied loans. The second year of the Plan showed an im- provement in this respect. The 1971-72 budget expects no less than 49 per- cent of capital expenditure to be externally financed. 34. Domestic borrowing by the central Government for the financing of capital expenditure has in recent years increasingly relied on medium-term loans from the commercial banks and direct advances from the central bank. During the first two years of the Plan about 40 percent of total capital expenditure was financed in this way. In his speech introducing the 1971- - 12 - 72 budget the Minister of Finance expressed concern about this development and indicated that future levels of capital expenditure would be determined by the availability of real resources. In the meantime, measures to restrict credit expansion had already been taken and in March 1971 when it became ap- parent that excessive credit expansion might jeopardize domestic monetary stability and external reserves it was decided to cut capital expenditure by a substantial margin. The 1971-72 budget was drawn up within the frame- work of a comprehensive macro-economic plan for the year including a credit plan and a foreign exchange plan. The credit plan allows a maximum credit expansion of about Sh 240 million for the year, Sh 150 million of this would be available for public sector financing of essential economic activities and Sh 90 million for the rest of the economy. This credit plan is expected to be neutral in its effect on domestic and external equilibrium. 35. The appropriation for capital expenditure by the central Govern- ment (including transfers to parastatals) in the 1971-72 budget is Sh 768 million which is 8.6 percent below the actual level of capital expenditure in 1970-71. In the light of the domestic savings constraint that developed during the first and second year of the Second Plan, the third year had to be a year of consolidation rather than further expansion. However, within that general framework Government expenditure for defense has been signifi- cantly increased both in absolute and in relative terms. The combination of an increased appropriation for defense projects and a reduced overall capital budget means that central Government capital appropriations for economic and social development have been cut by nearly 20 percent. 36. An analysis of the 1971-72 capital budget shows that the Govern- ment expects about 75 percent of the capital required for the financing of externally aided projects in that year to be supplied by foreign donors. Table 1: CENTRAL GOVERNMENT 1971/72 CAPITAL BUDGET (Shs million) A. Total capital expenditure appropriations (including direct transfers to parastatals) 768 B. Capltal expenditure on projects not attracting foreign aid (including defense, police stations, prisons, very small projects, etc.) 269 C. Total expenditure on externallv aided projects 499 D. Expected foreign aid contributions 374 D as a percentage of C 75 percent. Since the foreign exchange component of most externally aided projects will be appreciably lower than 75 percent, one implication of the 1971-72 budget is that external aid will have to finance a substantial portion of local - 13 - project costs. The indications are that many donors are prepared to do this and some require no local capital contribution at all. Parastatal Investments and Their Financing 37. Historical data on investments by the parastatal sector are incom- plete and subject to revision as explained in paragraph 24 above. The first comprehensive plan for parastatal investments was published in the Annual Plan for 1971-72. The total investment target of Sh 335 million for that year is expected to be financed as follows: Transfers from Treasury (local currency) 22% it to it (foreign loans) 29% National Bank of Commerce /1 8% Tanzania Investment Bank 10% Other local borrowing 4% Retained profits 18% Foreign private contributions 9% /1 Working capital only. 38. In spite of the fact that parastatal investments planned for 1971- 72 are much lower than originally envisaged in the Second Plan, the share of retained profits in the financing of these investments is expected to remain far below the average Second Plan target of 30 percent. Parastatal profits are significantly lower than Plan targets and pressures to raise selling prices may be expected to increase as a result of this. Compensation payments by parastatals to previous owners are expected to fall appreciably towards the end of the Second Plan. In view of the many organizational problems within the parastatal sector and the inevitable teething trouble experienced by new industries, it is probably not realistic to expect a significant increase in the level of parastatal savings before the end of the Second Plan. Pressures to increase prices of products sold by parastatals are generally resisted by the Government in order to keep consumer prices down and to avoid the use of price increases as a substitute for improved efficiency. 39. The parastatal investment target of Sh 335 million (excluding Tan- Zam railway construction) for 1971-72 is much lower than the estimated amount achieved in 1970-71. This decline is partly due to the bunching of a number of large parastatal projects in 1970-71 and partly to the need to cut public sector investments in the light of the overall resource constraint. The re- duction in total public sector investments planned for 1971-72 amounts to 23 percent of the estimated amount achieved in 1970-71. The capital allocation to Ministries (excluding transfers to parastatals and also excluding defense - 14 - projects) has been cut by 12 percent compared with a 44 percent cut for the parastatal sector. 40. Two new financial intermediaries have been created to assist in the financing of medium and long-term investments by parastatals and coopera- tives. These are the Tanzanian Investment Bank (TIB) to provide loan finance to industrial, transport, tourist and large agricultural projects and the Tanzanian Rural Development Bank (TRDB) for the financing of agricultural inputs and rural development in general, including ujamaa villages. TIB was established in November 1970. It has an authorized capital of Sh 100 million and it took over a number of outstanding medium and long-term loans from the National Bank of Commerce (NBC) totalling Sh 114 million. TIB is owned by the Government (60 percent), NBC (30 percent) and the National Insurance Corporation (10 percent). NBC now confines its lending operations to short-term credit and working capital. It is intended that inter-company lending within groups of parastatal enterprises be discontinued after the establishment of TIB and all credit transactions are expected to be effected through the banking institutions. In considering loan applications and ap- praising projects TIB consults with the relevant Ministries and the central planning authorities in order to ensure that its lending operations are in line with national objectives and priorities. TIB has requested foreign technical assistance to strengthen its staff and is at the same time seeking financial assistance from various external sources. TRDB was officially es- tablished on 1st May, 1971 and took over most of the assets and liabilities of the former National Credit Development Agency. Tan-Zam Railway 41. A substantial portion of capital formation in recent years (about 20 percent) was accounted for by the construction of the Tan-Zam railway. Implementation of the project is reported to be ahead of schedule. The first 502 kilometers of the line were opened for limited use in November 1971. The entire project, employing an estimated labor force of over 40,000 including some 13,000 Chinese, is now expected to reach completion before the end of 1974. The sale of Chinese goods in Tanzania for the financing of local cost expenditure is gaining momentum. An estimated 20 percent of current consumer goods imports is supplied by China. The goods are selected in China by Tanzanian trade officials and cover a wide range of items, mostly consumer goods. The Chinese prices are reported to be competitive but trade circles have expressed fears that some of these imports compete with other sources of supply in East Africa, including in some cases local industries in Tan- zania. If there is no delay in the construction of the Tan-Zam railway, the completion on schedule of the planned expansion of Dar es Salaam harbor is a matter of high priority. Recurrent Government Revenue and Tax Policies 42. Although the Government has been successful in raising additional revenue through taxation, revenue and budget savings are still lagging be- hind Plan targets. This has caused delays in the implementation of some - 15 - development projects. Total recurrent revenue as a proportion of monetary G.D.P. at market prices increased from 20.2 percent in 1966 to nearly 25 per cent in 1970. This compares favorably with other developing countries. Revenue from taxation contributes about 85 percent of total recurrent reve- nue. The share of indirect taxes in total tax revenue is about 69 percent. Recurrent revenue (excluding incidental transfers) increased by 13.4 percent in 1969/70 and by 14.7 percent in 1970171. Revenue from the Sales Tax, in- troduced mid-1969, more than compensated for losses in import duties asso- ciated with import substitution. Owing to improved efficiency in the as- sessment and collection of the Personal Tax and a change-over from lagged to current assessment of company income taxes, direct tax revenue was higher than might otherwise have been expected. During the past 5 years the elas- ticity of tax revenue with respect to monetary G.D.P. has been very high (over 2). 1/ This applies to direct taxes and indirect taxes alike. The overall tax burden on the monetized economy is now relatively high and a fall in this elasticity ratio must be anticipated. 43. The Economic Affairs Secretariat of the East African Community is undertaking a study of the effect on trade flows and industrialization in Tanzania of Transfer Taxes that were imposed on certain imports from Kenya and Uganda following the signing of the Treaty for East African Cooperation in 1967. About 50 commodities produced by 174 companies in Tanzania enjoy Transfer Tax protection. The level of Transfer Tax revenue has continued to be relatively high. An 'impressionistic' conclusion is that the Trans- fer Tax mechanism has not materially affected intra-East African trade pat- terns and that the system has been rendered partially ineffective by admin- istrative trade barriers and procurement policies of parastatal organiza- tions in the three member countries. The Transfer Tax system is due to be reviewed at the end of 1972 in accordance with the provisions of the 1967 Treaty. 44. The Economic Affairs Secretariat has also undertaken a study on the harmonization of fiscal incentives between the three member countries. Action on the recommendations of this study will probably not he taken until the respective Governments have clarified their position on the future of their national income tax legislation on which the IMF has been asked to ad- vise the three Covernments. 45. A few minor changes in the tax system were introduced with the 1971-72 budget. The most important of these is the imposition of withhold- ing taxes on income payments to non-residents. Government Recurrent Expenditure 46. Since the early sixties recurrent expenditure has been growing at roughly the same rate as recurrent revenue and as a result budget sav- 1/ Some taxation experts prefer the term 'buoyancy' in this context as the tax system and the rates have changed during the period under consider- ation. - 16 - ings have more or less stagnated. There has not been a recurrent budget deficit but the surplus has never exceeded a few percent. The possibili- ties for increasing recurrent budget savings are limited. Tax revenue is likely to grow at a slower pace than in the past for reasons explained in paragraph 42. The need for increasing recurrent expenditure for health, education, agriculture, communications, etc., is pressing. The functional distribution of Government recurrent expenditure in recent years has shown a relative increase in the share of debt service at the expense of economic and social services (see Table 22 of the Statistical Appendix). The share of general administrative expenditure (excluding defense) after a big in- crease in 1969-70, has slightly fallen. 47. Of the total accumulated additional recurrent revenue during the period 1966-71, 24 percent was used for economic services, 30 percent for social services, 27 percent for general administration (including defense), 16 percent for other recurrent expenditure and only 3 percent was trans- ferred to the capital budget. During the last two years of this period the share of incremental revenue used for economic and social services as well as general administration increased at a faster rate than the average for the period as a whole while the incremental transfer to the capital budget was negative in both years. Balance of Payments 48. The balance of external payments clearly mirrors the various domestic economic developments discussed above. Exports in 1969 and 1970 have lagged behind Plan targets as a result of the failure to achieve production targets for the main export crops. Imports of consumer goods have been more or less stable, slightly below Plan target. The level of intermediate goods imports reflected a rather low production growth rate in 1969 and a better performance of the economy in 1970. Imports of trans- port equipment and other capital goods fell slightly in 1969, reflecting a slowdown in fixed capital formation, and rose in 1970 as a result of in- creased investment and the construction of the Tan-Zam railway. Total im- ports (including imports for the Tam-Zam railway) fell slightly in 1969 but increased by no less than 33 percent in 1970. This entire increase took place in the categories of capital goods and intermediate goods. The sharp rise in total investment in 1970 was reflected in a 67 percent in- crease in imports of machinery and transport equipment during that year. The external trade balance reached a record deficit of Sh 640 million in 1970, compared to Sh 155 million in 1969. 49. The overall current account deficit in recent years was smaller than the trade deficit because of a net inflow of transfers and payments for services. The services balance showed a surplus for the first time in 1968 and continued to improve thereafter owing to increasing transit traffic to and from Zambia, and tourism. Net medium- and long-term capital inflows (almost exclusively on public sector account) exceeded current account def- icits in all years for which reliable balance of payments statistics are available, including 1969 and 1970. A large part of the foreign loans for - 17 - equipment and construction projects are long-term and on concessionary terms. The servicing of loans and credits used for the financing of communication links with Zambia (including the oil pipeline, the road and the railroad) should not present special problems as the main user of these links, Zambia, is paying for transit services in hard currency. However, currently a sizable proportion of the road services between Zambia and Dar es Salaam is provided by Kenyan transport companies. External Reserves 50. While net medium- and long-term public capital inflows in 1970 exceeded the current account deficit, external reserves nevertheless fell sharply. This was mainly due to the illegal export of private capital, un- recorded imports (especially from Kenya) and a temporary shift from credit to spot external payments by the State Trading Corporation. Domestic mone- tary expansion contributed to the drain of reserves (see paragraphs 53 and 54). Early in 1971, exchange control was introduced to limit private cap- ital exports and to stop unrecorded imports. Unrecorded imports from neighboring countries had assumed rather serious proportions after the in- troduction of certain tax changes in Tanzania in 1969. This was facilita- ted by the free movement of currency between the partners of the East African Community until Tanzanian exchange control was introduced in March 1971. The external reserve position improved again during the first nine months of 1971 but another sharD drop took place during the last quarter. By the end of De- cember 1971, official Tanzanian reserves stood at about Sh 432 million (in- cluding SDR's and IMF gold tranche), compared to Sh 573 million two years earlier. The December 1971 reserve level represents about two months of cur- rent commodity imports excluding imports for the construction of the Tan-Zam railway which are fully financed by a Chinese credit. Reserves improved mo- destly during the first quarter of 1972. Exports and Their Composition 51. The growth of Tanzania's exports has been sluggish and uneven since 1966 mainly because cotton, coffee and cashew failed to reach produc- tion targets. Another factor has been the growing volume of unrecorded ex- ports to neighboring countries. Table 2: VALUE OF MAINLAND EXPORTS IN '000 SHILLINGS 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1,036 1,099 1,356 1,520 1,440 1,692 1,638 1,616 1,619 1,727 It should be borne in mind that 1966 was a year of unusually favorable weather for most crops, which tends to distort the perspective. Minor agricultural exports such as meat and meat preparations, oilseeds, nuts and kernels, have shown a tendency to decline in recent years partly as a result of domestic pricing policies and increased local consumption. Ex- port prices for most of these products were not unfavorable. Pyrethrum ex- - 18 - ports fell sharply after 1967 in response to falling world market prices. The price rallied again in 1970 and farmers are encouraged to increase their production. Thanks to the growing importance of tobacco, tea and some other products including manufacturers, Tanzania's export pattern is gradually becoming more diversified. This is a welcome development providing better protection against the vagaries of the weather and price fluctuations for individual products. The share of sisal in total mainland exports which used to be between 25-30 percent until the severe price decline of the middle 1960's is now down to about 10 percent. Partly as a result of the fall in sisal prices, the share of the three main agricultural exports together (coffee, cotton, sisal) fell from an average of 54 percent during the period 1961-66 to 41 percent thereafter. Terms of Trade 52. There can be little doubt that an adverse change of Tanzania's terms of trade between 1965 and 1969 has contributed to the deteriorating trade balance. Despite the paucity of data, an attempt has been made to calculate the approximate export unit value index since 1965 on the basis of about 60 percent of commodity exports for which export prices have been published. The results of this exercise are shown in Table 3 below. The figures shown probably exaggerate the decline of export unit prices and hence of the terms of trade between 1965-69 because of the heavy weight of sisal in the 60 percent export sample. 1970 showed a significant improve- ment in the export unit price index mainly because of a sharp increase in the price of coffee. In spite of this important improvement in 1970, it is estimated that Tanzania's terms of trade during the period 1965-70 have de- teriorated by on average somewhere between 1 and 2 percent per annum. Tan- zania is one of the few countries that have suffered a decline during this period. Nearly all developing countries in Africa and elsewhere saw their terms of trade improving since the middle 1960's. Table 3: ESTIMATED EXPORT AND IMPORT VALUE AND VOLUME INDICES, TERMS OF TRADE (1970 = 100) 1965-67 Average 1968 1969 1970 Export Volume Index 90 99 102 100 Export Unit Value Index 102 95 92 100 Export Value Index 92 94 94 100 Import Volume Index 74 86 79 100 Import Unit Value Index /1 94 94 96 100 Import Value Index 70 81 76 100 Terms of Trade Index 109 101 96 100 /1 Based on I1F data for group of less developed countries. - 19 - Money and Credit *) 53. The first two years of the Second Plan witnessed a very strong monetary and credit expansion. Money supply (currency in circulation plus demand deposits) increased by 15 percent in the first year and by nearly 32 percent in the second. Credit to others than the central Government expanded by respectively 18 and 28 percent. Total domestic credit expand- ed by respectively 15 and 51 percent. During the second year (1970-71) a large part of the additional credit was used for the financing of surplus rice production and stocks of imported consumer goods. Credit expansion in 1970 was so strong that the National Bank of Commerce was unable to in- crease its lending to the central Government. As a result, the Government had to rely heavily on the sale of Treasury Bills to and direct advances from the central bank. Total central bank claims on the Government in- creased from Sh 148 million in December 1969 to Sh 416 million in December 1970 and Sh 632 million in December 1971. 54. The rapid monetary expansion was leading to inflationary pressure and a diversion of resources into the financing of stocks held by the State Trading Corporation (STC) and others. The fact that price inflation in 1969 and 1970 was less serious than might have been expected on the basis of the strong monetary expansion is probably partly due to official price control and partly to an increased liquidity preference in certain segments of the economy. As this latter phenomenon may well be temporary, the monetary au- thorities should be prepared for increased pressure on prices from the de- mand side later on. 55. Measures to restrict credit to others than the central Government were first taken by the central bank in September 1970. It was soon recog- nized, however, that domestic credit policy had to be comprehensive - em- bracing also the central Government - in order to be effective. This led to a rather drastic cut in Government development expenditure from March 1971. The credit Dlan forming part of the Annual Plan for FY71-72 allows for a total monetary expansion during the year of about Sh 240 million or roughly 10 percent of the total money supply (including quasi money) in June 1971. This increase was estimated to be sufficient for the financing of a 7.5 percent increase of monetized G.D.P. and a 2.5 percent rise of the general price level, and ceteris paribus, to be neutral in its effect on internal and external equilibrium. 56. While total bank deposits in 1971-72 are expected to increase by Sh 162 million, credit expansion to others than the central Government (i.e., parastatals, private companies, cooperatives, and individuals) is to be restricted to only Sh 90 million, considerably less than the Sh 300 million available to these sectors in FY70-71. Net claims of the banking system on the central Government are estimated to increase by Sh 150 mil- lion in 1971-72 (Sh 473 million in 1970-17). The credit restriction im- posed on non-government sectors is particularly severe and may be expected *) Money supply and credit statistics include 7anzibar. - 20 - to lead to considerable tension between the supply of and demand for credit in these sectors. The responsibility for the implementation of a selective credit program rests primarily with NBC. Prices, Cost of Living 57. Price inflation has so far not been a serious problem in Tanzania but the upward pressure on prices has become markedly stronger in recent years. The average annual deflator for monetary GDP excluding agriculture for the period 1964-70 is 1.6 percent, reflecting a remarkable degree of price stability. The deflator for monetary G.D.P. including agriculture for the same period is only 1.2 percent which indicates that agricultural prices have been rising more slowly than prices of manufactured goods and services. In some sectors, particularly building and construction and to a lesser ex- tent manufacturing, price rises have become more pronounced in recent years and have led to significant cost increases for new projects. In the building sector a reduction in the number of private contracting firms has led to re- duced competition and higher prices. An excess of wage increases over pro- ductivity increases is another factor behind the upward pressure on prices (see paragraph 62). Rapid price increases for imported transport, building and construction materials and equipment provide another important part of the explanation. The cost of building increased by an estimated 4.3 percent in 1969 and by 13 percent in 1970. 58. For wholesale trade, there is official price control in Tanzania for a limited number of items but these controls are not strictly enforced in all areas. There is a National Price Control Advisory Board responsible for advising the Price Controller. On the retail level STC operates a sys- tem of "suggested" retail prices but owing to administrative difficulties and manpower constraints retail prices are not effectively controlled. In 1970, the Government introduced a new pricing system whereby selected items are sold at uniform prices throughout the country, irrespective of differ- ences in transport costs. It is intended to extend this new pricing system gradually to all basic consuniption goods, essential agricultural inputs such as fertilizers and insecticides as well as corrugated iron sheets. This new pricing system is part of Government's policy to reduce social inequalities between the various urban and rural areas. The effectiveness of price control and price fixing on the wholesale level as instruments of social and economic policy is reduced by the virtual absence of effective controls over distribution margins and retail prices. The bulk of retail trade in Tanzania is still in private hands whereas most wholesale trade has been socialized. 59. Cost of living statistics in Tanzania are incomplete and the weights used in their calculation need to be revised. They probably under- state the real increases in the cost of living. According to published statistics, the retail price index of goods consumed by minimum wage earners in Dar es Salaam increased by 1 percent in 1969 and by 3.5 percent in 1970. Food items increased faster in price. The overall cost of living index for middle-grade civil servants in Dar es Salaam increased by only 1.1 percent in 1969, 1.8 percent in 1970 and by 1.6 percent during the first quarter of 1971. The cost of living index for upper income groups has no doubt been rising faster in view of the heavy incidence of indirect taxation on luxury - 21 - consumption. The Bureau of Statistics has recently completed a national household budget survey. On the strength of this survey and new data collec- tion methods the Bureau expects to be able to publish more complete and more accurate cost of living indices in future. Employment, Wages, Productivity 60. The Second Plan target for employment was the creation of 98,000 additional jobs by the end of the period or about 20,000 jobs each year. No additional wage employment was foreseen in agriculture. Production on the sisal plantations was expected to decline slowly while increased pro- duction of other crops was expected to be achieved by smallholders and ujamaa villages. It is the policy of the Government to promote communal production methods in the agricultural sector in line with the socialist principle that wherever possible farmers should work together in coopera- tive organizations. In certain areas where farmers are generally not in favor of cooperative production methods, there may be a conflict between the need for increased labor specialization to improve productivity and the social-political objective of keeping down wage employment on private farms. Sukumaland cotton farming which has traditionally relied on mi- gratory labor from Kigoma Region provides an illustration of an area where this conflict may arise. 61. The Plan employment target, representing a 7 percent annual in- crease in wage employment, was not an over-ambitious one in the light of the Plan's non-agricultural sector target growth rates. Furthermore, it was the intention of the Government to give priority to the growth of em- ployment over a further increase in wages for those already employed. Actual wage employment during 1969 and 1970 increased by 4.6 and 1.8 per- cent respectively. Part of the explanation for this substantial shortfall below Plan targets is, of course, that production targets were not achieved. In addition, contrary to Plan intentions, the average wage level increased by about 7.4 percent over the two-year period 1969-70. This is partly the result of an increase in 1969 of the statutory minimum wage levels by Sh 20 per month, excluding plantation agriculture. 62. Real productivity in the non-agricultural sectors is estimated to have increased by only 2.5 percent during the same period, about one-third of the wage increases. The excess of wage increases over productivity in- creases has inevitably exerted upward pressure on prices. The failure to achieve Plan target levels for employment creation is a serious matter, par- ticularly in the urban areas. The urban population is expected to grow about 7 percent per annum and the urban population within the working age at an even higher rate. Employment creation has to keep pace with increases in labor supply if urban misery is to be avoided. There is ample evidence in other developing countries in Africa and elsewhere of the overwhelming social, economic and political problems created by large-scale urban unemployment. 63. In many developing countries it has proved well nigh impossible to stop the drift to the towns by appealing to the people to stay on the land without simultaneously improving their living conditions there. The Tanzanian Government is keenly aware of this and the increasing emphasis on rural development is at least partly inspired by the need to contain - 22 - the drift to the towns. Tanzania's urban population is still very small, about 750,000, nearly half of whom live in Dar es Salaam. Mass urban un- employment has so far been avoided but unemployment has been on the rise. Wage increases must be kept in line with real productivity increases. 64. The single most important source of wage employment creation since October 1970 has been the construction of the Tan-Zam railway. It is estimated that by the end of 1971 over 27,000 Tanzanians (about 10 per- cent of non-agricultural employment) were working on this project. This may present adjustment problems after its completion as the railway will then provide permanent employment for only a few thousand workers. Income Distribution 65. One of Tanzania's most important social objectives is to reduce inequalities in the distribution of income and wealth between individuals and between rural and urban areas. The information available on income distribution in Tanzania is meagre, but a few general observations can be made. The great inequality within the category of employed workers between members of different races inherited from the colonial days initially set a pattern for a similar inequality after the process of Africanization got under way. However, the Government has made a considerable effort to reduce these inherited inequalities. The salaries of all politicians and civil servants above a certain income level were cut by up to 20 percent in 1966, and salary scales have not been raised since. Meanwhile, taxes on luxury consumption has been significantly increased. Wages of low income earners have been allowed to increase about 5-8 percent per annum. Although exact calculations are difficult, the impression is that the various measures have reduced inequalities within the category of employed workers. This in it- self is, of course, only a small minority of the total working population. 66. More important for the country as a whole are changes in the dis- tribution of income between the relatively small group of employed workers and the vast majority of self-employed workers. In Tanzania this division more or less corresponds with the division between the urban population and the rural population or between the agricultural sector and the rest of the economy. Table 4 below attempts to measure in a very crude way changes in the income distribution between agricultural workers and persons engaged in non-agricultural activities. Although the quality of these data is probably not sufficiently reliable for precise quantitative conclusions, it is never- theless of interest to note that the available information does not suggest that there has been a significant shift in the relative distribution of in- come between rural and urban areas since 1966. Whatever the precise magnitude of changes in the distribution between rural and urban incomes, it is clear from personal observation over a number of years that real in- comes in rural areas and the quality of rural life have improved a great deal, partly as a result of improved Government services and greater se- curity. - 23 - Table 4: DISTRIBUTION OF VALUE ADDED PER ACTIVELY ENGAGED PERSON IN AGRICULTURE AND OTHER SECTORS 1966 1967 1968 1969 1970 Estimated number of persons actively engaged (1,000 pers.): in agriculture 4956 5078 5205 5335 5468 in other sectors 466 499 534 571 611 Value added by sector at current prices (Sh million) agriculture 2952 2855 2973 3074 3300 other sectors 3640 4028 4425 4557 4932 Value added by sector at con- stant 1966 prices (Sh million) in agriculture 2952 2954 3062 3080 3188 other sectors 3640 3981 4264 4346 4622 Value added per worker at current prices (Shillings) in agriculture 596 562 571 576 604 in other sectors 7811 8072 8286 7980 8072 Value added per worker at con- stant 1T66 prices (Shillings) in agriculture 596 582 588 577 583 in other sectors 7811 7978 7985 7611 7564 uurr. pr. v.a./worker o. sect.. 13.1 14.4 14.6 13.° 13.h Curr. pr. v.a./worker agric. . Const.pr. v.a./worker o. sect.. 13.1 1307 13.6 13.2 13.0 Const.pr. v.a./worker agric. Sources and notes: Value added data from national accounts, see Statistical Ap- pendix. Figures concerning number of persons actively engaged in sectors for 1967 from 1967 populatimi census. Number of persons engaged in agriculture assumed to have grown at same rate of rural population, or 2.5 percent p.a. Number of persons engaged in other sectors assumed to have grown at same rate as urban population, or 7 percent p.a. - 24 - III. SUMMARY REVIEW OF SELECTED SECTORS Agriculture 67. Agriculture is the most important sector of the economy, contribut- ing about 40 percent of GDP and 80 percent of exports. More than 90 percent of the working population is engaged in agriculture. Throughout the 1960's, exports were dominated by three crops - sisal, coffee and cotton. Though these crops still account for over 40 percent of total exports, the export pattern is becoming more diversified with the growing importance of tea, tobacco, cashew, livestock and some other products. There has been a steady increase in the share of smallholders in marketed output and a corresponding decline in the output of large estates. Partly because of the emphasis on infrastructure in Tanzania7s investment program during the past 5 years the Government has been slow in mounting development projects for the agricul- tural sector. The Government has recently announced its intention to change the investment pattern and to give high priority to directly productive in- vestments, particularly in the field of agriculture. however, other problems continue to constrain agricultural development such as the administrative weakness of the Ministry of Agriculture and Cooperatives and, in the case of some commodities inadequate marketing arrangements and unsatisfactory pricing policies. (For a more detailed review of the agricultural sector, see Annex I to this report). 68. The main factor underlying the disappointing overall growgth of the economy during the period 1969-70 is a lower than expected agricultural pro- duction. The implicit Second Plan target growth rate for monetary agriculture excluding sisal, was 9.4 percent. This rate is consistent with a 7.2 percent Plan target growth rate for monetary agriculture including sisal and a 7.6 percent growth rate for total monetary GDP. The real value of sisal produc- tion was expected to decline by 2 percent per annum. The actual average increase in marketed agricultural production during 1969-70 was 5.6 percent. Since this is quite a reasonable rate of growth in comparison with many other African countries, it raises the question of whethier the original Plan targets were not over-ambitious. 69. With the exception of tea and tobacco, two relatively new crops, which have performed very well in Tanzania in 1969 and 1970, the production of most export crops has shown an uneven pattern in recent years. In 1971, however, tobacco production declined, partly because of unfavorable weather and partly because in certain areas farmers resisted the collectivization of farms on ujamaa basis. The decline in sisal prices since the middle 1960's has resulted in lower production while the share of this crop in the value of exports fell from 20 percent in 1965 to 10 percent in 1970. The Government- owned Tanzania Sisal Corporation which controls about 60 percent of total production has been successful in its efforts to reduce production costs in response to falling world market prices. 70. More farmers are engaged in the production of cotton than any other cash crop. Cotton has excellent potential for rapid expansion in Tanzania - 25 - but p'roduction has hardly increased since 1966, which was a boom year for many crops; including cotton. The Government has for some'time been working on the preparation of a large cotton project in Geita District. Implement- ation-of this important project was delayed because of a Government decision to redesign the. project on ujamaa basis and to introduce an important element of mechanization. There is now some doubt that the trend target of 615,000 bales by-the end of the Second Plan will be achieved. A major effort on the part of the Government and the cotton farmers will be required together with certain adjustments in domestic agricultural pricing policies. 71. In several areas the growing of cotton is in direct competition with other crops, especially rice. One of the factors underlying the relative stagnation of cotton production in recent years has been the fact that many cdtton. farmers shifted into rice because of a favorable government support price for that crop. The domestic producer price for rice is at present higher than the world market price. If it were adjusted downward continued surplus product,ion might be avoided and farmers induced to return to cotton which, being an export crop, yields much higher benefits to the national eco- nomy". The removal of the export tax on cotton might be considered as a fur- the'r measure to stimulate cotton production. 72. Cotton was replaced by coffee as the most important export crop in 1969. Although production has been more or less stable since 1966, exports still exceeded Tanzania's quota limits under the International Coffee Agree- 'ment and considerable quantities had to be sold in non-quota markets at lower prices. Further expansion is restricted by the slow increase in world demand. The Second Plan growth target for coffee of 6 percent per annum is not rea- listic and cannot be maintained as a target in the long run. Efforts are being made to diversify production in the principal coffee growing areas. 73. Cashew nut production and exports showed a promising expansion in the early and middle 1960's but seem to have stagnated since 1968. The pro- motion of cashew will require special attention. Too little is presently known about the conditions favoring or inhibiting increased production. Hand processing of cashew nuts offers great potential for employment creation and in'creasing the local value added in the production of kernels and by-products. Pyrethrum exports fell sharply after 1967 in response to falling world market prices. The price rallied again in 1970 and farmers are encouraged to in- crease production and to improve the pyrethrin content of the flowers. An important project for the production of navy beans for exports is being prepared. 74. Tanzania's cattle herd is the second largest in Africa (after Ethiopia) but livestock production currently provides only 18 percent of the value of agricultural output. Commercial offtake rates are still.low because of the traditional attitude to cattle and poor marketing organization. The Government has recently raised domestic producer prices by a large margin which should go a long way towards increasing commercial supply. Realization - 26 - of the long-term potential of the beef sector rests largely with a major pro- ject which was recently appraised for IDA financing. This project follows a small successful IDA financed ranch development project which started in 1968. The estimated total cost of the new project as prepared by the Government is about $39 million, requiring external financing of around $30 million. The project is expected to make a significant contribution to exports. The dairy industry in Tanzania is still largely undeveloped but has excellent potential. Several dairy development projects are in hand. 75. The Government's recently renewed emphasis on rural development and agriculture in particular has also resulted in the identification and prepa- ration of a fairly large number of smaller projects for the development of horticulture, pig and poultry production, cashew processing by hand, oilseeds, pyrethrum, coffee pulperies, forestry, fishing, etc. Many of these projects, including a very large and long-term project to improve rural water supplies, will be undertaken with foreign assistance, while other projects, like the Ngono project in West Lake Region, are entirely based on self-help. Wherever possible, collective production methods are being encouraged and ujamaa vil- lages are being favored over individual farmers in the granting of credits for the financing of crops and agricultural inputs. There are some indica- tions that local officials and party representatives have been somewhat over- eager in the promotion of ujamaa villages and that agricultural production has suffered as a result in certain areas. The central government is fully aware of the importance of striking a balance between social goals, including the collectivization of farms and the need to promote agricultural production. Industry 76. Tanzania's young but rapidly growing manufacturing sector is expe- riencing many of the usual problems found in other developing countries at a comparable stage of development. With a few exceptions there is surplus capacity in most new factories. Marketing and distribution problems are currently aggravated by organization problems within the State Trading Corporation. There tend to be fairly frequent, but brief work stoppages in many industries owing to problems of labor discipline and misundertandings concerning Government's new policy aimed at promoting worker participation in certain kinds of management decision. Nearly all newv industries require tariff protection but Tanzania's autonomy in rate setting is restricted by the Treaty for East African Cooperation of 1967. The Treaty allows member countries whose balance of trade in manufactured goods with other members of the Community is in deficit to impose temporary Transfer Taxes on manufactured goods imported from those Partner States up to 5O percent of the common ex- ternal tariff, with the object of promoting domestic industrial development. Being in deficit with both Kenya and Uganda, Tanzania has made extensive use of this Transfer Tax and some 174 local companies enjoy protection in this way. The effect of the Transfer Tax on inter-Community trade patterns and industrial development is being investigated by the East African Common Mlarket and Economic Affairs Secretariat. (See paragraph 43.) 77. The absence of a systematic industrial development policy and until recently, appropriate project selection and appraisal methods, resulted in - 27 - less than optimal investment decisions. Some of the recently established industries are too large for the market, very capital-intensive, and heavily import dependent; they may well become high cost producers. In part, the problem is that industrial policy must adapt to the small size of the monetized market in Tanzania, and the tendency for partner states in the East Africa Community to duplicate industries rather than specialize to benefit from the larger combined market. The government and the National Development Corpo- ration (NDC), are aware of these problems and have taken steps to improve the situation. Consultants were engaged to devise more rigorous and appro- priate project selection and appraisal methods for NDC. A team of industry experts of the Harvard Development Advisory Services will be assisting interested agencies in the formulation of a new industrial development policy. It is envisaged that a significant amount of industrial finance will come from the recently organized Tanzania Investment Bank (TIB). If TIB appraisal standards conform to expectations, this should help to improve the quality of project selection and appraisal. 78. New investments in manufacturing industries have sharply increased but the growth of production has fallen from 20 percent in 1966 and 1967 to an average of only 8 percent in the three following years, substantially below the Plan target rate of 13 percent. This is another important factor underlying the lower than expected overall growth rate during the first two years of the Second Plan. The remaining years of the Plan should show an increase in production of the manufacturing sector as a number of important new projects such as a tire factory, a fertilizer plant, a steel re-rolling mill and a second cement factory have reached, or will reach, the production stage in the third year of the Plan. 79. It is equally important to improve the efficiency of existing in- dustries. This is a continuing process of meeting problems as they emerge. For example, fourteen of the thirty-three NDC subsidiarv and associate com- panies experienced losses in 1970 and several of those making profits were in the marginal category. Although overall NDC operations are profitable, the financial return on assets is only six percent. NDC management is focus- ing on actions to improve profitability. Part of the problem lies in the newness of operations; they are still "breaking in" the new industries. Sometimes the problem is the small size of the market already mentioned above, while in a few cases government price controls limits profitability. 80. A number of industries have suffered as a result of disruptions in their markets caused by import policy, or in disruptions of material inputs and spare parts. Some of these disruptions have been attributed to opera- tional problems within STC which, following the take-over of private trading firms since the Arusha Declaration, is now directly responsible for about 32 percent of all commodity imports and a larger proportion of domestic whole- sale trade. The Plan target share for STC's import trade is 40 percent. All remaining private imports are subject to licensing by STC. A number of para- statals are responsible for their own procurement while others are wholly or partly depeTndent on STC as an intermediary. In view of STC's limited expe- rience with external trade and the scarce supply of skills in this field, it - 28 - is doubtful whether industrial efficiency could at this stage be promoted through a further expansion of STC's role in the import of industrial re- quirements. It might be desirable to de-emphasize the centralization of external trade. Moreover, STC import policy must be coordinated with para- statal production programs to avoid disruptions of limited markets for finished goods. Shortages of railway trucks in Tanzania due to the heavy demand on truck capacity for the construction of the Tan-Zam railway and other causes have also led to temporary supply difficulties in certain parts of the country. Transport 81. Important growth sectors in recent years have been transport and services in general (especially Government services). In the transport sector the main growth stimulant has been the re-routing of a large part of Zambia's external trade through Tanzania following Rhodesia's UDI. This has meant that a large proportion of Tanzania's investment in the transport sec- tor in recent years has been spent on projects designed to accommodate Zambia's needs. 82. The largest sing1p pronict in the Second Plan is the Tan-Zam Railway Construction of the t.858 km rail line began in October 1970 and is now scheduled to be completed by the end of 1974. Construction in Tanzania started at three separate poinlts and 502 km of track were opened for limited use at end of 1971. Precise expenditure figures are not available. The Tan-Zam Railway will probably absorb the bulk of investment in the transport sector for most of the remainder of the Plan. The development program of the East African Railways in Tanzania has been delayed, and a revised prog- ram is under review by the Corporation. Assuming approval by the East African Community in 1971/72, investments in Tanzania by the East African Railways are likely to increase. 83. While the Secontd Plan road pro-ram sought in the first place to emphasize the development of feeder roads and improve maintenance, greater priority has so far been given to the construction of trunk roads. The Tan-Zan trunk road alone accounted for half the planned expenditures on roads. Feeder road projects and road maintenance are lagging behind Plan targets. However, the 1971/72 budget includes a sharply increased allocation for feeder roads which should bring the road program more into balance. 84. The road program for the remainder of the Plan will depend on sev- eral considerations. On the one hand, the desire of the Government to shift resources to directly productive sectors implies that investment in trunk roads should level off, and possibly decline, and that greater emplhasis should be placed on agricultural feeder roads and road maintenance. This is possible to the extent that expenditure on ongoing road projects (mainly trunk roads) will fall from Sh 171 million in 1971/72 to about Sh 110 million in 1972/73. On the other hand, there are continuing needs to extend trunk roads and orderly implementation argues for a minimum level of expenditures each year. It would appear that a slightly reduced program for roads could achieve a - 29 - balance between the need for additional trunk roads, feeder roads and road maintenance. Foreign assistance is especially required for major trunk roads now under study, for increasing the number of betterment units which are the means for expanding feeder roads as well, and for emergency bridges. 85. The third largest investment in transport is for harbors. A jetty, not anticipated in the Plan, has been constructed by the Government, in Tanga, to serve the fertilizer factory. The bulk of harbor development, however, is implemented by the East African Harbours Corporation. In addition to the expansion of the port of Dar es Salaam now under way, a further expansion will be required to accommodate the new traffic from the Tan-Zam railway. 86. The National Transport Corporation (NTC), a government-owned agency, currently operates buses in Dar es Salaam and upcountry. Bus operation has been and should continue to be profitable and NTC proposes to expand its bus operations. If long-term external loans can be obtained, NTC's internal cash generation could finance the expansion without recourse to additional Govern- ment funds. NTC also proposes to expand into truck operations between cities. It appears, that at present road haulage tariffs, assuming traffic projections materialize, this operation could be profitable, and that internal cash gener- ation could finance most of the investment if unduly short-term external fi- nancing could be avoided. However, if the Government wants to reduce public investment in the transport sector, this latter project would be a candidate as road haulage is one of the few remaining outlets for private investment. A new subsidiary of NTC has been established and is using a small semi- automated ship financed by external assistance, to improve coastal shipping between Dar es Salaam and Mtwara. While this service will defer the time when a coastal trunk road will be necessary, it will only show a profit if the load factor exceeds 30 percent. Education 87. Since independence, Tanzania's efforts have been directed at estab- lishing a close relationship between its educational system and the social and economic requirements of the country. The broad educational strategies are to attain self-sufficiency in the production of essential skills by 1980 and universal primary education as soon as available resources permit, which is expected to be some time in the late 1980's. Specifically, the Plan aims to develop secondary, technical and university education only to the extent Justified by projected manpower requirements. In addition, a major effort is being made to gear the education system more closely to the needs of a rural society, notably in primary schools and adult education, to which increasing attention is being given. Primary school enrollments and expend- iture have been according to Plan targets. Attention is now being given to the problem of under-utilization of school places, but progress towards remov- ing the standard IV examination bottleneck is on target. Despite a significant improvement in the supply of manpower, there is a substantial deficit of pro- fessionals and sub-professionals in science/math-based occupations and a con- siderable demand for technically trained personnel. - 30 - 88. After a delay in the first year of the Second Plan in implementing foreign assisted secondary education, expenditure has caught up. Secondary enrollments have met the targets except for science-based courses. Indeed, the shortfall in enrollment of science students and successful "passes" in science is the major problem in secondary education. This pattern for sec- ondary education is repeated in teacher training. Enrollments and expendi- ture are catching up to Plan targets after an initial delay, while the num- ber of science teacher candidates continues to be insufficient. In spite of considerable progress in the supply of local teachers, shortages still exist for specialist teachers of agriculture, domestic science, commerce and tech- nical subjects. 89. Technical education faces a series of problems: inadequate facil- ities, enrollments lagging behind target, high wastage rates, and insuffi- cient staff. The problem of enrollments and wastage rates may be related to wage and salary rates for technicians and skilled craftsmen. The author- ities are aware of these problems and a basic review is under way. 90. University education is progressing on schedule in respect of enrollments except for a shortfall in science students. It is clear that science training is a problem throughout the education system. Creation of the faculties of agriculture and engineering have been delayed while external assistance is being sought. Further delay in creating these faculties will threaten attainment of the 1980 target for skilled personnel in these fields. 91. Achieving the Plan targets in education will involve a substantial increase in development expenditure in 1972-1974. Any downward adjustment of development expenditure will affect primary education, libraries and museums as these are the lower priority programs while the others are largely exter- nally aided. Priority areas for further investment in education have been identified by a mission of the Overseas Liaison Committee (American Council on Education) which visited Tanzania in July 1Q71. It is expected that a small pilot project to set up an integrated rural training scheme in a few selected areas, will emerge as recommended in the OLC report, as well as other projects. 1Water and Sanitation 92. The Government has given priority to the development of rural water supplies in the current Plan. During the first two years of this Plan deve- lopment expenditure for water supply totalled about Sh 100 million, 61 percent of which was used for the improvement of rural water supplies. The long-term plan is to provide access to water supply for the whole of the rural popula- tion within 20 years. This is estimated to cost some Sh 1.5 billion, or Sh 75 million annually, which would represent almost a doubling of total annual de- velopment expenditure for water supply over the last few years. The per cap- ita cost of this program which is intended to supply an additional 20 million people, would be about Sh 75. This compares with a cost of Sh 120 per capita incurred during the first five-vear plan, the reduction being explained by the introduction of more economical installations in those parts of the country where groundwater is readily available. - 31 - 93. Plans for urban water supply are uncertain; development expendi- ture, which in 1970/71 was Sh 24 million, has been cut to Sh 9 million for the current fiscal year. It is estimated that a target of 100 percent of the urban population receiving reasonably accessible water within 20 years would recuire annual development expenditure of Sh 16 million. Urban sys- tems should not be allowed to deteriorate. Unlike rural systems they are normally able to generate sufficient revenue for the mobilization of re- sources for future expansion which is also necessary to support industrial development. 94. Many feasibility studies have been completed for water and sewerage systems, but have yet to be implemented. A number of countries have offered to carry out water resources surveys in various parts of the country, and have indicated that they may be interested in financing projects arising from these studies. A shortage of local counterpart funds could prevent the Government from taking full advantage of the aid that is potentially available. This suggests that greater attention be paid to making revenue earners out of systems now classified as rural. (See Annex III for detailed discussions). Urban/Regional Development and Urban Housing 95. In 1970, Tanzania had a population of about 13 million with an urban population (including cities and towns with 1,800 or more persons) of approximately 774,00o or about 6.5 percent of the total. Total population was growing at approximately 2.7 percent p.a. and that of the urban areas at about 7 percent. Dar es Salaam has attracted the bulk of the new urban dwellers; the city's poptulation grew by 11 percent a year between 1965 and 1967. If these rates continue, the urban population will double everv eleven years, and that of Dar es Salaam every seven years. 96. In both urban and regional development policies, Government is attempting to check rapid urbanization. Priority is given to rural develop- ment and the promotion of ujamaa villages. In regional development, Govern- ment is trying to implement a policy which would narrow the existing develop- ment gap between regions. Part of this policv is to locate industry in nine urkan growth centers outside nar es Salaam. So far Government has not been especially successful owzing partly to the lead tire required to reverse trends based on economic and demographic forces. 97. Although Tanzania's urban population is small in absolute numbers, the rapid rate at which it has been growing is imposing substantial infra- structure requirements on the country's toxns and cities. It is estimated that urban housing needs run at 21,000 additional units annually of which about two thirds are to accommodate urban population growqth. Of the families in need of housing, about 50 percent earn less than Sh 350 a month and fully two-third earn less than Sh 500. This means that half of the families cannot afford housing costing more than Sh 10,700 to construct or renting for more than Sh 85 a month. - 32 - 98. The total output of housing units during the Second Plan (1970-1974) is expected to fall far short of estimated needs. However, in several ways, the Second Plan contains significant departures from the ustual public housing programs. First, Government has stated its intention to keep the number of houses built by its agencies and parastatal organizations for their employees at a minimum; these employees are the people best able to finance thelr own houses. Secondly, Government has raised its output targets for low-cost housing from approximately 1,000 units a year during 1964-1969 period to 2,000 units per annum for the 1970-1974 period. Further, the Sh 11,nn0 upper limit on low-cost units that the National lHousing Corporation (NHC) can build should, albeit in a small way, serve to redirect resources towards those income groups where needs are greatest. Lastly, the Government intro- duced a "site and services" program which is expected to add 5,000 of the 8,000 targeted hotising tnits a year to be provided by the ptulic sector. In spite of this, however, it is almost inevitable that squatter housing will remain the only solution for many families in Tanzania's cities and towns for years to come. 99. While these objectives an(d targets appear to be realistic in the light of financial resources, the costs per NHC housing unit need fturther scriutiny. Implementation of the Plan has been retarded partly becauise of a shortage of managerill skills in the responsible institutions. Also, some of the projects and programs need more preparation. This applies also to "'site and service" schemes which in the past have suffered from an insistence on excessively high design standards. As a result, the housing program is behind target in nearly every category. 100. The Permanent Housin1n Finance Company of Tanzania does not appear to have a wide enough effect:ive market to contrihute meaningfully to housing output. 101. A number of studie-' (see Annex TV for detniled disctission) are neetdecl to (a) devise n regional planning framework, paying particular at- tention to the relations hetween ujaman villages, urban centers and regions, (b) provide information on the developmontal potontinl of eacl of Tanzania's 18 regions, (c) reformulate the rhban regional development strategy. With regard to housinp, the NiIC program needs to give special regard to: (a) the tinit cost of housinp, units; (b) buildiling and managernont capnaihi ties of N1C with regard to Plall targets; (c) the "site and services" program to determine the constraints to the I nolementation of tle program. To'iri.sm 102. Tourist traffic continiied to increasce in 19(69 and 1970. Foreign visitor arrivals are estimated at 56,onn and 63,nno for thesse two years. A further substantial increase is expectci for 1971 , owinpg to thc construction of three new beacil hoteis north of Dar e.n Salaam, having 400 rooms between - 33 - them. Gross foreign exchange receipts from tourism in 1970 are estimated at $8.6 million or about 4 percent of commodity exports. Tourism could become a major source of foreign exchange earnings within ten years, given an appro- priate program of investments and promotion. The possibility of undesirable social consequences gives rise to a certain amount of controversy within the Government with regard to the promotion of large-scale beach tourism. 103. Substantial new game lodge capacity has been built. The recent completion of the new Kilimanjaro International Airport between Arusha and Moshi is expected to encourage more tour operators to base their programs in Tanzania, rather than Kenya. It is clear that such a change will take time and effort on the part of the Tanzanian authorities. The main institution responsible for this would be the Tanzania Tourist Corporation (TTC) formed in April 1969. The TTC has made a promising start, in spite of the disparate nature of the assets, liabilities and uncompleted projects it inherited from NDC as well as lack of funds. 104. The Government and TTC are reviewing a ten-year tourism development plan prepared by Arthur D. Little. The plan recommends substantial increases in hotel capacity at the coast, the development of a beach and wildlife cir- cuit based on Dar es Salaam, and investments in park development, tourism transportation, historical restoration and miscellaneous services. A project for the construction of three tourist lodges by Tourist Promotion Services Tanzania (TPST) in which IFC planned to participate has been cancelled by the Aga Khan group which controlled TPST, in reaction to the Buildings Acquisition Act, 1971. (See Annex II for detailed discussion). Power 105. Mainland Tanzania's total installed power generation capacity is about 150 MW. Of this total about 122 MW belongs to Tanzania Electric Sup- ply Company Limited (TANESCO), a wholly government-owned company which is responsible for public supplies throughout the mainland. The remaining 28 M; belongs to private users. The demand for electric power in Tanzania is projected to grow at 11-12 percent per annum. TANESCO is presently construc- ting - with external financial assistance - the 100 MW Kidatu Hydroelectric Station and associated transmission lines, constituting the first stage of a scheme on the Great Ruaha river. The project is expected to meet the requirements of TANESCO's coastal power system up to about 1980. A second stage of the Kidatu Hydroelectric Project is expected to be started in the second half of this decade. 106. TANESCO's development program for the period 1971 through 1975 includes expenditure of about $22 million equivalent for (a) the construc- tion of a 132 kV transmission line connecting the coastal and the Moshi- Arusha power systems; and (b) the extension of distribution systems and generating capacity throughout mainland Tanzania in areas outside the coastal system. The Government has recently signed a contract with a bilateral donor for feasibility studies and design of a 8.25 IN hydroelec- tric station in southwestern Tanzania for supply to the towns of Mbeya and Tukuyu. The Government is seeking foreign financial assistance for the electrification of ujamaa villages in certain areas. - 34 - 107. In recent years preliminary investigations have been made of the large hydro potential of Stiegler's Gorge on the Rufiji river. This could be a multi-purpose project of about 600 MW of continuous power. In view of developments already under way at Kidatu and other low-cost hydroelectric possibilities for staged development, the justification for a power project at Stiegler's Gorge can only be envisaged at this time in the context of an aluminum project or other major 'satellite' industrial development. It does not seem likely that a project of this nature will materialize in the near future. Health 108. The implementation of an important project for the construction of Rural Health Centres (RHC) and dispensaries has fallen far behind Second Plan targets owing to a lack of funds and a shortage of construction capacity in the Ministry of Communications, Transport and Labour. A further constraint lies in the fact that the Ministrv of Health and Social Welfare is seriously understaffed. The basic construction cost per RPC has turned out to be much higher than planned, partly because the Ministry of Health and Social Welfare wished to place a greater emphasis on curative services in the rural areas than was originally envisaged in the Plan. The development budget of the Ministry was severely cut in recent years owing to the overall resource constraint. 109. Substantial new hospital capacity was recentlv completed in Dar es Salaam and Mwanza. Tanzania is now self-sufficient in nurses but there is still a great shortage of doctors especially in rural areas. Improvements are being made, however (see Table 28 of the Statistical Annex). Chinese medical teams are making, a significant contribution to rural health services. Other official external aid in the supply of medical personnel is relatively modest. A substantial portion of all medical services, hovever, is still provided by private institutions, mainly missions. Nearly half of the total number of hospital beds in the country (about 16,500) is provided by missions. There is considerahle scope for the expansion of local drug manufacturing capacity. An expansion of the Medical Faculty in Dar es Salaam is a matter of high priority. A substantial portion of Tanzanian doctors used to receive their training in UIganda (Makerere). There is some fear that because of the current political dispute between the tvo countries, Tanzania may have to become self-sufficient in the training of doctors at an early date. This would entail substantial additional investment at a time that the strain on resources is already great. - 35 - IV. FTTIJRE PPOSPFCTS The Rate of Investment 110. While growth of the economy through the balance of the Plan period is largely determined by investments already made as well as the effects of weather and world exnort prices, the amount of investment, its composition and financing and associated policies that will affect growth in subsequent time periods is to some extent subject to policy decisions available to gov- ernment. The pattern of policies adopted will he decisively influenced bv the results of the mid-Plan review which was undertaken by the Tanzanian authorities. The conclusions of this review have not yet been announced. 111. As a public savings constraint has emerged as one of the maior problems of economic management, this discussion will emphasize its implica- tions for investment policy. We shall proceed by selecting a plausible in- vestment rate and then examine the financial implications arising fror that investment rate. The government has rightlv decided that public investment must be geared to available resources, and given the limits of resources and the past investment-output ratio, that its composition should be changed to make it more productive. This suggests that one should investigate the growth and financial imnlications of an investment rate which is a constant proportion of GDP because an increasing investment rate would hit the re- source limits even quicker. It is conceivable that the same or a higher growth rate could be achieved with a lower investment rate if the productiv- ity of investment were increased. Thus, we shall explore the implications of a constant monetary investment rate, (excluding TAZARA) inasmuch as it is monetary investment that is within the influence of government policy. This has been recentlv about 1q percent of monetarv GNIP at market prices. 112. Inspection of the possibilities of domestic and export production suggests that monetary GNP in the next two years could be expected to grow about 6.5 percent per annum in real terms or assuming an average price in- crease of 2.5 percent p.a., about 9 percent in market prices. This suggests that at a 19 percent investment rate, gross investment for the last three years of the Second Plan would be: Gross Investment (Sh Millions) 1971/72 1972/73 1073/74 1,492 1,620 1,764 A balanced investment program in the economic and social infrastructure sec- tors probablv will. not renuire any increase in resources in 1972/74 so that more resources could be used in directlv productive sectors. Thus, this volume of investment would provide some scope both for a balanced program and a shift in the investment pattern. What is less clear is whether the - 36 - directly productive sectors will have sufficient absorptive capacity to carry out the increased investment. It is likely that agricultural and in- dustrial agencies will have to improve their project formulation and imple- mentation capacity. Investment, Savings and Growth 113. If monetary GNP grows by 9 percent in current prices and if the balance of payments evolves as described in Table 29 of the statistical an- nex, gross national savings in the monetary sector, as a residual, could be Sh 2,834 million for the last two years of the Second Plan against gross monetary investment of Sh 3,384 million. This implies an average savings rate of about 16.1 percent compared to the recent (1970) rate of 16.5 per- cent. The marginal savings rate would be onlv 8.2 percent for these two years. Savings and investment of these magnitudes imply that a total net foreign capital inflow of about Sh 550 million ($77 million) would be re- quired for the last two years of the Second Plan. As no foreign private capital is expected, this inflow would all have to be on public account. Gross capital inflow requirements are projected around Sh 867 million ($121 million). This would be sufficient for external debt amortization (estimated at Sh 200 million ($28 million)) and a replenishment of exter- nal reserves of about Sh 117 million ($16 million) to compensate - at least partly - for the sharp drop in reserves during the first two years of the Second Plan. These capital requirement projections take no ac- count of the Tan-Zam railway project (finance for which is already assured) and are based on the assumption that the Government would be able to stop illegal private capital flight. Altogether the projections indicate a slow- down in the expansion of total investment. The low projected marginal sav- ings rate clearly supports the conclusion reached elsewhere in this report that the shortfall in domestic savings has become a serious constraint to development and that an effort to increase the country's savings performance must be one of the key elements of the Government's development strategy for the balance of the Second Plan. On the basis of the volume of investment assumed in these projections Tanzania should be able to maintain an overall GDP growth rate of 5 percent or slightly better during the next few years. Public and Private Investment 114. Private monetary investment was about Sh 277 million in 1970 large- ly in buildings and transport. As a result of new Government measures, espe- cially the Buildings Acquisition Act, it is exoected that monetary private investment will decline. The protections assume monetary private investment of Sh 200 million p.a. in the last two years of the Second Plan; well below original Plan assumptions. Investment by the East African Community Corpor- ations and local governments, predominantly the former, might be about Sh 200 million p.a. Assuming that increases in stocks and working capital will be at the historical rate of about Sh 100 million p.a. in this period, gross public investment would be about Sh 1,120 million in 1972/73 and Sh 1,264 million in 1973/74. - 37 - Financing Public Investment 115. Central Government recurrent budget surpluses depend upon recur- rent expenditure and tax policy. With a slowdown in the rate of increase of those development expenditures which generate recurrent expenditure and assuming no across-the-board civil service wage increase, the rate of in- crease of recurrent expenditure which since the beginning of the Second Plan has averaged 18 percent 1/ p.a. should slow down. Inspection of the components of recurrent expenditure indicates that an increase of 6.5 to 7.5 percent should be adequate in the last two years of the Plan. With no change in policies, recurrent revenue might increase at about 6.5 percent p.a. This implies recurrent budget surpluses of about Sh 120 million p.a. in the last two years of the Plan, which would represent a continuation of the decline in the rate of central Government current budget savings. If the current budget savings rate is to be kept stable or increase, higher taxation and/or further reduction of recurrent expenditure would be needed. There is probably some scope for such adjustments and the projections there- fore assume that either tax increases and/or reductions in the rate of in- crease of recurrent expenditure could generate about Sh 40 million by the last year of the Plan. Tax increases should be directed to restraining the growth of private consumption through income or sales taxes; increasing the prices of consumer goods and services provided by parastatals would have the same effect. 116. Domestic borrowina prospects depend on the supply of savings from non-bank sources and upon the amount available through the banking system; the former is fairly small and is assumed to amount to Sh 140 and Sh 150 million respectively for the last two years of the Plan. Borrowing from the banking system raises the issue of appropriate policy, regarding exter- nal reserves. As external reserves had dropped to the equivalent of two months imports equivalent by the end of 1971, some provision should be made for increasing them. Thus, expansion of money supply should accommodate both domestic needs and an increase in external reserves. A "neutral" mone- tary policy in the sense of one which would be neither inflationary or de- flationary would involve an expansion of bank credit proportionate to the increase in monetary GNP in current prices, that is, by 9 percent per annum. Assuming that credit used for the private sector will increase very little, if at all, and that not all building up of stocks requires bank credit, the amount of bank credit available for public investment under these assumptions would be in the range of Sh 175 to 200 million p.a. Finally, parastatal pub- lic savings, assuming no policy changes, should increase slowly or about Sh 10 million p.a. on a base of Sh 260 million. Any faster increase would probably require some increase in prices charged by parastatal agencies. External Assistance 117. Estimated external assistance requirements during the last two years of the Second Plan do not appear out to be of line with donor inten- 1/ Part of this increase was due to a shift in functions between local and central Government as mentioned in paragraph 32. - 38 - tions, provided Tanzania is successful in preparing viable projects to which the assistance could be used. Total public sector investment during the balance of the Second Plan might be financed as illustrated in Table 5 below. Table 5: /1 ESTIMATED RESOURCES FOR CENTRAL GOVERNMENT AND PARASTATAL CAPITAL EXPENDITURES (excluding TAZARA) 1971/72 1972/73 1973/74 Central Government recurrent budget savings 100 120 120 New taxation - - 40 Domestic non-bank borrowing 130 140 150 Domestic borrowing from banking system (240) (262) (286) of which available for capital formation 41 175 192 Other internal grants 14 15 15 Parastatal internal savings 260 270 280 Foreign loans and grants 374 400 467 TOTAL 919 1,120 1,264 /1 This table forms part of more comprehensive macro-economic mission pro- jections in Table 29 of the statistical appendix. 118. In summary, the important policy issues involved in the financing of public sector investment of this magnitude are: (a) whether the rate of increase of non-development recurrent expenditure can be reduced; (b) whether taxes can be increased to slow down the increase in private consumption; (c) whether additional external assistance can be obtained. Balance of Payments 119. The mission has attempted to project the balance of payments up to 1977 on the basis of the following assumptions: (a) Exports (including non-factor services) grow at 5.5 percent p.a. in terms of volume and at 6 percent p.a. in current prices. (b) The income elasticity of demand for imports (in terms of volume) is 1.2 in 1971 and declines by 0.01 each year thereafter. Import prices rise by 1.5 percent p.a. As- sumed overall GDP growth rate: 5.2 percent. Total im- ports thus calculated for 1974 are reduced by Sh 179 mil- lion ($25 million) to allow for the fact that the Tan-Zam railway in Tanzania is expected to be completed in 1973. - 39 - (c) Net factor income payments grow more or less proportionate with interest payments on foreign loans. Current account transfers remain constant. (d) The level of external reserves (including SDR's and IMF gold tranch) increases from a low of Sh 432 million at the end of 1971 (the equivalent of barely 2 months im- ports) to a slightly higher relative level of about 2.3 months imports equivalent thereafter. (e) The average terms of new loans from sources other than IDA and IBRD are 2-1/2 percent interest and repayment over 30 years after a grace period of 5 years. - 40 - Table 6: MISSION PROJECTIONS BALANCE OF PAYMENTS 1971/77 (including TAZARA project) (Shs. million) 1971 1973 1975 1977 Exports (including non-factor services) /1 2,128 2,392 2,685 3,013 Imports (including non-factor services) /1 2,440 2,835 3,100 3,577 Resource Cap (X-M) 312 443 415 564 Net Factor Income Payments (-) 71 86 100 129 (of which: interest payments) /2 (64) (86) (100) (121) Net Current Account Transfers 79 79 79 79 Balance on Current Account 304 450 436 614 Private Direct Investment e0 0 0 Net Public M & LT Loans 268 564 486 685 Disbursements 382 664 643 821 Revavments (-) /2 114 100 157 136 Increases in External Reserves -40 110 50 71 End of Year Reserve Level 432 542 592 663 Public Lending and Debt Data Debt service as % of Exports 8.4 7.8 9.6 8.5 Loan Disbursements as % of Imports /2 15.7 23.4 20.7 23.0 Debt Service as %' of Debt 9.1 7.2 8.0 5.8 Principal repayment 5.8 3.9 4.5 3.1 Interest 3.3 3.3 3.5 2.7 Debt Outstanding and Disbursed /2 1,949 2,574 3,459 4,452 (beginning of period) /1 For projections of individual export commodities and import categcries (excluding equipment for the Tan-Zam railwav) see table 29 of the Sta- tistical Appendix. /2 Including a notional one-thi.rd of E.A.C. borrowing and debt service. Resource Gan Projections and the Need for Export Promotion and Diversification 120. Recent developments have led to a rapidlv growing resource gap. This general. trend is pro,iected to continue in Table 6 above which indicates an increased dependence on external aid both in absolulte and in relative terms While these projectlons are based on an assessment of the likely development - 41 - of exports and imports, their plausibility depends, of course, very much on Tanzania's ability to attract the necessary external aid on concessionary terms. These balance of payments projections are not necessarily desirable targets. But they underline the need for measures aimed at a higher than projected export growth rate. If Tanzania does not succeed in encouraging and diversifying exports, the country's development will probably be ham- pered by a scarcity of foreign exchange. Tanzania's decision to devalue with the U.S. dollar might stimulate some exports. However, incentive policies - such as exemption of export taxes - as well as organizational and administrative support for exports may be required to launch an ef- fective export-promotion program. 121. In the light of expected market conditions Tanzania has good ex- port prospects for top quality tea, flue-cured tobacco, meat, meat products, pyrethrum, cashew, cotton, certain types of beans, cassava pellets, and oil- seeds. The possibilities for expanding exports of coffee - Tanzania's most important export - are limited by slow growing world demand. Tanzania is a member of the International Coffee Organizationa and hence must limit its exports to quota markets in accordance with an annual quota. However, Tan- zania has been able to export substantial tonnages to non-quota markets at relatively modest discounts. The outlook for sisal fibre continues to be depressed. Known diamond reserves are expected to be exhausted over the next 5-6 years. On the basis of an analysis of the export prospects for individual commodities (see table 29 of Statistical Appendix) it seems reasonable to expect that the value of total exports could grow about 6 percent per annum during the next few years. 122. It is possible that Tanzania's export prospects for the latter part of the present decade and beyond are brighter than for the next few years. In addition to the large-scale development of livestock and meat processing for export - with external assistance - there are a number of large industrial projects in an early stage of preparation which could in due course significantly increase and diversify Tanzania's export and growth po- tential. These include the production of sisal pulp, a vanadium/iron/steel complex, and metallurgical coking coal. A sisal pulp project has been under consideration in Tanzania for many years. A recently completed feasibility study by Canadian consultants on behalf of the National Development Corpora- tion confirms that the pulping of green sisal in bulk is technically feasible. The pulp would be used in the manufacturing of high quality paper abroad. It would be the first project of its kind in the world. The Canadian feasibility study has aroused sufficient interest in the expected economic merits of the project to stimulate further study by the Tanzanian Government. Private Canadian companies and the Canadian Government are understood to be poten- tially interested in participating in the project. The project would require a large investment of some $100 million and it is for this reason that the Government is proceeding with caution. The assurance of a guaranteed market for pulp would be an essential requirement. 123. Investigation of the large coal and iron ore deposits in the ex- treme south-west of the country has indicated that the coal is cokeable. Japan and Pakistan are reported to have expressed an interest. It has now - 42 - also been established that the vanadium content of the iron ore is probably more valuable than the iron itself. The completion of the Tan-Zam railway, running reasonably close to the area of these mineral deposits, will remove one major obstacle to their commercial exploitation. Export of minerals on a large scale would also require major new investments in port facilities. The production of iron and steel (possibly as a by-product of vanadium) for the East African and Zambian markets could be an economic proposition. A pre-feasibility study on this project undertaken on behalf of the East African Community's Common Market and Economic Affairs Secretariat is under consideration by the Secretariat. 124. In 1970, mineral exports amounted to Sh 176 million or 10 percent of total mainland exports. Diamonds contributed 90 percent of the value of mineral exports. The gradual exhaustion of known diamond reserves over the next 5-6 years makes it more urgent to accelerate or start production for export of other known exploitable minerals such as tin, salt, magnesite, black sands and various gemstones. Plans for the expansion of salt and magnesite production are already in hand. The export of petroleum products to Zambia from the refinery in Dar es Salaam will come to an end after the completion of the Zambian refinery late 1972. A copper occurrence near Kikugwe is being investigated by a team of Rumanian geologists while Russian geologists are engaged in the search for new gold deposits. No information is available on their findings. Investigations concerning the possibility of exploiting a large kaolin deposit near Dar es Salaam for export are going on. Creditworthiness 125. Tanzania is receiving development aid from a large and growing num- ber of donors. Most of this aid is provided on very favorable terms. Sup- plier credits have been kept to a minimum. In view of Tanzania's commitment to development and its generally favorable development performance, the aid pipeline will probably continue to grow along with actual disbursements. The external debt service burden is currently around 8 percent and should remain within manageable proportions for the foreseeable future provided foreign do- nors are prepared to continue lending on concessionary terms and that exports will grow at not less than 6 percent p.a. However, the slow growth of ex- ports in recent years makes it somewhat doubtful that this rate will indeed be achieved. 126. Long-range projections indicate that with an export growth rate of 6 percent, and a constant investment rate of about 19 percent of monetary GNP at market prices, Tanzania's net public capital inflow requirements would grow about 17 percent p.a. Disbursements as a proportion of imports would slowly increase to about 27 percent in 1980 while the debt service ratio would move up to about 11 percent in that year. It should be emphasized that these projections are based on the assumption that the average terms of Tan- zania's future borrowing will continue to be very favorable. A hardening of those terms would soon be reflected in a higher debt service burden. Tanza- nia's capacity to service external loans on conventional terms is limited; moreover some allowance must be made for Tanzania's liability on account of the external debt of East African Community Organizations all of which is on - 43 - conventional terms. Hence, although Tanzania has some margin for borrowing on conventional terms, it would be desirable for as much assistance as pos- sible to be on concessionary terms. 127. In addition there will need to be a certain amount of local cost financing in the case of project loans. Public sector savings are at pre- sent insufficient to supply all local expenditure required and this is like- ly to continue to be a constraint in the foreseeable future. The projec- tions indicate that foreign aid would have to finance at least 40 percent of public sector investments. Since many development projects are not normally eligible for external assistance, those that are will have to attract a much higher percentage of total project cost from abroad, perhaps as much as 75 or 80 percent. This inevitably implies some local cost financing in most cases. - 44 - V. STATISTICAL APPENDIX Index Table No. National Accounts 1. Monetary G.D.P. at Factor Cost and Fixed Capital Formation in 1966 Prices. 2. G.D.P. at Factor Cost and Capital Formation in Current Prices. 3. G.D.P. at Factor Cost in Current Prices by Industrial Origin. 4. Monetary G.D.P. at Factor Cost by Industrial Origin and Fixed Ca- pital Formation in 1966 Prices. 5. Actual and Target G.D.P. and Sector Growth Rates. 6. Gross Domestic Product at Current Market Prices and Expenditure. 7. Percentage Distribution of Monetary G.D.P. at Current Market Prices and Expenditure. 8. National Disposable Monetary Income, its Appropriation and the Overall Resource Balance. 9. Breakdown of Net National Savings by Origin. 10. Total Government and Private Consumption in 1966 Prices. 11. Fixed Capital Formation in Monetary Sector in Current Prices by Public and Private Sector. 12. Capital Formation by Type of Asset. 13. Fixed Capital Formation by Industry. Balance of Payments, External Trade 14. Estimated Balance of Payments, 1968 - 1970. 15. Value and Volume of Tanzania's exports by main commodities. 16. Price indices of principal exports (1960 = 100). 17. Direction of Tanzania's External Trade. 18. Tanzania Total Imports by S.I.T.C. divisions. Central Government Revenue and Expenditure 19. Central Government Revenue, Expenditure and Balances. 20. Central Government Recurrent Revenue. 21. Central Government Capital Expenditure by Ministry and by Function. 22. Functional Expencliture Classification of Central Government Recurrent Revenue. 23. The Allocation of Incremental Recurrent Revenue. - 45 - Monetary Statistics 24. Monetary Survey. 25. Commercial Banks - Percentage Breakdown of Domestic Lending by Economic Sector. Employment, Prices Indices, Population 26. Total Wage Employment by Industry. 27. Retail Price Index of Goods Consumed by Minimum Wager Earners. 28. Population, Vital, and Public Health Statistics. Mission Projections for National Accounts, Government Finances, and Balance of Payments 29. Mission Projections for Balance of Second Plan. Table 1: Monetarv G.T.P. at factor cost and fixed capital formation in 1966 prices 1) (Shs. million) 1964 1965 1966 1967 1968 1969 1970 Agriculture, humting, forestry, fishing, minig,quarrying. 1,387 1,357 1,617 1,529 1,519 1,627 1,677 Manufacturing, handicrafts, electricity, water, construction. 479 536 642 770 847 890 957 Government, banking and all other services 1,955 2,098 2,294 2,502 2,741 2,767 2,961 Monetary G.D.P. 3,821 3,991 4,553 4,801 5,107 5,284 5,595 Capital formation in monetary sector 597 721 908 1,038 1,182 1,086 1,202 Table 1 A: * ~~~~~~~~~~~~~~~~~~~1) Percentage composition of Yonetar_y G.D.P. by three main sectors Agriculture, mining 36.3 34.0 35.5 31.8 29.7 30.8 30.0 ManUfacturing, water electricity, construction 12.5 13.4 14.1 16.0 16.6 16.8 17.1 All services 51.? 52.6 50.4 52.2 53.7 52.4 52.9 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Footnotes: T) excluding Ti.ARA Source: (Table 1D The Economic Survey 197n,71. (Table 1 A) Table e Table 2: G.D.P. at factor cost and capital formation in current prices i) (Shs. million) 1964 3965 1966 1967 1968 1969 1970 1. Monetary G.D.P. at factor costs 3,883 3,912 4,530 4,771 5,174 5,403 5,867 2. Non-monetary G.D.P. at factor costs 1,778 1,834 2,062 2,112 2,224 2,228 2,365 3. Total G.D.P. at factor costs 5,661 5,746 6,592 6,883 7,39' 7,631 8,232 4. Capital formation monetary sector 567 695 908 1-094 1,214 1,137 1,344 5. Capital formation non-monetary sector 193 203 182 226 214 184 188 . Total capital formation 760 898 1,090 1,320 1,428 1,321 1,532 (4) as a percentage of (1) 14.6 17.8 2OO 22.9 23.5 21.0 22.9 (5) as a percertage of (2) 10.9 11.1 8.8 10.7 9.6 8.3 7.9 (6) as a percentage of (3) 13.4 15.6 16.5 19.2 19.3 17.3 18.6 Pootnotes' 1) Excluding TAZARA Source: The Economic Survey, 1970-71; Central Pureau of Statistics, T)r es Salaam. Table 3: I.D.P. at factor cost in current prices by industrial origin (Shs. million, 1C96J4 1965 1966 196.57 3 9s8 1969 1970 AgricUlture, forestry, fishing 51.448 7,23 ,402 1,21 1,327 1a444 1,5?7 Vininr, qutarrying 134 139 192 1.5° ]34 ]8 14n IYanofactLwino, Tian-icraft 235 335 415 477 5__ 59C C50 Electricity, water 42 46 61 64 69 74 36 Construction 113 1"5 160 243 274 266 323 Trade, rest-turants, hioels C55 _9 8 317 854 066 991 1,095 Transpcrt, storige, communications 34 3'6 484 533 677 663 694 Fineance, insvrnrce, real estate 107 127 318 175 189 154 170 PublJ c- adrmi_. , * ealth, educ-iatior aid ot,-er servlcts 751. 321 375 943 3,039 1,063 1,129 Yonetar,2 * 3j3 3t?1? 4,530 4,771 5,174 5,403 5,867 3c.bsi_seilC-r T)ro-1u.ctionl 1,77Q 3 P18 24 -?wOt) ')>06 2,224 222-8 2,365 0. X P. 9,61 , . [ . r- j~ 1 t746 6,5 2 6,33 3 7,393 7,631 8,232 Soorce: Th c .-romic surnvey 3.70,/73; Yatiorial Accounts of Tan-"ania 1966-196P3; Central Oiireau of Statistics, Oar es Salaam. Table 4: Monetary G.D.P. at factor cost by industrial origin and fixed capital formation in 1966 prices (Shs. million) 19fi4 19;65 ].966 1967 1968 1969 1970 Agriculture, hunting & fishing, forestry 1,246 1,194 1,425 1,346 1,382 1,492 1,543 Mining ano Quarryring 141 163 192 183 137 135 134 Manufacturing & handicrafts 299 348 415 470 508 563 598 Electricity & water-supply 51. 53 61 66 72 82 94 Construc tion 129 135 166 236 267 245 265 Wholesale, retail. trade, restaurants P 'notels 664 703 817 845 942 964 1,021 Transport, storage, commurnicatioris 388 '401- 84 554 640 640 705 Finance, insurance, real estate and bhlsiness services ;12 135 118 171 175 144 153 Public administration & other services 791 859 975 932 984 1,019 1,082 Total. monetary G.°.P. 3,821 3,991 4,553 4,801 5,107 5,284 5,595 Annual change total 4.4, 141.% 5.4 % 6.4% 3.5% 5.9% Annual growth of real anricultur,l produc-Lion in monetary sector -4.2% 19.2% -505% 2.6% 8. 0% 3.4% Capital formation in monetary sector, 1'6S ?rice 5°7 721 908 1,038 1,182 1,086 1,202 AnnualI chunge 20, 89%1 2 5.- 9% 14.3% 13.9% -8.1% 1.0.7% Monetary G.D.P. minus capital formation in mormet;L^i- 3,224 3,270 3,645 3,763 3,925 4,198 4,393 Annual, cli32ge 1.4% 11 5 3 n_ 4,3% 7.0% 4.6% Non-monetary G.).P. 11,8632 2,062 2,134 2,219 2,142 28 2,215 Annual c:-hange 1.0% 9h% 3.5% 4 . 0 -3.5% ' 3.4k Eoo Lno tes: 1) excluding TAZ7A-A 2) T)ecrease due to adverse weacher conditions affect:ing tile principal .suqb'istence crop, maize. Source: The E_crnomic Survey, 197'G/7]. Table 5: ACTUAL AND TARGET G.D.P. AND SECTOR GROWTH RATES percent per annum actual 1969-68 SFYDP Average trend target 1969-70 MONETARY Agriculture (including sisal) 3.8 7.2 5.6 Agriculture (excluding sisal) 5.4 9.4 5.6 /1 Mining -14.9 -2.5 -1.1 Manufacturing 14.3 13.0 8.5 Construction /2 19.3 10.0 0.0 Public utilities 10.4 12.0 14.3 Commerce 8.9 8.o 4.1 Transport 14.1 9.0 5.1 Services 5.0 5.0 4.9 Total Monetary G.D.P.(including sisal) 7.4 7.6 4.7 Subsistence production 4.2 3.0 -0.1 /1 1967-68 average /2 excluding construction on the Tan Zam railway Sources: Second Five Year Development Plan, Volume I; The Annual Economic Survey, 1968; The Economic Survey,1970-71 Table 6: Gross onomestic Product at current marlet prices an-' cxpenrliture 1) (Shas. millioyn) 1964 1965 1966 1967 1.96S 1969 1970 I1\7COME - Compensation of employees 1,772 1,906 2,153 2,350 2,564 1 4,940 5,380 Company profits cind income of self-employed 1,813 1,684 2,009 2,005 2,134 J in monetary sector Consumption of fixed capital 298 322 368 416 476 463 487 Monetary G.D.P. at factor cost 3,883 3,912 4,530 4,771 5,174 5,403 5,867 Indirect taxes 438 480 546 627 708 847 997 less sulbsidies 2 11 18 19 17 32 40 M;ono ¶ary C....D.rkt market 3rices 4,319 4,381 55058 51379 5,865 6,219 6,824 Income self' emp zoyen in subsistence sector 1778 1,834 2,062 2,112 2,224 2,228 2,365 Total ,G.D.F. -.hl facetonr co-t)st 5,661 5,746 6,592 6,883 7,398 7,631 8,232 Total G.D.P. at market prices 6,097 6,215 7,120 7,491 8,089 8,447 9,189 EP ENYI Th! P Covernment consuimption < 586 ,38 715 792 880 990 1,084 PrSi,_Ate fin-ii c,nslrml pi:;n mornotrr- ectqr r9,28 2,) ,992 3,325 3,472 3,884 4,143 4,663 rc,ss fixed '-api :a formatin mo,netairy ector 430 5,,". 797 1,014 1,120 I,047 1,517 3-ltnves i,-. stocks 93 107 Ill 80 94 90 92 u+t exports oF gooAo and services 203 56 1 O0 21 - 113 - 51 - 532 Expenditure Yonet:ry ,.'.P. at ,art-et prices 4,319 4,38 ' 5,058 5,379 5,865 6,219 6,824 Consumption in subsisutence seca(or 1,.. - 1,631 1,0so0 I,886 2,010 2,044 2,177 Omit-al form.-.tion i-i subsistence sector 93 203 -182 226 214 184 188 Eyperfrl- rre C j-monet-ar' I . ,. 1,834 ,02 o 122 2,224 2,228 2,365 tL' )oo''itire ho': ...... .. to' .P. at Fac hor r jC;7s 6 ,2 S7 -,21_ 2,1 7,491 8,089 8,447 9,189 o - t nc : > T cnlS i in TI-.A-.ARA irn :-'^ C- --es1 dmir u rtl expenu,.t1res on capital eauipment for TAAR ir. 1070 - Shs. 265 m.) -, iA: i no 1 -HC c,! A-v -TTi.> es, E. .-. r% -t ncn-pr()fit making public hodies. :^I )r-e ; A ch 1 c G "e 7 t o' -,- 7 1 O0-l %2; Tl .L.ac)nrnomic Su.rvey I 70/,7r ; Central ?ure-:u nf St.ftistics. Dar es Salaam Table 7 Percentage distribution of monetary G.D.P. at current market prices and expenditure ) 1964 1]965 1966 1967 1968 1969 1970 Compensation of employees 41.0 43.6 42.6 43.7 43.7 78 Company profits and incomes of self- employed in monetary sector 42.0 38.4 39.7 37.3 36.4 Consumption of fixed capital 6.9 7.3 7.3 7.7 8.1 7.4 7.1 Indirect taxes minus sutbsidies 10.1 10.7 10.4 11.3 11.8 13.1 14.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Government final consumption 13.6 14.6 14.1 14.7 15.0 15.9 15*9 Private final consumption 66.7 68.3 65*7 64.5 66.2 66.6 68.3 Gross fixed capital formation + changes in stocks 13.3 15.9 18.0 20.3 20.7 18.3 23Q6 Total expenditures as a percentage of total G.D.P. 93.6 98.8 97.8 99.5 101*9 100*8 107.8 Net exports of goods and services 6.4 122 2.2 0.5 -1.9 - 0.8 - 7.8 ?ootnotes: I) including TA-ARA, as in Table 6 Source: Table 6 Table 8: 1) National disposable moretary income, its appropriation and the overal.l resource balance (Sbs. million) I 64 196, 1]966 31 967 1963, 1969 1970 Compensation of emjIoyees ]77,2 1906, 2153 2350 2 564 } 4940 5380 Compaiy profits ar' income of self-employed in monetalry sector 13 168A 2009 2005 2134 lJet monetary domesl:ic produict at factor cost 3585 3590 4162 4355 46939 4940 53R°0 N2et factor income from the rest of the wor]l " - 70 -13/ - 94 - 43 - 21 - 25 Yet monetarv national product at factor costs 3509 3.20 4025 a!2 61. 46';5 49,1l9 5355 Indirect taxes 433 420 546 6 27 708 347 997 less: subsidies 2 11 18s' 19 17 3] 40 Net monetary natior,_tl producLt at marl'et prices ___ _ 3945 _ 3_ 89 4553 486S9 5346S 5 735 6312 Oth1er current, tran.usfers from the rest of the wlorld 22 40 - " 52 17 79 77 lisposable income irJ rnoretary sector 3957 4029 4544 4921 5363 5814 6389 Government fina-l consumption 56 633 715 792 880 990 1084 Friv .ate final corsumption (monetary sector only) 23"90 2992 3325 3472 33R4 4143 4663 Net national savi-ngs (mo.neta:ry sector onl.y) 5399 504 657 599 681 642 Appropriation of dispos_ableW income in mOnetary sectcr 3967 4029 4544 4921 5363 53C4 6389 17-ktioyla' (monet:lry) nt1 t: Sis a perce- Lage '1.i sposill >nonetl cp * inc ~me '.9.''5,t' 9n''',>' .17' .1]3.4" 33.2%' 11.7°' 10.0%/ Consumr)tion of eixed capi.t-a] 293' 322 3 6F 41). 47 4663 487 Gross National savirngs r 7 1 21 r2 ]073 1075 1144 1129 Gross dome stic fixed cclp: I-al 'formti or: (rronetCiry :tor' 09 1094 1214 1137 1609 vferall 17.ationr.-,esoir _ nap or .so ltcs +'E___ -I- _-3 - 2] -139 + 7 -430 T-h' e8 A: Fo, A.l CS ' '''t,'O A - \' -r in- ir. uyO,'!th . iCeSs. - using ].ast square ' 1 ,1 rC t ' t i j rer -!v : 1' 'l ' pii l i. t.; 5 , 8.0.2 reges '; r. :t~rl(,T-.--p)rof˘ L1- rc 'sr l1l i' ' ~' f'Nocn'-tt I. .P. (c" wren t j'iY'j Vf5 P* 32' 1'riV tr' -l)'pti(r1 (cr1rent prict s) 9.ur6 2oo*om ~c o1.rvey 23 *.. lt rv rr '-˘. 2 scviti (current prices) '.4% ox O'' i5 Oar es SaJinan Table 9: Breakdown of net national savings by origin (Shs. million) 1 964 1965 1966 1967 1968 1969* 1970* CentrAl Governmen-t 3 33.n 53.6 58.2 72.6 113.6 101.0 67.6 To ocal Government 2 37.7 37.0 23.2 1 9. 22.8 32.1 24.7 E.A.,. (loFS) capita' formation 2) 1.1 2.0 3.0 4.0 4.6 3.8 25.0 IT2OT-proEit mak.J.ri(j 9piilic hodies .. 1.4 2.6 1.7 2.0 1.5 otai 72.6 92.6 9 1.8 99.1 142.7 133.9 11E8. Purastatals 3 4C.5 63.2 122.S 119.0 142.8 Residual (PrivAte) 428.4 306.4 362*7 494.7 333.5 423.1 380.4 Total 501 399 504 657 599 681 642 Fon-monetarv I93 203 182 226 214 1B4 188 Grand Total 694 602 686 883 813 865 830 Footnotes: * Provisional I1 surpluIs current account as Presented3 in National Accounts of Tanzania 2) actual. capital formation in Tanzania 3) retained profits Source: Central ~upeau o.C Statistics, Oar es Salaam. Table 10: TOTAL GOVERNMINT AND PRIVATE CONSUIPTION IN 1966 PRICES (Shs. million) 1964 1965 1966 1967 1968 1969 1970 GDP at market prices 6,121 6,352 7,120 7,551 8,008 8,219 8,720 Balance of paynents cuirrent account - 280 - 56 - 110 - 21 + 113 + 51 + 493 Total resources available: 5,8h1 6,296 7,010 7,530 8,121 8,270 9,213 Gross fixed investments and changes in stocks 769 918 1,090 1,331 1,414 1,285 1,705 Total consumption: 5179 5.378 5,920 6,199 6,707 6,985 7,508 Government consumption 588 652 715 798 871 963 1,029 Private consumption (residual) 4,h84 L,726 5,205 5,h01 5,836 6,022 6,h79 GDP deflator used to convert current prices into 1966 prices 1.oo4 1.022 1.000 1.008 0.990 0.973 0.949 Source: Derived from Table 6 (GDP deflator derived from The Economic Survey 1970-71). Table 11: Fixed capita] formation in monetary sector in current prices by public and private sector (Shs. million) 1964 1965 1966 1967 1968 1969 1970 Centra3 Government 112 149 197 226 252 343 472 Local authorities and E.A. Community 38 44 19 22 50 81 80 E.A.C. enterprises 35 28 78 119 96 62 122 Parastatal enterprises 41 33 101 261 279 153 319 Total Public Sector 226 254 395 628 677 639 993 Private sector (monetary) 2) 294 383 434 438 486 432 277 Total fixed capij-a1 formation 520 637 829 1,066 1,163 1,071 1,270 Changes in siocks + 47 +±58 + 79 + 28 + 51 + 66 + 74 Totai investment 567 695 908 1,094 1,214 1,137 1,344 FublIic sect:or shre ir, cal-ital formatior 43.5, 3t.9,q,0, 47. 589 58.2% 59.7% 78.22% Priv-te sector share in capiJlta] Earmati,,.ri 5,5 I 59.4% 41.,.% 41.8% 40.3% 21.8% Footnotes: I) exclci0irtc ThA7,AW 2) incildi.ng cc-ope:rs-tiJvcs and residual iLnidentified Solrce: Tirie Economic Survey 197(1-72 Central Purti (f St-tio tics, >r s S?.aam Table 12: Capital Formation 'b ty2c of Asset (shis. million) 1966 19 - ;7 196S 1969 1970 Buildings: 1. Residential 55 73 go 92 113 2. PTx-al ovn-account 118 121 133 137 146 3. Vton-resirderntial 122 142 20_ 7 l8 266 4. Total builrlinqs 295 34G0 4330 412 525 W tl7er Works: r * imdan improvement 0 1, 1] l, 29 '. Roads, ferries and bridges 70 160 15r . "tcr s~.*Aj 2 3 I.,t 3_ 8. C -ib -, r /sor -s 7 ?.3 7 4 1o4 a. T'Ftil other ;vorks 31 ) 318) 3 333 406 Ec7-i pment: j. -lr is'ort: 1`cuipment 22 2j5 164 244 11. Othler eCnvipment 262 326 311 308 506 1 2. 'YTctal eot-uipment 49 5 34 5 472 750 1i. ~i-;, ry & Lrr˘e4Xinj ,- :l ................._ttle 32 5i) 32 23 21 ''-- . ixed -Aita i t ti( 7, 12k 1, 331 1,231. 1, 705 15. Inc2xietOe in st)cks 9 90 92 1˝,. G .pi-t:.II torin LtioYI 1,'' ' 1,32 1,423 1,321 10797 : . fl .,}-mTLt ,.:r; , __ 0 2ttt) >) 14 184 183 7 ,. ,.>;-t<8v, t)00'. 1,01;./ ,91! 1,137 1 6oc * o 3 " .l 3 1,4,2 1 ˝] 1,727 n' O ';'-L SrOV; sinn'I .,; includes TAZARA ; -ot, t vpy ca0Ltp4- ., -orr;atior-l ;'? Be ,rJ ,Lnd 1:"" is pr.-.tbl-y overstaterl on account of the fact that in the case WTf some i Z.:strieU-, iy/'- oI r ol: itxj l-ssets 3Cquired by the Governnet as a result of the- take-over 01 pri-v-t-' JY1(1u ' t' :LIO ' -t:is t)een trearerl as capital formation. Srmo t e-cv.omc Snrv.y, 17 1-71 ; c 1inisLry o' Ac-rmic Affairs anr- Development Fl-anning. Table 13: Fixed Capital Formation by Industry (Shs. million) 1966 % 1967 i) % 1968 1) X 1969 % 1970 % A Agriculture 112 (11.4) 124 (10.0) 126 (9.0) 110 (9.0) 123 (7.0) 2. iining 17 ( 1-7) 17 ( 1.4) 7 (0o5) 17 (1-4) 29 (1.7) 3. Manufacturing 150 (15.3) 181 (15.0) 226 (17.0) 171 (14.0) 314 (18.0) 4. Corstruction 28 ( 2.9) 38 ( 3.1) 23 (1-7) 32 (2.6) 44 (2.6) 5. EZectricity, water supply 56 5 5.7) 77 ( 6.2) 90 (6.7) 108 (9.0) 109 (6.0) ;-,. lbolesale and retai' trade 15 ( 1.5) 21 ( 1-7) 2S (2.1) 26 (2.1) 63 (3.7) T. 'rarsport and communication 330 (33.7) 491 (4o.0) 493 (37-0) 410 (33.0) 599 (35o0) 8. Government administration 55- ( 5.7) 71 ( 5-7) 58 ( 7.3) 90 (7.3) 138 (8.0) 9. Services 'incl. real estate) 216 (22.1) 220 (18.0) 243 (18.0) 267 (22.0) 286 (17.0) (of which, own-account ru-ral construction) (113) (124) (133) (137) (146) 10. P;;ixed Capital Formation 9^ (100) 1,240 (100) 1,334 (100) 1,231 (100) 1,705 (100) Foo tnctnts: *) T9.hese estI-m.ntes are provision-il mnd are indicative of the magnitude involved only. i) Sec- footnote I), Tahle 12 Soulrce: Central cnrcau o- Statistics, lar es Salaam Table 1L: *UiTIPATID PAIAN(C OF PAIRIENIS, l068 - 1970 TA}ZAEIA K>AIIILANDD (Shs. millioni) 1 968 1 969 1970 1) A. CrODS 5xports (includick pold and re-exports) 1,60,06.0 1,983.0 1,67L.9 Imports 12231.9 1,733.2 2,31L.5 ".alance on 'T'rade -729.9 -150.2 -639.5 Total earnings on services 382.8 L31.3 L30.L 5reiiht and frHieht insurance 1C7.8 119.9 133.2 Passenger transportation, etc. 79.3 87.6 '91.5 nther earninrs from foreien vi sitors 69.9 72.- Interest, profits and dividendr 67.1 74,C c1 .6 Otfer services 63.5 72.8 63.6 Iotal ra' ments on servLces 361.7 366.6 370.6 Passenrer transportatio,n, etc. 86.6 93._ 93.1 -xpenditiire for education 67.6 90.3 53.9 Other exoenses on travel abroad 40.0 ,0.0 37.6 Interest, prof'its and dividends 94.6 96.6 101 .5 itbec' services 92.9 9 i.1 82.7 Balance ,on ervice 21.1 6L.7 99.8 C. TRA N4-FER Total transfer receints 189.LL 1',3.2 193.5 Private and paraststal 139.3 139.5 111.3 Government 90.1 c3.7 62.2 Total transfer u3teat 112.6 113.8 116.8 Private and p-rascatal 78.8 78.8 77.2 s-oTrm L.nt 33.8 36.0 39.6 Net tranrfeLr- 76.8 79.L 76.7 calan^s en . a. an.1 esort -13 0C -11 .1 -Sn 3.1 D. T,APITAL Ret Government medics and long-terrn 178.1 138.2 516.9 loans d) nnflowi 196.0 16,8.0 926.5 a) TAZARA project n.a. 306 .7 b) C sher prcjects (148.0) 221.8 Outflow ;1. 0 ,.8 10.0 Comsacnsation parrsots (inc. interest) 21.2 61 .7 66.6 Net Parastatal medissi and long-t-rn n.a. 66.7 14.1 loanE Inflow n.a. 75.6J 69.0 Outflow n.a. 28.7 5-.9 Net Private mediumi and long,-tens n.a. 16.9 -C.6 loans nflow n.a. 28.6 12.8 Outf'low n.a. 11.7 13.6 ' T'. 0RR1') 31 0<161053 (inc. short ter. 207 ) -,3.3 -176.3 loans and other capital movements) 6alance on ordinar- capital account 69.6 33.7 -166.0 ledeoution of .A .3.D. currenec 6.3 6% 1.0 lets cain/loss on revaluation of - 0.3 - foreign exchange reserves 1ce_ _2 dra;setng rights - - 38.14 ..AS 'I''m2.'i-- (-) or r)550F K (+) in -91.9 -I;CI ±116.6 FootnoteS ,. provisional 1 ) 'ports f.Lot. and i:rports V.i. alue-, n,o sted for freight and othelr charges p3--b.e to Kenrya for os_ou._;Sr,; thiough Mombasa. 2) Includes mecium ana long-tez-.r private as,d caral.-tatal capital movst!r.,-nts.. 3 Includes mrinor tdjustr.ents _ _ ating tc ;Oe. .sclusion of Zasacibar external trade. 6) Includes 's. 109 million in respect of IU.K. compensation loan written off. 5ource: Anrual Trade Reports; Bank of Tanzania Reports; data supplied by the authorities. Table 15: Va'ie ayid vo]-ume oL Tan7anial 9 exori-s by main commo-iti-es >v 1 ii S s .ini 11ion) < r;; r, 199t 1 , 7 ] 9S 19 6 1970 quayntii4y mlt iurtity la -ue qlatit! vil]ue rj-,iantity -jlbequ;uati';y valiue q-,,-intity value CD;ff3ee ('tOf() m.t.) 28 t .2 . 7-C 5C. . 6 30 ] 4 -4 2 37 49.2 265 49 S 2 7 44. 31" Cotton (Goon m.t.) 56.2 259 3 &. 35' r 6 0.8 ?1 62 .9 23 58.7 93_ 4*4 Ciarronds ('00o grammes) 165.,7 149 l^1.i 186 1 75 223 136.5 135I 0 7° 143.9 169 Sisal ( ono m.t.) 213.6 97 1P ^r9 235 204.4 ?f0 19 . -5I 1 5 1'. i 1r5 2177.? 17 Cloves ('000 m.t.) ,.6 C 1,. ' t.7.3 r 12. 9 ; , 52 4.F Cashewnuts ('oo0 ml.t.) A . 90 72.3 100 7. 92 77115 77.4 i15 ea '000 M.t.) 4.3 38 5.3 45 n. 43 6.7 4 6 . .9 42 F:eat an-l meat pteparartions ('000 m.t.) 5.7 C) 8.1 57 6.5 4P 5.0 43 - 47 3.- 35 Oieires ard slVr s \ noc m-t-? 7.1 31 . 7 43 5.3 29 5.8 31 69 3- 5.9 27 Toba acco 0'0 "I.t-? 2.1 1 ? .3 '6 4.1 34 5.0 4j 4.5 35 5.0 1 i.I sezeKo, nuts, kerrels (' ori m.t.) 48.4 r99 A2 3 4 246 45 4 .f 4 38.9 45 29.6 35 I'etr -ol en o Drodiicts _r 133 7 62 105 11' 2 1:her (rm:s :1 y ˝r4 oro1octs 'r-4 .83 2O3 2?) 2]0 250 270 fls§zrIu: lc A.: Ore"O r() 'lAc Ls" 1, 317 1,65, r1, A64' 1 ,5 R5 1,657 I 6 859 txor's to Ken'- 'm Uci (m - , y f, ' ]1-S1 mlr;lf Atutrei or' ............................ octs, ]3 3 9i: ,1 184 147 ~:>':ai. - ;' js -).~ ey.rorts ', ,"^lfl 1-- ,~,; '-''-3 ,7 ' r7 77 3 C Table 16: Price indices of principal exports (1960 100) 1965 1966 1967 1968 1969 1970 Cotton, raw 97.3 90.9 92.6 100.7 92.6 91.2 Coffee, unroasted 105.1 103.2 91.4 92.5 90.1 121*1 Sisal fibre 91.3 80.7 66.7 56.0 61.8 57.1 Cashew nuts 111.5 121.4 114.1 111.9 126.9 130.4 Tea 98.3 99.4 99*4 93.5 79.4 84.9 Meat and meat preparations i) 95.6 102.0 107.5 124.9 100.8 126.8 Castor seed 86.2 85.2 98.2 114.9 107.9 93.1 Sesame seed 114.8 141.1 155.2 126e6 132w0 158.9 Table 16 A Volume indices of principal exports (1964 = 100) 1965 1966 1967 1968 1969 1970 Cotton, raw 128 197 139 144 129 139 Coffee, unroasted 98 175 154 170 171 155 Sisal fibre 104 97 99 92 84 106 Cashew nuts 118 132 129 145 150 141 Tea 98 143 139 152 173 157 Meat and meat preparations 1) 104 147 118 91 105 71 Diamonds 125 136 149 103 117 108 Tobacco 140 153 273 333 300 400 Oil seeds, nuts, kernels 84 89 74 85 67 51 Hides and skins 131 124 98 107 128 107 Footnote : 1) S.I.T.C. Division 01 Source: Background to the Budget, 1967-68; 'Ihe Economic Survey, 1970-71. Table 17: Thirection of T7anzanid 's Exterral 7rale (Si-is. million) 1965 ^ 1966 9 197 6 17 r 7S9 °' _ I. '_estination of Exports 436 27.3 436 2?. 473 27.1 385 23.? 42- 24.2 371 20.2 India 107 '7-.2 129 7.3 10P 6.3 115 6.9 132 7.5 122 6 .6 ,H'onr Tong 1"7 c. 141 8.0 113 O.5 125 7.5 103 '.2 127 6.9 Other Sterli-na areas '3i .1 ,1 3.5 193 11.2 237 14.1 227 12.3R 308 16.8 E.E.C. 241 16 2 2241 12.7 250 14.5 216 12.9 209 11.8 240 13.1 Tiorth America 117 7 ]69 9.6 -17 6.° 93 5.5 1?4 8.1 185 10.1 JApan 3r 2') 97 5.5 67 3.9 11' 6.6 82 4.6 96 5.2 C.M.E.A. couniitrieq 22 1.' 3 r6 2.0 56 3.2 35 2.1 45 2.5 55 3.0 China 4 69 3.9 59 3.4 55 3.2 78 4.4 59 3.2 IKenya a4 'Uginda 1''l 8.' 98 5.5 83 4.8 91 5.4 104 5.9 147 9.0 'tlher _120 7,°.7 256 14.5 209 12.1 212 12.6 218 12.3 126 6.9 TotAl 1'+.°,8 17,66 1720 1]'7' 1771 1836 Re-expor,ts 31 112 32_ 41 22 1' Total 7xDorts 1.519 1 87' 1760 1.717 1793 1852 15 1W a 962 7 '? ' 106 1969 ' 13970 TI. Source of Imports U. . 337 -?4.0 42 24.-1 382 23.5 424 23.1 378 22.1 411] 18.2 InTlia 72 5.1 7(7 4 I 43 2.6 54 2.9 48 2.8 ;55 2.4 Honag Kong ; .4 3- 26 1.6 43 2.3 34 9-° 1R 0.R Other St-t'li m ariats 3' ?.2 31 2.2 45 2.8 57l 2.04 585 3.4 73 3.2 2.8.0. 22, 262 2-' *.3 344; 71.2 3?4 22A.4 18.5 466 20.' Nort'; Aiericfi (7 25 5.'2 137 8._ -5 5.2 F82P 9.1 173 7.6 Jap-an 10 ; 23 5.5 69 4.2 1'l 7.7 130- 7.6 143 6.3 f . . Wi . ' . A . t _ o i .l 7a,rn~~j trs 2t ! . 3-A 5 .8 4 . 3 4 2.0 37 1.6 hin 20qO 2-8 F;n 4.7 72 4.4 86 4.7' 79 4.6 2G5 1]. >tnis in1 It,,-nldA a33r ) .C 332 19C.. 280O 17.2 302 l,.r 221 17.3 335 14.8 01 arier 14-4 ..,': 2.? 182 11.2 227 12.4 253 14.8 288 12.7 Tot C',o'11 zotl1 mn-(r, 31 I a..> 1834 1710 2264 I.) SorvtnyrOu -i'.;r--nll trPle of 7 T c7eiE:7r Sculrce 'e E 1,m- Saruax' tntd .Xr-mai l'an/ li' ,"; The F,conomic Survey, 19r70 - ?1. Table 18: Tm7,m13 Total ImTorts b S.I.T.C. rlivisions (Sns. mil,lion) ]196'.5'. 196'-i6 1 967 19t'P 1959 1970 r,ood .n(! live Lknimals 153 196 177 16'- 140 175 7everage n,l, tobl:.-cco 3) 33 33 1i 15 20 Crude materials 16 13 17 29 27 31 TMlineral fuels -nd ulrri;-Lats _ ,l_ 14 142 167 174 191 Anim,il and veaerelT'e oi.2 i9.i ts -'11 16 1 _-3 17 23 28 Chemic,las an-I fert:i]izers 11 135 __ l 119 1(5 223 I-nufTacturerl goods 4 r2.) 574 52' '.5 501 6259 Leather and ri.ibber 28 2 9 4' 41 43 6'4 arn- paper 34 '16 44 I1 57 74 Other textiles 1.i- 3 ') 11 182 166 132 C ement ' 1 119 1 F 27 Other non-metallic mineral- manu.FactAres 15 14 '2 24 7? Iron anrr Steel. mAnufAct;ures 65 59 139 117 36 1.34 -,on-ferrolus manul-factl.ures 7 21 10 1 22 °5 Other me.t-- rnanrifa1c:ures 18o , 2 105 1 13 87 _ Milchiriery rnd trmnsport erqu )jmert 327 4 474 538 479 800 Ca,trs 242 34 28 32 35 33 (--t;rer trrisport 115 166 6 183 211 161 255 Other Machinery 27 222 2 2 ,3 ?9c 283 512 Misce11l,neo,us manui'ctlres 133 1I. 161 154 1].53 Vi scelli neonus trc,nsactions 3 ' ' 3? 5 24 18 To al 1,05 n, 59- 1,625 1,834 1,710 2,264 :'octrlotes: * _nIrlies anf iba-ir S -'rl>ce: ';as _'51_ '.r'can Cislorl-ls-nts rilv_i 'a'l i ; e --D C rtrnl Table 19: Central Government revenues, expenditure and balances (Shs. million) a) l'? c) 1963/64 1964/65 1965/66 1966/67 1967/68 1968/69 1969/70 1970/71 1971/72 1972/73 Current Revenues 1) 718 840 892 1, )24 1,130 1,269 1,577 1,695 1,823 1,945 Current expenditures 2) 709 777 888 980 1,065 11186 1,527 1,630 1,723 1,823 Current budget surplus 9 63 4 44 65 83 50 65 100 122 Capital expenditures 3) 145 204 230 294 344 461 614 840 768 Overall deficit 136 141 226 250 279 387 564 775 668 Financed by: External loans & grants 52 79 84 127 84 123 122 310 374 Non Bank domestic government borrowing and internal grants 40 17 142 80 123 92 187 142 144 Government borrowing from Banking system and changes in cash balances 44 45 0 43 72 163 255 323 150 External resources as a percentage of capital expenditure 36% 39% 37%' 43% 24% 27% 20% 37% 49% a) likely actuals b) budget figures c) tentative projection 1) including dividends from parastatals 2) including expenditures and provisions for internal. and external debt servicing 3) including transfers to parastatals but excluding TAZARA Sources: Budget Survey, 1965/96; Backgroumnd to th-e Pudget, 3969/70; The A7l.unual Plan for 1971/,72; Financial St-atement and Revenue Estimates 1971/72. Tat.le 20: CENTRAL GOVERNMENT RECURRENT REVENUE (Sh millionr) 1963/64 1 961/65 1965/66 1966/67 1 967/68 1 968/69 1969/70 1970/71 e/ 1971/72 e/ 1972/73 I. Taxes (total) 49o.6 575.4 621.9 767.9 872.1 1 ,013.2 1 ,205.1 1 ,379.6 1 .464.8 1 ,545.8 1. Direct (total) 158.9 181.2 19 5. 270.7 297.5 391. , 399.1 8.7 508.1 551.5 Income and Corporation Taxes 120.14 130.R 153.9 1i8.6 85o.o 338.6 352.0 418.0 447.5 485.o Personal Tax 20.3 21.3 29.6 34.7 44.-1 ) Development Levy a/ 39.5 39.3 Export Duties 19.1 2S.1 12.3 37.9 33.5 53.)0 47.4 61.7 60.6 66.5 2. Indirect (total) 331. . .04.2 142.0 n 82 9D4 80.97 994M3 Import Duties b/ 208.2 245.3 259.7 2'96.6 s,3 73 j 343.9 379.5 347.5 340.0 Excise Duties and Sales Tax / 77.9 91.1 100.1 121.9 1143.6 ) 30.2 377.0 1421.6 506.9 550.3 Other Licences, Duties, Taxes 29.1 40.0 46.3 54.6 56.6 77.6 83.9 92.8 102.3 104.0 Distributable Pool 16.6 17.3 19.9 24.2 19.1 13.8 0.9 _ II. Other Revenue (total) 14.7 101.2 94.5 99.9 120.5 10 Government Property 33.3 33.2 34.5 56.2 50.9 Interest and Loan Payment I/ 18.4 30.3 10.9 17.0 j 69.6 ) 371.8 27h.6 350,3 398.9 Other 23.0 37.7 49.1 26.7 III. Appropriations-in-aid g/ 1 52.4 162,9 181.2 156.2 136.5 14 ____) Grand Revenle Total 717.9 S39.5 897.5 1,024.3 1,129.5 1,269.8 1,576.9 1,654.2 1,823.1 1,914.7 Total Tax Revenue as a percentage of Monetary G.D.P. atimiarket prices. 13 - 13.2,e 14.7-0 _1 Footnotes T/ he Development Levy was merged with the Personall Tax with effect from the 1968/69 budget. §/ Includes from 1967/68 Transfer Taxes levied on certain inports from Kenya and Uganda in accordance with the provisionsof the 1967 Treaty for East African Cooperation. / Sales Tax was introduced in June 1969. Revenues under this item include Sales Tax revenues from 1,969/70. t/ Includes dividends from the East African Currency Board. * Budget figures. / Tentative projection. g/ From 1969/70 Appropriations-in-aid, i.e. revenues collected by Ministries and earmarked for expenditure by those Ministries are no longer shown separately but are included in general revenues and expenditures. Dividends from parastatals are included in "other" revenues under II until 1965/69 and in the combined figure for II and III from 1969/70. In this table no allowance is made foir additional rental revenues from Government property following the acquisition of properties after the introduction of the so called Housing Acquisition Act of April 1971. h/ Based on provisional estimate of G.D.P. during the first half of 1971. Sources: The Annual Economic Survey 1969; The Economic Survey 1970/71; Financial Statement and Revenue Estimates for 1971/72. Table 21: CENTRAL GOVERNMENT CAPITAL EXPENDITURES BY MINISTRY AND BY FUNCTION (Sh '000) 1969/70 1970/71 1971/72 Central Establishments 2,215 5,013 9,150 Regional Administration and Rural Development 31,340 42,35o 3h,699 Foreign Affairs 2,794 4,239 259 Defense and National Service 52,574 60,380 138,920 Judiciary 358 3,470 703 Agriculture and Cooperatives 54,665 122,192 54,729 Economic Affairs and Development Planning 1,856 4,528 5,311 National Education 31,777 72,800 58,642 Commerce and Industries 55,287 82,809 25,517 Communications, Transport and Labor 195,7h6 254,621 215,176 Lands, Housing and Urban Development 35,682 47,819 19,647 Finance 10,437 49,4o0 25,039 Home Affairs 9,891 21,519 lo,853 Health and Social Welfare 9,906 24,094 7,740 Information and Broadcasting 295 4,i4o 4,729 Natural Resources and Tourism 44,520 44,157 34,192 Water Development and Power 62i349 106,h07 123,080 Total: 60l692 768.368 Functional Breakdown in X Share of Total Capital- Expenditure Economic Services 79.7% 73.7% 66.C% Social Services 6.9% 11.0% 9.3% General Administration including Defense 13.4% 15.3 24.7% a/ Actual expenditures by Ministries according to information contained in 1971/72 Budget Documents. The difference between the total and the total for Central Govermnent Capital Expenditures in Table 19 is unexplained. &1/ Budget figures for so-called Category A projects only, i.e., projects for which funds were expected to be available. Actual capital expenditures for 1970/71 are estimated at around Sh 840 million. c/ Budget figures for Category A projects only, excluding Tazara. Source: Estimates of Public Expenditures Development Expenditure 1971/72. Table 22: FUNCTIONAL EXPENDITURE CLASSIFICATION OF CENTRAL GOVERNMENT RECURRENT REVENUES 63/64 64/65 65/66 66/67 67/68 68/69 69/70 70/71 71/72 (%) (%) (%) (%) (%) (%) (%) (%) (%) General Administration (incl. defense) 37 27 34 33 26 28 39 36 35 Economic and Social Services 54 60 57 53 55 52 h8 49 45 Debt Service (incl. contributioneto sinking funds) 7 6 8 10 13 12 10 11 15 Contributions to Capital Expenditures 2 7 1 4 6 8 3 4 $ Sources: Background to the Budget, An Economic Survey, 1967-68; The Annual Economic Survey, 1968; The Economic Survey 1970-71; Financial Statements and Revenue Estimates 1971-72. Table 23: THE ALLOCATION OF INCREMENTAL RECURRENT REVEVJES Million Shillings Incremental Economic (%) Social (') General (i) Other (%) Increment (% Increase in Services Services Adminis- Furposes Left for Recurrent Recurrent Recurrent tration Debt, Transfer Revenue Recurrent etc. Capital Budget c___________ Used for incremental increases in _ 1966/67 132,1 25,2 (19) 23,9 (18) 11,2 (8) 31,7 (24) 40,1 (30) 1967/68 105,5 16,9 (16) 11,6 (11) 10,0 (9) 46,8 (44) 20,2 (19) 1968/69 140,3 35,9 (26) 42,7 (31) 22,5 (16) 19,9 (14) 19,3 (14) 1969/70 307,1 39,6 (13) 100,9 (33) 111,4 (36) 88,8 (29) -33,6 1970/71 77,3 62,7 (82) 50,1 (65) 48,0 (62) -64,1 -19,4 1971/72 budget 16o,o 200,0 -41,0 Accumulated total 1966-71 762,3 180,3 (24) 229,2 (30) 203,1 (27) 123,1 (16) 26,6 (3) Accumulated total 1969-71 384,4 102,3 (27) 151,0 (39) 159,4 (41) 24,7 (6) -53,0 Source: Computed by economic mission Table 24: MONETARY SURVEY (Shs. million) (End of month) December June December June December June December June December 1967 1968 1968 1969 1969 1970 1970 1971 1971 Currency in circulation (outside banks) 511.7 430.8 528.6 507.9 605.0 616.7 818.4 817.2 Demand deposits 680.4 618.h 768.8 746.2 931.8 822.3 980.4 1,077.7 Total money supply a 1,192.1 i,0o9.2 1,397.4 1,254.1 1,536.8 1,439.0 1,798.8 1,894.9 Time deposits 206.0 293.2 356.7 455.9 479.8 551.9 615.9 656.0 Sa-rings deposits 141.6 152.4 159.7 163.9 177-3 189.5 205.2 199.4 Total quasi money 347.6 h45.6 516.4 619.8 657.1 741.4 821.1 855.4 Net claims on Central Government -42.1 -89.4 -20.5 89.9 163.6 75.7 282.3 352.8 of which Direct Advances: 19.0 - - - 216.0 - 216.0 196.0 Lending to other damestic sectors ii 818.1 705.6 898.6 898.8 1,092.6 1,058.1 1,347.1 1,358.7 Net liquid foreign assets held by Bank of Tanzania and Central Government plus IMF4 gold tranche position plus SDRIs 432.6 521.5 546.6 580.8 564.2 504.5 455.8 517.1 Increase in money supply during preceding 12 months period 17.2A 19,5% 10.0s 14.74 17.0Q 31.7A Money supply as a percentage of monetary G.D.P. at market prices 22.2; 23.8A 24.7A 26.4% Net foreign assets of Zanzibar /2 125.2 135.2 102.8 179.1 248.6 3h6.0 313.8 388.2 a Includes Zanzibar a Zanzibar reserves are controlled by the People's Bank of Zanzibar Source: Bank of Tanzania Table 25: COMMERCIAL BANKS - PERCENTAGE BREAKDOWN OF DOMESTIC LENDING BY ECONOMIC SECTOR (Ed of month) June Dec. June Dec. June Dec. June Dec. 1968 1968 1969 1969 1970 1970 1971 1971 Public Administration 1 1 1 0 0 0 0 Agricultural production 15 11 11 10 11 13 8 Marketing agricultural produce 16 21 23 25 11 21 24 Manufacturing and mining 18 16 20 18 24 16 15 Building and construction 4 5 4 4 3 3 2 Transportation 2 2 2 2 3 3 3 Tourism - - - - 2 2 1 Trade 36 37 33 34 39 36 35 Other 8 7 6 7 7 6 12 100% 100% 100% 100% 100% 100% 100% Total lending (in Shs. million) 705.6 898.6 898.8 1,092.6 1,058.1 1,347.1 1,358.9 Source: Bank of Tan7ania reports Table 26: rTrrrAL V/AGE EMPLTYMEYT BY IWT)USTRY Y 1964 5 1966, 1967 1968 1969 197, Estate Agriculture I13,589 139,112 126,223 123,887 109,213 112,888 107 377 Mining and quarrying 8,035 7 418 6,191 6 4913 6,121 5,919 6,039 Manufacturing 23,583 25,729 29,8)30 31,186 35,359 40,323 43,417 Construction 33,740 31,457 37,460 41,929 47,305 52,767 54,497 Publ].ic Utilities 4,637 4,75 5,303 7,0 3 9 ,601 9,55 11,296 Gonvnerce i7,3'i 17,843 203,935 20,077 21,415 1;,072 20,627 -in-nce _ _ _ _ _ 4,257 4,835 rr:is-sport and Comnmiziations 25,G67f- 26,426 27,565 2D,725 31,764 32,389 33,702 Services 74,662 80,968. 82,935 86,351 90,933 90,556 92,5013 Al 351,257 333,755 336,497 346,741 351,711 367 ,)26 374,691 Indjex (r%zl - io.o) 10 .2 95.0 95.8 98.7 103.1 104.7 106.7 rron-agriculturaii employment 187,6,66 194,I503 200,276 222,854 242,498 255,038 267,314 Index (1964 - o.o) .- L 1Ž3 .7 106.7 118.7 128.2 135.9 142.4 eoo tnotes: *j The coverage of the '3ata is significantly less th.an 1C3 percent of all employment and thus the data ire more accurate as to trends tnan exact levels in any one yearr. i-Om baT the .newT U.V. in`ustriaA croump cl.-sssification is used. The employment figures fOr Estate Agricul,ture, Conmmerce and Services from 1, are not strictly comparable with preceding years due to. new indJustria7 c-iassi:z-iction. Souce: IIle knmnal Ocenomic Survey, I 98; 'The Sconomir Survey, 1 970-71. 'lable 27: Retil Price lnd'ex or Goods Consumed by minimum wuarer earners (September 19'3 = 100.) A = AI] items B = Food Ntirch JŽne September .)ecember Average It E~~A A B A B A ''54 101 20f l(3 10r2 102 10.0 101 9 9 102 100 1965 105 104 1G' 107 110 109 114 114 110 109 1966) lijO 111 12 114 115 113 116 114 115 113 1'67 1i3 10S i.l121 11 11' 115 118 114 1778 110' hId Il 115 121. .16 122 115 120 115 1l'0 20 113 121 113 123 114 124 116 122 114 1D70 ;24 116 124 117 127 119 120' 122 126 119 -i:,olu- 27 A Cost of livin-qg inr.ex or uoor!s an, services cons.,mec' by miArl,e grar'e civil servants - Dar es Salaamn (September 1963 = 0, i3r-˘c;? June September 'ecember Average 19t6 4 1- DP i.. Io-. 10 715 1 06.',; 15 107.0 11. 113.7 115.7 113.4 .^O.s., 12.0.; 110.2 11i.1 1.20 .4 118 .6 '7 1.' 12' 124.] 125.3 121.5 29!. / 1-2.9 129.i 127.0 *_,,. 1:-:''.' 128.6 12S.9 130.1 129.3 3 3. 130.7 131.Q ' . 3.4 13 .6 '1 ^/? 2 ' 5 i-.icte- .rr_ r-'csirterrl very reli able and proba-bly understite the --ctua.] increase in retail prices. ie'l .ei0hts ,is ed for 'be i-3--ic; itOlis .3re c'urrener'y heing revised. f Ae: r iru.a1 m'' ormi. S\'ey, 1 9; .cce ..n Srvoy, .170-71; I'onthly Statistical BTu1]etin. T-a;ble 28: rl)p li.fln vi t]..nd puoblic health st-otistics A. Proportion of population uifler 5 yeo rs in 19', 12° B. Infart mortality 19t,7 190-225 per i ,000 ft It 34 ts t " 44% 1 967 1f0C-165 per I ,000 30 " ' 1% Miaternria mortality 1957 (in clinics only) 4.7 per 1,000 r Ir ss t 45, . ' '' 07% "f,, , 1967 (" " " ) 2.7 oer 1,000 CruAde hirtrirate (1967) 47 per 1,-00 Sources: 9'57/ ancl I97 popu]lation censuses CruAde ,e.th rAte (1967) 22 per 1 ,C00 ___ __ life expectancy ;At b)irth (I 967') 4r. - 4j1 yeurs C. !'tjmlmer of registered andl licensed doctors workina in Tanzaniat Total. fertility (1967) arlund 6.i5 (exclucding Chinese medical. teims) Populati-on projectinr for '.980 (assuming 3,' annual ]96c,' 49' increase for thle Mairland and? 2.5% for 7an7i.har 19)9 545 is 17 mill 1990 : 58 Sour,.e: 1)67 populatico ne-ss _____ Welftry D 'ea1t, - SCia se fare, ar es So,.Taai E. 'eilth Centres and Dispensaries ~.D1 tA S Trs tear end ' nealthi1 CMentres nispensaries fear E,n! 7nvernment Pisison-r To tal 19_____ -.D'C 4, ; 1960}3; 1c><,n, 92 '5942 ]61. 4 <2 4,4 141 I7 , 7 3 : 1C 1962 28 995 ' 'J'",' ,S03 ,-'4n~ "-r°ZX 1967 40 -1,23 009 FO 8 7,7,9 " 095 iS 'T4 c;. 46 1 33 199S ~ ,,,2p4 - -7 A , S Z 9 1 9 O5 < 1,6 Second VCx-1e0>...... r F aŹ! 'iret ,3',7' rnin±mom 'censi *f.. . .................... Si:co-nd P.ve-'fear 01 an 'Torget 137' (stlf'.r imaprovement; n 109, jYstrcts5 en,1 , 3 target in terms of number ˝lstriC-tO E ; i .le-i-:>icts h1^ nOt re cOde ti:s' nl)Ce %ls?esr-1- lray,hieved.) t.!rtet. convert-d into H!etlalh C4entres I1 ';"'. miss- 'eIs :a7:r 'er l.-'. 1ernmen t _*,rce: I'inlistry of !(e-l t_n' S?cial '1e'if Lre, T3r es Saladm .fll;rC 9 6 ini siry lA' rf:7 7 social ,elore, ,H e<; SO o.tTh Table 29 MISSION PROJECTIONS FOR BALANCE OF SBCOND PLAN (See footnotes on next page) (in current prices, excluding TAZARA) Shs. million 1971/72 1972/73 1973/74 Monetary G.N.P. at market prices 1) 7,733 8,429 9,188 Gross national savings (monetary sector) 2) 1,330 1,384 1,450 Total consumption (monetary sector) 3) 6,403 7,045 7,738 Estimated resources for central government and parastatal capital expenditure Central government recurrent budget savings 100 120 120 New taxation - - 4o Domestic non-bank borrowing 130 140 150 Domestic borrowing from banking system 4) (240) (262) (286) of which available for capital formation 4) 41 175 192 Other internal grants 14 15 15 Parastatal internal savings 5) 260 270 280 Foreign loans and grants (gross) 6) 374 400 467 total 919 1,120 1,264 Private sector capital formation 7) 200 200 200 E.A.C. plus local government capital formation 200 200 200 Increases in stocks 8) 175 100 100 Total capital expenditures (gross investment) 1,494 1,620 1,764 Balance of Payments on current account Exports: sisal 195 191 187 cotton 290 308 328 coffee 300 311 322 diamonds 180 170 160 other 950 1,055 1,159 total exports 1,915 2,035 2,156 Imports: consuwer goods 786 863 932 intermediate goods 936 1,020 1,112 capital goods 500 543 591 total imports 2,222 2,426 2,635 Services (net earnings): 70 80 go Transfers (net earnings): 75 75 75 Overall current account deficit 16h 236 311 Memorandum items Increase in real per capita consumption (monetary sector) 4.7% 4.5% Gross investment as a percentage of Monetary G.N.P. at m.p. 19.3% 19.2% 19.2% Gross national monetary savings as a percentage of Monetary G.N.P. at m.p. 17.2% 16.4% 15.8% Footnotes referring to table 29 1) Assuming a monetary G.N.P. growth rate in real terms of 6.5% p.a. (the actual average rate achieved during the period 196h-70) and an increase in the general price level of 2.5% p.a. (base year: 1970). 2) Calculated as a residual (gross investment minus B.O.P. current account deficit). 3) Equals monetary G.N.P. at m.p. minus gross national savings (monetary sector). 4) Monetary expansion in 1971/72 Annual Plan projected at Sh 240 million. For subsequent years 9% expansion assumed (equal to assumed rate of monetary G.N.P. expansion). The proportion of new credit available for capital formation by government and parastatals in 1971/72 is calculated as a residual (projected government plus parastatal investment of Sh 919 million minus other estimated available resources). The small amount thus calculated for 1971/72 presumably reflects an unusually large demand on resources for the financing of additional stocks and working capital. The proportion of credit expansion available for capital formation during the last two years of the Plan is assumed to be considerably greater. The remainder would be used for the financing of addi- tional stocks, working capital and/or investment by others than the government and parastatals. 5) No significant changes anticipated. The level of gross operating profits (including depreciation) achieved in 1970 was Sh 260 million. Projected increases are no bigger than what may be expected on account of increases in depreciation. 6) The amount for 1971/72 is part of the Annual Plan for that year. The require- ments for estimated investment in stocks plus working capital and investment by others minus estimated domestic resources available for government and parastatal capital formation. 7) Private investment (Sh 277 million in 1970) is assumed to remain stable at a lower level. Decline due to anticipated reductions in private investment in buildings and transport equipment. 8) The figure for 1971/72 is exceptionally high as explained in footnote 4. The level projected for the last two years is in line with the trend for this item since 1967. 9) Intermediate goods imports are projected to run at 12.1% of monetary G.N.P. at market prices (1966-1970); capital goods imports are projected to run at 33.-5,1 of gross investment (1966-1970 average). U G AN D~ A --- { 83° lC K1 E R-- I A ( Sh16'$> 4 E AZNA 4 Sh'rai _~~~~~~~-' ~TANZANIA 4 ,;7-v,/ IC -| t- REGIONS AND DISTRICTS RWANOA ~~~~~~~~~~~~~~~~ ii -.-~~~~~~~~~~~~~Region boundaries ( R W A N D A B 9111E S T 11 &//1§ 8ukima > > w ,:, >, , District boundaries '~~~~~i V') s Zul ~ ~~~~~~~~~~~~~~~~-.-international boundaries IIK~~~~~~ Main roads NATRE ~ ~~~~~~~~~Railways 0 j>'N O yNyo m t S } NATROt)\_ S + +TAN- ZAM railway . r Geilo . ILuguru Olduwoi mC~LJ KJol'om u n g u K'LI\' A AFRICAR 4 -ioma > >/ '' -_____ Urmb TbA M ,n yo n go I I.-bul -K MANYdRA 0 T-,O -v Koho | K(/L A ( T ,, _ / ARosdomo f' K < Q~~~~~~~. I I 4 NzegaSM SV MbeYo X 1 A9Kilww oo Z A M 8 1 A > t - S 7 / g , ,,-, DRSSLM 7X1e boN zuichn f s Singidt on1o oa T m 41 ZANZ~~~~~~~~~~~~~~~~~~~~~IBARO 20R FEBRUARY 1972anda r go 1° KlLaMETERS d < X tMbi~~~~~~~ngwoR losOr io' ES Sx- M REPUBLI , k, Msg U U MILES te bm oAEc f~ 3Z B \ , . M0ZAM8tqUEO EBRUARY 1972 IBRD 2802R2unah.n"