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Damas Kanyabwoya
28 April 2011
It is clear that Tanzania currently passes through very difficult economic times due to a range of factors including high energy and food prices, expensive and erratic power supply, increasing inflationary pressures, and decreasing government revenue collections.
These factors have already resulted in high living costs and have curtailed investments in social services and development projects, but the debate currently going on in the country among policy makers, academicians and civil society is what Tanzania faces an imminent economic crisis this year.
No reason for concern, at least, for now
Economists who spoke to BusinessWeek last week said despite a myriad of problems Tanzania is less likely to experience economic crisis this yea. They warned, however, that if oil prices keep rising and nothing is done to contain the situation, then, talks of an economic recession could be relevant.
The experts said the situation as it stands now is far away from a crisis because of the nature of the country's economy, which depends more on agriculture than on industry. Hence the effects of power problems and high oil prices, though, significant would not be disastrous to the general economy in the short-term.
Prof Delphin Rwegasira who serves as Mwl Julius Nyerere Professorial Chair in Development at the University of Dar es Salaam, said it is too early to talk of an economic crisis because the power problem is manageable, while food prices are likely to decrease as harvests start.
"I do not think we are facing a crisis. At least not for now! The power problem and high food prices would end soon as the rains keep coming," said Prof Rwegasira who also teaches Economics at the same University.
Prof Humphrey Moshi from the Economics Department of the University of Dar es Salaam also ruled out a possible economic crisis because the Tanzanian economy is agriculture-based.
"If power supply woes persist it is only 14 per cent of Tanzanians who would be affected. The rest engage in agriculture which does not depend on power," he said.
Prof Samuel Wangwe, the executive director of the Research for Poverty Alleviation (Repoa), said it was pessimistic to talk of an economic crisis now.
"The economic situation in Tanzania now is far from experiencing a crisis. The ongoing rains should reduce the upward pressure on inflation," said Prof Samuel Wangwe, the executive director of the Research for Poverty Alleviation (Repoa).
The situation in the global economy
There are fears that another, most severe, global economic crisis is just a matter of time from now. The World Bank president Robert Zoellick recently said high crude oil prices, a possible food crisis and the Middle East and North Africa political turmoil could deal a blow to the global economic growth prospects this year. Crude oil prices have already surpassed $120 a barrel up from $85 in the similar period last year.
In East Africa Kenya and Uganda are already experiencing double digit inflation pressures, which have led to mass demonstration and even violence.
As part of efforts to contain the situation the Kenyan Treasury reduce diesel and kerosene taxes last week.
How the government views the situation
Mr Mustafa Mkulo, the minister for Finance and Economic Affairs told BusinessWeek last week that the government is aware of the difficult situation but there should be no cause for alarm.
He said, point-blank that the government has no plans of reducing oil taxes, as the Kenya government did last week.
"Kenya and Tanzania cannot be compared at all because they are two different economies. Our neighbours' depends heavily on manufacturing," he said, adding "The problem of oil prices in Tanzania is beyond tax. The real culprit is increased crude prices in the world market.
Tax is just a small factor. He noted, however, that the government will consider lowering taxes in the next budget, to be tabled in Parliament in June. "We are waiting for the budget proposals from all ministries. By May this year we will be in a situation to see what we can do [to reduce high oil prices]," he said.
Growth targets will certainly be missed
Experts said economic growth targets will certainly be missed this year due to the challenges. In fact the government and the International Monetary Fund experts have already revised the economic growth targets for this year. The initial government's growth targets were 7.2 per cent in 2010, but these were later revised to between five and six per cent.
But what is at stake in Tanzania?
The difficult global economic situation adds to Tanzania's misery due to high level of foreign dependency on budgetary resources, food imports as the country is still a net importer, and tourism, a major foreign exchange earner. Prof Wangwe said if the situation in North African and Middle East persists and seriously disrupt oil supplies then the Tanzania's economy would be highly affected and talks of economic crisis would be relevant.
"A crisis happens when economic growth is 0 per cent or negative or if the rate of decline is high say from 10 per cent to two per cent; something which is unlikely to happen to Tanzania," he said.
Prof Moshi was concerned that if power problems persist foreign and domestic investments inflows in mid-size and large industries would decline significantly.
Prof Rwegasira said the high fuel prices problem would have "to be kept in very sharp view" because it could cause real harm to the economy and the cost of living, if it persists.
"We should not underestimate the effects of high oil prices on inflation," he noted.
What should be done?
Tanzania needs to play its part through tackling current challenges. It should put to end power problems and do something on oil prices by foregoing some taxes and reducing unnecessary uses of oil, according to Prof Rwegasira. Prof Moshi also said reducing some oil taxes could be a major, though difficult, solution to skyrocketing oil prices.
"Why is it that countries such as Zambia which import oil using the Dar es Salaam port have lower prices than Tanzania," he queried.
Mr Moses Kulaba, an activist, also called for an alternative source of tax revenue instead of overtaxing oil imports.
"We need to expand our tax base to reduce pressure on oil prices," Mr Kulaba, the executive secretary of the Agenda Participation 2000 said.
28 April 2011
It is clear that Tanzania currently passes through very difficult economic times due to a range of factors including high energy and food prices, expensive and erratic power supply, increasing inflationary pressures, and decreasing government revenue collections.
These factors have already resulted in high living costs and have curtailed investments in social services and development projects, but the debate currently going on in the country among policy makers, academicians and civil society is what Tanzania faces an imminent economic crisis this year.
No reason for concern, at least, for now
Economists who spoke to BusinessWeek last week said despite a myriad of problems Tanzania is less likely to experience economic crisis this yea. They warned, however, that if oil prices keep rising and nothing is done to contain the situation, then, talks of an economic recession could be relevant.
The experts said the situation as it stands now is far away from a crisis because of the nature of the country's economy, which depends more on agriculture than on industry. Hence the effects of power problems and high oil prices, though, significant would not be disastrous to the general economy in the short-term.
Prof Delphin Rwegasira who serves as Mwl Julius Nyerere Professorial Chair in Development at the University of Dar es Salaam, said it is too early to talk of an economic crisis because the power problem is manageable, while food prices are likely to decrease as harvests start.
"I do not think we are facing a crisis. At least not for now! The power problem and high food prices would end soon as the rains keep coming," said Prof Rwegasira who also teaches Economics at the same University.
Prof Humphrey Moshi from the Economics Department of the University of Dar es Salaam also ruled out a possible economic crisis because the Tanzanian economy is agriculture-based.
"If power supply woes persist it is only 14 per cent of Tanzanians who would be affected. The rest engage in agriculture which does not depend on power," he said.
Prof Samuel Wangwe, the executive director of the Research for Poverty Alleviation (Repoa), said it was pessimistic to talk of an economic crisis now.
"The economic situation in Tanzania now is far from experiencing a crisis. The ongoing rains should reduce the upward pressure on inflation," said Prof Samuel Wangwe, the executive director of the Research for Poverty Alleviation (Repoa).
The situation in the global economy
There are fears that another, most severe, global economic crisis is just a matter of time from now. The World Bank president Robert Zoellick recently said high crude oil prices, a possible food crisis and the Middle East and North Africa political turmoil could deal a blow to the global economic growth prospects this year. Crude oil prices have already surpassed $120 a barrel up from $85 in the similar period last year.
In East Africa Kenya and Uganda are already experiencing double digit inflation pressures, which have led to mass demonstration and even violence.
As part of efforts to contain the situation the Kenyan Treasury reduce diesel and kerosene taxes last week.
How the government views the situation
Mr Mustafa Mkulo, the minister for Finance and Economic Affairs told BusinessWeek last week that the government is aware of the difficult situation but there should be no cause for alarm.
He said, point-blank that the government has no plans of reducing oil taxes, as the Kenya government did last week.
"Kenya and Tanzania cannot be compared at all because they are two different economies. Our neighbours' depends heavily on manufacturing," he said, adding "The problem of oil prices in Tanzania is beyond tax. The real culprit is increased crude prices in the world market.
Tax is just a small factor. He noted, however, that the government will consider lowering taxes in the next budget, to be tabled in Parliament in June. "We are waiting for the budget proposals from all ministries. By May this year we will be in a situation to see what we can do [to reduce high oil prices]," he said.
Growth targets will certainly be missed
Experts said economic growth targets will certainly be missed this year due to the challenges. In fact the government and the International Monetary Fund experts have already revised the economic growth targets for this year. The initial government's growth targets were 7.2 per cent in 2010, but these were later revised to between five and six per cent.
But what is at stake in Tanzania?
The difficult global economic situation adds to Tanzania's misery due to high level of foreign dependency on budgetary resources, food imports as the country is still a net importer, and tourism, a major foreign exchange earner. Prof Wangwe said if the situation in North African and Middle East persists and seriously disrupt oil supplies then the Tanzania's economy would be highly affected and talks of economic crisis would be relevant.
"A crisis happens when economic growth is 0 per cent or negative or if the rate of decline is high say from 10 per cent to two per cent; something which is unlikely to happen to Tanzania," he said.
Prof Moshi was concerned that if power problems persist foreign and domestic investments inflows in mid-size and large industries would decline significantly.
Prof Rwegasira said the high fuel prices problem would have "to be kept in very sharp view" because it could cause real harm to the economy and the cost of living, if it persists.
"We should not underestimate the effects of high oil prices on inflation," he noted.
What should be done?
Tanzania needs to play its part through tackling current challenges. It should put to end power problems and do something on oil prices by foregoing some taxes and reducing unnecessary uses of oil, according to Prof Rwegasira. Prof Moshi also said reducing some oil taxes could be a major, though difficult, solution to skyrocketing oil prices.
"Why is it that countries such as Zambia which import oil using the Dar es Salaam port have lower prices than Tanzania," he queried.
Mr Moses Kulaba, an activist, also called for an alternative source of tax revenue instead of overtaxing oil imports.
"We need to expand our tax base to reduce pressure on oil prices," Mr Kulaba, the executive secretary of the Agenda Participation 2000 said.
