TANZANIA

NATURE PROPOSES, POLITICIAN DISPOSES

The shift from trade restrictions,
an economic/political  mistake, to

trade liberalization, an example of

economic reform as realization of

the mistake, makes a  difference in

Tanzania’s economy. The Tanzanian

experience is a  lesson for other

African countries

The highest mountain,

the lowest economic growth

Wonders of Nature,

mistakes of the politicians

Nature has gifted Tanzania with cash crops for export.  The cash crops can offer the gift of economic development to the country. But the country did not get economic development through cash crops, because its federal government made wrong policies for trading of cash crops. The wrong policies are essentially trade restrictions, such as export licensing, export canalization, import tax. As a result, the country has low-income income economy. An IMF economist Oussama Kanaan paints the scene of trade restrictions in his writing Tanzania’s Experience with Trade Liberalization in the IMF publication Finance and Development (June 2000).

Era of Trade Restrictions

He says: Throughout the 1970s, the government used trade restrictions as key tools for achieving its development priorities. Producers of export cash crops (mainly coffee, cashew nuts, sisal, tea, and tobacco)—traditionally Tanzania's main source of export earnings—had to sell their products to marketing parastatals (quasi-governmental organizations), which offered prices well below world prices. Exporters of other, nontraditional exports had to surrender most of their foreign exchange earnings and cope with a cumbersome and nontransparent system of export permits, which required exporters to obtain a license for each consignment and effectively gave individual ministries the right to regulate a wide range of exports on an ad hoc basis. Similarly, all imports were regulated through administrative allocations of foreign exchange and an import-licensing system, both of which became increasingly restrictive toward the end of the 1970s as foreign exchange earnings declined.

Producers of export cash crops were faced with procurement prices that declined steadily, in relation to both the consumer price index and world prices Those declines resulted from the appreciating real exchange rate, the increasing inefficiency of the marketing boards, and the government's policy shift to favoring food crops over export crops. Tanzania also experienced economic shocks that were beyond its control, such as drought and declining terms of trade. The overall result was that per capita output of export crops fell by about 50 percent during 1970-82 as the share of food production in agricultural output increased. Other (nontraditional) exports also contracted sharply during this period, owing to the pervasive administrative restrictions imposed on them. Falling export earnings soon led to foreign exchange shortages, and the consequent drop in imports of intermediate goods and raw materials led to sharp cutbacks in production, especially in the highly import-dependent industrial sector, and to a deterioration in the country's infrastructure.

Economic Recovery Program

Realizing the futility of the trade restrictions the country launched Economic Recovery Program, in which emphasis was given to trade liberalization, considering it key to economic development. The trade liberalization led to trade development, which in turn has contributed to economic development.

Trade development needs not only trade-friendly policy but also the support of trade finance infrastructure. Tanzania has developed such infrastructure. Barclays Banks is the leading constituent of the financial infrastructure, to contribute trade finance to the trade development strategy for its implementation.

Source: www.economywatch.com
85% of Tanzania’s exports are from
the country’s agricultural sector,
which employs 80% of the work force

In Tanzania’s banking system foreign banks are main role players. Out of 19 commercial banks 9 are foreign banks, some from UK and others from USA and other countries.

Barclays in Tanzania

Barclays, for example, offers the following services, including letter of credit, to Tanzania’s economy to meet its financial needs:

• forward contracts for businesses concerned about the fluctuations in the exchange rate. These contracts may be used to cover import payments, export receipts and dividend payments;
• acceptance credits provide funds at advantageous interest rates for business which require short-term funds quickly;
• Barclays is represented in over 50 countries worldwide which means that we can transfer funds to meet payments by using our own branches or our extensive network of agents in Tanzania and abroad.
• letters of credit;
• trade, customs, tender and performance guarantees.

Citibank Tanzania

This bank also offers LC service in Tanzania’s financial market. For a developing country relying on international trade for its economic development LC is considered the best way of trade payment.