Impact of Trade Policies on Tanzania

This is a write up on the impact of trade policy on Tanzania which is part of a group case study on the country about the impact of trade, investment and debt policies. The findings of the study with reference to trade policies on the country were that the country has improved a lot in terms of development and reduction in poverty. Secondly, the current recession did not by pass the country as it has had a knock-on-effect on trade especially on textile and garment trade with the outside world. It reflects the argument that free trade enhances development but too much openness does not help developing economies.

Tanzania was formed through the 1964 merger between Tanganyika and Zanzibar both of which were colonies of Britain and had their independence in 1961 and 1963 respectively. The country‘s economy is highly dependent on the agriculture sector where eighty percent of the population depends and contributes about 50% to GDP and 70% of earnings from merchandise exports (Ngasongwa, 2003: 4; C.I.A, 2009; Levin and Ohlin, 2008). The researcher found out that most of the country’s export were and are still from the agriculture sector which includes cotton, tea, coffee, tobacco, cashew nuts and other processed and unprocessed agriculture products. Tanzania’s main trading and export partners as at 2007 are UAE 4.9%, Germany 6.5%, India - 9.7% and China - 10.3% (C.I.A, 2009).
Since independence in 1964, Tanzania has pursued a number of trade policies including the famous Arusha Declaration in 1967 by the first president Julius Nyerere (BBC, 2009), and the Structural Adjustment Programme in 1986. The “Policy of Confinement” was adopted in 1972 as one of the cornerstones for implementing the Arusha Declaration. This policy as the name suggests nationalised and protected Tanzania’s trade from the international market through direct government intervention in the form of administrative resource, price controls, import quotas, rationing and the use of permits. This policy by the beginning of the 1980s led to inefficient resource allocation and inability to mobilise adequate resources due to government intervention and controls. It resulted in lack of competition in the financial system and the collapse of the credit system due to the emergence of inefficient payment system. As a result of the nationalisation of foreign and domestic trade, investments and assets there was a decline in private sector activity and Foreign Direct Investment (Ngasongwa, 2003: 5-6).

Globalisation goes with free trade and a country which closes its market finds it difficult to develop since there is no market to compete with the domestic market which can result in cheap price of goods and services. Tanzania realised the need for an open market and embarked on market liberalisation with the initial trade policy in the form of informal trade liberalisation measures starting in 1984 and based on import liberalisation and liberalisation of exchange controls (ibid)
The latest trade policy of the country is the National Trade Policy (NTP), 2003 which forms part of Tanzania’s Vision 2025 agenda aimed at helping the country to become a middle income earner. The aim of the NTB as stated by the Minister of Trade is ‘to facilitate smooth integration into the Multilateral Trading System and roll back the gradual descent towards marginalisation. It is intended to ensure that liberalisation offers meaningful, identifiable and measurable benefits’ (Ngasongwa, 2003: i). The private sector is considered as important in the NTP as it is seen as the lead implementer, the economic agent responsible for the production of goods and services that will enable Tanzania to take its rightful place in the global market. For the country to benefit from free trade, as argued by Chang (2002; 2008), domestic market should be competitive to compete with the goods and services from the global market. Tanzania like any other developing country faces the problem of advance technology to process the many agricultural products to meet international standard to enjoy the economies of scales associated with them. The main challenge faced by Tanzania according to Ngasongwa (2003: 3) ‘is how to enhance the competiveness of the domestic firms and entrepreneurs’.
Tanzania has been progressing steadily towards political stability and strong economic trade growth. Successful macroeconomic stabilisation and the implementation of a broad range of structural reforms have resulted in steady acceleration in economic growth during the past decade. The impact of trade policies on Tanzania includes the following:

I. The country has been generating about 6% GDP growth on average since 2000 and sectoral growth rate has accelerated across the board during the past decades
II. Agriculture is still the most important sector with an average growth of 4.9% during the last five years.
III. Rapid expansion has also been seen in the mining and construction sectors from 10.9% between 1991-1995 to 15.7% between 2001-2006 for mining (Levin and Ohlin, 2008: 7)
IV. In 2008 an estimated $2.49 billion was realised from export trade (C.I. A, 2009). About half of this profit came from the agricultural exports or trade where most of the citizens obtain their “daily bread” and this may also mean an improvement in the living standard of people.
V. The NTP, 2003 also liberalised the Tanzanian domestic market opening it to investment and as a result creating employment since FDI’s are welcome to operate in the country due to the removal or reduction of government intervention and others (Levin and Ohlin, 2008).
Trade policies have had negative effect on the country as well, especially the NTB which has brought about greater liberalisation and this was greatly felt in the current recession. One of the affected areas includes the textile and garment manufacturing industries. Sunflag a textile manufacturing company has reduced the number of days and hours of workers and has even laid some off. There has been a fall in its recruitment since the volume of garment production has fallen by 30% due to the reluctance of buyers from US and Europe to buy (Young, 2009).
The country should not be too much open to the global market as this is one of its weakness caused by its inability to compete strongly with international competitors. As argued by Chang (2008:66), ‘they need time to improve their capabilities by mastering advanced technologies and building effective organizations’.
To end the researcher suggests Tanzania should concentrate not only on the agriculture sector but improve on its performance in other sectors of trade to benefit the country and not to limit it to just one sector.












BIBLIOGRAPHY
 British Broadcasting Corporation (2009) Country Profile: Tanzania. Available at http://news.bbc.co.uk/2/hi/africa/country_profiles/1072330.stm (Accessed: 16 May 2009)

 Central Intelligence Academy (2009) Tanzania. Available at: https://www.cia.gov/library/publications/the-world-factbook/geos/tz.html (Accessed: 16 May 2009)

 Chang, H.-J. (2002) Kicking Away the Ladder: Development Strategy in Historical Perspective, London: Anthem Press

 (2008) Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism. New York: Bloomsbury Press.

 Levin, J. and Ohlin, M. (2008) Trade Policies and Export Growth: Employment and Poverty Impact in Tanzania. Stockholm: SIDA Publication Inc.

 Ngasongwa, J.A (2003) National Trade Policy: Trade Policy for a Competitive Economy and Export-Led Growth. Dar es Salaam: Ministry of Industry and Trade

 Young, R. (2009) Tanzania’s Textile Trade Unravels. Available at: http://news.bbc.co.uk/2/hi/business/7935273.stm (Accessed: 16 April 2009)