Development Economics

L3 SEL
2020-2021
Professor: C.L. Garrouste
christelle.garrouste@u-pec.fr

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 Conclusions
CASE STUDY: TANZANIA

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Development Economics
1980s: Neo-
1950s-1960s: classic free- 2000s:
Linear-stages market Development
models theories traps models

1970s: 1990s:
Structural Endogenous
change growth
approaches
and
International
Dependence
Theories
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Development Economics
Classic Development Theories New Theories of Development and Labor

1980s: Neo-
1950s-1960s: classic free- 2000s:
Linear-stages market Development
models theories traps models

1970s: 1990s:
Structural Endogenous
change growth
approaches
and
International
Dependence
Theories
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Development Economics
Classic Development Theories New Theories of Development and Labor

1980s: Neo-
1950s-1960s: classic free- 2000s:
Linear-stages market Development
models theories traps models

1970s: 1990s:
Structural Endogenous
change growth
approaches
and
International
Dependence
Theories
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Tanzania’s economic history
The inherited
colonial market The beginning of neo-
economy (1961- liberalism (economic
1966) restructuring) (1986-2005)

The Ujamaa era The current era

(1967-1985) of poverty
reduction (2000)

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Tanzania’s economic history
Classic Development Theories

The inherited Development traps

colonial market The beginning of neo- models
economy (1961- liberalism (economic
1966) restructuring) (1986-2005)

The Ujamaa era The current era

(1967-1985) of poverty
reduction (2000)

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Tanzania’s economic history

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Tanzania’s economic history
A chronology of key events
• 1498 - Portuguese explorer Vasco da Gama visits Tanzanian
coast. Portugal succeeds in controlling most of the East
African coast, until it is ousted from Zanzibar in 1699 by
Omani Arabs.
• 1884 - German Colonisation Society begins to acquire
territory, ushering in an era of German control over
mainland Tanzania, while Britain enjoys a protectorate over
Zanzibar.
• 1916 - British, Belgian and South African troops occupy
German East Africa. Three years later, the League of Nations
gives Britain a mandate over Tanganyika - today's mainland
Tanzania.
• 1961 - Tanganyika becomes independent with Julius Nyerere
as prime minister; Zanzibar gains independence in 1963.
• 1964 - Two territories unite as the Republic of Tanzania with
an executive president, Julius Nyerere.

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Tanzania’s economic history
Classic Development Theories

The inherited Development traps

colonial market The beginning of neo- models
economy (1961- liberalism (economic
1966) restructuring) (1986-2005)

The Ujamaa era The current era

(1967-1985) of poverty
reduction (2000)

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 The Market Economy Period (1961-1966)
1961
• Market economy inherited from the British colonialists.
• Poor country dominated by subsistence economy, predominently
agricultural.
• Agriculture = 59% of GDP.
• Manufacturing = 3,6% of GDP.
• Transport, construction, mining, commerce, public utilities and services = 37,4% of
GDP.

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 The Market Economy Period (1961-1966)
1961
• All industries, plantations, banks, mines and othe rmajor
businesses were owned by British and Asians.
• Market economy characterized by a capitalistic private sector.
• When African countries became independent, their role
model was the community of developed countries that had
developed and industrialized through capital accumulation:
Harrod-Domar model
• Immediately after independence, Tanzania followed an
economic programme that depended heavily on foreign
investment to run a capital intensive ndustrialization and
agricultural development to attain its development goals.
• The adoption of the market economy called for the expansion
of production through creation of employment opportunities
in productive sectors.
• Hence, it required a transformation of tribal subsistence into
market economy.
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 The Market Economy Period (1961-1966)
Three-Year Development Plan: 1961-1964 The two-sector surplus labor model of Lewis
• The government planned to expand the formal wage-earning
activities by expanding the public services, industrial and
agricultural activities and encouraged workers to settle
permanently in towns through increased minimum wages.
First Five Year Development Plan: 1964-1969
• The objective was rapid economic growth through stimulation
of production in the two major productive sectors of
agriculture and industry.
By 1966:
• Real output was growing at 4,8%
• The GDP grew at 6,7% yearly (as planned!)
• The non-agricultural sector continued to expand (but did not
employ many people): the contribution of manufacturing
sector to GDP increased from 3,6% in 1961 to 7,6% in 1965!
• The agriculture’s contribution to GDP dropped from 59% in
1964 to 53% in 1966.
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 The Market Economy Period (1961-1966)
• Remarkable growth of the industrial sector (especially
manufacturing) but with significant market failures:
• Slow growth output in the sisal sub-sector poor performance
in the agricultural processing sector decline in employment in
the sisal sub-sector and in agriculture sector.
• Ordinary citizens suffered the pain.
• The percentage of people with agriculture as their source of
income kept on increasing.
• So, the number of poor people was increasing as agriculture’s
output compared to the industry sector was little.

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 The Market Economy Period (1961-1966)
• The rural and urban development difference was increasing. Kuznets curve
• But poverty was not reducing.
• The number of local experts remained insignificant as
compared to foreigners; while land and labor resources were
being underutilised.
Gini Index

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Tanzania’s economic history
Classic Development Theories

The inherited Development traps

colonial market The beginning of neo- models
economy (1961- liberalism (economic
1966) restructuring) (1986-2005)

The Ujamaa era The current era

(1967-1985) of poverty
reduction (2000)

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Ujamaa as Poverty Reduction Strategy (1967-
1985)
• Tanzania embraced Ujamaa in 1967.
• Ujamaa is an African form of socialism (which is different from
Scientific Socialism or Marxism) = Cooperative Economics.
• It aimed at creating an African socialist society without
conflict and exploitation.
• Ujamaa was introduced by the Tanzanian ruling class as a
development strategy.
• It was a state-centric approach that aimed to fight poverty,
ignorance and diseases that were considered as caused by
many decades of colonialism exploitation and the market
economy.
• Ujamaa followed two paths to its objectives:
1. Nationalization
2. Villagization
Real case experiment of the international dependency models!

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Ujamaa as Poverty Reduction Strategy (1967-
1985)
1. Nationalization
• Nationalisation of all major means of production:
 All nine commercial banks
 All nine milling and import-export companies
 Breweries
 Cement companies
 Shoes manufacturing industry
 Mining
 Tobacco
 Power over all agricultural products = sole buyer of all crops.
• Creation of the National Bank of Commerce with monopoly
power over banking and financial activities.
• The private sector disappeared completely: the economy was
fully controlled by the state.

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Ujamaa as Poverty Reduction Strategy (1967-
1985)
1. Nationalization
• In the early years of nationalisation, activities seemed to be
moving on well.
• But at the end the running of the enterprises failed.
• Why?
• Lack of required skills to run the businesses that had been
nationalized efficiently.
• Corruption of the bureaucrats.
• Emergence of a class of « state bureaucratic capitalists »
among civil servants, who used the state capital to enrich
themselves.

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Ujamaa as Poverty Reduction Strategy (1967-
1985)
2. Villagization
• In this Ujamaa approach, people in the rural areas were
grouped in collective villages.
• The government found it necessary to group people into
collective villages as most people lived in scattered settlments
in the rural areas.
• The villagisation process, as a self-reliance strategy, was the
core of Tanzania’s economic and social strategy.
• It aimed at revolutionizing agriculture to increase production
in the country.
• Villagisation was designed as a rural development program:
people would receive social services and work together as
one society.
• At first, people were not forced to join the Ujamaa villages.
• To persuade the rural people to join the villages freely, the
government provided the villages with basic services such as
clean water, schools and health care facilities.
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Ujamaa as Poverty Reduction Strategy (1967-
1985)
2. Villagization
• Nevertheless, many rural people were hesitant to join the
Ujamaa villages.
• Some feared that their ancerstral lands would be nationalized
by the government, so they resisted to join the villages freely.
• In 1973, the government announced mandatory resettlment
of all farmers into villages and used force to enforce the
announcement.
• In less than 20 months, almost 85% of all rural population
were living in an Ujamaa village.
• But the majority of the villages did not perform as they had
planned to:
• In some successful villages, there emerged a class of rich peasants
« kulak », who cooperated with the bureaucrats in using the Ujamaa
villages for personal reasons.
• In other cases, since peasants had been forced to the Ujama villages, they
lacked motivation produced either just enough food for their survival or
sold their surplus to the black market.

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Ujamaa as Poverty Reduction Strategy (1967-
1985)
2. Villagization
• As a consequence, Tanzania moved from being a food
exporter to a food importer.
• Both the villagization and nationalization strategies failed.
• Main causes of this failure include:
 Lack of enough resources to run the villages
 Mismanagement of the needed resources
 Corrupted civil servants
 Decline of the crops prices in the international market
 Drought
 Poor infrastructure
 Rural people’s unwillingness to settle in collective villages

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Ujamaa as Poverty Reduction Strategy (1967-
1985)

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Ujamaa as Poverty Reduction Strategy (1967-
1985)
• In the late 1970s and early 1980s, the
weaknesses and failures of Ujamaa
became apparent.
• It was necessary to change the
economic policy.
• The changing of policy was facilitated
by the relinguishing of power by
Presdient Julius Nyerere in 1985.
• From then on, Tanzania moved from
socialism to capitalism, from state-
controlled and driven economy to
neo-liberalism in the market oriented
economy.

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Tanzania’s economic history
Classic Development Theories

The inherited Development traps

colonial market The beginning of neo- models
economy (1961- liberalism (economic
1966) restructuring) (1986-2005)

The Ujamaa era The current era

(1967-1985) of poverty
reduction (2000)

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Economic Restructuring (1986-2005)
• The Tanzanian economy continued to deteriorate due to the failure of the Ujamaa econnomic policies.
• Following changes in political leadership in 1985, and continual pressure form external donors, Tanzania adhered in 1986
to the IMF conditions for economic poverty and introduced a comprehensive Structural Adjustment Program (SAP)
called the Economic Recovery Program (ERP).
• The ERP was intended to restore economic stability and quicken the structural reforms that had been started by the
government.
• SAPs are programs which make it possible for countries to get a loan from either the IMF or the WB.
• These loans are accompanied by conditions, including significant policy reforms which have to be adhered to before
getting the loan.
• The SAP normally includes a lot of different policies which interact with each other to fight poverty in a given country:
 Currency devaluation
 Reductions in the budget deficit and changes in growth rates
 Inflation rates and interest rates

• For Tanzania, the biggest part of the ERP package was on currency devaluation.
• The Shilling devaluation would be followed by structural reforms geared to liberalize the economy increasing efficiency
and productivity and stimulating growth.
• In 1986: the currency was depreciated from 17 TSh per USD to 40 TSh per USD!
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Economic Restructuring (1986-2005)
• The economic restructuring in Tanzania took place in two phases: • Some progress was recoded but the large
1. 1986-1995 part of the economy remained under
government control and operatd under
i. Liberalization of exchange and trade regimes
losses.
ii. Liberalization of agricultural marketing system and domestic prices • The government continued to experience
iii. Initiation of parastatals and civil services reforms large budget deficits and the eocnomic
growth continued to be slow.
2. 1996-2006
i. Privatization and reform of parastatals • Larger progresses were noticed including:
• Economic growth reaching 7%
ii. Liberalization of financial sector • Inflation rate dropped to a single digit
iii. Creation of market-oriented regulatory framework rate.
iv. Trade reform, regional integration • Strong growth of non-traditional exports
and turnaround in BoP.
v. Reversal of fiscal dominance of monetary policy • Increase of government international
vi. Fiscal consolidation reserves.
• Part of the government’s funds could now
vii. Sizable finance assistance from donors
be directed towards poverty reduction
programs.
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Tanzania’s economic history
Classic Development Theories

The inherited Development traps

colonial market The beginning of neo- models
economy (1961- liberalism (economic
1966) restructuring) (1986-2005)

The Ujamaa era The current era

(1967-1985) of poverty
reduction (2000)

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The Poverty Reduction Era (2000s)
• At the beginning of the new millennium, the Tanzanian economic policy, just like in most developing countries, changed
the focus more to poverty reduction.
• Tanzania followed the move that was initiated by the WB and the IMF as a strategy to reduce the debts that developing
countries owe to the international financial agencies and other countries.
• However, this objective is addressed in the name of poverty reduction.
• Therefore, in the early 2000s, Tanzania signed and committed herself to implementing the UN’s MDGs.
• Since then, Tanzania formulated development strategies aimed at poverty reduction and human development.
• Some of the prominent development agenda formulated in this period include: Tanzania Development Vision (TDV)
2025, National strategy for Growth and Reduction of Poverty (NSGRP) – MKUKUTA in Kiswahili, and Kilimo kwanza.
• TDV 2025 envisions Tanzania in the category of medium human development by 2025.
• It is perceived that the country will have transformed from a low productivity agricultural economy to a semi-
industrialized one led by modernized and highly productive agricultural activities linking industrial and service activities
in the rural and urban areas.

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The Poverty Reduction Era (2000s)
• The development indicators in the vision are
(1) high quality livelihood
(2) unity, peace and stability
(3) good governance
(4) well educated and learning society
(5) competitive economy capable of producing sustainable growth and shared benefit.
MKUKUTA was designed to attain goals of both the TDV 2025 and the MDGs.

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Conclusions
• Since mid-1980s, Tanzania liberalized its economy and adopted the neo-liberal policies to govern its economy following
failure of the dependency theories through Ujamaa.
• In the era of neo-liberal policies, there have been impressive economic growth in the country;
• however, this economic growth fails to reduce poverty significantly amongst the rural people who are the majority in the
country.
• It is more than two decades of economic liberalization and neo-liberal policies in Tanzania, yet the majority rural people
continue to be poor or even poorer; this suggests inefficiency of neo-liberalism as a remedy to poverty in that sub-
Saharan country.
• Findings suggest change in the development model or otherwise, if the country continues with the same trend of
economic growth and slow pace of poverty reduction then it is obvious that Tanzania will not be able to attain its
development vision 2025.

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