Manufacturing industries still engine of our growth

According to Research on Poverty Alleviation (REPOA) manufacturing industries were still the engine of economic growth in Tanzania.

Tanzania's gradual path to an industrial economy has been adventurous, full of challenges and, mostly, tough challenges. But all this has not been because of lack of policies, for the country has had its full share of the same since independence.

Some of these policies were weak and some strong but the main problem, as so often pointed out by academicians, has been inadequate implementation to achieve the desired results.

"The results in terms of industrial development have failed to keep pace with the rhetoric," says John Page from the Brookings Institution.

And so goes the adage; "Policies are crafted in Tanzania, improved in Uganda and implemented in Kenya."

The current industrial policy direction points to deepening the private sector-led industrial growth as a way of transforming the economy from its heavy reliance on agriculture.

Two major policy documents cater for economic transformation through industrialisation. They are the Tanzania Development Vision (TDV) 2025 and the Sustainable Industrial Development Policy for Tanzania (SIDP 2020).

Vision 2025: Created in 1999 the Development Vision 2025 aims at propelling Tanzania from a least developed country to a middle income country with a high level of human development and whose economy is diversified and semi-industrialised.

"This implies priority on science and technology and innovations to raise productivity in agriculture with priority to value addition by moving up the value chain in agriculture and promoting linkages with other sectors," reads a policy analysis report from Repoa.

According to experts the Vision 2025 marks an important milestone in Tanzania's industrial policy-making by emphasizing the desire and wish to move once and for all from an agricultural economy to a semi-industrialised one.

The mistake that Tanzanian policy makers made, however, and which became the biggest impediment to the implementation of the Vision was the failure to put in place a framework for its implementation at the inception stage, according to the Tanzania Industrial Competitiveness Report 2012.

The Sustainable Industrial Development Policy 2020, on the other hand, seeks to facilitate shifting the economy's engine of growth from the public to the private sector.

The Industrial Policy was created in 1996 after a decade of adopting the Structural Adjustments Programmes imposed by the multilateral institutions on Tanzania and which had dealt blows to Tanzania's economy and led to a slump in industrial growth.

The idea of creating the Industrial Policy "was to consolidate, in the short run, the existing national capabilities in the industrial sector, and to build up new capacities in activities with competitive advantages for export markets in the medium term," reads part of the report of the Industrial Competitiveness report.

The Industrial Policy would guide the promotion of the private sector to take the lead in industrialisation while the government would be responsible for putting in place a conducive policy and regulatory environment and the requisite infrastructure.

"The government would only invest directly in industrial ventures which are strategic and of critical national economic importance such as iron and steel industry," reads a policy analysis document from Repoa.

Lack of funding main challenge facing agriculture sector

LACK of funding is one of the main challenges faced by Tanzania’s agriculture sector. Though the sector employs over 84 per cent of the local population, banks have shunned it arguing that it is risky, a situation that has affected its growth and left its huge potential largely unexploited.

However, this financial challenge could be addressed if government and the financial sector embraced priority sector lending approach.

This approach is an effective tool in achieving developmental goals of an economy whereby government gives priority to a particular sector(s) to acquire funding loans at low interest rates. Therefore, under priority sector lending banks give priority to particular sectors when giving loans.

In developing countries, priority sectors could include agriculture sector, small scale industries, cottage sector, handicrafts, entrepreneurship projects, exports sector, infrastructure projects, low-cost housing, and other areas based on developmental goals of economy.

Tanzania being a country developing to middle class economy has to achieve developmental goals, including improving agriculture and related sectors as a part of its inclusive growth strategy.

The country's agriculture sector has high potential and is one of the top three contributors to Tanzania GDP and exports growth, but a lot of this potential is unexplored.

The sector has a high percentage of smallholder farmers that has left it largely underdeveloped.

This can also be attributed to challenges like small farm size, low productivity, dependence on seasonal rains, lack of required infrastructure, and unskilled manpower.

The smallholder farmers need to access finance to enhance their potential and contribution toward national development.

In addition, within the local agriculture sector, there are some potential unexplored projects that can contribute towards rural development.

Initiatives like increased use of greenhouses, drip irrigation, as well as land conservation, watershed projects, and intensification of crop cultivation and animal husbandry are not fully explored.

Other areas are building the technical and organisational capacity of farmers, promoting commodity chains and agribusiness.

The major source of finance to agriculture in Tanzania include Saving and Credit Co-operatives (SACCOs), micro-finance banks, co-operatives, commercial and development banks.

Of these, SACCOs are the main source of finance for rural agriculture sector, other sources provide only small portion of loans to agriculture, especially smallholder farmers.

Financial services are also unevenly distributed in the country, and rural areas, in particular, are still underserved.

Instituting a priority sector lending policy can help in solving financial need of agricultural sector development in Tanzania.

So, there is need for priority sector lending policy to ensure commercial banks and development banks lend to farmers as a part of inclusive growth strategy.

Major elements of priority sector lending in banks should be provision of certain percentage of their loans to agriculture sector and other priority sectors; opening of rural branches or hard-to-reach and remote areas in the country; while loans to agriculture should be subsidised and at low interest rate.

Loans could be divided into short-term, medium-term and long-term. Under such an arrangement, SACCOs could cater for short-term loans, commercial banks for medium-term and agriculture development banks for long-term loans.

This model of priority sector lending was adopted by India as a part of agriculture development and financing strategy in 1970s and has been very successful in helping growth and modernisation of rural economy.