Sunday, January 18, 2009

CAN TANZANIA SURVIVE WITHOUT AGRICULTURE?

Tanzania as a country that depends on agriculture as the main contributor to the Gross Domestic Product (GDP), and the main source of International trade, may need to rethink her economic future in the wake of 2008 oil crisis, in which a barrel of oil reached an historic high of $147 just to slide back to $36.2, a barrel in less than six months. Sending shockwave of fear to countries that relied on this commodity as their main source of economic vitality.

Oil producing countries such as Venezuela, and Iran just to name a few whose economies relies heavily on this single commodity, ripped massive profits and used their earnings not to diversify their economies, but to further their ideological beliefs. Both countries neglected their potential economic vulnerability based on oil dependence despite decades of huge profits.

They are now not only in the same financial debacle, but also in potential social quandary of a different magnitude; they relied heavily on now devalued oil as their main source of economic lifeline.

Energy prices have tumbled across the board; with oil plummeting to its historical low of $36.2, a barrel at the New-York Mercantile Exchange (NYMEX) as of January 16th; A figure far below budget projections of $60 a barrel in the cases of Iran, and Venezuela. Countries whose leaders ascended to power, based on promises of ambitious, social programs transformation .

The two countries must shelve some of their ambitious social projects for the time being, due to the impending budget deficits, and perhaps social problems, when some of the already existing services will have to be curtailed.

Oil accounts for more than 90% of Venezuela exports, while Iran depends on oil to account for 85% of the government’s revenues. Whilst this is the reality, Hugo Chavez of Venezuela, has used oil money to make thumb his nose towards the west; he has used the petrodollars to further his socialist and revolutionary causes of being a defender of the Latin America, against the American Empire Influence.

His Iranian counterpart Mohamoud Ahmadinejad, on the other hand, has used oil profits to wag his finger, and heralding his determination to wipe Israel off the map. Iran, spent millions of her petrodollars promoting itself as the sole defender of Islam across the Islamic world; She is fighting for hegemony on geopolitical and economic fronts across the Middle East. Not only that, Iran, has used her oil wealth to fend off the western efforts to block her nuclear drive, and this is still going on in the face of rising unemployment, and sky high inflation. The bottom line is that, both Iran and Venezuela failed to look at the broader picture, which is Iran, and Venezuela without oil.

Thanks to speculation in the financial markets, the countries racked-in massive profits, but then their leaders ignored the laws of economics, and called the $147 a barrel an insult. Iranian leader arrogantly suggested that, $200 a barrel would not be a fair price either. Even after the financial crisis started, they forgot that mere speculation was not sufficient to reverse Economic Law of Elasticity.

Gasoline being one of the modern day necessities, many believed it was not going to undergo a price shock ; the economic boom in India and China, and increasing demand in the United States, led many to perceive oil as insensitive to price changes (inelastic), because consumers would continue to demand it despite price increases.

Economic theories have disapproved those who were convinced that, oil prices would never fall. Prices have plunged sharply globally, except in Tanzania; one of the few countries where merchants can impose upon the people their own prices. Sadly enough, In the United States, some are currently paying equivalent of $.55cents a liter, whereby many paid roughly $1.50 a liter, less than six months ago.

In the face of economic hardship, characterized by the rise of unemployment, and declining earning power, oil become less of a necessity; need for food and shelter precedes the need for oil. However, availability of alternative forms of transportation, amount of income to spend on gasoline, and time factors have driven oil prices to their current low levels.

Just like Iran and Venezuela cannot breathe without oil, Tanzania has no economic vitality without agriculture. Agriculture accounts for 42.5% of the Gross Domestic Product (GDP) and more than 80% of the exports, and this puts our country in the same line of vulnerability, and insecurity as that of the oil producing countries which are now facing economic uncertainty because they did not properly plan for economic continuity without oil (reduced oil demand characterized by lower revenues).

An economy without agricultural dependence should be Tanzania’s motto. This ambition should take into consideration country’s massive wealth of natural resources. Just like Dubai, a tiny U.A.E country which solely relies on maritime and tourism for her survival, Tanzania should think 100 years from now by laying plans in place on how to exploit her massive wealth, such as the inexhaustible, and price insensitive Indian Ocean; making maritime services through port of Dar es salaam easily accessible, efficient and inexpensive for both domestic and to foreign customers such as Zambians, Congolese, Ugandans etc who are using Kenyan ports for the most part.

Massive advertisement campaign of our beaches as a focal point for attraction, for both domestic and foreign tourists would yield unprecedented positive results, just like it has in the cases of Mauritius and Morocco. Our historical wealth such as the famous Zanzibar, Bagamoyo and Mafia Islands are enough to shift the economic pendulum from agricultural dependence to a more balanced economy. Aggressive marketing of Mt. Kilimanjaro and other tourist attractions as parts of Tanzania and not Kenya, will definitely provide Tanzania with the missing link to full economic diversification.

Economists, financial experts, and scholars both in public and private sectors, should study the feasibility of balancing the economy from agricultural dependence to agricultural independence considering the country’s untapped wealth. In the face of climatic uncertainty of prolonged droughts, tsunamis, unfair agricultural subsidization by wealthy countries, Tanzania’s may find her competitive ability in the international commodity markets hampered by these factors. And possibly, chocking the economic lifeline out of the country.

There is no question, such ambitious move would be time consuming, expensive, complicated and very hard to accomplish. But in today’s dynamic and less predictable global economy, there is no other alternative. Tanzania MUST have economic diversification strategy. Massive wealth in the hands of a few could be channeled towards the feasible study of economic diversification for the good of the country’s majority riddled with poverty.

Tanzania, government must strengthen the country’s infrastructure, and use foreign resources in the form of investment to support the transformation. The law for attracting and protecting foreign investments must be enforced diligently, and foreign investors must be given assurances regarding the safety of their investments. Red tape and bureaucracy at government agencies MUST be ended.

The focus must be on the qualitative aspect of manpower by streamlining the government in such a way that quality becomes the highest priority, at the same time recognizing human talent and capability within the workforce. Rewarding employees to enable them release their full potential must be a common practice, and also retaining already developed talents to encourage innovation, which will in turn curb the current wave of brain drain.

With a young energetic population, Tanzania will enjoy an inexpensive labor force, should it adopt a broader industrialization project, which will reduce dependence on importation of unnecessary products, some of which are substandard and hazardous to the population. Domestic production of Industrial goods will translate into cheaper prices, as well as employment to the currently idle young population. These goods will not only be consumed domestically, but will also find demand in the Southern, Central, and East African economic blocs in which Tanzania’s influence is growing.

To fully diversify Tanzanian economy, the current government expenditure must be shifted to major development and construction projects to guarantee that in the future, the country’s infrastructure; will be able to sustain growth in all sectors of the economy, which will in turn shift the economic pendulum from agricultural dependence to agricultural independence.

We cannot wait until a crisis emerges for us to be able to start preparedness, the current economic and energy crisis are perhaps some of the best lessons we can learn in our generation. We do not want to go the Iranian or Venezuela routes. Now is the time to shove aside politics, rhetoric, and rattling, and think deeply on where the country is going to be hundred years from today. The question is, can we see our country surviving without agriculture?

Mungu Ibariki Tanzania

John Mashaka,
Mashaka.john@yahoo.com
The Writer is a US based Banker, & Social Activist

10 comments:

GAME THEORY said...

Another day, Another waaaat too long posts..jamani hebu punguzeni urefu wa hizi original posts zenu. I mean the last thing i need ni kuanza kuandika gazeti...surely we can do better than that.

Bwanza John Mashaka unakaribishwa sana humu JM blog...and i will answer your post accordingly.

OIL,IRAN & VENEZUELA
I nevertheless believe that oil prices will be determined by policy decisions, and the principle driver of policy being the Saudi Royal family and not the Ayatollah's aka IRANIANS...

wHY? because the House of Saud not only determine Saudi Arabia's policy, but exert great influence over the policy decisions of other countries as well, including the U.S

Even though the U.S. could rob the Royals of their inordinate influence by curtailing oil imports through a combination of tariffs, quotas or taxes on gasoline consumption, I don't see this happening. This would be perceived as a self-inflicted wound to the so called "American lifestyle."

Unfortunately, there are still those in the U.S. who believe they can continue to enjoy the benefits of cheap oil. The reason for this probably lays in the hubris, even self-deception, that attends leading world economic power status.

However, that economic power seems to be eluding those Americans, like sand falling through their fingers.


My fears regarding Venezuela is that Hugo goes up in flames or starts a war with Colombia to divert the populace...if we stay low for a long time or go very low for some time.

But to your point, about the stock market, prices will fluctuate. The historic volatility of oil prices is pretty impressive, and those stats we often see on bloomberg or CNBC just got a real shot in the arm over the last six months.

The really big oil companies (aka the majors, large international integrated companies) did not build anything like the price run-up into their long term planning...but they didn't plan on $ oil either for an extended period of time. Many (most?) annual statements regarding production forecast, or capital budgets are being delayed or revised. The first signs of employment pain in those worlds will be contractors going away...then hiring reductions, and ea$36.2 early retirement offers.

The immediately sweaty companies are in the independents of various sizes, these are the companies that find and produce oil & gas, then sell it at the lease line (maybe some midstream (pipeline) ops)...here you will find some who could have trouble rolling over debt if they have a levered up balance sheet. My WAG is that there will be some consolidation as it is discovered who is swimming without their shorts on...

But if $10 oil arrives for any length of time, we will have likely stepped over the threshold into depression space, as it seems to me the only way to get there is China melting down due to social unrest...but stranger things have happened.

Furthermore,the OECD (non-OPEC) countries experience higher decline rates in their existing production than the OPEC countries do, and new production is higher cost in both capital expenditure and operating expense. New projects are getting shelved right and left in the industry right now, from Canadian oilsands production that won't be happening to deepwater conventional oil...so production will be reduced by underinvestment, which will tee up the next price run-up when the global economy starts to rev up in 201?.

This illustrates nicely the structural element of oil price cycles, due to the extensive lags from discovery to production, on the order of ten years. For the large deepwater discoveries, irreversible multi-billion dollar investment decisions need to be made for a project that won't go into production for years, and then will experience a producing life of fifteen to twenty years (typically much shorter in the US GoM). So prices run up, exploration kicks up, discoveries are made (smaller over time in any given province as the big bumps get drilled first), marginal production onshore is quickly ramped, and eventually the big projects come online leading to oversupply and price declines...add in OPEC supply constraints of variable effectiveness along with supply and demand shocks plus the excessive finacialization of crude futures markets (as part of the entire commodity complex) and the complexity of crude price determination begins to emerge.

Sorry for a long reply lakini original post yako ilikuwa ni ndefu sana so will read second point then nitapost my reponse to it..

GAME THEORY said...

QUOTE: "An economy without agricultural dependence should be Tanzania’s motto. This ambition should take into consideration country’s massive wealth of natural resources. Just like Dubai, a tiny U.A.E country which solely relies on maritime and tourism for her survival,"

________________________________

BWANA JOHN MASHAKA,

Let me attempt to rewrite your paragraph the way I see it and my opinion might be difficult for you to accept but then you brought UAE and i think i know a thing or two about that place.

Dubai as it was nothing short of disgusting. I expected the traffic and lack of green and orange skies but the things that hit me were the ugly industrial facilities being littered around the city and the congested cheap looking developments that basically looked like ghettos and govt housing (albiet new) . Dubai really is the worlds greatest modern planning failure.And ohhh those Discovery Gardens gets the best view of the worlds largest area of huge metal trasmission lines. if they dont give you cancer Im sure things
like gasses from nearby Dubai will.

At the moment House prices are coming down and a further 60% drop will make it go to where it's supposed to be . Speculators, actively helped by developers, raised them to unbelievable levels.... beyond imagination.... this is all fake.... properties were changing hands and prices rose without any acceptable market condition.

In order to survive, the Dubai property market needs to become largely an end user one...there will eventually come a point (maybe in 15 years) when people will need to live in these things.....

sO FAR There has also been:

-Poor regulation of the property market allowing rampant speculation and causing huge unchecked price rises, almost nothing done to encourage end users. Everything done to encourage the 'hype' caused by flippers.

-Too much development, not enough forward thinking, too much expenditure on marketing, perks for CEOs, massive internal corruption.

-Local banks are not interbank lending to each other or lending for mortgages.

-Zero credit regulation

-Blatant and bare faced lying by company CEOs (no transparency), leading to rumour and speculation continued

-A badly regulated exchange largely driven by insider trading

so Bwana Mashaka hebu tufafanulie did you seriously mean kuwa tuwaige hawa Daubai na hii fiction wanayoiuzia dunia?

Ohhh just to keep you posted..Abu dhabi wanataka kuchukua 51% ya EMIRATES from Dubai and...hawa hawa Abu Dhabi wanataka kuinvest $16 guess where....NIGERIA of all places..

Inno said...

Mashaka,

Great article man.

You have asked a question that requires multi-answers. Development economics is a complex puzzle. It's complex because it requires one to place all the pieces in their respective places to crack the puzzle. The same goes to your article on whether Tanzania can survive without agriculture or not.

Our national policies on agricultural sector in the past and today are analogous to when one puts the cart before the horse. The result is a dead end. I believe what we need to do as a nation is to make it a priority by investing heavily in human capital (applied education is key here) and infrastructure. To me these are the two horsepowers we need to bolster the agricultural sector. Once we have such instruments in place, local and foreign capital will tend to flow into the agricultural sector.

The governmet would of course need to make deliberate efforts to create an enabling environment in order to attract the capital inflow into the agricultural sector but applied education and infrastructure are the fundamentals.

Inno

Mpambika said...

I couldn't agree more with the comments from Inno, i.e. it is paramount in our country that we invest sufficiently in human capital development. And this is not just building huge university structures, but guaranteeing infusion of education from the grass-root level to the vocational training and management skills.

As long as I can remember, we have been singing the same song over and over "agriculture is the backbone of our economy" but little progress to show for to date. Despite GDP growth above 7% in recent years, agriculture sector averages at dismal 5%. Certainly, we require more than just singing.

In addition to human capital development, we need to prioritize which sectors to develop targeting to enhance growth and increase employment. Prioritizing need to go hand in hand with creating ideal business environment - curbing corruption, improving infrastructure, project due diligence, improving procurement processes, etc. Otherwise, we would advertize our beaches, our mountain, our parks, and they will come but nothing will happen. Or even worse, they will reap us off.

My 2 cents.

JSM said...

I agree with Inno and Mpambika’s points. There is no way we can make a significant dent on development with 5% to 7% growth rate. Single digit growth rates are ok in a developed economy. But for a developing one, there has to be a way to create double digit growth rate in order to have a noticeable change in poverty level.

Tanzania without agriculture is possible, but first we need a “Formal” agriculture sector. There is no easy way to bypass a sector which gives our country 85% of exports. So before we fully diversify the economy, which I agree ultimately we should do, first let’s have an agriculture sector that is able to receive and absorb capital.

In Tanzania now we are still importing Milk, really I mean Milk, chicken and Meat mainly from South Africa. I am not kidding; we are importing things that we have in abundance. Actually in some regions things are rotting while in others we have scarcity. If we are able to create infrastructure (roads, different financial markets, education etc) then we can have meaningful economic growth.

I am not sure if Tanzania can create manufacturing industry that will rival Asian one. With Dubai, Singapore and Hong Kong all in the Indian Ocean the maritime hub that Mashaka is proposing can only take us so far.

So before we diversify, let’s become experts on what we can do best and have a chance to compete globally.

JSM

Rash said...

I monitored this argument very close. I support JSM 100%, we can't bypass agriculture based economy over night. Apart from that there is nothing wrong with agriculture based economy. Tanzania is facing challenges because of the strategy of "export lead development" doesn't work most of the time.

I think what we need is to empower our farmers to compete in local market and hence International Market.

I don't use GDP as a proper benchmark for development growth in developing countries. Our GDP soar in the past few years because of Gold export, which in real sense we're not receiving even 10% of the total revenue.

GDP growth supposed to be relatively with life standard of local people. Other than that it is a scam.

What we need to do is to find the strategy which fits our environment. It's not neccessary have to be like Dubai or China.

We can subsidize our farmers through fertilization and price floor. Also assist them to improve quality of their products and packaging. We need to revamp the whole agro industry.

YES we can depend on agriculture economy and still be a stable nation.

misokasick said...

Inno, JM and Mpambichaka
You all have hit the right note... human capital investment, infrastructure and technology are so important for our economic development. No matter how blessed we are with our Natural resources, without being equiped with the three we won't be able to see significant changes in our economy. I also was wondering if comparative advantage could be applied in our regions. Kama Iringa, Ruvuma and Mbeya are the food baskets of the country, couldn't we concentrate in massive investments in these regions for Agricultural purpose.
Ciao

misokasick said...

Is there a possibility that we all can try to give constructive criticism. I feel like GT always have to criticize. You also write very long responses, but I do not see anyone being so critical about your responses.

Lets tone down a bit...People who are here have to be different from other blogs such as Jamii and many others.
Nothing personal.
Thanks.

Inno said...

Misokasick,

Yeah, I think GT can disagree without being disrespectful or abrasive.

Inno

Mchangiaji said...

Mashaka,

Kinachohitajika ktk mfumo mzima wa kilimo na mazao yake(kilimo, mifugo, na samaki) hapa Tanzania NI ADDED VALUE.

Mimi sasa niko Tanzania, na nimeona Azam(Salum Bakhresa) anachokifanya kwa matunda yanayolimwa hapa hapa Tanzania, kama maembe na mananasi, kwa kuyasindika na kutengeneza Juice za paketi, kwa hiyo hicho hakishindikani.

Muono wangu kwangu baadae, bidhaa hizi(zenye added value ndani yake) zinawezwa kutumwa kwa masoko ya nje, na hii solutions ina apply kwa mazao mengine. Nitakupa mfano mdogo, niliingia Tesco Supermarket, wiki iliyopita na niliona bidhaa ya samaki toka Sri lanka, aina ya Tuna(Jodari??) wa vipande ambae hafiki uzito hata wa poundi 1, na bei yake ni Euro 7, kwa packet moja.

Sasa ukizingatia haya niliyoyasema na bila kusema mengi, uko umuhimu wa kuendeleza Kilimo ndani ya nchi yetu, mifano iko hai.

USA ni nchi pekee inayozalisha mahindi kwa wingi ulimwenguni, lakini hawali sembe, sasa wanachokifanya ni kutengeneza mahindi ya kopo, na vyakula vya farasi na wanyama wengine.

Sasa kwa upande wetu watanzania tunakula sembe na vile vile tunaweza kusindika tukiwa na ziada. Solutions ni Ukulima bora na wakisasa, maendeleo ya viwanda, na jingine ni kumuachia wachumi watutafutie masoko.

Tanzania na Kilimo inawezekana kabisa! We just need AGGRESIVENESS with PURPOSE kwenye misheni hii.

Niko Tz hivi sasa, and I can see potentials on every front, A to Z, and it is difficult to list them one by one, TOO MANY!

Mashaka, on personal note!
Sisi watanazania hatuko ktk sekta ya oil, kwa kutufananisha na Venezuela na Iran, kwa hiyo ingekua vyema ungetutolea mifano ya nchi kama Zimbabwe, Malawi, Rwanda na nchi nyengine zenye industrial sectors or part off ambazo zinalingana, hata hivyo ni mchango mzuri umeutoa na nakubaliana na wewe, kwa kuendeleza kimawazo na kimaendeleo kwa faida ya nchi yetu.

Lazima tujifunze baina yetu, kwa misingi ya maendeleo ya nchi yetu na watu wake, tukizingatia hilo, katika mawazo, mwelekeo na upeo wetu, Tanzania itafika mbali tu!

By MChangiaji