By Alykhan
I have penned a number of articles for Uhuru Blog over the last month covering a number of issues, all with the overarching theme of how we can improve Tanzania. What surprised me while researching for these articles is how little of what is accepted globally as good practices are actually implemented in Tanzania. Our government continues its outdated policies year after year as if in suspended animation while the rest of the world speeds by, only bowing to pressure from donor countries from time to time to enact policies which mostly turn out to be detrimental.
What is required is for the government to get its act together, reform a number of key policies on its own doing (without any "technical assistance" from donor countries, by which I mean policies that favour the donors) and truly get our country on the path to sustainable development. Development, not only in terms of increase in GDP every year, but rather increase in the quality of life and dignity of all citizens. Don't let anyone lie to you that we need months to study global best practices and adapt different approaches to suit Tanzania. These are all delay tactics as the best approaches to different problems and how to apply them to unique conditions in developing countries are all known, but what is lacking is the political will to implement them. So I say to you, my fellow countrymen, let us not get left behind the time to ACT is NOW!
If you decide to stop reading this blog post now, I would like you to take one thing from this. The Tanzanian government, for years now, has been slacking, taking short term measures to push the country along slowly while relying too heavily on foreign aid. What it should do is to adopt brave long-term policies that are forward thinking and that will take this country into the 21st century. If we do not keep pace with technological innovation we may end up being left very far behind to struggle for decades to come.
I am going to list FOUR interventions that the government can implement very easily, by enacting laws and changing procedures which may have a huge impact in boosting the country's growth and respectability.
1) Enact a Freedom of Information Law (Right to Access Information)
Citizens have a right to access government and public information. There is no debate about that and there is no debate about what criteria such a law must abide by. By giving citizens the right to demand information from the government, it puts accountability in the hands of the people, thus giving them the incentive to follow national issues and the ability to pursue those issues that are important to them. Currently, citizens only exercise their democratic powers every 5 years during election time however with this law they can monitor the government continuously and expose malpractices when they happen. Now, some people who are already in government will be nervous by such a law and this may be the reason why its taking so long, but in the end governments are responsible to the people and they must act that way.
2) Increase spending on Information and Communication Technology (ICT):
The internet has revolutionized every sphere of our lives from education, communication, entertainment, governance and so on. It has become so central to our lives (those who have access it) that there are calls to classify Access to internet as a basic human right. And it should be a basic right as those without access to it will have a huge disadvantage, an insurmountable barrier compared to those use it growing up. Tanzania has very low internet penetration rate at about 11% compared to Kenya with 25.9%, Uganda -12.5% Rwanda - 13% (2010 figures - World Bank) and an overwhelming majority have never used the internet, let alone seen a computer before. Here is where the government can step in.
1. By making investments in improving the country's fibre optic backbone (which it has started)
2. Itroducing widespread computer literacy programs in public schools and local training centers
3. Modernizing government operations such as paying taxes, keeping of records, filling out forms by taking them online.
By implementing these measures the Tanzanian government can set the country on the path to prosperity and global competitiveness. So far, ICT spending has been pathetic. According to the 2011/12 budget the amount set aside for ICT was 27 billion shs which is roughly 0.002% of the total budget, and with the government's record of underspending in developmental expenditure, this figure is likely much lower. Compare this to the 130 billion that Kenyan government is going to spend in 2012/13 and it is easy to see why we will be left behind in the global technological race. To bridge the technological gap and ensure that the coming generation does not lose out, the government will have to spend upwards of atleast Tshs 100 billion (and all of it!) yearly on ICT infrastructure and training.
3) Reform Business regulations to stimulate Entrepreneurship.
Business is best done by locals. We have been desperately trying to woo foreign investors while ignoring our own latent talent and potential. There are 2 main problems with relying too much on investments from foreign companies. The first is that foreign companies bring technical expertise from their own countries denying local skilled people key managerial positions. Secondly, in order to entice the multinationals to Tanzania, the government gives them huge incentives, mostly in the form of tax exemptions resulting in lower public revenue and eventually capital flight as the foreign companies all have shareholders living abroad.
Therefore it is essential for government to stimulate entrepreneurship among its own citizens by lowering the barriers to starting a business. According to the Doing Business Report, Tanzania was ranked 127th out of 183 nations globally mainly because of complicated, overpriced business regulations particularly in getting Construction permits, registering property and paying taxes. These regulations need to be overhauled completely, making it easier for people to start businesses and paying taxes. One of the ways this can be achieved is by moving to an online system where forms can be submitted to different departments and processed instantly. We also need to integrate different departments so that all forms and licences can be obtained in one place.
4) Bringing innovation to the Agriculture sector
Agriculture remains the backbone of the economy in Tanzania and whether formal or informal, it still provides a means of living for majority of the country. Even though the government should push for a diversification of economic activity, any sustainable growth solution will involve reforming the Agriculture sector. Some estimates put agricultural exports at 30% of our total exports and employing 80% of the population making it the one of the most important economic activities in the country.
First of all, the government needs to make a push for increased production from agricultural land. Estimates from 2010 put average productivity for cereals at around 1.3 tons per hectare where as with good management 3.5-4 tons per hectare can easily be produced (For comparison Malawi - 2.2t Kenya - 1.6t, Uganda- 1.6t South Africa - 4.2t Rwanda - 1.9t). Not surprisingly we still import food crops to the tune of 10% of our total merchandise import per year We need to increase agricultural output to sustain our ever growing population, reduce reliance on food imports and increase the export of our crops. However, it should also put into place policies to ensure that this is done in an organic and sustainable manner to prevent destruction to the environment. Farmers need to trained on using modern organic farming techniques such as crop rotation, growing a variety of compatible crops, effective water management, integrated pest management and so on.
Secondly and perhaps the biggest impediment to the agriculture is the lack of infrastructure and credit facilities for rural population. The government needs to make significant investments such as large scale irrigation systems, providing machinery such as tractors, harvesters, cold storage facilities (for fisheries), seed banks for storage of extra seed in case of droughts, and provide a ready access to markets for farmers as an incentive for growing food crops. Another significant intervention (which is currently being undertaken) is to provide access to credit facilities so that farmers have the capital to purchase machinery and fertilizers resulting in increased yields. We need our farmers to change their mindset from one of subsistence farming to farming for profit
Saturday 30 June 2012
Sunday 24 June 2012
Doing Business in Tanzania
By Alykhan
Any discussion about reviving an economy in the end always comes down to boosting local businesses and job creation. This is the surest way of achieving robust economical growth that is distributed evenly among all classes of society. Other sources of income such as exploitation of natural resources comes with its own drawbacks most notably the natural resource curse. Tanzania is a land of opportunity, characterized recently by robust economic growth and, thankfully, peace and stability in a region that is notorious for political unrest and civil war. This makes it an ideal place for attracting foreign investment but more importantly it should, at least in theory, be fertile ground for fostering local entrepreneurs that cater for Tanzanian consumers and hopefully even export their goods and services to other countries. In this article we want to examine some of the barriers to starting a business in Tanzania and how the government can rectify this situation to ensure our entrepreneurial culture is a thriving one.
According to the report, Tanzania is not faring so well when it comes to Ease of Doing business and is firmly in the bottom half of global rankings. In the East African region, Tanzania is ranked 4th out of the 5 countries, beating only Burundi but lagging far behind Rwanda, who have reformed their business sector considerably in recent years. (Report focus on Tanzania here)
Any discussion about reviving an economy in the end always comes down to boosting local businesses and job creation. This is the surest way of achieving robust economical growth that is distributed evenly among all classes of society. Other sources of income such as exploitation of natural resources comes with its own drawbacks most notably the natural resource curse. Tanzania is a land of opportunity, characterized recently by robust economic growth and, thankfully, peace and stability in a region that is notorious for political unrest and civil war. This makes it an ideal place for attracting foreign investment but more importantly it should, at least in theory, be fertile ground for fostering local entrepreneurs that cater for Tanzanian consumers and hopefully even export their goods and services to other countries. In this article we want to examine some of the barriers to starting a business in Tanzania and how the government can rectify this situation to ensure our entrepreneurial culture is a thriving one.
So how easy is it to start a business in Tanzania? This is a difficult question to answer. A seasoned Tanzanian would answer "It depends on who you know". Therefore, the odds are already stacked up against someone who has a brilliant idea but lacks the contacts to get their business of the ground. But lets put this hard-to-objectively measure problem aside for now and focus on the legitimate way to start a business in Tanzania. How does it compare to other countries in Sub-Saharan Africa and indeed globally. Fortunately, there is a report published by a World bank funded project aptly named the Ease of Doing Business Report. This report covers all aspects of conducting a business, from starting one to buying/selling properties as well as dealing with bankruptcies. It contains a detailed analysis of 183 countries ranked on 11 criteria, all which are objectively measured and standardized to make it comparable. The report (which can be found online here) goes further to list important information which the authors have used to conclude their ranking (such as number of procedures and hours required to file a typical tax return)
Source: Doing Business: Doing Business in a more Transparent World Report 2012
Summary of procedural problems in conducting business in Tanzania and proposed reforms:
In order to improve efficency of the business environment in Tanzania, we need to focus on the main areas where Tanzania is lagging considerably. Here is our analysis (in decreasing order of severity):
1. Getting Construction Permits (Rank: 176 out of 183)
This is by far Tanzania's worse ranking and possibly a major stumbling block for those business requiring construction (factories, warehouses, office buildings).
Officially, it requires a total of 19 procedures which takes on average 303 days to complete and the fees cost a whooping 1190% of an average Tanzanian's annual earnings. Compare this to Kenya where it takes 8 procedures, 125 days and 160% of annual income per capita and you can see Tanzania needs a major overhaul of construction permits.
This long waiting time may also be a breeding ground for corruption as officials will seek bribes to speed up the process.
2. Registering Property (Rank: 158 out of 183)
Property acquisition and selling are common practices either as a business by itself (real estate) or for expanding an existing business.
In Tanzania, property transfers require 9 procedures, take on average 76 days to complete and cost 4.4% of the property value. In Sub-Saharan Africa, Botswana has the highest rank (50) when it comes to Registering property. It requires 5 procedures, takes 16 days and costs 5% of the property value. This is about 5 times as fast as in Tanzania and requires half the number of procedures to complete.
3. Paying Taxes (Rank 129 out of 183):
Businesses pay taxes to the government for the privilege of benefiting from the resources of Tanzania. Countries are ranked on the number of tax payments made per year and the relative time required to fill out all the necessary documents.
For Tanzania, an average company is required to make 48 payments to the government per year which requires 172 man hours to complete. Rwanda emerges the leader in Sub-Saharan Africa for ease of paying taxes. It requires 18 payments and 148 hours to complete on average.
Also another factor to consider is the percentage of net profits that a business typically pays to the government as taxes. In Tanzania this amounts to 45% (Rwanda-31.3%) which places a huge strain particularly on small and medium sized businesses (SME), the majority of whom dont qualify for tax exemptions from the government where as the large corporations get away with paying much less in taxes (for a good example consider the mobile phone operators who despite making huge profits dont appear in the list of top tax payers). Changing the tax code to favor SME or atleast ensure all businesses pay their fair share of taxes will stimulate grassroot level entrepreneurship and create stable well paying jobs for the country.
4. Starting a business (Rank 123 out of 183):
Here the report evaluates the effort required to legally start a new business, by determining the number of procedures, time taken and the costs associated with formally registering the new business entity.
In Tanzania, starting a new business requires 12 procedures, takes 29 days and costs 29% of the annual per capita income. It is important to minimize the effort and cost of this crucial first step which may discourage many potential entrepreneurs from starting a business. Again compare this to Rwanda (Rank 8) who are really committed to reducing barriers for new businesses. It requires 2 procedures, takes 3 days and costs 4% of annual income to start a business. Amazing!
Therefore we can clearly see that Tanzania has a lot of unnecessary bureaucratic blocks when it comes to conducting business in the country. We desperately need to change this and we have many examples both globally and regionally like Rwanda of how this can be done to ensure Tanzania is not left behind in the global revolution to foster local businesses and attract more foreign investment.
Wednesday 20 June 2012
Critiquing the proposed Tax increase in Alternative Shadow Budget
By Alykhan
I gladly welcomed the Alternative Budget 2012/13 proposed by Shadow Finance Minister Hon. Zitto Kabwe which amongst other things aims to increase development spending, reduce recurrent expenditure and drastically increase government revenue (from 8.7 trillion to 11.9 tril) a whopping 36% more! This is going to be achieved by a combination of cutting tax exemptions to sectors such as mining and telecommunications and raising the Pay As You Earn (PAYE) income tax. I support his brave attempt at changing our long held attitudes regarding our country's budget, that we are destined to accumulate debt and rely heavily on foreign donor support. The government should strive towards raising its own funds to finance the growth of Tanzania, and with the GDP growing at a rate of close to 7%, it should be able to raise significantly more revenues.
The new proposed rates are as follows
Source: zittokabwe.wordpress.com
That being said, I still have a number of reservations about exploiting PAYE as a revenue stream. The proposed PAYE tax hike includes a top rate of 42% for those earning 10 million and 38% for those earning more than 3.2 million. This undoubtedly will affect a very small percentage of Tanzanians who are lucky to earn this much. This will include top surgeons, CEOs of companies, people with PhDs, engineers and other professionals. My worry is that these professionals are highly mobile, and unlike say business owners, can easily move to a different country where their skills are in demand. In this globalized age, it has become very easy for people to migrate to a different country, one that perhaps has better social services than Tanzania. Furthermore, young professionals deciding to move to Tanzania may be discouraged by such a high taxation rate. Other countries (with their top bracket tax rates in brackets) such as Canada (30%), New Zealand (33%), South Africa (40%) and even our neighbours Kenya (30%) who are by the way recruiting qualified people in a big way, have lower income taxes and yet provide more social services. That's why I feel that imposing a 42% tax rate may cause people to leave our shores for greener pastures while Tanzania suffers from the brain drain.
Secondly, as laid out by the Shadow minister above, the rate at which different earning brackets are charged for PAYE may cause unfairness for certain people. For example take someone earning 3,000,000 under the above scheme. They will take home 2,149,500. However, if they got a raise of 200,000 shs and are now in the next tax bracket (earning 3,200,000) they will take home 2,067,600! That raise of 200,000shs actually becomes a loss of 100,000shs! Now you may think this is a mathematical trick but its not. Its the way in which the PAYE system and the base tax amount (the amount added to the % calculated) is structured. We propose an alternative which will remove this irregularity (for a more dramatic example calculate the tax rate for 9,999,999 and a raise of 1shs to 10,000,000. You pay about 360,000shs less in taxes after you get your 1shs raise!)
Here's our alternative:
Using this method, we get the following:
As you can see, using our method we get a more realistic calculation of taxes which are still higher than current PAYE rates for salaries above 3,200,000 shs making it more progressive and fair compared to that suggested in the Alternative Budget. With these small changes suggested by Uhuru Blog, Mr Kabwe can strengthen his proposal of increasing PAYE as means of cutting the budget deficit. However, we still maintain that proper studies be done before adopting this increase in PAYE to make sure we dont have talented and educated professionals leaving our country.
Comments are welcome, working together and debating we can find a solution to our debt crises!
I gladly welcomed the Alternative Budget 2012/13 proposed by Shadow Finance Minister Hon. Zitto Kabwe which amongst other things aims to increase development spending, reduce recurrent expenditure and drastically increase government revenue (from 8.7 trillion to 11.9 tril) a whopping 36% more! This is going to be achieved by a combination of cutting tax exemptions to sectors such as mining and telecommunications and raising the Pay As You Earn (PAYE) income tax. I support his brave attempt at changing our long held attitudes regarding our country's budget, that we are destined to accumulate debt and rely heavily on foreign donor support. The government should strive towards raising its own funds to finance the growth of Tanzania, and with the GDP growing at a rate of close to 7%, it should be able to raise significantly more revenues.
The new proposed rates are as follows
Source: zittokabwe.wordpress.com
That being said, I still have a number of reservations about exploiting PAYE as a revenue stream. The proposed PAYE tax hike includes a top rate of 42% for those earning 10 million and 38% for those earning more than 3.2 million. This undoubtedly will affect a very small percentage of Tanzanians who are lucky to earn this much. This will include top surgeons, CEOs of companies, people with PhDs, engineers and other professionals. My worry is that these professionals are highly mobile, and unlike say business owners, can easily move to a different country where their skills are in demand. In this globalized age, it has become very easy for people to migrate to a different country, one that perhaps has better social services than Tanzania. Furthermore, young professionals deciding to move to Tanzania may be discouraged by such a high taxation rate. Other countries (with their top bracket tax rates in brackets) such as Canada (30%), New Zealand (33%), South Africa (40%) and even our neighbours Kenya (30%) who are by the way recruiting qualified people in a big way, have lower income taxes and yet provide more social services. That's why I feel that imposing a 42% tax rate may cause people to leave our shores for greener pastures while Tanzania suffers from the brain drain.
Secondly, as laid out by the Shadow minister above, the rate at which different earning brackets are charged for PAYE may cause unfairness for certain people. For example take someone earning 3,000,000 under the above scheme. They will take home 2,149,500. However, if they got a raise of 200,000 shs and are now in the next tax bracket (earning 3,200,000) they will take home 2,067,600! That raise of 200,000shs actually becomes a loss of 100,000shs! Now you may think this is a mathematical trick but its not. Its the way in which the PAYE system and the base tax amount (the amount added to the % calculated) is structured. We propose an alternative which will remove this irregularity (for a more dramatic example calculate the tax rate for 9,999,999 and a raise of 1shs to 10,000,000. You pay about 360,000shs less in taxes after you get your 1shs raise!)
Here's our alternative:
As you can see, using our method we get a more realistic calculation of taxes which are still higher than current PAYE rates for salaries above 3,200,000 shs making it more progressive and fair compared to that suggested in the Alternative Budget. With these small changes suggested by Uhuru Blog, Mr Kabwe can strengthen his proposal of increasing PAYE as means of cutting the budget deficit. However, we still maintain that proper studies be done before adopting this increase in PAYE to make sure we dont have talented and educated professionals leaving our country.
Comments are welcome, working together and debating we can find a solution to our debt crises!
Tuesday 19 June 2012
2nd UPDATE: OGP COMMITMENT TRACKER
We continue our rating of Tanzania's Open Government Partnership commitment by reviewing a further three promises. Click on the links below for detailed analysis:
#1.6 Post quarterly disbursements and execution reports on Ministry of Finance (MoF) website in machine readable format, updated in real time.
#1.8 Publish quarterly all Tax Exemptions granted in Health, Education and Water related sectors on the Ministry of Finance (MOF) website, in machine readable format.
#3.1 Improve National Audit Office/Controller and Auditor General's website to make it more open and user friendly and provide data in machine readable format
#1.6 Post quarterly disbursements and execution reports on Ministry of Finance (MoF) website in machine readable format, updated in real time.
#1.8 Publish quarterly all Tax Exemptions granted in Health, Education and Water related sectors on the Ministry of Finance (MOF) website, in machine readable format.
#3.1 Improve National Audit Office/Controller and Auditor General's website to make it more open and user friendly and provide data in machine readable format
Sunday 17 June 2012
Campaign to enact Freedom of Information Act - UPDATE
48 hours after embarking on a campaign to engage Tanzanian MPs who are active on Twiiter, to take up the issue of Freedom of Information Bill and identify the cause of its delay we got our first reply. Dr Faustine Ndugulile, MP for Kigamboni,has agreed check with the relevant parliamentary committee under whose jurisdiction this falls (not sure which one it will be, maybe the Constitutional, Legal and Public Administration committtee?). We hope this cause will also be taken up by other MPs and that a question will be put to the Ministry in an upcoming Parliament session.
Two questions I would ask the Minister of Information:
1. At what stage is the Freedom of Information Bill currently at? And why is it delayed?
2. Give us an exact time for when we can expect the draft bill to be submitted to Parliament for debate (preferably before the end of 2012).
Uhuru Blog will keep you all posted and we also commend Dr Ndugulile for his prompt reply and action on this matter. Could this be a new era of highly responsive government? We can only hope.
Two questions I would ask the Minister of Information:
1. At what stage is the Freedom of Information Bill currently at? And why is it delayed?
2. Give us an exact time for when we can expect the draft bill to be submitted to Parliament for debate (preferably before the end of 2012).
Uhuru Blog will keep you all posted and we also commend Dr Ndugulile for his prompt reply and action on this matter. Could this be a new era of highly responsive government? We can only hope.
Saturday 16 June 2012
What happened to the Freedom of Information Bill?
By Alykhan V.
Since this website first came online in May 2012, we have followed issues of transparency in Tanzania. The backbone of transparency, at least in terms of legislation, is the Freedom of Information Act (FOI Act) which gives citizens the right to access publicly held information and any other such information deemed to be in the public interest. In recent years, with the proliferation of the internet and mobile technology, information can be transmitted at incredible speeds and being able to keep information secret has great advantages. Lack of access leads to what is known as information asymmetry, where one party knows more than the other by virtue of having privileged access and using this privilege to their advantage. Therefore the Right to Access Information is central to reducing this information asymmetry, giving ordinary citizens access to government held information and hence another way of keeping check on government corruption.
The Freedom of Information legislation has a had a turbulent history in Tanzania (read our coverage here). As part of its commitments while joining the Open Government Partnership in 2011, the government promised to conduct global best practices for the FOI Act. But hold on! A bill was submitted in 2006 for public discussion but this was promptly rejected by media stakeholders who returned with recommendations of their own in 2007. So after 5 years of sitting with this information, the Ministry of Information is still working on a global best practices model?? Apart from that, many international organizations dealing with FOI legislation have done extensive reviews and come up with a draft model bill with provisions that truly provide the citizens with the right to access information. One such organization, Article19 has also provided the Ministry with expertise during the inital review process in 2007.
So, the logical conclusion one reaches from this is that there is a deliberate attempt to delay giving citizens the Right to Access information. Even though us citizens do not have the right to demand information from government officials (YET!), our elected Members of Parliament (MPs) do. Therefore we need our MPs to really question the Ministry of Information, Youth and Sports as to what progress is made on the FOI Bill and more importantly to give a definite TIME as to when they will submit such a Bill to parliament.
To gather support for this motion, Uhuru Blog will ask this question every day to MPs who are active on Twitter until we get a response (starting from Friday 15th June 2012). If you agree with our campaign, follow us on Twitter and retweet this question everytime you see it! Together we can all Change Tanzania for the better!
are any of you following up on Freedom of Info. Bill?#ChangeTanzania
Since this website first came online in May 2012, we have followed issues of transparency in Tanzania. The backbone of transparency, at least in terms of legislation, is the Freedom of Information Act (FOI Act) which gives citizens the right to access publicly held information and any other such information deemed to be in the public interest. In recent years, with the proliferation of the internet and mobile technology, information can be transmitted at incredible speeds and being able to keep information secret has great advantages. Lack of access leads to what is known as information asymmetry, where one party knows more than the other by virtue of having privileged access and using this privilege to their advantage. Therefore the Right to Access Information is central to reducing this information asymmetry, giving ordinary citizens access to government held information and hence another way of keeping check on government corruption.
The Freedom of Information legislation has a had a turbulent history in Tanzania (read our coverage here). As part of its commitments while joining the Open Government Partnership in 2011, the government promised to conduct global best practices for the FOI Act. But hold on! A bill was submitted in 2006 for public discussion but this was promptly rejected by media stakeholders who returned with recommendations of their own in 2007. So after 5 years of sitting with this information, the Ministry of Information is still working on a global best practices model?? Apart from that, many international organizations dealing with FOI legislation have done extensive reviews and come up with a draft model bill with provisions that truly provide the citizens with the right to access information. One such organization, Article19 has also provided the Ministry with expertise during the inital review process in 2007.
So, the logical conclusion one reaches from this is that there is a deliberate attempt to delay giving citizens the Right to Access information. Even though us citizens do not have the right to demand information from government officials (YET!), our elected Members of Parliament (MPs) do. Therefore we need our MPs to really question the Ministry of Information, Youth and Sports as to what progress is made on the FOI Bill and more importantly to give a definite TIME as to when they will submit such a Bill to parliament.
To gather support for this motion, Uhuru Blog will ask this question every day to MPs who are active on Twitter until we get a response (starting from Friday 15th June 2012). If you agree with our campaign, follow us on Twitter and retweet this question everytime you see it! Together we can all Change Tanzania for the better!
are any of you following up on Freedom of Info. Bill?
Tuesday 5 June 2012
1st UPDATE: OGP Commitment tracker
By Alykhan V.
Tanzania recently signed up to a global initiative called the Open Government Partnership, which is aimed at increasing accountability and transparency within governments. In order to gain membership into the OGP Tanzania has pledged 25 commitments which are to be phased in gradually over the course of the year. We at Uhuru Blog want to hold them accountable, in the spirit of the OGP, to make sure that their promises dont remain promises but are put into action. We have started the Uhuru Project where we track individual commitments and give them a grading of Promise Kept, Broken or Compromised. We will not be satisfied until all 25 commitments are fulfilled. Here, we review three critical promises that on the surface are easy to implement and some of them have already been in the pipeline for many years. Take a look, and keep an eye on the graph on the right of the screen for a quick tally of of our OGP grading.
Tanzania recently signed up to a global initiative called the Open Government Partnership, which is aimed at increasing accountability and transparency within governments. In order to gain membership into the OGP Tanzania has pledged 25 commitments which are to be phased in gradually over the course of the year. We at Uhuru Blog want to hold them accountable, in the spirit of the OGP, to make sure that their promises dont remain promises but are put into action. We have started the Uhuru Project where we track individual commitments and give them a grading of Promise Kept, Broken or Compromised. We will not be satisfied until all 25 commitments are fulfilled. Here, we review three critical promises that on the surface are easy to implement and some of them have already been in the pipeline for many years. Take a look, and keep an eye on the graph on the right of the screen for a quick tally of of our OGP grading.
Debt is not the Devil... Mismanagement of debt is.
By Alykhan V (Uhuru Blog)
As we await the arrival of the very late but much anticipated Tanzanian budget for the year 2012/13, let us focus on a recent trend that is grabbing all the headlines. The DEBT CRISIS! Tanzania's fiscal debt has been increasing at an alarming rate recently, doubling in 3 years from 2007 where it stood at $3.4 billion dollars to June 2010 the debt increased to $6.5 billion. The debt then took only 2 years to double again to June 2012 where it is expected to above $14 billion dollars! What this means is that the debt-to-GDP ratio of 50% has now been breached and although it may still be premature to panic, the ever widening budget deficit is a cause for concern.
As we await the arrival of the very late but much anticipated Tanzanian budget for the year 2012/13, let us focus on a recent trend that is grabbing all the headlines. The DEBT CRISIS! Tanzania's fiscal debt has been increasing at an alarming rate recently, doubling in 3 years from 2007 where it stood at $3.4 billion dollars to June 2010 the debt increased to $6.5 billion. The debt then took only 2 years to double again to June 2012 where it is expected to above $14 billion dollars! What this means is that the debt-to-GDP ratio of 50% has now been breached and although it may still be premature to panic, the ever widening budget deficit is a cause for concern.
So is debt bad all the time? Why is the central government borrowing money to finance its operations? Lets probe this matter more objectively before jumping to conclusions. Debt and borrowing is an important driver of growth and expansion not only for governments but also for corporations, small businesses and individuals. A housing loan is a good example of how borrowing may help in overcoming a shortage of capital. Someone who wants to buy a house but doesn't have millions lying around, can take a loan from a bank to purchase the house. Then, instead of paying rent to some landlord, he/she can re-pay the loan plus interest in monthly installments after which the house becomes his/hers. Corporations do the same when buying other smaller companies or investing in fixed assets. The whole point of taking on debt is to ensure that you get a return on investment that is sufficient to cover the debt plus whatever interest is charged. That is why taking on a loan to buy clothes, to pay salaries of workers or paying for a holiday is unsustainable.
So it seems the matter is simple? The central government can take on more debt. But only if it invests the money wisely, and on projects that will boost income a few years down the line. That is why, taking on debt for infrastructure is the norm because this will ultimately boost the country's economy by attracting more investors etc. Once the government's income rises, it will be able to pay off its debt without worrying about default. Here is where Tanzania diverts from the debt model. On the graph below (click graph to zoom in), we can see that the increase in government borrowing is far greater than the increase in development expenditure (includes infrastructure spending etc) which is almost stagnant. Most of that debt increase has been used to finance recurrent expenditure and, just as a person using his credit card to buy more clothes while unsure of how he will pay for it, this is a dangerous game to play. Other payments such as interest on accumulated debt accounts for the remainder of the increase in government debt.
Source: CAG reports (2008/09-2011/12)
At this rate, financing government debt will become unsustainable and we must come up with a solution now to avoid a debt default. A debt default will come with its own host of problems such as reduced investor confidence in Tanzania and a further pull out of foreign direct investment as well as increase in inflation as the central bank tries to increase currency flows in the country. According to current estimates, public debt will be around $14 billion by June 2012, which means we will have crossed the Debt/GDP ratio of 50%. Research by Harvard economist Ken Rogoff has shown that above levels of 60% for developing economies, growth rate is slashed on average by 2%. We need a radical change in the way government raises funds for financing its operations or else we may be headed for a debt crises of our own.
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