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Overview of Tanzania Economy
TANZANIA AGRICULTURAL TRADE INFORMATION CENTRE - TATIC
A GENERAL OVERVIEW ON AGRICULTURAL TRADE IN TANZANIA
Background to the Tanzanian Economy
Like most other Sub-Saharan African (SSA) economies, the Tanzanian economy is characterized by a large traditional rural sector and a small modern urban sector and depends heavily on agriculture. The performance of the overall Tanzanian economy has been driven by the performance of the agriculture sector, due to its large share in the economy. Agriculture in Tanzania employs the majority of the poor, and has strong consumption linkages with other sectors. In 2004, the sector contributed approximately 51 percent of foreign exchange, 75 percent of total employment and 47 percent of the Gross Domestic Product (GDP). Smallholder farming dominates agricultural production, and a large proportion is for subsistence.
Exports rely on a few cash crops, notably coffee, cotton and cashew nuts, but in the recent years tourism and mining have become the largest earner of foreign exchange. Growth in 1991-2002 featured a pickup in industrial production and a substantial increase in output of minerals, led by gold. Oil and gas exploration and development played an important role in this growth. Recent banking reforms have helped increase private sector growth and investment. The level of government spending as a proportion of GDP has been high, albeit growing at a slower rate in recent years. Donor financing has assumed greater importance (currently over 40 percent of Budget) after adoption of economic reforms in 1986. Continued donor assistance and solid macroeconomic policies supported real GDP growth of more than 5.2% in 2004. Servicing of foreign debt absorbs an increasing share of current revenue, which relies heavily on indirect taxes.
Persistent economic reforms are shifting the Tanzanian economy towards a steady higher rate of economic growth that is crucial to realization of poverty reduction goals. A GDP growth rate of 6.7% in nominal terms was realized in 2004 compared to 5.7% in the preceding year. Policy orientation targets the average GDP growth rate of 8% in the medium to long term as the minimum necessary for the achievement of the goal reducing poverty by 50% in line with the objectives of the Millennium Development Goals.
Vision 2025 confirms the MDGs objective of halving poverty by 2015 and its total eradication in Tanzania by 2025. The National Trade Policy, adopted in 2003 and currently under implementation, is one of the primary instruments that is guiding national efforts in the realization of this ambitious and onerous goal.
Tanzania faces economic development challenges that impact her ability to participate more fully in the Multilateral Trading System (MTS). In the past two decades, Tanzania has evolved from a centrally planned economy to a market oriented system through successful trade liberalization. The Government promotes private sector growth through less interference in commercial activities and decentralization of administrative responsibility together with forming smart partnership that address institutional and technical constraints related to foreign market penetration.
State of Agricultural trade
Tanzania is still heavily dependent on traditional export crops, with cashew nut, coffee, cotton, sisal, tea, and tobacco currently accounting for 21% percent of Tanzania 's total agricultural exports. Available data shows that as many as 6 million people out of a workforce of approximately 15 million people depend on the four leading cash crops namely cashew nuts, coffee, tea and cotton.
Due to downward trends in world prices, increased production of traditional export crops has not translated into much growth in farm incomes. But there is a shift variation in the export basket whereby 1998 60.5% of exports were traditional crops and by 2003 the ratio of traditional exports declined to 21.4% due to increase in exports of gold and fish products. There is also tremendous potential in the livestock sector which maintained steady growth at 5% and fishing sector grew by 6.9% in 2004. In 2004 horticulture and floriculture exports totaled $ 14.3m and accounted for 1% of Tanzania 's total exports.
There is a trend reveal a trend of drastic decline in the contribution of traditional commodities in the proportion of merchandise exports and the dramatic improvement in the performance of non-traditional exports. While the success in raising the profile for non-traditional exports is commendable as a necessary effort in economic transformation, ideally, this should be accompanied by consolidation of the traditional export sector, in view of the large proportion of the population that depends on the commodity production.
The figure below shows exports of the major cash crops
Source: Crop Boards
Multilateral Trading System
Tanzania is a founding member of WTO in which it is obliged to implement the WTO's agreement. However, Tanzania 's prospects in the multilateral trading system depend on the successful accomplishment of negotiations in the Doha round. Evidence shows that since these negotiations stared in 2001 there has been little progress in tackling the key developmental concerns of developing countries; especially on Special Differential Treatment (SDT) and implementation issues. In pursuit of the EPA negotiations that require an ACP country to conclude an Economic Partnership Agreement (EPA) with the EU under a particular regional body, Tanzania has opted to negotiate an EPA under the SADC configuration. This indicate her intention to embrace SADC integration process parallel with that of EAC, albeit the inherent challenges of overlapping memberships. With the EAC agenda to fast-truck possibility for federation, the challenge in providing sincere leadership for this issue is imperative. Tanzania is also eligible for multilateral trade preferences under the US Africa and Opportunity Act (AGOA) and the European Union's Everything But Arms (EBA) initiative. The government is undertaking efforts to build Tanzania 's capacity to access global markets and increase volumes of exports, while conforming to trade rules, especially those of WTO.
Regarding Agreement on Agriculture , Tanzania has bound all its agricultural tariff at 120% as evident in its agricultural schedules. Average agricultural tariffs resulting form membership in the EAC is 22%.
Regional and Bilateral Trading Arrangements
Tanzania is a proactive member of Regional Economic Communities in view of the potential of these schemes as the building blocks for international competitiveness, expansion of markets and trade flows. In this regard, the country is a founding member of the East African Community (EAC) and the Southern African Development Community (SDAC) and is negotiating an Economic Partnership Agreement through the SADC configuration. In addition, Tanzania participates in other economic cooperation schemes which includes the Great Lakes Region and Indian Ocean Rim.
Agribusiness in Tanzania
The agricultural sector in Tanzania has a crucial role to play in economic development. Despite of the sector economic importance productivity and incomes are low. The sector is dominated by small-scale producers using low level of input in relatively small pieces of land.
In Tanzania , agribusiness comprises of a diverse group of commercial operators engaged in production (farming), processing, transportation, storage and warehousing and marketing of inputs, crops, fisheries and forestry products. Agribusiness activities contribute enormously to the economy although it is difficult to separate its contribution from general agricultural contribution to the economy.
In crop sub sector Tanzania enjoys a comparative advantage in production of almost all of the cultivated crops. However, due to various reasons, agricultural products have never been competitive enough in the world market.
To improve the current crop competitiveness, the government is encouraging various investors (both foreigners and domestic) to invest in the agricultural sector particularly in agribusiness. Records reveal that there are significant investment opportunities in various agricultural sub sectors.
Tanzania's Performance in AGOA
AGOA could be the Tanzania 's good opportunity for export of agricultural; commodities. Tanzania is among AGOA-eligible sub Saharan African countries which have already qualified for full benefits provided under the African Growth and Opportunity Act which was signed into law on 18 th May, 2000 and further signed in 19 July 2004 to extend preferential access for imports from beneficial countries until September 30, 2015.This provides opportunities for Tanzania exporters to export into the USA market quota and duty free.
Tanzania achieved AGOA status in 2002 since it was signed in 2000 and is eligible for apparel and textile benefits under third party LDC sourcing provisions. Tanzanian Chamber of Commerce Industry and Agriculture (TCCIA) has been granted authority to process visas for eligible AGOA exporters. Since its implementation in 2002 Tanzania has yet to take full advantage of AGOA due to number of reason the great being supply side constraints. Since Tanzania is not fully utilizing GSP to enter US markets it find very difficult to penetrate US markets through AGOA because Tanzania exporters do not have prior knowledge of the US market. Exporters from neighbouring countries of Kenya and Swaziland for instance find it easy to comply with AGOA market requirements simply because they had perfect knowledge and experience of the US markets that had been pursued through GSP.
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