The Heritage Foundation

Backgrounder Update #62

January 7, 1988

January 7, 1988 | Backgrounder Update on

Tanzania: Again Squandering Foreign Aid

(Archived document, may contain errors)

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TANZANIA"- AGAIN SQUANDERING FOREIGN AID

(Updad@j Back8munder No. 610, "Seeking the Causes of AW&s Poverty," October 15, 1987. increasingly, African nations and Western foreign aid donors have been concluding that a ina .or (if not the major) source of African economic stagnation is the Policies d g those nations. This wise conclusion, however, is being -pursue. ignored by Tanzania, one of the world!s most chronicall poverty-stricken countries. Moving away from his -recent pursuit of free market re.70M. s Tanzanian President Ali Hassan Mwinvi recently has cracked down on the sale.of crops to private distributors by &i@ners desperate to rid themselves of unsold harvests lying vulnerable to seasonal rains. a Firl In 1 Such sales are illegal in Tanzania since they take business auray from the state Monopoly, even though the state monopoly is not able to collect and all the farmers' output. Without these "Illegar i te distrilmtors,' fewer crops would get to market. The United States Agenq Forlinte=0 (AID), as well as the World Bank and the N al "A@ la Monetary have spent hundreds of millions of doll= to 1Vm=Drvom=wotWAe fftree mmarrrlk@wet reed, Tanzania is expected soon to receive funds Trom. a mult1illion dollar World Bank debt relief plan- for sub-Saharan Africa. Tanzania!s crackdown on its trader-entrepreneurs flies in the face of these efforts. 112e Reagan Administration should urge- Tanzania to privatize the marketing of all its cr0pL Otherwise, foreign aid and debt relief for Tanzania are not merited and should be. reconsidered. Under the radical socialist policies of -Julius Nyerere, Tanzania s president from Its independence in 1961 until 1985, the collectivized fanning and nationalized virtually all private industry. result, the government sets the official price for almost all cn)ps;. them have been considerably. below the actual market prices. Farmers are re ed to sell most iFops to a Inerarchy of V agencies, which ts the produce within the country and for export. nal Development Fund (13M reforms Ind

By 1984, the official prices offered to farmers were only half their 1970 level, even though world market prices for the countrys major crops had increased 17

percent during that period. Ile result: the production of food and export crops plammeted,.and dependence on Western food aid mounted. Production of basic food crops is now half its 1972 level, and cotton exports are still at pre- independence levels. Shunded Ckops, T nzania's state marketing system is so inefficient that farmers always have tamed to the services of illegal private' traders. These entrepreneurs hold !ogether the -country's agricultural economy. Recently, some 300,000 tons of various crops-including the major f@ e rs, coffee and cotton-were stranded in villages, with govemm;wt, le to cart them away because of severe transport bottlenecks. Farmers were willing. to sell to private entrepreneurs at little more than half the official prices to avoid,.seeing their crops destroyed by the coming seasonal rains. It is against these entrepreneurs that the government has now moved.. During the 1970s and early 1980s, TanzaniWs state marketing boards and forced collectivization were underwritten by the World Bank and Western goverment aid programs. In fact, Tanzania received more foreign aid per capita than almost any other country. By the mid-1980s, foreign donors finally recognized the failure of Tanzania's experiment. Recently, the IMF and World Bank have been promoting market-oriented reforms. In. response, Tanzania devalued its currency, cut certain hinport restrictions, and increased controlled producer prices'for corn and export crops. And private traders have been allowed to compete with a -government Tn keting board. in the purchase of com. This latter reform proved so successfid that the government board, unable to compete with private traders, was scaled back. Uselm Roads. In recogm*don.of these advances, AID in November signed an Weement to provide $12 million this Ir in support of the government's Economic Policy Reform Programft .@C is. in addition to the $7 million' in P.L 480 food aid provided by AID. The new $12 million in US. assistance is linked speqcaRy to Tanzania!s promise to spend more on the upkeep of roads essential to' moving crops to market from the rural areas. Yet these roads will be of little use if the-goveinment, prohibits- private entrepreneurs from hauling the crops. ADD officials seem-reluctant to deal with this contradiction, explalinin that $12 million cannot be expected to promote much reform. When Tanzanian farmers refuse to risk waiting to sell their crops to the 'cooperatives, prefering ta accept half the "official" price from entrepreneurs. they are voting with their precious harvests against the government ms, keting system. AID, IMF, and the World Bank should heed this - vote-they should insist that Tanzania halt the present ban on private crop sales. Beyond this, AID and the multinational banks should urge the government of Tanzania to extend the experiment of competition between government and private parties in the marketing of com to the export cro sector. Only when Tanzanian and all other African farmers are free to CDduce wItat they want, and to bu rices agreed . y and sell to any customers at p i to all the parties involved, will Africa pull itself up out of poverty and hunger.

Melanie S. Tammen Research Associate

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