Download Growth and Poverty in Tanzania: A need for structural

19th ANNUAL RESEARCH WORKSHOP
Growth and Poverty in Tanzania:
A need for positive structural
transformation and the role of
agro-industrial innovation systems
By
Dr. Bitrina Diyamett
STIPRO
1
Ledger Plaza Bahari Beach Hotel
Dar es Salaam, Tanzania
April 09-10, 2014
Outline of the Presentation
 Introduction
 Growth and Poverty: Some theoretical perspectives.
 The crucial role of positive structural transformation and
the importance of industry in poverty eradication.
 The Tanzania situation: transformation and industry
situation.
 Transformation process and crucial role of agro-industrial
innovation system building.
 Concluding remarks and policy recommendations.
2
Introduction
 It is now universally accepted that economic growth is a
necessary condition for poverty alleviation.
 As countries become richer, on average the incidence of
income poverty falls (World Development Report 2000/01 ).
 It is income which has the greatest implications for poverty
than all other aspects.
- According to (World Bank, 2001), other indicators of wellbeing, such as average levels of education and health,
also tend to improve along with income poverty.
3
Introduction-2
 Tanzania has, over the past 10 years or so, been growing
on average of 7%
 But level of poverty reduction has been disappointing, and
levels of destitution has increased. For instance during the
10 years of steady growth, purchasing power of Tanzanians
have been falling drastically (NBS, 2010)
4
Growth and Poverty: Some
theoretical perspectives
 Growth is a necessary but not a sufficient condition
 According to Osmani (2003), there are three factors that
affect the incomes of the poor :
o Growth
o Extent to which growth enhances decent employment potential,
including of the poorest
o Extent to which the poor are able to Integrate into economic
processes.
5
Growth and Poverty: Some theoretical perspectives-2
 Growth must therefore come from economic sectors with
high capacity to generate employment.
 Sustainable and poverty reducing growth will ultimately
depend on structural transformation, which is the movement
of resources from low productivity to high productivity
employment.
 The process starts with the modernization of agriculture to a
modern industrial society. As economies move up the ladder
of development, services sectors would gain importance
(Timmer, 2007).
6
Growth and Poverty: Some theoretical perspectives-3
 Every territory in the world has followed this pattern with the
exception of those who had no agriculture to begin with
(such as Hong-Kong and Singapore) (Timmer, 2007)
 The transformation process which follow the standard
pattern is considered superior because along with raising
productivity and standard of living, also comes institutional,
organizational and cultural changes which make the society
as a whole to be more capable, productive, innovative and
peaceful (Singh, 2006).
7
Crucial role of industry
(Manufacturing) in the
transformation process
 A large body of empirical evidence demonstrates that the
manufacturing sector must play a key role in a country’s
economic development if wealth and jobs are to be created.
- Manufacturing has a ‘pull effect’ on other sectors of the
economy. The development of the manufacturing sector
stimulates demand for more and better services: Banking,
insurance, Business services, IT, communication and
transport, and further job creation (US Institute of
Manufacturing, 2009.
8
Tanzanian Situation
i) Structure of the economy
60
Percentage GDP contribution
50
Service
40
Agriculture
Ind ustry and
manufacturing
others
30
20
10
0
2002
2003
2004
2005
2006
2007
Years
9
2008
2009
2010
2011
Tanzanian Situation-2
i) Structure of the economy
 The structure of the economy indicate Tanzania has become
prematurely service oriented, without prior growth in
agriculture and manufacturing; and without improved
standard of living.
 The growth is from low knowledge and employment
intensive sub-sectors of retail trade and repair activities.
 If normal trend is followed, service orientation of economies
tend to be accompanied by high income, and high quality of
life; and it is from knowledge intensive sub-sectors of R&D,
IT services, financial, logistics and communications
industries.
10
Tanzanian Situation-3
ii) Manufacturing situation.
Structure of Exports by Technology Classification for
Tanzania and Comparators
40%
Malaysia
24%
32%
China
7%
Kenya
Tanzania
2% 11%
Zambia
1% 13%
0%
12%
28%
18%
25%
31%
32%
8%
43%
17%
69%
17%
68%
20%
40%
HT
60%
MT
LT
80%
100%
RB
Source: Tanzania Industrial Competitiveness Report, 2012
11
Tanzanian Situation-4
Technology and innovation status
Source: Source: Tanzania Industrial Competitiveness Report, 2012
12
Tanzanian Situation-5
Technology and innovation status
Technology Readiness in Tanzania
(Source: GCR 2012/13)
160
140
122
129
113
137
133
109
120
100
66
80
60
40
20
4.1
3.9
4.7
12
0
0
0.9
1.2
Rank/144
Value
13
Tanzanian Situation-6
Technology and innovation status
Innovation in Tanzania
140
120
100
80
(Source: GCR 2012/13)
71
105
117
73
71
55
56
3.3
3.3
60
40
20
3.1
3.6
3.5
0
3.6
0
Rank/144
Value
14
Tanzanian Situation-7
Technology and innovation status
Our own research
 Very limited innovation of higher degrees of novelty in the
manufacturing sector.


A study focusing on metal and engineering sector (Diyamett,
2010) revealed that of the 50 surveyed firms, 60% were
innovative, but only imitation and minor modifications.
Another study on the role of FDI in local technological
capability building (Diyamett, Ngowi and Mutambala, 2011)
revealed that over 80% have largely basic and some
intermediate technological capabilities.
15
Tanzanian Situation-8
Technology and innovation status
 Basic and intermediate technological capabilities include:
- Modification of designs, minor improvements,
quality
control, Introduction of new design for
manufacturing
 This is the same for FDI firms; as a result there is very little
learning taking place between local companies and FDI
 The same is for the companies in EPZ (Thomas, 2012).
- Most of the companies in EPZ demonstrate low level of
technological capabilities.
16
Transformation process and
crucial role of agro-industrial
innovation system building
 We have shown that Tanzania has undergone premature
structural transformation, with a very small manufacturing
sector with very low level of innovation.
 We argue that this to a large extent is responsible for much
of the poverty and destitution in Tanzania.
 What is needed is a vibrant and innovative manufacturing
sector, achieved through positive structural transformation.
 The challenge is how guide the process.
17
Structural Transformation and the
concept of agro-industrial
innovation system – some
conceptual thinking
 We know (from literature) that positive transformation process
start with productivity increase in agriculture, giving way to
industry and then service in terms of employment and contribution
to GDP.
 But there is very little ex-ante explanation on how to influence the
process – only the ex-post observation.
 However theoretical and some limited empirical observation
indicate that promotion of agro-industrial innovation system in the
early days of the transformation process is the way forward.
18
Structural Transformation and the concept of agro-industrial
innovation system – some conceptual thinking-2
 The trick is to focus on both agriculture and industry at the
same time; instead of one at a time –relegating the other to
buyer or user status.
 Agro-industry includes all the post-harvest activities involved
in the preservation and processing of agricultural products
for intermediary or final consumption.
 But if we focus our analysis on agro-industrial innovation
system, then the farming activities become part of the
system. Innovation systems defined as a set of institutions
(and actors) whose interactions determine the innovative
performance of firms (or farms) (Nelson, 1993).
19
Structural Transformation and the concept of agro-industrial
innovation system – some conceptual thinking-3
 Types of actors normally involved are producers, buyers,
suppliers, knowledge, policy and financial institutions.
 The concept of innovation systems rests on the premise that
understanding the linkages among these actors is key to
improving their technological capabilities.
 Analysis normally focus on national or sectoral levels.
 For the concept of agro-industrial innovation system the
focus is on the inter-sector
20
The concept of agro-industrial
innovation system – some
empirical evidence
1) Denmark
 The focus on agro-industrial complexes rather than
individual sectors : e.g. through this, milk and meat
processing has led into vast innovations in machinery and
equipment for milk and meat processing (Edquist &
Hommen, 2008).
 Which has fostered Danish strongholds within these
technological fields internationally.
 The industrial policy was on the complex, rather than on
milk and meat industry, and manufacturing as separate
sectors.
21
The concept of agro-industrial innovation system – some empirical
evidence-2
2) UK
 key productivity-growth sector of British industrialization
was agriculture (Smith 2007).
 British agriculture and food processing industry
development led to such epoch-making innovations as
replaceable parts, technical codification, assembly lines,
etc. (Smith 2007).
22
The concept of agro-industrial innovation system – some empirical
evidence-3
 Empirical observation in Tanzania indicate that
farmers get ideas and knowledge for innovation more
from the agro-processers, who are also major buyers
than from R&D organizations:
-
-
A study on the role of FDI in local tech capabilities
(Diyamett, et al, 2011), indicate that over 90% of those who
innovated got ideas and knowledge from the agro-industry.
Another study on the sectoral systems of innovation
(Diyamett, et al, 2014) indicates very low level of
innovativeness except for those farmers who have strong
linkage with the agro processing firms such as coffee,
cotton, sisal, wheat, and tea.
23
The concept of agro-industrial innovation system – some empirical
evidence-4
 In general it seems structural transformation has to start with
the development of the agro-industrial innovation systems or
agro-industrial complex (a terminology used in Denmark).
 Literature indicate that generally agro-industry is dominant in
the early days of structural transformation: Their contribution
to total manufacturing is 61 percent in agriculture based
countries, 42 percent in countries in transformation and 37
percent in urbanized developing countries (GAIF, 2008).
24
The concept of agro-industrial innovation system – some empirical
evidence-5
 With the idea of the agro industrial innovation system
analysis, the analysis does not end with analyzing the
agricultural systems of innovation, but proceed to the related
agro processing industries.
 Some limited empirical evidence in Tanzania indicate that
those agro-industries present in both local and export
markets are more innovative than those that are serving
local markets alone.
 Competition with imports have been expressed as a major
challenge.
25
The concept of agro-industrial innovation system – some empirical
evidence-6
 There is strong empirical evidence that markets and
interactive learning with buyers (sophisticated) are decisive
in innovation and productivity growth.
 According to Freeman (1992), markets and scientific
possibilities are two decisive factors in innovation.
-And it is the sophisticated demanding customers (either
actual or potential) that can trigger the search for scientific
possibilities, including highly qualified human resources.
26
The concept of agro-industrial innovation system – some empirical
evidence-7
 For the concept of agro-industrial innovation system or agroindustrial complex the following has to be assured:
• linkage between agricultural sector and agro-processors in
terms of markets and interactive learning.
• but markets and interactive linkage have to be assured for the
agro-processors as well.
 The above will trigger the search for scientific possibilities
and other associated capabilities.
.
27
Concluding remarks and some
policy recommendations
 Much of the delink between Tanzanian growth and poverty
reduction can be associated with the abnormal structural
transformation – to low skills and less employment intensive
subsectors, without productivity growth in agriculture and
industry.
 Given the presented theoretical and empirical evidence, we
argue that the direct connection between the agricultural and
industrial sectors (in the form of agro-industrial innovation
systems or complex) is inevitable for successful structural
transformation.
o it is not either or, but both, in complex interaction.
o markets being the major decisive factor.
28
Concluding remarks and some policy recommendations-2
Following are emanating policy recommendations:
 Identify a number of agro-industrial complexes that
Tanzania have a comparative advantage (market potential,
both local and export).
 The trick is to look at the trade balance. For instance the
case of edible oil for Tanzania where the local demand is big,
and over 50% of it being imported.
 Create effective linkage between farmers and processors
 Make sure that small holder farmers and SMEs become part
of the complex.
29
Concluding remarks and some policy recommendations-3
 Deepen knowledge economy around the chosen agro industrial
innovation systems or complex, including R&D system, input
supply for farmers, and machinery for the agro-processors,
finance for both farms and firms.
o Inputs (fertilizers, pesticides) to be locally made – take advantage of
the emerging gas industry.
o R&D for agriculture to be connected with agro-processers as well.
 Promote export for the agro-industry, e.g. through EPZ
 Find a way to protect local industry from cheap imports.
 Ensure periodic review of innovative activities and productivity
increase in the complexes, and continuously adjust policies.
30
Thank you very much for your
kind attention
31