Whimsical protectionism engenders poverty In Tanzania

President Jakaya mrisho Kikwete of Tanzania:
The Political class is hurting Tanzania's interests

I define whimsical protection as a form of protection that is not based on economic factors. It is impulsive and erratic and does not engender any economic benefits on the protected country or society.

 In worst case scenario it stalls; investment, technology transfer, production and skills acquisition in a country. It is a recipe for deeper poverty and underdevelopment.

Such is the case with Tanzania, a country in East Africa. Although the second largest economy in the 130 million people East Africa Common market bloc, she is the laggard. 

Protectionism initially served a purpose. Her weak manufacturing sector needed some form of protection from the stronger Kenyan manufacturing sector. This resulted in asymmetrical tax system in which Kenyan exports were taxed at 90 per cent discount while Tanzania and Uganda Exports came to Kenya tax free.

This resulted in a 2000 per cent rise Tanzania’s formal exports to Kenya between 1996 and 2010.  Official data shows that Tanzanian exports to Kenya stood US$6.6 million in 1996 -the first full year of the operation of the EA Customs Union to US$135.4 million in 2010. Official Kenyan Data shows that Tanzania‘s exports to Kenya in the first half of 2011, stood at US$112 million, exceeding exports for the whole of 2009. Such growth would not have been possible without some form of protection for the weak Tanzanian manufacturing sector.

But it is also a signal that the sector has come of age and should now be allowed to compete on an equal keel. In fact, the economic reason for protection is no more. But there are capricious reasons for it. And these do more harm to Tanzania than good.

Tanzania’s concerns graduated to “Kenya Phobia.” According to Kenyan officials, “Tanzanians always think the first beneficiary of any progress in the region is Kenya. So they simply reject things out of hand.”  And they are hurting their country’s interests.

The latest step is her refusal to ratify discussion on the proposed political Union in the region due to the issue on Land. The Proposed document wants the citizens of the East African common market to be free to own land anywhere in the bloc. “No says Tanzania. Our land is for Tanzanians only.” A month ago, Tanzanian government officials minced no words accusing some unnamed countries of “greedily eyeing our land. We shall not bulge,” they told the local media.

Kenyan officials familiar with Tanzania’s capricious nature say that in Tanzanian parlance “other countries” means Kenya. Kenyan officials dismiss this as “Kenya phobia and myopic stance.”

Owing to this “phobia” especially among the political class, Tanzania has made bad decisions against its leading market in Africa- Kenya in particular. In 2001, Tanzania pulled out of COMESA trading bloc citing the cost of fees in several blocs, preferring to remain in SADC.

That was strange since SADC was not a significant market for Tanzania. The immediate result, Tanzania lost a significant market in Burundi. The move, unconfirmed reports say, was due to a spat between a Kenya firm and a Tanzanian Cabinet minister.

 In 2002, Kenya’ Airways’ (KQ) bid to buy Air Tanzania Corporation, ATC, was frustrated by politicians who preferred South African Airways(SAA), despite advice by ATC management to sale the airline to KQ. At that time politicians argued Kenya was only interested in Tanzania’s tourism circuit.

ATC was sold to SAA for a whopping $20 million. This was an imprudent decision since SAA itself was in financial doldrums owing to an investment gone awry. Five years down the road, the marriage collapsed and ATC was returned to Tanzania. By then, KQ, which bought a privately owned Tanzanian airline, Precision air, had completely dominated the Tanzanian airspace. ATC could not even find an elbow room in the lucrative domestic routes.  Now, ATC‘s survival is in doubt for it depends on government support to remain air bone.

 Two, years ago, a Tanzanian Cabinet minister was embroiled in a dispute wit a Kenyan firm, Brookside dairies. The firm bought a Tanzanian milk processor, but soon discovered that the farmers there could not deliver enough milk to keep the firm afloat.  It opted to process the 12,000 litres it collected in Tanzania in Kenya since that was a cheaper option.

The minister wanted the factory repossessed although he knew very well that the farmers in Tanzania could not supply the 60,000 litres it needed to operate profitably. The Solution was simple: Mobilise farmers to produce more milk. If necessary, he should have called for importation of skills from Kenya to teach them animal husbandry. That was not popular.

According to a recent report in the Financial Times, Kenyan employees cannot be allowed to work in Tanzania freely. This has forced some investors to look elsewhere in the region.  Consequently, Tanzania is no longer an exciting destination for Kenyan investors. In the mid 1990s and early 200s, Kenyan investors trooped to Tanzania in droves, making Kenya the second largest investor in Tanzania after Britain.

Most are now pulling out. The latest investor to pull out was East African Breweries which sold its 20 per cent stake in Tanzania breweries. There were other smaller investors who have pulled out too. Although Data is not readily available there are indications that Kenyan investors are looking elsewhere and that the flow of Kenyan investment funds has slowed down.

Those that remain are keeping their investment levels low. Kenya’s most aggressive expansionists are in the banking industry. And they appear to be reluctant entrants into the Tanzanian market. Major Kenyan retail outlets have opened a branch each in a country of 40 million people. Nakumatt Limited, has just set up shop in Arusha while uchumi supermarket has a branch in Dar-Es salaam. All complain of delays in getting work permits for Key staff

The financial sector appears to be looking elsewhere. Kenya Commercial bank, the first Kenyan Bank to venture into the Tanzanian market in the 1990s boasts of only 11 branches in Tanzania. At the same time she boasts of 14 branches in Uganda; 19 in South Sudan and 9 in Rwanda. It is noteworthy that KCB entered the latter three markets years after it set up shop in Tanzania.

Equity Bank, the fastest growing bank in the region boasts of 38 branches in Uganda and 4 in South Sudan. It has its eyes trained on Tanzania and Rwanda but Rwanda is higher in the radar than Tanzania.

Tanzania did not read the writing on the wall.The expansion of the East African community to include Rwanda and Burundi and the birth of South Sudan spelt trouble for her, say analysts. Initially Tanzania and Uganda were the favoured destinations for Kenyan investors. However, the entry of the three new countries into the market changed the equation. While Uganda is still attractive, Tanzania is sliding lower in the scales as the new entrants roll out the red carpet for Kenyan investors.  

Tanzania, as a virgin investment destination will therefore have to compete with other virgins in the region for one suitor. Is she ready to be the third or fourth wife? Only time will tell. But as politicians chest thumb and fight ghosts, Tanzanians are definitely losing out!