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Governance sidelined in development discourse

Posted on May 3, 2015 · Posted in Governance

GovernanceGovernance, Trade and Taxation have been sidelined in recent economic policy debates and development discourse in Tanzania and the East African Region in general. Yet as populations increase and foreign aid resources become scarce, good governance, trade and taxation or local resource mobilisation, are evidently the most vital future drivers of optimal economic growth for developing countries.

The economic progress for countries like Tanzania will depend on functional good governance and accountability structures, effective use of their resources to participate in interregional and international commercial trade.

A robust Tax and trade regime will be a major source of resources necessary for driving the development agenda. Good and fair tax laws will be necessary in catalysing trade and enterprise development.  Their effective fair application and enforcement will be vital in securing compliance and boosting government revenue. The private sector and non state actors will be key players in economic growth and development.

Tanzania is by any standards a very rich natural resource country with a bulging population. How the government positions itself to address these issues will be vital for its guaranteed future sustainable growth. Leveraging on effective governance structures and practice, trade and tax policies to benefit from this natural wealth (oil, gas, forestry, wildlife et cetra) will be important.

The participation of citizens, civil society organisation and private sector engagement is vital in shaping this agenda. Curbing corruption and investment in good leadership and accountability institutions to deliver efficiently and responsively is core.  State stability and macroeconomic policy predictability is essential. The Governance and Economic Policy Center (GEPC) is therefore an important civil society institutional response to raising informed dialogue and discourse on these challenges.

Governance deficitshigh_court
 At national level the governance structures are weak and prone to systemic abuse by unresponsive political elite. At international level the government’s commitment to national and regional governance standards has been modest. Tanzania and a number of East African countries have signed up to a number of regional economic and governance commitments. Tanzania is a member of the East African Community (EAC) and South African Development Community (SADC). Under the EAC framework the government has committed itself toward entering into a single customs territory, as a mechanism of increasing regional trade.

Tanzania is also a member and signatory to a number of African Union protocols. Despite the entering in action of EAC Common Market Protocol in 2010, a number of issues under the protocol are still not yet implemented. This is also built on the fact that the Customs Union protocol of 2005 is not yet fully fledged. Tanzania has been on constant blame by other EAC members that it is reluctant in implementing the signed commitments.

Extractive Natural Resource Governance, Resource leakage and development revenue deficits

Mining Caterpilar EquipmentsManagement of Tanzania’s natural resources has been a challenge. The management of Tanzania’s extractive resources and the revenues from these sectors has remained small. Various reports indicate that the country’s legal framework governing the sector is weak, the country has lost billions in revenue foregone through unnecessary exemptions, tax evasion and mispricing. In  its 2010 review of illicit flows for the years 2002-06, the Global Financial Integrity (GFI) notes that Tanzania lost an average  of USD 660 mln a year (as high end estimates) out of which USD551 Mln was a result of un recorded capital leakages and USD 109 Mln as a result of trade mispricing. During 2000-08 Tanzania is estimated to have lost USD2.5bln and during 1970-2008 lost USD 7.36 bln from illicit capital flows. These figures suggest the total illicit capital flows from Tanzania range from USD94-660 Mln a year and trade mispricing alone accounts for USD109-127Mln a year[1]. ESRF estimates that revenue lost through non revenue collection is around 35-55% of total tax revenue meaning a likelihood of Tsh1.5-2.4 trillion lost in 2009/10 alone[2] All these resources if saved could be contribute tremendously/significantly towards poverty eradication.

Corruption and state capture

 There is still wide spread prevalence of corruption in public service structures and as a consequence corruption is now recognised as one of the major governance and development obstacle to poverty eradication. Corruption has affected both the quality of social service delivery and business development. According to the World Bank doing business index report Tanzania is ranked as 127th position out of 183 Countries.

Corruption is ranked as a major impediment to doing business.[1] The level of unpredictable political and economic policy regimes in the region have increased the level of risk to doing business and trade in the country and the region. In a nutshell key government institutions like the Judiciary and law enforcement are under ‘capture’ by acts of corruption and bribery which has seen these institutions ranked consistently as the most corrupt for the past three years.

Regional Integration, stability and governance standards

 The past ten years have witnessed rapid economic integration processes across East and Southern Africa. Tanzania is a member of EAC and SADC regional economic groupings.  For economic development to take shape, the member countries should be meaningfully engaged in ongoing regional and international trade promotion dialogues and committed to instruments and mechanisms that have been put in place to achieve the objectives outlined in these processes.

The government will have to be committed to observing minimum governance standards set by regional bodies like the EAC, AU, and United Nations. Countries like Tanzania need a trade policy that will ensure effective participation in the rules based trading system that has emerged at international level and seizing the opportunities inherent in the free flow of resources[2] . Stability (political, institutional and policy) will be vital in reducing political and business risks and thereby encouraging entrepreneurship and investment. These will be areas of robust analysis and engagement.

[1] World Bank Doing Business Index  Report 2012.

[2] ibid

[1] The One Billion dollar question: How can Tanzania stop losing so much tax revenue; Norwegian Church Aid, 2012

[2] ESRF: How the poor tax  policies contribute towards non compliance, evasion and avoidance thus reducing the tax base, 2010