Changing Aid Infrastructure for Trade, Investment and private sector growth

Posted on May 3, 2015 · Posted in Trade and investment

david-cameron-conference-icc-birminghamThe changing foreign aid archetype indicate that building local resource mobilisation capacity, entrepreneurship and trade will be core in  defining the future multilateral cooperation and aid structures. Already key development partners like the European Union, USAID and UKAID-DFID have already indicated in their future forecast that development aid  in the form of ‘aid money’ will not be forthcoming.

Trade and taxation will be the core for development cooperation and less developed countries will be supported to trade effectively amongst themselves and the countries in the North. It is for this reason for example that the UK government in 2013 prioritised Trade, Taxation and Transparency in what it described as the 3Ts for Growth during its G8 Presidency.

According to the British Prime Minister, David Cameron ‘In this era where foreign aid is going to be difficult to come by, African countries should be given the capacity to use their resources to finance their development endeavours[1] The President of Tanzania, HE Jakaya Mrisho Kikwete in 2013 and 2014 also reiterated Tanzania’s commitment towards trade, taxation and transparency for growth. These should be the best country’s priorities for the future.

 Looking in retrospect, the political and economic landscape has been evolving over time. In many African countries the era of economic liberalisation which started in the 1990’s laid emphasis on private sector driven growth. Tanzania and other countries in the region identified the private sector as key engines for growth[2]. As a result of this policy shift, the government has slightly expanded its private sector, recorded increased trade and revenue collection.

Over the past decade alone the private sector has expanded from 15% of GDP to over 27% contribution to the national economy[3]. The revenue collection as percentage of Gross Domestic Product (GPD) has been increasing from under 10% in 1990s  and currently ranges between 14.6% and 17%  of GDP in 2013[4] (TRA Statistics).  The informal sector accounts for a large share of output and employment with estimates ranging between 40 and 60 of non agricultural GDP[5].

The Chairman of the CEO Roundtable of Tanzania, Ali Mufuruki address conference in Dar es Salaam yesterday on gas and oil issues. With are Executive director, Santina Benson. PHOTO|FIDELIS FELIX

The Chairman of the CEO Roundtable of Tanzania, Ali Mufuruki address conference in Dar es Salaam yesterday on gas and oil issues. With are Executive director, Santina Benson. PHOTO|FIDELIS FELIX

The various reports acknowledge that the contribution of the informal sector to GDP is large. It is estimated that the informal sector alone accounts for about 48.1% of the service sector. If well managed the informal sector of the services sector alone has the potential to contribute up to Tsh259.2 billion of the tax revenue from the sector which is 4.4% of the total tax revenue in 2010[6].

At the regional level, Tanzania has joined various Regional Economic Integration processes that have been introduced as a means for increasing trading volumes and free movement of labour, capital and services. Tanzania is a member of the South African Development Cooperation (SADC) and the East African Cooperation (EAC) and other regional and international bodies like the WTO. As a result the trade volumes between Tanzania and other regional members have increased. Exports to the SADC block increased from Tsh1.91 trillion in 2011 to Tsh2.33trillion in 2013.

In 2008 total intra EAC trade increased by 37.6 % reaching a record USD 2,715.4 Mln. Tanzania recorded the highest intra-EAC trade flows which more than doubled from USD 279.5 Mln in 2007 to USD735.8 Mln. Tanzania’s has remained a  major trading partner with the EU. Close to 25% of Tanzania’s export are destined to the European Union while 17.5% of Tanzania’s imports originated from the EU[7].Trade with Africa

 Governance challenges to international trade, taxation and development

The volume of trade would have been larger however this performance has been impeded by a plethora of governance challenges. These include non tariff barriers, uncertainty and lacuna’s in fiscal regimes, minimum linkage between trade, taxation and other sectors of economic growth, unfavourable conditions for Small and Medium Enterprise growth, poor policy environment and implementation, low value addition and cut throat competition reducing profit margins, transfer pricing, trade financing, long customs clearance and cross border handling, regional language and communication challenges. Engaging these issues in the future will be GEPC’s area of interest

[1] Hon David Cameron, UK Prime Minister during his pre summit speech to selected government leaders, CSO and private sector leaders at a High Level on 3Ts held at Lancaster House, London, 15 June, 2013. The meeting was attended by six African Heads of State, including President Kikwete.

[2] ibid

[3] GIZ: Cooperation with the private sector in Tanzania; Country Report 2013

[4] GoT: Poverty Monitoring Report 2013

[5] Women informal Employment: Globalising and Organising (WEIGO), Hauser Centre/Kennedy school of Government, Harvard University

[6] ibid