Regional Integration and Poverty: A case study of Tanzania

Transcription

1 Regional Integration and Poverty: A case study of Tanzania By Josaphat Kweka and Phillip Mboya Economic and Social Research Foundation (ESRF), Tanzania

2 OUTLINE 1. Introduction 2. Approach 3. Description of RIAs 4. RI and Poverty: Investment 5. RI and Poverty: Trade 6. RI and Poverty: Reg Cooperation 7. Conclusions

3 1. Introduction The Development challenge in Tanzania is how to increase growth and eliminate poverty. Trade is recognised as important for PRS RI is considered one of key strategy to achieve sustainable growth of export and competitiveness (New Trade Policy, 2003), hence poverty reduction? Whether and how RI has affected Poverty in Tanzania The Literature admits that RI affect poverty through trade, investment and cooperation effects No comprehensive analysis is available for Tanzania Trade and poverty (Booth and Kweka,, 2004), RI and Poverty (Musonda( Musonda,, 2000; Matamablya and Wanga,, 2001), Investment and Poverty (Madete( Madete,, 2000, Mboya 2004, Mashindano,, 2004). We use the theoretical framework for the project (te( Velde,, Page and Morrissey, 2004) to bridge this gap.

4 2. Approach and Methodology ToR provides the analytical framework (charts 1-3) 1 That is, RI can affect poverty through increased volume and poverty focus of investment, Trade and Regional cooperation The study follows these routes but with some limitations: The tender age of the RIAs in question Availability and reliability of data Some impacts are important but difficult to assess numerically Factors other than RI affect poverty focus of trade/investment. We use triangulated approach, that includes (i) primary and secondary data (ii) Interview with some key stake holders (firms, institutions) (iii) literature and related studies on Tanzania

5 3. RI Processes for Tanzania A member of SADC and EAC; but withdrew from COMESA in 2000 We focus on 3 issues for SADC and EAC: Progress on RI, trade/investment estment provisions and the EU-ACP EPAs. For SADC: Ratified the Trade Protocol since 2000 but with little implementation Expects FTA by 2008 but exists already SACU, COMESA, MZM but not Tz Investment provision exists via the Protocol on investment and FinanceF Opted to negotiate an EPA with EU but Tanzania is likely to be left l alone given the better prospects for ESA and existence of SACU Overlapping membership likely to slow the RI benefits, but South Africa provides a fresh impetus

6 RI Processes cont Issues for EAC: Process of RI for the new EAC begun 2000 CU signed in March 2004: 5 year phasing out of internal tariffs and application of CET Negotiations completed except for a few outstanding issues (excise duty, sensitive products list, etc) No explicit investment provisions trade provision via the CU Currently working on harmonisation of investment policies No prospects for EPAs

7 3. RI Processes: Indices of RI EAC has highest no. of product lines but highest no. of NTB (due to higher proportion of manufactured products from Kenya) SADC has highest tariff rate, reflecting low level of trade integration (Tanzania yet to grant duty-free access) Trade with COMESA not significant Other Taxes/cif (%) Region No of Product Tariff/cif lines (%) SADC EAC COMESA Products with NTB

8 RI processes cont In sum, RI is more advanced in EAC Tanzania is prospecting trade creation in SADC but vigilant on RI process in EAC Other RIAs exists, IOC, RIFF (formerly CBI) Tz eligible for other GSP and initiatives under WTO, AGOA, EU-EBA EBA but the extent of benefit has been disappointing

9 4. RI and Poverty through FDI We examine Performance by examining trends in FDI flow, and poverty focus by the structure of its distribution. Poverty is a rural phenomenon in Tanzania Poverty reduction efforts effective if focused on rural areas (agriculture sector) About 36% of the population cannot meet basic needs Initiatives to Eradicate Poverty through PRS Tanzania is implementing its second PRS First one focused on social sectors, second on growth issues including trade, investment and employment Aim to eradicate poverty by half in 2010 and by 100% in 2025.

10 4.RI and Poverty through FDI cont We observe from data: Impressive growth of FDI inflow attributable to macroeconomic reforms Its distribution by location and sectors not geared for poverty reduction in the immediate terms Most sectors receiving FDI (mining) have marginal linkage and multiplier effects in the economy Implies limited poverty focus given absence of effective macro- micro linkages The study shows that the few regions with higher FDI also have higher HDI.

11 4.RI and Poverty through FDI cont 250 Fig 4.3 FDI Inflow to Tanzania, (US$m.) FDI

12 Poverty focus of FDI: distribution by sector Agriculture 8% Transport and comm. 11% Trade and Tourism 15% others 15% Mining 31% Manufacturin g 20%

13 Poverty focus of FDI cont Sectors with high employment impact of FDI receive low FDI inflows Mining creates 1% of jobs from unit FDI but receives one-third of FDI inflow; Agriculture create 31% of jobs per unit FDI but receives only 8% Other services 7% Construction 4% Mining 1% Finance 1% Agriculture 37% Textiles 5% Other manufacturing 22% Hotels and Restaurants 5% Transport and Communicatio n 5% Food and Beverages 13%

14 FDI and Poverty indicators Fig 4.5. FDI share of GDP and primary school enrolment rate, Fig 4.6 GDP growth and investment share of GDP, IN V G D FDIGDP PSENR GDPGR Increase in FDI inflow is associated with higher PSNER Increase in investment share of GDP is associated with increase in GDP growth rate

15 5. RI and Poverty Through trade in Tanzania To get a clearer picture of the efficacy of RI effect on on poverty via trade, we net out overlapping memberships of COMESA-SADC, SADC, and EAC- COMESA; and examined the agriculture content of Regional trade. A number of interesting features emerges: Share of value of exports to the regional markets more than doubled from 6% in 1995 to 14% in 2002, parallel to increase in total exports The share of agro products in Intra-regional regional exports has increased steadily compared to extra regional trade Positive trade balance for Intra-regional regional agricultural trade Trade between Tanzania and COMESA declined, that of SADC increased ed even faster after accession of South Africa Increasing diversification of exports is evident Regional variations exists between EAC and SADC with dominance of o Kenya and S. Africa respectively

16 Intra and Extra Regional Trade 1000 Fig 5. Tanzania's Intra and Extra Regional Exports 800 US $m ill Intra Region Extra Region TOTAL

17 5. Cont.. Table 5. Trends in Intra Regional and Extra Regional Exports ( ) Year (A) Value of Total Exports (US$ mill.) Intra-regional exports Extra regional exports Total exports (B) Share of the Value of Total Exports (%) Intra-regional exports Extra regional exports Total exports (C) Value of Agricultural exports (US$ mill.) Total Intra Regional agric. exports Extra Regional Agric. exports Total Agriculture export (D) Share of agriculture products in Total exports (%) Intra-regional exports Extra regional exports Total exports Source: Computed from Customs Data for Tanzania

18 5. Cont Intra Intra-regional regional trade balance Year Indicator X M B X M B Total Trade Extra Regional Trade Intra Regional Trade o/w Agriculture Products o/w South Africa (SADC) o/w Kenya (EAC)

19 Intra-regional regional Trade variation by Regions Upsurge in exports to SADC Fig 5.1 Tanzania's Exports by Regions ( ) (US$m.) EAC SADC COMESA TOTAL

20 Export diversification Range and value of intra reg. export products Products V alue (x10u S$ m ill.)

21 5. Cont Share of agriculture in intra-regional regional exports has been increasing steadily Fig. 5b.Share of Agriculture in the Value of exports ( ) Intra-regional exports Extra regional exports Total exports

22 5. Cont Value of agriculture exports by regions (US $m.) EAC SADC COMESA Total

23 5. Cont trade trade and poverty indicators Increased GDP share of exports is associated strongly with increases in PSNER 60 Fig 5.7 Export share of GDP and primary school enrolment rate, PSENR EX/GDP

24 5. Cont trade trade and poverty indicators More trade openness associates slightly with increase in Primary School Net Enrolment rate 70 Fig. 5.8 Export import ratio and primary school enrolment rate, EXPIM PSENR

25 5 cont..firms report constraints to poverty focus of trade Most firms sell in the regional markets % number of firms Regional Market Europe and America Asia and Middle East Not Exporting Japan and Australia Rest of the World

26 Firms report constraints cont Lack of market for product produced and high competition are main reasons for firms inability to sell in the regional markets % number of firms No market for the products produced Cost of transport is too high High production cost High competition and tariffs No intention to export

27 5 reported constraints by firms cont Firms generally don t t find it too challenging to export in EAC market as long as there is demand for the product. High transport costs and tariff apply for SADC % number of firms High tariffs in the importing country Intense competition No challenge High transport costs

28 Firms report constraints cont Relatively, foreign firms are better placed to reap the trade opportunity of liberalisation compared to domestic oriented firms. 80% of firms regard RI as an opportunity for trade and investment more effectively through Joint venture Most domestic firms are cynical on the benefits of RI for poverty through trade and investment Most reported complaints relate to supply side difficulties (see Amani et al study for list of these)

29 Constraints don t t differ by export status Taxation and poor infrastructure are the biggest constraints to both exporters and non-exporters Exporters Non-Exporters 77% 80% 80% 66% 60% 60% 40% 20% 0% 31% 17% 15% 12% 9% 5% 3% 1% 40% 20% 0% 25% 19% 16% 16% 13% 13% 4% 2% Tax admin/rate Inadequate infastruct Corruption Competition from impo Business/Labor reg Skill shortage Access/Cost of finan Lack of demand Access to land Tax admin/rate Inadequate infastruct Competition from impo Corruption Lack of deman Skill shortage Business/Labor reg Access/Cost of finan Access to land

30 To sum-up up Firms are optimistic about the prospects of RI, but need to be informed Firms have exported in the regional market without knowledge of existing trade provisions Investors rank Tz highly for FDI destination, owing to its political stability, trade opportunity and facilitative role of TIC. Other factors include availability of natural resources. Domestic investors feel left out of the equation they lack capital, technology, skills and necessary support from the government However, the Investment climate has to improve further

31 6. Other regional co-operations operations for poverty reduction One means with which RI affects poverty directly is Regional Development elopment cooperation. They exists for a number of sectors and differ in focus by Regional blocks They can be distinguished into three categories (a) Programs to facilitate Regional integration policy (e.g. harmonisation of policies) (b) Social-economic projects targeting particular problem (e.g. malaria control program) (c) Long term development programs (e.g infrastructure construction) We selected a few projects or cooperation areas that have bearing g on poverty We found that development cooperation can serve as effective ways s through which RI can affect poverty for a country such as Tanzania even in the absence of market integration. SADC has a more development cooperation strength than market integration compared to COMESA and less so to EAC. Development cooperation can also serve as means through which to distribute gains from market integration.

32 6. Dev cooperation cont Socio-economic programs/projects in EAC. EADB - this bank mobilizes resources to finance long term projects in the region. The bank is committed to poverty reduction due to its focus on agriculture. The share of approved projects in agriculture rose from 25% in 1999 to 40% in 2003 LAKE VICTORIA DEVELOPMENT PROJECT The lake is important source of livelihood for many people in EAC It has attracted regional initiatives to oversee its efficient utilization u and regulation, sustainable use of the depletable resource and to formulate policies that promote investment in the lake. In this respect several institutions and watch dogs-type NGOs have been initiated such as LVEMP whose objectives are to control sea weeds, enhance and regulate fishing methods. Social economic programs/projects in SADC Regional development programs/projects include maintenance of peace and conflict resolution, disaster management and humanitarian crisis, crop livestock and natural resource development and social and human development programs.

33 7. Conclusion and recommendations RI has increased both the level and the share of intra-regional regional trade but not FDI The poverty-focus of intra-regional regional trade exists through the increasing share of agriculture e in the intra-regional regional exports. The trade-poverty performance vary slightly between EAC and SADC with export to SADC increasing faster High trade performance is also associated with higher poverty reduction The poverty focus of investment is limited by its concentration on mining, and little on agriculture Sectors with high employment content of FDI received far little FDI than those with low content Trade and investment performance has occurred independent of RIA provisions, as there is no firm evidence on effectiveness of these provisions Thus, the efficacy of RI to affect poverty through FDI is limited d compared to that of trade Regional Development programs have direct, more effective but often unsustainable impact on poverty Although it will take time for RIA to facilitate poverty-focus of investment, Tanzania need to hasten RI initiatives particularly the associated trade provisions and support its business sector.