Tanzania Country Report

Tanzania Country Report 1. Trade structure and patterns 1.1 Aggregate trade Despite the impressive macroeconomic performance of the Tanzania economy over the last decade (1995-2005), the trade (especially the export) response has been rather dismal. As shown in Table 1, whereas imports have increased tremendously (about 18 percent) between 1999 to 2003, export growth has decline by an average of -0.6% per annum respectively, implying deficit in trade balance. In the context of this study, trade performance between Tanzania and the SADC bloc show an encouraging trend for Tanzanian exports essentially reflecting the benefit of increased regional integration initiatives (Kweka and Mboya, 2004). Regional integration initiatives have included the progressive abolishment of some cross border non-tariff barriers and impact of SA s accession to SADC. The growth in exports is also partly because of windfall gains from Tanzania s export of cereal products due to the famine that hit the neighbouring countries of Malawi, Zambia and DRC. Exports to SADC countries increased almost four-fold between 2000 and 2003, resulting in an average growth rate of over 45% in five years, compared to imports that increased by 6% on average respectively. However, it is important to note that export base remains quite low in value compared to imports. Tanzania 171

Table 1: Tanzania s Trade Balance with the world and with SADC, 1999-2003 (USD). 1999 2000 2001 2002 2003 Growth Exports 2067.97 1629.62 1683.40 1646.14 1989.97-0.67% Imports 592.15 670.81 783.06 905.77 1148.44 17.65% Trade Balance 1475.82 958.82 900.34 740.37 841.53 Exports to SADC 6.83 11.75 9.04 16.71 37.81 45.88% Import from SADC 191.83 162.62 181.67 181.38 247.82 6.41% Trade Balance with SADC -185.00-150.87-172.63-164.67-210.01 1.2 Top 10 import sources and export destinations An examination on the major sources of imports and destination of exports in Table 2 reveals three important features of Tanzania s trade sector. First, the UK continues to be the major destination of (over a third of) Tanzania s exports, mainly for traditional cash crops such as coffee, cotton and sisal. Secondly, Table 2 also shows consistency in the major trading partners for Tanzania in that most of the export destination countries are also a significant source of imports. These are UK, SA, Japan, India, Kenya and Germany. However, the imports from the Middle East and Asian countries (excluding Japan) are not matched by exports as these are mostly oil. Finally, although bilateral trade with SA has increased significantly in the recent years, Tanzania s penetration into the SA market seems disappointedly low. However, it is important to view the surge in imports from SA in the context of the more active economic position that SAn firms are assuming in the Tanzanian economy. SA is one of the top 5 sources of FDI in the country with most of the previously state-owned enterprises being sold to SA firms. Naturally, these companies source a significant share of their inputs from SA in addition to trade opportunity for many other firms in Tanzania to import from SA (Kabelwa, 2002). 1.3 Exports and imports by region Table 3 shows the major trading blocs for Tanzania. The EU remains the largest single trading partner, accounting for 57% of all Tanzania exports and 22% of imports. This implies a positive trade balance for Tanzania with EU. Following this is Asia (13% of exports, and 35% of imports). The dominant position of SA as source of imports has also made SADC an important source of imports although African countries other than SADC have greater prospects as destination for Tanzania s exports. 172 Trade Performance Review

Table 2: Top 10 sources of imports and destinations for exports Imports Exports Country Share of total (%) Country Share of total (%) South Africa 12.5% United Kingdom 34.1% Japan 8.3% Japan 7.8% India 7.8% Kenya 6.9% Saudi Arabia 7.0% France 6.8% China 5.5% India 6.4% Kenya 5.5% Netherlands 6.0% United Kingdom 5.4% South Africa 3.3% United Arab Emirates 5.4% Belgium 3.1% Bahrain 3.8% Germany 2.7% Germany 3.5% Netherlands 1.1% Table 3: Exports and imports by region Region Exports Imports SADC 6.3% 13.5% NAFTA 1.2% 4.5% European Union 56.8% 21.7% MERCOSUR 0.1% 1.5% Japan 7.8% 8.3% China 0.3% 5.5% Africa 11.9% 6.6% Oceania 0.2% 1.7% Americas 0.2% 0.1% Asia 13.3% 34.7% Europe 1.8% 1.8% Other 0.0% 0.0% 1.4 Fastest growing import and export partners One of the characteristic features of Tanzania s trade performance in the last decade is that non-traditional exports increasingly occupy a significant share of total exports. This has two implications. First, there are new export opportunities being realised (World Bank, 2005) which means, secondly, that the drive to diversify the export basket is succeeding. Consequently, there are new (and hence a diversification of) export destinations 1 following the implemented trade and other macroeconomic reforms. In fact, none of the countries mentioned in table 4, except France, are traditional trade partners for Tanzania. Also, the rising share of non-traditional exports reveals the slow growth of traditional exports. 1 These include exports of live animals to particularly Comoro and Seychelles, and imports of furniture and building materials from Yemen, Chile, Morocco and Egypt. Tanzania 173

Table 4: Fastest growing trade partners Imports Exports Country Average growth1999 2003 (%) Average Absolute value (Tshs mil) Country Average growth 1999 2003 (%) Average Absolute value (Tahs mil) Chile 272% 262 Antigua And Barbuda 248.9% 62 Yemen 178% 267 Comoros 214.6% 342 Morocco 132% 26 Mauritania 208.9% 37 American Samoa 112% 106 Madagascar 159.2% 581 Rwanda 106% 216 Iceland 141.4% 694 Mali 104% 40 France 128.5% 75,042 Russian Federation 88% 6,233 Réunion 111.7% 1,138 Senegal 78% 65 Russian Federation 105.1% 1,342 Mozambique 70% 293 China 99.9% 1,114 Egypt 65% 5,042 Brazil 97.4% 401 1.5 Commodity composition of trade In terms of the commodity composition of trade, Table 5 on imports differs from that of exports (Table 6). One of the major import items (in terms of value) for Tanzania is machinery and mechanical appliance, vehicles, chemical and other manufactured products. However, the 17% share of mineral products is rather surprising, as Tanzania would rather be considered a mineral exporter rather than an importer 2. Similar products compose significant share of imports from SA. Over half of imports from the RoSADC are chemical products and food products (including imports of poultry and milk products from Zimbabwe). It can also be the case that SA investments in Tanzania have also influenced imports from their key trade partner from the region (Kabelwa, 2002). Table 6 shows the decomposition of Tanzania s exports. Mining stands out as constituting the largest share (over 42%) of total exports from world and an even larger proportion (over 70%) of exports to SA. Two more significant export products include vegetable products consistent with recent boom in export of cut flowers and live animals (consistent with the recent peak in the export of cattle and goats to the Commores and Seychelles). The dominant share of vegetable products in exports to the RoSADC may also be capturing the significant crossborder export of cereals and other products. Tanzania also exports a lot of cement and other building materials to Uganda. 2 Presumably, this may rather be an oil export. 174 Trade Performance Review

Table 5: Commodity composition of imports Product Share of total imports from world (%) Share of total imports from South Africa (%) Share of total imports from RoSADC (%) Ch 1: Live Animals 0.3% 0.5% 2.2% Ch 2: Vegetables 5.5% 1.9% 3.7% Ch 3: Animal or Vegetable Fats 3.6% 0.1% 0.8% Ch 4: Prepared Foods 2.8% 6.7% 15.7% Ch 5: Mineral Products 17.1% 3.7% 3.4% Ch 6: Chemicals 10.3% 10.3% 54.6% Ch 7: Plastics 6.0% 8.7% 0.8% Ch 8: Leather 0.3% 0.1% 0.0% Ch 9: Wood Products 0.2% 0.3% 1.5% Ch 10: Wood Pulp & Paper 2.9% 8.2% 3.4% Ch 11: Textiles 4.7% 1.5% 0.5% Ch 12: Footwear 0.6% 0.2% 0.1% Ch 13: Stone & Glass 1.3% 0.8% 0.7% Ch 14: Precious Metals 0.0% 0.0% 0.0% Ch 15: Base Metals 8.7% 25.5% 3.2% Ch 16: Machinery 21.1% 22.4% 5.0% Ch 17: Vehicles 11.5% 6.2% 4.0% Ch 18: Scientific Equipment 1.7% 1.5% 0.2% Ch 19: Arms & Ammunition 0.0% 0.0% 0.0% Ch 20: Misc. Manufactures 1.3% 1.5% 0.1% Ch 21: Art & Antiques 0.0% 0.0% 0.0% Ch 22: Unclassified 0.0% 0.0% 0.0% 1.6 Fastest growing import and export commodities 1.6.1 Fastest growing export commodities The fastest growing exports to the world are shown in Table 7 to include mineral products 3, some manufactured products, ceramic products and cereals. Importantly, the fast growth of these products happened from a very low base or from a once-off trade resulting in a spike in exports. These can be distinguished into three categories. First, the boom in non-traditional exports, especially exports of gold and other minerals, food (cereals) and horticulture products. Secondly, manufactured exports to the world reflect the trade impact of FDI, especially the privatised firms. Most of the exports of this category are destined to the RoSADC as shown in Table 8. This group also include exports 3 The World Bank s Diagnostic Trade Integration Study for Tanzania shows that Mining exports has grown faster and become largest source of growth in Tanzania than any other product. Tanzania 175

to the AGOA market, mainly textile products. Finally, most of exports to SA (see Table 7) are mostly raw material (agro-products and minerals) rather than final goods, reflecting the different comparative advantages between SA and Tanzania. Table 6: Commodity composition of exports Product Share of total Exports to world (%) Share of total Exports to South Africa (%) Share of total Exports to RoSADC (%) Ch 1: Live Animals 12.4% 2.1% 0.6% Ch 2: Vegetables 19.8% 10.3% 47.3% Ch 3: Animal or Vegetable Fats 0.3% 0.1% 3.8% Ch 4: Prepared Foods 6.8% 6.1% 6.7% Ch 5: Mineral Products 5.9% 0.7% 2.2% Ch 6: Chemicals 1.0% 0.0% 10.7% Ch 7: Plastics 0.3% 0.1% 3.2% Ch 8: Leather 0.7% 0.4% 0.0% Ch 9: Wood Products 0.6% 0.2% 0.1% Ch 10: Wood Pulp & Paper 0.2% 0.2% 0.1% Ch 11: Textiles 6.9% 8.7% 9.0% Ch 12: Footwear 0.5% 0.0% 2.9% Ch 13: Stone & Glass 0.7% 0.3% 8.0% Ch 14: Precious Metals 42.8% 70.5% 0.0% Ch 15: Base Metals 0.6% 0.0% 3.4% Ch 16: Machinery 0.3% 0.1% 2.0% Ch 17: Vehicles 0.0% 0.0% 0.0% Ch 18: Scientific Equipment 0.0% 0.0% 0.0% Ch 19: Arms & Ammunition 0.0% 0.0% 0.0% Ch 20: Misc. Manufactures 0.0% 0.0% 0.2% Ch 21: Art & Antiques 0.0% 0.0% 0.0% Ch 22: Unclassified 0.0% 0.0% 0.0% 1.6.2 Fastest growing import commodities On the import side, as most of the products listed in Table 9 are not traditional imports for Tanzania, we consider them to be relatively newer imports (perhaps as a response to the demand for raw materials in recently established firms or as a response to a more liberal import regime) hence growing fast from a very low base. For instance, most of the food products listed in Table 9 and 10 are presumably supplies to a recently flourishing tourism industry, where international hotels source food and beverage supplies mostly from South Africa. South African Airways (SAA) took over Tanzanian Airways so it is not surprising to see an upsurge of imports of aircraft and products thereof from South Africa (see Table 10). Certainly there is some level of diversification of 176 Trade Performance Review

Table 7: Fastest growing exports to the world (Average growth rate 1999-2003) Product Average Absolute Value (Tshs mil) % Growth H26: Ores, slag and ash 61,182 1,090.9% H95: Toys, games, sports requisites 52 224.9% H90: Optical, photo, technical, medical, etc apparatus 15,892 152.3% H10: Cereals 18,794 145.7% H63: Other made textile articles, sets, worn clothing etc 5,151 132.6% H69: Ceramic products 148 112.0% H91: Clocks and watches and parts thereof 3 106.8% H92: Musical instruments, parts and accessories 129 99.9% H49: Printed books, newspapers, pictures etc 1,053 99.8% H96: Miscellaneous manufactured articles 188 84.4% H58: Special woven or tufted fabric, lace, tapestry etc 859 84.1% H60: Knitted or crocheted fabric 2,969 83.4% H46: Manufactures of plaiting material, basketwork, etc. 2,185 70.9% H34: Soaps, lubricants, waxes, candles, modelling pastes 5,856 69.2% H30: Pharmaceutical products 182,926 61.2% H43: Furskins and artificial fur, manufactures thereof 2,651 53.9% H71: Pearls, precious stones, metals, coins, etc 547,731 53.2% H22: Beverages, spirits and vinegar 3,026 49.6% H72: Iron and steel 4,740 48.4% Table 7: Fastest growing exports to South Africa (Average growth rate 1999-2003) Product Average Absolute Value (Tshs mil) % Growth H56: Wadding, felt, nonwovens, yarns, twine, cordage, etc 180 315.2% H61: Articles of apparel, accessories, knit or crochet 125 220.5% H39: Plastics and articles thereof 40 178.4% H24: Tobacco and manufactured tobacco substitutes 1,092 118.0% H07: Edible vegetables and certain roots and tubers 109 105.2% H71: Pearls, precious stones, metals, coins, etc 13,561 40.9% H22: Beverages, spirits and vinegar 543 34.9% H84: Nuclear reactors, boilers, machinery, etc 5,593 33.9% H44: Wood and articles of wood, wood charcoal 115 32.7% H43: Furskins and artificial fur, manufactures thereof 47 25.7% H05: Products of animal origin, nes 188 10.4% H53: Vegetable textile fibres nes, paper yarn, woven fabric 111 7.1% H03: Fish, crustaceans, molluscs, aquatic invertebrates nes 413 3.8% import sources, as some machinery is now imported from South Africa that used to be imported only from the West. Imports from SADC other than South Africa (Table 11) include organic chemical, perfumes and animal products as fastest growing imports. Tanzania 177

Table 8: Fastest growing exports to the rest of SADC (Average growth rate 1999-2003) Product Average Absolute Value (Tshs mil) % Growth H15: Animal, vegetable fats and oils, cleavage products, etc 1,204 464.4% H34: Soaps, lubricants, waxes, candles, modelling pastes 1,921 379.9% H96: Miscellaneous manufactured articles 13 309.1% H63: Other made textile articles, sets, worn clothing etc 839 162.9% H94: Furniture, lighting, signs, prefabricated buildings 15 140.2% H17: Sugars and sugar confectionery 167 86.9% H12: Oil seed, oleagic fruits, grain, seed, fruit, etc, nes 87 73.7% H39: Plastics and articles thereof 373 73.3% H44: Wood and articles of wood, wood charcoal 8 56.2% H30: Pharmaceutical products 407 49.6% H32: Tanning, dyeing extracts, tannins, derivs,pigments etc 84 43.8% H49: Printed books, newspapers, pictures etc 14 40.6% H07: Edible vegetables and certain roots and tubers 356 27.7% H68: Stone, plaster, cement, asbestos, mica, etc articles 3 23.6% H70: Glass and glassware 1,679 18.6% H11: Milling products, malt, starches, inulin, wheat gluten 1,480 17.8% H72: Iron and steel 435 14.2% Table 9: Fastest growing imports from the world (Average growth rate 1999-2003) Product Average Absolute Value(T SHS) % growth H14: Vegetable plaiting materials, vegetable products nes 63 207.8% H51: Wool, animal hair, horsehair yarn and fabric thereof 75 61.7% H75: Nickel and articles thereof 402 53.6% H50: Silk 30 51.0% H97: Works of art, collectors pieces and antiques 282 48.3% H56: Wadding, felt, nonwovens, yarns, twine, cordage, etc 20,041 42.1% H33: Essential oils, perfumes, cosmetics, toileteries 26,322 41.6% H13: Lac, gums, resins, vegetable saps and extracts nes 694 40.7% H53: Vegetable textile fibres nes, paper yarn, woven fabric 2,735 39.5% H60: Knitted or crocheted fabric 483 38.3% H01: Live animals 1,908 38.3% H45: Cork and articles of cork 39 33.4% H67: Bird skin, feathers, artificial flowers, human hair 362 32.0% H92: Musical instruments, parts and accessories 802 31.3% H54: Manmade filaments 10,299 31.3% H78: Lead and articles thereof 676 28.8% H61: Articles of apparel, accessories, knit or crochet 8,497 19.8% H20: Vegetable, fruit, nut, etc food preparations 3,329 19.8% H29: Organic chemicals 41,787 19.0% H31: Fertilizers 43,851 18.8% 178 Trade Performance Review

Table 9: Fastest growing imports from the world (Average growth rate 1999-2003) Product Average Absolute Value(T SHS) % growth H14: Vegetable plaiting materials, vegetable products nes 63 207.8% H51: Wool, animal hair, horsehair yarn and fabric thereof 75 61.7% H75: Nickel and articles thereof 402 53.6% H50: Silk 30 51.0% H97: Works of art, collectors pieces and antiques 282 48.3% H56: Wadding, felt, nonwovens, yarns, twine, cordage, etc 20,041 42.1% H33: Essential oils, perfumes, cosmetics, toileteries 26,322 41.6% H13: Lac, gums, resins, vegetable saps and extracts nes 694 40.7% H53: Vegetable textile fibres nes, paper yarn, woven fabric 2,735 39.5% H60: Knitted or crocheted fabric 483 38.3% H01: Live animals 1,908 38.3% H45: Cork and articles of cork 39 33.4% H67: Bird skin, feathers, artificial flowers, human hair 362 32.0% H92: Musical instruments, parts and accessories 802 31.3% H54: Manmade filaments 10,299 31.3% H78: Lead and articles thereof 676 28.8% H61: Articles of apparel, accessories, knit or crochet 8,497 19.8% H20: Vegetable, fruit, nut, etc food preparations 3,329 19.8% H29: Organic chemicals 41,787 19.0% H31: Fertilizers 43,851 18.8% Table 11: Fastest grow ing imports from the RoSADC (Average growth rate 1999-2003) Product Average Absolute Value (Tshs mil) % Growth H29: Organic chemicals 168 453.0% H33: Essential oils, perfumes, cosmetics, toileteries 4,039 273.1% H70: Glass and glassware 25 200.7% H15: Animal, vegetable fats and oils, cleavage products, etc 161 154.5% H01: Live animals 29 130.1% H74: Copper and articles thereof 293 109.1% H49: Printed books, newspapers, pictures etc 295 47.1% H25: Salt, sulphur, earth, stone, plaster, lime and cement 245 46.3% H32: Tanning, dyeing extracts, tannins, derivs, pigments etc 9 38.0% H30: Pharmaceutical products 179 31.3% H36: Explosives, pyrotechnics, matches, pyrophorics, etc 328 18.9% H64: Footwear, gaiters and the like, parts thereof 3 16.0% H95: Toys, games, sports requisites 3 9.6% H10: Cereals 482 9.1% H28: Inorganic chemicals, precious metal compound, isotopes 37 8.6% H85: Electrical, electronic equipment 361 6.1% Tanzania 179

2. Trade intensity with the SADC region Table 12 gives estimates of trade intensities for export and imports in 2003 with SADC countries. The index of export intensity with SADC countries for Tanzania is shown to be far greater than 1, implying that Tanzania exported to SADC market by greater proportion than the total export to the rest of the world. That is, the index shows greater prospects for Tanzanian exports in the SADC market. Imports have a much higher trade intensity than exports. This is a refl;ection of the fact that Tanzania imports significant quantities of machinery and other inputs from South Africa and exports final goods to the EU. One would thus expect this pattern of trade intensity. Table 12: Trade intensities for exports and imports in 2002 and 2003 Exports Imports 2003 4.3 15.0 3. Intra-industry trade The results for the 15 product groups with the most intra-industry trade are reported in Table 13. Most of the products identified with high intra-industry trade are agricultural food stuffs in which Tanzania also has comparative advantage in production (milk, tobacco, sugar, glass, fish, pepper and coconuts). Tanzania import milk products significantly from Kenya and SA, but also exports much raw milk to neighbouring SADC countries especially DRC presumably revealing that Tanzania has strong comparative advantage in production of these products. It is also possible that, as the average income increase in Tanzania, consumers exercise more sovereignty, where high-income brackets prefer imported substitutes of domestically produced consumer brands. Also, the flourishing of the Tourism industry has heightened import of foodstuff for tourist consumption. Table 14 presents specific estimates of GLI for trade between Tanzania and SA. Notably, the index is much lower (nearly zero) than those on trade with world showing little or no intra-industry trade between Tanzania and SA. Nevertheless, some traces of export and import of cereals, tobacco and banana exists which apparently may be reporting both the export of raw products and import of finished product from the same sectors. In fact, SA supermarket chains Shoprite trade in Tanzanian and imports SA brands of most products. The relatively higher GLI of 0.13 for machine tools seems like an outlier, probably capturing a one-off export of specific tools made in Tanzania. 180 Trade Performance Review

Table 13: Intra-industry trade with the world: Top 15 commodities (HS4) HS code Commodity Imports (Tshs mil) Exports (Tshs mil) Grubel-Lloyd index 0401 Milk and cream, neither concentrated nor sweetened 360-0.88 2402 Cigars, cigarettes etc, tobacco or tobacco substitute 3 91,797 0.81 0701 Potatoes, fresh or chilled 4,800 547 0.51 7010 Glass bottles, flasks, jars, phials, stoppers, etc 1,038 15,912 0.48 3307 Shaving and toilet preparations nes, deodorizers - 11 0.29 0803 Bananas, including plantains, fresh or dried 4,270 37 0.28 1702 Sugars nes, lactose, fructose, glucose, maple syrup 38 16 0.21 0904 Pepper (Piper), crushed or ground Capsicum, Pimenta 2,669 596 0.08 2204 Grape wines(including fortified), alcoholic grape must 42 1 0.04 0801 Coconuts, Brazil nuts and cashew nuts, fresh or dried 3,955 88,271 0.04 3401 Soaps 789 12,358 0.01 0303 Fish, frozen, whole 16,044 693 0.01 3923 Containers, bobbins and packages, of plastics 4 2,823 0.01 0306 Crustaceans 2,007 31,768 0.01 3304 Beauty, make-up and skin care preparations - 708 0.01 Weighted average of total intra-industry trade 0.03240588 Note: - implies that the figure is (or close to) zero. Trade with the RoSADC (see Table 15) shows higher intra-industry trade relative to that with SA. Most of the products with higher GLI are of manufactured goods and furniture. Although Tanzania does not have comparative advantage in manufacturing products, the products found to bear higher intra-industry trade are light manufactures mostly Table 14: Intra-industry trade with South Africa: Top 15 commodities (HS4) HS code Commodity Imports (Tshs mil) Exports (Tshs mil) Grubel-Lloyd index 8461 Machine-tools for shaping metals, nes 3-0.13 1007 Grain sorghum - - 0.04 2402 Cigars, cigarettes etc, tobacco or tobacco substitute - - 0.02 8605 Railway passenger and special purpose coaches 96-0.02 3922 Bathroom wares, of plastics - - 0.02 8513 Portable battery, magneto electric lamps 1,198 2 0.01 8471 Automatic data processing machines (computers) - - 0.01 8459 Machine tools except lathes to drill, bore/mill/thread - - 0.00 0803 Bananas, including plantains, fresh or dried - 0.00 5905 Textile wall coverings 325-0.00 8409 Parts for internal combustion spark ignition engines 0-0.00 1204 Linseed - 0.00 Weighted average of total intra-industry trade Note: - implies that the figure is (or close to) zero. Tanzania 181

produced for domestic market but also which are also traded (just as Tanzanian consumers also prefer to consume products produced in). Most of the intra-industry trade in this respect reflect retailing business across the region (especially to DRC, Malawi and Zambia). The data may also reflect re-exporting. The appearance of rice in the list reflects cross border trade in cereals that is common between these countries.. Tanzania Breweries products have also won market share in the DRC, Malawi and Zambia but Tanzania similarly imports Namibian and Zimbabwean brands of beer. Table 15: Intra-industry trade with the RoSADC: Top 15 commodities (HS4) HS code Commodity Imports (Tshs mil) Exports (TShs mill) Grubel-Lloyd index 4001 Natural rubber and gums, in primary form, plates, etc - - 0.67 3808 Insecticides, fungicides, herbicides etc (retail) 115 38 0.50 3304 Beauty, make-up and skin care preparations 20 125 0.48 2710 Oils petroleum, bituminous, distillates, except crude 54 18 0.47 3924 Plastic table, kitchen, household, toilet articles 17 83 0.39 3004 Medicaments, therapeutic, prophylactic use, in dosage 62 897 0.38 1511 Palm oil and its fractions, not chemically modified 181 1,941 0.31 4819 Paper, board containers, packing items, box files, etc 3 23 0.23 2203 Beer made from malt 180 38 0.21 5607 Twine, cordage, rope and cable 3 27 0.19 6301 Blankets and travelling rugs 2 56 0.15 5202 Cotton waste, including yarn waste and garnetted stock 7 126 0.11 4011 New pneumatic tyres, of rubber 86 9 0.11 1006 Rice - 609 0.10 6405 Footwear nes, sole not leather, rubber or plastic 5 1 0.10 Weighted average of total intra-industry trade 0.05 Note: - implies that the figure is (or close to) zero. 4. Tariff analysis Table 16 shows the extent and structure of liberalization of the Tanzanian trade regime with respect to SADC region. It is shown that the Tanzanian trade regime has been greatly rationalized with high concentration of imports into few (mainly 3) tariff categories. More than two thirds of total HS6 lines are in two tariff lines: zero-rated and the 20 29% band; with no product lines on the 40% or more tariff band. The World Bank s (2005) DTIS study show that average tariff rates haves been declining in East and Southern Africa as shown in Figure 1. While tariff bands for total imports are rather spread, imports from SADC are much more concentrated with about half of imports in the 10-14% band, and nearly another half split between zero-rated and 20-182 Trade Performance Review

Table 16: Tariff analysis Tariff (%) % of Total HS 6 Lines Imports from SADC (%) Total Imports (%) 0% 38.1% 20.0% 28.8% 1-4% 0.0% 0.3% 16.1% 5-9% 2.3% 1.9% 13.4% 10-14% 5.7% 49.0% 9.7% 15-19% 16.0% 2.7% 12.9% 20-29 35.5% 26.1% 18.8% 30-39% 2.3% 0.0% 0.6% 40% 0.0% 0.0% 0.0% 25% Figure 1.1. Simple Average Tariff in Eastern and Southern Africa 20% 15% 10% 1997 1998 1999 2000 2001 2002 2003 2004 COMESA countries (simple average) SADC countries (simple average) Tanzania Note: Membership in the Common Market of Eastern and Southern Africa (COMESA) and the Southern African Development Community (SADC) overlaps. Source: Adopted from World Bank, 2005. 29% band. Clearly this reflects harmonisation result for trade regime resulting from the regional integration initiative by SADC member states (the 2000 trade protocol). Notable from table 16 and associated Figure 1.2 is the higher share of total SADC imports in the 10-14% tariff band reflecting the reality of the economic structure of the SADC economies. Most of these countries are producers of agro products, and less so final products or capital goods. This is a further evidence to show that SADC economies are less the producers of manufactured final and capital goods than intermediate (especially agricultural) products. Tariff analysis with respect to SACU (see Table 17 and Figure 1.3) shows a slightly different picture. Like in the case of SADC, zero-rated imports occupy the largest share (about one third) of imports. However, unlike in the case of SADC, imports are more smoothly distributed between various tariff bands; presumably implying a more diversified nature of the SACU economies unlike those of SADC. Tanzania 183

60% Figure 2: Tariff analysis SADC (2002) 50% 40% 30% 20% 10% 0% 0% 1-4% 5-9% 10-14% 15-19% 20-29% 30-39% 40% % of Total HS 6 Lines Imports from SADC Total Imports Figure 3: Tariff analysis 40% 35% 30% 25% 20% 15% 10% 5% 0% 0% 1-4% 5-9% 10-14% 15-19% 20-29% 30-39% 40% % of Total HS 6 Lines Imports from SADC Total Imports 184 Trade Performance Review

5.Trade agreements planned and in force Tanzania has active memberships in two regional trade agreements, namely SADC (according to the SADC Trade Protocol of 2000) and the East African Community (the EAC includes Kenya, Tanzania and Uganda). In general though, regional trade integration (and related agreements) is much more advanced for the EAC than SADC. The later had its orientation more into regional cooperation on matters of common interest (including the political cohesion rather than just trade orientation that is just beginning to feature in its integration efforts). First with ratification of SADC trade protocol and its subsequent drive for a free trade area (FTA) and custom union in 2012, and secondly with accession of South Africa has great potential for enhancing trade and investment opportunities in the region. The EAC has successfully established a custom union as an entry point for further integration that has recently shown intention to aspire for a political federation. With these developments in mind, Tanzania has found itself in a necessary dilemma following its earlier withdrawal from COMESA and its highly contested overlapping membership in SADC and the EAC. Two issues are key in this dilemma. First, there has been pressure from the business community for Tanzania to rejoin COMESA owing to its perceived lost business opportunities in COMESA. Secondly, the success of further integration in EAC is considered to be at risk if Tanzania consolidates her membership in SADC while two EAC partner state consolidate theirs with COMESA body. For instance, while Tanzania has pledged to negotiate the on-going (and rather controversial) EPA through the SADC configuration, her EAC partners have clearly advanced theirs through the enlarged COMESA (in this case named ESA) body. In addition, the three regional bodies (i.e. SADC, EAC and COMESA) are all keen to establish some form of FTA and subsequently, an effective custom union just as EAC has done. Clearly, this complicates trade and apparently compromises the objective with which these bodies were established. In pursuit of the EPA negotiations that require an ACP country to conclude an Economic Partnership Agreement (EPA) with the EU under a particular regional body, Tanzania has opted to negotiate an EPA under the SADC configuration. This indicates her intention to embrace SADC integration process parallel with that of EAC, albeit the inherent difficulties of overlapping membership. With the EAC s agenda to fasttrack possibility for federation, the challenge in providing sincere leadership for this issue is imperative. Tanzania is also eligible for multilateral trade preferences under the US AGOA and the EU s EBA initiative, both of which has presented more export opportunities than Tanzania has been able to exploit given the low level of supply response. The government is undertaking efforts to build Tanzania s capacity to ac- Tanzania 185

cess global markets and increase exports, while conforming to trade rules, especially those of the WTO. Nevertheless, this is not to imply that existence of RTAs is not having impact on trade performance. Firstly, tariff peaks have effectively been lowered (see Figure 1.1) both as result of macroeconomic reform policies and established understanding by regional trade partners to harmonise and lower tariffs to boost intra-regional trade. Second, and following from above, most non-tariff barriers have been pulled down to give room for smooth flow of merchandise goods between countries. In this effect, much of the informal cross-border trade has been formalized and several export and import bans and quotas (for instance, for cereals) have been lifted. Trade (particularly export) performance for Tanzania in EAC and SADC has increased substantially over the last decade. Agricultural (food) crops exports responded positively to the opening of borders with the EAC partners and Tanzania s lifting of the export ban for these products and the windfall market arising from neighbouring SADC countries that were affected by draught. In addition, South Africa has taken Tanzania s trade orientation into new dimension such that it is one of the key trade partners in the last ten years. With this background in mind, the future of Tanzania s trade agreements is clearly hinged on the EAC s maturing integration, the effectiveness of which largely depend on how it eventually tackles the existing overlapping memberships to SADC and COMESA. 6. Revealed comparative advantage The purpose of a revealed comparative advantage (RCA) analysis is to identify sectors or products that a country can and has produced more efficiently that it has on other goods. Such analysis can be made by analysing trade data to identify stronger export relative to total trade of the particular country. The estimates of RCA analysis for Tanzania are shown in Table 17 for top and bottom 20 products. As expected, Tanzania is found to have strong RCA in traditional cash crops (e.g. coffee, tea, cotton, sugar, etc.) and other agricultural products including fish hides and skins etc. Conversely, Tanzania is confirmed to have low or no RCA in manufactured products. With respect to trade with SADC, similar conclusion arises as above in that Tanzania has strong RCA on agricultural products. The only difference between RCA with world versus SADC trade is that the RCA is much stronger on food products (cereals, fish, fruits and vegetable) and textile. These are also the products that have export opportunity in the SADC market compared to the rest of the world. In addition, Tanzanian manufactured products do not have a RCA in the SADC market. 186 Trade Performance Review

Table 17: Revealed comparative advantage with respect to the world: Top 20 commodities (HS2) HS code Product Absolute Value (Tshs) Index value 9 Coffee, tea, mate & spices 256,459 38.5 3 Fish, crustaceans & aquatic invertebrates 408,470 31.4 53 Veg text fib NESOI; veg fib & paper yns & wov fab 21,004 27.0 24 Tobacco and manufactured tobacco substitutes 140,218 25.0 6 Live trees, plants, bulbs etc.; cut flowers etc. 41,066 15.5 71 Nat etc pearls, prec etc stones, pr met etc; coin 1,473,383 12.1 26 Ores, slag and ash 185,719 10.9 17 Sugars and sugar confectionary 28,315 8.8 81 Base metals NESOI; cermets; articles thereof - 6.8 7 Edible vegetables & certain roots & tubers 90,505 5.6 52 Cotton, including yarn and woven fabric thereof 157,504 5.4 18 Cocoa and cocoa preparations 24,513 5.3 5 Products of animal origin, NESOI 11,835 4.9 12 Oil seeds etc.; misc grain, seed, fruit, plant etc 60,931 4.1 13 Lac; gums, resins & other vegetable sap & extract 2,059 3.6 8 Edible fruit & nuts; citrus fruit or melon peel 140,753 3.5 56 Wadding, felt etc; sp yarn; twine, ropes etc. 8,702 2.6 1 Live animals 2,581 2.3 41 Raw hides and skins (no furskins) and leather 20,208 2.1 70 Glass and glassware 23,925 1.7 Note: - implies that the figure is (or close to) zero. Table 18: Revealed comparative advantage with respect to the world: Bottom 20 commodities (HS2) HS code Product Absolute Value (Tshs mil) Index value 95 Toys, games & sport equipment; parts & accessories 122 0.01 37 Photographic or cinematographic goods 4 0.01 86 Railway or tramway stock etc; traffic signal equip - 0.01 87 Vehicles, except railway or tramway, and parts etc 164 0.01 35 Albuminoidal subst; modified starch; glue; enzymes 25 0.01 83 Miscellaneous articles of base metal 23 0.00 20 Prep vegetables, fruit, nuts or other plant parts 1,282 0.00 29 Organic chemicals 172 0.00 75 Nickel and articles thereof 1 0.00 91 Clocks and watches and parts thereof 1 0.00 67 Prep feathers, down etc; artif flowers; h hair art - 0.00 57 Carpets and other textile floor coverings 26 0.00 42 Leather art; saddler etc; handbags etc; gut art 6 0.00 36 Explosives; pyrotechnics; matches; pyro alloys etc 23 0.00 65 Headgear and parts thereof 156 0.00 78 Lead and articles thereof 23 0.00 28 Inorg chem; prec & rare-earth met & radioact compd 380 0.00 2 Meat and edible meat offal 14 0.00 45 Cork and articles of cork 12 0.00 51 Wool & animal hair, including yarn & woven fabric - 0.00 Note: - implies that the figure is (or close to) zero. Tanzania 187

7. Revealed trade barriers Revealed trade barriers (RTBs) show the extent to which the proportion of a region/country s (in this case SADC s) imports of a particular product in its total imports from another region/country (in this case Tanzania) is less than the proportion of imports of that product from in total imports from the Rest of the World (RoW). Table 19 reports results for the top 20 commodities at the HS2 level. It appears that Tanzania has very low trade barriers for most agricultural products (especially cereals and tobacco) and some labour intensive products such as textiles. These are groups of products in which most countries in SADC including Tanzania have comparative advantage in their production. In fact, there is a significant cross border trade on food products (especially cereals) between Tanzania and her SADC neighbours. Conversely, as shown in Table 20, SADC imports relatively very low proportion of manufactured products in their total imports from Tanzania than it imports from the RoW. Once again, this reflects the fact that SADC countries (excluding South Africa) have no comparative advantage in producing manufactures, which in turn limit intra-sadc trade relative to the RoW. The analysis point to the fact that agricultural (especially food) products bears significant prospects for the policy objective to boost intra-regional trade in SADC. 188 Trade Performance Review

Table 19: Revealed trade barriers with respect to SADC: Top 20 commodities (HS2) HS code Product Absolute Value (Tshs mil) Index value 10 Cereals 14,977 39.8 24 Tobacco and manufactured tobacco substitutes 3,192 50.2 12 Oil seeds etc.; misc grain, seed, fruit, plant etc 259 0.9 63 Textile art NESOI; needlecraft sets; worn text art 2,866 13.5 70 Glass and glassware 3,854 21.6 52 Cotton, including yarn and woven fabric thereof 195 13.2 11 Milling products; malt; starch; inulin; wht gluten 1,805 15.6 53 Veg text fib NESOI; veg fib & paper yns & wov fab 66 9.2 34 Soap etc; waxes, polish etc; candles; dental preps 4,856 1.7 13 Lac; gums, resins & other vegetable sap & extract - 7.3 55 Manmade staple fibres, incl yarns & woven fabrics 13 0.0 56 Wadding, felt etc; sp yarn; twine, ropes etc. 32 6.5 8 Edible fruit & nuts; citrus fruit or melon peel 36 2.2 71 Nat etc pearls, prec etc stones, pr met etc; coin 1,580 1.6 9 Coffee, tea, mate & spices 516 2.2 23 Food industry residues & waste; prep animal feed 192 2.0 25 Salt; sulphur; earth & stone; lime & cement plaster 1,580 0.2 3 Fish, crustaceans & aquatic invertebrates 818 2.6 41 Raw hides and skins (no furskins) and leather - 2.2 7 Edible vegetables & certain roots & tubers 351 2.8 Note: - implies that the figure is (or close to) zero. Table 20: Revealed trade barriers with respect to SADC: Bottom 20 commodities (HS2) HS code Product Absolute Value (Tshs mil) Index value 16 Edible preparations of meat, fish, crustaceans etc - 0.0 18 Cocoa and cocoa preparations 306 0.0 20 Prep vegetables, fruit, nuts or other plant parts 330 0.0 21 Miscellaneous edible preparations 4 0.0 36 Explosives; pyrotechnics; matches; pyro alloys etc - 0.0 37 Photographic or cinematographic goods - 0.0 43 Furskins and artificial fur; manufactures thereof 3 0.0 45 Cork and articles of cork - 0.0 50 Silk, including yarns and woven fabric thereof - 0.0 51 Wool & animal hair, including yarn & woven fabric - 0.0 57 Carpets and other textile floor coverings - 0.0 65 Headgear and parts thereof 43 0.0 66 Umbrellas, walking-sticks, riding-crops etc, parts - 0.0 67 Prep feathers, down etc; artif flowers; h hair art - 0.0 75 Nickel and articles thereof - 0.0 79 Zinc and articles thereof - 0.0 80 Tin and articles thereof - 0.0 81 Base metals NESOI; cermets; articles thereof - 0.0 89 Ships, boats and floating structures - 0.0 92 Musical instruments; parts and accessories thereof - 0.0 Note: - implies that the figure is (or close to) zero. Tanzania 189

8 References Kabelwa, G (2002) South African FDI in East Africa: The Case of Tanzania Globalisation and East Africa Working Paper Series No. 5, Economic and Social Research Foundation, Dar es Salaam. Kweka, J. (2004), Transport Costs and Trade Policy in Tanzania, Paper Prepared for CREDIT, University of Nottingham, October, 2004. Kweka, J. and P. Mboya (2004), Regional Integration and Poverty: The Case of Tanzania, Economic and Social Research Foundation, Dar es Salaam. United Republic of Tanzania, (2003), National Trade Policy, Ministry of Industries and Trade, 2003, Dar es Salaam, Tanzania. World Bank (2005) Tanzania: Diagnostic Trade Integration (DTIS) Study Draft Main report, April, the World Bank, Washington DC. 190 Trade Performance Review