Prospects for the sectoral transformation of the rural economy in Tanzania An initial review of the evidence Todd Benson, James Thurlow, and Xinshen Diao Development Strategy and Governance Division International Food Policy Research Institute Conference on the Role of Agri-food Systems in Promoting Industrialization in Tanzania Dar es Salaam 2 March 2017
Study of the prospects for sectoral transformation of the rural economy in Tanzania To guide design of National Agricultural Investment Plan for Tanzania o Research under Agricultural Sector Policy and Institutional Reform Strengthening (ASPIRES) project in Tanzania ASPIRES led by Michigan State University (D. Nyange) o Will involve joint work with Ministry of Agriculture and the National Bureau of Statistics Involves: o Characterizing rural economic growth since 2008 along a range of dimensions o Identifying most effective drivers of observed agricultural sector growth o Examining various public investment portfolios to identify those investments most likely to accelerate and bolster any economic structural transformation processes o Involves considering the impact of past public investments input subsidies, agricultural extension, and irrigation, as well as rural roads and market development o Then apply those impact parameters within an economy-wide model of Tanzania to consider a range of different portfolios of rural public investments o To determine which mix of investments likely provides greatest desired development impacts
Spatial disaggregation Investment analysis will use a spatially-disaggregated economywide model for rural mainland Tanzania o Six analytical zones o To reflect the differing potentials for the type and intensity of rural economic transformation across Tanzania o Differing economic potentials implies different optimal mixes of public investments to foster economic transformation in each zone
This presentation Research just getting started o Here focus on evidence of any structural transformation of the rural economy over past decade or so Are we now seeing structural changes in patterns of rural economic activities and in how rural Tanzanians obtain their livelihoods? o Analysis of recent household and agricultural surveys, an enterprise survey, and macro-economic indicators o Together these data sets provide a multi-dimensional view of the rural economy o Is there much dynamism to speak of? If so, where is it found? What are the particular value chains and enterprises involved? o End by briefly describing how evaluation of promising public investments will be done Study will be completed by September 2017
Macroeconomic evidence of rural economic change Tanzania s economy growing strongly o 6.5% average annually over past 10 years But, variability across economic sectors o Industry volatile, but increasing share of total GDP overall o Services More consistent growth, even if share of GDP is not growing Agriculture sector is the laggard o No absolute contraction, but slightly negative per capita agricultural growth in some recent years o Share of GDP stable at around 31% Agriculture as usual unlikely to lead to rural economic transformation o Scope for strong rural growth in services and industry? Source: World Development Indicators, 2017 Annual growth, % (line) 12.5 10.0 7.5 5.0 2.5 0.0 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Agriculture, % of GDP Industry, % of GDP Services, % of GDP GDP growth, annual % Agriculture growth, annual % Industry growth, annual % Services growth, annual % Population growth, annual % 100 80 60 40 20 Sectoral share of total GDP (stacked area)
Exports and imports of agricultural products 100% 90% 80% 70% 60% IMPORTS by type & source, percent of total value 100% 90% 80% 70% 60% EXPORTS by type & destination, percent of total value USD millions (real) 1,000 500 0-500 AGRICULTURAL TRADE BALANCE by source/destination Agricultural trade balance, rest of world Agricultural trade balance, SADC Agricultural trade balance, EAC 50% 40% 30% 20% 10% 0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Agricultural imports, EAC Agricultural imports, SADC Agricultural imports, rest of world Non-agricultural imports, EAC Non-agricultural imports, SADC Non-agricultural imports, rest of world Source: International Trade Center 50% 40% 30% 20% 10% 0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Agricultural exports, EAC Agricultural exports, SADC Agricultural exports, rest of world Non-agricultural exports, EAC Non-agricultural exports, SADC Non-agricultural exports, rest of world -1,000 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Imports to Tanzania far exceed exports o US$ -8.9 billion trade balance in 2015 o Total value of imports around 2.5 times those of exports Agriculture remains significant sector for trade o About half of total exports in recent years o Small share of value of total imports o Despite strongly negative overall trade balance, recent positive trade balance in agricultural products But no real change in regional trade levels o Trade with EAC and SADC is variable & relatively low
Agricultural production changes in yields and harvested area Average national crop yield index, 2004-14 Higher land productivity yield per ha indicative (2004 yield = 100) of agricultural transformation processes underway 200 o Seeing higher agricultural production levels in Tanzania o But is this through increased productivity or simply based on expansion of the area put to crops? Mixed picture o Maize yields on average are stagnant; production increases from expanding of cropped area o More encouraging yield increases for bean and rice Even as land area put to bean and rice increases o Positive signs with other crops sunflower; groundnut Productivity increases in maize critically needed o Generate surpluses for economic transformation; to assure food security; and to deepen food markets o Higher maize yields requires improved technologies and enhanced farmer knowledge agricultural research and 180 160 140 120 100 80 60 40 20 0 Bean Maize Rice Avg. national crop harvested area index, 2004-14 (2004 area = 100) In 2004, bean: 0.55 mt/ha, 0.81 million ha; maize: 1.47 mt/ha; 3.17 million ha; and rice: 1.73 mt/ha; 0.61 million ha. Source: FAOSTAT
Recent changes in use of agricultural inputs across all crops Fertilizer use prevalence little changed between 2008 and 2012 Improved seed use increased significantly Agricultural advisory service provision significantly reduced o Except Western zone, where was low already Source: Analysis of Tanzania National Panel Survey rounds
Recent changes in share of crop harvest that is sold Between 2008 and 2013, 3.0 percentage point increase in share of all crops harvested that are sold Southern & Coastal regions show largest increases. o Maize production for market increasing in Southern & Western regions o Increased commercialization of rice in Southern & Coastal regions Central regions show decline in commercialization of crop production over this period Source: Analysis of Tanzania National Panel Survey rounds
Employment patterns See consistent decline in share of Tanzanian workers in agriculture o Share of rural workers who do any agricultural work was 88.7% in 2008; 81.7% in 2012 o Rural workers exclusively employed in agriculture: 74.0% in 2008; 64.4% in 2012 (upper map) o Since 2008, sharp declines in Northeast and Northwest regions in rural workers exclusively employed in agriculture (lower map) Hopefully, this pattern reflects increased rural economic opportunities outside of farming, but this needs investigating National employment, by sector, % share: 2006 2014 Agriculture 76.5 66.9 Industry 4.3 6.3 Services 19.3 26.8 o Large numbers of workers nationally going into services sector o Some evidence these are more likely to be younger workers Source: Analysis of Tanzania National Panel Survey rounds; Reports from Integrated Labor Force Surveys 2006 & 2014
National labor productivity trends, by sector Seeing growth in labor productivity in Tanzanian economy overall Agriculture especially is sector where gains in labor productivity are seen o Reflects lower growth (or even decline) in employment in agriculture relative to industry and, especially, services o Possibly also increase in productivity in farming Decline in average labor productivity in services (slight) and industry (significant) sectors suggests workers moving into those sectors not finding especially productive jobs o Concern that workers from agricultural sector are forced to seek low-return employment in other sectors o Because unable to meet household needs on-farm o Needs additional analysis USD Int l PPP 2005 Tanzania Annual labor productivity, USD/worker by sector, 2002-2011 $12,000 $10,000 $8,000 $6,000 $4,000 $2,000 $0 Total Industry sector 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Agriculture sector Services sector Source: Analysis of Groningen Growth and Development Centre (GGDC) 10-Sector Database
Non-agricultural enterprises diversification out of agriculture for rural economies? Increases in labor productivity of 4.1% per annum between 2001 and 2012 Primarily in non-agricultural sectors o Agriculture labor productivity improved o But, most due to increase in employment share of non-agricultural private firms Workers moving out of agriculture and into somewhat more productive non-farm jobs Informal, household enterprises account for most such growth not wage employment o Almost 90 percent of employment growth took place in informal firms Notably, growth in labor productivity of rural firms similar to urban firms But not all informal firms are equally productive o Significant heterogeneity among micro, small, and medium enterprises (MSME): In manufacturing MSMEs, 31% of valueadded per worker comes from 5% of all such firms In trade services MSMEs, 37% of valueadded comes from 10% of such firms o Find that these are firms that keep business records; have bank accounts Target technical support and business services to most productive informal firms o Promote rural non-farm entrepreneurship o Potentially important non-agricultural strategy for rural economic transformation Source: Diao, Kweka, and McMillan 2016
Summary of recent evidence of rural economic transformation in Tanzania Performance of agriculture sector in recent years has been mixed o Macroeconomic indicators show virtually no growth on per capita basis o But agricultural balance of trade is positive in recent years o And increased uptake of improved seed and inorganic fertilizer by farmers Industry and services sectors show stronger performance o Industry sector growth somewhat erratic, but strong over longer term o Services sector shows more consistent if lower growth overall o We see selected non-farm household enterprises (informal sector) contributing to growth in these sectors, including in rural areas However, labor productivity in industry and services declining o For agriculture, this suggests workers now leaving agriculture are not finding significantly more productive jobs in industry and services o Factors in agriculture pushing them out to take these not significantly better jobs in other sectors?
Next steps exploring public investment portfolios to foster rural economic transformation in Tanzania Use ex post investment evaluation results to experiment ex ante with alternative public investment portfolios o Analysis uses rural investment functions calibrated to information drawn from ex post project and program evaluations and sector studies o A set of equations on the observed returns in terms of development objectives (impact) to specific levels of public investment o Functions incorporate information on the efficiency with which public resources are used o Used within a consistent, spatially disaggregated, structural economic framework o An economy-wide CGE model for Tanzania Based on their modeled relative returns in terms of development impact, can rank different investment portfolios government may consider o Consider choices in levels of public investment in agricultural extension, improved access to inputs, rural roads, irrigation, among others o Impact on economic growth, agricultural sector productivity, poverty reduction, and regional equity o Assess both direct and indirect impacts of investments and trade-offs across portfolios