Is Tanzania a success story?

Thanks to my Friend Karen Rono (Nairobi), major reference is Sebastian Edwards of University of California, Los Angeles (UCLA)

• In 1991, three decades after obtaining independence from Great Britain, Tanzania was the second poorest country in the world. According to the World Bank’s World Development Report, its GNP per capita was barely 100 US dollars; the only country with a lower income per person was Mozambique, with 80 US dollars per year.
• In 1976, merely 15 years earlier, 24 countries were poorer than Tanzania. According to the
  World Bank, between 1976 and 1991 Tanzania’s nominal GNP per capita declined by 45 percent – from 180 to 100 US dollars. Between 1976 and 1991 real income per capita fell by 15 percent, or almost 1 percent per year. The collapse of the Tanzanian economy between the mid 1970s and the early 1990s represents one of the most spectacular economic disintegration's ever experienced in a country not affected by a major war or natural disaster.
• During the last two decades there has also been a marked improvement from a comparative point of view: although Tanzania continues to be very poor, it is not any longer at the very bottom of the income per capita tables. According to the World Bank, in 2009 19 nations had a GDP per capita lower than Tanzania -- sixteen of which are in Africa.
• There has also been important progress in terms of social indicators. According to the United Nations’ Human Development Index (HDI), Tanzania has made significant improvements when compared both to Sub Saharan Africa and to the rest of the world. In 1995 Tanzania’s composite HDI was barely 90% that of the rest of the Sub Saharan nations; by 2010, Tanzania had surpassed the African region, and its HDI was almost 3% above that of Sub Saharan Africa as a group.
• What makes Tanzania’s story fascinating is that foreign assistance has been at the center of the country’s economic failures and successes. After independence in 1961, the country became one of the “darlings” of the international aid community; between 1962 and 1983 Tanzania was one of the highest recipients of foreign aid in the world.
• Massive foreign aid was largely used to finance President Julius African Socialism vision. In
  particular, international donors helped fund the initiatives contained in the Arusha Declaration, a broad political manifesto presented by Nyerere to the official party (the TANU) in February, 1967.4 By 1973 net official development assistance per capita (ODA) to Tanzania was already 18% higher than net foreign aid received, on average, by Sub Saharan African (SSA) countries. By 1975 net per capita ODA to Tanzania had surpassed the SSA average by 75%, and by 1981 it was almost twice as much as the average for SSA.
• Nyerere’s socialist policies, however, did not work. The collectivization of agriculture backfired, the villagization process that forced peasants to move to villages designed by planners was strongly resisted by the population, the parastatal sector became a huge financial burden and a source of corruption, and grandiose industrial projects became mired in inefficiencies. Worse yet, in the mid 1970s significant shortages of all sort of goods developed, and black market activities became rampant.6 The collapse of the Tanzanian economy in the late 1970s and early 1980s happened in spite of the involvement of donor countries – in fact, it is possible to argue that this disintegration happened because aid agencies were heavily involved in supporting (and even helping design) Nyerere’s ujamaa Socialism economic policies.
• Between 1986 and 1995 the country went through a process partial liberalization and reforms. Major distortions were addressed, an effort was made to reduce the black market for foreign exchange, and imports of some goods were allowed as long as buyers used their “own funds.” This initial phase of the reform effort stalled around 1992-93, when a major spat developed between the aid agencies and the government.
• Since 1996 (and until the present time) deeper reforms have been put in place, and a serious effort at stabilizing the economy has been made. The reform effort took off after an agreement was reached between the aid community and the government – the seeds for the agreement were detailed in the so called Helleiner Report. Starting in 1996 the economy was open further, the civil service was reformed, rules on FDI were relaxed and streamlined, privatization was implemented, banking reform was put in place, and massive programs aimed at improving education and health services were implemented.
• In 1997 the government finalized a broad strategic document titled “Tanzania National
  Development Vision, 2025.” In its introduction the document states:114 “The three principal objectives of the Vision 2025… are: achieving quality and good life for all; good governance and the rule of law; and building a strong and resilient economy that can effectively withstand global competition…”
• An important feature of this document is that it explicitly criticized the policies of the Arusha Declaration: “The strategy of the Arusha Declaration did not sufficiently address the complexity and dynamic character of policies and incentive structures which were necessary to effectively drive the development process.”
• In the most recent World Bank’s Doing Business study, Tanzania is ranked in the 128th position, out of 183 countries. On the positive side, the country’s is ranked higher than its GDP per capita would suggest. However, in the last few years Tanzania has slightly retrogressed in this ranking. Between 2010 and 2011 the country has moved down in five categories – registering property, getting credit, protecting investors, paying taxes, and closing a business --, and has improved in only one of them, trading across borders.
• Is Tanzania a success story?
• From a strict medium term perspective – and this is, indeed, the perspective taken by most of the aid organizations, including the IMF and the World Bank --, Tanzania looks, indeed, like a success story. Since 1995 – the year president Benjamin Mkapa took power – GDP per capita has increased by almost 65% (which is significantly faster than the average for SSA), inflation has been kept in check, expenditure in social programs has increased markedly, macroeconomic stability has been preserved, the reforms have been furthered, and the relationship with the donor community has been constructive and cordial.
• However, as one takes a long view, and considers the fifty years since independence, a more nuanced picture emerges. Of course, the fact that the economy has done very well during the last 15 years (with the caveat of data quality) remains true. However, it is also true that the country collapsed completely in 1980-1985, and that it took many years (about a decade) for it to find its stride and begin to recover in earnest. In addition, and as the discussion in this paper clearly shows, the disintegration of the economy was the result of misguided policies and of a remarkable inability to change directions even in light of overwhelming evidence of failure. Also, the analysis in this paper shows that the international aid organizations and aid agencies in the advanced nations were accomplices in generating the collapse of the Tanzanian economy.