Economic liberalization and Manufacturing Sector

Importance of the Manufacturing SectorLiberalization

OutcomesLimitations

ROLE OF THE MANUFACTURING SECTOR

• TANZANIA EXPERIENCES RAPID URBANIZATION WITHOUT ADEQUATE INDUSTRIALISATION

• CONSEQUENCES:– LIMITED LINKAGES TO THE RURAL SECTOR– RURAL POPULATIONS MIGRATING TO URBAN

CENTRES / RAPID GROWTH OF TOWNS / – ECONOMIC EXPECTATIONS– LACK OF INDUSTRIAL EMPLOYMENT –

TERTIARIZATION – CONCENTRATION OF EMPLOYMENT IN THE TRADE AND SERVICE SECTOR

Sector Overview

• The manufacturing sector is of significant importance in the Tanzania’s economy.

• Up to 1999, the sector employed about 48% of total monthly wage earners, making it the largest urban employer.

• It is the most reliable source of government revenue: sales tax, corporate and income taxes. It accounts for over half of government annual revenue collection.

The Sector

• Though manufacturing export has been in a declining trend, yet it earns the country a fifth of total foreign exchange earnings to become a third important sector after agriculture and tourism.

Liberalization measures

• Structural adjustment programs during the 1980s and 1990s provided both opportunities and challenges for industries to adjust or adapt to changes in public policies.

• Privatization of industrial parastatals: brewing, textiles, aluminium, cement factories, paper, etc

OUTCOMES• Good response from private investors (domestic

and foreign)• Growing business – – food processing (grain processing)– Breweries – South African domination– Cement Factories – 3 major factories– Steel works– Aluminum – support the construction sector– Fish Processing ( Mwanza, Musoma, Bukoba)

• Growth of employment in manufacturing

Good Performance in Alcoholic and Soft Drinks, Cigarettes Manufacturing

2004 • Beer production increased from 194,100 million litres

in 2003 to 203,218 million litres in 2004, an increase of 4.7 percent. Likewise, production of soft drinks increased from 212,502 million litres in 2003 to 255,581 million litres in 2004, an increase of 20.3 percent.

• Production of Konyagi increased from 3,670 million litres in 2003 to 4,470 million litres in 2004, equivalent to an increase of 21.8 percent. Production of cigarettes increased from 3,920 million sticks in 2003 to 4,220 million sticks in 2004, equivalent to an increase of 7.7 percent.

OUTCOMES• The implementation of structural adjustment

policies had adverse impact on the structures, performance and competitive behavior of Tanzania’s manufacturing industries.

• On the one hand, currency devaluation has raised the cost of foreign exchange that in turn led to higher production costs.

• On the other hand, trade liberalization has opened up domestic market to imports subjecting local industries to intense competitive pressure (Komba, 2005)

Outcomes

• The government decision to liberalise trade and investment policies, effected since 1986, witnessed a number of firms even those believed to be as strong, clumping down as they could hardly withstand competition from imported manufactures (www.tanzania.go.tz)

Outcomes

• There is no evidence of significant changes in Tanzania’s manufacturing sector structure. Despite problems experienced in the textile industry, manufacturing structure is still dominated by light consumer goods industries including food processing and beverages.

outcomes

• There have been shifting composition of manufacturing output resulting from changes in demand conditions, trade patterns and technology. Thus, growth in some industries and stagnation or decline in others.

Outcomes

• The overall utilisation of installed industrial capacities is improving, rising from an average of 20% in 1990 to around 50%.

• Some of the recently privatised industries have undergone intensive rehabilitations - improving their capital structure, production technologies and management and marketing system as well as retrenched workers to match with production levels and improved quality and lower costs of production.

Textile Industry

• Within the textile industry over 80 per cent of the mills are either closed or operating at very low capacities.

• Textile and cotton amongst the worst hit by liberalisation– Textile exports have continued to decline while

imports have surged.– Number of establishments in the sector have

declined in the 2000s

OUTCOMES

• Textile dominated the manufacturing industry in the seventies and eighties, but has long suffered serious constraints leading to under utilization of homegrown cotton produce.

Number of mills declined conspicuously following liberalization

Increased from 4 in the 1960s to 35 in the 1980s, and then fell to about 7 in the 2000s

0

5

10

15

20

25

30

35

No. of Mills

1960s1980s2000s

Second Hand Clothing

Mmachinga – Marching Guy – Petty Trader

Small Scale Industries

• Small and medium scale industries producing furniture, metal products have been affected by importation of cheap plastic goods: plastic bags, containers, ect Prima plastics India.docx

Competition from plastic products

Limitations

• Spatial Distribution of industrial development: Growing inequality as industries concentrate in few major urban centres (DSM, Arusha) Industries.docx

• Composition – traditional strong subsectors – agricultural processing industries declining

• Competition with imported cheap products– Second hand clothing, plastics

• Shoe manufacturing industry has declined due to proliferation of used shoe market.

Distribution of All Projects registered TIC 2004

• Regional distribution of projects indicates that Dar es Salaam region led with 262 projects, followed by Arusha 79 projects. Other regions that attracted investors were Kilimanjaro 21 projects; Mwanza-20; Mtwara 9; and Shinyanga 8; Morogoro, Mbeya and Iringa regions, registered 7 projects each; Pwani, Lindi and Mara 5 each; Tanga region registered 4 projects; Dodoma, Kigoma and Tabora 2 projects each; and Kagera, Rukwa and Manyara 1 project each; while Ruvuma and Singida did not get any project. Some registered projects however, have branches in more than one region.

Used Shoes on Sale in A Rural Area

Limitations

• Small manufacturing sector establishments + artisan industry loosing market out of competition

• Manufacturing industry linkage to agricultural sector not improved. 1970s and 1980s, deliberate move to invest in industries producing producer goods (basic industries strategy). No further development in this aspect is likely to come from the private sector led manufacturing development.