Dirk Willem te Velde (Principal Research Fellow, ODI)
9 October 2017
The Overseas Development Institute (ODI) recently hosted two book launches, on the importance of industrialisation in Africa and on Tanzania’s future industrialisation. These books, one by Justin Lin and the other by Ali Mufuruki and three fellow Tanzanian authors, reiterate the importance of stimulating a debate around industrialisation in Tanzania.
The need for active but pragmatic approaches to economic development
Justin Lin, former Chief Economist at the World Bank, recently published Beating the odds: jump-starting developing economies (a book co-authored with Celestin Monga, the Chief Economist at the African Development Bank), which discusses how poor countries can master the art of performing economic miracles, with the implication that, regardless of any poor preconditions, any country can develop as long as it does the right thing. This right thing is not necessarily to follow prescriptions such as those on a “good governance” agenda, or to concede that poor preconditions block any chance of progress, but rather to focus on appropriate industries and support structural transformation by overcoming market and government failures and engaging in a process of technological upgrading and learning.
The discussion points to the need for strategic industrial policies and sector approaches that are rooted in the specifics of a country. It supports the development of special economic zones (SEZs), investment in infrastructure and foreign competition, as well as emphasising the importance of political leadership. Pragmatic approaches are key. For example, China learnt to focus on SEZs by looking at experiences in Ireland (Shannon) and Singapore in the 1980s.
The strategic yet pragmatic approach has worked in Brazil, China, Ethiopia, India, Indonesia and Vietnam. Do we see this pragmatic view in Tanzania?
The need for a strong developmental and experimental state in Tanzania
Tanzania’s industrialisation journey 2016-2056: From an agrarian to a modern industrialised state in forty years is an excellent book that will be relevant in supporting a pragmatic debate on industrialisation in Tanzania. The book, written by Ali Mufuruki, Rahim Mawji, Gilam Kasiga and Moremi Marwa, deals with similar issues to Justin Lin’s book but is focused specifically on Tanzania and has come from a very different background. Mufuruki is a renowned Tanzanian business leader, in his position as head of Infosys, a successful information and communication technology company.
The book contains a number of excellent proposals for the future of industrialisation in Tanzania. The key message is that the country needs a strong developmental state, which, for example, actively plans and coordinates improvements to infrastructure and education and develops SEZs and new technology.
Tanzania does not currently have a strong centralised agency that facilitates line ministries to execute plans, as seems to be the case in Ethiopia. Such an agency is essential, for example if the state wants to provide strong signals to the private sector. Mufuruki’s book puts faith in the Planning Commission, with which the SET programme has been working: ‘If our nation is a corporation, this agency is the Office of the CEO.’ The final paragraph of the book suggests we back the Commission but also warns that we need to monitor progress.
Monitoring will indeed be important. Taking into account the complex political economy in Tanzania, we cannot expect everything to happen perfectly at once. So it is refreshing to read Mufuruki’s advice:
‘Therefore starting small and experimenting would enable us to fail fast, learn quickly, and change things around rapidly and as necessary, and after fine-tuning the model over a period of time, we can then scale with higher quality across the nation instead of instantly scaling across the nation perhaps at a lower quality given limited implementation and financial capabilities, being unable to fine-tune and manage efficiently when facing challenges, and thereby ending up with a mess of a national industrialisation programme.’
The advice relates well to what we spoke about during the African Transformation Forum. SET has also written extensively about the need to experiment. The general emphasis in the book on nation-building around the economic transformation project is welcome, but there is also a danger that Tanzania will think only one model can work and, as a consequence, will fail to embrace a pragmatic approach.
Contours of the Government of Tanzania’s approach to industrialisation
Through the Planning Commission, the Government of Tanzania (GoT) has developed two important documents – a second Five Year Development Plan (FYDP II) and an accompanying implementation strategy – to guide the country’s ongoing push towards industrialisation. These are good first steps. However, in order to meet its objectives, Tanzania urgently needs to hold a debate on the practicalities of industrialisation, to monitor how well the objectives are being achieved and to undertake learning and corrective actions where needed.
GoT launched the FYDP II, called Nurturing industrialisation for economic transformation and human development, in 2016. It is a sound document. Based in part on background work by think tanks such as REPOA and ODI, it has a dual focus on growth and transformation, and poverty reduction. The Plan emphasises interventions to promote industrialisation, including establishing SEZs/export processing zones and industrial parks, strengthening research and development, promoting local content, developing capacity and undertaking a number of flagship infrastructure projects (incl. for example railway projects).
Over the course of the past year, GoT has also been discussing an implementation strategy for the FYDP II. This is a promising new step, especially in comparison with progress made under the FYDP I. It prioritises three value chains (cotton to textiles, leather to leather products and pharmaceuticals) on the basis of their employment creation prospects; the opportunities they present to create local value chains with downstream value-added processing; and their potential to supply rapidly expanding markets. It also prioritises SEZs and industrial parks to support industrial production and export-led industrialisation and to boost Tanzania’s competitiveness and urban development management. Attempts have been made to include private sector input in devising the strategy – the ESRF and ODI organised a public consultation to include private sector voices such as the CEO Roundtable.
In search of appropriate industrialisation models
While these government documents express a new level of ambition, they need to be backed by a realistic approach to implementation. Unfortunately, Tanzania is still struggling to find an appropriate model in this regard. Despite earlier plans to grow the contribution of manufacturing to gross domestic product, this share has continued to decline in recent years.
Experience tells us that implementation of an industrialisation plan can be achieved neither through a laissez-faire approach nor by means of complete public control and command. Instead, Tanzania’s industrialisation objectives require actors to work together and coalesce around a number of industrial policy functions. Effective state–business relations are crucial to making industrialisation a reality because most manufacturing investment and jobs are realised sustainably by the (local) private sector. Government can facilitate, regulate and coordinate, actively as is the case in Ethiopia and Rwanda, but should not take control of production or engage in loss-making production. The state needs to lead but should also experiment, learn and adjust. In this regard, the books by Justin Lin and Ali Mufuruki can help Tanzania navigate the next decade of support for industrialisation.
Photo credit: Mitchell Maher / International Food Policy Institute (CC license)