By Dr. Joseph Hanlon, New Scientist Vol 79 No 1121
Set up a steel foundry? Or weave more sisal into rope? Both require scarce capital and skilled people, and Tanzania can afford only one or the other. Exporting sisal rope increases foreign exchange and growth, whereas manufacturing steel leads to economic self-reliance. Choices like this face every developing country, and the decision is usually made on an ad hoc basis. Academics and journalists talk of creating an industry policy to guide decisions, but countries rarely do.
Tanzania is an exception. In a debate which has continued for five years, it set goals, looked at resources, and weighed up alternative forms of industrial development. Finally it opted to develop basic industries, particularly metal working, which could lead to the highest degree of industrial independence. Consumer goods, will have to wait. Russia and India followed this course, but few of the more recently emerged nations have chosen this path.
Tanzania has the basis for heavy industry: coal, iron, gas, and hydroelectricity. But all these resources are virtually untapped. At independence in 1960, Tanzania was one of Africa’s poorest countries. Per-capita income was 20 GBP. Exports were primarily raw materials for metropolitan countries; imports were finished consumer goods. As with most ex-colonies, it did not produce what it did not consume and consumed what it did not produce. Until 1967, growth was slow and typical of the Third World; foreign capital set up industries to serve a small urban population.
By 1972, it was clear that Tanzania was growing rapidly. The structure of the economy was, however, still that of a colony: the country was clearly not meeting its new goals. Politicians blamed the incoherent growth on the lack of an industry policy; discussions began in earnest. The then Department of Development Planning compared several different strategies.
The first was maximum growth. This is not really a strategy at all. Investment is made simply to maximise return on capital; no consideration is given to the usefulness of the product or the connection one industry to another. In practice, this is the course that most developing countries follow. The obvious products are consumer goods, such as beer and refined sugar. Typically this policy also includes import substitution, because one of the most profitable things to do is to assemble locally what was previously imported fully built, and basic processing of exports – such as making sisal into rope – because this earns foreign exchange.
The maximum growth strategy actually decreases self-reliance. When finished manufactured products are imported, they can come from many countries. But when an assembly line is set up, the parts come from specific suppliers. So import substitution – and export processing – ties the country even more tightly to the international economic system. The country remains at a disadvantage, because prices are set by the buyers of raw materials and the sellers of equipment – the metropolitan countries.
The second strategy focused on basic industry and was advocated by economist Justinian Rweyemamu. It stresses production of a relative small number of materials which constitute the basis of modern industry; iron and steel, textile, glass, cement, wood, plastics, leather, paper, fuel and chemical. Industries are chosen not on profit criteria, but for their role in restructuring industry to build a foundation for self-sustaining economy. Greatest emphasis is placed on engineering and metal-working.
This strategy would take 20 years to effect, and in the short term it fails all national goals. Growth is slower at first and capital-intensive basic industries employ fewer people than consumer industries. Heavy industry requires more skilled workers, which means more foreign experts (hence less self-reliance in the short term) as well as higher wages for skilled people (hence less equality of income). It will probably mean less regionally distributed industry. Foreign capital is less likely to be available for this strategy and investment in consumer goods manufacturing would have to be deferred, possibly leading to shortages.
In the long term, the basic industry strategy is the only one which would lead to local production of intermediate and capital goods (tools and machinery used to make other goods) and it ensures good use of local resources. Most important, this strategy is the only way to break the dependency relationships with the developed world, eventually making Tanzania an equal partner in an interdependent world.
The third option is the small industry strategy. Goods are made in the smallest, most decentralised method possible. Small industry has received strong official backing, and Tanzania has set up a Small Industries Development Organization (SIDO). This strategy increases the number of jobs, best ensures regional growth, and encourages equality of income. It requires less capital and fewer skilled workers. But the two countries best known for their emphasis on small industry, India and China, both developed basic industries first. Without basic industries, Tanzania must import some of the simplest machines and parts for small industries. So, on its own this strategy would not lead to self-reliance.
Furthermore, the bureaucracy has developed the view that big, modern and foreign are better than small, manageable and local. Big foreign projects carry more prestige and perks, and usually fewer headaches, than small local ones. Foreign aid donors and multinationals prefer them, too. Tanzania is littered with foreign aid projects which were bigger than necessary and still run inefficiently and below capacity. The automated bread factory in Dar es Salaam has become legendary. Canadian designed and built with a Canadian loan, it uses fully automatic Canadian machinery in an expensive building constructed to withstand Canadian snowfalls and was designed to use imported Canadian wheat to bake 100 000 loaves a day. Yet local bakers would have happily expanded to fill the need with no aid and at a fraction of the cost.
Indeed one of Tanzania’s biggest problems is a lack of trained managers and technicians. Two-thirds of manufacturing parastatals are still managed by expatriates. There is no real manpower policy, and consumer industries compete with basic industries and with ministries for skilled people. This is also a factor which makes the bureaucrats opt for larger, more centralised industries.
Perhaps the saddest fact of Tanzanian industrial life is that, public statements notwithstanding, the country never compares alternative technical solutions to a specific problem. As the bread-factory example show, the answer is spelled out before the problem is fully set. Even where Tanzania has a range of experience, it fails to choose: textiles are made in factories which range from the labour intensive Chines Friendship mill to the capital intensive Western European mill in Mwanza. Recently both were expanded, even though the Chines mill was cheaper to build, produces cloths less expensively, and contains simpler technology which would be easier to link to the planned new engineering industry. As the World Bank commented in a recent confidential report, in Tanzania “choice of techniques appears to have been influenced by largely extraneous bureaucratic decisions”.
The big loser is small industry. Despite the rhetoric, Tanzania has no small industries policy. No products are reserved for small industries, as in India, and little extra support is available. Small industries must compete on an equal footing with large. In fact, the bureaucratic bias toward large industry works against small industry. In many areas where small industry would be economically viable and probably preferable – bread, clothes, sugar, and oil and grain milling – the small sector has been pre-empted by the setting up of large parastatal factories.
The lack of practical support for small industry is one example of a chronic problem – the lack of the ability to implement policies. Virtually no one I talked with actually knew what the basic industries strategy meant in practice, despite years of discussions. For example the National Development Corporation (NDC) told managers that investment capital must be generated internally, which requires the maximisation of short-term profits. Thus NDC is following maximum growth strategy when national policy is basic industry strategy. Similarly, government policy is for industries to train as many technicians as possible, but the state capitalist attitude of simply maximising profits means that parastatals pirate skilled staffs from one another. Finally, despite the talk of linkages being fundamental to the basic industry strategy, most planning continues on a project-by-project basis, with no consideration of the links or phasing.
One’s view of Tanzania really depends where one stands. By developing country standards, this country has developed faster, more equitably, and with less conspicuous luxury consumption than most. But Nyerere has set higher goals than exist for most developing countries and by these standards Tanzania has fallen short. The basic industry strategy came about because Tanzania asked questions that most developing countries have refused to face, and it is a brave and hard choice. But it will require a commitment that few below Nyerere himself seem prepared to make.
21 September 1978
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For an extended version visit the page: New Scientist: Tanzania decides how to industrialise