Part II - Five Critical Institutional Areas for Tanzania’s Development

This part of the volume delves deeper in the relationship between institutions and development by focusing on five thematic areas, expected to be of much relevance for the understanding of the way institutional dysfunctions may raise obstacles to development whether its pace, structure, sustainability, or inclusiveness.

The following five areas have been selected.

• The relationship between the state and business

• Strengths and weaknesses of the civil service

• Fiscal decentralisation as an example of institutional ineffectiveness

• The land right laws

• The elusive reform of the power sector

Available resources did not allow to cover more ground.

All studies have been written by Tanzanian authors with expertise in the related domain. Their aim has been to identify the way institutional factors hinder development in their particular field, the institutional reforms that could improve the situation, and the political economy feasibility of such reforms. In all cases, their study is supplemented by the opinion of scholars with a broader view of the area being covered and thus able to reflect on what Tanzanians could learn from other countries’ experience. Their comments also point to the similarities and differences between Tanzania and countries at comparable levels of development.

4 Politics and Business An Ambiguous Relationship

Samuel Mwita Wangwe

I Introduction

The relationship between government, or more generally the political elite, and the business world, in particular ‘big business’, is a key determinant of development. A government may want to pursue policies that favour some specific activity, exploit some comparative advantage, generate both employment and foreign currency, and lead to a satisfactory rate of growth. However, in a market economy, business interest has no reason to be automatically aligned with such views. Then a kind of game takes place between business and the political elite, by which one side tries to impose its views on the other side. One example is when the former (business) has captured the latter (political elite) through sheer corruption. The development of the country then depends on the interest of incumbent big firms, which has no reason to automatically coincide with that of the national community. Another example is that of a neutral government whose action is primarily in the national interest, with its actions primarily limited to providing a favourable environment, or ‘business climate’, including, presumably, transparent regulation rules for all producers irrespective of their size or influence.

The real world is more complex, exhibiting competition within the business elite for gaining support from politicians, and competition among politicians for accessing, or maintaining themselves in, power. The latter may take place through voting but also through power struggles within political parties. The strategy of politicians in power may also be to attract the support of the public by ostensibly staying away from business influence, thus getting close to the neutral case mentioned earlier. These relationships are examined in this chapter in the context of Tanzania.

State–business relationships in Tanzania have been changing over time, and this chapter sets out to make a contribution to the interpretation and understanding of these changes. The extent to which the government has been effective in its intervention and the extent to which it had roots in society (‘embeddedness’) and the power to impose its own will on the private sector and the rest of the society needs to be examined. In this context, this chapter addresses the kinds of developments that influenced the extent to which the state and politics were able to impose a vision that is compatible with underlying social and economic forces. In addition, it addresses the extent to which the state became a vehicle for furthering the interests of powerful sections of business as opposed to furthering national interests.

The nature of the prevailing ideology about development has been an important factor in influencing the political economy surrounding Tanzania’s development. Since independence in 1961, the economic development of Tanzania went through four stages of very different nature, and a fifth and sixth stages were not completed yet at the time of writing. In order to capture the characteristics and influence of these stages, this chapter takes a historical perspective. In this regard, it is organised in six sections representing four periods and attempting some speculation on what kind of equilibrium is likely to emerge in, or be associated with, the fifth- and sixth-phase governments. However, prior to addressing the six periods, after this introduction, the theoretical framework and methodology that has guided the rest of this chapter is presented in Section II. This is followed by sections that coincide with the six periods. Section III examines the first period from independence to the Arusha Declaration (1961–6) and represents the initial conditions that largely set the stage for the Arusha Declaration of 1967. Section IV examines the second period, from the Arusha Declaration to the economic crisis (1967–85). During this period, the policy framework was essentially addressing the socioeconomic challenges as seen in the initial post-independence period. Section V addresses relationships in the third period (1986–95), which is characterised by policy reforms that changed the relationship between politics and business. In this period, Tanzania was implementing a series of economic recovery programmes primarily determined by the international financial institutions. Section VI examines politics–business relations during the fourth period (1996–2015). This is essentially characterised by initiatives taken by the government to consolidate reforms and define its own development agenda, in which the integration of business with politics was progressively institutionalised, while in an informal setting corruption was going on between sections of business and sections of the political elite. Since the fifth-phase government came into office in November 2015, the relationship between politics and business has changed considerably. Although the period was rather short (up to March 2021), it may be necessary to preliminarily discern the characteristics of the equilibrium that was emerging. The changes in this period are examined in Section VII, which identifies the signs that the country was showing the will to make a substantial shift from the prevailing equilibrium and adopt a new one, which was still in the making. Section VIII discusses the sixth-phase government under President Samia Suluhu Hassan from March 2021. Although she has not been president long enough to make conclusive statements, there have been notable changes in policies on several fronts that point in the direction of improving politics–business relations. Finally, Section IX brings together these developments in politics and business relations into a conclusion.

II Theoretical Framework and Methodology

This analysis of politics and business aims to contribute to an understanding of how positive institutional change can be achieved, as well as to the design of an institutional diagnostic tool that would permit policymakers to identify weak institutional areas that constrain development and appropriate directions for reform. This institutional diagnostic tool focuses on the institutional (formal and informal rules of the game) weaknesses possibly responsible for economic constraints. It is expected to enhance the understanding of a body of evidence and provide insights into what practicable actions produce institutional changes that improve economic outcomes, increase growth, and enhance industrialisation for socioeconomic transformation.

The theoretical framework that is adopted in this chapter will enable a better understanding of what is at stake in terms of institutions and what action should be taken, if politically feasible. The theoretical framework adopts a political economy analysis that is dynamic, representing the interests of various groups that may also change over time. The framework puts the lessons from experience in context and takes into consideration changes in the political economy. The analysis of the political economy will bring out the relationship between politics and business over time, with analytical interpretation of ideological evolution and socioeconomic development and special reference to the context of promoting industrialisation. The relations among politics, business, and institutions is traced from independence onwards, in terms of the institutionalisation of political power within the ruling party, and the changing distribution of power among groups of classes within the state and groups within business.

The theoretical framework that is adopted here considers the alternatives between a state that negotiates with the business sector to get the best for the public while satisfying constraints inherent to business, and a state that is ‘captured’ by a business elite and makes decisions that are in the interest of that business group rather than of the public. The latter case may manifest a kind of capture equilibrium. This capture equilibrium may occur when a group of big firms with some converging interests hold the government or the political elite ‘captive’ through providing political goods or services (campaign financing, job creation in constituencies, income addition, etc.). This situation makes the state take decisions in the interest of big business most of the time, while often partially converging with public interest by justifying that such decisions favour employment, the interests of the poor such as the promise of affordable prices of imports brought in by traders (who may be the majority), or some other public economic goal through allowing some big companies to pursue their interests. What they do not make clear is the kind of advantages they grant at the same time to those companies and the kind of benefits they themselves get in the process. This equilibrium situation permits some firms to make more profit, while politicians (or their parties) may maintain themselves in power as they increase their probability of gaining political capital and winning the next election, as well as accessing resources for personal gain. The existence of competition among the business elite gives more freedom to the government in choosing what is best for the country. However, in cases where corruption prevails, the choice of what is best for the country may be distorted. At a certain level of corruption, the state may even create its own channels for accumulating personal wealth through private business, which may not necessarily be big business, but it may be convenient for the government to accumulate wealth through such business. The state identifies a business entity to work with in order to syphon public resources. The selected business may be prominent or otherwise, provided it has the trust of the political players. The state’s real situation may lie in between the two extremes of a free and a captured state. It is likely to vacillate between these extremes over time, and this equilibrium is likely to be maintained until it is disrupted.

One source of disruption could originate from exposing the relationships and deals, making them public knowledge. Thus, the media is one institution that could disrupt by exposing deals, provided they are not controlled themselves by the business or the political elite. Civil society organisations may also play this role, as can opposition parties or other organised social groups. However, depending on the degree and nature of capture of the political elite by business, it is quite possible the political elite could find it difficult to act, especially if those who are supposed to take action to rectify the situation are the ones who are being exposed. Captured by business links, and by the structure of political power within the dominant party, the political elite may find it difficult to make decisions, as the inclination to maintain the status quo may be overwhelming. This is a case of the presence of transparency without accountability.

Another source of disruption of the equilibrium could originate from the dynamics of changes in the overall economic context, such as changes in foreign prices, technological development, and various changing business opportunities, making some businesses lose while others gain over time, or some political factions gain while others lose power. What would be observed in that case would be a particular equilibrium, which could be modified owing to some exogenous change in the distribution of political power or business opportunities. This could be the rising of the opposition against the historically dominant party, or simply the personal will of a president, given the considerable power granted to the president by the constitution. Exposure such as that caused by the media and other players in the civil society can modify the relative power of some politicians or conflicts within the political elite, making it possible for one side to denounce the corruption of the other even when they themselves may be engaging in corruption.

Another view of the relationship between business and politics, through which state capture may be manifested, is the concept of rent and rent management. The capture view and the equilibrium distribution of rents are two ways of describing the same thing. In a seminal discussion of rents and rent-seeking, Khan (2010) distinguishes between different types of rents. Some of these are value-reducing and some value-enhancing, and some can be either depending on context. The manner in which economic rents are managed and oriented towards the short- or long-term horizon is important in influencing the extent to which rents may be value-enhancing. There are several types of rents, for example monopoly rents, natural resource rents, rent-like transfers, Schumpeterian rents, rents for learning, and rents for monitoring and management. Access to these rents by businesses can be politically driven, influenced by the relations between politics and business. Political decisions may transfer rents to business groups through direct transfers of assets or funds such as foreign aid, the transfer of publicly owned assets through privatisation or allocation of land, transfer of subsidies such as through utilities, or transfers in the form of election spending, and various forms of corruption can be influenced by the behaviour of the political elite (Cooksey and Kelsall, 2011). The extent to which rents are value-enhancing is determined in part by the extent to which benefits go to the general prosperity of the private sector or are reinvested locally for the good of the economy. Management of rents and the degree of centralisation can influence the benefits accruing to business as a community and the time horizon of its outlook.

The methodology that has been adopted in this chapter follows the nature of the business–state relationship and its evolution through the history of that relationship in Tanzania since independence. This methodology has been preferred in order to take fully into account the dynamics of the relationship. The information that has been used has been collected through a desk review of the relevant literature and personal interviews with selected political and business leaders.

III The Early Independence Period, 1961–1966

A The Situation at Independence

The early independence period from 1961 inherited effects of the colonial period, whereby local development initiatives had been interrupted, and accumulation processes had been countered by colonial government policymaking processes. This period inherited the colonial creation of social differentiation and compartmentalisation of society along racial lines (Rweyemamu, 1973). Europeans in business and the civil service were at the top, followed by Asians in trade, industry, and commercial agriculture, and at the bottom of the ladder were Africans. These classes were reinforced by economic and social discrimination. This situation was consolidated through discrimination in the issuance of business licences along racial lines, which had become institutionalised. The task of the newly independent government was to try to redress this discrimination in the issuance of business and trade licences.

B Origins of the Position of Asians

The origins of Asian business can be traced to the beginning of the twentieth century. Immigration of Asians, also referred to as British Asian subjects, began when some came to East Africa to construct the East African Railways, and others to start a network of commerce in the region (Mkapa, 2005). Those who were in trade had connections with the commercially active on the Swahili coast. Those who were engaged in internal trade were largely active in buying crops (maize, paddy, cassava, millet, sunflower seeds, groundnuts, beeswax, and honey) from peasants and selling manufactured goods (textiles and garments, soap, and cooking oil) in return. Over time, some of them turned commercial capital into industrial capital, mainly through agricultural processing such as rice and flour milling, oil processing, and soap. In the struggle for independence, Mwalimu Nyerere’s visionary leadership took on board supportive Asians and Europeans.

C Development Initiatives in the Early Post-Independence Period

On gaining independence in 1961, Tanzania was a poor agricultural economy, with small mining and commercial sectors, and an expanding state bureaucracy assisted by foreign aid and loans. The guiding policy framework in the early post-independence period emanated from the World Bank and Arthur D. Little reports of 1961, which emphasised private sector development without questioning or specifying the ownership and product mix. The policy and strategy arising from these reports was expressed in the Three Year Development Plan (1961–3) and the First Five Year Development Plan (1964–9). The two plans essentially left the economy in the hands of the private sector, which was largely foreign (non-indigenous), relying on foreign aid and foreign direct investment (FDI). These development plans were geared to gradual growth by building on the basic structures of the colonial economy, encouraging agricultural modernisation, and stimulating private investment in industry and commerce.

The ownership structure of industry during the first years of independence remained primarily the outcome of colonial restrictions that had reserved certain industrial activities for British firms, and barriers to indigenous investors were removed (Silver, 1984). Industrial policy was geared to basic import-substitution industrialisation, with support to protected industry via tariffs (thereby creating rents, which were either of learning or monopoly character). There was little incentive to encourage learning and the infant industries did not grow to maturity as expected. This resulted in learning rents turning into monopoly rents. Members of parliament lacked personal power bases (Bienen, 1970), a phenomenon that was reinforced by tight vetting of candidates and election regulations prohibiting use of private funds in campaigns (Barker and Saul, 1974). In the industrial sphere, a mini-industrial investment boom that began in around 1955 continued until the mid-1960s. The main investors were East African Asians (the Chandes, Madhvanis, and Chandarias), settlers, traders, and multinationals. These groups were attracted to Tanzania because they were uncertain about political stability in Kenya and Uganda, about the future of the East African common market, and because the government gave them the right signals. These investments were probably as much as Tanzania could expect, and the period should be viewed as reasonably successful in terms of creating value-enhancing economic rents (Cooksey and Kelsall, 2011).

The investment programme that was proposed in the early 1960s built on the inherited structure from the colonial period and was expected to be implemented through the encouragement of local and foreign private investment. The accent here was on using foreign capital to solve what was seen as the problem of scarcity of capital. In spite of all the incentives provided for in the Foreign Investment Protection Act of 1963, the response from the private sector fell below expectations. In addition, the absence of any significant local entrepreneurial class posed a problem of how to gain local control of the development process.

During this period, the country was very rural, with about 95 per cent of the population residing in rural areas, where poverty was rampant largely owing to low productivity in agriculture. Efforts towards agricultural transformation in the absence of a significant business class in agriculture started with various initiatives and programmes to support agriculture productivity growth and rural transformation. In the first five years of independence, the government adopted a transformation approach on the recommendation of the World Bank (World Bank, 1961). This involved moving some of the farmers from their traditional villages to new villages or settlement schemes to fast-track the introduction of agricultural transformation, on the assumption that smallholder farmers were poor because of lack of capital and technology. The rationale for the transformation approach was to transform agriculture by introducing the technical, social, and legal systems that allow the use of modern agricultural techniques meant to achieve high productivity, based on investment of capital (Bank of Tanzania, 1982, p. 76). The assumption was that a business class could be created in agriculture driven by technology. The improvement approach based on demonstration effects from progressive farmers also did not yield the expected outcomes, owing to a lack of participation from the peasants themselves. This approach to agricultural transformation failed because of the cost of replicating it in the country (Cliffe and Cunningham, 1973).

D Continued Concern over Social and Economic Differentiation

Clearly, in the early 1960s, little was done to cultivate a healthy relationship between politics and business, since business was dominated by foreigners and alien Tanzanians. This kind of domination had political sensitivities after independence. In the absence of any significant local (African) entrepreneurial class, reliance on the free market and private sector-led development was risking the continuation and even consolidation of distorted economic and social structures. This situation posed the political problem of how to gain local control of the development process. These initial conditions in the early post-independence period exhibited social and economic differentiation in the business sector and political concerns over the control of business by non-Africans. This situation continued to influence relations between politics and business into the subsequent periods.

These considerations influenced the timing and content of the Arusha Declaration. This was a decisive factor in disrupting the equilibrium that had essentially persisted in the early post-independence period.

IV The Arusha Declaration: Business and Politics Relations, 1967–1985

A The Arusha Declaration Response

The Arusha Declaration in 1967 was a response to the challenges of the early post-independence period. It made an ideological shift and enunciated the principles of socialism and self-reliance to address concerns about the initial conditions at independence. In the theoretical framework of this chapter, the Arusha Declaration represents a disruption of the equilibrium that was prevailing in the early independence period. Enshrined in the Arusha Declaration was the concept of people-centred development, which became a running theme through the post-independence Nyerere period. This concept was interpreted broadly to include social and economic liberation with human dignity, equality and freedom of the individual, equality of opportunity across all races, and commitment to reduce income and wealth differentials in society. Implementation of the Arusha Declaration started with nationalisation of the major means of production at that time, such as large industries, commercial farms, banks, and large wholesale and retail trade establishments. One consequence was the change in the ownership pattern whereby the major means of production were nationalised, and most major subsequent investments were made in public enterprises. This situation led to the emergence of a public business through parastatal sector development. The nationalisations soon devolved into a three-tiered structure of parastatal investment banks, holding companies for productive enterprises, and the enterprises themselves. The Arusha Declaration precipitated and shaped the different type of relationship between politics and business that followed.

B Emerging Public Sector Business Leaders

In order to curb the growing relationships between politics and business, the Arusha Declaration introduced a Leadership Code that prohibited politicians and public servants from engaging in private business as shareholders or directors. It was hoped that this move would curb the practices of capitalist accumulation that had started to emerge in the business and politics relationships. The appointees to leadership positions in the parastatal business sector fell into three groups of managerial staff. The first group was appointed from the category of politicians: mainly nationalist organisers in the struggle for independence, such as George Kahama and Paul Bomani, who had organised farmers in the independence struggle through cooperatives in the Lake Region in Kagera and Mwanza, respectively. The second group were young, educated Africans. Most of these young managers were sent to study abroad, mainly at the Arthur D. Little School for training professional managers and Williams College, both in the United States. Although qualified, they had little experience. Therefore, they were subjected to learning by doing and gaining experience running large-scale operations on the job. The third group was expatriates who were engaged to fill positions for which Tanzanians were not available.

The appointments of top managerial staff favoured consideration of ‘political commitment, ideological orientation and patriotic pretensions’, rather than training or professional competence (Cooksey and Kelsall, 2011, p. 17). This is one indication that the choices that were made about management and mode of operation were more driven by politics than value-maximisation. The interaction between politics and business changed with the adherence to state control of the major means of production.

C Initiatives to Promote Indigenous Business Sector

Initiatives were taken to try to move the business sector from being predominantly foreign and non-indigenous Tanzanian owned towards increasingly indigenous private business owned. In this context, the most important initiative was to promote small businesses to support empowerment of the majority of the indigenous entrepreneurs. In order to ensure that small businesses were supported to engage in industry and to spread out to the whole country, in 1966 the government established the National Small Industries Corporation (NSIC) under the National Development Corporation (NDC). In 1973, the NSIC was hived off from NDC and transformed into the Small Industries Development Organisation (SIDO), with a vision of being a leading business support organisation in Tanzania, providing quality services efficiently and effectively in a business-like manner that would unlock potential for the growth and competitiveness of small and medium-sized enterprises (SMEs) in rural as well as urban areas.

The central purpose and role of SIDO was to create and sustain an indigenous entrepreneurial base through promotion and support of SMEs by providing them with business development services and specific financial services on demand. The strategy that was adopted was to facilitate capacity building and capacity development of small enterprises through technology development, transfer and provision of technical services, training, consultancy and extension services, marketing and information technology programmes, and financial advisory and credit services. For over a decade following its establishment, SIDO played an important role in facilitating growth of the small-industry subsector and operated within the framework of a centrally planned and state-controlled economy. The impact on indigenous private sector development was at best quite modest is not insignificant. However, among the private businesses that were either not nationalised or were established after the nationalisation phase of 1967–8 was over, the foreign and non-indigenous Tanzanian private sector continued to dominate the industrialisation scene.

D Initiatives to Promote Parastatal Sector Business

The parastatal business sector was the real hope for changing the dominance of non-indigenous private sector business by facilitating the expansion of the parastatal sector. It is for this reason that parastatal sector expansion was accelerated through a series of favours in resource allocation. Favours took the form of import licences, foreign exchange allocations, credit allocation, and human resource allocations. The emerging new equilibrium in the relationship between politics and business in the new environment was manifested through new institutions such as parastatals, villagisation, import licensing, foreign exchange controls, credit control, and price controls. Protection through tariffs and other means was negotiated between investors and the government rather than through a cohesive industrial strategy (Rweyemamu, 1979), a situation that ensured that rents were accessed. These institutions provided rents to the parastatal business sector. The types of rents available to industrial parastatals included direct state subsidies, access to finance directly from state-owned commercial banks, foreign concessional financing by donors for specific projects, and rents originating from tariffs and exchange rate policy (Bigsten and Danielson, 2001). Price controls based on the cost-plus principle guaranteed rents for the parastatal business enterprises.

The politics of the extension of state control was increasingly vested in an expanding group of ruling party, bureaucratic, and management officials (Shivji, 1976). However, some of the private businesses developed relations (formal and informal) with the state. It is important to understand these relations, how they changed over time into the liberalisation era, and their implications for privatisation, institutional reform, and corruption. The foreign private sector players were incorporated into nationalised companies as managers, through management agreements, as suppliers of equipment, and as minority shareholders.

E Public–Private Business Relations

In pursuit of national unity, during this phase the space for key stakeholders to articulate their interests was curtailed. Private sector business was not organised and did not have a forum for dialogue except the various chambers of commerce. However, private investment continued to grow as parastatal investments were increasing.

The question is to what extent the political elite promoted the domestic business sector. The NDC was mandated by the government to set up large-scale industrial enterprises with the state holding majority shares. In practice, the minority shareholder acted as supplier of equipment and provider of management and technical advice. Choice of technology for the projects was left to the foreign partner as the Tanzanian state had little access to global information on the sources and comparative costs of technology (Barker et al., 1986). Most of the directly productive parastatals were turnkey projects engaging foreign partners and expatriate management. Rather than engaging in joint ventures with the domestic business sector, the parastatals often engaged foreign-owned companies in joint ventures in consideration of supply of technology, equipment, and management. The desire to show results quickly induced NDC to set up enterprises in the shortest possible time. It is for this reason that NDC was quite happy with turnkey projects offered by the foreign partner (Barker et al., 1986). The large number of joint ventures with foreign capital weakened state control in industry, and over-reliance on expatriates and foreign technical assistance left little space for building up technological expertise among nationals and in the process the domestic private sector was not promoted.

The preference for foreign partnership on the grounds of technology transfer and technical assistance meant that the potential of partnership with the domestic (Tanzanian or East African) private sector was not fully harnessed. In this regard, Barker et al. (1986) have examined the production processes of enterprises established by East African Asian capital and concluded that they stood a better chance of achieving sustainable accumulation because they obtained their profits through simpler management organisation, using equipment closely tailored to their needs, with relatively low capital costs and low maintenance requirements, which was more amenable to local manufacture and maintenance. The implication is that the assumption by government that local entrepreneurship was not available to provide technical assistance to parastatals and therefore led to reliance on foreign technical advice and management agreements may not have been correct in all cases. The reasons may have been political, considering that the dominance of non-indigenous private business and racial inequalities had been a major concern in the post-independence period.

The relatively large local private business sector did not enter into joint ventures with parastatals except in a few cases, such as the LONRO-controlled MTAVA (a vehicle assembly plant set up in 1965), where the shares were 50 per cent LONRO, 23 per cent Cooperative Union of Tanzania, 23 per cent Mwananchi Development Corporation (the economic wing of TANU, the ruling political party), and 4 per cent Barclays. In 1975, the structure had basically remained the same, except NDC had taken over the shares of Mwananchi Development Corporation. The parastatals were not only government owned, but also took shares of the ruling party lines of business. The line of business between government and the ruling party (TANU) was basically blurred, presumably because at that time the political environment was that of a single party regime.

Mwalimu J. K. Nyerere appointed some Asian businesspeople to the boards of parastatals. For instance, J. K. Chande from the Asian business sector was appointed chair of the board of the National Museum and also joined the board of the TANESCO). His milling business was nationalised along with others in 1967, he was made general manager of the National Milling Corporation (NMC) until 1975, and he continued to be a member of parastatal boards for many years.

F Performance of Parastatal Businesses

The rapid investments carried out by parastatal enterprises resulted in an increasing burden on the budget and foreign aid dependence as the performance of the parastatal business sector deteriorated. Parastatal performance has been shown by several researchers to be weak. Coulson (1979) examined several parastatal projects (e.g. fertiliser and bakery projects) and found their performance weak, riddled with bureaucracy and inefficiency. Productivity in parastatals was found to be low (Shao, 1978; Barker et al., 1986). Clark (1978) finds that large parastatals had low profit rates, at only a quarter of the profit rates of smaller private companies in 1971. Shao (1978) finds that output per employee was higher in Asian-run enterprises (e.g. textiles, grain milling, and sawmills) than in parastatals. Although labour productivity grew up to 1973, mainly as a result of rapid capital investment, this growth could not be sustained (Szirmai and Lapperre, 2001). Most interestingly, employment in industry increased nearly threefold over the same period – an indication of falling labour productivity (Bank of Tanzania, 1982, p. 114). Jedruszek (1979) finds that productivity in industry declined by 14 per cent between 1967 and 1977. Manufacturing productivity was below average over the period despite large capital investments. Jedruszek suggests that productivity was low because managers had no incentive to control production costs and promote efficiency and productivity while workers exercised their rights and not their responsibilities.

The weak performance of the parastatal enterprises can be interpreted as reflecting limited technological learning, a process that was inhibited by several factors: first, management agreements between government and foreign companies meant that top management was predominantly foreign. For instance, in their survey Barker et al. (1986) found that three-quarters of top management in parastatals was foreign. Tanzanian management was found to be less experienced and mainly occupying positions of general manager and personnel manager rather than technical and production management. The foreign managerial staff were skilled and experienced but found it difficult to initiate adaptations to Tanzanian conditions. Second, graduate education emphasised theoretical and administrative knowledge, and training was largely for administration. The exception was the Faculty of Engineering, which turned out its first graduates in 1977. Skill development at middle and lower levels was weak, with few opportunities for advancement through in-plant training, or training in other local institutes or abroad. The technical colleges were relatively theoretical and skilled workers accumulated some skills in repair and maintenance but not innovation, design, and manufacture. The strong technical division of labour between mental and manual labour was not conducive for effective technological learning and productivity increase.

From the end of the 1970s, the state tried to reduce the growing cost of subsidisation through a rationalisation programme that involved splitting up existing parastatals into smaller units and attempting to cut down on the overall number of parastatals. These initiatives were largely subverted from within as managers made deals with supportive politicians and bureaucrats within line ministries to expand by establishing new subsidiary parastatals, starting new branches or new areas of activities (Mukandala, 1988).

Poor productivity and lack of financial control led to widespread losses. By 1985, 165 of 354 parastatals had net losses: in output–labour ratio, private firms out-competed parastatals by a factor of two (Bryceson, 1993, p. 17). The government promised that it would close down loss-making parastatals, and yet this became politically difficult. The government continued to grant them bank overdrafts. Between 1973 and 1982, bank lending to agricultural marketing parastatals grew from 31 to 61 per cent of total lending (Bryceson, 1993, p. 21). Although parastatals were supposed to make profits, in reality they were subject to a variety of political directives, among which profit-worthiness was not a prime concern. In 1983, a government commission recommended the liquidation of poorly performing parastatals, together with other cost-cutting measures (Bryceson, 1993, p. 23).

G Political Elite–Parastatal–Private Business Relations

Politicians and employees began to plunder the parastatal sector partly through the manner in which parastatal businesses related to private businesses. While parastatal businesses were favoured in terms of allocation of resources, the private sector enterprises positioned themselves to access some of these resources through the black market. Dealings in the black-market trade earned rents for many private operators. The central leadership group around President Nyerere remained committed to a long-term socialist vision and industrialisation, but rent management was increasingly beyond their control.

At all levels of staff, parastatal resources were being used for personal gain. Corruption emerged and grew in allocating parastatal goods and services. Public vehicles were utilised for private business. Funds were misappropriated or embezzled, and records were falsified. A large proportion of the parastatal business sector had accounts permanently in arrears and unprofessional practices on the part of staff were smoke screened.

(Bryceson, 1993, p. 21)

Despite the apparent formal political centralisation of power endowed by the dominance of party institutions within the state, the managers of parastatals were able to maintain their hold on state-created industrial rents even when their performance was poor. Systems of performance management and accountability were weak. Managers of parastatals were very much part of the cohesive intermediate class group that ran the single ruling party, TANU (Shivji, 1976; Mukandala, 1988).¹ However, the party was not able to discipline this group as it was able to make coalitions with supportive bureaucrats and politicians, especially ministers, to maintain rents despite poor performance (Gray, 2013).

J. K. Chande (2005) suggests that his experience in running NMC showed that income and wages policy and sometimes the erratic price interventions (e.g. putting a cap on the price of rice for NMC) negated the market forces, precipitating damaging effects. Interference by ministers and lumping unrelated economic activities in one parastatal company, such as bread with wine, complicated the management of parastatals even further. Observing how most parastatals were run, Chande notes that there were not enough entrepreneurs willing to work in the parastatal system, which was dominated by the cautious, doctrinaire, and anti-enterprise line driven by innate suspicion of the market and mistrust of any deals that seemed to be yielding rapid profit. Many businesspeople (Africans and Asians) fell victim to the practice of privileging political doctrine over sound economics and business (Chande, 2005). The economy was not geared to making surplus.

H Decentralisation of Management of Rents and Loss of Political Control

The stable and inclusive coalition within the ruling party gave the overall appearance of strength, but central control over the constituent parts was actually quite weak. Parastatal managers increasingly engaged in illegal activities to bolster their falling incomes and racketeering in the form of trading goods illegally at high prices based on their monopoly status (Gray, 2013). There were clear signs of loss of control and legitimacy as the shortage of goods was threatening erosion of political support. The shortage of goods was becoming severe.

By the mid-1980s, the political consensus on industrial policy slowly consolidated around the conclusion that state-led industrialisation was under threat from weak performance and accountability systems, corruption, market distortions, and the absence of appropriate incentives to encourage reaping of learning rents or Schumpeterian rents. Industrialisation efforts were further frustrated by failures in agricultural production and low productivity in manufacturing’ (Coulson, 1982, pp. 194–5; see also Svendsen, 1986).

Some political leaders were outspoken in their condemnation of these activities but were relatively powerless to stop them (Maliyamkono and Bagachwa, 1990). Initially it was diagnosed that shortages were caused primarily by hoarding by private traders. In 1983, Operation Economic Saboteur, championed by Edward Sokoine, the popular prime minister, led to the imprisonment of thousands of Tanzanian-Asian shopkeepers, but did not affect those who had links to the party (Maliyamkono and Bagachwa, 1990). The difficulties that were exhibited in the crackdown and the failure to stop shortages of goods in the market influenced the decision by government to adopt partial trade liberalisation in 1984. Under the government’s own funds import scheme, businesses were allowed to use their own foreign exchange, no questions asked, for importing certain categories of goods, which went a long way to ease some of the economy’s crippling shortages. The shift towards liberalisation culminated in the adoption of the structural adjustment programme (SAP) sponsored by the International Monetary Fund (IMF) in 1986. The adoption of the SAP marked the formal abandonment of the socialist strategy in industrialisation.

In 1985, Julius Nyerere stepped down as president and was succeeded by Ali Hassan Mwinyi, who as president of Zanzibar already enjoyed a reputation as an economic reformer. His election paved the way for a deal with the IMF, a new policy direction, and an evolution in the main types of rent creation and rent-seeking. The shift was made by the Mwinyi government and endorsed by the ruling party with Mwalimu Nyerere as chairman. It was essentially in reaction to an acute economic crisis and the conditionalities of the IMF and the donor community. This marked the beginning of the equilibrium disruption that had prevailed during the 1967–85 period. The emergence of a new equilibrium was in the making.

V Policy Reforms: Opening up Space for Business, 1986–1995

A Reforms as Response to the Crisis

Generally, the reform and SAP period (1986–95) started with the first generation of reforms essentially focusing on ‘getting prices right’. Macroeconomic policy reforms included reforms in trade policy, exchange rate devaluation, removal of price controls, and removal of subsidies. The adoption of SAPs was perceived as a defeat of Ujamaa ideology, marking the shift towards a more market-oriented and private sector led economy. The SAP policy package aimed to promote efficiency in the productive sectors.

The second generation of reforms focused on the country’s institutional framework for managing development in the context of the market. Emphasis was placed on the institutional framework conditions of public service reform and privatisation that were deemed necessary to support and facilitate the efficient working of the market.

Public service reforms took place partly against the backdrop of maladministration and partly as a result of political patronage having contributed to the bloating of the civil service. Public service reforms had the objective of organisational restructuring, reviewing the management of civil servants, improving the conditions of service, and improving their attitude towards providing greater support to the private sector.

B Privatisation and Politics–Business Relations

An important component of reform was divestiture of public enterprises. Privatisation was conceived as an opportunity to get rid of the burden of parastatals on the budget and to strengthen the private sector. The privatisation programme involved the transfer of assets from the public sector to the private sector. However, the pace of reform was extremely slow (Tripp, 1997, p. 91). Parastatal managers fought with reformers in the government to keep them (the parastatals) under state control (Fischer and Kappel, 2005). However, the soft budget constraint was tightened up (Bigsten and Danielson, 2001, p. 72), and many enterprises were divested. The fiscal deficit declined ‘substantially and rapidly’ after 1988 (Bigsten and Danielson, 2001, p. 33). However, in the majority of cases parastatals lost their dominance.

Some parastatals, such as the General Agricultural Export Corporation, were simply wound up. Others, including Tanzania Breweries and Williamson Diamonds, became joint ventures with the private sector. Some of these did very well after privatisation, examples being the sale of NMC to Bakhresa and the acquisition of the Minjingu Fertiliser factory and salt mines by Mac Group.

Debates in the Tanzania Chamber of Commerce, Industry and Agriculture, which were predominantly indigenous, warned against changing ownership in some parastatals in the direction of joint ventures with foreign firms. Such outcry could be an expression of patriotism, but it is also quite likely that the existence of some parastatals benefited the private sector – by operating as a weak competitor by selling inputs at low prices, for example.

A few companies saw management or employee buy-outs, such as Katani Ltd in the sisal industry. In these cases, former managers became owners without paying a fair price. This can be seen as the price of facilitating the development of indigenous entrepreneurs. The approach was one way of promoting ownership by the former managerial group. It may have been an opportunity to reward and promote those few with experience and the knowhow to run the enterprises. It was actually a way of deploying the pool of industrial managers who could use their experience of the industrial process and their political power within the state to manage the industrial activities as private sector operations.

The privatisation programme provided support to domestic indigenous private sector development. In response, an initiative was taken in the early 1990s to form a privatisation trust, which would take care of the interests of indigenous Tanzanians in the privatisation exercise. However, in practice, the trust was not provided with the necessary funding and so it was not operationalised. Although indigenous manufacturing did expand after liberalisation in very small-scale manufacturing, as pointed out by Tripp (1997), this was not an outcome of privatisation. The privatisation process did not promote indigenous entrepreneurs in medium- and large-scale manufacturing. Tanzanians of Asian and Arab origin secured most of the gains, while a small African business class of traders was also beginning to emerge (Havnevik, 1993; Tripp, 1997). The opportunity created to benefit indigenous domestic private sector development was not harnessed as expected to address the imbalances that had precipitated the Arusha Declaration. This was a missed opportunity of promoting indigenous capitalism. Indeed, in some cases privatisation returned most of the medium- to large-scale industrial activities.

A considerable number of the privatised manufacturing firms were actually sold back to their pre-nationalisation owners (Waigama, 2008). For instance, Aluminium Africa, which produced roofing sheets, was sold back to Chandaria Group (Kenya), which had been the former owner (Gibbon, 1999). The fact that the privatisation process reinforced the ownership of non-indigenous and foreign capital suggests that the concerns that had led to the Arusha Declaration were not addressed in the privatisation process.

The choice was sometimes between granting ownership to local owners and selling the enterprises to higher bidders who were foreigners or other local alien groups in society. The latter group won the bids most of the time as the privatisation trust was not funded adequately to facilitate indigenous Tanzanian owners. The bidding process was decided on the basis of politics, with various factions of the political elite supporting bidders who had sought their support. The possibility of corruption cannot be ruled out even if concrete evidence is not available.

C The Balance between Industrialists and Traders

For years, government subsidies and the opportunities for selling in a controlled market afflicted by acute shortages had been a major source of rents, which some state managers were keen to preserve. Those rents were increasingly threatened since most of the parastatals that survived faced increased competition. The commercial sector was to a large extent let loose during the Mwinyi era, the result of his policy of permissiveness, or ruksa. Many formerly outlawed activities were made legal by the reforms, but that did not necessarily lead to a decrease in smuggling. Critics argued that the measures were stimulating importers to earn easy foreign exchange by smuggling prohibited exports such as minerals and wildlife products (Tripp, 1997). Whatever the truth of the matter, the Mwinyi era was a period in which traders (importers and exporters) made large profits. Traders were in a more favourable position than industrialists and other long-term investors. Some enterprises abandoned industrial production and were turned into godowns (warehouses) for traded goods. For instance, the Tanzania Shoe Company was turned into a godown for stocking imports, including shoes. This is a manifestation of the response to the influence of trade liberalisation on the balance between traders and industrialists. The trade liberalisation favoured traders and importers in particular at the expense of industrialists. The surge in the import/GDP ratio, which reached almost 50 per cent in the early 1990s, is a manifestation of this imbalance (Bourguignon, Chapter 2, this volume).

The implications for industrialisation deserve to be reflected upon. An implicit assumption of economic reforms and industrial restructuring was that enterprise-level inefficiencies are a reflection of distorted or inappropriate macroeconomic policies. It was suggested that if appropriate adjustments could be put in place at macro-level, enterprises would receive the right signals through the market. In response to these signals, enterprises would restructure appropriately (World Bank, 1981, 1987). Various industrial studies have revealed that restructuring the industrial sector entails much more than macroeconomic management. Studies of the industrial sectors in several African countries (UNIDO, 1988, 1990) have confirmed that the problems of industry cover all levels (macro, sectoral, and plant) and all aspects of performance (including economic, financial, managerial, technical, and marketing). In his study of the performance of the Tanzanian textile sector, Peter de Valk has demonstrated that performance of enterprises is determined not only by macroeconomic factors, but also by international factors, sectoral policies, and characteristics at firm level, and that all these levels interact in a complex way (Valk, 1992).

However, in Tanzania, proactive trade liberalisation was so rapid that the assumption that economic reforms and industrial restructuring would occur at enterprise level did not hold. Although much inefficiency may have been a reflection of distorted or inappropriate macroeconomic policies, macroeconomic stabilisation was not sufficient to enable enterprises to respond and adjust accordingly. Instead, many enterprises closed. This phenomenon has been known as deindustrialisation. However, the experience of Vietnam, for instance, shows that it is possible to undergo reform without experiencing low growth and deindustrialisation. Having introduced reforms in 1986 – the same year Tanzania adopted the SAP package – Vietnam’s annual rate of GDP growth over the period 1990–2000 was 7.9 per cent, which was exceeded only by China’s 10.6 per cent (Thoburn, 2013). The main challenge is that the Tanzanian political elite did not balance appropriately the interests of industrialisation and trade. Trade was favoured, while industry experienced deindustrialisation.

D Political Elite Engagement in Business

Many members of the political elite had been running private businesses on the sly for years, circumventing the leadership code under the Arusha Declaration. However, this was legitimised in 1991 by the Zanzibar Resolution, which overturned the Arusha Declaration’s Leadership Code (Gibbon, 1995, p. 14). Those with political connections fell over themselves to acquire land, the assets of former parastatals, and seats on private enterprise boards, and to generally use their public positions to make private gains in any way they could. The political elite engagement in business became more significant during this period, with political positions being increasingly associated with corruption in political elections and the peasants and workers representation progressively being squeezed as it was becoming costly to seek votes for political leadership positions because of the increased amounts of money involved in campaigns (Gibbon, 1995, p. 13). The use of money increasingly became an important factor in ascending to political leadership positions.

This period witnessed more open participation of the private business sector in the policymaking process. The private sector revived its representation in the form of specific trade and industry associations. However, these associations were still weak and most of the business deals were arranged and negotiated between individual businesses and the political elite. Big corruption scandals, especially those associated with natural resource rents, emerged on a wide scale. The Mwinyi era witnessed unprecedented scandals. In the most notorious instance, improper discretionary tax exemptions originating in the Ministry of Finance in 1993–4 led to a large fiscal deficit and the freezing of much foreign aid (Bigsten and Danielsson, 2001, p. 20). There were equally massive abuses of a government import financing a counterpart funds scheme. Another example was the notorious so-called Loliondogate scandal, which concerned the lease to an Arab general of a crucial section of the Ngorongoro game reserve for hunting (Gibbon, 1995, p. 16). But there were many others. The outbreak of the aforementioned tax exemptions scandal in the Treasury and misuse of import support funds suggested that even the Treasury was not successfully centrally controlled. It is in the context of these new heights of corruption that the use of the anti-corruption campaign slogan by the CCM presidential candidate in 1995, Benjamin Mkapa, was attractive to the electorate.

VI Initiatives to Consolidate Reforms and Define the Development Agenda, 1996–2015

A Long-Term Development Agenda Revisited

The fourth period consisted of consolidating reforms and (re-)establishing a developmental state in the context of a full market economy. Growth had been fast at the beginning of the socialist period. After a long period of crisis and adjustment, it returned to its post-independence level, and has been fluctuating at around 6–7 per cent since 2000.

From the mid-1990s, the government started to rethink the short-term recovery programmes and decided to revert to addressing the long-term development agenda. The Sustainable Industrial Development Policy (SIDP, 2020), spanning 1996–2020, and Tanzania Development Vision 2025, spanning 2000–2025, were formulated in this spirit. The twenty-five-year SIDP 2020 was designed to initiate the process of structural transformation through industrialisation and enhancing sustainable development of the industrial sector. It would formally recognise the private sector as the main vehicle for making direct investments in the sector, while the government would provide an enabling environment and investments that crowd in (invite) private sector investments. The main contents of SIDP 2020 were later subsumed in the development of Tanzania Development Vision (TDV) 2025, the main guide to national development frameworks in Tanzania, envisioned as a middle-income country with a strong, diversified, and competitive economy.

According to TDV 2025, the private sector was to be given greater space in development, with special attention to empowering the relatively weak indigenous private sector. The disadvantaged position of the majority of the indigenous population and other vulnerable groups in society was to be addressed through economic empowerment by undertaking affirmative action programmes to empower these groups. It is in this context that the National Economic Empowerment Policy and Strategy were formulated in 2004.

What is striking, however, is that despite the formulation of SIDP 2020 and TDV 2025 envisioning the realisation of a semi-industrial economy by 2020/2025, growth during this period relied relatively less on industrialisation than during the socialist period in the 1970s. Growth in the post-1996 period was driven more by construction, telecommunications, and trade than by industrialisation. Although slowly increasing, the GDP share of manufacturing has not changed much since the late 1970s. This is an issue of concern, as the present long-run development plans of Tanzania are expected to rely heavily on substantial progress in labour-intensive industrialisation.

B Industrialisation and Politics–Business Relations

This raises the issue of the obstacles to industrialisation. There is an inadequate business climate – weak infrastructure, cumbersome administration, and corruption – which prevents entrepreneurs developing manufacturing and other long-term investments. The informal relations between the political elite and some big businesses undermine efforts to achieve a generalised improvement in the investment climate. The business elite is attracted by other activities, such as trade, that are more amenable to negotiation of taxes paid, and in which the payback period is relatively short, consistent with the election cycles. More generally, the imbalance between industrialisation and trade has continued to favour trade. Experience has shown that imports of some agricultural products based on low tariffs, such as rice and sugar, make local production less profitable and prevent long-term investments that are required to realise the development of the domestic agroindustry. In short, the Tanzanian economy has done rather well since the turn of the century, but it could do better, in particular by giving more weight to industrialisation, possibly in connection with agroindustry.

The question is whether the obstacles to moving in that direction can be found in pure government failures, that is, wrong allocation of public investments and low state capacity, or in the lack of appetite of local entrepreneurs and the lack of attractiveness of Tanzania to foreign investors. In this regard, the argument developed earlier in this volume (Chapter 2) that transport, communication, and construction cannot be powerful engines of growth because their growth depends on the domestic demand side of the economy is relevant. There is a need to develop the tradable sectors, such as industry and agriculture. Agriculture, for instance, would produce raw materials for industry as well as exports to earn foreign exchange needed for industrialisation.

The Agricultural Sector Development Strategy (ASDS) was developed in 2001 in order to address the constraints/challenges facing the sector in a holistic manner.² The vision of the ASDS is to have an agricultural sector that by the year 2025 is ‘modernized, commercial, highly productive, utilizes natural resources in an overall sustainable manner and acts as an effective basis for inter sectoral linkages’ (URT, 2001, 32). Commercialising the predominant smallholder agricultural subsector and accelerating its growth rate are critical in achieving the noble goal of pulling the majority of the rural poor out of abject poverty. The question remains as to what kind of business–politics relation is more likely to result in the development of these productive sectors.

It is also possible that there is an issue of competitiveness in the Tanzanian manufacturing sector and the kind of support by the government given the bad experience with the parastatals, or the suspicion that the private sector will divert that support for its own use.

Successful development needs to have the right political base to influence implementation of the developmental policies. The relative power of groups within the private sector, such as traders and industrialists, has continued to favour traders. Tariffs to protect domestic industry are in place and are generally sufficient during this phase. However, effectiveness in implementation continues to be low, largely because of corruption, and tax assessment continues to be characterised by corruption, extortion, and arbitrariness.

A survey of fifty large industrial companies found that twenty-nine had their origin in the domestic private sector, while twenty-one firms were set up by foreign firms and/or the government (Sutton and Olomi, 2012).

A number of firms that had been involved primarily in trading activities during the socialist period bought up industrial parastatals. The survey by Sutton and Olomi (2012) found that, out of 50 large enterprises, 12 were trading ventures that had shifted to industry, having used the capital accumulated in trade to finance industrial enterprises. It also found that they had benefited from transferring a well-functioning medium-sized organisation (organisational capability) and access to markets and knowledge about markets. The likes of Bakhresa and Mohammed Enterprises belong to this category. This process of transforming commercial capital to industrial capital is a positive sign towards industrialisation. Mohammed Enterprises, which is active in textiles, beverages, edible oils, soap, agro-processing, grain milling, food, bicycles, energy, and petroleum, was founded as a trading company. The firm’s move from trading to industrial processing came in 1998, when it established several businesses in agribusiness and manufacturing. The trading division remains the largest business within the group, dealing with the import of over twenty industrial and consumer commodities. The Murzah Group started as a trading activity, and from 1997 diversified into industry, establishing an oil manufacturing plant and producing cooking oil and soap for the local market. The plant operation draws on technological expertise from Alfa Laval (an Indian firm), supported by technology from Tetra Laval (of Sweden). Motisun Holdings, which has interests in steel and assembly, engineering, plastics, paints, beverages, hotels, and real estate, originated as a trading enterprise in the 1970s and diversified into manufacturing. MM Integrated Steel Mills Ltd has entered into a joint venture agreement with the National Development Company Ltd for mining of iron ore and coal, with forward integration into sponge iron in southern Tanzania, with a view to making Tanzania only the third country in Africa to produce its own iron ore.

The privatisation process of the 1980s and 1990s facilitated the rise of industrialisation through the private sector. For example, Mohammed Enterprises expanded its manufacturing activities by buying up industrial parastatal assets. Bakhresa grew from a small firm in the 1970s, acquired NMC, and diversified around food processing. In 1988, the government decided to sell a flour mill (NMC) as part of its privatisation programme. The enterprise invested in more modern technology, raised the mill’s capacity from 50 metric tons (mt) per day to 240 mt per day, and has continued to diversify into other industries such as bottled water in 1988 and fruit juices in 2006. Mac Group, which had started as a trading company before independence, diversified into industry in 1976 and continued to expand and diversify (Sutton and Olomi, 2012). It benefited from the privatisation of the salt mines and Minjingu mines but kept on investing to stay competitive. Tanzania Breweries, which had been nationalised in 1967, was privatised in 1993, with 50 per cent sold by the government to SAB Miller Africa and 5 per cent sold to the International Finance Corporation. Since then, it has been modernised and expanded.

There are industries that started before independence, were not nationalised, and have continued to expand until now. For instance, Sumaria Group began as a small general trading business in Kenya in the 1940s, extended to Tanzania in 1957, and continued to expand, starting with plastics and diversifying into other industries through the period. Since 1975, the company has established or acquired some twenty-five companies in the areas of plastics, pharmaceuticals, clearing and forwarding, food processing, edible oils, soaps, cement, wheat flour, confectionery, textiles, real estate, soft drinks, dairy, and sisal. It has grown into a widely diversified multinational firm in the process (Sutton and Olomi, 2012). Sumaria Group aims at world-class manufacturing and service standards by developing strategic partnerships with leading regional firms.

There are cases where industrialisation through cooperatives has been a viable option. For instance, Tanzania Instant Coffee Company was established by the government, and from 1966 to December 1982, foreign experts appointed under a management agency contract manned the factory. Since 1982, the company has been managed by Tanzanians. In 2005, the ownership was diversified, with the majority ownership changing hands from the government to Kagera Cooperative Union, which has a 54 per cent share. Other shareholders include Karagwe District Cooperative Union, Tanzania Federation of Cooperatives, the government, and the firm’s employees (Sutton and Olomi, 2012). The company operates the only instant coffee factory in East and Central Africa, for which it has won international awards on several occasions. A key milestone was the organic certification of its products. Another cooperative enterprise is Tanga Fresh, which is a leading dairy foods company created through a Dutch–Tanzanian bilateral programme. It began in smallholder dairy extension services in 1985, leading to the formation of the Tanga Dairies Cooperative Union (TDCU) made of thirteen primary societies. In 1996, a group of Dutch farmers entered into a joint venture with the TDCU to establish Tanga Fresh, which began in 1997 with a modest processing factory and continued to expand and diversify beyond fresh milk and fermented milk into plain and flavoured yoghurt, mozzarella cheese, butter, and ghee (Sutton and Olomi, 2012).

Promising industrialisation initiatives have taken place. The question is whether they are likely to continue and be sustainable. The shift in the pattern of industrial ownership from state to the private sector did not insulate industrial subsidisation from the types of corruption that were seen to have hampered industrialisation under socialism. The manner in which the formal and informal relationship between the political elite and business evolves will be determinant. During this phase the persistence of corruption is likely to have reduced the speed of industrialisation, and, unless it is checked, implementation of the industrialisation agenda is likely to be hampered.

C Formalisation of State–Private Sector Relationships

Liberalisation heralded the development of more open relationships between domestic capital and the state. The resurgence of the private sector was accompanied by a gradual inclusion of businesspeople within the formal framework of the ruling party. Formal institutions linking the private sector and the state were established, such as the Tanzania National Business Council (TNBC), constituting both private sector and government officials and chaired by the president.

The engagement of businesspeople in politics was enhanced by formalisation of the Zanzibar Resolution (1991) by removing the leadership code, and one response to it was the increasing number of CCM members coming from the private sector (Mmuya, 1998). The informal relations that had been constructed between state and capital through clientelist relations towards the end of the socialist period grew stronger. The implication is that corruption became increasingly apparent in this consolidation period. In his campaign, Benjamin William Mkapa promised to fight corruption. In 1995, President William Mkapa was elected and by January 1996 he appointed a presidential commission against corruption to assess the state of corruption in the country. Known as the Warioba Commission, this produced the Warioba Report in November 1996. In its analysis, the report distinguished grand corruption and petty corruption and areas/environments where corruption was occurring. The report also revealed the mechanisms (e.g. regulations and procedures) that facilitated corruption. Despite the commission’s findings, numerous cases of grand corruption came to light over this period and were reported in the media. These were indicative of the close informal relations between the political elite and key business figures (Gray and Khan, 2010).

D Politics of Indigenous and Non-Indigenous Business

An issue that was not resolved by privatisation was the political economy concern relating to the dominance of non-indigenous Tanzanians in the industrialisation process, an issue that had contributed to the timing and content of the Arusha Declaration. By 2002, Tanzanian Asian capital accounted for around 26 per cent of all manufacturing firms (Chandra et al., 2008). Out of the fifty large enterprises that were surveyed by Sutton and Olomi (2012), only one, Bonite Bottlers, was found to be owned by an indigenous Tanzanian (Reginald Mengi). Bonite Bottlers is part of the IPP group of companies and produces Kilimanjaro Drinking Water, the leading bottled water in Tanzania. The IPP group has diversified into other areas, such as mining and the media sector.

The difficulties of imposing discipline on the political elite’s rent-seeking networks seem to be insurmountable. Mushtaq Khan has recently argued that the ruling party, CCM, does not take advantage of its favourable political stability and strong organisational capacity to pursue a broad-based capitalist growth strategy because of the weakness of African capitalists. The more capable capitalists in Tanzania were, and remain, of Asian, Arab, or European origin, and, he argues, placing them at the centre of a growth strategy would be politically contentious. So far, capable Africans have been more interested in capturing political rents and rents from investments in real estate and short-term earning services than creating industrial ones. While single deals with short-term payoffs are possible, ‘a long-term relationship between individual capitalists and political patrons is necessary for black African capitalists to emerge and grow’ (Khan, 2010, p. 125). As a possible solution, Khan advocates formulating an active industrial policy for an indigenous business class. In the 1970s and 1980s, SIDO nurtured indigenous industrialists into relatively successful enterprises such as Northern Electrical Industries. These indigenous industrialists emerged from targeted potential industrialists who were supported with capital, training, technology and markets. The successes that were recorded suggest that a proactive empowerment programme stands a chance of supporting and nurturing indigenous industrialists.

E Politics and Foreign Business Relations

FDI into industry expanded under liberalisation. By 2008, the manufacturing sector accounted for around 21 per cent of total FDI in stock. In addition, FDI in the mining sector accounted for around 28 per cent of total FDI. However, the ability of the state to manage FDI has been limited. As a result, it has added little to new industrial capabilities and its contribution to manufactured exports has been even less successful (Bank of Tanzania, 2009). Industrial deepening did not happen through inviting FDI, as had been envisaged. This may be explained by the fact that FDI came predominantly to firms where capabilities had already been established during the previous period of state-led industrialisation, rather than to establish new industrial activities. The explanation for this outcome could be twofold. First, FDI was invited for its promise to bring in capital with no specific strategic requirement for technology transfer and technological capability building. Second, FDI was not strategically invited into priority sectors where technological capability building was most needed. In the absence of strategic policies to guide FDI into technological capacity-building activities, FDI caught the low-hanging fruit and had no incentive to invest in more technologically oriented sectors.

Promotion of industrial exports has been expressed in the form of Export Processing Zones (EPZs). However, industrialisation under EPZs has faced challenges of implementation. After the first zones had been established, the total number of firms operating inside the physical EPZs remained very low. A World Bank survey of EPZs in Africa identified that the clearance times within Tanzanian EPZs were actually worse than for manufacturing firms outside EPZs (Farole, 2011). Another challenge associated with developing industrial exports through EPZs is the management and implementation of incentives provided to ensure that firms in EPZs are fulfilling their export requirements.

F Corruption: Informal Politics–Business Relationships

Corruption can also be an inhibiting factor in industrialisation, especially in changing the relationship between industrialists and traders in favour of industrialists. Corruption in Tanzania has been widespread, and can be broken down into the categories of looting, and predation and rent-seeking.

1 Looting Involving Government Monies

Looting involves the theft of government monies. Two examples are presented here for illustration purposes: the External Payments Arrears (EPA) account and the Tegeta Escrow Account (TEA). The EPA scandal dates back to the 2005/6 financial year,³ when a lump sum worth TZS (Tanzanian shilling) 133 billion (USD 116 million) was misappropriated to twenty-two company accounts by the Bank of Tanzania, and a concern was raised by the international auditors (Deloitte and Touche) in September 2006. The anomaly occurred between May 2005 and March 2006 (around election time) from the EPA account. The recipients of EPA money were mostly bogus companies set up for the purpose of emptying the EPA, an old commercial debt facility transferred from the Ministry of Finance to the Bank of Tanzania. When the case was exposed and pressure built up, the governor of the Bank of Tanzania was sacked by President Kikwete. Several Bank of Tanzania officials and EPA recipients from the business community were arrested and charged. An unusual aspect of EPA is that it was claimed that large amounts of money had been returned to the government under an informal amnesty agreement (Cooksey and Kelsall, 2011). This is a case of transparency without accountability.

The second case, TEA, demonstrates that, apart from looting public funds, one effect of corruption is that it undermines implementation of the officially declared development agenda and policy. The agreement to build a gas pipeline and power station according to the energy policy was pitched to compete with the independent power plant (Independent Power Tanzania Ltd, IPTL), which was not consistent with the national energy policy. Some sections within the political elite argued against IPTL on the grounds that the gas project (Songas), which was consistent with the energy policy, was already in the pipeline. This faction argued that IPTL used technology that was not consistent with the energy policy, constituted excess capacity, and was highly overpriced. Despite this opposition, IPTL obtained government agreements, tax exemptions, and other requirements in record time.

When details of the deal were leaked out by the mass media, there was a public outcry, and President Mkapa took steps to allow the contract to go to international arbitration. The tribunal found that the project was significantly overpriced, but evidence of bribery – which, if proved, would have invalidated the contract – was not presented in time to influence the tribunal’s ruling that the Power Purchasing Agreement should proceed, with a reduced tariff. Both IPTL and the natural gas agreement were finally signed on the same day in 1999. Thus, Tanzania was burdened (belatedly) with the cost of two projects when it only needed one and entered into an agreement that directly contradicted the ‘least-cost’ policy option. TANESCO’s subsequent financial difficulties have required bailouts from the government and an emergency power project loan.

When a dispute arose as to the level of capacity charges that IPTL was charging TANESCO, it was agreed that the funds arising from the charges should be kept in a special account (TEA) pending settlement of the dispute. TEA had been opened in 2006 when IPTL was liquidated and bought by Pan Africa Power Ltd (PAP). However, by the time the International Centre for the Settlement of Investment Disputes made its decision in favour of the claim by TANESCO that IPTL had overcharged TANESCO, the funds in the TEA had been transferred to the PAP account that claimed to have bought IPTL.

Top political leadership claimed that the funds were private and not public funds. Although the president praised the Parliamentary Public Accounts Committee (PAC) for standing against evil, and sacked some key players in the saga, he still went on to claim that the funds were private money. On the contrary, some sections of the political elite argued that the funds were public money.

The businessman who facilitated this huge loss, Harbinder Singh Sethi, was hardly a significant businessman in Tanzania before the scandal, although he had been a key player in facilitating deals with the political elite in Kenya and South Africa and has been a player in real estate in New York (Policy Forum, 2014). This is an indication that his skills in facilitating deals and the trust he had from sections of the political elite had a proven record and were possibly more important than his prominence or performance as a businessman. This is the case of a businessman who was ‘created’ by trust to play the role of syphoning public funds to the pockets of sections of the political elite in collaboration with a section of the business community. It indicates that Tanzania has not yet developed inclusive political institutions that can constrain the appropriation of public resources by the ruling elite (Policy Forum, 2014). This case demonstrates the presence of transparency without accountability.

2 Predation and Rent-Seeking

A slightly different but equally lucrative area of corruption can be referred to as predation. Logging and hunting are good examples. In the first, undervaluation and non-taxation of forest products in Tanzania led to huge revenue losses. An estimated 90 to 95 per cent of potential revenue from the forest sector is lost to illegal logging. Fishing and hunting licensing and regulation are other sources of major natural resource rents that are captured by officials and private business actors. In a recent case, forensic auditors concluded that the Ministry of Natural Resources and Tourism had misused half of the Norwegian-funded Management of Natural Resources Programme, worth about USD 50 million over ten years. In an unprecedented move, the Norwegian government requested the government of Tanzania to return the missing money. The government challenged the audit findings, ‘errors’ were discovered in the report, and Norway eventually agreed to the reimbursement of a token amount (Jansen, 2009).

Predation also occurs in the field of procurement, which accounts for around one-third of all government expenditure. Procurement creates rents when the government procures goods or services from the private business sector at either an inflated price or inferior quality. Sometimes, officials and politicians operate on both sides of the deal, and intermediaries broker the deals.

G Transparency without Accountability and Erosion of the Ruling Party’s Credibility

During this period, institutionalisation of transparency was enhanced and institutions of governance were created, but accountability challenges persisted. While macroeconomic management continued to be consolidated, management of government expenditures and off-budget resources permitted a large share of the rents to be appropriated as corruption, primitive accumulation, or patronage spending (Cooksey and Kelsall, 2011). Indeed, a lack of discipline with respect to grand corruption was quite apparent. This situation is not consistent with successful implementation of a long-term development agenda and industrialisation in particular. The opaque relationship between politics and business aimed at maximising the profits of the latter became more transparent, but the top political leadership did not support accountability wholeheartedly.

The several cases of corruption, the exposure that followed, and the little action that was taken eroded the popularity of CCM, the ruling party. For example, Twaweza’s ‘Sauti za Wananchi’ (Twaweza’s ‘Voice of the Citizenry’) surveys indicate a drop in approval of the performance of public leaders, with the president’s approval ratings falling from 45 per cent in 2012 to 31 per cent in 2014, and similar or more dramatic falls in the approval ratings of the prime minister, MPs, and village/street chairpersons and councillors. The situation even threatened the chances of CCM winning the next elections in 2015. This erosion in popularity of the ruling party was felt by party members. This situation is demonstrated by four developments. First, the TEA saga resulted in the PAC (with majority CCM members) putting pressure on the Executive. Although the Executive was not willing to be held accountable, a few members of the Executive were sacrificed through sackings and forced resignations. Second, in the elections of councillors in 2014, the TEA scandal and other corruption incidents were widely used to discredit CCM as a corrupt party. CCM lost more seats than ever before. Third, during the screening of CCM presidential candidates in 2015, corruption became an important consideration for decisions within CCM. Although reasons for disqualification of some prominent candidates were not given explicitly, it is widely believed that this was because of corruption. Fourth, the CCM presidential candidate, Dr John Magufuli, made anti-corruption a main campaign slogan. In his campaigns, he emphasised what he would do to fight corruption rather than what CCM would do about it. The opposition candidate Edward Lowasa, who had crossed from CCM to Chadema, was silent on corruption in his campaigns, possibly because he had resigned as prime minister in 2006 on allegations of corruption, which had an effect on how the electorate was perceiving him.⁴ These developments all marked the waning of the kind of relationship between business and politics that had prevailed for three decades. That equilibrium was coming to an end and a disruption was imminent, either by CCM losing the elections or by CCM making decisive changes internally. The latter option was taken.

VII Fifth-Phase Government: Fighting Corruption and Changing Relationships between Politics and Business

The foregoing analysis has shown that, although the political elite monopolises the main forms of rent creation, rent management within the political system is decentralised and not effectively coordinated by a single individual or group at the apex of the state.⁵ The result is damaging to the effective implementation of a long-term development agenda. Throughout the 1960s and 1970s, Julius Nyerere took great pains to centralise rent management, using a variety of means, including his own charisma and personal authority and the powers of the president as per the constitution. However, the collapse of the formal economy in the late 1970s disrupted that equilibrium. Since then, the following three governments under Mwinyi, Mkapa, and Kikwete have not been sufficiently daring to restore that system. The fifth-phase government, led by President John Pombe Magufuli from November 2015 to March 2021, showed the beginnings of disrupting the equilibrium that has prevailed for three decades, distinguished itself with a high level of commitment to fighting corruption, putting off unnecessary government expenditure, and announcing the intention to industrialise Tanzania.

However, it takes considerable personal authority and time to disrupt that equilibrium and establish a new system. The fact that President Magufuli had not been an insider in CCM, the ruling party, and had campaigned on the anti-corruption ticket may have been an advantage. In one of his speeches to the business community, he challenged the sector’s members by pointing out that he had not been brought to power by their money, a situation that was very different from how his predecessor had come to office. At the same time, his lukewarm relationship with business leaders was a problem, because he needed them. In this regard, his statements in the TNBC meetings of May 2017 and March 2018 had mixed messages. On the one hand, he expressed a conciliatory tone, expressing recognition of the role of the private sector in development and the willingness of government to support private sector development. On the other hand he pointed out on several occasions how members of the private sector had engaged in acts of corruption and other malpractices. This perception of the private sector prevailed during this phase. The discussions in the TNBC were not particularly constructive. In fact there were no more TNBC meetings after 2018 although TNBC is supposed to meet the president twice a year. This was a sign of deteriorating relations between the president and the business community.

The ascendance of President Magufuli and his campaign slogan against corruption was influenced by the falling popularity of CCM because of the corruption scandals that had been exposed, but little accountability followed. Magufuli had an opportunity to influence the manner in which the political elite interacted with business to take advantage of favourable political stability and the strong organisational capacity of CCM, to pursue a broad-based development strategy driven by the private sector. He had the opportunity to pursue a more active industrial policy that could support industrialists and rectify the bias in favour of traders. His concern over economic empowerment of the vulnerable groups in society could have formed the basis for promoting indigenous Tanzanian industrialists and inclusive industrialisation, an issue of major concern in the initial conditions at independence and as reiterated in TDV 2025 and in the National Economic Empowerment Policy of 2004. The concerns over these issues were (and are) real and have not gone away. However, during this phase, public investment was preferred to private investment to the detriment of the latter. It was common for public investments to crowd out the private sector. Activities that were earlier being performed by the private sector were transferred to the public sector such as insurance to National Insurance Corporation and construction to Tanzania Building Agency and JKT. The orientation was to encourage public sector institutions to procure their products and services from other public sector institutions. The private sector was accorded low priority. Private businesses faced harassment from the Tanzania Revenue Authority (TRA) and what came to be known as the Tax Task Force consisting of TRA, police, security and Prevention and Combating Corruption Bureau (PCCB) officials. The list of unbailable offences under the notorious Money Laundering Act was extended to cover even such offences as tax evasion and business-related offences. Closure of bank accounts was generously applied to business based on all kinds of demands from revenue authorities. The president’s harsh interventions against the private sector prevented pursuit of a broad-based development strategy driven by the private sector.

President Magufuli demonstrated the will and reputation to impose a new discipline in CCM, by going over the heads of the party and engaging directly with the masses in his own terms. This enhanced the chances of taking a new direction towards an inclusive development strategy. The fifth-phase government showed that there is an opportunity to address collective action problems within CCM, short-termism driven by periodic elections, and corruption in elections. If this had happened successfully, there was a chance of facilitating the development of an anti-corruption regime that could create a long-term transformative development strategy through industrialisation. These long-term development concerns, including industrialisation, were pillars during the 1967–85 period. There were signs that under the leadership of President Magufuli several elements of these pillars had a good chance of being revived. However, the president’s unrelenting industrialisation drive gave jobless youth little relief as it hardly dented unemployment figures. His idea of industrialisation lacked consistency, coherence and was not guided by clear policy and strategy. It did not show consistency with a broad vision of building a nationally integrated economy in which industry, agriculture, and services would be mutually reinforcing. Agriculture received little attention and private investment in the economy faced hostility from the Magufuli government. Major emphasis was placed on investments in infrastructure. This presented an opportunity for facilitating private investment, provided other business environment conditions were put in place.

Implementation of a long-term development agenda and industrialisation in particular faced two challenges. First, the institutional environment and the political structure of CCM needed to reform in order to cope with this requirement of long-term development and transformation. As president and chairman of the ruling party, Magufuli did not institutionalise the party and make it fit for the task. CCM was not structured for political mobilisation that addressed the set of rules, organisations, and norms that would constrain the behaviour of the political elite and make them accountable to the citizens of Tanzania. The ruling party did not seize the opportunity to explain, discuss strategies, and promote ownership of the development agenda and strategy among the key actors. Second, the president put emphasis on hard work as a main contributor to development and self-reliance, but this was not accompanied by capacity building and incentives. Instead, salaries and promotions of public servants were frozen for his presidency as priority was accorded to public investments in large infrastructures. Public service performance management and the associated incentives were not institutionalised. Public service support for businesses deteriorated and the business climate weakened, as indicated by declining rankings reported by the World Bank.

The fifth-phase government put emphasis on the prudent use of natural resources for the development and benefit of the people. This was a fight against scooping rents through corruption and other ways. It is in this context that a progressive piece of legislation called Natural Wealth and Resources (Permanent Sovereignty) Act was passed in 2017 recognising the sovereign ownership of the people of natural resources. However, there was little space for private investment in general and little appreciation of private investment, either FDI or private domestic investment. A notable attack on FDI was the taking on of the multinational gold company Barrick when the president stopped containers full of mineral sand from being exported by Acacia, a subsidiary of Barrick, for smelting. He formed a local team of experts to investigate the mineral content of the sand. Simultaneously, the Tanzania Revenue Authority slapped on the company a huge bill of unpaid taxes amounting to USD 190 billion. Eventually the parties struck a deal under which Barrick would pay USD 300 million in settlement of the tax dispute and give Tanzania a 16 per cent stake in a new company, Twiga Minerals, which would operate Barrick’s three mines. This may have appeared as victory, but there are two challenges here. First, the message that the saga sent to other private investors was negative, leading to the risk of scaring away investors and reducing the credibility of contracts that the government entered into with them. Second, the process of negotiating with investors of this kind was not institutionalised. The local team that was formed to negotiate was not followed by creation of the local human and institutional capacity to carry out negotiations with private investors on a continuous basis.

The earlier Kikwete administration, which had promoted transparency with little accountability, shifted towards a higher level of accountability with reduced transparency. However, accountability of the top leader to the constitution and to the people he was leading was reduced while subordinates became accountable to one person at the top with little institutionalisation. Magufuli did not make himself accountable to the business community and ruled by fiat, legitimising his approach by material measures in the interest of the downtrodden or oppressed (called wanyonge in Tanzania) to the detriment of private investment and private business in general. Autonomous institutions of democracy such as parliament and the judiciary were stripped of their content so they existed in name only, going through the rituals of elections, law-making, and judicial decision making, which means little in practice. In terms of relations between politics and business, this situation introduced little transparency and a low level of certainty in the policies that influenced business decisions.

In conclusion, while it is appreciated that corruption declined and investment in infrastructure increased, economic prosperity suffered. Too much attention went to infrastructure and little went to boost the economy of private sector actors. Agriculture and participation in the global value chain was not accorded priority although the livelihoods of over 60 per cent of the populations is derived from agriculture, and public investment often crowded out private investment. The regime was not friendly to business and the private sector development that the third-phase government under Mkapa had started and was built further by the fourth phase government under President Kikwete. The private sector suffered in the hands of the fifth-phase government. Lack of participation in public affairs made people unhappy and dissatisfied, and they could not hold their government accountable. Business with other countries and international relations deteriorated. Weak institutions for holding the leadership accountable were the main cause of this situation. It has been argued that this underlines the risks of viewing leaders through rose-tinted glasses: Charismatic individuals can claim the reformer’s mantle, but giving them too much credence before structural reforms are implemented sells democracy short and increases the risk of authoritarian relapse (Cheseman et al, 2021).

VIII Sixth-Phase Government Led by President Samia Suluhu Hassan, March 2021 to Date

Magufuli died on 17 March 2021, and Samia Suluhu Hassan was sworn in as the new president of the sixth-phase government. Although she has not been president long enough for conclusions to be drawn, there have been notable changes in policies on several fronts.

First, freedom of the media and freedom of speech have been an immediate change from the Magufuli regime. Print and electronic media are operating freely and some of those that had been closed have been reopened. This is positive for transparency. Second, there is freedom for opposition parties and President Samia has openly spoken in favour of bringing unity and peace between CCM and the opposition parties.

Third, the relationship with the business sector has improved, one indicator being the resumption of dialogue between government and the private sector in the TNBC. Within 100 days in office, President Samia chaired a TNBC meeting, meetings that had not been held since 2018. Since then TNBC has been holding meetings twice a year. President Samia has also met sections of the business community on several occasions. In her state visits to other countries (Uganda, Kenya, Rwanda, Burundi, and the United States), she has taken members of the business community with her. All these are positive signs that the relationship between politics and business are likely to improve under President Samia.

Fourth, President Samia has liberalised several policies to make them business friendly. She is more liberal politically and economically and more friendly to the outside world, from neighbours in the region to Western governments. She is already opening up to the outside world. She has paid state visits to Uganda, Kenya, Burundi, Rwanda, and the US. She has mended relations with the World Bank and IMF.

Fifth, President Samia has demonstrated that observance of the rule of law is being restored. Several businesspeople who had been arrested and remained in custody without being charged and those who had been charged falsely for money laundering have been released. Those who had been close to Magufuli and broken the law with impunity have been taken to court and charged. A former District Commissioner for Hai District who was breaking the law with impunity, claiming that he was doing so under the orders of Magufuli, was jailed in October 2021. Cyprian Musiba, whose media house was known for defaming and relentlessly humiliating former leaders, has now been taken to court; two recent cases have been won and he has been fined heavily. His media house is not functioning anymore. Upholding the rule of law is likely to enhance the certainty of the environment in which business operates.

Finally, there are encouraging indications that the business climate is improving. The policies and procedures for issuing permits to investors have eased and permits for foreign experts have been made more liberal and efficient. Investors are assisted more efficiently in terms of time. The TRA has been instructed to act with fairness and promote compliance with competence instead of force. More processes for handling investors have been digitalised and delays have been reduced.

IX Conclusion

This analysis of politics and business relations has shown that there are weak institutional areas that constrain development and appropriate directions for long-term development through industrialisation. The political economy analysis that has been adopted in this study has demonstrated its dynamism in the sense of representing interests of various groups that have been changing over time. This framework has put the lessons from experience in context and has brought out the relation between politics and business over time. It has been shown that, in the first two phases (1961–67 and 1967–85), the state was able to relate to business with a view to getting the best for the public, while satisfying constraints inherent to business. However, the equilibrium that had prevailed through this period was disrupted in the following phases. During the third and fourth phases (1986–95 and 1996–2015), the relationship between politics and business changed quite substantially. It gave space for a business elite to negotiate with sections of the political elite in ways that resulted in decisions in the interest of business groups that also benefited respective sections of the political elite. This equilibrium permitted some firms to make more profit and politicians (or their parties) to maintain themselves in power. At a certain level of corruption, the state could even create its own channels for accumulating wealth through private business, which may not necessarily have been big business but were convenient and trusted. These confident businesses facilitated the accumulation of wealth by opening channels for syphoning off public resources. This equilibrium prevailed in the third phase and was consolidated in the fourth phase. The fifth phase, led by President Magufuli, showed signs of disrupting the situation. The source of this disruption was simply the personal will of the president, given the considerable power granted to him by the constitution. However, the change was not institutionalised, and in many ways business was disrupted.

One major lesson to draw from all regimes is that although the ruling party has not changed since Independence, the polity in Tanzania remains fragile, institutions remain weak, and the masses are disorganised. Therefore, the polity in Tanzania is vulnerable and amenable to the rise of individuals who are able to make changes that are not institutionalised. Under the circumstances, organisation-building and institution building remains foremost in the design and implementation of the long term development agenda.

The analysis has also shown that the political elite has the opportunity of monopolising the main forms of rent creation and rent management. These were centralised within the political system and not effectively coordinated in the first and second phases, thereby degenerating into a decentralised rent management system in the following two phases. In the fifth phase, Magufuli tried to reverse the decentralised rent management system to a centralised rent management system. Throughout the 1960s and 1970s, Julius Nyerere took great pains to centralise rent management, using a variety of means, including his own charisma and personal authority and the powers of the president as per the constitution. However, the collapse of the formal economy in the late 1970s disrupted that equilibrium. Since then, the political leadership in the third- and fourth-phase governments restored that centralised system of rents. Although the long-term development agenda was defined during this period (1996–2015), its implementation faced considerable challenges arising from the nature of the politics and business relations. The institutional arrangements that were put in place during the fourth phase (1996–2015), such as PAC, the Controller and Auditor General, and the PCCB, enhanced transparency. It has been shown that transparency improved but accountability fell short. It indicates that during this phase Tanzania did not develop inclusive political institutions or a strong top leader who could constrain the appropriation of public resources by the ruling elite. The fifth-phase government led by President John Pombe Magufuli from November 2015 showed the beginnings of disrupting the equilibrium that had prevailed for three decades. However, this was done by weakening institutions. This factor, however, makes it relatively easy for President Samia to make several reversals within a short time.

The question of whether the relationship between politics and business is likely to facilitate improvement of the investment climate and create conditions for capital accumulation and industrialisation continues to be relevant. Throughout the 1960s and 1970s, President Julius Nyerere centralised rent management and implementation of the long-term development agenda took shape. However, this situation was reversed in the following phases. The fifth-phase government under President Magufuli attempted to reverse decentralised rents towards centralisation, and channels of syphoning rents for personal gain were curtailed. However, preoccupation with the drive towards personal rule and the further weakening of institutions undermined the implementation of a long-term development agenda.

A key criterion, it seems to us, is that the high political elite of the CCM should recognise that the current situation emulating short-termism is unsustainable. Organs such as the Central Committee of the party could then conceivably be used as monitoring mechanisms for mutual discipline of the elite, helping steer rent-seeking into more developmental areas. When introducing the Arusha Declaration in 1967, President Nyerere and the chairman of the ruling party TANU asked the question as to whether the existing TANU internal political structure was capable of implementing the Arusha Declaration. Nyerere argued for reform of the party in order to cope with the demands of the Declaration. A similar question is relevant today in a different context. It is whether the current internal political structure of CCM is capable of disciplining the elite and steering rent-seeking towards a truly developmental state that can facilitate capital accumulation and industrialisation. This chapter has shown that the business and politics relations are important determinants of the investment climate and national policies that are crucial factors in driving capital accumulation and industrialisation.

The fifth-phase government under President Magufuli took initiatives to disrupt the equilibrium constructed on the tradition of inaction from the top political leadership when it comes to corruption. President Magufuli demonstrated a sense of new discipline in CCM and government, discipline in expenditure management, fighting corruption with vigour, staying above capture by sections of the business community, and declaring commitment to industrialisation, though without coherence and consistency. The challenge continued to be a move in the direction of personal rule and the weakening of institutions. The relations between politics and business in the fifth phase government were so tense and businesses were disrupted to the extent that they could not effectively facilitate capital accumulation and industrialisation. This is the task that President Samia Suluhu Hassan has to grapple with. It will depend on how the internal power structure within CCM plays out.

Good leadership needs to be sustained over a long period of time, as it has been in the case of countries such as China, Korea, Indonesia, Malaysia, and Singapore, which have undergone transformation over decades. Tanzania would require at least two or three decades to realise meaningful socioeconomic transformation through industrialisation. The Growth Commission led by Michael Spence (World Bank, 2008) took stock of the state of theoretical and empirical knowledge on economic growth with a view to drawing implications for policy for the current and future policymakers. On the role of leaders in successful development, its report concluded that leadership could be the main determinant of success. Fast, sustained growth requires a long-term commitment by a country’s political leadership, a commitment pursued with patience, perseverance, and pragmatism. Successful cases share an increasingly capable, credible, and committed government. Good and visionary leadership has to communicate the chosen development goals to the public and convince people that the future rewards are worth the effort and sacrifice. Leadership is essentially a team effort involving multiple players with complementary roles, all behind a clearly defined development agenda. While individual leaders can make a significant difference in transforming the institutional structures and their outcomes, there is a need to reflect further on how to nurture leadership and its team effort, both within each phase and across phases.

Discussion of ‘Politics and Business: An Ambiguous Relationship’

Discussion by Hazel Gray

I Introduction

This chapter is a timely contribution to debates on economic development in Tanzania, both for reasons that are specific to Tanzania and because of the rethinking about frameworks for understanding state–business relations that is going on in international policy circles. For a country with ambitious plans for industrialisation, understanding the dynamics of state–business relations over time is critical in order to shed light on key political economy constraints on effective policymaking and implementation. Research on the relationship between politics and business in Tanzania is relatively sparse. On one level this is unsurprising, given that the size and importance of formal businesses to the economy overall is low as a proportion of total output and as a proportion of total employment. Nevertheless, the role of big business in influencing the effectiveness of policies of economic development has implications that go beyond the relatively small number of firms that make up the formal business sector, permeating every aspect of economic activity. Research has also been hampered by the surprisingly common idea that state–business relations emerged out of a tabula rasa after market reforms from the mid-1980s. In fact, relations between some key private sector businesses and politicians have much deeper roots and extend across the period of socialist economic policy of the 1970s. The regional scale of many of Tanzania’s largest businesses also often goes unexamined.

A further constraint is that institutional approaches for understanding these relations have been mainly developed in the context of industrialised countries that bear little resemblance to Tanzania. This chapter breaks through some of these constraints with an analysis that reaches beyond standard analysis of the institutional constraints on economic development. In particular, it does an excellent job of highlighting the historical roots of today’s industrialists and in emphasising the links within parts of the ruling party to sections of the business community. The chapter is also very useful in providing unique insights into Tanzania’s most recent phase in the evolution of state–business relations under President Magafuli, and makes concrete suggestions about the internal governance mechanisms of CCM that go beyond the standard policy recommendations of development partners. The comments that follow address some areas that I think merit further reflection.

II Theoretical Framework

The theoretical starting point of this chapter is that politicians and business interact along a spectrum between a state that negotiates with business and produces a win–win of public benefits and a situation of state capture. Where the state is captured, interests of the state have converged with a set of narrow aims of big business to maintain their size and profitability. The framework assumes that politicians will systematically favour the interests of large firms because they provide specific material or political benefits – such as campaign finance, job creation, and lower prices for products. Thus, an equilibrium can emerge between political and economic actors that will lead to poorer economic performance over time. This is in contrast to the counterfactual of an uncaptured state that can incentivise and discipline big business in the best interests of sustainable economic development. State capture is manifested in the way that institutions operate and in the type and effectiveness of economic policies adopted by the state. The characteristics of state–business relations can therefore mainly be read by examining the evolution of institutions and policies.

The idea of the captured state has become very influential in explaining the political economies of African countries. It became particularly popular in South Africa, where the debates over Jacob Zuma and the influence of the Gupta family were presented as an archetypal case of state capture. Lofchie (2014) also adopts a state capture lens to understanding Tanzania’s political economy. However, the concept has some limitations when applied as a framework for understanding state–business relations in Tanzania. This is because state capture is a rather blunt tool for understanding certain aspects of Tanzania’s political economy, in particular the fissures within the ruling party that shaped the outcome of a number of areas of policymaking in the 2000s and 2010s. In Tanzania, the ruling party and bureaucracy was significantly fragmented both horizontally, within the elite, and vertically, with significant differences in the nature of state–business relations at different levels within the ruling party and across the country. As set out in this chapter and elsewhere (Gray, 2015, 2018), in the 2000s some groups within the ruling party had very close relations with parts of the business sector, but the other issue that needs to be emphasised is that others within the ruling party strongly opposed these links. Thus, the successes and failures of various economic policies were a result of both the close relations between certain factions within the ruling party and the opposition from other factions for more open support towards these same groups within the private sector. For example, while one factor in the lack of impact of the EPZ programme in the early years of its operation was the problems in effectively enforcing export quotas, the scheme was also hampered by a lack of sufficient investment in the scheme in the first place. This led to delays in vital infrastructure and insufficient learning rents to allow domestic firms that were quite far from achieving international competitiveness from acquiring the technologies and skills that could have allowed them to break into global export markets. An important reason for this is the limited political saliency of providing transparent industrial policy rents to a group of mainly Tanzanian-Asian industrialists. Thus, a nuanced approach to the idea of capture is needed; one that can explain why the state in Tanzania has exhibited hostility and suspicion towards the private sector, while at the same time explaining clientelist relations between factions of the ruling party and segments of the private sector.

III Accumulation Outside Market Institutions

Economic institutions in Tanzania have gone through a profound transformation since the 1980s with the process of economic liberalisation. In thinking about the nature of state–business relations in Tanzania, it is also important to recognise the fact that interactions between the state and the private sector were occurring within a context of enormous institutional transformation. Key institutions of a market economy, including an array of institutions setting rules and standards for market-based interaction and discipline, were hardly operational for much of the period under scrutiny – accounting frameworks, financial sector regulation, competition regulation, commercial courts, and so on were in a construction phase for much of the last thirty years. This meant that significant areas of economic activity and accumulation were occurring with minimal effective regulation. Within this institutional hiatus, personalised and clientelistic relations may actually have played an important role in facilitating the path of firm growth and diversification, rather than causing a blockage to economic development. This is not to say that clientelist state–business relations are sufficient or desirable for economic development, but that, in Tanzania’s recent economic history, economic success and failure has occurred within a context of personalised relationships between business and the state. Much of the accumulation that went on in Tanzania in the era of high growth occurred outside formal market processes. These forms of accumulation exacerbated social differentiation, and also generated new economic actors as well as enriching existing powerful elites.

This observation also suggests that we need to be cautious about explaining changes in state–business relations through a chronology of policy changes. There were clearly very important policy shifts, as set out in this chapter, but these did not immediately filter through to changes in state–business relations. This is because the distribution of power between different social groups and networks tends to be more enduring than institutions and policy frameworks. In many of the approaches to state–business relations, there is an explicit or implicit assumption that groups that hold power will be able to influence the structure of formal institutions and policy frameworks over time (in the work of Acemoglu and Robinson (2012), and in Douglass North’s last works (2009, 2012)). It is assumed that where the distribution of benefits provided by institutions and policies is not in line with the distribution of power, powerful groups will push for institutional changes that benefit them. However, where such groups hold limited popular legitimacy, their influence over the path of institutional development and policy approaches can be quite marginal. This disjuncture between the pattern of benefits produced by institutions and the actual distribution of power can be sustained over long periods of time when informal networks and redistributions that occur outside institutional rules meet the demands of powerful groups.

This observation is particularly important for understanding state–business relations in Tanzania. Significant sections of the private sector hold limited public legitimacy as a result of the influence of socialist ideology, but also because of the racial structuring of the economy that was established during the colonial period. This means that it has often been difficult for the state to create effective and open policies to support the domestic private sector. At the same time, many of the industrialists who held significant informal influence over the implementation of economic and trade policy have held power informally across the policy eras, and despite the approaches to constraining the growth of the private sector in the 1960s and 1970s. This is important for understanding the challenges that face President Magafuli in supporting the development of a private sector that has limited public legitimacy, and also helps to explain the growing influence of state and party-owned enterprises working within the private sector.

IV State–Business Relations at Different Scales

One of the key points stressed in this chapter is the importance of the Tanzanian-Asian business class in the private sector in Tanzania. The chapter does a very good job of outlining the historical origins of this group of Tanzanian-Asian large businesses that have played a key role in industry and trade since independence. A historical perspective is important in explaining the tenacity of their businesses in the face of significant policy shifts. This chapter emphasises the clientelistic relations between certain Tanzanian-Asian industrialists and the ruling party in the 2000s that were identified in a number of grand corruption cases that occurred in the era. These close clientelist relations are described as being a cause of policy failure. However, as explained in the previous section, despite the wealth and economic power of this group, it is a group that has held quite limited political legitimacy, and this lack of political legitimacy has also shaped the way in which economic policies have been implemented over time. This is the reason why, despite the economic importance of this group of firms, there has been little policy discussion on how to include this group positively into Tanzania’s vision of economic development. Large firms can play an important role in sustainable economic development, particularly in terms of their role in enhancing domestic technological capabilities through research and development, and can play a key role in expanding employment. Economies where large firms are owned by minority groups face a particular political economy challenge. However, there are examples of countries that have successfully included large businesses into their development vision. For example, in Malaysia the ruling party was able to negotiate a relatively successful distribution of rents and incomes between the Chinese-Malay business sector and the state. The challenge is to create policies and targeted rents that overcome market failure and address collective action problems, while at the same time disciplining rent recipients in order to ensure effective use of policy rents. Solutions to this challenge may not come from sweeping institutional reforms but from a more targeted agenda of support and monitoring of firms. In Tanzania, targeted industrial policy and competitions policy could help tie large firms into a more productive path of economic development, but this would need to be accompanied by a politically viable strategy underpinned by building a more inclusive constituency in support of industrialisation through linking social, industrial, and economic policy more closely.

The other approach would be to invest much more heavily in SMEs and engage in a more radical transformation of the ownership structure of the industrial sector. It should be noted, however, that this has been on the agenda of the ruling party for many years (including in the 1996 industrial policy) with minimal success (Gray, 2018). This is partly because the scale of investment and support that would be needed to really develop the SME sector in Tanzania has not been recognised or addressed in existing policy mechanisms. A starting point would be to develop industrial policies that were more explicitly differentiated in terms of the size of target firms, allowing for strategies that addressed the different needs and power of large, medium, and small firms. In contrast, the recent response to these political challenges of supporting domestic industrialists has been a return to the development of state- and party-owned firms (Jacob and Pedersen, 2018). This has become an important part of President Magafuli’s strategy to overcome the previous links between factions of the ruling party and large firms in the private sector that have been important in supporting the ruling party. If these state and party firms are successful, this could shift the nature of state–business relations in important ways over the next decade.

V Grand Corruption

This chapter outlines a number of grand corruption cases that have become pivotal to understanding the ‘black box’ of state–business relations in the 2000s. These cases provide the evidence of close clientelist relations between the ruling party and powerful private sector actors (Aminzade, 2014; Gray, 2015). While these cases clearly led to a number of very poor deals for the country, there are a set of complex economic consequences of such deals that need further analysis. For example, grand corruption often relates to strategies of forging political stability between elites. Focusing on the role of particular individuals rather than the structural drivers of such types of corruption can be misleading. I explain some of these wider implications in Gray (2015). At the end of that article, I argued that it would be possible for CCM to clamp down on the networks that underpinned these particular corruption deals in the short term, where there are shifts in the distribution of power, but that successful anti-corruption agendas can be attached to many different kinds of political and economic strategies. This appears to be the case with President Magafuli, whose anti-corruption agenda has been attached to a political and economic agenda that is very different from the ‘good governance’ and liberal economic approach advocated by development partners. He has been initially successful in clamping down on particular networks and in centralising power within the ruling party. Short-term reduction in corruption is much easier to achieve than long-term shifts as these also depend on changing the distribution of political and economic power over time. The success of his strategy therefore depends on how successful the ruling party is at building up new economic power bases or in re-forging relationships with powerful economic actors in ways that allow both for support to domestic industries and for effective monitoring and disciplining of firms receiving industrial policy rents.

VI The Way Forward

Tanzania has returned to a more active approach to industrial and economic strategy, but to be effective this needs to go hand in hand with an analysis of the changing relationships between the state and the private sector. These relations are dynamic, but they also have deep roots that do not necessarily change with the announcement of new policy agendas. Research on state–business relations in Tanzania has focused on the long-standing and complex relations between Tanzanian-Asian businesses and the ruling party. A neglected aspect of these relationships is the regional scale at which many of these firms operate and hold power. At the same time, the influence and role of state and ruling party firms has not yet received sufficient attention and should be a major area of future research. Such analysis should be grounded in a detailed understanding of the structure of Tanzania’s economy and in histories of particular firms and sectors.

Understanding state–business relations requires an analytical lens that goes beyond the codified rules to examine the deeper relations and distributions of power that shape how institutions actually work. This chapter highlights the informal and clientelist relations that were key in the 2000s and 2010s, and ends with some suggestions about the need for internal changes within the ruling party. The current strategy on clamping down on clientelistic state–business relations focuses on changing the internal balance of power within the ruling party by shifting the composition of the Central Committee and building up loyalty to the president through selection processes. It is clear that this strategy has been quite successful in shifting the internal distribution of power within the ruling party from a fragmented equilibrium towards a more centralised and hierarchical control under the president. A number of institutional theories discussed in this chapter suggest that centralisation is necessary to generate a long-term approach to developing the economy. However, I would argue that the success of such a strategy cannot be taken for granted. It requires effective internal feedback mechanisms between different parts of the state about the successes and failures of different policy choices. It also raises challenging questions about the fact that centralisation of power can consolidate behind oppressive political agendas. Further, it is not the case that economic success will necessarily generate more inclusive politics in the foreseeable future. Thus, both the long-term economic and political outcomes of a strategy of centralisation remain uncertain.

5 Challenges of the Civil Service

Rwekaza S. Mukandala ^*

I Introduction

The civil service affects the economic development of a country in many ways: first because its general function is to set the institutions of state power into operation; second, and most important for our purpose, because history has shown that the success since the late nineteenth century of what Gerschenkron (1962) called ‘late industrialisers’ is partly attributed to the role of the state in general and the civil service in particular. For example, in his excellent study on Japanese industrialisation, Chalmers Johnson (1981, 1999) demonstrated how the Ministry of International Trade and Industry spearheaded ‘Japan’s extraordinary and unexpected post-war enrichment’ (Johnson, 1999, pp. 33–4). In certain circumstances, however, the civil service may be detrimental to economic development through incompetence, corruption, or being too huge, and thus requiring a large amount of material resources for its maintenance. Whether the civil service plays a positive or negative role in a particular country’s quest for economic development is a hypothesis whose determination or verification depends on concrete material forces and dynamics, in particular the nature of the regime and its expectations regarding the role of the civil service, the capacity of the civil service, and the enabling environment.

In colonial Tanganyika, for example, the scope of state activity was narrow, as the main preoccupation of the colonial state was maintenance of law and order and general administration of the colony. Following the defeat of the Germans in the First World War, Tanganyika became a trusteeship colony under the British in 1918 until her independence in 1961. During that period, state administration was informed by Sir David Cameron’s policy of indirect rule, first introduced in the country in 1926. The state relied on ‘agents’ to run its affairs. The colonised population, regarded as subjects rather than citizens (Mamdani, 1996), were ruled through native authorities anchored by chiefs. Most of the social services were provided by faith-based organisations, though their services were subsidised by the government. Investment in key social sectors was very minimal and was almost surpassed by that of religious institutions (Jamhuri ya Muungano wa Tanzania, 2011; Mukandala, 2015).

Economic activities were dominated by private companies based either in London or Nairobi, which was the regional centre for British East African colonies. Marketing boards and cooperative unions handled the production and marketing of major agricultural crops including cotton, coffee, and pyrethrum. For cotton, for example, the Lint and Seed Marketing Board handled marketing while the Victoria Federation of Cooperative Unions handled the production and purchase from farmers. Necessary economic service was provided by regional outfits. These included managing the currency as well as air, rail, marine, and road transportation; postal services; harbours; cargo handling; power supply; and school examinations.

The colonial civil service played a minimal function of law and order, guaranteeing economic extraction and exploitation of resources including supply of forced labour, and overseeing the operations of colonial state corporations and private companies. According to Nyerere (1974, p. 263), ‘it was designed for the administration of a nation, not for its development’. Its administrative capacity, though, was low. Therefore, at independence, the civil service faced serious challenges. It was small relative to the size of the country and was dominated by expatriates who constituted 71 per cent of the senior officials. This was mainly because of an acute shortage of qualified indigenous Tanzanians. At independence, the country had twenty-one graduates, out of whom eleven were indigenous Africans. Most of the civil servants were concentrated in the few urban areas, with vast rural areas left unattended.

The colonial state left the country not only with an enormity of sociopolitical, economic, and development challenges, but also the lack of a strong indigenous capitalistic class to spearhead the development effort. Therefore, after independence in 1961, there was no viable option other than the state becoming a central actor in the social and economic development of the country.

We address three questions in this chapter. To what extent has the civil service contributed to economic development in Tanzania? What have been the constraining factors to effective civil service performance? And, finally, what are the necessary and most promising directions for reforms to maximise civil service contribution to economic development?

The chapter draws heavily on documentary evidence, specifically government publications and reports, press reports, scholarly literature, assessments, and surveys carried out by national and international organisations including the World Bank, the National Bureau of Statistics (NBS), and the World Economic Forum. In addition, select interviews with senior government officials at central, regional, and district levels were conducted. While there is extensive literature on the role of the state in development (Gerschenkron, 1962; Johnson, 1982; Wade, 1992), the economic literature on the role and the evaluation of the contribution of civil service to development is extremely scant and weak. This is partly because there is no simple way of summarising its activity by a few indices that can be compared across countries and overtime. It is also difficult to delineate the contribution of the civil service to phenomena that are outcomes of inextricably linked actors and forces, such as economic development. Under these circumstances, as Bourguignon put it in his comments on an earlier draft of this chapter, ‘expert intuition and a systematic review of the main aspects of the way civil service delivers its mission is the only effective approach’. This is not to say or imply that the civil service was solely responsible for any achievements (Johnson, 1999, p. 33).

The chapter is organised into five sections, including this introduction. Section II describes and assesses the civil service contribution to economic development. Section III draws from the preceding sections and looks at the constraints on the effective contribution of the civil service. Section IV explores promising directions for civil service reforms and their sustainability. Section V concludes.

II The Role and Political Context of the Civil Service in Economic Development

Given the limitations and challenges of the colonial civil service, the post-independence state embarked on a serious state- and nation-building project. Practically, the idea of state building meant constructing effective public authority, establishing viable state institutions, and creating responsive and legitimate agents of governance (Hyden, 1983; Chazan et al., 1999). Next to state building was the daunting task of nation building, which entailed forging a unified political community. This was because of the arbitrary basis of colonial boundaries, where newly independent states inherited diverse populations that often became fractious as disparate groups contended for power, resources, and identity (Hyden, 1983; Nnoli, 2002). This was reinforced by the colonial policy of indirect rule mentioned in the introduction, which in effect resulted in exacerbating and enhancing ethnic and racial identity differences. As a central institution of the state, the civil service took centre stage in engineering change. Tanzania’s civil service has been an integrated departmental system anchored by ministries, whose numbers have varied from the initial 11 in 1961 to the current 23.¹ Permanent secretaries working under ministers are the professional heads of ministerial organisations. They generate policy proposals and alternatives for politicians to make decisions (singly in ministries or collectively in the Cabinet), implement the policies decided by the executive in all areas, and produce the public services needed for the good functioning of the economy and society. The inherited colonial civil service was transformed through Africanisation and localisation policies to reflect the national character; its role changed from being simply extractive and administrative to become developmental, thus spearheading the country’s socioeconomic development. Its role in development can be meaningfully assessed in three phases: the transitional years after independence, 1961–6; the socialist phase, 1967–85; and the liberalisation phase, 1986 to date.

A The Transitional Phase, 1961–1966

The civil service in the early years of post-independence was charged with a role in policymaking and execution. The inherited model of policymaking was based on the traditional dichotomy of politics and administration. It assumed that civil servants would generate ideas and draft policy proposals, which would then be presented to politicians for deliberation and approval. Immediately after independence, external consultants took a centre stage in policy drafting. The first planning document for independent Tanganyika – the Three-Year Plan, 1961/2–1963/4 – was drawn up by the World Bank mission. Regarding agriculture, for example, the government emphasised that

The Government policy for developing rural production is guided by recommendations formulated in 1961 by a World Bank Mission […]. This policy consists of following a twofold approach in agriculture via the improvement approach and the transformation approach.

(United Republic of Tanganyika, 1964, p. 14)

Civil servants were charged with plan execution. The first Five Year Plan, 1964/5–1968/9, was drawn up by French consultants. Sidelining the civil service from policymaking prevented it from bringing important inputs into consideration, before final decisions were made by politicians. As a result, some of the policy decisions were context insensitive and therefore difficult to implement. In the early 1960s, for example, the ‘Ministry of agriculture tried to resist the transformation approach which they regarded as foreign inspired, ill-conceived and ill-advised’ (Mukandala, 1992, p. 67). The transformation approach was abandoned by 1966 (Coulson, 2015). In the same vein, the first Five Year Plan proved difficult to implement because its forecasts were based on statistical assumptions that were weak, population growth was seriously underestimated, and outside advice from the Food and Agriculture Organization and the World Bank regarding crop prices proved to be wrong. In any case, there was a serious manpower shortage to implement the plan, as already noted. Van De Laar (1973, p. 72) estimates that only about one-third of targets regarding government investments were realised.

B The Socialist Phase, 1967–1985

The Arusha Declaration, published on 5 February 1967, marked a major watershed in Tanzania’s history in general and in her development efforts in particular. Several decisions and actions had a direct impact on the civil service role in economic development. First, it was declared that ‘The policy of TANU is to build a socialist state, the state must have effective control over the principal means of production and it is the responsibility of the state to intervene actively in the economic life of the nation’ (Nyerere, 1968, pp. 230–2). As a result, the government formulated and implemented interventionist policies, including nationalisation of the means of production and provision of free social services. The state formally became the major engine of economic development. Consequently, many private companies were nationalised and transformed into public corporations. In the meantime, new corporations were created in other economic activities. Together with the decision that the state must control the commanding heights of the economy, it was also evident that the preferred state instrument would be the public corporation (also called parastatal or state enterprise). Thus, a lot of economic development activities and initiatives were implemented through the public enterprise sector. The number of such enterprises exploded from nine in 1966 to around 420 in 1980. The Second Five Year Plan (1969–74) projected ‘a fast rate of expansion in productive capacity through the agency of the parastatal organisations’ (Second Five Year Plan (1969), vol. 1, p. 223). The civil service was thus sidelined from direct operations of these critical economic development activities.

The civil service, however, retained the role of control and supervision over this budding sector. The exercise of that role, though, proved difficult to say the least. Parastatals proved to be too many, some of them too big and sensitive, and too complex to control. The control structure itself was a complex spaghetti maze involving the president and Ikulu, central ministries led by finance and development planning; parent ministries of particular parastatals; holding corporations, for example the National Development Corporation and Tanzania Textile Company; regulatory parastatals, for example the National Price Commission or the Tanzania Bureau of Standards; various committees, for example the Committee on Parastatal Management Agreements; the party branch at the workplace and the political commissar (beginning 1975); the party, trade unions, workers’ councils, and so on. In addition to size and complexity, many parastatals had vague objectives, areas of responsibilities were largely undefined, and there were no specialised control units in ministries. A government official concluded that ‘both the parastatal […] and the systems of the controls are beset by some of the least desirable features of bureaucratic inefficiency’ (Coulson, 1978). In the meantime, state scope and functions continued to expand, further overextending the civil service.

Secondly, it was decreed that: ‘it is the party which guides the government by providing directives which shall be implemented by government during a definite period’ (Nyerere, 1967). From then onwards, the civil service role was limited to supposed policy implementation under the watchful eye of the party. All major subsequent basic policies were initiated by the party. Even in implementation, according to Pratt (1979, p. 226):

The party, far from meekly ratifying the policy proposals of a conservative civil service, has tended instead to be resistant and unsympathetic towards those who talk the language of priorities, of moderation, of bottlenecks and of shortages.

This practice continued until the beginning of the 1980s, when the civil service took part in preparing the National Economic Survival Programme (1982) and the Structural Adjustment Programme (SAP) (1983). Their implementation stalled because of lack of resources and support from donors. In 1984, changes were initiated to make the civil service more relevant in policy initiation. Prime Minister Edward Sokoine issued ‘The Ministerial Circular No. 1 of 1984’. This decreed that, in addition to the party, the government could also initiate basic policy. The civil service thus played a role in all subsequent policy initiatives, although they had heavy donor influences.

Thirdly, in the 1970s, the government undertook several other grand decisions that had a serious impact on the civil service. For instance, in 1972, following a consultancy report by McKinsey and Co., there was a massive reorganisation of regional administration. This included the abolition of local authorities and their replacement by state structures all the way to village level, through a policy that was formally called decentralisation but was in fact deconcentration. This policy move entailed extension of civil service responsibilities from the centre through the regions, districts, and divisions all the way to the grassroots. There was a consequent absorption of all local government employees into the civil service. During the 1973–4 intensification of villagisation, civil servants were appointed as village managers throughout the country. This resulted in a massive recruitment of new functionaries into the civil service. Civil service numbers increased by 28.31 per cent in 1973 and a further 29.13 per cent the following year. This move also involved the transfer of senior and experienced administrators and professionals from the centre to the regions and districts. During 1971–2, cooperative unions, which had been the pillars of agriculture production, were supplemented by newly created Crop Authorities. Finally, in 1976, cooperative unions were abolished. All these decisions and others resulted in the expansion of state scope and functions without proper planning and sequencing. They spread the civil service and its resources too thinly for effective performance.

The civil service also did not fare very well in economic development activities under its direct supervision. Hasty policymaking without professional technical information, poor implementation mechanisms, and a poorly motivated staff all led to very poor performance. In agriculture, for example, between 1967 and 1977 there were several major policy initiatives, all of which were failures. The Socialism and Rural Development policy (1967), which called for villagisation and communal agriculture, entailed moving the rural population into Ujamaa villages, where they were to engage in communal farming and other economic activities including transportation and trading. It would also be easy for people to access social services. The implementation of the policy contributed to famine in the early 1970s, destruction of people’s housing as they were forced to move, and even deaths in some cases. The policy was eventually abandoned. The ‘Politics is Agriculture’ policy (1972) was aimed at achieving national food self-sufficiency. People were to be encouraged to abandon traditional farming methods and practices, and to use modern farming equipment, methods, and management systems. Implementation proved very difficult. Following massive food shortages, large quantities of maize (600,000 metric tons), wheat (170,000 metric tons), and rice (130,000 metric tons) were imported (Lofchie, 1989, p. 110).

After the failure of the ‘Politics is Agriculture’ policy of 1972, and the subsequent food shortages, the party attributed the problem to drought. Irrigation was deemed to be the answer. A new policy, ‘Agriculture: Life or Death’, was adopted by a hastily conveyed party National Executive Committee (NEC) meeting in 1974. It was aimed at mobilising people to complement rain-fed agriculture with irrigation. According to Sokoine (1984), the decision was taken hurriedly by the party without professional and technical advice from civil servants. No organisational arrangements for implementation were made. According to Sokoine (1984, p. 53), ‘The running and management of irrigation schemes in most cases had been practically no one’s responsibility.’ Sidhu (1981, p. 8) adds that there was no reliable information on the irrigation potential of the country and on prior irrigation projects. While the Ministry of Agriculture statistics indicated that there were 55,792 hectares under irrigation in 1975, the party headquarters indicated that there were 133,245 hectares. According to the Ministry of Agriculture (1980), there were, for example, no proper surveys and investigations, no serious studies on soil and topography, no economic appraisals, nor hydrological studies, no studies on cropping patterns and other agroeconomic considerations.

Throughout the socialist phase, the civil service was heavily involved in several ways in the country’s economic development. Its support role in policymaking was minimal. The party was supreme and all major policy decisions of the time were made by the party’s NEC, which had a powerful secretariat. The civil service was charged with policy implementation. Here, too, the party had its fingers in the pot. According to Prime Minister Sokoine (1984, p. 4), after 1977, the party also ‘acquired the power and role of supervision of the implementation process’. With the exception of social service provision, especially education and health, as well as law and order, most state initiatives in production and distribution had very low success rates. Agricultural productivity and output either stagnated or declined, industrial productivity declined, and most parastatal enterprises registered losses and required massive state subsidies to stay afloat (Moshi, 1995; Mukandala, 1998). Since the civil service was not a lone or even the key player in economic development, it can only assume limited responsibility.

Tanzania experienced rapid economic growth in the years after 1966, but this was short lived. The economy started experiencing difficulties in the early 1970s, which grew into a crisis by the late 1970s. The official position attributes this problem to falling crop prices in the world market, the 1978–9 oil crisis, the war with Uganda, and the 1973–4 drought (Jamhuri ya Muungano wa Tanzania, 2011). The explanations contain elements of truth as these tragedies wiped out national foreign reserves and thus weakened the capacity of the state to deliver services, let alone undertake investment projects. However, the official position underplays the fact that economic difficulties were also nourished by economic and administrative policies the government had engaged in. In time, such grand policy decisions as nationalisation of the commanding heights of economy, pan-territorial pricing, abolition of local governments, and disbanding of cooperative unions proved to be unfavourable to economic growth. Under President Nyerere’s leadership, the country underwent serious extensive administrative reorganisations. The civil service lurched from one reform initiative to another, including Africanisation, localisation, increase in scope and functions, decentralisation, retrenchment, salary squeeze, and so on. Implementation was the main problem, partly because of the nature of the initiatives: many were ideologically driven policies, poorly thought out, and lacking full information. Knowledge and expertise were subordinated to ideology and politics. Most of the policies that were aimed at consolidating the political base of workers and peasants, broadly defined, also generated opposition from a broad range of actors at times, including civil servants. Most of these policies were beyond the control of parliament, let alone the civil service, since the NEC of TANU had self-appointed itself as a supreme decision-making organ in the country. According to Shivji et al. (2020, p. 220) for example, ‘NEC adopted the Arusha Declaration, bypassing all the organs of the state, the national assembly included’.

C The Liberalisation Phase, 1986 to Date

The cumulative failures discussed here led the International Monetary Fund (IMF) to conclude that there was a structural failure of the Tanzanian economy. The recommended solution was a small government and an increased role for market forces. By the mid-1980s, the economic situation forced the government to accept the IMF’s SAPs to meet the conditions for accessing international lending from international financial institutions and bilateral aid agencies. SAPs were accompanied by stringent measures for reforming the public sector. These policies called for cutbacks in state scope through such mechanisms as retrenchment, employment freeze, and withdrawal of the state from production and business sectors, as well as reducing the level of state intervention in key social sectors. As far as the civil service was concerned, the Civil Service Reform Programme (CSRP) was launched in the early 1990s to give effect to the structural adjustment endeavour. Available evidence indicates that the SAPs were successful in terms of reducing state scope and controlling budget deficits, but unsuccessful in driving economic growth, which stagnated at 1.8 per cent of gross domestic product (GDP) between 1991 and 1995 (IMF, 2016). For instance, public service employment was reduced from 355,000 in 1992 to about 270,000 in 1999 (Ntukamazina, 2000). While many public enterprises were privatised, a good number of these were abandoned, cannibalised for parts and spares, or converted into something else. There were cutbacks in investment in social services, especially education, health, and water. Cost sharing in education was introduced in 1986. User fees were introduced in health in 1993.

President Mwinyi, however, given the serious economic problems when he assumed power, and under tremendous pressure from donors, was forced to govern effectively. Hard choices could not be avoided, as the harsh economic realities demanded implementation of economic and social policies, which entailed hardships for the population in the short term. He dismantled many pillars of the Arusha Declaration, imposed a pay and employment freeze, removed subsidies, and imposed cost sharing. President Mwinyi relented on the eve of presidential and parliamentary elections in 1990. He reinstated the annual salary increases and introduced a new salary structure, increasing the minimum salary by 26.14 per cent and the top salary by 38.53 per cent (Kiragu and Mukandala, 2005b, p. 240).

Several allowances were also reintroduced. In July 1991, the CSRP was launched. Following the reintroduction of competitive multiparty politics in 1992, with reinvigorated trade unions going on strike in 1993 and 1994, and elections looming in 1995, President Mwinyi wavered. The party was worried. In 1994, the civil service average nominal wage was raised by 74 per cent. A year later, in July 1995, it was raised by a further 75 per cent. In the meantime, several agreed reformed benchmarks were missed and a stand-off with donors ensured.

The civil service was very involved in the preparation of various economic recovery policies and programmes together with the IMF and World Bank. These included the Economic Recovery Programme (ERP I and II), the Priority Social Action Programme, and later on the Poverty Reduction Strategy Paper (PRSP). The civil service also managed the privatisation of hundreds of parastatal enterprises, and the divestiture from ownership of other business concerns. It also oversaw the re-establishment of local government authorities (LGAs) in January 1984, as well as cooperative unions, liberalisation of imports and export trade, and devaluation of the currency.

The enactment in 1990 of the National Investment Promotion and Protection Act, which was reviewed in 1997, underlined the recognition of the private sector as the engine of growth. Various private sector institutions, including the Tanzania Private Sector Foundation and the Tanzania Business Council, chaired by the president, were established to give voice to private sector concerns and challenges.

President Mkapa came into power vowing to clean up the mess of corruption and the allowances mania. Assured of an overwhelming control of parliament, though he supported a consolidation of allowances into salary, which led to a pay increase, and supported the Selective Accelerated Salary Enhancement Scheme (SASE), he abandoned the planned pay increase for the year 2001 (elections were over). He also abandoned plans to raise the wage bill ratios. Under his leadership, many reform measures were initiated and partly implemented.

President Kikwete took power after a fractious election within the ruling party, and his majority shrank further after the 2000 elections. His rule was marred by frequent crisis following revelations of corruption and embezzlement deals by politicians and civil servants. He thus pursued populist policies to shore up the base, which allowed reform doubters to intensify their efforts to neutralise and reverse technocratic reform initiatives. His bold reform initiative ‘Big Results Now’ (BRN) was expensive, unpopular outside the six select areas, attempted to short-circuit the formal civil service, and was abandoned by his successor.

All the measures taken to spur economic growth, including introduction of VAT in 1995, rated at 50 per cent, promotion of exports (especially non-traditional), exploitation of minerals, especially after enactment of the Tanzania Investment Act in 1997, and the ensuing foreign exchange availability after the mid-1990s, led to clear signs of improvements. Real GDP improved – after a dismal 3.3 per cent growth in 1997, it averaged 4.8 per cent for the period 1996–2003. Inflation reduced from 21.0 per cent in 1996 to 4.4 per cent in 2003, and there was an increase in foreign direct investment flows, from USD 148.5 million in 1996 to USD 247.8 million in 2003. This positive growth has continued. Average growth of real GDP averaged 6.5 per cent during the ten-year period 2006–15.

The IMF data show that, although Tanzania recorded increases in average growth (GDP) from 2.3 per cent (1981–5) to 5.8 per cent (1985–90), which was not really significant growth given that this was a post-crisis period, average growth for 1991–5 fell to 1.8 per cent (IMF, 2016). One of the reasons for the decline was that the 1980s/90s World Bank- and IMF-engineered reforms concentrated on cost containment and not on strengthening institutional capacity of the civil service. In short, the quantity and ultimately quality of the civil service was highly eroded. As Fukuyama correctly put it, ‘while the optimal reform path could have been to decrease scope while increasing strength […] many [sub-Saharan African] countries actually decreased both scope and strength’ (Fukuyama, 2005, pp. 21–2). Highlighting the impact of SAPs on Africa’s civil service, studies revealed that the capacity of the civil service to provide basic services declined (Adepoju, 1993). African governments lost the capacity to hire, retain, and motivate the best talents. The migration of Africa’s best talents for greener pastures abroad resulted in a shortage of highly skilled human resources, while those who remained in the service resorted to all kinds of legal and illegal methods, including corruption, to survive.

1 The Civil Service in the Post-SAP Period

The unintended consequences of SAPs on the economy in general and the civil service in particular created lessons and grounds for re-examination of donor development policy. By the mid-1990s, both development partners and the government had come to the realisation that cost-containment measures were inadequate reform strategies for addressing economic crises. Therefore, at the turn of the millennium, the focus of the reform path began to shift slightly, from cost containment to increasing institutional effectiveness. This widening of scope was formally recognised with the launch of the PRSP in the year 2000. This prioritised six areas: education, health, water, judiciary, agriculture, and roads. Later on, in the Medium-Term Economic Framework, the government expanded the priority areas and added the police and prisons. It also added new categories of key areas, including energy, manufacturing, industries, lands, mining, and tourism. With support from the World Bank, a new reform programme, the Public Service Reform Programme-I (PSRP-I) was launched in 2000 and implemented for seven years thereafter, giving way to PSRP-II, which ended in 2011.

President Magufuli’s style was somewhat different from his predecessors, probably owing to a changed political environment. He came into power at a time when his ruling party had lost its heyday of high popularity. The last tenure of his predecessor experienced mounting grudges from almost every section of society, which translated into increased acceptability of and popular support for the opposition. For the first time in multiparty history, the opposition increased its seat share in the parliament from 26 per cent in 2010–15 to about 31 per cent after the 2015 general elections. It also scored victory in local government elections in major towns and cities. Votes for CCM’s presidential candidate dropped from 80 per cent in 2005 to 58 per cent in the 2015 elections. In the move to restore legitimacy and popular support for his party and government, President Magufuli came into power promising to launch a war against embezzlement, corruption, and misbehaviour among public officials. His early years in office witnessed a number of top officials in the civil service being held to account, removed from their positions, or sued in court. His early and consistent actions toward the civil service seem to have shaped both public and media opinion that the conduct of the civil service had improved. Furthermore, this was a time when civil servants became real political scapegoats for government mistakes. The words and actions of top political executives and party stalwarts were increasingly succeeding in turning the public against the civil service. The improvement of public employees’ welfare almost seemed to be a non-agenda in current government priorities, and there was mounting resentment that their efforts were less appreciated.

Generally, the two PSRPs aimed to improve the administrative capacity of the civil service through strengthening of systems and processes with the view to enhancing civil service efficiency, effectiveness, and accountability. Similarly, a plethora of sector-specific reforms were implemented with the purpose of improving services in key social and economic sectors (Table 5.1). These reform interventions were accompanied by a series of capacity-building training programmes geared at enhancing the capacity of civil servants. For a detailed account of the reforms, see Mutahaba et al. (2017).

Table 5.1 Post-SAP Tanzania public sector reforms

	Institutional Reforms	Duration
i.	Public Service Reform Programme (PSRP) I and II	2001–2
ii.	Public Financial Management Reform Programme	1998–2017
iii.	Local Government Reform Programmes I and II	1998–2014
iv.	Legal Sector Reform Programme (LSRP)	2000–13
v.	Business Environment Strengthening	2003–13
vi.	National Anti-Corruption and Action Plan	2001–11
vii.	Second Generation Financial Sector Reform Programme	1990–2013
	Service Delivery Reforms
i.	Health Sector Reform Programme	1994–2017
ii.	Education Sector Development Programme	1997–2015
iii.	Agricultural Sector Development Programme	2005–
iv.	Roads Sector Development Programme	–
v.	Water Sector Development Programme	2009–17

Source: Construct by authors

Specific reform interventions under the PSRP included installation of public service management (PSM); restructuring the civil service, including introducing executive agencies; improving civil service pay systems and incentives; strengthening leadership and management; strengthening information management systems, including adoption and use of information and communication technology (ICT); building policy development and management capacity of ministries, departments, and agencies; and improving service delivery systems and accountability. Follow-up assessments regarding programme implementation have revealed the following positive developments as far as the quality of the civil service is concerned (Kariuki, 2017):

• Improvements in policymaking and regulatory capacity –79.4 per cent of ministries, departments, and agencies were making evidence-based policies using the standard guidelines.

• Improved use of performance management systems (PMSs) by ministries, departments, and agencies and their linkages to service delivery; for example, 85 per cent of ministries, departments, and agencies and 80 per cent of LGAs were using a total of eleven core tools.

• Improved management of public servants: for example, 99.5 per cent of civil servants were on the Human Capital Management Information System; and 82 per cent of the population reported satisfaction with central government services, up from 74 per cent in 2004, although below the target of 85 per cent.

Tanzania has been recording encouraging economic growth during the last seventeen years. For instance, for ten years from 2001, the country sustained an average annual growth rate of 6.7 per cent compared with 3.0 per cent in the preceding decade. Similarly, from 2011 to 2016, the economy continued to expand at an average of 6.9 per cent and has maintained a 7 per cent growth for the last four years, putting Tanzania among the fastest growing economies in Africa.

To conclude this section, the preceding historical analysis reveals that from independence until towards the end of the 20th century, the civil service had minimal contribution to Tanzania’s economic development. In the earlier period, the inherited civil service from the colonial state supervised a mixed economic model while undergoing rapid expansion through new recruitment and localisation. The civil service played a traditional role in policy initiation, advice, and implementation. It also resisted some policy initiatives, as already noted in the case of agriculture. The year 1967 was a watershed moment for the civil service as well as the size of its role in economic development. Not only did it usher in the policy of socialism and self-reliance, but it also removed the civil service from a meaningful role in policymaking. Policymaking was now the preserve of the party, and the role of the civil service became confined to policy implementation under the watchful eye of the party. As already noted, things went severely wrong, culminating in a crisis that ended with the abandonment of the Ujamaa project. The civil service was now empowered to once again play its traditional role in policymaking and implementation, though now under the watchful eyes of the IMF and World Bank. Though initially constrained by cost-containment measures and removed from direct production and commercial activities, it nevertheless participated in many policy decisions and carried out their implementation. The new millennium was ushered in with reforms geared at improving the quality of the civil service. Together with investments and economic promotion policies, an encouraging growth in the last seventeen years cannot be disconnected from increased state administrative capacity, in this case, the civil service.

III Constraints to Effective Civil usher Service Performance

Civil service performance in economic development has had highs and lows, as indicated in the preceding section. It performed relatively well after the Arusha Declaration in 1967, before falling to very low performance levels throughout the 1970s, 1980s, and early 1990s. Performance has improved since the late 1990s, reaching more satisfactory levels in the decade and a half since the year 2000. This section explores the factors behind this performance. Four factors explain civil service performance: civil service capacity; motivation and conduct; the policy cycle and environment; and resources and tools.

A Civil Service Capacity

In this section, capacity refers to staffing levels, and their educational, professional, and technical skills and competence. Other capacity issues, for example, systems, tools, and resources, will be discussed in subsequent sections. The issue of staffing levels has varied from too few staff members at independence in 1961 and during the decade of the socialist project 1966–76, through a perception of having too many, leading to retrenchments in 1976 and after 1996, to a ‘truce’ situation of having fairly adequate numbers but with neither the right nor adequate mix of educational, technical, and professional competencies and skills in the period after the year 2000.

Bureaucratic expansionism in Tanzania is a historical phenomenon because, since independence, the civil service has been characterised by rapid expansion in its size. For instance, according to the Survey of Employment and Earnings (SEE), the number of civil service posts increased from 65,708 in 1966 to 191,046 in 1976, and 295,352 in 1980. By 1976, the annual growth rate was 16.2 per cent and the cumulative increase over the same period was almost fivefold. However, the overall increase in total employment was only 28.4 per cent. The reasons for the increases in earlier periods include recruitment of necessary human resources after independence, the expanded scope and functions of the civil service, decentralisation measures and villagisation campaigns that led to more employees being brought in, and, finally, patronage and corruption that took its toll in terms of bringing unwanted people into the service. However, the increase in numbers was not matched by an increase in production. The cumulative growth of GDP at 1966 constant prices over the same period was 38 per cent, with an average annual increase of 3.2 per cent. Clearly, this was a phenomenal growth in the size of the civil service, with a consequent increase in the size of the wage bill.

Efforts made to check the increase included retrenchments. It was concerns over the wage bill that fuelled the perception that the civil service was too large, leading to several bouts of retrenchments. A total number of 9,466 staff was retrenched in 1976, and 16,109 ghost workers were identified and purged from the payroll in 1980. A further 50,000 civil servants were retrenched in 1994. The size of the workforce was reduced by 25 per cent from 355 in 1992 to 270 in 1997. There was also a ten-year employment freeze as part of SAP conditionality throughout the 1990s.

Concerns over the size of the wage bill continued in the period after 2001 and are discussed fully in Appendix A.1. Up to the year 2010, the increase in size was probably roughly on a par with the growth in GDP. As shown in Appendix A.1, there was a notable increase between 2010 and 2015, largely because of massive recruitment of teachers and health workers. Yet efforts to keep the wage bill in check have continued, including a tight centralised control and monitoring of the payroll, a two-year freeze on employment, suspension on salary adjustments, and increments. All these have been aimed at holding the public service size in check; consequently, not only do many public needs remain unmet, but also even established posts remain unfilled in the civil service, as will be discussed in the next section.

Moreover, at least for the last fifteen years, growth in civil service size does not seem to have had negative implications for the economy. As shown in Figure 5.A.1 in Appendix A.1, the fast rate of growth in public sector employment (of which the civil service constitutes 89.7 per cent) expanded at an average annual rate of 8.1, slightly above formal private employment. This did not prevent GDP from growing at the rate of 6.3 per cent of GDP in the same period. Still, about 50 per cent of government revenue was spent on the civil service wage bill, a figure that has risen since 2012.

Figure 5.A.1 Evolution of public, private formal, and total employment and GDP, 1968–2015 (2010 = 100)

Source: Trading Economics/Transparency International (2016). (Accessed: 1 November 2017)

B Staffing Levels

The trend noted in civil service size has always been accompanied by high vacancy rates in middle and senior levels, and in professional, science, and technical fields. The vacancy rate was 10 per cent at independence in 1961, increasing to 29 per cent by 1972, and averaged 36 per cent throughout the 1970s (Wily, 1981; Mukandala, 1983). The situation got worse during the difficult years of the 1980s and 1990s. The employment freeze did not help, as those who left for greener pastures could not be replaced. This shortage of critical skills has meant that the civil service has been unable to perform certain critical functions. In the education sector, while there is reportedly over employment, there is also a shortage of over 20,000 science and mathematics teachers, as this interviewee revealed:

We have 7,000 arts teachers who are in excess in our schools. This means paying for civil servants who do not deliver, expanding the wage bill without returns. You may find between three to four teachers teaching one subject in secondary schools. And because their number exceeds the required threshold (teacher–student ratio), they have to coordinate themselves to teach topics in a subject. For the science teachers, we have a shortage of about 20,000 teachers. This number is huge and means a lot if we want to seriously move forward as a nation. There is an urgent need for the government to train and hire science teachers to address this shortage.

(Interview, President’s Office Public Service Management (PO-PSM) I, 12 October 2017)

In spite of these claims, a study by Twaweza (2015) reveals that the Secondary Education Development Plan target of 1:30 teacher–student ratio is far from being met. Twaweza reports that, on average, the teacher–student ratio in the schools studied was 1:88. Similarly, there is a worsening staff shortage in health, public administration, and other sectors. According to a recent employment and earnings survey:

The results reveal that there were 135,694 job vacancies in the formal sector in 2014/15, of which Technicians and associate professionals had the largest number of 72,950. Professionals had the second largest number of vacancies which was 30,880 followed by Service workers and shop sales workers with 14,472 vacancies. Education industry (47,256 vacancies) had the largest number of vacancies followed by public administration and defence; compulsory social security with 46,067 vacancies. Human health and social work activities industry was third and had 23,668 vacancies.

(NBS, 2015)

Inadequate staffing is also a challenge in LGAs where real social-economic activities take place. A more recent and often cited reason has been the freezing of government employment pending the verification exercise of the qualifications of civil servants. For instance, in one of the districts that we visited in Mara region in June 2017, we found that only the Procurement Management Unit out of nineteen departments/units was staffed to the appropriate level (Table 5.2). The overall district staff requirement is 3,054, but presently there are only 1,952.

Table 5.2 Staffing profile in Bunda district, Mara region

S/N	Department	Staff requirement	Available staff	Shortage	Future recruitment plans 2017–18
1	Administration	182	113	69	15
2	Finance and commerce	25	12	13	3
3	Water	23	12	11	5
4	Construction	21	7	14	3
5	Land, natural resources, and environment	33	8	25	3
6	Hygiene and environment	5	2	3	0
7	Agriculture, irrigation, and cooperatives	81	59	22	10
8	Livestock and fishery	51	35	16	10
9	Primary education	1,56	1,13	430	100
10	Secondary education	479	366	113	104
11	Health	542	182	360	80
12	Planning and statistics	6	2	4	4
13	Community development	29	11	18	10
14	Legal affairs	3	2	1	1
15	Internal audit	6	3	3	3
16	Information and communication technology	2	1	1	1
17	Procurement	6	6	0	0
18	Election	3	0	3	3
19	Bees and honey	3	1	2	2
	Total	3,06	1,952	1,108	357

Source: Field Data (2017)

The shortage of staff in certain critical areas in the public service has been increased by the recent termination of staff with inappropriate educational qualifications or forged academic certificates. For instance, addressing the media, the permanent secretary of the PO-PSM reported that by May 2017, a total of 9,932 staff had been terminated on the grounds of forging academic certificates and 1,538 with questionable certificates were being investigated (IPP Media, 4 May 2017). Health and education were the sectors most affected by this exercise.

C Competences and Skills

The civil service capacity to administer effectively not only depends on the numbers, but also on the quality of the labour force employed by the civil service: does the labour force have the requisite skills and competencies to administer effectively? The answers to this question may not be affirmative and there may well be variations between sectors or job cadres. For example, using the health sector as a case study, and as indicated in Table 5.3, Service Delivery Indicators (SDIs) show that public service health providers could correctly diagnose 59.9 per cent of case conditions compared with 65.9 per cent of health providers in the private non-profit sector. However, they did better than the private for-profit sector. Thus, the problem may not be a public sector one, although the public sector is the main employer of health care professionals. Adherence to critical guidelines is low, at below 50 per cent, and this is also the case in both the profit and non-profit sectors. Clinicians’ ability to manage maternal and neonatal complications is extremely low, as public sector providers adhered to only 31.3 per cent of clinical guidelines in that area, while it was even lower for the two groups of private providers.

Table 5.3 Basic health service delivery quality

SDI	Tanzania	Public	Private	Private
			(non-profit)	(for-profit)
Case load (per provider per day)	7.3	7.1	5.7	10.8
Absence from facility (% providers)	14.3	13.9	17	12.8
Diagnostic accuracy (% clinical cases)	60.2	59.9	65.9	54.2
Adherence to clinical guidelines (% clinical cases)	43.8	43.7	45.5	42.1
Management of maternal and neonatal complications (% clinical cases)	30.4	31.3	30.1	26.4

Source: World Bank (2015a, p. 10)

The same situation exists in the education sector. For instance, results from educational sector SDIs show that primary school teachers lack the necessary academic and pedagogical skills to teach. Teachers score extremely low in content knowledge. SDI tests show that only one out of five teachers scored more than 80 per cent (minimum knowledge cut-off point) on the combined mathematics and English test, while 1.1 per cent of teachers scored above the 80 per cent cut-off in English. Respectively, the average scores in English, mathematics, and pedagogy were 42 per cent, 63 per cent, and 36 per cent. The SDIs also reveal that, although teachers seem to have done better in mathematics, only 26 per cent were above the 80 per cent cut-off point (World Bank, 2015b). Evidence from these two critical sectors serves to reveal a broader picture with regard to the skills and competence levels of the civil service. As revealed elsewhere in this chapter, the poor abilities among school and college graduates indicate that the skills and levels of competencies of the civil servants in other sectors cannot be exceptional.

Apart from poor training, this low level of skills and competence in Tanzania’s civil service is partly a consequence of recruitment and promotion practices. Recruitment and the civil service career path into middle- and higher-level positions are critical factors in determining the quality of the civil service. Experience from other countries indicates that, if one is to hire the best candidates, recruitment into the civil service should involve competitive examinations. Similarly, promotions into middle cadre and higher levels should involve competitive training and performance evaluation (Bhatt and Kim, 2000). The quality of the civil service is also improved through rigorous evaluation of the performance of civil servants’ contribution to organisational goals.

Historically, recruitment into Tanzania’s civil service has been conditioned by varying factors. Recruitment into the colonial bureaucracy was not only based on education and professionalism but also on race and ethnicity. Soon after independence, there was a preference for indigenous Africans, in other words, Africanisation, and thereafter localisation. Clearly, given the shortage of qualified Tanzanians, there was a liberal interpretation of merit in order to get people into available positions. Up to the early 1980s, all graduates from the university and other tertiary institutions were recruited into public service. Interviews were for placement purposes only. Relatedly, a decision was made to hire many of the former members of the militia who fought in the war against Idi Amin.

There was also a notable hiring of friends and relatives by senior civil servants to compensate for low pay, higher taxes, high costs of living, and shortages, especially in the late 1970s and early 1980s. All these factors severely challenged the application of the principle of merit in recruitment. Following several reform initiatives, in 1999 the government launched a public service management and employment policy, subtitled ‘In Pursuit of Public Services through Merit and Result Oriented Management’. Informed by new public management theories, the policy attempted to adopt good practices from the private sector to improve the quality and process of recruitment. Some of these practices included open competitions for jobs, advertisements in the media, formal selection criteria including balancing academic and professional qualifications, non-discrimination, and so on. Three years later, a Public Service Employment Secretariat was established. Available data do not permit us to determine and compare the employment structure of the public sector with the rest of the formal sector.

The recent push for utilisation of explicit meritocratic criteria in recruitment has also been challenged by the nature of the available eligible pool of applicants. These are the products of an education system that has been in crisis for a long time. Extensive expansion and disorganisation, poor infrastructure, inadequate human resources, and low morale and motivation have affected all levels of education in Tanzania with few exceptions. As revealed previously, many graduates are therefore of low ability and poorly trained. Concerns for equality dictate that graduates from all institutions, no matter how unworthy, be treated equally. When some of these have found their way into the interview panels, the results have been disastrous.

Our findings reveal that the ability of the civil service in terms of hiring the best and brightest, and motivating, retaining, training, developing, and promoting them has declined in relative terms. One of the reasons for this is the absence of an incentive structure that attracts and retains the best minds. In most cases, however, declining civil service quality is closely related to the nature of recruitment and promotion. The practice has shown that recruitment into the civil service is still short of rigorous screening and vetting. Simply for illustration, until 2015 and after increasing public outcry, it was not uncommon to find that positions into prestigious public institutions were filled up with big ‘country surnames’. Whether that was/is an outcome of competitive screening is beyond the scope of this chapter to establish. Rather, it questions the level of coincidence. Similarly, although the government’s commitment to hire all university graduates was abandoned a long time ago, all trained teachers and health professionals continued to be hired until around 2010.

Promotion into middle- and senior-level positions depends on seniority/longevity in service and in certain cases one’s connections and partisan attachment, rather than performance. Although over the past few years the government has introduced the Open Performance Appraisal System (OPRAS) as a performance management tool to be used for guiding promotion decisions, its utility is highly questionable. The traditional three years’ automatic promotion system remains in force. Although there are schemes of service, complaints abound of their not being followed. Similarly, in recent years, recruitment into management positions has undermined a basic ethos of the civil service, its political neutrality. In demonstration of this, an interviewee revealed:

We are witnessing a new phenomenon of partisan cadres from political parties invading the civil service, ascending to the ranks of Regional Administrative Secretary, District Administrative Secretary, and District Executive Director. This is not a good gesture for an efficient civil service. We need to professionalise instead of politicising the civil service…

(Interview, PO-PSM II, 12 October 2017)

Traditionally, promotion into such positions would require not less than ten years of experience in the civil service as well as rigorous performance evaluation and vetting. The Public Service Commission, which stands to defend the autonomy of the civil service and at least insulate it from the mounting political surge, is rather indifferent. This lack of rigorous screening and vetting hinders the civil service from hiring the right personnel not only in terms of skills but also in terms of ethics. One of the interviewees shared his/her experience on how things used to be conducted, which deserves to be quoted at length:

After the probation period expired, the newly employed civil servant was taken to the Public Service College, Magogoni Dar es Salaam, and trained on economics, administration, taxation minutes writing, government stores, standing orders, government finance etc. After this three-month dose, an examination would be administered and once you passed you would be vetted by government security organs and receive training on how to handle government information. Not everybody was required and/or qualified to work in the civil service. The reason why we have ethical issues in the current civil service is because we abandoned this rigorous procedure of screening, vetting and training civil servants…

(Interview, PO-PSM-III, 12 October 2017)

Connected to recruitment is the question of employee training and development, as the interviewee quote here suggests. Tanzania has an array of instruments that provide guidelines on training of civil servants, including the Public Service Management and Employment policy of 2008; the Public Service Act No. 8 of 2002 (Cap. 298), the Public Service Standing Orders of 2009, and the 2013 training policy. However, these instruments have failed to translate into effective vehicles for guiding and coordinating training programmes for civil servants. This comes at a time when the skill levels of civil servants and potential recruits are under serious criticism.² Coupled with coordination and resource constraints, civil service training is somewhat chaotic. Interviews were relatively illustrative of this:

Despite the institutional, policy, and legal strength that the ministry has, training programmes offered to civil servants have not been efficient. This is because of inadequate resources for the training of civil servants; training programmes not being structured to address different levels, cadres, responsibilities, and attitudinal transformation of civil servants; lack of systemic training geared to prepare public servants to occupy higher positions in the public service; limited training infrastructure in the public service; proliferation of training institutions whose training contents do not satisfy the needs of the public service both in terms of quality and relevance; inadequate management and coordination of training opportunities in the civil service; civil servants terminating their service after competing training sponsored by the government.

(Interview, PO-PSM IV, 10 October 2017)

Political appointments into management and top leadership civil service positions are at times presented as necessary in order to keep the bureaucracy under close political control and thus guarantee democratic accountability. However, this has weakened the civil service autonomy in fulfilling its obligations professionally. The ring of political patronage has operated at the expense of civil service professionalism, such that the art of administration is overshadowing the science. A recent study has revealed that it is safer for the civil servant to trade the law for a political directive (Pastory, 2017). These findings suggest a re-examination of the system of civil service recruitment, promotion, and appointments to higher-level positions.

D Civil Service Motivation and Conduct

Motivation is a complex concept but can simply be defined as anything that influences employees’ commitment to and delivery of the job. This complexity arises from the fact that there is a complex web of factors that promote positive work behaviour, and a significant number of motivational theories exist to that effect (Kanfer, 1990; Clark, 1998). In short, motivation is explained as an intrinsic, extrinsic, cognitive, and environmental/contextual phenomenon. Because of this complexity and since, invariably, some of the issues have been discussed elsewhere in this chapter, this part concentrates on extrinsic and intrinsic motivation, civil service compensation, and moral incentives in particular.

1 Compensation

Compensation has been a contentious issue in the civil service. In the early years after independence, the civil servants’ pay package was considered too generous. It was one of the grievances that led to the university students’ protest in 1966 as well as trade union strikes. President Nyerere’s slashing of civil service salaries including his own was followed by more drastic action after the Arusha Declaration. Thereafter, the civil and public service compensation in general was guided by three types of policies. The first type included policies that reduced and froze the incomes of higher officials while restricting their capacity to earn income from other outside engagements. These policies included a policy of ‘The top to stand still until the gap between the lower and higher salaries is narrowed’, increased progressive taxation of high income, and a leadership code that forbade leaders from outside earnings and property ownership, especially houses. The second type of policies entailed increasing lower incomes. This involved raising the minimum wage; paying special allowances to those in the lowest two salary scales; and several salaries increases that favoured the lowest earners. The third type of policies included abolishing some of the privileges enjoyed by senior officials while extending other privileges to everybody in the civil service. As a consequence, real wages went down after the Arusha Declaration in 1967, and in the crisis period between 1979 and 1984.

According to an International Labour Organization (ILO) study (1989), Tanzania experienced a 65 per cent drop in real wages from 1979 to 1984. It was one of the sharpest declines in real income in Africa (Ghai, 1987). The compression of wages within the public sector, from 33:1 in 1967, to 5:1 in 1981 (Kiragu and Mukandala, 2005b) has been a disincentive for senior servants and professionals, hence the brain-drain, corruption, and non-monetary compensation of all types. This spiral would continue until the hefty pay increases in the late 1990s. A series of further salary increases have continued to be made, which, combined with low inflation, have made the lot of civil servants tolerable.

According to the available studies, public wages in real terms seem to have improved since 2001, outcompeting those in the private sector (Leyaro et al., 2014, p. 10). There was no change in private wages between 2001 and 2006, while there was a 50 per cent increase for central government employees. There was also a 20 per cent drop in private sector wages between 2010 and 2015, while there was no change in public sector wages. Public sector employees also had a wage advantage of 25 per cent due to education, age, and tenure during 2001–6 (Leyaro et al., 2014, p. 10). It thus seems that public sector employees are better off after the public sector reforms referred to than in the past, especially when one also takes into account their non-monetary income.

For the two years since 2015, earnings in the civil service have, however, stagnated. This is because there has not been any salary increments for two consecutive years since the fifth-phase government came into power. Similarly, promotions and employment in the civil service have been frozen pending verification of civil servants’ qualifications and cleaning of ghost workers. The freeze of promotions and salary increments, as well as changes in the salary structure, has left many civil servants demoralised. Concerns have been raised that the verification exercise has now turned into a government excuse for evading its human resource compensation responsibility. Most of the civil servants interviewed at the ministries, regions, and districts expressed their dissatisfaction as they were not certain of their compensation prospects. Expressing this dissatisfaction, one of them put it this way:

I and my colleagues were promoted early 2016; six months later a directive came from the PO-PSM that our promotion was revoked pending verification of our education qualifications. I had planned to use my salary increment from my promotion to finish my house and pay school fees for my children. This dream vanished, and I am not sure when I will get my right. Under this kind of work environment, why should I be motivated to work, why should I be committed to serving my country if my employer does not care about my rights?

(Interview, local government authority I, 16 October 2017)

A related issue is the absence of an attractive incentive structure. Stagnant real wages, wage compression, especially for middle and senior grades, and a promotion and reward system loosely based on merit are working against the morale of middle and senior officials in the civil service. Wage compression for middle and senior officials has continued to characterise public service pay (Kiragu and Mukandala, 2005b). In this regard, one of the interviewees hinted:

[T]he fifth-phase government is striving hard to ensure equity in compensation of civil servants in order to cut down the gap between the highest paid and lowest paid. The president already hinted that he wants a civil service that is fairly remunerated but in practice this has not translated into real gains. Most middle- and lower-cadre civil servants have lost hopes of having their salaries raised. Promotions have been frozen, cutting down the morale of civil servants.

(Interview, PO-PSM III, 12 October 2017)

Additionally, there has been a problem or failing to follow through and achieve some of the reform targets. Salary differentials are still lower than the pay reform targets; the salary structure is still highly compressed; some professionals are relatively underrated. Plans to implement annual salary adjustments have not been followed through; the wage bill to GDP ratio, which was expected to rise progressively, has been declining. Relatively, consolidation and rationalisation of the public service has not been realised. Related to this, compensation is still diverse and unequal even among people carrying out the same functions. On 18 October 2017, and also as recently as 5 January 2018, the Minister for Public Service expressed his disgust at the situation and called for an overhaul of the salary system (Daily News, 2018). As has been the case historically, this emerging government’s drive to address pay inequities across government institutions does not seek to do so by adjusting low income upwards but by lowering top pay levels. Such a move had been started by the President back in 2016 when some heads of parastatal organisations were forced to choose between reduced pay levels and vacating their positions. This newly emerging trend suggests that the morale of the civil service is likely to continue declining.

Apart from wages, civil servants enjoy other incentives such as paid leave, opportunities for personal development, pensions, health insurance, loan guarantees, and job security. Most of these incentive schemes are not offered by the majority of private sector employers. The top-cadre civil servants (at the level of chief executives, heads of divisions, and other cadres that report directly to the chief executive) enjoy top-up allowances in terms of housing, transport, communication, and duty allowances. The majority of lower-cadre personnel are, however, less motivated by both pay and the job. For instance, in the education sector, one study revealed that more than two-thirds of teachers who were surveyed would not choose the teaching profession if they could choose again (Mkumbo, 2013). Similarly, in 2008, a survey of 448 health care workers at Muhimbili National Hospital found that almost half of both doctors and nurses were not satisfied with their job, and this was also the case for 67 per cent of auxiliary clinical staff and 39 per cent of support staff (Leshabari et al., 2008). This level of dissatisfaction was explained as the result of low salary levels, unavailability of necessary equipment and consumables to ensure proper patient care, and improper management of employees’ welfare. Nevertheless, a recent comparative study revealed an improvement. Carried out in 2013, it reported that 82.6 per cent of health workers in Tanzania were satisfied with their jobs, compared with 71 per cent in Malawi and 52.1 per cent in South Africa (Blaauw et al., 2013).

This improvement is probably one of the outcomes of health sector reforms.

2 Moral Incentives and Ethics

In addition to these material incentives, in the period after independence and during the socialism phase, there was also a reliance on moral incentives. More specifically, appeals were made for people to be nationalistic, to love their country and make sacrifices for her independence and development. Everybody was urged to work hard. Combined with socialist slogans of equality and justice, these appeals were very effective and encouraging. This was more so when they were made by Mwalimu Nyerere, given his charisma and honesty. These appeals to people’s moral commitment to the country helped civil servants cope with emerging hardships in the 1970s. The climax of these moral appeals was during the Tanzania–Uganda war of 1978–9. The following economic hardships colluded to undermine these appeals. The liberalisation phase, with its emphasis on individualism and market forces, further undermined the effectiveness of moral incentives. Since then, civil servants have expected material returns for their labour. When they decline or stagnate, commitment and productivity is bound to suffer.

Civil service conduct plays a significant portion in economic development. Not only is an undisciplined civil service that is characterised by shirking, corruption, and misappropriation of public resources less productive, but it also diverts public resources to private gains. Lessons from Japan and other advanced economies have shown that a highly disciplined and committed civil service plays a crucial role in economic growth (Bhatt and Kim, 2000). An ethical civil service has a sense of duty, and it can serve as a deterrent to opportunistic behaviour from politicians. Generally, the findings indicate that, since the late years of Ujamaa, Tanzania’s civil service has been characterised by work misbehaviour such as shirking of responsibilities (absenteeism and negligence) and corruption and misappropriation of resources (e.g. through procurement and creation of ghost workers), and generally it has failed to regulate opportunistic politicians and even colluded with them, at the expense of the economy.

The civil service as an institution of service delivery is integrated in society. Thus, any analysis regarding how the civil service conducts itself has to be embedded within the values, culture, and norms that guide a particular society. The Tanzania public service ethics code emphasises equity, probity, integrity, moral conduct, and political neutrality. In theory, the values, culture, and norms that guide the conduct of the civil service encourages enhancing employee involvement, rewarding teamwork, recognising individual effort, and incorporating the needs of the clients, in this case delivering critical outputs to the citizens. However, our findings on this issue suggest that ethical values such as honesty, integrity, impartiality, and fairness, among others, have been in constant decline in the civil service. As a result, these declining values have encouraged inefficiencies and thus have likely affected the productivity of the civil service. Recounting the heyday of the Arusha Declaration and the leadership code of conduct of 1967, a respondent in the PO-PSM elucidated:

When I joined the civil service in 1978, there was a clear ethical strategy to shape the conduct of civil servants. Upon joining the service, one had to fill in the Arusha Declaration form, ethical form, and commitment to party ideals form. These forms had put massive restraints on civil servants from engaging in corrupt behaviour and other forms of pathologies. The next step was a two-year probation pending confirmation…

(Interview, PO-PSMIII, 12 October 2017)

Moreover, there is a growing decline in the spirit of volunteerism among civil servants in particular and the public in general. While in the past it was common for the civil servant to sacrifice for the common good, that heyday died with Ujamaa in 1985. As one of the interviews revealed, a majority of civil servants in middle- and higher-level positions are unlikely to commit their efforts without expecting individual returns. This lack of commitment to public duty is aggravated by an ethical crisis.

The civil service absenteeism rate is reportedly especially high in the education sector. Civil servants are reportedly either absent from their workstations or present but doing job-unrelated businesses. For instance, in the education sector alone, a study by Twaweza (2015) reveals that 31 per cent of teachers were absent from workstations during the period of study in 2015, while 34 per cent were present but not teaching, and only 35 were teaching. Respectively, the findings for 2016 were 27 per cent, 32 per cent, and 41 per cent. The 2016 report on Tanzania’s SDIs show students received roughly 39 per cent of the scheduled teaching time, which is equivalent two hours and forty-six minutes per day instead of the official five hours and fifty-six minutes (World Bank, 2015b). Twaweza estimated that a classroom absenteeism rate of 50 per cent costs the country TZS 862 billion per year through paying people who have not produced anything. This amount equals roughly 1 per cent of GDP, and is 63 per cent of the total budget for the Ministry of Education, Science, and Technology in the financial year 2017/18. The absenteeism rate in the health sector was reported at 14 per cent, which is lower than African and Asian standards. Although no data on absenteeism for other sectors were available, anecdotal evidence suggests that the situation may not be very dissimilar, especially for civil servants who attend but work fewer than expected official hours. All these suggest that the productivity of civil servants is still low. Corruption is also one of the major ethical issues constraining efficiency in the civil service, slowing down the pace for social and economic development. Both grand and petty corruption increase the cost of public service delivery and cripple the effectiveness of the civil service.

Understanding this fact, the Tanzanian government has, over time, put institutional arrangements in place to curb corruption. Various anti-corruption campaign programmes have been waged to complement the institutional strengthening as well. However, the anti-corruption crusade efforts have not delivered significant results. Available data indicate that Tanzania is ranked 116th least corrupt nation out of 175 countries (Transparency International, 2016). The data also show that the corruption rank in Tanzania averaged 98.37 from 1998 until 2016, reaching an all-time high of 126 in 2009 and a record low of 71 in 2002, for reasons that are not clear (Trading Economics, 2003). Tanzania’s average rank for the past decade stood at 110, while it scored an average 30.6 out of 100 points in the Corruption Perception Index (CPI) (Figure 5.1). CPI ranks countries and territories based on how corrupt their public sector is perceived to be.

Figure 5.1 Tanzania’s CPI and rank, 2007–16 Trading Economics/Transparency International (2016).

(Accessed: 1 November 2017)

Other reports also paint a gloomy picture regarding corruption in the Tanzanian civil service. For instance, The Global Competitiveness Report, 2015–2016, which assesses the competitiveness landscape of 140 economies, providing insight into the drivers of their productivity and prosperity, notes:

Indeed, gifts and other bribes are perceived to be widespread when applying for public utilities and permits. In fact, businesses (presumably multinationals, as national firms could not make the comparison) consider the prevalence of irregular payments and bribes within public utilities in Tanzania as one of the worst in the world. Likewise, more than a third of households’ report paying a bribe to obtain public utilities in Tanzania.

(World Economic Forum, 2016)

Notably, anti-corruption initiatives in the past have not registered progress because there has not been a serious commitment by the government to punish ethical violators, especially those involved in big corruption scandals. Equally, the anti-corruption institutions are under-resourced in terms of finances and human resources, and lack the requisite autonomy and will to spearhead the fight. Parliament, which could exert pressure for intensified anti-corruption efforts, is reportedly toothless and worse still suffering from ethical problems brought about by some of its members (Pastory, 2017). In addition, the lack of impartiality and public support necessary to steer the process ahead has been another constraining hurdle. Corruption is likely to stall the efficient delivery of critical outputs, stalling the social and economic development of the country as it diverts public resources to private ends. For instance, available evidence indicates that in the last ten years more than TZS 813 billion is known to have been expropriated through the four famous corruption scandals alone: External Payment Arrears, Bank of Tanzania Twin Towers, Richmond, Tegeta Escrow, Tanzania (AfriMAp, 2015; The Citizen, 24 June 2015). There are no reliable estimates of how much the country has lost through other corruption schemes.

The corruption and embezzlement phenomenon in Tanzania’s civil service dates back to the late years of Ujamaa and emerged as a response to a real fall in income. Initially, civil servants resorted to inventing all kinds of fringe benefits. These included bonuses, subsidised shops, canteens, and cafeterias at workplaces, transport, dispensary and/or private-practitioner medical services, housing, clothing, farming plots, transport services to ease access, and a host of recreational facilities. These were supplemented by extensive allowance claims (sometimes fraudulent and/or inflated) for travel, prolonged conferencing, and so on. As the economic situation got worse, the demand for fringe benefits blossomed into outright racketeering, or Ulanguzi, as it was commonly called. This was one of the most phenomenal haemorrhages of public resources in Tanzania. Corruption reigned supreme and everybody was a seller and a buyer. The undisputed climax of the phase was the burning of the Bank of Tanzania building in 1984, the precise cause of which has never been made clear. The prime minister launched a large military-style operation against racketeers in 1984. He died in a road accident on 12 April 1984.

This clampdown was followed by a phase of projects (Miradi). To survive, one simply had to have a project and dab in the informal sector. In July 1987, Party Chairman Nyerere advised Tanzanian experts to ‘involve themselves in gardening, poultry keeping and other activities which could enable them to augment their meagre incomes’. The assumption was that civil servants would maintain the separation between official and private activities and income. That was not the case. Official positions and resources were used for private gain as officials tried to make ends meet. The replacing of the leadership code by the Zanzibar Declaration in 1992, allowing leaders to accumulate wealth, legitimised what was already taking place. Various components in the economic reform programmes, including support to the private sector, created further opportunities for civil servants. Privatisation, the promotion of decentralisation, operational autonomy for various entities, and outsourcing and subcontracting of the supply of various goods and services have all created opportunities for civil servants to make ‘deals’ and make money. If President Mwinyi’s period was properly known as a time of Ruksa (everybody could do anything), Presidents Mkapa and Kikwete’s times are known as the years of deals, or Dili. The years 1995 to 2015 were a time when Tanzania fell into costly dubious contracts, some of which have already been mentioned. It was also the period when the country adopted legislation, such as mining laws, that turned out to be economically hazardous. Although the misappropriation was in part engineered by the politicians, a thoughtful analysis would not isolate the civil service from these ills.

E Policy Cycle and Environment

One of the main constraints to an effective and efficient role for civil servants has been the nature of policymaking and the consequent policy decisions. In May 1965, Tanzania become a de jure one-party state. Combined with the Arusha Declaration and the socialist project in 1967, the party assumed supreme policymaking powers. The role of civil servants as advisers and facilitators in policymaking was reduced. Their role remained policy implementation under the watchful eye of the party. This fact in the context of the ideological thrust of ‘state-led development’, as well as wanting to ‘run while others walked’ (Hyden, 1975), changed the traditional mode of policymaking characterised by studies, policy drafts, deliberation, recommendations, and decisions. Many policies were made in haste without full consideration of all available alternatives and their consequences. The resulting policy decisions were poorly considered, including lack of consideration of the mechanisms of implementation and their possible consequences. Many policies were impossible to implement. Nationalisations, irrigation, decentralisation, politics in agriculture, pan-territorial pricing, and price controls are cases in point. This trend continued until the mid-1980s, when Tanzania succumbed to internal and international pressure, abandoned the socialist project, and adopted the SAP. More generally, the position and contribution of the civil service was also constrained and minimised by several factors. The whirlwind of the rapid policy changes, massive state and political reorganisations, transfer of personnel, and expansion of civil service functions while at the same time moving other functions to other entities created confusion in action and at times outright resistance on the part of the civil service.

From 1985 onwards, the country experienced the implementation of what Stiglitz (2003, p. 34) has called a ‘one-size-fits all’ approach, anchored by economic management by fiscal austerity, privatisation, and market liberalisation. The state (civil service) role was to maintain law and order, to provide an enabling attractive environment for business and investments, to generate economic and social policies, and to provide important social and economic services. The civil service was caught in a pincer movement. The pendulum swung from one extreme, where the civil service and the state were expected to be the engine of growth, to the other extreme, where they were now expected to make room for market forces. Both extremes were fuelled by ideological fervour. The socialist ideology informed the Ujamaa project, while liberalisation was driven by a blind belief in the magic of market forces. According to Stiglitz (2003, pp. xiii–xiv),

Decisions were made on the basis of what seemed a curious blend of ideology and bad economics, dogma that sometimes seemed to be thinly veiling special interests. When crises hit, the IMF prescribed outmoded, inappropriate, if ‘standard’ solutions. There was a single prescription […] ideology guided policy prescription and countries were expected to follow the IMF guidelines without debate.

During this period, after 1980, according to Green (1995, p. 102),

The Fund and Bank were rapidly building up gatekeeper and coordinator roles so that they significantly influenced all official transfers not just their own […] they sought to provide or impose overall economic policy prescription.

Constrained by conditions and conditionality, the civil service once again had very little room for manoeuvre as the policy of adjustment took its toll, and growth stagnated.

Several changes were brought about by a general rethink of the World Bank approach to development after the World Bank’s 1999 annual meeting and the introduction of the PRSP approach to engaging with developing countries (Mallaby, 2004, p. 254). The IMF/World Bank and western donors made more commitment to consultations, participation, and empowerment. Coupled with the launch of the PSRP already alluded to, the civil service was strengthened and its role in policymaking appreciated. The policy cycle and environment has had an impact on civil service performance. Its policymaking advisory role within the context of political neutrality of the post-independence period was replaced by a restricted role in policymaking facilitation, resulting in hastily made and poorly considered policies that were difficult to implement. The resulting economic crises led to the liberalisation phase during which the state and civil service were confined to the so-called core functions carried out under conditionality. A workable equilibrium seems to have stuck since the year 2000, with a reformed civil service trying to facilitate market forces for economic development.

F Resources and Working Tools

In order to be efficient and effective, a civil service has to convert inputs (policies, plans, priorities, ideas, labour) into outputs (tangible outcomes such as service delivery in the form of water, health care, and education). Conversion of the inputs into outputs requires working tools that can facilitate the process. Working tools, in this case, may involve both hard and soft infrastructure. The hard infrastructure may include physical buildings, such as office building, vehicles, ICT, and so on. The soft infrastructure may involve computer software programmes for managing human or financial resources and filing systems, for example.

It is fair to note that a lack of resources, critical tools, and infrastructure has been a continuing challenge for the civil service. Lacking enough budgetary outlays to acquire the necessary tools, facilities, and equipment, it has had to improvise and/or abandon implementation plans. All the years that the government’s budget had serious deficits, for example 1976–2000, meant that there were limited resources for the civil service.

Recognising the importance of equipping the civil service with working tools, the CSRP, which spanned 1991–9, PSRP I, 2000–7, and PSRP II, 2008–12, had specific reform packages geared at strengthening the working tools within the civil service. For instance, ICT is one of the critical tools that had to be introduced in government to facilitate government processes under the rubric of e-government. Here, the focus was on building the capacity of government institutions to use ICT in running government operations. The interventions involved installation of ICT tools and facilities, training, development of management information systems, and steps to establish e-government infrastructure and e-government agency (Mutahaba et al., 2017).

While significant progress was achieved in equipping the civil service with relevant tools, it is mainly the central government institutions in urban settings that enjoy this progress. Some LGAs have also registered some progress, but generally institutions that are peripheral to the central government and the urban districts are trailing behind. The general working environment is not conducive: office buildings are dilapidated and poorly furnished. In some areas, private homes of government officials at grassroots level become public offices. ICT infrastructure is in short supply and, where it is available, there are problems with internet connectivity and power outages.

This general observation is supported by findings from the key social sectors. For instance, Table 5.4 shows that public health facilities are less equipped in terms of equipment, drugs, and infrastructure than both the profit and non-profit private sectors.

Table 5.4 Availability of working tools and resources

SDI	Tanzania	Public	Private	Private
			(non-profit)	(for-profit)
Drug availability (% drugs)	60.3	58.9	66	62.8
Equipment availability (% facilities)	83.5	81.7	92.5	84.5
Infrastructure availability (% facilities)	50	40.6	66.9	91.2

Source: World Bank (2015a, p. 10)

The education sector has its share of challenges as well, particularly in regard to student–textbook ratio. This ought to be 1:1, but in practice this target is very far from being realised. For instance, a recent survey by Twaweza (2016) indicates that the student–textbook ratio was 26:1 in Tabora region, and 3:1 in Mtwara, Kilimanjaro, Njombe Katavi, and Ruvuma. Similarly, reporting the situation in secondary schools, a baseline study report by a team of experts on a similar matter concluded: ‘For most students in the sample schoolbooks are not available or only available when shared with several other students’ (Barrett et al., 2014).

Generally, these findings show that the civil service is yet to be sufficiently equipped with the necessary tools required for performing the work. This has negative implications for the effectiveness of the civil service and its performance, thus precluding its ability to make an effective contribution to the country’s development.

IV Maximising the Civil Service Economic Potential: Future Reform Directions

Tanzania has sustained relatively stable growth for the past ten years. This achievement, however small, cannot be explained without appreciating the role of public service reforms undertaken since 2000 to strengthen the administrative capacity of the public service in general and the civil service in particular. Notwithstanding, the civil service has not contributed enough to driving economic development. Its capacity to effectively implement policies and laws, to make available the necessary means of administration and to deliver critical outputs is still limited. Besides, staff work morale is declining, unethical conduct remains, and its administrative autonomy, which is limited, seems to be under constant pressure. Although staffing levels have been expanded, critical posts in the civil service remain unfilled. While praising the reform efforts carried out in the past fifteen years, a sympathetic evaluation study has also noted that reforms implemented by the government so far have not been institutionalised and have not been made part of the organisational culture (Mutahaba et al., 2017, p. 75). In view of all this, what are the necessary and most promising directions for reforms to maximise the civil service contribution to economic development? How can the proposed reforms be sustained, and what are the forces and dynamics that need to be in place to ensure a sustained and successful reform effort? These questions are addressed in turn.

A Reform Dynamics

A major study of the dynamics of public sector reform in eight African countries identified five major actors that have determined the success or failure of reforms, either by their actions or inaction (Kiragu and Mukandala 2005a). These are the executive, donors, market institutions, representative institutions, and civil society.

Civil servants, as part of the executive, have played a major role in implementing many of the reform initiatives, but have also resisted and reversed those that reduced their power, authority, status, and especially their incomes. Their constant battles with parastatal enterprises have been alluded to. Efforts to decentralise either by deconcentration (1972) or devolution (1984) have also been resisted. Measures to compress the salary structure and the continuous salary freezes have been neutralised by recourse to allowances and outright bribery and corruption. Their advice to political leadership has often self-serving, for example the introduction of SASE and the sale of the substantial public residential houses to themselves.

Donors (and consultants) have played a key role in the reforms, especially since the mid-1980s. They pressed for the introduction of SAP in the 1980s, made public service reforms one of the conditionalities that culminated in the CSRP in July 1991, and were also involved in PSRP-I and II. They have been equally involved in follow-up implementation and financing through either project or basket arrangements. Donors’ involvement has been limited by their being outsiders. Their frequent resort to conditionalities and threats has often led to resentment, reverse donor fatigue, and even resistance. In addition to consideration of issues of sovereignty and independence, politicians have followed their advice when their survival was not threatened. Civil servants have done the same when their incomes were not at risk.

Market institutions and the private sector in general have been relevant for a number of reasons. First, they have served as a reference point for levels of income and compensation in general. Thus, salary and allowance proposals have often made reference to what is earned in the private sector. Imitations of compensation levels in the private sector have contributed to the enormous disparities in pay in the public sector. Efforts have been made to reach comparable private sector pay levels either through salaries in the case of parastatal enterprises and executive agencies or through allowances for civil servants. The private sector has also served as a reference point in the search for appropriate management tools, processes, and systems. For example, permanent pensionable tenure has been abandoned for some posts in favour of contract employment, and appointment through internal evaluation has been supplemented by extensive advertisements of posts in an effort to attract outside applications in line with the tenets of new public management.

Secondly, the private sector has also been a competitor for the very highly qualified personnel and also at the very level of the civil service, thus applying pressure on the civil service to pay higher salaries. Thirdly, market dynamics, especially supply and demand, and the rise in prices have equally generated pressure on the civil service to raise salaries, and also served as an incentive for civil servants to engage in all kinds of legal and illegal activities to make ends meet. The large informal sector has provided an economic avenue for civil servants to augment their incomes. Finally, the private sector has been part of an unholy alliance involving politicians and civil servants in carrying out major corruption scams. These scams have bent or broken civil service rules and set back efforts to institutionalise an effective merit-based civil service.

Representative institutions including parliament and local government councils have played a limited role. This is for two main reasons. First, reform efforts have been initiated and designed by the executive or donors (and consultants) as technical issues outside the scope of parliament. Secondly, parliament has been weak, dominated by the dominant party and a dominant executive. Occasional enquiries into scandals and scams and their exposure, which have increased in recent years, have helped to improve governance in general. The strengthening of parliamentary committees has helped in this regard.

Civil society organisations including the media, non-governmental organisations, political parties, and trade unions have suffered a similar fate to representative institutions. A suffocating political climate, marked by bureaucratic laws, secrecy, and intimidation, has limited space for investigation and expression. In some cases where the media and civil society have been critical of government performance, the reaction by government has not been good, mostly labelling critics as seditious. Thus, the entire reform process has been top-down, and supply driven by the executive and donors. The demand, or popular, side has been absent or too weak to have a viable impact in sustaining reforms.

All reform initiatives in Tanzania since independence have been supply driven. Early reforms until 1984 were initiated by the executive. Subsequent reforms until the 1990s were initiated by donors as a conditionality. Later reforms, PSRP I and II, were formally initiated by both government and donors. BRN was an executive adventure. Financially wholly supported by donors, it was aimed at transforming Tanzania’s public service delivery systems in six key ministries (later increased to eight). Citizen (bottom-up) demands have targeted broader governance reforms, specifically constitutional reforms, but these have either been thwarted or frustrated in the process.

Early reforms including changes brought about by the Arusha Declaration were inspired by political objectives seeking to consolidate political power, strengthen the state and its institutions, and deliver fast equitable economic development. By 1980, it was obvious that they could not and did not work. Many of the civil service reforms during that period were poorly conceived, ill-informed, top-down, poorly funded, took on too much, and were poorly implemented. Post-1985 reforms were once again top-down based on doubtful assumptions, and sought to reduce state scope, functions, employees, and costs. The civil service emerged a weakened organisation. These reforms generated resistance and political opposition and had to be changed, as already noted. The 2001–11 period experienced the most successful reform efforts. The reasons behind the success of these reforms include strong political will and commitment made possible by a strong political organisation, strong presidents, a weak opposition, and the resultant political stability. These reforms had the shared involvement of donors, the executive, and civil servants. Their Achilles heel was their top-down character. Representative institutions and civil society were not involved.

Executive watchdog institutions, especially the Prevention of Corruption Bureau and the Control and Auditor General, were relied upon to play the oversight role, which they did up to a point. But they were part of the system reporting to the executive and they could not replace the role of parliament, councils, civil society, trade unions, political parties, and the media.

There is little doubt that the reform initiatives undertaken during the 2000–12 period have positively impacted on the administrative capacity of the state in general and the civil service in particular. However, the reform initiatives have not all been successful since there are still various constraints that continue to preclude the civil service from making a more effective contribution to economic development. Recent initiatives by the World Bank to introduce PSRP-III are still at a nascent stage. Previous reform experiences and existing conditions suggest a need for new direction to focus the reforms and ensure their suitability. This is discussed next.

B Reform Areas and Directions

The foregoing analysis suggests that the future direction of the civil service rests in strengthening its institutional capacity, respecting its operational autonomy, rehabilitating its ethical conduct, and strengthening its morale. This would entail improving recruitment and selection systems, introducing rigorous competitive performance- and merit-based evaluation and promotion systems, and improving on-the-job training and development systems to sharpen civil servants’ skills. Recruitment into the civil service has gone through several stages, starting with taking in everybody who was educated in the early years of independence. This was initially necessitated by the absence of an available pool of qualified candidates. It was later reinforced by a commitment to full employment during the socialist phase. The years of hardships and an employment freeze resulted in the emergence of a pool of qualified people who were unemployed. The expansion of tertiary institutions in the country has resulted in adding thousands of unemployed Tanzanians to this pool. There is therefore every reason to recruit the best and brightest on the basis of merit. There is also a need to undertake a human resources audit in the civil service to determine posts that can be scrapped to open up space for critical positions. The civil service needs to be kept as lean as possible but without affecting its efficiency. Continuous checking on civil service size while observing its staffing needs is essential, as freezing recruitment without addressing staffing gaps is likely to lead to more harm. Current shortages may be addressed by undertaking job analysis and design, and taking stock of institutions and re-examining their mandate to identify those with diminished relevance or duplicate functions. Excess staff would have to be transferred to areas with extreme needs.

Performance evaluation was greatly compromised during the socialist phase. Management feared attracting the wrath of workers if they were strictly evaluated. Low pay for civil servants necessitated routine promotions for them to increase their take-home pay (Jamhuri ya Muungamo wa Tanzania, 1994). OPRAS, which was piloted more than ten years ago, has now been made mandatory throughout government. Its implementation has hit several snags, including unfamiliarity with its use, but these can be gradually sorted out to maximise its usefulness. Coupled with competitive appointments to middle and senior cadres, constitutional protection of civil service autonomy is essential in order to curtail the overbearing political influence and patronage networks.

The civil service incentive structure needs to be improved and attached to performance. Although, according to Mtei (2009, p. 158), the Adu Salaries Commission of 1961 had prescribed lower salaries for Tanganyika than those obtained in Kenya and Uganda, all salary review commissions since then have called for a raise in civil service salaries, especially the minimum wage (Kiragu et al., 2005, pp. 217–19). Surely, ‘if you pretend to pay people, they will also pretend to work’. A comprehensive pay review is important to establish realistic pay levels, establish relativism in the pay system by addressing extreme pay inequalities especially between various parts of the public service, devise attractive packages for rare professionals, and tie it all to verifiable individual performance. Therefore, the current PMSs and practices would need to be reviewed to make sure that a robust system is adopted and effectively implemented. Moreover, internal and external accountability mechanisms need to be strengthened and immediate and strenuous actions taken against misbehaviour.

Successful reform implementation requires proper time management. In this, the leaders are faced with the challenge of fostering a new work culture that gives value to time. There is need for close supervision and enforcement of civil service rules and procedures regarding punctuality, absenteeism, strict separation of private and official issues, and maximum attention to one’s duties during official hours. For civil servants, there must be real transformation away from the ‘business as usual’ attitude, which puts emphasis on inputs, to a results orientation, which focuses on measurable outputs, outcomes, and impacts.

In the recent past, the government has introduced cost-cutting measures in the civil service, including curbs on meetings, workshops, and conferences, suspension of travel except where it is absolutely necessary and beneficial to the country, prohibition of renting private facilities including offices and hotel services, and preferring use of the civil service’s own facilities and services. Other measures that have been undertaken include limits on office perks such as refreshments, lunch, or dinner except where necessary, and even then choosing the least expensive option. At a broader level, this has gone hand in hand with reduced recurrent spending. These cost-containment measures are important and need to be sustained, provided that an assessment is undertaken to evaluate their impact on private sector development.

Finally, ICT adoption and use has a greater role in the performance of the civil service now and in the future. Significant tractions are already being registered in the area of e-government, and e-decision-making in the civil service. However, future ICT endeavours will need to be oriented toward solving service delivery problems affecting citizens and facilitating business processes across all government institutions. Together with ICT adoption, there is an urgent need to retool civil servants, in terms of skills as well as the equipment and infrastructure needed to carry out work.

C Reform Sustainability

The sustainability of civil reforms requires that reform initiatives are accepted and supported by key stakeholders outlined in the previous section, particularly the ruling political elite. Since politicians wish to maximise their tenure in political office, reforms that are likely to end up in political power realignment or pose threats to the status quo are likely to be resisted. Such reforms are those that seek to erode patronage potential by introducing merit-based competitive recruitment and promotion to higher-level positions in the civil service, as well as reforms aimed at insulating civil servants from overbearing political influence. Similarly, reforms that aim to reduce the operational autonomy of central bureaucracy, such as transferring powers and resources to the private sector, executive agencies, or local governments, are likely to be resisted by central government bureaucracy at national level. Breaking the ring of vested interests is always a difficult task and reform reversal is something to be expected. The dangers of stagnation and reversals have often been anticipated by the government itself. In 2004, Prime Minister F. Sumaye (2004, p. 13) said:

The risk of reversing the gains that have been made faces Tanzania because there are still amidst us those who are either complacent, sceptical or resistant to the changes that the Third Phase Government has vigorously and persistently pursued since it came to office.

Sumaye saw four levels of resistance: political leadership, bureaucrats and technocrats, the general population, and workers. It can be noticed that political leadership was placed at the top level of resistance. Education is very important for demonstrating the folly and impact of continued bad practices. It is also important to demonstrate the benefits of reforms to maximise the efficiency and effectiveness of the civil service.

Conventional approaches to sustainability of reforms/changes, such as involvement of key actors in the reform process from the early stages of conceptualisation, are also recommended here. This is likely to increase a sense of ownership and commitment to reforms. In general, reform initiatives have tended to be a government-donor phenomenon, sidelining other key actors, such as representative institutions and civil society organisation. As a result, these institutions make little follow-up on reform implementation, while the government becomes insulated from those questioning aspects of the reforms.

Reforming the civil service has to be a continuous process. In this regard, every reform initiative has to be backed up with a robust system of monitoring to identify potential challenges and emerging trends that require government attention and action. For example, a continuous or periodic check of civil service size, performance, and productivity, a review of operational rules, procedures, and systems, and monitoring of behavioural patterns of civil servants must become institutionalised government processes.

V Conclusion

The civil service is a crucial institution to a country’s economic development. In the case of Tanzania, its contribution to economic development since independence has been both positive and negative. Throughout the period under review, it has played an instrumental role in maintaining a peaceful environment for economic activities to take place. Its performance in the delivery of critical social and economic services has varied and faced many challenges of quantity, quality, and capacity. Its delivery of critical government development programmes, especially during the socialist phase, was revisited, and room was created for the private sector to play a role for reasons dealt with within the various sections of this chapter. Civil service operational autonomy was a contested terrain and was continuously challenged. As already pointed out, poor policy choices by politicians; made without extensive and careful consideration of context, doomed most of these policies to fail. Factors related to civil service limited involvement in policy making, capacity, organisational resources, motivation, and ethics have been advanced in explaining the difficulties that the civil service had in contributing to economic development. A hostile external environment was an added barrier.

There have, however, been various reform initiatives aimed at improving the efficiency and effectiveness of the civil service, and there is little doubt that the capacity of the civil service to administer them has relatively improved. However, this study’s findings have shown that a lot is yet to be done to maximise the potential of the civil service to contribute effectively to economic development. One of the areas that requires immediate attention is the relationship between civil servants and politicians. A critical element in this regard is to empower the civil service by unplugging links of political patronage while at the same time ensuring democratic accountability. This could be done through introducing a competitive and transparent system of performance evaluation and promotion to senior positions in the civil service. This should go hand in hand with strengthening the role and the power of the Civil Service Commission over recruitment, promotion, and disciplinary matters. This kind of reform undertaking is unlikely to succeed unless supported by the top political executives. Sustainability of these reforms would therefore depend on the efficiency of the overall governance system of the country. Therefore, successful civil service reforms have their future in constitutional reforms.

Discussion of ‘Challenges of the Civil Service’

Discussion by Jan Willem Gunning

I The Idea of a Civil Service

We can think of the civil service simply as the people employed in the public sector, with the task of providing public services. This corresponds to the everyday use of the term. The public administration literature, however, is much more restrictive: it requires both independence and meritocracy. Independence implies that the civil service consists of career bureaucrats who advise their political masters and faithfully execute their programmes, irrespective of whether or not they share their views. In return, they are secure in their position: they cannot be fired for their political views and remain in position when the government changes. Meritocracy means that the hiring, firing, and career advancement of civil servants are determined solely by their professional competence and performance, not by any payments they make or by their religion, political allegiance, ethnic affiliation, or social class.⁴ The meritocratic civil servant in this model is incorruptible. While he must be paid well, so as not to be led into temptation, his main motivation is the esteem (and self-esteem) acquired through his contribution to the public interest.

It is worth stressing that such a civil service is not a Western invention. For example, imperial China had already instituted a system of selecting civil servants on the basis of merit some 1,400 years ago: henceforth, prospective mandarins had to pass a famously difficult entrance examination. Once they had been admitted to the civil service, their independence was encouraged by not stationing them in their region of origin and by frequently transferring them to another part of the empire during their career. When Marco Polo described the mandarin system, it had already functioned in China for some 700 years, while at that time in Europe the public sector was still basically an unprofessional extension of the court, serving at the whim of the prince and his entourage.

In Europe, there was no independent and meritocratic civil service until 1800. In Great Britain it dates from the late nineteenth century. Pressure to replace patronage by selection on the basis of merit had already mounted in the 1850s when the disastrous British experience in the Crimean War revealed that the civil service was almost as chaotic and incompetent as the military.⁵ The resulting public outcry led to the famous Northcote–Trevelyan report of 1854, which proposed drastic reforms. However, no action was taken for a very long time. Only in 1870 did Gladstone as prime minister adopt its recommendations for an independent, politically neutral civil service, selected on the basis of merit and paid well enough to resist corruption. Most other Western countries adopted similar innovations.

But notable exceptions remain to this day. In the United States, political appointments are still quite common: an incoming president is entitled to replace some 4,000 civil servants. One result is that many American ambassadors are millionaires who have distinguished themselves with campaign donations rather than as career diplomats.

Independence has an obvious implication for any study of the impact of the civil service: consequences (good or bad) of policies cannot be attributed to the civil service that has implemented them. For example, if policy choices made by politicians result in economic growth or stagnation, then that in itself says nothing about the quality of the civil service. It is after all possible that bad policies are implemented by a high-quality civil service, or indeed vice versa.⁶ Similarly, if educational outcomes are very poor, as they are in Tanzania, then this may be due to policies (e.g. bad teacher training programmes, low salaries) or to their implementation by civil servants (e.g. teacher absenteeism).

This represents, of course, a problem for empirical analysis. There now exists a booming literature (which uses experimental methods) on how the functioning of the civil service can be improved. This provides evidence on, for example, what incentives can reduce teacher absenteeism. But there is no established methodology for establishing the past impact of the civil service; any attempt to do so faces the daunting task of disentangling the effect of the policies themselves from the way they were implemented.

In many African countries, the civil service tradition left by the colonial powers quickly crumbled after independence. That system was hardly meritocratic to begin with (since it involved racial discrimination) and a purely meritocratic system would have been very difficult to set up at the time: educational attainments were still quite low. (In 1962, Tanganyika – as it then was – had only a handful of people with Masters degrees; President Nyerere was one of them.) More importantly, in many countries the civil service was seen, not primarily as the provider of public services, but as the key channel for patronage. The ruling group used its control over the state to provide benefits to its supporters, notably in the form of public sector jobs, which provided income, security, and prestige. The provision of public services was therefore in itself of limited importance; it mattered mainly to the extent that it guaranteed or threatened the survival of the regime.

An important implication of the use of the civil service as a tool for patronage was that real wages in the public sector were fixed far in excess of market-clearing levels. This induced massive migration from rural to urban areas.⁷ Excess supply in the urban labour market required mechanisms for allocating the scarce jobs. The mechanisms that were adopted typically favoured particular regional or ethnic groups.

Patronage was not the only reason why a civil service in the strict sense, that is independent and meritocratic, disappeared or failed to emerge in many African countries. Under many regimes, notably those we would now call developmental states (Adam and O’Connell, 1999). Weberian independence was not considered necessary or desirable: political leaders and their civil servants were seen as jointly involved in nation building; a strict separation of their roles (choosing policies and implementing them) would have been considered counterproductive.

II Tanzania 1962–1982

Tanzania’s experience in this period was exceptional. After having gained its independence in December 1961, it initially followed a familiar path: indigenisation of the civil service combined with continued heavy reliance on expatriates who wrote all the key planning documents. The Arusha Declaration marked the end of that period. Tanzania became exceptional in Africa in at least two ways: by embarking on a far-reaching attempt, unique in Africa, to build a socialist economy,⁸ and by adopting strict policies designed to keep civil servants honest.

In Tanzania, the key economic policies of that period – import controls, production in parastatals, price controls, communal farming, and pan-territorial agricultural pricing – led to a balance of payments crisis and economic stagnation. This was temporarily veiled when Tanzania benefited from a huge term of trade improvement, the beverages boom of 1975–9, but it became clear in the early 1980s when exports collapsed, serious shortages emerged, and people reverted to barter trade (Bevan et al., 1990). It would, of course, be absurd to attribute this disastrous outcome to the quality of the civil service. In fact, in my view, prior to the collapse, the Tanzanian civil service did a remarkable job of carrying out an almost impossible task.

Notably, Tanzania had in the 1970s one of the least corrupt civil services in Africa, in spite of the huge opportunities for corruption created by the system of controls. In the 1960s, Nyerere had already introduced the ‘leadership code’, a set of rules that prohibited middle- and senior-ranking party members and civil servants from holding shares in, or being a director of, a private company; renting out houses; receiving more than one salary; or employing others. Pratt comments:

He did not see the leadership rules as the imposition of a morality which was not accepted. They were the enforcement of an ethic that was still part of the values of society. It was an ethic that was being rapidly replaced in the towns, amongst the leaders and within the civil service by an aggressive acquisitive individualism.

(Pratt, 1976, pp. 235–6)

Nyerere saw clearly that if people in powerful positions were allowed to maximise their own income, then his vision of a socialist economy could not be realised. He and his advisers, such as Reginald Green and Justinian Rweyemamu, both Harvard PhDs, failed to see, however, that the system of controls erected in the 1960s and 1970s created enormous incentives for ‘acquisitive individualism’, for example in the form of the very large gap that emerged between the official and the black-market exchange rate. The control system therefore helped to undermine the very ethic that Nyerere hoped to enforce.

This chapter on the Tanzania civil service addresses three questions:

• How much has the civil service contributed to economic development?

• What constrained its performance?

• How can it be reformed so as to maximise its contribution to economic development?

I will consider these three questions in turn.

III The Contribution of the Civil Service to Economic Development

Regrettably, how much the civil service has contributed to economic development is not an empirical question that can be answered rigorously. The reason is that it is impossible to build a convincing counterfactual: one cannot make comparisons over time (did outcomes differ between periods with or without a civil service?) or across space (did outcomes differ between areas with and without a civil service?).⁹ One can, of course, determine whether changes in the size or the functioning of the civil service were followed by changes in outcomes. Strictly speaking, this establishes, of course, only correlation, not causation. Interpreting the outcomes as causal effects would amount to the post hoc ergo propter hoc fallacy, since economic outcomes have many determinants other than the quality of the civil service. In fact, an ‘omitted variable’ may well be responsible for both a change in the civil service and a change in economic outcomes. Concluding that the one causes the other would then clearly be a mistake.

This is a common and fundamental problem in economic history. As usual, the best one can hope to do to explain economic outcomes at the national level is to arrive at a plausible account of causal effects.¹⁰

Nevertheless, Mukandala does arrive at conclusions regarding causal effects. He notes, ‘Its support role in policymaking was minimal. The party was supreme and all major policy decisions of the time were made by the party’s NEC, which had a powerful secretariat.’ The party (TANU, later CCM) was powerful both in the design of policies and in the supervision of their implementation. In fact, but this is not in the chapter, there was next to the civil service a powerful parallel party structure that reached from the top down to the very lowest levels. (Under the ten-cell system there was a party official for every ten households, much as in China. The ten-cell leader conveyed party instructions to the households and reported on their activities.) Mukandala writes: ‘Since the civil service was not a lone or even the key player in economic development, it can only assume limited responsibility’ for the poor success rate of a long series of policies initiated in the Nyerere period. He concludes, and I agree, that the ‘grand policy decisions’ then taken were detrimental to economic growth. Mukandala adds:

Most of these policies were beyond the control of the civil service since the NEC of TANU had self-appointed itself as a supreme decision-making organ.

Here I disagree, for three reasons. First, that policy decisions were taken by politicians should not be seen as an aberration, but rather as the normal state of affairs.¹¹ That the civil service was excluded from the policymaking process tells us little on its contribution to development. At best, the exclusion of professional advice may have contributed to poor policy choices.

Secondly, that the party also played a major role in what is properly the arena for a civil service, policy implementation, is a major confounder for the analysis of the civil service’s contribution. Mukandala mentions it only in passing. In my view, while assessing the impact of a civil service rigorously would be extremely difficult in the best of circumstances, TANU’s role in policy implementation makes such an analysis impossible: there simply is no independent civil service in this period, so, for better or worse, outcomes cannot be attributed with any confidence to the way the service functioned.

Thirdly, in line with this, the chapter first seems to argue that the outcomes were very bad but cannot be attributed to the civil service. However, the chapter also argues:

Generally, the findings indicate that, since the late years of Ujamaa, Tanzania’s civil service has been characterised by work misbehaviour such as shirking of responsibilities (absenteeism and negligence) and corruption and misappropriation of resources (e.g. through procurement and creation of ghost workers), and generally it has failed to regulate opportunistic politicians and even colluded with them, at the expense of the economy.

You cannot have your cake and eat it too: either the contribution of the civil service was ‘minimal’, and it had only ‘limited responsibility’ for what went wrong, or ‘it has failed to regulate opportunistic politicians and even colluded with them, at the expense of the economy’. By seemingly trying to have it both ways, the chapter leaves unclear what its answer is to the first of the three questions.

IV Constraints on the Performance of the Civil Service

What constrains the civil service depends of course on what it is supposed to do: a lack of qualified candidates, for example, is a constraint for a Gladstonian civil service but not for a service that is meant to provide patronage.

Within the Gladstonian framework, there are three issues to consider. First, what are the incentives for people to join (and remain in) the civil service? Incentives can include pay, security, prestige, and opportunities for corruption. The issue is whether the package offered by the civil service (officially or not, including the opportunities for engaging in bribery) is attractive compared with an alternative, for example employment in the private sector. In other words: can the civil service attract and retain high-quality candidates? Secondly, is the civil service’s independence guaranteed or is its functioning hampered by political interference? Thirdly, are hiring, promotion, and firing based exclusively on merit, or do non-meritocratic criteria such as ethnicity or party membership play a role?¹²

Regarding the first issue, there are several indications in the chapter that incentives are indeed problematic. Mukandala shows, for example, that there are (and have been) major staff shortages, notably in health and education. He explains that these reflect a freeze on public sector employment, but he also refers to ‘those who left for greener pastures’.¹³ In what way these other pastures were greener is not discussed. This is a pity since an analysis of the incentives for joining or leaving the civil service must be the basis for any proposed reform.

Table 5.3 presents very interesting evidence from a recent World Bank study, comparing quality indicators in the public and private sector. Perhaps surprisingly there appear to be no large differences. If the public and private sectors do not really differ in terms of workload or absenteeism, then what makes the civil service relatively attractive or unattractive, and how has this changed over time? Real wages in Tanzania fell dramatically from the late 1960s until the mid-1980s; they rose again in the mid-1990s. Unfortunately, there is no evidence in the chapter on changes over time in the relative attractiveness of the two sectors, public and private.¹⁴ Apparently, the situation in 2015 was such that public wages were ‘outcompeting those in the private sector’ (Mukandala is quoting Leyaro et al., 2014, p. 10). However, the chapter stresses that two major problems remain: intrinsic motivation has drastically declined since the days of Nyerere, and, while incentives are quite attractive in the higher ranks, motivation is quite low for those in lower ranks, the majority of civil servants. Corruption has become a major issue, and the chapter makes it plain that this has a long history, going back to the late Ujamaa years.

On the other two issues, the chapter is very clear. In the 1960s and 1970s, politicisation severely undermined the civil service’s neutrality: it could no longer freely use its professional expertise. The party had no time for the setting of priorities or for moderation. Since that time, the civil service has become more independent. However, the relationship between civil servants and politicians remains linked by patronage; in that sense, the civil service is not completely independent.

There was a period when all university graduates were recruited by the public sector and patronage (in the form of hiring friends and relations) was a major issue. However, from 1999 there have been meritocratic reforms, including the introduction of open competition and non-discrimination. Forged or questionable academic certificates used to be accepted, but have now become the basis for a large number of dismissals.¹⁵ The discussion of these reforms is tantalising but very brief. I would have liked to know more about how they were designed and, most importantly, how they survived in spite of the fact that they must have run into opposition from vested interests. Did Tanzania find ways to overcome this problem that are relevant for future reforms or for reforms in other countries?

The recent changes seem to be in the direction of greater independence and meritocracy. The chapter makes abundantly clear that there still is a long way to go. For example, Mukandala describes that candidates from different institutions must be treated equally in spite of large quality differences and wryly notes ‘the results have been disastrous’. Moreover, connections still matter, most promotions are still automatic, and party membership can still trump qualifications. There is clearly scope for deeper reforms.

V Reforming the Civil Service

Recall that the third question asked how the civil service can be reformed so as to maximise its contribution to economic development. The chapter suggests numerous improvements: better recruitment, rigorous competition, merit-based evaluation, scrapping unnecessary posts, continuous checking, an improved incentive structure with pay tied to verifiable performance criteria, stronger accountability, action against misbehaviour, better time management, and improved ICT use. It is hard to disagree with this list.

Reform must, of course, be selective: an attempt to address all these issues simultaneously would be a recipe for failure. The standard approach to setting priorities in civil service reform is largely technocratic: it focuses on the low-hanging fruit and postpones reforms that are costly or aimed at less urgent problems. Essentially, this amounts to ordering reform measures in terms of cost–benefit ratios.

Mukandala correctly notes that this approach is unlikely to lead to sustainable reform. Measures intended to reduce political influence on the civil service or aimed at eliminating the scope for patronage will be resisted by politicians, who will quickly recognise that they undermine their position. This is, of course, the central issue in any political economy analysis of reform, whether it be of the civil service, trade policy, decentralisation, taxation, or industrial policy. In all such cases, the challenge is to design reforms that will not be blocked by a set of agents in a position to do so, notably, but not necessarily, those in power. Essentially, the ruling class must perceive a reform package as an improvement of their position in spite of the fact that the reforms themselves directly threaten their position. Typically, this will require some form of compensation.

This issue of making the unacceptable acceptable is at the heart of the political economy of reform. I note, not as a criticism but with some regret, that the chapter does not address this. Given the importance of this issue, this makes the discussion similar to Hamlet without the Prince of Denmark. I had hoped to learn what the key sensitivities were that would generate opposition to reform and in what way that resistance might be overcome. That hope was disappointed, but I recognise, of course, that these are extremely difficult questions to answer, even in a speculative way.

6 Fiscal Decentralisation as an Example of Institutional Ineffectiveness

Servacius Likwelile and Paschal Assey

I Introduction

Decentralisation involves political, administrative, and fiscal reforms aimed at increasing the decision-making capacity and development efficiency of local administrations through the redistribution of powers and resources between administrative levels. The different dimensions of decentralisation can vary in importance and can be rolled out in different sequences. Decentralisation reforms very often target public service delivery (such as health, education, transport, water, and sanitation) in ways that may relate primarily to the administrative or the fiscal dimension. This may be because of technical and pragmatic concerns about appropriate sub-national government functions, but it may also reflect powerful political and institutional dynamics (Eaton et al., 2010).

Decentralisation has been the objective of important reforms in many developing countries and a major focus of the considerable support provided by development partners. Such reforms have swept across the world since the mid-1980s a trend seen by some observers as being influential for good governance and for improving the lives of ordinary citizens. African governments and international donors alike have indeed embraced the idea that decentralisation can promote development and good governance as local governments are more likely to be responsive to local needs, even though the record is mixed on several fronts. In any case, local governments’ share of public expenditure has more than doubled in many countries, and they now often play the leading role in the delivery of local public services. Academics are increasingly interested in evaluating the consequences of the change this evolution entails for the institutional relationship between levels of government, particularly for fiscal transfers (Falleti, 2005).

The focus of this chapter is on fiscal decentralisation, dwelling mainly on the administration of local revenue mobilisation given the centrality of financial resources in empowering local authorities to deliver on their mandate and improve their performance. Effective mobilisation of local revenues calls for a proper coordination of the local/central government mechanism and an administrative system with sufficient capacity to collect and analyse information, and plan and execute such proposals. In the case of Tanzania, this fiscal dimension was chosen to demonstrate the weaknesses of state coordination and the critical challenges involved in setting up an institutional arrangement addressing such weaknesses.

The chapter begins with an overview of the theoretical considerations behind the growing global trend towards decentralisation. It then summarises how the relationship between central and local government has evolved in Tanzania since pre-colonial times. It explains why, despite a recent reform programme, the current legal framework remains complex and confusing, impacting negatively on efficiency.

The capacity to collect revenue at local level is extremely limited in Tanzania. Expanding on previous studies (in particular Tanzi, 2000; Fjeldstad, 2001; Fjeldstad et al., 2010; Fjeldstad and Semboja, 2011; Masaki, 2018), the chapter identifies five key reasons for this: ambiguity in defining the roles and responsibilities of different state organs, leading to overlaps and conflicts of interest; arbitrariness, inconsistency, and unpredictability in government decisions and actions; weak institutional capacity for effective fiscal decentralisation; overdependence on the central government for financial transfers; and transparency and accountability asymmetry, with institutions reporting mostly to the central authorities. Practical consequences in terms of revenue are dramatic, including frequent cases of tax evasion, corruption, and even embezzlement of revenues, and constant political tension between local and central governments.

At a more general level, the chapter also considers how important fiscal decentralisation is for the success of decentralisation overall, and concludes by identifying three key directions for future reform in Tanzania.

II The Theory of Central–Local Government Relationships

Every country has different layers of government with different functions, based on their particular circumstances and experiences (van der Dussen, 2008). Consequently, decentralisation processes are initiated for different reasons. Some countries want to make the public sector leaner and more efficient. Others are motivated by disenchantment with the performance of centralised policies. Decentralisation may be motivated by a desire to contain or appease local demands for greater cultural and political autonomy. It may reflect an awareness of the global trends in institutional reform and a desire to not be left behind. Governments do not generally decentralise with the aim of pursuing greater macroeconomic stability and growth, though this may be an outcome (Martinez-Vazquez and Vaillancourt, 2011).

Decentralisation generally refers to the devolution of decision-making powers from the central government to local or sub-national governments. A related idea is de concentration, in which central governments retain decision-making power but diversify and customise the provision of public services to lower levels of government. According to the sequential theory of decentralisation, the extent to which decision-making power is devolved in practice depends on the sequencing of political, administrative, and fiscal decentralisation (Falleti, 2005).

Regarding fiscal decentralisation, there are four basic approaches: empowering local governments to set up their own tax systems; central retention of all taxes, with proceeds shared with local governments through intergovernmental transfers; assigning selected taxes exclusively to local governments; and sharing revenue from specific centrally collected sources with local government. Many systems are hybrids of these approaches, with the choice depending on considerations that may be technical, historical, demographic, economic, geographic, or political (Martinez-Vazquez and Vaillancourt, 2011).

In principle, decentralisation is often considered to be a desirable aim. Economists such as Oates (1972), who first developed the theory of fiscal federalism, argue that decentralisation should increase citizens’ welfare because service providers will have better information about diverse needs and preferences, and greater flexibility to address them. While such theories assume that governments are benevolent, a growing literature on public choice theory – which assumes that officials are selfish – also often favours decentralisation. A branch of this literature known as market-preserving federalism holds that decentralisation can incentivise good behaviour among government officials, control the intrusiveness and expansiveness of the public sector, and support effective private markets (Weingast, 1995; McKinnon, 1997).

It is theorised that decentralisation should reduce corruption, as accountability, information, and transparency should be greater at the local level; so should possibilities to encourage collective action and build social capital, which would lead to a higher probability of corruption being detected and punished (Boadway and Shah, 2009). If individuals and businesses are mobile, fiscal decentralisation should also help to constrain government misbehaviour by opening up the possibility of competition among jurisdictions.

There are counter-arguments, however. Decentralisation could create opportunities for rent-seeking by weakening central agencies’ scope for monitoring, control, and audit. By involving a larger number of officials in dealing with potential investors and revenue sources, political decentralisation can also create more opportunities for corruption and clientelism. The risks are especially high when elites dominate the local political scene. Incentives for corruption at the local level may also be higher owing to poorer compensation, lower career prospects, and lower morale (De and Prud’homme, 1994).

What does the evidence say? Based on cross-country comparisons, Huther and Shah (1998) find that fiscal decentralisation is associated with greater citizen participation, more political and democratic accountability, social justice, and improved economic management and operational efficiency; it is also found to have a positive effect on institutional quality and the quality of government (De Mello, 2011). There is strong evidence that fiscal decentralisation increases the share of education and health expenditures in total government expenditures, especially in developing countries (Shelton, 2007). Working on Bolivia, Faguet (2004) finds evidence that fiscal decentralisation increases investment in social sectors, such as education, urban development, water and sanitation, and health care.

Based on case studies, decentralisation has also been found to positively impact education outcomes such as literacy rates, years of schooling, dropout rates for primary and secondary education, public school enrolment, and test scores (Faguet, 2004; Peña, 2007, among others). In the health sector, positive impacts include decreasing infant mortality. Decentralisation has been found to increase access to water and sewage services and deliver better quality infrastructure at lower costs than in centralised settings, mainly where a community-driven development approach is used.

While generally positive, however, the evidence is mixed and incomplete – not least because it is difficult to isolate the effect of decentralisation on development from other processes such as economic growth and institutional changes in the public sector. There remain open questions about how diversity, complexity, proximity of local officials, political constraints, accountability, incentives, corruption, rent-seeking, and state capture by local elites affect the success of decentralisation – and about whether deconcentration can be as efficient as decentralisation.

Capacity may be the key factor in determining the extent to which decentralisation succeeds: services may improve when decentralised to high-capacity local governments and deteriorate when decentralised to low-capacity local governments. For instance, theories of public finance often tend to assume that local governments will have fiscal capacity, defined as the ability to raise tax revenues ‘given the structure of the tax system and its available powers of enforcement’ (Besley and Persson, 2013). However, in practice local governments in low-income countries tend to lack fiscal capacity. Africa has performed particularly poorly compared with the rest of the world in terms of the level of local revenue generation and service delivery, with local governments depending heavily on central government grants to finance their budgets.

The diverse and complex political economy challenges that underlie lack of capacity at the local level rarely receive sufficient attention (McLure, 1998). They include the incentives and behaviours of national-level politicians and bureaucrats, who shape the rules of the intergovernmental fiscal game and how they are implemented, and the local-level political economy dynamics among elected local councillors, local government staff, and citizens. When local governments lack capacity, an appropriate balance needs to be found between central oversight and local autonomy.

III The Evolution of Local Government in Tanzania

Tanzania’s history of local government dates back to the chiefdoms of the pre-colonial era, as summarised in Table 6.1. During the first decade of independence, 1961–71, the government replaced native authorities with local officers who were democratically elected, in common with other newly independent African states, with the aim of improving the delivery of public goods and services. This was partly the result of the independence euphoria, but also reflected the genuine determination of the new government to bring fundamental changes to the citizens. The leadership’s reflection on a strategy for national social and economic development led to the Arusha Declaration of 1967 that committed Tanzania to a development strategy based on ‘socialism and self-reliance’. The emphasis of the Second Five Year Development Plan (1969–74) was on rural development, which required further administrative reforms – at the local level – in order to improve the capacity and effectiveness of the machinery of government in carrying out the new rural development effort (Collins, 1974). However, local governments remained closely supervised by, managed by, and accountable to the central government. This reflected in part the British system of government the country inherited, in part the aim of strengthening national unity, and in part the fear – not publicly acknowledged – that local authorities, just like the independent cooperative unions, could become a source of opposition (Mnyasenga and Mushi, 2015).

Table 6.1 The evolution of local government in Tanzania

Period	Type of local governance
Pre-colonial era	Chiefdoms, and councils of elders.
German era (1884–1917)	Mainly direct rule but also limited urban authorities.
British era (1917–61)	Native authorities encouraged since 1926 (indirect rule); township authorities for large urban areas; Municipalities Ordinance 1946; Local Government Act 1953.
First decade of independence (1961–71)	Chiefdoms abolished; inclusive local authorities encouraged; local governments overwhelmed by duties, with limited resources; rural authorities abolished 1972, urban authorities abolished 1973.
Deconcentration (1972–82)	A system of deconcentration of central government replaced the comprehensive local government system that had existed for a decade.
Reinstitution of local government (1982–95)	Urban Councils (Interim Provisions) Act 1978 required that town and municipal councils be re-established from 1 July 1978; 1982 comprehensive local government legislation passed; 1984 comprehensive system of local government re-established.
Local government reform (since 1996)	Comprehensive programme of reforming local governments to make them efficient, effective, transparent, and accountable.

Source: History of Local Government of Tanzania by United Republic of Tanzania President’s Office, Regional Administration and Local Government

It quickly became clear that local authorities were failing to achieve the expected results owing to, among other factors, expansion of services that did not match the available financial resources, lack of competent personnel, and rampant mismanagement of funds (both local and grants from the central government), leading to poor social and economic performance. The period also witnessed an ascendancy of politics and politicians over the bureaucracy that led to a loss of consistency in policies and operations at both central and local government level.

In 1972, local governments were abolished, and the government created new regional and district committees (in place of district councils), which were given responsibility to coordinate both economic and social development activities while reporting to the Prime Minister’s Office. By then, Tanzania had thus opted for a deconcentration rather than a devolution type of decentralisation. In effect, the central government started to directly manage the local development process and provision of social services.

There was, however, a lack of preparedness in the implementation of this reform that showed up in low human capacity, lack of resources, and inherent disincentives for task compliance in the whole administrative system. The social services infrastructure collapsed in the severe economic crisis of the late 1970s and early 1980s, which, under the strong pressure of the donors, led a few years later to a complete change of development strategy, from a socialist to a market economy. Notable at that time was the overextension of the state, which placed great pressure on its capacity, while the heightened ideological content and politicisation of the government decision-making process eroded the authority and self-confidence of the bureaucracy. Faced with that erosion in the capacity to carry out the economic management tasks of government, donors increasingly pressed for administrative reforms, including the reinstitution of local government institutions. The reintroduction of urban authorities had taken place in 1978. Then a series of laws on local government were passed in 1982 and there was a constitutional amendment in 1985.

These measures proved to be flawed. They did not clearly define the relationship between central and local government – in practice, the centre retained strong powers of control and supervision, and the structure of local government authorities (LGAs) overlapped with that of the ruling party (Mnyasenga and Mushi, 2015). LGAs were given only limited power to mobilise their own human resources, implement their own plans and strategies, and raise revenue, borrowing, and spending. From the early 1990s, various studies, commissions, workshops, and seminars pointed out the complexity, ambiguity, and fragmentation of the legal framework, with overlaps and conflicts among legislation, circulars, standing orders, and other regulations from ministries responsible for health, education, extension services, water supply, and rural roads. At a higher level, it also became evident that fundamental political, administrative, and economic reforms were imperative for the government to improve economic efficiency and effectiveness. Several far-reaching economic and political reforms were thus introduced during this period, including macroeconomic stabilisation and fiscal restraint, market liberalisation, and privatisation on the economic side, and also the establishment of multiparty democracy in 1992 on the political side.

Tanzania consequently embarked on a new Local Government Reform Programme (LGRP) in 1996, accompanied by the decentralisation by devolution (D by D) strategy, in which LGAs were supposed to be largely autonomous institutions, free to make policy and operational decisions consistent with the country’s laws and policies, and with the power to possess both human and financial resources. Reforms were aimed at downsizing central government, reforming local governments, and decentralising more powers to them. It was expected that the D-by-D strategy would yield, among other outputs, the delivery of quality services to the people in a participative, effective, and transparent way. There was, however, little analysis and documentation of the implementation challenges at both national and local authority levels. The LGRP was to be implemented in two phases – a stand-alone programme from 1998 to 2008, and integration into the government system from 2009 to 2014. It set out to address five dimensions:

1. 1. Financial: giving local authorities more sources of revenue, including conditional and unconditional grants from the central government;

2. 2. Administrative: de-linking centrally controlled personnel from sectoral ministries and integrating them in the local government system;

3. 3. Central–local relations: limiting the roles of central government to policymaking, support and facilitation, monitoring, and quality assurance;

4. 4. Service function: decentralising the management and provision of public services, with the aim of enhancing their quantity and quality; and

5. 5. Democratic: strengthening local democratic institutions, enhancing public participation and bringing control to the people.

By the end of the first phase in 2008, however, only four pieces of legislation had been partially amended,¹ and a legal harmonisation task force had only just started to review sector laws and policies (Mnyasenga and Mushi, 2015). Rather than clarifying overlaps in responsibility, some of these amendments actually exacerbated ambiguity: for example, Act No. 6 of 1999 and Act No. 13 of 2006 introduced a provision that the central government could do ‘any such other acts and things as shall facilitate or secure the effective, efficient and lawful execution by the District Authorities of their statutory or incidental duties’. By the end of the second phase in 2014, neither a comprehensive local government law nor harmonised central and sector legislation were in place. This remains the case today (April, 2023).

In summary, government decentralisation in Tanzania has gone through four phases: first, active decentralisation was pushed by the national-level bureaucratic elite that swiftly emerged following independence; second, the consolidation of that process was impeded by the major disruption that followed the Arusha Declaration and the increasing state control over the whole economy, at a time most able civil servants were transferred to manage the new parastatals, spreading available talent very thinly (Van Arkadie, 1995); third, an attempt at reverting the process took place some ten years later, with the major institutional adjustment process that followed the crisis of the early 1980s and led to the re-establishment of a market economy, but, for various reasons, the economy remained de facto essentially centralised; and, fourth, under the pressure from donors using economic arguments, including the need to reduce the role of the central government (World Bank, 2004) and improve the delivery of public services as well as the participation of citizens (Smoke, 1994; Manor, 1999; World Bank, 1999; Olowu, 2000), decentralisation, in its devolution definition, is again posted as a major reform objective (LGRP laws). How far has this reform gone?

IV Local and Central Governance in Tanzania Today: A Complex and Confusing Legal Framework

The legal framework governing relationships between central and local government in Tanzania is complex and confusing. For example, local authorities are legally mandated to make and implement their own development plans, finding their own sources of revenue – but central ministries are also legally empowered to determine the sources of local government revenue, and can veto decisions made at the sub-national level. Sector ministries are also legally empowered to intervene in the functions of LGAs.²

The overwhelming power of the minister responsible for local government is suggested by the sheer number of mentions in the relevant legislation: according to Mnyasenga and Mushi (2015), the minister is mentioned 95 times in the 156 sections of the Local Government (District Authorities) Act, 1982 [CAP 287 R.E. 2002]; 80 times in the 111 sections of the Local Government (Urban Authorities) Act, 1982 [CAP 288 R.E. 2002]; and 60 times in the 65 sections of the Local Government Finance Act, 1982 [CAP 290 R.E. 2002]. Most of these mentions are concerned with the control and supervision of local government powers, functions, and finance through approval powers; appellate power; issuance of guidelines, regulations, directives, orders, and direct interventions; appointment and transfer powers of local government staff; disciplinary powers over local government staff; variation of local government functions; and powers to dissolve local government councils. Most of these powers are discretionary and can be delegated by the minister to any public officer.

In practice, research indicates that the central government indeed exercises tight control over LGAs. Studies carried out by REPOA (2008), Tidemand and Msami (2010), and Kunkuta (2011) reveal the most frequently used mechanisms: issuing policy statements and guidelines; giving directives and commands that direct the LGAs to perform or not to perform certain activities; issuing circulars; discipline and transfer of local government staff; and setting budget ceilings. In the opinion of 87.4 per cent of those asked by the researchers, the minister’s power negatively influences the autonomy of LGAs.

The same studies also observed that Regional Administrative Secretariats negatively affect the autonomy of LGAs. In theory, these regional authorities should play a facilitating role, providing technical advice, support, and supervision.³ In practice, they put heavy pressure on local authorities, frequently issue directives, and veto development plans and programmes that are deemed to be inconsistent with national policies. While this can sometimes be justified, experience suggests these powers are exercised excessively – in particular, political tensions emerge in constituencies dominated by opposition parties when LGAs are pressured to prioritise implementing the party manifesto above their own plans.

Figure 6.1 depicts how LGAs receive directives, guidelines, circulars, memoranda, codes of conduct, and so on from a wide variety of other governmental bodies: the Ministry of Finance and Planning; the President’s Office – Regional Administration and Local Government; sector ministries, such as education and health; and regional and district authorities. LGAs lack the capacity to implement them efficiently, or to comply with these varied stakeholders’ different reporting requirements and formats. This results in data being unreliable: there are, for example, substantial variations between budget figures presented to local councils and to the parliament, information on expenditure compiled by the Prime Minister’s Office Regional Administration and Local Government (PMO-RALG), and what appears in the audited final accounts (Fjeldstad et al., 2010).

Figure 6.1 Interactions between central and local government

Source: Construct by authors

Overall, the general feeling about the 1998 reform of the functioning of LGAs and their relationship with the central government is that it is unfinished business. Progress seems to have taken place in the volume of services delivered and in their quality. It is also the case that LGA expenditures and employment weigh more in public spending and the civil service today (April 2023). Yet the control of LGAs over their staff and their total spending is limited, owing to what two evaluators call a ‘dual level of authority’. The same evaluators concluded that, up to 2008, the end of the first stage of the reform, LGAs were not more powerful than they were in 2000. To date (April 2023), the situation remains more or less the same, or may have slightly deteriorated with the increased control by the central government under the fifth phase, with the recent decision to transfer key staff in departments of land and water to the central government, including further transfer of local government sources of revenue. Thus, despite the significant devolution of authority and resources to sub-national levels of government, persisting capacity deficits, increased financial dependence on the central government, and political and institutional constraints impact negatively on the pace of reforms, and also mean that the achievements have fallen short of the intentions of the reform agenda.

Among the weaknesses underscored by observers, the issue of fiscal decentralisation ranks high. We now turn the spotlight on it.

V Fiscal Decentralisation: The Challenges of Revenue Collection

The LGRP aimed to ensure discretionary powers for local councils to levy local taxes and fees and pass their own budgets, reflecting their own priorities alongside the obligation to meet nationally mandated standards in the delivery of the public services for which they are responsible. The bulk of the funding for these services – which include primary education, primary health, local roads, potable water, sanitation, and agricultural extension – comes from central government, as do the salaries and emoluments of council civil servants. Transfers are allocated according to a formula that takes into account socioeconomic factors such as the size of population, area, poverty, and access to health facilities.

There is ample evidence that the reforms have not been effective in increasing LGAs’ fiscal autonomy. Only a few large urban councils in Tanzania can finance a substantial share of their expenditure from their own revenue sources. Between 2000 and 2007, revenue collected in urban LGAs increased by 36 per cent, but declined by 4 per cent in rural LGAs; this is attributed to the central government abolishing certain ‘nuisance taxes’ in 2003/4, inappropriate tax design and poor collection systems (REPOA, 2007; Fjeldstad et al., 2010). In the 2006/7 financial year, LGAs collected about TZS 60 billion in local taxes, representing only about 7 per cent of total LGA expenditure (Tidemand and Msami, 2010). In 2012/13, transfers from the central government accounted for 85 to 90 per cent of local budgets – on a par with corresponding numbers from other African countries, such as Lesotho (90 per cent), Uganda (88 per cent), and Ghana (69 per cent). The share of total national tax revenues collected by local governments – about 6 per cent – remained almost unchanged since 1996 (Fjeldstad, 2003).

Table 6.2 lists the main sources of revenue for local governments. The most important are classified as non-tax, including produce taxes, market fees, service levies, licences and permits, property tax, and fines and penalties. Collecting such revenues creates opportunities for rent-seeking; doing so efficiently requires robust monitoring and enforcement systems to ensure transparency and accountability, along with skilled staff who are costly to employ and maintain at the local level (Besley and Persson, 2013). Guidance from central and sectoral ministries is lacking; indeed, political interference with local revenue collection is prevalent.

Table 6.2 Revenue sources for local governments

Taxes on property	Other taxes on permission to use goods
Property rates	Forest produce licence fees
	Building materials extraction licence fee
Taxes on goods and services	Hunting licence fees
Crop tax (maximum 3% of farm gate price)	Muzzle-loading guns licence fees
Forest produce tax	Scaffolding/hoarding permit fees
Taxes on specific services	Turnover taxes
Guest house levy	Service levy
Business and professional licences	Entrepreneurial and property income
Commercial fishing licence fee	Dividends
Intoxicating liquor licence fee	Other domestic property income
Private health facility licence fee	Interest
Taxi licence fee	Land rent
Plying (transportation) permit fees
Other business licence fees
Motor vehicle and ferry licences	Other local revenue sources
Vehicle licence fees	Administrative fees and charges
Fishing vessel licence fees	Fines, penalties, and forfeitures

Source: Construct by authors

Political economy reasons, or more exactly unaligned incentives and disincentives, are among the critical forces that help to maintain such a complex and inefficient system. Important stakeholders, including bureaucrats and politicians, as well as powerful taxpayers, resist changes in an attempt to protect their influence and control of the local tax system. In the case of Tanzania, Fjeldstad (2001) maintains that such an environment offers informal incomes for civil servants and their social network members and provides a visible arena for local councillors to play out their political aspirations vis-à-vis their constituents. It also provides incentives for some powerful taxpayers, in particular businesspeople, landowners, parastatals, and the cooperative unions, to seek to retain the status quo, since it facilitates evasion.

A Property Tax: A Case Study

Property tax provides a case study of the challenges. While property valuations are based on the number of storeys and type of floors, walls, and roof, there is no clear and consistent methodology: more accurate valuations would require financial skills, infrastructure, and documentation, which are generally lacking. Valuations are often arbitrary and highly disputed, and in 2017 the central government proposed to replace them with flat lump sums depending solely on the number of storeys and urban or rural location.

Responsibility for collecting property tax has changed three times in a decade. Before 2008, when it lay with municipalities, revenue collection was poor, corruption was rife, and local politicians often interfered (Fjeldstad et al., 2010; Fjeldstad, 2015). As a result, the system was partially centralised: in 2008, the Tanzania Revenue Authority (TRA) was given the responsibility of collecting property tax on behalf of municipalities in Dar es Salaam, which retained the power to declare an area rateable, set rates, and grant exemptions.

However, mutual mistrust impeded cooperation between the TRA and municipal authorities. Imperfect information flowing to central operators created opportunities for corruption, contrary to what was expected from this re-centralisation decision, and negatively impacted revenue collection. The World Bank became concerned that the move indicated lack of government commitment to the decentralisation process, and temporarily stalled funding of the valuation and assessment of properties in Dar es Salaam. In February 2014, the system was thus re-decentralised. An elected councillor in one of the municipalities said:

Re-decentralisation of property tax administration is a perfect move. From the time TRA started to collect property tax, revenue deteriorated. I strongly believe that the collection by municipality will be far better than that of TRA. First and foremost is that the municipality knows that it is collecting the money to finance its budget, so all efforts will be instituted to meet the target.

(Fjeldstad et al., 2019, p. 14)

The TRA, in contrast, reacted with resignation and frustration. A senior officer argued:

All municipalities are very happy about re-decentralisation of property tax collection because right from the start when TRA took over they were disappointed […] [they] have been trying to make tricks so that TRA is perceived inefficient. For example, when TRA took over, all municipalities set larger targets to TRA year after year despite the fact that the tax base remained the same.

(Fjeldstad et al., 2019, p. 14)

In July 2016, the central government again made collection the responsibility of the TRA – a decision that took municipalities by surprise, as it appeared not to have been based on a comprehensive assessment of the challenges experienced between 2008 and 2014 or the performance of municipalities since 2014 (Fjeldstad et al., 2017). Yet the failure to establish a stable and predictable regime is reflected in a significant proportion of potential revenue going uncollected: Budget Execution reports for the past three fiscal years indicate an average collection of local revenue of between 47 and 53 per cent of projections.

B Lack of Local Capacity for Revenue Collection

The vacillation on property tax collection indicates a more general dilemma: while decentralising tax collection makes sense in principle, LGAs in Tanzania have always lacked the administrative, institutional, and fiscal capacity to collect local taxes. This is a problem common to most African countries, particularly in rural areas (Fjeldstad et al., 2014). A study conducted by REPOA for the PMO-RALG found that executive officers at the ward and village levels in Tanzania are typically educated only to primary- or secondary-school level and have minimal skills to handle the functions their posts require (REPOA, 2007).⁴ Although there are many unemployed graduates, they are not attracted by the status, remuneration package, and working environment at ward and village level. The councils studied did not have sufficient staff trained to collect, process, and manage fiscal data or conduct quantitative analyses to guide policymaking.

Some local governments tried to improve capacity by outsourcing revenue collection to private agents: property taxes, bus stand and parking fees, forestry levies, and market fees. However, arrangements were often poor owing to a lack of knowledge about the local tax base or clear methods of establishing charge rates. Assessment of revenue potential was generally ad hoc and based on outdated figures, suggesting corruption and inefficiency. For example, collection of fees at the Ubungo Bus Terminal in Dar es Salaam was outsourced to a private agent owing partly to concern about fraud among council officials – but the private agent then retained most of the revenue collected. A conservative estimate by the Chr. Michelsen Institute and REPOA researchers is that the city council received only about 44 per cent of revenue collected between 2002 and 2006.

Local government capacity is usually augmented by staff from central government institutions. However, these institutions themselves have shown limited capacity for designing, developing, and implementing measures to strengthen local government. Most of the staff are not accountable to the LGAs but to the Local Government Service Commission and/or parent sectoral ministries such as education and health in central government. Their effectiveness is limited by lack of knowledge of local conditions, with fragmented management of staff at the local authority level exacerbated by under-financing and subterfuge. Asymmetries in reporting and accountability create significant potential for overlaps and inefficiencies.

These problems are compounded by limited use of technology for planning and reporting, particularly fiscal planning and accountability. The International Monetary Fund considers Tanzania to have one of the best public financial management systems in sub-Saharan Africa (Nord et al., 2009), and most district councils have computerised budget and accounting systems – but the REPOA research team found that limited staff capacity means these systems are often not actually used. Most councils still carry out budgeting and accounting manually, with huge implications for fiscal management and operational efficiency in general.

When weak capacity at the local government level leads to inefficiency, as planned activities cannot be properly implemented, this fuels perception of corruption: survey data indicate that 72 per cent of citizens viewed corruption as a serious problem in councils in 2013, up from 59 per cent in 2003 (Fjeldstad et al., 2008).

C Can Central Transfers Be Used to Build Fiscal Capacity?

Local revenue collection is important for fiscal autonomy. It creates a compelling sense of local ownership of resources and builds a strong basis for local oversight of resource use. It is thus considered important as it increases public officials’ accountability to their constituents, even though this is not the only way of making progress on that account.⁵ It also incentivises efficiency and limits the pressure for ever more central transfers and public debt (McLure, 1998). A study of local budgets in East African countries found that collecting more local revenue led to a higher share of expenditure on service delivery, while dependence on intergovernmental transfers and development aid was associated with a higher budget share for administrative costs and employee benefits (UN-HABITAT, 2015).

However, decentralising revenue collection creates high potential for mismanagement and corruption: local governments may be better at eliciting people’s preferences, but they have a higher chance of being captured by local elites and politically powerful groups. When enforcement and monitoring systems lack capacity, the cost of collecting local revenue can be a significant proportion of the revenue collected – sometimes even exceeding it. It can be argued that when levels of administrative capacity are low, it makes sense to entrust the collection of sub-national taxes to the central tax administration and establish an elaborate arrangement for provision of capacity-enhancing fiscal transfers to LGAs. Almost twenty years ago, Fjeldstad (2001) observed that it was unrealistic to expect that the administration in many local governments in Tanzania would have adequate capacity and the required integrity to manage increased fiscal autonomy. He concluded that ‘In fact, there is a real danger that, in the absence of substantial restructuring of the current tax system combined with capacity building and improved integrity, increased autonomy will increase mismanagement and corruption.’ The situation has barely changed.

Is it possible for grants from the central government to build capacity to collect revenue at the local level? Some have argued that grants from the central government crowd out local revenues, sapping the incentive for LGAs to collect their own dues (Shah, 2006; Masaki, 2018). However, the evidence mainly comes from studies in countries with sound fiscal institutions: analysis by Masaki (2018) strongly suggests that intergovernmental transfers can help expand local revenues in Africa, especially in rural areas. In urban areas, the marginal positive effect is lower as there tend to be more robust fiscal institutions and higher political costs associated with increasing taxes (Resnick, 2012). Evidence also shows that when fiscal transfers facilitate the provision of public goods, this improves voluntary tax compliance (Masaki, 2018).

The question is how long it will take for central government transfers to build and strengthen local capacity so that they can have sufficient capacity to mobilise and manage their own revenue collection. And what incentives will be needed to enable LGAs to build such capacity? There is a genuine issue of capacity at the local government level, which necessitates continued central government support and balancing of the central government role at that level if there is genuine desire to see fiscal autonomy take root. The most important thing is to have the proper incentives in place and effective monitoring from the central government and its agencies. The Tanzania Social Action Fund programme has been able to build capacity of local communities through engagement of local citizens in direct implementation of local projects in the health, water, education, and roads sectors. On the other hand, it should be stressed that some local communities in Tanzania exhibit fairly satisfactory performances in terms of local governance and financial management, suggesting that capacity building in other communities might indeed achieve much (see Boex and Muga, 2009; King, 2014).

As earlier noted, efforts to build local capacity to collect revenue need to be accompanied by measures to ensure that citizens have the information on local government revenue, budgets, and accounts that they need to hold their leaders to account. This challenge is most acute when formal accountability institutions, such as audits and legislative reviews, are weak owing to limited knowledge of what is happening at the local level, as is common in most local authorities in Tanzania (Msami, 2011). LGAs publish the financial information required by the central government and development partners, but researchers have found that much of this information does not reach the public. Only a small minority of people are aware of basic budget information (Fjeldstad, 2004, 2006), and public notices are often too technical for ordinary citizens to understand (REPOA, 2007).

Given the objectives of decentralisation reforms of fiscal autonomy for local government, measures should be taken to build the necessary capacity and create the necessary environment for expenditure efficiency and accountability of local officials – promoting more effective coordination, stability of the system, policy consistency, and predictability of the decision-making process.

VI Conclusion: Directions for Reform

The centre has an important role to play in the quest for local autonomy. Future reforms in Tanzania should address the complex and confusing administrative relationship between central and local government, along with limited fiscal capacity at the local level and the frequency of centrally imposed changes in revenue regimes, which make it harder to develop sustainable fiscal capacity at the sub-national level.

A Revisit the Fiscal Decentralisation Agenda

Effective collection of non-tax revenue hinges on a constructive working relationship between central and LGAs to create sound fiscal institutions and accountability to local taxpayers. There are certainly costs to local taxation as its administration needs more tax evaluators and collectors, and greater capacity to monitor and penalise non-compliance. Given limited fiscal capacity at the sub-national level, it makes sense, as an assured way to build the requisite institutional capacity at that level, to have the central government collect revenues and establish clear legal mechanisms to transfer part of those revenues to LGAs based on recognised resource endowment, the need in terms of public services to be provided, and a fiscal capacity-building component.

B Address Institutional Set-Up to Create Efficiency

The profusion of conflicting laws leads to haphazard influence on LGA operations from central and sectoral agencies and regional and district leadership. This is counterproductive. A reform agenda should address harmonisation of laws and create a framework for centre–local interactions on policy and revenue mobilisation that prevents abuse and promotes efficiency.

C Address Unpredictability of Government Decisions

There has always been the question as to what motivates the central government officials to give up powers and resources to sub-national governments. Any decentralisation measure tends to reduce the power and authority that national politicians enjoy relative to sub-national actors. Yet the same political personnel recognise at the same time the efficiency and governance gains to be expected from decentralisation. This could be the basis for unpredictable reform behaviour as the incentive schedule changes over time and context. Unpredictability of government decisions and actions deters investment, slows economic activity, and has negative implications for decentralisation reforms. A reform agenda should rationalise the conduct of discretionary decisions and actions by the central government and set up a consultative forum to engage local authorities in policy discussions, with the Association of LGAs in Tanzania playing a role.

Tanzania’s government has already expressed the desire, through the LGRP, for full-fledged fiscal decentralisation – but there has, as yet, been limited realisation. A renewed reform agenda is needed, with central transfers allowing for smooth operations at the LGA level until the requisite fiscal capacity is built.

Discussion of ‘Fiscal Decentralisation as an Example of Institutional Ineffectiveness’

Discussion by Jan Willem Gunning

I The Concept of Decentralisation

Decentralisation is a rather vague term, used to denote quite different concepts: political, administrative, fiscal, and market decentralisation.⁶ While these concepts overlap, they also differ in major ways. To start with the most radical of these four concepts, market decentralisation shifts authority and responsibilities out of the government to the private sector. Typically, under such privatisation the government retains considerable power as a shareholder (sometimes with special powers as holder of a ‘golden share’), or as regulator of the private firms providing public services. The central issue with this type of decentralisation is that the two agents, the government and the private provider, do not have the same objectives or information. This gives rise to a principal–agent problem.⁷

Fiscal decentralisation is in my view best thought of not as a form of decentralisation in its own right, but rather as a necessary complement of the three other types of decentralisation. After all, whenever central government functions are shifted to regional or local governments or to private providers, these must be enabled to fulfil their function. At a minimum, they must have an adequate source of revenue: local taxes, user charges, or a transfer of central government revenue.

Administrative decentralisation transfers authority and responsibility for the planning, management, and provision of public services to a lower level of government or to a special agency. In its weakest form, deconcentration, authority and responsibility remain with the central government but are shifted from civil servants based in, for example, the capital to those based at a regional centre. In a stronger form, delegation, the central government surrenders some of its control over planning and execution to an agent that has considerable autonomy while remaining accountable to the central government.⁸

Political decentralisation shifts political control over public decision making to representatives of those directly affected. Typically, control is transferred to an elected body at a lower level, such as a city council or regional legislature. (When political decentralisation is far reaching, it is sometimes called devolution. But the difference is only one of degree: there is no clear boundary.)

II The Rationale for Decentralisation

What are the pros and cons of decentralisation? There are at least four different rationales, related to scale, externalities, preferences, and rent-seeking.⁹ First, economies of scale in some aspects of public services provision obviously favour centralisation. Secondly, decentralisation is problematic if decisions taken locally have effects outside the jurisdiction. Such externalities will lead to underprovision if the spillover effects are positive or overprovision in the case of negative effects. In this case, centralisation to a sufficiently higher level has the advantage that the externalities are internalised: the effects in other jurisdictions that would be ignored at the local level are taken into account when the decision is transferred to a higher level. (The subsidiarity principle implies that decisions should be taken at the lowest possible level, but not lower. This in itself is too vague to be helpful, but defining the appropriate level in terms of externalities gives the concept teeth.)

Thirdly, if preferences are heterogeneous across space, then public services must be provided in different forms in different locations, and this calls for at least administrative decentralisation. This is likely to work only if complemented with some form of political decentralisation so that local preferences can be articulated at the political level and policymakers are held accountable for the way they respond to those preferences. Decentralisation then has the advantage that it generates better information on the demand for public services and (through political accountability) strong incentives for the public sector to tailor provision to that demand.

Finally, decentralisation may increase the scope for rent-seeking. Hence, public sector functions are sometimes centralised in order to reduce this.¹⁰ However, it is important to note that the direction of the effect of decentralisation on rent-seeking is not clear. Rent-seekers who try to influence decisions at higher government levels may face more countervailing power there (either from competing rent-seekers or from public sector agents who oppose them) than those who operate at lower levels. On the other hand, at the local level their actions may be easier to observe and therefore to resist. The net effect of these two forces, countervailing power and asymmetric information, is not clear.¹¹

III The Reasons for Decentralisation in Tanzania

This brief review of the nature and rationale for decentralisation will help to structure my discussion of this chapter by Likwelile and Assey.

The chapter clearly shows how special the Tanzania case is. Local government was weakened dramatically after the 1967 Arusha Declaration. The LGAs were revived in the early 1980s but were given remarkably little power: the central government and the party remained firmly in control. The law even entitles the central government to do anything that ‘shall facilitate or secure the effective, efficient, and lawful execution by the District Authorities of their […] duties’.

Likwelile and Assey give a clear and very useful account of the evolution of local government in Tanzania. (This is neatly summarised in Table 6.1.) But they say very little about the reasons for the various changes they document. The centralisation in the late 1960s clearly had very little to do with the rationales I have listed: scale economies, externalities, heterogeneous preferences, or rent-seeking.¹² Instead, it was mainly driven by ideology. The subsequent decentralisation is more puzzling. Why did it happen? Because donors pressed for it? Because rent-seekers felt it would give them new opportunities? Because the leadership believed in it? What then did they think it would achieve? Why did reforms oscillate between centralisation and decentralisation?

The chapter is almost silent on these questions. There are very brief references to the economic crisis of the early 1980s,¹³ the collapse of public services provision at that time, and ‘pressure’ from donors. We are not told what the objectives of the reforms were. Hence, the chapter offers a fascinating factual account of the reforms, but no political economy analysis of the changing incentives for the various agents involved, nor an empirical analysis of the results of the reforms.

Reading between the lines, the real story appears to be that the central government, while often describing decentralisation as a way to promote good governance (perhaps even a panacea), has in fact never fully accepted decentralisation. Its ability and desire to resist in practice what it preached waxed and waned over time, for reasons that are unfortunately not discussed. As a result, Tanzania has moved back and forth between centralisation and decentralisation, responsibilities have often been unclear, and fiscal decentralisation has seldom been in line with political and administrative decentralisation. If this interpretation is correct, then the incentives for the central government to push for or to resist decentralisation should be at the centre of the story. Focusing instead on fiscal decentralisation, as the chapter does, amounts to studying the symptoms rather than the disease.

IV Fiscal Decentralisation and Local Revenue Collection

At the outset, in Section I, the authors indicate that their focus is ‘on the administration of local revenue mobilisation given the centrality of financial resources in empowering local authorities to deliver on their mandate and improve their performance’. This suggests that to understand decentralisation and development in Tanzania the key process to study is fiscal decentralisation.

This seems hard to justify, for two reasons. First, as the authors themselves stress, local authorities do not have the capacity and integrity required for a successful decentralisation. Therefore, fiscal autonomy may lead to mismanagement and corruption. Secondly, fiscal decentralisation is a process that makes political or administrative decentralisation possible. That may lead to better governance and thereby to better service provision. Whether it actually did so in Tanzania is an important empirical question, but that question is not addressed in the chapter.

In Tanzania LGAs are almost exclusively financed through transfers from the central government: these account for more than 90 per cent of their revenue.¹⁴ The authorities are allowed to raise their own revenue but usually lack the capacity to do so.¹⁵ Possibly, this heavy reliance on transfers undermines horizontal accountability.¹⁶

It is worth stressing that local taxation is neither necessary nor sufficient for horizontal accountability. It is not necessary since, contrary to what the chapter suggests, effective accountability can be achieved without fiscal decentralisation. Reinikka and Svensson (2004) show in a famous study of the use of government transfers for education in Uganda that posting news in the village about the transfer was sufficient to trigger a powerful process whereby villagers held teachers accountable. In this case, accountability was achieved without any institutional change, simply by empowering people with information. Similarly, in Tanzania, villagers in Mkenge (Bagamoyo District) learned in a non-governmental organisation training programme about their rights. They then proceeded in 2010 to throw out the village council with a vote of no confidence for failing to account adequately for public expenditure. Tanzania has also practised an innovative system of village meetings in which spending priorities are discussed.¹⁷ While local leaders predictably try to capture these meetings, they are often overruled so that government transfers are spent on, say, education rather than roads. These examples suggest that the absence of local revenue mobilisation does not preclude effective accountability.

There is a third point to consider, made by Besley and Persson (2013): local taxation requires highly qualified staff for assessment, monitoring, and enforcement.¹⁸ This may make fiscal autonomy very costly.

In summary, there is a trade-off to consider, which involves three effects. The traditional argument is that local taxation will lead to better accountability and hence to better public services delivery, in line with local preferences. These benefits have to be weighed against the cost of local taxation, which may be relatively high if economies of scale are important: the Besley and Persson point. But it may be possible to avoid this trade-off, namely by achieving accountability without relying on the scrutiny of expenditure by taxpayers. The village meetings are one way of doing this.¹⁹ An optimal policy that takes these three effects into account clearly cannot be identified without empirical analysis. But it is important to point out that the desirability of fiscal autonomy – taken for granted in much of the chapter – is by no means obvious.²⁰

V Institutional Weaknesses

Likwelile and Assey argue that raising local revenue faces several institutional weaknesses, including discretion, arbitrariness, unpredictability, and inconsistencies in decisions by the central government. One of the examples they discuss is the oscillation between centralisation and decentralisation in the collection of property taxes. In the pre-2008 phase of decentralised collection, corruption was rampant. This suggests that centralisation may be needed to reduce rent-seeking. But the chapter also mentions that in the subsequent centralised phase, ‘Imperfect information flowing to central operators created opportunities for corruption’. This leaves the reader with a puzzle: if corruption, arguably due to different causes, could flourish in both regimes then what, if any, is the effect of decentralisation on corruption? Apparently, there is no empirical work on this. Clearly, there is a need for an empirically based study that compares corruption under decentralisation and centralisation.

VI Reforms

The chapter’s section on reform (Section VI) is quite brief but lists a whole series of possible reforms.

First, the authors argue that the fiscal decentralisation agenda should be revisited so as to develop a set of rules for local and central governments and ensure predictability. While this is vague, they also take a clear position: given the poor fiscal capacity of the lower-level governments, ‘it makes sense […] to have the central government collect revenues and establish clear legal mechanisms to transfer part of those revenues to LGAs based on recognised resource endowment, the need in terms of public services to be provided, and a fiscal capacity-building component’. This is probably the key statement in the chapter, and I will return to it.

Secondly, predictability should be ensured by ‘rationalis[ing] the conduct of discretionary decisions and actions by the central government’. This sounds like motherhood and apple pie: it is hard to see how one could disagree. Predictability is, of course, a good thing, but how the central government’s scope for discretionary actions should be rationalised is not at all clear. This would require a thorough analysis of the pros and cons of centralisation, culminating in a convincing diagnosis of the problem.

Returning to the key statement about the desirability of the reliance on transfers from the central governments, a few comments are in order. First, this statement seems somewhat contradictory with the authors’ advocacy elsewhere in the chapter of the desirability of fiscal autonomy, unless it is understood as referring to a temporary measure motivated by lacking local capacity. Fiscal autonomy, of course, requires a drastic reduction in the reliance of the LGAs on transfers from the central government. Secondly, one reason for their favouring transfers appears to be the evidence they cite from Masaki (2018) that transfers crowd in local revenue. There is a technical reason to be somewhat sceptical of this result.²¹ More importantly, while Masaki finds a large elasticity of crowding in (0.6), given the very low share of local revenue in total revenue this translates in fact into a very weak effect. Since transfers finance 91.5 per cent of domestic expenditure, an extra government transfer of TZS 1.00 crowds in only about TZS 0.06 of domestic revenue. Therefore, while the effect is statistically significant, it is in economic terms almost trivial. Thirdly, the acute need for ‘more tax evaluators and collectors, and greater capacity to monitor and penalise non-compliance’ are good arguments (following Besley and Persson, 2013) for relying on central tax collection and transfers to LGAs. However, and this is my main objection, this does not clinch the case: these disadvantages of local fiscal autonomy must, as noted before, be weighed against the advantage of fiscal autonomy leading to improved accountability, taking into account the scope for achieving accountability in other ways. Finally, clearly the status quo cannot continue indefinitely. The authors see, if I understand them correctly, continued heavy reliance on transfers as a temporary measure.²² Local capacity must be built up (largely financed by these transfers) so that eventually local revenue can be substituted for transfers. This is sensible but, as the authors recognise themselves, raises the question of how long this will take and, crucially, what incentives LGAs have to use the transfers for such capacity building.

VII Conclusion

The experience of decentralisation in Tanzania is of special interest for two reasons. First, the starting position was an extreme one: the central government and the party exercised a degree of control that was unique in Africa. Secondly, the subsequent decentralisation quickly turned into a bewildering oscillation between more and less central control. That this back-and-forth process was possible, was in part due, as the chapter rightly stresses, to ambiguities in the law. In this respect too, Tanzania seems to be a special and instructive case. The chapter gives an excellent description of this strange Echternach procession (three steps forward, two steps back). However, we learn what happened, but not the reason why.

The effects of decentralisation (political, administrative, or fiscal) on welfare, notably through the provision of public services, are the outcomes of a very complicated process. There are changes in formal power, in the opportunities and incentives for rent-seeking, in corruption, in the scope for holding officials accountable, and in the information available at different levels of government. Since there are many opposing effects in this tangled process, theory is of little help to decide on the desirability of centralisation or decentralisation. The chapter makes almost no use of evidence. There is some evidence for Tanzania, but empirical work is an urgent priority. Ideally experimental methods should be used to estimate the effects of decentralisation. When randomisation is not feasible, comparing outcomes across locations with different levels of decentralisation can still generate very useful information. Even less formal evidence can be helpful. Anecdotal evidence, for example on the effects of decentralisation on corruption or on the circumstances that enable village meetings to hold officials accountable, can begin to build a body of evidence.

In the absence of firm evidence there is little that can be concluded. Is fiscal autonomy desirable? Early in the chapter, the authors appear to take this for granted. However, they later argue that it would lead to corruption and to poor management because of the weak capacity of LGAs. If this is correct, should we then consider Tanzania’s incomplete and half-hearted fiscal decentralisation as a blessing in disguise? This seems to be a corollary of the authors’ conclusion that reliance on central government transfers should continue until the LGAs have built sufficient capacity for raising their own taxes.

Most importantly, the end of the chapter narrowly focuses on the need for capacity building. The political economy issues, including the incentives for corruption, are discussed in the earlier parts but slowly disappear over the horizon.

I have argued that the chapter’s focus on fiscal decentralisation amounts to studying the symptoms rather than the disease. The central issue is what incentives the agents involved – the central government, local authorities, and various groups of rent-seekers – face. These incentives will in part determine what groups will push for decentralisation or will resist it. Theoretical analysis cannot take us very far here. An empirically based study that compares the effects of, and the incentives for, rent-seeking under decentralisation and centralisation is an urgent priority.

7 Through the Maze of Land Right Laws

Sist J. Mramba

‘If markets do not exist in areas such as land, then they must be created […] state intervention in markets beyond creation must be kept at bare minimum.’ Harvey (2005)

I Overview

It is widely recognised that the fuzziness of land rights is a constraint on Tanzania’s development. In rural areas, land is the main resource of a large population of poor farmers and cattle herders – as well as of modern production units that can exploit a source of comparative advantage. Conflicts could be avoided for as long as land was abundant, but since the 1980s there has been growing pressure on land. With an expanding urban population, unclear land rights also constrain development in urban areas.

Private ownership of land is a concept that has always been ideologically foreign to Tanzanian society. Instead, ownership of land is vested in the president, who is supposed to use it for the public good. Laws define various occupancy rights for land users, which are meant to be substitutes for formal property rights in other economies. These occupancy rights have to allow for various local customary rules of land allocation and transmission, which apply to much of the country’s land.

Because of this – and various flaws in the existing formal laws and their implementation – the present system is far from offering the security that is required for an efficient and productive economic use of land. There is a heavy administrative apparatus, which is commonly judged as inefficient and the source of rent-seeking opportunities. As noted by Fischer, many developing countries are characterised by poor policies and weak institutional settings, which create opportunities for corruption and embezzlement by privileged interest groups (Fischer, 2005).

The next section of this chapter gives a brief historical perspective on land tenure issues, tracing continuity from colonial times through the ‘villagisation’ era to the recommendations of the Presidential Commission of Inquiry into Land Matters, Land Policy and Land Tenure Structure, which resulted in the 1995 National Land Policy and 1999 Land Acts. During this time the pendulum has swung between the desire to protect customary small-scale landholders and the desire to give investors the security they need to develop long run and large-scale projects.

Despite many critiques and partial reforms, the system established in 1999 still provides the basis of land management in Tanzania. Section III explores that system, which categorises land in three ways: village land, which is under the jurisdiction of village councils, and accounts for around 70 per cent of all land in Tanzania; reserved land, which includes forest reserves, beaches, and game parks, and accounts for 28 per cent of all land in Tanzania; and general land, which accounts for only 2 per cent of land but is economically crucial because it includes urban land and large-scale agricultural projects.¹

Different rules of occupancy apply to village land and general land, and disputes commonly involve attempts to reclassify village land as general land, which is necessary for it to attract external investment. When proposed changes to village land involve over 50 hectares, they need to be approved by the Commissioner for Land. The process is slow, cumbersome, and subject to various costs. The law provides for compensation for the people who previously occupied the land, but in practice this is typically inadequate and delayed.

The situation is complicated by the fact that the formal rights of occupancy defined by the 1999 Act coexist with various informal ones, and the administrative process of surveying land to grant formal rights has been progressing slowly – indeed, a large majority of rural Tanzanians, and about half in urban areas, still do not have formal rights over the land they use. Section IV explores these informal rights, completing a description of the actual situation regarding land tenure in Tanzania.

Section V provides an overview of the institutional arrangements for land administration in Tanzania, which are complex. It sets out the ways in which land rights can be granted, and the mechanisms for selling rights over land or using them to raise credit – although it is sometimes said that land in Tanzania has no value because it is formally owned by the state, there are actually various ways in which the right of occupancy is transferable for value. This section also explores the mechanisms for resolving disputes over land, of which there is a large and growing backlog.

Section VI draws on the preceding discussion to identify the eight main institutional issues and challenges with the system. Although proposals for revising the National Land Policy are currently being discussed, these seem unlikely to be fully resolved:

• Duality of tenure: The handling of the distinction between general land and village land is the main source of friction and inefficiency, combining often inadequate protection for villagers with disincentives for investors that may lead to missed economic opportunities. Better defined, better implemented, and fairer administrative procedures for land transfers would provide efficiency gains on both sides.

• Immense powers of eminent domain: Land is deemed to be akin to state property, and the state has not always used its resulting powers judiciously or in the public interest – indeed, what constitutes the public interest is a matter of debate. Customary landholders are not protected by fair information and consultation procedures, and the losses they endure can be very great.

• Limited formalisation: Procedures for formalisation are bureaucratic, unrealistic, expensive, and time-consuming. Registry records are often unclear and automated systems are rare.

• Gender discrimination: Although discriminatory practices under customary law are illegal, in practice it remains a serious problem that women’s access to and control of land often depends on the will of male relatives, making it harder for them to obtain loans or invest in improving their land.

• Institutional overlaps: Multiple and diverse institutions are involved in implementing land-related laws and policies. The resulting overlaps can create inefficiency and undermine accountability.

• Corruption and inefficient land administration: While the government discourages informal payments, they are widely used. This indicates the need for further institutional reform and efforts to make people more aware of their legal entitlements and to create incentives to report rent-seeking behaviour.

• Ineffective land dispute settlement framework: Dispute resolution mechanisms are often hard for ordinary people to access, whether because of the need to travel, the fees involved, language barriers, delays, or lack of clarity about authority.

• Inadequate resources: Shortfalls in human, material, and financial resources exacerbate problems with the legal and institutional framework.

The chapter concludes by summarising areas in which reform is a priority, including tackling corruption, improving coordination, scaling up programmes to formalise occupation rights, and streamlining procedures to demarcate land available for occupation and investment.

II A Brief Historical Perspective on Land Tenure Issues

There is some continuity in matters of land tenure between colonial times and post-independence Tanganyika, and later the United Republic of Tanzania, with some basic principles of the colonial era retained but with disorderly and sometimes contradictory additions. What was kept from the colonial era is essentially the view that land, whatever its type and its use, is formally the property of the government. It is now formally in the hands of the president, considered as the ‘trustee’ of the national land.

Since colonial times, however, the sensitive issue has been the status of all the land under customary law and the alienation of that land for use by non-indigenous or foreign investors, notably for export-oriented large-scale agricultural production (Tenga and Mramba, 2014, p. 55). The explicit rejection of full private property – and consequently the necessity to rely on rights of occupancy somewhat akin to long-run leases – was strongly reaffirmed by Nyerere in the mid-1960s, often against the advice of foreign advisers. Nyerere expressed his view on that issue before independence (Nyerere, 1958, pp. 55–6):

[I]n a country such as this, where, generally speaking, the Africans are poor and the foreigners are rich, it is quite possible that, within eighty or a hundred years, if the poor African were allowed to sell his land, all the land in Tanganyika would belong to wealthy immigrants, and the local people would be tenants. But even if there were no rich foreigners in this country, there would emerge rich and clever Tanganyikans. If we allow land to be sold like a robe, within a short period there would only be a few Africans possessing land in Tanganyika and all others would be tenants.

This view has not been debated since. In essence, it was realised during this time that – as recommended by the East African Royal Commission of 1953–5 – market mechanisms had to enable willing sellers to make land available to willing buyers (Shivji, 1998), but market freedom could not be left to price alone. It had to be further regulated.

Modifications to colonial rules related to the ways in which land could be alienated from customary users: from total discretion in colonial days (see Box 7.1) to the official protection of small farmers under customary law. The strength of this protection, however, fluctuated somewhat over time. Cases demonstrate a clear struggle between the need to protect customary small-scale landholders and statutory large-scale farmers. Indeed, the whole period after independence was characterised by an ongoing debate about the space to be given to customary laws and the way to give investors, including public entities, the security on the use of land they need to develop long run and large-scale projects.

Box 7.1: Pre-independence land cases

The 1953 case of Mtoro Bin Mwamba v. A.G (2TLR, 1953, 327) decided that the Washomvi law, or customary law, did not recognise individual ownership to land except for an individual’s usufructuary rights – and that where land was held by a native, the inference was that the possession was permissive and not adverse. In that case, the interest of the small-scale natives was merely right to the growing trees and not ownership of the land itself. In the cases of Descendants of Sheikh Mbaruk bin Rashid v. Minister for Lands and Mineral Resources (EA 348, 1960) and Muhena bin Said v. Registrar of Titles (16 EACA, 1948, 79) it was established that land occupation by natives was none other than the admitted general permissive occupation by all inhabitants of the territory.

In some cases, the government used statutory instruments to frustrate customary land tenure in favour of statutory land tenure.² The situation was complicated by the creation of the Ujamaa villages in Nyerere’s socialist era, the massive population resettlement operations undertaken under that programme, and the objective to improve agricultural productivity and the country’s export potential. The alienation of customary land was rather common during the ‘villagisation’ period, whether at village level in order to reorganise production and increase productivity through mechanisation, or through parastatals being given the right to alienate large swaths of customary land.

Mpofu argues that villagisation marked the apex of the state bourgeoisie’s efforts to put rural production under its hegemony. He sees resettlement of peasants in chosen localities as a vehicle to facilitate state supervision and control of smallholding producers (Mpofu, 1986, p. 120). Tenga and Mramba note that the relocation of peasants, during operation vijiji,³ caused massive land tenure confusion and legal disputes (Tenga and Mramba, 2014). As a result, peasants whose land had been acquired sued in courts of law for restoration of such lands, and when they won their cases, the government reacted by issuing notices to extinguish their customary tenures (Mchome, 2002, p. 70; Tenga and Mramba, 2014, pp. 61–2).

The general trend away from peasants’ control in the 1970s was evidenced in the overhaul and abolishment of local institutions that had grassroot-level participation, and their replacement with more bureaucratic ones directly controlled by the central government.⁴ This is reflected in Shivji’s view that Ujamaa served the interests and ideological hegemony of the state bourgeoisie (Shivji, 1986, p. 3), as Ujamaa remained a variant of petty bourgeois socialism and the official ideology of the state (Mpofu, 1986, p. 122).

The liberalisation period in the mid-1980s reverted to the dual land system with the development of large-scale plantations and better-protected customary land: a relative shortage of food products reinforced the weight given to farmers and cooperatives under customary law. Cases that witnessed the unavoidable tension between the two types of agricultural exploitation during this time include National Agricultural Food Corporation (NAFCO) v. Mulbadaw Village Council and sixty-seven others (see Box 7.2) (Tanzania Law Report, 1985, Case No. 88).

Box 7.2: NAFCO v. Mulbadaw Village Council and sixty-seven others

About 26,000 acres of land in Basotu ward, Hanang district, including 8,125 acres in dispute between the litigants in this case, were occupied by the Kilimo department from 1968–9. NAFCO succeeded Kilimo, entering into occupation of 22,790 acres of the land in 1969. NAFCO was offered a ninety-nine-year right of occupancy in January 1973. No wheat was planted on the land until 1979. The Mulbadaw Village Council, and another sixty-seven villagers of the same area, filed a case in the High Court against NAFCO, claiming damages for trespass over their lands and destruction of their crops and huts during the time of its occupation. The High Court awarded the Mulbadaw village TZS 250,000 as general damages, all the other claimants a global sum of TZS 1,300,000 as general damages, and TZS 545,600 as special damages.⁵ The judge also declared that the 8,125 acres in dispute belonged to the claimants, and ordered NAFCO to cease its trespass forthwith.

However, after NAFCO appealed, the Court of Appeal stated that:

An administrative unit did not necessarily imply that the land within its administrative jurisdiction was land belonging to it. The village council could acquire land only by allocation to it by the District Development Council under direction 5 of the Directions under the Villages and Ujamaa Villages (Registration, Designation and Administration) Act, 1975 […] those villagers who had testified had customary tenancies or what are called deemed rights of occupancy […] had to establish that they were natives before a court could hold that they were holding land on a customary tenancy. The 4 villagers [who] had not established that they were in occupation on the basis of customary tenancies were thus not ‘occupiers’ in terms of the Land Ordinance.

(Court of Appeal of Tanzania, 1985)

Little progress was achieved in trying to codify this complex relationship between formal and informal, or modern and traditional, land tenures and agricultural farms. This led to the aforementioned Presidential Commission on land matters under the direction of Professor Shivji, and the passing of the National Land Policy in 1995 and the Land Act in 1999. Despite many critiques and partial reforms, this system still provides the basis of land management in Tanzania.

III Legal Land Tenure in Tanzania According to the 1999 Land Act

Section 4 of the Land Act reiterates the basic public property principle of land tenure in Tanzania:

[A]ll land in Tanzania shall continue to be public land [our emphasis] and remain vested in the President as trustee for and on behalf of all the citizens of Tanzania […]. The President and every person to whom the President may delegate any of his functions under this Act, and any person exercising powers under this Act, shall at all times exercise those functions and powers and discharge duties as a trustee of all the land in Tanzania so as to advance the economic and social welfare of the citizens.

It categorises land in three ways:

(4) For the purposes of the management of land under this Act and all other laws applicable to land, public land shall be in the following categories: (a) general land; (b) village land; and (c) reserved land.

Village land is under the jurisdiction of village councils (Village Land Act 1999, sections 7 and 8) and therefore governed by statutory law (Village Land Act 1999) and customary law.⁶ The councils, elected by village assemblies (Local Government (District Authorities) Act, No. 7 1982, section 57) are in charge of the management of all land in their perimeter (Village Land Act 1999, section 8). Village land mostly comprises rural land and peri-urban areas.⁷ Village land accounts for around 70 per cent of all land in Tanzania, supporting around 80 per cent of the population – many being farmers and pastoralists (Tenga and Kironde, 2012, p. 17; Draft Land Policy, 2016).⁸

Reserved land is set aside for special purposes, including forest reserves, beaches, game parks, game reserves, land reserved for public utilities and highways, and hazardous land (Land Act 1999, sections 6 and 7). It is administered under different legislation: for example, forestry reserves are administered under the Forest Act (Sundet, 2005). Reserved land accounts for 28 per cent of all land in Tanzania.

General land covers all the land that is not either village land or reserved land. It is administered by the Commissioner for Land on behalf of the president (Land Act 1999, sections 9 and 10). Although it accounts for only 2 per cent of land, it is economically crucial, supporting 20 per cent of the population (Tenga and Kironde, 2012, fn. 28): it includes urban land and agricultural land granted to investors for large-scale operations (Tenga and Kironde, 2012, fn. 28).

The distinction between village land and general land is a potential source of dispute when attempts are made to free village land for external investors, a frequent case that is found not to be satisfactorily handled in the Land Act. The official definition of general land – ‘all public land which is not reserved land or village land and includes unoccupied or unused village land’ (Land Act 1999, section 2) – creates an apparent ambiguity, as there is no provision in the Act to clarify what is exactly meant by ‘unoccupied or unused village land’. The process for non-villagers to access land under the control of villages is slow and cumbersome, as villages are limited in the amount of land they can allocate: any amount above a maximum of 50 hectares must be approved by the district council or Commissioner for Land (Tenga and Kironde, 2012).

The distinction between the types of land is of utmost importance and justifies the division of the Land Act 1999 into two parts. The Village Land Act deals with customary land occupancy rights in rural areas, while the Land Act deals with all the other land, including agricultural investment and urban development as well as reserve land.

A Rights of Occupancy

Under the Land Acts, village and general land are ruled by different rules of occupancy (Tenga and Kironde, 2012). A ‘Right of Occupancy’ is defined as ‘a title to the use and occupation of land and includes the title of a Tanzanian citizen of African descent or a community of Tanzanian citizens of African descent using or occupying land in accordance with customary law’ (The Village Land Act, 2006, np).

The definition has two vital parts: the meaning, that is the title, to the use and occupation of land; and who shall qualify to occupy such land, including tribal communities that profess customary law. While the provision is a typical remnant of the British land policy, its retention in the law carries less weight, as various laws – including the United Republic of Tanzania (United Republic of Tanzania) Constitution 1977 as amended – recognise the rights of tribal communities. People who do not profess customary law can alternatively acquire a Granted Right of Occupancy (GRO) upon conversion of the land from village land into general land, even if they are not of the stated descent such as whites or those of Asiatic origin such as Indians. Moreover, under the British Land Ordinance, natives in the context of land occupation included Swahilis and Somalis, while the Land Act 1999 only requires membership of a tribal community to hold land under customary law.

Two types of rights of occupancy apply, respectively, to general and village land: the GRO reasserts the pre-existing system of formal land titles on general land, while the Customary Right of Occupancy (CRO) refers to informal land rights granted by village councils on village land.

1 Granted Right of Occupancy

This right, granted on general land, is deemed to be the main form of landholding in urban areas. It is granted by the commissioner on behalf of the president for a maximum of ninety-nine years. The cost involves application fees, the cost of preparing the certificate of title, registration fees, survey fees, deed plan fees, stamp duty on the certificate and a duplicate, and a premium (Kironde, 2014; World Bank, 2014b, p. 27). Tenga and Kironde note that government efforts to generate funds to acquire and service land, by charging a premium based on some formula of cost recovery, makes it difficult for low-income households to access land registration services (Tenga and Kironde, 2012, p. 28).

The premium has been 7.5 per cent of the land value since 2015, but a budget speech delivered by the Minister of Lands, Housing and Human Settlements Development (MLHHSD) expressed the ministry’s intention to reduce it to 2.5 per cent of the land value (United Republic of Tanzania, 2018, p. 18). This will mean a huge decrease in the amount of premium and relief to land title applicants. Section 31 of the Land Act provides that, in determining the amount of a premium, the minister shall have regard to:

1. a. The use of the land permitted by the right of occupancy which has been granted;

2. b. The value of the land as evidenced by sales, leases, and other dispositions of land in the market in the area where the right of occupancy has been granted, whether those sales, leases and other dispositions are in accordance with the Act or any law relating to land which the Act replaces;

3. c. The value of land in the area as evidenced by the price paid for land at any auction conducted by or on behalf of the government;

4. d. The value of the land as evidenced by the highest offer made in response to a request made by or on behalf of the government, a local authority or parastatal for a tender for the development of land in the area;

5. e. Any unexhausted improvements on the land; and

6. f. An assessment by a qualified valuer given in writing of the value of land in the open market.

In addition, as for the land rent, section 33 of the Land Act provides that:

Rent is determined by the Minister depending on factors such as: (a) the area of the land; (b) the use of land; (c) the value of land; (d) where there is insufficient evidence of value in that area from which an assessment of the value of land may be arrived at, an assessment by a qualified valuer of the value of land in the open market in that area which may be developed for the purpose for which the right of occupancy has been granted; and (e) the amount of any premium required to be paid on the grant of a right of occupancy.

Table 7.1 shows the estimated cost to be incurred as premium and land rent to be granted land. It assumes that the land is acquired from previously unsurveyed land that has been made the subject of planning followed by survey, parcelling, titling, and certification.

Table 7.1 Current official costs of first-time registration of a government grant (in TZS)

Fee	Amount	Comments
Premium	2.5% of land value	Application for a right of occupancy – 20,000
		Preparation of certificate of title – 50,000
		Registration fees – 80,000
		Survey fees – 300,000
		Deed plan fees – 20,000 (0–1 hectare varying with increase in size)
		Stamp duty on certificate and duplicate – 1,000
Land rent for one year	Paid per annum	Per m2 depending on category, locality, and use

Source: United Republic of Tanzania (2015)

If the land has occupiers, a process of compensation will be followed: it was stated in the cases of Mwalimu Omary and another v. Omari Bilali (TLR 1990, 9) Suzana Kakubukubu and two others v. Walwa Joseph Kasubi and the Municipal Director of Mwanza (TLR 1989, 119), and James Ibambas v. Francis Sariya Mosha (TLR 1999, 364) that pre-existing rights to land can be extinguished only upon payment of compensation. The amount of compensation paid to original occupiers follows criteria in the Land Act and the Land Acquisition Act. However, concerns remain as the amount is not necessarily dependent on prevailing market rates and the payment is not always prompt.

Efforts by the government to ensure availability of surveyed plots is unsatisfactory. For instance, the number of registered titles, transfer documents, and certificates of unit titles issued in the financial year 2017/18 is below what was originally intended. In the stated financial year, the MLHHSD registered 79,117 titles, of which 32,178 were certificates of title (from the initial plan of 400,000 titles) and 46,939 transfer documents (from the initial plan of 48,000 documents) (United Republic of Tanzania, 2018, p. 27). The capacity of the ministry to deliver is low, since issuance of new titles is not more than 35,000 titles per year.

The GRO can be likened to a ‘term of years’ or lease granted by a superior landlord. In the case of Abualy Alibhai Aziz v. Bhatia Brothers Ltd (2000), it was stated that:

A right of occupancy is something in the nature of a lease and a holder of a right of occupancy occupies the position of a sort of lessee vis-a-vis the superior landlord. It is a term and is held under certain conditions. One of the conditions is that no disposition of the said right can be made without the consent of the superior landlord. [Since] […] there is now no freehold tenure in Tanzania all land is vested in the Republic. So, land held under a right of occupancy is not a freely disposable or marketable commodity like a motor car. Its disposal is subject to the consent of the superior or paramount landlord as provided for under the relevant Land Regulations.

The implication is that the government exercises oversight powers over land dispositions under the custodial duty of the president (Land Act 1999, section 4). Under that mandate, he not only approves dispositions, but also receives notifications on any dispositions that are about to take place. Although this may seem unnecessary control over the freedom of disposition, it remains a regulatory mechanism, especially in cases of fraud, tax avoidance, breach of conditions, and transfer irregularities.

Sometimes the land for grants may include reserved land, where the president so permits. The grant is generally subject to the payment of rent,⁹ although the commissioner has power to grant the land without rent.¹⁰ The use of this power is less common, although it can be used as an incentive to attract investment in land. The grant has to be mandatorily registered under the Land Registration Act if it is for more than five years. The GRO may be acquired compulsorily in the public interest subject to prompt, reasonable and fair compensation, as provided under the Constitution and the Land Acquisition Act, Cap. 118.

Under section 19 of the Land Act, the GRO can be granted to citizens or non-citizens. Non-citizens can get it for investment purposes when they are registered with the Tanzania Investment Centre (TIC) or the Export Processing Zones Authority (EPZA).¹¹ The section created debate in the recent past when foreign investors became much more interested in agricultural investments in Tanzania and were accused of ‘land grabbing’.

A major area of concern, further explored later, is that investors cannot get village land unless it has first been transformed into general land. Boudreaux remarks that, to attract investors, the government has stated its intent to transfer a significant portion of village land to the general land category, with arguments that plenty of land in Tanzania is freely available and unoccupied (Boudreaux, 2012, p. 3).

In urban areas, which are general land, GROs coexist with other types of occupancy, including private individual semi-formal occupancy through derivative rights in the form of residential licences; private individual informal occupancy, where land is used informally with no or limited involvement of public authorities; communal or collective occupancy under the Unit Titles Act;¹² and informal occupation owing to encroachment of public land. In all these types of urban tenure, occupancy is formal or informal, individual or collective, and legal or illegal. From a governance point of view, the regulation of these different types of land occupancy is very dependent on a resilient, effective, institutional framework to avoid disputes.

In a survey done by Land Matrix (2016) to provide the average land market demand and scale of land acquisitions in Tanzania, it was noted that, overall, thirty-two investors from seventeen countries were engaged in large-scale land investments in Tanzania. Investors from the United States had the largest size under contract, while investors from the United Kingdom (UK) had the highest number of concluded deals. African investors did not play a significant role in land deals in Tanzania. Most of the land involved in these deals is customary land, which must undergo conversion into general land before it is granted to the investors. Owing to inadequate compensation paid and delays in the payment, discontent arises with the government and between investors and local communities.

2 Customary Right of Occupancy

The CRO bears all the attributes of a GRO except that it only applies in a customary tenure setting and on village land. The Village Land Act provides room for both individual and collective land rights (the Village Land Act (1999), sections 12 and 13). Village land can thus be used by an individual occupier or by a community, such as a pastoral community as grazing land, for forest reserve, water dam, and so on. These options provide flexibility for occupiers to enjoy the preferred rights of occupancy.

The Act allows village councils to issue Certificates of Customary Rights of Occupancy (CCROs) upon application.¹³ In effect, these formalise customary tenures; but their issuance depends on regularisation of the village land. In essence, the Village Land Act provides room for a village to have its outer boundaries surveyed, demarcated, and registered by the MLHHSD in order to obtain a Certificate of Village Land (CVL). The individual villagers could then apply to have their private parcels surveyed and registered. Only at the end of that process can villagers receive their CCRO document. It is also necessary that the village has issued a land use plan identifying what part of the village land could be individually titled, what part could be used communally, and what part could be reserved for further as-yet undefined uses. In the absence of such regularisation, landholdings on village land are based on the ‘deemed right of occupancy’, which may result from inheritance or clearance of unsettled land.¹⁴

The CCROs are meant to provide land occupiers on village land with the same advantages and protection as the owners of GROs in general land. This is not completely the case because of some specific constraints in the case of the CCROs. One such constraint is the impossibility of transmitting CCROs, through sales, donation, or bequest, to somebody outside the village community without the approval of the village council.¹⁵ Of course, this is to make sure that the land of a village does not end up being controlled by people foreign to the village. Yet it seriously reduces the collateral value of the CCROs for potential lenders, undermining one of the objectives of CCROs – to allow holders to access the credit market.

B Land Transformation by the State and the Issue of Compensation

The Village Land Act allows for the transformation of village land into general land.¹⁶ The initiative may come from the government needing to acquire land for some public purpose, in which case a standard expropriation procedure is followed, including compensation of evicted people. Askew suggests that determining what land can be transferred to the general land category is one motivation for mapping and certifying village land areas, which necessarily raises the spectre of widespread dispossession among the native communities in the wake of commercial agricultural expansion (Boudreaux, 2012, p. 3; Askew et al., 2017).

The rights of people whose land has been expropriated or acquired and the procedures for expropriation are provided for by the Land Acquisition Act 1967, Land Act Cap. 113,¹⁷ Village Land Act,¹⁸ and the Land Acquisition Act Cap. 118.¹⁹ The right to compensation is assessed according to the concept of opportunity, which takes into account the market value of the real property, relying on land transactions within the neighbourhood (excluding use being made of land, crops being grown, yields, and prices); disturbance allowance; transport allowance; loss of profits or accommodation; cost of acquiring the land; and any other loss or capital expenditure incurred in development of the land. Interest at the market rate is charged for delay in payment exceeding six months (Land Act 1999, section 3(1)(g); Land (Assessment of Compensation) Regulations, 2001).

In practice, compensation is usually inadequate and rarely paid on time. There have been many cases in urban Tanzania where the payment of compensation has been affected many years after the assessment, without reflecting the decline in the value of money. As Shivji (1998, p. 35) puts it:

Compensation is hardly ever paid before dispossession. The amounts are paltry and have long been overtaken by inflation resulting in universal dissatisfaction with compensation.

The distribution of compensation also often ends up being inequitable within the households. Displacement often disturbs cultural and social values and norms as well as the composition and bonds of families, who may be dispersed in different locations, in opposition to human rights ideals. The far-reaching socio-economic impacts of compulsory land acquisition include income levels, land utilisation, land ownership structure, and farming practices.²⁰

It should be borne in mind that when the government is acquiring land, it both sets the rules for determining and paying compensation and actually determines and pays the compensation. This could be seen as violating legal rights, as landowners expect to have their land assessed by a non-interested party.

1 Compensation and Market Value Dichotomy

Generally, compensation and market value for land have continued to be incongruent. Msangi, citing Ndjovu, argues that since there is no freedom of transaction in compulsory acquisition, there is no market as such for the compulsorily acquired property and that just compensation cannot be the same as market value (Ndlovu, 2003; Kironde, 2006; Ngama, 2006; Msangi, 2011, p. 20). He considers market value as the estimated amount for which an asset should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably and without compulsion, which is not the case for compensation (Msangi, 2011, p. 20). In compulsory acquisition, where the transaction is not based on willingness from the seller in a free exchange, the market value cannot be said to have been attained because sellers have been compelled to sell against their will (Msangi, 2011).

As far as obtaining land market value based on crops is concerned, the government employs a formula for both perennial and seasonal crops. For a seedling crop it pays 30 per cent per stem, for mature crop 60 per cent, for optimum producing crop 100 per cent, and for aged crop 15 per cent. The price of an acre would stand at roughly between USD 180 and 1,500, depending on the age of the trees/plants (United Republic of Tanzania, 2013a).

Under the Land Acquisition Act, vacant land is not to be considered in assessing compensation, but this situation changed under the Land Act (1999). The National Land Policy (1995) recommended an improvement to the compensation package. The Land Act 1999, under section 3(1)(g), generally clarifies and improves on the nature and manner of the compensation package to be paid.

The government may give alternative land of the same value in the same local authority area in lieu of or in addition to compensation, if this is practicable (s. 11(1)(2); s. 12(3) of the Land Acquisition Act 1967). Under section 3 of the Land Acquisition Act 1967, where land is compulsorily acquired the minister is required to pay compensation as may be agreed upon or as determined according to the provisions of the Act. In practice, however, the government has preferred to determine compensation rather than to negotiate.

In urban areas declared to be planning areas, where a grant of public land is made the value of land is not paid. Previous landowners may be asked whether they should be paid compensation in cash, in land of equivalent value, or a bit of both. In order for this to work, the market for land needs to be transparent and not administratively determined, as is the case.

As for village land, it has been argued that despite the supposed protection of village certificates (which constitutes the first stage of formalisation), villages are undergoing state-directed re-surveying of their boundaries for the purposes of cutting off large parcels for farmers and investors (International Work Group for Indigenous Affairs (IWGIA), 2015). In Kilombero, state-directed re-surveying, branded re-formalisation, has permitted the acquisition of large tracts of land for the purposes of accommodating agriculture and rendering pastoralism untenable (Boudreaux, 2012, p. 3).

2 TIC-Led Commercial Land Operations

The initiative to acquire land may come from the TIC, responding to the demand of local and foreign investors who are granted certificates of incentives (the Tanzania Investment Act 1997, section 17) for the right to use land for specific purposes – cultivation, factories – judged to be in the Tanzanian public interest.²¹ Formally, the decision is validated by the Commissioner for Land, but the centralisation of the decision-making process depends on the size of the operation. Up to 50 acres/20 hectares, the village assembly and village council are the final decision makers (Village Land Regulation GN No. 86, 2001). Above that limit, the process is in the hands of the district council, Commissioner, and Minister for Lands, with consultation of the village councils concerned (Village Land Regulation GN No. 86, of 2001, Reg. 76(2) and Reg. 76(3). Under section 5(12) of the Land Act, the land will have to be transferred to the general land category, upon which the Commissioner for Land will have general mandate.²²

There are also less formal procedures in use. For instance, investors may identify the suitable land directly or through intermediaries. They then approach the relevant district council,²³ which in turn deals with village councils and assemblies. Minutes of the meetings where the land acquisition is approved by those bodies are then submitted to the TIC, thus ex post rather than ex ante as in the official procedure, or the Commissioner for Land, for the effective transfer procedure to be launched.

Compensation is due to people whose CROs are extinguished. Although there is no uniform resettlement policy, there have been efforts at resettlement when the acquisition emanates directly from the government.²⁴ For large operations, however, the evaluation of the Tanzanian public interest in the projects that require land acquisition by foreign investors plays a huge role in the decision-making process. Not surprisingly, despite the detailed procedures included in the law, land acquisition operations do not go without frictions and disputes. Examples of successful and unsuccessful land acquisitions can be seen in Boxes 7.3 and 7.4.

Box 7.3: Examples of success stories of land acquisition

New Forest Company Ltd (UK and Tanzania)

The New Forest Company engaged in agroforestry in the Kilolo-Ihemi cluster of the Southern Agricultural Growth Corridor (SAGCOT) area in Iringa region. The company was incorporated in 2006. It faced the challenge that, although the land was available, it was not in a single lot but in fragments owned by separate individuals. The company initially asked for 30,000 hectares of land for pine forest plantation, and succeeded in obtaining 8,000 hectares through the following steps:

Step 1: Land Identification

• The investor consulted TIC on the intended investment.

• The investor complied with the statutory requirement of capital threshold and obtained a certificate of incentives.

• The investor visited the Kilolo District Executive Director (DED) for possible investment in his district.

• The DED contacted prospective village councils with potential land.

• Notice was sent to the village council of the intention of the investor to inspect the available land.

• The investor was introduced by the DED to the village council for a site inspection.

• The investor and the village council discussed options for investment.

• The village council convened to discuss the investor’s request. The village assembly was convened to approve the village council’s decision.

• The amount of land that could be allocated was considered, bearing in mind land disposal limitations.

• For occupied land, the investor negotiated with the occupiers on terms of surrender and compensation. The district council worked out the property valuation for the land that would be offered: an acre of land was compensated for TZS 100,000 (approximately USD 45). In addition, the investor was required to pay statutory compensation as per the Land Acts.

Step 2: Land Transfer Process (Conversion of Land from Village Land to General Land)

• The village council informed interested parties as to the content of the notice.

• Affected persons made representations to a village assembly meeting attended by the Commissioner for Land.

• The Commissioner for Land/Authorised Officer attended negotiations on the terms of compensation.

• The Land Officer submitted the agreements and the intention to transfer village land to general land to the Commissioner for Land (Form 8).

• The commissioner prepared a notice of transfer and submitted it to the minister.

• The minister submitted the notice for transfer to the president.

• The minister issued a transfer permit.

• The transfer of village land notice was gazetted and posted on places in the village for thirty days before it took effect.

• After the lapse of the notice period, the land was surveyed, and preparation for a certificate of GRO followed.

Step 3: Grant of Right of Occupancy to TIC

• The TIC applied to the commissioner for a GRO for investment purposes.

• The commissioner granted title to TIC for ninety-nine years.

• The commissioner forwarded the title to the Register of Titles for registration.

Step 4: Issuance of Derivative Right and Registration of Leasehold Title

• The TIC prepared a leasehold agreement for the investor, incorporating conditions and covenants, for ninety-eight years.

• The TIC sent the leasehold agreement and the right of occupancy to the registrar for registration of the leasehold title (derivative right).

• The Registrar of Titles issued a leasehold title as an encumbrance to the GRO on 1 July 2011.

Currently, ten villages are involved in the project: Kidabaga, Magome, Ndengisirili, Isele, Kisinga, Kiwalamo, Idete, Makungu, Ipalamwa, and Ukwega. The transfer of the land from the village and villagers was relatively smooth. There were some complications: although the company made promises, such as support for school renovation, local health services, and road maintenance, these were not put in enforceable contracts. Nevertheless, at present, there are no conflicts between the investor and the host communities.

Rungwe Avocado Project (Tukuyu, Mbeya Region)

Where land acquisition is not possible owing to scarcity or tenure issues, there is room for contract farming or out-grower schemes. This has been the case for part of Rungwe (in Tukuyu district, Mbeya region), where an avocado project is being implemented.

The Rungwe avocado project is considered a success story. No land was taken from the community, avoiding the complex procedure of compensation, and a contractual agreement was reached quickly for the investor to provide farmers with seedlings and an assured market for their produce. The investor shares modern technology with farmers and conducts market research for the farmers.

Some weaknesses have been pointed out. In interviews, some of the farmers voiced concern that there was no room to verify the accuracy of the prices given or the possibility of suing in the case of losses attributable to market variations. Some complained that the seeds cannot be replanted, as can those of indigenous species. Nonetheless, relationships between the investor and the host communities are generally good.

Box 7.4: Example of unsuccessful story of land acquisitions

Sun Biofuels Africa Ltd (SBF) (UK)

SBF was set up in September 2005 and wanted to acquire land for agribusiness. The process – which involved identifying a suitable area of land; meeting villagers; issuing letters to the government gazettes; engaging a consultant to carry out valuation on the land; identifying, mapping, and valuing areas that were occupied, farmed or otherwise utilised by the villagers; and satisfying the TIC that the whole process had been done – took four years (Kitabu, 2011, pp. 7–10). In January 2009, the village land was gazetted as general land and title granted to TIC. In May 2009, the TIC issued a leasehold title to SBF for ninety-eight years.

SBF negotiated with village authorities with the support of local politicians. According to district officials, twelve villages in five wards gave part of their land, totalling about 20,000 hectares. The process involved village council and village assembly meetings, but villagers complained that it was not participatory. The SBF had no formal contract with villagers in Kisarawe, for example: the only document the village had was minutes of the village council, which contained promises by the investor – but no timeframe for implementation or legal mechanism to ensure delivery. These promises included helping with the drilling of wells; providing modern farming implements, seeds, fertilisers, pesticides, and a milling machine; jobs; constructing buildings for a dispensary, extension officers, and teachers, classrooms, pit latrines, a technical school, student dormitories, secondary schools, library, sports facilities, and a land registry office; solar energy for schools; and compensation for those adversely affected.

Land officers from the district land office started the process of surveying and mapping the area to be acquired before discussions at the village level were concluded. The modality for determining the amount of compensation to be paid was not made open. The villages had no land use plans, which made it hard for village authorities to know the size of the land acquired. It was difficult for villages to prove ownership of some land because it was deemed unoccupied, although clearly it was being used and formed part of the village land that was not allocated to individual occupiers. The acquisition did not take into account prospects of future village population growth.

Eventually, the investor decided that his initial biofuel project was not viable, and sold the project to another private firm. However, the operation ultimately left many local farmers with no land and no job.²⁵

IV The Distribution of Actual Land Tenure Status in Tanzania

The previous section’s description of the law governing the rights of land occupancy in Tanzania might suggest that the absence of private ownership has been fully compensated for by an alternative system of essentially public land leases. However, there are other land tenure statuses than the granted rights of occupancies, customary rights of occupancies, and the derivative rights – that is, subleases – in Tanzania. This is essentially because of the administrative burden of delivering granted rights and customary rights of occupancies, and also because of the difficulty of establishing precisely the boundaries of the land that could be concerned by the delivery of additional formal titles. Surveying land occupation develops at a very slow pace.

It follows that informal land tenure statuses coexist with formal ones. In 2012, a large majority of Tanzanian citizens lived without a formal land occupancy status.²⁶ So far, in urban areas, roughly over 50 per cent of inhabitants have no formal title. In rural areas, most villages now have village land certificates, meaning their boundaries have been surveyed, only a few of them have elaborated their land use plan and are in a position of issuing certificates of customary rights. In 2020, it was estimated that 200,000 certificates of granted rights and 520,000 certificates of customary rights would be issued between 2020 and 2021, but by 15 May 2021, only 56,390 and 34,869 respectively had been issued, representing roughly 5 per cent of the rural population.²⁷

The tenure typology in urban areas as reviewed by the World Bank in its 2012 Study includes formal private use, semi-formal private use, informal private use, communal use, and informal occupation of state urban land.²⁸ In the rural sector, the tenure types are also diverse. They range from individual private use under GRO to private individual land use, communal use of rural land, reserved lands, and informal occupation of reserved land (legal squatting).

The government’s expected land use changes in both urban and rural areas may imply intensification of certain forms of tenure: in particular, there is expected to be a substantial shift to general land from village land. This calls for clear strategies such as restructuring of the areas for cultivation, especially conversion of land from village land to general land, which may impact rural tenure typologies; restructuring the settlement areas, especially village land, where transfer to general land is involved; and restructuring areas for conservation for ecological and ecosystem maintenance.²⁹

V Institutional Framework for Land Administration

As the Land Act provides, all land in Tanzania is public land vested in the president, who is required to manage the land for the benefit of the citizens. The president can acquire land for public purposes or transfer land from one category to a different category (Land Act 1999, section 4(7)). Aspects of this custodial duty are legally mandated to others, as summarised in Figure 7.1, including the MLHHSD, the Commissioner for Land, supported by various authorised officers, land allocation committees, LGAs, and the National Land Advisory Council (Land Act 1999, sections 8–14 and 17).

Figure 7.1 Institutional arrangements for land administration in Tanzania

Source: United Republic of Tanzania, Strategic Plan for the Implementation of the Land Laws (SPILL), 2013b

The MLHHSD is responsible for sector management including policy, regulatory, support, and capacity building, as well as national functions such as national mapping, land use planning, and record keeping that cannot be fragmented into district and village functions (Land Act 1999, section 8). The National Land Advisory Council, whose chairperson is appointed by the president, reviews and advises the minister on all aspects of land policy (Land Act 1999, section 17). The Commissioner for Land reports to the permanent secretary of the MLHHSD and is mostly responsible for operations of land acquisition, transfer, disposition, and revocation (Land Act 1999, sections 9, 10, and 11).

The regional restructuring and local government reforms have also assigned much of the responsibility for land administration, particularly the interaction with land users, to LGAs, which are under the authority of the President’s Office – Regional Administration and Local Government (PO-RALG)(Land Act 1999, section 14) Yet land allocation is ratified by the land allocation committees (Land Act 1999, section 12).³⁰ These committees deal with land other than village land.³¹ They consist of local representatives of the commissioner – or the commissioner himself at the national level – and local officers responsible for various tasks, including land surveying (Land Act 1999, section 12(2)).

Other entities include the National Land Use Planning Commission, which advises the minister on land use issues and the practice of land use planning at local, regional, and national levels (Land Act 1999, section 12(2)).

A Institutional Mandates on Grant and Allocation of Land Rights

As provided under the Constitution of United Republic of Tanzania (1977 as amended), citizens have the ‘right to own property’ (United Republic of Tanzania (1977 as amended, Art. 24(2)) in the sense of ‘rights of occupancy’. The laws regulate and administer land rights and concomitant duties. One of the core functions of the institutional framework is to facilitate delivery in terms of land acquisitions.

Land in Tanzania can be acquired in various ways, such as grant, purchase, and gift. For general land, the law provides that land rights can be acquired by both citizens and non-citizens. For citizens, the procedure is to make an application to the Commissioner for Land, who may grant in the name of the president.³² For non-citizens, the Act provides that the only kind of interest they can acquire is for investment approved by the TIC or EPZA. This implies that the TIC or EPZA are the authorities that can approve an investment and/or issue derivative right to an investor. The mandate of TIC and EPZA does not apply where the entity is a non-profit foreign or local corporation or organisation with the aim of the relief of poverty or distress, the public provision of health, or other social services for the advancement of religion or education under an agreement to which the Government of United Republic of Tanzania is a party (Land Act 1999, section 19(3)(a)).

As far as village land is concerned, the institutional framework includes the minister, who is responsible for policy formulation (Land Act 1999, section 8; Village Land Act 1999, section 8(11)), and the Commissioner for Land, who is the principal administrator of all land including village land (Village Land Act 1999, section 8(7); The Land Act 1999, sections 9, 10, and 11). Village assemblies approve village land allocation or the granting of CROs by village councils (Village Land Act 1999, section 8(5)). The latter deals with the management of the village’s land (Village Land Act 1999, section 8). The ward development committee, the ward being the administrative level just above the village (Village Land Act 1999, section 8(6)(b)) can require reports from the village council on the management of the village’s land. (Village Land Act 1999, section 8(6)(b)). At the next level, the district council provides advice and guidance to any village council within its jurisdiction on the administration of its land (Village Land Act 1999, section 9).

Where the boundaries of the village’s land are not in dispute, that is after surveying, the Commissioner for Land is required to issue a CVL certifying the boundaries of the village land and giving a mandate to the village council to manage the village land (Village Land Act 1999, section 7(6)). The CVL is granted in the name of the president, affirming the occupation and use of the land by the villagers in accordance with the customary law applicable to land in the area.³³ For pastoralists, the CVL affirms the use of land for depasturing cattle in a sustainable manner in accordance with the highest and best customary principles of pastoralism practised in the area (Village Land Act 1999, section 7(7)(c), section 7(7)(d) and section 29). Together with the Land Use Planning Act, the Act also provides for the establishment of land use plans for villages and the creation of village-level committees under the village council that would oversee the implementation of the land use plans.³⁴

A study on how 90 per cent of the citizens of Tanzania in rural areas acquire, hold, and dispose their lands has confirmed that customary landholding is still the prevalent mode (Kironde, 2009) for medium and smallholder farmers. Not all land in villages is allocated by village councils, since the Village Land Act generally recognises other forms of acquiring land such as purchase and inheritance. As a result, both the Land Act and the Village Land Act acknowledge ‘deemed rights of occupancy’, which emanate from occupation by villagers from time immemorial and allocations made by village councils upon application from villagers or non-villagers. Allocations by village councils are mainly on the land reserved for future use to needy applicants upon complying with certain formalities.³⁵

Since the deemed rights are not compulsorily registrable,³⁶ they remain more precarious against the GROs (which are preferred by large-scale farmers) owing to their weak protection and lower competitive market status. Correcting these calls for pragmatic land use plans and issuance of CCROs to all landholdings on village land. There are also debates on uniform certificate of title for granted rights and customary rights in order to do away with the stigma associated with CROs. In the financial budget 2016/17, the MLHHSD planned to prepare land use plans for five districts comprising 1,500 villages. By 15 May 2017, however, the ministry and various stakeholders had managed to prepare land use plans for only ninety-one villages in twenty-three districts (United Republic of Tanzania, MLHHSD, 2018, pp. 49–50). This lack of success reflects that the plans were prepared unsystematically.

Village councils are constrained in various ways. They are supposed to seek approval of the village assembly for various decisions, in particular the portions of village land that can be set aside as communal village land and other purposes. They must consult with the district council on the exercise of their functions. To ensure proper record keeping, they are required to maintain a register of communal village land in accordance with any rules that may be prescribed. And, of course, they are constrained by the customary law in their area.

The Village Land Act provides that customary law governs CROs (Village Land Act 1999, sections 18 and 20). Yet any rule of customary law and any decision taken in respect of land held under customary tenure must take into account the fundamental principles of national land policy and of any other written law (Village Land Act 1999, section 20(2)) such as the United Republic of Tanzania Constitution. Any rule of customary law, customs, traditions, and practices of the community that conflicts with the fundamental principles or written law shall be deemed to be void and inoperative and shall not be given effect by any village council or village assembly or court of law (Village Land Act 1999, section 20(2)).

Despite such a clear legal position, it is intriguing that some customary norms still disregard fundamental principles – including equality over land, which results in dispossession of women through customary inheritance rules.³⁷ In particular, some discriminatory statutory laws conflict with the well-intentioned principles of the Land Act and the United Republic of Tanzania Constitution on equality on land rights. One such law is the Customary Law Declaration Order, Order No. 4 of 1963, which classifies heirs into three degrees with women holding the third position.

B Institutional Mandates on Disposition

The Land Act defines disposition as follows:

Disposition means any sale, mortgage, transfer, grant, partition, exchange, lease, assignment, surrender, or disclaimer and includes the creation of an easement, a usufructuary right, or other servitude or any other interest in a right of occupancy or a lease and any other act by an occupier of a right of occupancy or under a lease whereby his rights over that right of occupancy or lease are affected and an agreement to undertake any of the dispositions so defined.

(Land Act 1999, section 2)

In other words, land can be exchanged, transferred, and subject to a variety of market transactions. This is important as agribusiness investors need tools to raise capital, for example mortgages. If the right of occupancy were not fungible, the raising of credit for modern agriculture would be extremely limited (Tenga and Mramba, 2018, p. 10).

This is not always appreciated, as suggested by the antiquated phrase ‘land in Tanzania has no value’ – in fact, there are various ways in which the right of occupancy is transferable for value. That phrase often meant that since a right of occupancy is a grant for ‘use and occupation’, the value to the landholder would only be value that is generated through his investment on land – that is, ‘bare land’ has no value per se. But this kind of statement is fraught with danger as it has led to a lot of negative sentiment, which necessitated the amendment of the Land Act to state clearly that land has value (Tenga and Mramba, 2018, p. 10).

The Land Act, for instance, provides for the disposition of the GRO in three separate parts. First, it provides for the administrative oversight, where one can make the necessary applications to the Commissioner for Land or his authorised officers to approve and register a disposition of land. Second, it deals with what one may consider to be a theory of land transfers – the legal assumptions that underlie each disposition of land, such as that the need for each disposition must be in writing and that certain conditions are implied in every transfer, including that there are no latent defects in the land that have not been disclosed to a purchaser. These ‘consumer protection’ provisions are essential in modern property transactions; in the old days, the concept of caveat emptor or ‘buyer beware’ gave little protection to the unwary purchaser.

Third, there are detailed regulations for certain major forms of dispositions, such as the sale, mortgage, or lease of the GRO. The Land Act contains separate parts for each form of disposition. Previously, consent to any kind of disposition was mandatory, but under the Land Act (1999) there are many exceptions – only for specific kinds of disposition is official approval mandatory, otherwise a notice to the Commissioner for Land will suffice.

The president is the highest authority in the regulation and control of disposition of land in Tanzania. His mandate includes overseeing transfers of land. Practically, however, this function has been under the responsibility of the Commissioner for Land, assisted by authorised officers, as detailed in sections 36–41 of the Land Act. These sections have been referred to as mandate for oversight of the dispositions of GRO on general lands: disposition that has not obtained the requisite approval from the Commissioner for Land is rendered ineffectual, unless it is of a kind that requires only the furnishing of notice to the commissioner (Land Act 1999, sections 36 and 37). The cost is considered high, and it can take from two to four months to get a registered title.³⁸

The amendment of section 41 of the Land Registration Act, Cap. 334 on registration of disposition calls for disposition of land to be subject to registration with mere notification to the commissioner, mainly to facilitate disposition by way of mortgage. The initial position was that no disposition could be registered unless the registrar received a certificate in writing from the Commissioner for Land signifying his approval, and only registered dispositions could create, transfer, vary, or extinguish any estate or interest in any registered land. Under the amended section, the applicant can now simply submit for registration all relevant documents accompanied by a prescribed fee, and the registrar then registers the disposition and notifies the commissioner.

For village land, the disposition of customary rights of occupancy requires approval of the village council. This is intended to protect village land against acquisition by non-villagers, but it is debatable if it has succeeded. A village council has exclusive decision power only if the land does not exceed 20 hectares. Where it exceeds 20 hectares, the approval of the district council is needed. If it exceeds 50 hectares, the approval of the Commissioner for Land is required (United Republic of Tanzania, MKURABITA Report, 2005). Such a provision seems to challenge the freedom of village councils and go against the principles of devolution and subsidiarity as expressed in the United Republic of Tanzania Constitution,³⁹ and reflected in Local Government Authorities Acts.⁴⁰ Powers seem to be legally granted to the village council by one hand only to be taken away by the other.

There is thus a kind of dualism in the land disposition system: centralisation of control and management of general land, with devolution of control to customary law at the village level. Such dualism cannot go without frictions and incidents likely to affect the economic efficiency of the whole land sector and to produce social frustration, such as those detailed in Box 7.5.

Box 7.5: Control of mandate of village councils

Luhanga Village, Mbarali District

The government in Mbeya returned 5,000 hectares of village land in Luhanga village Mbarali that had been taken from more than 200 villagers belonging to the Luhanga community for an investment project. The government directed the district council to take action against all village government officials who were involved in the process of allocating the land without respecting the legal procedure.

When handing back the land to the Luhanga community, the Regional Commissioner, Amosi Makala, said:

The government had made such decision after discovering that the process of allocation contravened procedures under the Village Land Act and its Regulations […]. Act No. 5 of 1999 makes it clear that village councils have no mandate to allocate more than 20 or 50 hectares but, in that case, they allocated more than 5,000 without even consulting the district council […]. [Furthermore,] apart from the allocation lacking procedural compliance, the investors did not seem to be genuine due to their failure to honour their promises to facilitate socio-economic issues in the area.

Lukenge Village, Kibaha District

In January 2018, the government, through the Kibaha District Commissioner, ordered an investor who had taken 5,000 hectares from the village government without following legal procedures to return it to the community within ninety days. The investor had failed to develop the land for eight years, contrary to the contract of disposition agreed with Lukenge village, Magindu ward.

The District Commissioner took action after villagers complained to her about the land transfer. According to the commissioner, the investor took the land for the purpose of investing in livestock and fish farming, but failed to commence the project. Instead the investor was using the land for other projects and did not support community socio-economic activities.

Data on the amount of land transfer in Tanzania are sketchy. Sule (2016), for instance, while cautious of the data, considers that:

There [have been over] 34 deals with about 1,000,000 ha owned by foreign investors (and joint ventures between the Tanzanian and foreign investors), whether announced, ongoing or concluded land acquisition processes. Out of these deals, only deals with a total of around 555,000 ha are reported by at least two different sources and can thus be considered as verified with certain reliability. Of the verified deals, only ten deals with a total area of 145,000 ha can be considered as concluded deals. The remaining reported area of 410,000 ha derives from deals that are so far only announced or that have land acquisition ongoing, but not concluded (including the contested AgriSol Energy deal with an area of 325,000 ha). [It is appreciated that] since these data are three years old, a number of new projects are likely in place and some projects have either ceased or become dormant.

(Sule, 2016, p. 112)

In its assessment of investment in commercial agriculture, the MLHHSD found that out of 121 commercial farms in the country – amounting to 223,443 hectares – in Tanga, Morogoro, Pwani, Njombe, and Kagera regions only 63 (about 52 per cent) had been developed, while 58 (about 48 per cent) had been abandoned (United Republic of Tanzania, MLHHSD, 2018, p. 22). This is quite alarming and could point to a problem with the investment conditions or failure to closely monitor investors’ compliance with investment plans. An example is given in Box 7.6.

Box 7.6: Centralisation of land management

In September 2006, the minister of MLHHSD banned sale of land by villagers to foreigners. The minister gave the stern directive in a public meeting in Magu district, Mwanza, when resolving a land dispute that had lasted for thirty years between villagers and an investor. He said that ‘there is a habit by a majority of villagers of allowing the so-called investors to come in to buy land from separate villagers, resulting in the investor occupying land which exceeds the statutory limit. Worst still, instead of developing it, the investor uses it as collateral to borrow money from banks and afterward sell it by surveying and creating plots.’ He directed that it was prohibited for the district council or officers in his ministry to approve any such transactions.

C Institutional Mandates on Dispute Settlement

The Land Acts provide for the establishment of a land dispute settlement mechanism in Tanzania. They assert the need for structures to be instituted at the lowest local level with room for accessing higher levels in case of no resolution. In 2002, the Land (Disputes Courts) Act was enacted. It provides for a dispute settlement system with five levels of hierarchy.

The lowest level is the village land council, followed by the ward tribunal, where procedures are mostly informal as advocates are not allowed and decisions are taken by lay judges. The next level is the District Land and Housing Tribunal (DLHT), where advocates are allowed so procedures are more formal. There are too few tribunals, so some serve an entire zone rather than a single district. In regions where DLHTs are scarce, citizens face high travelling costs to get their case settled in a tribunal. This renders the principle of equality before the law somewhat illusory.

The upper levels of the land judiciary hierarchy are the High Court (Land Division) and the Court of Appeal. Procedures in these courts may be cumbersome. For instance, a person whose dispute was first handled in the ward tribunal cannot appeal from the High Court to the Court of Appeal unless (s)he receives certification from the High Court that there is a point of law involved. Moreover, an appeal from the High Court for a matter that originated in a DLHT, or High Court must seek leave before appealing to the Court of Appeal. These restrictions have been deemed to be challenges in the settlement of land disputes. Overall, it is an intricate institutional structure of land administration, the complexity of which reflects somewhat antinomic basic principles.

When presenting the MLHHSD budget in the financial year 2016/17 in parliament, the minister of MLHHSD outlined the status of land disputes in DLHT in the country from 30 June 2016 to 15 May 2017. Table 7.2 summarises.

Table 7.2 Land disputes in DLHTs

Total number of pending land disputes by 30 June 2016	Total number of land cases filed from July 2016 to 15 May 2017	Total number of land cases decided from July 2016 to 15 May 2017	Total number of pending cases on 15 May 2017
13,89	26,245	18,571	21,564

Source: United Republic of Tanzania, MLHHSD (2018)

It would appear that the stock of pending cases is increasing at a vertiginous rate: up 60 per cent in a year, equating to more than a full year of new cases. This clearly unsustainable if the judiciary capacity is not improved or the causes for disputes reduced.

VI Institutional Issues and Challenges

The Land Acts were passed in 1999 and began to be implemented in May 2001. Although they represented an improvement, they were quickly found to be unsatisfactory on several grounds. Major challenges are still present, as evidenced by the impressive number of reports that have since been produced on the persistent institutional weaknesses of the land rights system and land administration, and several partial reforms that have attempted to improve the situation. For example, only four years after implementation, the law was amended to repeal and replace Chapter 10 related to mortgages, under pressure from financial institutions, which found that it inhibited bankable projects. Another amendment in 2005 changed provisions related to leases, followed by one in 2008 to promote mortgage financing.

More fundamentally, reports including the MKURABITA (Property and Business Formalisation Programme) Report (2005), BRN (2013), and the Land Governance Assessment Framework (LGAF) (2009 and 2015) pointed to major institutional challenges. The 2009 LGAF report proposed a systematic review of the National Land Policy of 1995 to explore the extent to which expected gains had materialised and what could be done to improve the performance of land management. Issues touched upon include: land surveying, mapping, and registration; affirmative action to address gender issues; redefining institutional mandates; strengthening of decentralisation; making land use planning more participatory; changing expropriation practices; and improving conflict resolution mechanisms. The same institutional issues were again stressed in the 2015 LGAF report. The government reacted by commissioning in 2016 a review of the National Land Policy 1995. A draft policy is presently under consideration.

The implementation of the Land Acts was sufficiently difficult that it gave rise to two Strategic Plans for the Implementation of Land Laws, the first in 2005 (SPILL-I) and the second in 2013 (SPILL-II). A SWOT (strengths, weaknesses, opportunities, and threats) analysis undertaken in the latter pointed out positive but also numerous negative sides of land policies in Tanzania. The negatives are summarised in Table 7.3.

Table 7.3 Weaknesses and threats in land policies

Weaknesses	Threats
Inefficient and ineffective land administration	Massive growth of irregular settlements
Institutional arrangements uncoordinated	Unregulated land markets
Land administration services concentrated in limited parts of Tanzania	Limited housing/building mortgage market
Shortage of staff, particularly in land disputes	Underfunding of the land administration infrastructure
Implementation of new land law is slow	Oversight of land dispute mechanisms questioned
Key mechanisms (National Land Advisory Council, village land councils, tribunals, etc.) not in place	Increasing land conflicts
Shortage of planned, surveyed, and serviced land	Lack of harmony with laws in other sectors
Poor enforcement of rules and planning regulations	Growing marginalisation of the poor
Dispute settlement machinery not empowered
Lack of maps
Tarnished image of the land sector in the eyes of the public

Source: United Republic of Tanzania, MLHHSD, SPILL (2013b)

Clearly, the weaknesses listed in Table 7.3 result both from unsatisfactory institutional arrangements and limited state capacity – aspects that it is not really possible to completely disentangle. Despite the SPILL’s well-conceived analysis, and despite some, though unsatisfactory, progress over recent years, the main difficulties affecting the functioning of the land sector have not been resolved. The 2016 draft National Land Policy proposes to introduce some substantial changes in the National Land Policy 1995 and its implementation instruments. As the Policy is not finalised at the time of writing, the next sections describe the main present shortcomings of land management in Tanzania without consideration for the reforms considered in this new version of the Policy. The few debates organised about the draft of the National Land Policy 2016 do not suggest most challenges listed here will disappear, as the focus of these debates seems mostly to concern the protection of smallholders against large-scale investors.⁴¹

A Duality of Tenure

There is little doubt that the duality of tenure introduced by the key distinction between general land and village land, and the associated difference between GROs (and derivative rights) and CROs, is the main source of friction and inefficiency in the institutional setting of land rights in Tanzania. Transforming village land into general land to facilitate large-scale investments, in agriculture as well as in other activities, is often an uneasy and unpopular operation, to such an extent that it may act as a disincentive for investors and lead to missed economic opportunities.

One of the objectives of the present land management system is clearly to protect indigenous smallholders from their land being acquired by large-scale operators who might use the land more productively but with lower employment, a different output mix, and insufficient compensation for evicted people. This objective – so clearly expressed in Nyerere’s quotation at the beginning of this chapter – is justified, even though it implicitly means some strategic choices about agricultural development have been made that may not have been fully analysed; for example, how much land for food crops in smallholdings and cooperatives and how much for commercial crops in large-scale plantations.

It is estimated that by 2017, more than 11,000 of Tanzania’s approximately 12,500 villages had mapped their outer limits, but only about 13 per cent had adopted land use plans. Of the approximately 6 million households located in rural villages, only about 400,000 had obtained individual title documents (Schreiber, 2017, p. 1). This implies that more than half of Tanzania’s 12,500 villages still do not have CVLs and very few rural citizens hold occupancy certificates to secure their individual land parcels.

The problem is that, within the present institutional setting, this protection is often elusive. This has two consequences. On the one hand, smallholders feel insecure and may not take the necessary steps to improve their land, increase yields, and respond to market incentives. On the other hand, large-scale operators may be discouraged from acquiring land by endless procedures and high transaction costs. Better defined, better implemented, and fairer administrative procedures for land transfers would provide efficiency gains on both sides.

From a sociological or political science point of view, however, there is much more to land than economics. At all levels, the choice of an institutional structure through which land rights are managed has major implications for the distribution of power in society and ultimately on control over land.

The frequency of incidents about rights of occupancy is high and rising. These incidents arise from the perceived violation of the principle of equality behind the intended comparable status of the GROs on general land and the CROs on village land (The Village Land Act (1999), section 18(1)). Although one could assert that the attributes of the CRO under section 18(1) of the Village Land Act are not realistic, since they depend on the administrative inclination of relevant authorities and judicial interpretation, they remain important features in the protection of customary right holders. Judicial trends before the enactment of section 18(1) of the Village Land Act relied on inquiries called upon by the Minister of MLHHSD in the case of land conflict that had shown disregard for customary right and the mandate of village councils, as exemplified in Box 7.7.⁴²

Box 7.7: Interference over mandate of village councils

In Mabwegere, village authorities had to defend their village boundaries all the way to the Court of Appeal, where they had won in September 2011. However, the regional and district authorities refused to implement the court order to respect the village boundaries, and instead maintained their intention to redraw the village boundaries to reallocate land to the neighbouring rice farming village of Mbigiri. On 30 May 2015, the Mabwegere village chairman was arrested and ordered to publicly announce his support for the redrawing of his village boundaries in order to be released. As he refused to do so, he was jailed for a month. This was followed by a ruling of the Morogoro DLHT on 3 June 2015 to rescind the village certificate of Kambala village and reduce the village land from 48,650 to 16,104 hectares – a reduction of 66 per cent (ITV, 2015).

Many incidents have also arisen from the acquisition of customary land rights for the public interest. Since 98 per cent of land in Tanzania is village land or reserved land, village land is the main source of land acquisition for other purposes, where there are particular development needs. Nonetheless, conflicts may also be brought about by overlaps between individual villages’ land and reserved land (parks, game reserves, conservation areas). Schreiber, for instance, notes that villagers have faced pressure from government officials and conservationists, who wanted more land allocated to conservation and lucrative tourist lodges (Schreiber, 2017, p. 2). Within villages, there have also been many disputes between pastoralists and farmers, with pastoralists often removed from their habitual or traditional grazing lands, as for instance in Kilosa-Morogoro.⁴³

B Immense Powers of Eminent Domain

The concept of public land has given the state immense power, because land is deemed to be controlled by the state and thus akin to state property.⁴⁴ Yet the power of eminent domain, and the state’s policing and managing capacity – which allow it to regulate land use in the public interest through planning and granting of planning permission – have not always been used judiciously and in the public interest.

What constitutes public interest has remained a matter of contention. In the recent history of Tanzania, for instance, public interest included acquiring land for private investors. On the management side, large-scale allocation of land by the state was often undertaken with no consultation of the affected communities. In effect, customary landholders are not protected by fair information and consultation procedures. Free, prior, and informed consent for the allocation of customary lands is not obligatory when the public interest is involved. There is also no assurance that evicted customary landholders or those deprived of parts of their lands will be able to find jobs or other livelihoods to compensate for their losses. Needless to say, the losses endured by local communities can be very great, including the commercial value of the land or, in the absence of well-functioning markets, its recurrent-use value and its potential for a commercial enterprise.

Commons in communities under customary tenure have been particularly vulnerable, on the argument that they are unowned, or idle, or simply that they belong to the state. Often the most valuable land assets of rural communities are targeted by commercial investors, leaving these communities sinking deeper into poverty (Songela and Maclean, 2008; Action Aid, 2009; Chijoriga, 2009; Mwamila et al., 2009; Sulle and Nelson, 2009; Kaarhus et al., 2010; Oakland Institute, 2011). Such cases include land acquired by Bioshape in Kilwa for Biofuel, Sun Biofuel in Kisarawe, and SEKABBT in Bagamoyo.

Occasionally, compensation has been paid to evicted communities, but they complain it is grossly inadequate. Promises made about employment opportunities and the improvement of rural infrastructure often do not materialise (LEAT, 2012). Expected tax revenues at the local level also fail to be realised as investors demand and get exemptions. This has the effect that host communities rise up against investors. It has been suggested that the government should adopt alternative models that engage more of the existing producers, such as contract farming and out-grower schemes, rather than displacing them (Vermeulen and Cotula, 2010; Tenga and Kironde, 2012).

C Limited Formalisation

In rural areas, land surveys and issuance of CCROs are still done sporadically and on an ad hoc basis. In most cases land CCROs have depended on pilot projects that have not managed to cover a large part of the country. As also noted in Section IV, informal urban tenure outpaces formal tenure – a clear indication that unplanned settlements are increasing fast. This is because of a high rate of urbanisation and arbitrary expansion of city boundaries, which has even eaten into self-governing villages.⁴⁵

Even when land occupancy rights have been granted at one level or another, procedures and standards for formalisation are characterised by being bureaucratic, unrealistic, expensive, and time-consuming. Only a minority of land records are found in the land registers. Registry records are often unclear and cases of multiple titles for the same piece of land are not uncommon. Automated land recording and documentation systems are rare. Land administration is often centralised. Possibly because of this, it is characterised by non-transparency and lack of accountability. This scares low-income households, as well as potential investors.

D Gender Discrimination

Gender inequality in access to and control of land remains a serious problem. As noted by Shivji, while people can have access to land through various means including allocation and purchase (Shivji, 1998, p. 84), control of the proceeds from the land is another matter. The Food and Agriculture Organization notes that rural women in particular are responsible for half of the world’s food production and produce between 60 and 80 per cent of the food in most developing countries, but they lack effective decision-making power as individuals under traditional law (Food and Agriculture Organization, 2002, p. 26). Often, women are left holding whatever rights they have at the will of male relatives (Food and Agriculture Organization, 2002, p. 26).

One of the major remaining obstacles to increasing the agricultural productivity and incomes of rural women is insecurity in their land tenure, reflected in rules of access and control. Traditional or customary systems that might protect women’s access to land have failed to promote their full control over the land they operate. While land may be considered valuable collateral by credit institutions, the marginalisation of women excludes them from obtaining loans and making important investments.

Although the Village Land Act provides for the illegality of discriminatory practices in customary law (in section 20), there are still complaints about the mistreatment of women in terms of land rights. Improving access and security for women will require changes in cultural norms and practices.

E Institutional Overlaps

Land administration is affected by potential overlaps in implementation of land-related laws and policies owing to the multiplicity and diversity of land-related institutions. Overlap of responsibilities, and the complexity of the relationships between the various public entities in the land management system, undermines efficiency and sometimes threatens basic principles such as the separation of powers.

For example, land officers in the LGAs – village, ward, and district – are under the responsibility of the MLHHSD. While they are paid by and report to superiors in the ministry, they execute functions for local governments, which are themselves under the responsibility of the PO-RALG. Another example is that sectoral ministries have their say on swaths of land under the MLHHSD – the Ministry of Natural Resources and Tourism deals with reserved lands, for instance.

Problems of overlap and lack of coordination are also acute in the land dispute settlement system. At the lower level of the system, the village land councils and the ward tribunals are under local government authority responsibility, which falls under the PO-RALG. Right above them, the DLHTs are under the MLHHSD. At the top, however, the High Court (Land Division) and the Court of Appeal are under the judiciary. This institutional set-up creates problems of accountability and contravenes the principle of separation of powers (Gastorn, 2009, pp. 583–4; Kironde, 2009). It also creates unnecessary problems in the delivery of justice, hence the need for reform.

F Corruption and Inefficient Land Administration

Much as institutional framework is crucial in land governance, Askew notes that:

[W]eak land governance and property rights systems can lead to opaque land deals, which facilitate corruption and undercut responsible actors seeking access to land for productive investment. Weak governance […] allows unproductive land speculation and undermines agricultural productivity.

(Askew et al., 2017, p. 5)

Kironde points out that corruption challenges in the land sector are partly blamed on lack of an efficient land records system. Falsifying or hiding land information has led to long delays in getting approvals for land use plans, land surveying, and change of use (Kironde, 2014, p. 12). He notes that although the government discourages informal payments, through public notices in offices and public education campaigns, they are paid all the same. Mechanisms to detect and deal with illegal staff behaviour exist in some registry offices, such as use of the Prevention and Combat of Corruption Bureau, but it has proved difficult to eliminate rent-seeking, and the general public does not have the incentive to report it. Indeed, rent-seeking is condoned through intermediaries as it seems to speed up delivery.

Transparency International (2017) has indicated a slight overall improvement in the fight against corruption: from 2016 to 2017, the country’s score increased from 32 to 36, and it climbed by three places from a global rank of 106 to 103. In a more focused study, Afrobarometer noted some likelihood of corruption-related practices to facilitate land registration, with rich people very likely to offer bribes (Afrobarometer, 2017, p. 7). Ordinary people also seem to be used to making informal payments, which indicates that institutional practices still need further reform (Afrobarometer, 2017, p. 7). See Figure 7.2 for an overview of the likelihood of corruption on land transactions for ordinary and rich individuals. It could also demonstrate that many people are not aware of their entitlements, and there is need for more efforts on awareness raising on land rights. The Information Land Management Integrated System is expected to minimise the avenues of corruption and fast-track land delivery.

Figure 7.2 Corruption Index on Land Transactions

Source: AfrobBarometer (2017)

G Ineffective Land Dispute Settlement Framework

The dispute settlement machinery is complex, straddling the judiciary and the executive, and disputes are on the rise. The nature of the disputes varies: some result from conflicting land uses such as agriculture and pastoralism, agriculture and conservation, or pastoralism and conservation, and others result from transfer of village land to general lands or dubious land deals by investors on village lands.

Despite some government efforts to improve both formal and informal mechanisms, weaknesses persist. As seen earlier, most DLHTs are located far away from local communities. On top of that, filing fees and legal representation are expensive; there are language barriers, as the language used in legal matters is English; jurisdictions may be limited; DLHTs’ chairpersons may lack independence; there is an excessive multiplicity of land disputes settlement authorities; and, because of ineffective voluntary mediation, most matters end up in full trial (Massay, 2013, pp. 167–82).

A report by the Law Reform Commission acknowledges that the legal system governing settlement of land disputes has not met the desired standard. Problems such as delay in settlement of land disputes, backlog of cases, inaccessibility of institutions, inadequate financial and human resources, and multiplicity of institutions contribute to a huge degree of inefficiency and ineffectiveness (United Republic of Tanzania, Law Reform Commission, 2014).

H Inadequate Resources

Even if existing policy and laws were fully satisfactory, inadequate human, material, and financial resources would frustrate their successful execution. For instance, there was little progress on many of the actions set out in SPILL (2005) owing to a lack of funds outside the Government Medium Term Expenditure Framework. This was the case in particular for the establishment of a Land Administration Infrastructure Fund and District Compensation Funds. The cost of creating these institutions was estimated in SPILL (2005) to be roughly USD 300 million (United Republic of Tanzania, MLHHSD, SPILL, 2013b, p. 20).

Addressing administrative capacity is a lengthy process. For instance, as of March 2013, the MLHHSD had a total of 2,451 approved positions but only 1,086 were budgeted for and filled. The remaining gap was 386 in headquarters and 979 in the outposts. The filling of these positions is irregular, depending on the state of the economy and available budget. In one report, the MLHHSD mentioned that the government’s attention was focused on the education and health sectors, leaving much of the land sector’s manpower needs unfilled (United Republic of Tanzania, MLHHSD, SPILL, 2013b, p. 20) The staffing figures noted in Table 7.4 make it obvious that the MLHHSD is operating below capacity. Although these figures relate to 2013 and efforts to fill positions are being made, until 2018 the situation had not changed substantially, owing to attention focusing more on immediate socio-economic demands.

Table 7.4 MLHHSD staffing by March 2013

MLHHSD staffing	Filled positions		Approved positions		Deficit
	HQ	Outposts	HQ	Outposts	HQ	Outposts
Total	707	379	1,093	1358	386	979

Source: United Republic of Tanzania, MLHHSD, SPILL (2013b)

As for training capacity, it has been considered that the output from Ardhi University and other institutions can go a long way to satisfying the staffing requirements for high-level land sector professionals. Ardhi Institute Tabora (ARITA), and Ardhi Institute Morogoro (ARIMO), which are under the MLHHSD, have been useful in training manpower at technician and certificate levels. ARITA offers certificate courses in Cartography, Land Management, Valuation and Registration, and Graphic, Arts and Printing, as well as a Diploma Course in Cartography. ARIMO offers certificate and diploma courses in Geomatics (United Republic of Tanzania, MLHHSD, SPILL, 2013b, p. 30).

These two institutions can play an important role, working with Ardhi University, in outputting staff suitable for manning the land sector at district, ward, village and mitaa levels (United Republic of Tanzania, MLHHSD, SPILL, 2013b).⁴⁶ Since there are some 12,000 villages, 3,337 wards, and 2,651 mitaa in the country, which may go up in the near future, it would be necessary to train 20,000 land administration auxiliaries in at least one cadre in support of the land sector for about five years (United Republic of Tanzania, MLHHSD, SPILL, 2013b). Enrolment at the Morogoro and Tabora land institutes in 2015–16 was 495, and in 2016–17 it rose to 559 (United Republic of Tanzania, MLHHSD, SPILL, 2013b, p. 65).

Although the ministry through SPILL projected training of 474 staff at a total estimated cost of TZS 803.99 million (about USD 0.5 million) (United Republic of Tanzania, MLHHSD, SPILL, 2013b), funding has remained a challenge. In the 2017/18 budget speech by the Minister of MLHHSD, it was established that in the financial year 2016/17, the ministry had planned to build the capacity of 150 employees, and by 15 May 2017, it had supported training to 491 employees. In the financial year 2017/18, the ministry planned to provide training to 70 employees and employ 291 new employees, besides improving working facilities (United Republic of Tanzania, MLHHSD, 2018, p. 64). This is a positive trend, but it remains to be seen whether the kind and level of training offered is adequate to meet the current demands.

VII Concluding Remarks and Recommendations

This chapter has assessed the land tenure system, the way it is implemented, and how it is supposed to work. It has analysed how the administrative and judiciary apparatus may help the economy exploit its comparative advantage in agriculture. It has shown that while the legal framework has put in place essential principles for land governance, these principles are not self-executing – their success depends on a vibrant and capable institutional framework.

Among the key recommendations which emerge from this chapter, it has been noted that there is a need for more effective coordination, collaboration, and capacity building at the various governance levels; procedures for large-scale investment in land need to be streamlined; there is a need to scale up land use programmes in rural areas to address village land conflicts and demarcate land available for occupation and investment; in urban areas, also, large-scale regularisation schemes need to be rolled out; and more efforts are needed to raise awareness on land rights to tackle corruption.

The existing political economy situation is a source of conflict between large-scale farmers holding CROs and small-scale farmers holding CCROs. The gaps in the land registration system for village land, that is CCROs, make it difficult for smallholder farmers to access credit. CROs are not accepted as collateral by banks. Moreover, the slow and complicated process of transferring village land into general land undermines investment in agriculture. If one is lucky, it takes three to five years to complete the process and receive the CCRO from the MLHHSD. The powers of the commissioner to grant the transfer could be on paper only, but applicant investors are often told that their certificates could not be issued in time because of the awaited approval from the President’s Office.

TIC approval is also complex, largely because it does not have a land bank. It therefore has to go through the same process of transferring village land. It has proved to be very difficult for the TIC to establish its own land bank, for whatever reason. Better institutional arrangements between village councils and the TIC could solve this. How to protect indigenous smallholders’ land from acquisition by large-scale farmers has surfaced over time. This can, however, be addressed by identifying vacant land and demarcating it for use by large-scale operators. Contract farming and out-grower schemes are a good approach to address the problem, as is currently being demonstrated in the SAGCOT area. The establishment of a Tanzania commodity market could address the price-fixing issues.

Discussion of ‘Through the Maze of Land Right Laws’

Discussion by Klaus Deininger

The legal basis for land ownership and access in Tanzania is provided by the Land Act and the Village Land Act, both passed in 1999 as the result of a process involving a Presidential Commission in 1991 and formulation of a national land policy in 1995.⁴⁷

When they were passed, these laws were lauded as among the most advanced in Africa (Alden-Wily, 2003). Yet for several reasons, many laid out in this chapter, Tanzania failed to realise this potential and, with a ranking of 132 in the World Bank’s ‘Doing Business: registering property’ indicator, is close to the bottom of this indicator globally.

Four elements illustrate the gaps in Tanzania’s land registration system and the costs these impose on the broader economy. First, Tanzania has not computerised even the textual part of its land administration system and relies on a manual paper-based system that offers few advantages but provides ample opportunity for processes to get delayed and documents to be ‘lost’ or forged. Second, there is no integration between spatial and textual records, something that not only increases the costs of registering, but also reduces the security provided by land documents. Third, the system for formalising transfers is inefficient and cumbersome, with some of the associated requirements (such as official consent) unnecessary, so that even formal properties risk falling back into informality. Finally, coverage is extremely limited, with the number of new CROs created annually likely to be less than the number of new plots created so that in percentage terms coverage is decreasing rather than increasing.

At the time Tanzania was debating its land policy, Rwanda, one of its neighbours, experienced one of the most traumatic periods in its history. A desire to never again let the state’s failure to secure land rights for all trigger violence at this scale led that country to develop a set of land laws and policies and subsequently implement the most comprehensive land regularisation programme in Africa so far, which, by 2013, had registered all of the country’s 11.5 million parcels (Ali et al., 2014) at a total cost of about USD 6 per parcel. With 86.6 per cent of land formally registered in the name of women (either jointly or individually) and rapid activation of mortgage-based credit (Ali et al., 2017), this allowed realisation of tangible social and economic benefits. It also provides the basis for land valuation to ensure fairness in case of expropriation, for raising revenue through land taxes, and for forward-looking land use planning including urban expansion.

Here, we suggest several concrete next steps that could allow Tanzania to improve land tenure security at a scale similar to that in Rwanda without giving up some of the distinctive characteristics of land tenure in Tanzania.

I Improving Land Tenure in Urban Areas

Improve registry efficiency and integration: Despite efforts to modernise the system, most of Tanzania’s land registry is still paper-based and not integrated with the cadaster or land-related databases maintained by local governments. To address this, action will be needed in four areas, as follows:

• Make digitisation of records mandatory to reduce petty corruption, generate audit trails, and allow workflow monitoring. Experience with digitisation projects globally suggests that the key to success is to get buy-in from the mid-level bureaucracy and experience in how to do so can be drawn on from several successful cases.

• Agree on time-bound targets and measurable outcome indicators for system improvement (including the level of digital coverage) that can be routinely generated from administrative data available to the MLHHSD (possibly linked to other administrative datasets) and regularly report to the public and to high-level decision makers on progress.

• Provide banks with online access to an authoritative and fully electronic register to allow them to verify the absence of competing registered claims to the same land, a piece of information that will have far-reaching consequences for their ability to repossess the land in case of default. Similarly, establish online links to tax administration, courts, the national ID, and the civil registry to ensure that every change in a person’s civil status automatically triggers a change in all parcels to which this person has a right.

• Empower local government by ensuring that parcel data from the land registry can be used by them for the processes they are responsible for, such as planning, permitting, and property taxation and that information already contained in databases maintained by local government is systematically taken into account in efforts to expand coverage with CROs.

Adjust regulations for low-cost first-time registration: First-time registration in Tanzania is unaffordable owing to three factors, namely:

• An emphasis on upfront payment of a premium that is unaffordable to poor credit-constrained households who, as clearly demonstrated in the literature (Ali, 2016; Manara and Regan, 2022), could benefit from secure land documentation and are interested in obtaining and willing to pay for it.

• A requirement for highly accurate boundary demarcation that transfers large rents to surveyors (who often operate using outdated technology rather than making use of advances that allow acquisition of highly accurate imagery via drones or satellites as survey regulations have not been updated). Global experience demonstrates that, while a spatial description that allows any parcel to be identified unambiguously on a map is essential for a public registry to function, high-precision surveys are a private good and should be treated as such.

• A complex paper-based and manual process that involves numerous formal and informal steps with opportunities for rent extraction and hold-up that led to emergence of intermediaries to help landowners navigate the process.

Regulatory action will be needed to collect revenue for titled properties on an ongoing basis rather than the current focus on prohibitive upfront fees that just increase informality; open the door for use of modern low-cost surveying methods as the norm and allow land owners to acquire high-precision surveys at their own cost; and streamline and digitise the workflow for first-time registration to reduce the amount of time and resources required, and define parameters for workflow management for any efforts to expand coverage with land title to make an impact.

Complete CRO issuance in urban areas: Pilot experience in Dar es Salaam (Ali et al., 2016) suggests that even poor slum-dwellers are interested in and willing to pay for documents to provide them with secure tenure. The potential benefits from doing so, in terms of investment and credit access as well as planning and effective service provision, are undisputed. Therefore, once the steps outlined already are completed (which, on the basis of initial steps having been accomplished, could be done in the context of pilots with the explicit goal of refining workflows together with software to implement them), efforts to expand coverage with CROs to all urban areas will be a high priority. Counts of all built structures in Tanzania that have recently been produced using machine learning together with high-resolution imagery can indicate the overall volume of work to be covered and should be used to set milestones in terms of monthly targets, and the cost of doing so must not exceed USD 10 per parcel.

II Improving Rural Land Tenure

While the government spent considerable resources on issuance of CCROs to rural dwellers, the literature suggests that the impact of such documents remains limited (Stein et al., 2016). This is not too surprising as village land cannot be transferred to outsiders. As long as this restriction remains in place, CCROs offer little increment in terms of tenure security. Demarcating village land, together with establishment of clear rules of how to manage land internally in the village, would, in such a situation, be a lower-cost option to guarantee tenure security. Introduction of CCROs has many parallels to unsuccessful attempts to introduce a lower level of tenure (in the form of residential licences) in urban areas. While these were promoted with great fanfare, they provided no tangible benefits and thus fell into disrepair (Ali et al., 2016). To move forward with rural land tenure, the following steps would be desirable:

Complete issuance of CVLs: The fact that, some twenty years after the coming into force of the Village Land Act, only a fraction of villages have received a CVL is puzzling. It not only undermines the basis for Tanzania’s rural land tenure system, but also raises questions about the government’s seriousness in implementing its stated policy. Complete issuance of CVLs based on boundaries surveyed using modern low-cost technology – with disputes that cannot be resolved in the process marked on the record – and publicly accessible through a web portal would be a fundamental step towards ensuring that external support to Tanzania’s rural land sector will have the desired impact.

Clarify content and status of village land use plans: Conceptually, village land use plans should be the main instrument to address informational asymmetries between villages and potential investors, providing a basis for villages to attract investors with a profile that would most effectively contribute to local development. The de facto prohibition of direct deals between villagers and investors precludes this and undermines villages’ incentives to systematically identify investment opportunities and put them on public notice using village land use plans. It is thus not surprising to find that, despite large amounts of resources invested in establishing such land use plans, a lack of clarity regarding their status and level of publicity prevails.

To address these issues and improve clarity in land management for investors and local government, a regulatory framework to clarify the status of village land use plans is urgently needed. It should contain provisions regarding responsibilities and standards for elaboration, approval, and public availability of relevant documents to prevent plans being changed at the whim of local officials; ensuring compliance with such land use plans or for aggrieved parties (including herders) to seek redress in case of violation; and resolving inconsistencies with higher-level plans and the modality and frequency with which such plans should be updated (as well as the resources available for doing so).

Allow local decisions on transferability of CCROs: Experience in other countries suggests that a one-size fits all approach to indiscriminately restricting transferability without considering local conditions or allowing ways for villages to adjust these by weighing local opportunities and risks may fail to contribute to greater equity and instead lead to widespread informality and underuse of land. As Tanzania has decision-making structures at village level available, it would not be difficult to allow village assemblies transferability of land (with or without restrictions in terms of either the size of individual land transactions to prevent landlessness or the amount of land that can be acquired by any individual to prevent concentration) to outsiders, similar to what has been done in Mexico with great success (Deininger et al., 2002; Valsecchi, 2014; de Janvry et al., 2015), though at some political cost (de Janvry et al., 2015). This should be contingent on a parcel-level land information system being in place, and thus could also help to direct resources for CCRO demarcation in the right direction.

Mandatory conversion to general land: The conceptual basis for the mandatory conversion from village to general land in case of investment is typical of an enclave approach to agricultural investment that is not consistent with the need for such investment to benefit local farmers through market- or technology-related spillovers (Ali et al., 2018) or social services. Given that most successful agricultural investments started rather small and expanded subsequently, and that success is often contingent on collaboration between locals and investors to achieve shared benefits, the fact that land given to investors would permanently be removed from village control (including in case an investment fails) pitches each against the other. It thus creates strong incentives for stakeholders to use the many opportunities provided by the complex and duplicative process for land conversion to slow down transfers, in the process frustrating (or bankrupting) investors who attempt to acquire land in the legally prescribed way. If options are in place for villages to decide on transferability of land as suggested earlier, there is no need for such conversion to general land, as villages can make land available to investors directly in ways that ensure such investment is undertaken gradually and generates local benefits.

Use rural land taxation to discourage speculative landholding: Anecdotal evidence suggests that owners of holdings who managed to get their land converted to general land are very large, with many using only a small fraction of the land they own. Land taxes at a meaningful rate that would be levied on, say, all holdings above the 50-hectare limit those villagers are currently allowed to acquire would provide a strong incentive to either use such land more productively or transfer it to those who may be able to do so, thereby activating rental or sales markets.

8 Power Sector Reform and Regulation

Catrina Godinho

I Introduction

The power sector has long been singled out as a major obstacle to development in Tanzania. Despite abundant and diverse natural resources, sustained donor support in building technical capacity, and favourable macroeconomic conditions since the early 2000s, the sector continues to act as a bottleneck. In 2011, the lack of adequate and reliable supply of electrical power was identified as one of the most binding constraints to growth in the Partnership for Growth diagnostics report (Partnership for Growth, 2011).

The troubled development of the power sector in Tanzania may be attributable, to some extent, to the complex technical and steep financial imperatives involved in system expansion, including implementing various policies and best practice reforms. However, a retrospective sector analysis suggests that there are also considerable institutional blockages and entrenched dysfunctional (informal) institutional dynamics and processes that have played a determining role. Yet because these dynamics are often beyond the public purview, they are poorly understood or charted. This makes strategic interventions that may alter systemic challenges all the more difficult.

This chapter will thus focus on the institutional evolution of the Tanzanian power sector and will be directed towards providing a comprehensive review of the sector’s extended, and ongoing, developmental challenges. The basic question to be answered is whether government’s failure to implement the structural reforms that it has repeatedly committed to is due to institutional blockages or to purely technical, and possibly financial, factors. The author examines why it has not been possible for Tanzania to move from an institutional equilibrium that does not bring about the desired sector outcomes (investment, system expansion, and improved technical performance) to one that does.

In order to answer this question, an extensive, desk-based, analytical literature review of academic research, news reports, and primary documents was undertaken. In addition, a number of high-priority in-depth interviews were conducted with key stakeholders. This approach allowed for a methodical analysis of key features in the sector’s development trajectory.

The chapter is structured in five main parts, beginning with an overview of the current structure and status of the Tanzanian power sector. A narrative account of the institutional development of the power sector is then provided, which is followed by an exploration of some of the resultant underlying political economy dynamics. In the final section, a number of conclusions are considered in parallel with potentially strategic reform interventions.

II The Tanzanian Power Sector: Structure and Performance

A Institutional Structure

Despite over two decades of attempted institutional reforms, the structure of the power sector continues to most resemble that of the traditional industry model – a model that has largely been dysfunctional in Tanzania and across the region for decades.¹ Despite a period under private management contract (2002–6) and repeated policy commitments to unbundling and some privatisation, the Tanzania Electric Supply Company (TANESCO) continues to operate as a vertically integrated, state-owned de facto monopoly. Tariffs remain below cost recovery, planning has not translated into timely initiation of procurement of new power generation capacity, procurement has mostly not been transparent or competitive, and TANESCO’s technical and financial performance is poor. Some so-called standard model reforms,² however, have been implemented – most importantly, the troubled introduction of private sector participation in generation and the establishment of an independent regulator. Tanzania is thus an exemplar of what has become known as a hybrid model, where private and public investment coexist in a sector that continues to be state dominated (Victor and Heller, 2007; Gratwick and Eberhard, 2008).

In this structure, depicted in Figure 8.1, the Ministry of Energy and Minerals (MEM) is responsible for policy and planning in the sector, as well as governance of TANESCO.³ As the single buyer, TANESCO has power purchase agreements (PPAs) with independent power producers (IPPs) – including Songas, Independent Power Tanzania Ltd (IPTL), small power producers (SPPs), emergency power producers (EPPs), and the Mtwara Energy Project (formerly an off-grid generation and distribution concession). Responsibility for scaling up rural electrification was designated to the Rural Energy Authority (REA) in 2007, which also reports to MEM. Since June 2006, the Energy and Water Utilities Regulatory Authority (EWURA) has been responsible for sector regulation. It is part of the Ministry of Water and Irrigation (MWI), which gives the regulator a greater degree of (but still far from full) independence from political interests active in the energy sector. Owing to capacity constraints in MEM and the generalised permeability of de jure institutional boundaries, both EWURA and TANESCO advise and play a technical support role to the ministry.

Figure 8.1 Tanzania power sector structure

Source: Construct by author

The institutional governance of the Tanzanian power sector is also shaped by national-level legislative arrangements that confer significant power on the president and those directly appointed by him. Sector planning, operation, and management are as a result highly political – rather than techno-bureaucratic – in nature. This has contributed to the disempowerment of ministry, utility, and – at the time of writing in 2017 – regulator technical staff. Most decisions relating to sector planning, capital expenditure, and structural reforms have to be ratified by various ministers and/or the president according to the law. Though legislation related to the regulator, EWURA, provides for significantly greater independence when compared with TANESCO – there are no formal provisions in the law under which a ministry or other government body can overturn any of its decisions – higher-level institutional arrangements allow this to be subverted. For example, in 2017, the prime minister, presumably under the direction of the president, reversed an EWURA-approved tariff increase and later suspended its director general.

The de jure institutional relationships between the political executive and other sector entities have contributed to certain norms being established, including a fairly authoritarian culture that has undermined decision-making capacity and the necessary delegation of powers to make the implementation of various policies, plans, and best practice procedures possible. This is especially true in MEM and TANESCO, though perhaps less so in EWURA and REA (Box 8.1).

Box 8.1: Authority of appointment across key entities in the power sector

MEM

The Minister, Deputy Minister, and Permanent Secretary of MEM are appointed by the president and hold office ‘during the pleasure of the President’ (Constitution of the United Republic of Tanzania, 1984). They can be suspended, dismissed, or reassigned at any point.

TANESCO

TANESCO is 100 per cent state owned, governed under the Public Corporations Act of 1992 and the Companies Act of 2002. A board of nine directors is responsible for the corporate governance and financial management of the company, including the appointment of management and officers. The President of the United Republic of Tanzania is responsible for appointing the chairman of the board and the chief executive, while the remaining eight board members are appointed by the Minister of Energy and Minerals. Of these eight board members, the Treasury Registrar represents the shareholder (government) and another represents MEM. The remainder are typically government officials, independent businessmen, or professionals.

EWURA

In June 2006, an independent regulator – EWURA – became operational, reporting to MWI. EWURA’s chairman is appointed by the president, with the remaining six board members appointed by the Minister of MWI. Before this, MEM – in coordination with TANESCO – was responsible for tariff setting, licensing, and the regulation of the sector.

REA

REA, which became operational in 2007, is governed under the Rural Energy Act (2005) by the Rural Energy Board (REB). The Minister of Energy and Minerals is responsible for selecting the REB’s board members and the board chairman, from recommendations provided by recognised organisations and the board, respectively. The REB’s members are representative of sector stakeholders, with strict rules around representation set out in the 2005 Act. The REB is responsible for appointing the REA’s Director General and the management and oversight of the REA.

However, it is not only hierarchical and somewhat authoritarian norms that have contributed to a lack of efficacy among staff in MEM and TANESCO. Undue political influence and involvement in planning and procurement, unchecked by a disempowered technical and managerial staff, has also allowed for corruption in the sector on a grand scale (Gray, 2015). Most notoriously, the procurement of (and ongoing contract with) IPTL, the Richmond (later Dowans, then Symbion) EPP in 2006, and other EPP contracts in 2011 were allegedly brokered between top public officials and their patrons. At the time of writing in 2017, several moves against regulatory independence provide a warning against assuming that strong legislation is enough to withstand deep institutional dynamics and powerful political economy interests.

B Power Sector Performance

The stunted institutional evolution of the power sector since the 1990s is mirrored by its performance and development trajectory, which has not been able to keep up with economic growth and demand. While net generation capacity has tripled to reach a current scale of just over 1.3 GW (gigawatts), high population and economic growth rates have meant that per capita capacity has only increased marginally (from 19.6 to 24.2 MW (megawatts) per capita – lower even than regional averages). Meanwhile, consumption per capita has increased at a slow and steady rate of 2.4 per cent annually since 1990, just passing the 100 kWh (kilowatt hour) per capita mark by 2014. Even if recent reports of a substantial uptick – to 137 kWh per capita in 2016 – are confirmed, current consumption rates still fall far short of the upper bound for lower-income countries – 490 kWh per capita – with real implications for Tanzania’s ambitions to achieve middle-income status by 2025.

Electricity supply in Tanzania is persistently unstable, often inadequate, and insecure. In addition to the challenges of attracting sufficient investment at the necessary pace and stubbornly optimistic system expansion planning, Tanzania’s continued (though reduced) reliance on hydropower leaves the country vulnerable to severe droughts that have recurred with some regularity, in 1994–5, 2005–6, and 2011–13. This has necessitated contracting (at different times) over 300 MW of short-term oil based EPPs during times of supply crisis, at significant cost to the power utility and government balance sheet.

Owing to the high coping costs associated with drought periods, the sector’s financial equilibrium has remained precarious. The IPP IPTL, along with private EPPs Richmond/Dowans/Symbion and others running on imported liquid fuel, has undercut improvements in supply security by financially debilitating TANESCO at times of drought or under the pressure of peak demand. Dependence on liquid fuel imports and gas (which is denominated in USD) has also brought greater currency and fuel price shock exposure. Political pressures around tariff increases have also been a challenge, especially considering TANESCO’s dependence on external sources of finance for system expansion – by 2013, 80 per cent of TANESCO’s total assets was financed by liabilities (loans, grants, trade payables), having increased from 40 per cent in 2007 – and the government’s policy ambivalence on private sector participation. This has made it difficult for the beleaguered utility to invest in system expansion or offer a risk profile favourable to investors. This has only been exacerbated by TANESCO’s difficulty in implementing utility management and operations best practice – in part owing to political conflicts and weak accountability mechanisms.

Given the prevalence of supply-side crises, the weak financial standing of the utility, and general governance challenges, it is perhaps not surprising that progress in advancing electricity access has been slow. As will be discussed later, access rates remained stagnant between the early 1960s and 1990 – at between 5 and 7 per cent. Since the 1990s, grid access rates have gradually increased, reaching between 14 and 16 per cent in 2014. This figure was around 20 to 25 per cent in 2017, with 30 to 40 per cent living in proximity to the grid.⁴ Urban users have been the primary beneficiaries. Recent advances can be attributed to institutional reforms in the mid-2000s, increasing interest from the donor community in funding electrification programmes, technological developments offered by solar power for off-grid and mini-grid solutions, and growing political demands from citizens.

Yet, for Tanzanian electricity consumers, persistent supply insecurity has meant that load-shedding is an everyday occurrence, which – when the supply–demand balance is pushed to the brink, as at the outset of the 2011–13 drought – can reach up to eighteen hours a day. Unsurprisingly, many businesses and private consumers that can afford to do so have backup generators to bridge the gap. The cost of supply insecurity to the economy, as well as individual households and businesses, thus goes beyond unserved demand or even the costs associated with emergency supply. Mitigating its persistence is critical to sector development.

From a technical perspective, the disappointing development of Tanzania’s power sector reflects planning and procurement failures over the longer term, including inadequate strategies to attract investment or affordable finance, and poor management of external shock events and supply-side crises. Critically, Tanzania has made little progress in introducing and enforcing best practice models of institutional restructuring as relates to the separation of planning, procurement, and investment functions, applying least-cost planning principles, or implementing transparent and competitive procurement processes.

The structural, institutional, and performance characteristics of Tanzania’s power sector are indicative of a hybrid or dual market. According to Victor and Heller (2007, p. 30), this is ‘not a waystation to the standard textbook model but, rather, a stable equilibrium outcome’. They go on to explain that ‘while not the most economically efficient outcome, the dual market arises and is held in place by strong political forces that favour a system in which parts of power generation and delivery are profitable even as other parts are plagued by non-payment, inadequate investment, and economically inefficient operation’ (Victor and Heller, 2007, p. 30). In order to understand, and possibly address, those challenges identified from the technical perspective, it is thus imperative to go further to the institutional and political economy core of the current dysfunctional equilibrium. The remainder of the chapter turns to this task, beginning with an overview of the institutional evolution of the sector, before moving to a political economy analysis of key features and outcomes.

III The Tanzanian Power Sector’s Institutional Development

When charting the institutional development of the Tanzanian electricity supply industry – from its inception during the colonial era, through independence and the nationalisation of electricity assets and industry, a period of extended structural adjustment and attempted market-oriented reform, to the return of more centralised governance in the present day – certain institutional features and patterns emerge.

The spatial distribution of electricity continues to reflect colonial/extractive interests, with most of the population still without access to power. Despite numerous attempts at commercialisation, including rationalising tariffs, staff numbers, and establishing the financial viability of TANESCO, the sector continues to place pressure on the national budget, while TANESCO accumulates debt and arrears. Supply is insecure, as disconnected policy, planning, and procurement have undermined timely system expansion and the exploitation of natural gas reserves – meaning that poorly maintained and balanced network infrastructure, volatile liquid fuel prices, and variable hydrological conditions persistently threaten availability. According to the World Bank enterprise surveys, businesses report nine outages per month (on average), lasting around six and a half hours. The situation is likely worse in rural areas. The pervasion of certain (African) socialist ideological tenets in policy discourse has been more or less constant since independence, specifically around the public good attributes of electricity, the need for state intervention and governance in the sector to ensure social and developmental objectives, deep concern around private sector involvement and ‘foreign’ interference, and a certain leaning toward statist models. Corruption, rent-seeking, and patronage have been present at least since the mid- to late 1970s. However, this is a politically sensitive issue and blame is typically shifted away from the dominant ruling party to ‘aberrant’ individuals acting in the sector, corrupting private sector interests, or to international actors. This has impacted human resource capacity development in the sector, as a number of high-level corruption scandals have led to rounds of dismissals, especially in government.

In this section, a chronological narrative account considers the development of some of these features – with special attention to the more recent period of attempted market-oriented power sector reforms and the political economy of sector outcomes.

A Early Institutional Infrastructure in the Power Sector – The Colonial Period

Electric power was first introduced in Dar es Salaam, Tanzania (then Tanganyika) in 1908 by German colonialists in the service of the railway workshops there, as well as predominantly European parts of the city. Following the transition to British rule in 1920, the electricity supply industry was governed by the colonial Government Electricity Department. It was then privatised in 1931, with the establishment of the private Dar es Salaam and District Electric Supply Company and TANESCO utilities. Over the decades that followed, these utilities grew, with TANESCO exporting power to neighbouring Kenya. The legacy of the colonial export crops and mineral extraction in the region is still evident in the national grid, which correlates with the colonial railway system in East Africa. From a technical standpoint, this imbalance could stress the system as it expands. From a political standpoint, the persistent differences in services provided in different regions could become a political issue if they push internal migration patterns that are difficult to navigate socially.

B From Ujamaa to Structural Adjustment – 1960s–1980s

After gaining independence in 1961, Tanzania became a one-party socialist state under the leadership of President Julius Nyerere (1962–85) and his political party, the TANU (later CCM). The new regime set out to nationalise industry and commercial enterprise, which became national policy with the 1967 Arusha Declaration, and to establish a socialist command control economy. In the lead up to this, the government began the process of nationalising both power utilities in 1964 through an agreement to buy the East African Power and Lighting Company’s TANESCO shares over a period of ten years. Over the same time, TANESCO was established as the sole national power utility, responsible for generation, transmission, and distribution in Tanzania.

The Tanzanian power sector became a favoured recipient of financial and development aid in the form of official development assistance (ODA) from the World Bank and the International Monetary Fund (IMF), as well as from bilateral institutions such as the Swedish International Development Cooperation Agency (SIDA), the Norwegian Agency for Development Cooperation, the Japan International Cooperation Agency, and others. This assistance was substantial when compared with other countries in the region, with the total ODA received in 1980 being double the regional average – a significant proportion of which went to the power sector (Edwards, 2012). In addition to the provision of financial and technical support in various system development projects, sponsored training programmes were advanced to foster local expertise in the sector. Generation capacity increased steadily into the early 1970s (reaching 266 MW in 1975),⁵ and sales increased at around 10 per cent per year. Despite the socialist agenda, electricity access remained low, at around 7 per cent.⁶

However, external factors, including the 1973 and 1979 oil shocks, the 1979 Ugandan War, commodity price volatility, and hydrological variability, put undue strain on the economy and power sector. In addition, ODA decreased dramatically in the early 1980s, primarily in response to an emerging divergence in views on Tanzania’s socialist development policies and what was seen to be excessive public spending.

The state and many state-owned enterprises (SOEs) became increasingly inefficient owing to a lack of accountability, inadequate incentives, and the resultant pervasion of rent-seeking behaviour and corruption. The formal command economy began to collapse, progressively supplanted by informal and black-market economies. The institutions built in the first decades of independence had depended on the centralisation of political and economic power in the state and the party, through which resources (including jobs in government and SOEs) were distributed to the population. However, lacking sufficient state income, formal checks and balances, political competition, transparency, and certain civic freedoms, the system was vulnerable to external shocks and internal inefficiencies and malfeasance. By the early 1980s, Tanzania was rated as one of the poorest countries in the world, and corruption was becoming a national issue (World Bank, 1998; Heilman and Ndumbaro, 2002; Gray, 2015).

Around this time, there was a shift in donors’ lending policies. Led by the Bretton Woods institutions, the provision of aid, loans, and other forms of development assistance became increasingly conditional on meeting a set of market-oriented macroeconomic policy prescriptions. These policies stood in opposition to the Ujamaa model, while because they were externally driven, they provoked overt hostility from President Nyerere and many in the ruling CCM party. In a bid to access financial support without losing independence, Nyerere launched the National Economic Survival Programme (NESP) in 1981, followed by NESP II in 1982, and then a local version of the IMF’s Structural Adjustment Programmes (SAPs) in 1983. These programmes, however, failed to satisfy donor conditions.

In 1985, Nyerere stepped down as president – preserving his legacy of Ujamaa, by not publicly acquiescing to market reforms. His preferred successor, Ali Hassa Mwinyi (1985–95), was considered to be a moderate supporter of the liberalisation policies that the country would need to implement to regain access to aid. Once in power, he initiated structural adjustment reforms under the IMF’s Economic Recovery Programme (ERP) (1986–9) and the Enhanced Structural Adjustment Facility Programme (ESAF, 1989–92) with some success, initially renewing donor confidence. However, considerable resistance to reforms continued behind the closed doors of the CCM, where those with vested economic or political (including ideological) interests pushed against or subverted interventions, specifically privatisation.

In the power sector, these crises further impaired the underperforming traditional industry model. Unable to capitalise on economies of scale, reduce investment costs through securing low-interest long-term bonds, or steadily expand the system to meet demand, TANESCO’s financial and operational performance deteriorated rapidly. Generation capacity and sales were especially affected, with TANESCO’s financial ills further compounded by the mounting debts owed to the utility by the government (including SOEs) and rampant power theft (with system losses above 20 per cent). The initiation of macroeconomic stabilisation policies in 1986 pushed the utility into an even more dire situation, as currency devaluation vastly increased the burden of foreign-denominated loans, as well as operational and investment costs. As the Tanzanian government fell further behind the Weberian ideal of a techno-bureaucratic modern state, which underlies the traditional model, vested political and economic interests took advantage at every level.

C Power Sector Reforms – On Again, Off Again

1 Conditionality and Standard Model Reforms

By the beginning of the 1990s, generation capacity stood at only 300 MW,⁷ access had remained almost unchanged at between 5 and 7 per cent (according to the Ministry of Water, Energy and Minerals (1992) and the World Bank (2020), respectively), and technical and non-technical losses were above 20 per cent.⁸ The sector was not self-financing and suffered substantial commercial losses. The institutional equilibrium – the rules governing tariff setting, collection, operations, planning, procurement, governance, management, and oversight – had become thoroughly dysfunctional. In Tanzania, the ‘basic sectoral problem’ identified in the seminal 1993 policy paper The World Bank’s Role in the Power Sector, in which what has become known as the ‘standard reform model’ was first iterated, seems cogent (World Bank, 1993).

The basic sectoral problem relates to undue government interference in those day-to-day organisational and operational matters that should be under utility control. Such interference undermines the accountability of those responsible for day-to-day management functions. It has influenced procurement decisions, mitigated against least-cost fuel choice, resulted in an inability to raise power tariffs to meet revenue requirements, restricted utilities’ access to foreign exchange, mandated low managerial and technical salaries that are tied to low civil service levels, and promoted excessive staffing and political patronage. These problems have in turn, in many cases, brought about generally inadequate utility management and organisation; lack of accountability; flight of experienced and capable staff owing to uncompetitive employment conditions; weak planning; inefficient operation and maintenance; high technical and non-technical losses; and weak financial monitoring, controls, and collection (World Bank, 1993, p. 33).

As in many countries in the region, loans and grants in the power sector soon became conditional on the implementation of standard model institutional and structural reforms that were being prescribed as the solution to this problem. The primary components of standard model reforms include the commercialisation and corporatisation of electricity utilities, the introduction of independent regulation, unbundling vertically integrated utilities, and liberalising the sector to allow for private sector participation (Bacon, 1999; Hunt, 2002; Williams and Ghanadan, 2006; Victor and Heller, 2007; Gratwick and Eberhard, 2008). Through such reforms, the traditional industry model in developing countries would be supplanted with a model that allowed for competition, institutionalised checks and balances, alternative sources of investment, separation of and specialisation in sector functions, greater transparency, and transfer of private sector commercial expertise and resources.

Figure 8.2 presents an overview timeline of reform interventions. In the remainder of this section, we consider different phases in the reform agenda and some of the determinants of the outcome of various components of standard model reforms.

Figure 8.2 Power sector reform experience

Source: Construct by authors

2 First Steps towards Standard Model Reforms

Needing to re-contextualise the role of the energy sector in national development and reconcile sector-level policy with the macroeconomic policy shifts of the SAPs and the thrust of the then-emergent standard model, the 1992 National Energy Policy was produced. The policy opened the sector to private participation, stating that ‘private electricity generation and distribution will be encouraged’ in areas where TANESCO had not yet developed power infrastructure (Government of Tanzania, 1992). It also provided for the establishment of a rural electrification fund, which – it was envisioned – would be supported by community involvement in the style of Ujamaa. Already in the midst of the first drought-related power shortages and load-shedding, significant emphasis was put on resource diversification away from hydropower. Like many of the later policies and legislation, the 1992 policy tentatively opened the door for market-oriented and governance reforms without actually providing a comprehensive set of actionable next steps and without reducing the scope for political interference in the sector.

Of course, weak or absent policy commitments in developing countries had informed the basis of the conditional lending agenda behind standard model reforms. Unsurprisingly, the World Bank’s Power VI project thus not only provided for the construction of the 180 MW Kihansi hydroelectric power plan, but also included sector reforms in its objectives. Explicit objectives included supporting the utility in preparing for and initiating restructuring and privatisation, and the development and operation of private gas generation at Songo Songo. The 1993 International Development Association (IDA) loan agreement for the Power VI project was made conditional on TANESCO entering into a subsidiary loan agreement with the government and committing to the conditions set out in the loan – this could be considered the first instance where the government committed to standard model reforms (International Development Association and United Republic of Tanzania, 1993). These included adhering to specific financial covenants and to the principles of international, competitive, and transparent procurement practices, the corporatisation and commercialisation of TANESCO’s operations, undertaking an asset evaluation study and a tariff study, implementing the recommendations thereof and regularly updating both thereafter, and enforcing a plan of action for the recovery of overdue accounts from government agencies and parastatals. In addition, the government committed to undertaking and then implementing the recommendations of a privatisation study and to the development of a gas-to-power IPP at Songo Songo (Box 8.2).

Box 8.2: Songas – Tanzania’s first competitive and transparent IPP

Gas-based power generation at the Songo Songo gas field had been identified as a least-cost option in the 1991 Power Sector Master Plan. However, neither the government nor TANESCO had the necessary funds or expertise to develop gas-to-power generation alone. In 1993, MEM invited sixteen companies to bid for the 60 MW gas project at Songo Songo under a build, own, operate, and transfer arrangement – thus initiating the first competitive IPP process – with support from the World Bank. However, no credit enhancement was provided (despite the poor investment environment), bidders were only given six months to submit their bids, and the plant size was small by international standards. As a result, only two bids were submitted and Over-the-Counter Market – a joint venture between Ocelot Energy Inc. and TransCanada Pipelines – was awarded the tender in 1994 and established the project company Songas. Negotiations were protracted, with additional equity partners coming on board in 1995 (Tanzania Petroleum Development Corporation and TANESCO) and then again in 1996 (Tanzania Development Finance Company Ltd, International Finance Corporation, Deutsche Investitions und Entwicklungsgesellschaft, and Commonwealth Development Corporation).

In order to mitigate the severe effects of drought-related load-shedding while the Songo Songo IPP was being negotiated, SIDA provided TANESCO with the funds to procure two 18 MW Open Cycle Gas Turbine (OCGT) plants at Ubungo and committed to covering operational (mainly fuel) costs for two years – with the expectation that Songas would be online by the end of that period. The government was able to procure a further two 35 MW OCGT plants through the World Bank facility. With this additional support, and a focused Songas procurement process, it might have been possible to emerge from the drought with improved capacity at competitive costs. Yet, although these plants mitigated the effects of drought-related shortages and provided much-needed space for strategic sector planning, specifically the Songas procurement process, it did not allay the sense of emergency that load-shedding had brought about.

There is evidence to suggest that certain interested parties seized upon this sense of panic to advance a specific agenda,⁹ interrupting efforts to rationalise the sector by entertaining unsolicited bids – most prominently, a proposal for the procurement of 100 MW from a plant that would be built by IPTL (Box 8.3).

Box 8.3: IPTL – the dark horse IPP and the subversion of procurement best practice

The IPTL project was not planned for or necessary. According to the Power Sector Master Plan, it was based on hugely overstated investment costs and expensive, outdated technology. Nonetheless, it was defended as ‘South–South cooperation’, a politically shrewd cover as it played on Tanzanian’s discomfort with Western (capitalist) interest’s involvement in the country since the initiation of the SAPs. It was also packaged as an ‘emergency’ supplier, allowing for a direct and opaque procurement process. Despite serious doubt being cast on the economic and financial viability of the PPA by some concerned state officials, TANESCO’s board – under the sway of key government officials – signed the twenty-year PPA in May 1995 (ahead of the national elections). This was done without the consent or knowledge of the World Bank, breaking a covenant of the Power VI project.

Creating a rift with the World Bank, the signing of the IPTL PPA resulted in delays in the Songas deal – which ironically proved to be one of the most cost-effective gasses IPPs on the continent, in large part owing to the competitive negotiation process of its PPA. IPTL, meanwhile, is one of the most expensive and has been detrimental to the financial sustainability of TANESCO and the sector as a whole.

While the costs of corruption and maladministration now widely associated with IPTL are substantial, the derailment of planning, management, and procurement processes is considered by some to be the more detrimental casualty of the fallout that ensued. The opaque, uncompetitive, and corrupt deal-making pioneered in the IPTL deal would be repeated in later procurement processes in the power sector – to the detriment of its financial sustainability and developmental mandate.

The IPTL deal was one of many incidences where the government diverged from national plans and policies in the early to mid-1990s and where evidence pointed to behind-the-scenes politicking. The implementation of conditions set out in the IMF’s ERP (1986–89) and the ESAF (1989–92) had led to fundamental changes in the political economy landscape. Rent-seeking opportunities had opened in areas where the flux of new liberalisation and privatisation policies had created the space for vested or emerging interests to intervene directly in the processes of government. At the same time, the reintroduction of multiparty politics in 1992 created a more competitive environment for clientelism, as a larger and less cohesive group of political and economic interests vied for power in the lead up to the first multiparty elections in 1995. These developments led to a withdrawal of donor support in 1994.

3 Standard Model Reforms after Embargo

Benjamin Mkapa was elected as the CCM presidential candidate in the lead up to elections. A relative party outsider seen to be untainted by scandal, Mkapa’s campaign promised change, decisive action against corruption, and economic growth and development. Upon winning the 1995 elections, the Mkapa administration prioritised rehabilitating relations with donors, anti-corruption interventions, and refocusing reforms. At the time, development assistance accounted for 20–30 per cent of GDP – there was no alternative.

In the power sector, this meant committing to more concrete steps to structural reform in line with donor conditions. According to the 1996 IMF ESAF, the restructuring and privatisation of public utilities would be accorded the highest priority over the 1996–9 ESAF loan period. In 1997, the government explicitly committed to restructuring and privatising TANESCO in a letter to the IMF and specified TANESCO for privatisation under the Parastatal Sector Reform Commission (PSRC) – meaning that TANESCO was no longer exempt from the law governing the transformation of other parastatals. This move irrevocably tied reforms to the ultimate privatisation of a public sector utility, a concept that was not only ideologically incongruent with the still-dominant socialist paradigm, but was also well on the way to becoming synonymous with corruption. This had a damaging effect on the feasibility of later reforms.

Over the following years, these commitments would be reiterated in IMF letters of intent while policy and legislation were in draft. In 1999, a Policy White Paper on the Restructuring and Divestiture Strategy for the Electricity Sector was submitted to and approved by Cabinet. Though the policy document and Cabinet decision are not publicly available, the policy commitments were articulated in a 1999 IMF ESAF policy paper: they included the vertical and horizontal unbundling of TANESCO and the establishment of a neutral system and market operator, a centralised purchasing agency, and an independent regulator (IMF, 1999). According to the policy paper, the strategy would be implemented by year-end 2000.

This, however, was thoroughly undermined by the government’s failure to fulfil important covenants designed to improve the financial, management, and institutional development of the sector in preparation for reforms. Crucially, the government consistently failed to support TANESCO on the issue of non-payment by preventing the utility from cutting power to defaulting customers – a subsequent report on the issue found that the problem was 75 per cent political (World Bank, 2003). In addition, no new legislation or policy was introduced, little stakeholder engagement was conducted, and there was little else that would suggest that the government intended to implement the ambitious strategy laid out in the ESAF paper.

After seven years of attempted (including internal) reforms, which were initiated in 1992, TANESCO was still an overstaffed, poorly managed, and financially insecure utility that, despite having strong technical capacity by Tanzanian standards, lacked commercial culture and autonomy. Toward the end of the Power VI project, World Bank supervision missions thus recommended that a new management team be recruited for TANESCO during the transition to privatisation, to which the government – at the level of the president – committed in late 2000. In addition, a number of ‘next step’ interventions were pressed for through the IDA Programmatic Structural Adjustment loan, as well as a number of other donor programmes. Two studies by international consultants were initiated – the first by Mercados (released in 2001) and the second by Stone and Webster (released in 2003). In 2001, the government passed the EWURA Act, providing the basis for the establishment of the independent regulator. In the same year, the PSRC initiated a competitive and transparent recruitment process for a two-year management contract for TANESCO.

4 Privatisation: One Step Forward – TANESCO under Private Management

In January 2002, the PSRC awarded the two-year TANESCO management contract to NET Group Solutions – a firm from South Africa. The lack of genuine political and public support surfaced almost immediately, when the start of the contract was delayed owing to push back from the general public and TANESCO staff. The Minister for Energy and Minerals and TANESCO board openly cast doubt on the selection process and forty-six MPs called for clarification on the issue in parliament – undermining the legitimacy of the contract (BBC, 2002; Kapika, 2013). Tanzanians also viewed the contract as the first step towards the privatisation of a strategic public sector utility, which was an ideologically fraught issue. Meanwhile, TANESCO staff unions threatened sabotage unless a labour agreement was secured before the initiation of the contract, fearing the inevitable staff rationalisation process. Despite this push back, the NET Group management team – consisting of only four resident managers – took over operations in May 2002. They required a police escort onto TANESCO premises.

Upon assuming management, the team first prioritised gaining the support of staff: a labour agreement was developed by TANESCO and accepted by the union later that year. From this point, staff relations were secure. In their activities, the management team focused on improving revenue collection and utility information systems, enforcing collections from sensitive public offices, and rationalising staff. In these activities, the management team was successful – monthly revenue increased from USD 10–12 million to USD 16 million per month by 2004, approximately 20 per cent of the staff were amicably retrenched, and reporting systems were improved. The first contract was viewed as a categorical success by the donor community. However, broad-based political and public support was still lacking despite high-level, somewhat behind the scenes, backing from President Mkapa.

Under pressure from the World Bank, the management contract was renewed for a further two years in 2004. In the contract extension, the team was more explicitly tasked with translating revenue gains into improvements in performance. Monthly revenue doubled during the second contract, increasing to USD 22–4 million. This was driven by improved collections – especially from large, politically sensitive customers such as the national police, post office, and Zanzibar – as well as increased tariffs. The tariff structure was rationalised by removing the cross-subsidisation between consumers, with industrial tariffs at −28 per cent and residential/light commercial tariffs at +39 per cent. The lifeline tariff was also reduced from 100 kWh to 50 kWh.

A significant portion of the increased revenue, however, was absorbed by the IPPs coming online – IPTL was commissioned in 2002 and Songas in 2004.¹⁰ With the onset of the 2005–6 drought, the utility was compelled to use IPTL and Songas as baseload plants, both of which were more expensive than originally anticipated at the start of the contract in 2002. This put the utility back into a dire financial situation. The management team was thus not able to invest much in network infrastructure and, critically, did not pay sufficient attention to customer service and connections. This meant that private sector participation was not translating into better quality or more reliable electricity services for most Tanzanians. When the management team reaped substantial ‘success fees’ for its interventions, it only added to public and political distaste.

These shortcomings were in part attributable to the management team itself, the misaligned incentive structure of the contract, and external conditions. However, political interference played a role as well, compounded by tenuous lines of accountability between the TANESCO board, MEM and other ministries, the PSRC, President Mkapa, consumers, the public and the media, and donors. There have been reports that politically connected members on the TANESCO board actively sabotaged the contract (through exercising their veto power, stalling decision-making processes, or providing misleading information to the political executive) in order to then be able to prove that the management contract, or privatisation more broadly, was a bad idea. The management team was certainly not operating in a wholly supportive political environment, and tensions began to mount.

5 Privatisation: Two Steps Back – TANESCO’s Despecification and Return to Public Governance

In 2005, just ahead of the elections, President Mkapa despecified TANESCO – backtracking on plans to privatise the utility. In 2006, acting against the recommendations of a 2005 report conducted by the Presidential Privatisation Review Committee, incoming President Kikwete decided against renewing the management contract. It is clear that, under this contract, many of the informal institutional arrangements had been challenged – including political involvement in tariff setting, staffing, collections, and procurement. With these two steps, the sector and utility governance reverted to its previous institutional structure.

Coincidentally, this recreated a situation where crisis (drought) conditions created an opening for corrupt political and economic interests to again craft an IPP deal around the time of national elections, bypassing power sector development plans and the principle of competitive and transparent procurement. Many suspect that the 2005 election – won by CCM’s candidate, Jakaya Kikwete – was funded by faction benefactors that orchestrated the infamous Richmond IPP deal. Like the IPTL deal in 1995, it had disastrous and long-lasting consequences for TANESCO and the stability of the sector as a whole. It is worth noting that the management team actively resisted the Richmond deal (Box 8.4).

Box 8.4: The Richmond EPP IPP – another scandal

The Richmond Development Company was awarded an expensive 100 MW power deal during the 2006 power shortages under controversial circumstances. It then turned out that the company had neither the technical expertise nor the capacity to meet its contractual agreements. In late 2006, Dowans Holdings took over the contract and eventually provided the agreed 100 MW – after drought conditions had abated.

Despite Richmond, and then Dowans, not being able to supply the agreed amount of power in the agreed timeframe, TANESCO had to pay a steep daily ‘take-or-pay’ capacity charge to the company (Kapika, 2013). This caused acrimony in the media and parliament. Toward the end of 2007, a Select Committee was established to investigate the deal. In February 2008, the committee’s report was presented in parliament and broadcast on live TV. This led to the resignation of the prime minister at the time, Edward Lowassa (2005–8), as well as the current and previous Ministers of Energy and Minerals, Msabaha and Karamagi, who were implicated in the scandal. President Kikwete then dissolved Cabinet. In addition to the predictable disruption following the December 2005 elections and a change in the presidency, the Richmond scandal saw three different ministers serving between 2006 and 2009, as well as multiple shuffles among technical staff. This thoroughly destabilised the sector.

This matter was not dealt with in the courts, but rather internally by the government and within the CCM party. Lowassa would later compete as a opposition presidential candidate in 2015. The lack of policy continuity between regimes, compounded by the shuffling of ministers and technical staff (including permanent secretaries), has been a near insurmountable obstacle to maintaining momentum in sector development and reform interventions. Relations with development partners – especially those such as the World Bank which were supporting reforms – also suffered over this period.

6 Some Positive Developments – Policy, Regulation, and Rural Energy

Notwithstanding the circumstances noted here, this period did see some other important reform steps implemented. To begin with, the second National Energy Policy was released in 2003. This commits to the principles of competitive, private sector involvement, and efficiency, and to establishing a new governance system by ‘differentiating the roles for (a) policy making and legislative functions carried out by Government and the Parliament; (b) the regulatory functions carried out by an independent regulator; and (c) other functions carried out by public and private operators’ (Ministry of Energy and Minerals, 2003). Once again, however, much of the policy was far from actionable, and sticking to the principles has been a challenge.

Rural energy was also given special attention in the 2003 policy, leading to the enactment of the Rural Energy Act in 2005, which established the REB and the Rural Energy Fund. Rural energy, however, did not benefit from much political interest or budgetary support in at least the first five years following these interventions. On the one hand, this reflects a similar state of affairs to that in neighbouring countries – where grid-extension was viewed as too expensive, off-grid was not yet attractive, and rural electrification had not become a politically salient issue. On the other hand, CCM was also doing very well when it came to public opinion polls and at the ballot box – meaning that the political pressures behind issues such as rural electrification were not yet determining national policy priorities.

EWURA – the independent regulator – finally became operational in June 2006. Intriguingly, this was the same month that the Richmond deal was signed. While delays were likely by default rather than design for the most part, in the case of EWURA and other components set out in policy or law, certain interests benefited from the regulatory gap and may have contributed to holding up processes at key junctures. TANESCO (an unregulated de facto monopoly) certainly had an interest in delaying the effective functioning of EWURA, as did those involved in the IPTL and Richmond deals.

7 Public Governance, Independent Regulation, and Political Interference – An Incomplete Reform Model

Having repealed the management contract and backtracked on privatisation, the new Kikwete administration had a clear interest in ‘proving’ that the state-owned model could work if it was to maintain control over the sector. When TANESCO reverted to local management in 2007, the more than capable Dr Idris Rashidi, formerly involved in reforms in the banking sector, was appointed managing director. During his three-year contract, Rashidi built capacity in the utility, creating and filling three new positions with competent staff – chief financial officer, chief internal auditor, and chief information officer. Remaining senior management positions were filled through competitive recruitment processes. Together with the senior management team, Rashidi introduced performance measurements into the human resources system with balanced score cards, launched a staff development programme, and amended relationships with energy-intensive users (anchor customers). He also arranged a USD 300 million syndicated loan, with the support of the government, which allowed TANESCO to clear the debt backlog, introduce performance-based staff remuneration, and improve billing and metering systems. Hydrological conditions were also in TANESCO’s favour over this period, which reduced the cost of generation. In 2008, TANESCO registered a profit. Other metrics of utility performance, however, worsened. Transmission and distribution losses peaked in 2009, collection rates – which had improved considerably under the management contract – decreased dramatically (from ~95 to ~56 per cent) as politically connected customers forced to pay during the management contract slipped into old patterns of politically condoned non-payment, and access rates, which had increased from 10.5 to 12.6 per cent under the management contract, actually dipped back down to 11.2 per cent in 2009 (World Bank, 2020).

This mixed performance underscores the vulnerability of public governance to political interference in a country where the political economy system is prone to using publicly owned companies for rent-seeking and patronage, even where corporatisation efforts attempt to ‘ring-fence’ such interests. Three different ministers served between 2006 and 2009. Rashidi has said that it was difficult for him to understand the ‘special rights and interests’ the ministry and the board had in management decisions. Though there have rarely been public confrontations between different factions operating in TANESCO and the government, the period when Rashidi was managing director proved an exception. Despite a stellar performance, his contract was not renewed, and more ‘politically suitable’ candidates were appointed from 2010.

While these tensions played out at the utility, EWURA was steadily building capacity and authority as regulator. The five-year delay in operationalising EWURA had involved a dispute between development partners and the government about where the regulator should be placed. Eventually, it was agreed that it would fall under MWI, as advised by the World Bank. This allowed the regulator a greater degree of autonomy from MEM and distance from undue political influence. The pace of EWURA’s development reflects the soundness of the 2001 EWURA Act, significant support from development partners, the realisation of existing technical capacity, and a suitable degree of independence from the government.

8 The Resurrection of the Reform Agenda

In June 2008, it seemed as if reforms would be resurrected when the Electricity Act was passed, replacing the 1957 Electricity Ordinance Amendment. The Act was preceded by a Power Sector Reform Strategy in 2007, which is not publicly available. In relation to regulation, the 2008 Electricity Act further delineated policy and regulatory roles between MEM and EWURA. It also placed renewed emphasis on the issue of rural electrification, including certain provisions of support to the REA. Critically, the Act also provides a legislative foundation for sector restructuring – albeit a weak one. According to the Act, the minister may, in consultation with the Minister of Finance and the Authority (EWURA), restructure the electricity supply industry in order to foster competition for increased efficiency, enhance the development of private capital investment, and promote regional electricity integration – giving full power to the minister and, behind the minister, the president (The Parliament of the United Republic of Tanzania, 2008). The Act also stipulates that the minister shall within one year of the Act coming into force prepare and publish a policy for the reorganisation of the electricity market, though it also specifies that the minister can amend this policy at any time.

Though commitments to standard model reforms were made anew in 2008, it is important to note that there was a general movement away from ‘privatisation’ and toward public–private partnership (PPPs) during this period. The PSRC was dissolved in 2007. In 2009, the government launched a PPP policy, which was followed by the PPP Act in 2010 and the publication of PPP regulations in 2011. The idea of publicly owned projects that allow for private sector participation certainly gained traction and provided an alternative frame for reforms – one that was more compatible with the Tanzanian socialist ideology and, in the case of the power sector, vested political and economic interests. While the policy components remain similar, this shift provided reforms with a new and improved frame. Yet concrete reform interventions have yet to follow, in part because of the onset of another electricity sector crisis, triggered by another drought and exacerbated by exchange rate volatility and political instability.

In 2010, Tanzania was again hit by devastating drought. By 2011, customers could experience load-shedding of up to eighteen hours a day. As had been the case in previous periods of supply crisis, the government launched an Emergency Power Plan – adding 331 MW through short-term, emergency contracts that were neither transparent nor competitive. Under emergency procedures, EWURA approved a tariff increase of 40.29 per cent starting in January 2012. Even with the tariff increase, TANESCO was not able to bear the extra financial pressure of expensive thermal generation. By the end of 2012, accumulated arrears to IPPs, EPPs, and fuel suppliers were estimated at USD 276 million – and were forecast to increase.

9 Another Crisis, Another Election Season

The crisis prompted a bold policy response, a critical action in the lead up to the 2015 elections. The reform agenda seemed to again be resuscitated in 2013, with the politicised Big Results Now (BRN) initiative. Part policy, part party manifesto, BRN focused on bridging the gap between policy planning and effective implementation in key sectors, including energy and natural gas. BRN recommended redefining the sector strategy and structure, including the gradual restructuring of TANESCO to bring about viability to the entire system. Tanzania also mended relations with some of the bigger development partners, including the World Bank. The World Bank Power and Gas Sector Development Policy Operation programmatic loans offered financial and technical support for the government’s sector reform and development policies.

At the start of 2014, a second tariff increase of 39.19 per cent was approved by EWURA in order to lift tariffs closer to cost-reflective levels, and the government agreed to retire two-thirds of EPP capacity, bringing costs down so that they could meet somewhere in the middle. TANESCO’s ‘financial gap’ reduced slightly, though the utility was still in a precarious position. In the same year, a number of policies were approved – including the Natural Gas Policy, Petroleum Policy, and the Electricity Supply Industry Reform Strategy and Roadmap 2014–25 (ESIRSR) (Box 8.5).

Box 8.5: ESIRSR, 2014–25

In the ESIRSR, the government sets out an explicit timeline of structural reforms for the first time, including the unbundling of TANESCO’s generation segment and allowing IPPs to sell directly to bulk off-takers (though paying wheeling costs) in the short term (by December 2017), the vertical unbundling of transmission and distribution in the medium term (by June 2021), and the horizontal unbundling of both distribution and generation in the long term (by June 2025). Together, BRN and the ESIRSR set the following targets for 2025: generation capacity of 10,000 MW (up from 1,500 MW), connections at 50 per cent (up from 24 per cent – this number is likely lower than reported in the ESIRSR), and the reduction of system losses to 12 per cent (from 18 per cent – though losses have been volatile in the past, soaring above 35 per cent in 2009–10).

Despite various interventions and numerous bailouts, TANESCO’s financial situation remained dire while internal accounting remained relatively opaque, obscuring the impact of the injection of funds and limiting advances made in eradicating (official) operational subsidies and improving the transparency of government transfers. Planning was clearly characterised by short-term politics, rather than technically sound, long-term processes, and the lines between planning, policy, and procurement were frequently transgressed. Despite repeating commitment to the tenets of transparent and competitive processes, as well as attracting and facilitating private sector participation and investment, power projects initiated over this period lacked transparency and were bent towards publicly funded and owned models. Though EWURA’s role in overseeing procurement and advising on policy and planning mitigated this to some extent, TANESCO’s complex relationship with the government limited the scope of EWURA’s influence. TANESCO is often treated as an extension of government – especially when it comes to procurement. While EWURA can regulate some of the formal processes, the informal processes between TANESCO and government are beyond the regulator’s purview and reach. An example of this can be found in the letters between EWURA and the Ministry of Energy, which show how the government propagated an unwritten policy, according to which all future generation projects were to be PPPs (Eberhard et al., 2016, p. 196), highlighting the politics behind de facto policy and the weakness of de jure policy and regulation.

As 2015 was an election year, with the CCM again competing with a new president and facing stiff competition, the political drive behind BRN and other policies, especially those providing the basis for increased public expenditure, juxtaposed with the procurement of various power projects (such as the 308 MW Kilwa, introduced by retired public servants and a foreign investor, and the 600 MW Symbion Mtwara plant), should be interpreted with care. Political anxiety around another IPTL-related scandal – the Escrow scandal – also coloured this period, with funds pilfered through the Central Bank of Tanzania and distributed to government officials and politically connected persons in the lead up to elections. The scandal also cost Tanzania hundreds of millions of dollars of donor funding, just as the country was heading into a new administration.

10 A New Regime – Magufuli’s Power

Tanzanians talk of a ‘regime change’ when referring to elections – despite the fact that the CCM (formerly TANU) party has been in power since independence (1961) and the fact that the country has operated as a multiparty democracy since 1992. However, this is not really a misnomer, considering the discontinuity in official policy between governments, the change in executive and technical staff following elections (even when the same president is in power), and the significant power that presidents wield when in office.

This pattern has certainly been evident in the most recent elections. In the two years that John Magufuli had been president, at the time of writing in 2017, there have been significant changes across government – indicating that long-term policy frameworks may shift considerably. Specifically, there has been a distinct movement towards more centralised governance and a state-led growth model, alongside a commitment to attracting private sector investment and industry. Whether Magufuli will be able to balance the increasingly autocratic dominant-developmental politics with the government’s dependence on external sources of investment and funding is yet to be seen – especially as the natural gas economy develops. Partnerships with Chinese investors might make this possible.

Given the ‘regime change’, it is somewhat unsurprising that many have relegated BRN to politics and expect that the timelines and objectives of the ESIRSR will be reviewed. With a return to the idea of big government and Magufuli’s reinterpretation of Nyerere’s self-reliance, many doubt that TANESCO will be unbundled under the current administration. Key steps to unbundling, as set out in the ESIRSR, have already been delayed. PPP development will most likely continue to be prioritised in the generation segment, with the government maintaining a stake in (and influence over) all future projects through TANESCO. This shift is concerning given the state of the utility, which had accumulated arrears to IPPs, EPPs, and fuel suppliers to the tune of USD 490 million as of May 2016 – despite financial injections in previous years, increased tariffs, and the retirement of around two-thirds of EPP capacity.

Some actors have been able to ride recent political waves in the sector, while others have not. REA has benefited from the politicisation of access, attracting general budget support of TZS 534 billion (USD 239 million) for 2016–17 (up 50 per cent from 2015–16 and about fifty times the original budget of TZS 11 billion in 2007 – more in real terms). There are some concerns, however, over the likely inflated reporting of recent improvements in access – suggesting the influence of political (and potentially economic) interests.

EWURA, meanwhile, has managed to steadily build technical capacity. In addition to licensing and tariff adjustment, EWURA has played an important role in procuring SPPs (Odarno et al., 2017).¹¹ According to a recent report by the World Resources Institute (WRI), the number and installed capacity of mini-grids in Tanzania has nearly doubled since 2008, when the government introduced the SPP framework (Odarno et al., 2017). EWURA is seen to have brought sanity back into the sector, resurrecting investor confidence through the technically adroit execution of its regulatory duties. However, political pressures are mounting.

The financial standing of TANESCO has improved somewhat, and steady capacity additions are beginning to reduce supply-side risks that have plagued the utility since the 1990s. However, it is poised to fall back into old patterns as President Magufuli learns to hold the reins. Since the beginning of 2017, President Magufuli has tightened his grip – sending shockwaves through the sector. In January, he reversed the EWURA-approved 8.53 per cent tariff increase, and then fired the TANESCO managing director and demoted the deputy managing directors of transmission, distribution, and generation for implementing it. In May, he then fired the Minister of Energy and Minerals for his alleged involvement in a mining sector corruption scandal. Breaking with his predecessors, Magufuli launched criminal proceedings against individuals implicated in the IPTL deal and related Escrow scandal through the criminal system. However, his dismissal of the EWURA director general following EWURA’s non-renewal of IPTL’s licence suggests that his motives may not have been based on curbing corruption, but perhaps reflected some internal conflict within CCM around the IPTL deal. Then, in October, he split MEM into two separate ministries, appointing new ministers and staff to each.

With interventions in other key sectors and dramatic clampdowns on civil liberties to match, Magufuli is driving an alarmingly autocratic agenda in Tanzania. His agenda may transmute into a true developmental state model – which, as seems to be the case in Ethiopia, would depend on funding from China or similarly oriented states. This might disrupt the political economy system enough to allow for institutional development. For the time being, this seems unlikely. Instead, it is likely that Tanzania will see more continuity than discontinuity in the short to medium term as the key features of the dysfunctional institutional equilibrium in the sector do not seem incongruent with Magufuli’s leadership.

VI Institutional Structure of the Tanzanian Power Sector

A Political Economy of Institutional Reform and Power Sector Development

Having presented a narrative account of the institutional development of the power sector, we now turn to consider the underlying political economy dynamics – including various institutional characteristics – that have shaped the sector’s development trajectory and its current dominant features. This section identifies and builds upon a few thematic areas: policy and legislation, transparency and accountability, stakeholder engagement, politics and patronage, and dominant party politics.

1 Policy and Legislation

One of the most interesting aspects of Tanzania’s reform experience has been the disconnect between stated policy and implementation. The government has produced numerous policies on power sector reforms – including internal policies, which are not publicly available – but, with the exception of the 2001 EWURA Act and 2005 REA Act, policy has not been suitably translated into robust legislation. Policy is often vague, leaving the door open to interpretation, as is the legislation that follows. Considerable discretionary powers for political executives, most notably the Minister of Energy and Minerals, are maintained – making little in legislation ultimately binding. There are too few accountability mechanisms built into legislation that could really bring key directives into force. Lacking continuity in sector leadership, with a revolving door in place of committed governance in TANESCO and the ministry, this type of policy and legislation makes implementation unlikely. In addition, there is a more general pattern of miscommunication and weak coordination between ministries, departments, the utility, and the regulator – meaning that internal accountability within the sector is also low. As a result, the president and other members of the political executive continue to wield considerable power over policy implementation, including in areas such as planning, procurement, utility management, and tariff setting.

Assuming that dominant political and economic actors do not have a genuine interest in reforms – implementation would likely disrupt the privileges and resources that the current institutional equilibrium distributes to the already powerful – why does the Government of Tanzania perennially resuscitate the reform agenda?

In this analysis, two explanations emerge. The first relates to the consistent politicisation of the power sector. There are a number of reasons for this, including the (co)incidence of drought, load-shedding, and associated scandal in the years before elections. The second relates to the donor communities’ interest in the sector, which has for over thirty years been identified as a primary impediment to development.

Retrospectively, it is interesting to note that publicly available policy has been released in the years before an election when the CCM will compete with a new presidential candidate (policy 1992 – election 1995, policy 2003 – election 2005, policy 2014 – election 2015), while the non-publicly available variety emerges shortly after elections (1999, 2007). It seems that publicly available policy has functioned as a campaign tool locally, while internal or non-public policy has allowed the government to access aid and loans from external actors, such as the IMF and World Bank – possibly providing new administrations with essential general budget support following elections.

Understood in this way, policy has allowed the incumbent CCM government to reap some of the benefits of reforms without actually implementing them, while continuing to reap the benefits (including those related to rent-seeking) that their effective control over the sector and utility affords. The fact that there is often policy discontinuity between ‘regimes’ (presidents) is a natural outcome, as CCM’s staying power is at least in part dependent on the party’s ability to appear to be evolving in response to the public’s needs and international policy trends. Publicly available/official policy has not provided an adequate base for strong legislation (both in terms of the lack of specificity in policy proposals and the persistence of unresolved ideological discrepancies) and, as a result, the policy–legislative basis for reform has been weak – ultimately undermining implementation. In gauging commitment to reforms, internal policies are certainly not indicative of genuine intentions and public policies need to be understood in the political context.

2 Transparency and Accountability

An important component of the overall rationale behind standard model reforms is that of transparency and accountability. It may not feature prominently, yet most aspects of the model – independent regulation, commercialisation and corporatisation, unbundling and separation of functions – are associated with greater transparency of information and a more dispersed system of accountability. Independent regulators typically provide a bridge between the utility, government, and consumers, and are bound to make information public – whether it be on performance, licensing procedures, or tariff setting. As soon as part of the sector is privatised, as may be the case following an initial public offering, additional laws apply, specifically around accounting and financial reporting, and a more diverse shareholding protects against capture. In an unbundled system, where consumers have a choice of who their power providers are, distribution or retail utilities are held accountable. Meanwhile, IPPs – perhaps in competition with government-owned and operated generation – are held to a certain standard in order to gain a share of dispatch. Increasing the number of actors in the sector means that governance and accountability should improve in general, with diversity in represented interests and more decentralised power dynamics.

In Tanzania, standard model reforms would clearly undermine the status quo – in which, at almost every level, power is centralised, and certain interests predominate, whether they are financial/economic (linked to rent-seeking and clientelism) or political (the government’s desire to maintain power and control over the sector). By resisting reforms, or implementing them only partially, levels of transparency and accountability are kept low. Current institutional rules do not provide enough protection against this. Instead, vertical appointment structures, strict guidelines on sector information and lines of communication, and the frequent application of de facto power by political actors work against the development of decision-making capacity, accountability, and trust in governance structures.

3 Stakeholder Engagement

Stakeholder engagement, or the lack thereof, has been a serious impediment to reforms, and is one of a number of indicators that suggest that genuine political interest in or will to implement reforms has been absent. Though there are examples of stakeholder engagement and public education drives, including public lectures and seminars, engagement has been inconsistent, and political statements around reforms have been contradictory at key junctures, undermining other forms of stakeholder engagement. In the chronological narrative presented, public engagement and discourse around the management contract provides an example of this. At the time of writing in 2017, President Magufuli made inconsistent statements on the issue of IPPs – in some instances stating that private sector participation in generation would be actively supported and then, in others, that all new generation would be publicly owned.

In the short term, inconsistent stakeholder engagement impedes the smooth implementation of reform steps. Over the long term, however, inconsistent stakeholder engagement has undermined the viability of reforms as the possibility of building support for the rationale behind reforms has been eroded. This inconsistency is a common feature of hybrid or dual markets, of which Tanzania is an example, where uncertainty benefits those who are able to use political connections and power to determine key policy, procurement, and planning decisions.

Actors in the sector become disoriented, unsure of which direction could or should be taken. If the ESIRSR or another reform strategy is to be implemented, continuous and consistent stakeholder engagement with a clear message – ideally backed by government and driven by a reform champion – will be crucial in making reforms politically and socially feasible, in addition to strong legislation.

4 Politics and Patronage

Tanzania’s failure to restructure and privatise TANESCO seems inconsistent with the country’s success in privatising the majority of SOEs and implementing other components of SAP-styled market liberalisation policies. This inconsistency can be understood to indicate a number of underlying factors.

The first is that the power sector is of national strategic importance and technically complex. This means that reforms are more politically sensitive and resource intensive than, for example, privatising state-owned hotels.

The second is that the sector is highly politicised and holds a special position in the socialist paradigm, where electricity is considered a public good that the government should provide – both as an input into economic growth and as a social service.

The third is the type of opportunity that the sector provides for rent-seeking and patronage. While privatising certain manufacturing or agriculture SOEs, especially those that were commercially viable, provided an opportunity for the establishment and/or strengthening of an existing economic and political elite class (especially after the strictures on the accumulation of wealth/capital were loosened post-Nyerere), increasing private sector ownership and participation in the power sector would do the opposite. In the current structure, politically connected actors are able to influence decisions in procurement and operations that benefit certain business interests (including shielding business from non-payment of electricity bills or tariff increases) – allowing political actors to ‘buy’ support and/or accumulate resources for political campaigning or to otherwise influence political processes. However, there are other businesses that would want to see change/reform. For the moment, these actors are largely excluded from political spheres, while a small and closely related (often overlapping) group of political and economic actors works together to maintain the status quo. This, to some extent, mirrors the difference in opportunities for rent extraction in the economy, which typically load onto trade, construction, and communication – with industry potentially more competitive and thus more difficult to extract rents from. While everyone has an interest in improving power supply, those with the greatest interest – competitive industry – have less influence and less to offer the clientelistic networks that ‘make things happen’ in Tanzania.

While there is no self-declared anti-reform coalition, it seems likely that a lobby against reforms does exist that coordinates at higher levels, beyond public purview. One example might be found in the ‘reform narrative’ that is presented more or less consistently in the media. When compared with neighbours such as Kenya and Uganda, which have each had their own battles with power sector reforms, the Tanzanian narrative is decidedly more anti-reform in general and there is a lot of misinformation – for example, on the private management contract or Songas – that is repeated across platforms. Given that the press is only considered partly free in Tanzania (scoring 50–60 per cent in the Freedom House Press index, with 100 being least free) and that the government and political parties are seen to use the press media to advance political interests, the persistent anti-reform narrative might be one example of coordinated lobbying. The soft power of controlling the reform narrative and the public’s understanding of reforms (e.g. private sector corruption, foreign interference, pro-profit/anti-poor) is then matched by the political executives’ use of de facto power over decision-making processes. Excepting those that have been exposed in corruption scandals, this lobby acts behind a veil.

Without a dramatic change in government or a change in power between private sector insiders and outsiders, existing patronage networks present a steep barrier to reforms.

5 Dominant Party Politics

Tanzania’s political economy is characterised by the dominance of CCM and its socialist legacy. While the country has progressively adopted a more neoliberal economic stance since the mid-1980s, the political legitimacy of the state and of the ruling party is dependent on the continuation of first President Julius Nyerere’s legacy of African Socialism or Ujamaa. Despite the apparent failure of Nyerere’s model and the economic ideological shift following his abdication in 1985, socialist political ideology has remained embedded in the dominant political culture and paradigm, with the core components of self-reliance and state-led development providing the basis of political identity, along with the practice of paternalistic leadership and autocratic government. Maintaining this legacy is one part of CCM’s strategy in maintaining power.

The other part is also to an extent a legacy issue. Under the stain of economic contraction and the strictures of socialist policies, a shadow culture of rent-seeking, low public service accountability, and clientelism emerged in the later years of Nyerere’s government. This culture became entrenched as economic and then political competition spread following early economic liberalisation interventions and the introduction of multiparty politics in 1992. The incumbent CCM was able to use the state apparatus for rent-seeking in the lead up to the first elections, providing the necessary resources and patronage networks to ensure that the party stayed in power. The political and economic elites were thus intertwined, and their fates have been interdependent since. Patronage plays a critical role in maintaining the current political economy system.

The development of these parallel but antithetical cultures spurred a third culture – one of cognitive dissonance and a common suspension of disbelief around the socialist model of government. While neoliberal economic ideology has been adopted, it has not permeated the political system. And though corruption scandals have exposed patronage networks at numerous points, the paternalistic CCM has been able to undercut formal punitive institutions, using internal disciplinary processes to circumvent the law. This is not to say that the CCM has not encountered opposition. Rather, the socialist legacy and strong patronage networks have – thus far – insulated the party considerably.

Looking at the issue of power sector reforms, it is clear that genuine political will has been lacking. Acknowledging the close relationship between economic and political interests, what makes unbundling and privatisation – among other interventions – undesirable?

First, key components of standard model power sector reforms are antithetical to the legacy of African socialism. The ideal of state-led development stipulates those certain essential industries are government owned or controlled – the power sector is such an industry. The ideal of ‘self-reliance’ is of particular relevance to policy choices – the unbundling and privatisation of the state-owned power utility are seen to be ‘foreign’ ideas. The idea of public goods is pervasive: electricity is considered a public good that should be provided by the government.

Unbundling and privatisation would thus undermine the legitimacy of CCM by eroding the ideological foundation of government. Implementing reforms in the power sector would be like admitting that the government could not provide for its citizens or lead economic development or live up to the legacy of its, and the country’s, founding principles. While full unbundling and privatisation is no longer viewed as a feasible or suitable model for Tanzania, anxiety about these steps – and the expected implications for CCM’s legitimacy – means that structural reforms in general are highly complex policy issues.

Secondly, as explored earlier, the current structure of the power sector provides the best opportunity for rent-seeking and patronage, through centralised and un-transparent procurement processes run between TANESCO and the government. If competitive procurement processes, facilitated by a restructured sector, replaced the current system, there would be little room for the still-underdeveloped local private sector or political rent-seeking.

Standard model reforms would thus limit CCM’s ability (or that of factions within CCM) to use the state apparatus for rent-seeking and/or to establish and maintain patronage networks, which – with the increasing competitiveness of elections – is an important component in maintaining political power. Conversely, if you look at the issue of rural electrification – which has been bolstered by the ‘unbundling’ of rural electrification functions from TANESCO – REA has been able to attract significant resources, create jobs, and benefit certain actors through connecting villages and households (feeding into patronage networks), while at the same time bolstering the government’s socialist image and winning the CCM votes. Institutional change in this area may create new incentives and opportunities in others and has the potential to open the sector to more reforms.

B Political Economy of Institutional Equilibrium in Hybrid Markets

When one approaches the issue of power sector development and reform from a techno-economic standpoint, Tanzania seems to be in a state of disequilibrium. The power utility is financially unsustainable and inefficient, recurrent drought-related crises seem to precipitate reckless short-term decision making with dire consequences for longer-term planning, and sector outcomes are poor – less than 30 per cent of the population has access to electricity, supply is inadequate and unreliable, and a perennial investment crisis undermines already-unrealistic system expansion and maintenance plans. Furthermore, pendular policy, inconsistent political signalling around reforms, institutional weakness, and evident capacity constraints seem to mirror (and thus confirm) a state of institutional disequilibrium.

Yet, from a political economy perspective, there are certain features of the current system that might indicate that this is a distortion – that the very indicators of economic disequilibrium may constitute a feature (and outcome) of a relatively stable institutional equilibrium. Recent work in institutional economics pays a good deal of attention to dysfunctional institutional equilibria – specifically that of Acemoglu and Robinson (2012), as well as exploring the political economy foundations thereof – such as the work on political settlements, led by the work of Mushtaq Khan (2010). Taking this further, we argue that institutional equilibrium might be conceptualised as a constituent part of a larger political economy equilibrium – understood as the relatively stable and mutually reinforcing structural relationships that exist between institutions, interests, ideas, and power, and the dynamic interactions that maintain them. In Figure 8.3, this is captured in the ‘political economy diamond’, which provides a concept map of political economy equilibrium.

Figure 8.3 Political economy diamond

Source: Construct by authors

According to this model, systemic change (i.e. a shift in equilibrium) – which is represented by the central green triangle – requires change at each of the core nodes: institutions, interests, ideas, and power. Significant change at just one of the nodes could bring about a situation of disequilibrium, which is indicated by unpredictable outcomes and can catalyse change at other nodes. However, without change at all nodes, equilibrium will likely be restored – often through the see-saw effect, whereby an effective reform is undercut by countervailing interventions that maintain the overall balance in the system (Acemoglu et al., 2008). A classic example is the intractability of subsidies, which has shown the multiplicity of distortionary instruments that can be thought up to satisfy the same politically powerful constituencies – maintaining power dynamics and incentive structures, often through the utilisation of ideational touchstones (e.g. state-led development through public investment).

The institutional equilibrium identified in the Tanzanian power system is consistent with the experience and outcomes of power sector reforms in many other developing countries, what Victor and Heller (2007) term a ‘dual market’ (also known as a hybrid market model). According to Gratwick and Eberhard (2008, p. 3958), ‘most developing countries […] now have hybrid power markets, with elements from both the old and new industry’, characterised by ‘contested policy and institutional space[s]’. Understood this way, the introduction of standard model reforms, along with the initiation of SAPs from the 1980s and the reintroduction of multiparty democracy in 1992, created ‘new organisations and [interests] that favour an alternative equilibrium – a type of “dual market” that combines elements of a state-centred and market-centred’ system (Victor and Heller, 2007, p. 260). This ‘market’ – and the evolving, accompanying institutional (and political economy) equilibrium – might not be the ‘most desirable in terms of efficient or good governance’, but is a ‘remarkably stable’ outcome (Victor and Heller, 2007, p. 261).

As the literature on hybrid markets would suggest, TANESCO is best positioned to ‘hold’ the weakest parts of the system. The utility’s access to concessional loans and government support (when need be) allows it to do so very differently from the private sector. In the past, this has been to the benefit of those with access to power who were indirectly or directly subsidised by government, for example through suppressed tariffs or politically condoned non-payment (especially for SOEs and government entities). The benefits have been more widely distributed through TANESCO’s support of electrification. While TANESCO is not profit making, it allows for a certain type of rent extraction (procurement) and rent distribution (including jobs and contracts), which is favourable for dominant political and economic interests. The fact that TANESCO enjoys de facto soft budgets and can access state bailouts means that it can be used in this way, while incentives for greater efficiency are relatively weak. Because political power is highly centralised and cadre deployment is part of CCM’s own patronage system, it is unlikely that the government will cede its control over TANESCO. This is true also of planning and policy functions, as well as top-down procurement norms. Meanwhile, TANESCO is likely to obstruct reforms that could disrupt its monopolistic position in the power sector.

In comparison, profit-making IPPs have provided an opportunity for rent extraction on a grander scale – made grander still by the supply-side crises that have been used as opportunities for the political executive’s involvement in procurement. The only IPP that was transparently and competitively bid for, Songas, has been mired in corruption scandals and in the negative narrative promulgated by the government and the media. PPPs, especially those with China, are likely to have provided similar opportunities made easier through some institutionalisation: transparency remains low and there is room for direct political involvement.

EWURA has been one of the most positive reform interventions in terms of improving sector performance. However, there are many challenges raised by the hybrid model. First, EWURA has to contend with the ‘public good’ characteristics of electricity – designated in political rhetoric, policy, and legislation. This makes it difficult to regulate tariffs and state entities, including TANESCO and REA, where their actions are justified by sociopolitical considerations. Secondly, a key feature of the hybrid model is continued political influence, whether it be in procurement with a view to rent-seeking or tariffs with a view to appeasing voters – which makes regulation highly politicised and the regulator vulnerable to censure. Thirdly, there are extreme asymmetries of information between the regulator, market actors, and TANESCO – making it difficult to gauge true costs and calculate appropriate tariffs. These tensions are well captured by Victor and Heller (2007, p. 296), who describe how ‘regulators pressured from multiple sides in pursuit of multiple goals with limited access to reliable information are highly unlikely to produce stable or predictable rules’ that can withstand political pressures.

The hybrid power market is also consistent with other hybrid features of the institutional, and greater political economy, system. Tanzania is considered to have a hybrid political regime (an illiberal democracy), where regular elections are not necessarily accompanied by the civil liberties that would translate into real political competition and accountability. Looking at ideology and policy discourse, Tanzania occupies a ‘transitional’ space between socialism and market-liberalism, except that the direction of transition seems to change frequently. The institutional space is similarly fraught, when one considers the tensions between fundamental institutions, such as the economic institutions fundamental to market-oriented development models (e.g. property rights), and the state-oriented nature of political institutions (e.g. the constitutional designation of far-reaching powers to the president). Much like the hybrid model in the power sector, many of these features are seemingly stable – if dynamic – and have been present since at least the 1990s.

V Political Economy, Reform, and Development – Concluding Comments

This chapter investigates why it has not been possible for Tanzania to move from an institutional equilibrium that does not bring about the desired sector outcomes (investment, system expansion, and improved technical performance) to an institutional equilibrium that does.

It has been argued that the select standard model reforms that have been implemented in Tanzania – the removal of TANESCO’s de jure monopoly, the procurement of IPPs, the establishment of an independent regulator, and the unbundling of rural electrification functions to REA (and SPPs), alongside the political and macroeconomic reforms of the 1980s and 1990s – created a dynamic hybrid model that is supported by and informed by the broader political economy system. Some of the features of this system seem, at face value, to be examples of disequilibria. Yet at a system level there is an unexpected stability – one that has been able to keep CCM in power since the 1960s, perpetuates a deep political culture tied to the ideology of African socialism, and where the tension between informal and formal institutions creates a sort of balance that serves the interests of a highly centralised political and economic elite. Indeed, in terms of predictability and continuity, Tanzania is actually an outlier in the region.

The argument has been made quite strongly that the current hybrid model in the power sector is also relatively stable and, having survived twenty-plus years, may continue to do so. Tanzania provides an example of how such systems do survive – with both positive and negative developmental outcomes. The question is then what sort of interventions or policy options might tip the balance of the outcomes in favour of development and institutional evolution. Regarding insights for policy options, there are a number of standout messages from the literature.

The first is that the effectiveness of policies depends on the matching of instruments with institutional weaknesses and political economy realities. Much of the debate on power sector reforms and development tends to focus on increasing the role of the private sector, on the degree of independence of regulators, on the design of procurement rules, and on the quality of contracts as a key tool to stimulate performance in the sector. These are certainly relevant, but theory and experience also suggest that there might be room for other options which decrease the consequences of the current dysfunctional institutional equilibrium for sector development and work within the political economy system to fast-track its evolution and facilitate positive institutional development cycles. For instance, the potential role of local authorities in the design, selection, implementation, and monitoring of more local solutions to make faster progress in achieving rural access targets or secondary cities targets seems to have been underestimated in the past. However, Tanzania’s experience with SPPs (and enabling regulation) shows that this is a policy option that mitigates the lack of incentives for TANESCO to expand into rural areas and corresponds to the more general pressures of decentralisation currently facing the CCM and government, as well as the long-standing ideological legitimacy of decentralised socialist governance.

The second insight of direct use to the policy debates in the Tanzanian power sector may be that when the institutional equilibrium generates systemic uncertainty in the choice of options, the best is often the enemy of the good. Picking options that limit regulatory failures, initially at least, rather than focusing on the adoption expected to deliver an uncertain high payoff, may be the most effective way of building up institutional capacity, credibility, and accountability. EWURA’s slow and steady development is an example of this. In general, smaller, simpler scale approaches tend to work better in this context, as they are easier to implement and to monitor locally. Moreover, simply trying to adopt solutions designed for other contexts, similar only in technical dimensions but quite dissimilar in terms of political economy, tends to be quite counterproductive. Increasingly, evidence suggests that designing options that recognise local contextualities – political culture, institutional norms, power dynamics, ideology, and interests – is critical to the success of interventions (Eberhard and Godinho, 2017).

A third insight is that, just as there are out of sector determinants of the feasibility and outcomes of various reforms, there are also out of sector interventions that can be leveraged to kick-start, support, or sustain sector interventions. Much of the literature indicates that the most important reforms lie in finance – specifically the application of hard budget constraints on state-owned companies such as TANESCO. Hard budget constraints are typically made possible by increased transparency on subsidies and transfers – which can create political demand and will for financial accountability. Corporate governance is another important area, but should be designed with an eye to political channels of communication and authority. In general, moving the governance of power utilities and state-owned companies to the Ministry of Finance – away from minerals and energy ministries – can support the realisation of ‘better’ corporate governance, as can the partial unbundling or partial listing of a state-owned company. Many of these out of sector interventions, such as standard model reforms, are decidedly against the grain – but, in opportune moments, can make more progress than sector-level interventions.

A fourth insight, for which a case does not need to be made in the Tanzanian context, is building and protecting regulatory institutions. This is especially relevant given the recent transgressions against regulatory independence in Tanzania.

A fifth insight to be considered is that the assessment of the institutional context of the sector needs to account for all actors – not just local actors. For instance, investors will push for short-term returns in negotiations, while politicians are likely to be concerned with the next election and users with their own well-being rather than that of the country. The main point here is that an analysis of the political economy of the sector needs to help the government and other actors understand core features of the local system, but should also consider the political economy of donors and other foreign actors (McCulloch et al., 2017). Over-optimism was mentioned as an issue in the design of the Master Plans earlier, but it is difficult not to wonder why donors are so keen to share this optimism and to continue choosing solutions that do not seem to address local institutional limitations and opportunities. McCulloch et al. (2017) make the case that donors, specifically, have not really been keen or able to internalise the role of political constraints in their own diagnostics and most importantly in their support programmes. These concerns had already been raised by others such as Tripp (2012), Faustino and Booth (2014), and Piron et al. (2016), but McCulloch et al. (2017) add that donors also underuse the margin they have to do so within the new aid modalities, such as the possibility of engaging groups outside government in favour of support. While donors continue to play a big role in policy design in the Tanzanian power sector, this is an issue that has to be addressed.

A final concluding insight is that the political economy lens allows one to identify obstacles and opportunities for reform, evolution, and development. Institutional reform has received special attention in the development literature and praxis because of the way in which institutions shape incentives and determine interests, mediate power dynamics, and give shape to – and reshape – political culture and ideas. However, it is equally important to identify other possible entry points, such as the building of coalitions around certain issues in order to alter power dynamics, or the use public education drives to change the way people understand electricity services. Making the most of such opportunities can drive positive adaptations in the sector, as well as supporting, legitimising, and reinforcing institutional reforms. Indeed, it is the absence of many such complementary interventions – stakeholder engagement, coalition building, mechanisms to increase transparency and accountability, support of free media and speech, strong legal imperatives, and consequences – that helps us to understand the challenges to reform and development in the Tanzanian power sector.

Discussion of ‘Power Sector Reform and Regulation’

Discussion by Antonio Estache

The main purpose of this chapter is to conduct an assessment of the difficulties observed in Tanzania’s power sector as part of a global diagnostic of Tanzania’s institutional constraints on its ability to deliver economic policies.¹² To do so, the author provides an historical perspective on the sector’s institutional evolution, highlighting governance and financing challenges as well as recurring political hesitations on key policy decisions. The diagnostic is extremely detailed, lucid, and honest, and provides enough details to anchor a discussion of additional reform needs.

The diagnostic is also quite humbling in terms of how much can be done at policy design level with ‘standard or imported’ policy solutions. The country suffers from a lasting record of imperfect political and technical accountability for failures to deliver, and these are unlikely to be addressed under highly centralised and standardised ‘business-as-usual’ approaches to sector reform. Tanzania’s political preferences and current institutional constraints do not seem to be consistent with large standard reforms, delivering fast improvements more transparently.

This note argues that the diagnostic presented here implies that unless alternative, possibly unusual, institutional and reform strategies are at least piloted on a reasonable scale, progress is likely to continue to be slower than stated in the Master Plans (including the 2016 plan). It is also unlikely that the sector will achieve the financial autonomy required to finance the needs of the 62.3 per cent of the population without access to electricity (75.5 per cent in rural areas) and of the many businesses rationed in quantity and in quality. To help in the identification of alternatives, the following comments on the chapter provide some suggestions to follow up analytical, policy, and political work.

I Market Context: The Underestimated Demand and Supply Bottom Line

Before discussing broad institutional options to address market and government failures in the design and implementation of energy policies in Tanzania identified by the General Electric Company, it seems useful to highlight the outcome of these failures at the very basic quantitative level. This helps to indicate a sense of the size of the challenge and the specific issues to address, as well as possibly anchoring the recognition of the scope for innovative rather than standardised solutions.

Very concretely, for an observer unfamiliar with the country, the data suggest that the investment level is not the only problem. Investment speed is just as important. Supply has hardly been catching up with a fast-growing demand. Worse yet, the growth of this demand may actually be underestimated. Current consumption is at around 108 kWh/capita. This is only 20 per cent of the sub-Saharan African average.¹³ This is a capacity development and management issue, a major weakness of Tanzania, hinting at a mismatch between the institutional choices and the capacity of the country to design and implement a policy in this sector.

The size of the capacity gap continues, indeed, to be huge. As of 2017, Tanzania had less than 1,500 MW of installed grid generation capacity running at 70 per cent load on average to serve a population of 58.2 million with one of the fastest growth rates in the world (3.1 per cent in 2016).¹⁴ In recent times, demand has been growing at an average annual rate close to 10 per cent, and since investment has not followed, about two out of three Tanzanians do not have a chance of seeing their needs met in the short term under the current technological characteristics of the sector.

It will take ten to fifteen years to close the gap, at least.¹⁵ Since the early 2010s, the successive Master Plans have converged towards estimates of investment needs sufficient to cater to a peak demand of 4,000–4,700 MW by 2025–30. The latest plans focus on rapidly developing gas-fired and coal-fired generation in the short to mid-term (2017–19), while focusing on hydrogeneration capacity in the long term (2019–25) – in a region with a record of droughts.¹⁶ The plans appear to be realistic in theory, but the details available to casual observers do not seem to internalise the lessons from the recurring delays observed in Tanzania for large-scale power projects and the factors driving demand growth. This is a process-related issue that needs to be addressed in the design of reforms.

Progress has mostly benefited urban users. According to the 2016 Energy Access Situation Report, about two-thirds of urban areas have access to electricity. The main beneficiaries of access rate improvements have been the capital city and the upper-income classes and businesses.¹⁷ Technically, they also benefit from the lowest-cost solutions. Cost-effective grid electricity prevails in urban areas, with 96.4 per cent of the households with access to electricity connected to the grid.¹⁸ Grid connection is only available to 34.5 per cent of households in rural areas and, in many cases, the technological choices deliver a load level inconsistent with the willingness and ability of populations to pay.¹⁹

The outcome is a heterogeneity of costs faced by users and a somewhat regressive investment plan timing. Currently, the poor, the majority of the rural population, spend about 35 per cent of their household income on energy, two and a half times what the rich spend.²⁰ This distributional issue linked to both investment costs and timing should be a much larger concern to the various sources of financing supporting the transformation of the sector, given that there is now enough evidence that the decision-making process needs to be revamped to speed up the delivery of energy at a reasonable cost consistent with the preferences of the majority of the population outside of the major cities.

Timing and technological choices drive the investment financing capacity and options. Irrespective of any institutional or policy issue, the physical challenge boils down first to a financial challenge in the short run. The continued backlog, the slow investment speed, and the significant financing gaps are recognised in the 2016 Master Plan update. Various sources mention investment needs of around USD 40 billion investment under current technological preferences.²¹ If this were to be spread over ten years, the high case scenario, it would roughly mean 10 per cent of GDP. This is unrealistic. It means that closing the gap will have to be slower and that the sector needs to consider ways of cutting costs to make the most of the fiscal envelopes to be allocated to the sector. It also means that, unless technological choices are adjusted, it is hard to see how Tanzania will be able to produce enough electricity fast enough to meet its objective of becoming a middle-income country by 2025.²² And this should matter to the assessment of the location and nature of investment decisions in the sector and to growth expectations.

How much scope is there to adjust technological options? Tanzania’s successive Master Plans have long recognised that there are alternatives to the traditional energy sources, and that these are expected to help during the transition to the 2025 access rate goals. In 2016, of the electrified households, about 25 per cent are not connected to a grid – 24.7 per cent with solar power and 0.3 per cent through individual electricity generated from sources such as small generators. But these technological approaches could also be considered for the medium to longer run to cater to the rural population as a way of managing both cost and time preferences. This is a serious option in an environment in which new low-cost technology relying on local renewable options is emerging fast and providing reliable, affordable service.²³

So far, progress in making the most of the alternatives has been slow considering the potential they offer – even if it has been high by sub-Saharan African standards. According to a WRI (2017) report, Tanzania has at least 109 mini-grids (93 operating as isolated), with installed capacity of at least 157.7 MW, but they only serve about 184,000 customers, a far cry from meeting the needs of the 35 to 40 million living in rural areas.²⁴

The growing interest in these alternative technological options has been matched and stimulated by the development of pay-as-you-go solar companies supported by mobile phone companies (MKopa, Zola, and Mobisol). This has smoothed cost recovery through mobile payment systems such as Airtel, Tigo-Pesa, or M-Pesa. Mobile operators have become essential drivers of the growth potential of these alternative providers in rural regions.²⁵

In the short run, these solutions may be seen by some observers as a niche to be exploited to deliver faster in areas unlikely to see the benefits of the investment programmes before the end of the plan period.²⁶ But it is not unreasonable to argue that these solutions should be considered as more than a short-term niche. And the scope to make the most of this option should be included in the assessment of the potential changes in the design of institutions in the sector.

How much are current choices biased by the insufficient analytical support to decisions? For a newcomer to Tanzania going through the recent literature and policy documents available on the sector, it is difficult not to think that there may be a recurring optimism bias in the sector diagnostics used to anchor policy decisions.

First, on the demand side, needs may be regularly underestimated. They seem to ignore the expected change in the purchasing power of the population, which implies much higher income elasticity than recognised by the Master Plan. They also underestimate important details of the consequences of the ambitious economic growth and diversification targets aimed at by the authorities in their strategic development plan. This implies that it may be useful to take a more precise look at the data anchoring the Master Plan. It would be beyond the main purpose of this note to go through a data and methodological diagnostic, but an independent audit of these basic quantitative dimensions would not be an unusual exercise in an environment in which institutional and governance weaknesses may reduce the incentives to take a cold look at the facts. This is what countries such as Vietnam and Laos have been doing since the early 2010s as part of the sector-restructuring efforts, for instance.

Second, on the supply side, there is a common bias in favour of the lowest-cost technologies. This is fine if the assessments are not biased by a reliance on standard financial discount rates rather than rates accounting for the relevance of the time preferences of users. The rate of time preference is relevant to reflect the sense of urgency of regions otherwise expected to stay unconnected for a while. Over two-thirds of Tanzanians seem to have a much higher discount rate than is reflected in standard project evaluations. This matters for the choice of technology since this choice impacts the time of delivery. The relevance of this time preference in Tanzania is actually quite clear from the craving for mini-grids, which reveals a willingness to go for more expensive marginal costs as long as delivery is faster. It would seem useful to consider the differences in investment costs accounting for these differences to see whether the resources allocated to the sector are going to the most cost-effective technology once more realistic discount rates have been accounted for. If the preference for alternative faster options is confirmed in the Tanzanian case, the next challenge is to see how best to internalise these in the institutional design, as discussed in the next section.

II Towards an Actionable Institutional Diagnostic

Walking through the history of the sector as we do in this chapter is both fascinating and depressing as it highlights the recurring character of some of the mistakes and the high degree of politicisation of decisions in the sector. In countries with stronger sector governance, these decisions are usually handled through simple administrative processes designed to cut the risks of capture and distortions, ultimately sustaining and increasing accountability. A few of the issues identified in the chapter, and rephrased here to deal with them more conceptually, are:

• An inability to establish credibility: the repetition of promises unmet for over twenty-five years should simply have been internalised long ago in the design of reforms and institutions and has largely been ignored in successive reform waves.

• The excessive margin given to some agents, both public and private, to bias and/or capture processes and officials/authorities, or to be opportunistic in exploiting policy failures and random weather shocks (most notably in the award of IPPs).

• The inability of authorities to minimise the risk of cream-skimming in the preparation of PPPs, allowing private actors to take the rents from low-hanging fruits, leaving the government with the unmanageable fiscal and bureaucratic burden of dealing with the high-cost items – most notably in the preparation of service obligations and entitlements as well as in the distribution of cost and revenues in the design of IPPs.

• The misuse of tariff reforms, notably when they ignored the fiscal limits on efforts to rely on direct subsidies, or the lack of continuity in the staffing and rules, which tends to be important for key technical and contractual dimensions, even if too much continuity may sometimes increase the risks of capture and corruption.

In sum, conceptually, each of these examples fits into the usual main characterisations of institutional weaknesses: non-benevolence, non-commitment, non-accountability, non-technical, regulatory, or human capacity, and non-fiscal capacity problems.²⁷

The consequences of these weaknesses have been quite well documented empirically.²⁸ They all imply a lower welfare for the country and each has somewhat predictable consequences for the key dimensions of interest in any sector diagnostic – that is, the quantity of service delivered (both in terms of volume and coverage), its quality (which can be either insufficient or excessive), its cost (which can be influenced by the quantity and quality choices), and its price (which is related to costs but may also be linked to the specific regulatory regime adopted).

Table 8.A.1 summarises the likely impact of institutional weaknesses as identified in the academic literature. These are quite consistent with the evidence available on Tanzania. Coverage (i.e. quantity) has been lower than it should be as a result of a combination of the various types of institutional weaknesses (there is no question mark for Tanzania on this dimension). Quality is lower on average, even if it may be better for some users, such as in the large cities. Costs have all been higher than needed in Tanzania as well. Finally, prices may appear to be too low to cover costs, but they are all higher than they should be given the margin there is to cut cost through alternative technological choices and improvements in management approaches. Tanzania does not appear to be different in terms of the institutional weaknesses characterising the sector, based on the evidence available.

Table 8.A.1 Impact of institutional weaknesses on key sector service performance indicators

	Quantity	Quality	Costs	Prices
Limited technical, human, regulatory capacity	?/-	-	?	+
Limited commitment capacity	?/-	-	+	+
Limited accountability	-	?	+	?
Limited fiscal capacity	?/-	-	+	?

Source: Adapted from Estache and Wren-Lewis (2009)

Of course, this characterisation largely focuses on very basic correlations between institutional weaknesses identified and outcomes. Causality often runs both ways. For instance, high costs may limit the capacity to do more with the fiscal resources allocated to the sector. Moreover, interactions between the various types of weaknesses are relevant.

For instance, a lack of accountability is often a good predictor for lack of commitment and hence lack of credibility, which tends to slow down the interest of the average private investor or lender. This may make specific deals in the sector easier in the short run because they focus on the easy transactions, or, worse, governments have to come up with packages that guarantee the low-cost high margins are passed on to private investors while the high-cost, high-risk low margins are left to the public sector without any room for cross-subsidies or risk of mitigation opportunities. But these ‘cream-skimming’ deals tend to be disproportionately more in the interest of specific public and/or private actors than in the longer-run country interest. This is why it is crucial to internalise in the design of procurement practices that the accumulated evidence shows that the tolerance for cream-skimming allowed by weak capacity and weak accountability tends to favour the few and penalise the majority. The biases in favour of Dar es Salaam and of targeted private actors provide good illustrations of this risk.

Note that theory and empirical evidence also explain some counterintuitive observations. For instance, the fact that prices may need to be higher may be consistent with the fact that the various types of institutional weaknesses imply higher than needed risk levels. This implies a high cost of capital, which in turn implies a high average tariff to allow the private investors to recover their risky investment. This is not an easy sell politically, but it can be addressed by making the most of tariff structure adjustment to minimise the social consequences of higher average tariffs, even when the ability to subsidise is limited.²⁹

This conceptualisation of Tanzania’s problems does not simply serve to show that the consequences of the institutional weaknesses identified in this chapter are and were predictable. It is also useful because it allows the identification of institutional adjustments suggested by theory and supporting evidence to reduce the importance of these weaknesses and of their consequences. Once more, it would go beyond the scope of these comments to review the list of possible solutions, but a few of them seem to be particularly relevant to the Tanzanian context.

A first relevant insight is that the effectiveness of policies depends on the matching of instruments with institutional weaknesses. Much of the debate tends to focus on increasing the role of the private sectors, on deregulating, on the degree of independence of regulators, on the design of procurement rules, and on the quality of contracts as a key tool to stimulate performance in the sector. All are of course relevant. But theory and experience also suggest that other institutional dimensions, such as decentralisation or the extent to which mandates are shared within government or across government, may offer additional options. A decentralised energy system is characterised by locating energy production facilities closer to the site of energy consumption.³⁰ In many contexts, this makes it easier to optimise the use of local renewable energy, and, from an institutional viewpoint, easier to reduce the consequences of institutional weakness inherited from history (including legal and constitutional history) or built-in culture, for instance.³¹ This is because decentralised energy systems tend to put power sources closer to the end user. This increases the accountability of the local decision makers and gives them the option of reducing their need to wait for network expansions decided nationally. Whether the local managers are named by the local authorities or are simply local representatives from the national government, the pressure they will face to deliver faster is likely to be stronger than it currently is in Tanzania.³² While these options seem to be realistic and have been adopted by other countries, this chapter suggests that they may not have been considered thoroughly enough in the Tanzanian case. And indeed, based on the information available publicly, it seems that the potential role of local authorities in the design, selection, implementation, and monitoring of more local solutions to make faster progress in achieving rural access targets or secondary cities targets may have been underestimated.

A second relevant insight from the theory and supporting evidence is that when there are multiple sources of institutional weaknesses, a ranking in terms of urgency may be needed. Moreover, particular attention needs to be paid to the impact of any policy across institutional weaknesses because solutions to one problem may make things worse in another dimension. For instance, regulatory capacity limitations argue for higher-powered incentive regulation (i.e. price or revenue caps), while commitment or credibility problems argue for low-powered incentive regulation (i.e. cost plus/rate of return). In the Tanzanian context, a casual observer of the evidence available thanks to the diagnostic presented in this chapter would be more concerned with the commitment issue than with the regulatory capacity problem.

The third insight that is of direct use to the policy debates in the Tanzanian power sector may be that when institutional weaknesses imply systemic uncertainty in the choice of options, the best is often the enemy of the good. Picking options that limit regulatory failures initially at least, rather than focusing on the adoption expected to deliver an uncertain high payoff, may be the most effective way of building up institutional capacity, credibility, and accountability. Smaller, simpler-scale approaches tend to work better in this context as they are easier to implement and to monitor locally, for instance. Moreover, simply trying to adopt solutions designed for other contexts, similar only in technical dimensions but quite dissimilar in terms of institutional weakness intensity or nature, tends to be quite counterproductive. Increasingly, evidence suggests that designing options that recognise local traditions and norms is the way to go, as seen in research on the role of religious norms in the incentive to deliver in infrastructure.³³

A fourth insight to be considered here is that the assessment of the institutional context of the sector needs to account for all actors. Each has its own agenda and each of these agendas is likely to overlap with the others only partially. For instance, investors will push for short-term returns in negotiations, while politicians are likely to be concerned with the next election and users with their own well-being rather the country’s well-being. This chapter nicely illustrates the multiplicity of players, both local and foreign as well as both public and private. However, it may not do justice to the relevance of both national and sub-national players as well as to the potential role of civil society. The main point here is that the analysis of the political economy of the sector needs to help the government look into its strengths and weaknesses, but it also needs to get donors and other foreign actors to do the same. Over-optimism is mentioned as an issue in the design of the Master Plans, but it is difficult not to wonder why donors are so keen to share this optimism and to continue going for solutions that do not seem to address the local institutional limitations and opportunities.

A final insight is that politics is the main determinant of many of the relevant outcomes. This has also been documented in various overviews of experiences of reform in the sector, in sub-Saharan Africa (Eberhard et al., 2016) and elsewhere (Scott and Seth, 2013). The relevance of the political economy of the sector is quite obvious in the overview presented here, and it is perhaps even more brutally stated in McCulloch et al. (2017). What they add is how surprising it is that donors have not really been keen, or able, to internalise the role of political constraints in their own diagnostics and most importantly in their support programmes. These concerns had already been raised by others such as Tripp (2012), Faustino and Booth (2014), and Piron et al. (2016); but McCulloch et al. (2017) add that donors also underuse the margin they have to do so within the new aid modalities, such as the possibility of engaging groups outside government in favour of support. This is perhaps more relevant to donors than to the Tanzanian authorities, but it is certainly relevant to the effectiveness of institutional reforms to improve the power sector performance in Tanzania.

III So Where Can Tanzania Go from Here?

It would be inappropriate for this note to try to make specific suggestions to address the many issues raised in this chapter, since I did not have the opportunity to conduct detailed fieldwork. But it may be helpful to conclude the discussion by arguing that the analysis makes a strong case to support the consideration, in much more detail than the available information suggests, of one specific institutional reform that may be of relevance in the debates on power sector reform in Tanzania. It addresses the underuse of both technological and institutional options (Ahlborg and Hammar, 2014; AfDB, 2015; Ahlborg and Sjöstedt, 2015; Grimm et al., 2015; Moner-Girona et al., 2016; Peters and Sievert, 2016; World Future Council, 2017; WRI, 2017).³⁴ The REA has already been working on its development (e.g. REA, 2016). These insights need to be matched with those produced by the analysis of the potential roles of local communities in the development of Tanzania’s power capacity (e.g. Kaundinya et al., 2009; Goldthau, 2014; Alstone et al., 2015). Experience suggests that decentralisation of power sector decisions can fail to deliver, but it also shows that it can work if homework is carried out to match technology, regulatory tools, institutional options, and institutional constraints (e.g. Peters and Sievert, 2016).

The challenges to get decentralised options implemented in Tanzania are unlikely to be minor given the current political context. But getting ready to make things happen and to go further than simply thinking through the fine tuning of regulation to allow renewable sources to grow seems like a desirable option. In doing so, WRI (2017) argues that it may be a good idea to take a look at success stories such as the one experienced by Bangladesh, for instance. Box 8.A.1 summarises the lessons for Tanzania from Bangladesh’s increased decentralisation of decision processes sustained by national financial and technical assistance used to speed up rural access rates. It illustrates the long checklist of dimensions that need to be taken into account. All of them seem realistic in the Tanzanian context.

Box 8.A.1: Learning from Bangladesh?

The recent WRI (2017) report argues that Tanzania could adapt the Bangladesh experience with the fast development and adoption of renewable alternatives in rural areas. The main insights may be that the policy framework and long-term strategy need to address not only policy and regulation, but also financing, maintenance, and technical assistance commitments.

At the institutional level, it requires a more decentralised vision of the implementation of energy policy in the country than currently considered by Tanzania. This implies local leader and stakeholder involvement and the management of synergies across local stakeholders, including local businesses, parliamentarians, media, and civil society groups.

At the technical level, to diminish the variability of intermittent renewable sources, several renewable energy sources will have to be connected. This implies that Tanzania would be willing to facilitate and adopt the technical and structural changes needed for an energy system only fed by renewable energy. This could be done regionally at least initially as part of a pilot.

At the financial level, Tanzania would have to develop a comprehensive national finance mechanism for individuals, households, and possibly smaller businesses to access funds to invest in local renewable sources. This implies a willingness to develop dedicated affordable credit lines, for instance, as well as monitoring systems to ensure the transparency of funding. It also demands regulatory adjustments to link funding to performance.

At the human level, the approach also implies a commitment to invest in education and awareness of technological and financial options to make sure that the financial options and subsidies find takers, and that the beneficiaries of these support mechanisms are those who need them. This may require some nudging to help local communities make the right decisions rather than wait for options that are unlikely to come fast enough to meet their needs.

Ultimately, at the political level, the approach demands a willingness to adopt a national vision endorsing an unbundling and delegation of some responsibilities as part of an institutional reform of the sector. This may be the most important challenge to achieve the necessary improvements in autonomy and accountability. According to WRI, the challenge is unlikely to be met.

Source: Adapted from WRI (2017)

The adoption of a much more decentralised approach to cater to the needs of rural areas, combined with a large role for local stakeholders and civil society, would not be unusual in sub-Saharan Africa. Equivalent approaches have been adopted by many sub-Saharan African countries in the water sector. Over 80 per cent of the countries in the region have implemented at least some form of shift of responsibilities in the sector to sub-national authorities, although often more in the form of devolution rather than full decentralisation.³⁵ For instance, an increasingly standard element of the institutional framework of the water sector in many countries of sub-Saharan Africa is the requirement for local public participation in water planning, management, and regulatory decisions, as well as consultation with local stakeholders. The role of local authorities in the design and implementation of policies has also increased.

Besides an increased role for local authorities, there are other options that Tanzania could consider in its efforts to accelerate the efficient, equitable, and financially sustainable delivery of electricity in the country. But their discussion would demand a much more technical diagnostic of financial, planning, and regulatory tools than can be covered in this chapter. For now, there may be enough food for thought in addressing the institutional and political issues already identified and possibly arguing for a more thorough follow-up audit or diagnostic of the sector processes and tools available to address institutional weaknesses. More and better analysis is not only possible. It is needed.