In the process of structural adjustment and economic liberalisation, former
strong socialist sub-Saharan African countries are experiencing additional
challenges in their efforts to develop the private sector, compared to those
that had relatively market oriented economies. Tanzania is known for its past
strong socialist orientation. This article assesses the country's effort to reform
the banking system, state owned enterprises, taxation system and the public
services sector, and the emergence of the private sector. Comparisons are
made where relevant with the experiences from transition economies in
Eastern Europe.
Major reforms have taken place in all the sub-sectors, and there is
significant increase in the participation by the private sector in the economy
with increased production. Private banks have increased from zero in 1994
to thirteen in 1998. Over 40 per cent of former state owned enterprises have
been divested, 50 per cent of which were sold. Some are performing well,
contributing to government income and reversing the drain through subsidy.
The taxation system has improved. It now recognises the role played by the
private sector and has introduced new mechanisms to collect taxes e.g.,
VAT, and plugging tax evasion loopholes. Private sector investment has
increased and major developments are notable in mining and tourism.
Although the overall impact of liberalisation on the areas examined has
been positive, significant weaknesses remain, especially in the regulatory frameworks
required to prevent abuses of their position by private enterprises. Both
corruption and an uncertain legal environment inhibit the realisation of
benefits from reform. The ‘trickle down’ of welfare to poorer sections of
society has been inadequate, as has the extension of financial services to small
businesses and rural areas. Further public investment is required, especially
in health, education and infrastructure.