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Tanzania middle income accession, what it means

WAS hinted by the World Bank last year, that sooner than later Tanzania would graduate from Low income economic category to a more advanced lower middle income economic level.

As it’s common to any society built on different schools of thought, this incident drew opposing responses – some chest thumped for the milestone while others loathed the upgrade.

This essay is in no way trying to play a “judge – complainant – accused” role, but to unearth the unseen truths behind this accession and to remind everyone that both, the jubilants and critics, have points that needs to be taken into account.

It has taken 59 years for Tanzania to arrive to the position where it is, a journey that involved trying two distinct economic philosophies – socialism and capitalism – and draw a number of lessons which benefited both the experimenter and outside observers.

From per capita income of around 200 US dollars in the late 1980s – when economic liberalization policies began – to 1,100 US dollars in 2020, no sane person can coldly welcome the tremendous transformation. Apart from policies put in place by hosting countries, foreign investors are highly interested in the purchasing power of the local market.

Consumers with stable income are likely to spend more on products and services made in the particular country than not, and in some cases, the first criterion outweighs the latter. It is a no brainer that Mauritius, with a GNI per capita of 12,740 US dollars stands to be an attractive destination for Nestle processing plant than say, Togo, with 690 US dollars GNI per capita.

An assumption behind is that the consumers in ‘richer’ markets are likely to spend more as they earn more than their counterparts with smaller per capita.

However, it is prudent to put this clear that, this measure doesn’t mean that everyone in Tanzania earns that amount of money per year, or that the Bretton Wood institution arrived to that conclusion after getting every citizen’s bank accounts’ records. Far from truth.

Per capita income is obtained after dividing country’s Gross Domestic Product (GDP) with its population. GDP or national income, as it is referred in some accounts, is a monetary value of all the finished goods produced in the country in a specific period of time.

GDP is yet another confusing measurement as it does not give the ‘redistributive’ picture to anyone who tries to get an individual progress in that particular country. Take this example; Kenya has got a GDP that is currently over 95 billion US dollar, higher than Tanzania’s 63 billion US dollar.

Nonetheless, Kenya supremacy in productivity has little relationship with curbing the poverty rate to majority of its citizens. World Bank statistics shows that the country has 36 per cent of its people living below 1.9 US dollar per day, whereas Tanzania with relatively low GDP and bigger population has recorded only 26 per cent people under a poverty rate.

What happens is that few brands like Azam, Azania and MO can triple their production and end up giving a country a false impression of total progress. So, the cold reception of this development deserves to be taken with a grain of salt since per capita income measurement is a dividend of ‘misleading’ GDP.

But there are challenges which will be associated by this accession that Tanzania has to be prepared to handle. Tanzania is a beneficiary of a number of non – reciprocal trade agreements that offers it a preferential treatments, which includes agreements like EU’s Everything But Arms (EBA) and UNCTAD’s Generalized System of Preferences (GSP).

Taking EBA as an example, a scheme grants all Least Developed Countries (LDCs) a full quota and duty free access to EU Single Market for all products with an exception to arms and armaments. Thanks to this arrangement, our coffee, horticultural products and pulses have been finding smooth landing in European markets for years.

According to United Nations Conference on Trade and Development (UNCTAD) - which has the ownership of LDCs classification mandate – a country will be regarded as an LDC if has per capita income of less than 1,025 US dollars among other criteria.

As of now, Tanzania has already crossed that mark with more than 70 US dollar threshold.

In essence, countries like Botswana, Cape Verde, Maldives, Samoa and Equatorial Guinea, graduated from LDC status and were subsequently removed from EBA’s benefits in years 1994, 2007, 2011, 2014 and 2017 respectively, Tanzania stands be the next loser of benefits offered by the scheme once all the three criteria, have been proved to have been met by the member states.

Besides, we can still have our long sigh, as this is not a knee – jerk response, it may take some time before the UN committee approves the status. For the time being, we got to prepare ourselves by crafting some intelligent bilateral agreements with our major markets and lowering costs of doing business in the country to make our products more competitive.

TODAY’S  article   is  a  continuation  ...

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Author: Zirack Andrew

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