The Citizen.co.tz
In this week that led to Tanzania’s celebration of its 50 years of independence, the African scientific community had a week-long conference in Rabat Morocco. It was organized by the Senegal-based Council for Development of Social Science in Africa (Codesria). The theme was ‘Africa and the Challenges of the Twenty First Century’.
As a member of the African scientific community, the author of this article presented a paper titled “The New Normal and Need for Paradigm Shift in Africa’s Economic Development: Lessons From the Challenges of the 2008 Global Financial and Economic Crisis”. As part of his individual social responsibility, he shares in this article the key lessons that African countries in general and Tanzania in particular need to learn from the 2008 economic crisis and the 2011 Euro Zone crisis.
Cash-crunched external markets
The 2008 crisis and the deepening 2011 Euro Zone crisis have resulted in shrinking incomes in the countries that form the greatest market for Africa’s exports. The result is reduced demand for goods and services from this part of the world. This is not good for a continent dependent on external market for its products. Africa’s export to the European Union (EU) ranges from 58.1 per cent (North Africa) to 17.3 per cent (East Africa).
Dependence on external market will also be affected by protectionism that has been practiced as part of responses to the crises. Countries have protected their domestic producers through buying domestic-made goods and services. Protectionism implies that Africa in general and Tanzania in particular may have limited market access to the protected markets. All these call for increased regional trade through various regional economic groupings.
It is also a reminder of the need for domestic value addition through processing. It also calls for increased consumption of domestic-made products.
Donor illiquidity
Africa and Tanzania for that matter has been donor-dependent in its various undertakings. These include in development and at times recurrent expenditure. Donor dependence in Tanzania’s budget has been as high as above 30 per cent. The 2008 global crisis and its Euro Zone version have shown decreasing willingness and ability of traditional donors to give aid. This is due to the fact that they have increased domestic problems to fix as charity begins at home.
These new realities on the ground calls for increased domestic resources mobilization through tax and none-tax sources of revenues. Tax bases have to be broadened, taxes have to be more efficiently and effectively collected, unnecessary tax exemptions and incentive have to be done away with as well as stopping capital flights of various nature. The expenditure side of the equation has to be extra prudent in such times as these of less donor funds.
Low investors sentiments
The 2008 crisis, inter alia, led to reduced foreign direct investments (FDIs) inflows. This is because the credit crunch associated with the crisis dried out the cash that investors could have used to finance their investments. The crisis also made investors more risk averse. The 2011 Euro Zone crisis and the ensuing double-dip recession are likely to have similar impacts on FDIs in general and those from the Euro Zone in particular.
This reality calls for capacity building and empowerment on part of African domestic local investors. This has to be done in a number of ways including training and better environment for accessing to capital. The new reality also implies that Africa and Tanzania in particular may have to look more to the east, including China and India for both investors and aid. But the question is the extent to which the east is resilient and safe to the contemporary economic crises.
Even if it was resilient to the crisis, critics will pose questions to the democracy and good governance questions that Beijing does not ask in Africa. This ‘Dragon of Asia’s’ human right record may also be challenged by some critics. Also troubling for China as an alternative source of investors and aid are the critics’ views that the rise of China in Africa is a new form of colonialism. Governments that are not daring may be afraid of embracing the Dragon of Asia lest they offend the West that is competing with China for geo-political and economic presence in Africa.
Liquidity from the Diaspora
Some African countries especially those in West Africa have substantial dependence on remittances from their sons and daughters in the Diaspora. At times, remittances are larger tan official development assistance (ODA). Remittances have been important part of national incomes in general and foreign exchange earnings in particular for some countries.
The 2008 economic crisis and the 2011 Euro Zone crisis that poses threats for a double-dip recession have reduced Diaspora’s liquidity. Their ability and willingness to remit cash to their motherlands are impaired by their unemployment, reduced hours of work, increased taxes and many other austerity economic measures.
Interventionist states
As part of policy responses to the 2008 economic crisis, governments intervened in the markets. The aim was to correct the market failures. We witnessed an exit of the Anglo – Saxon school of thought and entry of Keynesian economics. The White House replaced the Wall Street.
The concept of self-regulating markets has been tested and proved wrong. There has been substantial move away from free interplay of market forces of supply and demand to interventionist states. However, this state intervention to correct market failures through bailouts and stimulus packages has landed states in huge economic troubles.
They are suffering from the colossal sovereign debts that are shaking the Euro Zone in general and the PIIGS family of countries in particular. The lessons here include the fact that governments, as is for individuals, households and firms, should not consume today as if there is no tomorrow. There is a need to have sustainable and manageable debt levels.As Tanzania moves ahead to the next coming 50 years, it would make sense to learn from these and other lessons.
The author is a senior lecturer, researcher and consultant in Economics and Business at Mzumbe University Dar es Salaam Business School
