Tanzania is a success story: rapid and sustainable growth (over six per cent since the late 1990s) with huge natural resource assets from arable agriculture lands to mines, and now natural gas and perhaps soon oil.
Prospects are bright, with several observers such as the MIT Observatory of Economic complexity or the Economist featuring Tanzania as one of the most promising countries in the world. All this is true but not necessarily for everybody living in Tanzania.
Ask Tanzanian rural households – as many as 30 million people or about 75 per cent of the total population.
The vast majority of rural households live today like their parents did or even their grandparents.
They have no electricity (96.6 per cent of total rural population), no refrigerator (99.2 per cent), no television (96.4 per cent), no motor vehicle (96 per cent), no bank account (92.8 per cent), and live in houses with no concrete floors (80.5 per cent) and no concrete walls (94.2 per cent). (Source: 2010 National Panel Survey)
The challenge is how to include rural households in the growth processes so they can improve their living conditions.
The most direct way to escape rural poverty is to move to cities. Dar es Salaam is now considered as the ninth fastest growing city in the world.
Migrants have a high probability to find a job in the next five years after their arrival (those who migrate tend to be more educated and driven than the average), much higher than urban non-migrants or those who stayed in the countryside (Source: L. Fox and J. Kweka, World Bank, 2011).
The existing large divide between the urban and rural worlds in terms of expected income and access to basic services has and will continue to feed the rapid migration flows toward urban centres.
Today, the average urban household has 13 times more chances to be connected to the national electricity grid, 2.7 times more chances to have access to piped water, 5.4 times more chances to have a bank account, and 10 times more chances to complete secondary or higher education.
The second answer to the challenge of reducing rural poverty is to increase rural incomes. Their main activity is farming and therefore they need to get more from it.
Unfortunately, their level of production (in tonnes per capita) has stagnated since the early 1980s, and their productivity is on average one of the lowest in the world (see graphs).
What can be done?
Agricultural production per person (in tonnes) has been flat and productivity is one of the lowest in the world (Source: www.faostat.org).
For many years, and still for many players, the solution has been to attempt to provide cheap inputs to farmers. True, most of them do not have the capacity to purchase fertilizers or use tractors. As a result, the Government (supported by donors) has struggled to find cost-effective mechanisms that would provide better inputs to poor farmers.
These attempts, not only in Tanzania but also in most cases elsewhere, have globally failed to make a difference because the Government’s failure is often larger than the market failure (source: L. Pan and L, Christiaensen, World Bank, May 2011).
Such systems suffer from political capture and benefit farmers who already have the means to afford the inputs. More importantly, they fail to address the main issue. Why would a farmer use a fertilizer and increase his production if he is not able to sell it? Today, in Tanzania, 3/4 of maize production or half of paddy do not leave the farm gates.
The main obstacle to agriculture production is the absence of connectivity.
Physical isolation is clearly the obstacle since on average a farmer is 37 kilometres away from the closest market place (source: 2007 Household Survey).
Rural roads are in most villages inexistent or in bad shape. Transit times are excessively long because of weighbridges and multiple controls.
Farmers are paying in transport costs two and four times more in Tanzania than in Uganda and Kenya (source: Tanzania Growth Diagnostic, partnership for growth, 2011).
Worse, the low volume of commercialization prevents the emergence of economies of scale that are necessary to attract middlemen and bankers.
The obvious response is to build, rehabilitate, and maintain rural roads. Various studies have shown that they offer among the highest rates of return for public investment (See, for instance, Fan S et al., Uganda and Tanzania: Pro-Poor Public Investment, Escapapa and IFPRI, 2006).
Farmers need investments, not subsidies and the Government could finance about 1,000 kilometres of paved roads or 5,000 kilometres of unpaved rural roads with the annual budget spent today on subsidy programs (about $100 million per year).
Public investment in rural roads however needs to be strategic and focused during a first phase, in locations where they expect the largest short term impact to consolidate support for the reforms. Financing rural roads need not all come from the government budget.
Partnerships can be forged with big farmers, large enterprises operating in the countryside (such as mining companies) and neighbouring countries that will get concrete benefits from an improved transport network (for major corridors including railway and maritime/lake transport).
Beyond the hard infrastructure, the Government can eliminate the numerous roadblocks and non-tariff barriers that slow down transport and trade.
Many of those obstacles (small taxes, fees, cess, etc…) are hard to remove because they help finance local governments and communities.
The central government could help alleviate this problem by setting up a competitive fund that would reward local authorities who most effectively fight non-trade barriers. Such competition-based approach could also be implemented within EAC to stimulate cross-border trade.
Improving farmers’ connectivity should be the starting point but it is probably not enough. How can farmers adopt more productive farming methods?
Here the Government can help push two new models emerging from the private sector.
The first is based in the booming cellphone industry, including in remote areas (40 per cent of rural household reported to own one in 2010) (source: 2010 National Panel Survey).
This offers the opportunity to do business differently. Farmers can access information from private and government sources (for example prices, climate, farming advice, etc.) using their newly found virtual connectivity
Recent experiences, including in the Rungwe District, have shown that farmer’s income are boosted simply by better access to information that give them an improved capacity to sell at better prices (source: G. Mwakaje, Information and Communication Technology for Rural Farmers market Access in Tanzania, Journal of Information Technology Impact, vol. 10, n.2, 2010).
Cellphones are also increasingly used to send and receive money. This can allow timely payments to farmers. It has also already boosted remittances, which count now for half of rural households’ monetary income in some regions such as Kilimanjaro.
The second model is the so-called contract-farming between small and large farmers or wholesalers.
The idea is that such contracts could be win-win by enabling transfers of technology and market access to small farmers, and by providing a larger scale of production to large farmers.
The key is to set appropriate rules. The small farmers will get, for example, better seeds and fertilizers if they sell their crops to wholesalers that will guarantee them a fixed income and better living conditions.
Such contracts have been successful in a bunch of developing countries and seem to have worked efficiently in the tobacco sector in Tanzania, and on a limited scale in other farming sectors as well. But they have been applied to only one per cent of farmers in the country.
The Government can play a dual role; first it can monitor these contracts, and second enforce penalties if the rules are not applied correctly by concerned parties.
They can also create or stimulate appeal mechanisms by third-parties. The obvious power asymmetry between small and large farmers calls for a close monitoring.