Bank of Tanzania underscores diversification

Bank of Tanzania

Over-reliance on a single market, for example, has the obvious disadvantage that a reduction in demand can adversely affect the economy more strongly than if this is diluted by more stable demand in other markets. The market diversification Index captures each country’s reliance on a particular market grouping with regard to the relevance of that market in world demand for manufactured goods.

Similarly, exporting to more than one country also reflects the country’s ability to compete regionally and internationally as it lessens the vulnerability to external shocks, declining demand and new competition. For a country like Tanzania at this stage of development, diversification appears to be particularly pertinent because the economy depends on only a few products and its manufactured exports are highly concentrated in a few markets.

For example, the Tanzania Industrial Competitive Report (TICR) 2012 shows that Tanzania was ranked sixth in 2010 among the 14 countries, having gained one position since the year 2000. China is at the top in the list followed by South Africa, Indonesia, Malaysia, Rwanda, Botswana and Mauritius. Others in the list which follow after Tanzania are Ghana, Mozambique, Zambia, Malawi, Kenya and Uganda.

“This indicates that Tanzania has recently improved its performance in terms of exporting product mix that is more in line with world demand. However, by looking at the value of the index, it is obvious that the country lies far behind other African countries considered to be role models,” remarked the report.

Both South Africa and Kenya display a substantially more diversified manufactured export pattern which more closely matches world demand than Tanzania’s. In the context of the regional neighbours, Tanzania’s diversification performance is generally better than that of East African Countries (EAC), mainly due to the country’s more limited dependence on the EAC as a major market.

Kenya, for instance, the EAC country with the most diversified manufactured exports structure displays a very high market concentration, with 72 per cent to sub-Saharan countries, positioning it at the end of the market diversification ranking. For example, apart from having low manufactured value whose share of GDP has mostly stagnated at roughly 9.5 per cent between 2000 and 2010, the country is heavily dependent on both traditional and non-traditional exports which sometimes face stiff competitions in the world market.

The MVA is highly concentrated in a few low-tech sectors, making the country’s industry vulnerable to international competition and limiting its ability to improve through learning and innovation. Statistics show that food and beverages alone account for nearly half of the total MVA, followed by non-metallic mineral products by 11 per cent, tobacco 7 per cent and textiles 5 per cent.

The call to diversify is on account of the declining prices of the local made products in the world market. According to the Bank of Tanzania (BoT) economic Bulletin for the quarter ending September, this year shows that the world market prices of major commodities with exception of tea and white petroleum product including Jet/Kerosine and Premium Gasoline declined.

The bank report reveals further that the price of coffee declined due to an anticipated increase in production in Brazil and Vietnam following good weather. Likewise, expectations of cotton bumper harvest in China and weak global demand by textile manufacturers contributed to the decline in the price of cotton. Furthermore, the price of cloves decreased mainly due to expectations of an increase in global output.

The price of tea increased on account of a decline in supply following unfavourable weather conditions in Kenya and Sri Lanka. During this period under review, the total value of exports of goods was 1,355.2 million US dollars (over 2tri/-) compared to 1,273 million US dollars (about 2.04tri/-) recorded during the quarter ending June 2012. The increase was on account of improved performance of nontraditional exports.

However, during the quarter under review, the value of imported goods increased to 2,697.4 million US dollars (4.32tri/-) compared to 2,524.8 million US dollars (4.04tri/-) recorded in the previous quarter. All import sub-categories with the exception of industrial raw materials, food and foodstuff recorded increases.

It is therefore important for policy-makers to keep in mind that the best strategy for a country is always to respond to world demand, but also to ensure that the country is not too vulnerable because its export basket depends on very few products.