DOCUMENT OF INTERNATIONAL MONETARY FUND AND NOT FOR PUBLIC USE

Ir. Joseph Gold

(1)
Room 305
EB/CM/Zanzibar/64/l
1111
March 19, 1964
To: Members of the Committee on Membership - Zanzibar
From: The Secretary
Subject: Zanzibar - Calculation of Quota
Attached for consideration by the Committee is a
calculation of quota for the Republic of Zanzibar
Att: (1)
Other Distribution:
Members of the Executive Board
Department Heads
Division Chiefs


DOCUMENT OF INTERNATIONAL MONETARY FUND AND NOT FOR PUBUC USE
INTERNATIONAL MONETPl{Y FUND
Calculation of Quota for the Republic of Zanzibar
Prepared by the African Department
(In Consultation with the Legal Department and
the Office of the Treasurer)
Approved by J.V. !{ladek
The Government of Zanzibar applied for membership in the Fund in
a letter dated December 18, 1963 (EBD/63/l40). became a British
Protectorate in 1890 with the Sultan ruling under the direction of a
British Resident. Cn December 10, 1963, Zanzibar became an independent
Sultanate. On January 12, 1964, the Sultan was deposed and the country
declared a Republic.
1. Background Material on the Economy of Zanzibar
The Republic of Zanzibar consists of two islands off the coast of
East Africa: the Island of Zanzibar, 1'lhich is 22.5 ll1iles from the mainland
''lith an area of 640 square miles, and the Island of Pemba, 25 miles to the
north of Zanzibar with an area of 380 square miles. The combined popula-
tion of the two islands is estimated at 320,000, of which Zanzibar Island
accounts for some 180,000.. Africans constitute the largest racial group
in the population (170,000); Arabs number some 60,000; the remainder
consists mainly of Asians, Ccmorians and a few hundred Europeans. Zanzibar
Tov.m, the capital and the only important commercial and shipping cent.er,
is by far the largest city. The standard of living is low; per capita
gross domestic product is estimated at about 35 ($98.00) in 1961.
Zanzibar's economy is largely dependent on the prcduction of cloves
and clove oil. These cClYilllodities account for over 80 per cent of agricul-
tural exports and nearly 30 l)er cent of the gross domestic product. The
other eXpoTt product of some importance is coconut s The main pro-
ducts of the SUbsistence sector are rice, sugar cane, tobacco, cattle,
goats, bananas and citrus fruits. Cloves as vlell as coconuts are ,grovm
on plantations or in small holdings GVlned either by the government or by
indi vi duals.
The manufacturing and construction industries account for only 5-6
per cent of the gross dc:sestic product and consist nainly of the processing
of clove-oil and coconut-oil, and the manufacture of soap and coir. The
chief handicrafts are basket c_na mat Heaving, 170 odT,..;crk , embroidery,
pottery, fishing gear metal vJorl{. In recent years fishing has beco:rne
an increasingly important economic 2ctivity.
- 2 -
In 1960 Zanzibar had 387 miles of roads, of which 276 miles were
asphalt surfaced; comparable figures for Pemba w"ere 227 and 81 miles.
Zanzibar Toitffi and Pemba have local airfields. The port of 'Zanzibar handles
betvleen 700 and 850 ocean stearners yearly, though its facilities are
limited and not as modern as those provided by Mombasa or Dar-es-Salaam
on the mainland coast.
Zanzibarts principal exports are cloves and clove-oil, copra,
coconuts and coconut oil. Its imports consist mainly of machinery and
electrical apparatus, cotton piece goods, motor vehicles, motor fuel, food,
beverages and tobacco. Nearly 50 per cent of Zanzibar r s exports go to
Indonesia and India. The United Kingdom supplies about 20 per cent of
its imports; East Africa (Tanganyika and Kenya) supplies a further 15
per ce"nt. (Import and export figures for recent years are shown in
Table 2).
Zanzibar's economy has been depressed since 1957, but signs of a
slight recovery became apparent early in 1963. During this period, the
gross domestic product has fluctuated betvleen a high of 12.1 million
in 1960 and a lov.T of 10.5 million in 1958. The value of the clove
crop fell from 3.9 million in 1957 to 2.5 million in 1961. It
dropped further in 1962, but then showed some recovery in the first balf
of 1963. Realizing the danger of depending on one crop, the government
has recently embarked on the diversification of agriculture by intro-
ducing the more prof'i te,ole tropical crops of cocoa and citrus. It bas
also made a concerted effort to develop the tourist industry. A
Zanzibar Deve"lorment Bank, primarily concerned vlith agricultural finance,
is to be set up at an early date.
2. The Monetary and fiscal system
Zanzibar belongs to the East African Currency Board's monetary
area 1"hich was described in detail in EB/CM/Kenya/63/1. The Board
estimates that its currency circulating in the t'\Vo islands amounts to
only 3 1/2 per cent of its tote.l circulation in East Africa. On June
30, 1963 circulation in Zanzibar v.las estimated at a little over 2
million; this compared \vith nearly 19 million in each of the three main-
land territories of Kenya, Uganda and Tanganyika.
COIlli'nercial banks operating in the Republic are branches of foreign
banks responsible to regional offices in Nairobi, Kenya. Betvleen
1957 and 1961 demand deposits rose by 70 per cent from less than 2.5
million to over 4 million; in 1962, hc-vlever, they fell by nearly 32
per cent to 2.8 million. In the same period, loa.ns and advances
(mostly to agri culture) rose b ~ r ever 15 per cent to a high level of
over .4.5 million in 1961, but then fell sh8.rply to only 2.5 million
in 1962. These sharp drops in deposits and loans and advances in 1962
1,rere due to the political uncertainty in East Africa viThich gave rise to
a general out-flovl of capital in the entire area. Post Office savings
deposits have been declining ste8_dily since 1957.



- 3 -
Government budget has increased frem 2,382,400 in 1958 to 3,247,000
in 1963. revenue and expenditure are shown in Table 3).
The deficit increased from 148,000 in 1958 to over 1.4 million in 1959;
in 1963 it was reduced to the still sUbstantial figure of 450,000.
No information is available on the manner in which these deficits 'were
financed. The major source of revenue is customs, which, on
the average, accounts for over 66 per cent of total revenues. Public
works, education and health are the major categories of government
expenditures, with expenditures on education rising at a faster rate than
the other tvlO.
3. Range of Suggested Quota
A computation of Zanzibar t s quota according to the Bretton Hoods
formula has not been attempted since no foreign trade data for the period
1934-38 and no national data for 1940 are available
The most recent available data on foreign trade, national income
and population of Zanzibar and a number of small member countries are
shown in Table 1. A comparison of these data suggests that the small
quota policy ,'lOuld apply to Zanzibar and a quota in the range of $7.5
million to $11.25 million ,\vQuld, therefore, be appropriate.
4. Gola Subscription
Like the mainlanct territories of Tanganyika, Kenya and Uganda,
Zanzibar has no independent currency of its 0''111; the reserves that
support its currency in circul2.tion are held by the East African
Currency Board, the currency issuing authority for the four
countries in addition to the Protectorate of .Aden. The Currency Board
has earmarked a small part of these assets for its constituent territories
to be used by them to'\-"ards the payment of their subscriptions to inter-
national institutions such as the International Monetary Fund, viThen
they join these institutions; the Board has already ma,de gold subscrip-
tion payments on behalf of Tanganyika, Uganda and Kenya.
If the assets of the E8st African Currency Beard vIere distributed
among its constituent members, it is assumed that this i;Tonld be
based on the proportion of its currency circulating in each constituent
member territory. The Board's estimate of currency in circulation in
Zanzibar has been fixed at approximately 3.5 per cent of the total
circulation. Assurning proportionate distribution of the various assets
of the Board, it might be expected that Zanzibar t s share vJould include
3.5 per cent of the Board t s tote.l cash and short-term convertible
currency holdings.
Based on the principles set forth in Article III, Section 3(b)
of the Articles of Agreement, Zanzibar might be expected to }:lEy in gold
the lesser of (c,) 25 per cent of its qu.ota, (b) 10 per cent of its
net official holdings of gold and convertible currencies. Since
Zanzibar's share of the gold &nd convertible currency holdings of the
- 4 -
East African Currency Board (excluding those earmarked for constituent
territories) has been estimated at 3.5 per cent, 10 per cent of this
amount 1'Jould equal .35 per cent.
It is therefore r e c o r r ~ e n d e d that in respect of the gold sub-
scription Zanzibar be required to pay the lesser of (1) 25 per cent
of its quota or (2) the sum of (a) 10 per cent of the net official
holdings of gold 8.nd convertible currency of Zanzibar as at the date
that Zanzibar makes the representation to the Fund that it has taken
all action necessary to adhere to the Articles of Agreement; (b) 10
per cent of the gold and convertible currency holdings of the East
African Currency Boe.rd earmarl\:ed for Zanzibar as at that date; and
(c) .35 per cent of the gold and convertible currency holdings of the
East African Currency Board (excluding those earmarked for constituent
territories) as of that date.




- 5 -
Table 1. Foreign Trade, National Income and Population of Zanzibar
and of Selected Member Countries
National Population
Fund Quotas Average 1960-62 Income or (latest
Pre-1959
Present Exports Imports Total related
l
! available
t,:'
figure)
concep ..
(In millions of US dollars) (In millions)
Zanzibar
13 15 28 31 (GDP 1961) 0.3
Panama
05 05 37 149 186 318 (NI 1958) 1.1
Laos
75
1 18
1
9
?J
171 (GDP 1956)
19
Gabon 7.5 44 31 75 65 (NI 1956) 0.4
Cyprus
11.25y 54 117 171 174 (NI 1959) 0.6
El Salvador
75
11.25 127 118 245 490 (GDP 1959) 2.5
Haiti 7.5 11.25 36 41
77 327 (GDP 1955) 3.5
Honduras 7.5 11.25 72 75
147 308 (NI 1958)
19
Iceland 1.0
11.254/ 68
84 152 188 (GNP 1960) 0.2
Jordan 3.0 11.25- 11+ 122 136 140 (l'IDP 1954) 1.8
Nicaragua 7.5 11.25 66 81 147 188 (NI 1957) 1.5
Paraguay 7.5 11.25 30

7
0
?}
181 (NI 1960) 1.8
Liberia 11.25 69 50 119 112 (NI 1957) 1.3
Sierra Leone 11.25 74 83

1957)
2.4
Somalia 11.25 20 29
4 2/
/ (NI,.1958) 2.0
Togo 11.25
15 19
3
4
y
140 (GDP 1956) 1.4
Burundi 11.25
1 L,
17 132 (GDP 1961) 2.3
- ... 31y
Rvlanda 11.25 14 17 31 108 (GDP 1961) 2.7
Sources: Il\:fF, Interpational Financial Stati stics ; United Nations,
Yearbook of National Accounts Statistics, 1960 and Monthly Bulletin of
Statistics.
1/ Latest official estimates as reported by the United Nations or
other official estim&tes converted into US dollars at official exchange
rates prevailing in the year to vlhich the figures refer.
2/ Average 1958-60.
3/ Has requested quota increase to $20 million.
Tjj Maximum to i1hich quota is to be increased in installments.
5/ St&ff estim&te.
1961 estimate.
- 6 -
Table 2. Imports, Exports and Balance of Trade, 1958-62
(In thousands of pounds sterling)
L"'11ports
1958
5,208
5,064
Visible Balance - 11+4
of Trade
1959
4,635
- 734
1960
5,238 5,491
5,614 i ~ ,400
+ 376 -1,091
5,318
4,519
- 799
Source: East African Conw.on Services Organization, Economic and
Statistical Revie1'T, No.7, June 1963.




- 7 -
Table 3. Govermnent Revenue and Expenditure
(In thousands of pounds sterling)
1958 1959 1960
19
61
/
62 19
6
2/63
11
1963/64!i
Revenue
Expenditures
Surplus or
Deficit
2,382 2,255
2,531 3,674
- 149 - 1,
2,573
2,525
+ 48
2,618 2,509 2,787
3,142 2,992 3,247
- 524 - 483 - 460
Sources: Estimates of Revenue and ture of the Zanzibar Protec-
torate for the year UN Report of the Secretary-General,
African and Adjacent Territories: A/5078/Add 2, March 21, 1962.
11 Estimates .


Mr. Horne. Hareh 13, 1964
Prank A. Southard, 31'.
Zanzibar: Committee Chairmanship
tbe Managing Director and I have seen your memoraa4_ of lfaro 12
and we botD feel that Mr. Heamann has a real problem an4t'llat "* .ught
'to Delphia solve it. Wouldn't it be fairly easy, since be i.e 1 .......
and. t.here would be a new German Di.rect.or, for him to tellve"'"t. Ita
would like to avoid leaving a committee chairmanship for Mr .... 11,-.
since. be would be unfamiliar withprecedures in the Fund on -tbeH -.. 'Dr..-,
and that he would therefore appreciate it if another ch .. irmart 141Je
name.d Defore he leaves. You eould tbenfind an.therch .. lr .......... t1,.,
the Board that Mr. Ranemann had asked to be reI laved of the <elull .... 1\l'
in view of his ~ i n e . n t departure.
It would be useful to find 8. chairman fairly remotefr.m Z..-i'Dar
problems who then might be willing to help U8 work out the aatter'mantic_d
in my previous memorandum
cc: .,/Mr. Gold
Mr. Mladek
FASouthard:brs

/1
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