First Three Year Plan - 21% was local funds. Out of the local funds 80% were to be in the form of internal borrowing with the remaining 20% consisting of contributions made by local authorities. » Local taxation had very little or no role in this scheme. At that point the recurrent budget was dependent on external grants. » The TYP as it was at the transitional period between colonialism and independence could not adequately reflect the thoughts of the subsequent independent government.First Five Year Plan (FFYP) 1965-1969 Therefore, the government hired a team of French planners to draft a new plan which was submitted in May 1964. The first comprehensive statement of the country’s economic policy after independence was contained in the FFYP for economic and social development. This plan was more ambitious than the TYP aiming to bring about far reaching economic growth with focus on increasing agricultural production and industrial development. age Leading objectives of the FFYP (i) to raise per capita income from GBP 19.2 of — 1960/62 to GBP 29.3 in 1970 and to GBP 45.1 in 1980. (ii) The implied real growth rate was 6.7% and population growth rate was 2.1% FYDP agenda Human resource development Aimed to guarantee skilled H/R in various sectors of the economy Attainment of self-sufficiency in skills at all levels by 1980_FYDP agenda Universal Primary Education (UPE) Matching growth of secondary and tertiary education and H/R requirements Eradicating illiteracy though literacy programmes On this basis, the first aim on sectoral investment and output target were determined to be achieved within a changing structure of national production as seen.Table |; Com (1960-62/80) | SIN Tem Position of GDP Menge 18608 Lena BOtaqa | L- Primary production 60.0 500 330 (including mining) 2 Secondary activities BO 194 267 in 40 13 33 56 63 TL 63 34 56 | 70 306 43 0 | TOTALGD?_ ran EE Se2.The 2rd major aim of the FFYP was attainment of self-sufficiency in Professional and other _ trained HR by 1980. Be oo This led toa HR approach to educational _ planning being taken, emphasizing fast expansion __ iM secondary and Post secondary education _ 3.The 3rd aim was to raise average life __ ©xpectancy from 35-40 years to about 50 years | by 1980 _~ This was to be done mainly through reduction in infant mortality and stressing on com| /- and preventing medicine. 5A Expenditure » Total development expendialre was planned at TZS 4,920 million. -» Of which 52.2% was to be provided from foreign sources and 47.8% from domestic sources. » Central Government development expenditure (che bulk of public sector capital formation) was to be 78% externally financed while only 22% was internally financed. - However, local taxation was still un-emphasized, and in general MONETARY AND FISCAL instruments were assigned a minor role in the implementation of the planeee Two key features of the FEYP _ As far as development finance was concerned 2 _ features can be isclated: |. There was heavy reliance on foreign capital brought by the goodwill in international relations typical of the early period of independence. | © 2. Avery important role was assigned to the private sector. - |t was expected that the 14,8% annual growth in industrial output would be achieved largely through private initiatives partnered by Natianal Development Cooperation (NDC)» The private sector was expected to contribute % or 75% of the planned capital formation in industrial activities - The plan was heavily biased towards social and economic infrastructure which was allocated 45% the total. » However, in contrast to the TYP allocations to the major directly productive sector agriculture and industry were 15% and 21% respectively _ This period also saw the first active state promotion of the Import Substitution Industrial Strategy (ISI). The govt encouraged private investment during this periodimport Substitution (IS) Policies - These are policies that attempt to reduce foreign dependency of a country’s economy, through local production of food and industrial products. _ IS policies advocates replacing imports with domestic production of goods, mainly industrial products therefore a country should attempt to reduce its foreign dependency through local production of goods. _ IS policies enables countries to become more self- sufficient and less vulnerable to adverse terms of trade.“a Import Substitution (IS) Policies ~The Is Strategy is often complemented with state led economic development through nationalisation, subsidization of vital industries and agriculture. » Such regimes are characterised by highly protectionist trade policy. » All countries which industrialized, went through a stage of IS in which investment in industry was directly to replace imports. This policy promotes industrialization and protects industries until they reach a level of development and are able to compete in the global market.iB rt is policy is also termed “infanc industry” where Industries in their infancy are protected until they ave grown and are strong to withstand Advantage An rease in domestic employment and resilience __ in the face of global economic shocks. Disadvantage ISI create inefficient and obsolete products as they are not exposed to international competitionossible BoP problems, due to need to import raw aterials, machinery and Spare parts. de protection and overvalued exchange rates aised domestic prices and made exports less competitive. This resulted IS industrialized countries were unable o export enough to buy the imports required. As the economy grew more imports were needed, but exports could not generate enough forex to _ keep the pace of imports resulting countries to run out of foreign currency.EES Governments response ~ Restrict imports to essentials » Devalue the currency which raise the price of imports and made exports more attractive Subsidize industrial investment Printing more money to cover budget deficits as govt spending outpaced govt revenue Resulting inflation which made domestic goods expensive which in turn reduced exports further.In 1965, there were 569 manufacturing establishments employing |0 persons or more of which over one third came into existence after independence. Elements of ISI and diversity were noticed in the metal products which were producing only metal containers, Diversification led to production of aluminum sheets, screws, nails, wire, enamelware and razor blades. Sl also took place in paper, glass, printing and »od products.In 1965, there were 569 manufacturing establishments employing 10 persons or more of which over one third came into existence after independence. Elements of ISI and diversity were noticed in the metal products which were producing only metal containers, Diversification led to production of aluminum sheets, screws, nails, wire, enamelware and razor blades. \St also took place in pa od products. oY per, glass, printing andRegional trade » Regional trade imbalances led to Negotiations between Tanzania and its neighbours and the eventual signing of the Kampala agreement in 1964 aimed at restructuring the distribution of industries across the East Africa region to attain a degree of equity among nations. Ownership of means of production however, remained in foreign hands such that by 1965, an overwhelming majority of industries set up prior to and during the TYP remained in foreign hands. Peter reserForeign owned companies concentrated on the capital intensive production of such items as non- metallic mineral products, repair of machinery and manufacture of metals and metal products, tobacco, textile, -ement, radio assembly, diamond uttingIdeology shift - Tanzania’s ideology shifts in the latter half of the 1960's which led to an adverse appraisal of both the TYP and FFYP.over their failure to PROMOTE LOCAL OWNERSHIP of means of production. The failure to promote a product mix under TYP and FFYP had hindered diversification and slowed down broadening of the ymestic industrial base.Economic Performance | 961-1966 Real GDP at 5.7% per year Contribution of agriculture average 53% of GDP annually; manufacturing sector 5.3% Per capita income grew by 2.7% annually Capital formation increased steadily with favourable BoP and stable prices 0% of all exports were from traditional cash crops (coffee, sisal, cotton, tea, cashewnuts)| Challenges faces ~ Lack of Policy articulation on how the growth was to be shared within the society Whereas there was a strong emphasis on growth, little attention was placed on the issue of equity and social justice, This was a period of economic growth but without poverty reduction and the gap between the rich and poor widened.The macroeconomic policies of the Government in 1971 there was an overall budgetary deficit of | 2.6% of monetary GDP. and this has gone up to 21% in 1980-82. |. The deficit was financed in 3 major ways. (i) Foreign financing (ii) Domestic financing (iii) Domestic non-bank borrowing (bonds etc) During 1970 the role of foreign financing became increasingly important. External loans and grants were 33% of the Development budget in 1971.Foreign exchange crisis -gricultural exports (and their local processing e.g the ginning of cotton), Import squeeze was therefore also hitting The impact of this foreign exchange crisis was thus much larger than as shown by the deficit in current external payments. \c was putting the operation of development ojects in jeopardy, not only in production but a in social sector like health and education. e means available for the maintenance of ro ' ort equipment were also veryForeign exchange crisis The pattern of development between the 1970- 1980s had created, large industrial base (ISI) which was heavily dependent on current imports. Actual industrial production in the early 1980s as a share of GDP was about the same as 10 years earlier (10%) due to low capacity utilisation only 5% as a result of lack of IMPORTS. Through the use of fertilisers and fuel especially for transport, agriculture had also become jependent on imports.Foreign exchange crisis Ac the beginning of 1980's most of TZ’s own foreign exchange earnings — from its export were spent on OIL and FOOD which took up to 80% of export earnings. This was the emergence of Foreign exchange crisis. shows declining exports and imports, and a articular severe squeeze on imports not ! to oil, food and aid financed new =CtS. fei we tt iForeign exchange crisis Basic import items in 1980-82, after oil and food were equipment and machinery for industry, agriculture, transportation and other sectors, together with current inputs and spare parts. The high share of external borrowing and aid in the financing of imports almost © of the value of imports - meant that a large part of imports was tied to specific new projects, particularly in industry.Foreign exchange crisis Av the same time the STRUCTURE OF OIL IMPORTS rose from 7-8% to 23% of total imports in 1980-82. Expenditure on food imports also increased during the period. Partly due to drought, in 1980-81, food imports were about 10% of total imports. From the early 1970s imports of consumer goods sre kept very low —increasingly leaving the shops with empty shelves, apart from Chinese goods as -t of the financing of the railway to Zambia.SS‘ Foreign exchange crisis » While exports at the early of the 1970s were able to pay for 75% of imports, their share in the financing of imports had fallen to 45% by 1980-82. » The other sources were various forms of official development assistance (loans and grants), suppliers credit and arrears, i.e.an accumulation of unpaid bills. Tanzania's foreign exchange reserves were also almost depleted, indeed if arrears are taken into account, they turned negative at the beginning of the 1990,Foreign exchange crisis BoP ci igesicrisis 1970-71 and 1974-75 From 1970-73 to 1980-82 the volume of exports fell by a little more than 25%. In the same period the terms of trade (index for export prices divided by index for import prices) fell by almost 30%. This combination meant chat the ‘nternational purchasing power o r the 10 years fell by 50%. f Tanzanian's export ovePolicy initiatives Some of the policy initiatives to promote Ujamaa were: Elimu ya Kujitegemea” (Education for self-reliance) “Ujamaa na Maendeleo Vijjini” (Socialism and rural development) “Uhuru na Maendeleo” (Freedom and velopment)Crop authorities " Crop authorities depended on huge governmet subsidies, largely because of inefficiency and malpractice. » Eventually this led to their re-organisation and the reinstatement of cooperative unions as marketing agencies in the mid 1980s. » Tanzania raised its adult literacy rate from 10% to 60% between 1961 and 1977 By 1977, Tanzania made primary education silable for alla Villagisation This made large scale food imports necessary accounting to 23% of total imports in 1974. At that time there was great uncertainty among farmers regarding the marketing of their produce as this was also the time when the government instituted a new marketing arrangement. Agricultural cooperatives which were instrumental in upholding values of Tanzanian society, which stressed equality and participation were later accused of corruption and of emerging as political force, were DISSOLVED in 1976 and replaced by OP AUTHORITIESVillagisation - This made large scale food imports necessary accounting to 23% of total imports in 1974. - At that time there was great uncertainty among farmers regarding the marketing of their produce as this was also the time when the government instituted a new marketing arrangement. Agricultural cooperatives which were instrumental in upholding values of Tanzanian society, which stressed equality and participation were later accused of corruption and of emerging as political force, were DISSOLVED in 1976 and replaced by CROP AUTHORITIESVillagisation There were 2 million people living in Ujamaa villages in 1973 and by 1975 it was 9 million and by 1977 it was 13 million. This rapid villagisation programme caused disruption at least in the short run involving loss of output as it coincided with the DROUGHT of 1973-74. The country experienced the worst famine in 1974 one year after the passage of Ujamaa Village Act 1973.Villagisation Villagisation was intended to achieve positive effects through better organisation, more economies of scale, more technology dissemination and greater use of inputs. The Ujamaa villagisation was not supported by some people who refused to abandon their homes. By 1973 only 15% of rural population had moved to villages leading to passage of Ujamaa Village Act |973 which decreed that the entire rural population had to move to permanent villages by 76. iii etryVillagisation » The government reorganised/extended the _ marketing boards, crop authorities and cooperatives in line with villagisation for supervision and control of agricultural production. » e In 1973 villagisation was regarded as essential for social as well as economic transformation, it was seen as facilitation for the provision of education, health and water services throughout the country.Villagisation » The government reorganised/extended the marketing boards, crop authorities and cooperatives in line with villagisation for supervision and control of agricultural production. o In 1973 villagisation was regarded as essential for social as well as economic transformation, it was seen as facilitation for the provision of education, health and water services throughout the country.The Arusha Declaration ‘In order to address the issues of equity, the government adopted a radical policy change to introduce socialism and self reliance through the Arusha Declaration in 1967. Aim: State intervention and control in vanaging country’s major means of oduction. Local citizens were to be empowered and external dependency minimized.Social ~ The spreading of development benefits widely through society Ujamaa The encouragement of collective and cooperative forms of economic organisation and avoidance of wide dispersion in income and wealth distribution Self-reliance Which requires domestic resources to be the basis of socio-economic development and therefore, called for maximum mobilization of such resources pecially the peopleUjamaa entailed - Extensive state, social and economic intervention Including nationalisation of many foreign owned enterprises. Creation of a state import and wholesale trading monopoly Attempts to accelerate industrialization through creation of NEVV STATE productive enterprises Physical relocation of the mass of the rural population into focused village settlements, where they were provided with basic social servicesPs Preference for cooperative ownership _» Leadership codes of conduct to prevent ~ public officials from misuse of power and _ engagement in private economic activities. Self reliance with minimum dependency on donor community Public ownership of health care and education aha