1 Business and Politics: An Ambiguous Relationship

In Tanzania, as in most developing countries, big modern firms, or conglomerates, contribute a sizeable part of GDP growth and are the main employers in the modern private sector. Because of this, there are good reasons for governments to support them, presumably in a fully transparent way. But because of both positive and negative externalities and/or market failures more frequent in developing economies, their activity should also be regulated, again in the most transparent way. The relationship between big business and the government, or the ruling party, is particularly opaque in Tanzania and frequently subject to scandals of corruption uncovering anti-developmental policy decisions. This is contrary to a well-thought policy framework that would establish clear reciprocal behavioural rules for business and government agencies in the interest of the community. This absence of a transparent and effective industrial policy – in the broad sense of regulating, monitoring, and possibly supporting big as well as medium-sized business – appears to be a major institutional challenge with major implications for Tanzania’s development.

This key institutional issue has been analysed in depth in Chapter 4, ‘Politics and Business: An Ambiguous Relationship’ by Samuel Mwita Wangwe, and in Hazel Gray’s comments. Various factors explain the current state of play and the relative inefficiency of industrial policies and strategies. Three of them seem particularly important. In some cases, they point themselves to other structural weaknesses of the politico-economic apparatus.

First, regime changes in recent history may not have left very much time for market rules and industrial policy principles to settle down in the national community. The economy went from markets subject to colonial rule before independence, to more open markets just after independence, to limited and mostly hidden market operations during the socialist period, and back to markets with rules progressively being set but still incomplete or largely ineffective during the liberalisation period and in some cases until the late 2010s.

Going back and forth across regimes also implies that there is no full political consensus in the Tanzanian political elite about what regime to favour, whether full market capitalism or a mixed economy with substantial weight given to the state. This absence of clear consensual principles with respect to the relationship between the state and the market, or private firms, may be considered as an institutional failure per se as it introduces uncertainty among economic actors about the attitude of the state with respect to private firms. This ideological ambiguity may be a second reason why no clear strategy with respect to big business and the private sector in general is yet fully explicit. Almost forty years after the end of the socialist era, the Magufuli administration exhibited such ambivalence with respect to private investment. However, the Suluhu administration now reverted to a more business-friendly approach.

A third reason has to do with the ethnicity of the owners and managers of big business. It turns out that a majority of large firm owners are Tanzanian Asians or Tanzanian Arabs. Several Asian businessmen were present in Tanzania just before or just after independence. Starting from trade businesses at the local or regional level, they invested in manufacturing behind the protection barriers erected, on their own advice, by the young independent state. Behind the scenes, or sometimes as managers of parastatals, they continued to have influence during the socialist era. After liberalisation, they progressively built economic empires, soon joined by Tanzanian Arabs. A majority of big business leaders thus belong to ethnic minorities that have tended to dominate economic life outside agriculture, practically since independence, with less strength, of course, during the socialist era. These ethnic groups are not fully integrated with the indigenous African population, which tends to see them as ‘exploiters’ (Fouéré, Reference Fjeldstad and Semboja2015), and considers them today as running a large part of the Tanzanian economy. Because of this, any policy that would openly favour business might meet popular opposition if the main beneficiaries were perceived to be Asian and Arab big businesspeople. Successive governments may have refrained from developing this kind of policy, even though it was possibly beneficial for development, explicitly because of this often-unacknowledged ethnic division.

It is unclear why there are few indigenous Africans among top chief executive officers, especially in industry, even though things may be progressively changing. At the time resentment against Asian business was at its highest, indigenous African entrepreneurs complained that an Asian monopoly prevented them from raising funds from banks or hiring people with the required know-how to get into big business. Such a complaint is not necessarily justified. Yet today, only two indigenous Africans are among the fifteen top business leaders in Tanzania. Younger indigenous African businessmen have recently been in the news, though.Footnote ²

Another reason for the lower weight of indigenous in comparison with non-indigenous Tanzanians among business leaders might be found in the clear comparative advantage, because of ethnic proximity with the people, of the former’s presence in political or public service careers rather than in business, although this could be compensated for by their much larger population size. On the other hand, it is true that Asian and Arab business leaders have sometimes moved openly into politics to reinforce business’s position in general, rather than acting from behind the scenes. In any case, this ethnic division in Tanzania, which is found with comparable features in other African countries,Footnote ³ is clearly an important determinant of the functioning of economy and politics.

A fourth and last reason can be invoked to explain the difficulty of establishing clear rules for industrial and regulation policy. This is the fragmentation of political power within the dominant CCM party as well as the existence of groups within the party with diverse economic interests in big business. Divergent interests and views, including ideological, across CCM factions themselves linked to diverse business interests make it impossible to get an agreement on policy decisions involving big business interests, or to prevent party members colluding with business, or even to expel them when caught in corruption scandals.Footnote ⁴ A centralised power within the ruling party would probably eliminate this obstacle, and this may indeed be the strategy that was initially followed by President Magufuli, formerly a second-tier personality within CCM, who was elected on a strong anti-corruption mandate in 2015.

If the lack of explicit and effective industrial and business regulation policies is to be considered as a key institutional weakness of the Tanzanian economy, caused by, and leading to, corruption, clientelism, and cronyism, two important questions must be considered.

First, if no explicit industrial policy favouring some specific sector through protection, infrastructure development, fiscal exonerations, or subsidies seems possible or desirable, then why not adopt a neutral policy that would favour business in general – that is, the World Bank ‘doing business’ approach? Why wouldn’t big businesspeople themselves be asking for such an industrial policy, sometimes referred to as ‘horizontal’ industrial policy? After all, a better investment climate would dynamise investment, foster the development of small and medium-sized enterprises, accelerate growth, and finally benefit big businesspeople too. As long as such a policy would not change their own arrangements and the support they get from government people, they should not oppose such an improvement of the investment climate. The difficulty here is that it would be difficult to improve the business climate by fighting civil servants who are taking bribes for delivering a licence or a permit to new investors or operating firms, when bribes from big business are known to be cashed higher up in their hierarchy. The same would be true when deciding about public infrastructure investments, big firms managing to have them serve their own interest rather than that of the collective. Corruption is contagious. It cannot be stopped for some operations when it continues elsewhere. Without powerful control measures, big business’s grip on parts of the political elite thus trickles down to a deleterious general business climate.

Second, isn’t it the case that the Tanzanian economy does well, so that business–politics collusion may not be a big problem after all? Maybe, but is it doing well sustainably? The review of Tanzanian development in this volume points to the relative weakness of growth in tradable sectors, especially agriculture and manufacturing. Could it be that the big business–politics connection has some responsibility for this? Wangwe indeed suggests that imports are often given some advantage over domestic production through supporting the ‘traders’. Sugar and rice producers have complained that imports make domestic production barely profitable. Is such an industrial policy in the interest of the country – in other words, the consumers and industrial transformers of these products – or in the private interest of traders? Transparency about the goal pursued with such a policy and its consequences is lacking. Public statements are made about policies to be pursued or reforms to be undertaken, but they are generally weakly motivated and not, or poorly, evaluated ex post. This is what Wangwe refers to as transparency without accountability.

2 State Coordination: Fluctuating Stances about Decentralisation

Development requires an efficient government sector that is able to produce and manage public goods, monitor and regulate the private sector, collect taxes to finance these activities, and redistribute across social, geographic, or income groups. The way the government organises its activity is essential for its efficiency. A key organisational issue in this respect is the allocation of decision power among the various decision and monitoring units of any government, from the centre (president or prime minister), to ministries, to local governments and various types of public agencies.

It would have been too unwieldy to analyse the efficiency of the Tanzanian government apparatus by reviewing all its dimensions. Cases of responsibility overlaps, competition across units, and rent-seeking seem to be present in many areas and at various levels of the public sector’s vertical structure. Instead, the approach to the issue of state coordination in this volume has focused on the relationship between two levels of government, the central and the local, on the way it has evolved over time and a practical aspect of it, namely the collection of local taxes.

The dominant fact in the fascinating account that Servacius Likwelile and Paschal Assey give of decentralisation in Tanzania in Chapter 6 is the constant vacillation of the government since independence about the decision power that should be granted to local government authorities (LGAs), both in terms of local service delivery and tax collection, that is between decentralisation taken as deconcentration, with centrally appointed civil servants in charge of local affairs, or devolution of decision-making power to local governments and their democratically elected decision-making entities. The central–local government relationship went from decentralisation, inherited from the colonial period, in the first decade after independence, to full centralisation during the early socialist period, back to weak decentralisation in 1972, and then to centralisation again whereas an ambitious local government reform was voted in 1998 that had to be progressively implemented over a rather long period. As of 2014, the end of that period, however, neither a comprehensive local government law nor a harmonised central and sector legislation was in place. This is presumably still the case today, although the Suluhu administration has recently shown signs of willingness to implement the National Decentralisation Policy, which has been on hold for two decades or so.

In the field of fiscal decentralisation, the oscillation was still more pronounced. The responsibility for the collection of the property tax changed three times in the last decade: decentralised before 2008, centralised, and then re-decentralised in 2014, and apparently centralised again in 2016.

Such back-and-forth movement would not be a concern if it simply corresponded to a trial-and-error process, the aim of which was to find the most efficient arrangement. This does not seem the case, however, as the periodicity of changes does not permit rigorous evaluation of the various regimes. As well acknowledged in Chapter 6 and in the comments by Jan Willem Gunning, capacity is clearly missing at the local level for the assessment, the monitoring, and the enforcement of taxation. For the time being, it is thus the case that tax collection should optimally be in the hands of the central government, while local governments rely on conditional central government grants to finance local operations not centrally managed. On the other hand, local tax revenues account for a very minor part of the total budget of local governments. Together, these two arguments logically lead to the hypothesis that oscillating responsibilities reflect either some hidden rent-seeking competition between local or regional politicians, central government tax collectors, and possibly ruling party members, or the views of some external decision maker, such as donors or a new leader.

Likwelile and Assey recognise that corruption was rampant both with the centralised and the decentralised tax collection arrangement. They also mention that the World Bank had apparently been pressing for decentralisation to be re-established in 2014, a decision that was cancelled in 2016 under the Magufuli presidency, thus showing a consistent, and probably justified, opposition of the central government to decentralising tax collection. Even in that case, however, the issue of corruption remains open.

Fiscal decentralisation is often justified by resorting to the argument that it is an incentive for the accountability of local governments with respect to their constituency. Gunning is right in stressing that fiscal decentralisation is in fact neither necessary nor sufficient for local government accountability. Sharing information about the actual grants received from the central government and the accompanying conditionality with local constituencies could be effective too, as well illustrated by the positive effect of advertising central government grants to local schools on the management of schools in Uganda (Reinikka and Svensson, Reference Ponera, Mhonyiwa and Mrutu2005, 2011). Existing studies in Tanzania suggest, however, that not much of the publicising of local financial information reaches the public – see Chapter 6 by Likwelile and Assey.Footnote ⁵ Studies also show that there is an overlap or confusion of responsibilities between local government executives and centrally appointed civil servants working with them or monitoring them at higher district or regional level, but often applying the central government’s agenda (Venugopal and Yilmaz, 2010; Hulst et al., Reference Harvey2015).Footnote ⁶ None of this is contributing to local accountability.

The preceding mostly anecdotal evidence indicates that decentralisation is not very effective in Tanzania. This means that local preferences for local public goods and constraints in creating and managing them may not be satisfactorily taken into account in the overall public decision-making process, thus reducing the overall efficiency of the public sector.

Should decentralisation be made more effective in Tanzania, and more efficient in view of its potentially high current cost? As noted by Gunning, this is an empirical question, but there is unfortunately little evidence to answer it, in Tanzania or in developing countries in general.Footnote ⁷

Yet the chapter by Likwelile and Assey, as well as Gunning’s comments, raise an important question for our reflection. It concerns the issue of capacity, and consequently of capacity building. An obvious limit to an enhanced decentralisation strategy in Tanzania is the capacity of local executives to produce local public goods and manage budgetary issues as well as the relationship with their constituency and with central government. This is very clear in the issue of tax collection but probably applies to other dimensions of local governance, even though centrally appointed local administrators or monitoring agents may not always have more capacity themselves. Under these conditions, would a central government resist enhancing decentralisation because it is not in its political interest, or simply because local executives don’t have the necessary management capacity? If decentralisation is essentially a good policy, with adequate local capacity, then it would be important to facilitate capacity building at the local level, a point stressed by Likwelile and Assey. This would probably be the most efficient first step towards a more ambitious decentralisation policy.

In summary, it is difficult to say whether limited decentralisation has been a handicap for Tanzanian development. That it is a desirable long-run goal is not debatable. Yet conditions and, most importantly, the local capacity for a strong effective decentralisation are presently absent in a substantial part of the country. The real handicap, however, lies in the succession of contradictory policy regimes, which has prevented learning taking place over time. Of concern is also the fact that corruption seems to have been present under the various regimes.

3 The Civil Service

The smooth and transparent functioning of modern states relies on the quality of the civil service. Several constraints interfered with the satisfactory working of the civil service in Tanzania in the past and hampered its economic development. Some of them tend to be less severe today, but serious challenges remain.

In Chapter 5, Rwekaza Mukandala lists four such weaknesses: capacity, motivation and conduct, politicisation – or political interference – and resources and tools. Capacity and resources clearly depend on the level of development and the availability of human capital and public funds. From an institutional point of view, motivation and political interference play the most important role because they ultimately define the rules according to which the civil service, the political apparatus – that is, government, parties, parliament – and the private sector interact in the economic development process, and which possibly deviate from official rules.

Initially extremely limited but fast growing after independence, the Tanzanian civil service expanded still faster but, in a first stage, in an orderly way during the socialist era. Needs were enormous because of the expansion of services such as health and education, the centrally controlled management of local communities, and the need to coordinate the multiple nationalised and newly created public companies. Collective motivation was great, and strict rules preventing high-level civil servants doing business or enjoying hidden material advantages were enforced. Unwise decisions at political level, the multiplication of parastatals, the quasi-impossibility of coordinating them, and external events, rather than a dysfunctional civil service, were responsible for the chaos and the severe crisis of the early 1980s.

Before then, however, and still worse during the crisis, the functioning of the civil service had severely deteriorated. Not only had it been completely disorganised, but also initial rules of conduct had been dismantled, partly to compensate for the effects of the crisis. High-level civil servants and parastatal executives obtained huge non-monetary compensation for declining real wages, whereas they were making deals with the private sector to further increase their income. A huge wave of corruption settled in.

Things became worse at the time of the transition back to a market economy. The process of privatisation and the lack of a civil service able to efficiently manage this new economic system opened the door still more widely to all sorts of deals involving civil servants, politicians, and businesspeople. A culture of corruption permeated the whole economy and the public sector in particular. At the same time, the civil service was decimated by the SAP and its focus on market mechanisms as a substitute for state intervention.

It took time before the situation came back to a more normal position. At the turn of the millennium, when donors started to weaken their market bias, the civil service could at last fill its role as a policymaking facilitator and the manager of public goods and services. Yet corruption, political patronage, and the pre-eminence of politics in policymaking were entrenched. This is still the situation today, even though President Magufuli broke away from his predecessors in showing political will and energy to reduce corruption.Footnote ⁸

Mukandala gives many examples of the way in which corruption and the lack of motivation of civil servants are costly for the economy and the society. For instance, the cost of teacher absenteeism has been evaluated at 1 per cent of GDP. Assuming that other civil servants display equivalent behaviour, showing up at work but not working the legal number of hours or shirking, the cost would rise to 2.5 per cent of GDP. Add to this tax evasion, over-invoicing of contracts, and other corrupt practices, and the cost to the economy becomes sizeable. Patronage is another issue. The size of the public sector increased by 50 per cent between 2012 and 2015, with a net addition of 70,000 employees every year. Questions arise whether all these employees fill real needs; whether the newly recruited employees are friends or relatives of politicians – or civil servants; whether it is possible to expand at such a pace while maintaining the same level of productivity; and whether recruitment criteria had to be substantially lowered for these new employees to be appointed. Likewise, it turns out that civil servants are better paid – a 30 to 40 per cent premium on average – than private sector workers, even controlling for educational level and age.Footnote ⁹ Although the difference may be smaller for top positions, is this wage premium justified by efficiency arguments or is it a political gift to a pivotal part of the electorate?

Even though Tanzania’s level of corruption seems comparable with its neighbours and even better growth performers, this is certainly not a reason for not doing anything to improve the quality of Tanzania’s civil service. It is unfortunately not possible to give a precise estimate of how much income is being lost or diverted because of a weak civil service. Available evidence is too partial to permit such estimates. Likewise, as emphasised in Jan Willem Gunning’s comments, it is not possible to evaluate how much growth has been missed. Yet absenteeism, the excessive number of civil servants, and their inadequate skill are doubtlessly detrimental to efficiency and growth.

It remains to be seen whether civil service reform can be done and how. As emphasised by Gunning and Mukandala, any reform has its own political economy context. In the present case, the countervailing forces to a reform would be civil servants themselves, the politicians who use the civil service for patronage or as a channel to cash bribes, and those private agents who benefit from bribing civil servants and politicians. All of them have power, including the civil servants themselves. Yet introducing more discipline in the areas where absenteeism and shirking are strong does not seem impossible. A lot of experiments have been run lately in various countries involving the kind of carrot to offer and the kind of stick to use.Footnote ¹⁰ Improving the quality of recruitment, devoting more resources to capacity building, and avoiding the recent oscillation in the number of new hires cannot do any harm and will not meet very much opposition either.

4 The Tanzanian Land Management System: Complex, Inefficient, and Conflictive

Land has been the subject of intense debate and dispute in Tanzania as it is the main resource of a large population of poor farmers and cattle herders as well as an essential input for commercial investment in rural and urban areas.

Chapter 7 by Sist J. Mramba sets out to analyse the existing system of land occupancy rights and its effectiveness in managing multiple sources of conflicts, and proposes how the system could be reformed. It is shown that there is some continuity in matters of land tenure (such as government ownership of land) between colonial times and post-independence Tanganyika, and later the United Republic of Tanzania, whereby some basic principles of the colonial era were kept after independence. An important modification that was made is in respect of the way the land could be alienated from customary users so as to protect small farmers. Indeed, the whole period after independence has been associated with a permanent debate about the space to be given to customary laws in handling interests of public and private large investors. The creation of the semi-collective Ujamaa villages in Nyerere’s socialist era impacted on the alienation of customary land in the process of reorganising production. The liberalisation period in the mid-1980s reverted to the dual land system, with the development of large-scale plantations and better protected customary land rights. Nevertheless, land conflicts persisted unabated.

The Land Act (Reference Krueger1999), a major piece of legislation, reiterates that all land in Tanzania shall continue to be public and remain vested in the president as trustee for and on behalf of all the citizens of Tanzania. This is of course a key institutional principle. A second principle is the recognition of the customary law through a categorisation of land. For the purposes of management, land is categorised into ‘general land’, ‘village land’, and ‘reserved land’ directly managed by the state. On general land, officially agreed users are given an extended lease, or granted right of occupancy, governed by statutory law. On village land, occupancy is governed by local customary law. The corresponding rights can be formalised by Certificates of Customary Rights of Occupancy (CCROs), with the land under the jurisdiction of the village itself being certified. However, these certificates cannot be delivered as long as the village has not had a its land surveyed and issued a land use plan, which leads to the release of a Certificate of Village Land (CVL).

While the Tanzanian Land Act was associated with much optimism in Africa,Footnote ¹¹ Klaus Deininger points out in his comments that in practice four elements illustrate the gaps in Tanzania’s land registration system for smallholders, which impose costs on the broader economy. These four elements are: (1) low level of computerisation of land administration; (2) lack of integration between spatial and textual records; (3) high fees for formalising transfers; (4) and limited number of new CCROs created annually. In this regard, Deininger proposes action on improving registry efficiency and integration, adjusting regulations for low-cost first-time registration, and completing CCRO issuance in urban areas.

Land for investment is a major challenge. While large-scale land investment by foreigners has continued to be welcomed, in practice acquisition of land for investment has been complex, especially where the land is village land. In this case, village land has first to be transformed into general land, which presently represents only 2 per cent of total land, and the procedure is cumbersome. Consequently, land investments are limited with consequences on economic growth.

Although the Land Commissioner, acting on behalf of the president, has power to grant general land, the use of this power is not common, and the process is long. Challenges of valuation have attracted frequent land conflicts. The initiative to acquire land may also come from the Tanzanian Investment Centre responding to the demand of investors. However, there are also less formal and less centralised procedures used in the acquisition of land, but these are not necessarily less complex.

Encouraging investments is one of the objectives of the present land management system. Another, possibly more important but also potentially conflictive, is to protect indigenous smallholders from acquisition by a large-scale operator. Transforming village land into general land to facilitate large-scale investments, in agriculture as well as in other activities, has been perceived as a threat to smallholder farmers rather than an opportunity to complement their activities with large-scale investors. A further disempowering mechanism has been exhibited in the way the commons in communities under customary tenure are managed. The village communities have been particularly vulnerable, given the argument that commons are unowned or idle, or simply that they belong to the state. On the agricultural side, the issue is clearly that of the trade-off between modern high-productivity large-scale production process and traditional low-productivity farming and herding. No clear answer has been given to this socially hypersensitive question.

Alternative models of empowerment have been used that engage more of the existing producers, such as contract farming and out grower schemes. These do not displace smallholder farmers, but there are no institutional mechanisms to provide them with some capacity over price fixing. As a result, farmers often perceive that they are underpaid for the crops they supply to the large factories. On the other hand, the institutional framework for using smallholders’ land as equity for facilitating participation in large-scale investments is not functional. The fact that this has been functional in other countries such as China suggests that this option deserves further scrutiny to find how it could be an option in Tanzania.Footnote ¹² The dichotomy between traditional and modern agriculture and the tensions owing to the absence of a well-functioning land market are likely to continue.

Institutional mandates for granting land rights and ruling on disposition and dispute settlement do exist, but these are overshadowed by a multiplicity of actors and entities that overlap, have no effective coordination or collaboration, and often lack administrative capacity. In effect, capacity building at the various governance levels is needed. In practice, land management and administration has been faced with challenges of efficiency and effectiveness as well as shortage of staff and rent-seeking.

The question of the balance between centralisation and decentralisation arises in the case of land in the form of dualism in the land disposition system: centralisation of control and management of general land on the one hand and devolution of control to customary law at the village level. The oft-cited cases of overlap of responsibilities and the complexity of the relationship between the various central and local public entities in the land management system are a sign of struggles for power over resources and over rent-seeking between these levels of government. Some of the conflicts and difficulties in managing land issues have in part been attributed to this dualism, which affects the economic efficiency of the whole land sector.

In this regard, Deininger provides useful insights into the alternative of providing space for village governments to integrate the investment activities of large-scale investors with village-level land use plans. He makes a case for complete issuance of CVLs – which, today, only a fraction of villages possess – using modern low-cost surveying technology, and proposes clarifying the content and status of village land use plans as a basis for attracting potential investors with a profile that would most effectively contribute to local development. This option would provide villages with the incentives to systematically identify investment opportunities that are consistent with their own land use plans. This provides a strong case for empowerment of local governments in land management for investors.

Weak land governance and property rights systems, including limited capacity to generate clear records, provide information on time, and process titles, lead to opaque land deals, and have contributed to facilitating corruption and undercutting responsible actors seeking access to land for productive investment. As very well shown by Mramba, the same is true of the land judiciary system, which does not have the capacity to deal rigorously with the numerous cases put to it. Nowadays, the ongoing awareness campaigns and computerisation through the Information Land Management Integrated System are expected to bring more transparency and minimise the opportunities of corruption. This is an opportunity that remains to be harnessed.

A finding worth emphasising in Tanzania is the complementarity between local governance in land matters and the impact of land titling, even through rather informal CCROs, on agricultural investment and productivity. Thus, Kassa (Reference Johnson2018) shows that the effects of titling on agricultural investment is generally positive and sizeable, but the investment return is either negative or non-existent when there is a higher level of disapproval of the local governing units by plot owners. Likewise, Hombrados et al. (Reference Han and Peirolo2015) find no significant effect of land titling once the characteristics of farm households are taken into account, and suggest that the capacity of local civil servants in charge of land issues and the enforcement of property rights may be determinant.

Over the last fifteen years or so, several major reports have been mandated by parliamentary commissions or the executive to evaluate the present legislative land occupation right system and suggest possible reforms. As of 2018, no legislative change had been made to the 1999 Land Act.

5 The Power Sector: An Example of De Facto Weak Regulation

The power sector has long been singled out as a major obstacle to development in Tanzania. In her in-depth analysis of the institutional evolution of the Tanzanian power sector (Chapter 8), Catrina Godinho addresses this issue. She considers the underlying political economy factors that have made it so difficult for Tanzania to move from an institutional equilibrium that does not bring about the desired sector outcomes in terms of power supply (investment, system expansion, and technical performance) to one that does.

Notwithstanding attempted institutional restructuring and ambitious reform policies, the structure of the power sector continues to most resemble that of the traditional industry model, which is a state-owned, vertically integrated (generation, transmission, and distribution) monopoly, regulated by the government (i.e. not an independent regulator).Footnote ¹³ This model has largely been dysfunctional in Tanzania and across the region for decades. Yet TANESCO the state-owned electricity company, continues to operate as a vertically integrated utility with considerable monopoly power. The (difficult) introduction of private sector participation in generation and the establishment of an independent regulator, the Energy and Water Utilities Regulatory Authority (EWURA), has not changed the situation substantially. Electricity supply in Tanzania is persistently unstable, often inadequate, and insecure. Owing to the high coping costs associated with drought periods and political pressure around tariff increases, the sector’s financial standing has remained precarious. Tariffs remain below cost recovery, planning has not translated into timely initiation of procurement of new power generation capacity, procurement has mostly not been transparent or competitive, and TANESCO’s technical and financial performance is poor.

Political interference in the sector and its institutions has been a constant feature of Tanzania’s power sector. For example, the president’s obstruction of regulator-approved tariff increases in 2016, followed by the dismissal of several executives at TANESCO, and finally the removal of EWURA’s Director General all constitute rather problematic interventions. These and similar decisions on the part of the executive seem to bely a strong short-run bias considering that, in the long run, suppressed tariffs and unstable governance reduce the capacity of TANESCO to invest in sector maintenance and expansion, discourage private investment in the sector, and increase the cost of doing business. While these decisions are often justified by protecting the (urban) poor, low electricity access rates and risk-inflated costs of supply do not benefit those who need modern energy services the most; nor do they benefit businesses in general, who frequently cite poor electricity services as a primary development constraint; nor do they contribute to the reduction of poverty through economic growth.

There have also been a number of high-level corruption scandals. These were related to deals made with independent power producers to enlarge the power generation capacity of the country or to respond to emergency needs. The Independent Power Tanzania Ltd and Richmond deals resulted in much delayed and absurdly overpriced power supply, which led to huge financial losses at TANESCO. Those deals were authorised by the government, which suggests that high-rank executives were involved. A prime minister had to resign in 2008 after the Richmond scandal broke out.

The problematic experience with corruption in both public and private deals underscores the vulnerability of sector governance to political interference in a country where the political economy system is prone to using publicly owned companies and their links to the private sector for rent-seeking and patronage, even where corporatisation efforts attempt to ring-fence such interests. However, much of the blame has been laid at the feet of the private sector, strengthening the ideological bias against private participation in the sector – especially against private energy providers that could function as least-cost suppliers to a publicly owned system operator. These outcomes reflect a lack of capacity in the government and/or political will in the executive to ensure transparent and accountable governance in the sector. This is confirmed by recent moves against the independent regulator, which had emerged as an island of excellence in terms of technical expertise in the region.

There are too few accountability mechanisms built into existing legislation, specifically the 2008 Electricity Act, that could really bring key directives into force. This leaves the political executive with considerable power over policy implementation. Reforms have been resisted or at best implemented only partially, a situation that has contributed to checking (keeping low) levels of transparency and accountability. While potentially an improvement, the ESIRSR 2014–25 roadmap to reform has not been suitably translated into robust legislation. In effect, the status quo is maintained through institutional rules that include vertical appointment structures, archaic guidelines on sector information and lines of communication, and the frequent application of de facto power by political actors. In his discussion, Antonio Estache summarises well the state of play by stressing that the partial or biased implementation of past reforms, the repeated scandals about the attribution of private power deals, and their limited efficacy and ill-managed tariff policy have together made future reforms essentially ‘non-credible’. Under these conditions, it will be difficult to attract private investors in order to expand the capacity of the sector to the extent needed by industrialisation and development.

Interestingly, Tanzania has emerged as a leader in the region when it comes to decentralised options – primarily because of EWURA’s adroit regulation and lower levels of political interest or rent-seeking opportunities in smaller power projects. Urban and rural access rates have significantly increased in recent years. After a slow start, the Rural Energy Agency (REA) – established in 2005 – has begun functioning satisfactorily and rural electrification progress has considerably accelerated over the past five years, even though Estache suggests that it could move faster with support from the government and development partners. This is an interesting case, which highlights the benefits of effective regulation. However, the fact that it is sometimes perceived as a threat to the monopoly power of TANESCO and the special relationship between the executive and the utility could become a challenge. Even as it stands, REA hands over much of the distribution infrastructure to TANESCO after construction – which has placed further financial strain on the utility, but more power in the hands of those who control it. There have also been some allegations of corruption, as government funding has flowed to REA at unprecedented levels in recent years.

From a political economy perspective, Godinho argues that the situation of the power sector may be interpreted as an institutional equilibrium that might be conceptualised as the relatively stable and mutually reinforcing structural relationships that exist between public organisations, private interests, economic beliefs, and political power. The energy requirements of development will continue to rise rapidly as industrialisation takes root. Increased investment in the energy sector will prove determinative, yet institutional constraints remain immense, and the public sector is not in a position to finance the state-led model that is championed politically. Hence, there is a need to rely on the private sector without the guarantee that this will be politically acceptable, unless the executive moves toward greater transparency, accountability, and independence of sectoral institutions. The Suluhu administration has recently come with signs of more private sector tolerance, as indicated by the composition of the new board of TANESCO, which is dominated by members with a private sector background. This suggests that the type of interference witnessed in the Magufuli administration might be reversed by the new administration.

1 More Efficiency in Public Decision-Making

In any economy, the structure of public decision-making is complex. Efficiency requires that, for most operations, information gathering, analysis, decision-making, and implementation occur in a precise place in the functional structure of the public sector. The thematic studies have shown that Tanzania’s decision-making system is set in such a way that it is not always clear who makes decisions and that the number of procedures needed to reach a decision may be burdensome. Law simplification and skill enhancement could be one way to straighten public decision-making.

Land transactions are a good example of this. In practice, investors must deal with many different actors before a final decision is made, from village councillors to district commissioners, to bureaucrats in the Land Commissioner’s office in the Ministry of Agriculture, not to mention several technical services. This complex procedure is likely to disincentivise investors, as already observed on some occasions – see Chapter 7.

There are many examples of lack of coordination and overlapping responsibilities among administrative units in charge of closely related operations. This is the case, for instance, for the National Land Use Planning Commission and the Director of Urban and Rural Planning in the Ministry of Agriculture, and in the absence of a clear line of communication between the Tanzania Revenue Authority, a public agency responsible for tax collection, and the Ministry of Finance, responsible for tax policy. Decentralisation raises the same kind of coordination challenge, with some confusion of mandates between local government executives and central government appointed officers advising on or controlling local decisions, and with an intricate set of relationships between LGAs, the prime minister’s office, the Minister of Finance and various sectoral ministers. That a decentralisation reform approved by parliament in 1996, and supposed to be entering into full force by 2008, is not fully implemented more than ten years later is symptomatic of the shortcomings in the structure of public decision-making. Together with the sudden decision by the executive to recentralise the management of local taxes in 2016, this is an example of both the inherent difficulty of coordinating various levels of government and a centralisation bias.

This gap between the passing of laws and effectively implementing them, or the ineffectiveness of government-commissioned expert reports on the land laws, also reveals not only a centralisation bias, but also governing dysfunctions. No fewer than six reviews and reports on the land laws have been produced since 2004.Footnote ¹⁵ Yet little progress was achieved, and there are still serious difficulties in implementing the law.

Another telling example of the lack of coordination and centralisation bias can be found in the power sector. After decades of delay, a clear decision-making structure has been put into place with well-defined functions for the state-owned company TANESCO and the regulatory authority EWURA, whose technical competence is widely praised. Yet the central authority can veto decisions taken within that structure, as was the case during the Magufuli administration when a tariff rise was cancelled by central government and the managers of the two entities were simply demoted, their appointment, and demotion, being by law under the sole competence of the president. The argument put forward was that such a rise would have increased poverty, whereas not raising tariffs would have meant loss to TANESCO and a need for subsidy in order to operate without accumulating debts. Whatever the argument for or against the rise, such an event suggests either that the regulatory authority ignored some key social welfare aspects of its decision, which means something is wrong in the composition of the group of experts making tariff recommendations, or that it is indeed the expression of a very centralised power possibly acting under political motives. The same can be said about procurement decisions in the power sector. The multiple past corruption affairs linked to the choice of private power providers, which ended up both ineffective and exorbitantly expensive, and involving top government members are clear evidence that, even though well-organised on paper, the decision structure can be short-cut at a high level of the state.

The proximate causes for these institutional failures differ according to the issue being considered. In the cases of both land rights management and decentralisation, there is little doubt that the complexity of land laws and the ambiguity of the laws that rule the relationship between LGAs and the central state play an important role. An obvious direction of reform is therefore the simplification and the rationalisation of these laws and administrative rules. The lack of adequate skills, particularly at the local level, is another handicap to the efficient application of the law, which calls for serious efforts in recruitment and training.

Of course, some people gain from the complexity of some laws and the administrative organisation as they generate multiple rent-seeking opportunities. This is the reason reforms as simple as the previous ones – that is, legal simplification and skill enhancement – are not necessarily consensual. It has been seen that repeated changes in task allocation between local and central governments reflected a struggle between local elites and the dominant central party in capturing local rents. The involvement of the state in major decisions concerning the power sector may also be analysed as too much de facto power to the executive, and also in terms of hidden personal interest by powerful politicians who short-circuit decision making by the power company and the regulatory authority, for instance in procurement decisions. Finally, the delay observed in implementing laws such as the decentralisation laws or the limited responsiveness of various administrations to reform proposals of the land law is likely to reflect more a lack of consensus and possibly incompatible views because of conflicting interests by powerful political actors, rather than a practical difficulty in implementing reforms.

Reforms that would enhance state capacity may not be consensual in the short and medium term. Yet it bears emphasis that, in the long run, they will be beneficial to whoever is in power.

2 Overcoming Distrust of Market Mechanisms and the Private Sector

Distrust of market mechanisms and the private sector was observed in two areas in the course of this study: the allocation of land rights and the attempts at restructuring the power sector. In both cases, it was shown to have a heavy economic cost.

As in many other sub-Saharan African countries, the Tanzanian government faces a dilemma in the agricultural sector. On the one hand, it wants to foster the development of the sector with modern technology applied on large-scale farms and productivity gains among smallholders. On the other hand, it wants to protect traditional farmers from being displaced by private investors. This objective is all the more important since traditional farming areas are where most poverty is found. Unsettling that sector could thus have adverse consequences on poverty, as it did in the 1970s during the attempt at collectivising land, leading virtually to famine.

Based on the principle of public ownership of land, the Tanzanian land laws intend to combine these two objectives by distinguishing between village land for traditional farming and general land for modern productive uses of land, the former being governed by customary laws and the latter by statutory law. The difficulty is in the transformation of village land into general land for investment purposes.

Even though they were designed long after the end of the socialist planning period, the land laws very much retain the feel of a planning system. It seems as if it was attempted to move land management away from a market system as much as possible. However, there is no contradiction between the public ownership of land and the functioning of a land market if what is priced and exchanged is not the ownership but the right to use land, that is through long-term leases. To be sure, market operations for land rights take place today both in urban and rural areas, but the key operation that enables investors, or even the state, to access village land remains cumbersome, long-winded, sometimes uncertain, and possibly costly because of the multiple opportunities for rent-seeking by land officers at various levels of the hierarchy. The community’s wish to protect traditional farmers from being expelled from their land by commercial investors or speculators has led to a labyrinthine administrative system that is considered by many observers to be a major obstacle to development.

The current system has also led to some a priori antagonising of village communities with respect to agricultural investors because of the complexity and the frequent ineffectiveness of many of the deals between them, most often engineered by public intermediaries involving bribes, or sometimes signed by corrupt village leaders who are acting without consulting their villagers. Compensation packages that involve promises of employing villagers or building village infrastructure, such as schools or roads, are indeed more difficult to enforce than a simple transfer of resources to village communities.

The proximate causes for the inefficiency of the land allocation process lie in the complexity of the land laws, ineffective public operators, particularly at the local level, and weak control of corruption. To this must be added the incomplete mapping of the land, which makes the task of processing and recording land operations particularly difficult. The important point is that both the lack of capacity and the rent-seeking behaviour are themselves to a large extent brought about by the complexity of the law and the extremely slow mapping process. Improving things thus involves correcting those two weaknesses.

Simplifying the complex administrative procedure to transfer land from villages to investors might work through more reliance on market mechanisms, such that village communities and investors, rather than numerous public intermediaries, would be the main actors of the transactions. They would have to agree on the size of the land to be transferred, its location, and the price and nature of the compensation – including through shares in the investment venture – to the community, with the village being fully responsible for managing the reallocation of land that might be needed among villagers. Full publicity of transactions conducted elsewhere in the region or in the country, as well as of the consequences of the corresponding deals among smallholders, would be absolutely necessary to guarantee full information and market transparency. National interest would be taken into account only in the very final steps of the procedure, with some veto power in the hands of the government in case the deal related to very large swaths of land and was thought to be harmful for the national or regional economy.

Information on transactions and their consequences for village communities is essential. Knowing the price at which transactions took place in the region is a guarantee that no side will feel cheated if an agreement is reached. More importantly for the villagers, knowing whether smallholders elsewhere were ultimately harmed or benefited from the deal, possibly through the public goods the village could acquire thanks to the deal, is key to avoid social disasters or to obtain the right compensation.

Arrangements other than cash transaction for the unconstrained use of the land are sometimes made with investors: contract farming, smallholders acquiring equity in the investor’s venture and continuing to work their land, compensation in kind, and so on. Except maybe for contract farming, suitable only in specific cases, all these arrangements are bound to result in conflict at some stage, either at the time of sharing profits or when deciding on payment to labourers. Previous experience is not encouraging. Such contracts are simply too complex and cannot take into account all contingencies. However, considering that forms of equity arrangements have been working elsewhere (e.g. China), there is a case for exploring further possibilities. In the meantime, cash deals between an investor and a village, with redistribution or the acquisition of farm-productivity enhancing public goods being left to the local authority, could be promoted, as they are more transparent and make village authorities fully accountable.

Of course, for such a market-like solution to be possible, it is necessary that the whole land has been mapped so that precise limits to the land being transferred can be established. This requires resources to be made available for that purpose, although there seems to be some disagreement on the actual cost of this operation. Within villages, land management could remain as it is, with some possible land reallocation under the control of the village council in case the land transferred to investors impinges on the farms of smallholders. The titling process (CCROs) would keep developing, accelerating the extension of within-village and across-village transactions.

The preceding discussion refers to land transfers from small scale, near subsistence farmers in traditional rural communities and large-scale domestic or foreign commercial investors. But land consolidation is also needed within communities to increase yields. Progress has recently been made through the extension of medium-scale farms – 5 to 10 hectares – in some regions where land is still abundant. This has resulted from informal transactions that have led to the regrouping of small plots, with these transactions generating economies of scale and creating positive spillovers.Footnote ¹⁶ Such a spontaneous restructuring or reform of village land and accompanying productivity gains would be quicker and stronger if market mechanisms were encouraged and made easier at the local level.

A larger role for market mechanisms in land right transactions should strengthen the potential and incentives for investors, medium-scale farmers, smallholders, and village communities to exploit the clear comparative advantage of Tanzania in agriculture and agro-industry, and reforms in that direction would probably meet some resistance. Civil servants and politicians, who are currently able to extract economic or political rents from the present unclear decision-making structure, would oppose them, as would possibly peasants and village communities, given their attachment to tradition. The structure of political power matters here. To the extent that village communities would retain some control of land transactions on their territory, they could probably be persuaded that these reforms were in their favour.

The proximate causes for a distrust towards the market and private actors in the power sector are of a different nature. Historical legacies matter, but so do the rent-seeking opportunities for politicians who are close to the central power to control the operations of a big public company, most importantly the procurement process.

History matters here because of the socialist past of Tanzania and the primacy of public companies in the socialist era, especially in the delivery of such a critical good as electricity. But history matters also because of several huge corruption scandals linked to subcontracting power generation to private firms. Keeping the electricity company as a vertical public monopoly is seen as a kind of guarantee against such corruption cases. But, of course, doing so also provides rent-seeking opportunities to influential politicians in all procurement operations made by the public company, including with private providers when the capacity of the company is overly constrained – as has been the case in the past.

Correcting the situation requires actions on two fronts. The first of these is re-establishing credibility in the procurement process. This means better supervision of procurement operations, but more importantly a composition of the contract-awarding commissions guaranteeing its objectivity. Allowing one or two reputable foreign experts to sit on this kind of commission may be a way of getting closer to that objective. Second, unbundling the public electricity company into power generation and distribution and then enhancing the current limited private providers to sell power to the public company would mean competition, and therefore more transparency and fewer rent-seeking opportunities in power provision. After all, this kind of reform was repeatedly recommended by expert reports and explicitly considered in the Electricity Act passed in 2008 that is presumably still in force today.

3 Enhancing the Civil Service’s Performance

In one of the first evaluations of governance in Tanzania in the mid-1990s, the civil service was found to be one of the key weaknesses of the public sector.Footnote ¹⁷ Things have changed enormously since then. The skill of civil servants has substantially increased, and several reforms of the civil service have been undertaken, introducing a more rigorous recruitment process and a performance-based career management system. Yet the draft of a new wave of reforms explicitly acknowledges various problems faced by the public service, including staff demotivation and indiscipline, inadequate accountability, widespread corruption, underskilled staff, lack of meritocratic incentives, and weak and passive leadership.

Without anticipating the actual measures to be included in this new reform, improvements are certainly still needed in the civil service. Judging from the absenteeism among teachers and, to a lesser extent, health personnel, there is no reason for productivity to be much higher in other occupations in the government sector. Presumably, supervision is not stronger than in education, so that shirking is probably as frequent as teachers’ absenteeism. The estimate of the aggregate loss owing to absenteeism and shirking is high – roughly 2.5 per cent of GDP, not including the weak performance of schoolchildren or the low quality of other public services.

Besides the organisational inefficiencies analysed earlier in the public sector, an important proximate cause for this state of affairs has to do with incentives. In this respect, a first possibility is that salaries are insufficient to compensate for the efforts and time that teachers would spend in school if they were indeed there full time. Teachers and, by extension, other civil servants tend to shirk, moonlight, or rent-seek so that their standard of living is equivalent to what they could get with another (private) employer. On average, however, it has been seen that, other things being equal, salaries in the public sector are substantially higher than in the private sector, even though this may be more the case for low- rather than high-skilled workers.Footnote ¹⁸ In short, some salary adjustment may be needed in some parts of the civil service – for instance, for graduate secondary school teachers or to attract candidates in maths and science – but, overall, the compensation of civil servants does not seem to be a major disincentive to effort. The same seems to be true of career prospects, which have supposedly been improved in the last programme of public service reform.

The alternative cause for weak incentives could be the ineffectiveness of the performance management system (PMS) and monitoring and evaluation (M&E) function. Shirking may be easier in the public than in the private sector because not enough resources are allocated to PMS and M&E activity in the former and the supervision structure of the civil service may be poorly organised. It may also be the case that PMS and M&E agents and supervisors are shirking themselves, or tend to side with the public-sector employees they are supposed to evaluate because of the public sector status they share with them. In both cases, they are not performing the task entrusted to them.

There is a huge body of literature on how to incentivise teachers.Footnote ¹⁹ Experiments in this area have been conducted in many countries. In Tanzania, the need to improve the performance of the education system has been duly recognised, and much reflection and experimentation has been undertaken.Footnote ²⁰ Reforms in that sector could take advantage of that knowledge in the educational sector. See the recent survey of this area by Dal Bo and Finan (Reference Baland, Bourguignon, Platteau and Verdier2020).

Less is known about incentivising other civil service jobs. To the extent that supervision is closer than in the educational area and that both work intensity and outcomes can be more easily observed, a first step may be in the disciplining of public sector employees. Understanding why supervisors do not enforce better discipline on their subordinates and why PMS and M&E do not function better is thus essential for designing the measures most able to remedy that situation. As with other developing countries, Tanzanians have a long tradition of seeing a civil service job as a perk with essentially low expectations of the productivity of civil servants at all levels of the hierarchy. Formally, introducing performance-based remuneration as done in the recent reform of public service is undoubtedly going in the right direction, but is clearly bound not to work if performances are not properly evaluated because of evaluators’ lack of capacity or motivation.

Other proximate causes for the underperformance of the public sector are the lack of resources and the insufficient skill of civil servants in some crucial areas. Here, again, the education sector is a good example. The performance of the primary education system is low not only because of the scarcity of teachers and increased school enrolment – of course this is huge progress, in part brought about by the abolition of tuition fees – but also because of teacher absenteeism and because their training is recognised as inadequate. Things are possibly even worse now that basic teacher training has been reduced to a single year in teacher training colleges with a second ‘hands on’ year in school, with limited supervision. The situation may be particularly serious in teaching because of the need to increase the number of teachers to comply with a targeted student–teacher ratio at a time of fast-growing school enrolment. Indeed, a large part of the very fast increase in the size of the civil service over recent years has taken place because of a massive recruitment of teachers, and one may thus understand that the quality of recruitment, including teacher training, has gone down.Footnote ²¹ Recruitment in other public activities has also been fast, with possibly the same effect on quality.

Remedies for these causes of the lack of effectiveness of civil service are obvious: the compensation system has to be re-examined to make sure that it is adapted to the reality of the labour market, especially in areas where the supply side seems short; PMS and M&E must be scaled up and made more effective at all levels, in particular by making sure there is no collusion between those who evaluate and those who are evaluated; and recruitment and training must be improved.

It is unlikely that such measures would meet any real opposition within the Tanzanian political elite, except maybe from workers’ unions complaining of excessive supervision and therefore workload. The main constraint here is resources. The Tanzanian budget is already extremely tight and relies extensively on foreign aid and foreign loans. Improving the quality of the civil service may thus require difficult trade-offs within the public budget. Of course, this does not lessen the need for more discipline.

4 Addressing Rent-Seeking and Corruption

Rent-seeking activity and corruption may be the clearest symptoms of weak-performing institutions. They arise from situations where a public sector agent with some autonomous decision-making power grants to a private sector agent an advantage in a way that is openly illegal or bypasses official operational rules. The cost of such behaviour is twofold. On the one hand, it biases the economic allocation process in comparison with what the institutional rules are expected to produce, which may not necessarily be economically efficient. On the other hand, it redistributes resources in a way that may be regressive, as when poor people find themselves forced to pay bribes to access a supposedly free public service.

The proximate cause for rent-seeking and corruption lies first in the incentives for agents to adopt such a behaviour. As with absenteeism or shirking, it may be due to an inadequate compensation system and agents compensating for it through extracting rents from others, and to weak PMS and M&E. However, as was clear from the discussion on land, rent-seeking may also be the consequence of ill-conceived institutions that grant too much de facto unchecked decision power to potentially untrustworthy agents, lack transparency, or impose rules that are unduly restrictive for economic activity. In the latter case, it is even possible that corruption is economically efficient, in the sense that it improves the lot of the briber, of the one who pays the bribe, and of the whole community if it helps to cut red tape.Footnote ²² Another cause of widespread corruption is the lack of transparency of public decision-making in connection with the private sector.

Yet there is also an externality dimension in rent-seeking and corruption that must be stressed because it conditions the way to fight it. If this behaviour were limited to a few public officers, it is likely that they would soon be confounded with enough discipline on the part of the executive, a policy that would probably be accepted by most political actors. The difficulty appears when this behaviour becomes so widespread that everybody may hold everybody else under the threat of being denounced, thus neutralising this basic anti-corruption tool. Those uncorrupted people paying a rent will not denounce their rent-seeker either, as long as the institutional constraint that makes a bribe mutually advantageous has not been corrected. A true culture of corruption may then develop, where everybody acts under the expectation that none of the people aware of the corrupt action will denounce participants. Informal bilateral rules substitute for formal collective rules. This practice is most widespread in political elections, where most voters and seekers of political positions participate in corruption activities. From that point of view, and despite Magufuli’s general anti-corruption action, it is believed that the level of corruption in political elections in 2020 was higher than that in previous elections. The main challenge lies in political commitment to fight corruption, considering that the route to political positions is not free from corruption.

Economic theory provides an interesting representation of this phenomenon under the form of a multiple equilibrium. There is an equilibrium where most agents are corrupt, asking for or paying a bribe.Footnote ²³ For this to be the case, the probability of denunciation must be low, meaning there are few ‘clean’ people. In the other equilibrium, a large proportion of people are clean, which makes corruption dangerous because of the high probability of being caught.Footnote ²⁴ Most observers tend to believe that Tanzania is in the former equilibrium, with corruption so widespread that it is indeed ‘a way of life’, as a journalist wrote in view of the repeated corruption scandals at the end of the Kikwete mandate.Footnote ²⁵

Although very crude, this model shows the enormous difficulty in fighting corruption when it is widespread. This is because the preceding equilibria are ‘stable’, in the sense that small departures from the original equilibrium with a slight change in the probability of corrupt people to be sanctioned cannot prevent the system from going back to the original equilibrium. This is what has been observed in Tanzania with various past attempts at curbing corruption. Moving to the clean equilibrium requires a ‘big push’, with a sufficiently large group of people above any suspicion of corruption leading the fight against corruption.

There are few examples of countries that have successfully combated corruption, or at least reduced it to sporadic cases, starting from a culture of corruption. Singapore and Hong Kong may be the most famous cases. In both countries, a big corruption scandal moved public opinion. A politically powerful leader then put together an anti-corruption team made up of police personnel and judges who were above suspicion, whose mission was to sue corrupt civil servants and businesspeople with maximum publicity. It took time, but it worked. In the case of Singapore, interestingly enough, the strategy also included redesigning the law so as to eliminate situations that would provide rent-seeking opportunities, as well as making sure that civil servant salaries were well aligned with remunerations in the private sector.Footnote ²⁶

There are many more examples of countries where anti-corruption policies and agencies have been unsuccessful or short-lived, including Tanzania. The main difficulty is forming the ‘above-suspicion’ anti-corruption core team, giving it all the resources it needs, politically supporting its decisions, and maintaining the fight for long enough.

Corruption seems to be sufficiently severe in Tanzania that such policies should be seriously considered. This was the position of the Magufuli administration, which launched an aggressive anti-corruption campaign based on a solid team around the president and on re-establishing discipline in the upper tiers of civil service. After some apparent early progress, doubts have been expressed about whether fundamental change had been obtained at the time he passed away, six years later. His noticeably rigged re-election in 2020 would seem to confirm those doubts.

It should not be forgotten that, as mentioned in the case of Singapore, simplifying the law, making the administrative apparatus more transparent, reducing the monopoly power of civil servants in particular decisions, and aligning their compensation with the private sector are an equally important side of the fight against corruption. Most importantly, such measures are much less likely to be resisted by those political forces that would be under threat in a direct attack against corruption.

5 Strengthening Business Regulation and Competition

The relationship between the government or the political elite and big companies hides another aspect of corruption and rent-seeking through economic favouritism. Practically, politicians in power, or with influence on the executive, offer advantages to a company, in exchange for their economic support. This is legally reprehensible in some cases, as with vote-buying, but economic support may take other forms, for instance through contributions to electoral campaigns, grants to regional development, or employment creation in particular localities.Footnote ²⁷ Even though such practices are close to lobbying, the difference from straight corruption is small, especially when the political support granted by companies is hidden, as it is most often the case.

Because electoral support mostly comes from business, this patronage system is equivalent to the latter extracting a rent, under the form of a competitive advantage or otherwise, from the government or, more exactly, from citizens. They are able to do so for three major reasons. First, they have the resources to support the electoral campaigns of their political allies. Second, as economic growth relies to a large extent on big business, no government would take the risk of antagonising them. Third, major firms are often in monopolistic positions, which limit the leverage the government may have on them. Such a state of affairs is certainly not a guarantee of economic efficiency since the interest of big groups is not necessarily that of the nation. Pursuing an economic development strategy that would be collectively beneficial but would hurt the interest of some major firm would be a risky bet for governments, as the firm might retaliate by favouring rival political groups or, when in partial control of the media, campaigning against the government’s decisions. The institutional weakness here is the lack of independence of the government or public decision-making process with respect to the interests of major private companies and the opacity of that relationship. The joint structure of political and economic power is thus what determines policies that affect big business.

The Magufuli administration faced this problem, as its predecessors did. Shortly after taking power, President Magufuli stated that he would not let businesspeople ‘play with his government’. He then took vigorous action in that direction by fighting tax evasion and intervening in several corruption cases that involved big companies. Without really releasing the pressure, he nevertheless made clear a year later that he was open to signing agreements with them provided they contributed to the industrialisation agenda.Footnote ²⁸

This was probably the right strategy by then. However, even though the relationship with the executive improved, big firms retain considerable power, including of course that of influencing the political game. As the dominant political party, CCM, is somewhat fragmented in various political factions; there has always been room for large companies to play one faction against another and potentially unsettle the executive. As seen earlier, this might change if the leadership were able to exert more control on the party.

The other effective way of reducing the power of big businesses is to weaken their monopoly position both as leading economic actors and in their areas of specialisation. This requires the fostering of competition on two levels. First, the emergence of new economic leaders should be favoured, which includes making sure that promising business managers will not be ostracised because of their ethnic origin or other personal characteristics. In other words, there should be no glass ceiling, most notably when raising funds, for entering the business elite other than talent. Second, it should be checked that incumbent firms are not restricting competition in their area of activity by raising barriers of entry, including through artificial business regulation obtained from the government. In short, this would mean empowering the Fair Competition Commission and sectoral regulatory authorities, for example the Sugar Board,Footnote ²⁹ so that they are more proactive and more rigorous, this being particularly important in the financial sector. Foreign investment and trade policy, in particular the dismantling of various types of non-tariff barriers since base tariffs are set at the level of the East African Community, should also be used to check domestic monopoly power and foster the development of new activities. At the same time, trade and tax authorities should be encouraged to tighten the control of counterfeit imports and the levy of legal tariffs. Transparency of the long-run industrial policy pursued by the government is also a necessary condition for resisting the political influence of local big business.

In relation to big domestic companies and the design of industrialisation strategies, the development of South Korea bears some lessons. Although industrial development was based on big companies, the chaebols, the Korean government managed not to become their hostage, at least during the years during which development took off, and to develop its own strategy. This was done by creating competition between chaebols, especially in export markets where they would not be constrained by domestic demand, never granting support to one group that would not be granted to at least one other and, most importantly, making those grants conditional on successfully meeting precontracted objectives.Footnote ³⁰

Promoting competition among leading companies in Tanzania would not bear fruit in the short run, and it may well be the case that it would be partly neutralised through their political leverage. Coupled with an authoritarian stance on corruption and an adequate communication policy on the government’s industrialisation strategy, it could nevertheless progressively improve the competitive landscape, restrict the de facto political power of the business elite, and allow for more effective and more open collaboration between the government and business.