GENERAL ECONOMIC REVIEW | PRIVATE SECTOR DEVELOPMENT AND CROSS-CUTTING ISSUES|
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THE STATE OF THE WORLD ECONOMY AND INTERNATIONAL  ECONOMIC COOPERATION

 THE STATE OF THE WORLD ECONOMY

World Economic Growth

23 .  Despite uncertainties due to terrorist and Iraq war threats, world output grew by 3.0 percent in 2002, compared to 2.3 percent in 2001. The increase in world output was mainly due to recovery of the world economy, particularly in the United States of America after the September 11^th, 2001 terrorist attacks and the increased inflow of Foreign Direct Investment in many parts of the world.  The output of the developed countries grew by 1.8 percent in 2002, compared to 0.8 percent registered in 2001. Growth rate in output of the developing countries was 4.6 percent in 2002, compared to 3.9 percent in 2001. Growth in output of African continent dropped from 3.6 percent in 2001, to 3.4 percent in 2002. Economic performance differed substantially across the major regions of the developing world, largely due to differences in policy frameworks implemented by individual countries, political situation, and weather conditions.

24.  The Chinese economy which continued to register a high growth of 8.0 percent in 2002, compared to 7.3 percent in 2001, contributed to the rise of economic growth of the Far East where many countries are implementing restructuring policies. Growth in Latin America and Caribbean was held down by heavy government debts and collapse of the banking system in Argentina; uncertain political climate in Brazil, and financial and political problems in Venezuela. Output of the Middle East oil exporting countries grew by 4.5 percent in 2002 compared to 1.4 percent in 2001.

25.  In 2002, the volume of world trade grew by 2.9 percent, compared to a meagre increase of 0.1 percent in 2001. Imports of goods for developed countries increased by 2.1 percent in 2002 compared to a decrease of 1.1 percent in 2001. Imports for developing countries increased by 5.4 percent in 2002, compared to 2.2 percent in 2001. Exports of goods and services for developed countries increased by 2.0 percent in 2002 compared to a decrease of 1.0 percent in 2001 while exports for developing countries increased to 5.1 percent in 2002, compared to an increase of 3.3 percent in 2001.

26.  Consumer prices in developed countries decreased from an average of 2.2 percent in 2001, to 1.5 percent in 2002,  and for the developing countries, consumer prices decreased from an average of 5.8 percent in 2001 to 5.4 percent in 2002.

Economic Performance of Africa

27.  Economic and political problems that experienced by the African region in 2002 were reflected by a slow growth of output, which increased by 3.4 percent in 2002, compared to 3.6 percent in 2001.  Non adherence to good economic governance and lack of peace, security and political stability are major problems facing African continent and continued to discourage internal and external investors.  For African countries that continued with efforts in implementing economic recovery/adjustment policies and adherence to good governance and maintenance of peace recorded an average growth rate of 4 percent.  However, this still falls short of the Millennium Development Goal of 7.0 percent, required to reduce poverty by half by 2015.

28.  Continued political conflicts which caused civil war and instability in many African countries, particularly in Democratic Republic of Congo, Cote d’Ivoire, Liberia, Central Africa, Burundi, Somalia and Zimbabwe, to large extent have adversely affected economic growth and development in Africa despite measures taken by some countries in promoting peace, security, and implementing policy reform programs in their respective countries.  Moreover, HIV/AIDS and drought problems continued to affect the African continent by weakening and depleting human resources, increased costs of medical care and serious food shortages, which affected 38 million people in the  Horn  of Africa, Southern Africa and the Sahel region.

29. different sub regions for various reasons.  Output growth in Maghreb decreased from 4.1 percent in 2001, to 3.3 percent in 2002 due to in security, particularly in Algeria. Output growth in the Horn of Africa decreased from 6.1 percent in 2001, to 5.0 percent in 2002 following conflicts and civil wars in some countries. In the Great Lakes countries, including Tanzania, output grew by 4.1 percent in 2002, compared to 2.3 percent in 2001, following the implementation of economic reform programs in Tanzania and Uganda. The registered growth rate could have been higher if there were no wars in the Democratic Republic of Congo and Burundi. Growth rates in the Southern, Western and Central Africa were low due to drop in oil production in Nigeria, drought in Southern Africa, conflicts and civil wars particularly in Cote D’Ivoire and Zimbabwe. Table 2.1 shows the trend of the economic indicators in the selected African economies.

Table 2.1:   SELECTED AFRICAN COUNTRIES: REAL GDP, CONSUMER PRICES AND CURRENT ACCOUNT BALANCES

 Source: IMF World Economic Outlook, April, 2003

 INTERNATIONAL ECONOMIC COOPERATION

East African Community

30.  In 2002, the East African Community (EAC) continued with the implementation of its Development Strategy aiming at strengthening cooperation between member states. Efforts were directed towards finalization of the protocol on the establishment of Customs Union planned to be signed by November, 2003. Main issues  under  discussion  prior to the finalization of the protocol includes: elimination of internal tariffs, common external tariff and rules of origin.

31.  Efforts to increase business and investment in EAC continued in 2002, which included the finalization of procedures for opening stock exchange markets in Dar es Salaam, Nairobi and Kampala.  The daft Agriculture Sector Development Strategy was finalized with the aim of strengthening cooperation in agriculture and food security in the region. Analysis of the evaluation on opportunities and risks in transforming Lake Victoria Basin into a Growth Economic Zone was finalized and strategies on development of Lake Victoria Basin began under the second phase (2001-2005) of the EAC Development Strategy.

32.  Preparations for the Phase II East Africa Road Network Project were finalized at the end of 2002 with the aim of submitting to the Donors’ Conference.  With regard to Tanzania, roads earmarked for development or to be given priority under the EAC are:- Chalinze-Segera, Tanga-Horohoro, Mkumbara-Same, Marangu-Tarakea, Mtwara-Mingoyo-Dar es Salaam-Dodoma-Isaka-Mtukula, Biharamulo-Mwanza-Musoma-Sirari, Tunduma-Sumbawanga-Kasulu-Nyakanazi, and Tunduma-Iringa-Dodoma-Arusha-Namanga.

Southern African Development Community (SADC)

33.  Tanzania hosted the SADC Council of Ministers meeting held in Zanzibar in February, 2002, which among others issues, agreed to hold in London around June/July, 2003, a meeting to evaluate investment opportunities in Southern Africa.  In 2002, SADC continued with the preparation of Regional Indicative Strategic Plan (RISDP) for enhancing co-operation in the next fifteen years. The strategic Plan aims at earmarking and solving socio-economic problems facing the member states, particularly, in poverty eradication, equitable participation in economic development, globalization, sustainable development and gender issues. RISDP will be the blue print for SADC framework in the implementation of Community roles and responsibilities.

34.  In the implementation of the Declaration and Treaty establishing Southern African Development Community, in 2002, the Government of Tanzania ratified protocols on health, Politics and co-operation in security, control of fire arms, and procedures of running Community activities.

New Partnership for Africa’s Development -NEPAD

35.  In July 2002, African Union (AU) was inaugurated in Durban, South Africa to replace the Organization of African Unity (OAU) with an objective of encouraging partnership among African countries in social-economic and political spheres. In order to achieve this objective, African heads of states adopted NEPAD as a blue print for guiding Africa’s development in poverty eradication and ensure its effective participation in the global economy in accordance with the abundant resources and in cooperation with international community. NEPAD areas of priority include:-promoting peace and security; good governance; trade development; debt cancellation; investment promotion; education; health; water; environment; fighting HIV/AIDS and agriculture.  Steps to be followed will include the preparation of implementation program for each member state and sensitization on NEPAD within and outside Africa.

Technical Cooperation among Developing Countries (TCDC)

36.  In 2002, the government of Tanzania continued with the implementation of TCDC programme in collaboration with UNDP. Important aspects undertaken in 2002 include facilitating the government in participating and following-up the outcome of major regional and international conferences, capacity building for the National TCDC focal point and evaluation of Tanzanian participation in regional and various international economic groupings.  Regarding technical exchange program, the government benefited from assistance offered by the government of China where Tanzanians participated in training courses on seismology and engineering, small Hydro Power, renewable technology and edible mushroom technology.

 African Growth and Opportunity Act (AGOA)

37.  AGOA is a program approved by U.S.A government to grant Sub-Sahara African countries an opportunity to access the U.S.A. market on duty and quota free basis for all products, so long as the rules and procedures are observed. Tanzania fulfilled the required procedures and thus qualified for the AGOA market in February, 2002. In order to fully utilize the AGOA market, Tanzania Government has set strategies which will enable Tanzanians to exploit the opportunity effectively.   Strategies undertaken include conducting training in form of workshops, seminars and conferences so as to sensitize stakeholders on AGOA, appointing AGOA national committee comprising representatives from the private sector and the government.  The committee will be responsible for coordinating AGOA issues at national level and implementation of EPZ programme.  It is expected that domestic and foreign investors will exploit the opportunity in order to increase production for the AGOA market duty Free. As a result of this opportunity, some textile industries, including A-Z and Sun flag have already begun to export their products through AGOA. In 2002, exports under AGOA were reported to amount to USD  $ 1.642 million.  

 World Trade Organization (WTO)

38.  In implementing the agreements reached in the fourth WTO Ministerial Conference in Doha, Qatar on November 2001, Tanzania continued to cooperate with other developing countries in order to have common position that will benefit them from WTO agreed negotiations. The issues agreed for negotiations include:  agreement on tariff elimination, trade barriers for goods from poor countries, agricultural issues particularly removal of subsidies in developed countries, relaxing investment conditionalies among member countries, trade competition policies, intellectual property rights, and quality of the products.

39.  With regard to removal of trade barriers, developing countries are requesting more preparatory time for removing those barriers so as to avoid their impact to the sources of revenue and at the same time protect domestic production and favourable terms of trade. Developed countries were also requested to remove subsidies granted to their farmers in order to have fair competition in the world market. On negotiations relating to investments, developing countries requested for extension of the seven year transition period.  On the property rights, developing countries asked for technology and rights to produce drugs and medicines at low costs. With regard to standards, developing countries requested for facilities and more time in order to produce goods that meet international standards. On trade competition, developing countries request for non-reciprocal tariff reduction or cancellation while goods from developed countries continue to pay tariffs in certain proportions. Despite these resolutions, the government continued with implementation of agreements negotiated under WTO and strengthening the capacities of embassies through provision of trade/economic attaches so as to facilitate effective participation in negotiations.

 Globalization

40.  The world is now in the era of globalization.  Information, money, goods and services produced in one part of the world are quickly and increasingly becoming available in all other parts of the world; international communication is common place; and business do operate as if natural borders are non-existent.  Globalization is revolutionalizing the manner and speed of global movement of factors of production (capital, labour and entrepreneurship).  Nations are establishing and strengthening alliances like the North American Free Trade Area (NAFTA), African Union, SADC, EAC, the Union (EU).  These alliances and others like WTO are not only a product of globalization but they, in themselves, are entrenching the very principles of globalization.

41.  The international community (through the International Labour Organization – ILO), aware of the ramifications of globalization, its potential for sustainable development and the inherent risks for the poor, established the World Commission of Social Dimension of Globalization to promote dialogue on this subject and to look for ways of managing globalization for the good of mankind.  The Commission was launched on 27^th February, 2002 in Geneva under the      Co-chairmanship of H. E. Benjamin William Mkapa, the President of United Republic of Tanzania and H. E. Tarja Halonen, the President of the Republic of Finland.  The Commission’s work is expected to provide facts and analysis of the globalization process and effects to different segments of global society; forge a broad consensus on a broad range of stakeholders including workers, farmers, enterprises, civil societies and public sector; analyse the impact of globalization on employment, poverty reduction, economic growth and sustainable development; and launch a process for making globalization fair and just as well as making it work for all sustainably.