I Introduction

The relationship between government, or more generally the political elite, and the business world, in particular ‘big business’, is a key determinant of development. A government may want to pursue policies that favour some specific activity, exploit some comparative advantage, generate both employment and foreign currency, and lead to a satisfactory rate of growth. However, in a market economy, business interest has no reason to be automatically aligned with such views. Then a kind of game takes place between business and the political elite, by which one side tries to impose its views on the other side. One example is when the former (business) has captured the latter (political elite) through sheer corruption. The development of the country then depends on the interest of incumbent big firms, which has no reason to automatically coincide with that of the national community. Another example is that of a neutral government whose action is primarily in the national interest, with its actions primarily limited to providing a favourable environment, or ‘business climate’, including, presumably, transparent regulation rules for all producers irrespective of their size or influence.

The real world is more complex, exhibiting competition within the business elite for gaining support from politicians, and competition among politicians for accessing, or maintaining themselves in, power. The latter may take place through voting but also through power struggles within political parties. The strategy of politicians in power may also be to attract the support of the public by ostensibly staying away from business influence, thus getting close to the neutral case mentioned earlier. These relationships are examined in this chapter in the context of Tanzania.

State–business relationships in Tanzania have been changing over time, and this chapter sets out to make a contribution to the interpretation and understanding of these changes. The extent to which the government has been effective in its intervention and the extent to which it had roots in society (‘embeddedness’) and the power to impose its own will on the private sector and the rest of the society needs to be examined. In this context, this chapter addresses the kinds of developments that influenced the extent to which the state and politics were able to impose a vision that is compatible with underlying social and economic forces. In addition, it addresses the extent to which the state became a vehicle for furthering the interests of powerful sections of business as opposed to furthering national interests.

The nature of the prevailing ideology about development has been an important factor in influencing the political economy surrounding Tanzania’s development. Since independence in 1961, the economic development of Tanzania went through four stages of very different nature, and a fifth and sixth stages were not completed yet at the time of writing. In order to capture the characteristics and influence of these stages, this chapter takes a historical perspective. In this regard, it is organised in six sections representing four periods and attempting some speculation on what kind of equilibrium is likely to emerge in, or be associated with, the fifth- and sixth-phase governments. However, prior to addressing the six periods, after this introduction, the theoretical framework and methodology that has guided the rest of this chapter is presented in Section II. This is followed by sections that coincide with the six periods. Section III examines the first period from independence to the Arusha Declaration (1961–6) and represents the initial conditions that largely set the stage for the Arusha Declaration of 1967. Section IV examines the second period, from the Arusha Declaration to the economic crisis (1967–85). During this period, the policy framework was essentially addressing the socioeconomic challenges as seen in the initial post-independence period. Section V addresses relationships in the third period (1986–95), which is characterised by policy reforms that changed the relationship between politics and business. In this period, Tanzania was implementing a series of economic recovery programmes primarily determined by the international financial institutions. Section VI examines politics–business relations during the fourth period (1996–2015). This is essentially characterised by initiatives taken by the government to consolidate reforms and define its own development agenda, in which the integration of business with politics was progressively institutionalised, while in an informal setting corruption was going on between sections of business and sections of the political elite. Since the fifth-phase government came into office in November 2015, the relationship between politics and business has changed considerably. Although the period was rather short (up to March 2021), it may be necessary to preliminarily discern the characteristics of the equilibrium that was emerging. The changes in this period are examined in Section VII, which identifies the signs that the country was showing the will to make a substantial shift from the prevailing equilibrium and adopt a new one, which was still in the making. Section VIII discusses the sixth-phase government under President Samia Suluhu Hassan from March 2021. Although she has not been president long enough to make conclusive statements, there have been notable changes in policies on several fronts that point in the direction of improving politics–business relations. Finally, Section IX brings together these developments in politics and business relations into a conclusion.

II Theoretical Framework and Methodology

This analysis of politics and business aims to contribute to an understanding of how positive institutional change can be achieved, as well as to the design of an institutional diagnostic tool that would permit policymakers to identify weak institutional areas that constrain development and appropriate directions for reform. This institutional diagnostic tool focuses on the institutional (formal and informal rules of the game) weaknesses possibly responsible for economic constraints. It is expected to enhance the understanding of a body of evidence and provide insights into what practicable actions produce institutional changes that improve economic outcomes, increase growth, and enhance industrialisation for socioeconomic transformation.

The theoretical framework that is adopted in this chapter will enable a better understanding of what is at stake in terms of institutions and what action should be taken, if politically feasible. The theoretical framework adopts a political economy analysis that is dynamic, representing the interests of various groups that may also change over time. The framework puts the lessons from experience in context and takes into consideration changes in the political economy. The analysis of the political economy will bring out the relationship between politics and business over time, with analytical interpretation of ideological evolution and socioeconomic development and special reference to the context of promoting industrialisation. The relations among politics, business, and institutions is traced from independence onwards, in terms of the institutionalisation of political power within the ruling party, and the changing distribution of power among groups of classes within the state and groups within business.

The theoretical framework that is adopted here considers the alternatives between a state that negotiates with the business sector to get the best for the public while satisfying constraints inherent to business, and a state that is ‘captured’ by a business elite and makes decisions that are in the interest of that business group rather than of the public. The latter case may manifest a kind of capture equilibrium. This capture equilibrium may occur when a group of big firms with some converging interests hold the government or the political elite ‘captive’ through providing political goods or services (campaign financing, job creation in constituencies, income addition, etc.). This situation makes the state take decisions in the interest of big business most of the time, while often partially converging with public interest by justifying that such decisions favour employment, the interests of the poor such as the promise of affordable prices of imports brought in by traders (who may be the majority), or some other public economic goal through allowing some big companies to pursue their interests. What they do not make clear is the kind of advantages they grant at the same time to those companies and the kind of benefits they themselves get in the process. This equilibrium situation permits some firms to make more profit, while politicians (or their parties) may maintain themselves in power as they increase their probability of gaining political capital and winning the next election, as well as accessing resources for personal gain. The existence of competition among the business elite gives more freedom to the government in choosing what is best for the country. However, in cases where corruption prevails, the choice of what is best for the country may be distorted. At a certain level of corruption, the state may even create its own channels for accumulating personal wealth through private business, which may not necessarily be big business, but it may be convenient for the government to accumulate wealth through such business. The state identifies a business entity to work with in order to syphon public resources. The selected business may be prominent or otherwise, provided it has the trust of the political players. The state’s real situation may lie in between the two extremes of a free and a captured state. It is likely to vacillate between these extremes over time, and this equilibrium is likely to be maintained until it is disrupted.

One source of disruption could originate from exposing the relationships and deals, making them public knowledge. Thus, the media is one institution that could disrupt by exposing deals, provided they are not controlled themselves by the business or the political elite. Civil society organisations may also play this role, as can opposition parties or other organised social groups. However, depending on the degree and nature of capture of the political elite by business, it is quite possible the political elite could find it difficult to act, especially if those who are supposed to take action to rectify the situation are the ones who are being exposed. Captured by business links, and by the structure of political power within the dominant party, the political elite may find it difficult to make decisions, as the inclination to maintain the status quo may be overwhelming. This is a case of the presence of transparency without accountability.

Another source of disruption of the equilibrium could originate from the dynamics of changes in the overall economic context, such as changes in foreign prices, technological development, and various changing business opportunities, making some businesses lose while others gain over time, or some political factions gain while others lose power. What would be observed in that case would be a particular equilibrium, which could be modified owing to some exogenous change in the distribution of political power or business opportunities. This could be the rising of the opposition against the historically dominant party, or simply the personal will of a president, given the considerable power granted to the president by the constitution. Exposure such as that caused by the media and other players in the civil society can modify the relative power of some politicians or conflicts within the political elite, making it possible for one side to denounce the corruption of the other even when they themselves may be engaging in corruption.

Another view of the relationship between business and politics, through which state capture may be manifested, is the concept of rent and rent management. The capture view and the equilibrium distribution of rents are two ways of describing the same thing. In a seminal discussion of rents and rent-seeking, Khan (Reference Joshi and Gaddis2010) distinguishes between different types of rents. Some of these are value-reducing and some value-enhancing, and some can be either depending on context. The manner in which economic rents are managed and oriented towards the short- or long-term horizon is important in influencing the extent to which rents may be value-enhancing. There are several types of rents, for example monopoly rents, natural resource rents, rent-like transfers, Schumpeterian rents, rents for learning, and rents for monitoring and management. Access to these rents by businesses can be politically driven, influenced by the relations between politics and business. Political decisions may transfer rents to business groups through direct transfers of assets or funds such as foreign aid, the transfer of publicly owned assets through privatisation or allocation of land, transfer of subsidies such as through utilities, or transfers in the form of election spending, and various forms of corruption can be influenced by the behaviour of the political elite (Cooksey and Kelsall, Reference Clark2011). The extent to which rents are value-enhancing is determined in part by the extent to which benefits go to the general prosperity of the private sector or are reinvested locally for the good of the economy. Management of rents and the degree of centralisation can influence the benefits accruing to business as a community and the time horizon of its outlook.

The methodology that has been adopted in this chapter follows the nature of the business–state relationship and its evolution through the history of that relationship in Tanzania since independence. This methodology has been preferred in order to take fully into account the dynamics of the relationship. The information that has been used has been collected through a desk review of the relevant literature and personal interviews with selected political and business leaders.

III The Early Independence Period, 1961–1966

IV The Arusha Declaration: Business and Politics Relations, 1967–1985

V Policy Reforms: Opening up Space for Business, 1986–1995

VI Initiatives to Consolidate Reforms and Define the Development Agenda, 1996–2015

VII Fifth-Phase Government: Fighting Corruption and Changing Relationships between Politics and Business

The foregoing analysis has shown that, although the political elite monopolises the main forms of rent creation, rent management within the political system is decentralised and not effectively coordinated by a single individual or group at the apex of the state.Footnote ⁵ The result is damaging to the effective implementation of a long-term development agenda. Throughout the 1960s and 1970s, Julius Nyerere took great pains to centralise rent management, using a variety of means, including his own charisma and personal authority and the powers of the president as per the constitution. However, the collapse of the formal economy in the late 1970s disrupted that equilibrium. Since then, the following three governments under Mwinyi, Mkapa, and Kikwete have not been sufficiently daring to restore that system. The fifth-phase government, led by President John Pombe Magufuli from November 2015 to March 2021, showed the beginnings of disrupting the equilibrium that has prevailed for three decades, distinguished itself with a high level of commitment to fighting corruption, putting off unnecessary government expenditure, and announcing the intention to industrialise Tanzania.

However, it takes considerable personal authority and time to disrupt that equilibrium and establish a new system. The fact that President Magufuli had not been an insider in CCM, the ruling party, and had campaigned on the anti-corruption ticket may have been an advantage. In one of his speeches to the business community, he challenged the sector’s members by pointing out that he had not been brought to power by their money, a situation that was very different from how his predecessor had come to office. At the same time, his lukewarm relationship with business leaders was a problem, because he needed them. In this regard, his statements in the TNBC meetings of May 2017 and March 2018 had mixed messages. On the one hand, he expressed a conciliatory tone, expressing recognition of the role of the private sector in development and the willingness of government to support private sector development. On the other hand he pointed out on several occasions how members of the private sector had engaged in acts of corruption and other malpractices. This perception of the private sector prevailed during this phase. The discussions in the TNBC were not particularly constructive. In fact there were no more TNBC meetings after 2018 although TNBC is supposed to meet the president twice a year. This was a sign of deteriorating relations between the president and the business community.

The ascendance of President Magufuli and his campaign slogan against corruption was influenced by the falling popularity of CCM because of the corruption scandals that had been exposed, but little accountability followed. Magufuli had an opportunity to influence the manner in which the political elite interacted with business to take advantage of favourable political stability and the strong organisational capacity of CCM, to pursue a broad-based development strategy driven by the private sector. He had the opportunity to pursue a more active industrial policy that could support industrialists and rectify the bias in favour of traders. His concern over economic empowerment of the vulnerable groups in society could have formed the basis for promoting indigenous Tanzanian industrialists and inclusive industrialisation, an issue of major concern in the initial conditions at independence and as reiterated in TDV 2025 and in the National Economic Empowerment Policy of 2004. The concerns over these issues were (and are) real and have not gone away. However, during this phase, public investment was preferred to private investment to the detriment of the latter. It was common for public investments to crowd out the private sector. Activities that were earlier being performed by the private sector were transferred to the public sector such as insurance to National Insurance Corporation and construction to Tanzania Building Agency and JKT. The orientation was to encourage public sector institutions to procure their products and services from other public sector institutions. The private sector was accorded low priority. Private businesses faced harassment from the Tanzania Revenue Authority (TRA) and what came to be known as the Tax Task Force consisting of TRA, police, security and Prevention and Combating Corruption Bureau (PCCB) officials. The list of unbailable offences under the notorious Money Laundering Act was extended to cover even such offences as tax evasion and business-related offences. Closure of bank accounts was generously applied to business based on all kinds of demands from revenue authorities. The president’s harsh interventions against the private sector prevented pursuit of a broad-based development strategy driven by the private sector.

President Magufuli demonstrated the will and reputation to impose a new discipline in CCM, by going over the heads of the party and engaging directly with the masses in his own terms. This enhanced the chances of taking a new direction towards an inclusive development strategy. The fifth-phase government showed that there is an opportunity to address collective action problems within CCM, short-termism driven by periodic elections, and corruption in elections. If this had happened successfully, there was a chance of facilitating the development of an anti-corruption regime that could create a long-term transformative development strategy through industrialisation. These long-term development concerns, including industrialisation, were pillars during the 1967–85 period. There were signs that under the leadership of President Magufuli several elements of these pillars had a good chance of being revived. However, the president’s unrelenting industrialisation drive gave jobless youth little relief as it hardly dented unemployment figures. His idea of industrialisation lacked consistency, coherence and was not guided by clear policy and strategy. It did not show consistency with a broad vision of building a nationally integrated economy in which industry, agriculture, and services would be mutually reinforcing. Agriculture received little attention and private investment in the economy faced hostility from the Magufuli government. Major emphasis was placed on investments in infrastructure. This presented an opportunity for facilitating private investment, provided other business environment conditions were put in place.

Implementation of a long-term development agenda and industrialisation in particular faced two challenges. First, the institutional environment and the political structure of CCM needed to reform in order to cope with this requirement of long-term development and transformation. As president and chairman of the ruling party, Magufuli did not institutionalise the party and make it fit for the task. CCM was not structured for political mobilisation that addressed the set of rules, organisations, and norms that would constrain the behaviour of the political elite and make them accountable to the citizens of Tanzania. The ruling party did not seize the opportunity to explain, discuss strategies, and promote ownership of the development agenda and strategy among the key actors. Second, the president put emphasis on hard work as a main contributor to development and self-reliance, but this was not accompanied by capacity building and incentives. Instead, salaries and promotions of public servants were frozen for his presidency as priority was accorded to public investments in large infrastructures. Public service performance management and the associated incentives were not institutionalised. Public service support for businesses deteriorated and the business climate weakened, as indicated by declining rankings reported by the World Bank.

The fifth-phase government put emphasis on the prudent use of natural resources for the development and benefit of the people. This was a fight against scooping rents through corruption and other ways. It is in this context that a progressive piece of legislation called Natural Wealth and Resources (Permanent Sovereignty) Act was passed in 2017 recognising the sovereign ownership of the people of natural resources. However, there was little space for private investment in general and little appreciation of private investment, either FDI or private domestic investment. A notable attack on FDI was the taking on of the multinational gold company Barrick when the president stopped containers full of mineral sand from being exported by Acacia, a subsidiary of Barrick, for smelting. He formed a local team of experts to investigate the mineral content of the sand. Simultaneously, the Tanzania Revenue Authority slapped on the company a huge bill of unpaid taxes amounting to USD 190 billion. Eventually the parties struck a deal under which Barrick would pay USD 300 million in settlement of the tax dispute and give Tanzania a 16 per cent stake in a new company, Twiga Minerals, which would operate Barrick’s three mines. This may have appeared as victory, but there are two challenges here. First, the message that the saga sent to other private investors was negative, leading to the risk of scaring away investors and reducing the credibility of contracts that the government entered into with them. Second, the process of negotiating with investors of this kind was not institutionalised. The local team that was formed to negotiate was not followed by creation of the local human and institutional capacity to carry out negotiations with private investors on a continuous basis.

The earlier Kikwete administration, which had promoted transparency with little accountability, shifted towards a higher level of accountability with reduced transparency. However, accountability of the top leader to the constitution and to the people he was leading was reduced while subordinates became accountable to one person at the top with little institutionalisation. Magufuli did not make himself accountable to the business community and ruled by fiat, legitimising his approach by material measures in the interest of the downtrodden or oppressed (called wanyonge in Tanzania) to the detriment of private investment and private business in general. Autonomous institutions of democracy such as parliament and the judiciary were stripped of their content so they existed in name only, going through the rituals of elections, law-making, and judicial decision making, which means little in practice. In terms of relations between politics and business, this situation introduced little transparency and a low level of certainty in the policies that influenced business decisions.

In conclusion, while it is appreciated that corruption declined and investment in infrastructure increased, economic prosperity suffered. Too much attention went to infrastructure and little went to boost the economy of private sector actors. Agriculture and participation in the global value chain was not accorded priority although the livelihoods of over 60 per cent of the populations is derived from agriculture, and public investment often crowded out private investment. The regime was not friendly to business and the private sector development that the third-phase government under Mkapa had started and was built further by the fourth phase government under President Kikwete. The private sector suffered in the hands of the fifth-phase government. Lack of participation in public affairs made people unhappy and dissatisfied, and they could not hold their government accountable. Business with other countries and international relations deteriorated. Weak institutions for holding the leadership accountable were the main cause of this situation. It has been argued that this underlines the risks of viewing leaders through rose-tinted glasses: Charismatic individuals can claim the reformer’s mantle, but giving them too much credence before structural reforms are implemented sells democracy short and increases the risk of authoritarian relapse (Cheseman et al, 2021).

VIII Sixth-Phase Government Led by President Samia Suluhu Hassan, March 2021 to Date

Magufuli died on 17 March 2021, and Samia Suluhu Hassan was sworn in as the new president of the sixth-phase government. Although she has not been president long enough for conclusions to be drawn, there have been notable changes in policies on several fronts.

First, freedom of the media and freedom of speech have been an immediate change from the Magufuli regime. Print and electronic media are operating freely and some of those that had been closed have been reopened. This is positive for transparency. Second, there is freedom for opposition parties and President Samia has openly spoken in favour of bringing unity and peace between CCM and the opposition parties.

Third, the relationship with the business sector has improved, one indicator being the resumption of dialogue between government and the private sector in the TNBC. Within 100 days in office, President Samia chaired a TNBC meeting, meetings that had not been held since 2018. Since then TNBC has been holding meetings twice a year. President Samia has also met sections of the business community on several occasions. In her state visits to other countries (Uganda, Kenya, Rwanda, Burundi, and the United States), she has taken members of the business community with her. All these are positive signs that the relationship between politics and business are likely to improve under President Samia.

Fourth, President Samia has liberalised several policies to make them business friendly. She is more liberal politically and economically and more friendly to the outside world, from neighbours in the region to Western governments. She is already opening up to the outside world. She has paid state visits to Uganda, Kenya, Burundi, Rwanda, and the US. She has mended relations with the World Bank and IMF.

Fifth, President Samia has demonstrated that observance of the rule of law is being restored. Several businesspeople who had been arrested and remained in custody without being charged and those who had been charged falsely for money laundering have been released. Those who had been close to Magufuli and broken the law with impunity have been taken to court and charged. A former District Commissioner for Hai District who was breaking the law with impunity, claiming that he was doing so under the orders of Magufuli, was jailed in October 2021. Cyprian Musiba, whose media house was known for defaming and relentlessly humiliating former leaders, has now been taken to court; two recent cases have been won and he has been fined heavily. His media house is not functioning anymore. Upholding the rule of law is likely to enhance the certainty of the environment in which business operates.

Finally, there are encouraging indications that the business climate is improving. The policies and procedures for issuing permits to investors have eased and permits for foreign experts have been made more liberal and efficient. Investors are assisted more efficiently in terms of time. The TRA has been instructed to act with fairness and promote compliance with competence instead of force. More processes for handling investors have been digitalised and delays have been reduced.

IX Conclusion

This analysis of politics and business relations has shown that there are weak institutional areas that constrain development and appropriate directions for long-term development through industrialisation. The political economy analysis that has been adopted in this study has demonstrated its dynamism in the sense of representing interests of various groups that have been changing over time. This framework has put the lessons from experience in context and has brought out the relation between politics and business over time. It has been shown that, in the first two phases (1961–67 and 1967–85), the state was able to relate to business with a view to getting the best for the public, while satisfying constraints inherent to business. However, the equilibrium that had prevailed through this period was disrupted in the following phases. During the third and fourth phases (1986–95 and 1996–2015), the relationship between politics and business changed quite substantially. It gave space for a business elite to negotiate with sections of the political elite in ways that resulted in decisions in the interest of business groups that also benefited respective sections of the political elite. This equilibrium permitted some firms to make more profit and politicians (or their parties) to maintain themselves in power. At a certain level of corruption, the state could even create its own channels for accumulating wealth through private business, which may not necessarily have been big business but were convenient and trusted. These confident businesses facilitated the accumulation of wealth by opening channels for syphoning off public resources. This equilibrium prevailed in the third phase and was consolidated in the fourth phase. The fifth phase, led by President Magufuli, showed signs of disrupting the situation. The source of this disruption was simply the personal will of the president, given the considerable power granted to him by the constitution. However, the change was not institutionalised, and in many ways business was disrupted.

One major lesson to draw from all regimes is that although the ruling party has not changed since Independence, the polity in Tanzania remains fragile, institutions remain weak, and the masses are disorganised. Therefore, the polity in Tanzania is vulnerable and amenable to the rise of individuals who are able to make changes that are not institutionalised. Under the circumstances, organisation-building and institution building remains foremost in the design and implementation of the long term development agenda.

The analysis has also shown that the political elite has the opportunity of monopolising the main forms of rent creation and rent management. These were centralised within the political system and not effectively coordinated in the first and second phases, thereby degenerating into a decentralised rent management system in the following two phases. In the fifth phase, Magufuli tried to reverse the decentralised rent management system to a centralised rent management system. Throughout the 1960s and 1970s, Julius Nyerere took great pains to centralise rent management, using a variety of means, including his own charisma and personal authority and the powers of the president as per the constitution. However, the collapse of the formal economy in the late 1970s disrupted that equilibrium. Since then, the political leadership in the third- and fourth-phase governments restored that centralised system of rents. Although the long-term development agenda was defined during this period (1996–2015), its implementation faced considerable challenges arising from the nature of the politics and business relations. The institutional arrangements that were put in place during the fourth phase (1996–2015), such as PAC, the Controller and Auditor General, and the PCCB, enhanced transparency. It has been shown that transparency improved but accountability fell short. It indicates that during this phase Tanzania did not develop inclusive political institutions or a strong top leader who could constrain the appropriation of public resources by the ruling elite. The fifth-phase government led by President John Pombe Magufuli from November 2015 showed the beginnings of disrupting the equilibrium that had prevailed for three decades. However, this was done by weakening institutions. This factor, however, makes it relatively easy for President Samia to make several reversals within a short time.

The question of whether the relationship between politics and business is likely to facilitate improvement of the investment climate and create conditions for capital accumulation and industrialisation continues to be relevant. Throughout the 1960s and 1970s, President Julius Nyerere centralised rent management and implementation of the long-term development agenda took shape. However, this situation was reversed in the following phases. The fifth-phase government under President Magufuli attempted to reverse decentralised rents towards centralisation, and channels of syphoning rents for personal gain were curtailed. However, preoccupation with the drive towards personal rule and the further weakening of institutions undermined the implementation of a long-term development agenda.

A key criterion, it seems to us, is that the high political elite of the CCM should recognise that the current situation emulating short-termism is unsustainable. Organs such as the Central Committee of the party could then conceivably be used as monitoring mechanisms for mutual discipline of the elite, helping steer rent-seeking into more developmental areas. When introducing the Arusha Declaration in 1967, President Nyerere and the chairman of the ruling party TANU asked the question as to whether the existing TANU internal political structure was capable of implementing the Arusha Declaration. Nyerere argued for reform of the party in order to cope with the demands of the Declaration. A similar question is relevant today in a different context. It is whether the current internal political structure of CCM is capable of disciplining the elite and steering rent-seeking towards a truly developmental state that can facilitate capital accumulation and industrialisation. This chapter has shown that the business and politics relations are important determinants of the investment climate and national policies that are crucial factors in driving capital accumulation and industrialisation.

The fifth-phase government under President Magufuli took initiatives to disrupt the equilibrium constructed on the tradition of inaction from the top political leadership when it comes to corruption. President Magufuli demonstrated a sense of new discipline in CCM and government, discipline in expenditure management, fighting corruption with vigour, staying above capture by sections of the business community, and declaring commitment to industrialisation, though without coherence and consistency. The challenge continued to be a move in the direction of personal rule and the weakening of institutions. The relations between politics and business in the fifth phase government were so tense and businesses were disrupted to the extent that they could not effectively facilitate capital accumulation and industrialisation. This is the task that President Samia Suluhu Hassan has to grapple with. It will depend on how the internal power structure within CCM plays out.

Good leadership needs to be sustained over a long period of time, as it has been in the case of countries such as China, Korea, Indonesia, Malaysia, and Singapore, which have undergone transformation over decades. Tanzania would require at least two or three decades to realise meaningful socioeconomic transformation through industrialisation. The Growth Commission led by Michael Spence (World Bank, 2008) took stock of the state of theoretical and empirical knowledge on economic growth with a view to drawing implications for policy for the current and future policymakers. On the role of leaders in successful development, its report concluded that leadership could be the main determinant of success. Fast, sustained growth requires a long-term commitment by a country’s political leadership, a commitment pursued with patience, perseverance, and pragmatism. Successful cases share an increasingly capable, credible, and committed government. Good and visionary leadership has to communicate the chosen development goals to the public and convince people that the future rewards are worth the effort and sacrifice. Leadership is essentially a team effort involving multiple players with complementary roles, all behind a clearly defined development agenda. While individual leaders can make a significant difference in transforming the institutional structures and their outcomes, there is a need to reflect further on how to nurture leadership and its team effort, both within each phase and across phases.

I Introduction

This chapter is a timely contribution to debates on economic development in Tanzania, both for reasons that are specific to Tanzania and because of the rethinking about frameworks for understanding state–business relations that is going on in international policy circles. For a country with ambitious plans for industrialisation, understanding the dynamics of state–business relations over time is critical in order to shed light on key political economy constraints on effective policymaking and implementation. Research on the relationship between politics and business in Tanzania is relatively sparse. On one level this is unsurprising, given that the size and importance of formal businesses to the economy overall is low as a proportion of total output and as a proportion of total employment. Nevertheless, the role of big business in influencing the effectiveness of policies of economic development has implications that go beyond the relatively small number of firms that make up the formal business sector, permeating every aspect of economic activity. Research has also been hampered by the surprisingly common idea that state–business relations emerged out of a tabula rasa after market reforms from the mid-1980s. In fact, relations between some key private sector businesses and politicians have much deeper roots and extend across the period of socialist economic policy of the 1970s. The regional scale of many of Tanzania’s largest businesses also often goes unexamined.

A further constraint is that institutional approaches for understanding these relations have been mainly developed in the context of industrialised countries that bear little resemblance to Tanzania. This chapter breaks through some of these constraints with an analysis that reaches beyond standard analysis of the institutional constraints on economic development. In particular, it does an excellent job of highlighting the historical roots of today’s industrialists and in emphasising the links within parts of the ruling party to sections of the business community. The chapter is also very useful in providing unique insights into Tanzania’s most recent phase in the evolution of state–business relations under President Magafuli, and makes concrete suggestions about the internal governance mechanisms of CCM that go beyond the standard policy recommendations of development partners. The comments that follow address some areas that I think merit further reflection.

II Theoretical Framework

The theoretical starting point of this chapter is that politicians and business interact along a spectrum between a state that negotiates with business and produces a win–win of public benefits and a situation of state capture. Where the state is captured, interests of the state have converged with a set of narrow aims of big business to maintain their size and profitability. The framework assumes that politicians will systematically favour the interests of large firms because they provide specific material or political benefits – such as campaign finance, job creation, and lower prices for products. Thus, an equilibrium can emerge between political and economic actors that will lead to poorer economic performance over time. This is in contrast to the counterfactual of an uncaptured state that can incentivise and discipline big business in the best interests of sustainable economic development. State capture is manifested in the way that institutions operate and in the type and effectiveness of economic policies adopted by the state. The characteristics of state–business relations can therefore mainly be read by examining the evolution of institutions and policies.

The idea of the captured state has become very influential in explaining the political economies of African countries. It became particularly popular in South Africa, where the debates over Jacob Zuma and the influence of the Gupta family were presented as an archetypal case of state capture. Lofchie (Reference Lawry, Samii, Hall, Leopold, Hornby and Mtero2014) also adopts a state capture lens to understanding Tanzania’s political economy. However, the concept has some limitations when applied as a framework for understanding state–business relations in Tanzania. This is because state capture is a rather blunt tool for understanding certain aspects of Tanzania’s political economy, in particular the fissures within the ruling party that shaped the outcome of a number of areas of policymaking in the 2000s and 2010s. In Tanzania, the ruling party and bureaucracy was significantly fragmented both horizontally, within the elite, and vertically, with significant differences in the nature of state–business relations at different levels within the ruling party and across the country. As set out in this chapter and elsewhere (Gray, Reference Goldthau2015, 2018), in the 2000s some groups within the ruling party had very close relations with parts of the business sector, but the other issue that needs to be emphasised is that others within the ruling party strongly opposed these links. Thus, the successes and failures of various economic policies were a result of both the close relations between certain factions within the ruling party and the opposition from other factions for more open support towards these same groups within the private sector. For example, while one factor in the lack of impact of the EPZ programme in the early years of its operation was the problems in effectively enforcing export quotas, the scheme was also hampered by a lack of sufficient investment in the scheme in the first place. This led to delays in vital infrastructure and insufficient learning rents to allow domestic firms that were quite far from achieving international competitiveness from acquiring the technologies and skills that could have allowed them to break into global export markets. An important reason for this is the limited political saliency of providing transparent industrial policy rents to a group of mainly Tanzanian-Asian industrialists. Thus, a nuanced approach to the idea of capture is needed; one that can explain why the state in Tanzania has exhibited hostility and suspicion towards the private sector, while at the same time explaining clientelist relations between factions of the ruling party and segments of the private sector.

III Accumulation Outside Market Institutions

Economic institutions in Tanzania have gone through a profound transformation since the 1980s with the process of economic liberalisation. In thinking about the nature of state–business relations in Tanzania, it is also important to recognise the fact that interactions between the state and the private sector were occurring within a context of enormous institutional transformation. Key institutions of a market economy, including an array of institutions setting rules and standards for market-based interaction and discipline, were hardly operational for much of the period under scrutiny – accounting frameworks, financial sector regulation, competition regulation, commercial courts, and so on were in a construction phase for much of the last thirty years. This meant that significant areas of economic activity and accumulation were occurring with minimal effective regulation. Within this institutional hiatus, personalised and clientelistic relations may actually have played an important role in facilitating the path of firm growth and diversification, rather than causing a blockage to economic development. This is not to say that clientelist state–business relations are sufficient or desirable for economic development, but that, in Tanzania’s recent economic history, economic success and failure has occurred within a context of personalised relationships between business and the state. Much of the accumulation that went on in Tanzania in the era of high growth occurred outside formal market processes. These forms of accumulation exacerbated social differentiation, and also generated new economic actors as well as enriching existing powerful elites.

This observation also suggests that we need to be cautious about explaining changes in state–business relations through a chronology of policy changes. There were clearly very important policy shifts, as set out in this chapter, but these did not immediately filter through to changes in state–business relations. This is because the distribution of power between different social groups and networks tends to be more enduring than institutions and policy frameworks. In many of the approaches to state–business relations, there is an explicit or implicit assumption that groups that hold power will be able to influence the structure of formal institutions and policy frameworks over time (in the work of Acemoglu and Robinson (Reference Acemoglu and Robinson2012), and in Douglass North’s last works (2009, 2012)). It is assumed that where the distribution of benefits provided by institutions and policies is not in line with the distribution of power, powerful groups will push for institutional changes that benefit them. However, where such groups hold limited popular legitimacy, their influence over the path of institutional development and policy approaches can be quite marginal. This disjuncture between the pattern of benefits produced by institutions and the actual distribution of power can be sustained over long periods of time when informal networks and redistributions that occur outside institutional rules meet the demands of powerful groups.

This observation is particularly important for understanding state–business relations in Tanzania. Significant sections of the private sector hold limited public legitimacy as a result of the influence of socialist ideology, but also because of the racial structuring of the economy that was established during the colonial period. This means that it has often been difficult for the state to create effective and open policies to support the domestic private sector. At the same time, many of the industrialists who held significant informal influence over the implementation of economic and trade policy have held power informally across the policy eras, and despite the approaches to constraining the growth of the private sector in the 1960s and 1970s. This is important for understanding the challenges that face President Magafuli in supporting the development of a private sector that has limited public legitimacy, and also helps to explain the growing influence of state and party-owned enterprises working within the private sector.

IV State–Business Relations at Different Scales

One of the key points stressed in this chapter is the importance of the Tanzanian-Asian business class in the private sector in Tanzania. The chapter does a very good job of outlining the historical origins of this group of Tanzanian-Asian large businesses that have played a key role in industry and trade since independence. A historical perspective is important in explaining the tenacity of their businesses in the face of significant policy shifts. This chapter emphasises the clientelistic relations between certain Tanzanian-Asian industrialists and the ruling party in the 2000s that were identified in a number of grand corruption cases that occurred in the era. These close clientelist relations are described as being a cause of policy failure. However, as explained in the previous section, despite the wealth and economic power of this group, it is a group that has held quite limited political legitimacy, and this lack of political legitimacy has also shaped the way in which economic policies have been implemented over time. This is the reason why, despite the economic importance of this group of firms, there has been little policy discussion on how to include this group positively into Tanzania’s vision of economic development. Large firms can play an important role in sustainable economic development, particularly in terms of their role in enhancing domestic technological capabilities through research and development, and can play a key role in expanding employment. Economies where large firms are owned by minority groups face a particular political economy challenge. However, there are examples of countries that have successfully included large businesses into their development vision. For example, in Malaysia the ruling party was able to negotiate a relatively successful distribution of rents and incomes between the Chinese-Malay business sector and the state. The challenge is to create policies and targeted rents that overcome market failure and address collective action problems, while at the same time disciplining rent recipients in order to ensure effective use of policy rents. Solutions to this challenge may not come from sweeping institutional reforms but from a more targeted agenda of support and monitoring of firms. In Tanzania, targeted industrial policy and competitions policy could help tie large firms into a more productive path of economic development, but this would need to be accompanied by a politically viable strategy underpinned by building a more inclusive constituency in support of industrialisation through linking social, industrial, and economic policy more closely.

The other approach would be to invest much more heavily in SMEs and engage in a more radical transformation of the ownership structure of the industrial sector. It should be noted, however, that this has been on the agenda of the ruling party for many years (including in the 1996 industrial policy) with minimal success (Gray, 2018). This is partly because the scale of investment and support that would be needed to really develop the SME sector in Tanzania has not been recognised or addressed in existing policy mechanisms. A starting point would be to develop industrial policies that were more explicitly differentiated in terms of the size of target firms, allowing for strategies that addressed the different needs and power of large, medium, and small firms. In contrast, the recent response to these political challenges of supporting domestic industrialists has been a return to the development of state- and party-owned firms (Jacob and Pedersen, 2018). This has become an important part of President Magafuli’s strategy to overcome the previous links between factions of the ruling party and large firms in the private sector that have been important in supporting the ruling party. If these state and party firms are successful, this could shift the nature of state–business relations in important ways over the next decade.

V Grand Corruption

This chapter outlines a number of grand corruption cases that have become pivotal to understanding the ‘black box’ of state–business relations in the 2000s. These cases provide the evidence of close clientelist relations between the ruling party and powerful private sector actors (Aminzade, Reference Ali, Deininger and Goldstein2014; Gray, Reference Goldthau2015). While these cases clearly led to a number of very poor deals for the country, there are a set of complex economic consequences of such deals that need further analysis. For example, grand corruption often relates to strategies of forging political stability between elites. Focusing on the role of particular individuals rather than the structural drivers of such types of corruption can be misleading. I explain some of these wider implications in Gray (Reference Goldthau2015). At the end of that article, I argued that it would be possible for CCM to clamp down on the networks that underpinned these particular corruption deals in the short term, where there are shifts in the distribution of power, but that successful anti-corruption agendas can be attached to many different kinds of political and economic strategies. This appears to be the case with President Magafuli, whose anti-corruption agenda has been attached to a political and economic agenda that is very different from the ‘good governance’ and liberal economic approach advocated by development partners. He has been initially successful in clamping down on particular networks and in centralising power within the ruling party. Short-term reduction in corruption is much easier to achieve than long-term shifts as these also depend on changing the distribution of political and economic power over time. The success of his strategy therefore depends on how successful the ruling party is at building up new economic power bases or in re-forging relationships with powerful economic actors in ways that allow both for support to domestic industries and for effective monitoring and disciplining of firms receiving industrial policy rents.

VI The Way Forward

Tanzania has returned to a more active approach to industrial and economic strategy, but to be effective this needs to go hand in hand with an analysis of the changing relationships between the state and the private sector. These relations are dynamic, but they also have deep roots that do not necessarily change with the announcement of new policy agendas. Research on state–business relations in Tanzania has focused on the long-standing and complex relations between Tanzanian-Asian businesses and the ruling party. A neglected aspect of these relationships is the regional scale at which many of these firms operate and hold power. At the same time, the influence and role of state and ruling party firms has not yet received sufficient attention and should be a major area of future research. Such analysis should be grounded in a detailed understanding of the structure of Tanzania’s economy and in histories of particular firms and sectors.

Understanding state–business relations requires an analytical lens that goes beyond the codified rules to examine the deeper relations and distributions of power that shape how institutions actually work. This chapter highlights the informal and clientelist relations that were key in the 2000s and 2010s, and ends with some suggestions about the need for internal changes within the ruling party. The current strategy on clamping down on clientelistic state–business relations focuses on changing the internal balance of power within the ruling party by shifting the composition of the Central Committee and building up loyalty to the president through selection processes. It is clear that this strategy has been quite successful in shifting the internal distribution of power within the ruling party from a fragmented equilibrium towards a more centralised and hierarchical control under the president. A number of institutional theories discussed in this chapter suggest that centralisation is necessary to generate a long-term approach to developing the economy. However, I would argue that the success of such a strategy cannot be taken for granted. It requires effective internal feedback mechanisms between different parts of the state about the successes and failures of different policy choices. It also raises challenging questions about the fact that centralisation of power can consolidate behind oppressive political agendas. Further, it is not the case that economic success will necessarily generate more inclusive politics in the foreseeable future. Thus, both the long-term economic and political outcomes of a strategy of centralisation remain uncertain.

I Introduction

The civil service affects the economic development of a country in many ways: first because its general function is to set the institutions of state power into operation; second, and most important for our purpose, because history has shown that the success since the late nineteenth century of what Gerschenkron (Reference Fukuyama1962) called ‘late industrialisers’ is partly attributed to the role of the state in general and the civil service in particular. For example, in his excellent study on Japanese industrialisation, Chalmers Johnson (1981, 1999) demonstrated how the Ministry of International Trade and Industry spearheaded ‘Japan’s extraordinary and unexpected post-war enrichment’ (Johnson, Reference Jacob and Pedersen1999, pp. 33–4). In certain circumstances, however, the civil service may be detrimental to economic development through incompetence, corruption, or being too huge, and thus requiring a large amount of material resources for its maintenance. Whether the civil service plays a positive or negative role in a particular country’s quest for economic development is a hypothesis whose determination or verification depends on concrete material forces and dynamics, in particular the nature of the regime and its expectations regarding the role of the civil service, the capacity of the civil service, and the enabling environment.

In colonial Tanganyika, for example, the scope of state activity was narrow, as the main preoccupation of the colonial state was maintenance of law and order and general administration of the colony. Following the defeat of the Germans in the First World War, Tanganyika became a trusteeship colony under the British in 1918 until her independence in 1961. During that period, state administration was informed by Sir David Cameron’s policy of indirect rule, first introduced in the country in 1926. The state relied on ‘agents’ to run its affairs. The colonised population, regarded as subjects rather than citizens (Mamdani, Reference Leyaro, Twumasi Baffour, Morrissey and Owens1996), were ruled through native authorities anchored by chiefs. Most of the social services were provided by faith-based organisations, though their services were subsidised by the government. Investment in key social sectors was very minimal and was almost surpassed by that of religious institutions (Jamhuri ya Muungano wa Tanzania, 2011; Mukandala, Reference Mpofu and Shivji2015).

Economic activities were dominated by private companies based either in London or Nairobi, which was the regional centre for British East African colonies. Marketing boards and cooperative unions handled the production and marketing of major agricultural crops including cotton, coffee, and pyrethrum. For cotton, for example, the Lint and Seed Marketing Board handled marketing while the Victoria Federation of Cooperative Unions handled the production and purchase from farmers. Necessary economic service was provided by regional outfits. These included managing the currency as well as air, rail, marine, and road transportation; postal services; harbours; cargo handling; power supply; and school examinations.

The colonial civil service played a minimal function of law and order, guaranteeing economic extraction and exploitation of resources including supply of forced labour, and overseeing the operations of colonial state corporations and private companies. According to Nyerere (Reference Nnoli1974, p. 263), ‘it was designed for the administration of a nation, not for its development’. Its administrative capacity, though, was low. Therefore, at independence, the civil service faced serious challenges. It was small relative to the size of the country and was dominated by expatriates who constituted 71 per cent of the senior officials. This was mainly because of an acute shortage of qualified indigenous Tanzanians. At independence, the country had twenty-one graduates, out of whom eleven were indigenous Africans. Most of the civil servants were concentrated in the few urban areas, with vast rural areas left unattended.

The colonial state left the country not only with an enormity of sociopolitical, economic, and development challenges, but also the lack of a strong indigenous capitalistic class to spearhead the development effort. Therefore, after independence in 1961, there was no viable option other than the state becoming a central actor in the social and economic development of the country.

We address three questions in this chapter. To what extent has the civil service contributed to economic development in Tanzania? What have been the constraining factors to effective civil service performance? And, finally, what are the necessary and most promising directions for reforms to maximise civil service contribution to economic development?

The chapter draws heavily on documentary evidence, specifically government publications and reports, press reports, scholarly literature, assessments, and surveys carried out by national and international organisations including the World Bank, the National Bureau of Statistics (NBS), and the World Economic Forum. In addition, select interviews with senior government officials at central, regional, and district levels were conducted. While there is extensive literature on the role of the state in development (Gerschenkron, Reference Fukuyama1962; Johnson, Reference Johnson1982; Wade, Reference Valentine1992), the economic literature on the role and the evaluation of the contribution of civil service to development is extremely scant and weak. This is partly because there is no simple way of summarising its activity by a few indices that can be compared across countries and overtime. It is also difficult to delineate the contribution of the civil service to phenomena that are outcomes of inextricably linked actors and forces, such as economic development. Under these circumstances, as Bourguignon put it in his comments on an earlier draft of this chapter, ‘expert intuition and a systematic review of the main aspects of the way civil service delivers its mission is the only effective approach’. This is not to say or imply that the civil service was solely responsible for any achievements (Johnson, Reference Jacob and Pedersen1999, p. 33).

The chapter is organised into five sections, including this introduction. Section II describes and assesses the civil service contribution to economic development. Section III draws from the preceding sections and looks at the constraints on the effective contribution of the civil service. Section IV explores promising directions for civil service reforms and their sustainability. Section V concludes.

II The Role and Political Context of the Civil Service in Economic Development

Given the limitations and challenges of the colonial civil service, the post-independence state embarked on a serious state- and nation-building project. Practically, the idea of state building meant constructing effective public authority, establishing viable state institutions, and creating responsive and legitimate agents of governance (Hyden, Reference Hoogeveen and Ruhinduka1983; Chazan et al., Reference Carrington1999). Next to state building was the daunting task of nation building, which entailed forging a unified political community. This was because of the arbitrary basis of colonial boundaries, where newly independent states inherited diverse populations that often became fractious as disparate groups contended for power, resources, and identity (Hyden, Reference Hoogeveen and Ruhinduka1983; Nnoli, 2002). This was reinforced by the colonial policy of indirect rule mentioned in the introduction, which in effect resulted in exacerbating and enhancing ethnic and racial identity differences. As a central institution of the state, the civil service took centre stage in engineering change. Tanzania’s civil service has been an integrated departmental system anchored by ministries, whose numbers have varied from the initial 11 in 1961 to the current 23.Footnote ¹ Permanent secretaries working under ministers are the professional heads of ministerial organisations. They generate policy proposals and alternatives for politicians to make decisions (singly in ministries or collectively in the Cabinet), implement the policies decided by the executive in all areas, and produce the public services needed for the good functioning of the economy and society. The inherited colonial civil service was transformed through Africanisation and localisation policies to reflect the national character; its role changed from being simply extractive and administrative to become developmental, thus spearheading the country’s socioeconomic development. Its role in development can be meaningfully assessed in three phases: the transitional years after independence, 1961–6; the socialist phase, 1967–85; and the liberalisation phase, 1986 to date.

III Constraints to Effective Civil usher Service Performance

Civil service performance in economic development has had highs and lows, as indicated in the preceding section. It performed relatively well after the Arusha Declaration in 1967, before falling to very low performance levels throughout the 1970s, 1980s, and early 1990s. Performance has improved since the late 1990s, reaching more satisfactory levels in the decade and a half since the year 2000. This section explores the factors behind this performance. Four factors explain civil service performance: civil service capacity; motivation and conduct; the policy cycle and environment; and resources and tools.

A Civil Service Capacity

In this section, capacity refers to staffing levels, and their educational, professional, and technical skills and competence. Other capacity issues, for example, systems, tools, and resources, will be discussed in subsequent sections. The issue of staffing levels has varied from too few staff members at independence in 1961 and during the decade of the socialist project 1966–76, through a perception of having too many, leading to retrenchments in 1976 and after 1996, to a ‘truce’ situation of having fairly adequate numbers but with neither the right nor adequate mix of educational, technical, and professional competencies and skills in the period after the year 2000.

Bureaucratic expansionism in Tanzania is a historical phenomenon because, since independence, the civil service has been characterised by rapid expansion in its size. For instance, according to the Survey of Employment and Earnings (SEE), the number of civil service posts increased from 65,708 in 1966 to 191,046 in 1976, and 295,352 in 1980. By 1976, the annual growth rate was 16.2 per cent and the cumulative increase over the same period was almost fivefold. However, the overall increase in total employment was only 28.4 per cent. The reasons for the increases in earlier periods include recruitment of necessary human resources after independence, the expanded scope and functions of the civil service, decentralisation measures and villagisation campaigns that led to more employees being brought in, and, finally, patronage and corruption that took its toll in terms of bringing unwanted people into the service. However, the increase in numbers was not matched by an increase in production. The cumulative growth of GDP at 1966 constant prices over the same period was 38 per cent, with an average annual increase of 3.2 per cent. Clearly, this was a phenomenal growth in the size of the civil service, with a consequent increase in the size of the wage bill.

Efforts made to check the increase included retrenchments. It was concerns over the wage bill that fuelled the perception that the civil service was too large, leading to several bouts of retrenchments. A total number of 9,466 staff was retrenched in 1976, and 16,109 ghost workers were identified and purged from the payroll in 1980. A further 50,000 civil servants were retrenched in 1994. The size of the workforce was reduced by 25 per cent from 355 in 1992 to 270 in 1997. There was also a ten-year employment freeze as part of SAP conditionality throughout the 1990s.

Concerns over the size of the wage bill continued in the period after 2001 and are discussed fully in Appendix A.1. Up to the year 2010, the increase in size was probably roughly on a par with the growth in GDP. As shown in Appendix A.1, there was a notable increase between 2010 and 2015, largely because of massive recruitment of teachers and health workers. Yet efforts to keep the wage bill in check have continued, including a tight centralised control and monitoring of the payroll, a two-year freeze on employment, suspension on salary adjustments, and increments. All these have been aimed at holding the public service size in check; consequently, not only do many public needs remain unmet, but also even established posts remain unfilled in the civil service, as will be discussed in the next section.

Moreover, at least for the last fifteen years, growth in civil service size does not seem to have had negative implications for the economy. As shown in Figure 5.A.1 in Appendix A.1, the fast rate of growth in public sector employment (of which the civil service constitutes 89.7 per cent) expanded at an average annual rate of 8.1, slightly above formal private employment. This did not prevent GDP from growing at the rate of 6.3 per cent of GDP in the same period. Still, about 50 per cent of government revenue was spent on the civil service wage bill, a figure that has risen since 2012.

Figure 5.A.1 Evolution of public, private formal, and total employment and GDP, 1968–2015 (2010 = 100)

Source: Trading Economics/Transparency International (2016). (Accessed: 1 November 2017)

D Civil Service Motivation and Conduct

Motivation is a complex concept but can simply be defined as anything that influences employees’ commitment to and delivery of the job. This complexity arises from the fact that there is a complex web of factors that promote positive work behaviour, and a significant number of motivational theories exist to that effect (Kanfer, Reference Jamasb, Nepal and Timilsina1990; Clark, Reference Catterson and Lindahl1998). In short, motivation is explained as an intrinsic, extrinsic, cognitive, and environmental/contextual phenomenon. Because of this complexity and since, invariably, some of the issues have been discussed elsewhere in this chapter, this part concentrates on extrinsic and intrinsic motivation, civil service compensation, and moral incentives in particular.

1 Compensation

Compensation has been a contentious issue in the civil service. In the early years after independence, the civil servants’ pay package was considered too generous. It was one of the grievances that led to the university students’ protest in 1966 as well as trade union strikes. President Nyerere’s slashing of civil service salaries including his own was followed by more drastic action after the Arusha Declaration. Thereafter, the civil and public service compensation in general was guided by three types of policies. The first type included policies that reduced and froze the incomes of higher officials while restricting their capacity to earn income from other outside engagements. These policies included a policy of ‘The top to stand still until the gap between the lower and higher salaries is narrowed’, increased progressive taxation of high income, and a leadership code that forbade leaders from outside earnings and property ownership, especially houses. The second type of policies entailed increasing lower incomes. This involved raising the minimum wage; paying special allowances to those in the lowest two salary scales; and several salaries increases that favoured the lowest earners. The third type of policies included abolishing some of the privileges enjoyed by senior officials while extending other privileges to everybody in the civil service. As a consequence, real wages went down after the Arusha Declaration in 1967, and in the crisis period between 1979 and 1984.

According to an International Labour Organization (ILO) study (1989), Tanzania experienced a 65 per cent drop in real wages from 1979 to 1984. It was one of the sharpest declines in real income in Africa (Ghai, Reference Furukawa1987). The compression of wages within the public sector, from 33:1 in 1967, to 5:1 in 1981 (Kiragu and Mukandala, Reference Kaufmann and Kraay2005b) has been a disincentive for senior servants and professionals, hence the brain-drain, corruption, and non-monetary compensation of all types. This spiral would continue until the hefty pay increases in the late 1990s. A series of further salary increases have continued to be made, which, combined with low inflation, have made the lot of civil servants tolerable.

According to the available studies, public wages in real terms seem to have improved since 2001, outcompeting those in the private sector (Leyaro et al., 2014, p. 10). There was no change in private wages between 2001 and 2006, while there was a 50 per cent increase for central government employees. There was also a 20 per cent drop in private sector wages between 2010 and 2015, while there was no change in public sector wages. Public sector employees also had a wage advantage of 25 per cent due to education, age, and tenure during 2001–6 (Leyaro et al., 2014, p. 10). It thus seems that public sector employees are better off after the public sector reforms referred to than in the past, especially when one also takes into account their non-monetary income.

For the two years since 2015, earnings in the civil service have, however, stagnated. This is because there has not been any salary increments for two consecutive years since the fifth-phase government came into power. Similarly, promotions and employment in the civil service have been frozen pending verification of civil servants’ qualifications and cleaning of ghost workers. The freeze of promotions and salary increments, as well as changes in the salary structure, has left many civil servants demoralised. Concerns have been raised that the verification exercise has now turned into a government excuse for evading its human resource compensation responsibility. Most of the civil servants interviewed at the ministries, regions, and districts expressed their dissatisfaction as they were not certain of their compensation prospects. Expressing this dissatisfaction, one of them put it this way:

I and my colleagues were promoted early 2016; six months later a directive came from the PO-PSM that our promotion was revoked pending verification of our education qualifications. I had planned to use my salary increment from my promotion to finish my house and pay school fees for my children. This dream vanished, and I am not sure when I will get my right. Under this kind of work environment, why should I be motivated to work, why should I be committed to serving my country if my employer does not care about my rights?

(Interview, local government authority I, 16 October 2017)

A related issue is the absence of an attractive incentive structure. Stagnant real wages, wage compression, especially for middle and senior grades, and a promotion and reward system loosely based on merit are working against the morale of middle and senior officials in the civil service. Wage compression for middle and senior officials has continued to characterise public service pay (Kiragu and Mukandala, Reference Kaufmann and Kraay2005b). In this regard, one of the interviewees hinted:

[T]he fifth-phase government is striving hard to ensure equity in compensation of civil servants in order to cut down the gap between the highest paid and lowest paid. The president already hinted that he wants a civil service that is fairly remunerated but in practice this has not translated into real gains. Most middle- and lower-cadre civil servants have lost hopes of having their salaries raised. Promotions have been frozen, cutting down the morale of civil servants.

(Interview, PO-PSM III, 12 October 2017)

Additionally, there has been a problem or failing to follow through and achieve some of the reform targets. Salary differentials are still lower than the pay reform targets; the salary structure is still highly compressed; some professionals are relatively underrated. Plans to implement annual salary adjustments have not been followed through; the wage bill to GDP ratio, which was expected to rise progressively, has been declining. Relatively, consolidation and rationalisation of the public service has not been realised. Related to this, compensation is still diverse and unequal even among people carrying out the same functions. On 18 October 2017, and also as recently as 5 January 2018, the Minister for Public Service expressed his disgust at the situation and called for an overhaul of the salary system (Daily News, 2018). As has been the case historically, this emerging government’s drive to address pay inequities across government institutions does not seek to do so by adjusting low income upwards but by lowering top pay levels. Such a move had been started by the President back in 2016 when some heads of parastatal organisations were forced to choose between reduced pay levels and vacating their positions. This newly emerging trend suggests that the morale of the civil service is likely to continue declining.

Apart from wages, civil servants enjoy other incentives such as paid leave, opportunities for personal development, pensions, health insurance, loan guarantees, and job security. Most of these incentive schemes are not offered by the majority of private sector employers. The top-cadre civil servants (at the level of chief executives, heads of divisions, and other cadres that report directly to the chief executive) enjoy top-up allowances in terms of housing, transport, communication, and duty allowances. The majority of lower-cadre personnel are, however, less motivated by both pay and the job. For instance, in the education sector, one study revealed that more than two-thirds of teachers who were surveyed would not choose the teaching profession if they could choose again (Mkumbo, 2013). Similarly, in 2008, a survey of 448 health care workers at Muhimbili National Hospital found that almost half of both doctors and nurses were not satisfied with their job, and this was also the case for 67 per cent of auxiliary clinical staff and 39 per cent of support staff (Leshabari et al., 2008). This level of dissatisfaction was explained as the result of low salary levels, unavailability of necessary equipment and consumables to ensure proper patient care, and improper management of employees’ welfare. Nevertheless, a recent comparative study revealed an improvement. Carried out in 2013, it reported that 82.6 per cent of health workers in Tanzania were satisfied with their jobs, compared with 71 per cent in Malawi and 52.1 per cent in South Africa (Blaauw et al., Reference Besley, Persson, Auerbach, Chetty, Feldstein and Saez2013).

This improvement is probably one of the outcomes of health sector reforms.

2 Moral Incentives and Ethics

In addition to these material incentives, in the period after independence and during the socialism phase, there was also a reliance on moral incentives. More specifically, appeals were made for people to be nationalistic, to love their country and make sacrifices for her independence and development. Everybody was urged to work hard. Combined with socialist slogans of equality and justice, these appeals were very effective and encouraging. This was more so when they were made by Mwalimu Nyerere, given his charisma and honesty. These appeals to people’s moral commitment to the country helped civil servants cope with emerging hardships in the 1970s. The climax of these moral appeals was during the Tanzania–Uganda war of 1978–9. The following economic hardships colluded to undermine these appeals. The liberalisation phase, with its emphasis on individualism and market forces, further undermined the effectiveness of moral incentives. Since then, civil servants have expected material returns for their labour. When they decline or stagnate, commitment and productivity is bound to suffer.

Civil service conduct plays a significant portion in economic development. Not only is an undisciplined civil service that is characterised by shirking, corruption, and misappropriation of public resources less productive, but it also diverts public resources to private gains. Lessons from Japan and other advanced economies have shown that a highly disciplined and committed civil service plays a crucial role in economic growth (Bhatt and Kim, 2000). An ethical civil service has a sense of duty, and it can serve as a deterrent to opportunistic behaviour from politicians. Generally, the findings indicate that, since the late years of Ujamaa, Tanzania’s civil service has been characterised by work misbehaviour such as shirking of responsibilities (absenteeism and negligence) and corruption and misappropriation of resources (e.g. through procurement and creation of ghost workers), and generally it has failed to regulate opportunistic politicians and even colluded with them, at the expense of the economy.

The civil service as an institution of service delivery is integrated in society. Thus, any analysis regarding how the civil service conducts itself has to be embedded within the values, culture, and norms that guide a particular society. The Tanzania public service ethics code emphasises equity, probity, integrity, moral conduct, and political neutrality. In theory, the values, culture, and norms that guide the conduct of the civil service encourages enhancing employee involvement, rewarding teamwork, recognising individual effort, and incorporating the needs of the clients, in this case delivering critical outputs to the citizens. However, our findings on this issue suggest that ethical values such as honesty, integrity, impartiality, and fairness, among others, have been in constant decline in the civil service. As a result, these declining values have encouraged inefficiencies and thus have likely affected the productivity of the civil service. Recounting the heyday of the Arusha Declaration and the leadership code of conduct of 1967, a respondent in the PO-PSM elucidated:

When I joined the civil service in 1978, there was a clear ethical strategy to shape the conduct of civil servants. Upon joining the service, one had to fill in the Arusha Declaration form, ethical form, and commitment to party ideals form. These forms had put massive restraints on civil servants from engaging in corrupt behaviour and other forms of pathologies. The next step was a two-year probation pending confirmation…

(Interview, PO-PSMIII, 12 October 2017)

Moreover, there is a growing decline in the spirit of volunteerism among civil servants in particular and the public in general. While in the past it was common for the civil servant to sacrifice for the common good, that heyday died with Ujamaa in 1985. As one of the interviews revealed, a majority of civil servants in middle- and higher-level positions are unlikely to commit their efforts without expecting individual returns. This lack of commitment to public duty is aggravated by an ethical crisis.

The civil service absenteeism rate is reportedly especially high in the education sector. Civil servants are reportedly either absent from their workstations or present but doing job-unrelated businesses. For instance, in the education sector alone, a study by Twaweza (2015) reveals that 31 per cent of teachers were absent from workstations during the period of study in 2015, while 34 per cent were present but not teaching, and only 35 were teaching. Respectively, the findings for 2016 were 27 per cent, 32 per cent, and 41 per cent. The 2016 report on Tanzania’s SDIs show students received roughly 39 per cent of the scheduled teaching time, which is equivalent two hours and forty-six minutes per day instead of the official five hours and fifty-six minutes (World Bank, 2015b). Twaweza estimated that a classroom absenteeism rate of 50 per cent costs the country TZS 862 billion per year through paying people who have not produced anything. This amount equals roughly 1 per cent of GDP, and is 63 per cent of the total budget for the Ministry of Education, Science, and Technology in the financial year 2017/18. The absenteeism rate in the health sector was reported at 14 per cent, which is lower than African and Asian standards. Although no data on absenteeism for other sectors were available, anecdotal evidence suggests that the situation may not be very dissimilar, especially for civil servants who attend but work fewer than expected official hours. All these suggest that the productivity of civil servants is still low. Corruption is also one of the major ethical issues constraining efficiency in the civil service, slowing down the pace for social and economic development. Both grand and petty corruption increase the cost of public service delivery and cripple the effectiveness of the civil service.

Understanding this fact, the Tanzanian government has, over time, put institutional arrangements in place to curb corruption. Various anti-corruption campaign programmes have been waged to complement the institutional strengthening as well. However, the anti-corruption crusade efforts have not delivered significant results. Available data indicate that Tanzania is ranked 116th least corrupt nation out of 175 countries (Transparency International, 2016). The data also show that the corruption rank in Tanzania averaged 98.37 from 1998 until 2016, reaching an all-time high of 126 in 2009 and a record low of 71 in 2002, for reasons that are not clear (Trading Economics, 2003). Tanzania’s average rank for the past decade stood at 110, while it scored an average 30.6 out of 100 points in the Corruption Perception Index (CPI) (Figure 5.1). CPI ranks countries and territories based on how corrupt their public sector is perceived to be.

Figure 5.1 Tanzania’s CPI and rank, 2007–16 Trading Economics/Transparency International (2016).

(Accessed: 1 November 2017)

Other reports also paint a gloomy picture regarding corruption in the Tanzanian civil service. For instance, The Global Competitiveness Report, 2015–2016, which assesses the competitiveness landscape of 140 economies, providing insight into the drivers of their productivity and prosperity, notes:

Indeed, gifts and other bribes are perceived to be widespread when applying for public utilities and permits. In fact, businesses (presumably multinationals, as national firms could not make the comparison) consider the prevalence of irregular payments and bribes within public utilities in Tanzania as one of the worst in the world. Likewise, more than a third of households’ report paying a bribe to obtain public utilities in Tanzania.

(World Economic Forum, 2016)

Notably, anti-corruption initiatives in the past have not registered progress because there has not been a serious commitment by the government to punish ethical violators, especially those involved in big corruption scandals. Equally, the anti-corruption institutions are under-resourced in terms of finances and human resources, and lack the requisite autonomy and will to spearhead the fight. Parliament, which could exert pressure for intensified anti-corruption efforts, is reportedly toothless and worse still suffering from ethical problems brought about by some of its members (Pastory, 2017). In addition, the lack of impartiality and public support necessary to steer the process ahead has been another constraining hurdle. Corruption is likely to stall the efficient delivery of critical outputs, stalling the social and economic development of the country as it diverts public resources to private ends. For instance, available evidence indicates that in the last ten years more than TZS 813 billion is known to have been expropriated through the four famous corruption scandals alone: External Payment Arrears, Bank of Tanzania Twin Towers, Richmond, Tegeta Escrow, Tanzania (AfriMAp, Reference Adepoju2015; The Citizen, 24 June 2015). There are no reliable estimates of how much the country has lost through other corruption schemes.

The corruption and embezzlement phenomenon in Tanzania’s civil service dates back to the late years of Ujamaa and emerged as a response to a real fall in income. Initially, civil servants resorted to inventing all kinds of fringe benefits. These included bonuses, subsidised shops, canteens, and cafeterias at workplaces, transport, dispensary and/or private-practitioner medical services, housing, clothing, farming plots, transport services to ease access, and a host of recreational facilities. These were supplemented by extensive allowance claims (sometimes fraudulent and/or inflated) for travel, prolonged conferencing, and so on. As the economic situation got worse, the demand for fringe benefits blossomed into outright racketeering, or Ulanguzi, as it was commonly called. This was one of the most phenomenal haemorrhages of public resources in Tanzania. Corruption reigned supreme and everybody was a seller and a buyer. The undisputed climax of the phase was the burning of the Bank of Tanzania building in 1984, the precise cause of which has never been made clear. The prime minister launched a large military-style operation against racketeers in 1984. He died in a road accident on 12 April 1984.

This clampdown was followed by a phase of projects (Miradi). To survive, one simply had to have a project and dab in the informal sector. In July 1987, Party Chairman Nyerere advised Tanzanian experts to ‘involve themselves in gardening, poultry keeping and other activities which could enable them to augment their meagre incomes’. The assumption was that civil servants would maintain the separation between official and private activities and income. That was not the case. Official positions and resources were used for private gain as officials tried to make ends meet. The replacing of the leadership code by the Zanzibar Declaration in 1992, allowing leaders to accumulate wealth, legitimised what was already taking place. Various components in the economic reform programmes, including support to the private sector, created further opportunities for civil servants. Privatisation, the promotion of decentralisation, operational autonomy for various entities, and outsourcing and subcontracting of the supply of various goods and services have all created opportunities for civil servants to make ‘deals’ and make money. If President Mwinyi’s period was properly known as a time of Ruksa (everybody could do anything), Presidents Mkapa and Kikwete’s times are known as the years of deals, or Dili. The years 1995 to 2015 were a time when Tanzania fell into costly dubious contracts, some of which have already been mentioned. It was also the period when the country adopted legislation, such as mining laws, that turned out to be economically hazardous. Although the misappropriation was in part engineered by the politicians, a thoughtful analysis would not isolate the civil service from these ills.

IV Maximising the Civil Service Economic Potential: Future Reform Directions

Tanzania has sustained relatively stable growth for the past ten years. This achievement, however small, cannot be explained without appreciating the role of public service reforms undertaken since 2000 to strengthen the administrative capacity of the public service in general and the civil service in particular. Notwithstanding, the civil service has not contributed enough to driving economic development. Its capacity to effectively implement policies and laws, to make available the necessary means of administration and to deliver critical outputs is still limited. Besides, staff work morale is declining, unethical conduct remains, and its administrative autonomy, which is limited, seems to be under constant pressure. Although staffing levels have been expanded, critical posts in the civil service remain unfilled. While praising the reform efforts carried out in the past fifteen years, a sympathetic evaluation study has also noted that reforms implemented by the government so far have not been institutionalised and have not been made part of the organisational culture (Mutahaba et al., Reference Mramba2017, p. 75). In view of all this, what are the necessary and most promising directions for reforms to maximise the civil service contribution to economic development? How can the proposed reforms be sustained, and what are the forces and dynamics that need to be in place to ensure a sustained and successful reform effort? These questions are addressed in turn.

V Conclusion

The civil service is a crucial institution to a country’s economic development. In the case of Tanzania, its contribution to economic development since independence has been both positive and negative. Throughout the period under review, it has played an instrumental role in maintaining a peaceful environment for economic activities to take place. Its performance in the delivery of critical social and economic services has varied and faced many challenges of quantity, quality, and capacity. Its delivery of critical government development programmes, especially during the socialist phase, was revisited, and room was created for the private sector to play a role for reasons dealt with within the various sections of this chapter. Civil service operational autonomy was a contested terrain and was continuously challenged. As already pointed out, poor policy choices by politicians; made without extensive and careful consideration of context, doomed most of these policies to fail. Factors related to civil service limited involvement in policy making, capacity, organisational resources, motivation, and ethics have been advanced in explaining the difficulties that the civil service had in contributing to economic development. A hostile external environment was an added barrier.

There have, however, been various reform initiatives aimed at improving the efficiency and effectiveness of the civil service, and there is little doubt that the capacity of the civil service to administer them has relatively improved. However, this study’s findings have shown that a lot is yet to be done to maximise the potential of the civil service to contribute effectively to economic development. One of the areas that requires immediate attention is the relationship between civil servants and politicians. A critical element in this regard is to empower the civil service by unplugging links of political patronage while at the same time ensuring democratic accountability. This could be done through introducing a competitive and transparent system of performance evaluation and promotion to senior positions in the civil service. This should go hand in hand with strengthening the role and the power of the Civil Service Commission over recruitment, promotion, and disciplinary matters. This kind of reform undertaking is unlikely to succeed unless supported by the top political executives. Sustainability of these reforms would therefore depend on the efficiency of the overall governance system of the country. Therefore, successful civil service reforms have their future in constitutional reforms.

I The Idea of a Civil Service

We can think of the civil service simply as the people employed in the public sector, with the task of providing public services. This corresponds to the everyday use of the term. The public administration literature, however, is much more restrictive: it requires both independence and meritocracy. Independence implies that the civil service consists of career bureaucrats who advise their political masters and faithfully execute their programmes, irrespective of whether or not they share their views. In return, they are secure in their position: they cannot be fired for their political views and remain in position when the government changes. Meritocracy means that the hiring, firing, and career advancement of civil servants are determined solely by their professional competence and performance, not by any payments they make or by their religion, political allegiance, ethnic affiliation, or social class.Footnote ⁴ The meritocratic civil servant in this model is incorruptible. While he must be paid well, so as not to be led into temptation, his main motivation is the esteem (and self-esteem) acquired through his contribution to the public interest.

It is worth stressing that such a civil service is not a Western invention. For example, imperial China had already instituted a system of selecting civil servants on the basis of merit some 1,400 years ago: henceforth, prospective mandarins had to pass a famously difficult entrance examination. Once they had been admitted to the civil service, their independence was encouraged by not stationing them in their region of origin and by frequently transferring them to another part of the empire during their career. When Marco Polo described the mandarin system, it had already functioned in China for some 700 years, while at that time in Europe the public sector was still basically an unprofessional extension of the court, serving at the whim of the prince and his entourage.

In Europe, there was no independent and meritocratic civil service until 1800. In Great Britain it dates from the late nineteenth century. Pressure to replace patronage by selection on the basis of merit had already mounted in the 1850s when the disastrous British experience in the Crimean War revealed that the civil service was almost as chaotic and incompetent as the military.Footnote ⁵ The resulting public outcry led to the famous Northcote–Trevelyan report of 1854, which proposed drastic reforms. However, no action was taken for a very long time. Only in 1870 did Gladstone as prime minister adopt its recommendations for an independent, politically neutral civil service, selected on the basis of merit and paid well enough to resist corruption. Most other Western countries adopted similar innovations.

But notable exceptions remain to this day. In the United States, political appointments are still quite common: an incoming president is entitled to replace some 4,000 civil servants. One result is that many American ambassadors are millionaires who have distinguished themselves with campaign donations rather than as career diplomats.

Independence has an obvious implication for any study of the impact of the civil service: consequences (good or bad) of policies cannot be attributed to the civil service that has implemented them. For example, if policy choices made by politicians result in economic growth or stagnation, then that in itself says nothing about the quality of the civil service. It is after all possible that bad policies are implemented by a high-quality civil service, or indeed vice versa.Footnote ⁶ Similarly, if educational outcomes are very poor, as they are in Tanzania, then this may be due to policies (e.g. bad teacher training programmes, low salaries) or to their implementation by civil servants (e.g. teacher absenteeism).

This represents, of course, a problem for empirical analysis. There now exists a booming literature (which uses experimental methods) on how the functioning of the civil service can be improved. This provides evidence on, for example, what incentives can reduce teacher absenteeism. But there is no established methodology for establishing the past impact of the civil service; any attempt to do so faces the daunting task of disentangling the effect of the policies themselves from the way they were implemented.

In many African countries, the civil service tradition left by the colonial powers quickly crumbled after independence. That system was hardly meritocratic to begin with (since it involved racial discrimination) and a purely meritocratic system would have been very difficult to set up at the time: educational attainments were still quite low. (In 1962, Tanganyika – as it then was – had only a handful of people with Masters degrees; President Nyerere was one of them.) More importantly, in many countries the civil service was seen, not primarily as the provider of public services, but as the key channel for patronage. The ruling group used its control over the state to provide benefits to its supporters, notably in the form of public sector jobs, which provided income, security, and prestige. The provision of public services was therefore in itself of limited importance; it mattered mainly to the extent that it guaranteed or threatened the survival of the regime.

An important implication of the use of the civil service as a tool for patronage was that real wages in the public sector were fixed far in excess of market-clearing levels. This induced massive migration from rural to urban areas.Footnote ⁷ Excess supply in the urban labour market required mechanisms for allocating the scarce jobs. The mechanisms that were adopted typically favoured particular regional or ethnic groups.

Patronage was not the only reason why a civil service in the strict sense, that is independent and meritocratic, disappeared or failed to emerge in many African countries. Under many regimes, notably those we would now call developmental states (Adam and O’Connell, 1999). Weberian independence was not considered necessary or desirable: political leaders and their civil servants were seen as jointly involved in nation building; a strict separation of their roles (choosing policies and implementing them) would have been considered counterproductive.

II Tanzania 1962–1982

Tanzania’s experience in this period was exceptional. After having gained its independence in December 1961, it initially followed a familiar path: indigenisation of the civil service combined with continued heavy reliance on expatriates who wrote all the key planning documents. The Arusha Declaration marked the end of that period. Tanzania became exceptional in Africa in at least two ways: by embarking on a far-reaching attempt, unique in Africa, to build a socialist economy,Footnote ⁸ and by adopting strict policies designed to keep civil servants honest.

In Tanzania, the key economic policies of that period – import controls, production in parastatals, price controls, communal farming, and pan-territorial agricultural pricing – led to a balance of payments crisis and economic stagnation. This was temporarily veiled when Tanzania benefited from a huge term of trade improvement, the beverages boom of 1975–9, but it became clear in the early 1980s when exports collapsed, serious shortages emerged, and people reverted to barter trade (Bevan et al., Reference Baynes1990). It would, of course, be absurd to attribute this disastrous outcome to the quality of the civil service. In fact, in my view, prior to the collapse, the Tanzanian civil service did a remarkable job of carrying out an almost impossible task.

Notably, Tanzania had in the 1970s one of the least corrupt civil services in Africa, in spite of the huge opportunities for corruption created by the system of controls. In the 1960s, Nyerere had already introduced the ‘leadership code’, a set of rules that prohibited middle- and senior-ranking party members and civil servants from holding shares in, or being a director of, a private company; renting out houses; receiving more than one salary; or employing others. Pratt comments:

Nyerere saw clearly that if people in powerful positions were allowed to maximise their own income, then his vision of a socialist economy could not be realised. He and his advisers, such as Reginald Green and Justinian Rweyemamu, both Harvard PhDs, failed to see, however, that the system of controls erected in the 1960s and 1970s created enormous incentives for ‘acquisitive individualism’, for example in the form of the very large gap that emerged between the official and the black-market exchange rate. The control system therefore helped to undermine the very ethic that Nyerere hoped to enforce.

This chapter on the Tanzania civil service addresses three questions:

• How much has the civil service contributed to economic development?

• What constrained its performance?

• How can it be reformed so as to maximise its contribution to economic development?

I will consider these three questions in turn.

III The Contribution of the Civil Service to Economic Development

Regrettably, how much the civil service has contributed to economic development is not an empirical question that can be answered rigorously. The reason is that it is impossible to build a convincing counterfactual: one cannot make comparisons over time (did outcomes differ between periods with or without a civil service?) or across space (did outcomes differ between areas with and without a civil service?).Footnote ⁹ One can, of course, determine whether changes in the size or the functioning of the civil service were followed by changes in outcomes. Strictly speaking, this establishes, of course, only correlation, not causation. Interpreting the outcomes as causal effects would amount to the post hoc ergo propter hoc fallacy, since economic outcomes have many determinants other than the quality of the civil service. In fact, an ‘omitted variable’ may well be responsible for both a change in the civil service and a change in economic outcomes. Concluding that the one causes the other would then clearly be a mistake.

This is a common and fundamental problem in economic history. As usual, the best one can hope to do to explain economic outcomes at the national level is to arrive at a plausible account of causal effects.Footnote ¹⁰

Nevertheless, Mukandala does arrive at conclusions regarding causal effects. He notes, ‘Its support role in policymaking was minimal. The party was supreme and all major policy decisions of the time were made by the party’s NEC, which had a powerful secretariat.’ The party (TANU, later CCM) was powerful both in the design of policies and in the supervision of their implementation. In fact, but this is not in the chapter, there was next to the civil service a powerful parallel party structure that reached from the top down to the very lowest levels. (Under the ten-cell system there was a party official for every ten households, much as in China. The ten-cell leader conveyed party instructions to the households and reported on their activities.) Mukandala writes: ‘Since the civil service was not a lone or even the key player in economic development, it can only assume limited responsibility’ for the poor success rate of a long series of policies initiated in the Nyerere period. He concludes, and I agree, that the ‘grand policy decisions’ then taken were detrimental to economic growth. Mukandala adds:

Here I disagree, for three reasons. First, that policy decisions were taken by politicians should not be seen as an aberration, but rather as the normal state of affairs.Footnote ¹¹ That the civil service was excluded from the policymaking process tells us little on its contribution to development. At best, the exclusion of professional advice may have contributed to poor policy choices.

Secondly, that the party also played a major role in what is properly the arena for a civil service, policy implementation, is a major confounder for the analysis of the civil service’s contribution. Mukandala mentions it only in passing. In my view, while assessing the impact of a civil service rigorously would be extremely difficult in the best of circumstances, TANU’s role in policy implementation makes such an analysis impossible: there simply is no independent civil service in this period, so, for better or worse, outcomes cannot be attributed with any confidence to the way the service functioned.

Thirdly, in line with this, the chapter first seems to argue that the outcomes were very bad but cannot be attributed to the civil service. However, the chapter also argues:

You cannot have your cake and eat it too: either the contribution of the civil service was ‘minimal’, and it had only ‘limited responsibility’ for what went wrong, or ‘it has failed to regulate opportunistic politicians and even colluded with them, at the expense of the economy’. By seemingly trying to have it both ways, the chapter leaves unclear what its answer is to the first of the three questions.

IV Constraints on the Performance of the Civil Service

What constrains the civil service depends of course on what it is supposed to do: a lack of qualified candidates, for example, is a constraint for a Gladstonian civil service but not for a service that is meant to provide patronage.

Within the Gladstonian framework, there are three issues to consider. First, what are the incentives for people to join (and remain in) the civil service? Incentives can include pay, security, prestige, and opportunities for corruption. The issue is whether the package offered by the civil service (officially or not, including the opportunities for engaging in bribery) is attractive compared with an alternative, for example employment in the private sector. In other words: can the civil service attract and retain high-quality candidates? Secondly, is the civil service’s independence guaranteed or is its functioning hampered by political interference? Thirdly, are hiring, promotion, and firing based exclusively on merit, or do non-meritocratic criteria such as ethnicity or party membership play a role?Footnote ¹²

Regarding the first issue, there are several indications in the chapter that incentives are indeed problematic. Mukandala shows, for example, that there are (and have been) major staff shortages, notably in health and education. He explains that these reflect a freeze on public sector employment, but he also refers to ‘those who left for greener pastures’.Footnote ¹³ In what way these other pastures were greener is not discussed. This is a pity since an analysis of the incentives for joining or leaving the civil service must be the basis for any proposed reform.

Table 5.3 presents very interesting evidence from a recent World Bank study, comparing quality indicators in the public and private sector. Perhaps surprisingly there appear to be no large differences. If the public and private sectors do not really differ in terms of workload or absenteeism, then what makes the civil service relatively attractive or unattractive, and how has this changed over time? Real wages in Tanzania fell dramatically from the late 1960s until the mid-1980s; they rose again in the mid-1990s. Unfortunately, there is no evidence in the chapter on changes over time in the relative attractiveness of the two sectors, public and private.Footnote ¹⁴ Apparently, the situation in 2015 was such that public wages were ‘outcompeting those in the private sector’ (Mukandala is quoting Leyaro et al., 2014, p. 10). However, the chapter stresses that two major problems remain: intrinsic motivation has drastically declined since the days of Nyerere, and, while incentives are quite attractive in the higher ranks, motivation is quite low for those in lower ranks, the majority of civil servants. Corruption has become a major issue, and the chapter makes it plain that this has a long history, going back to the late Ujamaa years.

On the other two issues, the chapter is very clear. In the 1960s and 1970s, politicisation severely undermined the civil service’s neutrality: it could no longer freely use its professional expertise. The party had no time for the setting of priorities or for moderation. Since that time, the civil service has become more independent. However, the relationship between civil servants and politicians remains linked by patronage; in that sense, the civil service is not completely independent.

There was a period when all university graduates were recruited by the public sector and patronage (in the form of hiring friends and relations) was a major issue. However, from 1999 there have been meritocratic reforms, including the introduction of open competition and non-discrimination. Forged or questionable academic certificates used to be accepted, but have now become the basis for a large number of dismissals.Footnote ¹⁵ The discussion of these reforms is tantalising but very brief. I would have liked to know more about how they were designed and, most importantly, how they survived in spite of the fact that they must have run into opposition from vested interests. Did Tanzania find ways to overcome this problem that are relevant for future reforms or for reforms in other countries?

The recent changes seem to be in the direction of greater independence and meritocracy. The chapter makes abundantly clear that there still is a long way to go. For example, Mukandala describes that candidates from different institutions must be treated equally in spite of large quality differences and wryly notes ‘the results have been disastrous’. Moreover, connections still matter, most promotions are still automatic, and party membership can still trump qualifications. There is clearly scope for deeper reforms.

V Reforming the Civil Service

Recall that the third question asked how the civil service can be reformed so as to maximise its contribution to economic development. The chapter suggests numerous improvements: better recruitment, rigorous competition, merit-based evaluation, scrapping unnecessary posts, continuous checking, an improved incentive structure with pay tied to verifiable performance criteria, stronger accountability, action against misbehaviour, better time management, and improved ICT use. It is hard to disagree with this list.

Reform must, of course, be selective: an attempt to address all these issues simultaneously would be a recipe for failure. The standard approach to setting priorities in civil service reform is largely technocratic: it focuses on the low-hanging fruit and postpones reforms that are costly or aimed at less urgent problems. Essentially, this amounts to ordering reform measures in terms of cost–benefit ratios.

Mukandala correctly notes that this approach is unlikely to lead to sustainable reform. Measures intended to reduce political influence on the civil service or aimed at eliminating the scope for patronage will be resisted by politicians, who will quickly recognise that they undermine their position. This is, of course, the central issue in any political economy analysis of reform, whether it be of the civil service, trade policy, decentralisation, taxation, or industrial policy. In all such cases, the challenge is to design reforms that will not be blocked by a set of agents in a position to do so, notably, but not necessarily, those in power. Essentially, the ruling class must perceive a reform package as an improvement of their position in spite of the fact that the reforms themselves directly threaten their position. Typically, this will require some form of compensation.

This issue of making the unacceptable acceptable is at the heart of the political economy of reform. I note, not as a criticism but with some regret, that the chapter does not address this. Given the importance of this issue, this makes the discussion similar to Hamlet without the Prince of Denmark. I had hoped to learn what the key sensitivities were that would generate opposition to reform and in what way that resistance might be overcome. That hope was disappointed, but I recognise, of course, that these are extremely difficult questions to answer, even in a speculative way.

I Introduction

Decentralisation involves political, administrative, and fiscal reforms aimed at increasing the decision-making capacity and development efficiency of local administrations through the redistribution of powers and resources between administrative levels. The different dimensions of decentralisation can vary in importance and can be rolled out in different sequences. Decentralisation reforms very often target public service delivery (such as health, education, transport, water, and sanitation) in ways that may relate primarily to the administrative or the fiscal dimension. This may be because of technical and pragmatic concerns about appropriate sub-national government functions, but it may also reflect powerful political and institutional dynamics (Eaton et al., Reference De Mello2010).

Decentralisation has been the objective of important reforms in many developing countries and a major focus of the considerable support provided by development partners. Such reforms have swept across the world since the mid-1980s a trend seen by some observers as being influential for good governance and for improving the lives of ordinary citizens. African governments and international donors alike have indeed embraced the idea that decentralisation can promote development and good governance as local governments are more likely to be responsive to local needs, even though the record is mixed on several fronts. In any case, local governments’ share of public expenditure has more than doubled in many countries, and they now often play the leading role in the delivery of local public services. Academics are increasingly interested in evaluating the consequences of the change this evolution entails for the institutional relationship between levels of government, particularly for fiscal transfers (Falleti, Reference Estache2005).

The focus of this chapter is on fiscal decentralisation, dwelling mainly on the administration of local revenue mobilisation given the centrality of financial resources in empowering local authorities to deliver on their mandate and improve their performance. Effective mobilisation of local revenues calls for a proper coordination of the local/central government mechanism and an administrative system with sufficient capacity to collect and analyse information, and plan and execute such proposals. In the case of Tanzania, this fiscal dimension was chosen to demonstrate the weaknesses of state coordination and the critical challenges involved in setting up an institutional arrangement addressing such weaknesses.

The chapter begins with an overview of the theoretical considerations behind the growing global trend towards decentralisation. It then summarises how the relationship between central and local government has evolved in Tanzania since pre-colonial times. It explains why, despite a recent reform programme, the current legal framework remains complex and confusing, impacting negatively on efficiency.

The capacity to collect revenue at local level is extremely limited in Tanzania. Expanding on previous studies (in particular Tanzi, Reference Sulle and Nelson2000; Fjeldstad, Reference Evans2001; Fjeldstad et al., Reference Fjeldstad2010; Fjeldstad and Semboja, Reference Fjeldstad2011; Masaki, Reference Maliyamkono and Bagachwa2018), the chapter identifies five key reasons for this: ambiguity in defining the roles and responsibilities of different state organs, leading to overlaps and conflicts of interest; arbitrariness, inconsistency, and unpredictability in government decisions and actions; weak institutional capacity for effective fiscal decentralisation; overdependence on the central government for financial transfers; and transparency and accountability asymmetry, with institutions reporting mostly to the central authorities. Practical consequences in terms of revenue are dramatic, including frequent cases of tax evasion, corruption, and even embezzlement of revenues, and constant political tension between local and central governments.

At a more general level, the chapter also considers how important fiscal decentralisation is for the success of decentralisation overall, and concludes by identifying three key directions for future reform in Tanzania.

II The Theory of Central–Local Government Relationships

Every country has different layers of government with different functions, based on their particular circumstances and experiences (van der Dussen, 2008). Consequently, decentralisation processes are initiated for different reasons. Some countries want to make the public sector leaner and more efficient. Others are motivated by disenchantment with the performance of centralised policies. Decentralisation may be motivated by a desire to contain or appease local demands for greater cultural and political autonomy. It may reflect an awareness of the global trends in institutional reform and a desire to not be left behind. Governments do not generally decentralise with the aim of pursuing greater macroeconomic stability and growth, though this may be an outcome (Martinez-Vazquez and Vaillancourt, Reference Makwarimba and Ngowi2011).

Decentralisation generally refers to the devolution of decision-making powers from the central government to local or sub-national governments. A related idea is de concentration, in which central governments retain decision-making power but diversify and customise the provision of public services to lower levels of government. According to the sequential theory of decentralisation, the extent to which decision-making power is devolved in practice depends on the sequencing of political, administrative, and fiscal decentralisation (Falleti, Reference Estache2005).

Regarding fiscal decentralisation, there are four basic approaches: empowering local governments to set up their own tax systems; central retention of all taxes, with proceeds shared with local governments through intergovernmental transfers; assigning selected taxes exclusively to local governments; and sharing revenue from specific centrally collected sources with local government. Many systems are hybrids of these approaches, with the choice depending on considerations that may be technical, historical, demographic, economic, geographic, or political (Martinez-Vazquez and Vaillancourt, Reference Makwarimba and Ngowi2011).

In principle, decentralisation is often considered to be a desirable aim. Economists such as Oates (Reference Ntukamazina and Mukandala1972), who first developed the theory of fiscal federalism, argue that decentralisation should increase citizens’ welfare because service providers will have better information about diverse needs and preferences, and greater flexibility to address them. While such theories assume that governments are benevolent, a growing literature on public choice theory – which assumes that officials are selfish – also often favours decentralisation. A branch of this literature known as market-preserving federalism holds that decentralisation can incentivise good behaviour among government officials, control the intrusiveness and expansiveness of the public sector, and support effective private markets (Weingast, Reference Weingast1995; McKinnon, Reference Mansuri and Rao1997).

It is theorised that decentralisation should reduce corruption, as accountability, information, and transparency should be greater at the local level; so should possibilities to encourage collective action and build social capital, which would lead to a higher probability of corruption being detected and punished (Boadway and Shah, Reference Bevan, Collier and Gunning2009). If individuals and businesses are mobile, fiscal decentralisation should also help to constrain government misbehaviour by opening up the possibility of competition among jurisdictions.

There are counter-arguments, however. Decentralisation could create opportunities for rent-seeking by weakening central agencies’ scope for monitoring, control, and audit. By involving a larger number of officials in dealing with potential investors and revenue sources, political decentralisation can also create more opportunities for corruption and clientelism. The risks are especially high when elites dominate the local political scene. Incentives for corruption at the local level may also be higher owing to poorer compensation, lower career prospects, and lower morale (De and Prud’homme, 1994).

What does the evidence say? Based on cross-country comparisons, Huther and Shah (Reference Helleiner1998) find that fiscal decentralisation is associated with greater citizen participation, more political and democratic accountability, social justice, and improved economic management and operational efficiency; it is also found to have a positive effect on institutional quality and the quality of government (De Mello, Reference Coulson2011). There is strong evidence that fiscal decentralisation increases the share of education and health expenditures in total government expenditures, especially in developing countries (Shelton, 2007). Working on Bolivia, Faguet (Reference Eichengreen2004) finds evidence that fiscal decentralisation increases investment in social sectors, such as education, urban development, water and sanitation, and health care.

Based on case studies, decentralisation has also been found to positively impact education outcomes such as literacy rates, years of schooling, dropout rates for primary and secondary education, public school enrolment, and test scores (Faguet, Reference Eichengreen2004; Peña, 2007, among others). In the health sector, positive impacts include decreasing infant mortality. Decentralisation has been found to increase access to water and sewage services and deliver better quality infrastructure at lower costs than in centralised settings, mainly where a community-driven development approach is used.

While generally positive, however, the evidence is mixed and incomplete – not least because it is difficult to isolate the effect of decentralisation on development from other processes such as economic growth and institutional changes in the public sector. There remain open questions about how diversity, complexity, proximity of local officials, political constraints, accountability, incentives, corruption, rent-seeking, and state capture by local elites affect the success of decentralisation – and about whether deconcentration can be as efficient as decentralisation.

Capacity may be the key factor in determining the extent to which decentralisation succeeds: services may improve when decentralised to high-capacity local governments and deteriorate when decentralised to low-capacity local governments. For instance, theories of public finance often tend to assume that local governments will have fiscal capacity, defined as the ability to raise tax revenues ‘given the structure of the tax system and its available powers of enforcement’ (Besley and Persson, Reference Barro and Lee2013). However, in practice local governments in low-income countries tend to lack fiscal capacity. Africa has performed particularly poorly compared with the rest of the world in terms of the level of local revenue generation and service delivery, with local governments depending heavily on central government grants to finance their budgets.

The diverse and complex political economy challenges that underlie lack of capacity at the local level rarely receive sufficient attention (McLure, Reference Mansuri and Rao1998). They include the incentives and behaviours of national-level politicians and bureaucrats, who shape the rules of the intergovernmental fiscal game and how they are implemented, and the local-level political economy dynamics among elected local councillors, local government staff, and citizens. When local governments lack capacity, an appropriate balance needs to be found between central oversight and local autonomy.

III The Evolution of Local Government in Tanzania

Tanzania’s history of local government dates back to the chiefdoms of the pre-colonial era, as summarised in Table 6.1. During the first decade of independence, 1961–71, the government replaced native authorities with local officers who were democratically elected, in common with other newly independent African states, with the aim of improving the delivery of public goods and services. This was partly the result of the independence euphoria, but also reflected the genuine determination of the new government to bring fundamental changes to the citizens. The leadership’s reflection on a strategy for national social and economic development led to the Arusha Declaration of 1967 that committed Tanzania to a development strategy based on ‘socialism and self-reliance’. The emphasis of the Second Five Year Development Plan (1969–74) was on rural development, which required further administrative reforms – at the local level – in order to improve the capacity and effectiveness of the machinery of government in carrying out the new rural development effort (Collins, Reference Chavent, Kuentz, Liquet and Saracco1974). However, local governments remained closely supervised by, managed by, and accountable to the central government. This reflected in part the British system of government the country inherited, in part the aim of strengthening national unity, and in part the fear – not publicly acknowledged – that local authorities, just like the independent cooperative unions, could become a source of opposition (Mnyasenga and Mushi, 2015).

It quickly became clear that local authorities were failing to achieve the expected results owing to, among other factors, expansion of services that did not match the available financial resources, lack of competent personnel, and rampant mismanagement of funds (both local and grants from the central government), leading to poor social and economic performance. The period also witnessed an ascendancy of politics and politicians over the bureaucracy that led to a loss of consistency in policies and operations at both central and local government level.

In 1972, local governments were abolished, and the government created new regional and district committees (in place of district councils), which were given responsibility to coordinate both economic and social development activities while reporting to the Prime Minister’s Office. By then, Tanzania had thus opted for a deconcentration rather than a devolution type of decentralisation. In effect, the central government started to directly manage the local development process and provision of social services.

There was, however, a lack of preparedness in the implementation of this reform that showed up in low human capacity, lack of resources, and inherent disincentives for task compliance in the whole administrative system. The social services infrastructure collapsed in the severe economic crisis of the late 1970s and early 1980s, which, under the strong pressure of the donors, led a few years later to a complete change of development strategy, from a socialist to a market economy. Notable at that time was the overextension of the state, which placed great pressure on its capacity, while the heightened ideological content and politicisation of the government decision-making process eroded the authority and self-confidence of the bureaucracy. Faced with that erosion in the capacity to carry out the economic management tasks of government, donors increasingly pressed for administrative reforms, including the reinstitution of local government institutions. The reintroduction of urban authorities had taken place in 1978. Then a series of laws on local government were passed in 1982 and there was a constitutional amendment in 1985.

These measures proved to be flawed. They did not clearly define the relationship between central and local government – in practice, the centre retained strong powers of control and supervision, and the structure of local government authorities (LGAs) overlapped with that of the ruling party (Mnyasenga and Mushi, 2015). LGAs were given only limited power to mobilise their own human resources, implement their own plans and strategies, and raise revenue, borrowing, and spending. From the early 1990s, various studies, commissions, workshops, and seminars pointed out the complexity, ambiguity, and fragmentation of the legal framework, with overlaps and conflicts among legislation, circulars, standing orders, and other regulations from ministries responsible for health, education, extension services, water supply, and rural roads. At a higher level, it also became evident that fundamental political, administrative, and economic reforms were imperative for the government to improve economic efficiency and effectiveness. Several far-reaching economic and political reforms were thus introduced during this period, including macroeconomic stabilisation and fiscal restraint, market liberalisation, and privatisation on the economic side, and also the establishment of multiparty democracy in 1992 on the political side.

Tanzania consequently embarked on a new Local Government Reform Programme (LGRP) in 1996, accompanied by the decentralisation by devolution (D by D) strategy, in which LGAs were supposed to be largely autonomous institutions, free to make policy and operational decisions consistent with the country’s laws and policies, and with the power to possess both human and financial resources. Reforms were aimed at downsizing central government, reforming local governments, and decentralising more powers to them. It was expected that the D-by-D strategy would yield, among other outputs, the delivery of quality services to the people in a participative, effective, and transparent way. There was, however, little analysis and documentation of the implementation challenges at both national and local authority levels. The LGRP was to be implemented in two phases – a stand-alone programme from 1998 to 2008, and integration into the government system from 2009 to 2014. It set out to address five dimensions:

1. 1. Financial: giving local authorities more sources of revenue, including conditional and unconditional grants from the central government;

2. 2. Administrative: de-linking centrally controlled personnel from sectoral ministries and integrating them in the local government system;

3. 3. Central–local relations: limiting the roles of central government to policymaking, support and facilitation, monitoring, and quality assurance;

4. 4. Service function: decentralising the management and provision of public services, with the aim of enhancing their quantity and quality; and

5. 5. Democratic: strengthening local democratic institutions, enhancing public participation and bringing control to the people.

By the end of the first phase in 2008, however, only four pieces of legislation had been partially amended,Footnote ¹ and a legal harmonisation task force had only just started to review sector laws and policies (Mnyasenga and Mushi, 2015). Rather than clarifying overlaps in responsibility, some of these amendments actually exacerbated ambiguity: for example, Act No. 6 of 1999 and Act No. 13 of 2006 introduced a provision that the central government could do ‘any such other acts and things as shall facilitate or secure the effective, efficient and lawful execution by the District Authorities of their statutory or incidental duties’. By the end of the second phase in 2014, neither a comprehensive local government law nor harmonised central and sector legislation were in place. This remains the case today (April, 2023).

In summary, government decentralisation in Tanzania has gone through four phases: first, active decentralisation was pushed by the national-level bureaucratic elite that swiftly emerged following independence; second, the consolidation of that process was impeded by the major disruption that followed the Arusha Declaration and the increasing state control over the whole economy, at a time most able civil servants were transferred to manage the new parastatals, spreading available talent very thinly (Van Arkadie, 1995); third, an attempt at reverting the process took place some ten years later, with the major institutional adjustment process that followed the crisis of the early 1980s and led to the re-establishment of a market economy, but, for various reasons, the economy remained de facto essentially centralised; and, fourth, under the pressure from donors using economic arguments, including the need to reduce the role of the central government (World Bank, Reference Wily2004) and improve the delivery of public services as well as the participation of citizens (Smoke, Reference Scott and Seth1994; Manor, Reference Liviga1999; World Bank, Reference Wydick1999; Olowu, Reference Nyerere2000), decentralisation, in its devolution definition, is again posted as a major reform objective (LGRP laws). How far has this reform gone?

IV Local and Central Governance in Tanzania Today: A Complex and Confusing Legal Framework

The legal framework governing relationships between central and local government in Tanzania is complex and confusing. For example, local authorities are legally mandated to make and implement their own development plans, finding their own sources of revenue – but central ministries are also legally empowered to determine the sources of local government revenue, and can veto decisions made at the sub-national level. Sector ministries are also legally empowered to intervene in the functions of LGAs.Footnote ²

The overwhelming power of the minister responsible for local government is suggested by the sheer number of mentions in the relevant legislation: according to Mnyasenga and Mushi (2015), the minister is mentioned 95 times in the 156 sections of the Local Government (District Authorities) Act, 1982 [CAP 287 R.E. 2002]; 80 times in the 111 sections of the Local Government (Urban Authorities) Act, 1982 [CAP 288 R.E. 2002]; and 60 times in the 65 sections of the Local Government Finance Act, 1982 [CAP 290 R.E. 2002]. Most of these mentions are concerned with the control and supervision of local government powers, functions, and finance through approval powers; appellate power; issuance of guidelines, regulations, directives, orders, and direct interventions; appointment and transfer powers of local government staff; disciplinary powers over local government staff; variation of local government functions; and powers to dissolve local government councils. Most of these powers are discretionary and can be delegated by the minister to any public officer.

In practice, research indicates that the central government indeed exercises tight control over LGAs. Studies carried out by REPOA (2008), Tidemand and Msami (Reference Svendsen, Boesen and Koponen2010), and Kunkuta (Reference Kimambo, Maddox and Nyanto2011) reveal the most frequently used mechanisms: issuing policy statements and guidelines; giving directives and commands that direct the LGAs to perform or not to perform certain activities; issuing circulars; discipline and transfer of local government staff; and setting budget ceilings. In the opinion of 87.4 per cent of those asked by the researchers, the minister’s power negatively influences the autonomy of LGAs.

The same studies also observed that Regional Administrative Secretariats negatively affect the autonomy of LGAs. In theory, these regional authorities should play a facilitating role, providing technical advice, support, and supervision.Footnote ³ In practice, they put heavy pressure on local authorities, frequently issue directives, and veto development plans and programmes that are deemed to be inconsistent with national policies. While this can sometimes be justified, experience suggests these powers are exercised excessively – in particular, political tensions emerge in constituencies dominated by opposition parties when LGAs are pressured to prioritise implementing the party manifesto above their own plans.

Figure 6.1 depicts how LGAs receive directives, guidelines, circulars, memoranda, codes of conduct, and so on from a wide variety of other governmental bodies: the Ministry of Finance and Planning; the President’s Office – Regional Administration and Local Government; sector ministries, such as education and health; and regional and district authorities. LGAs lack the capacity to implement them efficiently, or to comply with these varied stakeholders’ different reporting requirements and formats. This results in data being unreliable: there are, for example, substantial variations between budget figures presented to local councils and to the parliament, information on expenditure compiled by the Prime Minister’s Office Regional Administration and Local Government (PMO-RALG), and what appears in the audited final accounts (Fjeldstad et al., Reference Fjeldstad2010).

Figure 6.1 Interactions between central and local government

Source: Construct by authors

Overall, the general feeling about the 1998 reform of the functioning of LGAs and their relationship with the central government is that it is unfinished business. Progress seems to have taken place in the volume of services delivered and in their quality. It is also the case that LGA expenditures and employment weigh more in public spending and the civil service today (April 2023). Yet the control of LGAs over their staff and their total spending is limited, owing to what two evaluators call a ‘dual level of authority’. The same evaluators concluded that, up to 2008, the end of the first stage of the reform, LGAs were not more powerful than they were in 2000. To date (April 2023), the situation remains more or less the same, or may have slightly deteriorated with the increased control by the central government under the fifth phase, with the recent decision to transfer key staff in departments of land and water to the central government, including further transfer of local government sources of revenue. Thus, despite the significant devolution of authority and resources to sub-national levels of government, persisting capacity deficits, increased financial dependence on the central government, and political and institutional constraints impact negatively on the pace of reforms, and also mean that the achievements have fallen short of the intentions of the reform agenda.

Among the weaknesses underscored by observers, the issue of fiscal decentralisation ranks high. We now turn the spotlight on it.

V Fiscal Decentralisation: The Challenges of Revenue Collection

The LGRP aimed to ensure discretionary powers for local councils to levy local taxes and fees and pass their own budgets, reflecting their own priorities alongside the obligation to meet nationally mandated standards in the delivery of the public services for which they are responsible. The bulk of the funding for these services – which include primary education, primary health, local roads, potable water, sanitation, and agricultural extension – comes from central government, as do the salaries and emoluments of council civil servants. Transfers are allocated according to a formula that takes into account socioeconomic factors such as the size of population, area, poverty, and access to health facilities.

There is ample evidence that the reforms have not been effective in increasing LGAs’ fiscal autonomy. Only a few large urban councils in Tanzania can finance a substantial share of their expenditure from their own revenue sources. Between 2000 and 2007, revenue collected in urban LGAs increased by 36 per cent, but declined by 4 per cent in rural LGAs; this is attributed to the central government abolishing certain ‘nuisance taxes’ in 2003/4, inappropriate tax design and poor collection systems (REPOA, Reference Pratt2007; Fjeldstad et al., Reference Fjeldstad2010). In the 2006/7 financial year, LGAs collected about TZS 60 billion in local taxes, representing only about 7 per cent of total LGA expenditure (Tidemand and Msami, Reference Svendsen, Boesen and Koponen2010). In 2012/13, transfers from the central government accounted for 85 to 90 per cent of local budgets – on a par with corresponding numbers from other African countries, such as Lesotho (90 per cent), Uganda (88 per cent), and Ghana (69 per cent). The share of total national tax revenues collected by local governments – about 6 per cent – remained almost unchanged since 1996 (Fjeldstad, Reference Ewald and Mhamba2003).

Table 6.2 lists the main sources of revenue for local governments. The most important are classified as non-tax, including produce taxes, market fees, service levies, licences and permits, property tax, and fines and penalties. Collecting such revenues creates opportunities for rent-seeking; doing so efficiently requires robust monitoring and enforcement systems to ensure transparency and accountability, along with skilled staff who are costly to employ and maintain at the local level (Besley and Persson, Reference Barro and Lee2013). Guidance from central and sectoral ministries is lacking; indeed, political interference with local revenue collection is prevalent.

Political economy reasons, or more exactly unaligned incentives and disincentives, are among the critical forces that help to maintain such a complex and inefficient system. Important stakeholders, including bureaucrats and politicians, as well as powerful taxpayers, resist changes in an attempt to protect their influence and control of the local tax system. In the case of Tanzania, Fjeldstad (Reference Evans2001) maintains that such an environment offers informal incomes for civil servants and their social network members and provides a visible arena for local councillors to play out their political aspirations vis-à-vis their constituents. It also provides incentives for some powerful taxpayers, in particular businesspeople, landowners, parastatals, and the cooperative unions, to seek to retain the status quo, since it facilitates evasion.

VI Conclusion: Directions for Reform

The centre has an important role to play in the quest for local autonomy. Future reforms in Tanzania should address the complex and confusing administrative relationship between central and local government, along with limited fiscal capacity at the local level and the frequency of centrally imposed changes in revenue regimes, which make it harder to develop sustainable fiscal capacity at the sub-national level.

I The Concept of Decentralisation

Decentralisation is a rather vague term, used to denote quite different concepts: political, administrative, fiscal, and market decentralisation.Footnote ⁶ While these concepts overlap, they also differ in major ways. To start with the most radical of these four concepts, market decentralisation shifts authority and responsibilities out of the government to the private sector. Typically, under such privatisation the government retains considerable power as a shareholder (sometimes with special powers as holder of a ‘golden share’), or as regulator of the private firms providing public services. The central issue with this type of decentralisation is that the two agents, the government and the private provider, do not have the same objectives or information. This gives rise to a principal–agent problem.Footnote ⁷

Fiscal decentralisation is in my view best thought of not as a form of decentralisation in its own right, but rather as a necessary complement of the three other types of decentralisation. After all, whenever central government functions are shifted to regional or local governments or to private providers, these must be enabled to fulfil their function. At a minimum, they must have an adequate source of revenue: local taxes, user charges, or a transfer of central government revenue.

Administrative decentralisation transfers authority and responsibility for the planning, management, and provision of public services to a lower level of government or to a special agency. In its weakest form, deconcentration, authority and responsibility remain with the central government but are shifted from civil servants based in, for example, the capital to those based at a regional centre. In a stronger form, delegation, the central government surrenders some of its control over planning and execution to an agent that has considerable autonomy while remaining accountable to the central government.Footnote ⁸

Political decentralisation shifts political control over public decision making to representatives of those directly affected. Typically, control is transferred to an elected body at a lower level, such as a city council or regional legislature. (When political decentralisation is far reaching, it is sometimes called devolution. But the difference is only one of degree: there is no clear boundary.)

II The Rationale for Decentralisation

What are the pros and cons of decentralisation? There are at least four different rationales, related to scale, externalities, preferences, and rent-seeking.Footnote ⁹ First, economies of scale in some aspects of public services provision obviously favour centralisation. Secondly, decentralisation is problematic if decisions taken locally have effects outside the jurisdiction. Such externalities will lead to underprovision if the spillover effects are positive or overprovision in the case of negative effects. In this case, centralisation to a sufficiently higher level has the advantage that the externalities are internalised: the effects in other jurisdictions that would be ignored at the local level are taken into account when the decision is transferred to a higher level. (The subsidiarity principle implies that decisions should be taken at the lowest possible level, but not lower. This in itself is too vague to be helpful, but defining the appropriate level in terms of externalities gives the concept teeth.)

Thirdly, if preferences are heterogeneous across space, then public services must be provided in different forms in different locations, and this calls for at least administrative decentralisation. This is likely to work only if complemented with some form of political decentralisation so that local preferences can be articulated at the political level and policymakers are held accountable for the way they respond to those preferences. Decentralisation then has the advantage that it generates better information on the demand for public services and (through political accountability) strong incentives for the public sector to tailor provision to that demand.

Finally, decentralisation may increase the scope for rent-seeking. Hence, public sector functions are sometimes centralised in order to reduce this.Footnote ¹⁰ However, it is important to note that the direction of the effect of decentralisation on rent-seeking is not clear. Rent-seekers who try to influence decisions at higher government levels may face more countervailing power there (either from competing rent-seekers or from public sector agents who oppose them) than those who operate at lower levels. On the other hand, at the local level their actions may be easier to observe and therefore to resist. The net effect of these two forces, countervailing power and asymmetric information, is not clear.Footnote ¹¹

III The Reasons for Decentralisation in Tanzania

This brief review of the nature and rationale for decentralisation will help to structure my discussion of this chapter by Likwelile and Assey.

The chapter clearly shows how special the Tanzania case is. Local government was weakened dramatically after the 1967 Arusha Declaration. The LGAs were revived in the early 1980s but were given remarkably little power: the central government and the party remained firmly in control. The law even entitles the central government to do anything that ‘shall facilitate or secure the effective, efficient, and lawful execution by the District Authorities of their […] duties’.

Likwelile and Assey give a clear and very useful account of the evolution of local government in Tanzania. (This is neatly summarised in Table 6.1.) But they say very little about the reasons for the various changes they document. The centralisation in the late 1960s clearly had very little to do with the rationales I have listed: scale economies, externalities, heterogeneous preferences, or rent-seeking.Footnote ¹² Instead, it was mainly driven by ideology. The subsequent decentralisation is more puzzling. Why did it happen? Because donors pressed for it? Because rent-seekers felt it would give them new opportunities? Because the leadership believed in it? What then did they think it would achieve? Why did reforms oscillate between centralisation and decentralisation?

The chapter is almost silent on these questions. There are very brief references to the economic crisis of the early 1980s,Footnote ¹³ the collapse of public services provision at that time, and ‘pressure’ from donors. We are not told what the objectives of the reforms were. Hence, the chapter offers a fascinating factual account of the reforms, but no political economy analysis of the changing incentives for the various agents involved, nor an empirical analysis of the results of the reforms.

Reading between the lines, the real story appears to be that the central government, while often describing decentralisation as a way to promote good governance (perhaps even a panacea), has in fact never fully accepted decentralisation. Its ability and desire to resist in practice what it preached waxed and waned over time, for reasons that are unfortunately not discussed. As a result, Tanzania has moved back and forth between centralisation and decentralisation, responsibilities have often been unclear, and fiscal decentralisation has seldom been in line with political and administrative decentralisation. If this interpretation is correct, then the incentives for the central government to push for or to resist decentralisation should be at the centre of the story. Focusing instead on fiscal decentralisation, as the chapter does, amounts to studying the symptoms rather than the disease.

IV Fiscal Decentralisation and Local Revenue Collection

At the outset, in Section I, the authors indicate that their focus is ‘on the administration of local revenue mobilisation given the centrality of financial resources in empowering local authorities to deliver on their mandate and improve their performance’. This suggests that to understand decentralisation and development in Tanzania the key process to study is fiscal decentralisation.

This seems hard to justify, for two reasons. First, as the authors themselves stress, local authorities do not have the capacity and integrity required for a successful decentralisation. Therefore, fiscal autonomy may lead to mismanagement and corruption. Secondly, fiscal decentralisation is a process that makes political or administrative decentralisation possible. That may lead to better governance and thereby to better service provision. Whether it actually did so in Tanzania is an important empirical question, but that question is not addressed in the chapter.

In Tanzania LGAs are almost exclusively financed through transfers from the central government: these account for more than 90 per cent of their revenue.Footnote ¹⁴ The authorities are allowed to raise their own revenue but usually lack the capacity to do so.Footnote ¹⁵ Possibly, this heavy reliance on transfers undermines horizontal accountability.Footnote ¹⁶

It is worth stressing that local taxation is neither necessary nor sufficient for horizontal accountability. It is not necessary since, contrary to what the chapter suggests, effective accountability can be achieved without fiscal decentralisation. Reinikka and Svensson (2004) show in a famous study of the use of government transfers for education in Uganda that posting news in the village about the transfer was sufficient to trigger a powerful process whereby villagers held teachers accountable. In this case, accountability was achieved without any institutional change, simply by empowering people with information. Similarly, in Tanzania, villagers in Mkenge (Bagamoyo District) learned in a non-governmental organisation training programme about their rights. They then proceeded in 2010 to throw out the village council with a vote of no confidence for failing to account adequately for public expenditure. Tanzania has also practised an innovative system of village meetings in which spending priorities are discussed.Footnote ¹⁷ While local leaders predictably try to capture these meetings, they are often overruled so that government transfers are spent on, say, education rather than roads. These examples suggest that the absence of local revenue mobilisation does not preclude effective accountability.

There is a third point to consider, made by Besley and Persson (Reference Barro and Lee2013): local taxation requires highly qualified staff for assessment, monitoring, and enforcement.Footnote ¹⁸ This may make fiscal autonomy very costly.

In summary, there is a trade-off to consider, which involves three effects. The traditional argument is that local taxation will lead to better accountability and hence to better public services delivery, in line with local preferences. These benefits have to be weighed against the cost of local taxation, which may be relatively high if economies of scale are important: the Besley and Persson point. But it may be possible to avoid this trade-off, namely by achieving accountability without relying on the scrutiny of expenditure by taxpayers. The village meetings are one way of doing this.Footnote ¹⁹ An optimal policy that takes these three effects into account clearly cannot be identified without empirical analysis. But it is important to point out that the desirability of fiscal autonomy – taken for granted in much of the chapter – is by no means obvious.Footnote ²⁰

V Institutional Weaknesses

Likwelile and Assey argue that raising local revenue faces several institutional weaknesses, including discretion, arbitrariness, unpredictability, and inconsistencies in decisions by the central government. One of the examples they discuss is the oscillation between centralisation and decentralisation in the collection of property taxes. In the pre-2008 phase of decentralised collection, corruption was rampant. This suggests that centralisation may be needed to reduce rent-seeking. But the chapter also mentions that in the subsequent centralised phase, ‘Imperfect information flowing to central operators created opportunities for corruption’. This leaves the reader with a puzzle: if corruption, arguably due to different causes, could flourish in both regimes then what, if any, is the effect of decentralisation on corruption? Apparently, there is no empirical work on this. Clearly, there is a need for an empirically based study that compares corruption under decentralisation and centralisation.

VI Reforms

The chapter’s section on reform (Section VI) is quite brief but lists a whole series of possible reforms.

First, the authors argue that the fiscal decentralisation agenda should be revisited so as to develop a set of rules for local and central governments and ensure predictability. While this is vague, they also take a clear position: given the poor fiscal capacity of the lower-level governments, ‘it makes sense […] to have the central government collect revenues and establish clear legal mechanisms to transfer part of those revenues to LGAs based on recognised resource endowment, the need in terms of public services to be provided, and a fiscal capacity-building component’. This is probably the key statement in the chapter, and I will return to it.

Secondly, predictability should be ensured by ‘rationalis[ing] the conduct of discretionary decisions and actions by the central government’. This sounds like motherhood and apple pie: it is hard to see how one could disagree. Predictability is, of course, a good thing, but how the central government’s scope for discretionary actions should be rationalised is not at all clear. This would require a thorough analysis of the pros and cons of centralisation, culminating in a convincing diagnosis of the problem.

Returning to the key statement about the desirability of the reliance on transfers from the central governments, a few comments are in order. First, this statement seems somewhat contradictory with the authors’ advocacy elsewhere in the chapter of the desirability of fiscal autonomy, unless it is understood as referring to a temporary measure motivated by lacking local capacity. Fiscal autonomy, of course, requires a drastic reduction in the reliance of the LGAs on transfers from the central government. Secondly, one reason for their favouring transfers appears to be the evidence they cite from Masaki (Reference Maliyamkono and Bagachwa2018) that transfers crowd in local revenue. There is a technical reason to be somewhat sceptical of this result.Footnote ²¹ More importantly, while Masaki finds a large elasticity of crowding in (0.6), given the very low share of local revenue in total revenue this translates in fact into a very weak effect. Since transfers finance 91.5 per cent of domestic expenditure, an extra government transfer of TZS 1.00 crowds in only about TZS 0.06 of domestic revenue. Therefore, while the effect is statistically significant, it is in economic terms almost trivial. Thirdly, the acute need for ‘more tax evaluators and collectors, and greater capacity to monitor and penalise non-compliance’ are good arguments (following Besley and Persson, Reference Barro and Lee2013) for relying on central tax collection and transfers to LGAs. However, and this is my main objection, this does not clinch the case: these disadvantages of local fiscal autonomy must, as noted before, be weighed against the advantage of fiscal autonomy leading to improved accountability, taking into account the scope for achieving accountability in other ways. Finally, clearly the status quo cannot continue indefinitely. The authors see, if I understand them correctly, continued heavy reliance on transfers as a temporary measure.Footnote ²² Local capacity must be built up (largely financed by these transfers) so that eventually local revenue can be substituted for transfers. This is sensible but, as the authors recognise themselves, raises the question of how long this will take and, crucially, what incentives LGAs have to use the transfers for such capacity building.

VII Conclusion

The experience of decentralisation in Tanzania is of special interest for two reasons. First, the starting position was an extreme one: the central government and the party exercised a degree of control that was unique in Africa. Secondly, the subsequent decentralisation quickly turned into a bewildering oscillation between more and less central control. That this back-and-forth process was possible, was in part due, as the chapter rightly stresses, to ambiguities in the law. In this respect too, Tanzania seems to be a special and instructive case. The chapter gives an excellent description of this strange Echternach procession (three steps forward, two steps back). However, we learn what happened, but not the reason why.

The effects of decentralisation (political, administrative, or fiscal) on welfare, notably through the provision of public services, are the outcomes of a very complicated process. There are changes in formal power, in the opportunities and incentives for rent-seeking, in corruption, in the scope for holding officials accountable, and in the information available at different levels of government. Since there are many opposing effects in this tangled process, theory is of little help to decide on the desirability of centralisation or decentralisation. The chapter makes almost no use of evidence. There is some evidence for Tanzania, but empirical work is an urgent priority. Ideally experimental methods should be used to estimate the effects of decentralisation. When randomisation is not feasible, comparing outcomes across locations with different levels of decentralisation can still generate very useful information. Even less formal evidence can be helpful. Anecdotal evidence, for example on the effects of decentralisation on corruption or on the circumstances that enable village meetings to hold officials accountable, can begin to build a body of evidence.

In the absence of firm evidence there is little that can be concluded. Is fiscal autonomy desirable? Early in the chapter, the authors appear to take this for granted. However, they later argue that it would lead to corruption and to poor management because of the weak capacity of LGAs. If this is correct, should we then consider Tanzania’s incomplete and half-hearted fiscal decentralisation as a blessing in disguise? This seems to be a corollary of the authors’ conclusion that reliance on central government transfers should continue until the LGAs have built sufficient capacity for raising their own taxes.

Most importantly, the end of the chapter narrowly focuses on the need for capacity building. The political economy issues, including the incentives for corruption, are discussed in the earlier parts but slowly disappear over the horizon.

I have argued that the chapter’s focus on fiscal decentralisation amounts to studying the symptoms rather than the disease. The central issue is what incentives the agents involved – the central government, local authorities, and various groups of rent-seekers – face. These incentives will in part determine what groups will push for decentralisation or will resist it. Theoretical analysis cannot take us very far here. An empirically based study that compares the effects of, and the incentives for, rent-seeking under decentralisation and centralisation is an urgent priority.

‘If markets do not exist in areas such as land, then they must be created […] state intervention in markets beyond creation must be kept at bare minimum.’ Harvey (Reference Gray, Khan and Padayachee2005)

I Overview

It is widely recognised that the fuzziness of land rights is a constraint on Tanzania’s development. In rural areas, land is the main resource of a large population of poor farmers and cattle herders – as well as of modern production units that can exploit a source of comparative advantage. Conflicts could be avoided for as long as land was abundant, but since the 1980s there has been growing pressure on land. With an expanding urban population, unclear land rights also constrain development in urban areas.

Private ownership of land is a concept that has always been ideologically foreign to Tanzanian society. Instead, ownership of land is vested in the president, who is supposed to use it for the public good. Laws define various occupancy rights for land users, which are meant to be substitutes for formal property rights in other economies. These occupancy rights have to allow for various local customary rules of land allocation and transmission, which apply to much of the country’s land.

Because of this – and various flaws in the existing formal laws and their implementation – the present system is far from offering the security that is required for an efficient and productive economic use of land. There is a heavy administrative apparatus, which is commonly judged as inefficient and the source of rent-seeking opportunities. As noted by Fischer, many developing countries are characterised by poor policies and weak institutional settings, which create opportunities for corruption and embezzlement by privileged interest groups (Fischer, Reference Estache, Wren-Lewis, Baldwin, Cave and Lodge2005).

The next section of this chapter gives a brief historical perspective on land tenure issues, tracing continuity from colonial times through the ‘villagisation’ era to the recommendations of the Presidential Commission of Inquiry into Land Matters, Land Policy and Land Tenure Structure, which resulted in the 1995 National Land Policy and 1999 Land Acts. During this time the pendulum has swung between the desire to protect customary small-scale landholders and the desire to give investors the security they need to develop long run and large-scale projects.

Despite many critiques and partial reforms, the system established in 1999 still provides the basis of land management in Tanzania. Section III explores that system, which categorises land in three ways: village land, which is under the jurisdiction of village councils, and accounts for around 70 per cent of all land in Tanzania; reserved land, which includes forest reserves, beaches, and game parks, and accounts for 28 per cent of all land in Tanzania; and general land, which accounts for only 2 per cent of land but is economically crucial because it includes urban land and large-scale agricultural projects.Footnote ¹

Different rules of occupancy apply to village land and general land, and disputes commonly involve attempts to reclassify village land as general land, which is necessary for it to attract external investment. When proposed changes to village land involve over 50 hectares, they need to be approved by the Commissioner for Land. The process is slow, cumbersome, and subject to various costs. The law provides for compensation for the people who previously occupied the land, but in practice this is typically inadequate and delayed.

The situation is complicated by the fact that the formal rights of occupancy defined by the 1999 Act coexist with various informal ones, and the administrative process of surveying land to grant formal rights has been progressing slowly – indeed, a large majority of rural Tanzanians, and about half in urban areas, still do not have formal rights over the land they use. Section IV explores these informal rights, completing a description of the actual situation regarding land tenure in Tanzania.

Section V provides an overview of the institutional arrangements for land administration in Tanzania, which are complex. It sets out the ways in which land rights can be granted, and the mechanisms for selling rights over land or using them to raise credit – although it is sometimes said that land in Tanzania has no value because it is formally owned by the state, there are actually various ways in which the right of occupancy is transferable for value. This section also explores the mechanisms for resolving disputes over land, of which there is a large and growing backlog.

Section VI draws on the preceding discussion to identify the eight main institutional issues and challenges with the system. Although proposals for revising the National Land Policy are currently being discussed, these seem unlikely to be fully resolved:

• Duality of tenure: The handling of the distinction between general land and village land is the main source of friction and inefficiency, combining often inadequate protection for villagers with disincentives for investors that may lead to missed economic opportunities. Better defined, better implemented, and fairer administrative procedures for land transfers would provide efficiency gains on both sides.

• Immense powers of eminent domain: Land is deemed to be akin to state property, and the state has not always used its resulting powers judiciously or in the public interest – indeed, what constitutes the public interest is a matter of debate. Customary landholders are not protected by fair information and consultation procedures, and the losses they endure can be very great.

• Limited formalisation: Procedures for formalisation are bureaucratic, unrealistic, expensive, and time-consuming. Registry records are often unclear and automated systems are rare.

• Gender discrimination: Although discriminatory practices under customary law are illegal, in practice it remains a serious problem that women’s access to and control of land often depends on the will of male relatives, making it harder for them to obtain loans or invest in improving their land.

• Institutional overlaps: Multiple and diverse institutions are involved in implementing land-related laws and policies. The resulting overlaps can create inefficiency and undermine accountability.

• Corruption and inefficient land administration: While the government discourages informal payments, they are widely used. This indicates the need for further institutional reform and efforts to make people more aware of their legal entitlements and to create incentives to report rent-seeking behaviour.

• Ineffective land dispute settlement framework: Dispute resolution mechanisms are often hard for ordinary people to access, whether because of the need to travel, the fees involved, language barriers, delays, or lack of clarity about authority.

• Inadequate resources: Shortfalls in human, material, and financial resources exacerbate problems with the legal and institutional framework.

The chapter concludes by summarising areas in which reform is a priority, including tackling corruption, improving coordination, scaling up programmes to formalise occupation rights, and streamlining procedures to demarcate land available for occupation and investment.

II A Brief Historical Perspective on Land Tenure Issues

There is some continuity in matters of land tenure between colonial times and post-independence Tanganyika, and later the United Republic of Tanzania, with some basic principles of the colonial era retained but with disorderly and sometimes contradictory additions. What was kept from the colonial era is essentially the view that land, whatever its type and its use, is formally the property of the government. It is now formally in the hands of the president, considered as the ‘trustee’ of the national land.

Since colonial times, however, the sensitive issue has been the status of all the land under customary law and the alienation of that land for use by non-indigenous or foreign investors, notably for export-oriented large-scale agricultural production (Tenga and Mramba, Reference Sutton2014, p. 55). The explicit rejection of full private property – and consequently the necessity to rely on rights of occupancy somewhat akin to long-run leases – was strongly reaffirmed by Nyerere in the mid-1960s, often against the advice of foreign advisers. Nyerere expressed his view on that issue before independence (Nyerere, Reference Nord, Sobolev, Dunn, Hajdenberg, Hobdari, Maziad and Roudet1958, pp. 55–6):

This view has not been debated since. In essence, it was realised during this time that – as recommended by the East African Royal Commission of 1953–5 – market mechanisms had to enable willing sellers to make land available to willing buyers (Shivji, Reference Resnick1998), but market freedom could not be left to price alone. It had to be further regulated.

Modifications to colonial rules related to the ways in which land could be alienated from customary users: from total discretion in colonial days (see Box 7.1) to the official protection of small farmers under customary law. The strength of this protection, however, fluctuated somewhat over time. Cases demonstrate a clear struggle between the need to protect customary small-scale landholders and statutory large-scale farmers. Indeed, the whole period after independence was characterised by an ongoing debate about the space to be given to customary laws and the way to give investors, including public entities, the security on the use of land they need to develop long run and large-scale projects.

In some cases, the government used statutory instruments to frustrate customary land tenure in favour of statutory land tenure.Footnote ² The situation was complicated by the creation of the Ujamaa villages in Nyerere’s socialist era, the massive population resettlement operations undertaken under that programme, and the objective to improve agricultural productivity and the country’s export potential. The alienation of customary land was rather common during the ‘villagisation’ period, whether at village level in order to reorganise production and increase productivity through mechanisation, or through parastatals being given the right to alienate large swaths of customary land.

Mpofu argues that villagisation marked the apex of the state bourgeoisie’s efforts to put rural production under its hegemony. He sees resettlement of peasants in chosen localities as a vehicle to facilitate state supervision and control of smallholding producers (Mpofu, 1986, p. 120). Tenga and Mramba note that the relocation of peasants, during operation vijiji,Footnote ³ caused massive land tenure confusion and legal disputes (Tenga and Mramba, Reference Sutton2014). As a result, peasants whose land had been acquired sued in courts of law for restoration of such lands, and when they won their cases, the government reacted by issuing notices to extinguish their customary tenures (Mchome, Reference Mchome2002, p. 70; Tenga and Mramba, Reference Tenga and Mramba2014, pp. 61–2).

The general trend away from peasants’ control in the 1970s was evidenced in the overhaul and abolishment of local institutions that had grassroot-level participation, and their replacement with more bureaucratic ones directly controlled by the central government.Footnote ⁴ This is reflected in Shivji’s view that Ujamaa served the interests and ideological hegemony of the state bourgeoisie (Shivji, 1986, p. 3), as Ujamaa remained a variant of petty bourgeois socialism and the official ideology of the state (Mpofu, 1986, p. 122).

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: a relative shortage of food products reinforced the weight given to farmers and cooperatives under customary law. Cases that witnessed the unavoidable tension between the two types of agricultural exploitation during this time include National Agricultural Food Corporation (NAFCO) v. Mulbadaw Village Council and sixty-seven others (see Box 7.2) (Tanzania Law Report, Reference Stiglitz1985, Case No. 88).

Little progress was achieved in trying to codify this complex relationship between formal and informal, or modern and traditional, land tenures and agricultural farms. This led to the aforementioned Presidential Commission on land matters under the direction of Professor Shivji, and the passing of the National Land Policy in 1995 and the Land Act in 1999. Despite many critiques and partial reforms, this system still provides the basis of land management in Tanzania.

III Legal Land Tenure in Tanzania According to the 1999 Land Act

Section 4 of the Land Act reiterates the basic public property principle of land tenure in Tanzania:

It categorises land in three ways:

Village land is under the jurisdiction of village councils (Village Land Act 1999, sections 7 and 8) and therefore governed by statutory law (Village Land Act 1999) and customary law.Footnote ⁶ The councils, elected by village assemblies (Local Government (District Authorities) Act, No. 7 1982, section 57) are in charge of the management of all land in their perimeter (Village Land Act 1999, section 8). Village land mostly comprises rural land and peri-urban areas.Footnote ⁷ Village land accounts for around 70 per cent of all land in Tanzania, supporting around 80 per cent of the population – many being farmers and pastoralists (Tenga and Kironde, Reference Sundet2012, p. 17; Draft Land Policy, 2016).Footnote ⁸

Reserved land is set aside for special purposes, including forest reserves, beaches, game parks, game reserves, land reserved for public utilities and highways, and hazardous land (Land Act Reference Krueger1999, sections 6 and 7). It is administered under different legislation: for example, forestry reserves are administered under the Forest Act (Sundet, Reference Silver2005). Reserved land accounts for 28 per cent of all land in Tanzania.

General land covers all the land that is not either village land or reserved land. It is administered by the Commissioner for Land on behalf of the president (Land Act 1999, sections 9 and 10). Although it accounts for only 2 per cent of land, it is economically crucial, supporting 20 per cent of the population (Tenga and Kironde, Reference Sundet2012, fn. 28): it includes urban land and agricultural land granted to investors for large-scale operations (Tenga and Kironde, Reference Sundet2012, fn. 28).

The distinction between village land and general land is a potential source of dispute when attempts are made to free village land for external investors, a frequent case that is found not to be satisfactorily handled in the Land Act. The official definition of general land – ‘all public land which is not reserved land or village land and includes unoccupied or unused village land’ (Land Act 1999, section 2) – creates an apparent ambiguity, as there is no provision in the Act to clarify what is exactly meant by ‘unoccupied or unused village land’. The process for non-villagers to access land under the control of villages is slow and cumbersome, as villages are limited in the amount of land they can allocate: any amount above a maximum of 50 hectares must be approved by the district council or Commissioner for Land (Tenga and Kironde, Reference Sundet2012).

The distinction between the types of land is of utmost importance and justifies the division of the Land Act Reference Krueger1999 into two parts. The Village Land Act deals with customary land occupancy rights in rural areas, while the Land Act deals with all the other land, including agricultural investment and urban development as well as reserve land.

IV The Distribution of Actual Land Tenure Status in Tanzania

The previous section’s description of the law governing the rights of land occupancy in Tanzania might suggest that the absence of private ownership has been fully compensated for by an alternative system of essentially public land leases. However, there are other land tenure statuses than the granted rights of occupancies, customary rights of occupancies, and the derivative rights – that is, subleases – in Tanzania. This is essentially because of the administrative burden of delivering granted rights and customary rights of occupancies, and also because of the difficulty of establishing precisely the boundaries of the land that could be concerned by the delivery of additional formal titles. Surveying land occupation develops at a very slow pace.

It follows that informal land tenure statuses coexist with formal ones. In 2012, a large majority of Tanzanian citizens lived without a formal land occupancy status.Footnote ²⁶ So far, in urban areas, roughly over 50 per cent of inhabitants have no formal title. In rural areas, most villages now have village land certificates, meaning their boundaries have been surveyed, only a few of them have elaborated their land use plan and are in a position of issuing certificates of customary rights. In 2020, it was estimated that 200,000 certificates of granted rights and 520,000 certificates of customary rights would be issued between 2020 and 2021, but by 15 May 2021, only 56,390 and 34,869 respectively had been issued, representing roughly 5 per cent of the rural population.Footnote ²⁷

The tenure typology in urban areas as reviewed by the World Bank in its 2012 Study includes formal private use, semi-formal private use, informal private use, communal use, and informal occupation of state urban land.Footnote ²⁸ In the rural sector, the tenure types are also diverse. They range from individual private use under GRO to private individual land use, communal use of rural land, reserved lands, and informal occupation of reserved land (legal squatting).

The government’s expected land use changes in both urban and rural areas may imply intensification of certain forms of tenure: in particular, there is expected to be a substantial shift to general land from village land. This calls for clear strategies such as restructuring of the areas for cultivation, especially conversion of land from village land to general land, which may impact rural tenure typologies; restructuring the settlement areas, especially village land, where transfer to general land is involved; and restructuring areas for conservation for ecological and ecosystem maintenance.Footnote ²⁹

V Institutional Framework for Land Administration

As the Land Act provides, all land in Tanzania is public land vested in the president, who is required to manage the land for the benefit of the citizens. The president can acquire land for public purposes or transfer land from one category to a different category (Land Act 1999, section 4(7)). Aspects of this custodial duty are legally mandated to others, as summarised in Figure 7.1, including the MLHHSD, the Commissioner for Land, supported by various authorised officers, land allocation committees, LGAs, and the National Land Advisory Council (Land Act 1999, sections 8–14 and 17).

Figure 7.1 Institutional arrangements for land administration in Tanzania

Source: United Republic of Tanzania, Strategic Plan for the Implementation of the Land Laws (SPILL), 2013b

The MLHHSD is responsible for sector management including policy, regulatory, support, and capacity building, as well as national functions such as national mapping, land use planning, and record keeping that cannot be fragmented into district and village functions (Land Act Reference Krueger1999, section 8). The National Land Advisory Council, whose chairperson is appointed by the president, reviews and advises the minister on all aspects of land policy (Land Act Reference Krueger1999, section 17). The Commissioner for Land reports to the permanent secretary of the MLHHSD and is mostly responsible for operations of land acquisition, transfer, disposition, and revocation (Land Act Reference Krueger1999, sections 9, 10, and 11).

The regional restructuring and local government reforms have also assigned much of the responsibility for land administration, particularly the interaction with land users, to LGAs, which are under the authority of the President’s Office – Regional Administration and Local Government (PO-RALG)(Land Act Reference Krueger1999, section 14) Yet land allocation is ratified by the land allocation committees (Land Act Reference Krueger1999, section 12).Footnote ³⁰ These committees deal with land other than village land.Footnote ³¹ They consist of local representatives of the commissioner – or the commissioner himself at the national level – and local officers responsible for various tasks, including land surveying (Land Act Reference Krueger1999, section 12(2)).

Other entities include the National Land Use Planning Commission, which advises the minister on land use issues and the practice of land use planning at local, regional, and national levels (Land Act Reference Krueger1999, section 12(2)).

VI Institutional Issues and Challenges

The Land Acts were passed in 1999 and began to be implemented in May 2001. Although they represented an improvement, they were quickly found to be unsatisfactory on several grounds. Major challenges are still present, as evidenced by the impressive number of reports that have since been produced on the persistent institutional weaknesses of the land rights system and land administration, and several partial reforms that have attempted to improve the situation. For example, only four years after implementation, the law was amended to repeal and replace Chapter 10 related to mortgages, under pressure from financial institutions, which found that it inhibited bankable projects. Another amendment in 2005 changed provisions related to leases, followed by one in 2008 to promote mortgage financing.

More fundamentally, reports including the MKURABITA (Property and Business Formalisation Programme) Report (2005), BRN (2013), and the Land Governance Assessment Framework (LGAF) (2009 and 2015) pointed to major institutional challenges. The 2009 LGAF report proposed a systematic review of the National Land Policy of 1995 to explore the extent to which expected gains had materialised and what could be done to improve the performance of land management. Issues touched upon include: land surveying, mapping, and registration; affirmative action to address gender issues; redefining institutional mandates; strengthening of decentralisation; making land use planning more participatory; changing expropriation practices; and improving conflict resolution mechanisms. The same institutional issues were again stressed in the 2015 LGAF report. The government reacted by commissioning in 2016 a review of the National Land Policy 1995. A draft policy is presently under consideration.

The implementation of the Land Acts was sufficiently difficult that it gave rise to two Strategic Plans for the Implementation of Land Laws, the first in 2005 (SPILL-I) and the second in 2013 (SPILL-II). A SWOT (strengths, weaknesses, opportunities, and threats) analysis undertaken in the latter pointed out positive but also numerous negative sides of land policies in Tanzania. The negatives are summarised in Table 7.3.

Clearly, the weaknesses listed in Table 7.3 result both from unsatisfactory institutional arrangements and limited state capacity – aspects that it is not really possible to completely disentangle. Despite the SPILL’s well-conceived analysis, and despite some, though unsatisfactory, progress over recent years, the main difficulties affecting the functioning of the land sector have not been resolved. The 2016 draft National Land Policy proposes to introduce some substantial changes in the National Land Policy 1995 and its implementation instruments. As the Policy is not finalised at the time of writing, the next sections describe the main present shortcomings of land management in Tanzania without consideration for the reforms considered in this new version of the Policy. The few debates organised about the draft of the National Land Policy 2016 do not suggest most challenges listed here will disappear, as the focus of these debates seems mostly to concern the protection of smallholders against large-scale investors.Footnote ⁴¹

F Corruption and Inefficient Land Administration

Much as institutional framework is crucial in land governance, Askew notes that:

[W]eak land governance and property rights systems can lead to opaque land deals, which facilitate corruption and undercut responsible actors seeking access to land for productive investment. Weak governance […] allows unproductive land speculation and undermines agricultural productivity.

(Askew et al., Reference Andreoni2017, p. 5)

Kironde points out that corruption challenges in the land sector are partly blamed on lack of an efficient land records system. Falsifying or hiding land information has led to long delays in getting approvals for land use plans, land surveying, and change of use (Kironde, Reference Khan2014, p. 12). He notes that although the government discourages informal payments, through public notices in offices and public education campaigns, they are paid all the same. Mechanisms to detect and deal with illegal staff behaviour exist in some registry offices, such as use of the Prevention and Combat of Corruption Bureau, but it has proved difficult to eliminate rent-seeking, and the general public does not have the incentive to report it. Indeed, rent-seeking is condoned through intermediaries as it seems to speed up delivery.

Transparency International (2017) has indicated a slight overall improvement in the fight against corruption: from 2016 to 2017, the country’s score increased from 32 to 36, and it climbed by three places from a global rank of 106 to 103. In a more focused study, Afrobarometer noted some likelihood of corruption-related practices to facilitate land registration, with rich people very likely to offer bribes (Afrobarometer, 2017, p. 7). Ordinary people also seem to be used to making informal payments, which indicates that institutional practices still need further reform (Afrobarometer, 2017, p. 7). See Figure 7.2 for an overview of the likelihood of corruption on land transactions for ordinary and rich individuals. It could also demonstrate that many people are not aware of their entitlements, and there is need for more efforts on awareness raising on land rights. The Information Land Management Integrated System is expected to minimise the avenues of corruption and fast-track land delivery.

Figure 7.2 Corruption Index on Land Transactions

Source: AfrobBarometer (2017)

VII Concluding Remarks and Recommendations

This chapter has assessed the land tenure system, the way it is implemented, and how it is supposed to work. It has analysed how the administrative and judiciary apparatus may help the economy exploit its comparative advantage in agriculture. It has shown that while the legal framework has put in place essential principles for land governance, these principles are not self-executing – their success depends on a vibrant and capable institutional framework.

Among the key recommendations which emerge from this chapter, it has been noted that there is a need for more effective coordination, collaboration, and capacity building at the various governance levels; procedures for large-scale investment in land need to be streamlined; there is a need to scale up land use programmes in rural areas to address village land conflicts and demarcate land available for occupation and investment; in urban areas, also, large-scale regularisation schemes need to be rolled out; and more efforts are needed to raise awareness on land rights to tackle corruption.

The existing political economy situation is a source of conflict between large-scale farmers holding CROs and small-scale farmers holding CCROs. The gaps in the land registration system for village land, that is CCROs, make it difficult for smallholder farmers to access credit. CROs are not accepted as collateral by banks. Moreover, the slow and complicated process of transferring village land into general land undermines investment in agriculture. If one is lucky, it takes three to five years to complete the process and receive the CCRO from the MLHHSD. The powers of the commissioner to grant the transfer could be on paper only, but applicant investors are often told that their certificates could not be issued in time because of the awaited approval from the President’s Office.

TIC approval is also complex, largely because it does not have a land bank. It therefore has to go through the same process of transferring village land. It has proved to be very difficult for the TIC to establish its own land bank, for whatever reason. Better institutional arrangements between village councils and the TIC could solve this. How to protect indigenous smallholders’ land from acquisition by large-scale farmers has surfaced over time. This can, however, be addressed by identifying vacant land and demarcating it for use by large-scale operators. Contract farming and out-grower schemes are a good approach to address the problem, as is currently being demonstrated in the SAGCOT area. The establishment of a Tanzania commodity market could address the price-fixing issues.

The legal basis for land ownership and access in Tanzania is provided by the Land Act and the Village Land Act, both passed in 1999 as the result of a process involving a Presidential Commission in 1991 and formulation of a national land policy in 1995.Footnote ⁴⁷

When they were passed, these laws were lauded as among the most advanced in Africa (Alden-Wily, 2003). Yet for several reasons, many laid out in this chapter, Tanzania failed to realise this potential and, with a ranking of 132 in the World Bank’s ‘Doing Business: registering property’ indicator, is close to the bottom of this indicator globally.

Four elements illustrate the gaps in Tanzania’s land registration system and the costs these impose on the broader economy. First, Tanzania has not computerised even the textual part of its land administration system and relies on a manual paper-based system that offers few advantages but provides ample opportunity for processes to get delayed and documents to be ‘lost’ or forged. Second, there is no integration between spatial and textual records, something that not only increases the costs of registering, but also reduces the security provided by land documents. Third, the system for formalising transfers is inefficient and cumbersome, with some of the associated requirements (such as official consent) unnecessary, so that even formal properties risk falling back into informality. Finally, coverage is extremely limited, with the number of new CROs created annually likely to be less than the number of new plots created so that in percentage terms coverage is decreasing rather than increasing.

At the time Tanzania was debating its land policy, Rwanda, one of its neighbours, experienced one of the most traumatic periods in its history. A desire to never again let the state’s failure to secure land rights for all trigger violence at this scale led that country to develop a set of land laws and policies and subsequently implement the most comprehensive land regularisation programme in Africa so far, which, by 2013, had registered all of the country’s 11.5 million parcels (Ali et al., Reference Alden-Wily2014) at a total cost of about USD 6 per parcel. With 86.6 per cent of land formally registered in the name of women (either jointly or individually) and rapid activation of mortgage-based credit (Ali et al., Reference Ahlborg and Sjöstedt2017), this allowed realisation of tangible social and economic benefits. It also provides the basis for land valuation to ensure fairness in case of expropriation, for raising revenue through land taxes, and for forward-looking land use planning including urban expansion.

Here, we suggest several concrete next steps that could allow Tanzania to improve land tenure security at a scale similar to that in Rwanda without giving up some of the distinctive characteristics of land tenure in Tanzania.

I Improving Land Tenure in Urban Areas

Improve registry efficiency and integration: Despite efforts to modernise the system, most of Tanzania’s land registry is still paper-based and not integrated with the cadaster or land-related databases maintained by local governments. To address this, action will be needed in four areas, as follows:

• Make digitisation of records mandatory to reduce petty corruption, generate audit trails, and allow workflow monitoring. Experience with digitisation projects globally suggests that the key to success is to get buy-in from the mid-level bureaucracy and experience in how to do so can be drawn on from several successful cases.

• Agree on time-bound targets and measurable outcome indicators for system improvement (including the level of digital coverage) that can be routinely generated from administrative data available to the MLHHSD (possibly linked to other administrative datasets) and regularly report to the public and to high-level decision makers on progress.

• Provide banks with online access to an authoritative and fully electronic register to allow them to verify the absence of competing registered claims to the same land, a piece of information that will have far-reaching consequences for their ability to repossess the land in case of default. Similarly, establish online links to tax administration, courts, the national ID, and the civil registry to ensure that every change in a person’s civil status automatically triggers a change in all parcels to which this person has a right.

• Empower local government by ensuring that parcel data from the land registry can be used by them for the processes they are responsible for, such as planning, permitting, and property taxation and that information already contained in databases maintained by local government is systematically taken into account in efforts to expand coverage with CROs.

Adjust regulations for low-cost first-time registration: First-time registration in Tanzania is unaffordable owing to three factors, namely:

• An emphasis on upfront payment of a premium that is unaffordable to poor credit-constrained households who, as clearly demonstrated in the literature (Ali, Reference Ali, Collin, Deininger, Dercon, Sandefur and Zeitlin2016; Manara and Regan, Reference Lindner2022), could benefit from secure land documentation and are interested in obtaining and willing to pay for it.

• A requirement for highly accurate boundary demarcation that transfers large rents to surveyors (who often operate using outdated technology rather than making use of advances that allow acquisition of highly accurate imagery via drones or satellites as survey regulations have not been updated). Global experience demonstrates that, while a spatial description that allows any parcel to be identified unambiguously on a map is essential for a public registry to function, high-precision surveys are a private good and should be treated as such.

• A complex paper-based and manual process that involves numerous formal and informal steps with opportunities for rent extraction and hold-up that led to emergence of intermediaries to help landowners navigate the process.

Regulatory action will be needed to collect revenue for titled properties on an ongoing basis rather than the current focus on prohibitive upfront fees that just increase informality; open the door for use of modern low-cost surveying methods as the norm and allow land owners to acquire high-precision surveys at their own cost; and streamline and digitise the workflow for first-time registration to reduce the amount of time and resources required, and define parameters for workflow management for any efforts to expand coverage with land title to make an impact.

Complete CRO issuance in urban areas: Pilot experience in Dar es Salaam (Ali et al., Reference Ahlborg and Hammar2016) suggests that even poor slum-dwellers are interested in and willing to pay for documents to provide them with secure tenure. The potential benefits from doing so, in terms of investment and credit access as well as planning and effective service provision, are undisputed. Therefore, once the steps outlined already are completed (which, on the basis of initial steps having been accomplished, could be done in the context of pilots with the explicit goal of refining workflows together with software to implement them), efforts to expand coverage with CROs to all urban areas will be a high priority. Counts of all built structures in Tanzania that have recently been produced using machine learning together with high-resolution imagery can indicate the overall volume of work to be covered and should be used to set milestones in terms of monthly targets, and the cost of doing so must not exceed USD 10 per parcel.

II Improving Rural Land Tenure

While the government spent considerable resources on issuance of CCROs to rural dwellers, the literature suggests that the impact of such documents remains limited (Stein et al., Reference Shivji and Shivji2016). This is not too surprising as village land cannot be transferred to outsiders. As long as this restriction remains in place, CCROs offer little increment in terms of tenure security. Demarcating village land, together with establishment of clear rules of how to manage land internally in the village, would, in such a situation, be a lower-cost option to guarantee tenure security. Introduction of CCROs has many parallels to unsuccessful attempts to introduce a lower level of tenure (in the form of residential licences) in urban areas. While these were promoted with great fanfare, they provided no tangible benefits and thus fell into disrepair (Ali et al., Reference Ahlborg and Hammar2016). To move forward with rural land tenure, the following steps would be desirable:

Complete issuance of CVLs: The fact that, some twenty years after the coming into force of the Village Land Act, only a fraction of villages have received a CVL is puzzling. It not only undermines the basis for Tanzania’s rural land tenure system, but also raises questions about the government’s seriousness in implementing its stated policy. Complete issuance of CVLs based on boundaries surveyed using modern low-cost technology – with disputes that cannot be resolved in the process marked on the record – and publicly accessible through a web portal would be a fundamental step towards ensuring that external support to Tanzania’s rural land sector will have the desired impact.

Clarify content and status of village land use plans: Conceptually, village land use plans should be the main instrument to address informational asymmetries between villages and potential investors, providing a basis for villages to attract investors with a profile that would most effectively contribute to local development. The de facto prohibition of direct deals between villagers and investors precludes this and undermines villages’ incentives to systematically identify investment opportunities and put them on public notice using village land use plans. It is thus not surprising to find that, despite large amounts of resources invested in establishing such land use plans, a lack of clarity regarding their status and level of publicity prevails.

To address these issues and improve clarity in land management for investors and local government, a regulatory framework to clarify the status of village land use plans is urgently needed. It should contain provisions regarding responsibilities and standards for elaboration, approval, and public availability of relevant documents to prevent plans being changed at the whim of local officials; ensuring compliance with such land use plans or for aggrieved parties (including herders) to seek redress in case of violation; and resolving inconsistencies with higher-level plans and the modality and frequency with which such plans should be updated (as well as the resources available for doing so).

Allow local decisions on transferability of CCROs: Experience in other countries suggests that a one-size fits all approach to indiscriminately restricting transferability without considering local conditions or allowing ways for villages to adjust these by weighing local opportunities and risks may fail to contribute to greater equity and instead lead to widespread informality and underuse of land. As Tanzania has decision-making structures at village level available, it would not be difficult to allow village assemblies transferability of land (with or without restrictions in terms of either the size of individual land transactions to prevent landlessness or the amount of land that can be acquired by any individual to prevent concentration) to outsiders, similar to what has been done in Mexico with great success (Deininger et al., 2002; Valsecchi, 2014; de Janvry et al., Reference Coulson2015), though at some political cost (de Janvry et al., Reference Coulson2015). This should be contingent on a parcel-level land information system being in place, and thus could also help to direct resources for CCRO demarcation in the right direction.

Mandatory conversion to general land: The conceptual basis for the mandatory conversion from village to general land in case of investment is typical of an enclave approach to agricultural investment that is not consistent with the need for such investment to benefit local farmers through market- or technology-related spillovers (Ali et al., 2018) or social services. Given that most successful agricultural investments started rather small and expanded subsequently, and that success is often contingent on collaboration between locals and investors to achieve shared benefits, the fact that land given to investors would permanently be removed from village control (including in case an investment fails) pitches each against the other. It thus creates strong incentives for stakeholders to use the many opportunities provided by the complex and duplicative process for land conversion to slow down transfers, in the process frustrating (or bankrupting) investors who attempt to acquire land in the legally prescribed way. If options are in place for villages to decide on transferability of land as suggested earlier, there is no need for such conversion to general land, as villages can make land available to investors directly in ways that ensure such investment is undertaken gradually and generates local benefits.

Use rural land taxation to discourage speculative landholding: Anecdotal evidence suggests that owners of holdings who managed to get their land converted to general land are very large, with many using only a small fraction of the land they own. Land taxes at a meaningful rate that would be levied on, say, all holdings above the 50-hectare limit those villagers are currently allowed to acquire would provide a strong incentive to either use such land more productively or transfer it to those who may be able to do so, thereby activating rental or sales markets.

I Introduction

The power sector has long been singled out as a major obstacle to development in Tanzania. Despite abundant and diverse natural resources, sustained donor support in building technical capacity, and favourable macroeconomic conditions since the early 2000s, the sector continues to act as a bottleneck. In 2011, the lack of adequate and reliable supply of electrical power was identified as one of the most binding constraints to growth in the Partnership for Growth diagnostics report (Partnership for Growth, 2011).

The troubled development of the power sector in Tanzania may be attributable, to some extent, to the complex technical and steep financial imperatives involved in system expansion, including implementing various policies and best practice reforms. However, a retrospective sector analysis suggests that there are also considerable institutional blockages and entrenched dysfunctional (informal) institutional dynamics and processes that have played a determining role. Yet because these dynamics are often beyond the public purview, they are poorly understood or charted. This makes strategic interventions that may alter systemic challenges all the more difficult.

This chapter will thus focus on the institutional evolution of the Tanzanian power sector and will be directed towards providing a comprehensive review of the sector’s extended, and ongoing, developmental challenges. The basic question to be answered is whether government’s failure to implement the structural reforms that it has repeatedly committed to is due to institutional blockages or to purely technical, and possibly financial, factors. The author examines why it has not been possible for Tanzania to move from an institutional equilibrium that does not bring about the desired sector outcomes (investment, system expansion, and improved technical performance) to one that does.

In order to answer this question, an extensive, desk-based, analytical literature review of academic research, news reports, and primary documents was undertaken. In addition, a number of high-priority in-depth interviews were conducted with key stakeholders. This approach allowed for a methodical analysis of key features in the sector’s development trajectory.

The chapter is structured in five main parts, beginning with an overview of the current structure and status of the Tanzanian power sector. A narrative account of the institutional development of the power sector is then provided, which is followed by an exploration of some of the resultant underlying political economy dynamics. In the final section, a number of conclusions are considered in parallel with potentially strategic reform interventions.

II The Tanzanian Power Sector: Structure and Performance

A Institutional Structure

Despite over two decades of attempted institutional reforms, the structure of the power sector continues to most resemble that of the traditional industry model – a model that has largely been dysfunctional in Tanzania and across the region for decades.Footnote ¹ Despite a period under private management contract (2002–6) and repeated policy commitments to unbundling and some privatisation, the Tanzania Electric Supply Company (TANESCO) continues to operate as a vertically integrated, state-owned de facto monopoly. 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. Some so-called standard model reforms,Footnote ² however, have been implemented – most importantly, the troubled introduction of private sector participation in generation and the establishment of an independent regulator. Tanzania is thus an exemplar of what has become known as a hybrid model, where private and public investment coexist in a sector that continues to be state dominated (Victor and Heller, 2007; Gratwick and Eberhard, Reference Ghai2008).

In this structure, depicted in Figure 8.1, the Ministry of Energy and Minerals (MEM) is responsible for policy and planning in the sector, as well as governance of TANESCO.Footnote ³ As the single buyer, TANESCO has power purchase agreements (PPAs) with independent power producers (IPPs) – including Songas, Independent Power Tanzania Ltd (IPTL), small power producers (SPPs), emergency power producers (EPPs), and the Mtwara Energy Project (formerly an off-grid generation and distribution concession). Responsibility for scaling up rural electrification was designated to the Rural Energy Authority (REA) in 2007, which also reports to MEM. Since June 2006, the Energy and Water Utilities Regulatory Authority (EWURA) has been responsible for sector regulation. It is part of the Ministry of Water and Irrigation (MWI), which gives the regulator a greater degree of (but still far from full) independence from political interests active in the energy sector. Owing to capacity constraints in MEM and the generalised permeability of de jure institutional boundaries, both EWURA and TANESCO advise and play a technical support role to the ministry.

Figure 8.1 Tanzania power sector structure

Source: Construct by author

The institutional governance of the Tanzanian power sector is also shaped by national-level legislative arrangements that confer significant power on the president and those directly appointed by him. Sector planning, operation, and management are as a result highly political – rather than techno-bureaucratic – in nature. This has contributed to the disempowerment of ministry, utility, and – at the time of writing in 2017 – regulator technical staff. Most decisions relating to sector planning, capital expenditure, and structural reforms have to be ratified by various ministers and/or the president according to the law. Though legislation related to the regulator, EWURA, provides for significantly greater independence when compared with TANESCO – there are no formal provisions in the law under which a ministry or other government body can overturn any of its decisions – higher-level institutional arrangements allow this to be subverted. For example, in 2017, the prime minister, presumably under the direction of the president, reversed an EWURA-approved tariff increase and later suspended its director general.

The de jure institutional relationships between the political executive and other sector entities have contributed to certain norms being established, including a fairly authoritarian culture that has undermined decision-making capacity and the necessary delegation of powers to make the implementation of various policies, plans, and best practice procedures possible. This is especially true in MEM and TANESCO, though perhaps less so in EWURA and REA (Box 8.1).

Box 8.1: Authority of appointment across key entities in the power sector

MEM

The Minister, Deputy Minister, and Permanent Secretary of MEM are appointed by the president and hold office ‘during the pleasure of the President’ (Constitution of the United Republic of Tanzania, 1984). They can be suspended, dismissed, or reassigned at any point.

TANESCO

TANESCO is 100 per cent state owned, governed under the Public Corporations Act of 1992 and the Companies Act of 2002. A board of nine directors is responsible for the corporate governance and financial management of the company, including the appointment of management and officers. The President of the United Republic of Tanzania is responsible for appointing the chairman of the board and the chief executive, while the remaining eight board members are appointed by the Minister of Energy and Minerals. Of these eight board members, the Treasury Registrar represents the shareholder (government) and another represents MEM. The remainder are typically government officials, independent businessmen, or professionals.

EWURA

In June 2006, an independent regulator – EWURA – became operational, reporting to MWI. EWURA’s chairman is appointed by the president, with the remaining six board members appointed by the Minister of MWI. Before this, MEM – in coordination with TANESCO – was responsible for tariff setting, licensing, and the regulation of the sector.

REA

REA, which became operational in 2007, is governed under the Rural Energy Act (2005) by the Rural Energy Board (REB). The Minister of Energy and Minerals is responsible for selecting the REB’s board members and the board chairman, from recommendations provided by recognised organisations and the board, respectively. The REB’s members are representative of sector stakeholders, with strict rules around representation set out in the 2005 Act. The REB is responsible for appointing the REA’s Director General and the management and oversight of the REA.

However, it is not only hierarchical and somewhat authoritarian norms that have contributed to a lack of efficacy among staff in MEM and TANESCO. Undue political influence and involvement in planning and procurement, unchecked by a disempowered technical and managerial staff, has also allowed for corruption in the sector on a grand scale (Gray, Reference Goldthau2015). Most notoriously, the procurement of (and ongoing contract with) IPTL, the Richmond (later Dowans, then Symbion) EPP in 2006, and other EPP contracts in 2011 were allegedly brokered between top public officials and their patrons. At the time of writing in 2017, several moves against regulatory independence provide a warning against assuming that strong legislation is enough to withstand deep institutional dynamics and powerful political economy interests.

III The Tanzanian Power Sector’s Institutional Development

When charting the institutional development of the Tanzanian electricity supply industry – from its inception during the colonial era, through independence and the nationalisation of electricity assets and industry, a period of extended structural adjustment and attempted market-oriented reform, to the return of more centralised governance in the present day – certain institutional features and patterns emerge.

The spatial distribution of electricity continues to reflect colonial/extractive interests, with most of the population still without access to power. Despite numerous attempts at commercialisation, including rationalising tariffs, staff numbers, and establishing the financial viability of TANESCO, the sector continues to place pressure on the national budget, while TANESCO accumulates debt and arrears. Supply is insecure, as disconnected policy, planning, and procurement have undermined timely system expansion and the exploitation of natural gas reserves – meaning that poorly maintained and balanced network infrastructure, volatile liquid fuel prices, and variable hydrological conditions persistently threaten availability. According to the World Bank enterprise surveys, businesses report nine outages per month (on average), lasting around six and a half hours. The situation is likely worse in rural areas. The pervasion of certain (African) socialist ideological tenets in policy discourse has been more or less constant since independence, specifically around the public good attributes of electricity, the need for state intervention and governance in the sector to ensure social and developmental objectives, deep concern around private sector involvement and ‘foreign’ interference, and a certain leaning toward statist models. Corruption, rent-seeking, and patronage have been present at least since the mid- to late 1970s. However, this is a politically sensitive issue and blame is typically shifted away from the dominant ruling party to ‘aberrant’ individuals acting in the sector, corrupting private sector interests, or to international actors. This has impacted human resource capacity development in the sector, as a number of high-level corruption scandals have led to rounds of dismissals, especially in government.

In this section, a chronological narrative account considers the development of some of these features – with special attention to the more recent period of attempted market-oriented power sector reforms and the political economy of sector outcomes.

C Power Sector Reforms – On Again, Off Again

1 Conditionality and Standard Model Reforms

By the beginning of the 1990s, generation capacity stood at only 300 MW,Footnote ⁷ access had remained almost unchanged at between 5 and 7 per cent (according to the Ministry of Water, Energy and Minerals (1992) and the World Bank (2020), respectively), and technical and non-technical losses were above 20 per cent.Footnote ⁸ The sector was not self-financing and suffered substantial commercial losses. The institutional equilibrium – the rules governing tariff setting, collection, operations, planning, procurement, governance, management, and oversight – had become thoroughly dysfunctional. In Tanzania, the ‘basic sectoral problem’ identified in the seminal 1993 policy paper The World Bank’s Role in the Power Sector, in which what has become known as the ‘standard reform model’ was first iterated, seems cogent (World Bank, 1993).

The basic sectoral problem relates to undue government interference in those day-to-day organisational and operational matters that should be under utility control. Such interference undermines the accountability of those responsible for day-to-day management functions. It has influenced procurement decisions, mitigated against least-cost fuel choice, resulted in an inability to raise power tariffs to meet revenue requirements, restricted utilities’ access to foreign exchange, mandated low managerial and technical salaries that are tied to low civil service levels, and promoted excessive staffing and political patronage. These problems have in turn, in many cases, brought about generally inadequate utility management and organisation; lack of accountability; flight of experienced and capable staff owing to uncompetitive employment conditions; weak planning; inefficient operation and maintenance; high technical and non-technical losses; and weak financial monitoring, controls, and collection (World Bank, 1993, p. 33).

As in many countries in the region, loans and grants in the power sector soon became conditional on the implementation of standard model institutional and structural reforms that were being prescribed as the solution to this problem. The primary components of standard model reforms include the commercialisation and corporatisation of electricity utilities, the introduction of independent regulation, unbundling vertically integrated utilities, and liberalising the sector to allow for private sector participation (Bacon, Reference Arndt, Mahrt and Schimanski1999; Hunt, Reference Heilman and Ndumbaro2002; Williams and Ghanadan, Reference Van De Laar, Cliffe and Saul2006; Victor and Heller, 2007; Gratwick and Eberhard, Reference Ghai2008). Through such reforms, the traditional industry model in developing countries would be supplanted with a model that allowed for competition, institutionalised checks and balances, alternative sources of investment, separation of and specialisation in sector functions, greater transparency, and transfer of private sector commercial expertise and resources.

Figure 8.2 presents an overview timeline of reform interventions. In the remainder of this section, we consider different phases in the reform agenda and some of the determinants of the outcome of various components of standard model reforms.

Figure 8.2 Power sector reform experience

Source: Construct by authors

2 First Steps towards Standard Model Reforms

Needing to re-contextualise the role of the energy sector in national development and reconcile sector-level policy with the macroeconomic policy shifts of the SAPs and the thrust of the then-emergent standard model, the 1992 National Energy Policy was produced. The policy opened the sector to private participation, stating that ‘private electricity generation and distribution will be encouraged’ in areas where TANESCO had not yet developed power infrastructure (Government of Tanzania, 1992). It also provided for the establishment of a rural electrification fund, which – it was envisioned – would be supported by community involvement in the style of Ujamaa. Already in the midst of the first drought-related power shortages and load-shedding, significant emphasis was put on resource diversification away from hydropower. Like many of the later policies and legislation, the 1992 policy tentatively opened the door for market-oriented and governance reforms without actually providing a comprehensive set of actionable next steps and without reducing the scope for political interference in the sector.

Of course, weak or absent policy commitments in developing countries had informed the basis of the conditional lending agenda behind standard model reforms. Unsurprisingly, the World Bank’s Power VI project thus not only provided for the construction of the 180 MW Kihansi hydroelectric power plan, but also included sector reforms in its objectives. Explicit objectives included supporting the utility in preparing for and initiating restructuring and privatisation, and the development and operation of private gas generation at Songo Songo. The 1993 International Development Association (IDA) loan agreement for the Power VI project was made conditional on TANESCO entering into a subsidiary loan agreement with the government and committing to the conditions set out in the loan – this could be considered the first instance where the government committed to standard model reforms (International Development Association and United Republic of Tanzania, 1993). These included adhering to specific financial covenants and to the principles of international, competitive, and transparent procurement practices, the corporatisation and commercialisation of TANESCO’s operations, undertaking an asset evaluation study and a tariff study, implementing the recommendations thereof and regularly updating both thereafter, and enforcing a plan of action for the recovery of overdue accounts from government agencies and parastatals. In addition, the government committed to undertaking and then implementing the recommendations of a privatisation study and to the development of a gas-to-power IPP at Songo Songo (Box 8.2).

Box 8.2: Songas – Tanzania’s first competitive and transparent IPP

Gas-based power generation at the Songo Songo gas field had been identified as a least-cost option in the 1991 Power Sector Master Plan. However, neither the government nor TANESCO had the necessary funds or expertise to develop gas-to-power generation alone. In 1993, MEM invited sixteen companies to bid for the 60 MW gas project at Songo Songo under a build, own, operate, and transfer arrangement – thus initiating the first competitive IPP process – with support from the World Bank. However, no credit enhancement was provided (despite the poor investment environment), bidders were only given six months to submit their bids, and the plant size was small by international standards. As a result, only two bids were submitted and Over-the-Counter Market – a joint venture between Ocelot Energy Inc. and TransCanada Pipelines – was awarded the tender in 1994 and established the project company Songas. Negotiations were protracted, with additional equity partners coming on board in 1995 (Tanzania Petroleum Development Corporation and TANESCO) and then again in 1996 (Tanzania Development Finance Company Ltd, International Finance Corporation, Deutsche Investitions und Entwicklungsgesellschaft, and Commonwealth Development Corporation).

In order to mitigate the severe effects of drought-related load-shedding while the Songo Songo IPP was being negotiated, SIDA provided TANESCO with the funds to procure two 18 MW Open Cycle Gas Turbine (OCGT) plants at Ubungo and committed to covering operational (mainly fuel) costs for two years – with the expectation that Songas would be online by the end of that period. The government was able to procure a further two 35 MW OCGT plants through the World Bank facility. With this additional support, and a focused Songas procurement process, it might have been possible to emerge from the drought with improved capacity at competitive costs. Yet, although these plants mitigated the effects of drought-related shortages and provided much-needed space for strategic sector planning, specifically the Songas procurement process, it did not allay the sense of emergency that load-shedding had brought about.

There is evidence to suggest that certain interested parties seized upon this sense of panic to advance a specific agenda,Footnote ⁹ interrupting efforts to rationalise the sector by entertaining unsolicited bids – most prominently, a proposal for the procurement of 100 MW from a plant that would be built by IPTL (Box 8.3).

Box 8.3: IPTL – the dark horse IPP and the subversion of procurement best practice

The IPTL project was not planned for or necessary. According to the Power Sector Master Plan, it was based on hugely overstated investment costs and expensive, outdated technology. Nonetheless, it was defended as ‘South–South cooperation’, a politically shrewd cover as it played on Tanzanian’s discomfort with Western (capitalist) interest’s involvement in the country since the initiation of the SAPs. It was also packaged as an ‘emergency’ supplier, allowing for a direct and opaque procurement process. Despite serious doubt being cast on the economic and financial viability of the PPA by some concerned state officials, TANESCO’s board – under the sway of key government officials – signed the twenty-year PPA in May 1995 (ahead of the national elections). This was done without the consent or knowledge of the World Bank, breaking a covenant of the Power VI project.

Creating a rift with the World Bank, the signing of the IPTL PPA resulted in delays in the Songas deal – which ironically proved to be one of the most cost-effective gasses IPPs on the continent, in large part owing to the competitive negotiation process of its PPA. IPTL, meanwhile, is one of the most expensive and has been detrimental to the financial sustainability of TANESCO and the sector as a whole.

While the costs of corruption and maladministration now widely associated with IPTL are substantial, the derailment of planning, management, and procurement processes is considered by some to be the more detrimental casualty of the fallout that ensued. The opaque, uncompetitive, and corrupt deal-making pioneered in the IPTL deal would be repeated in later procurement processes in the power sector – to the detriment of its financial sustainability and developmental mandate.

The IPTL deal was one of many incidences where the government diverged from national plans and policies in the early to mid-1990s and where evidence pointed to behind-the-scenes politicking. The implementation of conditions set out in the IMF’s ERP (1986–89) and the ESAF (1989–92) had led to fundamental changes in the political economy landscape. Rent-seeking opportunities had opened in areas where the flux of new liberalisation and privatisation policies had created the space for vested or emerging interests to intervene directly in the processes of government. At the same time, the reintroduction of multiparty politics in 1992 created a more competitive environment for clientelism, as a larger and less cohesive group of political and economic interests vied for power in the lead up to the first multiparty elections in 1995. These developments led to a withdrawal of donor support in 1994.

3 Standard Model Reforms after Embargo

Benjamin Mkapa was elected as the CCM presidential candidate in the lead up to elections. A relative party outsider seen to be untainted by scandal, Mkapa’s campaign promised change, decisive action against corruption, and economic growth and development. Upon winning the 1995 elections, the Mkapa administration prioritised rehabilitating relations with donors, anti-corruption interventions, and refocusing reforms. At the time, development assistance accounted for 20–30 per cent of GDP – there was no alternative.

In the power sector, this meant committing to more concrete steps to structural reform in line with donor conditions. According to the 1996 IMF ESAF, the restructuring and privatisation of public utilities would be accorded the highest priority over the 1996–9 ESAF loan period. In 1997, the government explicitly committed to restructuring and privatising TANESCO in a letter to the IMF and specified TANESCO for privatisation under the Parastatal Sector Reform Commission (PSRC) – meaning that TANESCO was no longer exempt from the law governing the transformation of other parastatals. This move irrevocably tied reforms to the ultimate privatisation of a public sector utility, a concept that was not only ideologically incongruent with the still-dominant socialist paradigm, but was also well on the way to becoming synonymous with corruption. This had a damaging effect on the feasibility of later reforms.

Over the following years, these commitments would be reiterated in IMF letters of intent while policy and legislation were in draft. In 1999, a Policy White Paper on the Restructuring and Divestiture Strategy for the Electricity Sector was submitted to and approved by Cabinet. Though the policy document and Cabinet decision are not publicly available, the policy commitments were articulated in a 1999 IMF ESAF policy paper: they included the vertical and horizontal unbundling of TANESCO and the establishment of a neutral system and market operator, a centralised purchasing agency, and an independent regulator (IMF, 1999). According to the policy paper, the strategy would be implemented by year-end 2000.

This, however, was thoroughly undermined by the government’s failure to fulfil important covenants designed to improve the financial, management, and institutional development of the sector in preparation for reforms. Crucially, the government consistently failed to support TANESCO on the issue of non-payment by preventing the utility from cutting power to defaulting customers – a subsequent report on the issue found that the problem was 75 per cent political (World Bank, Reference Wily2003). In addition, no new legislation or policy was introduced, little stakeholder engagement was conducted, and there was little else that would suggest that the government intended to implement the ambitious strategy laid out in the ESAF paper.

After seven years of attempted (including internal) reforms, which were initiated in 1992, TANESCO was still an overstaffed, poorly managed, and financially insecure utility that, despite having strong technical capacity by Tanzanian standards, lacked commercial culture and autonomy. Toward the end of the Power VI project, World Bank supervision missions thus recommended that a new management team be recruited for TANESCO during the transition to privatisation, to which the government – at the level of the president – committed in late 2000. In addition, a number of ‘next step’ interventions were pressed for through the IDA Programmatic Structural Adjustment loan, as well as a number of other donor programmes. Two studies by international consultants were initiated – the first by Mercados (released in 2001) and the second by Stone and Webster (released in 2003). In 2001, the government passed the EWURA Act, providing the basis for the establishment of the independent regulator. In the same year, the PSRC initiated a competitive and transparent recruitment process for a two-year management contract for TANESCO.

4 Privatisation: One Step Forward – TANESCO under Private Management

In January 2002, the PSRC awarded the two-year TANESCO management contract to NET Group Solutions – a firm from South Africa. The lack of genuine political and public support surfaced almost immediately, when the start of the contract was delayed owing to push back from the general public and TANESCO staff. The Minister for Energy and Minerals and TANESCO board openly cast doubt on the selection process and forty-six MPs called for clarification on the issue in parliament – undermining the legitimacy of the contract (BBC, 2002; Kapika, Reference Jansen2013). Tanzanians also viewed the contract as the first step towards the privatisation of a strategic public sector utility, which was an ideologically fraught issue. Meanwhile, TANESCO staff unions threatened sabotage unless a labour agreement was secured before the initiation of the contract, fearing the inevitable staff rationalisation process. Despite this push back, the NET Group management team – consisting of only four resident managers – took over operations in May 2002. They required a police escort onto TANESCO premises.

Upon assuming management, the team first prioritised gaining the support of staff: a labour agreement was developed by TANESCO and accepted by the union later that year. From this point, staff relations were secure. In their activities, the management team focused on improving revenue collection and utility information systems, enforcing collections from sensitive public offices, and rationalising staff. In these activities, the management team was successful – monthly revenue increased from USD 10–12 million to USD 16 million per month by 2004, approximately 20 per cent of the staff were amicably retrenched, and reporting systems were improved. The first contract was viewed as a categorical success by the donor community. However, broad-based political and public support was still lacking despite high-level, somewhat behind the scenes, backing from President Mkapa.

Under pressure from the World Bank, the management contract was renewed for a further two years in 2004. In the contract extension, the team was more explicitly tasked with translating revenue gains into improvements in performance. Monthly revenue doubled during the second contract, increasing to USD 22–4 million. This was driven by improved collections – especially from large, politically sensitive customers such as the national police, post office, and Zanzibar – as well as increased tariffs. The tariff structure was rationalised by removing the cross-subsidisation between consumers, with industrial tariffs at −28 per cent and residential/light commercial tariffs at +39 per cent. The lifeline tariff was also reduced from 100 kWh to 50 kWh.

A significant portion of the increased revenue, however, was absorbed by the IPPs coming online – IPTL was commissioned in 2002 and Songas in 2004.Footnote ¹⁰ With the onset of the 2005–6 drought, the utility was compelled to use IPTL and Songas as baseload plants, both of which were more expensive than originally anticipated at the start of the contract in 2002. This put the utility back into a dire financial situation. The management team was thus not able to invest much in network infrastructure and, critically, did not pay sufficient attention to customer service and connections. This meant that private sector participation was not translating into better quality or more reliable electricity services for most Tanzanians. When the management team reaped substantial ‘success fees’ for its interventions, it only added to public and political distaste.

These shortcomings were in part attributable to the management team itself, the misaligned incentive structure of the contract, and external conditions. However, political interference played a role as well, compounded by tenuous lines of accountability between the TANESCO board, MEM and other ministries, the PSRC, President Mkapa, consumers, the public and the media, and donors. There have been reports that politically connected members on the TANESCO board actively sabotaged the contract (through exercising their veto power, stalling decision-making processes, or providing misleading information to the political executive) in order to then be able to prove that the management contract, or privatisation more broadly, was a bad idea. The management team was certainly not operating in a wholly supportive political environment, and tensions began to mount.

5 Privatisation: Two Steps Back – TANESCO’s Despecification and Return to Public Governance

In 2005, just ahead of the elections, President Mkapa despecified TANESCO – backtracking on plans to privatise the utility. In 2006, acting against the recommendations of a 2005 report conducted by the Presidential Privatisation Review Committee, incoming President Kikwete decided against renewing the management contract. It is clear that, under this contract, many of the informal institutional arrangements had been challenged – including political involvement in tariff setting, staffing, collections, and procurement. With these two steps, the sector and utility governance reverted to its previous institutional structure.

Coincidentally, this recreated a situation where crisis (drought) conditions created an opening for corrupt political and economic interests to again craft an IPP deal around the time of national elections, bypassing power sector development plans and the principle of competitive and transparent procurement. Many suspect that the 2005 election – won by CCM’s candidate, Jakaya Kikwete – was funded by faction benefactors that orchestrated the infamous Richmond IPP deal. Like the IPTL deal in 1995, it had disastrous and long-lasting consequences for TANESCO and the stability of the sector as a whole. It is worth noting that the management team actively resisted the Richmond deal (Box 8.4).

Box 8.4: The Richmond EPP IPP – another scandal

The Richmond Development Company was awarded an expensive 100 MW power deal during the 2006 power shortages under controversial circumstances. It then turned out that the company had neither the technical expertise nor the capacity to meet its contractual agreements. In late 2006, Dowans Holdings took over the contract and eventually provided the agreed 100 MW – after drought conditions had abated.

Despite Richmond, and then Dowans, not being able to supply the agreed amount of power in the agreed timeframe, TANESCO had to pay a steep daily ‘take-or-pay’ capacity charge to the company (Kapika, Reference Jansen2013). This caused acrimony in the media and parliament. Toward the end of 2007, a Select Committee was established to investigate the deal. In February 2008, the committee’s report was presented in parliament and broadcast on live TV. This led to the resignation of the prime minister at the time, Edward Lowassa (2005–8), as well as the current and previous Ministers of Energy and Minerals, Msabaha and Karamagi, who were implicated in the scandal. President Kikwete then dissolved Cabinet. In addition to the predictable disruption following the December 2005 elections and a change in the presidency, the Richmond scandal saw three different ministers serving between 2006 and 2009, as well as multiple shuffles among technical staff. This thoroughly destabilised the sector.

This matter was not dealt with in the courts, but rather internally by the government and within the CCM party. Lowassa would later compete as a opposition presidential candidate in 2015. The lack of policy continuity between regimes, compounded by the shuffling of ministers and technical staff (including permanent secretaries), has been a near insurmountable obstacle to maintaining momentum in sector development and reform interventions. Relations with development partners – especially those such as the World Bank which were supporting reforms – also suffered over this period.

6 Some Positive Developments – Policy, Regulation, and Rural Energy

Notwithstanding the circumstances noted here, this period did see some other important reform steps implemented. To begin with, the second National Energy Policy was released in 2003. This commits to the principles of competitive, private sector involvement, and efficiency, and to establishing a new governance system by ‘differentiating the roles for (a) policy making and legislative functions carried out by Government and the Parliament; (b) the regulatory functions carried out by an independent regulator; and (c) other functions carried out by public and private operators’ (Ministry of Energy and Minerals, 2003). Once again, however, much of the policy was far from actionable, and sticking to the principles has been a challenge.

Rural energy was also given special attention in the 2003 policy, leading to the enactment of the Rural Energy Act in 2005, which established the REB and the Rural Energy Fund. Rural energy, however, did not benefit from much political interest or budgetary support in at least the first five years following these interventions. On the one hand, this reflects a similar state of affairs to that in neighbouring countries – where grid-extension was viewed as too expensive, off-grid was not yet attractive, and rural electrification had not become a politically salient issue. On the other hand, CCM was also doing very well when it came to public opinion polls and at the ballot box – meaning that the political pressures behind issues such as rural electrification were not yet determining national policy priorities.

EWURA – the independent regulator – finally became operational in June 2006. Intriguingly, this was the same month that the Richmond deal was signed. While delays were likely by default rather than design for the most part, in the case of EWURA and other components set out in policy or law, certain interests benefited from the regulatory gap and may have contributed to holding up processes at key junctures. TANESCO (an unregulated de facto monopoly) certainly had an interest in delaying the effective functioning of EWURA, as did those involved in the IPTL and Richmond deals.

7 Public Governance, Independent Regulation, and Political Interference – An Incomplete Reform Model

Having repealed the management contract and backtracked on privatisation, the new Kikwete administration had a clear interest in ‘proving’ that the state-owned model could work if it was to maintain control over the sector. When TANESCO reverted to local management in 2007, the more than capable Dr Idris Rashidi, formerly involved in reforms in the banking sector, was appointed managing director. During his three-year contract, Rashidi built capacity in the utility, creating and filling three new positions with competent staff – chief financial officer, chief internal auditor, and chief information officer. Remaining senior management positions were filled through competitive recruitment processes. Together with the senior management team, Rashidi introduced performance measurements into the human resources system with balanced score cards, launched a staff development programme, and amended relationships with energy-intensive users (anchor customers). He also arranged a USD 300 million syndicated loan, with the support of the government, which allowed TANESCO to clear the debt backlog, introduce performance-based staff remuneration, and improve billing and metering systems. Hydrological conditions were also in TANESCO’s favour over this period, which reduced the cost of generation. In 2008, TANESCO registered a profit. Other metrics of utility performance, however, worsened. Transmission and distribution losses peaked in 2009, collection rates – which had improved considerably under the management contract – decreased dramatically (from ~95 to ~56 per cent) as politically connected customers forced to pay during the management contract slipped into old patterns of politically condoned non-payment, and access rates, which had increased from 10.5 to 12.6 per cent under the management contract, actually dipped back down to 11.2 per cent in 2009 (World Bank, 2020).

This mixed performance underscores the vulnerability of public governance to political interference in a country where the political economy system is prone to using publicly owned companies for rent-seeking and patronage, even where corporatisation efforts attempt to ‘ring-fence’ such interests. Three different ministers served between 2006 and 2009. Rashidi has said that it was difficult for him to understand the ‘special rights and interests’ the ministry and the board had in management decisions. Though there have rarely been public confrontations between different factions operating in TANESCO and the government, the period when Rashidi was managing director proved an exception. Despite a stellar performance, his contract was not renewed, and more ‘politically suitable’ candidates were appointed from 2010.

While these tensions played out at the utility, EWURA was steadily building capacity and authority as regulator. The five-year delay in operationalising EWURA had involved a dispute between development partners and the government about where the regulator should be placed. Eventually, it was agreed that it would fall under MWI, as advised by the World Bank. This allowed the regulator a greater degree of autonomy from MEM and distance from undue political influence. The pace of EWURA’s development reflects the soundness of the 2001 EWURA Act, significant support from development partners, the realisation of existing technical capacity, and a suitable degree of independence from the government.

8 The Resurrection of the Reform Agenda

In June 2008, it seemed as if reforms would be resurrected when the Electricity Act was passed, replacing the 1957 Electricity Ordinance Amendment. The Act was preceded by a Power Sector Reform Strategy in 2007, which is not publicly available. In relation to regulation, the 2008 Electricity Act further delineated policy and regulatory roles between MEM and EWURA. It also placed renewed emphasis on the issue of rural electrification, including certain provisions of support to the REA. Critically, the Act also provides a legislative foundation for sector restructuring – albeit a weak one. According to the Act, the minister may, in consultation with the Minister of Finance and the Authority (EWURA), restructure the electricity supply industry in order to foster competition for increased efficiency, enhance the development of private capital investment, and promote regional electricity integration – giving full power to the minister and, behind the minister, the president (The Parliament of the United Republic of Tanzania, Reference Tenga and Mramba2008). The Act also stipulates that the minister shall within one year of the Act coming into force prepare and publish a policy for the reorganisation of the electricity market, though it also specifies that the minister can amend this policy at any time.

Though commitments to standard model reforms were made anew in 2008, it is important to note that there was a general movement away from ‘privatisation’ and toward public–private partnership (PPPs) during this period. The PSRC was dissolved in 2007. In 2009, the government launched a PPP policy, which was followed by the PPP Act in 2010 and the publication of PPP regulations in 2011. The idea of publicly owned projects that allow for private sector participation certainly gained traction and provided an alternative frame for reforms – one that was more compatible with the Tanzanian socialist ideology and, in the case of the power sector, vested political and economic interests. While the policy components remain similar, this shift provided reforms with a new and improved frame. Yet concrete reform interventions have yet to follow, in part because of the onset of another electricity sector crisis, triggered by another drought and exacerbated by exchange rate volatility and political instability.

In 2010, Tanzania was again hit by devastating drought. By 2011, customers could experience load-shedding of up to eighteen hours a day. As had been the case in previous periods of supply crisis, the government launched an Emergency Power Plan – adding 331 MW through short-term, emergency contracts that were neither transparent nor competitive. Under emergency procedures, EWURA approved a tariff increase of 40.29 per cent starting in January 2012. Even with the tariff increase, TANESCO was not able to bear the extra financial pressure of expensive thermal generation. By the end of 2012, accumulated arrears to IPPs, EPPs, and fuel suppliers were estimated at USD 276 million – and were forecast to increase.

9 Another Crisis, Another Election Season

The crisis prompted a bold policy response, a critical action in the lead up to the 2015 elections. The reform agenda seemed to again be resuscitated in 2013, with the politicised Big Results Now (BRN) initiative. Part policy, part party manifesto, BRN focused on bridging the gap between policy planning and effective implementation in key sectors, including energy and natural gas. BRN recommended redefining the sector strategy and structure, including the gradual restructuring of TANESCO to bring about viability to the entire system. Tanzania also mended relations with some of the bigger development partners, including the World Bank. The World Bank Power and Gas Sector Development Policy Operation programmatic loans offered financial and technical support for the government’s sector reform and development policies.

At the start of 2014, a second tariff increase of 39.19 per cent was approved by EWURA in order to lift tariffs closer to cost-reflective levels, and the government agreed to retire two-thirds of EPP capacity, bringing costs down so that they could meet somewhere in the middle. TANESCO’s ‘financial gap’ reduced slightly, though the utility was still in a precarious position. In the same year, a number of policies were approved – including the Natural Gas Policy, Petroleum Policy, and the Electricity Supply Industry Reform Strategy and Roadmap 2014–25 (ESIRSR) (Box 8.5).

Box 8.5: ESIRSR, 2014–25

In the ESIRSR, the government sets out an explicit timeline of structural reforms for the first time, including the unbundling of TANESCO’s generation segment and allowing IPPs to sell directly to bulk off-takers (though paying wheeling costs) in the short term (by December 2017), the vertical unbundling of transmission and distribution in the medium term (by June 2021), and the horizontal unbundling of both distribution and generation in the long term (by June 2025). Together, BRN and the ESIRSR set the following targets for 2025: generation capacity of 10,000 MW (up from 1,500 MW), connections at 50 per cent (up from 24 per cent – this number is likely lower than reported in the ESIRSR), and the reduction of system losses to 12 per cent (from 18 per cent – though losses have been volatile in the past, soaring above 35 per cent in 2009–10).

Despite various interventions and numerous bailouts, TANESCO’s financial situation remained dire while internal accounting remained relatively opaque, obscuring the impact of the injection of funds and limiting advances made in eradicating (official) operational subsidies and improving the transparency of government transfers. Planning was clearly characterised by short-term politics, rather than technically sound, long-term processes, and the lines between planning, policy, and procurement were frequently transgressed. Despite repeating commitment to the tenets of transparent and competitive processes, as well as attracting and facilitating private sector participation and investment, power projects initiated over this period lacked transparency and were bent towards publicly funded and owned models. Though EWURA’s role in overseeing procurement and advising on policy and planning mitigated this to some extent, TANESCO’s complex relationship with the government limited the scope of EWURA’s influence. TANESCO is often treated as an extension of government – especially when it comes to procurement. While EWURA can regulate some of the formal processes, the informal processes between TANESCO and government are beyond the regulator’s purview and reach. An example of this can be found in the letters between EWURA and the Ministry of Energy, which show how the government propagated an unwritten policy, according to which all future generation projects were to be PPPs (Eberhard et al., Reference Deininger, Lavadenz, Bresciani and Diaz2016, p. 196), highlighting the politics behind de facto policy and the weakness of de jure policy and regulation.

As 2015 was an election year, with the CCM again competing with a new president and facing stiff competition, the political drive behind BRN and other policies, especially those providing the basis for increased public expenditure, juxtaposed with the procurement of various power projects (such as the 308 MW Kilwa, introduced by retired public servants and a foreign investor, and the 600 MW Symbion Mtwara plant), should be interpreted with care. Political anxiety around another IPTL-related scandal – the Escrow scandal – also coloured this period, with funds pilfered through the Central Bank of Tanzania and distributed to government officials and politically connected persons in the lead up to elections. The scandal also cost Tanzania hundreds of millions of dollars of donor funding, just as the country was heading into a new administration.

10 A New Regime – Magufuli’s Power

Tanzanians talk of a ‘regime change’ when referring to elections – despite the fact that the CCM (formerly TANU) party has been in power since independence (1961) and the fact that the country has operated as a multiparty democracy since 1992. However, this is not really a misnomer, considering the discontinuity in official policy between governments, the change in executive and technical staff following elections (even when the same president is in power), and the significant power that presidents wield when in office.

This pattern has certainly been evident in the most recent elections. In the two years that John Magufuli had been president, at the time of writing in 2017, there have been significant changes across government – indicating that long-term policy frameworks may shift considerably. Specifically, there has been a distinct movement towards more centralised governance and a state-led growth model, alongside a commitment to attracting private sector investment and industry. Whether Magufuli will be able to balance the increasingly autocratic dominant-developmental politics with the government’s dependence on external sources of investment and funding is yet to be seen – especially as the natural gas economy develops. Partnerships with Chinese investors might make this possible.

Given the ‘regime change’, it is somewhat unsurprising that many have relegated BRN to politics and expect that the timelines and objectives of the ESIRSR will be reviewed. With a return to the idea of big government and Magufuli’s reinterpretation of Nyerere’s self-reliance, many doubt that TANESCO will be unbundled under the current administration. Key steps to unbundling, as set out in the ESIRSR, have already been delayed. PPP development will most likely continue to be prioritised in the generation segment, with the government maintaining a stake in (and influence over) all future projects through TANESCO. This shift is concerning given the state of the utility, which had accumulated arrears to IPPs, EPPs, and fuel suppliers to the tune of USD 490 million as of May 2016 – despite financial injections in previous years, increased tariffs, and the retirement of around two-thirds of EPP capacity.

Some actors have been able to ride recent political waves in the sector, while others have not. REA has benefited from the politicisation of access, attracting general budget support of TZS 534 billion (USD 239 million) for 2016–17 (up 50 per cent from 2015–16 and about fifty times the original budget of TZS 11 billion in 2007 – more in real terms). There are some concerns, however, over the likely inflated reporting of recent improvements in access – suggesting the influence of political (and potentially economic) interests.

EWURA, meanwhile, has managed to steadily build technical capacity. In addition to licensing and tariff adjustment, EWURA has played an important role in procuring SPPs (Odarno et al., Reference Nyerere2017).Footnote ¹¹ According to a recent report by the World Resources Institute (WRI), the number and installed capacity of mini-grids in Tanzania has nearly doubled since 2008, when the government introduced the SPP framework (Odarno et al., Reference Nyerere2017). EWURA is seen to have brought sanity back into the sector, resurrecting investor confidence through the technically adroit execution of its regulatory duties. However, political pressures are mounting.

The financial standing of TANESCO has improved somewhat, and steady capacity additions are beginning to reduce supply-side risks that have plagued the utility since the 1990s. However, it is poised to fall back into old patterns as President Magufuli learns to hold the reins. Since the beginning of 2017, President Magufuli has tightened his grip – sending shockwaves through the sector. In January, he reversed the EWURA-approved 8.53 per cent tariff increase, and then fired the TANESCO managing director and demoted the deputy managing directors of transmission, distribution, and generation for implementing it. In May, he then fired the Minister of Energy and Minerals for his alleged involvement in a mining sector corruption scandal. Breaking with his predecessors, Magufuli launched criminal proceedings against individuals implicated in the IPTL deal and related Escrow scandal through the criminal system. However, his dismissal of the EWURA director general following EWURA’s non-renewal of IPTL’s licence suggests that his motives may not have been based on curbing corruption, but perhaps reflected some internal conflict within CCM around the IPTL deal. Then, in October, he split MEM into two separate ministries, appointing new ministers and staff to each.

With interventions in other key sectors and dramatic clampdowns on civil liberties to match, Magufuli is driving an alarmingly autocratic agenda in Tanzania. His agenda may transmute into a true developmental state model – which, as seems to be the case in Ethiopia, would depend on funding from China or similarly oriented states. This might disrupt the political economy system enough to allow for institutional development. For the time being, this seems unlikely. Instead, it is likely that Tanzania will see more continuity than discontinuity in the short to medium term as the key features of the dysfunctional institutional equilibrium in the sector do not seem incongruent with Magufuli’s leadership.

VI Institutional Structure of the Tanzanian Power Sector

B Political Economy of Institutional Equilibrium in Hybrid Markets

When one approaches the issue of power sector development and reform from a techno-economic standpoint, Tanzania seems to be in a state of disequilibrium. The power utility is financially unsustainable and inefficient, recurrent drought-related crises seem to precipitate reckless short-term decision making with dire consequences for longer-term planning, and sector outcomes are poor – less than 30 per cent of the population has access to electricity, supply is inadequate and unreliable, and a perennial investment crisis undermines already-unrealistic system expansion and maintenance plans. Furthermore, pendular policy, inconsistent political signalling around reforms, institutional weakness, and evident capacity constraints seem to mirror (and thus confirm) a state of institutional disequilibrium.

Yet, from a political economy perspective, there are certain features of the current system that might indicate that this is a distortion – that the very indicators of economic disequilibrium may constitute a feature (and outcome) of a relatively stable institutional equilibrium. Recent work in institutional economics pays a good deal of attention to dysfunctional institutional equilibria – specifically that of Acemoglu and Robinson (Reference Acemoglu and Robinson2012), as well as exploring the political economy foundations thereof – such as the work on political settlements, led by the work of Mushtaq Khan (Reference Joshi and Gaddis2010). Taking this further, we argue that institutional equilibrium might be conceptualised as a constituent part of a larger political economy equilibrium – understood as the relatively stable and mutually reinforcing structural relationships that exist between institutions, interests, ideas, and power, and the dynamic interactions that maintain them. In Figure 8.3, this is captured in the ‘political economy diamond’, which provides a concept map of political economy equilibrium.

Figure 8.3 Political economy diamond

Source: Construct by authors

According to this model, systemic change (i.e. a shift in equilibrium) – which is represented by the central green triangle – requires change at each of the core nodes: institutions, interests, ideas, and power. Significant change at just one of the nodes could bring about a situation of disequilibrium, which is indicated by unpredictable outcomes and can catalyse change at other nodes. However, without change at all nodes, equilibrium will likely be restored – often through the see-saw effect, whereby an effective reform is undercut by countervailing interventions that maintain the overall balance in the system (Acemoglu et al., Reference Acemoglu, Johnson, Robinson and Yared2008). A classic example is the intractability of subsidies, which has shown the multiplicity of distortionary instruments that can be thought up to satisfy the same politically powerful constituencies – maintaining power dynamics and incentive structures, often through the utilisation of ideational touchstones (e.g. state-led development through public investment).

The institutional equilibrium identified in the Tanzanian power system is consistent with the experience and outcomes of power sector reforms in many other developing countries, what Victor and Heller (2007) term a ‘dual market’ (also known as a hybrid market model). According to Gratwick and Eberhard (Reference Ghai2008, p. 3958), ‘most developing countries […] now have hybrid power markets, with elements from both the old and new industry’, characterised by ‘contested policy and institutional space[s]’. Understood this way, the introduction of standard model reforms, along with the initiation of SAPs from the 1980s and the reintroduction of multiparty democracy in 1992, created ‘new organisations and [interests] that favour an alternative equilibrium – a type of “dual market” that combines elements of a state-centred and market-centred’ system (Victor and Heller, 2007, p. 260). This ‘market’ – and the evolving, accompanying institutional (and political economy) equilibrium – might not be the ‘most desirable in terms of efficient or good governance’, but is a ‘remarkably stable’ outcome (Victor and Heller, 2007, p. 261).

As the literature on hybrid markets would suggest, TANESCO is best positioned to ‘hold’ the weakest parts of the system. The utility’s access to concessional loans and government support (when need be) allows it to do so very differently from the private sector. In the past, this has been to the benefit of those with access to power who were indirectly or directly subsidised by government, for example through suppressed tariffs or politically condoned non-payment (especially for SOEs and government entities). The benefits have been more widely distributed through TANESCO’s support of electrification. While TANESCO is not profit making, it allows for a certain type of rent extraction (procurement) and rent distribution (including jobs and contracts), which is favourable for dominant political and economic interests. The fact that TANESCO enjoys de facto soft budgets and can access state bailouts means that it can be used in this way, while incentives for greater efficiency are relatively weak. Because political power is highly centralised and cadre deployment is part of CCM’s own patronage system, it is unlikely that the government will cede its control over TANESCO. This is true also of planning and policy functions, as well as top-down procurement norms. Meanwhile, TANESCO is likely to obstruct reforms that could disrupt its monopolistic position in the power sector.

In comparison, profit-making IPPs have provided an opportunity for rent extraction on a grander scale – made grander still by the supply-side crises that have been used as opportunities for the political executive’s involvement in procurement. The only IPP that was transparently and competitively bid for, Songas, has been mired in corruption scandals and in the negative narrative promulgated by the government and the media. PPPs, especially those with China, are likely to have provided similar opportunities made easier through some institutionalisation: transparency remains low and there is room for direct political involvement.

EWURA has been one of the most positive reform interventions in terms of improving sector performance. However, there are many challenges raised by the hybrid model. First, EWURA has to contend with the ‘public good’ characteristics of electricity – designated in political rhetoric, policy, and legislation. This makes it difficult to regulate tariffs and state entities, including TANESCO and REA, where their actions are justified by sociopolitical considerations. Secondly, a key feature of the hybrid model is continued political influence, whether it be in procurement with a view to rent-seeking or tariffs with a view to appeasing voters – which makes regulation highly politicised and the regulator vulnerable to censure. Thirdly, there are extreme asymmetries of information between the regulator, market actors, and TANESCO – making it difficult to gauge true costs and calculate appropriate tariffs. These tensions are well captured by Victor and Heller (2007, p. 296), who describe how ‘regulators pressured from multiple sides in pursuit of multiple goals with limited access to reliable information are highly unlikely to produce stable or predictable rules’ that can withstand political pressures.

The hybrid power market is also consistent with other hybrid features of the institutional, and greater political economy, system. Tanzania is considered to have a hybrid political regime (an illiberal democracy), where regular elections are not necessarily accompanied by the civil liberties that would translate into real political competition and accountability. Looking at ideology and policy discourse, Tanzania occupies a ‘transitional’ space between socialism and market-liberalism, except that the direction of transition seems to change frequently. The institutional space is similarly fraught, when one considers the tensions between fundamental institutions, such as the economic institutions fundamental to market-oriented development models (e.g. property rights), and the state-oriented nature of political institutions (e.g. the constitutional designation of far-reaching powers to the president). Much like the hybrid model in the power sector, many of these features are seemingly stable – if dynamic – and have been present since at least the 1990s.

V Political Economy, Reform, and Development – Concluding Comments

This chapter investigates why it has not been possible for Tanzania to move from an institutional equilibrium that does not bring about the desired sector outcomes (investment, system expansion, and improved technical performance) to an institutional equilibrium that does.

It has been argued that the select standard model reforms that have been implemented in Tanzania – the removal of TANESCO’s de jure monopoly, the procurement of IPPs, the establishment of an independent regulator, and the unbundling of rural electrification functions to REA (and SPPs), alongside the political and macroeconomic reforms of the 1980s and 1990s – created a dynamic hybrid model that is supported by and informed by the broader political economy system. Some of the features of this system seem, at face value, to be examples of disequilibria. Yet at a system level there is an unexpected stability – one that has been able to keep CCM in power since the 1960s, perpetuates a deep political culture tied to the ideology of African socialism, and where the tension between informal and formal institutions creates a sort of balance that serves the interests of a highly centralised political and economic elite. Indeed, in terms of predictability and continuity, Tanzania is actually an outlier in the region.

The argument has been made quite strongly that the current hybrid model in the power sector is also relatively stable and, having survived twenty-plus years, may continue to do so. Tanzania provides an example of how such systems do survive – with both positive and negative developmental outcomes. The question is then what sort of interventions or policy options might tip the balance of the outcomes in favour of development and institutional evolution. Regarding insights for policy options, there are a number of standout messages from the literature.

The first is that the effectiveness of policies depends on the matching of instruments with institutional weaknesses and political economy realities. Much of the debate on power sector reforms and development tends to focus on increasing the role of the private sector, on the degree of independence of regulators, on the design of procurement rules, and on the quality of contracts as a key tool to stimulate performance in the sector. These are certainly relevant, but theory and experience also suggest that there might be room for other options which decrease the consequences of the current dysfunctional institutional equilibrium for sector development and work within the political economy system to fast-track its evolution and facilitate positive institutional development cycles. For instance, the potential role of local authorities in the design, selection, implementation, and monitoring of more local solutions to make faster progress in achieving rural access targets or secondary cities targets seems to have been underestimated in the past. However, Tanzania’s experience with SPPs (and enabling regulation) shows that this is a policy option that mitigates the lack of incentives for TANESCO to expand into rural areas and corresponds to the more general pressures of decentralisation currently facing the CCM and government, as well as the long-standing ideological legitimacy of decentralised socialist governance.

The second insight of direct use to the policy debates in the Tanzanian power sector may be that when the institutional equilibrium generates systemic uncertainty in the choice of options, the best is often the enemy of the good. Picking options that limit regulatory failures, initially at least, rather than focusing on the adoption expected to deliver an uncertain high payoff, may be the most effective way of building up institutional capacity, credibility, and accountability. EWURA’s slow and steady development is an example of this. In general, smaller, simpler scale approaches tend to work better in this context, as they are easier to implement and to monitor locally. Moreover, simply trying to adopt solutions designed for other contexts, similar only in technical dimensions but quite dissimilar in terms of political economy, tends to be quite counterproductive. Increasingly, evidence suggests that designing options that recognise local contextualities – political culture, institutional norms, power dynamics, ideology, and interests – is critical to the success of interventions (Eberhard and Godinho, Reference Eberhard and Godhino2017).

A third insight is that, just as there are out of sector determinants of the feasibility and outcomes of various reforms, there are also out of sector interventions that can be leveraged to kick-start, support, or sustain sector interventions. Much of the literature indicates that the most important reforms lie in finance – specifically the application of hard budget constraints on state-owned companies such as TANESCO. Hard budget constraints are typically made possible by increased transparency on subsidies and transfers – which can create political demand and will for financial accountability. Corporate governance is another important area, but should be designed with an eye to political channels of communication and authority. In general, moving the governance of power utilities and state-owned companies to the Ministry of Finance – away from minerals and energy ministries – can support the realisation of ‘better’ corporate governance, as can the partial unbundling or partial listing of a state-owned company. Many of these out of sector interventions, such as standard model reforms, are decidedly against the grain – but, in opportune moments, can make more progress than sector-level interventions.

A fourth insight, for which a case does not need to be made in the Tanzanian context, is building and protecting regulatory institutions. This is especially relevant given the recent transgressions against regulatory independence in Tanzania.

A fifth insight to be considered is that the assessment of the institutional context of the sector needs to account for all actors – not just local actors. For instance, investors will push for short-term returns in negotiations, while politicians are likely to be concerned with the next election and users with their own well-being rather than that of the country. The main point here is that an analysis of the political economy of the sector needs to help the government and other actors understand core features of the local system, but should also consider the political economy of donors and other foreign actors (McCulloch et al., Reference Manor2017). Over-optimism was mentioned as an issue in the design of the Master Plans earlier, but it is difficult not to wonder why donors are so keen to share this optimism and to continue choosing solutions that do not seem to address local institutional limitations and opportunities. McCulloch et al. (Reference Manor2017) make the case that donors, specifically, have not really been keen or able to internalise the role of political constraints in their own diagnostics and most importantly in their support programmes. These concerns had already been raised by others such as Tripp (2012), Faustino and Booth (Reference Estache and Wren-Lewis2014), and Piron et al. (Reference Paget2016), but McCulloch et al. (Reference Manor2017) add that donors also underuse the margin they have to do so within the new aid modalities, such as the possibility of engaging groups outside government in favour of support. While donors continue to play a big role in policy design in the Tanzanian power sector, this is an issue that has to be addressed.

A final concluding insight is that the political economy lens allows one to identify obstacles and opportunities for reform, evolution, and development. Institutional reform has received special attention in the development literature and praxis because of the way in which institutions shape incentives and determine interests, mediate power dynamics, and give shape to – and reshape – political culture and ideas. However, it is equally important to identify other possible entry points, such as the building of coalitions around certain issues in order to alter power dynamics, or the use public education drives to change the way people understand electricity services. Making the most of such opportunities can drive positive adaptations in the sector, as well as supporting, legitimising, and reinforcing institutional reforms. Indeed, it is the absence of many such complementary interventions – stakeholder engagement, coalition building, mechanisms to increase transparency and accountability, support of free media and speech, strong legal imperatives, and consequences – that helps us to understand the challenges to reform and development in the Tanzanian power sector.

The main purpose of this chapter is to conduct an assessment of the difficulties observed in Tanzania’s power sector as part of a global diagnostic of Tanzania’s institutional constraints on its ability to deliver economic policies.Footnote ¹² To do so, the author provides an historical perspective on the sector’s institutional evolution, highlighting governance and financing challenges as well as recurring political hesitations on key policy decisions. The diagnostic is extremely detailed, lucid, and honest, and provides enough details to anchor a discussion of additional reform needs.

The diagnostic is also quite humbling in terms of how much can be done at policy design level with ‘standard or imported’ policy solutions. The country suffers from a lasting record of imperfect political and technical accountability for failures to deliver, and these are unlikely to be addressed under highly centralised and standardised ‘business-as-usual’ approaches to sector reform. Tanzania’s political preferences and current institutional constraints do not seem to be consistent with large standard reforms, delivering fast improvements more transparently.

This note argues that the diagnostic presented here implies that unless alternative, possibly unusual, institutional and reform strategies are at least piloted on a reasonable scale, progress is likely to continue to be slower than stated in the Master Plans (including the 2016 plan). It is also unlikely that the sector will achieve the financial autonomy required to finance the needs of the 62.3 per cent of the population without access to electricity (75.5 per cent in rural areas) and of the many businesses rationed in quantity and in quality. To help in the identification of alternatives, the following comments on the chapter provide some suggestions to follow up analytical, policy, and political work.

I Market Context: The Underestimated Demand and Supply Bottom Line

Before discussing broad institutional options to address market and government failures in the design and implementation of energy policies in Tanzania identified by the General Electric Company, it seems useful to highlight the outcome of these failures at the very basic quantitative level. This helps to indicate a sense of the size of the challenge and the specific issues to address, as well as possibly anchoring the recognition of the scope for innovative rather than standardised solutions.

Very concretely, for an observer unfamiliar with the country, the data suggest that the investment level is not the only problem. Investment speed is just as important. Supply has hardly been catching up with a fast-growing demand. Worse yet, the growth of this demand may actually be underestimated. Current consumption is at around 108 kWh/capita. This is only 20 per cent of the sub-Saharan African average.Footnote ¹³ This is a capacity development and management issue, a major weakness of Tanzania, hinting at a mismatch between the institutional choices and the capacity of the country to design and implement a policy in this sector.

The size of the capacity gap continues, indeed, to be huge. As of 2017, Tanzania had less than 1,500 MW of installed grid generation capacity running at 70 per cent load on average to serve a population of 58.2 million with one of the fastest growth rates in the world (3.1 per cent in 2016).Footnote ¹⁴ In recent times, demand has been growing at an average annual rate close to 10 per cent, and since investment has not followed, about two out of three Tanzanians do not have a chance of seeing their needs met in the short term under the current technological characteristics of the sector.

It will take ten to fifteen years to close the gap, at least.Footnote ¹⁵ Since the early 2010s, the successive Master Plans have converged towards estimates of investment needs sufficient to cater to a peak demand of 4,000–4,700 MW by 2025–30. The latest plans focus on rapidly developing gas-fired and coal-fired generation in the short to mid-term (2017–19), while focusing on hydrogeneration capacity in the long term (2019–25) – in a region with a record of droughts.Footnote ¹⁶ The plans appear to be realistic in theory, but the details available to casual observers do not seem to internalise the lessons from the recurring delays observed in Tanzania for large-scale power projects and the factors driving demand growth. This is a process-related issue that needs to be addressed in the design of reforms.

Progress has mostly benefited urban users. According to the 2016 Energy Access Situation Report, about two-thirds of urban areas have access to electricity. The main beneficiaries of access rate improvements have been the capital city and the upper-income classes and businesses.Footnote ¹⁷ Technically, they also benefit from the lowest-cost solutions. Cost-effective grid electricity prevails in urban areas, with 96.4 per cent of the households with access to electricity connected to the grid.Footnote ¹⁸ Grid connection is only available to 34.5 per cent of households in rural areas and, in many cases, the technological choices deliver a load level inconsistent with the willingness and ability of populations to pay.Footnote ¹⁹

The outcome is a heterogeneity of costs faced by users and a somewhat regressive investment plan timing. Currently, the poor, the majority of the rural population, spend about 35 per cent of their household income on energy, two and a half times what the rich spend.Footnote ²⁰ This distributional issue linked to both investment costs and timing should be a much larger concern to the various sources of financing supporting the transformation of the sector, given that there is now enough evidence that the decision-making process needs to be revamped to speed up the delivery of energy at a reasonable cost consistent with the preferences of the majority of the population outside of the major cities.

Timing and technological choices drive the investment financing capacity and options. Irrespective of any institutional or policy issue, the physical challenge boils down first to a financial challenge in the short run. The continued backlog, the slow investment speed, and the significant financing gaps are recognised in the 2016 Master Plan update. Various sources mention investment needs of around USD 40 billion investment under current technological preferences.Footnote ²¹ If this were to be spread over ten years, the high case scenario, it would roughly mean 10 per cent of GDP. This is unrealistic. It means that closing the gap will have to be slower and that the sector needs to consider ways of cutting costs to make the most of the fiscal envelopes to be allocated to the sector. It also means that, unless technological choices are adjusted, it is hard to see how Tanzania will be able to produce enough electricity fast enough to meet its objective of becoming a middle-income country by 2025.Footnote ²² And this should matter to the assessment of the location and nature of investment decisions in the sector and to growth expectations.

How much scope is there to adjust technological options? Tanzania’s successive Master Plans have long recognised that there are alternatives to the traditional energy sources, and that these are expected to help during the transition to the 2025 access rate goals. In 2016, of the electrified households, about 25 per cent are not connected to a grid – 24.7 per cent with solar power and 0.3 per cent through individual electricity generated from sources such as small generators. But these technological approaches could also be considered for the medium to longer run to cater to the rural population as a way of managing both cost and time preferences. This is a serious option in an environment in which new low-cost technology relying on local renewable options is emerging fast and providing reliable, affordable service.Footnote ²³

So far, progress in making the most of the alternatives has been slow considering the potential they offer – even if it has been high by sub-Saharan African standards. According to a WRI (2017) report, Tanzania has at least 109 mini-grids (93 operating as isolated), with installed capacity of at least 157.7 MW, but they only serve about 184,000 customers, a far cry from meeting the needs of the 35 to 40 million living in rural areas.Footnote ²⁴

The growing interest in these alternative technological options has been matched and stimulated by the development of pay-as-you-go solar companies supported by mobile phone companies (MKopa, Zola, and Mobisol). This has smoothed cost recovery through mobile payment systems such as Airtel, Tigo-Pesa, or M-Pesa. Mobile operators have become essential drivers of the growth potential of these alternative providers in rural regions.Footnote ²⁵

In the short run, these solutions may be seen by some observers as a niche to be exploited to deliver faster in areas unlikely to see the benefits of the investment programmes before the end of the plan period.Footnote ²⁶ But it is not unreasonable to argue that these solutions should be considered as more than a short-term niche. And the scope to make the most of this option should be included in the assessment of the potential changes in the design of institutions in the sector.

How much are current choices biased by the insufficient analytical support to decisions? For a newcomer to Tanzania going through the recent literature and policy documents available on the sector, it is difficult not to think that there may be a recurring optimism bias in the sector diagnostics used to anchor policy decisions.

First, on the demand side, needs may be regularly underestimated. They seem to ignore the expected change in the purchasing power of the population, which implies much higher income elasticity than recognised by the Master Plan. They also underestimate important details of the consequences of the ambitious economic growth and diversification targets aimed at by the authorities in their strategic development plan. This implies that it may be useful to take a more precise look at the data anchoring the Master Plan. It would be beyond the main purpose of this note to go through a data and methodological diagnostic, but an independent audit of these basic quantitative dimensions would not be an unusual exercise in an environment in which institutional and governance weaknesses may reduce the incentives to take a cold look at the facts. This is what countries such as Vietnam and Laos have been doing since the early 2010s as part of the sector-restructuring efforts, for instance.

Second, on the supply side, there is a common bias in favour of the lowest-cost technologies. This is fine if the assessments are not biased by a reliance on standard financial discount rates rather than rates accounting for the relevance of the time preferences of users. The rate of time preference is relevant to reflect the sense of urgency of regions otherwise expected to stay unconnected for a while. Over two-thirds of Tanzanians seem to have a much higher discount rate than is reflected in standard project evaluations. This matters for the choice of technology since this choice impacts the time of delivery. The relevance of this time preference in Tanzania is actually quite clear from the craving for mini-grids, which reveals a willingness to go for more expensive marginal costs as long as delivery is faster. It would seem useful to consider the differences in investment costs accounting for these differences to see whether the resources allocated to the sector are going to the most cost-effective technology once more realistic discount rates have been accounted for. If the preference for alternative faster options is confirmed in the Tanzanian case, the next challenge is to see how best to internalise these in the institutional design, as discussed in the next section.

II Towards an Actionable Institutional Diagnostic

Walking through the history of the sector as we do in this chapter is both fascinating and depressing as it highlights the recurring character of some of the mistakes and the high degree of politicisation of decisions in the sector. In countries with stronger sector governance, these decisions are usually handled through simple administrative processes designed to cut the risks of capture and distortions, ultimately sustaining and increasing accountability. A few of the issues identified in the chapter, and rephrased here to deal with them more conceptually, are:

• An inability to establish credibility: the repetition of promises unmet for over twenty-five years should simply have been internalised long ago in the design of reforms and institutions and has largely been ignored in successive reform waves.

• The excessive margin given to some agents, both public and private, to bias and/or capture processes and officials/authorities, or to be opportunistic in exploiting policy failures and random weather shocks (most notably in the award of IPPs).

• The inability of authorities to minimise the risk of cream-skimming in the preparation of PPPs, allowing private actors to take the rents from low-hanging fruits, leaving the government with the unmanageable fiscal and bureaucratic burden of dealing with the high-cost items – most notably in the preparation of service obligations and entitlements as well as in the distribution of cost and revenues in the design of IPPs.

• The misuse of tariff reforms, notably when they ignored the fiscal limits on efforts to rely on direct subsidies, or the lack of continuity in the staffing and rules, which tends to be important for key technical and contractual dimensions, even if too much continuity may sometimes increase the risks of capture and corruption.

In sum, conceptually, each of these examples fits into the usual main characterisations of institutional weaknesses: non-benevolence, non-commitment, non-accountability, non-technical, regulatory, or human capacity, and non-fiscal capacity problems.Footnote ²⁷

The consequences of these weaknesses have been quite well documented empirically.Footnote ²⁸ They all imply a lower welfare for the country and each has somewhat predictable consequences for the key dimensions of interest in any sector diagnostic – that is, the quantity of service delivered (both in terms of volume and coverage), its quality (which can be either insufficient or excessive), its cost (which can be influenced by the quantity and quality choices), and its price (which is related to costs but may also be linked to the specific regulatory regime adopted).

Table 8.A.1 summarises the likely impact of institutional weaknesses as identified in the academic literature. These are quite consistent with the evidence available on Tanzania. Coverage (i.e. quantity) has been lower than it should be as a result of a combination of the various types of institutional weaknesses (there is no question mark for Tanzania on this dimension). Quality is lower on average, even if it may be better for some users, such as in the large cities. Costs have all been higher than needed in Tanzania as well. Finally, prices may appear to be too low to cover costs, but they are all higher than they should be given the margin there is to cut cost through alternative technological choices and improvements in management approaches. Tanzania does not appear to be different in terms of the institutional weaknesses characterising the sector, based on the evidence available.

Of course, this characterisation largely focuses on very basic correlations between institutional weaknesses identified and outcomes. Causality often runs both ways. For instance, high costs may limit the capacity to do more with the fiscal resources allocated to the sector. Moreover, interactions between the various types of weaknesses are relevant.

For instance, a lack of accountability is often a good predictor for lack of commitment and hence lack of credibility, which tends to slow down the interest of the average private investor or lender. This may make specific deals in the sector easier in the short run because they focus on the easy transactions, or, worse, governments have to come up with packages that guarantee the low-cost high margins are passed on to private investors while the high-cost, high-risk low margins are left to the public sector without any room for cross-subsidies or risk of mitigation opportunities. But these ‘cream-skimming’ deals tend to be disproportionately more in the interest of specific public and/or private actors than in the longer-run country interest. This is why it is crucial to internalise in the design of procurement practices that the accumulated evidence shows that the tolerance for cream-skimming allowed by weak capacity and weak accountability tends to favour the few and penalise the majority. The biases in favour of Dar es Salaam and of targeted private actors provide good illustrations of this risk.

Note that theory and empirical evidence also explain some counterintuitive observations. For instance, the fact that prices may need to be higher may be consistent with the fact that the various types of institutional weaknesses imply higher than needed risk levels. This implies a high cost of capital, which in turn implies a high average tariff to allow the private investors to recover their risky investment. This is not an easy sell politically, but it can be addressed by making the most of tariff structure adjustment to minimise the social consequences of higher average tariffs, even when the ability to subsidise is limited.Footnote ²⁹

This conceptualisation of Tanzania’s problems does not simply serve to show that the consequences of the institutional weaknesses identified in this chapter are and were predictable. It is also useful because it allows the identification of institutional adjustments suggested by theory and supporting evidence to reduce the importance of these weaknesses and of their consequences. Once more, it would go beyond the scope of these comments to review the list of possible solutions, but a few of them seem to be particularly relevant to the Tanzanian context.

A first relevant insight is that the effectiveness of policies depends on the matching of instruments with institutional weaknesses. Much of the debate tends to focus on increasing the role of the private sectors, on deregulating, on the degree of independence of regulators, on the design of procurement rules, and on the quality of contracts as a key tool to stimulate performance in the sector. All are of course relevant. But theory and experience also suggest that other institutional dimensions, such as decentralisation or the extent to which mandates are shared within government or across government, may offer additional options. A decentralised energy system is characterised by locating energy production facilities closer to the site of energy consumption.Footnote ³⁰ In many contexts, this makes it easier to optimise the use of local renewable energy, and, from an institutional viewpoint, easier to reduce the consequences of institutional weakness inherited from history (including legal and constitutional history) or built-in culture, for instance.Footnote ³¹ This is because decentralised energy systems tend to put power sources closer to the end user. This increases the accountability of the local decision makers and gives them the option of reducing their need to wait for network expansions decided nationally. Whether the local managers are named by the local authorities or are simply local representatives from the national government, the pressure they will face to deliver faster is likely to be stronger than it currently is in Tanzania.Footnote ³² While these options seem to be realistic and have been adopted by other countries, this chapter suggests that they may not have been considered thoroughly enough in the Tanzanian case. And indeed, based on the information available publicly, it seems that the potential role of local authorities in the design, selection, implementation, and monitoring of more local solutions to make faster progress in achieving rural access targets or secondary cities targets may have been underestimated.

A second relevant insight from the theory and supporting evidence is that when there are multiple sources of institutional weaknesses, a ranking in terms of urgency may be needed. Moreover, particular attention needs to be paid to the impact of any policy across institutional weaknesses because solutions to one problem may make things worse in another dimension. For instance, regulatory capacity limitations argue for higher-powered incentive regulation (i.e. price or revenue caps), while commitment or credibility problems argue for low-powered incentive regulation (i.e. cost plus/rate of return). In the Tanzanian context, a casual observer of the evidence available thanks to the diagnostic presented in this chapter would be more concerned with the commitment issue than with the regulatory capacity problem.

The third insight that is of direct use to the policy debates in the Tanzanian power sector may be that when institutional weaknesses imply systemic uncertainty in the choice of options, the best is often the enemy of the good. Picking options that limit regulatory failures initially at least, rather than focusing on the adoption expected to deliver an uncertain high payoff, may be the most effective way of building up institutional capacity, credibility, and accountability. Smaller, simpler-scale approaches tend to work better in this context as they are easier to implement and to monitor locally, for instance. Moreover, simply trying to adopt solutions designed for other contexts, similar only in technical dimensions but quite dissimilar in terms of institutional weakness intensity or nature, tends to be quite counterproductive. Increasingly, evidence suggests that designing options that recognise local traditions and norms is the way to go, as seen in research on the role of religious norms in the incentive to deliver in infrastructure.Footnote ³³

A fourth insight to be considered here is that the assessment of the institutional context of the sector needs to account for all actors. Each has its own agenda and each of these agendas is likely to overlap with the others only partially. For instance, investors will push for short-term returns in negotiations, while politicians are likely to be concerned with the next election and users with their own well-being rather the country’s well-being. This chapter nicely illustrates the multiplicity of players, both local and foreign as well as both public and private. However, it may not do justice to the relevance of both national and sub-national players as well as to the potential role of civil society. The main point here is that the analysis of the political economy of the sector needs to help the government look into its strengths and weaknesses, but it also needs to get donors and other foreign actors to do the same. Over-optimism is mentioned as an issue in the design of the Master Plans, but it is difficult not to wonder why donors are so keen to share this optimism and to continue going for solutions that do not seem to address the local institutional limitations and opportunities.

A final insight is that politics is the main determinant of many of the relevant outcomes. This has also been documented in various overviews of experiences of reform in the sector, in sub-Saharan Africa (Eberhard et al., Reference Deininger, Lavadenz, Bresciani and Diaz2016) and elsewhere (Scott and Seth, Reference Reinikka and Svensson2013). The relevance of the political economy of the sector is quite obvious in the overview presented here, and it is perhaps even more brutally stated in McCulloch et al. (Reference Manor2017). What they add is how surprising it is that donors have not really been keen, or able, to internalise the role of political constraints in their own diagnostics and most importantly in their support programmes. These concerns had already been raised by others such as Tripp (2012), Faustino and Booth (Reference Estache and Wren-Lewis2014), and Piron et al. (Reference Paget2016); but McCulloch et al. (Reference Manor2017) add that donors also underuse the margin they have to do so within the new aid modalities, such as the possibility of engaging groups outside government in favour of support. This is perhaps more relevant to donors than to the Tanzanian authorities, but it is certainly relevant to the effectiveness of institutional reforms to improve the power sector performance in Tanzania.

III So Where Can Tanzania Go from Here?

It would be inappropriate for this note to try to make specific suggestions to address the many issues raised in this chapter, since I did not have the opportunity to conduct detailed fieldwork. But it may be helpful to conclude the discussion by arguing that the analysis makes a strong case to support the consideration, in much more detail than the available information suggests, of one specific institutional reform that may be of relevance in the debates on power sector reform in Tanzania. It addresses the underuse of both technological and institutional options (Ahlborg and Hammar, 2014; AfDB, 2015; Ahlborg and Sjöstedt, 2015; Grimm et al., Reference Grimm, Munyehirwe, Peters and Sievert2015; Moner-Girona et al., 2016; Peters and Sievert, Reference Olowu, Hyden, Olowu and Ogendo2016; World Future Council, 2017; WRI, 2017).Footnote ³⁴ The REA has already been working on its development (e.g. REA, 2016). These insights need to be matched with those produced by the analysis of the potential roles of local communities in the development of Tanzania’s power capacity (e.g. Kaundinya et al., Reference Johnson, Snoek, Elborgh-Woytek, Kourelis, Davoodi and Kanaan2009; Goldthau, Reference Geir2014; Alstone et al., Reference Ali, Deininger and Duponchel2015). Experience suggests that decentralisation of power sector decisions can fail to deliver, but it also shows that it can work if homework is carried out to match technology, regulatory tools, institutional options, and institutional constraints (e.g. Peters and Sievert, Reference Olowu, Hyden, Olowu and Ogendo2016).

The challenges to get decentralised options implemented in Tanzania are unlikely to be minor given the current political context. But getting ready to make things happen and to go further than simply thinking through the fine tuning of regulation to allow renewable sources to grow seems like a desirable option. In doing so, WRI (2017) argues that it may be a good idea to take a look at success stories such as the one experienced by Bangladesh, for instance. Box 8.A.1 summarises the lessons for Tanzania from Bangladesh’s increased decentralisation of decision processes sustained by national financial and technical assistance used to speed up rural access rates. It illustrates the long checklist of dimensions that need to be taken into account. All of them seem realistic in the Tanzanian context.

The adoption of a much more decentralised approach to cater to the needs of rural areas, combined with a large role for local stakeholders and civil society, would not be unusual in sub-Saharan Africa. Equivalent approaches have been adopted by many sub-Saharan African countries in the water sector. Over 80 per cent of the countries in the region have implemented at least some form of shift of responsibilities in the sector to sub-national authorities, although often more in the form of devolution rather than full decentralisation.Footnote ³⁵ For instance, an increasingly standard element of the institutional framework of the water sector in many countries of sub-Saharan Africa is the requirement for local public participation in water planning, management, and regulatory decisions, as well as consultation with local stakeholders. The role of local authorities in the design and implementation of policies has also increased.

Besides an increased role for local authorities, there are other options that Tanzania could consider in its efforts to accelerate the efficient, equitable, and financially sustainable delivery of electricity in the country. But their discussion would demand a much more technical diagnostic of financial, planning, and regulatory tools than can be covered in this chapter. For now, there may be enough food for thought in addressing the institutional and political issues already identified and possibly arguing for a more thorough follow-up audit or diagnostic of the sector processes and tools available to address institutional weaknesses. More and better analysis is not only possible. It is needed.