Investments to End Poverty, in Tanzania

Development Initiatives, where I briefly worked earlier this year, has a fascinating new report out. It’s called Investments to End Poverty, and aims to document as accurately as possible the size and nature of all the resource that are available for poverty reduction. Duncan Green at Oxfam calls it “a goldmine of killer facts and infographics“. I’m going digging, to see if I can find a few nuggets.

In particular, this post will mostly look at what the report says about Tanzania. But first, some more detail on the report as a whole.

The report details aid flows from traditional donors, of course, but also goes much further – looking at private investment, loans, remittances, aid spending by NGOs and non-traditional donors, for example. And as the chart below shows, these other sources of funds now dwarf aid (official development assistance, or ODA).

figure 2.8, from ITEP p.43

from ITEP, p.43

The report also notes, rightly, that international flows are only part of the picture. Domestic spending also has a huge role to play, most obviously in the form of government expenditure but also private spending by households and business.

“In 2011 government spending across all developing countries totalled $5.9 trillion, almost three times the estimated $2.1 trillion in international resources that developing countries received.”

However, the report doesn’t try to include detailed figures on domestic spending, even government spending, on the basis that it is “difficult to quantify”, “varies in different contexts and is poorly understood across countries.”

Incidentally, I fear this is one of the report’s weak spots. It claims to cover “all resources on poverty reduction”, but in practice it’s almost all about international resource flows. This is arguably misleading, ignoring the inconvenient fact that a large proportion of international resource flows has little or nothing to do with poverty reduction, while downplaying the biggest single resource for poverty reduction – domestic government spending in developing countries – from the bulk of its analysis. Worse, it carries the implied suggestion that reducing poverty is primarily the responsibility of developed rather than developing countries.

Nevertheless, the depth of detail in the report on international resource flows is remarkable. More than half the 300+ pages are taken up with double-page spreads of data and graphics on every significant donor, each type of resource flow, and several aid-recipient countries.

Which brings me to the purpose of this post – to look at what the report says about Tanzania.

1. Domestic resources matter most in Tanzania, remittances hardly at all

Here’s the gold. The chart below shows how four sources of finance have gone up and down over the past decade. For me, this is the most interesting chart on Tanzania in the report. (No coincidence, it’s also the only bit that includes data on Tanzania’s own government expenditure.)

Tanzania resource growth

from ITEP, p.284

The chart shows three important trends:

  • Business is booming. International commercial resources (largely foreign investment) is fast catching up with aid.
  • Tax 3 – 1 Aid. Domestic resources are more important than aid for poverty reduction in Tanzania, and becoming even more so.
  • Remittances nil. Tanzania get’s almost nothing in private resource flows.

This third point is in stark contrast to much of the international conversation on development. Remittances (largely money sent home by Tanzanians living abroad) are almost irrelevant in Tanzania – private flows in the chart above. In many developing countries private remittances from citizens living and working abroad vastly outweigh aid flows (e.g. India, Senegal, Liberia), but in Tanzania this is not the case. In fact, the (UK) Guardian reported recently that four times as much money flowed out of Tanzania in private remittances ($274m) than into Tanzania ($80m) in 2011:

Remittance flows into and out of Tanzania, 2011, from The Guardian

Remittance flows into and out of Tanzania, 2011, from The Guardian

As a comparison, a similar amount was transferred out of Uganda that year ($291m), but over ten times as much ($855m) flowed into Uganda as into Tanzania.

2. The importance of aid in Tanzania is declining.

Ignore the spike in 2006, that’s an anomaly related to debt relief. Focus instead on how aid was worth 25% of Tanzania’s national income around 10 years ago, but has now dropped to less than half of that share.

from ITEP, p.284

from ITEP, p.284

3. Each donor has its own preferred aid modality

The US likes “mixed project aid” – money and commodities directed straight to projects. The World Bank (IDA) and African Development Bank’s support is almost entirely loans. European countries prefer grants, including General Budget Support.

from ITEP, p285

from ITEP, p285

4. More than a quarter of aid to Tanzania goes to health, less than 5% to education. Really?

I’m a bit doubtful of this one, on both counts. Perhaps PEPFAR, the Global Fund, etc. add up to an awful lot, but why so little on education, generally a favourite of donors? Perhaps 2011 was an unusual year?

from ITEP, p.285

from ITEP, p.285

Finally, some concluding thoughts

These charts come from the double-page spread on Tanzania, which is also available as a stand-alone pdf. The breakdowns of aid spending by donor, sector and type don’t say much that those familiar with the aid environment in Tanzania will not already be aware of. But I have rarely seen the trends on domestic revenue, aid, investment and remittances spelled out quite so clearly.

These are the trends that represent a fundamental change in Tanzania’s economy, and even in its politics. Donors, and aid, matter much less than ten years ago. Business matters more. And with the rise in domestic budget spending, there is a much bigger national cake to be fought over. What gets taxed, and by how much? And how is it spent? That’s politics.

4 thoughts on “Investments to End Poverty, in Tanzania

  1. rono

    Hello Ben. Thanks for the very interesting blog. Just some additional notes on aid to Tanzania, I am currently doing an analysis on aid and budget resources to Tanzania. Aid to health, is huge compared to education. Why? The US is a major donor to reproductive health not just in Tanzania, but Kenya too. It funded 70% of the health aid that Tz received between 2006-2011 (US$1.3b). This compared to (US$143m) that Canada gave as education aid-and it is the highest education donor to Tz.
    But something that is quite striking is that Tz spends a huge amount on higher education, compared to primary and secondary education…yet enrolment in these institutions as well as the performance in secondary education remains poor.
    I read somewhere that a huge amount of the higher educ. spending goes to research (and not necessarily education provision). There is also allegations that there are too many seminars and per-diem doing rounds.
    But I notice a specific huge amount called ‘Current grants to public units’, do Ministries fund some institutions i.e academia and financial institutions?

  2. Tim

    Ben, interesting article, and thanks for diving so quickly into the detail of the report as well as the data we present on Tanzania. You raise some valid questions, and I wanted to respond on a few of your points.

    Firstly, the focus of this (initial) report is international resource flows. This is not to imply that international resources are more important than domestic ones, and certainly not that poverty reduction is the responsibility of developed rather than developing countries. Rather the aim is to inform the debate about the role for the international community, which is an important component of the overall financing debate. In fact, we tried quite hard to contextualise the international focus of the report by clearly presenting it alongside the wide variations in domestic resources across developing countries, in the belief that different contexts should drive differentiated international responses. The report presents a simple, but quite stark analysis of how government expenditure per capita varies across developing countries. And Tanzania is a particularly interesting case. Government resources have grown rapidly in recent years, I believe in part with international support for a tax mobilisation programme in the Tanzanian Revenue Authority. But they remain extremely low: government expenditure was a little over PPP$ 300 per person in 2011. This compares to PPP$ 1,360 across all ODA-recipient countries, and over PPP$ 15,000 in DAC countries.

    We hope that the information in the profiles is useful. As you say, they’re a little light on the wider-resources picture, but hopefully this signals a direction of travel. Most space is given over to aid in the initial report, but we will develop the wider resources picture further through the programme (and we have a tonne of extra data on this already). It looks like Karen has responded on the question about health and education ODA. All the best,

    Tim

  3. mtega

    Rono and Tim, thanks very much for your comments, which are very interesting.

    Rono, I suspect that 2011 might have been an unusual year for education aid spending in Tanzania – a gap between one large-scale initiative ending and another beginning. That would fit with the low level of “grants” to education in the chart above, and with your comments on higher education vs primary and secondary. Tanzania is generally seen as spending a lot on primary and secondary schools compared to higher education but if 2011 was an unusual year, that would fit with your figures.

    Tim, to clarify, I don’t think the focus on international resource flows is invalid, just that it downplays the importance of domestic government spending and makes something of a mismatch of the report’s title. And I’m happy to hear that you’re looking to expand the focus on other resources (beyond aid, beyond international flows) in future.

    Also, you are right to point out that the growth in Tanzania’s domestic spending is linked to external support for TRA – a genuine success story.

  4. Yash Tandon

    I have been studying the phenomenon of international resource transfers for many years. I am myself from Uganda and I spent 7 years teaching in Tanzania in the 1970s. I visit Tanzania often, and also East Africa, etc. The data presented in this report is very interesting. However, the title “Investment to end poverty in Tanzania” is misleading and, frankly, ideological. Of course, investments are needed, but among other things, what will bring poverty down in Tanzania (and in Africa) is the control and ownership of Africa’s resources by Africans – at private sector, public sector, and community levels. Investments do not automatically translate into national ownership. In fact, local savings might be harnessed by foreign capital for its control over natural resources. This is true of, for example, gold in Tanzania and cocoa in Ghana. Poverty will not go away in Africa until people own and control their own resources. The focus on aid and FDI flows is partial and therefore misleading. It leads to wrong policy implications.
    Yash Tandon

Comments are closed.