Tanzania can’t afford to ignore its rural poor

With rapid and sustainable growth of over six per cent since the late 1990s, Tanzania is an economic success story. In addition to its enormous natural resource wealth, from arable lands to mines, and now natural gas, the country’s prospects are bright. Several observers including the MIT Observatory of Economic complexity and the Economist have featured Tanzania as one of the most promising countries in the world.
Indeed, all this is true, but not necessarily for everybody living in Tanzania. Certainly not for the rural Tanzanian households constituting as many as 30 million people or about 75 per cent of the total population.

Living in the past
The vast majority of rural households live today like their parents did or even their grandparents. They have no electricity (96.6 per cent of the total rural population), no refrigerators (99.2 per cent), no television (96.4 per cent), no motor vehicles (96 per cent), no bank accounts (92.8 per cent), and the majority of them (80.5 per cent) live in houses with no concrete floors and no concrete walls (94.2per cent). (Source: 2010 National Panel Survey).
The challenge is how to include rural households in the growth processes so they can improve their living conditions. The most direct way to escape rural poverty is to move to cities. Dar es Salaam is now considered as the ninth fastest growing city in the world. Migrants have a much higher probability of finding a job in the five years following their arrival (as those who migrate tend to be more educated and driven), than urban non-migrants or those who stayed back in the countryside (Source: L. Fox and J. Kweka, World Bank, 2011).
The current large divide between the urban and rural worlds in terms of expected income and access to basic services has and will continue to feed the rapid migration flows toward urban centers. Today, the average urban resident has 13 times more chances of being connected to the national electricity grid, 2.7 times more chances of having access to piped water, 5.4 times more chances of having a bank account, and 10 times more chances of completing secondary or higher education.
The second answer to the challenge of reducing rural poverty is to increase rural incomes. Their main activity is farming and therefore they need to get more from it. Unfortunately, their level of production (in tons per capita) has stagnated since the early 1980s, and their productivity is on average one of the lowest in the world (see graphs). What can be done?
For many years, and still for many players, the solution has been to attempt to provide cheap inputs to farmers. True, most of them do not have the capacity to purchase fertilisers or use tractors. As a result, the government (supported by donors) has struggled to find cost-effective mechanisms that would provide better inputs to poor farmers. These attempts, not only in Tanzania but also elsewhere, have globally failed to make a difference because the government’s failure is often larger than the market failure (source: L. Pan and L, Christiaensen, World Bank, May 2011).
Such systems suffer from political capture and benefit farmers who already have the means to afford the inputs. More importantly, they fail to address the main issue. Why would a farmer use a fertiliser and increase his production if he is not able to sell it? Today, in Tanzania, 3/4 of maize production or half of paddies do not leave the farm gates.
The main obstacle to agriculture production is the absence of connectivity. Physical isolation is clearly the obstacle since on average a farmer is 37 kilometres away from the closest market place (source: 2007 Household Survey).
Roads in most villages are nonexistent or in bad shape. Transit times are excessively long because of weighbridges and multiple controls. Farmers are spending in transport costs 2 and 4 times more in Tanzania than in Uganda and Kenya respectively (source: Tanzania Growth Diagnostic, Partnership for Growth, 2011). Worse, the low volume of commercialisation prevents the emergence of economies of scale that are necessary to attract middlemen and bankers.

Obvious response
The obvious response is to build, rehabilitate, and maintain rural roads. Various studies have shown that these roads offer among the highest rates of return for public investment (See, for instance, Fan S et al., Uganda and Tanzania: Pro-Poor Public Investment, Escapapa and IFPRI, 2006). Farmers need investments, not subsidies and the government could finance about 1,000 kilometres of paved roads or 5,000 kilometres of unpaved rural roads with the annual budget spent today on subsidy programmes (about $100 million per year).
Public investment in rural roads however needs to be strategic and focused during the initial phase in locations where they expect the largest short term impact to consolidate support for the reforms. Financing rural roads need not all come from the government budget. Partnerships can be forged with big farmers, large enterprises operating in the countryside (such as mining companies) and neighboring countries that will get concrete benefits from an improved transport network (for major corridors including railway and maritime/lake transport).

Numerous roadblocks
Beyond the hard infrastructure, the government can eliminate the numerous roadblocks and non-tariff barriers that slow down transport and trade. Many of those obstacles (small taxes, fees, cess, etc) are hard to remove because they help finance local governments and communities. The central government could help alleviate this problem by setting up a competitive fund that would reward local authorities who most effectively fight non-trade barriers.
Such a competition-based approach could also be implemented within the EAC to stimulate cross-border trade.
Improving farmers’ connectivity should be the starting point but it is probably not enough. How can farmers adopt more productive farming methods? Here the government can help push two new models emerging from the private sector. The first is based in the booming cell phone industry, including in remote areas (40 per cent of rural household reported owning a handset in 2010) (source: 2010 National Panel Survey).
This offers the opportunity to do business differently. Farmers can access information from private and government sources (for example prices, climate information, farming advice, etc) using their newly found virtual connectivity.
Recent experiences, including in Rungwe District, have shown that farmers’ incomes are boosted simply by better access to information that improves their capacity to sell at better prices (source: G. Mwakaje, Information and Communication Technology for Rural Farmers market Access in Tanzania, Journal of Information Technology Impact, vol. 10, n.2, 2010). Cell phones are also increasingly used to send and receive money. This can allow timely payments to farmers. It has also already boosted remittances, which count now for half of rural households’ monetary income in some regions such as Kilimanjaro.

Second model
The second model is the so-called contract-farming between small and large farmers or wholesalers. The idea is that such contracts could be win-win by enabling transfers of technology and market access to small farmers, and by providing a larger scale of production to large farmers. The key is to set appropriate rules. The small farmers will get, for example, better seeds and fertilisers if they sell their crops to wholesalers that will guarantee them a fixed income and better living conditions. Such contracts have been successful in a bunch of developing countries and seem to have worked efficiently in the tobacco sector in Tanzania, and on a limited scale in other farming sectors as well. But they have been applied to only one per cent of farmers in the country. The government can play a dual role; first it can monitor these contracts, and second, enforce penalties if the rules are not applied correctly by concerned parties. They can also create or stimulate appeal mechanisms by third-parties. The obvious power asymmetry between small and large farmers calls for close monitoring.
Bottom line: Improving the living conditions of rural households will have to come from two forces: improved productivity in agriculture and faster urbanisation. The concentration of people in urban centers will create agglomeration effects that are vital for private sector development and job creation. Yet, urban households will need food to survive. This presumes in turn further improvements in agricultural productivity and commercialisation.
A performing agricultural sector is also crucial for providing cheap inputs to manufacturing activities in urban centers, such as cotton for textile and leather for shoe factories. If agriculture fails to improve, not only will there be a food shortage, but peasants will also move more quickly to cities, thus increasing the risks associated with urban congestion.
Those linkages are multiple and diverse but they are core to sustainable and shared development. The lesson for Tanzanian policymakers is evident: they cannot afford to leave the country’s rural world behind.
The author is the Lead Economist for the World Bank for Tanzania, Burundi and Uganda