Phantom Aid versus Internal Resource Mobilization in Tanzania

by Israel Laizer[i]

Doita-and-Tanzania-map-1024x576Controversies about effectiveness of aid go back to some decades (Radelet, 2006). Scholars such as Jeffrey Sachs, Joseph Stiglitz, and Nicholas Stern hold that aid has contributed to poverty reduction and growth in some countries and prevented worse performance in others (Radelet, 2006). Meanwhile, other scholars like Dambisa Moyo, Milton Friedman, Peter Bauer, and William Easterly have strongly criticized aid, saying that it has enlarged government bureaucracies, perpetuated bad governments, limited policy space, enriched the elite in poor countries, or just been wasted. Furthermore, there is evidence that a greater proportion of aid donated to developing countries has been phantom[1] rather than real (Rugumamu, 1997; Edward, 2012). Even when it turns out that the aid is real, some argue that it can be lethal for the ability of the recipient country to develop and control its own economic and financial institutions and objectives (Rugumamu, 1997).

Tanzania is one such example of how foreign aid has impeded the country’s ability to develop on its own, relying so much on donor money that it can no longer effectively operate with financial independence. I argue that Tanzania could radically deviate from relying on external donors and pursue a different development path, one in which the country would rely predominantly on the mobilization of internal resources. The concept of “mobilized internal resources” is used in this context to refer to fiscal resources that accrue from the domestic economy.

Israel Laizer
Israel Laizer

There are those who may argue that donor countries could hardly be expected to give aid without being motivated by their own political, strategic, or economic interests (Trip, 2013). It is hardly surprising if the allocation of foreign aid is rarely determined by the relative needs of developing countries (Action Aid, 2005). Most bilateral aid seems unrelated to the recipient countries’ development priorities. That is why from the beginning foreign aid has made little impact on the development needs of most Tanzanians (Edward, 2012). It may indeed be argued that the foreign aid that Tanzania received in the 1960s and 70s for purposes of supporting its then-socialist policies such as the collectivization of agriculture and the villagization process was wasted, as the intended objective was hardly attained (Edward, 2012). Worse was the collapse of the Tanzanian economy in the late 1970s and early 1980s, in spite of massive aid flows from donor countries[2] (Edward, 2012).

In the first place, one may rightly argue that Tanzania has not been sufficiently stringent in collecting taxes, which could create domestic revenue and consequently minimize overdependence on foreign aid. Supporting the point, it has been recommended that the government of Tanzania needs to create a fair and efficient taxation system and do away with tax exemptions that create loopholes for tax evasion as well as revenue leakage (UNECA, 2014; Osoro, 2010). Similarly, it is quite possible that there have been unnecessary tax exemptions and tax holidays in the country that have been given to foreign investors, leading to loss of revenue.

As UNECA report (2014) asserts that taxation is the biggest source of domestic revenue for African countries, it is imperative for the Tanzanian government to do more to address constraints currently hampering implementation of tax reforms and to maximize contribution of taxes to domestic revenue. As of late, new leadership in Tanzania[3] has been insisting on increasing tax payments and has begun efforts to convince citizens that tax reforms[4] are part and parcel of wider reforms to improve the business and investment environment of their country. The Tanzanian president appears on television and radio broadcasts, mobilizing citizens to pay taxes and insisting that businesses will also not escape paying taxes. Moreover, the government has embarked on reviewing tax exemptions as well as tax holidays, to ensure that they are only be granted where appropriate. These efforts can be seen as a move toward raising more money for public expenditure for the government.

Moreover, remittances are an important source of foreign exchange that could be tapped to enhance the internal revenue base of the country in importing vital goods as well as pay off external debts. According to UNECA (2014), Africa is the most expensive continent to send money to. Given the steady increase of Tanzanian nationals who live in abroad, the government could suggest how best to utilize this opportunity to increase sources of funds internally.

Rwegasira (1998: 4) wrote about performance of financial markets by analyzing the mobilization of resources for financing investments. He argued that principal areas for action are financial-sector reforms aimed at building efficient financial institutions together with financial instruments and the pursuit of conducive interest-rate policies. With a well-developed banking sector and stock markets, the ability to finance new projects and increase in-depth trading should follow. Hence, local investors will be supplied with enough capital for investments, and the government will be in a position to collect enough revenue through taxation.

Some, however, argue that public financial management contributes to inadequate domestic resource mobilization (UNECA, 2014: 6). In his paper, Rwegasira (1998) suggested that the role of the state and government should be to develop skilled human resources for tackling broad as well as strategic tasks in public financial management, strengthening key institutions, and contributing to creating an enabling regulatory and policy environment. Rigorous public financial management characterized by an aggregate fiscal discipline; resource allocation and use based on strategic priorities; and efficiency and effectiveness of programme as well as service delivery will ensure the country’s development by using its internally collected resources.

In his study of A Neglected Factor in Development Strategy, Bhushan (2008) summarizes the main obstacles to internal resources mobilization being weak financial infrastructure, governance and corruption, while UNECA (2014) identifies these challenges by including low savings rates, poor tax administration and a limited tax base together with illegal financial flows. They add that there is still a persistent disconnection between public financial management and national budgets and planning, which makes it difficult for the country to identify funding gaps and channel existing funds into priority development areas. In addressing the challenges, Rwegasira (1998) suggested that the state should play a strategic role in shaping pro-investment, pro-poor policies and in building critical human and institutional capacities to manage development affairs in the context of globalization.

Tanzania has been treading on the wrong development path in which there is overemphasis on the external resource mobilization. External resources respond to commercial profit opportunities and retained earnings flow to foreign investors. They are motivated by political objectives of the donors and creditors. These may or may not coincide with national development objectives (Bhushan, 2008). As a matter of fact, it seems too naïve to anticipate that the country will meet national development objectives principally through mobilizing external resources. Greater emphasis on internal resource mobilization can help Tanzania to enhance its growth and economic performance, contribute toward increasing its policy space as well as ownership of development strategies, and hence reduce aid dependence. While it cannot be denied entirely that aid donors can play a supportive role through technical assistance, internal resource mobilization should be the primary objective in order to achieve sustainable development.

References

Action Aid (2005) Real Aid: An Agenda for Making Aid Work. London: Action Aid – accessible from http://www.un-ngls.org/orf/cso/cso9/real-aid.pdf

Action Aid (2011) Real Aid 3: Ending Aid Dependency. London: Action Aid – accessible from www.actionaid.org.uk/policy-and-research/research-and-publications/

Bhushan.A and Culpeper. R, (2008). Domestic Resource Mobilization a Neglected Factor in Development Strategy. Ottawa: The North-South Institute.

Easterly, W. (2003) Can Foreign Aid Buy Growth? Journal of Economic Perspectives. 17 (3): 23- 48.

Edward S (2012). Is Tanzania a Success Story? A Long Term Analysis: University of California Los Angeles and National Bureau of Economic Research.

Moyo, D. (2009) Dead Aid “Why Aid Is Not Working and How There Is a Better Way for Africa” Farrah, Straus and Giroux, New York

Osoro N. E, (2010). “Domestic Resource Mobilization in Sub-Saharan Africa; The Case of Tanzania” NSI, Ottawa, Canada.

Papenek, Gustav, F., 1973, “Aid, Foreign Private Investment, Savings, and Growth in Less Developed Countries,” Journal of Political Economy, Vol. 81(1), pp. 120-30

Radelet, S (2006). A primer on Foreign Aid, Centre for Global Development, downloaded from http://www.who.int/hac/techguidance/training/analysing_health_systems/a_primer_on_foreign_aid_06.pdf

Rwegasira, D.G (1998). “Key Issues in African Development in the 21st Century”, Tokyo Japan

Rugumamu, S (1997). Lethal Aid: The Illusion of Socialism and Self-Reliance in Tanzania. Trenton, NJ: Africa World Press,

Tribe, M. (2013) International Aid to Tanzania- With some comparisons from Ghana and Uganda Discussion Paper 15-03, Department of Economics, University of Strathclyde, https://www.strath.ac.uk/media/departments/economics/researchdiscussionpapers/15-03.pdf

UNECA (2014) “Domestic resource mobilization,” Marrakech, Morocco


[1] Phantom Aid by Action Aid description is that type of aid that never reaches the poor and doesn’t reach the targeted recipients. Action Aid estimated that half of all aid failed to reach intended recipient as most of it is used in administration costs, technical assistance costs, debt services, used toward commercial ventures and thus the amount that reaches the poor which is what termed as the real aid is only half of what left. http://www.actionaid.org/sites/files/actionaid/real_aid_2.pdf

[2] “This period, of course, was also when Structural Adjustment Policies (SAPs) were imposed on many developing countries, including Tanzania. Here, however, I focus on the possibilities of strengthening the role of the state today.”

[3] The 5th Government under the leadership of President John Pombe Magufuli has embarked on increasing tax collection in Tanzania by curbing all loopholes in paying taxes and sensitizing the mass to pay their taxes and pushing for Tax Administration reforms http://www.thecitizen.co.tz/News/New-tax-collection-system-to-curb-theft/1840340-3276866-wpjoi/index.html

[4] Speech by the minister for finance and planning, Hon. Dr. Philip I. Mpango (MP), Introducing to the National Assembly, the estimates of Government Revenue and Expenditure for fiscal year 2016/17 http://www.tra.go.tz/images/uploads/Laws/budget.pdf


[i]The author of this article is Israel G. Laizer, working with United Nations Development Programmes (UNDP) Legislative Support Project as a Monitoring and Evaluation Specialist; He has a Master’s Degree in Development Studies from University of Dar es Salaam in its Institute of Development Studies (IDS). For the past 10 years, he has been working with National and International Non-Governmental Organizations, Government and government agencies, different Development Partners (DPs) such as USAID, COMIC RELIEF, ACTION AID, UNDP, DFID, SIDA, OXFAM (UK), different Embassies supporting development agenda, research institutions in the country and outside the country and recently in UNDP supported Legislative Support Project in both Tanzania National Assembly and Zanzibar House of Representatives.

He is currently pursuing a doctoral degree programme at the University of Dar es Salaam under supervision of Professor Severine Rugumamu exploring on prospect of development in Tanzania using domestic resource mobilization. His thesis that he is working on is titled “Prospect for development in Tanzania, the premise of Domestic Resource Mobilization” gave him deeper insight and understanding of Africa development challenges, AID management and an alternative to developmental approach framework that Africa should embark if it is to achieve sustainable development as highlighted in this paper

The opinion and views shared in this document are of my own and doesn’t reflect those of United Nations Development Programme (UNDP).

He can be reached at laizerisrael@hotmail.com or call through number +255 685 701 687 and WhatsApp number +255 784 732639 and Skype: israel.laizer2

2 Comments on Phantom Aid versus Internal Resource Mobilization in Tanzania

  1. Good article, African states need to mobilize internal resources. Donor support is fading and its stringent rules are far and large cripling and failing governments to think outside aid. Africa arise, lets do it collectively!. A strong political will, institutional framework, and upward governance system are needed to realise these desires!

    • Mr. Anthony Malunga, I agree completely with you, African countries needs to really start thinking of a different alternative of financing their economies and development. Aid has been for years not working and if working has not been effective enough to turn around the fortunes of African countries. Aid has becomes so unpredictable and unreliable.

      These are probably reasons made Mwalimu Nyerere (God rest him in peace) once to declare that “It is stupid; indeed it is even more stupid, for us to imagine that we shall rid ourselves of our poverty through foreign assistance rather than through our own financial resources”. Nyerere argued that relying on gifts and loans endangers the country’s independence and its ability to choose its own policies. Further is shrinks the policy space of the country.

      Yet it is not known why Tanzania continue to depend much on foreign aid while the country is endowed with a lot of natural resources such as; fertile land, minerals, water, forests, gas to mention. It is probably from this observation the president of Tanzania reiterated his call for Tanzanians to work hard towards ending the country’s dependence on donor money, and that the reason the paper concludes as follows “Greater emphasis on internal resource mobilization can help Tanzania to enhance its growth and economic performance, contribute toward increasing its policy space as well as ownership of development strategies, and hence reduce aid dependence, it seems too naïve to anticipate that the country will meet national development objectives principally through mobilizing external resources”

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