FORMER LEADERS’ BENCH WITH DAILY NEWS: Simbakalia advises ways for vibrant industrial sector

  • Explains trends, lows and highs of the sector

AS Tanzania continues to march towards a semi-industrialised nation by 2025, Col Joseph Simbakalia (rtd) says the country needs to establish a competitive manufacturing industrial base.

He says that will create wealth through export-led and sustainable economic growth which will bring prosperity.

“The establishment of an economically viable and export-oriented competitive manufacturing sector in Tanzania is the only way forward towards the creation of sustainable economic growth,” says Col (rtd) Simbakalia, a manufacturing expert, during an exclusive interview with a team of Tanzania Standard (Newspapers) Limited (TSN) reporters in Dar es Salaam, recently.

Col (rtd) Simbakalia, who retired as Director General and Chief Executive Officer of the Export Processing Zones Authority (EPZA) made the remarks while recounting the government’s decision to adopt Export Processing Zones (EPZ) and Special Economic Zones (SEZ) as significant concepts in boosting export-led industrial sector.

The EPZA is mandated to promote, register and facilitate investments in SEZs and EPZs in mainland Tanzania.

The retired officer of the Tanzania People’s Defence Forces (TPDF), who did his Master of Engineering Science Degree with a major thesis specialising in manufacturing methods, is well versed in the country’s industrialisation history.

He says after being appointed as the National Development Corporation (NDC) Managing Director, the first task was to find out the answer to the question, “why our industries failed?”

According to Simbakalia, the economic crises which Tanzania experienced in the early 1980s exposed the structural weaknesses of the manufacturing sector in Tanzania.

During this period, most of the manufacturing industries in the country were net foreign exchange consumers, including textile mills which vertically integrated cotton-growing textile manufacture but depended on imported chemicals and dyes to produce, primarily for the domestic market.

In other words, the manufacturing sector was largely dependent on the performance of the agricultural sector to earn foreign exchange to be able to finance the import requirements of the manufacturing sector.

However, he notes that the agriculture sector was much dependent on rains which were seasonal and unreliable thus affecting agricultural productivity.

“Unreliable rainfall led to a decrease in cash and food crops production in the country,” he says,, adding that the foreign exchange earnings declined also because cash crops output was down.

Also, the same scarce rains were expected to fill up the hydropower dams and thus the situation was worse leading to power rationing thus affecting industrial production and some industries stopped operations.

He says there was huge demand for foreign exchange to meet the country’s needs like importing raw materials for industrial production.

The little foreign exchange available was spent on importing both food products to cover the production deficit and industrial raw materials.

Consequently, he pointed out that the industries did not get sufficient raw materials leading to under-capacity production.

Similarly, he says, the prices of fuel which use a substantial amount of foreign exchange went up, a situation that continues to hit the country’s economy hard.

Furthermore, a combination of devaluation of the shilling against major currencies and a sharp rise in bank lending interest rates exposed the weakness of the financial capital structure of most manufacturing industries which depended heavily on bank borrowing to finance their day-to-day operations and did not have their cash reserves since they were under capitalised at the time of their incorporation and start of operations.

“Our industries did not grow and expand as expected due to poor technology, lack of finance, lack of raw materials and skilled manpower,” he said, adding the country’s population continued to increase while the industries produced under capacity.

He said at the end, the trade liberalisation with the consequent influx of imported goods highlighted the uncompetitiveness of manufacturing industries which remained with obsolete technology and product variety as well as high production costs.

The government issued in 1996, a Sustainable Industrial Development Policy (SIDP), which put in place the macro-policy framework for the development of the manufacturing sector in Tanzania.

To make progress from the status quo of the manufacturing sector and move towards establishing a sustainable manufacturing industrial base, he noted the need for a fundamental change in the manufacturing industry structure and orientation from ‘import substitution’ to being ‘export-led’.

The ‘import substitution’ model is limited in scope because of the focus on the domestic market, a market which is characterised by weak demand and low levels of consumption commensurate with the low level of average per capita income.

It is from this backdrop that the government initiated the move to establish the EPZ and SEZ as a way to address the challenges of the unproductive industrial sector.

With the EPZ initiative, 80 per cent of the goods manufactured are for exports and the remaining 20 per cent are sold in the local market.

“In that manner, import substitution manufacturing industries located in EPZ would also become net foreign exchange earners,” he says.

A new industry structure with ‘export-led’ growth created by the manufacturing sector would reach out and tap the wealth in other more developed markets.

This is particularly the case in respect of manufacturing industries which utilise locally produced raw materials.

The same level of production output of raw materials like cotton, which is currently being exported as lint, would increase export earnings more than three times if the cotton was to be processed into yarn and cloth before being exported.

The export earnings would only increase more, as the processing of the cotton continues to move up the value-added chain to high-fashion fabrics and garments.

The overall objective for creating such an export-oriented manufacturing sector would be to achieve export-led economic growth, with manufacturing industries as net foreign exchange earners and multipliers of value to create more wealth from the output of the primary production sectors like agriculture, mining, livestock, and natural resources.

Presenting a paper at the first Engineers Registration Board (ERB) seminar in Arusha in 1999 on the manufacturing industry in Tanzania: past, present, and future – views on macro-economic issues, industry structure and the challenges ahead, Simbakalia said the overall challenge for creating sustainable export-led growth using the manufacturing sector as the engine is to develop the capacity to be able to effectively manage the five critical manufacturing input factors of finance capital, human capital (labour), raw materials, energy and technology.

To realise the EPZ and SEZ industrialisation models, the government sent a team of experts to China, India, and Malaysia which have well-developed industrial sectors to learn and borrow a leaf for establishing in Tanzania.

“In China, for example, they set aside a plot of land for industrial development and invested in fully-fledged infrastructures. They attracted investors in these areas and gave them tax and non-tax incentives,” says Col Simbakalia, insisting the initiative was very important in increasing the flow of foreign currency into the country.

In the EPZ investment model, investors were given everything with regards to infrastructures but it was their duty to find the markets for their products.

“You should make sure you bring high technology for producing the goods that meet global standards for them to compete in the international markets,” he stresses.

Also, investors were supposed to teach the local staff the technical and production studies so that they can have high skills to work anywhere in the world.

After coming back from a learning tour, the government set up a friendly environment to encourage the construction of industries that will produce high-quality goods of global standards, increase productivity, produce goods and sell at competitive prices compared to other industries in the world.

However, he emphasizes that the implementation of the EPZ and SEZ models should not interfere with the efforts to attract industrial investors in other areas.

Former President Benjamin William Mkapa is credited as the brain behind the industrial initiative with the ultimate goal of building a robust industrial economy.

“Some people started to resist the idea of establishing such industries using EPZ and SEZ models on the ground that the government will lose huge revenues,” he noted.

However, he says that President Mkapa insisted that there was no turning back, insisting the country should go forward to implement the EPZ and SEZ industrialisation models.

“We then started the Millennium Park in the Urafiki area but did not go very well and produce the expected results,” he says.

In another attempt, President Mkapa invited Prof Soichi Kobayashi of the Japan Development Institute (JDI) to come to Tanzania and provide expert advice in formulating a national industrialisation strategy.

He came and said Tanzania can implement the strategy but that EPZ should be treated as one of the components under SEZ and from there advised to build 100 industries under SEZ.

Therefore, the Benjamin William Mkapa Special Economic Zone (BWM-SEZ) situated at Mabibo-External in Ubungo District of Dar es Salaam Region was established but became operational in 2007 when President Jakaya Mrisho Kikwete was in office.

The BWM-SEZ was planned during the last year of President Mkapa in office, with the intent to build a pilot special economic zone as ‘Proof-of-the-Concept’.

The project was built by the government of the day for 29.86 million US dollars to demonstrate and provide hands-on experience in the operationalisation, management and regulation of zones as platforms for industrial production to supply export markets.

With the intent to provide practical dimensions of economic viability to the BWM-SEZ as a ‘Proof-of-the-Concept’ project, remarkable achievements were registered from 2015 to 2020.

For example, stock of capital investments (as Private Financial Initiatives) was 61.271 million US dollars and generated export earnings (127.64 million US dollars).

During the period, more than 3,000 permanent jobs were created whereas the fiscal revenue was paid to the government (7.5 million US dollars).

The direct spending in the domestic economy was 63.73 million US dollars.

Following the positive outcomes of the BWM-SEZ, the government created the Bagamoyo SEZ with the intent of leading the roll-out strategy to build other world-class comprehensive special economic zones.

Therefore, the Bagamoyo SEZ project which includes Bagamoyo Port and Bagamoyo High Technology Park was pipelined for priority implementation under the Third Five-Year National Development Plan (FYDP III).

Related Articles

Back to top button