Diversification of exports and export earning fluctuations in Tanzania (1980 - 1991)

In recent years the Government has placed considerable emphasis on the export of non-traditional export commodities and services in order to mitigate the chronic shortage of foreign exchange earnings from the traditional agricultural crops such as coffee, cotton, cashew nuts, tobacco, tea and sisal which seem to have hit an insurmountable limit. In view of this, the government has embarked upon a multi-dimensional approach aimed at diversifying the country's sources of foreign exchange earnings. These efforts include the expansion of industrial production in order to achieve exportable surpluses; the promotion of tourism; the provision of services; and development of nontraditional agricultural export crops. Exports of these non-traditional commodities and services are therefore, seen as an important source of foreign exchange earnings. This study focuses on the performance of traditional exports; coffee and cotton are selected to represent because they are the leading exports by 1991; Nontraditional exports are represented by Pulses, Cocoa, Spices; oilseeds and Manufacturing; these were selected because of the availability of data on physical flows, and values for the period 1980-1991. The problem area of the study is to determine whether export diversification by commodity and export market is on a priori basis a factor contributing toward a lower degree of export-earning fluctuations. The study applies The ordinary least square (OLS) method for the purpose of estimation, Estimated Equations are in log-linear form. This method is preferred because of its simplicity and convenience in the process of estimation, and interpretation; other studies have also used it successfully. The results of the study have clearly shown that there existed instability in Tanzanian's export earnings during the period 1980-1991. The commodity wise evaluation shows that some exportable witnessed higher instability while others a relatively low instability. Among the selected commodities under study, the non-traditional agricultural exports have shown highest degree of instability followed by traditional commodities. The commodity wise details also reveals that instability was caused by fluctuations both in Export prices and Volumes exported. The degree of fluctuations in these two components however varied from commodity to commodity. Commodity concentration has been pointed out to be the major factor contributing to the fluctuations experienced in the export sector. Diversification efforts that have been taking place so far, have not reduced dependence on the traditional agricultural products, at the same time market diversification has been taking place. From this view point we may conclude that geographical diversification has been more effective than commodity diversification.