The structure of protection and the performance of manufactured exports in Tanzania.

This study is on the impact of protection and the performance of manufactured exports in Tanzania. Tariffs, exchange rate and quantitative restrictions are examined to see how they affect the growth of manufacturing output and manufactured exports. It has been advocated that tree trade has had more beneficial impact to a country's economic development as compared to trade restricting regimes. This "free trade" has in most cases been measured by the nature of incentives provided. In particular through the levels and. magnitude of tariffs, other taxes and quantitative restrictions (also known as trade policies) and that of exchange rate. A positive relationship is said to exist between trade: and a country's level of engagement in international trade. Industrialization and trade in Tanzania like in most of the developing countries has been through a highly restrictive trade regime, and therefore the effects of trade and macroeconomic policies gave not been on a positive side as expected. Although arguments such as infant industry, terms of trade, externalities, distortions in factor and product markets and balance of payments among others provide a rationale for such trade regimes, inefficient markets have been created. Given that a greater proportion of domestic demand is satisfied through imports, erection of industries behind high protection is expected to capture this domestic market. It is assumed that tariffs and quantitative restrictions will make imports expensive and therefore reduce their consumption. This will lead to resources moving to the protected sectors/activities and increase their production. When the domestic market is satisfied, then exports are expected to expand to take care of the increased domestic production. With the use of causality model, it was observed that a bi-directional relationship exists between manufacturing output and manufactured exports. These results indicate the importance of policies that do not discriminate between production for domestic market and production for export market. Given that external markets require highly competitive products in terms of prices, quality and delivery schedules, it means that quality improvement should be considered as important. Various methods were used to examine the structure of protection in Tanzania and its impact on the growth and performance of the manufacturing output and manufactured exports. These included tariffs, exchange rate, decomposition approach and an econometric method. Through the use of trade and macroeconomic policies it was revealed that the industrialization and trade regimes adopted neglected the external sector. The policies had taken for granted that emphasis on manufacturing output would lead to growth of manufactured exports. With the use of a causality model, it was found that specific promotional policies aimed at the growth of manufacturing output and exports were important. On the basis of effective rates of protection (ERPs) calculated for the years 1976 and 1988, it was found that consumer goods activities had higher rates than intermediate and capital goods. Implicitly, this would mean the growth in consumer goods activities at the expense of intermediate and capital goods activities. However, while the study indicates the dominance of consumer industries (in terms of structure), consumer goods experienced high growth rates only during the period 1966 to 1973 and thereafter up to early 1980s intermediate and capital goods recorded high growth rates. The high rates on consumer goods accorded producers artificially higher value added than otherwise. This phenomenon was indicated by positive effective rates of protection. However, when adjustment was made in the exchange rate, most of the activities were found to have negative net effective rates of protection. The negative rates imply that imported goods are favoured compared to domestically produced goods. The discrimination of domestic goods then translates into poor performance of manufactured exports. Given that taxes are imposed on inputs to be used in the activities producing for export, exporters are penalized. Without rebates, these taxes increase the costs of production leading to uncompetitive exports when compared to producers in other countries that do not pay duties. Through the use of different effective exchange rates for both imports and exports, and the anti-export bias, it was found in this study that the protection structure greatly discriminated against the external market. Among others, this discrimination is, therefore, responsible for the poor performance of manufacturing output in general and in particular that of manufactured exports. The discrimination against external market and lack of domestic competition (especially before the introduction of own funded imports in 1984), led to most firms producing low quality goods to the unsatisfied domestic market. There were cases where export products were re-oriented to take advantage of the profitable domestic markets. As a result export volumes declined. The 'existence of unsatisfied domestic market and the non-availability of significant Research and Development (R & D) activities that would lead to technological capability improving activities, combined with a highly restrictive trade regime, greatly affected the performance of manufactured exports. In the textile industry for example, it was found that output was both in start supply to satisfy domestic demand and export market:, and of very poor quality. Technical inefficiency was for example, responsible far 50% of the textile's failure to achieve the maximum output. The main problem reported by managers was outdated machinery and technology. This indicates the importance of technological capabilities in increasing domestic output and capturing the export market. Until the mid 1980s, little efforts were made to make use of the various promotional measures such as retention schemes, rebate schemes and duty draw hack to promote exports. Given that before 1984 there was little internal competition among activities, little efforts were taken to eliminate inefficiencies and improve quality of products. Technological efforts were therefore not explicit in the various promotional measures. As a result, firms had little incentives to invest in technology acquisition related activities. The exchange rate emerged out as one of the important determinants of manufactured exports. However, the over valued exchange rate (And taxes on inputs used for export production) discouraged production far the export market. However, if the country is to increase export earnings from manufactured exports, it is evident that certain policy measures need to be implemented effectively. One of the critical areas that needs to be examined is the role of technology in stimulating domestic production and promoting international competitiveness and diversification of manufactured exports. There can be no significant exports if domestic production is not adequate and to the required quality. In this study, it was found that some of the textile firms did not meet quality requirements for their export orders due to obsolete machinery (Technology). In addition, specific promotional measures, such as export credit guarantee facilities, pre-shipment and post-shipment financing, promotional tours and market research, as well as making the exchange rate more attractive to export activities are of great importance.