JosaphatKweka TDPSession1

TDP in Tanzania’s Textile sector: Missing Impacts or Links?: 

TDP in Tanzania’s Textile sector: Missing Impacts or Links? Abridged from TDP-CUTS Case Study on Tanzania’s Textile Sector Josaphat Kweka George Kabelwa

OUTLINE: 

OUTLINE INTRODUCTION AND TDP FRAMEWORK TRADE LIBERALISATIN AND PEFORMANCE IN THE TEXTILES SECTOR ANALYSIS OF WINNERS AND LOSERS LABOUR MARKET EFFECTS COMPLEMENTARY POLICIES CONCLUDING SUMMARY

INTRODUCTION: 

INTRODUCTION Recent debate on Trade and Development hinges on efficacy of trade in poverty reduction Trade has assumed a significant position in PRSP processes in the last 5 years The argument is that trade is as source of growth, which is the basis of poverty reduction (winters et al 2000)

The recent Integrated Framework DTIS (2005) summarizes the evidence on Tanzania: 

The recent Integrated Framework DTIS (2005) summarizes the evidence on Tanzania

Cont…: 

Cont… DTIS confirms that trade contributed about 60% of the 3.8% average annual GDP growth(1990-2004) However, it has had no significant effect on poverty reduction! Why? Is it missing impacts or linkages? The objective of the TDP project is to identify TDP linkages and short term impacts of trade

Cont…: 

Cont… Why focus on Tanzania’s textile sector? With investment capital of over US$ 500,000 in the 1980s, the sector was: Pro-poor, 1/largest employer (about 40,000) 3rd largest source of government revenue largest exporter of manufactures Cotton is the 2nd largest export crop after coffee Significantly long supply chain Trade intensive (cotton/textile, garments) with access to numerous trade concessions Typical failure case of trade liberalisation…

Conceptualisation of TDP framework and its application: 

Conceptualisation of TDP framework and its application The linkage between Trade and poverty is not straightforward Conceptual framework is necessary to simplify the causal links so as to enhance analysis of impacts Our emphasis is on income poverty, mainly through the labour market effects

Cont…: 

Cont… Two main mechanisms for Trade to link with (income) poverty reduction: Trade can impact poverty directly Trade can impact on poverty indirectly through growth In either case some strong assumptions exist: Trade is pro-poor The poor are able to participate in trade Market institutions exists and are pro-poor The conditions for trade performance are favourable.

The following figure summarizes the hypothesized causal links between Trade and Poverty: 

The following figure summarizes the hypothesized causal links between Trade and Poverty

Application on the Textile sector: 

Application on the Textile sector We explore these links by examining to what degree the labour market effects in the textile sector have been the result of structural factors, trade policy and performance of the sector (sector-based approach) Gathered information from in-depth review of secondary info and diagnostic interviews with selected informants We have examined complimentary policies that promote TDP linkages in the sector

2. TRADE LIBERALISATION AND PERFORMANCE OF THE TEXTILE SECTOR: 

2. TRADE LIBERALISATION AND PERFORMANCE OF THE TEXTILE SECTOR Substantive part of macroeconomic reforms in Tanzania: Massive trade liberalization Move away from centrally planned to market oriented economic policy Privatization of SOE’s Recognition of private sector as the engine of growth

Macroeconomic performance: 

Macroeconomic performance

2.2 performance of the textiles sector since liberalisation: 

2.2 performance of the textiles sector since liberalisation Four key conclusions: Textile and cotton amongst worst hit by trade liberalization; net effects generally negative Lack of complementary policies in addition to structural constraints Different actors are affected differently (more than others) depending on their position in supply chain Despite several trade initiatives, textile exports have continued to fall (to record lows) while imports have surged

Number of mills declined conspicuously following liberalization: 

Number of mills declined conspicuously following liberalization Increased from 4 in the 1960s to 35 in the 1980s, and then fell to about 7 in the 2000s

Trends in Production: 

Trends in Production Growth, stability, decline but fluctuations post liberalisation Causes? Notable institutional and policy changes in addition to the structural constraints affecting production, marketing and pricing of cotton

Cotton Marketing Channels: 

Cotton Marketing Channels Liberalisation replaced a public monopoly with a private monopoly (e.g. ginneries) Lack of effective regulation has led to low quality, lower price to farmers and hence low production Cotton marketing channels in Tanzania

Cotton Producer prices: 

Cotton Producer prices Positively reflects production trends but with less fluctuations Constant prices imply that profitability has been declining due to a notable rise in input prices

Producer prices a fraction of world prices : 

Producer prices a fraction of world prices The gap has widened in four fold since 1990s: why? Likely to narrow in 2000s High transaction costs, but also financing of Boards Lack of an effective price transmission mechanism

3. WHO ARE THE WINNERS/LOSERS, WHY?: 

3. WHO ARE THE WINNERS/LOSERS, WHY? Cotton farmers Key players and bearers of sector policies, taxes, transaction costs and production constraints. Linked in the chain by the Ginneries/Coops and policies. NET LOSERS

Transporters: 

Transporters Pass prices to Ginneriess, middle men, and factories Linked in the chain by Ginneries, Middlemen and factories Benefited from Liberalisation

Ginneries: 

Ginneries Most affected by quality and production Connect farmers to transporters, exporters, factories Informants and market agents Have mostly BENEFITED

Textile mills/factories: 

Textile mills/factories Bearers of structural and production constraints Victims/beneficiaries of trade and investment policy/regime Production costs are passed to consumers and workers Linked to Ginneries and consumers (internal and external markets) LOSERS from liberalisation and orphans of policy

Workers: 

Workers Basic agent for adding value. Affected by industrial policy, factory practices and wage/welfare policy Usually fight a loosing battle (unrests, unions) Linked in the chain by factories and labour laws NET LOSERS

The Government: 

The Government Poor policies, no production, no taxes, no welfare Search for optimum policy: Protection (industry) vs. liberalisation (trade) Liberalisation is good, but done badly/carelessly Globalisation forces abound, gov LOST the industry, tax/welfare

4. IMPACTS ON LABOUR MARKET: 

4. IMPACTS ON LABOUR MARKET TDP linkage through labour markets Important forces are: structural effects, demand and supply sides of labour For LDCs, comparative advantage is in unskilled labour, but competitive advantage requires skilled labour Labour intensive industry in a country with low wages and high unemployment

Structural effects: 

Structural effects Policy shift from traditional (agriculture) to non-traditional (e.g. mining) exports Shift from formal to informal employment (retrenchment, SMEs) Increased rural-urban migration facilitated by conflicting policy objectives (EP, ASDP) Institutional shift from public to private institutions (diminishing role of coops) Shift in employment policy from permanent to short tenure

Labour Market effects: 

Labour Market effects Result from production costs and competitive pressure Marked decrease in: labour demand (low formal empl. & wages) employment elasticity (less lab-intensive) job security (more short tenure). One of the frontier AGOA-EPZ mills (NIDA) closed down due to labour unrest

Liberalisation has had severe impacts on textile workers: 

Liberalisation has had severe impacts on textile workers Note:Elasticity of employment is measured as % increase in jobs from a unit increase in output

5. COMPLEMENTARY POLICIES: 

5. COMPLEMENTARY POLICIES Benefits of liberalisation won’t occur automatically, need complementary policies Need to be accompanied by compensatory policies Neither were designed by “recipient” country – now curing (PRSP) rather than preventing The list is huge, but priorities include infrastructure (accessibility), regulatory framework, extension services, access to finance, access to utilities and favorable fiscal and industrial policies. Finally, effective social safety nets are required, especially to vulnerable actors

6. CONCLUDING SUMMARY: 

6. CONCLUDING SUMMARY Effect of liberalisation: the good thing about bad thing or bad thing about good thing? It cant be worse than the collapse of the textile sector, effects radiate across and become net loss to those without options AGOA, EBA, GSP and RTAs all are welcome initiatives whose performance have not matched that of 1970s Tanzania

Slide31: 

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