Tanzanian Economic Review

Structural Transformation in Ethiopia’s Manufacturing Sector

Worku Gebeyehu, Getnet Alemu, Kefyalew Endale — Wed, 31 Jan 2024 00:00:00 +0000

This study assesses the extent of structural transformation within the manufacturing sector by discomposing the source of labour productivity and TFP growth, shares of capital, and employment among other indicators. For the sake of the analysis, the manufacturing sector is classified into three categories: resource-based, low technology, medium and high technology. Labour productivity and TFP growth were estimated using data between 1982/83–2017/18 to assess the reallocation of resources among industrial groups. The findings show that resource-based industries still hold the largest share of output and capital in the manufacturing sector, and remains to be the most productive group. Low technology industries continue to maintain the largest percentage of workers although there has been high rate of growth of workers in medium and high technology industries in recent years. Albeit the prevalence of a slight movement of workers from lower productive to higher productive industrial groups with a given productivity level, there is no evidence of dynamic reallocation or a movement of labour driven by productivity changes across industries. Static comparative advantages or natural resource endowments seem to induce the establishment of most industries in Ethiopia, although these same industries heavily rely on imported inputs. In addition, government policies tend to favour resource-based and low technology industries in the form of, for instance, the provision of working premises and infrastructural facilities such as power through the establishment of industrial parks. Thus, there is a need to improve institutional and policy enablers to address existing binding constraints and strengthen inter-sectoral linkages not only to efficiently tap the available domestic resources, but also pave the way for the growth of medium and high technology industries as a pathway for faster pace of industrialization and economic development.

JEL: D24 J63 L63 O490

Education and Labour Earnings Inequality in Tanzania: Evidence from Quantile Regression Analysis

Cornel Joseph, Vincent Leyaro, Michael Ndanshau — Wed, 31 Jan 2024 00:00:00 +0000

This paper uses Tanzania’s 2014 Integrated Labour Force Survey data to investigate the relationship between education and labour-earning inequalities. The quantile regression method is applied to compute returns to education at different points of the earnings distribution. The estimation result reveals significant variation in the coefficients of marginal returns to education across earning distributions, and the estimated coefficients are higher at the top of earning distribution. The marginal returns to education are higher for tertiary education than primary and secondary levels across all quantiles of the earnings distribution. The results also show that OLS coefficients conceal variation in the returns to education across the earning distribution. This finding suggests that education contributes positively to the widening of earnings dispersion in Tanzania, mainly due to the strong heterogeneous effects of education on earnings. Accordingly, it is vital to have a policy in Tanzania to reduce disparities in educational attainment between the least and most educated individuals.

JEL: D24 J63 L63 O490

The Competitiveness of Uganda’s Non-traditional Agricultural Exports: The Case of Flowers Exports

Aaron Ecel, Dr. Dennis Nuwagaba, Edward Udhec Rubanga, Patrick Mudidi — Wed, 31 Jan 2024 00:00:00 +0000

Flowers exports make a significant proportion of Uganda’s non-traditional agricultural export (NTAE) earnings. This study aimed to gain deeper insights into the extent to which the competitiveness of Uganda’s floricultural exports is associated with market distribution, commodity composition and competitiveness effect; and thus establish whether Uganda’s NTAEs are based on favourable commodity compositions, and are destined for relatively faster-growing markets. The data was extracted from the UN Comtrade database; and the base period was 2015–2018. For analysis, the study employed the Constant Market Share method that enables the identification of factors driving changes in export performance, and thus determine which factors are contributing positively or negatively to export growth. It also used the Revealed Comparative Advantage (RCA) index, which enabled a simple and straightforward comparison of competitiveness. The study finds that Uganda heavily relies on a single export market (Netherlands) for its earning from roses and unrooted cuttings. In the chosen base period, Uganda’s market share in the Netherlands increased by 2.4%, while that of roses’ exports declined by 9.2%. The favourable export performance of unrooted cuttings and slips were predominantly attributed to the commodity effect, which accounted for 62.9% of the export growth; while the unfavourable export performance of Uganda roses in the same base period was attributed to the competitiveness in the period (-221.6%). The results of the RCA showed that while both commodities enjoyed a comparative advantage in the base period, that of roses was steadily declining. The study was motivated by the need to increase gains from export diversification in the context of NTAEs, from the perspective of a country that predominantly relies on traditional agricultural commodities for its exports.

Government Expenditure and Economic Growth in Tanzania

Petro Sauti magai, Rosemary Emmanuel Masele — Wed, 31 Jan 2024 00:00:00 +0000

This study examines the impact of government expenditure on economic growth, focusing on health, infrastructure, education, and agriculture in Tanzania. The data from 1970–2020 were analysed using the STATA software. Government expenditure on education, health, agriculture, and infrastructure sectors were the independent variables, while GDP was the dependent variable. Wagner’s law of increasing state activity and Keynesian economic theory were used to guide the study. Unit root test and Johansen co-integration test were conducted. The Johansen co-integration test results indicated the absence of a long-run relationship between all explanatory variables and economic growth. However, the ARDL model revealed that government health expenditure had a low effect on economic growth compared to infrastructure, education, and agriculture expenditures; all of which had higher effects. The study recommends that more government resources be spent on substantial infrastructure.

Ill Health and Labour Market Participation in Tanzania: Empirical Evidence from Tanzania National Panel Surveys

Abdilah Issa, Cornel Joseph, Razack Lokina — Wed, 31 Jan 2024 00:00:00 +0000

This paper examines the effect of ill health status on labour participation in Tanzania using panel methods with data extracted from three waves of the National Panel Survey datasets of 2010/11, 2012/13, and the extended panel of 2019/20. Based on estimated random effect probit models, the results show that chronic ill health status has a significant negative effect on labour market participation in Tanzania. By locality, both chronic and acute ill health are significant and negative on labour participation in rural areas; whereas by sex chronic ill health is significant and negative on male’s participation. Therefore, the study recommends the adoption of more effective policies and interventions to reduce the prevalence of chronic and acute illness so as to bring more Tanzanians into the labour force. Also, it recommends mainstream employment policy actions to support those with partial work capacity from incurable ill health conditions to take up jobs.

COVID-19: How Tax Policy Responses Affected Uganda’s Economy

Ronald Ochen, Mr. Paul Corti Lakuma — Wed, 31 Jan 2024 00:00:00 +0000

We examined the impact of COVID-19-induced tax policy adjustments on Uganda’s gross domestic product. The analysis is based on a Structural Vector Autoregressive (SVAR) model of Ugandan quarterly data (2009 to 2021). We find that a one standard deviation positive tax policy shock has a negative effect on Uganda’s GDP. Likewise, a one standard deviation positive shock on the consumer price index has a negative effect on the GDP. Thus, we recommend that instead of fiscal provisions in tax cuts and deferrals to micro small and medium enterprises (MSMEs) and households, the government should focus more on raising expenditure on the private sector MSMEs and households, which would stimulate private demand and productivity and sustain domestic revenue collections, particularly from MSMEs. We also recommend the stabilization of food prices, which are the main drivers of the consumer price index in Uganda, to raise GDP growth. Our results provide new insights into the effects of tax policy responses on GDP amidst a global health crisis that has muted economic activities.

JEL Classification: B22, C54, E62

The Effects of Climate Variability on Economic Growth in Uganda

Hennery Sebukeera, Ibrahim Mukisa, Edward Bbaale — Wed, 31 Jan 2024 00:00:00 +0000

A key criticism of Uganda’s macroeconomic modelling frameworks is the lack of accounting for the effects of climate change. As a result, the demand for sustainable climate change evidence-based policy actions is higher than ever, making this a key issue in policy discussions. However, climate change research in Uganda has been piecemeal, with a few using case studies of agricultural commodities, regions, or agriculture. Thus, using the endogenous economic growth framework, this study estimated the long-term and short-term direct and indirect-sectoral effects of climate change on Uganda’s economic growth using the vector error correction model and Johansen cointegration econometric analysis methods. The results show that climate change (precipitation) affects agriculture and industry sectoral output growth in a positive direction, and service sectoral output growth in a negative direction. Further, climate change (temperature) affects agriculture and industry sectoral output growth in a negative direction, and service sectoral output growth in a positive direction. The study’s main conclusion is that an increase in temperature by 1.0 degrees Celsius accounts for a reduction in economic growth by approximately 2.5 percentage points, keeping all other factors constant. The study recommends accounting for climate change effects in macroeconomic growth frameworks, and implementing key sectoral specific climate sustainability measures.

JEL Classification: C22, 250, 047, Q54

The Effect of Healthcare Expenditure on Maternal Mortality in Uganda

Phiona Atuhaire, Elizabeth Ekirapa-Kiracho, John Mutenyo — Wed, 31 Jan 2024 00:00:00 +0000

The maternal mortality rate in Uganda of 189 per 100,000 live births remains above the global target of 70 per 100,000. Evidence shows that the mode of healthcare expenditure impacts the provision of maternal healthcare services and reduction in maternal mortality. Understanding how healthcare expenditure impacts maternal health outcomes in Uganda is important for policy. Data from World Development Indicators for the period 1985-2019 were used to explore the effect of healthcare expenditure on maternal mortality using an auto-regressive distributed lag model. The findings showed that domestic government expenditure targeted on maternal health conditions significantly reduces maternal mortality. An increase in nurses was also associated with significant reductions in maternal mortality; hence, the government should increase investment in training and posting adequate nurses at public health facilities, where the majority of Ugandans seek care. Similarly, out-of-pocket health expenditure and total health expenditure per capita were both associated with a reduction in maternal deaths in the short-run. However, while out-of-pocket health expenditure is associated with a reduction in maternal mortality, it is inequitable. The Uganda National Health Insurance should ensure that financial risk protection for the poor is implemented to move towards universal health coverage.

Economic Empowerment of Tanzanian Women Through Ownership of Tourism Micro, Small, and Medium Enterprises (MSMEs)

Beatrice Mkenda — Wed, 31 Jan 2024 00:00:00 +0000

This paper examines how Tanzanian women are empowered through the ownership of tourism micro, small and medium enterprises (MSMEs); evaluates the effects of economic empowerment on their welfare; and discusses the challenges they face when running them. Using data on 475 women in Mainland Tanzania and Zanzibar, the empirical method used compares selected empowerment indicators before and after the women started their businesses. To determine the significance of the difference in monthly income earned and percentage contribution to household income, we use a non-parametric test. We find that owning tourism MSMEs empowers women by increasing their monthly income and contribution to household income, decision making in the enterprise and household, and allowing them to own assets. Women face challenges in obtaining inputs and accessing credit when starting and operating tourism MSMEs, lack capital to start and expand their businesses, and business management skills. Other constraints include high interest rates and difficult loan application procedures. Providing information on government funding opportunities, incorporating training in bank financial schemes, and simplifying loan application procedures to encourage women to apply for loans are the suggested measures to increase the empowerment effects of tourism MSMEs.