josaphat kweka tdp session1
Post on 19-Oct-2014
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Fashion, apparel, textile, merchandising, garmentsTRANSCRIPT
TDP in Tanzania’s Textile sector: Missing Impacts
or Links?
Abridged from TDP-CUTS Case Study on Tanzania’s Textile Sector
Josaphat KwekaGeorge Kabelwa
OUTLINE
1. INTRODUCTION AND TDP FRAMEWORK
2. TRADE LIBERALISATIN AND PEFORMANCE IN THE TEXTILES SECTOR
3. ANALYSIS OF WINNERS AND LOSERS
4. LABOUR MARKET EFFECTS
5. COMPLEMENTARY POLICIES
6. CONCLUDING SUMMARY
1. 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
1990-1995 1996-2000 2000-2003 1990-2003
Private Consumption 1.6 3.9 2.7 3.1
Government Consumption
-0.5 1.5 1.5 0.8
Investment -0.8 0.6 2.3 0.5
Export of Goods and Non-factor Services
2.5 0.6 4.3 2.2
Import of Goods and Non-factor Services
1.5 -0.1 4.8 2.0
Statistical Discrepancy
0.4 -2.6 0.4 -0.8
GDP at market prices 1.8 4.1 6.4 3.8
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…
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
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…
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:i. Trade is pro-poorii. The poor are able to participate in tradeiii. Market institutions exists and are pro-pooriv. The conditions for trade performance are
favourable.
The following figure summarizes the hypothesized causal links between Trade and Poverty
Trade Policy
Reduced internal barriers to production
Reduced internal barriers to exchange
Rationalized tariff structure and hence increased government revenue
Enterprises Increase output Increase earnings/wages Increase employment
Distribution Reduce prices
Government pro-poor expenditure Better social services Better economic services
Reduce income poverty Reduce non-income poverty
Household Reduce overall poverty
International Trade Opportunities
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
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
-4
-2
0
2
4
6
8
GDP
and
per
cap
ita
inco
me
0
10
20
30
40
infla
tion
GDP Growth Per Capita Income Inflation
Macroeconomic performance
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
Increased from 4 in the 1960s to 35 in the 1980s, and then fell to about 7 in the 2000s
0
5
1 0
1 5
2 0
2 5
3 0
3 5
N o . o f M i l l s
1 9 6 0 s1 9 8 0 s2 0 0 0 s
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
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 Positively reflects production trends but with less
fluctuations
Constant prices imply that profitability has been declining due to a notable rise in input prices
Trend in the Cotton Producer Price
0
50
100
150
200
250
TS
hs p
er
Kg
Source: Tanzania Cotton Board
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
Price Gap Between Producer Price and Export Price
Source: Tanzania Cotton Board
0
200
400
600
800
1000
1200
Ta
nz
an
ian
Sh
illin
gs
Pe
r K
g
Producer Price Export Price
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 Pass prices to
Ginneriess, middle men, and factories
Linked in the chain by Ginneries, Middlemen and factories
Benefited from Liberalisation
Ginneries Most affected by
quality and production
Connect farmers to transporters, exporters, factories
Informants and market agents
Have mostly BENEFITED
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 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 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
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 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 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
0
20
40
60
80
100
120
Share of permanentw orkers
Share of textile in mfgempl
Empl elasticity in Text Salary share of income Share of other payments
1990-1994 2001-2004
Note:Elasticity of employment is measured as % increase in jobs from a unit increase in output
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 SUMMARY1. Effect of liberalisation: the good thing
about bad thing or bad thing about good thing?
2. It cant be worse than the collapse of the textile sector, effects radiate across and become net loss to those without options
3. AGOA, EBA, GSP and RTAs all are welcome initiatives whose performance have not matched that of 1970s Tanzania
THANKS FOR YOUR ATTENTION