Industrialisation for structural transformation: Economy-wide impacts of agro-processing development in Tanzania

Abstract

Despite high economic growth rates experienced recently, socio-economic challenges such as poverty still prevail in Tanzania. This has been attributed to unsuccessful economic transformation where labour has moved out of agriculture into mainly relative less productive services and informal sectors, leapfrogging the highly productive manufacturing sector. The government is targeting the expansion of agro-processing activities for economic transformation and four policy options were explored. Results of a computable general equilibrium model indicated that policies such as (1) attracting foreign direct investment to improve productivity should be encouraged, especially if (2) coupled with export strategies. (3) Agricultural expansion is also crucial to expand the input base for agro-processing activities. (4) Non-targeted policies such as improving education may not be sufficient for the sector’s expansion but are crucial for the expansion of the whole economy. Government should be mindful of the varied implications of different policies on factor returns and household incomes.

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