Can reformed relations between politics and business help Tanzania break away from its current constraints to development?

To a large extent, development relies on the dynamism of the modern private sector of the economy, which in most low-income countries tends to be highly concentrated. Economic and social progress depends very much on the behaviour of the business elite and the capacity of governments to harness its economic power in favour of the community. In turn, this capacity depends on the structure of political power and the leverage that big firms may have on politicians. The relationship between big business and politics thus affects in an essential way the de facto institutional framework of decision-making in key sectors of the economy. This explains why an institutional diagnostic must necessarily address the nature of that relationship and how its balance of power influences exchange between the state and dominant business interests.

Our “institutional diagnostic” of Tanzania includes an historical review and critical analysis of the relationship between politics and business in Tanzania from early independence (1961) to the present day. Here, we highlight some of the key insights we gained through our research.

The state-business relationships in Tanzania have been changing over time and our research sets out to make a contribution to the interpretation and understanding of these changes. Through an historical perspective, which brings insight into the evolution of the state-business relationship, we begin to understand how institutional arrangements have changed and therefore can be changed in the future.

Five stages of economic development in Tanzania

Since independence in 1961, the economic development of Tanzania went through four stages of very different nature, and a fifth stage is in the making.

  1. The early independence period, from 1961 to the Arusha Declaration of 1967 was characterised by the inheritance of colonialism, which included policies of social differentiation and compartmentalisation of society along racial lines. The task of the newly independent government was to try to redress this discrimination in the issuance of business and trade licenses.
  2. The next phase includes the 18 years following the Arusha Declaration, until the economic crisis of 1985. The Arusha Declaration outlines the principles African Socialism, or “Ujamaa,” and was intended to guide the economy of the newly independent nation rooted in the concept of self-reliance and people-centred development. One of its consequences was the change in the ownership patterns whereby the major means of production were nationalised and most major subsequent investments were made in the public enterprises. This situation led to the emergence of a public business through parastatal sector development. It precipitated and shaped the different type of relationship between politics and business that followed.
  3. A range of policy reforms took place during the period 1986 to 1995, which implemented a series of economic recovery programmes primarily determined by the international financial institutions. These reforms significantly changed the relationship between politics and business, with a new emphasis placed on the institutional framework conditions of public service reform and privatisation that were deemed necessary to support and facilitate the efficient working of the market.
  4. The period from 1996 to 2015, is essentially characterised by initiatives taken by the government to consolidate reforms and define its own development agenda. The integration of business with politics was progressively institutionalised, while in an informal setting, there are indicators of corruption between sections of business and sections of the political elite.
  5. Since the fifth-phase government came into office in November 2015, the relationship between politics and business has changed considerably. Although it may be too early to discern the characteristics of a new equilibrium that is emerging, the government has distinguished itself with a high level of commitment to fighting corruption, putting off unnecessary government expenditure, and promising to pursue long-term development and industrialisation in particular.

Disruption to the equilibrium

Our analysis identifies the signs of a country that is showing the will to make a substantial shift from the prevailing equilibrium and adopt a new equilibrium, which is still in the making. One source of disruption could originate from exposing the relationships and deals, making them public knowledge. Thus, the media is one institution that could disrupt that equilibrium by exposing the deals – provided they are not controlled themselves by the business or the political elite! Civil society organisations may also play this role of disrupting the equilibrium, as could opposition parties or other organised social groups. Another source of disruption of the equilibrium could originate from the dynamics of changes in the overall economic context, such as changes in foreign prices, technological change, and various changing business opportunities, making some businesses lose while others gain over time, or some political factions gain while others lose power over time.

Concluding thoughts

The key question we wished to answer through this historical analysis is: Can reformed relations between politics and business help Tanzania break away from its current constraints to development? It is clear that business and politics relations are important determinants of the investment climate, and national policies are crucial factors in driving capital accumulation and industrialisation.

The current government under President Magufuli has taken initiatives to disrupt the equilibrium constructed on the tradition of inaction from the top political leadership when it comes to corruption. President Magufuli has demonstrated a sense of new discipline in his party (CCM) and government: managing expenditure, fighting corruption, staying above capture by sections of the business community, and declaring commitment to industrialisation. The challenge, though, is to bring about institutional changes that will be sustainable beyond the current President’s leadership.

This is likely to involve three key considerations to address:

  • The structure of the ruling party: Is there broad ownership of the development agenda within the party, and can the political structure of CCM be reformed to facilitate and enable long term development of industrialisation?
  • The political economy equilibrium: While there are signs of change from structures that incentivised short-term money-making in the politics-business relationship, can these institutions be mobilised to create conditions that are conducive to a positive, sustainable investment climate?
  • Leadership: President Magafuli has already started to make a significant difference in transforming his country’s institutional structures and their outcomes, but leadership is essentially a team effort involving multiple players with complementary roles. Will the top political leadership galvanise behind a clearly defined development agenda and act in collective responsibility required for sustainable institutional change?

It remains to be seen whether the relations between politics and business can be restructured to facilitate capital accumulation and industrialisation. Read the full chapter on “Politics and business in Tanzania” for a deeper understanding of the process of institutional change, and how this may translate to new pathways that break the country’s current constraints to development.

Find out more about the Tanzania Institutional Diagnostic.

This chapter summary was written by Alison Stibbe, on behalf of the author, Sam Wangwe, DAIMA Associates