Evolution of Public Enterprises Reform Policy in Tanzania: Privatisation of Banking, Electricity and Telecommunications
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Evolution of Public Enterprises Reform Policy in Tanzania: Privatisation of banking, Electricity and Telecommunications. Emmanuel James Matiku Department of Politics and Public Policy Griffith University. Submitted in fulfilment of the requirements of the degree of Doctor of Philosophy October, 2007. i Abstract This empirical study attempts to contribute to existing knowledge on policy choice and employs historical and case study approaches in addressing Tanzania’s liberalisation and privatisation policy choice. The thesis focuses on four specific questions: why Tanzania’s liberalisation and privatisation policy was chosen; what considerations were taken into account; the theory that explains the choice; and lessons to be drawn from Tanzania’s experience. In liberalising and privatising its economic sectors, Tanzania was influenced by three main factors: compliance with the IMF and the World Bank conditionality for accessing loans from the two international financial institutions; lobbying and manipulation by a coalition of external institutions interested in controlling and exploiting the Tanzanian economy; and political corruption whereby state officials saw in liberalisation and privatisation an opportunity to benefit financially and enrich themselves. This research has also revealed that, contrary to the belief by the IMF and World Bank, the private sector is in fact not more efficient than the public sector, there is also rent seeking behaviour in the private sector, and ‘off-the-shelf’ policies do not work in all situations. The thesis concludes that in order for policy to achieve desired outcomes, government should adopt appropriate measures including matching policy objectives with the prevailing needs and circumstances in the country; and applying good governance in terms of transparency, accountability and civil society participation in policy making. i TABLE OF CONTENTS Abstract i Table of contents ii List of Tables iv List of Figure v Acronyms v Acknowledgements vii Declaration of originality viii CHAPTER ONE Overview and Context of the Study 1 CHAPTER TWO Perspectives in Policy choices: theories, concepts and Issues 9 CHAPTER THREE Tanzania: The Wider Context 47 CHAPTER FOUR Tanzania: the Historical context of Reforms 77 CHAPTER FIVE Tanzania: The Machinery and Process of Policy making 126 CHAPTER SIX World Bank And IMF: The Structural Reform Strategy in The Third World 170 CHAPTER SEVEN Financial Sector Reform: Privatisation of the National Bank of Commerce 195 CHAPTER EIGHT Liberalising Telecommunications: Privatisation of the Tanzania Telecommunications Company Limited (TTCL) 244 ii CHAPTER NINE Electricity Sector Reform in Tanzania: The Privatisation of Tanzania Electric Supply Company (TANESCO) 286 CHAPTER TEN General Discussion, Analysis and Conclusion 331 References 391 Annex 1: Map of the United Republic of Tanzania 434 iii LIST OF TABLES Table 2.1: Contrast Between Qualitative and quantitative Reseach 34 Table 4.1: NESP Export Targets for Selected Commodities Compared to Actual Exports in 1979 (in TAS millions 103 Table 5.2 Composition of Tanzania’s Bunge 159 Table 7.1: Some of the Foreign Banks Operating in Tanzania Between 1993 and 1999 208 Table 7.2: News Headlines on NBC Privatisation Between January and December 1997 218 Table 7.3: CRDB (1996) Ltd Performance, 2004-2005 242 Table 8.1: Financial Bids for TTCL 266 Table 8.2: MSI Main Shareholders 267 Table 9.1: TANESCO Hydropower Plants 289 Table 9.2: Foreign Firms with Interest in the Song Gas Project 301 Table 10.1: Selected foreign firms operating in Tanzania, originating in member countries of the Paris Club 335 Table 10.2: Matching donor’s variety with recipient’s 370 Table 10.3: Matching policy variety with organizational variety 370 iv LIST OF FIGURES Figure 5.1: Tanzania’s machinery and process of policy making 171 Figure 9.1: TANESCO’s Vertically Integrated Monopoly Model 318 Figure 10.1: Models of Policy Choice 343 Figure 10.2: Public governance behavioural continuum 357 Figure 10.3: Matching policy variety with structure and organizational variety 372 Figure 10.4: Distribution ‘unbundling’ model 382 Figure 10.5: Horizontal ‘unbundling’ of generation model 384 v ACRONYMS ASP - Afro-Shirazi Party. BOT - Bank of Tanzania. CCM - Chama Cha Mapinduzi. CHADEMA - Chama Cha Democrasia na Maendeleo CIDA - Canadian International Development Agency. CRDB - Co-operative and Rural Development Bank. DANIDA - Danish International Development Agency EACCD - East African Centre for Constitutional Development. ESRF - Economic and Social Research Foundation. IFM - Institute of Finance Management. IMF - International Monetary Fund. ITU - International Telecommunication Union. NBC - National Bank of Commerce. MCT - Ministry of Communications and Transport. MOF - Ministry of Finance. MU - Mzumbe University. NEC - National Executive Committee. NMB - National Microfinance Bank. OECD - Organisation for Economic Cooperation and Development. PSRC - Parastatal Sector Reform Commission. SIDA - Swedish International Development Agency. TANESCO - Tanzania Electric Supply Company. TANU - Tanganyika African National Union. TLP - Tanzania Labour Party. TTCL - Tanzania Telecommunications Company Limited. TZS - Tanzania Shilling. UDSM - University of Dar es Salaam. UN - United Nations. UNCDF - United Nations Capital Development Fund. UNCTAD - United Nations Conference on Trade and Development. UNECA - United Nations Economic Commission for Africa. UNPAN - United Nations Public Administration Network. UNESCO - United Nations Scientific and Cultural Organisation. URT - United Republic of Tanzania. USAID - United States Agency for International Development. WTO - World Trade Organization. vi Acknowledgements This work could not have been accomplished without the extensive moral and material assistance received from a substantial number of people and institutions. I heartfully thank Professor Ciaran O’Faircheallaigh for generously devoting his time to read my draft chapters, offer his constructive comments and share with me his extensive academic skills and knowledge on public policy. Professor Patrick Weller deserves a special mention for playing host to me during my early days in Australia and for providing the intial inputs and guidance during research question development stage. Special appreciation is extended to the New York-based Ford Foundation International Fellowship Programme (IFP) for the three-year grant that enabled me to pursue PhD study in Australia. Professor Chacha Nyaigotti of the Inter-University Council of East Africa initiated the IFP scholarships foir East Africa. The IFP coordinator in Tanzania, Ms Margaret Kasembe, has particularly been very helpful as the link person between me and the Ford Foundation in New York. Professor Graham Cuskely of the Griffith University Business School and the university’s scholarship coordinator Marianne Mitchell played a key role in making the university’s completion assistance available to me after the end of the IFP grant. Professor Estomih Nkya and Dr Montanus Milanzi of Mzumbe University assisted me in various ways that were academically rewarding during and after my fieldwork in Tanzania. My wife Tabitha and daughters Bhoke, Ghati, Rhobi and Deborah were always with me in spirit. Their patience and love during my four years of absence will always be treasured. To everyone, GOD BLESS YOU. vii Declaration of Originality This is my original work and to the best of my knowledge and belief, except where due reference is acknowledged in the thesis itself, it does not contain material previously written, published or submitted to any university for a degree or diploma. Emmanuel James Matiku. viii CHAPTER ONE Overview and context of the study Introduction ‘(Why) are most decisions made? … Given that a number of methods can be used to arrive at a decision, how can we determine which one to use at a particular time?’ (Moody, 1983:1). Moody’s two-pronged concern provides the major focus of this study of Tanzania’s policy reform decision. To determine why the country’s reform strategy was chosen and how it ought to have been chosen, the study collected and analysed data on three cases, the National Bank of Commerce (NBC), Tanzania Telecommunications Company Limited (TTCL) and Tanzania Electric Supply Company (TANESCO). The choice of the three cases was influenced by three major reasons. First, they constituted the major and leading industry sectors in the country. Second, they played a major role in the country’s socio-economic development. Third, the three cases became the initial targets for the IMF and the World Bank sponsored reforms in Tanzania. To facilitate the attainment of its aims, the study employed the historical and case study methods as they both address the ‘why’ and ‘how’ questions, which were the focus of this research (see Chapter Two). Tanzania’s on-going reforms can be understood from a historical context involving three phases of reform that characterise the country’s development direction since independence. Soon after attaining political independence from Britain in 1961, the country adopted a pro-market economy emphasising the role of the private sector 1 with a view to create resources to fight poverty, ignorance and disease. The negative results of the pro-market policy influenced the government to announce in 1967 its policy of socialism and self-reliance through the banner of the Arusha Declaration, making a radical shift from the market economy model. The main aim of the new policy, which emphasised