Parastatals in Tanzania : towards a reform program

Report No. 7100-TA Parastatals in Tanzania Towards a Reform Program July 27,1988 Country VI Department Africa Region FOR OFFICIAL USE ONLY ! i: Document of the World Bank This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  FOR OMCIAL USE ONLY ABBREVIATIONS CCM - Chama cha Mapinduzi (Revolutionary Party) CPI - Office of the Commissioner for Public Investments CRDB - Cooperati7e Rural Development Bank DEVPLAN - Department of Development Planning, Ministry of Finance Economic Affairs and Planning DDCs - District Development Corporations ERP - Economic Recovery Program FAO - Food and Agriculture Organization of the United Nations FYP - Five Year Plan GDP - Gross Domestic Product GM - General Manager IDA - International Development Agency IFC - International Finance Corporation NBAM - National Board of Accountants & Auditors NBC - National Bank of Commerce NDC - National Development Corporation NMC - National Milling Corporation NPC - National Productivity Council NUWA - National Urban Water Authority OPEC - Organization of Petroleum Exporting Countries PIT - Presidential Implementation Team PLT - Permanent Labor Tribunal POC - Parastatal Organization Committee PPMB - Project Preparation and Monitoring Board RTC - Regional Trading Corporations SCOPO - Standing Committee on Parastatal Organisations TAC - Tanzania Auditing Corporation TANESCO - Tanzania Electric Supply Corporation TAZARA - Tanzania-Zambia Railway Authority TBS - Tanzania Bureau of Standards TIB - Tanzania Investment Bank TLC - Tanzania Legal Corporation This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authoriation.  PARASTATA.S IN TANZANIA TOWARDS A REFORM PROGRAM Table of Contents Page No. Preface ...............***.................................... i Executive Summary ..... .... . .. .................................. ii CRAPTER ONE HISTORY, DESCRIPTION AND PERFORMANCE .................. 1 Evolution of Parastatal Sector ...................... 2 Principal Characteristics . .................................. 6 Parastatal Performance .................................... 11 CHAPTER TWO FACTORS DETERMINING PARASTAtAL PERFORMANCE .. .......... 21 Factors Affecting All Economic Activities ...................... 21 Factors Specific to the Parastatal Sector ...................... 22 CHAPTER THREE TOWARDS A REFORM PROGRAM .............. .............. 35 Past Efforts at Reform ............................................. 35 An Agenda for the Future ................... ......... 39 Institutional Arrangements .................................. 49 Figures 1.1 Fixed Capital Formation by Institution: Percent of Total 5..... 1.2 Fixed Capital Formations Million Shilling, 1976 Prices ....... 5 Tables 1.1 Government Shareholding in Parastatals, June 30, 1986 ........ 7 1.2 Parastatal Contribution to Sector Value Added and Wage Employment .................................. 8 1.3 The Parastatal Sector in Tanzania ................... 9  1.4 Supervision of Parastatals in Tanzania ....................... 10 1.5 Tanzaniak Resource Flows between Government & Parastatal Sector 1981/82 - 1985/86 . ......... ........ ................. 13 1.6 Index of Real Wages for Representative Groups ........ 15 1.7 Tanzania: Financial Performance of Parastatals Audited by Tanzania Audit Corporation, 1983-85 ..... ............... 17 1.8 Percentage of Production Lines Operating at Different Levels of Efficiency, by Ownership, 1987 .................. 18 1.9 Average Indicators of Performance Public and Private Industrial Firms, 1975-79 . ................................ 19 1.10 Tanzania - Average Indicators of Performance Sisal Sector, Public and Private Firms 1981-84 .... ........ 20 1.11 Indicators of Parastatal Performance by Selected Groupings, 1986 ............................. . 20 2.1 Tanzania: Tanzania Investment Bank (TIB) Sunmary of Arrears at 31 December 1986 .................... ...... 26 2.2 Tanzania: National Bank of Commerce Credit Plan Summarys Lending by Economic Sectors, at December 31, 1986 26 2.3 Tanzanias Parastatals with Accounts Overdue by More than Two Years .............. 31 2.4 Tpnzania Audit Cvrpcration: Parastatals Audit Results ........ 31 2.5 Tanzanias Accountancy Skills and Vacancies, 1986 ........... 32 APPENDIX A CHARACTERISTICS AND PERFORMANCE OF TANZANIA PARASTATALS ... .......... ..... . 56 Al PARASTATALS IN TANZANIA ..... ............. 56 A2 PARASTATAL VALUE ADDED BY SECTORS .............. 66 A3 ANALYSIS OF BUREAU OF STATISTICS SURVEY .. ............ 67 A4 INVESTMENT AND SOURCES OF SAVINGS ....... ....... 72 AS PARASTATALS REHITTING DIVIDENDS ..... .. ....... 74 A6 EXTERNAL FUNDS ONLENT TO PARASTATALS BY TREASURY ............. 76 A7 PARASTATALS WITH PROFITS OR LOSSES EXCEEDING SHS 5 MILLION ... 80 A8 FINANCIAL PERFORMANCE OF SELECTED PARASTATALS .............. 83 APPENDIX B EMPLOYMENT AND COMPENSATION IN TANZANIA'S PARASTATALS ... 96 Employment ....................................................... 96 Compensation Policy ........................ ..................... 105 Comparison with the Private Sector and Differentiation Among Parastatals ......... . ................................. 112 APPENDIX C ORGANIZATION, MANAGEMENT AND SUPERVISION OF TANZANIAN PARASTATALS .................... 116 APPENDIX D ANALYSIS OF QUALITATIVE AND SCOPO DATA ..... ............. 131 APPENDIX E EXAMPLES OF STATEMENTS OF GENERAL PRINCIPLES FOR PARASTATAL SECTORt BENIN, SENEGAL AND THE PHILIPPINES .. 134  PREFACE The Letter of Development Policy of 29 October 1986 calls for the preparation of an assessment of the parastatal sector which, along with other studies, should help greatly both in clarifying the future role and responsibilities of the public sector and in ensuring that thRse responsi- bilities are carried out more efficiently than in the past." This study constitutes the first major step toward achieving these ends. Its prin- cipal objectives were to develop a clear picture of the sector, how it performs and interacts with the rest of the economy, a diagnosis of the causes for its poor performance and a set of recommendations to improve the situation. In large part, the recommendations aim to initiate a process that will produce and implement a Parastatal Recovery Program that is con- sistent with and complementary to the Economic Recovery Program. The study was undertaken by a team of experts and consultantsl/ from the World Bank and the University of Dar Es Salaam with substantial assistance from the Ministry of Finance. The field work was undertaken in April, 1987 and a first draft of the report was revised after discussions with collaborators in Dar in October 1987. This report is divided into an executive summiary, three chapters and a series of Appendixes. Chapter 1 describes the parastatal sector and assesses its performance. Chapter 2 investigates the reasons for the poor performance observed, focusing on those factors that are amenable to im- provement through policy changes. Chapter 3 reviews past recommendations and efforts at reforming the parastatal sector and proposes steps to be taken from this point forward. The appendixes, among other things, present more detailed pictures of the parastatal sector, its economic and financial performance, employment and compensation practices and the institutional framework that manages and supervises the sector. 1/ Ronald G. Ridker, team leader, Sunita Kikeri, Russell Muir, John Nellis, Joseph Semboja and Mary Shirley.  - ii - EXECUTIVE SUMMARY In recent years the Tanzanian Government has become increasingly concerned about the poor performance of the parastatal sector. This concern has been expressed in the Hamad Commission report of 1983 which identified gross inefficiencies and recommended remedies; the Annual Reports of the Tanzania Audit Corporation which have grown increasingly vociferous about the inadequacies of parastatal financial accounts and performance; a speech by President Mwinyi in November, 1985, which warned parastatals that they must get their financial affairs in order within the next two years or face serious disciplinary action; a 1987 report to Cabinet by the Presidential Implementation Team (formed in 1984 to implement the recommendations of the Hamad Co"ission); and the Nsekela Commission report of 1987 which was concerned vith remuneration of public sector employees, parastatal performance and related institutional issues. These expressions of concern are totally appropriate. While the parastatal sector has succeeded, at least partially, in accomplishing what was hoped for it at the time of the Arusha Declaration in 1967, it often did so only at high cost or at the expense of other goals. The nationalizations of the late sixties freed the country from dependence on foreign private investors; but the operation of the sector has resulted in increased dependence on foreign banks and aid donors and equal or greater dependence on imports (relative to GDP and to exports). An industrial base was established more rapidly than the private sector would have done; but after an initial spurt of growth, the pace of overall development has been very disappointing despite heavy investments. Indeed, growth in GDP per capita in constant prices has been negative during most years after 1976. Gross fixed capital formation and domestic savings as percentages of GDP have both declined, in large part (though not exclusively) as a consequence of parastatal performance. The composition of output has not improved. While substantial employment was generated, a class of indigenous managers and executives created and a variety of social services provided, the opportunity cost of doing so in this way was very high. And most important, far too many parastatals have been grossly inefficient in the sense that they have used more resources than they have produced for most of their lives. In the past, much of this inefficiency was hidden by the explicit or implicit subsidies and protection parastatal received. But with the discontinuance of subsidies, devaluation, tight budget and credit ceilings and reduced protection from foreign competition (because of the export retention and own import schemes), these inefficiencies have become more obvious and difficult to ignore. Until recently, efforts to correct these problems have focused on strengthening Government supervision and control. In the late 60's the Government established SCOPO, the Tanzanian Audit Corporation and sector holding companies with powers to advise, request reports, and sanction or otherwise intervene in a variety of parastatal decisions. In 1974 the post of Commissioner for Public Investment was established and combined with the functions of the Treasury Registrar, and in 1975 and again in 1983 the  - iii - p,wers of this office were expanded. As a result of the Hamad Commission report, the all-purpose crop authorities were replaced by cooperatives and marketing boards, several parastatals were closed down or merged into other agencies, rules governing membership on boards of directors were changed, a large-scele effort to reduce public sector employment was undertaken and a series of programs initiated to reduce waste and increase cost-conscious- ness. The impact of all these efforts has be relatively small, in part because they have not gone far enough and in part because they have failed to attack more fundamental problems such as lack of competition and inadequate managerial accountability and autonomy. With the introduction of the Economic Recovery Program (ERP) in 1986, this situation began to change. By devaluing the shilling, raising interest rates, strictly limiting access to funding through the budget and credit institutions, introducing the export retention and own-funded import schemes, eliminating many price controls and lifting restrictions on trade and transport of related commodities, this program has placed the parastatals under considerable pressure to improve performance. Parastatals that can adapt to the new situation by improving internal efficiency or by shifting, for example, from lines heavily dependent on imports to export oriented activities, will prosper; those that cannot will be hurt with less prospect of being bailed out. While the ERP addresses some of the fundamental causes of parastatals' poor performance, it fails to address others and does not take into account special problems that parastatals face just because of the ERP. Increased financial pressure on parastatals to improve performance is not always translated into increased pressure on managers and senior staff. Even where it is. these individuals cannot respond properly if they are impeded by red tape, absence of technical knowledge, lack of resources or overwhelmingly large debt service obligations (made worse in some cases by recent devaluations). At a minimum, therefore, the following additional issues must be addressed to develop a complete program for parastatal reform. (1) Absence of overall stratest and clarity on Roals. Tanzania has no up-to-date statement of general principles that can serve as a guide to parastatal operations and decision-making; nor is there good coordina- tion between national goals and plans and parastatal goals and plans. The consequence is lack of clarity about performance criteria which allows poor commercial performance to be excused, ad hoc decisions of doubtful national benefit that are difficult to argue against, requests that parastatals perform functions they are not equipped to undertake, and expectations on the part of managers that their company will be bailed out rather than be allowed to go bankrupt if they fail to perform and that their job is rela- tively secure regardless of the fortunes of the company. To correct this problem the report recommends the appointment of a committee or task force to clearly lay out the criteria by which parastatal performance is to be judged, specify and explain the policies to be applied to the sector (and where necess&ry to individual parastatals) and lay this out in a comprehensive public policy statement. A considerable amoant of  - iv - rethinking has already taken place (see first section of Chapter Three); what is necessary now is to codify these materials and fill in gaps. Examples of such statements developed for this purpose by other countries are included in Appendix E. It is also recommended that the President issue a statement announcing the appointment of this task force, indicating in general terms the new policies to be develced, announcing a serics of interim measures to apply until the policy statement is issued and period- ically reinforcing the new set of expectations (for example, that bailouts should not be expected). (2) Excessive number of parastatals given the availability of resources and managerial capacity. Tanzania has more parastatals than many much larger countries with greater administrative and managerial talents at their disposal. Most parastatals are underfunded--noncommercial parasta- tals because of a tendency to spread scarce budgetary resources evenly and commercial parastatals because of a failure to generate sufficient internal funds--and high quality managers and staff of both parastatals and super- visory bodies are overloaded. The consequence is that no agency, whether of high priority or not, is fully capable of getting on with its job. The only remedy for this situation is to reduce the size of the parastatal sector and concentrate the resources and managerial talent saved on those parastatals that remain. To accomplish this, the report recom- mends that parastatals be classified into four groups and special programs be established for each. First, noncommercial parastatals should be separated out and sub- jected to special review to determine whether their continued existence is still warranted: whether their functions are still needed and if so could be served better in other ways, for example by existing Governmental departments or private voluntary agencies. Those which are to remain parastatals should then be administered separately from commercial parastatals. Second, it is recommended that commercial parastatals be subdivided into those that must be maintained in public hands and made to work effectively, those that no longer have any rationale and are to be divested and the remainder that should be allowed to fend for themselves, prospering or failing without special help or intervention. Commercial parastatals to be maintained would work out with Government a plan or agreement that in the initial year would include equipment rehabilitation and financial restructuring if necessary and on an annual basis would include cost minimization targets, pricing formulas and investment plans. Such plans could have significant budgetary implications which need to be taken into account in forward budgetary exercises. For this reason, but also because the Government's ability to adequately develop and administer such plans is limited, the number of such agreements, and hence the number of firms in this category, must be strictly limited. Accordingly, this categor.' is likely to include firms typically considered public utilities or natural monopolies that must be regulated in any case, plus financial institutions, but few if any others.  Parastatals to be divested would include those which no longer serve any useful purpose, which are clearly not capable of becoming economically viable in a reasonable period of time or which the Government decides it no longer wishes to manage itself. If a parastatal fiti one of these criteria, a plan for phasing it out and redeploying its useful assets would be worked out. It may also be necessary in some cases to develop a transition assistance program for labourers laid off in the process. Some candidates for this category could equally well be placed in the next category and allowed to fend for themselves; the choice should be made on pragmatic and political grounds, keeping in mind the benefits of rapid disposal of clear-cut cases. All other commercial parastatals would be allowed to fend for themselves without preferential treatment but with greater freedom to re- spond to competition and, if they find it useful, form joint ventures or enter into management contracts. Some may warrant temporary assistance to overcome past problems. Since Government resources available for such assistance are extremely limited, the report recommends the establishment of a fund from which awards would be made on a competitive basis to a limited number of firms best able to demonstrate their capacity to become economically viable if this assistance is provided. This is meant as an interim measure tG assist with transition problems; on a more regular basis the banking system should be prepared to play this role. (3) Weak ComPetitive Pressures and Discriminatory Treatment. Parastatals have been protected from domestic competition by enjoying exclusive rights to operate in certain fields and from international com- petition by the import licensing and foreign exchange allocatiin system. They have also enjoyed preferential treatment over the private sector, for example, in the allocation of credit and foreign exchange at low, official prices, in access to foreign technical assistance and capital, and in will- ingness to tolerate arrears in payment of bills and debt service. The consequence has been an absence of pressure for high-quality performance. At the same time, parastatals also have major disadvantages in facing competition. Appointment procedures sometimes result in weak boards and managerial teams; wage and compensation policies make it difficult to compete with the private sector for high-calibre, skilled personnel; parastatals are sometimes expected to perform services that are not in their best commercial interest; and they are saddled with problems from the past, including failure to develop the necessary skills to compete, managers with a civil service rather than an entrepreneurial mentality, and large foreign debts which now, because of devaluation, have become excessively burdensome. A variety of measures are required to ccrrect these problems. Among the more important are measures that impose greater financial discipline (by, for example, forcing the settlement or renegotiation of payment arrears and then, after a grace period, declaring any firm in arrears to be ineligible for credit or budgetary support regardless of  - vi - priority) that make it clear that commercial parastatals are not required to perform social services unless these services are specifically contracted and raid for, and that eliminate all artificial barriers to entry into commercial activities. (4) Absence of a regulatory system that rewards and punishes on the basis of performance. In the private sector, the fortunes of senior managers are relatively closely linked to those of the company. In the public sector, where this linkage is much weaker, some administrative mechanism of rewards and punishments on the basis of performance must be substituted to force managers to be equally aggressive in seeking maximum profits. The present regulatory system does not accomplish this. To the extent it rewards and punishes managers at all, it is more for compliance with regulations and procedures than for commercial results. The report recommends inclusion of an incentive scheme in each contract plan negotiated with parastatals, performAnce to be judged by an expert coumittee. For the bulk of parastatals that do not have contract plans, a more general procedure is recommended. (5) Absence of an Authority to Implement Structural ChanRes. Present institutional arrangements include numerous agencies with overlapping responsibilities and no one with clear authority to implement changes in the system. To force this system to change, authority must be shifted upwards and downwards--upwards towards a central agency with the power to deve'op, implement and enforce a new set of policies and downward towards parastatal managers who, just because they have more authority can be held more accountable for results. The report recommends the establishment of a small agency headed by someone with the rank of Minister or Principal Secretary with the authority to develop and implement--or assign responsibility to other agencies to implement--the policy changes recommended. This agency, which to be effective may have to report directly to the President, should be considered temporary, operating only until the sector has been restructured and the line ministries' capacity to properly manage and supervise parastatals has been strengthened. The report also recommends a reduction in the number of ministries, holding companies and special agencies involved in parastatal affairs as the size of the perastatal sector is reduced and an increase in the freedom of managers and boards to establish independent policies for their parastatals, to be accomplished by shifting from reliance on uniform regulations to reliance on guidelines and negotiated arrangements.  - 1 - CHAPTER ONE HISTORY. DESCRIPTION AND PERFORMANCE 1.01 The Tanzanian Government has become increasingly concerned about the performance of its parastatal sector and has taken a number of steps to deal with the situation. Wbile these steps have yielded some promising results, more stringent measures are needed and are being considered. The goal of this report is to assist with these deliberations by reviewing the problems of the sector and their causes, what the Government has done so far, how effective and appropriate these measures have been, and what else needs to be done to complete the process. The focus is on the overall policy environment within which parastatals operate rather than on indi- vidual institutions.l/ 1.02 Parastatals, as the term is used in Tanzania, include commercial enterprises in which the Government owns 50 percent or more of the shares plus regulatory bodies, marketing boards, holding companies and noncom- mercial agencies such as educational and research institutions set up under one of several acts of Parliament. These acts include the Companies Ordinance (Cap.212) which authorizes the establishment of limited liability companies for commercial purposes (most parastatals were established under tLis act); the Public Corporations Act, 1969 (which empowers the President to directly establish public corporations); the District Corporations Act, 1973 (corporations involved in trade and promotion of economic development at the district level); The Corporation Sole Act, 1975 (which established the Dar es Salaam Water Corporation Sole plus twc other organizations that are semi-autonomous and semi-commercial departments of sector ministries); and specific acts of Parliament (which established the Tanzania Harbours Authority, the Tanzania Railways Corporation, Air Tanzania, the National Urban Water Authority and the marketing boards). 1.03 This report is primarily concerned with commercial parastatals, those expected to generate a surplus through the sale (to the public or private sector) of the goods or services they produce. It will, however, review and comment on non-commercial parastatals as appropriate. Many of the comments and recommendations made about commercial parastatals will apply to other categories of organizations that operate within a similar policy and regulicory environment, for example, enterprises in which the Government has a minority but still a controlling interest and coop- eratives, which are considered part of the private sector but which receive, at times, preferential treatment from the Government (e.g., in the allocation of credit, donor finances, vehicles and equipment). 11 More detailed studies of parastatals in specific sectors are available in other World Bank reports. Most noteworthy, are Chapter III and Annex 3 of Tanzania: Agricultural Sector ReDort, 1983, and Appendix B of Tanzania: An Agenda for Industrial Recovers, 1986.  - 2 - Evolution of Parastatal Sector 1.04 Up to the time of independence in 1961, the economic development that occurred in Tanganyika was largely the result of private initiative. The colonial Government provided administrative services and infra- structure, assisted some enterprises by purchasing minority shares and established crop marketing boards for major crops such as cotton, coffee and sisal. It had majority shareholdings in only three enterprises, a diamond mine, a salt mine and a meat packing plant. These shares were held by the Treasury Registrar, an office established in 1959 to manage the Government's portfolio. For the most part, the Government kept out of all management decisions and did little to regulate or even monitor the activ- ities of these enterprises. 1.05 With some modifications, this pattern continued until 1967. A number of additional parastatals were established, among them the National Housing Corporation, the National Insurance Corporation, the National Development Corporation (originally the Tanganyika Development Corpora- tion), a holding company to manage and promote the further development of state-owned enterprises, plus several additional marketing boards and financial and banking institutions. In 1966, there were about 43 para- statals; more than 2/3 of their assets were in the electricity and mining sectors, only 10 percent was in manufacturing and the remainder were spread over other sectors--corstruction, tourism, agriculture, commerce and finance. But overall the Government vas optimistic about its ability to attract foreign investors and donors and assumed that "the main thrust in industrial investment was to come from private investment" with the public sector 'filling gaps left by private investmentso.2/ To encourage private investors the Government inzroduced a number of incentives, for example, accelerated depreciation allowances, tariff protection and guarantees of profit repatriation. And the First Five Year Plan (1964-69), while adopting an ambitious public investment program, nevertheless assumed a private investment share of 75 percent in the industrial sector. 1.06 By the mid 60'., however, the Government had become disillusioned with reliance on private investment. The inflow of private capital from abroad was far less than expected and what little there was continued to go into traditional areas rather than broadening and diversifying the indus- trial base. At the same time, the political and social philosophy of the mid 60's called for independence, self-reliance and greater emphasis on social objectives such as employment generation and rural-urban equality; 2/ Figures from W. Edmund Clark, Socialist Development and Public Investment in Tanzania. 1964-73, University of Toronto Press, 1978. Quotes from the First Five Year Plan and a policy statement by then- President Nyerere introducing the Second Five Year Development Plan (1969-1974) included in J. V. Mwapachu, Manaxement of Public Enterorises in Developing Countries, Oxford & IBH Publishing Co, New Delhi, 1983, p.12.  while the economic philosophy of the time called for the use of public ownership and central planning and control as the principal instruments to achieve these objectives. This philosophy was spelled out in the Arusha Declaration of February, 1967 which called for public ownership of all important economic activities. The goal of this new policy was to gain control of the economy so that it could be mobilized to serve a number of socioeconomic objectives, namelyt -- to promote self-reliance; -- to force the pace of economic development by mobilizing and generating surpluses for investment that might otherwise be used for consumption or leave the country; -- to change the pattern of development, placing more emphasis on rural and agricultural development and production to meet basic needs; -- to distribute the fruits of development more equitably by increasing productivity, employment and the standards of living of the masses, concentrating on the production of basic needs and eliminating profiteering and exploitation; and - to accomplish these ends efficiently, that is, at minimum cost to the economy. Other routes to controlling the ecor-my--reliance on regulation of the private sector and public investment alongside private investments--were generally rejected, the first, apparently, because of doubts about the ability of the Government to regulate the private (often foreign-owned) sector and the second because of shortages of skilled manpow-er and capital which, in the view of planners at the time, placed a premium on avoidance of duplication. 1.07 The call in the Arusha Declaration for greater emphasis on rur.' development and agriculture was not implemented during this period. Instead, the Second Five Year Plan (1969-74) continued the emphasis on industrial development--in contrast to the First FYP, however, the public sector was to account for 88 percent of total investment--and the Third FYP (1974-79) adopted what was called The Basic Industrial Strategy. The goals of this strategy were to reduce external dependence by import substitution, give industry priority over other sectors and, in particular, promote capital and consumer goods industries. In effect, this policy meant con- tinued large public investments in the manufacturing sector from the mid- 609 through most of the 709. 1.08 The result of the Arusha Declaration was rapid proliferation of public sector organizations and assets. The number of parastatals increased from about 43 in 1966 to 73 by the end of 1967, 380 in 1979 and over 410 at  - 4 - the present time. Between 1964 and 1971, parastatal assets grew 5.5 times. About 30 percent of this increase occurred through nationalizations, most of which took place in 1967 and 1968. Forty percent of the assets acquired in this way were in the commercial sector (most involving the acquisition of real estate), 36 percent were in the manufacturing sector and the remainder were split roughly equally between agriculture and finance. The remaining 70 percent of the increase in parastatal assets during this 1967-71 period involved an actual increase in capacity, half because of the establishment of new firms and half because of the expansion of existing firms. Of the assets created by investing in new firms, half went into manufacturing, a quarter into transport (most of which went to develop the Zambian corridor in the wake of the Unilateral Declaration of Independence by the white controlled Government of Rhodesia in 1965) and 13 percent to tourism. Expansion of existing capacity occurred mostly in manufacturing, electricity, commerce and construction.31 1.09 Since 1971 parastatal growth has been much slower. Little was left to nationalize, fewer joint ventures were established and domestic and foreign savings became increasingly difficult to mobilize. A larger fraction of parastatals established after this period were holding com- panies, regulatory bodies, non-commercial organizations (such as educa- tional and health related agencies) and regionally oriented enterprises (regional transport companies, regional trading companies and district development corporations), most of which are quite small. While no compre- hensive estimates on growth in assets could be found for this later period, this picture is consistent with time series data indicating a fairly steady decline in parastatal fixed capital formation--in constant price shillings, as a percent of GDP and as a percent of total investment--from 1971 through 1985 (see Figures 1 and 2).4/ It is also consistent with information on parastatal assets in the manufacturing sector that indicates a dramatic slowdown in the rate of increase from the early 70s to the early 80s, a slowdown that would be even more dramatic if the figures had controlled for inflation over this time period.5/ 31 See Clark, op. cit. 41 See note to Figures 1.1 and 1.2. 5/ Parastatal fixed assets in the manufacturing sector increased from sh 21 million in 1964 to sh. 971 million in 1971, according to Clark (p.103), and to sh. 2,85.1 million in 1979 and sh. 3,278.4 million by 1981, according to unpublished data from the Bureau of Statistics presented in World Bank, Tanzania: An Agenda for Industrial Recovery, Vol. II, p.119. This implies an annual percent change (and absolute change) in the period 1964-71 of 73 percent (sh. 136 mill.), in 1971-79 of 15 percent (sh. 252 mill.) and in 1979-81 of 5 percent (sh. 146 mill.). Considering inflation rates during this period, parastatal fixed assets in manufacturing in constant prices may actually have decreased in the last few years.  Fig. 1.1 FIXED CAPITAL FORMATION BY INSTITUTION: PERCENT OF TOTAL II'- Private To Other Public . . 40 E 30 -_S Z- Parastatals OS. * . I .. . ...... - 71 2 73 74 75 .7 77 7t 79 30 II 92 93 94 II Fig. 1.2 FIXED CAPITAL FORMATION: MILLION SHILLING, 1976 PRICES 4. | ~~Private Parastatals 7J 72 73 74 75 7J 77 7? 7O sO el 32 3 34 1S Notes The icrease from 1976 to 1977 Is misleading since a revised series of national accounts ws started In that year. A continuation of the olt series Indicates a continued decline, albeit at a *lower pace, from 1976 to 1982.  - 6 - 1.10 This growth of the public sector was accompanied by the introduc- tion of a host of complex economic regulations and controls. The most important were central control of investments, administrative allocation of foreign exchange, imports and credit, price and wage controls, and 'confinementu--the assignment of exclusive rights to perform certain economic activities to various public sector enterprises. The prolifera- tion of such controls and confinement policies, many of which resulted in preferential treatment for public enterprises, has no doubt adversely affected the private business climate. While comprehensive figures are not available before 1971, private investment appears to have been low from the mid 60s to the mid 70s. Thereafter, however, it appears to have increased (see Figures 1.1 and 1.2 and Appendix Table A4.1). It is not clear why this might be the case. One explanation is that by the mid 70s parallel (un- regulated) markets had developed to the point where private investment once again became profitable, despite limited access to foreign exchange and credit at low official prices. Another is that these figures are misleading since the cost of private investment has been rising more rapidly than that of public investment (since private firms deal to a greater extent in parallel, uncontrolled, markets and parastatals more at official prices which have been rising less rapidly); if both could be deflated by more appropriate price indices, the picture might be quite different. Principal Characteristics 1.11 The net result of these developments is a very large, diverse and complex parastatal sector. Only in countries as large as Brazil (six times the population and 50 times the GDP of Tanzania) and Mexico (3.6 times the population and 35 times the GDP) does one find more than 425 parastatals. Pardstatal value added as a percent of GDP, which rose from about 2 percent in 1964 to 7 percent in 1967 and 9 percent in 1972 (or 12 percent of monetary GDP), now stands at about 13 percent.6/ This figure is about average for a sample of 34 developing countries that includes Zambia, Nicai-agua, Egypt, Venezuela and Tunisia but is 3 points above average if these special cases are excluded.7/ The share of nonagricultural wage employment by nonfinancial parastatals was 32 percent in 1978; only Zambia and Benin in a worldwide sample of 34 countries have higher percentages.8/ 6/ Data differ substantially depending on source. The figures for 1964-72 come from Clark, op. cit. p.63. The latest figure (for 1984) is computed from the Ministry of Finance and Economic Planning, The Economic Survey. 1985. A study by L. A. Msambichaka, S.M.H. Rugumisa and J.J. Semboja, The Role of the Public Sector in Development- -Tanzania, Economic Research Bureau, University of Dar es Salaam, June, 1985, places this figure at 19 to 20 percent of monetary GDP for the years 1972 to 1979 and 25 percent in 1980 71 Mary M. Shirley, "Managing State-Owned Enterprises", World Bank Staff Working Papers, Number 577, p.95. These cases are special because of publicly owned copper and oil companies that dominate these economies. S/ Employment by all parastatals as a percentage of total wage employment was estimated at 1.4 percent in 1964, 7.5 percent in 1967, 18.3 percent in 1972 and now stands as about 24 percent.  Fixed capital formation by Tanzanian parastatals accounted for 50 percent of total investment in the early 70's and 35 percent in the early 80's, compared to a weighted average of 11 percent for industrial countries and 27 percent for developing countries.9/ 1.12 Parastatals are even more important in some sectors. More than a third of parastatal assets are concentrated in the energy and minerals sector, slightly less than a third are in industry and trade and 14 percent in agriculture (see Table 1.1). As Table 1.2 indicates, parastatals generated 47 percent of both value added and employment in the manufacturing sector and 37 percent of value added and 68 percent of employment in the transport sector. Among other things, they produce all of the cement, beer, fertilizer, and refined sugar; import all the petroleum, fertilizer and motor vehicles, and up to recently had exclusive rights to trade in certain commodities. Table 1.1 GOVERNMENT SHAREHOLDING IN PARASTATALS, JUNE 30, 1986 Paid up Share Capital Percent Sector (TSh. Million) of Total Financial Institutions 408.7 4.6 National Resources/Tourism 637.6 7.2 Communications and Works 624.8 7.1 Agriculture & Livestock 1228.5 14.0 Energy & Minerals 3249.7 36.9 Industries & Trade 2656.3 30.2 TOTAL SHARE CAPITAL 8,805.6 100.0 Sourcet Ministry of Finance, Treasury Registrar, Tanzania 9/ Shirley, 1983, pp. 96 and 97.  - 8 - Table 1.2 PARASTATAL CONTRIBUTION TO SECTOR VALUE ADDED AND WAGE EMPLOYMENT Sector Value Wage Added Employment Agriculture 1.0 13.6 mining 21.3 55.1 Manufacturing 46.9 46.5 Electricity 21.2 4.5 Construction 28.4 36.4 Commerce 29.1 53.3 Transport 20.3 87.0 Finance and Real Estate (a) 0.2 0.7 TOTAL 12.8 24.4 (a) If real estate were excluded, these figures would be close to 100 percent. Sources Economic Survey, 1985 1.13 The sector is also very diverse. It includes large companies (for example, Aluminum Africa with over TSh. one billion in annual sales and over 1000 employees and Kilombero Sugar Company with over 6000 employees) as well as quite small ones (for example, THB Estates with 27 employees in 1985); natural monopolies (Tanzania Harbours Authority and Tanzania Electric Supply Company) and potentially competitive firms (Tanzania Sewing Thread Manufacturing Company); noncommercial institutions that are clearly important (University of Dar es Salaam) and others that are seemingly unimportant (Audio Visual Institute); and firms in every conceivable line of business (including consulting companies, marketing boards, trade associations, tourist promotion agencies, hotels, safari camps, institutes to promote local languages and culture). Appendix Al provides a relatively complete list with selected characteristics. 1.14 While a third of the parastatals are affiliated with the Ministry of Trade and Industry and 22 of these are supervised by the National Development Corporation, the largest holding company, virtually every other ministry as well as the offices of the Prime Minister and the President have some parastatals under their jurisdiction (see Tables 1.3 and 1.4 for a summary, and Appendix Al for a detailed picture).  Table 1.3 THE PARASTATAL SECTOR IN TANZANIA Ministry No. of Of Which: Non- Affiliation Parastatals Holding Commercial Commercial Agriculture & Land Devt. 61 5 53 3 Communic.& Transp. 26 1 20 5 Fducation 7 0 1 6 Finance & Planning 20 0 15 5 Health 3 0 0 3 Mineral & Energy 22 2 20 0 Labor & Manpower 4 0 0 4 Nat. Res.& Tourism 36 0 31 5 PM's Office 85 0 76 9 President's Office 6 0 4 2 Trade & Industry 131 10 112 9 Water 1 0 1 0 Other a/ 11 0 6 5 TOTAL 413 18 339 56 a/ Includes Defense, Foreign Affairs, Judiciary and Land, Housing and Urban Sources Table Al.  - 10 - Table 1.4 SUPERVISION OF PARASTATALS IN TANZANIA NUMBER OF SUPERVISING AGENCY PARASTATALS Agriculture and Land Cashewnut Authority of Tanzania 2 NAFCO 10 NMC 2 SUDECO 4 Tanzania Sisal Authority 5 Ministry 33 Total 56 Communications and Transport NTC 9 Ministry 16 Total 25 Finance and Planning Ministry 20 Total 20 Minerals and Energy STAMICO 14 Tanzania Petrol Devt. Corp. 4 Ministry 1 Total 19 Natural Resources and Tourism Ministry 36 Trade and Industry BIT 8 NCI 7 NDC 22 TEXCO 12 SIDO 1 SMC 13 TBL 3 TKAI 5 TLAI 6 SARUJI 11 Ministry 24 Total 112 Sources Table Al.  - 11 - Parastatal Performance 1.15 The parastatal sector has a number of significant accomplishments to its credit. Through them the Government has eliminated private, especially foreign, economic power centers that might have controlled the economy. Parastatals have filled gaps left by the private sector, eliminated some sources of profite4ring and established a significant, albeit capital intensive, industrial base where little existed before. And the parastatals have served as a training ground for a new generation of indigenous business managers and executives; had the private sector been relied upon, fewer Africans would have received this training and it would have occurred more slowly. But the parastatal sector has not, or only partially, fulfilled other goals, and sometimes done so only at high cost. 1.16 Self reliance. Increased self reliance means reduced dependence on imported consumer and capital goods and on foreign experts and managers. Clearly, substantial progress has been made in reducing dependence on foreign expertise, although the education sector, not the perastatal sector, deserves principal credit. So far as the other two dimensions are concerned, progress has been far less than hoped for. Tanzania freed itself from dependence on foreign investors but has become more dependent on foreign banks and aid donors. It produces a much wider range of goods than in the 60's, but the import content of these commodities is high, sometimes higher than had the finished goods been imported. Statistics on imports reflect these trinds. As a percent of GDP, imports have remained above 25 percent from 1965 through 1980; they dropped below that level during the next few years (mainly because of severe foreign exchange shortages) but then rose again in 1986. Imports minus exports as a percent of GDP have been above 9 percent for 11 of the past 15 years (the only exceptions being 1972173 and 1976177); it was 10.5 percent in 1985 and 14.5 percent in 1986. In the manufacturing sector, imported input costs as a percentage of total input costs (excluding oil) increased from 15 to 53 percent between 1961 and 1984.10/ 1.17 The pace of development has not increased. From 1966 to 1976, GDP in constant prices grew at 4.6 percent per year, little more than 1 percent above population growth. Since then, it has grown at 1.7 percent per year with the result that GDP per capita is lower today than it was in the early to mid 70's. Value added and production in the manufacturing sector, where investments by parastatals have been concentrated, has actually declined between 1976 and 1986, from 3.1 to 1.0 billion shillings (in 1976 prices), a decline of 68 percent. 10 Government of Tanzania, Economic Survey, various years, and World Bank, Tanzania, An Agenda for Industrial Recovery, Volume I, p. 10 (henceforth cited as Agenda). These figures are underestimates since they are based on official prices; if imports and exports were valued at parallel market rates for foreign exchange, these percentages would be much higher,particularly in later years.  - 12 - 1.18 Throughout most of this period, gross fixed capital formation has been decliiing, from 24 percent of GDF in 1976 to 16 percent in 1985 and 17 percent estimated for 1986. Most of this decline results from declines in parastatal and central Government investments; from 1977 to 1985 these components declined in constant prices by 65 and 60 percent respectively, whereas private investments declined by 22 percent. 1.19 Over the same period the amount of domestic savings mobilized from GDP to finance this investment also declined, from 20.8 percent in 1976 to 6.8 percent in 1985 and as low as 2.2 percent in 1986. Thus, the economy has become ever more dependent on foreign aid and loans to finance invest- ment, not less so as envisioned by the authors of the Arusha Declaration. A fall in retained profits out of value added generated by parastatals, from 39 percent in 1976 to 25 percent in 1984, accounts for some of this decline; but the bulk of it results from increased current account deficits by the central Government (see Appendix Table A4.2). Savings as a percent of value added generated by the private sector do not appear to have declined (but the evidence is weak since the only way to calculate private savings is as a residual which includes some public savings and many errors and omissions). 1.20 Dissavings by the central Government is significantly related to the failure of parastatals to contribute much on net to their owner. As Table 1.5 indicates, over the five year period ending in 1985/86, there was a net transfer on current account of only 991 million shillings. This figure includes corporate taxes which these firms would have paid to the Government even if they had been privately owned; if these taxes are excluded, there has been a net transfer from the Government to parastatals of 7.8 billion shillings over this period. Very few parastatals remit any dividends to the Government;ll/ indeed, more than three fourths are con- tributed by the Bank of Tanzania (see Appendix A5). Most subsidies are paid to crop authorities; in earlier years they were meant to cover differ- ences between purchasing and selling prices, but after 1984, when the decision was made to cease providing subsidies, they have been provided to cover past debts and interest obligations, principally of the National Milling Corporation.12/ Grants and subventions, defined as payments to non- commercial parastatals (e.g,, TSh. 318.5 million for the University of Dar es Salaam and 15.5 million for the Tropical Pesticides Research Institute 11/ Subsidiaries of holding companies are supposed to pay dividends to their holding companies which after taking care of necessary expenditures and capital projects, are supposed to remit dividends to the Government. In practice holding companies remit very little. 12/ However, these figures are probably underestimates since they do not include line items in parastatal accounts that appear to be in the nature of subsidies. For example, the National Transport Company accounts for 1985 show an income item of TSh. 3.9 million titled 'Trucking Project Funds from Treasury' and the Aluminum Africa Corporation had an 'Export Subsidy' of TSh. 4.3 million in its 1984 accounts.  - 13 - in 1985/86), appear to be growing, though not in real terms. The major tax contributors are the brewery, cigarette and textile companies. The figures in Table 1.5 do not include interest payments and short term loans on current account and grants and loans on capital account which, taken together, further reduce parastatal contributiond. Table 1.6 TANZANIA: RESOURCE FLOWS BETWEEN GOVERNMENT A PARASTATAL SECTOR 1981/82 - 1986/86 (T nsnle Shillnings Millions) Not Transfer* to Government Dividends Grants Including Exeluding Number CorDorat . C -r"Fate Cor orat RitVtinc Amount Tex** Subsidies Subventions Tixiea Tix 1981/02 16 199.0 1186.0 965.1 S16.7 (89.9) (1874.8) 1062/68 9 888.6 1848.0 1,888.6 844.6 (496.5) (1844.5) 1988/84 9 862.1 1S16.0 1,822.1 696.0 (841.0) (1656.0) 1984/86 11 406.7 1e66.6 784.4 866.5 468.8 (1216.2) 1965/86 19 444.1 2959.0 714.6 1283.3 1455.2 (1508.6) Soure : Ministry of Finance, Treasury Registrar, Tanzania 1.21 The composition of output has not changed in the directions desired. Despite heavy investments to create capacity to produce capital and intermediate goods, particularly in non-traditional lines like chem- icals, fertilizers, rubber, plastics and metals, the composition of manu- facturing output judged in domestic prices has changed only modestly, capital goods increasing and consumer goods decreasing as percentages of value added in manufacturing between 1965 and 1983. Indeed. if judged in international prices, it has changed in perverse ways: in these terms, between 1965 and 1984 the share of value added contributed by the produc- tion of consumer goods increased from 56 to 85 percent while that of capital goods increased from 3 to 4 percent and that of intermediates decreased from 40 to 11 percent. The difference in outcome when judged by international prices is because the structure of protection is biased in favor of the most inefficient firms, to keep them alive; and such firms are concentrated in the intermediate and capital goods sectors.13/ 13/ Agenda, op. cit., Volume I, pp.3-4.  - 14 - 1.22 The parastatalf employment--80,000 in 1974 and 176,000 in 1984 (24 percent of total wage employment in 1982)--but it has done so at considerable cost. Had the same amount of capital been invested in less capital-intensive and less foreign exchange-intensive ways, and had per capita output increased rather than declined during the last decade, employment op tunities would have been far greater. 1.23 Labor income, instead of increasing in real terms, has declined steadily since the early 70's; and parastatals appear to have led the way. Table 1.6, which covers all sectors up to 198C and the parastatal sector thereafter, indicates how dramatic that decline has been: more than a 70 percent decline for all categories of workers.141 During the 70's, para- statals in the industrial sector may have paid workers more than did the private sector, as one study of that period indicates.151 But all other evidence for the 80's suggests that parastatals paid workers less and that the differential videned.16/ 14/ It is difficult to believe that total income has fallen this much. One possibility Js that nonwage benefits have increased in real terms. Appendix B suggests that they have at least for higher salaried personnel for whom real wages have fallen the most. Another possibility, also suggested by Appendix B and probably of more significance, is that second jobs have become increasingly important. But it is difficult to believe that these two factors could have kept total income from declining significantly. 15/ See Msambichaka, et. al., The Role of Public Sector in Economic Develonment - Tanzania, Phase Two, September, 1985, Table 2.2, which surveyed 100 public and 30 private industrial firms and covered the period from 1975 to 1979. 16/ Unpublished data from the Bureau of Statistics covering medium and large manufacturing companies in 1981 indicate that parastatals paid operatives 7 percent less and non-operatives 27 percent less than private firms. See Agenda, op.cit., Vol.II, Table A 2.5. p. 103. See also Table A 2.10, p.107 for a sector breakdown. A sample of sisal estates (three private, two public and one joint) covering the period 1981-1984 also indicates that parastatals paid lower wages than private estates. See Semboja, et. al., The Role of Public Sector in Economic Development - Tanzania. Phase III. The Sisal Sector, November, 1986. Finally, two sets of data covering the period 1976 through 1984 indicate that parastatal labor costs per employee in constant prices declined substantially whereas per capita income for the whole economy remained roughly constant during this period. The first set involve responses to a Bureau of Statistics questionnaire sent to all para- statals indicating that remuneration per employee in constant prices declined by about 46 percent. See Bureau of Statistics, Analysis of Accounts of Parastatal Enterprises. 1973-1982, plus unpublished materials for 1983 and 1984 and the Economic Survey for price deflator and per capita national income. The second set, again from the Bureau of Statistics but covering only manufacturing parastatals, indicates that there was a decline of 63 percent in labor costs per employee over  - 15 _ Table 1.6 INDEX OF REAL WAGES FOR REPRESENTATIVE GROUPS, 1969.100 Minimum Average Middle Top Sectors Year Wage Wage Salary Salary ------------------------------------------------------------- All 1968 90 97 95 102 1969 100 100 100 100 1970 96 103 103 93 1971 93 103 105 88 1972 119 99 106 75 1973 109 102 96 67 1974 135 133 91 56 1975 103 108 68 44 1976 83 104 64 39 1977 71 98 58 33 1978 61 86 51 30 1979 58 77 45 26 1980 I 63 j 65 37 21 Parast. 1981 60 56 24 18 only 1982 49 47 24 14 1983 40 39 17 12 1984 46 31 16 11 1985 31 HA NA 9 Notes The figure for average wage in 1979 was estimated by assuming that the average percent change in other categories applies to this case as well. Numbers for 1981-85, plus that for 1980 average wage, are for public sectors only, are based on 1977 prices, and may not include an adjustment for this. Sources For 1968-80, T.R. Valentines 'Wage Adjustments, Tax Rates, Accelerated Inflation in Tanzania." ERB, 1983. For 1981-85, plus 1980 average vage, National Productivity Council, Productivity and Operations Report for the Year ending 30 June 1986. 1.24 Parastatal service to the masses has also been disappointing. Publically owned shops in remote areas, while charging lower prices than private traders, have been virtually devoid of goods. Half the buses in Dar es Salaam and abo Footnote 16 Cont. the period. See Agenda, oy.cit., Vol.11, p.101. While these studies are supposed to take into account fringe and non-monetary benefits, they may not do so completely, and there is some evidence that parastatals provide higher level persontel with more of such benefits--for example, housing--than do private firm.. But this qualification does not apply to less senior staff who receive few such benefits.  - 16 - Transport Corporation are out of service. Crop authorities were abolished because of their failure to provide farmers with the services they were created to deliver. The railroad can meet only 10 to 15 percent of the demand for freight services. Such examples can be multiplied manyfold. 1.25 Finally, the parastatal sector is inefficient, consuming more resources than necessary to produce the output it creates. Evidence for this statement comes from financial data, economic rates of return and partial indicators of efficiency. Financial data are the most widely available but only indicate ability of a firm to take advantage of the existing economic situation which includes price controls, subsidies, pro- tection from imports and so on; they do not indicate whether a firm is profitable to the nation as a whole--for example, how well it would do if it were not subsidized or protected at the expense of other parts of the economy. For that, one needs economic rates of return, that is, returns based on prices likely to exist in open, competitive markets. Only one recent study using such methods is available at the present time, and it is limited to data on firms in the manufacturing sector in 1984. rartial indicators of efficiency, for example, labor productivity and incremental capital-output ratios, can be used as rough indicators for other sectors and to support other findings, but can be misleading if used in isolation. All three sources of information support the general contention that the parastatal sector is inefficient, both by absolute standards and as com- pared to the private sector. 1.26. Financial Performance. Given the preferential treatment most parastatals enjoy, one would expect them to earn reasonably good financial returns. Some do. But many do not. The most comprehensive data on such returns comes from the Tanzania Audit Corporation (TAC) which produces aggregated data for its clients with acceptable accounts. As Table 1.7 indicates, aggregate profits for this group of companies was negative in 1984. Even in 1985 when profits were positive, though still small, nearly half of the 354 companies audited made losses. Highly unprofitable para- statals include not only the Crop Authorities, but important commercially oriented enterprises such as Steel Rolling Mills Ltd., Kilimanjaro Textile Corporation Ltd., Mwanza Textiles Ltd., and transport monopolies such as the Tanzania Railways Corporation. Enterprises with profits exceeding TSh 5 million a year include the National Bank of Commerce and the Bank of Tanzania, the Tanzania Cigarette Company and the Tanzania Breweries Ltd. A full list of firms with losses or profits over TSh. 5 million is shown in Appendix G. In its Annual Report for 1985, the TAC commented on this performance as follows: "...when consideration is given to total investment in the parastatal sector, the amount of profit earned is far from satisfactory. When it is further considered that the biggest loss makers are in the sectors of industries and trade, agriculture and livestock and communications, where the largest investments are made, the position is further tarnished. In the absence of set rates of return on investment, many parastatals seem content when they just barely break even.'  - 17 - Table 1.7 TANZANIA: FINANCIAL PERFORMANCE OF PARASTATALS AUDITED BY TANZANIA AUDIT CORPORATION, 1988-05 198a 1984 1985 ProfIt Before Tax Frofit Before Tex Profit B fore Tax Numbr. (TSh. Million) Number tTSh. Million) Number (TSh. Million) Pereetetele with 196 8,876.5 21$ 2,911.9 180 8,811.4 Pereetels with 165 (910.2) 171 2!D%4.4. 165 (1,58.0) Net Profit So1 2966.8 a84 (82.5) 854 1958.4 Beurees Tanzania Audit Corporation Annual Report 1.27. While there are large variations in sector and individual company *zperiences, financial performance on average appears to have worsened during the past decade. Given the changes currently under way in the macroeconomic environment--in particular the elimination of subsidies, devaluation, increasing interest rates, reduction in the number of goods subject to price controls and deconfinement--this deterioration is likely to continue but at a faster pace for a while (see discussion in Chapter 2). The variance in experience, however, is also likely to increase: para- statals most heavily dependent on imports are likely to be hit the hardest while others more able to export, plus firms related to the agricultural sector, are likely to find their financial performance improving. Appendix AS provides details on financial performance over time for selected groups of, as well as individual, companies. 1.28. Economic Efficiency. The most up-to-date and comprehensive infor- mation on economic efficiency--and one that permits a comparison of the public and the private sectors--comes from a recently completed study of the industrial sector.17/ For present purposes, the most relevant findings from that study are reflected in Table 1.8. Fifty four percent of all the 171 Aaenda, on. cit., especially Vol. I, p.43ff and Table 16, Vol.II, p.139. This study surveyed 118 product lines in the industrial sector, 30 percent of which (on a weighted basis) are in the parastatal sector.  - 18 - parastatal activities in the industrial sector are extremely unproductive in that they produce negative value added when all inputs are valued at world market prices. This compares to a figure of 11 percent for the private sector. On the same basis, only 18 percent of these parastatal activities are efficient in the sense that they use less inputs than the value added of their output, compared to 43 percent of the private sector industrial activities. Table 1.8 PERCENTAGE OF PRODUCTION LINES OPERATING AT DIFFERENT LEVELS OF EFFICIENCY, BY OWNERSHIP, 1985 A. Percent of All Activities Domestic Resource Cost /a Less Greater than Infinity Sector than One than One /b (Net. value added) Total Public 14 16 35 Private 10 21 4 Total 24 37 39 100 B. Percent of Sector Domestic Resource Cost /a Less Greater than Infinity Sector than One than One /b (Neg. value added) Total Public 22 24 54 100 Private 28 61 11 100 Total 23 27 50 100 la Short-run Domestic Resource Cost: cost of domestic factors (labor and capital assumed at sunk cost, shadow priced) for generating one unit of world priced value added calculated at actual levels of capacity utilization. Calculations made at capacity rates attainable if foreign exchange for recurrent inputs were not a constraint are not significantly different. lb Excluding infinity. Source: Agenda. OD. cit., Vol. II, Table 13, p. 136. The most likely explanation for these findings is that parastatals enjoy preferential treatment and bail-out" privileges that permit them to remain  - 19 - in business longer than can private firms when they are operating ineffi- ciently. 1.29. Partial Indicators of Efficiencv. Tables 1.9 and 1.10 provide summary indicators permitting comparisons of public and private firms in the industrial sector during the period 1975-79 and on sisal estates over the period 1981-84. In both cases, output per worker (or per manhour) is roughly half that of private firms. In the industrial sector, this occurs despite the fact that output per unit of capital employed is about the same. Taken together, these two findings suggest the existence of substan- tial redundant labor in the parastatal sector. It is also interesting to note in Table 1.9 that manhours worked per employee are less even though labor costs per employee are more amongst public firms in the industrial sector.18/ Moreover, amongst sisal estates, parastatals receive a lower price for their output, probably because quality of their product is lower. Appendix A3 provides information suggesting that sales in constant prices per employee of parastatal firms in nearly every sector have declined over the period 1974-84, on average by 30 percent. Additional evidence to this effect is provided in Table 1.11 which separates out the district develop- ment corporations, which perform very poorly, and financial and other service parastatals, which perform reasonably well, from all others in a sample of over 100 public enterprises.19/ Table 1.9 AVERAGE INDICATORS OF PERFORMANCE PUBLIC AND PRIVATE INDUSTRIAL FIRMS, 1975-79 Public Private Manhours per Employee 2,160.2 3,009.0 Labor Cost per Employee 13,490.0 8,355.8 Labor Cost per Manhours 5.7 2.9 Output-Labor Ratio 41,944.4 90,467.0 Output-Manhour Ratio 19.0 31.2 Labor Cost/Total Cost (2) 32.8 15.9 Capital-Labor Ratio 2.8 23.8 Capacity Utilization (5) 56.2 50.2 Output-Capital Ratio 1.4 1.4 Size of Firm - Employee per Unit 972.4 81.4 Capital per Unit (at 1000 per unit) 25,782.0 16,248.1 Sources Semboja, op. cit. 18/ These figures could be misleading. Large firms typically pay more than small firms, and as Table 1.9 indicates, the public firms are on average much larger than the private firms in the sample. 19/ The District Development Corporations have apparently never performed well. See a paper by H. P. B. Moshi (Financial Performance of Public Corporations: the Case of District DeveloPment Corporations. Economic Research Bureau, 1980) which indicates that these parastatals incurred sizeable losses throughout the mid to late 70s.  - 20 _ Table 1.10 TANZANIA - AVERAGE INDICATORS OF PERFORMANCE SISAL SECTOR, PUBLIC AND PRIVATE FIRMS 1981-84 Public Private 1. Labor Cost per Employee 6,958.3 14,089.5 2. Labor Cost per Manhours 2.8 5.9 3. Output Labor Ratio 16,049.3 35,785.3 4. (a) Physical Output per Manhour 2.4 2.8 (b) Output in Shillings per Manhour 6.8 15.3 5. Price of Fiber per Ton 4,674.3 5,152.3 6. Ratio of Variable Cost to Value of Output 1.1 0.7 7. Capacity Utilization 0.2 0.4 Source: Semboja, op. cit. Table 1.11 INDICATORS OF PARASTATAL PERFORMANCE BY SELECTED GROUPINGS, 1986 Industry Indicator 1 - 4 5 6 1. Value of Production / No. of Employees 874,000 83,000 1,208,000 Size of Sample, n 44 8 8 2. Wage Bill I No. of Employees 33,000 19,000 37,000 n 82 17 41 3. Profits/ Total Assets 0.307 0.175 0.435 n 35 5 5 4. Profits / Fixed Assets 0.304 0.175 0.435 n 33 5 5 5. Revenue / Total Assets 3.225 3.064 2.792 n 72 16 34 6. Revenue / Fixed Assets 51.539 40.781 6.657 n 70 17 37 7. Revenue / Total Expenses 2.289 1.466 1.670 n 78 17 44 Notes: Industries 1 - 6 refer to manufacturing, agriculture, trade, trans- port, District Development Cooperatives, and Services, respectively. Source: Joseph J. Semboja, The Parastatal Study: Analysis of the Qualitative and Scopo Data, University of Dar es Salaam, July 1987.  - 21 - CHAPTER TWO FACTORS DETERMINING PARASTATAL PERFORMANCE 2.1 Chapter 1 indicates parastatals have contributed far less to the achievement of economic and social goals than was expected of them at the time of the Arusha Declaration and what they hpve accomplished was sometimes achieved at high cost. A wide variety of factors have been put forward to explain these disappointing results. Some are common to all economic activities in Tanzania and help explain the less than hoped for results obtained from private firms as well. Others, while specific to the parastatal sector, are at a level of generality that is not operationally useful. This chapter sorts through these various explanatory factors and focuses on those that appear to have the most implications for policy. Factors Affecting All Economic Activities 2.2 A variety of external factors have contributed to the generally poor performance of the economy during the last decade. These include deterioration in the terms of trade since the coffee boom of 1978, droughts that periodically force foreign exchange to be allocated for the importa- tion of food, the war with Uganda in 1979, the breakup of the East African Community which required extraordinary budgetary and foreign exchange expenditures for a time, and declining external assistance since 1978 in both nominal and real terms (though on a per capita basis it is still amongst the highest in the world). 2.3 But of at least equal significance has been the overall policy environment within which economic activities have taken place. The Government has relied primarily on centralized administrative regulations to control the economy. Foreign exchange, imports and credit have been rationed; the exchange rate, interest rates and most commodity prices have been set administratively; and a number of economic activities--banking and insurance, and trade, transport and production of certain commodities--have been reserved for and assigned to various parastatals, effectively eliminating competitive pressures for efficiency from these markets. These regulations were sometimes used to pursue inappropriate policies. For example, during much of this period, price controls and allocations of foreign exchange, credit and budgetary resources favored industry over agriculture to such a degree that (along with other factors, for example, confinement of trade to crop authorities that proved to be inefficient) the result was an actual decline in the production of export crops and hence in foreign exchange earnings on the one side and excess capacity in the industrial sector on the other. But even where the policies pursued were appropriate, the use of administrative regulations to achieve them has introduced its own problems. It has distorted incentives in such a way as to encourage investments in lines of business in which Tanzania has little or no comparative advantage and in plants that are too large, capital intensive and import dependent. It has provided protection to firms, private as well as public, that could not survive if they had to compete  - 22 - with imports. It has encouraged managers to focus their efforts on seeking additional import allocations and permission to charge higher prices rather than on efforts to control costs. search for new markets and improved technologies. It has resulted in the growth of black markets, declining public revenues, and, in the end, less rather than more control over the economy as a whole. The alternative--using a minimum of direct controls (e.g., to regulate monopolies and provide temporary assistance to a few ,infant industries") and a maximum of indirect controls to guide the economy--is unlikely to have been worse; at least it would not have provided a premium for illegal activities. Factors Specific to the Parastatal Sector 2.4 In addition to these general factors, there are a wide variety of factors specific to the parastatal sector. This section discusses only those with particularly important policy implications. 2.5 Absence of Overall Strategy and Clarity on Goals. Tanzania has no up-to-date statement of general principles20/ that can serve as a guide to parastatal operations and decision-making. Nor is there good coordination between national goals and plans and parastatal goals and plans. One consequence is a series of ad hoc decisions that, while they benefit some special interests, are not necessarily in the national interest. All too often, for example, holding companies and ministries have conceived and planned new projects to satisfy the empire-building aspirations of their managers or the desires of foreign donors and equipment manufacturers. Such behavior is difficult to argue against in the absence of clear statements about national goals and priorities. Another consequence is that managers find it easier to justify and excuse inefficiency by pointing to noncommercial objectives that central Government decision-makers may never have sanctioned. For example, some managers appear reluctant to fire redundant workers or close uneconomic activities despite the fact that it is not the main purpose of the parastatal sector to provide employment, particularly unproductive employment. 2.6 Unclear goals and performance criteria also at times have resulted in parastatals being faced with excessive or inappropriate demands. For example, they have often been faced with interference in personnel decisions, asked to provide transport or other services without appropriate compensation, or asked to serve goals for which they were not established and equipped. An important example of the latter is the National Hilling 201 Examples of statements of such principles from other countries are included in Appendix E.  - 24 - Corporation which has faced this problem since its inception.21/ Such pressures wi'l always be present; but they can be reduced, and parastatals' capacy to resist strengthened, by publically clarifying and restating the goals that parastatals are expected to perform. 2.7 Excessive Number of Parastatals Given the Availability of Resources and Mana erial Cavacity. As indicated in Chapter 1, Tanzania has more parastatals than many much larger countries with greater administrative and managerial talents at their disposal. The best evidence on this score, however, is derived from the commonly accepted observation that most parastatals are underfunded and understaffed--not in terms of numbers but in terms of skills and quality of staff, particularly at higher levels--and that many regulatory bodies, because they also are underfunded and understaffed, cannot handle the work-load required to do their job well. The tendency to spread limited resources evenly and thinly serves to keep inefficient parastatals alive but only at the expense of efficient, or potentially efficient, operations. Given the limited physical and human resources available to the Government, the general principle should be to fully fund and staff important operations and not to waste resources and quality staff on unimportant, unproductive activities. 2.8 Weak Competitive Pressures and Discriminatory Treatment. Evidence from many countries shows that a key factor in determining the efficiency and dynamism of any enterprise, public or private, is the degree of compe- tition it faces. Public enterprises that compete with one another, with private enterprises and with imports tend to be more cost conscious and more prone to seek new markets and improve service and quality than those that do not face such challenges. In the past, competitive pressures from all three sources have been weak. Individual parastatals have been pro- vided with exclusive markets or territories in which to operate; private firms have not been allowed to enter these areas; and imported commodities that might compete with domestic production have been deliberately restricted. Recent policy changes, in particular deconfinement of significant areas of production and trade, have permitted some changes in this situation (see Chapter 3); but the predominant characteristics of the 21/ At different times NHC has been used as the implementing agency for Government directives not only on foodgrain prices, but on famine relief, distribution of imported food, purchases of low value cassava, millet and sorghum, purchases from GAPEX, politically determined exports and Party directives on the size of village levies. In almost all cases, the financial implications or procedures for these actions were not clearly assessed before they were adopted.' Since then, considerable thought has been given to redefining NHC's role and agreement on a new reduced role consistent with financial realities may be emerging.  - 24 - system are still protection and preferential treatment, especially for parastatals. 2.9 Monopolies or near-monopolies are present in most markets at all levels of business. At the national level, The National Bank of Commerce (NBC) has a virtual monopoly in providing current and savings accounts, and complaints about poor service are widespread.221 The Cooperative Rural Development Bank (CRDB) has recently been allowed to take deposits and provide short term credit, but its interest policy is ideitical and it deals almost exclusively with cooperatives. There is only one firm producing cigarettes. three plants operated by the same company and General Manager, one source of insurance, one maker of aluminum cookware, three cement plants owned and operated by the same company and two large shoe manufacturers both owned by the same holding company. While there are numerous areas in which the size of the domestic market is too small, given economies of scale, to support more than one or two firms, this is not the case in any of the markets mentioned above. At the local level, particularly in rural areas, the situation is undoubtedly worse: most farmers are faced with one source of fertilizer and seed, one purchasing agent for their crops, and sometimes only one or two retail shop in which to purchase consumer goods, and the possibilities for exploitation as well as poor service are great. 2.10 Competitive pressure is reduced not only by erecting barriers to entry of competing firms and imports but by preferential treatment. Chapter 1 has already indicated that few parastatals pay dividends and many, until recently, received subsidies and could realistically expect to be bailed out by the Government if they got into serious financial trouble. Other areas of preferential treatment include allocation of credit and foreign exchange, privileged access to technical assistance and donor funding and price controls, and frequently, exemptions from paying tariffs. 2.11 While there is no official policy discriminating agairst private credit applicants, the effect of the credit allocation process and access to guarantees by parastatals has been to provide parastatals with most of the credit that is made available at official interest rates, which have been negative in real terms. In addition, parastatals have been able to expand credit through arrears to the banking system with greater impunity 221 Not only are transactions slow and communication poor, savings policy discourages resource mobilization. For example, opening a savings account requires references, withdrawals can only be made twice a week and while there is a high nominal interest rate on savings (more than 27 percent a month but still lower than the inflation rate and only posted twice a year), no interest is paid on amounts in normal savings accounts over sh. 200,000; the customer must put funds over that amount in a series of short term certificates or into fixed term deposits at lower interest. NBC pays no interest on current accounts, yet parastatals must maintain their current accounts with them. Some of these practices have been inherited from colonial times and are similar Continued on next page  - 25 - than can the private sector. At the end of 1986. 73 percent of Tanzania Investment Banks (TIB) loans outstanding were accounted for by parastatals and 54 percent of these loans were in arrears, compared to 27 percent for private loans (see Table 2.1). At the same time, 65 percent of the loan portfolio of the NBC was to parastatals, versus 13 percent to the private sector and 21 percent to cooperatives (see Table 2.2). Most of its loans are to the agricultural sector and within that sector parastatals (mostly marketing boards) account for 72 percent and cooperatives for 26 percent. Although statistics on arrears with the NBC are not available, there is no reason to believe the situation is much different. 2.12 Parastatals also have privileged access to technical assistance and donor funds at concessional rates. At the same time, the private sector has difficulty attracting expatriates since they cannot offer them an arrangement whereby they can convert a portion of their salary into foreign exchange, as can parastatals directly or indirectly receiving donor funds. 2.13 The foreign exchange allocation system has also favored para- statals, the private sector having to purchase a larger fraction of its Imports at parallel market rates.23/ Moreover, the fact that foreign exchange applications for dividends and interest payments overseas are given low priority makes it virtually impossible for private firms to raise foreign equity or loans. 2.14 In addition some of the goods subject to price controls are officially allocated, which typically works in favor of parastatals. Transport imports such as vehicles, tires and fuel, for example, are allocated by various groups and committees at the national and regional levels. Government and parastatals, such as the railway, TANESCO, the Tanzania Fertilizer Company, receive top priority. Thus, truck imports are allocated by the State Motor Corporation (with approval of the Prime Minister's Office) and about 65 percent of the trucks imported in 1984 and 1985 went to the public sector even though about 70 percent of trucking services are provided by the private sector. In addition, parastatals receive the bulk of vehicles imported under aid projects; for example, 100 trucks were given to the Tanzanian Cotton Authority by the Dutch Government in 1984. 2.15 Parastatals have major disadvantages in facing competition as well. Because of appointment proceedures and political considerations, their boards have less flexibility in selecting, or recommending the selection of, managers. Parastatal managers have less flexibility Continued from previous page to practices in other countries; they persist because of lack of competition and inherited regulations that have not been updated. 23/ The reason for this, however, is that parastrtals are more likely to be found in high priority areas (which the private sector cannot enter); Continued on next page  - 26 - Tabl. 2.1 TMKM4TIA TAINZMA DOPif5 f GMU tAI ~~TA I SuKf OPF AW 5 AT 8t Dm61. 1966 rAARATATAL H3C jj; CTA != A T L Sa C T a n T L T AN mv AS MOF wV- MONET ra AS S OF wma AOW AS6O o A S 53OF TOTAL 57AM- oAS OF MAL ATDM- IN MNOEt 57A60236 MIl MONT Dpri VA4 A1VA MON0T ANAR P6 MEN6S MR 780 T80 SN tim '80 78' OR- tamO 780 78 SYTAI- ION '600 STMCU P7O.IT UL lcow 'ams STA.m PDNTFLIOr .0 saw Do 1. She.$fafetur 1676440 son"6 40.40 39.79 62767 1060 11.40 10.a 1 50486 an"" 3.6 S. Tw0rlm NW "LsuU SSU6 U04 V8.4 O.6 11 am 17.60 0.21 s0 MM O: 7 S0.20 8. Aggleultu#. - . $Vropvogolmf saw 486409 66.611 24.16 2471 - --- 8134 4116409 66.1 4. 1a 25641 sow8 15.72 8.111 6664 6866 64.66 8.86 s1o7" 11a2" .61 a. a NW Wood V4 0114 876 47.17 2.01 186m Q - 87f6 8O9.8 6. P1.11mg sa others 24611 1slow 76.62 10."7 1161 sow 44.91 2.66 3604 247410 67.69 7 0 T A L 140461 186154 a'.s 6.04 118641 811748 27.67 16.66 4600245 166681 46.112 Tabl 12.2 TNaM-MhZA:MTtSML SAW OP CO615 CmIT PLAN StoJ6:l Leave e 67 501C swT. AT oS6 U1. 11l6 CT 11hiIISgI0. Thmaau.as) ACINICLWUE L D<usrLA- TOTrAL VAIUM Or LUNG a up OF m au LUM AIOF W3 a IF LOAM VALIMU UM r w iUPO LUAM VALIE Or LANG U OF U rAMn u SANCTION asiu Mc wl samaF smcrrse f.IUC IIISC -PMRASrTALNS 30.665.8162 71.6 1.494.911 82. 1.840.72 80.4 25.401.5 68. - UWALM OV'T 1IL"096 0.n 6.010 0.2 17 - 1622276 0.6 -LOCAL COV'T 6.1:50 1 194 0.1 1.180 0.1 6,649 0.1 - CODPWA7t 7.0.6 1.4 26,2701 O 126512 0.2 7.620m.778 1.2 - 0712 an9 - 3911610 1.4 971- 40.666 0.1 IRVATU SV2 873.916 1. 1. 276, go 44.0 e .06.061 69.8 4.718.69 1U.1 TOTAL O778,?47 100.0 1.6464 00.0 4.411.510 100.0 65,61 100.0 sZfL*s V.9100. amtb of Cams  -2 7- than do private managers to cut costs, for example, by closing uneconomic lines, laying off staff, changing suppliers, and cutting down the various services they provide to staff (clinics, transport, food services, etc.). They also have less flexibility in determining how their revenues will be used--for example, it is mandatory that 20 percent of after-taz profits be set aside for staff housing. Parastatals are also at a disadvantage in attracting high-calibre, skilled personnel since the salaries and benefits they can offer are typically lower than in the private sector. Other compensations are present in the public sector--for example, greater job security and more opportunity to pursue private interests (for example, taking on secondary jobs during work hours, sometimes using company equipment)--but they work against the selection of staff who put the interest of the organization high on their priority list. Parastatals must comply with price controls and tax laws which private firms often skirt and they must sell certain products through the RTCs (fertilizers, farm tools, sugar, common cloth, corrugated iron sheets) at lower prices than they could receive elsewhere. Parastatals are, to a greater extent than private firms, at the mercy of private suppliers who overcharge and employees who accept kickbacks. Their greater vulnerability results from two factors: less pressure on managers and boards to be vigilant in guarding against such practices, and less capacity to do so because of the generally large size and complexity of the organization. Furthermore, because of past protection, most perastatals do not know how to compete successfully; it will take a while for them to develop the necessary skills in corporate planning, financial management, marketing, and cost control and to begin applying them aggressively. 2.16 Parastatals have recently found themselves saddled with another disadvantage compared to the private sector, this one a result of their earlier advantage in obtaining foreign loans. Since they are generally required to assume the foreign exchange risk of loans passed on to them by Government, recent devaluations have hit firms with large foreign debt and little chance to increase prices (e.g., public utilities like railways and TANESCO and manufacturing firms facing competition from imports) very hard. This disadvantage is less severe for parastatals than for the private sector since, as indicated above, they more frequently have their debts forgiven or are allowed to be in arrears. But the situation is piling up potentially severe problems for the financial system. While arrears and insolvency problems have been growing for some time, they have been drama- tically worsened by the 1986 and 1987 devaluations. Arrears to the TIS, for example, have increased from TSh. 469 million in December 1985 to TSh. 1.9 billion in December 1986 and TSh. 2.4 billion by June 1987. Some analysts, even before the 1986 and 1987 devaluations which have brought the problems of excessive foreign borrowings into the open, believed that these problems were beginning to threaten the viability of the financial system.24/ 2.17 Absence of a Resulatorv System that Rewards and Punishes on the Basis of Performance. In an enterprise in which board members and managers have ownership shares, pressures for high quality performance are more or less automatic. In the public sector where ownership and Continued from previous page parastatals in low priority areas find it equally difficult to obtain foreign ezchange from official sources. In addition to being in a high priority area, a firm must also have the local currency to cover the proposed purchase of foreign exchange. This factor adds another dimension since at times a private firm may find it easier than a public firm to put up the cover.  - 28 - management functions are quite separate, an administrative system that holds managers accountable for performance while giving them the autonomy necessary to perform must be substituted. The regulatory system governing Tanzanian parastatals does neither very well. 2.18 This regulatory system consists of seven overlapping layers of control. (1) Managers of operating companies are responsible for day-to-day decisions but in practice have to obtain external approvals before acting on many issues. (2) Boards of Directors (or Management Committees in the case of subsidiaries of holding companies) are responsible for reviewing corporate plans, accounts, budgets and operating results. Boards of important companies perform these functions quite well; many others are weak, do not meet regularly or discuss performance-related issues, instead focusing on minor personnel and administrative issues. (3) Sector holding corporations are expected to "manage the affairs' of their subsidiaries, *take actions to avert and minimize losses' and to expand business by new projects. Their performance is mixed, greatly dependent on the abilities of their General Managers and staff: some provide sorely needed expertise and guidance to their subsidiaries while others interfere in counterproductive ways; others have focused on empire building through the establishment of additional subsidiaries regardless of national priorities; still others are passive, content to collect substantial management fees which might be better used to support current operations. (4) Each holding corporation has a Board of Directors that functions for the holding company in a manner similar to that of an operating company. (5) Parent ministries are supposed to approve corporate plans, budgets and capital expenditures and to supervise performance and take corrective action; in practice, few have the expertise to do so in an informed manner. (6) The Ministry of Finance, Economic Affairs and Planning is responsible for approving investment projects and annual budget plans, providing budgetary support and supervising and assessing financial performance; in practice, it does little other than providing budgetary support on current and capital accounts. (7) The ultimate responsibility for the whole system lies with the President, Cabinet and National Assembly. While they should focus on general guidelines and overall strategic issues, they often intervene in lower-level decision making. 2.19 In addition to this hierarchical structure, there is an array of special agencies to implement specific regulations. For example, the Standing Committee on Parastatal Organisations (SCOPO) establishes organi- zational structures, sets salary and benefit levels for posts within these structures and supervises the provision of budgetary awards for these levels. The effect of its work, plus the award structure, is to compress salary and benefit packages into a narrow range and limit the freedom of parastatais to compete with the private sector for high quality staff. The Permanent Labour Tribunal administers a system of (across-the-board) bonuses, (provided for in the National Policy on Productivity, Incomes and Prices), to be awarded if certain conditions are met; but as Appendix B explains, these conditions are seldom met and few firms even bother applying for the awards.  - 29 - 2.20 Appendix C provides a detailed picture of the regulatory system and how it works. The picture that emerges is a complex system with overlapping, poorly delineated, responsibilities. It is not clear, for example, which of the seven control layers described above decides whether parastatal performance is satisfactory and which has the authority to take remedial action. The result is a lengthy decision-making process with a tendency on everyone's part to avoid responsibility. At the same time, many of these agencies have the power to interfere in daily operating decisions, with debilitating effects on managers who are not in a position to effectively resist. Overall, there is a tendency to control and regulate procedures and processes rather than final performance, with the result that managers have neither the authority nor the incentive they need to search stridently for better operating results. 2.21 Weak Information and Accounting Systems. Tanzania has a well- developed set of procedural requirements designed to ensure the timely production of financial data and its transmission to the board, share- holders and regulatory bodies. Parastatal managers are required to present regular accounts and annual budgets of both recurrent and capital revenues and expenditures on a monthly, quarterly and annual basis, to the Board or Management Committee. These accounts and budgets are supposed to be presented to and reviewed by the holding company and parent ministry involved, the Treasury Registrar, and DEVPLAN. Annual accounts are required by statute to be submitted to the Tanzania Audit Corporation (TAC). The Parastatal Organisation Committee (POC) of the National Assembly holds half-yearly meetings with selected parastatals to scrutinize financial performance and recommends that the Ministry of Finance fine executives that fail to fulfill their obligations. The Party Standing Committee on Parastatal Supervision and Development also supervises and recomr-nds actions to the Government. Finally, the banking system should routinely insist on detailed cash flow estimates and audited accounts before funding overdrafts or loans. In practice, these procedures are not always followed. Boards do not always receive accounts and budgets before critical decisions are made; review bodies do not always review these documents even when available; and banks sometimes provide overdrafts and loans even in the absence of audited accounts and detailed cash-flow statements. 2.22 The fundamental problem is the chronic failure to produce acceptable accounts. Tables 2.3 and 2.4 provide an indication of the extent of this problem. In 1985/86 over 109 parastatals were delinquent by more than two years in submitting accounts to the TAC for audit, and of those that were submitted, only 37 percent received clear reports. During the first half of 1986/87, 95 firms were de'inquent by more than two years and 50 percent received clear reports. Th!.s situation appears to be the result of five factors. (i) Ineffective Management and Management Information Systems. There is a high correlation between the quality of management and the quality of accounting informati',n in an enterprise. Where strong management teams exist (e.g., Tanzania Cigarette  - 30_- Company, Ubongo Farm Implements, National Transport Company) financial systems are well established and accounts are seldom in arrears. Where they do not, accounts are more likely to be defective in one or another way. All too frequently, management information systems at the level of the firm are rudimentary and, where they exist, the shortage of trained accounting staff and managers capable of analyzing the data often mitigate against effective implementation of the system. Standard costing methods and budgetary control and monitoring procedures are absent in many organisations. Indeed, few parastatals have proper internal audit departments that monitor and control independently from their finance departments.25/ Ideally, an internal audit department should report directly to the chief executive of the company on such issues as lack of accountability, unreliable accounting information, non- production of accounts and abuses of financial resources. (ii) Poor External Controls. The incentive to produce timely and accurate accounts is low if no adverse consequences flow from the failure to do so. This appears to be the case. The Treasury Registrar was established to perform the role of Government custodian of parastatals' share certificates and to undertake financial reviews of the parastatals and monitor their investment and budget activities. Similarly, the parent ministries were to establish parastatal project monitoring units in order to oversee the financial and economic affairs of their respective public enterprises. In practice, both the Treasury Registrar and the parent ministries have often been unable to fulfill their obligations with the result that most parastatals receive little effective or constructive external guidance. In the past, enterprises sometimes failed to honor requests to attend meetings of the Parliamentary POC or to provide information requested, despite the threat of being fined. There is some indication that this situation is changing, that the Committee is becoming more active and is being taken more seriously. 241 See Bartholomew Nyagetara, *The Demand for Commercial Credit in Tanzania, 1966-82, Economic Research Bureau. 25/ Reginald A. Hengi, *Accounting Information Systems and Controls for Parastatal Organizationsw, October, 1985.  -31 - Table 2.3 TANZANIA: PARASTATALS WITH ACCOUNTS OVERDUE BY MORE THAN TWO YEARS Year Number Percent of Total 1981/2 83 29.0 1982/3 107 28.0 1983/4 105 25.0 1984/5 100 24.0 1985/6 109 28.0 1986/87 (first half) 95 -- * Sources Tanzania Audit Corporation Annual Reports. Table 2.4 TANZANIA AUDIT CORPORATION: PARASTATALS AUDIT RESULTS JANUARY 1981 - DECEMBER 1980 1981/2 1982/8 198B/4 1984/6 1985/8 1986/7 No. X No. X No. X No. X No. X months No. X A/Cs given Clean Reports 865 0.1 116 26.7 148 84.7 166 89.8 146 87.1 82 5S.O A/Ce given Qualified Reports 186 48.9 126 88.5 156 87.9 158 87.0 15C 88.1 59 86.6 A/Ce with Dieclaieers 16 5.8 115 80.6 27 6.5 14 8.8 75 19.0 22 18.4 A/Co with Adverse Opinions 48 16.2 27 7.2 66 20.9 84 19.9 23 5.8 1 0.6 Totl No. of A/C* Audited 282 166.8 87 100.0 412 166.0 422 100.0 894 160.0 164 166.6 Sourcest Tanzania Audit Corporation Annual Reports 1981-86 (iii) Shortates of Trained Accountants. The paucity of staff with trained accounting skills in Tanzania parastatals is a significant bottleneck in any effort to tackle accounting deficiencies. Table 2.5 demonstrates the limited number of authorized auditors (145) and accountants (382) in an economy with 425 enterprises in the parastatal sector alone. Despite a significant training program by the National Board of Accountants & Auditors (NBAA) and pressure from the NBAA to tackle the problem of late accounts and to upgrade the accountancy profession in Tanzania, there are an estimated 250 vacancies for qualified accountants in the parastatal sector and widespread shortages in local and central government agencies.  32- Table 2.5 TANZANIA: ACCOUNTANCY SKILLS AND VACANCIES, 1986 Category of Skill Number Authorized Auditors 145 (46 expatriate) Authorized Accountants 382 (94 expatriate) Semi-Qualified Accountants 1465 Accounting Students: National Board of Accountants & Auditors 1515 Institute of Development Management 205 Dar es Salaam School of Accountancy 484 University of Dar es Salaam 136 Nyegezi Social Training Institute 90 Unfilled Vacancies for Qualified Accountants: Parastatal Sector 250 Local Government Sector 150 Cooperative Sector 150 Central Government 100 Private Sector N.A. Source: National Board of Accountants and Auditors (iv) Inability to Compete with the Private Sector. The parastatal sector has trouble competing with the private sector in terms of wages. The consequence has been a continual loss of accountants to the private sector once obligatory periods of employment after training have been satisfied. Some observers believe this is a major factor explaining the high vacancy rate for accountants in among parastatals. (v) Deliberate Abuse. While it is difficult to prove that a correlation exists between misappropriation of funds and poor financial records, there have been a sufficient number of abuses in recent years to warrant concern. Clearly, it is in the interest of someone who wishes to misuse funds to hide the fact by not producing financial records. Clearly also, managers should be able to produce some relevant reports even without trained accountants and sophisticated information systems. If managers make little or no effort to do so, it reasonable to question their motives. 2.23 Emiloyment and Compensation Policies. Inefficiency and low productivity in the parastatal sector can be traced in part to personnel problems, among which three are most important in the present context: shortage of high quality skilled personnel to serve as managers, board members and senior staff, overstaffing at lower levels and poor motivation at all levels. These three problems, in turn, are largely explained by employment and compensation policies that have restricted parastatal autonomy in hiring, firing and setting wages.  -33 - 2.24 Shortages of skilled manpower in Tanzania is a problem inherited from colonial days. But complaints about such shortages and poor quality of existing staff are far greater in the public than in the private sector. Three factors appear to account for this. The first is lack of adequate incentives in the public sector--insufficient remuneration, little association between rewnmeration and performance, and incentives that are distorted by the administrative and regulatory system. If these problems could be corrected, many poor performers would begin changing their behavior, and those that did not would be forced to move on.261 2.25 Parastatal employees fall under personnel systems that are similar to the civil service. These systems are characterized by uniform, personnel regulations, high security of employment, inadequate remuneration, promotion on the basis of seniority rather than performance and lack of flexibility in dealing with individuil cases. As a consequence, managers are unable to quickly and easily adapt the size and skills of their labor force to changing markets, technology and skill needs. 2.26 Recruitment is overly centralized, at higher levels because the President makes the final decision on chief executives for holding companies and most independent companies, and at middle levels because, given shortages and difficulties in competing with the private sector, managers are forced to depend on the new graduates who are allocated by the High Level Manpower Allocation and Training Committee of the Ministry of Labor and Manpower Development. Given the large number of appointments that have to be made and the absence of adequate information and manpower planning systems, the result is a decision making process that is slow and that frequently seems to come to suboptimal assignments. In addition, recruitment frequently occurs by secondment from the civil service, a practice that places individuals who are not trained as entrepreneurs in a commercial environment without the penalties for poor performance that are tgpical of that environment. 2.27 Compensation policy is also centralized, nearly uniform across parastatals, and provides little or no room for parastatals to compete with the private sector, particularly at middle and higher levels. Since the early 1970s wages and salaries have failed to keep up with inflation to such an extent that in 1985 top salaries were only 20 percent, and minimum wages only 30 percent, of the 1975 level in real terms (see Table 1.6). 261 It is interesting to note that a recent survey indicates that parastatal managers typically have more formal and on-the-job training than their private counterparts and roughly equal years of experience. See Joseph J. Semboja, The Parastatal Study: Analysis of Qualitative and SCOPO Data, Dar es Salaam, July 1987. In organizations of the same size and complexity, therefore, these managers should be able to perform at least as well. The most likely explanation for the fact that they do not is absence of appropriate incentives. However, parastatal enterprises in Tanzania are probably larger and more complex, on average, than Private enterprises.  34- The result has been poor motivation, indiscipline, moonlighting, and low productivity. In addition, over time, wage scales, particularly after-tax differentials, have been severely compressed, reducing incentives for advancement. This picture must be modified to some extent by taking into account fringe benefits the distribution of which tends to be highly skewed; but such benefits, which now constitute nearly half of the compensation package for higher level staff, has its own set of problems (see Appendix B, especially paragraph 45). 2.28 The second factor, which helps explain shortages in general as well as greater shortages in the parastatal sector, is inherent in the decision taken in the mid-sixties to utilize large-scale centrally controlled organizations to operate the bulk of the economy. These organizations require more formally trained manpower than do small-scale decentralized operations. A case in point is rural marketing and distribution. Large, complex organizations in these areas require managers with substautial formal and specialized training; small, decentralized organizations undertaking the same functions can rely on individuals with skills little different from those traditionally involved in farming and petty trading, or skills which can easily be learned on the job. 2.29 The third--and related--factor has been a tendency to under- estimate the skill requirements needed to efficiently manage large scale complex operations. In some cases, too few skilled posts have been allocated to projects or enterprises; in others projects have been started without any prior investigation to ensure that skilled staff can be found to manage the operation.27/ 2.30 Overstaffing at lower levels results from some of these same factors; but in addition it is influenced by legal and regulatory procedures that make it far easier to hire than to fire workers. In the past, these procedures have been used to protect workers when production was low. Currently, the mood in the country is supportive of cost-cutting and managers are finding it somewhat easier to obtain the necessary approvals. Nevertheless, the procedures involved are time-consuming and difficult. 2.31 These issues are elaborated in Appendix B which describes the existing situation, reviews past and existing government policies and discusses implications of these policies. 27/ Examples from the agricultural sector can be found in World Bank, Tanzania Airicultural Sector Report (August 19, 1983), Chapters 3 and 7 and Draft Background Papers III and VI. I  35 CHAPTER THREE TOWARDS A REFORM PROGRAM 3.1 As noted at the outset, the Government has been aware of these problems for some time and has initiated a number of efforts to solve them. This chapter discusses these efforts, what they have accomplished and what additional steps are necessary. Past Efforts at Reform 3.2 Until quite recently, nearly all efforts to improve parastatal performance have focused on strengthening Government supervision and control. In 1967, the Government established SCOPO and the Tanzania Audit Corporation. In 1969, the National Assembly passed the Public Corporations Act which led to the establishment of sector holding companies and which spelled out the powers and responsibilities of various agencies dealing with parastatals. In 1974, in an effort to increase the powers of the Ministry of Finance, the post of Commissioner for Public Investment was established and combined with the functions of the Treasury Registrar. In 1975 an Inspection, Supervision and Control Section was added and the 1983 amendments to the Public Corporations Act and the Treasury Registrar Ordinance further strengthened the powers of the Commissioner's office. 3.3 In 1979 a technical assistance team from the Statsforetag AB, the principal holding company for public enterprises in Sweden, was posted in the office of the Commissioner for Public Investment. Between 1979 and 1983, more than 10 years of resident expertise was provided and a variety of technical papers and analyses developed. The team's final report presented a careful analysis of the parastatal sector and concluded that disappointing performance was caused by insufficient capital structure, inputs and infrastructure; bad management due to unqualified and inexperienced board members and senior staff; fraud, theft, negligence and lack of incentives; and insufficient monitoring and control by Government. Despite the perceived need to reduce the number of parties that intervene in parastatal affairs and to conserve on skilled manpower to handle regulatory functions, the ,eport recommended against establishment of a central body to manage all parastatal affairs, similar to the National Enterprise Board of the United Kingdom as it existed in 1983; that approach was believed to be totally unworkable given the size and complexity of the parastatal sector. Instead, it endorsed the 1983 efforts to strengthen the office of the Commissioner for Public Investment, recommended that the number of ministries charged with supervising parastatals be reduced and technical assistance be provided to the others, and proposed the creation of a detailed  - 36 - reporting/information system, specifying the type of information (and timing of submissions) that each unit in the hierarchy should produce. These recormmendations were never formally reviewed or discussed, despite the efforts of the then-Commissioner of Public Investments to use the report as a basis for the revision of his office's oversight role. 3.4 In the period 1981-1983, several other reviews of parastatal operations in general, and of key sectors such as agriculture, were undertaken. All agreed that the management/supervision scene was cluttered and chaotic, with too many agencies involved, posing too much of an information burden on weak parastatal management and equally weak reviewing bodies. The reports further concurred that management autonomy was lacking in areas where decisions should preferably be made at the level of the firm - e.g., pricing, hiring and firing, incentives and sanctions for the workforce and middle management, cutting uneconomic services, closing consistently money-losing plants or services. But the reviews also stressed that while supervisory bodies frequently acted to constrain managerial autonomy in areas where it was needed, they at the same time failed to exercise necessary oversight functions, particularly in the realm of financial control, and analysis of parastatal invest- ments. 3.5 As a result of these reviews--plus increasingly visible poor parastatal performance--Government undertook two actions. As indicated above, it revised the Public Corporations Act to strengthen the super- visory role and powers of the Office of the Commissioner for Public Investments; and it created a special commission--the Hamad Commission-- to review parastatal performance, to examine the reasons for the sector's lack of efficiency and productivity, and to propose remedies. The enlargement of the legal powers of the CPI has had no discernible impact on either the performance of that body or the parastatals in general. The Hamad Commission was a different matter in that a number of its recommendations were implemented and have had at least some effect. Mi) The Commission recommended that with the revival of agricul- tural cooperatives, the all-purpose crop authorities were no longer needed and should be replaced by marketing boards. This recommendation was carried out. (ii) A recommendation was made to close a few parastatals that were performing particularly poorly, to merge several others and to absorb the functions of several others into normal ministerial operations. Some of these recommendations were implemented. A Livestock Development Authority and two of its subsidiaries were eliminated, one transport and several trading firms were dismantled, several firms were restruc- tared and a few mergers took place.  - 37 - (iii) The Commission recommended the removal of Members of Parlia- ment from Boards of Directors, the limitation of boards to 10 members. and the appointment to boards of technical experts, main users of the products or services produced, and representatives of major creditors. The first recommen- dation was enacted in 1985; the second and third are being implemented slowly, with a few exceptions only as fast as vacancies occur. (iv) The Commission suggested that boards be more actively in- volved in the choice of General Managers, by advertising vacancies, interviewing candidates and proposing a short list of names to the President. This procedure is being adopted. (v) Cost-cutting measures were a priority item for the Commission; managers of the parastatals responded by reduc- ing the number employed in the sector by about 20,000 between 1984 and 1986 (though an undetermined percentage of these people probably were shifted to other posts in the public sector); accounting improvements were begun, and a host of waste reduction steps were taken. 3.6 As a follow-up to the Hamad Commission, a Presidential Implementation Team was formed in 1984, with a mandate to suggest further cost-cutting and cost-controlling measures. Over a three year period the PIT has made a number of suggestions for improving cost consciousness in parastatals. But it also has examined the issue of performance monitoring and supervision, and in 1987 submitted to Cabinet a set of recommendations on these matters. In essence, the PIT sees lack of managerial autonomy as the principal problem, compounded by the ineffectiveness of the supervision agencies. Unlike parastatal managers who attribute poor performance to lack of capital and other resources, the PIT blames unclear or incorrect objectives and lack of incentives. The PIT recommends that profitability be established as a primary goal of parastatals, that managers be given latitude on who they can hire and on how much they can pay, and that decision-makers in Government scrutinize each and every parastatal to determine its utility to the country--and to take corrective action including dismantlement if necessary. Finally, the PIT proposes that a new agency be formed to advise Government on parastatal policy, to analyze problem firms and propose solutions. 3.7 Finally, there is the Nsekela Commission report of 1987. While the bulk of this report dealt with remuneration of civil cervice and parastatal employees, it also dealt with the sector's poor performance and the institutional factors contributing to that performance. In line with all other analyses, the Nsekela Commission attributes the sector's admitted ineffectiveness to poor initial investment decisions, unclear objectives, weak management, insufficient autonomy of management, and a  - 38 - set of macro issues outside the control or direction of enterprise management. It recommendss a more careful search for chief executives, the involvement of the Board of Directors in their choice, better boards, more resources devoted to management training, and the creation of a new, centrally located policy makingisupervisory body. The new body should take over some of the responsibilities of SCOPO (which would disappear), be staffed by high-level persons, be chaired by a personage of cabinet rank, and be assisted by a powerful secretariat, headed by an outstanding official. Both sets of recommendations, those of the PIT and those of the Neekela Cownission, are under review at the present time. 3.8 All these efforts to improve parastatal performance, particularly those involving changes in the regulatory environment, have had only marginal impacts. Few of the proposals have been implemented and those that have, have not gone far enough to have lasting, significant effects. On the other hand, a number of other steps which directly or indirectly change the policy environment facing parastatals have recently been taken that are having significant effects. 3.9 Most important is the Economic Recovery Program (ERP) introduced in June, 1986. Among other things, this program includes the following changes in economic policy: The shilling has been devalued and the Government is committed to further devaluation to achieve equilibrium by mid-1988. As these changes occur the Government plans to shift from reliance on administrative mechanisms to tariffs as the principal means of regulating imports. As interim measures, an own-funded import and an export retention scheme have been adopted, thereby allowing wider and more automatic access to foreign exchange and imports than had previously existed. Interest rates have been increased substantially, the goal being to achieve positive real interest rates by mid-1988. Tight monetary and fiscal policies have been adopted. Subsidies, most notably on food and agricultural inputs, have been eliminated, producer prices for agricultural exports have been increased and domestic prices are being decontrolled in such fashion that by July, 1988 only 12 categories of commodities will remain controlled. Restrictions on transport and trade in agricultural products and commodities whose prices are being decontrolled are being lifted.  - 39 - 3.10 These changes are beginning to have profound effects on all seg- ments of the economy but especially on parastatals. In general they mean that the protection from domestic and international competition that para- statals in particular have enjoyed is being eroded, that they will have to pay prices and interest rates more similar to those faced by the private sector and that they cannot assume that the Government will automatically come to their rescue with subsidies or credit when they incur losses. Parastatals that can adapt to the new situation by improving internal efficiency or by shifting from unprofitable to profitable lines of activity--for example, from processes heavily dependent on imports to those that result in exports--will prosper; those that cannot will be hurt. An Aienda for the Future 3.11 These policy changes address many but not all of the factors discussed in C%apter 2: they are necessary but not sufficient to generate the momentum sustained improvements in the parastatal sector. First, special measures may have to be developed to assist parastatals especially hard hit by the effects of the credit squeeze and devaluation. Second, while the ERP provides strong incentive3 to parastatals--to the institu- tional entities--to improve performance, that fact does not automatically mean that board members. managers and employees of parastatals have comparably increased incentives. Since the Government, not any of these individuals, is the owner, no one with direct responsibility is automatically and necessarily hurt by poor parastatal performance or rewarded for superior performance. Past efforts to utilize institutional mechanisms to provide such motivation have worked poorly. Another, more serious effort in this direction is called for. Third, in addition to being properly motivated, parastatals and their managers must have the capacity to respond in appropriate ways. They cannot do so if they do not know how; if they cannot fill key staff positions with well-trained and motivated individuals, or if they are blocked by overwhelming debt obligations, pricing regulations, red tape, or lack of raw material, spares or infrastructure. To round out the ERP so far as parastatals are concerned, policies must be developed to resolve these problems. The following agenda is meant to accomplish this task. Clarify Goals and Correct Expectations 3.12 In a speech given in November, 1985, President Mwinyi put para- statals on notice that they had two years to put their economic house in order or face disciplinary action. In effect, that statement told para- statals that they were to behave like profit-making entities, that non- commercial goals were to take second place, and that after a period of adjustment they would be held accountable. It is a statement that seems to have been taken seriously and may have been responsible for the harder line parastatal managers appear to be taking with non-paying customers and redundant workers during the last year.  _40 - 3.13 More statements of this type, though of a more specific and detailed nature, are needed at the present time. They are needed to spread Information about recent policy changes that are not widely known and understood.28/ They are especially important at the time a new program is being initiated. Otherwise, old expectations will remain, the new efforts vill not be taken seriously and implementation will be impeded. If the assessment and recommendations of this study are accepted, that statement might include the following pointes -- an announcement that a new policy statement on parastatals will prepared within a specified period. say, six months; an indication of why such a statement is needed and what its general content will be; -- an explanation for the new macroeconomic policy euvironment and the necessity of eliminating preferential treatment; -- an appreciation of the fact that the new policy environment, as it unfolds, will create opportunities for some firms and problems for others; -- a strong assertion that there will be no general bailouts- -that there simply are not the resources to do otherwise--that the most that can be expected is that a few high priority firms might receive temporary assistance to help correct past mistakes and adapt more rapidly to the new environment. -- an indication of the major steps to follow, e.g., announcement of the individual and the institution to be put in charge of the operation, announcement of programs to be initiated to eliminate credit and accounting arrears, etc. -- an announcement of immediate interim measures--e.g., no new parastatals to be established, no net expansion of staff, no new loan guarantees to be issued, etc.--until this new policy statement is made public. 281 A case in point is the list of commodities no longer subject to price controls and that can be freely imported and traded. It is important to do more than take away restrictions; at a minimum it is necessary to ensure that everyone knows that the restrictions have been lifted. A high-level, widely publicized announcement of this policy change would encourage private activities to enter the field more rapidly, would inhibit local efforts to restrict such activities and would put Regional Trading Corporations and other parastatals on notice that the competition they are beginning to face is not going to go away- -indeed that it will increase--and that therefore they should begin Continued on next page  - 41 - 3.14 A comprehensive policy statement pertaining to the parastatal sector would include a statement of what is expected of the sector and its role vis a vis other actors--the Government proper, cooperatives and the private sector--an analysis of their performance and problems in fulfilling this role and a plan of action to correct these problems. For some parastatals, in particular, marketing, trading and regulatory bodies, more specific statements of goals and objectives are also needed. Other countries have found such statements useful, first and foremost because the process of preparing such a statement forces a certain amount of strategic thinking to be undertaken, and second, because the publication of such a statement helps put everyone on notice about what is expected. Examples of such policy statements are provided in Appendix E. Reduce the Number of Parastatals to a More Manageable Nimber and for this PurRose Classify Parastatals and Establish Specific ProArams for Each 3.15 At the present time, very scarce managerial and financial resources are being spread over a large number of parastatals, so thinly that few of them have sufficient resources and expertise to do what is necessary to adapt to the new economic environment. These resources must be reallocated to provide high priority firms that are capable of becoming viable with all that they need and to stop wasting resources on firms that are no longer serving useful purposes or cannot become viable within a reasonable time. 3.16 For this purpose, it is proposed that parastatals be classified into commercial and non-commercial categories and that the commercial parastatals be further subdivided into those that must be maintained and made to work, those that no longer have any rationale and are to be divested and the remainder which will be allowed to fend for themselves, prospering or failing without special help or intervention. Each of these categories is discussed below. 3.17 Parastatals to be maintained. This category of commercial para- statals would include enterprises which the Government is determined to support even if they prove to be economically nonviable for a period. Parastatals likely to be included in this category in Tanzania are those concerned with post and telecommunications, water services, power production and distribution, rail and air services, harbours and ports, insurance and banking.291 There is no good name for this category. Not all are 'public utilities, as the term is commonly used; not all are natural monopolies; while they are all high priority, the Government is likely to assign high priority to the activities of other parastatals and private firms from time to time. Continued from previous page adjusting to it rather than attempting to shore up their eroding monopoly position. 29/ The brewery and cigarette companies might be added to this list because of their importance in generating revenues. But the tax Continued on next page  _ 42 ^ 3.18 The distinguishing characteristic of parastatals in this category is that the Government would work out with them an agreement, sometimes called a 'contract plan', that in the initial year would include plans for equipment rehabilitation and financial restructuring and on an annual basis cost minimization targets and pricing formulas as well as investment plans. The number of firms in this category must be strictly limited by the Government's ability to adequately develop, administer and finance such plans. At the present time, it is unlikely that more firms than those listed above could be included in this category. 3.19 Parastatals to be divested. Parastatals in this category are those which no longer serve any useful purpose, which are clearly not capable of becoming economically viable in a reasonable period of time or which the Government decides it no longer wishes to manage itsplf and prefers to turn over in part or whole to the private sector. If a parastatal fits one of these criteria. no further resources should be spent on it; it should be phased out and its useful assets redeployed elsewhere. Firms that are clearly not viable could equally well be placed in the next category and allowed to fend for themselves; but if it is clear that they are not going to succeed on their own, it would be better economically to redeploy their assets and manpower sooner rather than later. 3.20 All other commercial parastatals. Between these two extremes are a large number of parastatals that may or may not survive in a competitive environment without preferential treatment. They should be allowed to fend for themselves but with greater freedom to respond to competition (see below) and form joint ventures or enter into management contracts. Some may warrant temporary assistance to correct the effects of past policies and price distortions, but in most cases the enterprise should be left to survive on its own without special treatment. They should not, however, be asked to serve non-commercial goals without receiving appropriate compensa- tion from the Government (see below). 3.21 Temporary assistance may be warranted in certain cases, for example where an enterprise has been decapitalized or unable to maintain and replace outmoded equipment because of price controls, Government- mandated social welfare objectives or sudden changes in policy (for example, devaluation). It may also be appropriate to help firms improve operational capacity in areas that were neglected in the past--for example, internal accounting and control systems, quality control, marketing and financial management. Continued from previous page system is sufficiently well developed that the same revenue could be collected no matter who owned these firms. Nor is their anything to be gained by keeping out domestic and foreign competition.  - 43 - 3.22 However, Government resources that can be used for these purposes are extremely limited and should therefore be provided only to a few firms with the very best chance of prospering if such assistance is given and is not available from other sources.30/ To ensure that these conditions are met, thought should be given to setting aside a specific pool of budgetary resources for such assistance and asking firms in this category to compete for these resources by submitting proposals on a competitive basis to a panel of experts. An added degree of discipline can be obtained by providing these funds as loans, though perhaps at concessional rates. This procedure would ease the administrative burden on Government officials and improve the chances that the scarce funds would not be spread too thinly to be effective. Once this transition period is over, Government assistance for this purpose should cease and the Banking system should be relied upon as the principal institution for allocating credit. 3.23 Non-commercial parastatals. Government subventions to this group of parastatals is not insignificant; in 1985/86 it amounted to over TSh. 4.5 billion. The status of each should be scrutinized with care. Some are no different from winisterial departments and should be reconLstituted as such. Others are likely to operate more efficiently if they are admin- istered somewhat separately and have more autonomy to hire and fire and raise revenues through the sale of goods and services; cases in point are the University, major health facilities and possibly also some research institutes. They should not, hfwever, be permitted the same degree of financial independence (for example, to borrow or determine how reserves are to be utilized) as commercial parastatals. Still others should be abolished or reconstituted as private voluntary agencies supported solely by private contributions. The goal of such a review should be to reduce the number of such agencies that have to be administered and financed and to improve the cost-effectiveness of those that remain. Increase Competitive Pressures 3.24 During the last two years, competitive pressures on some para- statals have been significantly increased. This has occurred because of the introduction of the own-imports and export retention schemes, and by deconfinement of industrial supplies and domestic distribution of agricul- tural commodities and inputs except fertilizer and seed. The Government is committed to proceed further with deconfinement, and to consider arrange- ments for fertilizer and seed, as additional price controls are eliminated. 3.25 Many barriers to entry into economic activity still exist, hrw- ever. To eliminate or reduce them, additional measures should be con- sidered. Government offices and parastatals could be allowed--perhaps even encouraged if better service or lower costs can be obtained--to purchase supplies and services from any accredited source. Examples of the supplies and services that should be considered are office supplies, accounting services, legal services, transport and shipping--all of which, as a practical matter, are still *confined". To make this measure effective, 30/ In some cases necessary assistance can be obtained from private partners in joint ventures, management firms which agree to take an Continued on next page  - 44 - private firms--and cooperatives and parastatals in other lines of business as well--should be allowed and encouraged to establish accredited businesses in these areas. For example, financial institutions could be allowed to offer the full range of financial aud banking services and to provide them to any potential client; and cooperatives could be encouraged to expand the range of services they provide--for example, opening retail stores--in their region. open retail outlets and provide other services to members and non-members alike within their area. Reducing barriers to entry is also likely to require changing regulations governing permits to invest and establish new businesses and revising legislation providing protection in case of expropriation (for example, to specify an objective procedure for determining the value of assets, as opposed to the present vague promise of "full and fair3 value, ar.i a clear time frame for compensation, presently unspecified). Many other barriers to entry, informal and subtle as well as formal and obvious, are likely to exist; a broad-ranging study should be undertaken to identify them and to determine how to change them. Eliminate Preferential Treatment 3.26 As detailed in Chapter 2, parastatals receive preferential treat- ment in a variety of ways. If inefficiency is not to be rewarded, this treatment mrst be eliminated. Subsidies must be provided sparingly and only for sp'scifically agreed services. Payment of taxes and dividends must be required on the same terms as required of private companies Cand if the dividends cannot be paid they should accrue with interest).31/ Government guarantees for domestic loans should be eliminated if possible, or if not provided sparingly for exceptional reasons. Interest rates on such loans are projected to become positive by mid-1988; in the interim it would be useful to investigate how, from whom and at what rates the private sector obtains credit so that a set of positive rates can be selected that elimin- ates any remaining preferential treatment. Guarantees on foreign loans should be provided sparingly and all such loans should be onlent at commer- cial rates. In addition, the credit allocation system should be studied to determine the extent and nature of preferential treatment accorded in this way. 3.27 Other dimensions of financial discipline can be enforced in the following ways. It should be stated and restated at the highest level-- and demonstrated in practice--that there will be no automatic Government bailout or debt forgiveness. Arrears can be handled by insisting that all overdue bills, taxes, loan payments and so on must be settled (not neces- sarily at par) or renegotiated within a maximum of six months, after which banks will be instructed not to provide credit and producing parastatals not to provide goods or services to any company in arrears, regardless of Continued from previous page equity position or establish some other profit sharing arrangement, or through twinning arrangements with similar, more developed firms. 31/ So far as dividends are concerned, one way to do this is to determine a standard or average dividend rate from a study of private business Continued on next page  45 priority. Since some intractable and contentious problems are likely to arise, it would be useful to assign a task force to assist with implemen- tation and mediation. The Government may also find it necessary to assist some parastatals financially if this problem is to be resolved once and for all. The problem of inadequate financial accounts can be handled by instructing banks to consider parastatals without accurate, up-to-date accounts (after a grace period of, say, six months) to be non-creditworthy and, therefore, not eligible for credit, regardless of priority. Here too some intractable problems may arise that require special assistance.321 Eliminate Discriminatory Treatment 3.28 As discussed in Chapter 2. there are a variety of factors that make it difficult for parastatals to ce:mpete on equal terms. It is as important to remove such barriers as it is to eliminate sources of preferential treatment. 3.29 Price Controls. Parastatals are obliged to adhere to price controls and guidelines to a greater extent than the private sector. In part, this situation derives from the fact that parastatals are more frequently found in fields where regulation has been necessary because of the absence of competitive pressures. But the situation also dervies from the fact that it is easier to enforce price contro's on the public sector. As noted above the list of commodities subject to price controls by the National Price Commission is to be reduced to 12 groups by mid-88; consideration should be given to going further at that time. Other prices, including especially those of natural monopolies, are currently set by Cabinet. For these, consideration should be given to delegating this authority to a more technical body on the basis of guidelines set by Cabinet. These guidelines might usefully include automatic pass-through of the effects of devaluation and interest rate increases except for a targeted improvement in efficiency which would be passed on to consumers.33/ Continued from previous page practices and then to require all commercial parastatals- -subsidiaries and holding corporations as well as independent corporations--to pay (or accrue with interest) the appropriate amount to the Government. 321 In 1986, the National Board of Accountants and Auditors directed auditors to follow practices laid down in a manual, Standard Accounting Practices and Principles; more recently, it has initiated a series of steps to assess and improve training capacity in the country. These efforts should be reviewed to determine their effectiveness and whether anything more needs to be done at the present time. 33/ A recent directive that allows the railway to raise its tariffs by up to 5 percent without prior approval and by up to 10 percent with Continued on next page  -46- 3.30 Social obiectives. Some parastatal managers appeal to social objectives as an excuse for inefficiency. At the same time, some Government officials believe that parastatals should be willing to bear the expense of achieving social objectives--for example, keeping redundant workers or providing merchandise or services to public agencies, officials and remote regions at less than market price--because they are compensated, among other ways, by receiving foreign exchange and credit at favorable rates. Both arguments lead to a stalemate that permits the inefficiencies to continue. That stalemate would disappear if it was accepted by all parties that commercial parastatals are to serve strictly commercial goals, that social services are not expected of them unless specifically contracted and paid for and that they should not expect any preferential treatment. To accomplish this change in expectations, high-level public statements to this effect are needed along with changes in procedures and policies that eliminate preferential treatment and establish a mechanism of contracting for social services. That mechanism should be a part of the the budget process, which is where decisions to make other purchases by the Government are taken. For example, regional trucking companies are expected to service remote areas vithout extra compensation. Either the company should be allowed to raise its fees for these regions or the Government should agree to pay the difference.341 3.31 However, before any such solution is implemented, the costs and benefits of achieving the underlying goal in different ways should be assessed. For example, a sample survey could determine how much of the supply of an item, such as farm implements, is provided to remote areas by the RTCs; whether the items they provide go to the intended beneficiary- -the poor farmer--or to wealthier farmers or middlemen; and what would be the effects, benefits and costs, of leaving provision of such goods to private channels. 3.32 Managerial Autonomy. There is general agreement that managerial autonomy must be increased. Parastatal managers cannot be held accountable for results if they have little power to determine those results; nor can they be expected to perform on a par with private managers unless they have similar degrees of freedom. This means, for example, that managers should have more freedom to hire and fire staff, set prices and wages, purchase Continued from previous page ministerial approval during each six month period is a sign that the need for greater flexibility is being realized. But this particular guideline bears no necessary relationship to actual increases in costs and improvements in efficiency. To introduce these elements effectively, some negotiation between the parastatal and a technical body representing the interests of the Government and country at large will be necessary. 341 Other more specific solutions might be considered in special cases. ForJexample, poor people in remote villages could be allowed to purchase vouchers to buy farm implements at a discount, all other customers paying the full price plus transport costs; the parastatal would then turn the vouchers over to the Government for reimbursement of its costs. If such a targeted subsidy proved administratively too burdensome, a more expensive but still acceptable solution would be to reduce the price to all customers and subsidize the enterprise directly. A third best solution that can be considered in cases like the provision of electricity where the market can be segmented is cross-subsidization, that is, charging one part of the market more than another so that on average all costs are covered.  47- from the most economical and reliable suppliers, sell in the most profit- able markets, close plants and production lines that cannot make a profit and open new lines and plants in the most promising areas. The quality of their decisions should then be judged after the fact--by results--not by the extent to which they conform to a priori rules and regulations. 3.33 Managers have not been given more freedom for at least four reasons: desire that they conform to certain uniform standards (e.g., with respect to wages and terms of employment), lack of confidence in their abilities, weak boards of directors, and pressure to implement non-com- mercial objectives (e.g., location of a plant in a backward area). But it is also the case that managers have often not exercised the full extent of the freedom they have, in large part because they are not directly rewarded and punished for the ensuing results. 3.34 Pressures to implement non-commercial objectives should be dealt with as discussed above, by reiterating the priority of commercial goals and using special contracts to achieve non-commercial goals (in those hope- fully rare cases where it is found to be appropriate and necessary to utilize commercial parastatals for these purposes). The other factors suggest that it may be best to proceed towards more autonomy by modest increments. This can be done by specifying general principals that should be followed or setting a range withkn which the manager has latitude to act (with or without board approval). As everyone becomes more comfortable with the results, the range within which latitude is allowed should be increased; and wherever possible, general principles should be substituted for ranges. The procedure suggested above for regulating prices charged by natural monopolies is a case in point. 3.35 Weak boards and management committees contribute to the problem by encouraging regulatory agencies to undertake supervisory functions normally assigned to boards; but such agencies can only do so by establishing uniform rules seldom tailored to the circumstances of individual parastatals. The Government has already taken a number of steps to strengthen boards. These measures need to be consolidated and reinforced by ensuring that they are rigorously applied, appointing more technical experts (which means using fewer civil service generalists) and providing training where necessary for others, removing directors who perform poorly, limiting terms of appointment to 3-5 years and providing appropriate remuneration packages. In addition, it would be useful to develop a set of guidelines that spells out objectives and functions of Boards and national policy issues of relevance in formulating company policy. So far as management committees are concerned, they tend to be inherently weak because of their composition; thought should be given to replacing them by full boards. 3.36 Employment and Compensation. Instead of paying salaries and bene- fits competitive with the private sector, parastatals have depended on secondment from the civil service and central allocation of new graduates obligated to work for the public sector to fill their needs for managerial and technical manpower. This approach has resulted in moonlighting, low productivity and morale, greater dependence on high cost expatriates and a sorting out of personnel, those more interested in security and less capable of competing in the private sector remaining in public service.  48 These problems cannot be eliminated in any other way than to make compensstion packages competitive with the private sector. This does not mea,a that public salaries should be identical to that of the private sector since there is more security of employment, but it does require some narrowing of the gap. That cannot be done without increasing productivity, which means in the first instance at least, eliminating redundant labor and motivating remaining employees to devote their energies to enhancement of parastatal goals. A necessary, though far from sufficient conditior for accomplishing this is to provide managers with more freedom to hire, fire, and set wages, as discussed above. Such flexibility iR absolutely necessary if restructuring of the parastatal sector is to occur at all. A barrier to providing such flexibility may be fears about the social consequences of the disruptions involved. While many observers appear to believe these consequences would be minimal in Tanzania because of earlier experiences with retrenchment (see paragraphs 6-9 of Appendix B), the fears may still be present and deserve consideration if only to lay them to rest. Other means to increasing productivity must be identified on a case by case basis. 3.37 A review of income tax and fringe benefit policies is also called for. While marginal rates have recently been adjusted, they remain so high that the benefit of salary increases higher levels is small and the incen- tive to receive increases in the form of non-taxed fringe benefits remains high. Fringe benefits now account for a large fraction--perhaps 50 percent--of total compensation. Particularly when given in kind rather than monetary allowances--which is most common--they impose substantial costs and managerial burdens on parastatals and they lend themselves easily to abuse. These two subjects deserve careful study to develop a plan by which fringe benefits can be reduced, the savings used to increase base salaries and tax rates adjusted to ensure that an adequate fraction of the increase in base pay is passed on to the employee. Of particular import- ance is a review of housing policy, perhaps the most managerially burden- some and costly of the fringe benefits. Establish a Performance Monitorina and Evaluation System 3.38 In principle, performance evaluation of public enterprises involves, first, agreement on goals or targets, second, assessment of the extent to which the company met these objectives, and third, determination of the reasons for the observed perrormance, that is, whether due to external or internal factors, and if the latter assignment of responsi- bility. This information would then be used to reward or penalize those responsible as appropriate. The second and third steps can become quite complicated since the analysis must separate out various causes, determine which could be influenced and consider what would have happened under a different set of circumstances. Tanzania has neither the necessary infor- mation systems nor sufficient trained analysts to undertake such an analysis for more than a few enterprises. On the uther hand, some system of performance evaluation and rewards is necessary to provide proper insentives for superior performance.  - 49- 3.39 For important enterprises, the system can be embodied in a contract plan (see paragraphs 3.17 and 3.18) that includes a section on how managers will be rewarded/penalized for their performance and how that performance will be judged. One way do so is to establish an expert committee reporting to the office responsible for appointing the manager. In most of these cases, this means reporting to the President. This expert committee would assist or advise the Government on relevant portions of the contract plan, assess the extent to which goals and targets have been met and judge the extent to which senior management was responsible for the outcome. 3.40 For the bulk of parastatals that do not have contract plans, reliance might again be placed on an expert committee reporting to the appointing body, the principal difference being that there would have to be a general formula or set of guidelines established to determine rewards and penalties to be applied across the board (or to major groupings of parastatals). 3.41 A mechanism already exist for providing bonuses to workers in companies that surpass agreed-to production targets; but it works poorly: few agreements are concluded, registered and accepted, and only a handful of bonus awards have actually been made since its inception in 1981. An important reason for this poor record is the highly centralized nature of the scheme which requires the registration and acceptance of a voluntary agreement between managers and workers by the Permanent Labor Tribunal (see paragraphs 46-48 of Appendix B). If managers were held more accountable for parastatal performance, as proposed above, they could be given more autonomy with respect to providing such bonuses directly, or with agreement only of their boards. Institutional Arrangements 3.42 This program for parastatal reform requires two different types of institutional arrangements, one to cover a transition period of two or three years and the other to operate and manage the parastatal system that emerges from this transition period. 3.43 Transitional Arrangements. During the transition period some one, or agency, must be assigned responsibility to: - - think broadly and strategically about the best way for the Tanzanian economy to organize itself in the long run and decide on the role that the parastatal sector should play, and for this purpose undertake analyses and develop position papers for consideration by the President and Cabinet;  - 50 - -- develop detailed plans to move the economy and the parastatal sector in particular in the desired direction, a task that includes classifying parastatals and setting up programs and procedures to deal with parastatals in each group; -- make sure that all parties understand and accept the need for these changes; and -- implement--or assign responsibility and supervise the implementation of--the agreed-to plans, for example, review, and if necessary assist in the development of. rehabilitation proposals and implement programs to correct credit and accounting arrears problems. 3.44 These four tasks, or sets of tasks, are not fully separable or do- able in stagest each will interact with the other and in the process goals, plans and implementation proceedures will be amended. For this reason, one agancy should be assigned responsibility and held accountable for all four tasks. But to accomplish these tasks, it must have the power to delegate authority, assign responsibilities to other agencies and impose sanctions for noncompliance. For example, it might ask the Commissioner for Public Investment to implement the programs to eliminate credit and accounting arrears; and it might ask sector ministries or holding companies that have the capacity to do so to advise on which parastatals should undergo reha- bilitation, help draft terms of reference for studies to prepare rehabili- tation programs, and supervise the whole process. In addition, this core agency should have the authority to set up advisory committees, special implementation teams and ad hoc task forces and to hire consultants as needed to get the job done. 3.45 Since the tasks involved are similar to--indeed they are a part of--the Economic Recovery Program which is the responsibility of the Ministry of Finance, consideration might be given to locating this agency in that ministry. But the problem of finding the proper person to lead this effort argues against inclusion in that ministry. The person must be distinguished and senior enough to be listened to by the President and the Cabinet; he must have a high enough rank to deal effectively with para- statals, regulatory bodies and ministries--which probably means a rank of Minister or Principle Secretary--and he would have to devote full time to the task, ideally for the whole transition period. Such a person would not be effective if located within a ministry; he would have to report directly to the President. A practical alternative, therefore, is to locate this agency in the Office of the President. The President's Implementation Team for the Hamad Commission Report provides a precedent for this; but the body envisioned here would differ in that it would have ongoing strategic analysis and planning functions as well as implementation and supervisory functions. For this purpose, its head would need several deputies to whom primary responsibility for major parts of the program could be assigned and  - 51 - a small--perhaps no more than a dozen--senior staff. All these individuals should be capable of preparing high-level decision memoranda and have sufficient authority to implement or supervise implementation of parts of the program. 3.46 Onaoint Arransements. The ongoing functions that the Government needs to perform to properly manage its parastatal sector can conveniently be summarized by reference to a statement recommending the proper role for management of multi-divisional firms in the private sector. According to that statement, head offices of such firms should undertaken the following tasks with regard to their subsidiaries: (i) Set basic objectives; (Li) Appoint the general manager and members of the board; (ii) Evaluate performance; (iv) Reward or penalize the manager for his performance; (v) Review financing decisions that affect the funds of the head office; (vi) Do long range planning and coordination across units; (vii) Do nothina else--that is, leave all other decisions to the management of the operating units.351 3.47 For public firms, this list needs two modifications. First, task (v) should be amended to read *review financing decision that affect public funds Cincluding equity contributions, debt guarantees, and allocation of surpluses to dividends, capital projects and other uses)'. And second an additional function should be added, namely, to regulate and set prices for natural monopolies and wherever necessary enter into contracts for the performance of special non-commercial tasks. 3.48 The first of these tasks must ultimately be performed by the President and Cabinet. To do so they will continue to require policy papers and advice on a regular basis. A scaled-down version of the central agency envisioned for the transition period would be appropriate. This central agency could also assist the President in making parastatal appointments and serve as the secretariate for the advisory committee on parastatal performance. 3.49 Final responsibility for review and supervision of financial decisions must rest with the Ministry of Finance, with the Office of the Commissioner of Public Investment and DEVPLAN playing key roles, since these decisions affect the central Government's budget. But sector 351 After speech by Professor Leroy Jones to World Bank Public Enterprise Seminar, February 1987.  52- ministries, holding companies and boards of directors must also be involved. 3.50 Long range planning and coordination at the sector level should be the primary responsibility of sector ministries, though in some circumstanc*s they may call upon holding companies to assist. Guidelines for the establishment of these sector plans must be provided by DEVPLAN which would also, along with the central agency concerned with basic objectives for the parastatal sector, review these plans to ensure conformity with national priorities and objectives. 3.51 Monopoly regulation and performance contracts, at least for the time being, should be in the hands of the central agency. Eventually, these functions might be moved to Treasury or decentralized to sector ministries. 3.52 The admonition to *do nothing else' implies a substantial devolution of authority to managers and their boards of directors. Such a devolution may have to proceed in stages, the first stage consisting of negotiations with a regulatory body for more discretionary power and exceptions to general rules (for example, with respect to compensation). * * * * * 3.53 These recommendations involve four types of changes in the current regulatory system. First, strategic policy analysis and planning would become a distinct, important function clearly assigned to an appropriate agency; the President and Cabinet would continue to make final aecisions but would have available to them papers and decision memoranda to serve as guides. Second, there would be fewer cases of overlapping authority. Wherever possible, primary or ultimate responsibility for a given function would be assigned to a single agency; it may in turn delegate that responsibility but the accountable agency is clearly identified. Third, there would be less reliance on uniform regulations, more reliance on guidelines and negotiated arrangements. While this approach is time and staff intensive, it would be feasible because such efforts would be focussed on only a few critical parastatals. 3.54 Finally, because the parastatal sector would be significantly smaller, the size and number of agencies involved could be substantially less. Remaining parastatals could be grouped together in such ways as to reduce the number of sector ministries and holding companies involved in their operations. And the functions of a number of specialized regulatory/ supervisory bodies could be taken over by other agencies. For example, SCOPO's functions as well as those of the National Productivity Council, to the extent they continue to be performed, could be taken over by the central authority. The result should be a more streamlined system that conserves on scarce resources and high-quality administrators while at the same time affording managers more autonomy to get on with their job and more pressure on them to do it well.  -53 - LIST OF APPENDICES A. Characteristics and Performance of Tanzanian Parastatals Al List of Parastatals and Selected Characteristics by Holding Company and Ministry A2 Parastatal Value Added and GDP by Sectors A3 Analysis of Bureau of Statistics Survey A4 Investment and Sources of Savings A5 Parastatals Remitting Dividends A6 External Funds On-lent to Parastatals A7 Parastatals with Profits or Losses Exceeding Shs 5 Million AS Financial Performance of Eight Key Production Parastatals and Five Natural Monopolies B. Employment and Compensation in Tanzania Parastatals C. The Institutional Framework: Orgunization, Management and Supervision of Tanzanian Parastatals D. Analysis of Qualitative and SCOPO Data on Tanzanian Parastatals E. Examples of Statements of General Principles for the Parastatal Sector: Benin, Senegal and the Philippines  - 54- APIX Al PASASTATAlS m T Size (Uteyti) _ lfae l a Tons. a MD415M HOLODr COMPANIMS Paid-up Elyat. Parti.i- c' ru o Agr"emt Agrassat A noILikT ib rntin aewnt* Caital pation Wit1h S AWIU 4 l Ont .l . nt (|0 T h) a/) V A CLJI CAHlWr AJWfKrTY OP TNa. 219.8 294 AD0 LAWD Ntara C ad_e C Ltd. 6.0 0 TANTA Co. Ltd. ItTL P9D NO AIC CaO Arusha Plantationsa bguaoyo Form senate PlnXtstion Oakse Rice Farm "Igs Ie Poultry Fare Kiru Valle 0v Co" ml,I i. iart 5.0 s1 Setehet Wheat Go. 8 6 2n Ton Seed Co. Vet K I ..n aro Pars 80.0 20_ Dedm Vine Co. Nrtienal Poultry Co. 8WAR OEIVS# CIRPORATIN K gers Sugar Co.K Wager Sugar Ltd. 0 F Ktle - ro Sugpr Co. 924 0 tl Nbibwa Sugar Estte Ltd. 180.2 825 T n, PlantingI Co. MS Carl 9re A/S (Dnarkl) N n.e. Kinsbs S1sa Estate Co. lHom Sisal Esate. Ce. soQ1 l4erooora Sisal Estates Co.. Itahe Si-al Estate Co. Ton Carpet Co. Kum 6r. Te Estates Iafut ye llulu =;k i- wetc Co. 2.0 Nabtional Olstributor. Ltd. 10.0 84u Ntienal Ranching Co Ltd Ilash.,) Sisal Estat Ca. 2400 01ier. Versa Ral I Estat Ltd o.0 770 60  - 55- baDtt Tye of Tern of _vasm NKD= cowwm gr. rie AMUST HODra CiWn Ci_m aiee 0Si facre"an Wil k's *WLZAI4 ln l_ (es Tab) Mism Pittc rod Tangs. Coffee CurwIn Co LIt. .5 6on Tengs. Packere Ltd Taramal hr. esrch Or. U Tal- Coff c . ard Tannis C Li TanzCi Coto Slitrc Ta_zni Dairies Lt. 1. 5 Taania Dairies Ltd 2.0 133 Tanzania Di ri Ltd. - Tuber Tnzwania Dairy frail me Co. LIt. TOamia Hid14 c- Ski ua 7. gS Tanzaninsta- Cafee Co. Tanzania Livesoc Research Ore. di Tanzani- Too b 11.0 o 10 Tanxani Tea Slder .0 0 40 Tobacce Authority of Tanzania 1476 Troical Pesticie Re. Inrt. U 8rnIa Agricultural Contra. CM6&IN TIU NATIONL T13N A 0.8 AI TRNPT Dri rT _ 80.7 130 Dadoin Regonl Transor Co 0.0 4 Ilrinft ?imT o 0.11 "booR nTrnpot4.8 16 tlSe Srice.9 U _ti inof Tr t oS baumReginalTrane.rCo Tan Cosetal Shipping Line 11.4 1 Air Tanzani 1 37.0 80 Olsahars Tusn 2.0r * bard of t . o Kagara Regil Trnrt NOOgr Repl TrasotC  -56- U XR Al (emtinz4 h~~3~~.A1 (contlma.d) ~~~~~~~ Peivat. TYnof Term of wMDYM l Db CANMaau al"" wit. . roei-ena- A, ~at_ AFFILUTS 4er WinsCt Cln h U 1/1 AFPIt.IATIU~ ~~ Cnh-.4L ('0 TeOD ) () ____________ heeefi ft b.Canetr Co. 11.8 gme Ib nl Tr iOttil irid of Retrlal. Slt. I National C.AmrIStio Council d Nativonl latatee & Deaigning Corp. 194 Tabora Re "onalTrwaumport Tnzanis IHrboure Autrit 10 Tanzania Post. A T*l.cou1 . Cr 1 T*nznis Fta l-qu Co. UWUI5E Wradi we 6ruoia Hainip Corp mx=TMN InbitDUe of AUul Education IV Inetitute of Eduction # National xas-inOtian Ceuncil 1 Seiotn Univ of riculture Ton Elt u Suppfloc $ O iO Tanzani Library Servic 1d/ Univ. of Der *e Sale" S W41CE AND Oank of Tanzania 20.0 90 PLANNI8t il4bbore Ltd Cope-rative Rural D.t. Bank iS.1 no 40 Lsmat. of Financ Sha t II/ Karadha C_e L. 70.0 L National Sank od Commrce 80.0 gm NatS d a Accountants & Auditor. / National naurance Coam. 8.0 1904 National Lotry 0 ational Productivit, Cuncil U National ROdittion C_len i Raaili.mIi Ltd Rufiji Ouein Dow Author St Stiegier's Sberg Safari Camp Stat. Inaranae irokrer Tanxania Audit Corp.85 Tanzania Haei no SmAn 100.0 97h Tanzi Inveetant 1 ank 180.0 10 Tan. Ibti. Science Re. Council A 0 ii boat. CD  -57- AhSinZAL (continued) UIU (las er) yr.) Privue i t Typo of Ter_ of "va511t iDDlt C011004MRS ftid-up t elays. betial- C at greet *resnt AFPILXATtIl 4O- S i pat i w- cen fm I v Copnies (1000 TON) FM4 AFP A_ea Intl Cen. Cntr e HEALTH liht II eidical Cet ,. Nationa Food 4 Netrition Cetre i ti. In,. at Medical Nonaedil JDICIARY Twnate Lei_I Com LO MRIII= Ardbii Inetlte AM LBAN Kiser.. Brick C. Mi. Onvironmentl Mtb. Council A Metlunel "masln. Co C1 mtiel Emotes A cl nin Corp 10 ftIgiebtr of Slauidina MG Twinla Concrete ArCle MAW DWT. Inetof 0aw. lb .- iare- F AND LAM iol Int. o Pr ltf U Netienl lndt. of Social Welfer* Ntlionl Provident Fund I sMeL STAYe N-IN 8awTIuN 162.6 839 AN N ikr f aold Mint Cosatl Salt Works Kate. Gold int. co Kl w A bI Co La Gold mint. iiaJ ingu _hot Me Avenu Ltd 11anzas salt lia.e 8.0 872 19 POW Kaolin Mines Co Tananis Olem01 Cutting Co 40.0 468 Tanzaia astee Inda. 1.0 70 Tanzania Meuneelte Co Toen. Maelr 2.4 142 44 Viam Diamnds 12.0 214 s0  -58- OMDMh (continued) also (latest pr.) Private Tgp of Term of PaidupNF.l. Elomw. cr_n ci- Agreeent *greemt AFLIATIW O in _n)_ Cits Po ton wa i W ,_ n tpola (lo g *) (4 TANZM4A PSISLBE COT. C. 202 AI T n Ins Ltd i 0. o 60 VTannti Ltd 0J.2 140 50 Sh &aJl Co. Tn-. " Ihl. Pisetl refinio IL.0 410 80 Tanxania Electric Supply Co. 1.U8 61i5 tiATURAL no_e Making C RUS~C AND Fir Sorda AfrMca Ltd. 18.0 TIIIR Giraffe Wattle Eatrat Co.Ltd Natal Eamhym ""ta seventy Sena Village 11.0 28? Ki'l-ja TiAtr Ut I ization C. Ktla Sta11l Co ong'ula Sawill ftao smuSt I I z s4ePa Snamill Ltd N4ingogo Sawmll l&ata Seai I I C 270 i "I Hoi Ltd naunt Meru HNtIU 40.0 0 10 Ilana. H"otl Ltd Hotiaal Teura Ltd Nem Safari Metel Ltd Nuorogeorw Conerva. Area Ath. Al tzauiati Fiaietng Co SnIl-, I Sawl CS ) Ltd 8efrti Ltd Seregtl Safori 1.5 400 Seranti ldIlfRe e arch met. St.t. Travel Sarvica Ltd Tabor H-Iitu Producte Ltd 1.4 310 Tnani Flheri_ Cop 196 Tanzania Fiherli . r s. v Tanzni Peraetr R_nereh et. A Tanzani, lel Int G_nte Tanania Hotel Ltd Tanzani Naltinal Parn *' Tanzanle Tourist COrp. IV 1.6 Sheraton Overaea Mgt Corp (UA) 1 n.e. T _nla WIldlitf Corp 6.2 267 Tanzania Wood ndustry Corw Te.bo Chiphoards Ltd. 0.8 J a 20 TrC Gift Shope Ltd Uvuvi Kigam Ltd  - 59 - U~Ih (contnue) Private Wonseeseiit Tye of Tenn of insIT I@D4 CWN1 Psi d-up Epp q. Partiet- cAa A.r t Agr_emnt AFFUZA710 O-r*sblWt Convnlo C"l*l paklotV t1*8 __FILIATrn4 ladi n en en s ('30OTel) W _ ____ PD l tISTM'S Audio Vie.t Institutne J OFFICE c roop we Col log o A ow Ins. of Rural Dwt. Planning A Kariakoo Market Corp. 10.9 Z Kibaha Sducation Centre ibtiotnl Ar Ouncl I National Kiea_hil l Concl J/ Tenania File Co Ltd4 Tanale MN_ YAcy hat. IU Tonamis Schol ot Journal).. tl IDmBr'ls Capital Contruction Equipawt OfFICE cmJ Cre. Indutries Lbd Do4oe. Brick A Tiles Works nterated Coneret, d. re, Deveo pmnt Com. () V 6.0 29 TIADE 0s BOA0 OPF DE ISnAL TRADCE 1.7 254 IuOA1t AgrIc. & Industrils Suplies Co 49.0 29 DW,Gr *Cons.uer C. 47.6 le6 Side. tlrduars A CFis. Supply Co 40 2S 0 Der Text;I Cooany Ltd. 12.0 192 soeral Mmo Company 46.5 84 Hosolid Supples Co. 2. 0 115 Y tlonl Fcrmaceticlb Co Ltd. 9.1 en