Achieving shared prosperity, one of the World Bank’s twin-goals, isn’t just a middle-income country’s preoccupation. It has a special resonance in Tanzania, a US$1,000 per capita economy in East Africa.
Tanzania has seen remarkable economic growth and strong resilience to external shocks over the last decade. GDP grew at an annualized rate of approximately 7 percent. Yet, this achievement was overshadowed by the slow response of poverty to the growing economy. The poverty rate has remained stagnant at around 34 percent until 2007 and started a slow decline of about one percentage point per year, attaining 28.2 percent in 2012. To date, around 12 million Tanzanians continue to live in poverty, unable to meet their basic consumption needs, and more than 70 percent of the population still lives on less than US$2 per day. Promoting the participation of the poor in the growth process and improving their living standards remains a daunting challenge.
Explaining this mixed result requires a deeper understanding of Tanzanian economic growth patterns. Over the past the decade, growth was mainly driven by a small number of fast growing and relatively capital intensive sectors, mostly concentrated in Dar es Salaam. This has induced an uneven increase of welfare at the regional level and uneven spatial progress against poverty. More interestingly, the nature and composition of Tanzanian growth have had implications on inequality. Addressing inequality for the present and future generations is critical to achieving shared prosperity.
Inequality in the distribution of welfare (income or consumption) is viewed as a combination of inequality of effort and inequality of opportunity stemming from circumstances that are beyond the individual’s control such as such as gender, family background, and place of birth. Such disparities in opportunity, are widely considered unfair and deserving of attention from policy makers as they contribute to perpetuate the lack of capabilities for large parts of society and lead to wasted productive potential. But the persistence of inequality whether due to effort or circumstances can yield negative perceptions about the development and benefits of reforms and could constraint efforts for equalizing opportunities.
In our recent paper, we examine the extent and evolution of inequality of outcomes and inequality of opportunity in Tanzania, given their importance for poverty reduction and inclusive development.
We find that consumption inequality is moderate at a level comparing favorably with Sub-Saharan Africa and less developed countries. The GINI coefficient of real per capita consumption, from national Household Budget Survey, declined modestly during the last decade from 39 to 36 and improvements in the distribution of living standards seem to be favoring the 20 percent poorest segment of the population.
However, the nature and composition of economic growth in the country appear to have induced increasing inequality between the geographic regions. Household consumption grew faster in Dar es Salaam and urban zones, causing widening gaps between urban and rural, as well as metropolitan and nonmetropolitan, households. The increase of interregional inequality was observed for all welfare groups but was much more pronounced among the richest groups. Well-off households in Dar es Salaam and urban zones have been better able to benefit from the expanding employment opportunities and the increase of returns to wage work in the public and private sectors than their rural counterparts.
Poor rural households have been able to catch up somewhat with their urban counterparts in education levels and asset ownership, but this has been partly offset by increasing differences in family structure and access to services and job opportunities.
Despite the increasing disparities in returns, spatial inequality remains mostly due to large differences in households’ endowments in terms of family size and composition, education, assets, and access to services and employment opportunities. These disparities are, to a large extent, the results of intergenerational transmission of family background.
Around one-fourth of total inequality in consumption in Tanzania is due to disparities in individuals ‘circumstances such as age, gender, parents’ education, orphan status, and region of birth, and about 20 percent is explained by parental education only.
The effect of family background on the disparity of living standards appears significantly greater when compared to the effect of community characteristics, indicating a quite high persistence between parents’ and children’s socioeconomic attainments and problems of intergenerational poverty.
The road to poverty reduction and shared prosperity is yet to be paved. Policy actions should focus on developing the endowments of households in rural and remote areas, with special attention to improving the opportunities of new generations. There have been commendable efforts to promote basic education and access to assets. These efforts need to spread more widely and more evenly across the country. The promotion of education would help as well to equalize opportunities and contribute to breaking the cycle of intergenerational persistence of poverty. More efforts should be made to achieve broader coverage and better targeting of access to basic infrastructure and services. Policies to reduce spatial disparities in endowments need to be coupled with strategies to enable households to find the appropriate returns to their improved attributes in the local markets by supporting increased labor and land productivity.