Tanzania: Protectionism in Trade a Barrier to Prosperity

Alec Van Gelder | 06 Sep 2007
New Vision

Tanzania has followed many of its neighbours by introducing a tariff on imported medicines, to the benefit of crony companies and to the detriment of the poor. However, this protectionist instinct is a barrier to growth

Like many of its neighbours, Tanzania has condemned its poor to paying higher prices for medicine in order to help the prosperous owners of inefficient local drug companies: this is the true face of protectionism and it is a major obstacle to international trade agreement in the Doha "Development Round."

Many activists and delegates to the World Trade Organisation's stalled negotiations support these barriers to trade that are also barriers to growth and prosperity.

The UN Economic Commission for Africa endorses fears that "drastic trade liberalisation, particularly substantial reductions in tariff, could entail, for instance, loss of tariff revenue hence fiscal difficulties." The anti-globalisation group, Oxfam, issued a 128-page document in 2005 called "Why Developing Countries Need Tariffs", as part of the Trade Justice Movement coalition.

All of this means that many religious, aid and international organisations think incomes for bureaucrats matter more than prices for citizens. They also believe that tariffs protect local industries and allow them to grow up into competitive industries.

Thus Tanzania, on July 26, imposed a 10% tariff on imported medicines, to protect what it called its "infant medicine industries."

What about real infants? The immediate effect of this new tariff will be deadly. "Low income of the majority of the Tanzanian population hinders their accessibility to health services as medicines and other services are unaffordable," according to the World Health Organisation. The average Tanzanian earns US$744 annually - a 10 % increase in the cost of medicines can make the difference between life and death for the 21.7% of the population that suffers from malnutrition.

While few of the world's poorest -and least healthy - countries have any viable pharmaceutical sectors, a shocking number apply similar taxes and tariffs on medicines. A 2005 American Enterprise Institute study revealed that over 33 countries impose levies higher than the new Tanzanian rate.

Protecting infant industries may sound harmless, but tariffs insulate domestic producers from foreign competition, so consumers pay higher prices. There is no guarantee that the infant will ever grow up or be competitive yet citizens have to pay for the industrial cronies of their government. National investment and growth suffer - and the people suffer most.

Tanzanian Pharmaceutical Industry, the country's second-largest producer, backs the tariff because this infant still struggles to meet international standards after 25 years in existence. With the tariff, it will be better placed to profit from a market dominated by the government.

Exports are unlikely. The company has for years eyed other African markets, but according to a 2007 study by the German Economic Development Ministry, these are difficult to crack, as neighbouring governments "offer a preferential treatment to national suppliers." This infant will always be on life-support.

But protectionism is widely used by meddlesome governments: on the pretext of "encouraging local substitutes," Nigeria has banned imports of wheat, rice, corn and vegetable oil, even though they are cheaper for consumers and even though more than 11 million Nigerians are undernourished, according to the UN Food and Agriculture Organisation (FAO). Yet this giant country still does not have food self-sufficiency - a delusion it has pursued for 30 years instead of concentrating on other things it does better.

Logic and history show that countries and individuals get richer by specialising in what they do best. And by buying other things from countries or individuals that do other things better. That is why I do not make my own shoes and why Iceland does not export mangoes.

While tariffs have hurt Nigerian citizens, they have not done much for producers either: FAO data show that the capital stock in Nigerian agriculture, an indicator of investment, has remained constant over the last 20 years. In spite of all the huge improvements in agricultural methods over that time, yields in Nigeria have barely increased.

Many other disastrous examples demonstrate that protectionism does not work and that when producers fail, they lobby governments to tilt the playing field further in their favour. In the face of hunger and disease, Nigeria has not removed tariffs, but restricted supply even more by banning another 96 agricultural products from Ghana, whose producers are more competitive partly because they have lower tariffs.

One measure that really would help the poor through the WTO is a proposal by the USA, Switzerland and Singapore to remove all tariffs and taxes on medicines. But this is opposed by an unholy coalition of crony businesses, governments and NGOs.

Protectionism hurts growth, competition, entrepreneurs and purchasers - and it hurts the poor most. The price of protecting infant industries is to condemn real infants to worse malnutrition, disease and poverty.

The writer is a research fellow at International Policy Network, a development think-tank in London

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