A dissertation submitted in fulfilment of the requirement for the degree of Doctor of Business Administration

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THE IMPACT OF CORRUPTION ON POVERTY ALLEVIATION AND ECONOMIC GROWTH IN

TANZANIA

BY

MOHAMED SALUM MOHAMED

A dissertation submitted in fulfilment of the requirement for the degree of Doctor of Business Administration

Graduate School of Management International Islamic University Malaysia

JULY 2018

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ii

ABSTRACT

Corruption is one of the major diseases that affects different countries worldwide in different ways. It is a tragedy which threatens both human existence and what they heavily stand for in their survival. Tanzania is one of the countries which has been affected by corruption. Throughout the years it has lost its direction in sustaining its economy and corruption is to blame. This has resulted in the country to suffer as damage has been incurred in all dimensions be it economic, political, financial or social. Unfortunately the effects of corruption have become massive as the level of poverty has been observed to increase significantly. Several studies present issues concerning corruption but between their contexts are very limited, not covering the relationship between corruption with poverty alleviation and economic growth. With that in mind, this study has been designed to investigate the impact of corruption on poverty alleviation and economic growth in Tanzania. The data was collected from 33 respondents: 10 from public officials’ category, 10 from businessman/woman category, 10 from household category, and 3 from experts. Economic and governance dimensions were used for the purpose of collecting sufficient data which address the impact of corruption on poverty alleviation and economic growth in Tanzania. From the economic dimensions, the results show that corruption in Tanzania discourages foreign and domestic investments, costs entrepreneurship highly, lowers the quality of public infrastructure, distorts the composition of public expenditure, increases inequality, decreases progressivity of the tax system, decreases tax revenue and targets the social program for the poor. From the governance dimensions, the results show that corruption lowers the quality of the public services, decreases public trust in governance and threatens democracy and governance system in Tanzania. At the end of this study, governance and public awareness remedies have been provided in order to improve the situation in Tanzania. In future studies, the focus can be more specific on different types of corruption in order to understand the root of the problems and to come up with systematic solutions to solve those problems. Finally, the implication of the study is discussed.

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ةصلاخ ثحبلا

دوجولا ددهي ءابو وهف ،تىش ٍحاون نم دلابلا ونم في رثؤت تيلا ةئبولأا مظعأ وه داسفلا نإ ةيمنت نع تزجع دقف .داسفلاب ًادج ترثأت تيلا لودلا نم يه اينازنت ةلود .هلك نياسنلإا اهداصتقا دلابلا تناع دقف كلذل ًةجيتنو .داسفلا وه اذه لك في ملالماو هيلع ةظفالمحاو

ةيلالماو ،ةيسايسلاو ،ةيداصتقلإا يحاونلا ءاوسو تىش حاون نم ةيرثك ًارارضأ تدبكتو دقو .دلابلا في رقفلا ىوتسم عافترا في حوضوب رهظي ًاغلاب ًارثأت دلابلا ترثأتو .ةيعامتجلإاو ةيرثك ثوبح تمدق ةحفاكبم هتقلاعو داسفلا عوضولم قرطتت لم انهأ لاإ اينازنت في داسفلا لوح

عجم تمو .لمهلما لالمجا اذه يطغتل تممص ةلاسرلا هذهف اذه ىلعو .داصتقلاا ةيمنتو رقفلا نم ةلاسرلا هذه في تانايبلا و ،ًابوجتسم 33

01 و ،ةموكلحا يفظوم نم 01

،راجتلا نم

و ًايملع ينلهؤلما نم 01

و ، 3 نم ةساردلا هذه في ةمدختسلما تانايبلا عجم تم .ءابرلخا نم

لىإ يرشت ةيداصتقلاا ةيحانلا نم اهيلإ لصوتلا تم تيلا جئاتنلا .يرادلإا و يداصتقلاا ينلالمجا .رامثتسلاا ىلع اينازنت في ابه ةطيلمحا فورظلا اهعجشت لا ةيجرالخاو ةيلخادلا تاكرشلا نأ مم ،داسفلا ببسب كلذو راينهاو ،،اتنلإا في ةدوجوا ةلق عم روجلأا ىوتسم عافترا لىإ ىدأ ا

لىإو .داسفلا ببسب تروهدت تيلا دلبلا ريوطتل ةيرورضلا روملأا نم كلذ يرغو ،ةيتحتلا ةينبلا اياصوب ثحابلا ىصوأ ةساردلا هذه ةيانه فيو .ةيرادلإا ةيحانلا نم جئاتنلا يرشت اذه لثم بعشلاو ،ةرادلإا صتخ اياصو كلذكو .حلاصلإا ققحتي تىح هلعف عيمجوا ىلع بيج ام هاتج

لالمجا اذه في لبقتسلما في ينثحابلل

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APPROVAL PAGE

The dissertation of Mohamed Salum Mohamed been approved by the following:

____________________________

Dr.Ibrahim Nuhu Tahir Supervisor

____________________________

Prof. Dr. Jarita Duas Co-Supervisor

____________________________

Assoc. Prof. Dr. Saim Kayadibi Internal Examiner

____________________________

Prof. Dr. Mabid Ali Al Jarhi External Examiner

____________________________

Assoc. Prof. Dr. Amir Shaharuddin External Examiner

____________________________

Assoc. Prof. Dr. Ismaiel Hassanein Ahmad Chairman

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DECLARATION

I hereby declare that this dissertation is the result of my own investigations, except where otherwise stated. I also declare that it has not been previously or concurrently submitted as a whole for any other degrees at IIUM or other institutions.

Mohamed Salum Mohamed

Signature………. Date………

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INTERNATIONAL ISLAMIC UNIVERSITY MALAYSIA

DECLARATION OF COPYRIGHT AND AFFIRMATION OF FAIR USE OF UNPUBLISHED RESEARCH

THE IMPACT OF CORRUPTION ON POVERTY

ALLEVIATION AND ECONOMIC GROWTH IN TANZANIA

I declare that the copyright holder of this dissertation is International Islamic University Malaysia

No part of this unpublished research may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise without prior writes permission of the copyright holder except as provided below

1. Any material contained in or derived from this unpublished research may only be used by others in their writing with due acknowledgement.

2. IIUM or its Library will have the right to make and transmit copies (print or electronic) for institutional and academic purposes.

3. The IIUM Library will have the right to make, store in a retrieval system and supply copies of this unpublished research if requested by other universities and research Libraries.

By signing this form, I acknowledged that I have read and understand the IIUM Intellectual Property Right and Commercialization policy.

Affirmed by Mohamed Salum Mohamed

……… …….………

Signature Date

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ACKOWLEDGEMENTS

First and Foremost, all thanks and praise to Allah, for His Blessings and Mercy; Who showered me with patience and granted me with health. All prayers and peace be upon Prophet Muhammad (pbuh) who guides my mind and heart in my daily life through his personality as an ideal example. Without the Blessings of Allah the Al-Mighty, this study would not have been completed. All goodness in my dissertation is because of Him and all mistakes and shortages are because of me.

My DBA journey has taken a lot of the days of my life, social life, patience, and my love to my family. However, my supervisors were always there for me to encourage and support me to go ahead. I would like to record my appreciation to my main supervisor, Dr. Ibrahim Nuhu Tahir for his unlimited support and guidance as a friend and as a mentor who enlightened my way with his bright and amazing ideas.

During this hard moment of this journey he was and continues will be to be my inspiration in my life that helps me to go through and overcome many difficulties in my life.

I would also like to present my sincere gratitude to my co-supervisor Professor Dr. Jarita Duasa, who was so supportive with her unlimited and valuable ideas that enriched my study. Her humility in offering me her knowledge and support at any time was a useful element for this study project. I owe my thanks as well to all of my lecturers who taught me under the Graduate School of Management (GSM) of International Islamic University of Malaysia.

No words can describe and explain the role of my mother and father in every achievement I have achieved. I realize that all the success that Allah has blessed me with is because of their satisfaction and Du’a in my life. May Allah the Al-Mighty bestow His Mercies and Blessings upon them all in this world and in the Hereafter.

To my beloved wife Sakinah Abdallah Hajj, my two beloved children Umm Kulthum Mohamed and Salim Mohamed who kept me going, encouraged to face challenges and taught me to fight for their sake, thank you for being cheerful smiles of my life that glorified every moment of happiness, weakness, sadness, failures, and frustrations, in all of the time we spent together when accomplishing DBA journey. I extend my appreciation to every member of my family, my sister Riyama Salum Mohamed who supports us in our family in different ways.

My gratitude also goes to my DBA colleagues who inspired me and were generous with their attention, time and contributed a lot to my intellectual development. I sincerely thanks extend to all who believed in me and my goal of being a DBA holder and helped me in ways to make the dream come true.

In addition, I would like to extend my gratitude to all of my examiners during the proposal defence for all the critiques they gave that helped build this dissertation the way it is now.

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Lastly, my sincere apology to everyone who helped me, one way or another, to make a difference in this study to get my DBA. I am not able to mention all their names but I pray for Allah the Al-Mighty to reward them with Paradise.

To all of them; I present my dissertation.

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LIST OF TABLES

Table 1.1 Methodological framework of this research 49

Table 1.2 Lists of the number of respondents according to their categories 58

Table 1.3 Chronology of interviews 64

Table 1.4 Initial template analysis after reviewing the literature 69

Table 2.1 Corruption definitions 83

Table 2.2 CPI in Selected Each African Countries, 2001-2005 87 Table 2.3 Corruption Index of Tanzania from 2012 to 2015 88 Table 2.4 Rankings of the Respondents of the Most Corrupt 116 Table 2.5 Real GDP Growth in Tanzania by Sector, 2008-2013 131 Table 3.1 Notation system for relating specific extracts to the

Research participants 139

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LIST OF FIGURES

Figure 1.1 Conceptual Framework for this research with focus on

Literature review 42

Figure 2.1 Conceptual Framework for this research with a focus on

The methodological choices 54

Figure 3.1 Relationship between Greed, Corruption and Poverty 99 Figure 3.2 GDP Growth Rate of Tanzania with base year 2007 128 Figure 3.3 Comparison of Growth Rates across Countries 129

Figure 3.4 Real Growth Rates of Sectors in Tanzania 130

Figure 3.5 Composition of Growth of Sectors in Tanzania

(Market Share of GDP) 131

Figure 4.1 Final template on the impact of corruption on Poverty alleviation

And economic growth in Tanzania 136

Figure 4.2 Common approaches to present interpretation of Data using

Template analysis 137

Figure 4.3 Impact of corruption on poverty alleviation and Economic growth in

Tanzania from the economic dimension 205

Figure 4.4 Impact of corruption on poverty alleviation and Economic growth in

Tanzania from the governance dimension 225

Figure 4.5 Final Conceptual framework for this research 227

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LIST OF SYMBOLS

TSH Tanzanian Currency (Tanzanian Shilling) USD United States Dollar

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LISTS OF ABBREVIATION

BEEPS Business Environment and Enterprise Performance Survey CAG Controller and Auditor General

CSOs Civil Society Organizations

EAC East African Community

HBS Household Budget Survey

HDI Human Development Index

HIPC Highly Indebted Countries Initiative IPTL Independent Power Tanzania Ltd

MDG Millennium Development Goal

MKUKUTA Mpango wa Kukuza Uchumi na Kuondoa Umaskini Tanzania (National Strategy for Growth of Economy and Poverty Reduction in Tanzania)

NBS National Bureau of Statistics

NECTA National Examinations Council of Tanzania

PCCB The Prevention and Combating Of Corruption Bureau PEDP Primary Education Development Plan

PPA Participatory Poverty Assessment PRS Poverty Reduction Strategy

SADC Southern African Development Community SAPs Structural Adjustment Programmes

TBS Tanzania Bureau of Standards

TCU Tanzania Commission of Universities

TRA Tanzania Revenue Authority

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CHAPTER ONE INTRODUCTION

1.1 INTRODUCTION

Corruption is currently one of the great challenges facing the human race worldwide.

It has been increasing and poses as a threat to the existence of humans to the extent of being called the “cancer of the nations.” Nations around the world are failing to have good governance, and sustainable development due to corruption. In Africa, for instance, the Commission for Africa¹identified corruption as the main concern which affects negatively the governance and development of the whole continent. In this chapter the researcher provides an overview of the research and how it developed.

However, the problem of corruption is not only the problem of Africa, but also the problem of every nation around the world. It has been observed to cause a devastated and catastrophic damage to different nations and if is left neglected and not fought seriously, no society will be able to survive from its grip. Due to this fact, the researcher of this study has decided to carry out an investigation on the impact of corruption on poverty alleviation and economic growth in Tanzania in order to see how far has it damaged the nation of Tanzania and at the end of this study different recommendations will be put in account in order to rectify the situation and combat corruption effectively. The researcher has divided this chapter into 10 subsections:

background of the study, problem statement, research questions, research objectives,

1 In early 2004 Tony Blair set up The Commission for Africa. The Commission had seventeen members, nine of which were from Africa, all working in their individual and personal capacities. The main objective of setting up this commission was to create a strong and prosperous Africa.

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research scope and context, significance of the study, research methodology and structure of the thesis.

1.2 BACKGROUND OF THE STUDY

After the Independence of Tanzania (1961) corruption was perceived as a small problem which existed at the lower level of administration mainly the service delivery area. It further worsened in public institutions and reached the level of involving politicians, CEOs in the government and organizations which are partially or wholly controlled by the government. This is partially caused by a malfunctioning bureaucracy (URT, 1996).

The increase in corruption caused the government of Nyerere to put in place the Leadership Code as part of the Arusha Declaration of 1967. However these efforts were hindered by a number of factors: there was a great economics crisis due to the inflation, major fiscal deficits and negative economic growth in 1973. This was followed by an oil crisis (1975) and the war with Uganda (1978). Other impediments were unregulated discretionary power which created opportunities for its abuse, insufficient payment, and low level working conditions. The combination of these misfortunes resulted in low salaries, lower than the subsistence needs even at management and executive levels. As a result, that situation created the need to look for “side incomes” in the form of corruption and smuggling. Through informal means people were able to gain more income and get their things done easily and at a cheap price. This problem was highly prevalent among the local authorities due to the presence of circumstances mentioned above (Fjeldstad and Odd-Helge, 2002;

Mutahaba, 2005).

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When President Nyerere’s term ended President Mwinyi adopted the World Bank economic liberalization policies in 1985. During this period most of the people made the assumption that those adopted policies would decrease corruption because state institutions paved way for the private sector and civil society institutions.

However, the process of liberalisation was carried out without having enough regulatory framework for the supervision, for the interest of the public, newly markets which were liberalised and the activity of the private sector, due to lack of supervision, unethical practices seemed to increase during that time. This culminated in Tanzania being ranked as one of the most corrupted nations in the world by Transparency International. News of widespread corruption spread everywhere until several major donors decided to freeze their aid in 1994, including Norway and Sweden, until the government of Tanzania revealed the results of investigation of corruption which took place at that period (Fjeldstad and Odd-Helge, 2002; Mutahaba, 2005; Aron, 2003).

In 1995, when President Mkapa assumed power, the perception of people from local regions as well as international regions toward Tanzania was that corruption had become endemic in its society. This inspired the new President to establish a special commission known as Warioba Commission for the purpose of investigating the causes of corruption in Tanzania. At the end of their investigation, the Commission confirmed that there was extensive corruption in the country. Therefore, in his first year in power President Mkapa decided to declare war against corruption (Ngware and Suleiman, 2003; URT, 1996). Many people in different levels and categories in Tanzania have different opinions on the impact of the actions taken by President Mkapa in order to discipline those leaders who were corrupted at that time. For example, between 2000 and 2004, there were less than nine convictions of corruptions

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which were reported officially in the judicial court of Tanzania. In reality, this figure which has been reported is not only small in relation to the reported cases, but it also did not include any top level suspects, since none of them were charged or convicted.

This disheartened the citizens of Tanzania and thus they lost their belief that the authorities were seriously fighting against corruption (Fjeldstad and Odd-Helge, 2002;

URT, 2005; Mutahaba, 2005).

In the year 1999 the government of Tanzania decided to start implementing national anti-corruption strategies and action plans (NACSAPs). This was their response to the findings of the Warioba Commission. By 2012, two phases of NACSAPs had already been implemented, covering a range of institutional reforms.

Since early 2000, the following reviews and evaluations of several achievements of the anti-corruption drive which were recorded by NACSAPs were reported:

 New public institutions have been established for fighting corruption and abuse of public office such as Public Procurement Regulatory Authority, the Ethics Secretariat, the Good Governance Coordination Unit, and the position of Minister of State for Good Governance,

 Several laws were revised and new ones were passed in order to help in controlling the abuse of public office.

 Anti-corruption focal points were established in different departments of government at the central as well as at local levels.

The question is: to what extent these achievements have been reflected in the experiences of people of Tanzania in their daily lives? How do Tanzanians recognise the performance of the government in the mission of fighting corruption? According to the survey which was conducted by Afrobarometer (2015) the following findings were reported:

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 66% of the Tanzanians had reported to say that the level of corruption has increased between 2013 and 2014. Corruption reportedly practiced to a greater extent by the police, tax officials and judges and magistrates.

 Majority of the Tanzanians said that the performance of the government in handling the fight against corruption between 2012 and 2014 was bad even if there were slight improvements in 2014 when compared to 2012.

 The citizens of Tanzania mentioned that the level of corruption is so high when accessing the services from the police or court compared to other public services.

In addition to the above, corruption scandals in Tanzania have been a recurring feature especially in the political landscape. Because of those scandals, Tanzania has been suffering to sustain its economy for a long period of time and the levels of poverty were also stated to increase as well (Gray, 2015).

Thus, it will be a mistake to neglect the impact of corruption in the lives of people in Tanzania. For that reason, there is an important need to conduct specific studies to understand the impact of corruption in Tanzania in order to be able to find the solution for the improvements which should be taken from national to individual level.

1.3 PROBLEM STATEMENT

Tanzania is located in East Africa which has been blessed with abundant natural resources. This gives the country a beneficial factor for economic development.

However, the resources in the country do not benefit the citizens the way they are supposed to because of corruption. The practices of corruption undermine the capacity

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of the country to properly utilize its abundant resources in response to political, social, and economic developments. In 2014, according to Transparency International Tanzania was ranked 119th out of 175 countries and territories on the global index.

The study showed that just between 2001 and 2008 Tanzania had lost USD 1 billion due to corruption (AfriMAP, 2015). Cases of grand corruption have been reported in public finances reports with implication to senior politician, high ranking officials in the government, domestic industrialists, and multinational companies in a series of different illegal activities such as bribes, kickbacks, and the theft of the funds of the public. Among of the cases of grand corruption happened in October 2014 and it caused significant shock within the circle of the highest ranking officials in the government. The case involved illegal payment which was carried out by the state officials of about US$122 to businessmen under the shadow of energy contracts. Due to this incident, 12 donors suspended their aid to Tanzania until further investigation was carried out. As a result a number of senior figures in the government who were implicated in the scandal were forced to resign from their parliamentary duties (Gray, 2015).

Corruption has affected different sectors in Tanzania. In the sector of education, the budget which is allocated to cater for the needs of education in Tanzania has been insufficient for many years. For example, in 2009 alone, 30%

(TSh. 2.7 Trillion) of the budget of Tanzania was used by corrupt officials in different illegitimate deals. As a result the government was not able to allocate enough money (TSh. 1.7 trillion – 2009/2010 education budget needed) to serve the needs of education in that year. Students in fact suffered in different ways (sitting on the rough floor, insufficient books and other required materials). As a result they end up

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receiving a low quality education which does not prepare them to become quality human capital in the future (Hakielimu, 2009).

The government is unable to collect enough revenues due to the wide spread of corruption in the sector of tax administration. Initial official statistics reported revenue from customs duties had large leakages, then Tanzania Revenue Authority (TRA) was introduced to resolve the situation, however, it didn’t work because of complex laws and lack of administrative capacity which brought about conducive environment for corrupt practices to be carried out by government officials. Health services are also affected by corruption; people are unable to get good treatment without bribing the health officials. Investment opportunities are provided to those who can give large gifts to the government officials and not to those who are qualified to provide quality services to the nation. This affects both the economic development of the country and the job opportunities to the citizens of Tanzania, that’s why unemployment rate has been reported to increase as well (Ndyali, 2016). Therefore, it is no wonder that the East African Bribery Index of Transparency International ranked Tanzania as the second-most corrupt country within the East African Community in 2014 (AfriMAP, 2015).

All of the factors mentioned above contribute in decreasing the growth of economy of Tanzania and slow down the pace of the mission of alleviating poverty in the societies of Tanzania. Despite having abundant of natural resources the vital basic facilities seems to have been neglected. For example, until today Tanzania has insufficient good roads, power supply, water supply and as well as public transportation. The natural resources which in Tanzania are expected to benefit the country by increasing its economic growth, shrinking the gap of inequality and decreasing the levels of poverty in the country. But to the contrary, few people who

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were given authority have taken advantage of it and put their self-interest ahead of the interest of others, prioritizing corruption and undermining the welfare of the people, the laws and regulations and affect negatively the lives of Tanzanians in general.

The aim of the study is to investigate the impact of corruption on poverty and economic growth in Tanzania. Even though there are several researches which have been conducted and written on corruption in Tanzania by political, social, and economic experts, none of those studies have investigated the impact of corruption on poverty and economic growth. This study aims to fill that gap. Only a few and very specific studies which have been done and documented first-hand accounts on the appropriate measures to be taken in order to address the issue of corruption from conventional perspective. This study will have an additional contribution to the body of knowledge by providing policy recommendation/s using both Islamic and conventional methods of combating corruption and improve the economic situation of the Tanzania.

1.4 RESEARCH QUESTIONS

Due to the effect of corruption which has been observed widely in Tanzania the researcher had decided to raise the central question which can address the direction of the research in the format of the question: What is the impact of corruption on poverty alleviation and economic growth in Tanzania?

The above question direct the focus of this research on the impact of corruption on poverty alleviation and economic growth and to some extent to different recommendations of which can be used to combat corruption in order to improve

A dissertation submitted in fulfilment of the requirement for the degree of Doctor of Business Administration

THE IMPACT OF CORRUPTION ON POVERTY ALLEVIATION AND ECONOMIC GROWTH IN

TANZANIA

BY

MOHAMED SALUM MOHAMED

A dissertation submitted in fulfilment of the requirement for the degree of Doctor of Business Administration

Graduate School of Management International Islamic University Malaysia

JULY 2018

ABSTRACT

ةصلاخ ثحبلا

عجم تمو .لمهلما لالمجا اذه يطغتل تممص ةلاسرلا هذهف اذه ىلعو .داصتقلاا ةيمنتو رقفلا نم ةلاسرلا هذه في تانايبلا و ،ًابوجتسم 33

01 و ،ةموكلحا يفظوم نم 01

،راجتلا نم

و ًايملع ينلهؤلما نم 01

و ، 3 نم ةساردلا هذه في ةمدختسلما تانايبلا عجم تم .ءابرلخا نم

لالمجا اذه في لبقتسلما في ينثحابلل

APPROVAL PAGE

DECLARATION

INTERNATIONAL ISLAMIC UNIVERSITY MALAYSIA

DECLARATION OF COPYRIGHT AND AFFIRMATION OF FAIR USE OF UNPUBLISHED RESEARCH

THE IMPACT OF CORRUPTION ON POVERTY

ALLEVIATION AND ECONOMIC GROWTH IN TANZANIA

ACKOWLEDGEMENTS

TABLE OF CONTENTS

LIST OF TABLES

LIST OF FIGURES

LIST OF SYMBOLS

LISTS OF ABBREVIATION

CHAPTER ONE INTRODUCTION