Tanzania has been one of Africa’s fastest-growing economies with nearly 7 per cent annual national GDP growth since 2000.
Yet, widespread poverty persists with 49 per cent of Tanzania’s population living below the international extreme poverty line of $1.90 per day (World Bank, 2011).
Among Tanzania’s predominantly rural population (73 per cent), economic growth has been limited. Inclusive, broad-based growth is hindered by low productivity growth in labour-intensive sectors like agriculture, which employs 77 per cent of working-age adults. The agriculture sector grew just 4 per cent per year over the past decade.
GDP grew at 4.90% in 2021, up from 4.8% in 2020, supported by the global economic recovery. Growth was driven by agriculture and services on the supply side and final consumption and investment on the demand side. Monetary policy remained tight, which stabilized inflation at 3.3% in 2020 and 3.7% in 2021. The Tanzanian shilling remained stable in 2020–21, depreciating by only 0.2% against the US dollar. The ratio of NPLs to gross loans fell to 9.4% in March 2021 from 11.0% in March 2020 but was still above the statutory requirement of 5%.
The fiscal deficit increased to 3.4% of GDP in 2021 from 0.8% in 2020 due to weak revenue performance and growing financing needs to address the impacts of COVID-19; it was financed by external and domestic borrowing.
The current account deficit widened from 1.5% of GDP in 2020 to 3.1% in 2021, partly due to subdued tourism receipts, and was mainly financed by external commercial debt because other financial inflows, including FDI and grants, declined.
International reserves increased to 6.6 months of import cover in 2021 from 5.6 months in 2020 due to increased external official inflows and the SDR allocation of $543 million (0.8% of GDP). Tanzania had previously reduced poverty, but about 1 million people are estimated to have fallen back into poverty in 2020 due to COVID-19.
GDP growth is projected at 5.0% and 5.6% in 2022 and 2023, due to improved performance in tourism, the reopening of trade corridors, and the accelerated rollout of vaccines. Inflation is projected to increase to 4.4% in 2022 and to 3.8% in 2023 due to higher energy prices because of the Russia–Ukraine conflict.
The current account deficit is expected to widen to 4.0% of GDP in 2022 due to higher oil prices before narrowing to 2.6% in 2023 as merchandise exports and tourism receipts stabilize; and will be financed mainly by external borrowing.
The major downside risks relate to new COVID-19 variants and associated disruptions to economic activity but should be mitigated by increased public awareness and uptake of vaccines.
Official GDP figures show that growth remained steady, driven by higher public investment and by a recovery in exports.
The government of Tanzania’s Development Vision 2025 and the Five–Year Development Plan (FYDPII) set out ambitious goals for reducing poverty and sustainably industrializing so that the country can achieve middle-income status by 2025.
The government recognizes agriculture as central to development, which is well articulated in the Second Agriculture Sector Development Program (ASDP II). Among the goals of ASDP II are to transform agriculture by promoting commercialization, prioritizing high-potential commodity value chains, and mobilizing capital by giving the formal private sector a growing role in Agriculture. Because Agriculture and related value chains drive two-thirds of all jobs three-quarters for the poor. The sector is central to creating more and better jobs at scale and significantly reducing poverty.
Private sector engagement is an essential component of the economic development of Tanzania and the country’s efforts to reach middle-income status by 2025.
Businesses in Tanzania are at the forefront of growth through job creation, innovation, generating tax revenue, and fair competition. The Tanzanian private sector’s vast financial resources and expertise in market-based solutions have the potential for tackling systemic societal challenges. Currently employing about 70 per cent of the youth in Tanzania, the private sector provides a critical pathway to self-reliance.
Efforts have been made to increase collaboration with the private sector, implement market-based solutions for greater sustainability, and mobilize private capital. However, Tanzania still faces several obstacles to improving its business-enabling environment.
Regulatory challenges for starting businesses, labour and employment, land tenure, human settlement, limited tax relief for local industries, and lack of transparency among regulatory agencies on how they carry out regulatory functions have a negative impact on the private sector, and are an impediment to economic growth, and complicate Tanzania’s journey to self-reliance.
For Tanzania to generate future income and achieve sustainable development, it is essential for the country to invest in its citizens, both children, and adults, according to the new World Bank economic analysis for the country. According to the Human Capital Index (HCI), if a Tanzanian child is born today and survives past age five, there is one –in three chance that she /he will be stunted, with potentially dramatic consequences for brain development and earnings in adulthood.
“Tanzania’s performance on the HCI is too low to expect large gains in standard of living in the future,” said Quentin Wodon (World Bank Lead Economist and co-author of the 12th Tanzanian Economic update). “As the country is expected to attain middle-income status within a year or two, it needs to make a concerted investment in its people as its most important asset for future development.”
Apart from investments in children, it is recommended that adults should also be invested as they are an essential component of a human development strategy to boost human capital wealth. There is a need to reduce the fertility rate and address the prevailing gender inequality in earnings between Tanzanian women and men whose cost is estimated at more than US$100 billion.
As Wodon said “Countries that invest in their people are better positioned to benefit from the changing global economy. They also reduce poverty much faster. Tanzania would be well-advised to reposition the policy and strategic dialogue and development narrative with human capital at the centre.”
Tanzania is rich in natural resources and has one of the highest forest covers in East and Southern Africa. The wildlife is rich, and the tourism sector is growing rapidly, currently contributing 18% of the country’s GDP. The recent discoveries of very large off-shore reserves of natural gas and potentially oil will make the extraction industry in Tanzania even more important.
The government expects that the mining sector will grow to 10% of the GDP by 2025. As natural resources already account for a large proportion of Tanzania’s exports. The expected intensified extraction, export, and domestic exploitation of Tanzania’s natural resources hold great economic potential. It could contribute to solving the country’s long-standing energy crisis and significantly boost domestic revenue.
There is plenty of ambition in Africa to industrialize, for good reasons. Manufacturing is probably the only proven development model so far that has helped to bring jobs, export revenues, and rapid and sustained prosperity to a range of poorer countries.
But unless African countries get down to the messy and laborious task of actively promoting manufacturing through targeted infrastructure, skills development, financial policy, making quality connections with agriculture and service in partnership with the private sector, and preparing for a more digital future, significant industry capacity may never take hold in Africa. The window of opportunity might be closing.