In 2012 and into 2013, the Tanzanian economy expanded at an annualized rate of approximately 7%. Economic growth continues to be driven by growth in a few sectors, particularly the ICT, financial services, construction, trade and mining sectors. Except with mining, activities within these sectors are largely concentrated in urban areas. They are relatively capital intensive, creating a limited number of jobs, except through construction activities. By contrast, the rate of growth of the labor-intensive agricultural sector, which employs three quarters of the workforce and contributes to approximately 25% of GDP, remained lower than that of the overall economy, explaining the relatively slow decline of poverty in rural areas and the accelerated pace of migration from rural to urban areas.
The rate of inflation continued to decline over the year, reaching 6.1% in March 2014, from a peak of 20% recorded in December 2011 during the global food and fuel price spike. The electricity tariffs increment by an average of 40% in January 2014 had only a limited direct impact on the overall inflation rate due to its relatively low weight in the households’ consumption basket with only 18% of households having access to electricity.
The performance of exports was weak in 2013, largely due to lower commodity prices on international markets. Indeed, lower average global gold prices have led to a decline in the value of Tanzania’s gold exports by almost 20% since 2012. The volume of exports of cotton, sisal and tobacco all declined by more than 30%. Fortunately, the decline in the value of agricultural exports was compensated for by an increase in the value of re-exports, demonstrating the significance of Tanzania’s role as a hub for seven neighboring countries. At the same time, the value of revenues derived from tourism also increased.
In 2013, the current account imbalance was increasingly financed by private capital inflows, a departure from the trend where official aid was the largest source of capital inflows, accounting for almost 50% of total capital inflows in 2007/8. Gradually, however, the relative proportion of FDI inflows has increased, followed more recently by the relative proportion of public commercial borrowing. Together, these two sources of financing accounted for approximately 56% of total capital inflows in 2012/13, compared to only 38% in 2007/8.
In 2012/13, the Government failed to achieve its fiscal target as a result of low collections of domestic revenues; an increase in public expenditure by 1.2% of GDP from 2011/12 to 2012/13; and a reduction in aid inflows. This forced the Government to look for other sources to finance its fiscal policies including commercial borrowing on the domestic and international markets. Consequently, public debt rose by 10% of GDP since 2008/9, reaching US$ 12.4 billion (or 40.9% of GDP) at the end of June 2013.
The ‘Big Results, Now’ initiative (BRN) took off in 2013. The BRN initiative is inspired by a similar Malaysian program with the aim of facilitating the achievement of Tanzania’s Development Vision 2025 by focusing government efforts on accelerating the attainment of results in six priority areas, with emphasis on leveraging private sector investment through PPPs. The inclusion of the Education sector by the Government as a priority under the BRN was appropriate as poor outcomes at the primary and secondary levels remain a major concern. Nevertheless, a key challenge with the initiative will be attaining a fine balance in the use of public expenditure to promote economic growth while maintaining fiscal and debt sustainability over time.
The most significant transformative factor on the economy is the large natural gas reserves that were recently discovered. While the most significant impacts of this discovery on the local economy will not be felt for at least seven to ten years, careful management of the revenues derived from these natural resources will be required to ensure the optimal use of these revenues and to achieve inclusiveness.
In the meantime, if Tanzania is to follow the example of successful emerging countries, it will need to improve policy aspects in the areas of human development (Tanzania is currently ranked 152nd out of 182 countries on the HDI index); its business environment (134th out of 185 countries); and government effectiveness (135th out of 212 countries). For the last two indicators, Tanzania’s ranking has deteriorated over recent years.
Tanzania attained Independence from colonial rule in 1961. The country was formed as a union between the mainland territory, Tanganyika, and the island of Zanzibar in 1964, although the latter still maintains a semi-autonomous government and legislature.
President Jakaya Kikwete is the fourth democratically elected president of Tanzania which continues to maintain a peaceful existence in an often turbulent post-independence period in the region. The President won his second and last term in 2010 with 61% of the vote. His party, Chama Cha Mapinduzi (CCM), has dominated the political landscape since 1961 when multi-party politics were abolished under the founding President Julius Nyerere.
The country returned to multi-party democracy as part of wide-ranging political and economic reforms in 1992. Since then, the number of parties participating in the political space has grown from 11 to 19, although only six of these have been able to achieve representation in Parliament where they are considerably vocal on issues such as transparency and accountability. While they have not been successful in dislodging CCM from power they have continued to encroach on its support base as seen from the 2010 elections and recent by-elections. The most prominent opposition party, CHADEMA, made significant strides in the last election, winning 44 seats in Parliament, from five seats in the 2005 election.
In 2012, Tanzania embarked on a process to review and rewrite the country’s Constitution (1977). A draft of the proposed new constitution is currently being debated by the Special Constituent Assembly. The law requires that a new Constitution be adopted a year before the October 2015 elections.
In November 2013, the government announced the new official poverty figures indicating that approximately 28.2% of the population lives below the poverty line – considerably lower than the corresponding figure of 33.6% in 2007. Caution must however be applied in assessing the magnitude of the apparent reduction, as the two figures are not directly comparable, due to changes in survey methodologies and tools. More measurements and analysis are required to determine whether these figures indicate a sustainable, ongoing trend.
Regardless of the significance in the decline of poverty over recent years, Tanzania remains a poor country. In 2012, its average per capita income stood at $570, placing it in the 176th position out of 191 countries in the world. Even by the most optimistic poverty estimates, there are still approximately 12 million poor people living in Tanzania, which is approximately the same number as in 2001. Improving the socio-economic circumstances of this large group of citizens must therefore remain a top priority for Tanzanian policy makers.
Tanzania's rank in the United Nations Development Program’s (UNDP) Human Development Index has improved since 1995, but its progress toward the Millennium Development Goals (MDGs) has been uneven. The country is expected to reach only three out of seven MDGs by 2015. Tanzania is on track to meet the MDGs related to combating HIV/AIDS and reducing infant and under-five mortality but is lagging in primary school completion, maternal health, poverty eradication, malnutrition, and environmental sustainability.
Future economic growth will also depend on the ability of the Government to remove existing constraints on businesses. The most significant constraint on growth as reported by 80% of businesses operating in Tanzania, relates to the provision of electrical energy. On transport infrastructure, Tanzania has made notable progress in the rehabilitation and extension of the country’s road network. However, rural roads need more improvements as they raise production costs in the agriculture sector, and the rail systems are not effectively operated with poor infrastructure and equipment problems. Overall, Tanzania’s business environment remains unattractive, resulting in disappointing rankings in Doing Business and Africa Competitiveness Reports.
Tanzania needs competitive labor-intensive sectors to absorb the growing youthful labor force, augmenting by approximately 800,000 every year. Growth in employment has so far largely come from domestically-oriented industries with the exception of tourism. There is a need to promote competitiveness gains in labor-intensive sectors such as manufacturing and services.
The agricultural sector contributes to approximately one quarter of GDP and provides employment to approximately three quarters of all Tanzanian workers and it remains an area where significant achievements can be made with even small undertakings. The Southern Agricultural Growth Corridor of Tanzania (SAGCOT) initiative may facilitate the establishment of linkages between small-holders and large commercial farms, thus promoting productivity gains, while the increased use of modern irrigation systems and modern inputs (seeds, fertilizers) may also result in increased productivity, at least in some specific areas.
The government needs to continue to fight corruption and strengthen transparency and accountability across sectors and at all levels. The government has made good progress in implementing the Extractive Industries Transparency Initiative, which will be increasingly important in the context of natural gas development. Strengthening public financial management in the country, both at the central and local government levels, is essential for high quality infrastructure investments, more effective service delivery, and attracting private investment. Another challenge is to address the so-called “quiet corruption,” such as teacher and health worker absenteeism, which is less visible than big-time corruption but occurs across a much wider set of transactions directly affecting a large number of beneficiaries.
Last Updated: Oct 02, 2014