Tanzania recently completed the rebasing of its national accounts which showed that the country appears to be close to achieving middle income status. The total value of the country’s economic output is approximately one-third larger than was previously estimated, with the current average per capita income at $948, as opposed to the previous $695. The 2012 National Household Survey had revealed that the rate of incidence of poverty declined from 34% to 28% in the period from 2007 to 2012, the first significant improvement since the late 1990s. These new statistics show that economic growth has trickled down to the poor, including the extreme poor. However, approximately 40% of Tanzania’s adult population nevertheless earns less than $1.25 per day, while nine out of 10 Tanzanians earn less than $3 per day.
The analysis of the recent performance of Tanzania’s economy has not been significantly affected by these new and improved statistics though it reveals a higher level of volatility in the economy than previously imagined. The rebased series shows that the annual rate of growth of gross domestic product (GDP) fluctuated between 8.8% in 2007 and 5.1% in 2012. This volatility mostly reflects improvements in overall methodology and improved data collection methods.
With the rebasing it now appears that agriculture’s contribution to the current GDP increased from 27% – 32% in the period from 2007 to 2013. However, much of this increase is the result of a price effect, as the constant price contribution of the agricultural sector to GDP declined from 26.8% in 2007 to 23.8% in 2013. The increase also reflects a one-off increase in levels of production in 2008. In the period from 2009 to 2013, the rate of growth recorded by the agricultural sector was lower than that of the overall economy.
Overall improvements to data related to the agriculture, construction, mining and tourism sectors explains almost 90% of the difference between the old and new GDP figures. Education and financial services have also seen large upward revisions. The revised GDP series captures the impact of the emergence of large mining operations; of increased private and public expenditure on education; and of the revamping of the financial sector. However, it fails to capture the impacts of more recent structural changes, such as the dramatically increased usage of cell phones and mobile money or the booming construction sector, all of which have had their most significant impacts since 2007.
Since the beginning of 2014, the rate of inflation has remained steady at around 6%, largely due to the stability of food and energy prices on international markets. Interest rates also appear to have remained stable. The value of the local currency relative to the US dollar depreciated marginally in the period from January to November 2014, with the rate of depreciation accelerating towards the end of that period.
The overall value of exports increased by 9.4% in the period from 2012/13 to 2013/14, as increases in the total value of manufactured exports and service exports compensated for the decline in the value of traditional agricultural exports. Over the same period, the total value of imports increased at a similar rate of 9.2%, in part driven by increases in both oil and construction-related imports. The current account deficit remained steady at a value equivalent to approximately 11% of GDP in 2013/14.
An increasingly high proportion of capital inflows was derived from private capital, with a correspondingly lower proportion from official aid. The value of foreign direct investment increased by 5% in the period from 2012/13 to 2013/14, while aid inflows represented only 40% of total capital inflows in 2013/14, a decline from the 60% recorded in 2010/11.
Although the overall fiscal deficit significantly improved in 2013/14, fiscal management was challenged by the rapid accumulation of arrears owed to the private sector and pension funds and by the Government’s failure to achieve its unrealistic revenue collection targets, which forced it to cut expenditure by 17% relative to its planned budget. These two developments negatively affected the delivery of infrastructure projects and social services, which form the core of the Big Results Now in Education (BRN) initiative. These fiscal pressures have continued to mount and are present in the current fiscal year.
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 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.
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). The draft constitution was debated in Parliament in 2014 and a referendum on it is expected to take place by April 2015. The country’s general election will be in October 2015.
In November 2013, the government announced the results of the 2012 National Household Budget Survey 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.
Regardless of the significance in the decline of poverty over recent years, Tanzania remains a poor country. The rebasing of the national account reveal a picture of a country closer to reaching middle income status. However, the country remains very poor by regional and international standards. The revised average per capita income is still significantly lower than the Sub-Saharan Africa average. And while it can be argued that economic growth has benefited a large number of Tanzanians, it is still too early for the Government to claim that it has achieved its goal of eradicating poverty in the country.
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 Report.
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.
Last Updated: Apr 09, 2015