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+255-22-216-3200

Loy Nabeta
Communications Officer 
+255-22-216-3246

50 Mirambo Street
P. O. Box 2054
Dar es Salaam
lnabeta@worldbank.org

In Washington:
Sajjad Ali Shahh
Country Program Coordinator
+1-202-473-5878

1818 H Street NW
Washington DC 20433
USA
Sajjadshah@worldbank.org

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Tanzania Overview

Economic Overview: Performance and Outlook

In 2012 and into 2013, the Tanzanian economy expanded at an annualized rate of approximately 7%. A World Bank/KPMG survey in November 2013 showed that 55% of the business managers of the top 100 mid-sized companies in Tanzania feel that the economy is performing better in 2013 than in 2012, while 26% feel it is the same compared to 21% who said that it is now worse than in 2012.

The main drivers of Tanzania’s rapid economic growth continue to be a small number of fast growing, capital intensive sectors, particularly the communications, financial services, construction, manufacturing and retail trade sectors. The service sector, driven by the expansion of transport, communications, retail trade and financial services, recorded the highest rate of annual growth in 2012, at 8.0%. By contrast, labor intensive sectors, particularly the agricultural sector, in which approximately 80% of households are primarily engaged, recorded an average annual growth rate of only 4.2%. Similar trends, with higher rates of growth recorded by the less labor intensive sectors, were observed across the board during the first two quarters of 2013.

Over the past decade, Tanzania’s economy has become significantly more open. The trade-to-GDP ratio has increased from 13.5% in 2000 to more than 30% in 2011, the highest rate among the East African Community countries, with the value of Tanzania’s merchandise exports multiplying by a factor of five over this period. The largest contributors to the export basket continue to be primary commodities, particularly gold, coffee, tea, cashew nuts and cotton. At the same time, the volume of manufactured exports has surged in recent years, with the lion’s share of these exports going to markets within the region.

The inflation rate continued to decline in 2013, reaching a rate of 6.3% by October 2013. At the end of 2011, the inflation rate had reached almost 20%. This steady and significant decline has been the result of a combination of the implementation of stricter monetary policy and a decline in food and energy prices. As a result, Tanzania’s rate of inflation is now roughly equivalent to that of neighboring Uganda and Kenya. The decline has also contributed to the stabilization of the real exchange rate, which appreciated by almost 20% in 2011/12 as the result of the large inflation differential between Tanzania and its trade partners. This stabilization of the real exchange rate also has positive implications for exporters.

The Tanzanian Government has implemented a relatively tight monetary policy to reduce monetary expansion and has increased guiding interest rates. While this helped to reduce inflation, it resulted nevertheless in increases to the cost of credit, imposing increased burdens on borrowers and thereby negatively impacting the expansion of the real economy. However, the magnitude of this negative impact may not be dramatic, as the ratio of total credit to GDP was only 24.8% in 2012, compared to a figure of more than 130% in emerging counties such as Thailand and Malaysia.

The overall fiscal deficit for 2012/13 is estimated to reach a value equivalent to 6.8% of GDP. This represents a significant increase compared to 2011/12, when the deficit stood at a value equivalent to only 5% of GDP. The deterioration in the fiscal accounts during 2012/13 was the result of the Government’s overestimation of revenues and underestimation of expenditure.

The deteriorating financial situation of several parastatals and public agencies has continued to pose a major challenge for fiscal planning. In response to the deteriorating financial situation of the public electricity company TANESCO, Government at the beginning of 2014, raised power tariffs for both domestic and industrial users by an average of 40%. Despite the tariff increase, Tanesco will continue to be subsidized by the Government as the price of its electricity still doesn’t cover production costs until new investments in power to gas become gradually operational by 2015/16. The deterioration of the financial situation in several pension funds is also a source of concern.

An accelerated drive for the development of social and physical infrastructure is underway on the recently launched ‘Big Results, Now’ initiative (BRN). The BRN initiative is inspired by a similar Malaysian program with the stated aim of facilitating the achievement of Tanzania’s Development Vision 2025 through the identification of a series of priority areas for expenditure. However, the Government must tread the tight rope and find the balance between the use of public expenditure to promote economic growth and the need to maintain fiscal and debt sustainability over time.

With Tanzania’s current rate of growth of GDP growth standing at approximately 7% per annum, no major changes are expected in the country’s growth trajectory over the next few years. The sectors which have driven Tanzania’s economic growth over recent years, particularly the capital intensive and rapidly expanding communications and financial services sectors, will continue to do so into the future. Economic growth will also be driven by increased activity within the construction sector, particularly with Tanzania’s rapid urbanization and the Government’s renewed focus on the development of public infrastructure.

The most significant transformative factor on the economy is the large natural gas reserves that were recently discovered. If managed well, these gas reserves have the potential to transform Tanzania’s economic future. While the most significant impacts of this discovery on the local economy will not be felt for at least seven to ten years, when exploitation will start at full scale, the discovery will nonetheless drive increased economic activity during the construction phase. In the long term, the magnitude and timing of the impact of the discovery remain uncertain. Careful management of the revenues derived from the newly discovered 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.

Political context

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 600-member Constituent Assembly (CA) which is expected to sit for 70 days; with a possible extension of 20 days if deemed necessary. The law requires that a new Constitution be adopted a year before the October 2015 elections.

Development Challenges

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 US$ 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.

The selection of the Education sector by the Government as one of its priority areas under the new initiative, the BRN was appropriate. While access to education has improved over the past decade, the quality of education has suffered. While enrollment has improved, reaching universal education in primary schools, the main problem in the education sector is poor outcomes at the primary and secondary levels. Service delivery is weak with slow growth in the number of qualified teachers and insufficient supply of textbooks and other inputs. The quality of secondary education has been affected by low quality at the primary level. The BRN approach involves the establishment of delivery laboratories in the six selected priority areas (education, water, energy, agriculture, resource mobilization and transport), with each generating results frameworks. The approach hinges on prioritization, monitoring and accountability in terms of performance.

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  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.  The current small market share of new, labor-absorbing export-oriented industries, together with inadequate human capital development (skill shortage), creates a medium-term risk of high youth unemployment. 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.

On the other hand, the rapid development of the communications and financial services sectors may also contribute to an acceleration in overall economic growth. Not only does the growth of these sectors contribute directly to increases in GDP, it also has an indirect, positive impact on other sectors. For instance, there is a clear positive correlation between monetization and economic development.  Advances in mobile technology and a dramatically increased rate of usage of this technology has driven the development of new business systems, enabling the establishment of linkages between entrepreneurs with their customers, suppliers, bankers, and government officials. Today, approximately half of all Tanzanian adults use mobile telephones, with around 80% of users having utilized mobile technology to send or receive money. Rates of penetration and usage are expected to continue to grow, particularly in rural areas and amongst low income households.

While Tanzania was for a long time on the forefront of public sector reforms, progress in recent years has been only marginal for the core public sector reforms. By 2007, Tanzania had completed the first two stages of public sector reforms, which included budget discipline through control of the wage bill, downsizing the civil service, improving taxation, and introducing performance management in the public sector. The third stage of reforms, which includes deepening of the reforms as well as ensuring their sustainability and linkages to service delivery, has been difficult and more challenging. Over the past few years, progress was marginal for the core public sector reforms. Disparities in social services-related spending, as reflected in allocation of human resources, remain among districts. Continued challenges exist in low levels of accountability in the event of low performance, less than adequate monitoring of results despite having the required tools, and the absence of incentives for improved performance.

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: Apr 09, 2014

The commitment to accelerate economic growth and fight poverty has been implemented through a series of strategies and plans. In 2005, the government adopted a results and a Millennium Development Goals (MDGs) based strategy commonly known as the National Strategy for Growth and Reduction of Poverty (NSGRP, popularly known in Kiswahili as MKUKUTA). NSGRP was adopted to sustain and scale up achievements while addressing the challenges to growth and poverty reduction. A second MKUKUTA, covering FY11-15, is under implementation. Concurrently, the Revolutionary Government of Zanzibar finalized the Zanzibar Strategy for Growth and Reduction of Poverty (MKUZA II), covering the same period. MKUKUTA II and MKUZA II are the vehicles for realizing the MDGs and Tanzania’s Development Vision 2025, designed to help transform Tanzania into a middle-income country. The strategies aim to accelerate economic growth and poverty-reduction efforts by pursuing pro-poor interventions and addressing implementation bottlenecks. The strategies scale up the role and participation of the private sector in economic growth and employment generation and emphasize investment in people and infrastructure development. Tanzania’s Poverty Monitoring website provides a variety of resources on poverty reduction and has the MKUKUTA II text and results matrix available for download.

A 2012 review of the Tanzania Development Vision 2025 led to the candid recognition by the Government that the implementation of projects and reforms was slow in key sectors. This compelled the authorities to adopt Big Results Now (BRN), a new framework inspired from the Malaysian development strategy. The BRN program oversees and monitors the implementation of projects in order to accelerate the delivery of results in six key sectors; namely energy and natural gas, agriculture, water, education, transport and the mobilization of resources. The BRN is managed by the Presidency under the President’s Delivery Bureau and is supported by several development partners including the World Bank, USAID, Swedish International Development Agency, DFID, and the Bill and Melinda Gates Foundation. The BRN program started in mid-2013 and it is expected to have achieved its main targets by 2015.

World Bank Assistance/Engagement

The World Bank Group assists Tanzania’s development plans through a mix of investment projects, basket funds, and budget support. In addition, the Bank mobilizes financial and technical resources through trust funds, conducts economic analyses to ensure value for money in public spending, and works closely with the government and other development partners to strengthen aid coordination and harmonization. Since 1995 the Bank has provided more than US$6 billion to Tanzania in credits and grants. About 30% of the Bank's support has been provided through development policy operations during the last four years focusing on improving public expenditures, increasing growth, and improving the delivery of social services.

The Country Partnership Strategy (CPS) provides the framework for World Bank Group support from 2012 to 2015.  The CPS is based on the Bank’s Africa Region Strategy and highlights partnerships as a means for implementation, building on the core partnership with the government; knowledge products to support reforms; and financing. A review of the CPS for Tanzania is ongoing but it will not change the priorities and programs described under the current CPS, as they remain valid. Nevertheless, the Bank hopes to realize four key adjustments to the program to align with evolving country priorities as well as evolving WBG corporate goals. The review is therefore focusing on support to making Tanzania’s growth more inclusive and creating jobs; scaling up targeted support to alleviate extreme poverty, support to the BRN initiative and helping mobilize new financing solutions for the country.

The World Bank Group’s private sector financing arm, the International Finance Corporation (IFC), has mobilized over US$185 million in investments in Tanzania to date and offers a broad range of advisory services to support the private sector.

Recent recipients of IFC support include the ETC Group (US$70 million) to support the group’s expansion to Africa and increase its reach to smallholder farmers; and Williamson, a Tanzanian mining company US$50 million (in equity and a senior loan). A Joint Development Agreement was also signed between IFC Infraventures, Aldwych International and Six Telecoms (Tanzania) to develop a 100 MW wind farm at Singida. The IFC has also committed US$21.8 million to support the construction of a US$68 million mixed-use property to house a 250 room hotel and 8,100 sqm of office and retail space in Dar es Salaam as a joint venture between China Railways Jianchang Engineering and the Mwalimu Nyerere Foundation. Kagera Sugar Limited and Mikoani Traders are currently being considered for expansion support.

In addition to other major investments in the pipeline, IFC continues to provide financial to micro and small businesses through innovative financing to the financial sector. Recent transactions include a US$5 million trade finance facility and a US$5 million credit line to Exim Bank to support trade and women entrepreneurs; a US$3 million loan equivalent in local currency loan to Finca Microfinance through a swap transaction with Barclays Capital; a US$4 million financing to Alios Finance to support its leasing and other lending operations; a US$4.5 million subordinated loan facility to Bank of Africa (Tanzania) and a US$5 million facility to Diamond Trust Bank for SMEs. IFC will also support CRDB's growth strategy.

The IFC-supported Credit Reference Bureau program to Bank of Tanzania and Tanzania Bankers Association has helped develop a databank for public credit registry while the Tanzania Leasing Program has contributed significantly to the development of the leasing sector in the country by establishing appropriate commercial legislation and regulation to facilitate leasing. Furthermore, IFC’s infrastructure advisory team is in discussion with the Bank for a possible collaboration following a request for assistance from the Minister of Energy to help structure PPP projects in the energy sector.

Tanzania became a member of the Multilateral Investment Guarantee Agency (MIGA) in 1992. MIGA is the component of the World Bank Group that provides guarantees and political risk insurance for private investments.  At present, MIGA does not have any commitments in Tanzania.

The World Bank Institute (WBI) focuses on support to oversight institutions (media and parliament), economic competitiveness (public private partnership and financial sector management), and support to enhance service delivery (water and nutrition). The Global Development Learning Center was launched by WBI in 2000.

Tanzania became a member of the Multilateral Investment Guarantee Agency (MIGA) in 1992. MIGA is the component of the World Bank Group that provides guarantees and political risk insurance for private investments.  At present, MIGA does not have any commitments in Tanzania.

The World Bank Institute (WBI) focuses on support to oversight institutions (media and parliament), economic competitiveness (public private partnership and financial sector management), and support to enhance service delivery (water and nutrition). The Global Development Learning Center was launched by WBI in 2000.

Last updated October 2013

The pilot Community-Based Conditional Cash Transfer Project took off in 2009 in 80 villages covering 2,000 households and 6,545 individual beneficiaries; by December 2012 the Program had reached 12,665 households and 25,782 beneficiaries. These beneficiaries who are among the very poor have acquired life quality enhancing assets like shoes, better clothing and beddings as well as habits of seeking medical attention at health facilities and seeking access to schools for the education of their children. Beneficiaries have also developed higher interest in community affairs.

With International Development Association (IDA) support, the gas pipeline from Songo Songo in the South to Dar es Salaam attained the capacity to deliver 65 million cubic feet of gas for power generation. The Bank has also spearheaded the scaling up of the transmission capacity with a 400kV double circuit backbone transmission line capable of transmitting 2,000MW between Iringa and Shinyanga. By adding enormous value to the electricity supply through spearheading the opening of new generation ventures and upgrading and expanding the transmission and distribution network, the Bank has demonstrated the viability of investing in the sector, thus attracting new players who should ensure enough power  to reach the large market is produced.

Government schools increased from 828 in 2004 to over 3,500 in 2011 particularly for the underserved rural and urban as well as difficult and hard-to-reach areas. Much of the increase was in areas where day schools to serve the underserved areas have been established. During the Secondary Education Development Program (SEDP I and II), 70 schools were rehabilitated and expanded to enroll A’ level students. Toilets, electricity, and water were provided to improve learning conditions. Enrollment in government and non-government schools has increased from 432,599 in 2004 to 1,020,510 in 2007 1,884,272 for 2012. Girls’ enrollment has been increasing since 2004 and while still below that of boys, the statistics suggest that the objective of increasing girls in the system is being achieved.

Nevertheless, recognizing the need to improve learning outcomes which are still lagging at different levels, the government has prioritized investment in education and has signed an Education Reform Compact to urgently address quality issues under the newly adopted Big Results Now (BRN) program.

Last updated October 2013

Tanzania is highly aid dependent. Official development assistance (ODA) to Tanzania increased from US$1.6 billion in 2000 to US$3 billion in 2010, which amounted to 14% of GDP. More than 40 development partners provide support to Tanzania, four of which account for approximately 43% of total ODA. Of the US$14.4 billion of ODA disbursed to Tanzania between 2005 and 2010, IDA is the largest financier, providing an average of 20%, followed by the United Kingdom providing 10%, the United States of America 9%, Japan 8%, and the European Union 7%.

Tanzania has been at the forefront of efforts to improve the quality of aid through ownership, alignment and harmonization. The Bank is an active player in the General Budget Support framework, a multi-donor initiative that provides resources to support the poverty reduction strategy of the Tanzania government through the implementation of the national budget. Donor countries provide financing directly to the government, and it is spent according to the priorities set out the national budget. A joint monitoring mechanism known as the Performance Assessment Framework has been agreed between the government and development partners and it serves as an important tool that facilitates implementation of the General Budget Support framework. 

Last updated October 2013

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Tanzania: Commitments by Fiscal Year (in millions of dollars)*

*Amounts include IBRD and IDA commitments

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