Tanzania - Economy
Tanzania is a democratic republic of 45 million people, with an average annual gross domestic product growth rate of 6-7 percent over the past decade. Despite recent economic growth, the poverty rate has only decreased 2 percent and the number of people below the poverty line has actually increased due to population growth. Tanzania’s economy has been growing steadily for the 10 years prior to 2022. The country’s main exports are tobacco, coffee, cashew nuts and cotton. However, the effects of corruption slow down development.
There were sharp disparities in the employment and unemployment ratios for women of all ages and for young people aged 15-24, particularly in Zanzibar. Women were less likely than men to be employed in both Mainland Tanzania (71 percent vs 81 percent) and Zanzibar (50 percent vs 73 percent). Urban women in Zanzibar had the highest unemployment rates, followed by women in Dar es Salaam and rural women in Zanzibar, all of whom had unemployment rates between two to four times higher than their male counterparts.
Close to a fifth (18 percent) of young people 15-35 were not in employment or education and training (NEET), with higher proportions of youth NEET in Dar es Salaam (30 percent) than in other urban areas (20 percent) or in rural areas (15 percent). Young women were NEET between two and three times the proportion of young men in Dar and in urban and rural Mainland and Zanzibar.
In rural areas, where the majority of youth live, the lack of opportunities for paid employment has led to high rural-to-urban migration.5 Informal employment increased as a percentage of total employment from 22 to 29 percent between 2014 and 2020/21. Rural areas saw the highest proportional increases: informality more than doubled in Mainland Tanzania (8 percent to 19 percent), with slight gender differences, and in Zanzibar it increased substantially for women (32 percent to 41 percent) and slightly for men (27.8 percent to 28.2 percent). Women were more likely than men to work in the informal sector everywhere except rural areas in Mainland Tanzania.
Tanzania achieved Lower Middle-Income classification in July 2020 due to substantial economic growth over the last two decades. However, structural features of Tanzania’s economy pose challenges to the sustainability and inclusivity of this growth as it has largely relied on public investment with relatively small contributions from the private sector and job creation. Tanzania has an especially well-studied economy, thus the MCC Tanzania Threshold Program Country Team chose not to conduct a new study to assess the constraints to economic growth in Tanzania.
High costs of conducting international trade due to poor logistics, infrastructure deficiencies, poor trade facilitation, and tariff and non-tariff barriers hamper the country’s export potential. Unfriendly business environment, particularly burdensome tax burden/policy and licensing regime, that promote informality. Tanzania’s tax policy and administration contribute to low levels of domestic resource mobilization and create a significant burden for both domestic and foreign private sector actors. This burden drives much of the preference for informal economic activity. The exceptionally high costs of borrowing have hampered private investment.
Tanzania’s economy averaged 6.1 percent GDP growth since 2000. This is a strong performance by any comparison. However, key structural features of Tanzania’s economy raise concerns about the sustainability of their current growth model and its ability to drive poverty reduction.
Since 2010, growth has increasingly relied on public investment. Infrastructure spending became the primary driver of capital accumulation in Tanzania and public investment was at the highest level in the region as a percent of GDP. At the same time as public investment had grown, private investment has declined, and foreign direct investment has performed exceptionally poorly – declining from 5.6 percent of GDP in 2010 to 1.3 percent in 2021. The declining contribution of the private sector in Tanzania’s growth, combined with falling productivity, casts doubt on the sustainability of Tanzania’s growth performance.
Tanzania was one of the world's poorest economies in terms of per capita income, but has achieved high growth rates based on its vast natural resource wealth and tourism. GDP growth in 2009-15 was an impressive 6-7% per year. Dar es Salaam used fiscal stimulus measures and easier monetary policies to lessen the impact of the global recession. Tanzania has largely completed its transition to a market economy, though the government retains a presence in sectors such as telecommunications, banking, energy, and mining.
The economy depends on agriculture, which accounts for more than one-quarter of GDP, provides 85% of exports, and employs about 80% of the work force; agriculture accounts for 7% of government expenditures. All land in Tanzania was owned by the government, which can lease land for up to 99 years. Proposed reforms to allow for land ownership, particularly foreign land ownership, remain unpopular.
Tanzania has successfully grown its agricultural sector from $64 million to $779 million, with growth expected to reach $3 billion by 2025. In Tanzania, 70% of the population depends on agriculture. Tanzania has diverse climate and geographical regions. The country produces a large volume and wide variety of fruits and vegetables. Despite its great success, Tanzania was struggling with climate change.
The financial sector in Tanzania has expanded in recent years and foreign-owned banks account for about 48% of the banking industry's total assets. Competition among foreign commercial banks has resulted in significant improvements in the efficiency and quality of financial services, though interest rates are still relatively high, reflecting high fraud risk. Recent banking reforms have helped increase private-sector growth and investment.
The World Bank, the IMF, and bilateral donors provided funds to rehabilitate Tanzania's aging infrastructure, including rail and port, that provide important trade links for inland countries. In 2013, Tanzania completed the world's largest Millennium Challenge Compact grant, worth $698 million, and, in December 2014, the Millennium Challenge Corporation selected Tanzania for a second Compact.
In late 2014, a highly publicized scandal in the energy sector involving senior Tanzanian officials resulted in international donors freezing nearly $500 million in direct budget support to the government. The Tanzanian shilling weakened in 2015 because of lower gold prices, election-related political risk, and outflows from emerging market currencies generally.
Due in part to its record of political stability, Tanzania was long the darling of multilateral and bilateral donors. The Scandinavians had their largest development assistance programs in the world here, and the UK, Netherlands, Germany, and Japan also had very large programs. Canada was set to make Tanzania one of its largest assistance recipients. Tanzania was one of the first countries to benefit from HIPC debt relief, and will receive debt relief of some USD 3 billion. While this assistance clearly played a key role in Tanzania's development, particularly since 1985, it also created serious donor dependency.
Human development indicators, though improving gradually, remain low. While nationally, 34 percent of Tanzanians are below the income poverty line, in some regions as much as 57 percent of the population are unable to meet their basic needs. It was unlikely that Tanzania will be able to achieve the first Millennium Development Goal--to eradicate extreme poverty and hunger--without significant additional assistance.
Tanzania's economy relies heavily on agriculture, which accounts for nearly half of GDP and employs 80% of the workforce. By 2015 several transnational corporations had come to Tanzania to invest in plantations in the country's Southern Agricultural Growth Corridor, a region the size of Italy. The initiative was sponsored by a food security alliance created by the G7 group of industrialized countries. The goal was to bring innovation to agriculture and create more jobs in the sector to reduce poverty and wipe out hunger in the nation.
Poor, small-scale farmers in Tanzania are siding with those who oppose large corporate investment in agriculture. A farmer using sustainable techniques instead of expensive synthetic fertilizers has better results in terms of income, food and nutrition while working on his small piece of land than when toiling on large-scale plantations.
Tourism was growing in importance and ranks as the second highest foreign exchange earner after agriculture. Mineral production (gold, diamonds, tanzanite) has grown significantly in the last decade. It represents Tanzania's biggest source of economic growth, provides over 3% of GDP and accounts for half of Tanzania's exports.
Tanzania produces small volumes of natural gas for domestic consumption, but the country has the potential to become a liquefied natural gas (LNG) exporter in the future. Tanzania does not produce crude oil, and there has not been a commercial oil discovery in the country recently.
The BG Group, in partnership with Ophir Energy, and Statoil, in partnership with ExxonMobil, have made several offshore natural gas discoveries since 2010, totaling 25 to 30 trillion cubic feet of recoverable gas resources, according to PFC Energy.
The details around LNG development are unclear as resources are still being evaluated, but the Tanzanian government has said it favors an onshore LNG plant as opposed to a floating one. The Tanzanian government, Statoil, ExxonMobil, BG Group, and Ophir Energy are currently working on plans to develop a joint LNG plant, according to Statoil.
In 2022, Parliament enacted a new Tanzania Investment Act, repealing the 1997 Investment Act. The act has introduced reforms broadly intended to create a more favorable investment environment for domestic and foreign investors. Some of these notable changes include elevating TIC’s role in promoting, facilitating, and coordinating investment; establishing an integrated electronic system for investment promotion and facilitation; removing the time limitation for an investor’s appeal of a rejected application; clarifying and codifying timeframes for certificates of incentives; reducing the minimum investment capital threshold for domestic investors; protecting existing certificates of incentives; and granting access to international arbitration for foreign investors for settling disputes with Tanzania Investment Centre (TIC) or the GoT through arbitration, with the decision to utilize local or foreign avenues has been left for parties to a dispute to agree mutually. In July 2023, the GoT issued the Tanzania Investment Regulation 2023, which set out the functions of the National Investment Steering Committee, procedures for strategic investment, and applications for incentives. The regulation also empowered GoT officers from ministries, departments, and agencies, stationed at the center to coordinate, and facilitate license and permit processing.
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