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Tanzania - Economy

Tanzania is a democratic republic of 44 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 is 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 is 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.

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 is 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 is 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.

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Page last modified: 03-06-2017 18:14:13 ZULU