Tanzania’s Economic Resilience: A Decade in Review of Growth and Challenges

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Over the past decade, Tanzania has emerged as one of the fastest-growing economies in Africa, showcasing remarkable resilience in the face of global economic downturns, regional challenges, and internal adversities. Tanzania will be the third fastest growing economy in Africa for this year. At 5.6 percent growth, the East African nation will trail Cote d’Ivoire and Rwanda, said a United Nations report.

Cote d’Ivoire, the world’s largest producer of cocoa (30 percent), will register a 6.5 percent growth for this year, projections indicated. Successful technology-driven transformation and recent foreign direct investments will lead to a 7.8 percent GDP growth for Rwanda in 2023. Uganda and the mineral-rich DR Congo, East African Community (EAC) partner states, would register a modest growth during 2023.

“Tanzania’s economy is expected to increase by 5.6 percent this year,” said the report focusing on the 30 African biggest economies. The World Bank has ranked Tanzania the 10th richest country in Africa by overall gross domestic product (GDP) based on the current exchange rate. Although Tanzania alongside Cote d’Ivoire and Rwanda will ride high in growth, the situation will be slightly different for the continent.

According to the UN, Africa’s economic growth is expected to be impacted negatively by several factors in 2023. This article delves into the factors that have underpinned Tanzania’s economic resilience, the challenges it has encountered, and the prospects for the future.

The Pillars of Tanzania’s Economic Resilience

Several factors have contributed to Tanzania’s economic resilience over the past decade:

Diversified Economy: Unlike many African nations that rely heavily on a single export commodity, Tanzania boasts a diversified economy encompassing agriculture, mining, tourism, and a burgeoning services sector. This diversification has shielded the country from severe shocks associated with fluctuations in global commodity prices.

Robust Agricultural Sector: Agriculture remains the backbone of Tanzania’s economy, employing the majority of its workforce. The country’s emphasis on agricultural self-sufficiency has ensured food security and reduced vulnerability to international market volatilities. Agriculture remains one of the most important sectors of Tanzania’s economy, responsible for approximately 25% of GDP and 85% of exports.

It is estimated that agriculture is the main economic activity for 70% of Tanzanian households and 75% of all Tanzanian jobs are within the agricultural sector, with up to 80% of all agricultural produce being produced by smallholder farmers. Strategic Investments, Tanzania has made strategic investments in infrastructure, including roads, ports, and energy projects. These investments have facilitated trade, attracted foreign direct investment, and laid the foundation for sustained economic growth.

Prudent Fiscal Policies: The Tanzanian government’s commitment to fiscal discipline, coupled with efforts to broaden the tax base and enhance revenue collection, has ensured macroeconomic stability. Revenue performance, measured by the ratio of revenue to GDP, improved rapidly; and a combination of prudent macroeconomic policy and debt relief ensured that the country had some fiscal room for maneuver, or in the modern jargon, “fiscal space” or a “fiscal buffer”.

With the advent of the global financial crisis in 2008, some of this space was used up, partly as a consequence of automatic impacts, for example on revenue collections, and partly as a consequence of deliberate policy choices, such as the “rescue plan” announced in the budget speech of 2009.

Regional Integration: Tanzania’s active participation in regional economic communities, such as the East African Community (EAC), has opened up larger markets for its products and services, fostering trade and investment.

Challenges Along the Way

Despite its impressive economic track record, Tanzania has faced its share of challenges:

External Debt: While the country has managed its debt levels prudently, there are concerns about rising external debt and its implications for future economic stability. The latest data as of April 2022 shows that Tanzania’s public debt is TZS 69.44 trillion (about USD 30.7 billion), this include domestic debt TZS 22.37 trillion and external public debt stock at TZS 47.07 trillion (about USD 20.8 billion).

Inequality: Economic growth has not been evenly distributed, leading to disparities in wealth and development across regions and communities. The degree of inequality can be illustrated by the fact that the richest 20% of Tanzania’s population accounts for 42% of total consumption, whereas the poorest 20% consume only 7%. The modest reduction in poverty illustrates that economic growth has not been sufficiently broad-based.

Growth is concentrated in telecommunications, financial services, retail trade, mining, tourism, construction and manufacturing. While growth was formerly driven largely by public spending and international aid, this is no longer the case. Growth today is generated mainly by the private sector, but the sectors with the highest rates of growth are predominantly capital-intensive and concentrated in large urban areas.

Climate Change: Being an agrarian economy, Tanzania is vulnerable to the impacts of climate change, which threatens its agricultural output and food security. Tanzania is currently experiencing severe weather extremes as a result of a changing climate. Increased temperatures, prolonged droughts and erratic rainfall are resulting in significant impacts to public health and livelihoods, with climate projections indicating that the situation is expected to intensify.

Bureaucratic Hurdles: Investors often cite bureaucratic red tape as a challenge to doing business in Tanzania, potentially hampering the flow of foreign investment.

Looking Ahead: The Next Decade

As Tanzania looks to the future, several opportunities and challenges lie ahead, we can harnessing the Youth demographic, with a young and growing population, Tanzania has the potential to harness this demographic dividend through investments in education and skill development. Leveraging Technology, the digital revolution offers Tanzania an opportunity to leapfrog traditional development hurdles, especially in sectors like finance, education, and health.

Sustainable Development, as the country continues to grow, there’s a pressing need to ensure that development is sustainable, balancing economic growth with environmental conservation. Strengthening Governance, enhancing transparency, accountability, and governance will be crucial in ensuring that the benefits of economic growth are equitably distributed.

Tanzania’s economic resilience over the past decade offers a compelling narrative of resilience, adaptability, and growth. For experts, it provides insights into the dynamics of an emerging economy navigating the complexities of the global economic landscape. For general readers, it’s a story of a nation’s determination to uplift its people, even in the face of adversity.

As Tanzania embarks on the next phase of its economic journey, its experiences serve as both an inspiration and a cautionary tale for other nations striving for sustainable development in a rapidly changing world.

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