Steady progress but still lagging
Tanzania’s economic policy has moved slowly from socialist to market-based. Starting in 1986, reforms dismantled the key pillars of the socialist economy, notably removing price controls and privatizing state enterprises. Growth stuttered at first, but accelerated after 1996 following aggressive macroeconomic stabilization and structural reforms. Further initiatives in the 2000s included the adoption of a National Strategy for Growth and Reduction of Poverty, with institutional reforms to improve capacity in macroeconomic management, planning, and budgeting.
Agriculture remains an important share (about 28%) of Tanzania’s GDP, industry at 25%, and services at 47% in 2010–12. Mining has grown fast over the period as Tanzania emerges as a resource-rich economy producing gold, pearls, and precious stones, and thanks to the recently confirmed new discoveries of both onshore and offshore natural gas. Growth in manufacturing has been modest, however—moving from and average of around 8% of GDP in 1999–2001 to around 9% in 2009–11.
Despite numerous poverty reduction initiatives, low levels of productivity and high levels of unemployment and underemployment have constrained the country’s ability to achieve meaningful poverty reduction.
The President’s Office Planning Commission, the agency for strategic thinking on the national economy, drives and coordinates the implementation of transformation strategies. It advises on medium- and long-term strategies, monitors and analyzes development trends, and provides advice on macro and sectoral policies as well as broad socioeconomic development issues.
Tanzania uses three models to strengthen planning and budgeting. The Macroeconomic Model for Tanzania provides a quantitative framework for forecasting and policy analysis. The Strategic Budget Allocation System links the country’s poverty reduction targets and resource requirements with the budget. And the Social Accounting Matrix estimates the impact of fiscal policy on progress being made to attain the country’s Vision 2025. Despite strong growth in the formal sector, Tanzania’s private sector is still largely informal. More than 95% of enterprises are informal to some degree.
Tanzania ranked 120th of 142 countries on the 2011–12 Global Competitiveness Index. It did not improve markedly on any of the major aspects of the indicators in 2012 relative to 2010. Its weakest ranks are in its sophistication of its business sector (104th), technological readiness of its businesses (126th), overall macro environment (129th), infrastructure development (130th), and higher education and training (131st). Its best rankings are 73rd for both innovation and labor market efficiency and 80th for institutions. The government set out in 2011 to develop a roadmap to improve the country’s investment climate and to identify measures to reduce the regulatory burdens for doing business.
Based on the revealed comparative advantage of the top 10 exports in 2009, there are opportunities in producing key products and services that can drive transformation. Tanzania’s first export segment is in primary commodities, including gold, precious metals, and coffee. The second is in textiles, iron and steel, petroleum products, soda ash, cement, plastics, pharmaceutical products, and leather.
Tanzania also boasts many tourist attractions: 12 national parks, 17 game reserves, 50 game-controlled areas, a conservation area, 2 marine parks, and 2 marine reserves for significant revenue. Zanzibar, Lake Victoria, Lake Nyasa, and Lake Tanganyika provide opportunities for beach resorts, water sports, and game fishing. And taking a cue from the success of neighboring Kenya, Tanzania’s horticultural industry has been growing over the years, especially around Arusha—and this should be supported to attain world-class standards.
Tanzania is part of two regional integration arrangements: the East African Community and the Southern African Development Community. Participation in those arrangements has increased market access for the country’s manufactured products, and there is potential for driving the manufacturing sector.
Confirmed new discoveries of natural gas are expected to move Tanzania to 5th on the continent (34th globally) of countries with significant gas reserves. Gas production during 2020–40 should enhance the country’s energy supply, boost its exports, and have positive spillovers for employment and fiscal revenues.
But significant improvement is needed in roads, water, electricity, and ICTs. And education and skills upgrading are essential to enhance productivity, improve competitiveness, and attract foreign investments. Trade policy should be geared toward promoting key exports by strengthening implementation of relevant regulations as well as relaxing export quotas and constraints on the import of capital goods needed to expand domestic production capacities.
Tanzania’s growth with depth
- Transformation—12th of 21. Tanzania improved its rank on economic transformation from 13th in 2000 (1999–2001) to 12th in 2010 (2009–11), gaining on Zambia over the decade.
- Growth. GDP growth picked up after the reforms in the second half of the 1980s. Average growth was 3.5% a year from 1988 to 1990, 2.8% from 1991 to 2000, and a very impressive 6.1% from 2001 to 2010. Corresponding GDP per capita growth in the respective periods was 1.4%, 0.2%, and 3.7%. Tanzania recorded an average growth of 6.6% a year in 2011/12 and is projected to grow at 7.1% in 2013/14.
- Diversification—9th. Tanzania’s rank remained unchanged. The share of manufacturing in GDP rose from an average of 8.2% in 1999–2001 to 9.3% in 2009–11. Merchandise exports are relatively concentrated, but there has been some progress on diversification. The share of the top five merchandise exports fell from 64% in the 1990s to 57% in the 2000s. The share of manufacturing and services is relatively high, falling from around 47% in 2000 to 42% in 2010. Most of the share came from services, mainly tourism, as manufacturing exports made up only about 6% of exports in 2000 and 8% in 2010. But it is worth noting that the share of manufacturing exports has been rising.
- Export competitiveness—6th. In its relative export intensity of production, which divides a country’s export-to-GDP ratio with the corresponding world ratio, without taking extractives into account, Tanzania did not move much—from 0.73 in 2000 to 0.74 in 2010. But since many of the countries experienced significant declines in this ratio over the period, Tanzania moved up significantly in export competitiveness from 13th in 2000 to 6th in 2010.
- Productivity—14th. Productivity in manufacturing shot up from $6,086 (in 2005 US$) per worker in 2000 to $18,776 in 2010. But cereal yields fell from 1,753 kilograms per hectare to 1,373. Tanzania’s position on the productivity ranking did not change over the period.
- Technology—15th. The share of medium and high technology in production fell from 18.3% from 2000 to 6.9% in 2010, while the share in exports rose from 3.2% to 8.2%, leading to a decline in technology rank from 8th to 15th.
- Human well-being—13th. GDP per capita averaged $1,291 over 2009–11 (PPP 2005 US$), up significantly from $871 in 1999–2001. This helped improve the country’s rank on human well-being from 17th to 13th.