Tanzania Economic Outlook

  • The economy is projected to grow by around 7% in 2014 and 2015, driven by transport, communications, manufacturing and agriculture and supported by public investment in infrastructure.
  • The government is expected to maintain fiscal consolidation aimed at expenditure and debt management, as well as a tight monetary policy to anchor inflation.
  • Preparation of the new constitution is in its final stages. The issues that remain high on the agenda include: the structure of the union between mainland Tanzania and Zanzibar, the presidential powers, natural resources management and political reforms.

The economy has continued to perform strongly, with current growth at around 7%. This is driven largely by communications, transport, financial intermediation, construction, agriculture and manufacturing. In the medium term, growth will be supported by the ongoing investments in infrastructure and the projected good weather conditions. Also, these medium-term growth projections are backed by continued investments in the recently discovered natural gas reserves in Tanzania and the expansion in public investments (including the ongoing construction of USD 1.2 billion gas pipeline from Mtwara to Dar es Salaam), as well as the related investments aimed at stabilising power generation in the country.

The main development challenge is that Tanzania’s growth is not sufficiently broad-based and poverty levels still remain high. Despite high growth averaging 7% over the past decade, the recent household budget survey results indicate that 28.2% of Tanzanians are poor, and poverty remains more prevalent in rural areas than in urban areas.

Tanzania has continued to strengthen its fiscal position by embarking on fiscal consolidation measures throughout 2012/13. Its financial system remains stable and sound, underscoring several years of successful financial sector reforms. External debt grew to USD 13 billion in November 2013, an increase of about 23% over the USD 10.6 billion recorded during the same period in the previous year. However, despite such an increase in external borrowing, Tanzania’s external debt remains sustainable. Export performance remained strong, largely driven by gold and services receipts, which account for a combined share of about 44% of total exports.

Tanzania has continued to promote regional integration through tariff reduction. In 2012/13, the Common External Tariff (CET) on electricity was reduced from 10% to 0%. This was intended to reduce the cost of importing electricity into East African Community (EAC) member states. The volume of trade between Tanzania and EAC partners has more than doubled, from USD 520 million in 2008 to about USD 1.2 billion in 2012.

Tanzania is currently in the advanced stages of preparing a new constitution, which is expected to be in place before the next general election in 2015. The dominant issues during the constitutional reforms have included: the structure of the union between mainland Tanzania and Zanzibar, the presidential powers, natural resources management and political reforms such as the independence of the electoral commission, greater representation for women and a provision for independent candidates to run for election.

Tanzania’s participation in global value chains (GVCs) remains low, mainly on account of its economic structure. Industry accounts for about 25% of GDP, and the most important industrial sub-sectors are manufacturing, whose share in GDP is around 10%, and construction, with a share of about 7.3% in GDP. Tanzania continues to enjoy strong export growth and diversification from traditional markets and products, but it remains significantly reliant on primary commodity exports. However, manufacturing exports have grown significantly over the past decade, and export markets have been diversified.

Tanzania remains a major FDI destination, with mostly greenfield investments in the extractive and tourism sectors. Its potential to integrate into GVCs lies in the successful exploitation of trade linkages with regional trading partners, as well as careful exploration of natural resources, including minerals and natural gas, to ensure economic spinoffs and employment creation.

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