Tanzania Economy Overview

Economy: system and politics

The ‘ Ujamaa policy ‘ (Swahili: kinship, brotherhood) founded by Julius Nyerere became the epitome of African socialism. The policy Nyerere has promoted national identity and conflict-free coexistence of many ethnic groups. From an economic point of view, however, the two decades of Ujamaa had the effect of a planned economic general anesthetic, its after-effects can still be felt today. The liberalization program (see below) introduced in 1986 under pressure from the IMF and World Bank for economic recovery was long overdue. Unfortunately, it was misunderstood by some actors as a free pass for unbridled self-optimization. The vernacular referred to this policy of misguided liberalization as the ‘Ruhusa policy’ (Swahili: permission).

Since then, improvements have been made several times through a stronger poverty orientation and the measures for economic consolidation are embedded in holistic development strategies (‘Poverty Reduction Strategy Papers’, PRSP) that are drawn up in the country itself – like the current national 5-year development plan. The ” Policy Support Instrument ” agreed with the IMF in 2007 marked a shift in focus from financial support to the IMF to pure policy advice.

The IMF and a report by the World Bank offer a very good overview of the structural reforms in Tanzania and their effects. In the World Bank’s ranking of doing business, Tanzania is currently in 141st place and is thus just above the average for Sub-Saharan Africa.

The privatization of state-owned enterprises and incentives for foreign direct investment are integral components of economic policy. But there is also talk of a sale of the land (including arable land) to foreigners, which has led to resentment towards foreign investors (and naturalized immigrants). Foreigners are by no means only active as major investors in Tanzania, but also as consultants, employees, small traders, etc.

In macroeconomic terms, Tanzania can look back on many years of continuously high growth, which has been six to seven percent annually over the past decade. However, this is doubted by the opposition. The growth is also reflected in the state’s growing tax revenues, but the tax system still needs to be significantly improved in order to better cope with the diverse challenges facing the country. In addition, the power supply has to become more stable in order to prevent severe economic losses and uncertainties, as the three-month power failure in Zanzibar in 2010 demonstrated.

According to constructmaterials, the establishment of various special economic zones offer foreign investors a multitude of opportunities to invest in the Tanzanian economy, for example by offering companies attractive incentives for investments through tax breaks.

New companies and start-ups are emerging mainly in the capital Dar es Salaam, which are founded by young Tanzanians and thus create new jobs. The Tanzanian market is also developing as an interesting location for German companies.

Tanzania Economy

Economic situation

Low productivity in agriculture is correlated with the cost of living, 55.9% of which is used for food. In second place comes ‘Movement’ (9.7%), then ‘Energy and Water’ (8.5%) and ‘Drinks and Tobacco’ (6.9%).

“In Tanzania, a chicken that lays an egg earns more than a teacher,” complained one civil servant. And yet the economic indicators make Tanzania appear as a ‘rising star of Africa’. The World Bank is not the only one to draw a positive balance of economic development. The positive economic trends of recent years, which have shown high growth rates of 7% for Tanzania over several years, have decreased to 4% for 2020, according to the IMF.

Foreign trade & debt

Export products from mining (precious metals, especially gold) and agriculture (tobacco, coffee, tea, cashew nuts) contribute significantly to improving the foreign trade balance. The most important customer countries include India and China in Asia and Switzerland and Germany in Europe, but also South Africa and Kenya within Africa. Mainly machines and vehicles, crude oil and chemical products, means of production and consumer goods are imported. The most important trading partner here is China, followed by India, South Africa, the United Arab Emirates and Malaysia. The states of the East African Community (Burundi, Kenya, Rwanda, Tanzania, Uganda) have had an unrestricted customs union since January 1, 2010, since July 1, 2010 even a common market, which is characterized, among other things, by the free movement of goods, capital and labor. The GIZ since 2004 supports the integration process of the East African Community. To make it easier for the private sector to gain access to the markets of the surrounding countries, ‘ Export Processing Zones ‘ have been set up in Tanzania. In addition, a currency union based on the model of the euro zone is also planned, but this has not yet been implemented.

Tanzania is a country with high national debt. However, it is also one of the first and greatest beneficiaries of the Heavily Indepted Poor Countries (HIPC) and the Multilateral Dept Relief Initiative (MDRI). A complete debt relief was by no means brought about and the national debt has now reached very high values again – also in relation to gross national product. Tanzania remains highly dependent on low-interest loans and gifts. It is expected that around 40% of the national budget will also be financed from abroad in the coming years.

About the author