Economic situation Untapped potential

In the period from 2015 to 2019, Tanzania’s economy grew by an average of more than six per cent. In 2020, the growth rate declined to two per cent as a result of the COVID-19 pandemic. The International Monetary Fund (IMF) has predicted rates of between five and six per cent again for the next few years.

Street vendor in Tanzania

Street vendor in Tanzania

Street vendor in Tanzania

Currently, about 36 per cent of the country’s gross domestic product (GDP) comes from the services sector. That includes tourism, which a World Bank report in 2019 described as the country’s biggest source of foreign currency, as well as the second-biggest contributor to its GDP and third-biggest source of employment. The COVID-19 pandemic hit the tourism industry especially hard. In 2020, revenues from tourism fell by more than 70 per cent. Many businesses, including businesses from sectors of the economy that support the tourism industry and are dependent on it, had to close and several hundred thousand jobs were lost.

Other engines of growth in recent years were the construction, mining, transport and logistics sectors.

The industrial sector contributes almost 30 per cent of gross domestic product, but only accounts for six per cent of jobs. Two thirds of employed workers make their living from agriculture. Crops grown for export are, in particular, coffee, cotton, tea, tobacco, sisal and cashew nuts. The agricultural sector generates about 27 per cent of GDP.

Private investors are hesitant

Tanzania’s government has expressed its willingness to step up its promotion of the private sector. However, impenetrable laws and red tape tend to hamper entrepreneurial initiative. In addition, there is a lack of skilled workers and deficits in the country’s energy and transport infrastructure.

Investment currently comes mainly from the public sector. Since large-scale public sector projects to expand infrastructure (roads and railway lines, electricity grid, power stations) are funded via loans, Tanzania’s debt burden is increasing.

Development potential

Tanzania’s wealth of natural resources is already a very important economic factor for the country. With Mount Kilimanjaro, significant protected areas like the Serengeti and the Ngorongoro crater, Lake Tanganika and Lake Victoria, and the beaches along the Indian Ocean coastline, Tanzania is an extremely attractive and diverse holiday destination. However, there is still considerable potential for growth in the tourism sector. So far, a large part of the protected areas is not developed for tourism and poor population groups living on the edges of the protected areas receive little benefit from tourism.

The COVID-19 crisis is an opportunity to carry out necessary structural reforms and make tourism sustainable. A sustainably managed tourism sector could increase public revenues, would create new jobs and at the same time make a decisive contribution towards conserving the country’s biodiversity. According to an analysis conducted by the World Bank, the tourism industry could serve as a model for improving the business climate in the country.

In the agricultural sector, production could be expanded and diversified more, so that the economy is less dependent on a few individual products and on world-market prices for those products. More processing of agricultural products in Tanzania could create new jobs and generate additional income. However, in order for that to happen, the general conditions for small and medium-sized businesses would need to be improved.

Tanzania, with its access to the sea, plays an important role as a transit country and transshipment hub for the landlocked states of central Africa. Opportunities are created by the country’s membership of the East African Community (EAC), which seeks to substantially ease the movement of goods and services, persons and capital between its six member states.

As at: 10/03/2022