Tanzania, a country in East Africa, has undergone a remarkable transformation over the years, evolving from a struggling nation to one of the fastest-growing economies on the continent and the world at large. The story of Tanzania’s economic journey is one of resilience, strategic planning, and a commitment to sustainable development.
In the late 1980s and early 1990s, Tanzania initiated significant eco- nomic reforms, shifting from a centrally planned economy to a market-oriented one. This transition was marked by the liberalization of trade and investment policies, the privatization of state-owned enterprises, and the encouragement of private sector participation.
The introduction of these reforms brought about a positive change in Tanzania’s economy. The country began to experi- ence higher economic growth rates, attracting foreign invest- ment and fostering a more dynamic business environment.
In a latest report, the International Monetary Fund (IMF) has delivered an optimistic outlook for Tanzania, forecasting rapid economic growth in 2024. Positioned among the top 12 African countries and 22 globally in terms of economic growth, Tanzania is emerging as a key player in the East African region, alongside Ethiopia. The IMF attributes this an- ticipated growth to local production and industrial development, posi- tioning both countries as attractive destinations for foreign investment.
Economic Powerhouses in the Making
The IMF report underscores Tanzania and Ethiopia’s growing influ- ence in sub-Saharan African economic dynamics. Both nations are characterized as “bigger players” and are expected to witness significant development in the coming years. The key drivers behind this economic surge are identified as robust local production and a focus on industrial development.
The IMF emphasized the pivotal role played by local production and industrial development in propelling Tanzania and Ethio- pia to the forefront of economic growth. These countries have strategically leveraged their resources to build strong domestic industries, creating a conducive environment for economic ex- pansion. The commitment to fostering a robust industrial base has not only stimulated domes- tic economic activities but has also positioned both nations as attractive hubs for foreign investors seeking promising markets.
According to the IMF’s estimations, Tanzania is anticipated to achieve a remarkable growth rate of 6.1 percent in 2024. Ethiopia narrowly overtakes with a projected growth rate of 6.2 percent. These figures under- score the resilience and dynamism of their economies, setting them apart as beacons of progress on the African continent.
The IMF report predicts that Tanzania’s economic prowess will continue to attract foreign investors. The conducive business environment, coupled with sustained growth rates, makes Tanzania appealing prospects for international businesses seeking opportunities in the African market. The report suggests that Tanzania is set to become even a more significant player in the global economic landscape.
According to the IMF, the projected average global growth forecast for next year is only 2.9 percent, far below the projections of Tanzania.
Recent Macroeconomic And Financial Developments
Tanzania, like many other na- tions, faced a complex economic landscape in 2022, influenced by global events such as Russia’s invasion of Ukraine and the resultant effects caused by the COVID-19 pandemic. In 2022, Tanzania experienced a modest slowdown in real GDP growth, de- clining from 4.9% in 2021 to 4.7%. A notable contributing factor was the spillover effect of Russia’s invasion of Ukraine, particularly impacting food and energy prices.
Despite these challenges, growth remained buoyed by the robust performance of the services and agriculture sectors on the supply side, with investment and con- sumption driving demand. To navigate the impact of rising inflationary pressures, Tanzania’s central bank took a proactive stance by tapering its accommodative monetary policy in June 2022. This strategic move aimed to strike a balance between curbing inflation and sustaining the momentum of economic recovery.
Despite the monetary policy adjustments, inflation increased from 3.7% in 2021 to 4.3% in 2022, primarily due to surging food and fuel prices. Fortunately, exchange rates remained stable, supported by high gold exports and tourism receipts, providing a degree of resilience amid external uncertainties.
Tanzania showcased fiscal prudence, with the fiscal deficit narrowing to an estimated 3.4% of GDP in 2022 from 3.8% in 2021. This positive trend aligned with an improvement in revenue performance and was financed through a combination of external and domestic borrowing. Notably, public debt levels remained sustainable, stabilizing at 40.9% of GDP in 2022.
The current account deficit widened to 5.7% of GDP in 2022, up from 3.4% in 2021. The increase was driven by a surge in the im- port bill, attributed in part to higher oil prices. External commercial debt played a significant role in financing this deficit, compensating for a decline in other financial flows, including foreign direct investment and grants.
Outlook and Risks
As Tanzania charts its course into the future, the economic outlook for 2023 and 2024 reflects a trajectory of growth, albeit with a mindful eye on external factors. The outlook for Tanzania’s real GDP growth is optimistic, with projections indicating a rise to 5.3% in 2023 and a further acceleration to 6.1% in 2024.
These growth figures are under- pinned by the sustained recovery in the crucial tourism sector and a gradual stabilization in supply and value chains. This trajectory suggests a resilient economy poised for expansion.
Inflation is expected to witness an uptick, reaching 4.7% in 2023. This increase is attributed to higher food and energy prices, reflecting global market dynamics. However, a positive shift is anticipated in 2024, with inflation projected to moderate to 4.0% due to improved agricultural performance. This signals a balancing act between external pressures and the resilience of domestic agricultural activities.
The fiscal deficit is projected to widen to 3.5% of GDP in both 2023 and 2024. This expansion is driven by increased spending on infrastructure projects, a strategic move aimed at further bolstering economic development. The financing of these initiatives will rely on a combination of domestic and external borrowing, reflecting a commitment to long-term growth de- spite short-term fiscal pressures.
The current account deficit is expected to narrow, reaching 4.8% of GDP in 2023 and further reducing to 4.4% in 2024. This positive shift is attributed to anticipated growth in merchandise exports and tourism receipts. External borrowing is expected to play a key role in financing the current account deficit, emphasizing the importance of international partnerships in sustaining economic stability.
While the outlook is promising, potential risks loom on the horizon. The lingering threat of the aftermath of COVID-19 poses a continued challenge to global health and economic stability. Additionally, the repercussions of Russia’s invasion of Ukraine intro- duce uncertainties, particularly in terms of food and oil prices. The interconnectedness of the global economy underscores the need for vigilance and adaptive strategies to navigate these challenges.
Tanzania’s National Debt
Tanzania’s national debt stock, comprising the public and pri- vate sectors, was USD 40,738 million at the end of February 2023. Out of the debt stock, 71% was external debt. Multi- lateral institutions continued to account for the largest share of the debt stock, at 47.2%, followed by commercial creditors.
The largest portion of the dis- bursed outstanding debt was in the hands of transport and telecommunication activities, followed by social welfare and education, and energy and min- ing activities. The structure of external debt by currency remained unchanged, where USD continued to dominate (68.9%), followed by the Euro.
According to the World Invest- ment Report of 2022 published by the United Nations Conference on Trade and Development (UNC- TAD), foreign direct investment (FDI) to Tanzania rose by 35% to USD 922 million in 2021 from USD 695 million in 2020. Accord- ing to the Monthly Investment Bulletin-March 2023 released by the Tanzania Investment Center (TIC), the top five leading sources of FDI to Tanzania are China, the USA, Mauritius, Spain, and India.
Tanzania’s inclusion among the top-ranking African countries for projected economic growth in 2024 is a testimony to the nation’s commitment to sustain- able development and strategic economic policies. With a focus on local production, industrial development, and fostering a welcoming environment for foreign investment, Tanzania is poised to continue its economic ascent. As the country emerges as a major economic powerhouse in East Africa, the stage is set for increased regional collaboration and a brighter future for the entire East African Community and the continent at large
Tanzania’s Balance of Trade
The current account of Tanzania recorded a deficit of USD 5,294.5 million in the year ending Febru- ary 2023 compared with a deficit of USD 2,744.3 million recorded in the corresponding period in 2022, on the account of the challenges endured by high inflation coupled with effects of the war in Ukraine. The overall balance of payments also had a deficit balance of USD 1,294.2 million compared with a surplus of USD 801.9 million in the year to February 2022.
Exports of goods and services increased to USD 12,383.1 mil- lion in the year ending February 2023 from USD 10,202.1 million in the corresponding period in 2022, mostly driven by non-tra- ditional exports (particularly min- erals and manufactured goods), and services receipts, mainly tourism. A notable increase was registered in the exports of minerals, particularly gold, coal, and diamonds. Gold exports registered an annual increase of 7% to USD 2,859.6 million.
Exports of diamonds were USD 66.9 million, higher than USD 9.6 million in the year to February 2022. Coal exports grew significantly to USD 228.6 million from USD 23.2 million. Likewise, the export of manufactured goods in- creased by 19.9% to USD 1,490.2 million, largely driven by fertilizer, iron and steel, and cement.