Tanzania Business Overview

by Alex Daruty | Apr 15, 2021 | Business Expansion

Following two decades of sustained growth, Tanzania reached an important milestone in July 2020, when it formally graduated from low-income country to lower-middle-income country status. Tanzania’s achievement reflects sustained macroeconomic stability that has supported growth, in addition to the country’s rich natural endowments and strategic geographic position.

Economic Overview

Reflecting strong income growth over the past decade, on July 1, 2020 the World Bank announced that Tanzania’s gross national income (GNI) per capita increased from $1,020 in 2018 to $1,080 in 2019, exceeding the threshold for lower-middle income status. The country’s broad vision of its development goals as a middle-income country in 2025 are set out in the Tanzania Development Vision 2025, characterised by high-quality livelihoods, peace, stability, and unity good governance, a well-educated and learning society, and a competitive economy capable of sustainable growth and shared benefits. Increased GNI per capita is impressive but not enough to reach these goals. Investing in both human development and physical capital is key to achieving these broad goals and improving the quality of life for all Tanzanians.

Tanzania has fared relatively well compared to its regional peers, but economic growth has slowed significantly. The real gross domestic product (GDP) growth rate fell from 5.8% in 2019 to an estimated 2.0% in 2020, and per capita growth turned negative for the first time in more than 25 years. The global economic slowdown has adversely affected export-oriented industries, especially tourism and traditional exports, and caused a drop in foreign investment. Gold has been the sole export to benefit from the crisis, as international gold prices rose sharply between 2019 and 2020. Although the government did not impose stringent mobility restrictions, the pandemic prompted firms and consumers to adopt precautionary behaviours, hindering domestic economic activity. Meanwhile, steep declines in production, consumption, and imports have significantly reduced fiscal revenue. The pandemic has also compounded pre-existing challenges in the financial sector, and the share of nonperforming loans on bank balance sheets continues to be high, while the growth of credit to the private sector has slowed.

Slowing economic activity has adversely impacted livelihoods. During June and July 2020, the World Bank conducted a COVID-19 Business Pulse Survey (COV-BPS) covering 1,000 small and medium enterprises in Tanzania. The survey data indicate that about 140,000 formal jobs were lost in June 2020, and another 2.2 million nonfarm informal workers suffered income losses. Tanzanians employed in informal non-farm microenterprises tend to be especially exposed to economic shocks, as they often have limited savings to draw on in a crisis. Firms reported an average decline in sales of 36%, which has jeopardised the solvency of more than three-quarters of small and medium enterprises. Most affected firms have not benefited from any type of government support, and respondents suggested that tax deferrals for firms in the most severely affected sectors, including tourism and related services, could help mitigate the disruptive effect of the crisis and enable swift recovery.

Recent key developments in Tanzania

Human Capital: According to the World Bank’s Human Capital Index 2020 (HCI 2020), a child born in Tanzania today will be 39% as productive when she grows up as she could be if she enjoyed complete education and full health. This is slightly lower than the average for Sub-Saharan Africa region and lower than the average for Lower middle-income countries.

Health: Tanzania has had a substantial decline in infant and under-five mortality rates, from 136 in 1999 to 50 deaths per 1,000 live births by 2019. In 2020, 95 out of 100 children born today survive to age 5, but 32 out of 100 children are stunted, and so are at risk of cognitive and physical limitations that can last a lifetime (HCI 2020).

Education:Levels of education access, completion and equity have improved, as did levels of secondary educational attainment for both women and men. As a result of the Fee-Free Basic Education Policy, enrolment rose by 17% in primary, from 8.6 million to 10.1 million, and by 23% in secondary, from 1.8 million to 2.2 million, over four years (2015-2018).

Between 2016-2018, there has been a substantial increase in student retention with a 39% increase in student survival through primary schools and 4% increase in the number of students transitioning to lower secondary. The gender gap has narrowed in primary and lower secondary education but remains in upper secondary whereby girls make up 38% of upper secondary enrolment.