Tanzania’s broad vision is to become a middle-income country by 2025, characterized by high-quality livelihoods, peace, stability, unity and good governance, a well-educated and learning society, and a competitive economy capable of sustainable growth and shared benefits.
At 947,303 square kilometres, Tanzania is the 13th largest country in Africa and the 31st largest in the world. Following two decades of sustained growth, Tanzania reached an important milestone in July 2020, when it formally transitioned 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.
An economy on the rise
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 US$1,020 in 2018 to US$1,080 in 2019, exceeding the threshold for lower-middle income status. Moving a step higher in the economic ladder has been Tanzania’s goal for some time now. The country’s broad vision to be a middle-income country in 2025 is out in the Tanzania Development Vision 2025. In the vision plan, Tanzania wants its economy to be characterized 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.
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 adversely affected export-oriented industries, especially tourism and traditional exports, and caused a drop in foreign investment.
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 non-performing loans on bank balance sheets continues to be high, while the growth of credit to the private sector has slowed.
According to the African Development Bank outlook report, growth slowed to 2.1% in 2020 from 6.8% in 2019 because of COVID–19. The modest growth was driven mainly by construction and manufacturing on the supply side and investments on the demand side. Monetary policy has been accommodative to support credit and economic growth, with a reduction in the policy rate from 7% in August 2018 to 5% in May 2020, where it remains. Inflation fell to 3.3% in 2020 from 3.5% in 2019, due to a steady decline in food prices. Exchange rates remained stable, partly due to the Bank of Tanzania’s interventions to ensure stability in the foreign exchange market. The government’s fiscal consolidation has helped to reduce recurrent expenditures, but the adverse effect of COVID–19 on revenues increased the fiscal deficit slightly from 2.0% of GDP in 2019 to 2.3% of GDP in 2020—which still is lower than the government target of 5%.
Mining, a key driver of Tanzania’s economy
Mining is a critical segment of the country’s economy, accounting for over 50% of the country’s economy. From Gold and Diamonds to Gemstone, nickel, copper, and titanium, the country is rich in minerals. Of all the minerals found in the country, gold is by far the most important in terms of both mineral deposits and revenues generated from exports. The country has gold reserves of 45 million ounces, generating revenue of over US$1 billion. Diamonds are also found in significant amounts.
Tanzania is the 4th largest gold producer in Africa after South Africa, Ghana and Mali. The mining industry experienced an estimated 15.3 percent growth in the first quarter of 2020 compared to 10 percent growth during the same quarter in the previous year. Tanzania’s profile as a leading gold producer could also rise if investors tap into other greenfield areas where active commercial-scale mining is yet to start. The current perceived opportunities range from former mines in the Archaean Greenstone belts around Lake Victoria, Proterozoic rocks and conceptual grass root plays in Karoo and younger rocks. Investigation has mainly been focused on the greenstone belts around Lake Victoria with particular attention on the shear hosted gold mineralization associated with banded iron formations (BIF), tufts and volcano-sedimentary exhalative. Several “world class” gold deposits have already been discovered in the Lake Victoria Goldfields and are at different stages of development.
Diamond is also found in plenty in Tanzania. Since it was opened in 1940, the Williamson diamond mine has produced 19 million carats (3,800 kg) of diamonds. A wide variety of gemstones are also present in the country, including the world-renowned Tanzanite (blue zoisite) occurring in the Proterozoic metamorphic rocks of the Usagaran and Ubendian Systems. Other gemstones mined in the country include ruby, rhodolite, sapphire, emerald, amethyst, chrysoprase, peridot and tormaline. Recently, a major alluvial occurrence was discovered in the southern region of Ruvuma, Mtwara and Lindi. Varieties include chrysoberyl, spinels, sapphire, garnets, zircons and diamonds.
A variety of clays – bentonite, kaolin and fullers earth – in size-able deposits have been identified and are only scantily exploited. The Pugu kaolin deposit located some 30 kms West of Dar es Salaam has a great potential for development. Evaporates and saline deposits of economic significance are associated with the rift valley lakes. Investigations of the Soda ash deposits at Lake Natron revealed a potential recovery of over one million tonnes a year.
Graphite occurs in high-grade gneisses mainly in the Usagaran system. Sufficient reserves have been identified at Merelani, northern Tanzania, for a 40-year operation at a mining rate of 15,000 tonnes per year of high grade flake graphite of 97-98% purity. Basemetals are found in a belt running from Kagera through Kigoma to Mbeya, Ruvuma and Mtwara regions: recent evaluations have so far outlined contained resources of 500,000 tonnes nickel, 75,000 tonnes copper and 45,000 tonnes cobalt.
Its importance to the economy has led to the government enacting a number of policies to catalyze development in the sector, encourage greater local participation while ensuring the country gets to benefit from the rich minerals within its borders. Liberalization of the sector has its origins in the 80s and 90s when the government of Tanzania (GoT) relaxed rules to allow for private ownership of mining activities. With greater participation of the private sector, the contribution of the mining sector to the economy rose by 2.1% above the 2010 figure of 2.7%.
In 2017, the GoT, introduced a raft of new legislations aimed at ensuring that Tanzania benefits more from the minerals it produces. The changes in the legislations have increased the loyalties increasing from 4 percent to 6 percent and an introduction of 1 percent clearing fees on the value of all minerals exported from the country. Also, the new laws give the GoT ability to acquire 16 percent of shares from major mining companies on free carrying basis. The amendments led to the establishment of Joint Venture Company known as Twiga Minerals Corporation Limited between the Government (16 percent shares) and Barrick Gold Corporation Company (84 percent shares); and payment of compensation of US$100 million from Barrick Gold Corporation Company as initial settlement of the agreed US$300 million. With new legislation, Tanzania seems to be reaping more from its mineral reserves. Revenue from mineral collection has for instance increased to US$202.7 million from July 2019 to April 2020, a figure that more than doubles the US$84.5 million that the country collected in the in 2015/16 financial year.
The Government of Tanzania also says it would like to see more value-added activities in the country to include smelting and processing of minerals. In 2015 the World Bank offered Tanzania a US$45 million loan to improve the small-scale mining industry in rural Tanzania. As of 2020, two model gold smelters were built in Lwamgasa and Katente, one stop mineral processing and export centre, strengthening of mineral control and reduction of smuggling due to construction of a 24.5km wall around the Mirerani tanzanite mine.
With the government updating its policies to ensure the sector is beneficial to Tanzanians, opportunities exist for locals to enter the lucrative mining sector. Foreign companies working withing existing legislations also have opportunities to tap into the vast opportunities in the mining sector. Opportunities particularly lie in areas such as the establishment of gold refinery activities, supplying equipment and explosives, grinding media, mill liners, etc., under joint venture with Tanzania entrepreneurs, establishment of value-added activities, Gemstone cutting and polishing (lapidary). The 2010 Government legislation banning the export of unprocessed gemstones in a bid to spur local value also creates additional incentive for investment into mining value addition.
Agriculture, the backbone of Tanzania’s economy
Tanzania, like many countries in sub-Saharan Africa, has agriculture as the backbone of its economy. The country has vast agricultural resources with estimates revealing that as of 2018, Tanzania had over 44 million hectares of arable land which represents 45% of the country’s total land area. With such huge agricultural resources, it’s not surprising that the sector is the main pillar of the country’s economy. According to Tanzania Invest, the country’s agriculture is a leading contributor to the country’s GDP accounting for 28.2% in 2018 (US$ 12.7 billion). In 2014 it accounted for US$ 10.3 billion or 25.8% of GDP, marking an increase of 48% over 5 years. The agricultural industry also makes a large contribution to the country’s foreign exchange earnings, with more than US$1 billion flowing into the country annually from cash crop exports.
Cash crop production reached 0.639 million tonnes in 2018/19, compared to 0.627 million tonnes in 2014/15, marking an increase of 2%. Cashew nuts are the most produced cash crop in Tanzania accounting for 35.2% of the production, followed by seed cotton (34.9%), coffee (10.4%), tobacco (8.6%), tea (5.8%), and sisal (5%). Exports from cash crops accounted for US$830 million (9%) of the total value of Tanzania’s exports in 2019, compared to USD 793 million in 2015, representing an increase of 5%. Raw tobacco and cashew nuts emerged as Tanzania’s most exported cash crops. Most of Tanzania’s tobacco was exported to Germany, Russia, and Poland, while almost 80% of cashews are exported to India. Most of the production of cashew nuts in Tanzania is exported without being shelled.
When it comes to food crops, Maize is the most produced crop in Tanzania accounting for 62.6%, followed by rice (21.6%), pulses (15.1%), and wheat (0.7%). Tanzania’s crop however production decreased by 3% in the past 5 years, from 10.3 million tonnes in 2014/15 to 9.9 million tonnes in 2018/19. The country’s livestock, on the other hand, production generated US$4.2 billion in 2018, compared to US$2.4 billion in 2014, representing an increase of 75%. Out of the total meat production, 55% (US$2.31 billion) came from cattle, 21% (US$0.88 billion) from sheep and goats, 14% (US$0.59 billion) from pigs, and only 10% (US$0.42 billion) from chicken. Tanzania Aquaculture Tanzania’s fishing industry generated US$0.27 billion in 2018 versus US$0.21 billion in 2014, marking an increase of 26%. Aquaculture in Tanzania is dominated by freshwater fish farming in which small-scale farmers practice both extensive and semi-intensive fish farming. Small fishponds of an average size of 10 m x 15 mm (150 m2) are integrated with other agricultural activities such as gardening and animal and bird production on small pieces of land. Tanzania is currently estimated to have a total of 14,100 freshwater fishponds scattered across the mainland.
Given the low revenues that raw agricultural produce, the country has been keen on value addition. The country agriculture value-added net output increased by 46% during the period 2012–2017, from US$10.5 billion to US$15.3 billion. Currently, value-added products in Tanzania include cotton yarn, manufactured coffee and tobacco, sisal products (yarn and twine), wheat flour, biscuits and pasta, beer, textiles, rolled steel, and refined sugar.
Sugar production has been averaging of 300,000 tonnes of sugar per year while demand stands at about 670,000 tonnes. In April 2020, The Tanzania Investment Centre (TIC) issued a notice inviting domestic and foreign investors to develop sugarcane and sugar processing plantations due to a sugar demand gap in the country. Other sectors have not been abandoned and the country has been pursuing a policy where it seeks to ensure at last two new products are developed from each of the staple crops, horticultural crops, livestock and fisheries by that year. The Tanzania Agricultural Development Bank (TADB) is a key drive of this initiative and it is leading from the front by mobilizing financial resources and supporting smallholder farmers with low-interest loans.
Under Tanzania’s Five Year Development Plan (FYDP), agriculture has been earmarked as a major driver of the country’s economy. Through the plan, the government has planned major interventions in the agricultural sector, including improving value chains, developing skills, increasing commercialisation, funding new research and development, enhancing infrastructure and improving access to credit. While agriculture accounts for approximately 30% of total exports today, the plan envisions the sector to account for 36.7% of all exports by 2025. Under the FYDP, agriculture’s contribution to GDP is forecast to increase from 29.1% in 2016 to 29.4% in 2020/21 and 32% in 2025/26, while the plan targets boosting the sector’s real growth rate from 3.4% in 2015 to 7.6% in 2020/21 and 13.1% in 2025/26.
Increased private sector investment in all aspects of the agricultural value chain will play an important role in the achievement of the FYDP. To this end, the government is particularly seeking out new foreign financing for the flagship project Southern Agricultural Growth Corridor of Tanzania (SAGCOT) to quickly develop that region’s agricultural potential. The entire project seeks to mobilise US$2.1bn of private sector investment under a public-private partnership model. SAGCOT is expected to dramatically improve smallholder farmers’ links with domestic and international markets, a critical consideration given that 80% of farms in the country are no larger than 2.2 ha. The US International Trade Administration (ITA) reported in April 2016 that the government had, by that date, already allocated 63,000 ha of land for development under SAGCOT to be used for the cultivation and processing of sugarcane and rice. These wide-reaching efforts should see production levels of key cash crops return to growth in the coming years, helping boost value-added processing in the cotton, sisal, cashew, livestock, oilseed crop, coffee and tea segments.
Tourism, a leading foreign exchange earner
Tourism is Tanzania’s primary foreign exchange earner generating US$2.4 billion in 2018 versus US$2.2 billion in 2017, marking an increase of 9.1%. International tourist arrivals reached 1.4 million in 2018, compared to 1.3 million in 2017 and 754,000 in 2010. Europe accounted for the largest share of arrivals in 2017, followed by Asia and the Pacific, the Americas, Africa, and the Middle East. Tanzania´s hotel occupancy rate was estimated at 53.8% in December 2019 compared to 44.9% in December 2018.
When Tourists flock to Tanzania, they come for its vast wilderness and pristine sandy beaches. Tanzania Wildlife & Beaches are considered among the finest in the world. There are 16 National Parks in Tanzania, 28 Game Reserves, 44 Game controlled areas, 1 conservation area and 2 Marine Parks. Some of the top tourist destinations include the Serengeti National Park, a world renown wild life sanctuary known for the Wildebeest migration. The Kilimanjaro National Park, which hosts Africa’s highest mountain is also another tourist magnate. Other additional natural attractions include the white sandy beaches of the Zanzibar archipelago, of north and south of Dar es Salaam, and excellent deep-sea fishing at Mafia and Pemba Islands. Tanzania is also prized for its superb trophy hunting (sport hunting or safari hunting). Hunting in Tanzania is presently permitted and regulated by the Wildlife Conservation act of 2009, and its subsidiary regulations.
Tanzania invests in Energy to drive economic growth
The generation, transmission and distribution of electricity in Tanzania, is channelled through TANESCO, which is fully owned by the government and is responsible for 98% of the electricity produced in the country. Currently, Tanzania’s total power installed capacity is 1,602 MW of which 244MW were added in the past four years. Tanzania’s electricity generation comes mostly from natural gas (48%), followed by hydro (31%), petrol (18%), solar (1%), and biofuels (1%). With demand outpacing supply, Tanzania imports power from Uganda (10MW), Zambia (5MW) and Kenya (1MW). The traditional dependence on hydropower combined with the droughts that are affecting the country, often result in power supply shortages.
Tanzania knowing fully well the importance of electricity in economy growth has invested huge sums in harnessing its natural resources to produce electricity to continue bridging the energy gap and providing more for economic growth. Hydropower is the country’s main source of power, providing up to 562 MW of energy. The country’s vast water resources however have potential to offer even more with current estimates of potential additional capacity being project to be as high as 4.7 GW, according to Tanzania Invest. The country has been keen to tap these resources and has a number of projects in the pipeline to up its hydropower production capacity. The 222 MW Rumakali and 358 MW Rhuhudji projects, both located in the Njombe region in the southern highlands of Tanzania and could double the country’s total installed hydropower capacity from 562 MW to 1,142 MW. In May 2021, the African Development Bank (AfDB) and the Government of Tanzania have signed loan agreements totalling US$140 million to finance the construction of the 50 MW Malagarasi hydropower plant in Western Tanzania. The funds will be used to construct the plant and an evacuation transmission line, as well as to add 4,250 rural electrification connections, providing reliable renewable energy to households, schools, clinics and small and medium-sized enterprises in the Kigoma Region.
Natural gas, the country’s major leading source of energy, still has more untapped potential that could be exploited to meet demand. Tanzania’s natural gas is produced from three sources: Songo Songo, Mnazi Bay, and Kiliwani North. The total gas production stands at approximately 175 cubic feet per day. There are nine thermal power plants in Tanzania converting natural gas to electricity: Ubungo I and II, Tegeta, Songas, Mtwara, Somanga, Kinyerezi I and II, and Dangote. Total production per year stands at approximately 650 MW. Tanzania natural gas potential is however severely underexploited. Estimates show that natural gas reserves stand at 57 trillion cubic feet (TCF) with The Tanzania Petroleum Development Corporation (TPDC) expressing confidence that the country’s gas fields are large enough to cover the domestic power requirements and make Tanzania the next natural gas hub in Africa. Geothermal is the other energy that could be tapped to expand Tanzania’s energy capacity. Estimates indicate a potential exceeding 650MW, with most prospects located in the East African Rift System.
Shifting to renewable energy, Tanzania being within the tropic has huge solar potential. Tanzania’s sunshine hours per year range between 2,800 and 3,500 with global horizontal radiation of 4–7kWh per m2 per day. Solar resources in Tanzania are especially present in the central region, and they are being exploited for both off-grid and grid-connected solutions. To date, about 6 MW of Photovoltaic (PV) solar energy have been installed in Tanzania. The Government supports solar development within the country by removing VAT and import taxes on the main solar components (panels, batteries, inverters and regulators). In 2019, the World Bank signed a grant agreement with the Government of Tanzania amounting to US$4.5 million to finance the access to a sustainable water supply through improved solar pumping systems in 165 rural Tanzanian villages.
Wind resource assessments indicate that the Kititimo and Makambako areas have adequate wind speed for grid-scale electricity generation. At Kititimo wind speeds average 9.9 miles per second and at Makambako they averaged 8.9 miles per second at a height of 30 meters. In June 2020, Tanzania’s first-ever wind farm in Mwenga in the Mufindi district of Tanzania’s Iringa region started generating electricity as part of its startup testing procedures. Construction of the 2.4MW power plant was completed in May 2020. It was made possible thanks to a loan from the Renewable Energy Performance Platform (REPP) and is operated by the Rift Valley Energy Group.
Tanzania also has coal reserves estimated at 1.9 billion tonnes, 25% of which are proven. The main coal reserves are found in the southwestern part of the country. Currently, less than 1% of Tanzania’s power is generated from coal-fired plants, however, the government is keen on developing up 2,900 MW of coal energy 2025. Biomass also comes on board as Tanzania’s largest energy source. Biomass in Tanzania is presently used for grid generation (around 18 MW) and by the agro-industry to generate its own electricity (about 58 MW estimated). It is also estimated that more than 95% of households in Tanzania use firewood and charcoal as their source of energy for cooking. In urban areas, about 71% of all urban households consume charcoal and about 19% consume firewood. Investment in other energy sources particularly natural gas could help in driving down this statistic as biomass as currently used is not only bad for the environment but also for the health of those exposed to its fumes.
Tanzania embarked on financial liberalization in 1992 in order to sustain its economic growth. This has been done by mobilizing financial resources, increasing competition in the financial market, and enhancing quality and efficiency in credit allocation. As a result, the sector has been booming, particularly during the last few years. The banking sector has been the biggest beneficiary with new merchant banks, commercial banks, bureaus de change, credit bureaus, and other financial institutions have entered the market. With a total of 49 licensed banks and other non-banking financial institutions, the market is highly competitive though a few big players still dominate the market. There are currently 30 insurance companies, 109 insurance brokers, and 635 insurance agents as of December 2018. The insurance penetration in Tanzania however remains very low but has plenty of room for further growth. The securities market in Tanzania which emerged in the 1990s has also been expanding. Within its framework, the Capital Markets and Securities Authority (CMSA) was established in 1994 and the Dar es Salaam Stock Exchange (DSE) was incorporated. As of September 2020, there are 27 companies listed at the Dar es Salaam Stock Exchange (DSE) with a total market capitalization of TZS 15,183.09 billion (US$ 6.5 billion).
A country on the rise
Tanzania has been making bold economic moves, particularly under the era of the late president John Pombe Magufuli. A greater focus on mining promises to uplift the country’s revenue from these precious resources while investments in electricity, particularly hydropower, are creating incentives for greater investment in the country’s manufacturing sector. The African Development Bank is positive about the country’s economic outlook is positive, with real GDP projected to grow 4.1% in 2021 and 5.8% in 2022, due to improved performance of the tourism sector and the reopening of trade corridors. AfDB however highlights business regulatory bottlenecks that constrain private sector activity and uncertainties regarding the pandemic as the major downside risks. All in all, Tanzania has proved that it can achieve significant economic milestones within a short period of time, and with the right policies, the country can realize its 2025 vision of becoming a middle-income country characterized 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.