Tanzania

Please don’t stop the music

Country Rating C3

Strengths

  • Substantial natural resource base, with offshore natural gas now supplementing mining (including gold) and agriculture.
  • Generally stable politically, with pro-market government with large parliamentary majority.
  • Strong IFI and donor support.
  • Strong inward investment flows.
  • Strong GDP growth.
  • External debt relief under the HIPC initiative and debt forgiveness under G8 auspices.

Weaknesses

  • Tanzania is still a low-income country and poverty is pervasive.
  • Perceptions of corruption remain high.
  • Secessionist tensions and periodic violence involving the semi-autonomous islands of Zanzibar.
  • Fiscal (before grants) and current account deficits.
  • Dependence on external funding.
  • Weak structural business environment.

 

Economic Outlook

 

Stable growth foundations

Tanzania entered a high growth trajectory in 2001. Growth exceeded +5% each year ever since and climbed to about +7% over the last decade. 

Yet as the income level is still very low (6% of GDP per capita in Advanced Economies), the catch-up process can easily continue during the next decade as long as the country builds on its good record of reform implementation. One key achievement is the technological component of growth. 

Annual investment reaches about 30% of GDP per year during the last decade, and the capital stock is now among the best in the continent. It is 460% of GDP, above Chinese levels and about two times the common figure for African peers with comparable income levels such as Côte d’Ivoire and Senegal.

Moreover, Tanzania benefits from an effort to develop infrastructure and operating institutions. The country is also leveraging its geographical position. Tanzania is ranked 61st in the World Bank survey with regard to the quality of logistics, well above the average for Africa and neighbouring countries with similar performances. 

As foreign investors, particularly from China, are on the hunt for regional opportunities there is a room for economic integration. East Africa is the main African channel of investment under the Chinese One Belt One Road strategy to develop new trade routes.

The development of the offshore and onshore natural gas industry is a key strength, going hand in hand with this positive regional momentum. The rapid development of the energy sector will provide the country with a successor to the declining metals & mining sector, which still generates about one third of good exports.

 

The current account deficit is a vulnerability, but financing is not a big issue

Oil and capital goods are two key elements essential to Tanzania’s capital-intensive growth model. Since these goods are not produced, it means structurally high imports and a structural current account deficit. In this regard, the oil price slump was helpful. The deficit decreased from -11.6% of GDP in 2012 to -6.5% of GDP in 2016, but is still significant. 65% of the gap is financed through FDI.

The ability of the Central Bank to let the exchange rate depreciate when needed (-33% between mid-14 and mid-15) is an asset. As a result, foreign reserves erosion was limited and still covers 5.5 months of imports. Moreover, FDI inflows and bilateral loans are enough to cope with financing needs. Accordingly, the relationship with the IMF has evolved. From 2014, Tanzania only asked for technical assistance.

 

    Tanzania

    Tanzania

    C3

    GDP

    USD45.3bn
    (World ranking 84, World Bank 2015)

    Population

    53.47 mn
    (World ranking 26, World Bank 2015)

    Form of state

    Republic

    Head of government

    John Pompe Magufuli

    Next elections

    October 2020 Presidential & Legislative

    Last reviewed: 22/06/17

    Tanzania

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