Zim needs to do more to unlock its true potential

Much like Zambia, Tanzania has shown tremendous progress over the last two decades recently overtaking Zimbabwe in terms of gross domestic product (GDP) per capita. GDP per capita has more than doubled in Tanzania over the last decade from US$449 in 2005 to US$998 in 2014.

Ritesh Anand Column

Economic growth in Tanzania has averaged 6,7% over the last decade. Over the past 15 years, Tanzania dramatically improved its economic performance, as a process of comprehensive economic reforms transformed the country from a controlled economy to an open, market-based one.

Tanzania recently completed the rebasing of its national accounts, which showed that the country appears to be close to achieving middle-income status. The total value of the country’s economic output is approximately one-third larger than was previously estimated, with the current average per capita income at US$948, as opposed to the previous US$695. The 2012 National Household Survey had revealed that the rate of incidence of poverty declined from 34% to 28% in the period from 2007 to 2012, the first significant improvement since the late 1990s.

Much like the rest of Africa, Tanzania has transformed its economy over the last two decades. Key achievements include:

Beginning in the mid-1990s, the macro economy stabilised, inflation declined to single digits, and economic growth improved. Growth accelerated in recent years, averaging about 7% a year in 2001-07.

Growth has been broad-based. Although agriculture remains Tanzania’s main economic sector — employing 80% of the work force — other sectors have posted strong performances. Following privatisation, manufacturing sector output rose briskly driven by an increase in the output of a number of commodities, including sugar, beer, soft drinks, cement and steel. Tourism has emerged as an important sector contributing to over 10% of the GDP.

Mining is growing in impact and importance. Although its contribution to GDP is still small, at around 3%, the sector is one of the most important foreign exchange earners. Annual gold output increased from five to 50 tonnes between 1999 and 2007, making Tanzania the fourth largest African gold producer.

Liberalisation of trade and exchange regimes boosted non-traditional exports and reversed large external imbalances.

Tanzania has been successful in attracting foreign direct investment (FDI). A large share of FDI is directed to the mining sector, but manufacturing, tourism and financial sectors have also attracted FDI.

Establishment of a competitive banking system has facilitated increased availability of credit for productive activities.

There has been remarkable progress in enrolment in primary and secondary schools.

Tanzania’s reform process began gradually in 1986 and intensified beginning 1996. The first phase saw a partial liberalisation of the economy. The second phase saw far-reaching structural reforms. The reforms, which were a response to the dismal economic performance of the country during the period 1970-85, transformed the country to a market economy. The major reforms since 1996 include the following: sound fiscal and monetary policies to control inflation; fiscal consolidation and stronger financial management of the public sector; privatisation and reform of state-owned enterprises; reduction in the level of state intervention in the economy — trade reform, liberalisation of the financial sector and; creation of market-oriented regulatory framework.
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Macro-economic stabilisation and structural reforms were instrumental in attracting FDI, which was a key factor in fostering higher growth in the non-agricultural sectors. Fiscal incentives to foreign investors — especially in the mining sector — such as generous depreciation allowances, indefinite loss carry forward, exemptions from import duties and the value-added tax, and some income tax holidays, were instrumental as well in attracting FDI.

Furthermore, donors supported the government’s reform efforts through large inflows of official donor assistance.

The revised statistics show that economic growth has trickled down to the poor, including the extremely poor. However, approximately 40% of Tanzania’s adult population nevertheless earns less than US$1,25 per day, while nine out of 10 Tanzanians earn less than US$3 per day.

By 2030, it is projected that more Tanzanians will live in urban areas than in rural areas, with Dar es Salaam alone exceeding 10 million people. Today, there are approximately 23 million Tanzanians in the job market, and is expected to reach 45 million people by 2030 who have high hopes of a decent job and a good life.

Tanzania has shown tremendous economic progress over the last decade. Future economic growth will also depend on the ability of the government to remove existing constraints on businesses. The most significant constraint on growth as reported by 80% of businesses operating in Tanzania, relates to the provision of electrical energy. On transport infrastructure, Tanzania has made notable progress in the rehabilitation and extension of the country’s road network. However, rural roads need more improvements as they raise production costs in the agriculture sector, and the rail systems are not effectively operated with poor infrastructure and equipment problems.

Overall, Tanzania’s business environment remains unattractive, resulting in disappointing rankings in World Bank Easy of Doing Business Index and Africa Competitiveness Report, but still ranks ahead of Zimbabwe.

Zimbabwe has the potential to be one of the fastest growing economies in Africa over the next decade, but needs to adopt a more open market friendly approach, with transparent and above board procedures and dealings. It needs to focus on growth and investment especially in the mining and agricultural sectors. Though Zimbabwe has made some progress in recent years, it needs to do a lot more if it is to unlock the true potential of the economy. Tanzania has clearly demonstrated the benefits of economic success in recent years. Much can be learnt from Tanzania’s recent success.