Tanzania’s economy has doubled in size during the past decade-and-a-half and is set to carry on expanding at more than 6% annually during the next few years, according to the International Monetary Fund (IMF).
The large African country – which borders eight countries, including Kenya and Uganda in the north, Mozambique in the south, and Zambia and the Democratic Republic of the Congo in the west – has consistently enjoyed one of the world’s fastest economic growth rates during the past 10 years.
Overall, gross domestic product (GDP) is expected to surpass $60bn in 2019, compared with only $28.5bn in 2009, according to the IMF. It forecasts that the economy will expand by 6.6% in 2019 and a further 6.6% in 2020.
Large diverse market
This fast-growing economy has led to the creation of thousands of new businesses and is likely to generate myriad opportunities for foreign investors across Tanzania's industrial sectors. “In terms of geography and population, Tanzania is the biggest market in east Africa,” says Eva Warigia, executive director of the East Africa Private Equity and Venture Capital Association. “Traditionally, the economy has been predominantly agricultural but we now see great potential across all business sectors, including mining, extractive industries, manufacturing, tourism and services.
“The economy is becoming more diversified and its markets are highly considered by investors. Tanzania is regarded as a ‘corridor’ country in east Africa; it borders with many countries and provides important logistics routes across the region. It acts as a platform for foreign companies coming into the region; they set up a base there and can then expand into the rest of Africa.”
With a geographic area of 947,000 square kilometres, Tanzania is almost one-and-a-half times the size of France. And, with a population of 54 million, it now has the sixth highest number of people in Africa, after Nigeria, Ethiopia, Egypt, the Democratic Republic of the Congo and South Africa. The population has jumped from 39 million in 2007 and the median age is now 17.7 years, according to the CIA World Factbook.
The country’s National Bureau of Statistics estimates it will have a total population of 89.2 million by 2035 (86.9 million on the mainland and 2.3 million on the Zanzibar archipelago, an autonomous region). Some 1.6 million are added to the population every year.
Demographic challenges
However, as well as creating big opportunities, a high population growth rate is expected to create a range of new challenges. “With a significant economic transformation, we are witnessing related ups and downs,” says Sanjay Rughani, chief executive officer of Standard Chartered in Tanzania. “Along with these demographic changes come a number of obligations. The state is committed to the provision of free education – extended to secondary education in 2016 – and similarly there are improved plans towards healthcare provision. It is vital that the country continues... to ensure a robust and sustainable economic model.”
Mr Rughani is an advocate of a report by the Pathways for Prosperity Commission on Technology and Inclusive Development – led by philanthropist Melinda Gates – as a model for the country’s future. It emphasises the urgent need to develop the digital literacy of the government and people; to make substantial investments in high-quality infrastructure; and to put the right regulation, taxation, data and competition policies in place to become ‘digitally ready’.
Mr Rughani adds: “While manufacturing and industrialisation is absolutely critical to transforming and growing our economy, we must also further extend our efforts to be more ‘digitally ready’ to maximise the benefits from innovation as the Pathways report indicates. This will aid further inclusive growth from all sectors, including agriculture, healthcare, education and logistics.”
Mobile movement
Over the past decade, east Africa has been the cradle of a revolution in mobile money and Tanzania has made huge strides with regards to access to mobile phones and mobile financial services. The country’s regulators took an enlightened approach of ‘testing, monitoring, then regulating’, enabling the telecoms operators to move into banking and to offer innovative mobile products that benefit the poor.
In 2006, just 9% of Tanzanians had access to financial services; by 2017, this had risen to more than 65%, according to the Pathways for Prosperity Commission. The government has invested in digital infrastructure by building more than 10,000 kilometres of backbone fibre optic networks covering the whole country. In turn, these have been connected to neighbouring countries and to the global underseas network.
Experts say the government must now devise a strategy for an ‘inclusive digital economy’ that will guide the country’s priorities in this field. Embracing technology is an issue that must be addressed across the whole government, they add, not restricted to a silo in one ministry or agency. Getting the right approach to the development of the digital economy will be important as the government grapples with a young and growing population.
Generation Z – people born between 1995 and the early-2000s who are internet savvy – are about to play a bigger role in Tanzanian business and society, meaning local entrepreneurs are looking to gear their business models towards them.
Cracking down on corruption
In November 2015, John Magufuli became president for a five-year term, replacing Jakaya Kikwete, who had been president for 10 years from 2005 to 2015. They both represent the centre-left Chama Cha Mapinduzi ruling political party. Mr Magufuli embarked on an anti-corruption drive in the public sector and raised taxes, which made him unpopular with the public and private sector alike. He also changed the legal framework around the mining industry, which has impacted foreign direct investment (FDI) inflows into the country. In 2017, the country attracted $1.18bn in FDI, a fall of 13% on the previous year and of 24% on 2015, according to the UN Conference on Trade and Development.
“The government has cracked down on people using false CVs to obtain jobs in the public sector,” says David Mestres Ridge, chief executive officer of Swala Oil & Gas, a Tanzanian oil and gas exploration company. There is talk it will now extend that to the private sector.
“It is certainly true that people’s standard of living has improved during the past decade. There are many more cars on the road and there is a lot more money flowing around. The economy has been expanding rapidly but a great deal of the investment is led by the state. It is investing in an array of large infrastructure projects and there is a risk that some will become ‘white elephants’.”
Infrastructure projects
One of the biggest projects being embarked upon by the Tanzanian government is a 726 kilometre-long high-speed electric standard gauge railway (SGR) from Dar es Salaam, the country's largest city, to Dodoma, the capital. Yapi Merkezi, a Turkish firm, is constructing the first and second phases at a cost of $1.92bn.
The country also plans to spend a further $14.2bn over the next five years on constructing a 2561 kilometre-long SGR to connect the main port of Dar es Salaam to landlocked neighbouring countries, including the Democratic Republic of Congo, Rwanda and Uganda.
Meanwhile, construction of a $4bn, 1445 kilometre-long underground crude oil pipeline – known as the East Africa Crude Oil Pipeline – from Hoima in Uganda to Tanga in Tanzania is also planned for completion in 2020. Total Oil of France, China National Offshore Oil Corporation and Tullow Oil of the UK won the contracts to run the project but their final investment decision has not yet been made, delaying its implementation. Uganda and Tanzania are expected to provide 70% of the financing while the rest will come from foreign oil companies.
Patricia Rodrigues, east Africa analyst at Control Risks, a global risk consultancy, says: “Tanzania has been moving towards putting more emphasis on investment from China rather than from Western sources. Chinese investment comes with less conditionality, which is something that Mr Magufuli prefers. Denmark, for example, has withheld foreign aid to Tanzania over the treatment of its LGBT community.
“Foreign investment inflows stabilised slightly during 2016 but there is now less interest in the country from foreign private equity investors. This is more down to the worsening general investment climate than the country’s politics. The government remains keen on foreign investment but it must be on its terms.”
Concerns remain
However, foreign groups are not expected to pull out of Tanzania entirely because investment opportunities remain and many firms have ‘sunk costs’ after committing large sums of money to the country.
“In Tanzania, there are ongoing concerns about the economic and business environment,” says Mr Rughani of Standard Chartered. “While progress has been made, matters of conflicting laws, high operating costs, overlapping of responsibilities and multiplicity of regulatory authorities in approving, licensing and granting permits and certificates in business and investments continue to be a material bother.”
Nevertheless, the country’s economic fundamentals remain strong. The IMF forecasts inflation at 4.6% for 2019 and 5% for 2020. General government gross debt is only about 38% of GDP, while central bank reserves stand at $5.4bn. Tanzania’s economy has been booming for the past decade and is likely to continue to do so, despite the government introducing reforms that have discouraged foreign investors.
