By Romaisa Hussain – Art in Tanzania Internship
Since its independence, Tanzania has embarked on a journey of economic dynamism. Still, it was struck by the transition towards socialism, which took a destructive toll on the economy, and the 1980s global financial crisis, for which the country was not prepared. From then onwards, growth became relatively slow, and adjusting to the market economy was even more difficult. However, this growth rate has gradually increased, becoming quite noticeable over the past decade. It is considered that, given the ongoing rate of growth, GDP is likely to double over the next two decades as the country transitions from a ‘low-income’ to a ‘middle-income’ country. Nonetheless, concerns persist over the long-term sustainability, given the current elevated growth path. Tanzania has experienced significant political and economic developments over the past few years, as well as adjustments in social welfare. This does not mean that there are no causes for concern; the country still has a long way to go in addressing the developmental challenges in significant areas, such as the rising population, corruption, the divide between state and political parties, and the distribution of wealth. Simultaneously, new opportunities may also emerge, paving the way for essential developments and reforms.
Political Overview
Let’s look at the political history of Tanzania. It has been relatively peaceful and has abode by the constitution, even though specific incidents in the past fifty years have directed the country in different yet opposing paths. In the post-independence stage, Tanzania continued to operate under colonial norms, adopting an outbound marketing strategy. Gradually, it shifted towards the socialism stage to produce a self-dependent African socialist community that lasted 17 years. This stage underwent massive, otherwise violent changes that significantly modified the people’s minds. Later, a new stage emerged, which attempted to retain the socialist stage while incorporating a liberal market economy and a multi-party democratic system. Fast forward 13 years, and this new stage is still running the country, but the old seeds of socialism have not entirely vanished from sight, particularly among civil servants and state-owned enterprises. On 19th March 2021, Samia Suluhu Hassan was sworn in as the first woman to become the President of the United Republic of Tanzania. She is now the sixth president, replacing former President John Magufuli after his death, and served as Vice President from October 2015. Since her presidency, the government has attempted to reduce corruption, strengthen public administration and infrastructure systems, enhance accountability and transparency, and improve resource management. According to the 2020 Worldwide Governance Indicators, Tanzania has deteriorated in the years between 2012 and 2019, with the most significant decline occurring in legislation, transparency, effective government, and freedom of the media and civil society.
Economic Context
To date, Tanzania has achieved macroeconomic success over the past 20 years. The economic growth rate accelerated from 3.5% in the 1990s to 7% in the early 2000s. Although the 1980s global developmental crisis significantly affected the economy, the country gradually recovered, stabilised, and is expected to increase its growth rate in the future. Moreover, years of foreign aid and rising economic growth have yielded significant results in Tanzania, but development issues such as unemployment and poverty persist. Although Tanzania has performed well economically compared to other countries in the region, its economic growth remains relatively slow. The GDP growth rate declined from 5.8% in 2019 to 2.0% in 2020, while the per capita growth rate turned negative. Economic growth centres around building and manufacturing the supply sector, while investments deal with the demand. Fiscal policies have supported the growth rate and credit, but have decreased from 7% in 2018 to 5% in 2020.
Path to Development?
Due to the pandemic, the global economic crisis has had a profound impact on industries dealing with exports, particularly the tourism sector. It has led to a massive decline in foreign aid. The prices of gold elevated, however, between 2019 and 2020, which seems to be the only sector that benefited from the pandemic. Even though the government did not impose heavy travel restrictions, the crisis enabled the industries and firms to endorse safe and preventive measures that hindered local economic activities. On the other hand, there has also been a decrease in imports, which has led to a decline in monetary revenue, and production and consumption have experienced a sharp reduction. The COVID-19 crisis has presented numerous challenges to the financial sector, particularly in terms of bank loans, which continue to rise, while credit growth to the private sector has declined relatively. The inflation rate was estimated at around 3.5% in 2019, dropping to 3.3% in 2020 due to a slow decline in goods and services. The Bank of Tanzania successfully maintained steady foreign exchange rates through multiple interventions, ensuring balance in the exchange market. The government’s monetary policies assisted spending and disbursements, but the pandemic’s impact on revenues elevated the financial deficit, which increased from 2% in 2019 to 2.3% in 2020. Despite all the challenges, Tanzania has a positive economic outlook. GDP is expected to grow from 4.1% in 2021 to 5.8% by 2022 as the travel and tourism sectors continue to improve and trade corridors begin to open. The increase in fuel and energy prices is expected to persist in 2021, potentially raising inflation to 3.9% by year-end, before dropping to 3.4% by 2022. The low revenue and high expenditures on infrastructures and projects are anticipated to increase the monetary deficit of GDP to 3.2% in 2021 and 2022, financed mainly through foreign loans.
Conclusion
Tanzania’s steady growth over the past 20 years achieved a milestone in July 2020, when it was finally considered a lower-middle-income country, having previously been in a low-income status. This highlights the country’s potential for macroeconomic sustainability based on the economic growth rate, rich natural resources, and strategic geographical location. Now, as a middle-income country, Tanzania has embarked on the Tanzania Development Vision 2025, which lays out the development goals it has set to achieve by 2025, ranging from quality of life, proper education, peacefulness, good governance, stability, and a competitive market equipped with sustainable economic growth and mutual benefits. The Gross National Income per capita has been impressive but insufficient to meet these goals. Tanzania must start by investing in human development and capital, and simultaneously build high-quality livelihoods for everyone in the country to reach such a broad vision.
