Tanzania: Urgent Reforms Needed to Enable Strong Private Sector-Led Inclusive Growth

DAR ES SALAAM –Over the past two decades, Tanzania has exhibited robust economic growth, surpassing many developing countries, even weathering the COVID-19 pandemic fallouts remarkably well. However, a new World Bank report shows for this trajectory to remain viable, and for Tanzania to reach its full development potential, in the coming years the country will need to switch gears towards a more private sector-driven growth model.

According to the newly launched Country Economic Memorandum for Tanzania titled ‘Privatizing Growth’ the country’s growth over the past twenty years has been characterized by a noticeable shift towards increased reliance on public infrastructure investments to fuel growth, slowing structural transformation, and a diminishing role of exports.

“Tanzania’s growth has been impressive, but it needs to be faster, better, and more inclusive,” said Nathan Belete, World Bank Country Director. “This requires complementing the public investment push with strong reforms that help local businesses compete and grow, along with robust social programs that help people get ahead and stay resilient, and boost export orientation.”

The report shows that Tanzania’s structural transformation has slowed in recent years and the economy has not been able to create enough jobs in higher-productivity sectors, making it harder for people to escape poverty. In addition, while Tanzanian exports experienced substantial growth until 2012, they have since shrunk as a share of GDP and their composition has shifted from agricultural products towards extractives, primarily gold. This change has made the country more reliant on a smaller number of products, which makes it more vulnerable to changes in the global market.

“Considering the slow structural transformation and persistent poverty, in the absence of a stronger domestic market, one that facilitates a more qualified participation (for example, with better skills and jobs) of a greater number of Tanzanians, a shrinking export orientation will likely constrain Tanzania’s development trajectory,” said Harun Onder, World Bank Senior Economist and co-author of the Memorandum. “While public investments have played a crucial role in narrowing Tanzania’s infrastructure gap, in the absence of a more private sector-driven and inclusive growth, fiscal exposure emanating from these investments can be costly.”

To achieve a more balanced and inclusive growth pattern, the report authors recommend the privatization of growth through five priority policy actions:

Accelerating the implementation of business climate and investment promotion reforms. Removing current obstacles, without erecting new ones, is critical for more sustainable and private sector-driven growth in the country.
Boosting inclusion and resilience by aligning social policies with the domestic market orientation of the current “growth model”. This calls for scaling up social protection with a more institutionalized approach and promoting adequate access to healthcare.
Improving productivity and resilience in agriculture by addressing the drivers of low productivity—limited access to technology, finance, and skills. The rapid scaling of adaptation efforts is also key.
Leveraging the upside potential of Tanzania’s tourism by addressing several long-standing regulatory and infrastructure bottlenecks to attract and mobilize private investors.
Harnessing regional integration to unlock Tanzania’s export potential that is hindered by low productivity and high trade costs including logistical and procedural challenges.