Institutional economics examines how institutions—the formal rules (laws, regulations, property rights) and informal norms (customs, traditions, social networks)—shape economic behavior, reduce transaction costs, and influence growth. Pioneered by economists like Douglass North, who described institutions as the "rules of the game" in society, this field explains why some countries prosper while others stagnate. Strong institutions lower uncertainty, encourage investment, and promote efficient resource allocation, while weak ones breed corruption, insecurity, and inefficiency.
In Tanzania, a lower-middle-income economy heavily reliant on agriculture, mining, and tourism, institutions have played a pivotal role in its economic trajectory. From post-independence socialist policies to liberalization reforms and recent resource nationalism, Tanzania offers rich examples of how institutional changes affect growth. This article explores these dynamics, drawing on real-world cases from land tenure, mining, governance, and the informal sector.
Tanzania's institutional framework has evolved dramatically. After independence in 1961, President Julius Nyerere's Ujamaa (African socialism) policy emphasized collective farming and state control, nationalizing key industries and abolishing freehold land ownership. This created strong informal institutions based on communal values but weakened incentives for individual investment, contributing to economic decline by the 1980s.
In 1986, Tanzania adopted structural adjustment programs with the IMF, shifting toward market-oriented institutions: privatization, trade liberalization, and stronger property rights. Growth averaged 6-7% annually in the 2000s and 2010s. However, persistent challenges like weak enforcement and corruption highlight "institutional hiatus"—gaps between formal rules and practice. Recent studies using autoregressive distributed lag (ARDL) models show that improvements in institutional quality (e.g., rule of law, government effectiveness) significantly boost GDP growth from 1990-2021.
Agriculture employs over 65% of Tanzanians and contributes about 30% to GDP, making land institutions critical. Under the 1999 Village Land Act, all land is publicly owned, with villages granting rights of occupancy. This system aims to protect communal customs but often creates insecurity, as titles are hard to obtain and disputes common.
Insecure property rights discourage long-term investments like irrigation or tree planting. Farmers fear eviction or loss of improvements, leading to lower productivity. For instance, in rural areas like Iringa and Mbeya, studies show that untitled land receives 20-30% less investment in soil conservation.
Positive reforms provide counter-examples. The USAID-funded Feed the Future Tanzania Land Tenure Assistance (LTA) project (2015-2023) issued over 100,000 Certificates of Customary Rights of Occupancy (CCROs) in villages. Results were striking: titled farmers invested more in perennial crops, accessed credit easier (using titles as collateral), and saw yields rise by up to 20%. In one village in Pwani Region, women with joint titles increased farm investments, reducing gender disparities rooted in customary laws favoring men. The World Bank's Tanzania Land Tenure Improvement Project further demonstrates how formalizing rights reduces conflicts and boosts economic activity.
These examples illustrate North's idea: secure property rights lower transaction costs and unlock capital, driving growth in Tanzania's largest sector.
Mining, contributing 10% to GDP and over 50% of exports (mainly gold), showcases how regulatory institutions affect foreign investment and revenue. Under President John Magufuli (2015-2021), reforms like the 2017 Mining Act amendments mandated 16% state equity in large mines, higher royalties, and local content requirements.
The Mining (Local Content) Regulations (amended in 2025) require 100% Tanzanian ownership in certain services, local banking, and insurance procurement. For example, companies like Barrick Gold renegotiated contracts, paying billions in settlements and committing to local hiring. This increased government revenue but initially deterred FDI due to perceived unpredictability.
Under President Samia Suluhu Hassan (since 2021), institutions have become more investor-friendly while retaining local benefits. The 2022 State Participation Regulations clarified equity rules, and 2025 amendments strengthened oversight. In Geita Region, small-scale miners benefiting from technical support regulations formed cooperatives, improving safety and output. However, challenges persist: artisanal miners often operate informally, evading taxes due to weak enforcement.
These cases highlight "extractive institutions" (per Acemoglu and Robinson): when rules favor elites or are inconsistently applied, they hinder inclusive growth. Better-designed institutions could balance revenue with investment.
Corruption erodes trust in institutions, raising business costs. Tanzania ranks moderately on the Corruption Perceptions Index, but petty corruption in licensing and customs is rampant. The Prevention and Combating of Corruption Bureau (PCCB) prosecutes cases, yet fear of retaliation deters reporting—over 75% of citizens hesitate to speak out.
Examples abound in public procurement. In the Stiegler's Gorge dam project (now Julius Nyerere Hydropower), allegations of inflated contracts delayed progress and raised costs. In contrast, improved governance in ports (e.g., Dar es Salaam) via digital clearance reduced bribery, cutting cargo dwell time by days and boosting trade.
Informal institutions like economy of affection (family/clan networks) sometimes enable corruption but also provide social safety nets. In urban areas, machinga (street vendors) rely on informal norms to navigate harassment, contributing to the informal economy (over 40% of GDP).
Tanzania's informal sector employs most workers, especially women in cross-border trade. Informal institutions—tribal customs, trust-based lending (vikoba savings groups)—fill gaps left by formal ones. In markets like Kariakoo, vendors use social sanctions to enforce contracts without courts.
However, this duality limits scaling: informal businesses rarely access formal credit or markets. During COVID-19, informal traders suffered without social protection, highlighting weak bridging institutions.
Tanzania's experiences affirm institutional economics: quality institutions drive growth. Land titling boosts agriculture, mining reforms capture resource rents (with risks), and anti-corruption efforts build trust. Challenges like enforcement gaps and informal-formal tensions persist.
Prioritizing reforms—digital governance, inclusive land policies, transparent mining contracts—could accelerate progress. As studies show, even marginal institutional improvements yield substantial economic dividends. Tanzania's story is one of potential: strong institutions can transform its abundant resources into shared prosperity.