Tanzania's Fiscal Landscape: Balancing Efficiency, Growth, and Revenue Challenges in 2024

In April 2024, Tanzania's government budget performance showed significant variances between actual expenditures and estimated figures across various categories, reflecting both successes and challenges in financial management.

Government Expenditure:

1. Wages and Salaries: Actual expenditure in 2024 amounted to 839.3 billion TZS, which was 11% lower than the budget estimate of 947.9 billion TZS. This reduction suggests effective cost management in personnel expenses.
2. Interest Costs: The government spent 471.7 billion TZS on interest, exceeding the estimated 347.4 billion TZS by 36%. This increase indicates higher than anticipated borrowing costs, possibly due to prevailing economic conditions or debt restructuring.
3. Development Expenditure: Planned development spending was 880.7 billion TZS, but actual expenditure was only 597.5 billion TZS, marking a significant 32% shortfall. This underspend may impact infrastructure and socio-economic development projects.
4. Other Recurrent Expenditure: Actual spending on other recurrent expenses amounted to 571.7 billion TZS, 33% less than the budgeted 856.2 billion TZS. This decrease suggests prudent financial management but could also imply reduced funding in critical operational areas.

Government Revenues:

1. Taxes on Imports: Revenue from import taxes reached 718.1 billion TZS, slightly lower than the estimated 732.1 billion TZS, representing a 2% decrease. This indicates stability in import activities but slightly lower-than-expected revenue collection.
2. Income Tax: The government collected 575 billion TZS in income tax, which was 7% less than the budgeted 617.1 billion TZS. This shortfall may reflect economic factors affecting income levels or tax compliance issues.
3. Tax on Local Goods and Services: Revenue from local goods and services taxes amounted to 411.9 billion TZS, 12% less than the estimated 467.1 billion TZS. This decrease could be due to changes in consumer behavior or economic activities impacting tax collection.
4. Other Tax and Non-Tax Revenues: Other tax revenues were 116.5 billion TZS, down 8% from the estimated 126.9 billion TZS. Non-tax revenues saw a significant decline to 214.6 billion TZS, which was 47% lower than the expected 407.1 billion TZS. These declines indicate challenges in revenue generation outside traditional tax sources.

Deficit: The overall budget deficit was 35% lower than anticipated, indicating some success in managing expenditures relative to revenues despite the revenue shortfalls in certain tax categories. This deficit reduction could suggest efforts to control spending or unexpected revenue streams contributing positively to the budget balance.

Tanzania's government budget for April 2024 reflects mixed outcomes with notable underspending in development and recurrent expenditures alongside challenges in meeting revenue targets, particularly in non-tax revenues. Effective management of wage costs and a lower-than-expected deficit show areas of financial prudence, while increased interest costs highlight ongoing fiscal challenges.

Tanzania's government budget performance for April 2024 and the country's fiscal management and economic conditions:

1. Financial Discipline: The lower-than-expected expenditures on wages and salaries, as well as other recurrent expenses, suggest a degree of financial discipline and efficient cost management within the government. This can be seen as a positive indicator of prudent fiscal policy.
2. Challenges in Development Spending: The significant underspending on development projects compared to budgeted amounts indicates potential delays or constraints in implementing infrastructure and socio-economic development initiatives. This could impact long-term growth and public service delivery.
3. Rising Interest Costs: The higher-than-anticipated interest costs highlight the financial burden of debt servicing, which may strain budgetary allocations for other critical expenditures. This underscores the importance of managing public debt and exploring avenues for reducing borrowing costs.
4. Revenue Shortfalls: Across various tax categories, there were notable shortfalls compared to budget estimates. This reflects challenges in revenue collection, potentially influenced by economic conditions, tax compliance issues, or changes in consumer behavior affecting taxable transactions.
5. Deficit Management: Despite revenue challenges, the overall budget deficit was lower than anticipated. This suggests efforts to control spending and manage fiscal imbalances effectively, possibly through expenditure adjustments or alternative revenue sources.
6. Economic Context: The data hints at broader economic conditions impacting government finances, such as economic growth rates, inflation, and external economic factors influencing trade and revenue generation.

The detailed evaluation of Tanzania's government budget performance for April 2024 provides a snapshot of both achievements and areas needing attention in fiscal management. It highlights strengths in cost control and deficit reduction alongside challenges in revenue mobilization and development expenditure execution. Addressing these challenges effectively is crucial for sustaining economic stability and fostering inclusive growth in the country.

Tanzania's Debt Landscape: Balancing External and Domestic Borrowing

External Debt

• 21-Apr: TZS 75,390,711.00 million
• Mar-23: TZS 87,667,894.00 million
• Apr-24: TZS 83,799,672.00 million
• 1 Month Change: Decreased by 4% (from Mar-24 to Apr-24)
• 1 Year Change: Increased by 11% (from Apr-23 to Apr-24)

Tanzania's external debt stood at TZS 75.39 billion in April 2021, increased to TZS 87.67 billion by March 2023, and slightly decreased to TZS 83.80 billion by April 2024. This represents a 4% decrease in just one month but shows an 11% increase over the year from April 2023 to April 2024, indicating fluctuating trends in external borrowing.

Domestic Debt

• 21-Apr: TZS 27,937,600.00 million
• Mar-23: TZS 31,339,300.00 million
• Apr-24: TZS 30,753,800.00 million
• 1 Month Change: Decreased by 2% (from Mar-24 to Apr-24)
• 1 Year Change: Increased by 10% (from Apr-23 to Apr-24)

Tanzania's domestic debt was TZS 27.94 billion in April 2021, rose to TZS 31.34 billion by March 2023, and then decreased slightly to TZS 30.75 billion by April 2024. There was a 2% decrease in domestic debt over the course of one month but a 10% increase over the year, indicating steady growth in internal borrowing.

Total Debts

• 21-Apr: TZS 103,328,311.00 million
• Mar-23: TZS 119,007,194.00 million
• Apr-24: TZS 114,553,472.00 million
• 1 Month Change: Decreased by 4% (from Mar-24 to Apr-24)
• 1 Year Change: Increased by 11% (from Apr-23 to Apr-24)

The total debt of Tanzania, combining both external and domestic components, was TZS 103.33 billion in April 2021, increased to TZS 119.01 billion by March 2023, and decreased slightly to TZS 114.55 billion by April 2024. This reflects a 4% decrease in total debt over one month but an 11% increase over the year, highlighting significant changes in Tanzania's overall debt landscape.

Tanzania economic perspective on debt levels and implications:

Tanzania's proactive approach to financing development and stimulating economic growth through borrowing, it also underscores the importance of sustainable debt management and prudent fiscal policies to ensure long-term economic stability and resilience.

1. Debt Composition and Trends: The breakdown between external and domestic debt reveals how Tanzania finances its development and budgetary needs. External debt, which increased by 11% over the year, indicates reliance on foreign borrowing to fund infrastructure projects and economic initiatives. On the other hand, domestic debt, despite a slight decrease month-over-month, saw a significant 10% increase over the year, suggesting robust borrowing within the country to support various sectors.
2. Impact on Fiscal Policy: The fluctuations in debt levels reflect the government's fiscal policy and its response to economic conditions. A decrease in total debt over one month could indicate efforts to manage debt burdens or possibly a slowdown in borrowing activities. However, the year-over-year increase in total debt suggests ongoing investments and expenditure commitments to stimulate economic growth and development.
3. Economic Stability and Risk Management: Managing debt levels is crucial for economic stability. While borrowing can fuel growth, excessive debt accumulation can strain public finances, leading to potential risks such as higher debt servicing costs and vulnerability to economic shocks. Tanzania's government needs to balance borrowing with sustainable economic growth strategies to mitigate these risks effectively.
4. Investment in Development: The increase in both external and domestic debt over the year highlights Tanzania's efforts to invest in infrastructure, education, healthcare, and other developmental sectors. This investment is essential for long-term economic growth, job creation, and improving living standards. However, it requires prudent debt management and efficient use of borrowed funds to maximize developmental outcomes.
5. Global and Regional Economic Context: Tanzania's debt dynamics are also influenced by global and regional economic trends, including interest rates, global financial conditions, and regional economic integration efforts. Monitoring these external factors helps policymakers navigate borrowing decisions and manage economic risks effectively.

Shilling Depreciation: April 2024 Analysis

The Tanzania shilling (TZS) experienced notable depreciation against the US dollar in April 2024. This trend is critical for understanding the economic conditions and pressures facing Tanzania's foreign exchange market.

Key Points:

1. Monthly Exchange Rate:
   • In April 2024, the shilling traded at an average rate of TZS 2,584.69 per US dollar.
   • This represents a depreciation compared to the previous month (March 2024), when the average exchange rate was TZS 2,563.07 per US dollar.
2. Monthly Depreciation:
   • The shilling depreciated by approximately 0.84% from March 2024 to April 2024. This is calculated as:

Depreciation Rate= ((2,584.69−2,563.07)/2,563.07)100≈0.84%

3. Annual Exchange Rate Change:

• On an annual basis, the shilling experienced an 11.2% depreciation against the US dollar.
• This indicates a significant weakening of the shilling over the past year, suggesting sustained pressures on the currency.

Contributing Factors to Depreciation:

1. High Foreign Currency Demand:
   • The increased demand for US dollars, driven by global economic dynamics such as trade requirements, debt servicing, and capital flows, contributed to the depreciation of the Tanzanian shilling. This heightened demand typically puts pressure on the local currency's exchange rate.
2. Central Bank Intervention:
   • Despite efforts by the Central Bank to stabilize the foreign exchange market through interventions, such as selling USD 69.75 million in April 2024, the shilling still faced depreciation pressures. These interventions aim to manage volatility and ensure adequate supply of foreign currency, but sustained demand can outweigh such efforts.
3. Economic Implications:
   • The depreciation of the shilling has several economic implications:
     • Import Costs: Imports become more expensive, potentially leading to higher prices for imported goods and inflationary pressures.
     • Debt Servicing: If denominated in foreign currency, servicing external debt becomes more costly for businesses and the government.
     • Investor Sentiment: Continuous depreciation may impact investor confidence in the stability of the local currency and overall economic environment.
4. Longer-Term Trends:
   • The annual depreciation rate of 11.2% underscores broader challenges facing Tanzania's foreign exchange market over the past year. This trend suggests ongoing structural issues or external economic pressures that affect the shilling's value against major foreign currencies like the US dollar.

Hence, the depreciation of the Tanzania shilling in April 2024 highlights the complex interplay of economic factors impacting the country's foreign exchange market. Despite Central Bank interventions to stabilize the currency, sustained high demand for US dollars and other global economic dynamics have exerted downward pressure on the shilling's value. Monitoring exchange rate trends and understanding the underlying factors driving currency movements remain crucial for policymakers, businesses, and investors in Tanzania.

Liquidity Management and Foreign Exchange Dynamics in Tanzania: April 2024 Insights

Interbank Cash Market (IBCM)

The Interbank Cash Market (IBCM) is a platform where banks engage in short-term lending and borrowing to manage their shilling liquidity positions effectively. This market helps banks to ensure they have adequate liquidity to meet their daily operational needs and regulatory requirements.

Key Highlights from April 2024:

1. Increased Transaction Volume:
   • Total transaction value in the IBCM rose to TZS 1,768.4 billion in April 2024, up from TZS 1,635.2 billion in March 2024. This indicates a significant increase in interbank activity, suggesting higher liquidity movement within the banking sector.
2. Dominance of 7-Day Transactions:
   • Transactions with a 7-day maturity were the most prevalent, accounting for about 49.2% of the total market turnover. This preference highlights banks' reliance on short-term instruments to manage liquidity.
3. Decreasing Interest Rates:
   • The overall interest rate in the IBCM showed a decreasing trend for three consecutive months. In April 2024, the rate eased to 7.02%, down from 7.10% in March 2024 and 7.20% in February 2024. This gradual decline indicates a lower cost of borrowing in the interbank market, reflecting improved liquidity conditions or reduced demand for borrowing.

Interbank Foreign Exchange Market (IFEM)

The Interbank Foreign Exchange Market (IFEM) involves the trading of foreign currencies among banks, with a significant focus on meeting the demand for foreign exchange, particularly the US dollar.

Key Highlights from April 2024:

1. High Liquidity Demand for US Dollars:
   • There was a sustained high demand for US dollars in the IFEM, driven by global economic dynamics. Factors such as international trade requirements, remittances, and foreign investment flows typically influence this demand.
2. Central Bank Intervention:
   • To address the high demand, the Central Bank intervened by selling USD 69.75 million in the IFEM, while banks sold an additional USD 2.3 million. Such interventions are aimed at stabilizing the exchange rate and managing liquidity in the foreign exchange market.
3. Exchange Rate Movements:
   • The Tanzania shilling (TZS) traded at an average rate of TZS 2,584.69 per US dollar in April 2024, compared to TZS 2,563.07 per US dollar in March 2024. This represents a slight depreciation of the shilling against the dollar on a monthly basis.
4. Annual Depreciation:
   • On a year-over-year basis, the shilling depreciated by 11.2%, reflecting broader economic factors and possibly indicating increased demand for foreign currency or pressures on the local currency.

Summary

• The IBCM saw an increase in transaction volumes and a preference for short-term (7-day) borrowing, with a continuing decline in interest rates indicating better liquidity conditions.
• The IFEM experienced high demand for US dollars, prompting significant intervention by the Central Bank to stabilize the market. The shilling's depreciation both monthly and annually reflects ongoing challenges in the foreign exchange market.

Interbank Cash Market (IBCM) Insights

1. Increased Liquidity Activity:
   • The rise in transaction volumes from TZS 1,635.2 billion in March to TZS 1,768.4 billion in April suggests heightened activity in the interbank market. This could be due to various factors such as increased economic activity, greater need for liquidity management among banks, or adjustments in response to regulatory requirements.
2. Preference for Short-Term Borrowing:
   • The dominance of 7-day transactions, constituting about 49.2% of the total market turnover, indicates banks' preference for short-term liquidity solutions. This suggests a cautious approach by banks, likely aiming to maintain flexibility in managing their liquidity positions.
3. Declining Interest Rates:
   • The continuous decrease in the overall IBCM interest rate over three months, reaching 7.02% in April, reflects improving liquidity conditions or reduced borrowing pressures within the banking sector. This trend can be indicative of an overall easing of monetary conditions or effective liquidity management by the central bank.

Interbank Foreign Exchange Market (IFEM) Insights

1. High Demand for Foreign Currency:
   • The sustained high demand for US dollars points to significant foreign exchange needs, driven by global economic dynamics. This demand could stem from factors such as trade payments, debt servicing, or capital outflows.
2. Central Bank Intervention:
   • The Central Bank's intervention by selling USD 69.75 million shows its active role in stabilizing the foreign exchange market. Such interventions are necessary to manage exchange rate volatility and ensure adequate supply of foreign currency.
3. Shilling Depreciation:
   • The average exchange rate of TZS 2,584.69 per US dollar in April, compared to TZS 2,563.07 in March, indicates a slight monthly depreciation. An annual depreciation of 11.2% suggests ongoing pressure on the Tanzania shilling, which could be due to factors such as trade imbalances, inflationary pressures, or reduced foreign investment.

Economic Implications

1. Economic Activity and Stability:
   • The increased interbank transactions and declining interest rates in the IBCM suggest a stable and possibly expanding banking sector with improved liquidity conditions. This can be a positive sign for economic stability and growth.
2. Foreign Exchange Challenges:
   • The high demand for US dollars and the depreciation of the shilling indicate challenges in the foreign exchange market. This situation may reflect broader economic issues such as trade deficits, capital flight, or external debt obligations.
3. Policy and Market Responses:
   • The Central Bank's interventions in the IFEM and the observed trends in the IBCM highlight the importance of active monetary policy and market operations in managing liquidity and exchange rate stability.

Trends and Implications of Interest Rate Changes in Tanzania

Overview

Interest rates in Tanzania have shown notable changes over the period from April 2023 to April 2024. Both lending and deposit rates have exhibited varying trends, contributing to a narrowing interest rate spread, indicating a potential reduction in credit risk and borrowing costs.

Lending Rates

1. Overall Lending Rate:
   • The average lending rate decreased slightly from 15.91% in April 2023 to 15.42% in April 2024.
   • There was a general downtrend in the lending rate, despite some fluctuations, with a peak of 16.02% in June 2023.
2. Short-term Lending Rate (up to 1 year):
   • Started at 16.55% in April 2023 and decreased to 15.93% in April 2024.
   • The rate saw a peak of 17.10% in June 2023 before a steady decline.
3. Negotiated Lending Rate:
   • Negotiated rates showed minimal fluctuations, staying around 14%, with a slight increase to 13.95% in April 2024 from 13.65% in April 2023.

Deposit Rates

1. Savings Deposit Rate:
   • Increased from 1.60% in April 2023 to 2.79% in April 2024.
   • There was a noticeable jump from 1.69% in September 2023 to 2.60% in December 2023, followed by a gradual increase.
2. Overall Time Deposit Rate:
   • Rose from 6.79% in April 2023 to 7.44% in April 2024.
   • The rate peaked at 7.45% in December 2023.
3. 12-months Deposit Rate:
   • Increased from 7.70% in April 2023 to 8.21% in April 2024.
   • There was a significant rise to 8.98% in September 2023, which then decreased slightly.
4. Negotiated Deposit Rate:
   • Averaged around 9.33% in April 2024, starting from 9.46% in April 2023.
   • This rate saw some fluctuations but remained relatively stable, peaking at 9.59% in March 2024.

Interest Spread

• The spread between short-term interest rates (up to 1 year) decreased from 8.84 percentage points in April 2023 to 7.72 percentage points in April 2024.
• This narrowing spread indicates a reduction in the cost of borrowing and a decrease in credit risk within the market.

Monthly Interest Rate

The trend in the interest rates indicates a gradual easing of lending rates and an increase in deposit rates, which has led to a narrower spread between the two. This is a positive sign for the economy, suggesting improved market confidence and lower borrowing costs.

Economic Implications

1. Easing of Lending Rates:
   • The slight decrease in overall lending rates from 15.91% to 15.42% suggests that borrowing has become marginally cheaper over the year. This can stimulate economic activity as businesses and individuals find it more affordable to take out loans for investment and consumption.
2. Stable Negotiated Lending Rates:
   • The relatively stable negotiated lending rates around 14% indicate that banks' willingness to offer customized loan terms to certain borrowers has not changed significantly. This stability might reflect a consistent credit risk assessment and demand for loans among borrowers who negotiate terms.
3. Increase in Deposit Rates:
   • The rise in deposit rates, particularly the overall time deposit rate from 6.79% to 7.44% and the 12-month deposit rate from 7.70% to 8.21%, suggests that banks are competing more aggressively to attract deposits. Higher deposit rates can encourage savings, which can then be used by banks to fund more loans.
4. Narrowing Interest Spread:
   • The narrowing of the short-term interest spread from 8.84 percentage points to 7.72 percentage points indicates a reduction in the difference between what banks charge for loans and what they pay on deposits. This can signify several things:
     • Reduced Credit Risk: As the spread narrows, it may indicate that the perceived risk of lending has decreased, allowing banks to charge lower premiums on loans.
     • Competitive Market: Increased competition among banks could be driving both loan and deposit rates closer together, benefiting consumers with lower loan costs and higher returns on savings.
     • Economic Stability: A narrowing spread often reflects a more stable economic environment where the risk of defaults is lower.
5. Fluctuations in Rates:
   • The data show fluctuations in both lending and deposit rates over the months. These fluctuations can be influenced by various factors such as monetary policy changes, inflation expectations, and shifts in supply and demand for loans and deposits.

Interpretation for Different Stakeholders

1. For Borrowers:
   • The decrease in lending rates means lower borrowing costs, making it more attractive for businesses to invest in expansion and for consumers to finance large purchases.
2. For Savers:
   • Higher deposit rates, especially for time deposits, provide better returns on savings. This can incentivize saving over spending, potentially affecting consumer spending patterns.
3. For Banks:
   • The narrowing spread can squeeze profit margins, pushing banks to find efficiencies or new revenue sources. However, the stable and improving rates also suggest a healthier loan portfolio with lower default risks.
4. For Policymakers:
   • The overall trends might reflect the effectiveness of monetary policies aimed at stimulating economic growth while maintaining financial stability. Policymakers can use this data to adjust interest rates, reserve requirements, and other tools to maintain or improve economic conditions.
5. For Investors:
   • Understanding the trends in interest rates can help investors make informed decisions about where to allocate their resources, whether in banking stocks, bonds, or other financial instruments sensitive to interest rate changes.

Tanzania's GNI per Capita in the East African Context

Gross National Income (GNI) per Capita:
GNI per capita is a crucial economic indicator representing the average income of a country's residents. It is calculated by dividing the total national income by the population. For Tanzania, the GNI per capita is an important measure of economic performance and social well-being.

Current Status in Tanzania:
As per the World Bank's income classification, Tanzania falls under the low-income economies with a GNI per capita of $1,200. This indicates that there is significant room for economic growth and improvement in living standards.

Implications of High GNI per Capita:
Achieving a higher GNI per capita is essential for Tanzania's growth and prosperity for several reasons:

1. Reduced Poverty:
   A higher GNI per capita typically signifies that more income is being generated per person. This increased income can help reduce poverty levels, enabling individuals and families to afford better housing, nutrition, healthcare, and education. These factors are crucial for breaking the poverty cycle and improving overall quality of life.
2. Higher Living Standards:
   As residents earn more, their standard of living improves. This includes better access to essential services and amenities, leading to improved health and educational outcomes. Higher income levels also enable individuals to invest in better housing and consumer goods, further enhancing their quality of life.
3. Better Healthcare and Education:
   Increased income allows for more significant investment in healthcare and education. Improved healthcare services can reduce disease prevalence and increase life expectancy, while better educational opportunities can lead to a more skilled workforce, driving further economic growth.
4. Social Development:
   High GNI per capita supports broader social development objectives. It facilitates the implementation of social welfare programs, infrastructure development, and the delivery of basic services to all residents. This helps create a more inclusive society where everyone has the opportunity to prosper.
5. Sustainable Growth:
   Higher income levels contribute to sustainable economic growth. With more resources available, the government and private sector can invest in sustainable practices and technologies, promoting long-term economic stability and environmental sustainability.

Role of Coordinated Efforts:
To achieve and sustain a high GNI per capita, coordinated efforts from various stakeholders are essential:

• Government:
  The government plays a pivotal role in creating a conducive environment for economic growth. This includes implementing policies that promote investment, innovation, and fair trade. Additionally, public investments in infrastructure, education, and healthcare are critical.
• Corporate Sector:
  The private sector drives economic activity through job creation, innovation, and productivity improvements. Companies can contribute to higher GNI per capita by expanding their operations, investing in new technologies, and providing fair wages.
• Foreign Partners:
  International cooperation and foreign investment are vital for Tanzania's economic growth. Foreign partners can provide financial resources, technical expertise, and market access, helping to accelerate development.

Tanzania can work towards achieving a higher GNI per capita, ultimately fostering a more prosperous and equitable society.

According to the World Development Report 2024, Tanzania's GNI per capita is $1,200, placing it in the lower-middle-income category. Comparing Tanzania to its East African neighbors, we see the following:

• Kenya: GNI per capita is $2,170
• Uganda: GNI per capita is $930
• Rwanda: GNI per capita is $930
• Ethiopia: GNI per capita is $1,020

This data reveals that Tanzania's GNI per capita is higher than Uganda and Rwanda but lower than Kenya.

1. Kenya has the highest GNI per capita among these East African countries, indicating better average income levels and potentially higher living standards.
2. Tanzania follows Kenya but has a GNI per capita lower than half of Kenya's, reflecting significant room for economic improvement.
3. Uganda and Rwanda have similar GNI per capita values, both lower than Tanzania, indicating more significant economic challenges in these countries compared to Tanzania.

Implications for Tanzania Economy

1. Economic Growth: Efforts to increase GNI per capita can lead to reduced poverty, improved living standards, better healthcare and education, and overall social development.
2. Government and Policy: Coordinated efforts from the Tanzanian government, corporate sector, and international partners are crucial for economic growth and sustaining high GNI per capita.
3. Development Focus: Investment in infrastructure, social welfare programs, and basic services will be essential in leveraging Tanzania's position relative to its neighbors to foster more inclusive and sustainable growth.

Hence, Tanzania, while better positioned than Uganda and Rwanda, has significant potential for growth to match or surpass Kenya's economic metrics, requiring focused development strategies and coordinated efforts.

References:

• World Bank, World Development Report 2024: “Economic Growth in Middle-Income Countries will explore the challenges of economic growth in middle-income countries”.
• World Bank's income classification and GNI per capita data for Tanzania.

Dar es Salaam's Startup Ecosystem: Driving Tanzania’s Innovation and Economic Growth

In the 2024 Global Startup Ecosystem Index, Dar es Salaam, Tanzania is highlighted as a notable ecosystem, especially in the context of African and East African cities for startups. Dar es Salaam is ranked 490th globally with a score of 0.507. In the previous year, Dar es Salaam, Tanzania, was ranked 536th globally in the Startup Ecosystem Index​. This positioning reflects positive momentum within Tanzania's startup ecosystem, indicating growth and potential in this region.

Positions of Dar es Salaam and other East African cities in the Startup Ecosystem Index for the years 2023 and 2024:

• Dar es Salaam, Tanzania: Improved by 46 positions, indicating significant progress and positive momentum in the startup ecosystem.
• Nairobi, Kenya: Improved by 15 positions, maintaining its strong position as a leading startup hub in East Africa.
• Kampala, Uganda: Improved by 10 positions, showing steady growth in its startup ecosystem.
• Addis Ababa, Ethiopia: Improved by 30 positions, reflecting considerable advancement and increasing recognition in the global startup landscape.

Dar es Salaam's improvement is notable compared to other East African cities, highlighting its growing importance and potential as a startup hub in the region.

The report also places Dar es Salaam among the top cities from unranked countries that have shown significant improvement. Specifically, Dar es Salaam leads along with other cities like Luanda and Tashkent, which are within the top 600 globally. This ranking underscores the city's increasing relevance and attractiveness for startup activities within Africa and East Africa.

In terms of the broader regional context, Dar es Salaam's ranking shows it is on an upward trajectory, potentially becoming a more significant hub for innovation and entrepreneurship in the coming years.

The Global Startup Ecosystem Index 2024 provides insights into Tanzania's entrepreneurship and economic development, particularly focusing on Dar es Salaam:

1. Global and Regional Ranking: Dar es Salaam is ranked 490th globally and is one of the top cities from unranked countries showing significant momentum. This reflects the city’s growing prominence in the global startup landscape.
2. Economic Development: The report highlights Tanzania’s positive trajectory in entrepreneurship, driven by various initiatives and an improving business environment. This progress is indicative of broader economic development efforts within the country. The momentum in Dar es Salaam is a sign of increasing economic activities and a favorable climate for innovation and startups.
3. Support for Startups: The city benefits from a range of supportive measures aimed at fostering entrepreneurship. These include public and private sector initiatives, international partnerships, and efforts to create a conducive environment for startups. This supportive ecosystem is crucial for sustained economic growth and the development of a robust entrepreneurial culture.
4. Entrepreneurial Ecosystem: Dar es Salaam's rise in the rankings demonstrates the city's potential to become a significant startup hub in East Africa. The city’s ecosystem is characterized by a mix of local talent, emerging tech industries, and increasing access to funding and resources for startups.

Hence, Dar es Salaam's positioning in the Global Startup Ecosystem Index underscores Tanzania's commitment to fostering entrepreneurship and economic development, positioning the city as a key player in the regional and global startup ecosystem.

Source: Global Startup Ecosystem Index 2024

Tanzania's Role in Africa's Diamond Production

Tanzania ranks ninth among the top ten diamond-producing countries in Africa, making a notable contribution to the continent's overall diamond output. Here is a detailed breakdown of Tanzania's position and significance within this list:

Rich Mineral Resources

• Diverse Mineral Wealth: Tanzania is part of Africa’s mineral-rich tapestry, benefiting from the continent’s extensive mineral reserves. The country is not only rich in diamonds but also in gold, copper, and other valuable minerals, making it a crucial player in the mining industry.

Diamond Production Statistics

• Production Volume and Value: According to the latest statistics from the Kimberley Process, Tanzania produced 375,533.14 carats of diamonds, generating a value of approximately $110,936,767.64. This substantial production highlights the country’s significant role in the global diamond market.
• Global Ranking: Despite being ninth in Africa, Tanzania’s diamond production places it within the top 22 diamond-producing countries globally. This reflects its importance and potential in the diamond industry on a worldwide scale.

Economic Impact

• Economic Contribution: The diamond mining sector is a vital part of Tanzania’s economy. The revenue generated from diamond exports significantly contributes to the country’s GDP, providing essential funds for development projects and economic growth.
• Employment and Development: Diamond mining creates employment opportunities and fosters local development. Many Tanzanians are employed directly and indirectly in the mining industry, which boosts the livelihoods of numerous communities.

Kimberley Process Certification

• Regulation and Ethical Practices: Tanzania's diamond production is regulated under the Kimberley Process Certification Scheme (KPCS). This international initiative aims to prevent the trade of conflict diamonds, ensuring that the diamonds exported from Tanzania are ethically sourced and contribute to peace and development.

Comparative Analysis with Other African Producers

Botswana: The Leading Producer

• Top Rank: Botswana is the top diamond producer in Africa, with a staggering production volume of 24,509,939 carats, valued at approximately $4.7 billion. The country’s efficient mining industry and substantial reserves position it as a global leader in diamond production.

Democratic Republic of Congo (DRC)

• Second Place: The DRC follows with 9,908,997.66 carats produced. Despite the high volume, the value is significantly lower at $64.96 million due to the type and quality of diamonds extracted.

South Africa and Angola

• Significant Producers: South Africa and Angola are also major players, with production volumes of 9,660,233 and 8,763,309.3 carats respectively. Both countries have well-established mining sectors contributing substantially to their economies.

Other Notable Producers

• Zimbabwe and Namibia: These countries produce 4,461,450.15 and 2,054,227.06 carats respectively. Their diamond industries are critical to their national economies.
• Lesser Known Producers: Lesotho, Sierra Leone, and Guinea, while producing smaller volumes, still play important roles in the regional diamond market.

Tanzania's Unique Position

Tanzania’s diamond industry, although smaller in scale compared to Botswana and the DRC, is vital for its economy. The diamonds extracted in Tanzania are known for their quality, adding significant value to the country's mining sector. The government's commitment to ethical mining practices and international cooperation through the Kimberley Process ensures that Tanzania remains a reputable player in the global diamond market.

This blend of substantial mineral wealth, economic contribution, and adherence to ethical standards underscores Tanzania's prominent yet unique position among Africa's top diamond producers.

Top 10 diamond-producing countries in Africa, including Tanzania:

SOURCE: Kimberley Process Certification Scheme

Understanding Tax Evasion Behavior in Tanzania: Insights from Regression Analysis

Introduction:

Tax evasion poses a significant challenge to governments worldwide, undermining revenue collection efforts and hindering socioeconomic development. In Tanzania, like in many other countries, tax evasion persists despite governmental efforts to enhance compliance. Understanding the determinants of tax evasion behavior is crucial for devising effective strategies to mitigate its prevalence and ensure a fair and equitable tax system.

This study aims to investigate the factors influencing tax evasion among Tanzanian taxpayers, with a focus on income level, perceptions of the tax system's fairness, beliefs in the effective use of tax revenue, and reasons for not paying taxes. By employing a regression analysis approach, this research seeks to unravel the complex interplay of these variables in shaping tax evasion behavior.

Results:

The regression analysis yielded insightful findings regarding the determinants of tax evasion behavior in Tanzania. Firstly, individuals with higher incomes per month exhibited slightly higher odds of engaging in tax evasion, indicating a nuanced relationship between income level and tax compliance.

Perceived fairness of the tax system emerged as a robust predictor of tax evasion behavior, with individuals who perceived the tax system as fair being significantly less likely to engage in tax evasion. This underscores the importance of fairness perceptions in fostering tax compliance among citizens.

Hence, belief in the effective use of tax revenue by the government was found to be negatively associated with tax evasion, highlighting the pivotal role of trust in government institutions and the perceived efficacy of public spending in shaping tax compliance behavior.

While reasons for not paying taxes showed a marginal effect on tax evasion, factors such as high tax rates, lack of knowledge on tax payment procedures, and distrust in the government were identified as potential drivers of non-compliance. These findings underscore the need for targeted interventions to address the underlying reasons for tax evasion and enhance taxpayer education and awareness.

Overall, the results shed light on the multifaceted nature of tax evasion behavior in Tanzania and provide valuable insights for policymakers seeking to strengthen tax compliance mechanisms and foster a culture of tax integrity among citizens.

 Regression Analysis:

Tax Evasion = β0 + 0.0402991*IncomeLevel + (-0.2949056)*Fairness + (-0.0700492)*EffectiveUse + (-0.0428999)*HighTaxRates + ε

Model Fit:

• The model explains a significant portion of the variance in tax evasion behavior (R-squared = 0.5153). This indicates that the independent variables collectively contribute to understanding tax evasion.
• The F-statistic tests the overall significance of the model, yielding a high value (F(4, 227) = 60.32) with a very low p-value (Prob > F = 0.0000), suggesting that the model is statistically significant.

Coefficients:

• Income Level per Month: The coefficient (0.0402991) indicates that for every one-unit increase in income level per month, there is a 0.0402991 increase in the log odds of tax evasion. This coefficient is statistically significant (p = 0.033), suggesting that income level influences tax evasion behavior.
• Perceived Fairness of the Tax System: The coefficient (-0.2949056) suggests that for every one-unit increase in perceived fairness of the tax system, there is a decrease of 0.2949056 in the log odds of tax evasion. This variable has a highly significant negative effect on tax evasion (p = 0.000).
• Belief in Effective Use of Tax Revenue: With a coefficient of -0.0700492, for every one-unit increase in belief in the effective use of tax revenue, there is a decrease of 0.0700492 in the log odds of tax evasion. This variable is also statistically significant (p = 0.034).
• Reasons for Not Paying Taxes: The coefficient (-0.0428999) indicates that for every one-unit increase in reasons for not paying taxes, there is a decrease of 0.0428999 in the log odds of tax evasion. Although this variable shows a negative effect on tax evasion, it is marginally significant (p = 0.053).
• Intercept (_cons): The intercept (2.623102) represents the log odds of tax evasion when all independent variables are zero. It is statistically significant (p = 0.000).

Interpretation:

• Individuals with higher incomes per month tend to have slightly higher odds of tax evasion.
• Perceiving the tax system as fair and believing in the effective use of tax revenue are associated with lower odds of tax evasion.
• Although reasons for not paying taxes seem to have a negative effect on tax evasion, the effect is not as strong as perceived fairness or belief in effective use of tax revenue.

Hence, the results shows that TRA should focus on enhancing the perceived fairness of the tax system and increasing public confidence in the effective use of tax revenue to discourage tax evasion.

The results from the regression analysis provide insights into the factors influencing tax evasion behavior among individuals in the study population:

Income Level per Month:

The coefficient suggests that individuals with higher incomes per month tend to have slightly higher odds of engaging in tax evasion. This could imply that as income increases, individuals might perceive themselves as having more to lose from paying taxes, leading to a greater likelihood of evasion.

Perceived Fairness of the Tax System:

The highly significant negative coefficient indicates that individuals who perceive the tax system as fair are less likely to engage in tax evasion. This suggests that perceptions of fairness play a crucial role in tax compliance behavior. When individuals believe that the tax system is fair, they are more inclined to fulfill their tax obligations.

Belief in Effective Use of Tax Revenue:

Similarly, the significant negative coefficient suggests that individuals who believe in the effective use of tax revenue by the government are less likely to evade taxes. This highlights the importance of trust in government institutions and the perceived effectiveness of public spending in shaping tax compliance behavior.

Reasons for Not Paying Taxes:

The coefficient for reasons for not paying taxes suggests a negative but marginally significant effect on tax evasion. This implies that individuals who cite various reasons for not paying taxes, such as high tax rates, lack of knowledge on how to pay, or distrust in the government, are somewhat less likely to engage in tax evasion.

Intercept (_cons):

The intercept represents the baseline log odds of tax evasion when all independent variables are zero. The statistically significant intercept suggests that even in the absence of the factors examined in the model, there is a baseline level of tax evasion behavior among individuals.

Implications:

• Perceived fairness and belief in effective use of tax revenue are strong determinants of tax compliance behavior. Efforts to improve transparency, accountability, and communication regarding tax policies and government spending could enhance tax compliance.
• While income level has a modest impact on tax evasion, policymakers should consider targeted measures to address tax compliance among higher-income individuals.
• Understanding the reasons for not paying taxes, although marginally significant, can provide valuable insights for designing interventions to improve tax compliance.

Source: Field Research 2024

Elevating Dar es Salaam Port to a Top-Ranking Status in Africa

Tanzania Port Authority (TPA): The Tanzania Ports Authority (TPA) is the organization responsible for managing and operating the ports in Tanzania. It oversees the major seaports of Dar es Salaam, Tanga, and Mtwara, along with several smaller ports. TPA plays a critical role in the national economy by facilitating trade and commerce, which in turn supports the broader East African region.

Dar es Salaam Port:

• Location and Significance: The Dar es Salaam Port is Tanzania's principal port, strategically located on the eastern coast of Africa. It serves as a major gateway for international trade for both Tanzania and several landlocked countries in East and Central Africa, including Uganda, Rwanda, Burundi, Zambia, Malawi, and the eastern parts of the Democratic Republic of Congo.
• Economic Impact: The port handles a significant volume of cargo, including containerized goods, bulk commodities, and vehicles. Its operations are vital for the import and export activities of these countries, making it a linchpin in the region's supply chain.
• Infrastructure and Capacity: The port has undergone various modernization and expansion projects to increase its capacity and efficiency. These improvements include the construction of new berths, dredging to accommodate larger vessels, and the enhancement of cargo handling equipment and facilities.
• Challenges: Despite its importance, the Dar es Salaam Port faces challenges such as congestion, inefficiencies in cargo handling, and administrative bottlenecks. These issues impact the overall performance and have kept it from being ranked among the top 10 highest-ranking ports in Africa according to the Container Port Performance Index (CPPI).

Container Port Performance Index (CPPI)

The CPPI is an annual report produced by the World Bank in collaboration with S&P Global Market Intelligence, aiming to provide a comprehensive assessment of container port performance worldwide. The index is designed to benchmark ports and promote improvements in efficiency, infrastructure, and operations.

• Methodology: The CPPI measures the performance of ports based on the average port hours per port call. This metric reflects the total amount of time a vessel spends in a port, from arrival to departure. Ports must have at least 24 valid port calls within a calendar year to be included in the index.
• Data Collection: For the CPPI 2022, data was collected from 348 primary ports, recording 156,813 port calls. Ports reporting fewer than 24 calls were excluded from the primary index but included in supplementary data.
• Evaluation Metrics: The index evaluates ports based on several criteria, including cost, landside connectivity and services, ship-to-shore interchange, and terminal capacity utilization.

Top 10 Highest-Ranking Ports in Africa (CPPI 2022)

According to the CPPI 2022, the following ports are the highest-ranking in Africa:

1. Djibouti Port, Djibouti: 26th globally
2. Berbera, Somaliland: 144th globally
3. Conakry, Guinea: 189th globally
4. Dakar, Senegal: 196th globally
5. Matadi, Democratic Republic of Congo: 197th globally
6. Tema, Ghana: 205th globally
7. Mogadishu, Somalia: 221st globally
8. Beira, Mozambique: 223rd globally
9. Freetown, Sierra Leone: 226th globally
10. Toamasina, Madagascar: 227th globally

Despite the strategic importance and significant economic impact of the Dar es Salaam Port under the Tanzania Ports Authority, it has not made it to the top 10 highest-ranking ports in Africa based on the CPPI. The CPPI highlights the need for continued improvements in efficiency, infrastructure, and operational processes to enhance the port's performance and competitiveness on the global stage.

Tanzania Ports Authority can significantly improve the performance and competitiveness of the Dar es Salaam Port, aiming for a higher ranking in future assessments of global port performance:

Infrastructure Development

• Expansion and Modernization: Continue with the expansion projects to increase the port's capacity. This includes constructing new berths, expanding existing ones, and upgrading cargo handling equipment.
• Dredging: Regular dredging to maintain and deepen the port’s channels to accommodate larger vessels, reducing the waiting time for ships.
• Technology Integration: Invest in advanced technologies such as automated cargo handling systems, real-time tracking systems, and port management software to streamline operations and improve efficiency.

Efficiency and Operational Improvements

• Reduce Congestion: Implement measures to reduce port congestion, such as optimizing vessel scheduling, improving turnaround times, and expanding storage facilities.
• Efficient Customs Processes: Streamline customs procedures to reduce delays. This can be achieved through better integration of customs systems, enhanced training for staff, and adopting more transparent processes.
• 24/7 Operations: Ensure that port operations, including customs, work around the clock to avoid downtime and maximize throughput.

Enhancing Connectivity

• Improved Landside Connections: Enhance road and rail links to the port to ensure smooth and efficient transportation of goods to and from the port. This includes investing in infrastructure improvements and maintaining existing roads and railways.
• Intermodal Facilities: Develop intermodal facilities to facilitate the seamless transfer of cargo between different modes of transport, such as road, rail, and sea.

Stakeholder Collaboration

• Public-Private Partnerships: Engage in public-private partnerships to leverage private sector investment and expertise in port operations and management.
• Regional Cooperation: Foster stronger regional cooperation with neighboring countries to create a more integrated and efficient logistics network, which can increase the volume of transit cargo through the port.

Policy and Regulatory Reforms

• Regulatory Framework: Simplify and harmonize regulatory frameworks to reduce bureaucratic obstacles. Ensure that port regulations are in line with international best practices.
• Incentives: Offer incentives to shipping lines and logistics companies to use the Dar es Salaam Port, such as competitive pricing, rebates, and discounts for high-volume users.

Capacity Building

• Training and Development: Invest in training programs for port staff to improve their skills and knowledge. This includes technical training, customer service, and operational efficiency.
• Management Practices: Adopt best management practices to enhance the overall performance and governance of the port operations.

Environmental Sustainability

• Sustainable Practices: Implement environmentally sustainable practices to reduce the port’s carbon footprint, such as using green energy, reducing waste, and improving water management.
• Compliance: Ensure compliance with international environmental standards and regulations.

Customer Service Improvement

• Customer Feedback: Establish a system to gather feedback from port users and stakeholders regularly. Use this feedback to make continuous improvements.
• Service Quality: Focus on improving the quality of services offered at the port, including faster turnaround times, better cargo handling, and enhanced safety and security measures.

Marketing and Promotion

• Global Outreach: Actively market the port’s capabilities and improvements to attract more shipping lines and logistics companies. Participate in international trade fairs and forums to showcase the port.
• Branding: Develop a strong brand identity for the Dar es Salaam Port as a reliable and efficient gateway for East and Central Africa.