Business Environment and Economic Growth

Tanzania’s tax reforms and policy adjustments have significantly shaped the business landscape and economic trajectory. These reforms have enhanced revenue collection while identifying policy areas that, with adjustments, could spur further growth and broaden Tanzania’s investment opportunities.

1. Current Taxation Landscape in Tanzania

In 2023/2024, Tanzania’s tax revenue reached approximately TZS 27.64 trillion, showing a robust 14.47% growth from the previous year. Major revenue contributions came from services (28.2%), trade (23.6%), and manufacturing (17.7%). Although recent reforms have increased collection efficiency, compliance costs remain a challenge, averaging 2% of annual revenue for businesses, particularly small and medium enterprises (SMEs). This burden can hinder growth and disincentivize formalization within the economy, impacting the government's ability to capture potential tax revenues.

2. Policy and Regulatory Challenges

Tanzania’s regulatory and tax framework presents complexities that are particularly challenging for SMEs. Despite recent improvements, the World Bank’s Ease of Doing Business Index (2024) scores Tanzania at 59, indicating moderate entry barriers. While comprehensive, the regulatory environment's high compliance costs and complexity rank Tanzania at 162 out of 190 for tax compliance ease. These burdens limit profitability for many businesses, especially SMEs, reducing available resources for reinvestment.

3. Foreign Direct Investment and Sectoral Growth Potential

In 2023/2024, Foreign Direct Investment (FDI) inflows reached approximately USD 1.5 billion, with strong interest in sectors such as energy, mining, and agriculture. With targeted policy reforms, FDI could increase at an annual rate of 10%, reaching an estimated USD 2.8 billion by 2030. Additionally, sectoral growth projections, such as an annual increase of 6-8% in agriculture and 7% in manufacturing, indicate a promising outlook if policies continue to incentivize investment and tax compliance.

4. Role of Key Stakeholders in Driving Tax Compliance and Economic Growth

The Tanzania Revenue Authority (TRA) is essential in enforcing tax compliance through initiatives like taxpayer education and digital tax solutions, such as Electronic Fiscal Devices (EFDs), which ensure real-time tracking and transparency. Local Government Authorities (LGAs) also play a role, especially in formalizing the informal sector through local levies. Industry organizations, including the Tanzania Private Sector Foundation (TPSF) and Confederation of Tanzanian Industries (CTI), advocate for policies that streamline tax compliance and reduce SME burdens to foster sectoral growth and economic resilience.

5. Key Figures: Projections for 2030

If current reforms continue, Tanzania's total tax revenue could increase from TZS 27.64 trillion in 2023/2024 to TZS 40 trillion by 2030. A reduction in compliance costs to 1.5% of revenue could free up resources for business expansion. Additionally, with a projected Ease of Doing Business Score increase to 70 by 2030, Tanzania’s economic environment is expected to be more attractive for investment, supporting sustained growth across key sectors.

Conclusion

Through targeted tax reforms, Tanzania can strengthen its tax revenue base, reduce compliance costs, and enhance its attractiveness as an investment destination. This will drive sustainable economic growth, create jobs, and improve Tanzania’s competitiveness within the East African region. For these reforms to succeed, collaboration among government agencies, private sector organizations, and civil society is crucial to establishing an inclusive economic environment that benefits all Tanzanians.

Tanzania's labor market is undergoing a transformation as the country strives to shift more of its workforce into formal employment. As of 2023, Tanzania's workforce stands at approximately 36 million people, with 28% in formal employment and 72% in informal employment. These shifts reveal opportunities for economic growth but also underscore significant challenges in formalizing informal sector employment.

Employment Landscape in Tanzania

The formal sector employs around 10.07 million individuals, with most in the private sector (9.33 million), while the public sector supports approximately 741,967 jobs. In contrast, the informal sector is vast, with around 25.95 million workers, mostly engaged in agriculture, retail, and small-scale manufacturing. This segment lacks job security and benefits, making it vulnerable to economic shifts.

Public and Private Sector Employment

In the public sector, the government allocated TZS 11.3 trillion for wages in the 2023/2024 fiscal year, supporting roles in civil service, healthcare, and education. The private sector's role is crucial, employing nearly 93% of all formal workers and contributing significantly to the national tax base. With an annual salary average of TZS 15.25 million per formal sector employee, private businesses are a vital economic force.

Informal Employment Breakdown

The informal sector is dominated by agriculture and fishing, which accounts for 65-70% of informal jobs. Retail trade employs 10-15%, followed by manufacturing, crafts, and construction. Regions like Dar es Salaam and Mwanza showcase significant informal employment, with informal rates as high as 72%, reflecting regional dependence on informal job sectors.

Key Economic Indicators and Projections

1. Unemployment Trends: Tanzania’s unemployment rate has shown gradual improvement, reducing from 9% in 2021 to 8.8% in 2023 and Projected to reach 8.1% in 2030, marking a positive trend in job creation.
2. Economic Forecast for 2024-2030: Formal employment is expected to increase from 28% to 38% by 2030, driven by growth in sectors such as manufacturing, services, and agriculture. By 2030, approximately 15.8 million individuals are projected to be in formal employment, reducing informal employment rates to 62%.
3. Projected Workforce and Sectoral Growth:
   • Manufacturing and Industry: 25% of the formal workforce
   • Services and Tourism: 22%
   • Modern Agriculture: 20%
   • Construction and Infrastructure: 15%
   • Technology and Digital Services: 10%

Challenges in Transitioning from Informal to Formal Employment

The shift from informal to formal employment involves obstacles, such as:

• Regulatory Barriers: Complicated regulations deter informal businesses from formalizing.
• Skills Gaps: Workers moving from informal to formal sectors often lack necessary skills, impacting productivity.
• Infrastructure Limitations: Insufficient infrastructure, particularly in rural areas, hinders formal sector growth.

Recommendations

1. Expand Formal Sector Support: Simplify business registration and tax compliance processes to encourage informal businesses to transition.
2. Enhance Vocational Training: Align educational programs with formal sector needs to support skill development.
3. Improve Social Protection: Extend social security coverage to include more formal workers, offering a safety net for transitioning employees.
4. Sector-Specific Policies: Introduce targeted policies to modernize agriculture, foster innovation in urban sectors, and promote industry expansion.
5. Invest in Infrastructure: Focus on digital and physical infrastructure to improve business efficiency and facilitate formal sector growth.

Conclusion

Tanzania’s employment dynamics are at a turning point, with formal employment showing steady growth. With careful planning, investment in infrastructure, and strategic policy reforms, Tanzania can continue to transition towards a more stable and secure labor market that benefits both the economy and the workforce.

Rising Exports, Narrowing Deficits, and Strategic Growth to 2030

The East African Community (EAC) has demonstrated steady growth in international merchandise trade, reaching US$ 26.9 billion in Q1 2024—a 4% increase from the previous year—driven by a 12% rise in exports to US$ 11.3 billion and a slight 2% drop in imports to US$ 15.6 billion. This positive trend has helped reduce the trade deficit to US$ 4.2 billion, with major trade partners like China, UAE, and India contributing 45% of the region's trade volume. Projections to 2030 indicate sustained trade growth, potential export surpluses, and stronger intra-African trade, positioning the EAC as a vital player in the global market.

1. Total Trade Value:
   • The EAC traded goods worth US$ 26.9 billion with the rest of the world in Q1 2024.
   • This represents a 4% increase compared to US$ 25.9 billion in Q1 2023.
2. Exports and Imports:
   • Exports: Increased by 12%, rising from US$ 10.1 billion in Q1 2023 to US$ 11.3 billion in Q1 2024.
   • Imports: Slight decrease of 2%, from US$ 15.8 billion in Q1 2023 to US$ 15.6 billion in Q1 2024.
3. Trade Deficit:
   • The trade deficit narrowed to US$ 4.2 billion in Q1 2024 from US$ 5.7 billion in Q1 2023, mainly due to a rise in exports.
4. Top Trading Partners:
   • Major partners included China, UAE, and India, collectively accounting for 45% of the EAC’s total trade.
   • China led with trade valued at US$ 7.3 billion.
5. Intra-African Trade:
   • Trade with African countries totaled US$ 6.0 billion, making up 22.4% of EAC’s total trade.
   • Intra-EAC trade was US$ 3.3 billion, contributing 12.3% to the region's trade.

The growth in exports, narrowing trade deficit, and the EAC's trade reliance on key global partners and African neighbors​.

Here is the forecast for the EAC's international merchandise trade from 2025 to 2030:

Key Points of the Forecast:

• Total Trade: Projected to grow from US$ 27.98 billion in 2025 to US$ 34.04 billion by 2030.
• Exports: Expected to nearly double, reaching US$ 17.93 billion by 2030.
• Imports: Forecasted to increase more slowly, reaching US$ 17.57 billion by 2030.
• Trade Deficit: Expected to narrow and turn into a slight trade surplus of US$ 0.36 billion by 2030 as export growth outpaces imports.

The forecast and recent trends in the EAC's international merchandise trade highlight several significant insights about the region's economic trajectory and trade dynamics:

1. Steady Growth in Trade:
   The projected steady growth in total trade (from US$ 26.9 billion in 2024 to US$ 34.04 billion by 2030) reflects a positive economic outlook for the EAC. This growth suggests that regional economies are likely to become more integrated with global markets, benefiting from increased exports and a stable demand for imports.
2. Expanding Export Capacity:
   The faster growth rate of exports (an average annual increase of 8%) indicates that the EAC is building stronger, competitive export sectors. This could be due to regional policies aimed at boosting manufacturing, agriculture, and value-added production to generate higher export volumes.
3. Trade Deficit Reduction:
   The narrowing trade deficit—projected to close by 2030—points to the EAC's gradual shift towards a more balanced trade profile. With exports expected to surpass imports by 2030, this shift reflects improvements in the region's productivity and self-reliance.
4. Dependence on Key Trade Partners:
   Trade relationships with major global economies like China, the UAE, and India (accounting for 45% of total trade) highlight a continued dependence on a few large partners. This dependence might expose the EAC to external shocks from these economies, underlining the importance of diversifying trade partnerships, especially within Africa.
5. Increasing Intra-African Trade Potential:
   With intra-African trade already contributing 22.4% of total trade, there is substantial potential for EAC countries to leverage the African Continental Free Trade Area (AfCFTA) to further strengthen regional trade networks. This could help reduce trade barriers, increase competitiveness, and support sustainable economic growth.
6. Economic Diversification and Resilience:
   The trends suggest that EAC countries are moving towards more resilient economic structures by growing exports and reducing trade imbalances. This diversification effort could lead to greater economic stability, improve the balance of payments, and reduce vulnerability to global economic changes.

1. EAC Regional Headline Inflation:

The annual Headline Inflation in the EAC region was 6.7% in March 2024, up from 4.1% in February 2024. This figure indicates a region-wide increase in general prices.

• By Country:
  • Burundi: 26% headline inflation in 2023.
  • Kenya: 7.7% in 2023.
  • Rwanda: 12.2% in 2023.
  • South Sudan: High fluctuation at 22.5% as of March 2024.
  • Tanzania: 3.8% in 2023.
  • Uganda: 5.4% in 2023nual Average Headline Inflation**:

2. Annual Average Headline Inflation

For the EAC region, the annual average headline inflation for the fiscal year 2022/23 was 7.2%, up from 4.2% in the previous fiscal year.

• By Country:
  • Burundi: 26.0% in 2023.
  • Kenya: 7.7%.
  • Rwanda: 12.2%.
  • South Sudan: 2.4%.
  • Tanzania: 3.8%.
  • Uganda: 5.4%.

3. Core Inflation:

Annual Core Inflation for the EAC region stood at 7.1% in March 2024, rising from 4.3% in February 2024.

• By Country:
  • Burundi: 19.9% average in 2023.
  • Kenya: 5.9%.
  • Rwanda: 10%.
  • Tanzania: 2%.
  • Uganda: 4.7%.
  • South Sudan: 9.8%.

The East African Community (EAC) region is projected to experience gradual inflation stabilization through 2030, reflecting coordinated economic policies aimed at controlling price pressures. In 2023, the EAC’s headline inflation stood at 6.7%, with variations across member states, from a low of 3.8% in Tanzania to a high of 26% in Burundi. Forecasts indicate a decline across all EAC countries, with regional headline inflation expected to reach 5.8% by 2030. Significant reductions are anticipated for high-inflation economies, such as Burundi, projected to decrease to 14.5%, and South Sudan to 10.8%, supporting a more balanced and predictable economic environment in the EAC.

1. Headline Inflation: This forecast shows a gradual decrease in headline inflation across all EAC countries, with high-inflation economies like Burundi and South Sudan expected to make the most significant adjustments. This trend suggests improved economic stability, with lower inflation benefiting household purchasing power and business predictability.
   • EAC Region: Reduction from 6.7% to 5.8% reflects region-wide stabilization efforts.
   • Burundi: A sharp decline from 26% to 14.5% indicates ambitious policy interventions.
   • Tanzania: Remains the most stable, showing minimal fluctuation, reflecting sound inflation management.
2. Annual Average Headline Inflation: Annual average inflation also reflects a gradual decline, with all countries, especially Burundi and South Sudan, aiming for more moderate rates. The EAC region is projected to ease from 7.2% in 2023 to 6.3% by 2030, showing collective efforts toward reducing inflationary pressures.
   • Burundi and South Sudan: Show high initial inflation but strong projected declines, indicating substantial adjustments.
   • Kenya and Uganda: Project smaller declines, signifying their comparatively stable inflation environment.
3. Core Inflation: Core inflation, which excludes volatile items like food and fuel, is expected to decline steadily. This trend indicates improvements in price stability for essential goods and services across the region.
   • Burundi: High core inflation (19.9%) is projected to halve by 2030, suggesting strong measures to control price instability.
   • EAC Region: The reduction from 7.1% to 5.7% shows a region-wide commitment to stable core prices.
   • Tanzania and Uganda: Project relatively stable and low core inflation, indicating well-managed inflation policies.

The forecasted headline inflation for each EAC country and the region through 2030

The forecasted headline inflation trends for each EAC country through 2030 show a gradual decline across the region, reflecting stabilization efforts:

• EAC Region: Inflation is expected to reduce from 6.7% in 2023 to 5.8% by 2030, indicating a steady regional stabilization.
• Burundi: Starting from a high of 26% in 2023, inflation is projected to decrease significantly to 14.5% by 2030, due to anticipated economic adjustments.
• Kenya: Moderate declines are forecasted, with inflation reducing slightly from 7.7% in 2023 to 7.2% by 2030, suggesting a relatively stable inflation rate.
• Rwanda: Expected to see a gradual decline from 12.2% in 2023 to 9.9% by 2030 as price pressures ease.
• South Sudan: Volatile inflation is set to decrease from 22.5% in 2023 to 10.8% by 2030, reflecting significant economic stabilization efforts.
• Tanzania: Remaining stable, inflation is forecasted to stay around 3.7% throughout the period, reflecting consistent economic stability.
• Uganda: Inflation is expected to gradually decline from 5.4% in 2023 to 4.7% by 2030, indicating a steady control over price levels.

Annual Average Headline Inflation Forecast for each EAC country and the region through 2030

The projected Annual Average Headline Inflation for each East African Community (EAC) country and the region through 2030 shows a gradual reduction in inflation rates, with stabilization in most countries as economic policies are anticipated to moderate inflationary pressures:

• EAC Region: Starting at 7.2% in 2023, inflation is expected to slowly decline to 6.3% by 2030, reflecting regional efforts to stabilize prices.
• Burundi: With the highest initial inflation of 26.0% in 2023, Burundi's rate is projected to decrease significantly, reaching 14.5% by 2030, due to aggressive measures to curb inflation.
• Kenya: Kenya’s inflation is relatively stable, moving from 7.7% in 2023 to 7.2% by 2030, showing a slight reduction as inflationary pressures ease.
• Rwanda: Starting at 12.2% in 2023, Rwanda’s inflation is forecasted to drop to 9.9% by 2030, as price growth stabilizes.
• South Sudan: With a volatile starting rate of 2.4% in 2023, South Sudan’s inflation is expected to decline gradually to 1.6% by 2030.
• Tanzania: Starting with a low rate of 3.8% in 2023, Tanzania’s inflation is projected to remain steady, reaching 3.7% by 2030, indicating ongoing price stability.
• Uganda: Inflation in Uganda begins at 5.4% in 2023, decreasing gradually to 4.7% by 2030 as inflation moderates in line with regional trends.

Core Inflation Forecast for each EAC country and the region through 2030

The core inflation forecast for the EAC region and each country through 2030 reflects a gradual reduction in inflation rates as countries aim for economic stabilization:

• EAC Region: Core inflation is expected to reduce from 7.1% in 2023 to 5.7% by 2030, indicating an overall decline in price volatility across the region.
• Burundi: Starting at a high of 19.9% in 2023, core inflation is projected to decrease significantly to 10.3% by 2030, reflecting efforts to control extreme inflation.
• Kenya: A gradual decrease is forecasted from 5.9% in 2023 to 5.1% by 2030, showing moderate inflation stability.
• Rwanda: Core inflation is expected to decrease from 10.0% in 2023 to 7.5% in 2030, suggesting improvement but a slower decline.
• South Sudan: High initial volatility at 9.8% in 2023 is projected to decline to 5.9% by 2030, aiming for more stability.
• Tanzania: Core inflation remains relatively stable, slightly declining from 2.0% in 2023 to 1.9% by 2030, indicating a well-managed inflation rate.
• Uganda: Projected to decrease from 4.7% in 2023 to 3.8% by 2030, showing a steady inflation management path.

Deni la nje la Tanzania limeongezeka kwa kiwango kikubwa katika miaka ya hivi karibuni, likifikia TZS 78.8 trilioni (sawa na USD 32,675.10 milioni) mwezi Agosti 2024. Huu ni ongezeko kubwa ikilinganishwa na rekodi ya kiwango cha chini ya TZS 5.96 trilioni (sawa na USD 2,469.70 milioni) mnamo Desemba 2011, huku wastani ukiwa ni TZS 47 trilioni (sawa na USD 19,468.10 milioni) kwa kipindi cha 2011 hadi 2024. Kuongezeka kutoka TZS 77.2 trilioni (USD 31,993.90 milioni) mwezi Julai hadi TZS 78.8 trilioni (USD 32,675.10 milioni) mwezi Agosti 2024 kunadhihirisha utegemezi unaoendelea wa nchi kwenye ufadhili wa nje kwa miradi ya maendeleo na matumizi ya umma.

Vidokezo Muhimu:

• Deni la Nje la Tanzania: TZS 78.8 trilioni (Agosti 2024).
• Wastani (2011-2024): TZS 47 trilioni.
• Rekodi ya Chini: TZS 5.96 trilioni (Desemba 2011).

Nafasi ya Tanzania Afrika Mashariki na Afrika
Afrika Mashariki: Tanzania ni moja ya nchi zenye uchumi mkubwa Afrika Mashariki, ikiwa na deni la nje linaloonyesha uwekezaji mkubwa kwenye miundombinu, nishati, na viwanda. Ongezeko la deni ni kutokana na mahitaji ya ufadhili kwa miradi mikubwa kama bandari, reli, na vituo vya nishati. Miongoni mwa nchi za Afrika Mashariki, Tanzania ni mojawapo ya nchi zenye deni kubwa la nje, ingawa Kenya pia ina deni kubwa la KES 5.151 trilioni (karibu USD 34.5 bilioni) kufikia Juni 2024.

Kulinganisha na Nchi za Afrika Mashariki (Deni kwa USD):

1. Kenya: TZS 129.5 trilioni (USD 51.51 bilioni) (Juni 2024)
2. Tanzania: TZS 78.8 trilioni (USD 32.68 bilioni) (Agosti 2024)
3. Rwanda: TZS 15.1 trilioni (USD 6.26 bilioni) (Desemba 2022)
4. Burundi: BIF 1,857.79 bilioni (~Thamani ya chini ikilinganishwa na Rwanda)

Afrika: Katika bara zima la Afrika, deni la nje la Tanzania ni chini ya nchi kama Afrika Kusini na Misri lakini ni kubwa kuliko nchi nyingi ndogo. Kwa mfano, Afrika Kusini ilikuwa na deni la nje la USD 163,852 milioni kufikia Juni 2024, huku Misri ikiwa na USD 160,607 milioni Machi 2024.

Orodha ya Nchi 10 Bora za Afrika Zenye Deni Kubwa la Nje (kulingana na data ya hivi karibuni):

1. Afrika Kusini: USD 163,852 milioni (Juni 2024)
2. Misri: USD 160,607 milioni (Machi 2024)
3. Nigeria: USD 42,120 milioni (Machi 2024)
4. Kenya: USD 34.5 bilioni (Juni 2024)
5. Tanzania: USD 32,675 milioni (Agosti 2024)
6. Ghana: USD 31,024 milioni (Juni 2024)
7. Angola: USD 50,260 milioni (Desemba 2023)
8. Zambia: USD 8,024 milioni (Desemba 2023)
9. Zimbabwe: USD 13,325 milioni (Desemba 2020)
10. Morocco: MAD 676,819 milioni (~USD 66.7 bilioni) (Desemba 2022)

Athari za Kiuchumi kwa Tanzania
Ongezeko la deni la Tanzania ni ishara ya ajenda yake ya maendeleo yenye malengo makubwa, ambayo yanahitaji mtaji mkubwa. Ingawa ufadhili huu wa nje ni muhimu kwa maendeleo ya miundombinu na ukuaji wa uchumi, usimamizi wa viwango vya deni ni muhimu ili kuepuka gharama kubwa za kulipa deni ambazo zinaweza kupunguza nafasi ya kufadhili sekta nyingine za maendeleo.

Muhtasari wa Maeneo Muhimu ya Deni la Tanzania:

1. Ukuaji wa Deni la Nje la Tanzania
   • Ukuaji Mkubwa: Deni la nje la Tanzania limeongezeka kutoka USD 2.47 bilioni mnamo Desemba 2011 hadi USD 32.68 bilioni kufikia Agosti 2024.
   • Mwelekeo wa Hivi Karibuni: Deni limeongezeka kutoka USD 31.99 bilioni mnamo Julai 2024 hadi USD 32.68 bilioni mnamo Agosti 2024.
   • Wastani wa Deni: Kwa kipindi cha 2011 hadi 2024, wastani wa deni la Tanzania ilikuwa USD 19.47 bilioni.
2. Nafasi ya Tanzania Afrika Mashariki
   • Tanzania ni moja ya nchi kubwa kiuchumi Afrika Mashariki, na deni la nje la pili kwa ukubwa baada ya Kenya.
   • Kulinganisha na Nchi za Afrika Mashariki:
     • Kenya inaongoza kwa deni la nje la USD 34.5 bilioni mnamo Juni 2024.
     • Tanzania inafuatia na USD 32.68 bilioni mnamo Agosti 2024.
     • Rwanda (USD 6.26 bilioni mnamo Desemba 2022) na Burundi zina deni la chini sana.
3. Nafasi ya Tanzania Afrika
   • Tanzania inashikilia nafasi ya tano miongoni mwa nchi za Afrika zenye deni kubwa la nje, nyuma ya Ghana (USD 31.02 bilioni) na Zambia (USD 8.02 bilioni), lakini chini ya nchi kama Afrika Kusini na Misri.
4. Athari kwa Tanzania
   • Ajenda ya Maendeleo: Ongezeko kubwa la deni linaonyesha dhamira ya Tanzania ya kupanua miundombinu, nishati, na sekta ya viwanda.
   • Changamoto ya Usimamizi wa Deni: Uwekezaji huu wa deni unahitaji usimamizi thabiti ili kuhakikisha kuwa fedha zilizokopwa zinatumika kwa ufanisi.
   • Matumizi ya Fedha za Kukopa: Changamoto kuu kwa Tanzania ni kuhakikisha kuwa fedha hizi zinazalisha matokeo ya kiuchumi kama ongezeko la uwezo wa uzalishaji, mauzo ya nje, na ajira.
   • Mashindano ya Kanda: Ongezeko la deni la Tanzania linaakisi ushindani na nchi nyingine za Afrika Mashariki, hususan Kenya.

Hitimisho
Deni la nje la Tanzania linaonyesha mipango yake ya maendeleo lakini ongezeko kubwa la deni linazua maswali kuhusu uhimilivu wa deni. Kama moja ya nchi zenye uchumi mkubwa Afrika Mashariki, Tanzania inafanya maendeleo makubwa katika miundombinu na viwanda lakini inapaswa kusimamia deni kwa umakini ili kudumisha utulivu wa kifedha wa muda mrefu.

Tanzania's external debt has grown significantly in recent years, reaching USD 32,675.10 million in August 2024. This is a major increase compared to its record low of USD 2,469.70 million in December 2011, and an average of USD 19,468.10 million over the period from 2011 to 2024. The month-on-month increase from USD 31,993.90 million in July to USD 32,675.10 million in August 2024 reflects the country's continued reliance on external financing for development projects and public expenditure.

Key Points:

• Tanzania's External Debt: $32.68 billion USD (Aug 2024).
• Average (2011-2024): $19.47 billion USD.
• Record Low: $2.47 billion USD (Dec 2011).

Tanzania's Position in East Africa and Africa

East Africa: Tanzania is one of the largest economies in East Africa, with a growing external debt that reflects significant investments in infrastructure, energy, and industrialization. The rise in debt is partly due to the country’s need for financing large-scale projects like ports, railways, and energy plants. Among East African countries, Tanzania has one of the highest external debts, but Kenya's debt is also notable, with KES 5.151 trillion (approximately USD 34.5 billion) as of June 2024.

Comparison with East African Countries (Debt in USD):

1. Kenya: $51.51 billion USD (June 2024)
2. Tanzania: $32.68 billion USD (August 2024)
3. Rwanda: $6.26 billion USD (Dec 2022)
4. Burundi: BIF 1,857.79 billion (~USD equivalent lower than Rwanda)

Africa: On the broader African continent, Tanzania's external debt is lower than that of major economies like South Africa and Egypt but higher than many smaller economies. For instance, South Africa had an external debt of USD 163,852 million as of June 2024, while Egypt had USD 160,607 million in March 2024.

Top 10 African Countries with High External Debt (as per recent data)

Here is a list of the top African countries with high external debt (figures are based on the latest available data):

1. South Africa: USD 163,852 million (June 2024)
2. Egypt: USD 160,607 million (March 2024)
3. Nigeria: USD 42,120 million (March 2024)
4. Kenya: KES 5.151 trillion (~USD 34.5 billion) (June 2024)
5. Tanzania: USD 32,675 million (August 2024)
6. Ghana: USD 31,024 million (June 2024)
7. Angola: USD 50,260 million (December 2023)
8. Zambia: USD 8,024 million (December 2023)
9. Zimbabwe: USD 13,325 million (December 2020)
10. Morocco: MAD 676,819 million (~USD 66.7 billion) (December 2022)

Economic Implications for Tanzania

Tanzania’s growing debt is a reflection of its ambitious development agenda, which requires substantial capital. While this external financing is important for infrastructure development and economic growth, managing the debt levels will be crucial to avoid excessive debt servicing costs that could limit fiscal space for other development needs. Tanzania's current external debt positions it among the highly indebted nations in East Africa but is still lower than larger economies like South Africa and Egypt.

Tanzania’s debt management will likely involve focusing on maintaining sustainable debt levels while ensuring that borrowed funds are used productively to generate economic returns. As part of East Africa, Tanzania is competing with countries like Kenya in terms of infrastructure and economic development, which may drive further borrowing for development projects.

Tanzania's external debt highlights key insights about the country’s economic development, debt reliance, and its position within East Africa and the broader African continent:

1. Tanzania’s External Debt Growth

• Significant Growth: Tanzania's external debt has grown from USD 2.47 billion in December 2011 to USD 32.68 billion by August 2024. This nearly 13-fold increase reflects Tanzania's heavy reliance on external financing to fund large-scale infrastructure and industrialization projects.
• Recent Trend: The debt rose from USD 31.99 billion in July 2024 to USD 32.68 billion in August 2024, indicating a rapid, ongoing reliance on external borrowing.
• Debt Average: Over the period from 2011 to 2024, Tanzania’s average debt was USD 19.47 billion, showing that recent years have seen particularly sharp increases in borrowing.

2. Tanzania’s Position in East Africa

• Tanzania is one of the largest economies in East Africa, second only to Kenya in terms of external debt.
• Comparison with Other East African Countries:
  • Kenya leads with an external debt of USD 34.5 billion in June 2024.
  • Tanzania follows with USD 32.68 billion in August 2024.
  • Other countries like Rwanda (USD 6.26 billion in December 2022) and Burundi have significantly lower external debt.
  • Uganda’s external debt, though not provided in the data, is typically lower than Tanzania’s.
• This shows that Tanzania and Kenya, as the region's largest economies, are heavily investing in large-scale projects that require significant external financing. Both countries are competing in terms of infrastructure development and economic growth.

3. Tanzania’s Position in Africa

• Mid-level Debt: In the context of Africa, Tanzania has moderate external debt compared to larger economies like South Africa (USD 163.85 billion) and Egypt (USD 160.61 billion). However, it has higher debt than many smaller African countries.
• Top 10 Ranking: Tanzania ranks 5th among African nations with the highest external debt, ahead of countries like Ghana (USD 31.02 billion) and Zambia (USD 8.02 billion), but well below the continent’s giants such as South Africa and Egypt.

4. Implications for Tanzania

• Ambitious Development Agenda: The sharp rise in debt reflects Tanzania’s commitment to expanding its infrastructure, energy, and industrial base. This external borrowing is crucial for financing large-scale projects like the Standard Gauge Railway (SGR), ports, and energy projects.
• Debt Sustainability Concerns: While external debt has fueled development, managing the rising debt levels is critical. High external debt can lead to increased debt servicing costs, which could limit the government’s ability to fund other important sectors like health and education. If not managed carefully, this could lead to long-term fiscal imbalances.
• Productive Use of Borrowed Funds: The key challenge for Tanzania will be to ensure that the funds borrowed are used effectively to generate economic returns, such as increased production capacity, exports, and jobs. This would help ensure that debt remains sustainable and does not lead to a debt crisis.
• Regional Competition: Tanzania’s increasing external debt mirrors the competition with other East African countries, particularly Kenya, which is also borrowing heavily for development. Both nations are positioning themselves as economic hubs in the region, but the race for infrastructure and economic development could lead to further borrowing.

Conclusion

Tanzania’s external debt reflects its ambitious development plans, but the significant increase in borrowing raises concerns about debt sustainability. As one of the largest economies in East Africa, Tanzania is making important strides in infrastructure and industrialization but must balance borrowing with the productive use of funds to ensure long-term fiscal stability. Compared to other African nations, Tanzania’s debt is significant but still more manageable than the continent’s largest economies like South Africa and Egypt. However, careful debt management will be crucial as the country continues its development journey.

To promote sustainable economic growth, Tanzania is increasingly leveraging Public-Private Partnerships (PPPs) to improve financial efficiency and boost investment in key sectors. Over the 2021/22 to 2024/25 fiscal years, Tanzania allocated a total of 54.575 trillion TZS to its development budget, with 33.794 trillion TZS sourced domestically. By implementing PPPs under an 80-20 cost-sharing model, the government aims to reduce its financial burden, enhance service delivery, create jobs, and increase revenue through private sector collaboration. This article explores the impact and strategic approach of PPPs in Tanzania’s economic development.

1. Development Budget Allocation and Funding Trends

Across four fiscal years, Tanzania’s development budget reveals a structured approach to funding large-scale infrastructure, energy, social services, and economic development projects. The allocation data highlights the prioritization of domestic financing over external funds, underscoring a commitment to fiscal responsibility and self-reliance.

This budget structure, with over 60% sourced domestically, signals Tanzania’s shift towards utilizing internal revenue for growth, allowing foreign financing to focus on specific, large-scale projects.

2. Key Recurring Projects and Economic Impact

Tanzania’s development agenda targets large-scale projects in infrastructure, energy, social services, and economic development to achieve comprehensive growth.

• Infrastructure Projects: Major projects, such as the Standard Gauge Railway (SGR) and the Kigongo-Busisi Bridge, will enhance connectivity within East Africa and reduce trade costs. With a total expected investment of 5 trillion TZS in infrastructure, these projects will elevate Tanzania as a regional logistics hub.
• Energy Projects: The Julius Nyerere Hydropower Project (2,115 MW) and rural electrification initiatives will improve energy security and support industrial growth, contributing over 1 trillion TZS annually to the economy.
• Social Services: Education and healthcare investments, including infrastructure expansion and student loans, aim to improve Tanzanian human capital, essential for economic resilience.
• Economic Development: Investments in agriculture, industrial development, and Special Economic Zones (SEZs) are expected to create jobs and attract foreign investment, boosting economic diversification.

3. Financing Strategies for Development

To finance these ambitious projects, Tanzania adopts a diversified approach, with the following methods:

• Domestic Revenue: Emphasis on internal revenue collection to fund projects, which minimizes reliance on external debt.
• Concessional Loans and Grants: Collaborations with international donors and development banks support specific projects.
• Public-Private Partnerships (PPPs): By mobilizing private sector investment in critical sectors, PPPs significantly reduce the government’s financial burden and improve efficiency.

4. Economic Benefits of Public-Private Partnerships (PPPs)

PPPs offer a unique model for maximizing resource utilization while minimizing financial risks to the government. The 80-20 cost-sharing model illustrates substantial economic benefits:

a) Cost Savings

Through PPPs, project costs are shared, reducing government expenditure. For instance:

• On a 500 billion TZS infrastructure project, the government only contributes 100 billion TZS, with the private sector covering 400 billion TZS.
• This model also introduces efficiencies that can lower project costs by 20%, saving an additional 20 billion TZS.

b) Increased Investment and Economic Output

By leveraging PPPs, Tanzania’s 54.575 trillion TZS development budget could attract an estimated 43.66 trillion TZS from the private sector, enabling increased investments in other critical areas.

c) Risk Mitigation

With an 80% private sector contribution, the government’s risk exposure is substantially reduced. For example, in a 200 billion TZS project, a cost overrun of 30 billion TZS would mean the government only covers 6 billion TZS, transferring the remaining 24 billion TZS risk to private investors.

d) Enhanced Revenue Sharing

Infrastructure projects like the Julius Nyerere Hydropower Project can enhance revenue through efficient PPP implementation. With a 2,115 MW capacity, an estimated revenue of 10 million TZS per MW annually could see a 15% efficiency increase under PPPs, yielding an additional 31.725 billion TZS in revenue.

e) Job Creation and Economic Stimulation

PPPs can create approximately 10,000 jobs, injecting 10 billion TZS into the economy annually. This job creation benefits local economies and provides citizens with employment opportunities, improving livelihoods and increasing domestic consumption.

f) Long-term Economic Growth

By facilitating infrastructure development, PPPs can increase trade efficiency by 5%, which translates to a 1 trillion TZS boost in annual economic output. This growth benefits both the government and private sector through improved services and a broader tax base.

5. Strategic Advantages of PPPs for Tanzania’s Development Goals

• Reduced Capital Outlay: The government’s 20% contribution allows for optimal allocation of public funds, supporting other essential services.
• Enhanced Service Delivery: PPPs bring private sector expertise, accelerating project timelines and improving quality.
• Long-term Sustainability: By integrating private sector investment, Tanzania ensures the longevity and adaptability of its infrastructure and energy assets.
• Competitive Regional Positioning: Improved infrastructure and energy resources strengthen Tanzania’s position as a leading trade and logistics hub in East Africa.

The strategic implementation of Public-Private Partnerships in Tanzania is driving sustainable economic growth, enhancing service delivery, and creating employment opportunities. By balancing risk, leveraging private investment, and focusing on key sectors, Tanzania is building a resilient economy that benefits both the public and private sectors. Through continued collaboration, PPPs will play a crucial role in realizing Tanzania’s long-term development goals.

Rising Lending Rates, Strengthened Reserves, and Targeted Credit Growth

The East African Community (EAC) is experiencing notable shifts in monetary and financial trends, with lending rates rising across several member states, a robust 8.9% growth in money supply, and increased credit allocation to key sectors such as agriculture and manufacturing. These trends reflect the region’s efforts to balance inflation control, liquidity expansion, and economic development.

1. Treasury Bill Rates:
   • Tanzania saw a decline in its 91-day Treasury bill rate from 9.1% in Q4 2023 to 8.2% in Q1 2024, while Kenya's rate rose from 15.7% to 16.7% in the same period.
   • Rwanda's rate slightly declined by 1%, while Burundi experienced an increase from 5.6% to 6.2%​.
2. Lending Rates:
   • In Q1 2024, lending rates across the EAC were high, with Uganda and Rwanda recording rates of 17.3% and 16.6%, respectively, while Kenya saw the highest increase, up 11.3% from the previous quarter​.
3. Deposit Rates:
   • Kenya's deposit rates increased from 10.1% to 10.5%, while South Sudan and Uganda saw decreases by 6% and 5%, respectively​.
4. Broad Money Supply (M3):
   • Broad money (M3) grew by 8.9% year-over-year, reaching USD 78 billion in Q1 2024. This growth was largely supported by a 17.2% increase in foreign currency deposits, highlighting stronger dollar reserves across the region​.
5. Credit to the Private Sector:
   • Credit to the private sector in the EAC region grew by 8.8% from the previous quarter, with substantial allocations to sectors like agriculture, manufacturing, and construction, which saw increases of 28% and 8%, respectively​.

The monetary and financial statistics for the EAC with key insights into the region's economic and financial health:

1. Rising Lending Rates and Borrowing Costs:
   • The increase in lending rates across several EAC countries, particularly in Kenya, Rwanda, and Uganda, reflects tightening monetary conditions. This trend may be aimed at controlling inflation, but it also indicates higher borrowing costs for businesses and consumers, which could impact investment and spending.
2. Broad Money Supply and Reserve Strengthening:
   • The significant growth in broad money supply (M3) by 8.9% signals an increase in overall liquidity within the EAC economies. A notable rise in foreign currency deposits reflects strengthening reserves, likely contributing to greater currency stability and resilience against external financial shocks.
3. Selective Growth in Deposit Rates:
   • The varying changes in deposit rates, with some countries like Kenya experiencing increases while others see decreases, suggest divergent monetary policy strategies within the EAC. Countries facing higher inflation or currency pressures may be offering better rates to attract savings, while others may prioritize economic activity over savings.
4. Credit Growth to Productive Sectors:
   • The notable increase in credit to sectors like agriculture, manufacturing, and construction underscores the EAC’s focus on supporting essential economic sectors. This shift not only helps stimulate economic growth but also aligns with development goals aimed at boosting productivity, food security, and infrastructure.

The mobile money sector in Tanzania has experienced strong and continuous growth, with total transactions rising by 9% from 285.5 million in June 2024 to 310.9 million in September 2024. Major providers, including M-Pesa, Tigo Pesa, and Airtel Money, each recorded over 80 million transactions in September. Smaller players like Azam Pesa also saw significant growth, with transactions increasing from 1.8 million to 5.05 million. This growth reflects the increasing reliance on mobile money for day-to-day transactions and highlights the critical role of mobile financial services in enhancing financial inclusion across the country.

1. Number of Mobile Money Transactions:

• The total number of mobile money transactions grew significantly, with 310.9 million transactions recorded in September 2024, compared to 285.5 million in June 2024. This represents a 9% increase in the number of transactions over the three-month period.
• Breakdown of monthly transactions during the quarter:
  • July 2024: 282.9 million transactions
  • August 2024: 310.9 million transactions​.

2. Transaction Breakdown by Mobile Money Providers (September 2024):

• M-Pesa: 89.68 million transactions (up from 86.97 million in June 2024).
• Tigo Pesa: 87.92 million transactions (up from 86.97 million in June 2024).
• Airtel Money: 92.67 million transactions (up from 89.25 million in June 2024).
• Halo Pesa: 35.04 million transactions (up from 33.19 million in June 2024).
• Azam Pesa: 5.05 million transactions (up from 1.80 million in June 2024).
• T-Pesa: 0.50 million transactions​.

3. Historical Growth of Mobile Money Transactions:

• Over the past five years, mobile money transactions have increased from 3.02 billion in 2019 to 5.27 billion by 2023, showing a 19% annual growth rate.
• Despite the growth in total transactions, the average number of transactions per user has slightly decreased from 117 transactions per user in 2019 to 100 transactions per user in 2023​.

Summary:

• Mobile money transactions grew by 9% in the quarter ending September 2024, with a total of 310.9 million transactions in September alone.
• M-Pesa, Tigo Pesa, and Airtel Money remain the largest players in the market, with each recording over 80 million transactions in September 2024.
• Over the years, the volume of mobile money transactions has expanded significantly, showing the increasing reliance on mobile money services for financial transactions in Tanzania.

Numbers on mobile money transactions with key insights into the growth and usage of mobile financial services in Tanzania

The strong and continuous growth in the mobile money sector, with more people relying on mobile money for financial transactions. M-Pesa, Tigo Pesa, and Airtel Money dominate the space, but smaller players are also showing growth. The increasing number of transactions highlights the role of mobile money in enhancing financial inclusion and providing a convenient alternative to traditional banking. It shows that mobile money is a critical tool for economic empowerment and everyday financial management in Tanzania.

1. Steady Growth in Transaction Volumes:

• The 9% increase in mobile money transactions, rising from 285.5 million to 310.9 million in just three months, indicates that more people and businesses are increasingly using mobile money services for their financial activities. This growth reflects the importance of mobile money in day-to-day transactions, such as payments, transfers, and purchases.

2. Dominance of Major Players:

• M-Pesa, Tigo Pesa, and Airtel Money dominate the market, each recording over 80 million transactions in September 2024. Their combined market presence shows that Tanzanians trust these platforms for their financial needs, indicating strong brand recognition, reliability, and widespread service availability.
• The significant increase in transactions for smaller players like Azam Pesa (from 1.8 million to 5.05 million) shows that there is room for growth among newer or smaller mobile money providers, though the big three dominate most of the market.

3. Growing Financial Inclusion:

• The rise in transaction numbers suggests that more people are being included in the formal financial system through mobile money. This is particularly important in Tanzania, where access to traditional banking services can be limited, especially in rural areas. Mobile money bridges that gap, providing financial services to underserved populations.

4. Shift in Financial Behavior:

• The sustained growth in transaction volumes highlights a shift in financial behavior in Tanzania, where mobile money has become a primary method of transferring funds and conducting transactions. The convenience, accessibility, and speed of mobile money are contributing to its increasing popularity.

5. Historical Growth Indicates Long-Term Trend:

• The historical growth in mobile money transactions, from 3.02 billion in 2019 to 5.27 billion in 2023, shows that mobile money is not a temporary trend but a long-term shift in how financial transactions are conducted in Tanzania. This steady annual growth of 19% points to mobile money becoming increasingly central to the Tanzanian economy.

Source: Takwimu za Mawasiliano Robo ya mwaka inayoishia Septemba 2024

In Tanzania, mobile money services have experienced significant growth, with the number of mobile money accounts rising by 9% from 55.7 million in June 2024 to 60.8 million in September 2024. This translates to an average monthly increase of 2.3%. The volume of mobile money transactions also saw a 9% rise, from 285.5 million in June 2024 to 310.9 million in September 2024. Dominated by M-Pesa, Tigo Pesa, and Airtel Money, these three providers account for nearly 90% of the market share. This growth highlights the increasing reliance on mobile platforms for financial transactions and the strong competition driving innovations in Tanzania’s digital financial landscape.

1. Number of Mobile Money Accounts:

• The total number of mobile money accounts increased from 55.7 million (June 2024) to 60.8 million (September 2024), marking an impressive growth of 9%.
• This growth translates to a monthly average increase of 2.3% in mobile money accounts during the quarter ending September 2024.

Breakdown by Mobile Money Providers:

• M-Pesa: 22.45 million accounts in September 2024 (an increase from 21.81 million in June 2024).
• Tigo Pesa: 19.49 million accounts in September 2024 (up from 18.51 million in June 2024).
• Airtel Money: 11.43 million accounts in September 2024 (up from 11.32 million in June 2024).
• Halo Pesa: 5.09 million accounts in September 2024 (up from 4.91 million in June 2024).
• Azam Pesa: 0.89 million accounts in September 2024 (up from 0.83 million in June 2024).
• T-Pesa: 1.45 million accounts in September 2024 (up from 1.44 million in June 2024).

This data shows that M-Pesa, Tigo Pesa, and Airtel Money dominate the mobile money market, together accounting for 89% of the total mobile money accounts in the country​.

2. Idadi ya Miamala ya Pesa Mtandao (Number of Mobile Money Transactions):

• The total number of mobile money transactions also experienced a rise, with 310.9 million transactions in September 2024 compared to 285.5 million in June 2024, representing a 9% increase.
• Monthly breakdown of transactions during the quarter ending September 2024:
  • July 2024: 282.9 million transactions
  • August 2024: 310.9 million transactions​

Breakdown by Mobile Money Providers:

• M-Pesa: 89.68 million transactions in September 2024 (an increase from 86.97 million in June 2024).
• Tigo Pesa: 87.92 million transactions in September 2024 (up from 86.97 million in June 2024).
• Airtel Money: 92.67 million transactions in September 2024 (up from 89.25 million in June 2024).
• Halo Pesa: 35.04 million transactions in September 2024 (up from 33.19 million in June 2024).
• Azam Pesa: 5.05 million transactions in September 2024 (up from 1.80 million in June 2024).
• T-Pesa: 0.50 million transactions in September 2024​.

3. Historical Growth in Mobile Money Transactions:

• Over the past five years, the mobile money market has shown significant growth in transactions. The number of transactions increased from 3.02 billion in 2019 to 5.27 billion by 2023, representing an annual growth rate of 19%​.
• The average number of transactions per user, however, declined slightly from 117 transactions per user in 2019 to 100 transactions per user in 2023​.

4. Market Share:

• M-Pesa continues to dominate the mobile money market with a 36.9% market share, followed by Tigo Pesa with 32.1%, and Airtel Money with 18.8%​.
• Other providers, like Halo Pesa, Azam Pesa, and T-Pesa, make up the remaining 11%, indicating a highly competitive landscape but with clear leaders​.

Summary:

• Strong Growth: The mobile money market in Tanzania is growing rapidly, with both the number of accounts and transactions rising by 9% between June and September 2024.
• Market Dominance: M-Pesa, Tigo Pesa, and Airtel Money dominate the market, controlling nearly 90% of the market share.
• Historical Growth: Over the last five years, the number of mobile money transactions has almost doubled, reflecting the increasing use of digital financial services across Tanzania.

Mobile money services with insights about the digital financial landscape in Tanzania:

Mobile money has become central to financial inclusion efforts, providing accessible financial services to millions who might otherwise be unbanked. The strong competition among key providers ensures that consumers continue to benefit from innovative, efficient, and increasingly affordable services. Mobile money is driving not just digital finance but also broader economic growth, especially as more people and businesses engage in digital transactions.

1. Rapid Adoption and Growth:

• The growth in the number of mobile money accounts from 55.7 million to 60.8 million (a 9% increase) in just three months shows the widespread adoption of mobile financial services. This indicates that Tanzanians are increasingly turning to mobile platforms for everyday financial activities like transfers, bill payments, and savings.

2. Mobile Money as a Key Financial Service:

• With 310.9 million mobile money transactions in September 2024 alone, mobile money has become an essential part of the financial system in Tanzania. This volume of transactions indicates that mobile money is a primary method for many people to conduct financial transactions, both in urban and rural areas.

3. Dominance of Major Providers:

• M-Pesa, Tigo Pesa, and Airtel Money dominate the market, holding nearly 90% of the total market share. This indicates a high level of competition among these major players, which likely benefits consumers by offering competitive rates, better services, and innovative products. The dominance of these three providers also suggests that they have built a strong trust and user base over time.

4. Growing Inclusivity in Financial Services:

• The increase in mobile money accounts and transactions shows that digital financial services are playing a key role in financial inclusion. Individuals who may not have access to traditional banking services can easily access mobile money services, allowing them to participate in the economy and handle their finances more efficiently.

5. Competition Among Providers:

• M-Pesa remains the largest provider with a 36.9% market share, but Tigo Pesa (32.1%) and Airtel Money (18.8%) are also significant players, meaning no single company monopolizes the market. This competition ensures that providers are likely to continue improving their services, offering better pricing and convenience to users to maintain or increase their market share.

6. Increasing Transaction Volumes:

• The steady increase in the number of transactions, growing from 285.5 million in June 2024 to 310.9 million in September 2024, highlights that users are not only signing up for mobile money services but also actively using them. This rise shows a deeper integration of mobile money into everyday life, from sending money to family and friends to making business payments.

7. Digital Finance as an Economic Driver:

• Mobile money has become a major driver of the Tanzanian economy. The rise in transactions and accounts suggests that businesses, individuals, and government entities are increasingly relying on mobile money to facilitate commerce, pay salaries, and provide financial services in both urban and rural areas.

Source: Takwimu za Mawasiliano Robo ya mwaka inayoishia Septemba 2024