Tanzania Investment and Consultant Group Ltd

| Economic Research Centre

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.

Economic IndicatorCurrent (2023/2024)Projected (2030)Growth Rate
Total Tax Revenue (TZS trillion)27.64408%
FDI Inflows (USD billion)1.52.810%
Compliance Cost (% of revenue)21.5Decrease
Ease of Doing Business Score5970Increase

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.

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:

YearTotal Trade (billion USD)Exports (billion USD)Imports (billion USD)Trade Deficit (billion USD)
202527.9812.2015.913.71
202629.1013.1816.233.05
202730.2614.2316.552.32
202831.4715.3716.891.51
202932.7316.6017.220.62
203034.0417.9317.57-0.36

Key Points of the Forecast:

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.

  1. 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.

  1. Core Inflation:

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

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:

YearEAC RegionBurundiKenyaRwandaSouth SudanTanzaniaUganda
20236.7%26.0%7.7%12.2%22.5%3.8%5.4%
20246.6%23.9%7.6%11.8%20.3%3.8%5.3%
20256.4%22.0%7.5%11.5%18.2%3.8%5.2%
20266.3%20.3%7.5%11.1%16.4%3.7%5.1%
20276.2%18.6%7.4%10.8%14.8%3.7%5.0%
20286.1%17.1%7.3%10.5%13.3%3.7%4.9%
20295.9%15.8%7.2%10.2%12.0%3.7%4.8%
20305.8%14.5%7.2%9.9%10.8%3.7%4.7%

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:

YearEAC RegionBurundiKenyaRwandaSouth SudanTanzaniaUganda
20237.2%26.0%7.7%12.2%2.4%3.8%5.4%
20247.1%23.9%7.6%11.8%2.3%3.8%5.3%
20256.9%22.0%7.5%11.5%2.1%3.8%5.2%
20266.8%20.3%7.5%11.1%2.0%3.7%5.1%
20276.6%18.6%7.4%10.8%1.9%3.7%5.0%
20286.5%17.1%7.3%10.5%1.8%3.7%4.9%
20296.4%15.8%7.2%10.2%1.7%3.7%4.8%
20306.3%14.5%7.2%9.9%1.6%3.7%4.7%

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:

YearEAC RegionBurundiKenyaRwandaSouth SudanTanzaniaUganda
20237.1%19.9%5.9%10.0%9.8%2.0%4.7%
20246.9%18.1%5.8%9.6%9.1%2.0%4.6%
20256.7%16.5%5.7%9.2%8.5%2.0%4.4%
20266.5%15.0%5.6%8.9%7.9%2.0%4.3%
20276.3%13.7%5.4%8.5%7.3%2.0%4.2%
20286.1%12.4%5.3%8.2%6.8%2.0%4.0%
20295.9%11.3%5.2%7.8%6.3%1.9%3.9%
20305.7%10.3%5.1%7.5%5.9%1.9%3.8%

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.
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