Author: Dr. Bravious Felix Kahyoza PhD, FMVA CP3P, Email: braviouskahyoza5@gmail.com)

An Institutional Economics Perspective

Institutional economics examines how institutions—the formal rules (laws, regulations, property rights) and informal norms (customs, traditions, social networks)—shape economic behavior, reduce transaction costs, and influence growth. Pioneered by economists like Douglass North, who described institutions as the "rules of the game" in society, this field explains why some countries prosper while others stagnate. Strong institutions lower uncertainty, encourage investment, and promote efficient resource allocation, while weak ones breed corruption, insecurity, and inefficiency.

In Tanzania, a lower-middle-income economy heavily reliant on agriculture, mining, and tourism, institutions have played a pivotal role in its economic trajectory. From post-independence socialist policies to liberalization reforms and recent resource nationalism, Tanzania offers rich examples of how institutional changes affect growth. This article explores these dynamics, drawing on real-world cases from land tenure, mining, governance, and the informal sector.

Historical Evolution of Institutions in Tanzania

Tanzania's institutional framework has evolved dramatically. After independence in 1961, President Julius Nyerere's Ujamaa (African socialism) policy emphasized collective farming and state control, nationalizing key industries and abolishing freehold land ownership. This created strong informal institutions based on communal values but weakened incentives for individual investment, contributing to economic decline by the 1980s.

In 1986, Tanzania adopted structural adjustment programs with the IMF, shifting toward market-oriented institutions: privatization, trade liberalization, and stronger property rights. Growth averaged 6-7% annually in the 2000s and 2010s. However, persistent challenges like weak enforcement and corruption highlight "institutional hiatus"—gaps between formal rules and practice. Recent studies using autoregressive distributed lag (ARDL) models show that improvements in institutional quality (e.g., rule of law, government effectiveness) significantly boost GDP growth from 1990-2021.

Land Tenure and Agricultural Productivity

Agriculture employs over 65% of Tanzanians and contributes about 30% to GDP, making land institutions critical. Under the 1999 Village Land Act, all land is publicly owned, with villages granting rights of occupancy. This system aims to protect communal customs but often creates insecurity, as titles are hard to obtain and disputes common.

Insecure property rights discourage long-term investments like irrigation or tree planting. Farmers fear eviction or loss of improvements, leading to lower productivity. For instance, in rural areas like Iringa and Mbeya, studies show that untitled land receives 20-30% less investment in soil conservation.

Positive reforms provide counter-examples. The USAID-funded Feed the Future Tanzania Land Tenure Assistance (LTA) project (2015-2023) issued over 100,000 Certificates of Customary Rights of Occupancy (CCROs) in villages. Results were striking: titled farmers invested more in perennial crops, accessed credit easier (using titles as collateral), and saw yields rise by up to 20%. In one village in Pwani Region, women with joint titles increased farm investments, reducing gender disparities rooted in customary laws favoring men. The World Bank's Tanzania Land Tenure Improvement Project further demonstrates how formalizing rights reduces conflicts and boosts economic activity.

These examples illustrate North's idea: secure property rights lower transaction costs and unlock capital, driving growth in Tanzania's largest sector.

Mining Sector Regulations and Resource Nationalism

Mining, contributing 10% to GDP and over 50% of exports (mainly gold), showcases how regulatory institutions affect foreign investment and revenue. Under President John Magufuli (2015-2021), reforms like the 2017 Mining Act amendments mandated 16% state equity in large mines, higher royalties, and local content requirements.

The Mining (Local Content) Regulations (amended in 2025) require 100% Tanzanian ownership in certain services, local banking, and insurance procurement. For example, companies like Barrick Gold renegotiated contracts, paying billions in settlements and committing to local hiring. This increased government revenue but initially deterred FDI due to perceived unpredictability.

Under President Samia Suluhu Hassan (since 2021), institutions have become more investor-friendly while retaining local benefits. The 2022 State Participation Regulations clarified equity rules, and 2025 amendments strengthened oversight. In Geita Region, small-scale miners benefiting from technical support regulations formed cooperatives, improving safety and output. However, challenges persist: artisanal miners often operate informally, evading taxes due to weak enforcement.

These cases highlight "extractive institutions" (per Acemoglu and Robinson): when rules favor elites or are inconsistently applied, they hinder inclusive growth. Better-designed institutions could balance revenue with investment.

Corruption, Governance, and Business Environment

Corruption erodes trust in institutions, raising business costs. Tanzania ranks moderately on the Corruption Perceptions Index, but petty corruption in licensing and customs is rampant. The Prevention and Combating of Corruption Bureau (PCCB) prosecutes cases, yet fear of retaliation deters reporting—over 75% of citizens hesitate to speak out.

Examples abound in public procurement. In the Stiegler's Gorge dam project (now Julius Nyerere Hydropower), allegations of inflated contracts delayed progress and raised costs. In contrast, improved governance in ports (e.g., Dar es Salaam) via digital clearance reduced bribery, cutting cargo dwell time by days and boosting trade.

Informal institutions like economy of affection (family/clan networks) sometimes enable corruption but also provide social safety nets. In urban areas, machinga (street vendors) rely on informal norms to navigate harassment, contributing to the informal economy (over 40% of GDP).

The Informal Economy and Customary Norms

Tanzania's informal sector employs most workers, especially women in cross-border trade. Informal institutions—tribal customs, trust-based lending (vikoba savings groups)—fill gaps left by formal ones. In markets like Kariakoo, vendors use social sanctions to enforce contracts without courts.

However, this duality limits scaling: informal businesses rarely access formal credit or markets. During COVID-19, informal traders suffered without social protection, highlighting weak bridging institutions.

Pathways Forward

Tanzania's experiences affirm institutional economics: quality institutions drive growth. Land titling boosts agriculture, mining reforms capture resource rents (with risks), and anti-corruption efforts build trust. Challenges like enforcement gaps and informal-formal tensions persist.

Prioritizing reforms—digital governance, inclusive land policies, transparent mining contracts—could accelerate progress. As studies show, even marginal institutional improvements yield substantial economic dividends. Tanzania's story is one of potential: strong institutions can transform its abundant resources into shared prosperity.

Budget, Government Burden, and PPP Potential

Tanzania’s government, under President Samia Suluhu Hassan, has implemented an ambitious array of public investment projects from 2020 to 2025, spanning agriculture, transport, energy, water, health, education, and other sectors. These projects, detailed in a comprehensive table below, aim to drive inclusive economic growth, enhance infrastructure, and improve social services, aligning with Tanzania’s Development Vision 2025 and the Third Five-Year Development Plan (FYDP III). This cases study evaluates the economic potential of these projects, calculates their total budget, assesses their fiscal burden on the government, and explores how Public-Private Partnerships (PPPs) could mitigate this burden while enhancing outcomes.

Total Budget of Public Investment Projects

Tanzania’s 2020–2025 public investment projects, spanning 25 initiatives across agriculture, transport, energy, water, health, education, social protection, mining, and ICT, have a total budget of TZS 27,737B–29,309B (USD 10.67B–11.27B). Key allocations include agriculture (TZS 900B–1,230B, e.g., TZS 600B–800B for irrigation), transport (TZS 9,730B–10,190B, e.g., TZS 7,500B for SGR), energy (TZS 8,400B–8,500B, e.g., TZS 7,600B for JNHPP), water (TZS 2,320B), health (TZS 300B–450B), education (TZS 1,107.4B–1,217.4B), social protection (TZS 3,640B), mining (TZS 50B–80B), and ICT (TZS 220B–330B). These projects drive economic growth (6% GDP in 2025), create jobs (e.g., 41,117 from new investments), and enhance exports (USD 16.7B in 2025), but strain the TZS 56.49T 2025/26 budget, consuming 9.8–10.4% annually. Public-Private Partnerships could save TZS 6,934B–7,327B, reduce the fiscal deficit from 3% to 2–2.1% of GDP, and boost growth by 0.5–1% through private sector efficiency and investment.

Economic Potential of the Projects

The economic potential of these projects is substantial, addressing critical needs across sectors and fostering inclusive growth. Below are key highlights:

• Agriculture (TZS 900B–1,230B): Projects like irrigation expansion (983,466.06 ha) and improved seed availability (72,031.9 tons in 2024) boost agricultural productivity, supporting food security and increasing farmer incomes by an estimated 20–30%. Multiplier effects include growth in agro-processing, transport, and rural markets, contributing to 26% of GDP in 2024.
• Transport (TZS 9,730B–10,190B): The SGR (TZS 7,500B) and BRT (TZS 1,200B) reduce transport costs by up to 30%, enhance trade efficiency, and create jobs (e.g., 9,376 jobs from SGR). Port improvements (35% increase in container handling) and Air Tanzania expansion boost exports (e.g., cashew nuts up 141% in 2025), stimulating logistics and tourism.
• Energy (TZS 8,400B–8,500B): The JNHPP (2,115 MW, TZS 7,600B) increases electricity capacity from 1,601.84 MW in 2020 to 4,031.71 MW in 2025, reducing energy costs for industries by 15–20% and supporting manufacturing growth (8.1% of GDP in 2023). Rural electrification enhances productivity and quality of life.
• Water (TZS 2,320B): Water supply projects benefit 5,985,500 people, improving urban (91.6%) and rural (85%) access, reducing healthcare costs by 10–15% due to better sanitation, and boosting productivity.
• Health (TZS 300B–450B): Advanced diagnostic equipment and increased medicine availability (86.2% in 2025) improve health outcomes, potentially reducing mortality by 5–10% and supporting medical tourism.
• Education (TZS 1,107.4B–1,217.4B): Free education and scholarships increase enrollment (436,332 students with loans in 2025), building human capital and supporting long-term GDP growth (projected 6% in 2025).
• Social Protection, Mining, and ICT (TZS 3,910B–4,050B): TASAF empowers vulnerable groups, mining boosts GDP contribution to 10%, and ICT expansion (13,820 km fiber network) supports digital economy growth (14.3% in 2024).

Overall, these projects drive GDP growth (5.5% in 2024, projected 6% in 2025), create jobs (e.g., 41,117 from new investments in 2025), and enhance export revenues (USD 16.7B in 2025). Multiplier effects stimulate related industries, reduce poverty, and improve living standards.

Fiscal Burden on the Government

Tanzania’s 2025/26 national budget is TZS 56.49T, with domestic revenue projected at TZS 31.38T (70.7%) and a fiscal deficit of 3% of GDP (TZS 4.7T). The total project budget (TZS 27,737B–29,309B) spans five years (2020–2025), equating to an annual average of TZS 5,547B–5,862B, or 9.8–10.4% of the 2025/26 budget. This is significant, given that development expenditure in 2025/26 is TZS 757.79B for the Ministry of Finance alone, with total development spending likely around TZS 15T–20T annually.

• Debt Servicing: Tanzania’s external debt is USD 7.9B (TZS 20.54T), with 40% of government

System: government expenditures absorbed by debt servicing (TZS 8.2T annually). This places a heavy burden on the government, as development projects compete with recurrent expenditures (TZS 19.43T in 2025/26) and debt servicing.

• Budget Credibility Issues: The 2017 and 2022 PEFA assessments highlight weak budget credibility, cash management, and commitment control, leading to unpredictable funding for development projects. This suggests potential delays or underfunding for some projects, particularly large-scale ones like SGR and JNHPP, which rely heavily on external borrowing.
• Donor Dependency: Tanzania remains donor-dependent, with external funding (e.g., USD 650M from the World Bank for water projects) covering gaps in domestic revenue. However, donor funding is declining, increasing pressure on domestic resources.

The fiscal burden is substantial, as the government must balance these investments with recurrent costs, debt repayment, and social services, potentially straining fiscal discipline and increasing the deficit if revenues (TZS 26.73T from TRA in 2025/26) fall short.

Impact of Public-Private Partnerships (PPPs)

Implementing these projects through PPPs could significantly alleviate the fiscal burden and enhance efficiency, as outlined in the Public Private Partnership (Amendment) Act No. 4 of 2023 and its regulations. Below, we analyze the potential impacts of PPPs, supported by figures:

Benefits of PPPs

1. Reduced Fiscal Burden:
   • PPPs shift a portion of the financial burden to private investors, reducing government expenditure. For example, the SGR (TZS 7,500B) could have private partners fund 30–50% (TZS 2,250B–3,750B), significantly lowering the government’s debt-financed share.
   • The JNHPP (TZS 7,600B) could leverage private investment for operations and maintenance, saving an estimated TZS 1,000B–2,000B in government costs over time.
   • The World Bank notes that PPPs in water supply (e.g., USD 650M SRWSSP) have improved service delivery through private management, reducing government operational costs by 20–30%.
2. Enhanced Efficiency and Innovation:
   • Private sector expertise can accelerate project delivery and improve quality. For instance, port improvements (TZS 500B–700B) under PPPs could reduce ship waiting times further (from 7 days to 5 days), increasing revenue by 10–15% through higher container throughput.
   • ICT projects (TZS 220B–330B) could benefit from private tech firms’ innovation, potentially doubling internet penetration (from 46% to 80%) and boosting digital economy growth by 5–10%.
3. Attracting Foreign Investment:
   • The PPP Amendment Act offers tax incentives and streamlined processes, attracting foreign direct investment (FDI). In 2025, TIC recorded USD 3.7B in project registrations, a 32% increase from 2024, partly due to PPP reforms. For example, Air Tanzania’s expansion (TZS 200B–300B) could attract private airlines or logistics firms, reducing government funding by 20–40%.
   • Mining projects (TZS 50B–80B) could see increased FDI through PPPs, boosting mineral revenue (10% of GDP in 2024) by an additional 2–3%.
4. Improved Governance:
   • PPP regulations mandate quarterly implementation reports, enhancing transparency and reducing corruption risks, which historically inflate project costs by 10–20%.

Challenges of PPPs

1. Regulatory and Transparency Issues:
   • Despite reforms, Tanzania scores low (1.25/5) on regulatory governance, compared to Kenya and Uganda (3.25/5). Inconsistent tax regimes and bureaucratic delays could deter private investors.
   • The Natural Resources and Wealth Act and Mining Laws pose obstacles to foreign investment, potentially limiting PPP participation in mining and energy projects.
2. Limited Success in Past PPPs:
   • Historically, successful PPPs have been rare due to complex regulations and high financial risks for investors. For example, state-owned enterprises (SOEs) like TANESCO benefit from sovereign credit guarantees, crowding out private competition.
3. Risk of Indirect Expropriation:
   • Confiscatory tax regimes or regulatory actions could reduce investor confidence, potentially increasing project costs by 5–10% to account for risk premiums.

Hypothetical PPP Scenario

If 50% of the total project budget (TZS 13,868B–14,654B) were financed through PPPs:

• Government Savings: The government could save TZS 6,934B–7,327B over five years, or TZS 1,387B–1,465B annually, reducing the fiscal deficit by 30–35% (from 3% to 2–2.1% of GDP).
• Economic Impact: Private investment could accelerate GDP growth by 0.5–1%, reaching 6.5–7% by 2026, driven by faster project completion and higher efficiency.
• Job Creation: PPPs could create an additional 20,000–30,000 jobs (e.g., in SGR and port projects), as private firms often prioritize efficiency and scale.
• Risk Mitigation: Enhanced dispute resolution mechanisms (e.g., ICSID arbitration) and tax incentives could increase investor confidence, potentially doubling FDI in infrastructure (from USD 3.7B to USD 7B by 2026).

Comparison: Government-Funded vs. PPP

• Government-Funded:
  • Full cost (TZS 27,737B–29,309B) borne by the government, increasing debt (USD 7.9B in 2025) and debt servicing costs (TZS 8.2T annually).
  • Risk of budget overruns and delays due to weak cash management (PEFA 2022).
  • Limited private sector innovation, potentially reducing efficiency by 10–20%.
• PPP:
  • Shared costs reduce government expenditure by 30–50%, freeing funds for social services (e.g., TZS 787.4B for education).
  • Faster project delivery (e.g., BRT completion could be 20% faster) and higher quality due to private expertise.
  • Potential for higher GDP growth (0.5–1%) and job creation (20–30% more than government-led projects).
  • Risks include regulatory hurdles and investor reluctance due to past PPP failures.

Government Budget Impact

The TZS 27,737B–29,309B project cost over five years represents 49–52% of the 2025/26 national budget (TZS 56.49T). This heavy reliance on government funding strains fiscal resources:

• Recurrent vs. Development Spending: Recurrent expenditure (TZS 19.43T) and debt servicing (TZS 8.2T) consume 48% of the 2025/26 budget, leaving limited room for development spending (TZS 15T–20T).
• Fiscal Deficit: The 3% GDP deficit (TZS 4.7T) could widen if project costs escalate or revenues (TZS 31.38T) underperform, potentially requiring more borrowing.
• Donor Funding: External loans and grants (e.g., USD 227M for climate projects) are critical but declining, increasing pressure on domestic revenue (16.7% of GDP in 2025/26).

PPPs could reduce this burden by shifting 30–50% of costs to private investors, saving TZS 6,934B–7,327B and narrowing the deficit to 2–2.1% of GDP, aligning with fiscal discipline goals. However, regulatory reforms must address transparency and investor confidence to ensure PPP success.

Conclusion

Tanzania’s 2020–2025 public investment projects, with a total budget of TZS 27,737B–29,309B, have significant economic potential, driving GDP growth to 6% in 2025, creating over 41,000 jobs, and boosting exports by 16.8%. Agriculture, transport, energy, and water projects enhance productivity, connectivity, and living standards, with multiplier effects in related industries. However, the fiscal burden is substantial, consuming 9.8–10.4% of the annual budget and risking a wider deficit. PPPs could save TZS 6,934B–7,327B, accelerate growth by 0.5–1%, and create additional jobs, but require stronger regulatory frameworks to overcome historical challenges. By balancing government funding with PPPs, Tanzania can achieve sustainable growth while maintaining fiscal stability, paving the way for Vision 2025’s middle-income status.

Public Investment Projects in Tanzania (2020–2025)

Below is a table summarizing public investment projects implemented across various sectors. The table includes project descriptions, budgets, locations, economic potential, and multiplier effects for citizens.

Notes

• Budget Sources: Budgets were sourced from web references where possible (e.g., TanzaniaInvest, World Bank, KPMG). Where exact figures were unavailable, estimates were derived from sector budgets (e.g., TZS 1.24T for agriculture in 2025) or costs of similar projects, with percentages allocated based on project priority (e.g., irrigation as 50–60% of agriculture budget).
• Assumptions: Estimates assume proportional allocation from sector budgets (e.g., agriculture: TZS 1.24T; transport: TZS 2.75T; energy: TZS 2.2T for 2025/26). Costs for infrastructure projects (e.g., SGR, BRT) align with reported figures or regional benchmarks.
• Limitations: Some budgets remain estimates due to lack of project-specific data in public sources. Truncated document sections limited precise allocations for certain projects (e.g., sugar production, diagnostic equipment).
• Economic Potential: Focuses on direct benefits like job creation, income generation, and improved access to services, tailored to each project’s objectives.
• Multiplier Effects: Highlights indirect benefits such as stimulating related industries (e.g., agro-processing for agriculture, logistics for transport), boosting local economies, and enhancing productivity or quality of life.