Executive Summary
Key Finding: The Growth-Formalization Paradox
Despite strong economic growth and significant infrastructure achievements in 2025, Tanzania faces a critical challenge:
- GDP growth reached 5.9% in 2025, projected to rise to 6.1% in 2026
- Yet 71.8% of workers (25.95 million people) remain in informal employment
- This represents a dramatic increase from just 29% in 2020/21
- The informal sector contributes 44.9% of GDP (TZS 190 trillion at PPP)
Over the past decade, Tanzania has recorded relatively strong and resilient economic growth, positioning itself as one of East Africa's steadily expanding economies. In 2025, real GDP growth reached 5.9%, up from 5.5% in 2024, and is projected to rise further to 6.1% in 2026, largely driven by increased public investment in infrastructure, particularly in energy, transport, and digital connectivity.
Major projects such as the Standard Gauge Railway (SGR) expansions, the Kigongo–Busisi Bridge, the Dodoma Integrated Transport Project (USD 200 million, creating over 10,000 jobs), and rapid expansion of electricity and internet access demonstrate a clear commitment by the Government to use infrastructure as a catalyst for economic transformation.
The Critical Paradox
However, despite this solid growth performance and visible infrastructure progress, Tanzania continues to face a critical paradox: economic growth has not translated into sufficient formal job creation.
This paradox is most evident in the structure of Tanzania's labour market. As of 2025, the informal sector employs 71.8% of the total workforce, equivalent to approximately 25.95 million people, a dramatic increase from 29% in 2020/21. At the same time, the informal sector contributes about 44.9% of GDP, estimated at TZS 190 trillion (PPP), indicating that a large share of economic activity remains outside formal regulatory, tax, and social protection systems.
The Fundamental Question
This persistence—and expansion—of informality has occurred even as GDP growth has remained positive and infrastructure investment has accelerated. The data therefore raises a fundamental question: is Tanzania's infrastructure gap the missing link preventing economic growth from generating productive, formal employment at scale?
Infrastructure Progress and Persistent Gaps
While access to infrastructure has improved markedly, significant quality, coverage, and inclusion gaps remain:
Electricity: Historic Achievement with Quality Challenges
Electricity access rose sharply from 48.3% in 2023 to 78.4% in 2025, surpassing the Vision 2025 target of 75% and extending power to more than 54 million Tanzanians. Yet around 15 million people—mostly in rural areas and informal settlements—remain without electricity.
The Consumption Gap
Per capita electricity consumption stands at only 170 kWh, far below the 600–3,000 kWh range envisioned under Vision 2050. This limits:
- Mechanisation of small businesses
- Value addition in manufacturing
- Transition of micro-enterprises into formal SMEs
- Extended operating hours for informal businesses
Transport: Major Projects Amid Connectivity Challenges
Although Tanzania has completed major strategic projects and expanded its road and rail networks, only 8.2% of the total road network is paved, with rural and local roads particularly underserved. Trade costs remain approximately five times the global average, and poor rural connectivity continues to restrict market access for agricultural producers and informal traders, who make up the bulk of the labour force.
Economic Impact: These bottlenecks contribute to export losses exceeding 10% of potential sales and reduce incentives for firms to expand, formalise, and hire workers under formal contracts.
Water and Sanitation: Critical Service Gaps
Deficits in water and sanitation weaken the employment–growth link. In 2025, only 57% of the population had access to basic water services, while just 25% had access to safely managed sanitation—missing the national 2025 target of 45% by a wide margin.
USD 1.4 Billion Annual Economic Loss
These gaps impose an estimated USD 1.4 billion annual economic loss (about 1.9% of GDP) through:
- Lost productivity
- Ill health and medical costs
- Time burdens, particularly for women (1.1 billion hours annually)
Without reliable water and sanitation, many informal and home-based businesses cannot meet health and quality standards required for formalisation.
Digital Infrastructure: Transformative Progress
Tanzania's rapid progress in digital infrastructure—with internet penetration rising to 82.6% (56.3 million users) by September 2025—highlights the transformative potential of infrastructure when barriers are addressed. This represents a dramatic increase from 31.9-54% in early 2024, connecting 34.5 million additional Tanzanians.
Yet even here, about 12 million people (17.4%) remain offline, and high device costs (20-28% import duties) and digital skills gaps prevent many informal workers from participating fully in the digital economy.
1. Tanzania's Economic Context (2024-2025)
1.1 Current Economic Performance
| Economic Indicator | 2024 Data | 2025 Data | 2026 Projection |
|---|---|---|---|
| GDP Growth Rate | 5.5% | 5.9% | 6.1% |
| GDP (Current USD) | USD 85.42 billion | ~USD 90 billion | - |
| GDP Per Capita | USD 1,277 (2023) | - | |
| Population | 68.42 million | ~69-70 million | - |
| Poverty Rate | 49% (International Poverty Line) | ||
| Informal Sector (% of GDP) | 44.9% - 46% | 44.9% (TZS ~190T at PPP) | - |
| Informal Employment | 76% (2023) | 71.8% (~25.95M workers) | - |
| Tax Revenue (% of GDP) | 13.1% | ||
| Private Sector Credit | - | TZS 43.42 trillion | - |
| Private Investment (FDI % of GDP) | 1.3% (2021) | Rising to 21%+ of GDP | - |
Key Insight
The dramatic rise in informal employment from 29% (2020/21) to 71.8% (2025) reflects persistent infrastructure gaps that force workers into low-productivity informal activities.
1.2 Sectoral Contribution to GDP (2021-2025)
| Sector | % of GDP | 2025 Performance | Key Sub-sectors |
|---|---|---|---|
| Services | 42% | - | Wholesale/retail trade (9%), Transport (8%) |
| Industry & Construction | 31% | Construction grew 7.1% in 2025 | Construction (16%), Manufacturing (9%), Mining (5-9.8%) |
| Agriculture | 27-28.7% | - | Crops (14%), Livestock (8%) |
| Tourism | 5.7% (2021) | Recovered from pandemic | - |
2. Infrastructure Gap Analysis
2.1 Energy Infrastructure: Dramatic Progress but Gaps Remain
Remarkable Achievement
Electrification surged from 48.3% (2023) to 78.4% (2025), representing access for approximately 54-55 million Tanzanians, up from 33 million in 2024. This exceeded the Vision 2025 target of 75% — a historic accomplishment!
Electricity Access Statistics (2020-2025)
| Year | National Access Rate | Urban Access | Rural Access | Gap (Million People) |
|---|---|---|---|---|
| 2020 | 39.9% | - | - | ~41 million |
| 2021 | 42.7% | - | - | ~39 million |
| 2022 | 45.8% | 89% | 45% | ~37 million |
| 2023 | 48.3% | - | - | ~35 million |
| 2024 | ~50-52% | ~99.6% | ~69.6% | ~33 million |
| 2025 | 78.4% ✓ | Near universal | Rural still lags | ~15 million |
Energy Generation and Demand (Updated)
| Metric | Previous Target/Status | 2025 Status |
|---|---|---|
| Installed Capacity Target | 5,000 MW (2025) | On track toward 10 GW target |
| Maximum Demand | 1,482.80 MW (Aug 2023) | Rising with increased access |
| Annual Demand Growth | 10-15% | Sustained growth |
| Per Capita Consumption (Current) | 170 kWh | Increasing with 78.4% access |
| Vision 2050 Target | 600-3,000 kWh (Gap: 3.5-17.6x increase needed) | |
Persistent Challenges
- Rural access still lags significantly behind urban areas
- Frequent power outages in informal settlements
- High climate vulnerability (36% of asset losses in energy sector)
- Informal businesses still rely on expensive generators
- Low per capita consumption limits industrial growth
Investment Needs
Energy Sector Investment Requirements
- Tanzania's proportional share of Africa's USD 155 billion annual infrastructure need
- Estimated USD 2.4 billion annually for energy sector
- Focus on solar energy (17% of investment allocation)
- Rural electrification boosts employment by approximately 1.8 percentage points