Why Tanzania's Economic Growth Has Not Been Sufficiently Inclusive
A Comprehensive Analysis of GDP Growth, Inflation Disparities, and Structural Challenges in Tanzania's Economy
Introduction
Tanzania's economic growth is real but excludes most citizens. While GDP expands at 5.5% annually, this prosperity fails to reach ordinary Tanzanians due to fundamental structural disconnects. The 65% of workers in agriculture experience only 3% sector growth, while capital-intensive sectors like mining and electricity—employing less than 2% of the workforce—grow at 16-19%. This analysis reveals nine critical factors explaining why economic expansion has not translated into inclusive development.
🔗 Background Reading: This report builds on our foundational analysis "Is Tanzania's Economy Growing?" which establishes that Tanzania's economy is indeed expanding. Here, we examine the critical question: Who benefits from this growth?
The Inflation Paradox: Hidden Burden on the Poor
Tanzania's official inflation figures suggest a relatively stable price environment, with headline inflation averaging around 3.2-3.4% in 2025. This aggregate number is often presented as a macroeconomic success. However, this masks a harsher reality faced by low-income households.
💡 Note: While our previous analysis "Is Tanzania's Economy Growing?" confirms robust GDP expansion, this report examines why that growth hasn't translated into improved living standards for most Tanzanians.
This means prices of essential staples such as maize, rice, cassava, and cooking oil rose at nearly twice the national inflation rate. As a result, the poor effectively experience an inflation rate of about 5.5-6.5%, far above the official figure reported by national statistics.
| Income Group | Effective Inflation Rate | Food Expenditure Share | Explanation |
|---|---|---|---|
| Bottom 50% (Poor) | 5.5-6.5% | 60-80% | Heavy food expenditure weight means food price increases disproportionately affect the poor |
| Middle 30% | 4.0-4.5% | 40-50% | Mixed food and other spending provides some buffer |
| Top 20% (Wealthy) | 3.0-3.5% | 20-30% | Low food share, asset appreciation shields from food inflation |
Stagnant Real Incomes Compound the Problem
This disparity is compounded by stagnant real incomes. Between 2020 and 2025, Tanzania's GDP expanded by about 37.5% in nominal terms, and GDP per capita increased by roughly 24%. Yet average wages tell a different story: urban mean wages rose by only 5.3%, and rural mean wages by 4.9% over the same period—changes that are effectively zero in real terms after adjusting for inflation.
| Indicator | 2020 | 2025 | Nominal Change | Real Change (After Inflation) |
|---|---|---|---|---|
| GDP (USD billions) | ~$64 | $88 (projected) | +37.5% | — |
| GDP per Capita (USD) | ~$1,050 | $1,302 | +24% | +~18% |
| Urban Mean Wage (TZS) | ~470,000 | 494,812 | +5.3% | ~0% |
| Rural Mean Wage (TZS) | ~350,000 | 367,034 | +4.9% | ~0% |
| Minimum Wage - Public (TZS) | 370,000 | 500,000 (July 2025) | +35% | Recent adjustment |
With incomes barely moving while food prices rise rapidly, the purchasing power of poor households continues to erode. Consequently, even modest price increases translate into reduced meal quality, lower caloric intake, and heightened vulnerability to shocks.
1. Sectoral Growth Mismatch with Employment
Tanzania's fastest-growing sectors create minimal jobs while the majority of the population remains employed in slow-growing sectors. This fundamental disconnect between where growth happens and where people work is the primary driver of non-inclusive growth.
| Sector | Growth Rate (Q3 2024) | GDP Contribution | Employment Share | Inclusivity Gap |
|---|---|---|---|---|
| Electricity Generation | 19.0% | Minor | <1% | Very high growth, negligible jobs |
| Mining & Quarrying | 16.6% | 5-9.8% | ~1% | Capital-intensive, few workers |
| Financial Services | 15.4% | Part of 38-40% services | ~3-5% | Urban-focused, skilled labor only |
| Agriculture | 3.0% | 26-30% | 65% | Majority employed, slowest growth |
| Manufacturing | Stagnant | 8-9% | 6.8% | No expansion for decades |
2. Extreme Concentration of Income Gains
Economic growth has disproportionately benefited the wealthy, leaving the majority behind. The distribution of income gains reveals a deeply unequal pattern that prevents GDP growth from translating into broad-based prosperity.
| Income Group | Share of Total Income | Approximate Population | Per Capita Implication |
|---|---|---|---|
| Top 1% | 17.9% | ~650,000 people | Capture nearly 1/5 of all income |
| Top 10% | ~35-40% (estimated) | ~6.5 million | Control over 1/3 of income |
| Bottom 50% | 14.1% | ~32.5 million | Share less than top 1% |
| Gini Coefficient | 40.5 (2018) | — | Moderate-high inequality |
3. Poverty Reduction Lagging Far Behind GDP Growth
Despite two decades of 4.5-7.7% annual GDP growth, poverty has barely declined. This demonstrates that economic expansion alone, without deliberate inclusive policies, does not automatically reduce poverty.
| Period | Average Annual GDP Growth | National Poverty Rate | International Poverty Line ($3/day) | Change in Poverty |
|---|---|---|---|---|
| 2011/12 | ~6-7% | 28.2% | — | Baseline |
| 2017/18 | ~6-7% | 26.4% | — | Only -1.8 percentage points in 6 years |
| 2020 | 2.0% (COVID) | 27.7% | — | Poverty increased |
| 2024 | 5.5% | ~26-27% (est.) | 49% | Minimal improvement |
4. Employment Quality: Informal and Vulnerable Jobs
Most employment is informal, low-productivity, and lacks social protection. This means that even when jobs are created, they don't provide pathways to middle-class prosperity or economic security.
| Employment Category | Share of Workforce | Characteristics | Income Level |
|---|---|---|---|
| Informal Employment | 76-80% | No contracts, no benefits, vulnerable | Low, unstable |
| Formal Private Sector | ~10-12% | Contracts, some benefits | Moderate |
| Public Sector | ~8-10% | Stable, benefits, pensions | Moderate-High |
| Agriculture (mostly informal) | 65% | Subsistence, weather-dependent | Very Low |
| Youth Unemployment/Underemployment | >10% | Skills mismatch, limited opportunities | — |
5. Population Growth Dilutes Per Capita Gains
Rapid population growth means GDP gains are spread across more people, reducing individual benefit. Tanzania's 3% annual population growth rate significantly diminishes the per capita impact of economic expansion.
| Year | GDP Growth Rate | Population Growth Rate | GDP Per Capita Growth | Real Impact |
|---|---|---|---|---|
| 2020 | 2.0% | ~3.0% | -1.0% | People got poorer |
| 2021 | 4.3% | ~3.0% | ~1.3% | Minimal gain |
| 2022 | 4.7% | ~3.0% | ~1.7% | Modest gain |
| 2023 | 5.3% | ~3.0% | ~2.3% | Moderate gain |
| 2024 | 5.5% | ~3.0% | ~2.5% | Moderate gain |
6. Structural Transformation Failure
The economy hasn't shifted workers from low-productivity agriculture to higher-productivity manufacturing. This represents a fundamental failure of economic transformation that has prevented Tanzania from achieving the kind of rapid poverty reduction seen in successful Asian economies.
| Period | Agriculture Employment | Manufacturing GDP Share | Industry Employment | Transformation Status |
|---|---|---|---|---|
| Early 1990s | 84.8% | ~8% | 2.6% | Pre-transformation |
| 2022-2024 | 65.0% | 8-9% | 6.8% | Stalled |
| Change | -19.8 percentage points | No growth | +4.2 percentage points | Manufacturing stuck |
7. Limited Government Capacity to Redistribute
Low tax revenue restricts the government's ability to fund social services and inclusive programs. Without adequate fiscal resources, the government cannot effectively buffer inequality or provide the public services necessary for inclusive development.
| Indicator | Tanzania | Regional Comparator Average | Implication |
|---|---|---|---|
| Tax Revenue (% of GDP) | 13.1% | 15-18% (EAC average) | Limited fiscal space |
| Public Spending on Health | ~3-4% of GDP | 5-6% recommended | Underfunded |
| Public Spending on Education | ~3.5% of GDP | 4-6% recommended | Underfunded |
| Social Protection Coverage | <10% of poor | 15-25% (better performers) | Minimal safety nets |
Summary: Why Growth Hasn't Been Inclusive
| Exclusion Factor | Mechanism | Result |
|---|---|---|
| Growth in capital-intensive sectors | Mining, electricity, finance grow fast but employ <3% | 65% in slow-growing agriculture see no benefit |
| Extreme income concentration | Top 1% capture 17.9% of income; bottom 50% get 14.1% | GDP growth flows to wealthy, not workers |
| Wage stagnation | Real wages flat despite 37% GDP growth (2020-2025) | Workers don't share in prosperity |
| Food price inflation | Food costs rise 6-7.7% vs. 3.3% headline inflation | Poor (80% income on food) get effectively poorer |
| Informal employment dominance | 76-80% in vulnerable, low-wage jobs | No pathway to middle class for majority |
| Population growth | 3% annual increase dilutes per capita gains | 5.5% GDP growth → only 2.5% per person |
| Manufacturing stagnation | Stuck at 8-9% of GDP for 30 years | No structural transformation, no productivity leap |
| Weak redistribution | Only 13.1% tax revenue limits social spending | Government can't buffer inequality |
Conclusion: The Path Forward
Tanzania's economic growth is real but excludes most citizens because it occurs in sectors that employ few people, concentrates income among elites, fails to raise wages, and doesn't transform the economy structurally. The challenge isn't achieving growth—Tanzania does that well. The challenge is making growth work for ordinary Tanzanians.
Critical Policy Imperatives
Without deliberate policies to create quality jobs, raise agricultural productivity, expand manufacturing, strengthen tax collection, and invest in social protection, GDP growth will continue leaving the majority behind. Specific interventions must include:
1. Contain Food Price Volatility: Implement strategic grain reserves, improve agricultural supply chains, and reduce post-harvest losses to stabilize food prices for poor consumers.
2. Raise Agricultural Productivity: Invest in irrigation, improved seeds, mechanization, and extension services to boost the 3% growth rate in agriculture where 65% work.
3. Strengthen Real Wage Growth: Enforce minimum wage regulations, support collective bargaining, and link wages to productivity gains rather than capital accumulation.
4. Expand Manufacturing: Create industrial zones, improve infrastructure, reduce bureaucracy, and provide targeted incentives to move manufacturing from 8% to 15-20% of GDP.
5. Strengthen Tax Collection: Broaden the tax base from 13.1% to 17-20% of GDP to fund education, healthcare, and social protection without external dependency.
6. Expand Targeted Social Protection: Increase coverage from <10% to at least 25% of the poor through cash transfers, school feeding programs, and health insurance.
As long as inflation is measured and communicated as a single national average, it will continue to conceal deep distributional pressures. For low-income households, rising food prices combined with weak income growth are effectively pushing them further into vulnerability, despite "low inflation" headlines. Tanzania risks sustaining macroeconomic stability while allowing poverty to persist, reinforcing the paradox of low inflation alongside worsening living standards for the poor.