Tourism-Led Expansion Drives 7.1% GDP Growth and Regional Leadership
Zanzibar's economy demonstrated exceptional resilience and growth throughout 2025, significantly outperforming the national average and establishing itself as a crucial growth engine within the Tanzanian Union. The archipelago achieved a remarkable 7.1% real GDP growth in 2024, with projections indicating continued robust expansion into 2025.
The economic success story is anchored by a thriving tourism sector that generated 736,755 visitor arrivals in the twelve months ending November 2025, representing a substantial 16.2% year-on-year increase. This tourism boom created powerful multiplier effects across hospitality, transport, trade, and construction sectors, while generating critical foreign exchange earnings that strengthened Zanzibar's external position.
Macroeconomic stability improved alongside growth, with headline inflation moderating to 4.6% in November 2025 from 4.8% in October. Enhanced fiscal revenue collection, primarily from tourism-related levies and taxes on goods and services, provided the fiscal space for increased infrastructure and social service investments while maintaining a manageable deficit position.
| Indicator | Performance |
|---|---|
| Real GDP Growth (2024) | 7.1% |
| Growth Outlook (2025) | Strong, tourism-led expansion |
| Main Growth Drivers | Tourism, trade, construction, transport |
| Comparative Performance | Above national average (6.0-6.5%) |
Zanzibar's 7.1% growth significantly exceeded mainland Tanzania's performance, demonstrating the archipelago's unique competitive advantages in high-value tourism and services. The economic expansion translated into tangible improvements in employment opportunities and gradual poverty reduction, particularly in tourism-dependent regions.
| Inflation Measure | October 2025 | November 2025 | Change |
|---|---|---|---|
| Headline Inflation | 4.8% | 4.6% | ▼ -0.2pp |
| Food Inflation | 7.2% | 6.8% | ▼ -0.4pp |
| Non-Food Inflation | 3.3% | 3.1% | ▼ -0.2pp |
Inflation trends showed encouraging moderation in November 2025, with headline inflation declining to 4.6%. The improvement reflects relatively stable non-food inflation at 3.1%, benefiting from global commodity price stability and Tanzanian shilling strength. However, food inflation remained elevated at 6.8%, driven by supply constraints, seasonal factors, and Zanzibar's significant import dependence for food staples.
The persistence of food price pressures represents the primary inflation challenge, particularly given food's substantial weight in household consumption baskets. Addressing this requires continued focus on enhancing agricultural productivity, improving supply chain efficiency, and managing import costs.
| Tourism Indicator | Performance |
|---|---|
| Tourist Arrivals (12 months to Nov 2025) | 736,755 |
| Year-on-Year Growth | +16.2% |
| Average Hotel Occupancy | Above 65% |
| Main Source Markets | Europe, Asia, Africa |
| Economic Impact | Employment, FX earnings, multiplier effects |
Tourism solidified its position as Zanzibar's dominant economic driver, with 736,755 arrivals representing robust 16.2% year-on-year growth. The sustained hotel occupancy above 65% demonstrates strong and consistent demand across accommodation categories, from luxury resorts to boutique properties.
The tourism sector's impact extends far beyond direct visitor spending. It generates substantial employment across hospitality, transport, retail, and cultural services; produces critical foreign exchange earnings that strengthen external balances; and creates powerful linkages with agriculture, handicrafts, and construction sectors. European markets remained the primary source of arrivals, complemented by growing Asian and African visitor segments.
| External Indicator | Status |
|---|---|
| Export Performance | Improved (cloves, tourism services) |
| Import Demand | Rising (food, fuel, construction materials) |
| Trade Balance | Deficit, but narrowing |
| Foreign Exchange Inflows | Strong from tourism |
| Overall External Position | Strengthening |
Zanzibar's external sector showed resilience despite persistent merchandise trade deficits. Rising import demand for food, fuel, and construction materials reflected both economic growth and supply constraints, but robust tourism receipts effectively offset these pressures.
Foreign exchange earnings from tourism proved crucial in narrowing the trade deficit and strengthening overall external balances. This performance directly contributed to Tanzania's improved national current account position and services surplus, demonstrating Zanzibar's strategic importance to the Union's external stability.
| Fiscal Indicator | Performance |
|---|---|
| Revenue Collection | Improved |
| Main Revenue Sources | Taxes on goods & services, tourism-related levies |
| Expenditure Focus | Social services & infrastructure |
| Fiscal Balance | Manageable deficit |
| Debt Sustainability | Within prudent limits |
Fiscal performance strengthened considerably, with improved domestic revenue mobilization providing essential fiscal space for development priorities. The Revolutionary Government of Zanzibar successfully enhanced tax collection efficiency, particularly on goods and services and tourism-related activities, without creating excessive economic burdens.
The additional revenues financed higher public spending on critical infrastructure projects and social services, including education, health, and public facilities. The fiscal deficit remained manageable and sustainable, indicating responsible fiscal management that balances development needs with macroeconomic stability.
| Social Indicator | Trend |
|---|---|
| Overall Employment | Improving |
| Main Job-Creating Sectors | Tourism, trade, construction |
| Youth Employment | Gradual improvement |
| Poverty Pressure | Moderating |
| Skills Development | Enhanced focus on hospitality training |
Employment trends showed positive momentum, particularly in tourism, trade, and construction sectors. The tourism boom created diverse employment opportunities ranging from hospitality services to transport, retail, and cultural activities, with significant benefits for youth employment.
The combination of economic growth and improved employment outcomes contributed to moderating poverty pressures. However, ensuring inclusive growth that reaches all segments of society and geographic areas remains an ongoing priority for policymakers.
While Zanzibar's economic performance was strong, several challenges require strategic attention. Food inflation and import dependence highlight the need for enhanced agricultural productivity and food security initiatives. The heavy concentration in tourism, while currently beneficial, creates vulnerability to global economic downturns, health crises, or geopolitical disruptions.
Zanzibar's economic trajectory for 2025 and beyond appears highly positive, supported by sustained tourism demand, improving infrastructure, and macroeconomic stability. The archipelago's positioning as a premium tourism destination, combined with its strategic location in the Indian Ocean, provides substantial growth opportunities.
Success in capitalizing on these opportunities will require sustained policy focus on infrastructure development, human capital enhancement, economic diversification, and environmental sustainability. Maintaining macroeconomic stability while pursuing ambitious development goals remains essential.
Zanzibar's economic performance in 2025 demonstrates the archipelago's emergence as a vital growth pole within the Tanzanian Union and broader East African region. The 7.1% GDP growth, driven by exceptional tourism performance, positions Zanzibar significantly ahead of regional peers and validates the strategic focus on high-value services sectors.
The combination of robust growth, moderating inflation, improving fiscal and external positions, and expanding employment creates a strong foundation for sustainable development. Tourism's role as the economic backbone, generating foreign exchange equivalent to more than half of Tanzania's services receipts, underscores Zanzibar's strategic economic importance.
Looking forward, maintaining this positive trajectory requires balancing tourism expansion with economic diversification, addressing food security challenges, investing in infrastructure and human capital, and ensuring growth benefits reach all segments of society. With continued sound policy management and strategic investment, Zanzibar is well-positioned to sustain its role as an economic leader and model for tourism-led development in East Africa.