How Tanzania trades with world's leading economies

What you need to know:

  • Experts suggest that integrating with the world's leading economies through trade and global value chains, in a win-win situation and in an inclusive manner is the appropriate strategy to assist in the country's economic growth

Dar es Salaam. Integrating with the leading world economies through trade and global value chains in a win-win situation and in an inclusive manner, is a suitable way that will help drive the country’s economic growth that counts, experts say.

Going by the International Monetary Fund (IMF) latest report, the size of Tanzania’s economy will likely climb to $136 billion over the next five years from this year’s projected $85.4 billion.

Analysts believe that if that dream is to come true, working together with the leading economies to increase economic investment in the country and strengthen economic ties, could be a shared goal.

In the next five years, the five leading economies will be the US, People’s Republic of China, India, Japan and Germany, in that order, according to the IMF report.

The report forecasts the GDP of the US, whose economy is fueled by high productivity, transportation infrastructure, and extensive natural resources, to jump from a projection of $26, 850 billion this year to $32, 350 billion in the next five years.

In second place is the People's Republic of China, whose GDP is projected to increase from $19,370 billion to $27,490 billion, thanks to continued export growth, new investment in renewable energy and economic diversification.

In third place is India, one of Tanzania’s largest trading partners and whose GDP is set to climb from $3,740 billion to $5,580 billion.

The Indian economy is now among the fastest growing economy in the world, with its economic growth currently standing at between seven and eight percent, according to Economics Help website.

With a well-educated, industrious workforce and its large, affluent population that makes it one of the world’s biggest consumer markets, Japan, whose GDP is expected to increase from $4,410 billion to $5,340 billion, comes next after India.

The fifth highest economy is Germany, whose GDP is set to increase from $4,310 billion to $5,040 billion.Germany is the third largest export nation globally: With 70 percent the service sector contributes the largest part to the country's GDP.

However, those impressive figures in terms of the size of the GDP of the top five leading economies are meaningful to Tanzania only if the East African Nation will keep setting a stage for attracting more investment in the country and cooperating with them.

Tanzania Private Sector Foundation (TPSF) acting chief executive officer Raphael Maganga exuded his optimism that ties with the leading economies will result in massive investment in the manufacturing sector.

“This sector is key to boosting the GDP and FDI (Foreign Direct Investment). As a country we need to have a strategy on how our cooperation will shape our economy,” Mr Maganga told The Citizen by phone.

He also believes that cooperation with those countries will spur the performance of the tourism sector from Europe and Asia by wooing more visitors and getting the key economic sector moving.

Latest National Bureau of Statistics (NBS) data shows that the number of tourist arrivals rose to 1,454,920 in 2022 from 922,692 in 2021.

The US has been the leading source market for tourists coming to Tanzania for decades, bringing a total of 100,600 tourists last year, the highest number of arrivals from a country outside Africa.

Other leading sources were France (100,371), Germany (67,718), the United Kingdom (60,116) and Poland (46,431).

Mr Maganga also urged the government to take advantage of cooperation with giant economies to get from them soft loans for financing mega development projects, which are key to molding the country’s economy.

“For this to happen, it should go in tandem with improving some policies and making them predictable so that investors can be sure about their tomorrow,” concluded Mr Maganga while citing an example of Land Ownership Policy that will set a stage for lands bank for investors.

Said Salim Bakhresa Group of Companies (SSBG) corporate affairs director Hussein Sufian said with good ties with the world leading economies, Tanzania stood a chance to attract more FDIs.

This, he said, could be attested to the trend of investors flowing to the country from countries like US, China and India.

Going by the Tanzania Investment Centre (TIC), Tanzania recorded a 52.4 percent increase in investment during the first quarter of this calendar year compared to a similar period last year, thanks to an improvement in the business climate.

Through the projects registered under the Tanzania Investment Centre (TIC) from January to March, Tanzania attracted investment worth $1.2 billion (about Sh2.8 trillion) compared to $787.4 million (Sh1.8 trillion) recorded in 2022.

The top five leading sources of FDI in March 2023 are China, USA, Mauritius, Spain and India.

“We are on the right trajectory. Let’s maintain the stability of our policies considering the fact that investors don’t like surprises,” Mr Sufian told The Citizen by phone.

He called for the need to improve the business environment by streamlining existing laws, policies and cutting bureaucracy.

Tanzania Business Community director for communications Stephen Chamle said for Tanzania to benefit from its ties with the global leading economies, foreign investors need not to be involved in doing petty trading, but rather should focus on massive investments. Or else, he cautioned, the economy at an individual level will not grow because of competition that foreign petty traders pose to local traders.

“In countries that have made progress economically, if foreigners want to take their products to market, they need to enter a joint venture with the natives,” Mr Chamle told this paper.

“We need to follow a suit, or else, we will have a paper economy which makes little sense, if any, to individuals,” he added.

Investment, Trade and Industry deputy Minister Exaud Kigahe is on record as calling for foreign investors to come and set their manufacturing industries here in the country to reduce reliance on imports.

To make it possible, local and foreign investors should forge partnerships, said Mr Kigahe.

“We need to benefit from foreign investors’ technology so that we can improve our production and competitiveness enough to trade with the rest of the world,” asserted Mr Kigahe.

“Investors need to take advantage of the conducive business environment that the sixth phase government is creating,” he added.

Trade volume

The economy of the US, whose trading relationship with Tanzania stands at $424 million (Sh975.2 billion) and its investments in the East African country totaling $1 billion (Sh2.3 trillion), is also marked by resilience, flexibility, and innovation, according to the country’s US Embassy.

China for its part, until last September, its trade volume with Tanzania was quoted at $6.74 billion (about Sh15.5 trillion), with Tanzania accounting for only $606 million (about Sh1.4 trillion).

Despite the challenges faced by demographics, Covid-19 and debt, China, which is a leading foreign investor in the country, maintains an impressive strength in its major export industries, which continue to perform strongly.

On the question of India, data from the Indian High Commission in Dar es Salaam puts the value of its trade with Tanzania at $4.5 billion (about Sh10.4 trillion) during the year ending March, 2022.

Ambassador of India to Tanzania, Mr Binaya Pradhan told The Citizen recently that between April 2021 and March 2022, India's exports to Tanzania stood at $2.3 billion (about Sh5.3 trillion) and imports from the East African nation were quoted at $2.2 billion (about Sh5.1 trillion).

The duo recently struck an arrangement that will remove the need for using the United States Dollar in trading between the countries, and instead allow the use of their own local currencies, to boost bilateral trade.

Japan trade volume with Tanzania stood at $490.8 million (Sh1.1 trillion) in 2021.

Tanzania’s value of exports was $85.8million to the Asian country while Japan’s exports value to Tanzania stood at $405 million.

The main products that Tanzania exports to Japan are coffee, oily seeds and raw tobacco, while the major products that Japan exports to Tanzania are cars, hot-rolled Iron and delivery trucks.

In what could to some extent help to shape the country’s economy, Tanzania and Japan recently signed a soft loan agreement worth Japanese Yen 10 billion (about Sh172.2 billion) for the implementation of the Tanzania Agricultural Input Project that is set to boost agricultural sector productivity.

On the same occasion, the government of Tanzania and Japan signed additional financing of Japanese Yen 150 million (Sh2.6 billion) in grants extended for the Economic and Social Development Programme which aims to revive Tanzania Fisheries Company (Tafico).

The Permanent Secretary in the Ministry of Livestock and Fisheries, Prof Riziki Shemdoe, said with the Sh6.1 billion, Tafico will purchase, among other things, a 22- meter long fishing vessel, fish cold storage room, one cold storage vehicle and one car for office uses.

The revival of Tafico, he explained, will create 20,000 new jobs in the fishing industry and add Sh200 billion to the GDP after the kicking off of fishing activities in the deep sea.

On the other hand, the volume of bilateral trade between Tanzania and Germany has remained stagnant for several years, at approximately Euro 300 million.