Issues in the World Bank Tanzania Economic Update-2021

On March 3, 2021, the World Bank launched its Tanzania Economic Update (TEU) report titled ‘Raising the Bar: Achieving Tanzania’s Development Vision.’ The report covers a number of issues. They include Tanzania’s economy in global perspective which includes issues of recent economic developments as well as macroeconomic outlook and risks. It also covers issues related to achieving Tanzania’s development vision 2025. These include aiming high, learning from drivers of past growth, making growth more inclusive, enhancing economic mobility and security, investing in human capital and access to opportunities, building a solid middle class and raising the bar on policy priorities. This piece outlines some of these and related issues.

Recovering from Covid-19

The Covid-19 pandemic plunged the global economy into a recession in 2020. However, Tanzania escaped recession although it experienced slowed Gross Domestic Product (GDP) growth. Delivering recovery is very important. This can be done using various interventions. Among these include proper and timely policy responses.

Among the responses include expansionary monetary and fiscal policies and their associated policy instruments. Monetary policy instruments include but are not limited to low interest rates, moratorium and credit amnesty to businesses. Fiscal policy instruments would include lower tax rates and fewer tax typologies, targeted tax exemptions and amnesties. Sound recovery will also depend on strategic bail outs of systemic and too large to fail and fall enterprises as well as stimulus packages for reviving struggling sectors and firms in them. Interventions should take a value chain and business eco-systems approach due to inter-sectoral linkages in forms of output-input relationships.

Middle income status

Tanzania achieved the low-middle income country (L-MIC) status in 2020. This was five years before the targeted date of 2025. There are several drivers that made this possible. They include several decades of investments and reforms including the major and far-reaching reforms of the mid-1980s in the management of the economy.

Recent drivers include increased production of goods and services in virtually all sectors of the economy. This in turn is thanks to improvements in business environment and investment climate. They include improvements in the legal, policy and regulatory frameworks; both hard and soft infrastructure but mainly the former; skills and talents in the labour force and much more along those lines. These made it possible to attract and retain investments and businesses from private sector in its very broad sense including local and foreign, formal and informal as well as micro, small, medium and large enterprises. It is to be noted that middle income status is not an automatic permanent status. It has to be protected and maintained to avoid falling back to lower ranks. It is also important to aspire graduating to higher ranks of income groups from the current low middle income.

Economic growth

Tanzania has been posting relatively good growth figures. It has been among well performing economies in the region using the GDP growth indicator. However, there are issues of concern in the nature of growth that has been observed. Generally it has been a non-poverty reducing and non-jobs creating growth among others. Non-poverty reducing growth can be attributed to the nature and types of growth poles and sectors. These are mainly sectors that use capital intensive as opposed to labour intensive production technology. They use machinery and equipment and are automated. As a result they do not employ many people because capital displaces labour. Because factor of production used is the one that get remunerated, capital gets more remunerated than labour. This partly explains the observed non-poverty reducing and non-jobs creating growth. Going forward: efforts should be on ensuring poverty reducing, jobs creating, inclusive and green growth.

Private sector roles

The private sector is very important in the economic growth equation of Tanzania. This is very clear from the time the country started to embrace private sector-led growth. As the engine of growth, the sector is very important in providing the highly needed investment capital, technology, jobs and government revenues in various forms including taxes. This is true for almost all types of private sector.

They include local and foreign; formal and informal as well as micro, small, medium and large enterprises. For the sector to play its noble role in the economic growth equation in Tanzania properly there is a need to enhance efforts of attracting and retaining the sector through good, conducive, attractive and friendly business environment and investment climate.

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The author is Associate Professor of Economics and Principal of Mzumbe University Dar es Salaam College