By Romaisa Hussain – Art in Tanzania Internship
Since independence, Tanzania began its journey with economic dynamism until it was struck by the transition towards socialism which took a bad toll on the economy, and the 1980s global financial crisis which the country was not prepared for. From then onwards, growth became relatively slow and even more difficult to adjust towards the market economy. However, this growth rate gradually increased which is quite noticeable if we consider the past decade. It is considered that with the ongoing rate of growth, GDP is likely to double in the next two decades as the country has transitioned from the category of ‘low income’ countries to that of the ‘middle income’. Nonetheless, there are still concerns over the long-term sustainability considering the current elevated growth path. Tanzania has experienced immense political and economic developments in the past few years as well as adjustments in social welfare. This does not mean that there are no causes for concern, the country still has a long way to go to address the developmental challenges in significant areas such as rising population, corruption, divide between state and political parties, and distribution of wealth. Simultaneously, there are also new opportunities that may set the path to essential developments and reforms.
If we look at the political history of Tanzania, it has been relatively peaceful and has abode by the constitution even though there have been certain incidents in the past fifty years that have directed the country in different yet opposing paths. In the post-independent stage, Tanzania carried on with its colonial norms with an outbound marketing strategy. Gradually, it shifted towards the socialism stage intending to produce a self-dependent African socialist community that lasted 17 years. This stage underwent huge otherwise violent changes that greatly modified the minds of the people. Later, a new stage rose which attempted to retain the socialism stage injecting it with a liberal market economy and multi-party democratic system. Fast forward 13 years, this new stage is still running the country but the old seeds of socialism have not completely vanished from sight particularly in the civil servants and state-owned enterprises. On 19th March 2021, Samia Suluhu Hassan was sworn in as the first woman to become the President of the United Republic of Tanzania. She is now the sixth president replacing former President John Magufuli after his death and served as Vice President from October 2015. Since her presidency, the government has made attempts to bring down corruption, strengthen public administration and infrastructure systems, enhance accountability and transparency, and improve management of resources. Under the 2020 Worldwide Governance Indicators, Tanzania has worsened in the years between 2012 and 2019 with the most deterioration occurring in the legislation, transparency, effective government, and freedom of media and civil societies.
So far, Tanzania has become a macro-economic success in the past 20 years. The economic growth rate accelerated from 3.5% in the 1990s to 7% in the early 2000s. Although the 1980s global developmental crisis considerably affected the economy, the country gradually bounced back, stabilized, and is expected to increase its growth rate in the upcoming future. Moreover, years of foreign aid and the rising economic growth have established great results in Tanzania but development issues such as unemployment and poverty cease to come to an end. Although Tanzania has done well economically compared to other countries in the region, the economic growth is still quite slow. The GDP rate declined from 5.8% in 2019 to 2.0% in 2020 while the per capita growth changed to negative. The economic growth is centered around building and manufacturing the supply sector while investments dealt with the demand. The Fiscal policies have backed up the growth rate and credit but have reduced from 7% in 2018 to 5% in 2020.
Path to Development?
Currently, due to the pandemic, the global economic crisis has had an immense impact on the industries dealing with exports particularly the tourism sector, and a massive decline in foreign aid. The prices of gold elevated however between 2019 and 2020 which seems to be the only benefited export from the pandemic. Even though the government did not imply heavy travel restrictions, the crisis enabled the industries and firms to endorse safe and preventive measures which hindered the economic activities locally. On the other hand, there has also been a decrease in imports which declined the monetary revenue and the production and consumption have also experienced a sharp reduction. The Covid-19 crisis has brought many challenges to the financial sector and the bank loans which continue to increase while the credit growth to the private sectors has relatively declined. The inflation rate was estimated at around 3.5% in 2019 which dropped to 3.3.% in 2020 because of a slow decline in goods and services. The Bank of Tanzania managed to keep the foreign exchange rates steady with multiple interventions to ensure balance in the exchange market. The monetary policies by the government assisted the spending and disbursements but the impact of the pandemic on revenues elevated the monetary deficit ranging from 2% in 2019 to 2.3% in 2020. Despite all the challenges, Tanzania has a positive economic outlook with GDP expected to grow from 4.1% in 2021 to 5.8% by 2022 as the travel and tourism sectors continue to improve and trade corridors begin to open. The increase in the prices of fuel and energy is anticipated to remain in 2021 which may raise the inflation to 3.9% by the end of 2021 eventually dropping to 3.4% by 2022. The low revenue and high expenditures on infrastructures and projects are anticipated to increase the monetary deficit of GDP to 3.2% in 2021 and 2022 which are financed mainly through foreign loans.
Tanzania’s steady growth in the past 20 years achieved a milestone in July 2020 when it was finally considered as a lower-middle income country from low-income status. This highlights the country’s potential for macroeconomic sustainability based on the economic growth rate, rich natural resources, and strategic geographical location. Now as a middle-income country, Tanzania has embarked on a Tanzania Development Vision 2025 which lays out the development goals it has set to achieve by 2025 ranging from quality of life, proper education, peacefulness, good governance, stability, and a competitive market equipped with sustainable economic growth and mutual benefits. The Gross National Income per capita has so far been impressive but not enough to meet these goals. Tanzania must start with investing in human development and capital and simultaneously build high-quality livelihoods for everyone in the country to reach such broad vision.