by Ben Taylor
A Samia Stimulus
Among the many announcements and shifts in direction brought in by the new President, Samia Suluhu Hassan, is a new focus on encouraging investment and stimulating economic growth. She signalled this first when speaking at the swearing-in ceremony for new permanent secretaries on April 6 and then again in her first State of the Nation address to parliament on April 22.
“We intend to focus more on economic growth,” she told MPs. “We will continue the good work achieved during the previous administrations, change where necessary but with a view to promoting efficiency and productivity, guided by the national, regional and party manifestos.”
“Last year, our nation managed to enter the middle-income category where the per capita income increased to $1,080 from $1,036. It is a great achievement, but more effort is needed to accelerate the economy,” she added.
Framed as a package of measures to strengthen the country’s economic recovery from the effects of the global Coronavirus pandemic, the President spoke at length on the need to regain investor confidence. She noted that investors have been complaining about Tanzania’s unpredictable investment climate, hostile tax collection tactics and bureaucracy, saying the situation would change with her at the helm as Tanzania’s sixth president.
“The government will be taking specific steps to promote investment by looking into investment policies, laws, and regulations, remove clauses that are hampering smooth investments, including unpredictable policies, an unstable tax system and unnecessary bureaucracies,” she explained.
“The sixth phase government will take an uncompromising approach on this, and we will start with the blueprint (for the improvement of Tanzania’s business climate, which was approved in 2018). Issuance of permits and licences will be streamlined, and so will the process of issuance of land to investors.”
Under her administration, President Hassan said, the tax collection would focus on compliance instead coercion and intimidation. In partnership with the Tanzania Private Sector Foundation (TPSF), the government plans to put in place a system through which members of the private sector can forward their complaints directly to the government.
She added that the government will strengthen the Foreign Affairs ministry to drive investment. “Economic diplomacy will be our emphasis,” she stressed, saying the country’s relations with the outside world would now hinge on economic partnerships.
World Bank assesses the economic impact of the Coronavirus in Tanzania
Tanzania’s economy has fared relatively well under the Coronavirus pandemic, but still registered its first decline in per capita GDP for over 25 years, according to the latest Tanzania Economic Update, published by the World Bank in February 2021.
Titled “Raising the Bar: Achieving Tanzania’s Development Vision”, the report noted that Tanzania’s economy had suffered much less than its neighbours under the pandemic, but that it had still suffered. “The real GDP growth rate fell from 5.8% in 2019 to an estimated 2.0% in 2020, and … the global economic slowdown has adversely affected export-oriented industries, especially tourism and traditional exports, and caused a drop in foreign investment.”
A survey of 1,000 small and medium enterprises in Tanzania in June and July 2010 found that an estimated 140,000 formal jobs were lost and another 2.2 million non-farm informal workers suffered income losses. “Tanzanians employed in informal non-farm microenterprises tend to be especially exposed to economic shocks, as they often have limited savings to draw on in a crisis,” said the report. “Firms reported an average decline in sales of 36%, which has jeopardized the solvency of more than three-quarters of small and medium enterprises. Most affected firms have not benefited from any type of government support.”
“Although the government did not impose stringent mobility restrictions, the pandemic prompted firms and consumers to adopt precautionary behaviour, hindering domestic economic activity. Meanwhile, steep declines in production, consumption, and imports have significantly reduced fiscal revenue.” The result, according to the report, is that an additional 600,000 people could fall below the poverty line.
The report’s authors cautioned that the future of both the pandemic and the national economy remain highly uncertain. In particular, they noted that without quality information on the state of the outbreak in Tanzania, it remains difficult to plan and implement effective policies, both in terms of public health and managing the economy.
The report also warned that the country’s much-cherished attainment of lower middle income status (LMIS, officially achieved in July 2020) could be fragile. “Over the past 10 years, 23 countries have fallen from middle- to low-income status or from high- to middle-income status. … As the COVID-19 pandemic continues to depress global economic activity, Tanzania will need to endure an indefinite slump in external demand regardless of the effectiveness of its domestic health response.”
This fragility is also linked to the country’s unusual combination of middle-income status with persistent high levels of poverty. For countries newly achieving LMIS, the average poverty rate based on the international extreme poverty line is 30%, while Tanzania’s extreme poverty rate remains close to 50% percent. “Rapid population growth, slow and uneven job creation, low levels of education, and limited access to educational and employment opportunities, especially among women and girls, have reduced the inclusiveness of Tanzania’s economic expansion, blunting its effect on poverty reduction,” argues the report.
The total value of the national government budget for 2021-22 will be TSh
36.23 trillion (USD $14bn), according to the budget framework present by Finance and Planning Minister, Dr Phillip Mpango to parliament on March 11. This represents an increase of 3.9% (TSh 1.35tn) over the 202021 budget, slower than the increase in previous years, and comparable to both the World Bank’s latest estimate of the rate of GDP growth (4.5% in 2021) and to the rate of inflation (3.7%).
Of this amount, TSh 26 trillion will be sourced locally, including TSh 22 trillion raised by the Tanzania Revenue Authority (TRA). Development partners will provide TSh 2.9 trillion in grants and concessional loans, representing 8% of the total. The government will source another TSh
7.3 trillion in form of domestic and foreign loans.
“It is the government’s view that implementation of the 2021/22 development plan and budget will stimulate economic growth, improve delivery of social services, create job opportunities as well as development for people and the nation at large,” said the minister.
The government, according to Dr Mpango, will focus much of the development budget on executing the ongoing priority projects before embarking on new ones. This includes the Julius Nyerere Hydropower Station (TSh 1.3 trillion), currently under construction at Stiegler’s Gorge on the Rufiji River, ongoing construction of the Standard Gauge Railway (TSh 3.2 trillion), and construction of passenger terminals and the purchase of aircraft for Air Tanzania (TSh 1.5 trillion).