WORLD BANK AFRICAN SUCCESSES

Tanzania has been listed (Successful reformer: Tanzania's transformation to an open market economy) by the WORLD BANK as one of the African Successes (Category I) as one of the countries that have been successful in terms of growth experiences—pace and quality of economic growth.

Tanzania’s transformation to a market economy
Over the past 15 years Tanzania dramatically improved its economic performance, as a process of comprehensive economic reforms transformed the country from a controlled economy to an open, market-based one.

Achievements

• Beginning in the mid-1990s, the macro economy stabilized, inflation declined to single digits, and economic growth improved. Growth accelerated in recent years, averaging about 7% a year in 2001-07.
• Growth has been broad-based. Although agriculture remains Tanzania’s main economic sector-- employing 80% of the work force--other sectors have posted strong performances. Following privatization, manufacturing sector output rose briskly driven by an increase in the output of a number of commodities, including sugar, beer, soft drinks, cement, and steel. Tourism has emerged as an important sector contributing to over 10% of the GDP.
• Mining is growing in impact and importance. Although its contribution to GDP is still small, at around 3%, the sector is one of the most important foreign exchange earners. Annual gold output increased from five to 50 tons between 1999 and 2007, making Tanzania the fourth largest African gold producer.
• Liberalization of trade and exchange regimes boosted non-traditional exports and reversed large external imbalances.
• Tanzania has been successful in attracting FDI. A large share of FDI is directed to the mining sector, but manufacturing, tourism, and financial sectors have also attracted FDI.
• Establishment of a competitive banking system has facilitated increased availability of credit for productive activities.
• There has been remarkable progress in enrolment in primary and secondary schools.

Key success factors/drivers of success:

• Tanzania’s reform process began gradually in 1986 and intensified beginning in 1996. The first phase saw a partial liberalization of the economy. The second phase saw far-reaching structural reforms. The reforms, which were a response to the dismal economic performance of the country in 1970-85, transformed the country to market economy.

• The major reforms since 1996 include the following: sound fiscal and monetary policies to control inflation; fiscal consolidation and stronger public financial management; privatization and reform of state-owned enterprises; reduction in the level of state intervention in the economy—trade reform, liberalization of the financial sector, and creation of market-oriented regulatory framework.
• Macroeconomic stabilization and structural reforms were instrumental in attracting FDI, which was a key factor in fostering higher growth in the nonagricultural sectors. Fiscal incentives to foreign investors—especially in the mining sector—such as generous depreciation allowances, indefinite loss carry forward, exemptions from import duties and the value-added tax, and some income tax holidays were instrumental as well in attracting FDI.
• Donors supported the government’s reform efforts through large inflows of official donor assistance.

References:

Chandra, Vandana, Pooja Kacker, and Ying Li. 2005. Tanzania: Growth Exports, and Employment in the Manufacturing Sector. World Bank, Washington, DC.

Mahamba, Robert, and Jorgen Levin. 2005. Economic Growth, Sectoral Linkages, and Poverty Reduction in Tanzania. World Bank, Washington, DC.

Nord, R., Y. Sobolev, D. Dunn, A. Hajdenberg, N. Hobdari, S. Maziad, and S. Roudet. 2009. “Tanzania: The Story of an African Transition.” IMF.

Simonsen, Marianne, and Louise Fox. 2005. A Profile of Poverty in Tanzania, World Bank, Washington, DC.

Treichel, Volker. 2005. “Tanzania’s Growth Process and Success in Reducing Poverty.” IMF Working Paper WP/05/35.
Utz, Robert. 2008. Sustaining and sharing growth in Tanzania. The World Bank. Washington, DC.
World Bank. 2009. Tanzania Country Brief.