The Tanzanian Economy

Tanzania is one of the poorest countries in the world with a per capita GDP (Year 2000 constant $US) of $362 in 2008 compared to a figure for the UK of $28,849 (World Development Indicators (WDI) 2009). On this basis Tanzania was ranked 150th out of the 172 countries for which recent data were available. These figures overstate the difference because they do not take account of the fact that the cost of living in poor countries tends to be lower. When this is taken into account by using purchasing power parity prices (Year 2005 constant $US) the figure for Tanzania is $1167 and for the UK it is $33,733 but the rank order does not change (WDI 2009). The average British person has a purchasing power that is nearly thirty times that of the average Tanzanian.

Tanzania’s development status looks slightly better when the UNDP Human Development Index is considered. This index takes account of other factors in addition to GDP, such as life expectancy adult literacy and educational enrolment. Although life expectancy (52 years compared to 79 in the UK in 2007) has been negatively affected by the impact of HIV/AIDS Tanzania’s educational performance in terms of adult literacy and access to primary education is quite good when compared with other low income countries.

About 75% of the population live in the rural areas. This has fallen steadily from about 95% at Independence. Although Tanzania is still predominantly rural, urbanisation has been a significant factor and in 2007 the largest city, Dar es Salaam had eighteen times the population it had at independence whereas the total population was four times the independence level. Despite the increase in the urban population the proportion of food imports in total imports has not increased suggesting that Tanzania has been quite successful in adjusting food production to feed the urban areas (WDI 2009).

For many years Tanzania relied on the six main export crops (coffee, cotton, sisal, tea, tobacco and cashew nuts) for about 60% of export earnings. This reliance has changed in recent years with a significant increase in the value of exports of minerals (mainly gold and diamonds) and fish. Invisible earnings from the tourism industry are now also very important and amount to almost as much as all merchandise exports together. In the period 1995-2006 an average of about 28% of Tanzania’s gross foreign exchange resources were derived from merchandise exports and 24% from tourism. However the biggest source was foreign aid (38%) with net foreign direct investment providing the other 10%. Although Tanzania does not rely quite as heavily on aid as it did in the 1980s and early 1990s it is still a highly aid dependent economy.

A significant issue in the shift away from traditional export crops is that the tourism and mining industries do not employ as many workers and there are concerns that a relatively small proportion of these earnings find their way to the poorest people. This is part of a wider concern that the improvement in Tanzania’s economic growth performance since 1995 has not filtered down sufficiently to the poorest segments in the population. Although per capita income has been growing steadily at about 2.8% per annum since 1995 the proportion of the population with incomes below the national poverty line only fell from 38.6% to 33.7% of the population between 1991 and 2007 (Household Budget Survey 2007). Most of the decline in poverty took place in the urban areas, particularly in Dar es Salaam. The income share of the richest 20% of the population increased slightly between 1992 and 2000 while the income share of the poorest 10% hardly changed (WDI 2009).

An important recent development for the Tanzanian economy has been the re-establishment and expansion of the East African Community (EAC). This potentially allows the development of export markets in a different range of goods to neighbouring countries and reduces dependence on the EU as the biggest trading partner. There is already evidence that trade with the other countries of the EAC and South Africa has increased as a proportion of total trade while trade with India has also grown in importance (National Bureau of Statistics Tanzania http://www.nbs.go.tz/).

Some Useful Sources for Further Reading:

Poverty and Human Development Report 2007 http://www.repoa.or.tz/documents_storage/PHDR%202007%20Complete.pdf

Economic Survey 2007 http://www.tanzania.go.tz/economicsurveyf.html

National Strategy for Growth and Reduction of Poverty http://www.tanzania.go.tz/nsgrf.html

Policy Reform and the Economic Development of Tanzania http://www.bradford.ac.uk/acad/des/research/papers/Researchpaper14Potts.pdf

David Potts

Department of Development and Economic Studies

University of Bradford