Highlights:

Tanzania has made significant social and economic progress in recent decades. The economy has grown by an average of 6.1 percent per year since 2000, elevating Tanzania from Low-Income Country (LIC) status to Lower Middle-Income Country (LMIC) status in 2020. Between 2000 and 2020, life expectancy rose from 52 years to 67 years (versus an increase from 60 years to 69 years in LMICs), and the duration of school attendance increased from 3.8 years to 6.4 years (versus growth from 4.9 years to 6.6 years in LMICs). In the last decade alone, the share of Tanzanians with access to electricity has increased from 5.6 percent to 39.9 percent (and from 2.5 percent to 22 percent in rural areas).

The analysis in this report identifies two issues associated with Tanzania’s recent growth model, which could jeopardize the sustainability of growth and the fulfillment of the country’s development potential. They are:

1. Entrenched poverty. Between 2012 and 2018, poverty in Tanzania— measured against the national basic-needs poverty line—only decreased by 6.4 percent (1.8 pp). With relatively high GDP growth rates in this period, the near-zero growth elasticity of poverty in Tanzania was one of the lowest in the world.  The high churn between wealth quintiles shows that Tanzanians are exposed to frequent income shocks, and they have little protection either in the form of private assets or of a well-functioning social protection system. Indeed, Tanzania only allocated 1.9 percent of its 2022 fiscal budget (0.4 percent of GDP) to social assistance, which is insufficient to meet the needs of the population. In this context, low-productivity agriculture becomes a backup livelihood mechanism to help absorb shocks.

2. A domestic market conundrum. As public investments and the domestic market increasingly drive growth—as opposed to private investments and exposure to international markets—Tanzania’s new “growth model” faces two fault lines: Combining inclusiveness and domestic-market orientation and  Balancing growth-inducing public investments and fiscal commitments.

These constraints highlight the need for a growth pattern that is more balanced, faster, and more inclusive.

POLICY PRIORITY 1: ACCELERATING BUSINESS CLIMATE REFORMS

POLICY PRIORITY 2: BOOSTING INCLUSION AND RESILIENCE

POLICY PRIORITY 3: ENHANCING PRODUCTIVITY AND RESILIENCE IN AGRICULTURE

With more than three-quarters of all livelihoods in Tanzania depending on agriculture, productivity growth in this sector can significantly boost living standards. Tanzanian value added in agriculture has grown at a robust average of 4.0 percent per annum between 2015 and 2021, faster than the averages for Sub-Saharan Africa (SSA) and Lower Middle-Income Countries (LMIC)—both 3.3 percent. However, such growth was largely driven by the expansion of cultivated land, to the tune of 3 percent per year over that period. Conversely, total factor productivity dropped by 11 percent between 2015 and 2020.

Limited access to technology, finance, and skills constrains the productivity of Tanzanian agriculture. In 2019/20, only 30 percent of agricultural households used improved seeds, 23 percent applied inorganic fertilizer, 12 percent used herbicides, and 9 percent used irrigation. The average use of fertilizer stood at 16 kg per hectare (kg/ha) in 2020, well below the 50 kg/ha target set by African governments in the 2006 Abuja Declaration on Fertilizer. Other drivers of low productivity include scarce access to capital—only 7 percent of bank lending goes to agriculture—and to skilled labor. Illustrating the impact of these constrains, the productivity differential between commercialized farms—which use more inputs, capital, and skilled labor—and subsistence farms amounts to 200 percent.

With climate change threats looming large over Tanzanian agriculture, adaptation efforts must scale rapidly. Globally, Tanzania is among the countries most exposed to the negative impacts of climate change. Only 3.5 percent of its agricultural land is subject to Climate Smart Agriculture (CSA) practices, and the current climate adaptation budget is three times below the minimum estimated effective threshold. The following measures are recommended:

• Improving the regulatory and policy environment: export taxes and import levies remain a hindrance;
• Boosting public investment in agriculture. Adequate funding could unlock a large potential through investments in innovation (focusing on seeds, micro-irrigation, and livestock management), sustainable intensification in existing farmed areas, enhanced operations and maintenance of public irrigation schemes, reduced land conversion, and dissemination of CSA practices such as agroforestry;
• Fostering a digital revolution in agriculture.

POLICY PRIORITY 4: BUILDING TANZANIA’ S TOURISM BACK BETTER