Download PDF
Quick Facts
- Population:
- GDP (PPP):
- $58.4 billion
- 6.5% growth
- 6.9% 5-year compound annual growth
- $1,413 per capita
- Unemployment:
- Inflation (CPI):
- FDI Inflow:
Tanzania’s economic freedom score is 57, making its economy the 110th freest in the 2012 Index. Its score is unchanged from last year, as a decline in investment freedom was offset by improvements in trade freedom and labor freedom. Tanzania is ranked 16th out of 46 countries in the Sub-Saharan Africa region, and its overall score is slightly lower than the world average.
Tanzania has made progress in achieving income growth and poverty reduction over the past decade. While small in size, the financial sector has undergone modernization, and credit is increasingly allocated at market rates, supporting the development of a more vibrant entrepreneurial sector.
Despite these recent gains, the Tanzanian government seems to lack strong commitment to further institutional reforms that are essential to long-term economic development. Long-standing structural problems include poor public finance management and an underdeveloped legal framework that interferes with regulatory efficiency. Trade and investment policies needed to sustain open markets are undercut by lingering government interference in the economy. Widespread corruption, particularly in the public sector, further undermines the weak rule of law.
Background
Former Foreign Minister Jakaya Kikwete has served as president since winning election in December 2005. Elections for president and all parliamentary seats were last held in October 2010. The next presidential and parliamentary elections will be in 2015. Tanzania remains very poor. Its historically state-led economy is becoming more market-based but remains hindered by poor infrastructure and the country’s high HIV/AIDS rate. The economy is overwhelmingly donor-dependent, with 30 percent of the budget dependent on donor assistance. Agriculture constitutes the most important sector of the economy, providing about 27 percent of GDP and 80 percent of employment. Price controls and unreliable cash flow to farmers continue to hamper growth in the agricultural sector.
The judicial system is subject to political interference and severely inefficient. Recent reforms have been aimed at establishing a reliable system of transferable property rights, but there is no single comprehensive law covering transactions. Legislation conforms to international intellectual property rights conventions, but violations are not seriously investigated. Enforcement of anti-corruption laws and penalties is ineffective.
The top income tax and corporate tax rates are 30 percent. Other taxes include a value-added tax (VAT) and an interest tax, with the overall tax burden amounting to 15.3 percent of total domestic income. Government spending is equivalent to 25.7 percent of GDP. The budget deficit has been over 3 percent of GDP in recent years, and public debt has reached 40 percent of total domestic output.
The business environment remains hampered by continuing problems in the regulatory framework. Although requirements for launching a business are not time-consuming, the licensing process costs over 11 times the average level of annual income. Labor regulations are not modern and flexible enough to support a vibrant labor market. The lack of competition in the market has inflated price levels, hurting monetary stability.
The trade weighted average tariff rate is high at 8.2 percent, with costly non-tariff barriers further inhibiting free trade. Investment regulations are outmoded, and burdensome bureaucracy and inadequate infrastructure are ongoing deterrents to investment growth. The small financial sector has been evolving. Credit is allocated largely at market rates, and a range of commercial credit instruments are available to the private sector.