TANZANIA ECONOMIC UPDATE Harnessing the Opportunity for a Climate-Smart and Competitive Livestock Sector in Tanzania Issue 21 2024 Tanzania Economic Update Harnessing the Opportunity for a Climate-Smart and Competitive Livestock Sector in Tanzania Issue 21 2024 THE WORLD BANK GROUP | EAST AND SOUTHERN AFRICA REGION MACROECONOMICS, TRADE AND INVESTMENT GLOBAL PRACTICE © 2024 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclu- sions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. 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TABLE OF CONTENTS Acronyms and Abbreviations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .vii Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xi 1. Recent Economic Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Economic Activity and Poverty Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Monetary Policy and Inflation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Fiscal and Debt Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 Balance-of-Payments Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14 Zanzibar Macroeconomic Assessment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 2. Macroeconomic Outlook and Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21 3. Special Focus: Harnessing A Climate-Smart and Competitive Livestock Sector . . . . . . . . . . . . 25 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Recent Trends and Developments in Tanzania’s Livestock Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26 Climate Change and Other Drivers of Vulnerability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Barriers to Competitiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Emerging Strengths and Opportunities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35 Tackling Methane: Tanzania’s Livestock Sector – A Solution in Climate Change Mitigation . . . . . . . . . . . . . 37 Policy Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Annex 1: Core Macroeconomic Data Sources for the Report . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Annex 2: Summary of Special Focuses from the Latest Tanzania Economic Updates . . . . . . . . . . . .45 Annex 3: References for the Special Section . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 iii List of Boxes Box 1 The State of Tanzania’s Economy in Six Charts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiv Box 2 Tanzania’s Government Spending Multiplier. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Box 3 En Route to ‘Privatize’ Tanzania’s Growth. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Box 4 Broad Monetary Condition Index for Tanzania . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Box 5 The Livestock Sector’s Contribution to Key National Objectives . . . . . . . . . . . . . . . . . . . . . . . 28 Box 6 The One Health Approach. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Box 7 Boosting Private Investment in Tanzania’s Livestock Sector. . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Box 8 Methane Intensity Reduction and Carbon Finance Incentives. . . . . . . . . . . . . . . . . . . . . . . . . 37 List of Figures Figure 1 Annual GDP Growth, Demand Side. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Figure 2 Long-Term Growth Trends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Figure 3 Electricity Generation and Cement Consumption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Figure 4 Poverty Incidence, 2011–2024. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Figure 5 Inflation in Tanzania and SSA Peers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Figure 6 CPI Inflation, January 2021–April 2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Figure 7 Food and Non-Alcoholic Beverages Inflation, January 2021–April 2024. . . . . . . . . . . . . . . . . 6 Figure 8 Cumulative Energy, Fuel, and Utilities Inflation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Figure 9 Contribution to PPI Inflation, 2020–2023. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Figure 10 Growth of the Money Supply, January 2020–March 2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Figure 11 Private Credit Growth and Its Drivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Figure 12 Overall and Primary Fiscal Balance, FY17–FY24. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Figure 13 8M Fiscal Revenues, 2019–2024. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Figure 14 Actual vs. Budget Revenue, 8M-2023/24. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Figure 15 Public Expenditure by Component, 8M-FY2024. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Figure 16 External Debt Stock by Share of Creditors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Figure 17 Current Account Balance by Component . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Figure 18 Merchandise Exports, by Component. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Figure 19 Tourism Receipts and Arrivals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Figure 20 Merchandise Imports by Component . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Figure 21 Trend of Financial Account Net Inflows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Figure 22 FDI, Tanzania and Regional Neighbors, 1990–2022. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Figure 23 Gross Official Reserves and Exchange Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Figure 24 Real GDP Growth. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Figure 25 Inflation, January 2021–February 2024. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Figure 26 Fiscal Developments, FY2020/21–FY2023/24. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Figure 27 Current-Account Balance, 2019–2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19 Figure 28 Livestock Density in Tanzania. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Figure 29 Livestock Population, 2010–2022. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Figure 30 Contributions of Livestock to GDP and AgGDP in Tanzania and Neighboring Countries, 2022. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Figure 31 Rural Household Income from Livestock Sales by Income Quintile. . . . . . . . . . . . . . . . . . . . . 28 Figure 32 Livestock, Crop, and Overall Agricultural Production, 2010–2021. . . . . . . . . . . . . . . . . . . . . . 29 Figure 33 Total and Per Capita Livestock Production in Tanzania and Neighboring Countries, 2010–2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 iv TANZANIA ECONOMIC UPDATE – HARNESSING THE OPPORTUNITY FOR A CLIMATE-SMART AND COMPETITIVE LIVESTOCK SECTOR IN TANZANIA Figure 34 Yields of Major Livestock Products in Tanzania, 2010–2022 . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Figure 35 Consumption of Livestock Products, 2010–2021. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Figure 36 Comparative Trends in Livestock Production and Consumption. . . . . . . . . . . . . . . . . . . . . . . 31 Figure 37 Imports of Selected Livestock Products, 2010–2022. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Figure 38 Key Components of Sustainable and Climate-Smart Livestock Systems . . . . . . . . . . . . . . . . 37 Figure 39 GHG and Methane Emissions by Sector, 2022. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Figure 40 Farmgate GHG Emissions and Emissions Intensity from Selected Agricultural Products, 2020. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 List of Tables Table 1 Central Government Fiscal Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Table 2 Medium-Term Outlook, 2021–2026. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Table 3 Livestock Population by Species, 2022. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Table 4 Key Features of Livestock Exports, Tanzania and Ethiopia. . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Table 5 Impact of Climate Change on Tanzania’s Livestock Systems. . . . . . . . . . . . . . . . . . . . . . . . . . 33  v ACRONYMS AND ABBREVIATIONS AE Advanced Economy IMF International Monetary Fund AgGDP Agricultural GDP LGAs Local Government Authorities ARDL Autoregressive Distributed Lag LHS Left-hand Side BoT Bank of Tanzania MoF Ministry of Finance CAD Current Account Deficit M0 Reserve Money CBR Central Bank Policy Rate M3 Extended Broad Money Supply COVID-19 Coronavirus Disease of 2019 MCI Monetary Condition Index CO2 Carbon Dioxide MW Megawatt CPI Consumer Price Index NBS National Bureau of Statistics CY Calendar Year NDA Net Domestic Assets DSA Debt Sustainability Analysis NPL Non-Performing Loan DVS Directorate of Veterinary Services OCGS Office of the Chief Government EAC East African Community Statistician EMDEs Emerging Markets and Developing PPI Producer Price Index Economies PPG Publicly Guaranteed Debt FAO Food and Agriculture Organization ppts percentage points FAOSTAT Food and Agriculture Organization Q1/3/4 The First/Third/Fourth Quarter (Database) RHS Right-hand Side FDI Foreign Direct Investment SADC Southern African Development Forex Foreign Exchange Community FY Fiscal Year SGR Standard Gauge Railway GDP Gross Domestic Product SMEs Small and Medium Enterprises GHG Greenhouse Gas SSA Sub-Sharan Africa GoT Government of Tanzania SVAR Structural Vector Autoregressive H1 The First Half TEU Tanzania Economic Update IFC International Finance Corporation TIC Tanzania Investment Center IFEM Interbank Foreign Exchange Market TMB Tanzania Meat Board vii Tsh Tanzania Shilling WHO World Health Organization URT United Republic of Tanzania y/y Year-over-Year or Year-on-Year US ($) United States (Dollars) 2/3/4/8M The First Two/Three/Four/Eight VAT Value Added Tax Months WB The World Bank viii TANZANIA ECONOMIC UPDATE – HARNESSING THE OPPORTUNITY FOR A CLIMATE-SMART AND COMPETITIVE LIVESTOCK SECTOR IN TANZANIA PREFACE T he Tanzania Economic Update (TEU) is a Singh (Consultant, EAEM1) and Hayaan Diriye Abdi biannual report describing the recent evolu- Nur (ET Consultant, EAEM1) prepared the fiscal tion of Tanzania’s economy, and each edition and debt dynamics section, Pedro Olinto (Senior highlights a subject of critical interest to policymakers. Economist, EAEPV) and Revocatus Washington Paul The TEU series is also designed to reach a broader (ET Consultant, EAEPV) provided input on poverty audience of stakeholders that includes the private trends, and Randa Akeel (Senior Financial Sector sector, the government’s development partners, and Specialist, EAEM1) provided input on financial sector the public. To ensure that the TEU is accessible to development. Box 1 (The State of Tanzania’s Econ- as wide a readership as possible, each edition is omy in Six Charts), Box 2 (Tanzania’s Government presented in a relatively nontechnical style. Expenditure Multiplier), and Box 4 (Broad Monetary This twenty-first edition of the TEU was Condition Index for Tanzania) were prepared by Xu prepared by a team from the World Bank’s Mac- Dong (Consultant, EAEM1), while Box 3 (En Route to roeconomics, Trade and Investment (MTI) Global ‘Privatize’ Tanzania’s Growth) was prepared by Sophia Practice, with contributions from several other Global Muradyan (Senior Private Sector Specialist, EAEF1). Practices. The overall effort was led by Emmanuel The special focus section of the report is on Mungunasi (Senior Economist, EAEM1) and Xu Dong harnessing a climate-smart and competitive livestock (Consultant, EAEM1). The analysis benefitted from sector, which was developed by Steven Were (Consul- advice provided by Aghassi Mkrtchyan (Program tant, SAWA4) and coordinated by Ernest Ruzindaza Leader, EAEDR), Ana Cristina Gomez Canales (Senior (Senior Agriculture Economist, SAEA3) and Emma Livestock Specialist), and Amos Omore (Country Isinika Modamba (Senior Agriculture Economist, Representative, ILRI). SAEA3). The chapter is an extraction from World Emmanuel Mungunasi (Senior Country Bank-supported analytical work presented in the Economist, EAEM1) prepared the macroeconomic ‘Roadmap for Responsible Investments Towards outlook and risks section. Xu Dong (Consultant, Sustainable Livestock in Tanzania’ and ‘Opportunities EAEM1) authored the sections on recent economic for Livestock Sector Mitigation by Accessing Carbon activity, balance of payments developments, and Markets’. Zanzibar macroeconomic assessment, while the Nathan M. Belete (Country Director, AECE1), sections on monetary policy and inflation was crafted Hassan Zaman (Regional Director, EAEDR), Abha by Kaushiki Singh (Consultant, EAEM1). Kaushiki Prasad, (Practice Manager for MTI, EAEM1), Preeti ix Arora (Operations Manager, AECE1), Francisco Oscar Parlback was responsible for the overall editing Obreque (Senior Agriculture Economist and Acting of the report. The pictures used were procured for this Practice Manager, SEAE3), and Holger Kray (Practice report, unless otherwise acknowledged. Manager, SEAE3) provided guidance and leadership The findings, interpretations, and conclusions throughout the preparation of the report. Catherine expressed in this publication do not necessarily reflect Audax Mutagwa (Program Assistant, AECE1), Karima the views of the World Bank’s Executive Directors or Ladjo (Senior Program Assistant, EAEM1), Faith-Lucy the countries they represent. The report is based on Matumbo (Program Assistant, AECE1), and Juma information current as of early May 2024. Bruno Ngomuo (Consultant, EAEM1) supported the The World Bank team welcomes stakeholder preparation of this edition of the TEU, with assistance feedback on the content of the TEU. Please direct all from Loy Nabeta (Senior External Affairs Officer, correspondence to Emmanuel Mungunasi (emungu- ECRAE), who assisted with external communications. nasi@worldbank.org). x TANZANIA ECONOMIC UPDATE – HARNESSING THE OPPORTUNITY FOR A CLIMATE-SMART AND COMPETITIVE LIVESTOCK SECTOR IN TANZANIA EXECUTIVE SUMMARY Recent Economic Developments Tanzania has managed a steady and strong growth path relative to regional peers, Tanzania has managed a steadily robust growth but the economy’s poverty-reduction potential path amid multiple external shocks, with low remains underutilized. Boosted by a buoyant and stable inflation by regional standards. While services sector and more favorable terms of trade, poverty reduction has progressed slowly, the govern- Tanzania’s real GDP growth rose from 4.6 percent ment increased public spending on goods, services, in 2022 to 5.2 percent in 2023, despite prolonged and transfers during the first eight months (8M) of droughts and frequent flooding. While the coun- FY2023/24 to enhance the provision of priority social try’s economic performance has been strong, services. Domestic revenue observed double-digit poverty reduction has been slower than expected. growth, indicating the government’s commitment A combination of factors, including slow structural to revenue mobilization and fiscal consolidation. transformation, stagnant agricultural productivity, The current-account deficit narrowed, driven by limited social safety net coverage (e.g., to mitigate reduced import bills and a surge in foreign exchange shocks), and high population growth, has limited the earnings from the tourism sector. However, foreign impact of economic growth on poverty reduction. exchange challenges persist, which has motivated The country’s poor households are heavily depen- the Bank of Tanzania (BoT) to raise the policy rate dent on the agriculture (incl. livestock) sector, which and implement other prudent monetary policies. employs about two thirds of Tanzanian workers, but Over the medium term, the economy is set to grow which is particularly exposed to climate change- at around 6 percent, supported by escalated private related shocks and faces stagnant productivity investments resulting from a strengthened business growth. This underscores the importance of priori- environment. A positive macroeconomic outlook tizing productivity-enhancing public investment and and an enhanced agricultural productivity have con- adopting climate-smart strategies to improve the tributed to the estimated decline in poverty. Major agriculture and livestock sectors (see the Special risks to the outlook include incomplete implementa- Section). tion of reforms, climate change, and a deterioration The Government of Tanzania has made of the global economy. efforts to improve the country’s fiscal health. xi Between 8M-FY2022/23 and 8M-FY2023/24, govern- cent. The ongoing implementation of mega projects ment revenues increased by 27.4 percent, supported such as the Standard Gauge Railway project required by the promotion of IT systems to ensure accurate tax transport, building, and construction equipment- monitoring, an expansion of taxpayer and VAT reg- related imports and increased the demand for capital istration through targeted campaigns, and efforts to imports by a 7.9 percent during 3M-2024. Neverthe- combat tax evasion and smuggling. Public spending less, the reduced value of imported oil and fertilizer, increased by 34.4 percent during this period, reduc- combined with a decline in insurance and freight ing the fiscal deficit from 4.1 percent to 3.2 percent services, prevented an escalation of the country’s of GDP. Almost 70 percent of the deficit is financed overall import bill. by foreign sources, while the remaining is financed Supported by increased export earnings domestically. The most recent IMF/WB Debt Sustain- and a reduced import bill, Tanzania’s trade ability Analysis (June 2024) determined that Tanzania balance and current-account deficit have continues to face only a moderate risk of external and improved. The balance-of-trade deficit narrowed from public debt distress. US$770.9 million (3.9 percent of GDP) in 3M-2023 to The government has ramped up spend- US$425.7 million (2.2 percent of GDP) in 3M-2024. ing on goods, services, and transfers. Public This sharp reduction resulted in an improved current- spending on goods, services, and transfers totaled account position, despite a constant level of net 5.8 percent of GDP during 8M-FY2023/24, 0.5 per- income outflows at 0.8 percent of GDP over the same centage points (ppts) higher than the budget target period. The country’s current-account deficit declined and nearly 2 ppts above the actual spending during from US$926.0 million, or 4.7 percent of GDP, during 8M-FY2022/23. Other recurrent expenditure also rose 3M-2023 to US$576.4 million, or 2.9 percent of GDP, in 8M-FY2023/24, with interest payments increasing during 3M-2024. by 0.4 ppts and payments for wages and salaries A gradual increase in foreign direct invest- rising by nearly 1 ppt of GDP. Ongoing large public ment (FDI), foreign loans, and official reserves investment projects, including a modern railway financed the narrowing current-account deficit. system, hydroelectric plants, and roads, remained a Tanzania’s FDI inflows are low compared to those large component of the public spending and totaled of regional neighbors, but a favorable business 9.1 percent of GDP in the same period. environment, plateauing interest rates in advanced Consistent with subdued global trade economies, and positive ratings from Fitch and in 2023, the country’s merchandise exports Moody’s have helped the country attract FDI. Gross increased at a slower pace. Merchandise export foreign exchange reserves remained adequate growth decelerated from 9.7 percent during the first and rose from US$5.0 billion by end-March 2023 to three months (3M) of 2023 to 2.7 percent in the same US$5.3 billion by end-March 2024. However, the cov- period in 2024. While gold and other traditional exports erage of foreign reserves declined from 4.5 months to (e.g., cotton, tobacco, and cashew) contributed most 4.4 months over the period. of the increase, lower external demand for minerals Still, ongoing tensions in the foreign caused a contraction in mineral exports (excluding exchange market persists, which has required the gold) and dragged growth. Meanwhile, increased BoT to keep tightening its monetary policy stance. tourism activity has stimulated services export The Tanzanian shilling depreciated by 10.6 percent earnings. Travel receipts, the largest component of in one year, from an average of Tsh 2322.9/US$ in the country’s services exports, have soared by 27.2 March 2023 to Tsh 2569.7/US$ in March 2024. percent, reaching US$970.7 million in 3M-2024. This However, this appears to be inadequate to mitigate increase was bolstered by a surge in inbound tourist domestic demand pressures on foreign exchange. In arrivals—registered at 0.52 million during 3M-2024. early April, the BoT decided to raise the policy rate by Goods and services imports growth was 50 basis points to 6 percent. In tandem, the growth virtually flat in 3M-2024, contracting by 0.7 per- rate of extended broad money (M3) dropped sharply xii TANZANIA ECONOMIC UPDATE – HARNESSING THE OPPORTUNITY FOR A CLIMATE-SMART AND COMPETITIVE LIVESTOCK SECTOR IN TANZANIA from 21.3 percent in July 2023 to 13.8 percent in of structural reforms, damaging effects of climate March 2024, while private credit growth has deceler- change on the agriculture and tourism sectors, a ated to 16.6 percent in March 2024. worsening external global environment that lowers Benefiting from prudent monetary and fis- demand for the country’s exports, and continued cal policies, inflationary pressures have eased global inflationary pressures. To mitigate these risks, in Tanzania. Headline inflation remained subdued policymakers can continue to improve the business during 4M-2024, averaging 3 percent, y/y, a level not and investment environment, reduce the cost of seen since 2019. Cumulative food price inflation fell regulatory compliance, strengthen Tanzania’s export from 7.3 percent in 2022 to 6.8 percent in 2023, before competitiveness, and implement other structural settling at 1.5 percent during 4M-2024. This was reforms to attract greater private investment and spur helped by various short-term fiscal support measures resilient and inclusive private sector-led growth. to ensure an adequate food supply to meet national and regional needs, as well as by the BoT’s financing support to the agriculture sector. However, a recent Harnessing a Climate-Smart and pick-up in domestic energy, fuel, and utility prices due Competitive Livestock Sector to increased global oil prices may undermine domes- tic consumption among Tanzanian households. Tanzania possesses considerable potential in Tanzania’s GDP projection for 2024 has livestock production and trade. While the country been revised downward from 5.6 percent in boasts a large livestock population, climate-related the last TEU to 5.4 percent. This is due to the risks and inadequate investment from the public and slower-than-expected implementation of ongoing private sectors impede sectoral growth and interna- transformative structural reforms to facilitate private tional competitiveness. Nevertheless, with increasing sector investment, persistent barriers that hinder domestic demand and a burgeoning need for live- private sector development, and insufficient reforms stock products, there is an opportunity to capitalize to rebalance the demand and supply in the foreign on this internal market while simultaneously exploring exchange (forex) market. Over the medium term, avenues for expanding exports. To realize its livestock growth is expected to average around its long-run potential, Tanzania must prioritize climate-smart potential of about 6 percent, as improvements to the measures and innovations that enhance resilience business environment and the complete implementa- and boost productivity and incomes in the face tion of structural reforms are likely to attract more of climate change. Public investment projected at investment, including FDI. Headline inflation is pro- US$546 million over five years (US$109 million/ jected to remain low and stable over the medium term year) is necessary to effectively address the livestock as the newly adopted interest rate-based framework sector’s multifaceted challenges and significantly anchors inflation expectations. The current-account enhance its contribution to Tanzania’s economy. In deficit is expected to narrow further, driven by an addition to climate change adaptation and mitigation improved trade balance. Meanwhile, a combination measures, an enabling environment for private invest- of increased revenue collection and controlled expen- ment is critical to ensure sustained innovation and ditures is expected to narrow the fiscal deficit over efficiency gains in the livestock sector. the medium term. The poverty rate, measured by the international poverty line, is also projected to decline Recent Trends and Developments from 43.0 percent in 2024 to 41.7 percent in 2026, supported by a promising macroeconomic outlook Tanzania’s expansive livestock sector is vital to and increased agriculture budget allocations. the livelihoods of many households, with one of Despite the robust and stable outlook, the largest and fastest growing livestock popula- several risks threaten economic growth. Key tions in Africa and the world. Its cattle population risks include delayed or incomplete implementation is immense at 36.6 million—second largest in Africa Executive Summary xiii BOX 1: THE STATE OF TANZANIA’S ECONOMY IN SIX CHARTS FIGURE B1.A • Tanzania has Weathered the FIGURE B1.B • Inflationary Pressures have Impact of Overlapping Shocks and Gradually Eased on Both the Managed a Steady and Strong Mainland and in Zanzibar since Growth Path by Regional Standards the Start of 2023… Trend in Real GDP Regional Inflation Comparison Index, Q4-2019 = 100, Seasonal Adjusted Horizontal axis (2023 inflation*); vertical axis (2022 inflation) 125 9 Inflation Target Band 8 120 7 115 6 110 5 4 105 3 100 2 1 95 0 Jan-21 Mar-21 May-21 Jul-21 Sep-21 Nov-21 Jan-22 Mar-22 May-22 Jul-22 Sep-22 Nov-22 Jan-23 Mar-23 May-23 Jul-23 Sep-23 Nov-23 Jan-24 90 Q4-19 Q2-20 Q4-20 Q2-21 Q4-21 Q2-22 Q4-22 Q2-23 Q4-23 Ghana Kenya Mozambique Headline inflation, Mainland Core inflation, Mainland Tanzania Uganda Zambia Headline inflation, Zanzibar Source: Haver Analytics, WB staff estimates. Source: NBS, BoT, WB staff estimates. FIGURE B1.C • …Driven by the Bank of Tanzania’s FIGURE B1.D • …the Implementation of Tightening Monetary Policy Stance, Well-coordinated Short-term as Indicated by Decelerated Growth Fiscal Measures, such as Recent of Monetary Aggregates and… Subsidies on Sugar Moentary Aggregates Tanzania's Fiscal Balance % y/y change % of GDP 32 1 24 –1 16 8 –3 0 –8 Jan-20 Apr-20 Jul- 20 Oct-20 Jan-21 Apr-21 Jul- 21 Oct-21 Jan-22 Apr-22 Jul- 22 Oct-22 Jan-23 Apr-23 Jul- 23 Oct-23 Jan-24 –5 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24e Reserve money (M0) Extended broad money (M3) Overall fiscal balance Primary fiscal balance Source: Bank of Tanzania, WB staff estimates. Source: NBS, WB staff estimates. (continued on next page) xiv TANZANIA ECONOMIC UPDATE – HARNESSING THE OPPORTUNITY FOR A CLIMATE-SMART AND COMPETITIVE LIVESTOCK SECTOR IN TANZANIA BOX 1: THE STATE OF TANZANIA’S ECONOMY IN SIX CHARTS (continued) FIGURE B1.E • Tanzania’s Terms-of-trade Position FIGURE B1.F • …and Shore Up Official Reserves. has Become Favorable for its However, Tensions in the Foreign International Trade, Helping Exchange Market Persist Following Improve the Trade Deficit… the Currency Depreciation. Tanzania's External Sector Foreign Reserves and Exchange Rate Index (LHS);% of GDP (RHS) US$ billion, months (LHS); Tsh/US$ (RHS) 110 2 8 2600 7 2550 108 0 6 2500 106 2450 –2 5 104 2400 –4 4 2350 102 3 –6 2300 100 2 2250 –8 1 2200 98 0 2150 –10 Jan-21 Mar-21 May-21 Jul- 21 Sep-21 Nov-21 Jan-22 Mar-22 May-22 Jul- 22 Sep-22 Nov-22 Jan-23 Mar-23 May-23 Jul- 23 Sep-23 Nov-23 Jan-24 Mar-24 96 Q1 Q1 Q1 Q1 Q1 Q1 Q2 Q2 Q2 Q2 Q2 Q2 Q4 Q4 Q4 Q4 Q4 Q4 Q3 Q3 Q3 Q3 Q3 Q3 2018 2019 2020 2021 2022 2023 Official foreign reserves (US$ billion) Months of imports Terms of trade Balance of trade (RHS) Nominal exchange rate (RHS) Source: Bank of Tanzania, NBS, WB staff estimates. Source: Bank of Tanzania, NBS, WB staff estimates. (behind Ethiopia)—and represents 1.4 percent and able growth in livestock production, outpacing crop 11.0 percent of the global and African total cattle production. However, this growth has been driven population, respectively. Tanzania’s population of mainly by an expansion of the livestock population sheep, goats, chicken, and pigs is also large, with rather than improvements in yield. Urbanization, most ranking in the top ten on the continent in terms income growth, and changing lifestyles and diets are of size. Per capita, Tanzania’s total livestock popula- driving up the demand for livestock products, lead- tion is also among the largest in Africa. Between 2010 ing to a surge in consumption. However, domestic and 2022, Tanzania’s cattle, goat, sheep, and poultry production struggles to meet rising demand, result- population surged by an average of 83 percent, with ing in increased imports of key livestock products, the number of cattle more than doubling. especially processed and value-added items. The Tanzania’s livestock sector holds signifi- country’s livestock exports are lower than potential cant growth potential that has not yet been fully exports, pointing to challenges in capitalizing on the realized. Currently, it contributes less to the GDP sector’s full economic potential. and agricultural GDP than neighboring countries like Ethiopia and Kenya. This disparity underscores Drivers of Vulnerability substantial opportunities for development and invest- ment. Despite this, the sector is crucial for income The livestock sector faces major challenges generation, especially among the poorest households, related to climate change such as erratic rainfall and plays a vital role in employment, food security, and higher temperatures. These climate-driven nutrition, and the inclusion of women and youth. Over challenges lead to fluctuating water and feed avail- the past decade, Tanzania has experienced remark- ability and intensify resource competition and land Executive Summary xv degradation, especially in arid and semi-arid regions. internationally while enabling exports of livestock They also interact with multiple socioeconomic fac- genetics and biotechnology products. Moreover, tors and institutional constraints in rural areas, limiting increasing demand for processed and value-added access to essential resources like land, water, and livestock products offers avenues for investment and fodder. Endemic livestock diseases further strain the job creation in processing facilities, enhancing market sector, impacting animal health, productivity, and mar- competitiveness. Leveraging Tanzania’s vast land ket access. Inadequate infrastructure and technical resources and traditional knowledge in livestock man- capacity for water supply services, veterinary services, agement, along with emerging digital technological and market access hinder disease management and advancements, can further enhance the resilience, market integration, exposing livestock producers and productivity, and efficiency of the sector. The high traders to multiple intertwined risks. absorption capacity of the Ministry of Livestock and Fisheries signals the potential for increased public Barriers to Competitiveness investment, with livestock projects demonstrating substantial viability, paving the way for transformative There are also various structural, institutional, and growth in the sector. systemic challenges facing Tanzania’s livestock sector that intersect with climate risks, hamper- Tackling Methane: Tanzania’s Livestock ing productivity and impeding competitiveness. Sector. A Solution in Climate Change Despite its significant contribution to GDP, the livestock Mitigation. sector receives disproportionately low public funding, constraining investment in essential areas such as The livestock sector globally and in Tanzania is research, extension services, and infrastructure. Live- a large emitter of greenhouse gases, particularly stock producers encounter difficulties in accessing methane, which contributes significantly to inputs, technical assistance, and credit, with women climate change. Despite its importance, finance for and youth especially impacted. Inadequate infrastruc- methane abatement is minimal, and the sector’s emis- ture further compounds these challenges, leading to sions pose challenges to efforts aimed at achieving inefficiencies in transportation, market access, and climate goals while ensuring food security. Tanzania, processing, while land tenure insecurity exacerbates with its large livestock population, is exploring strate- resource degradation. Additionally, limited skills and gies to mitigate emissions and access carbon finance, capacity among stakeholders, coupled with complex focusing on interventions such as improving breed and inconsistent policies and regulations, undermine quality, water management, and pasture utilization. efforts to drive growth and attract private investment Analysis suggests that implementing these measures in the sector. could significantly reduce emissions while increasing production and generating carbon revenues. Embrac- Emerging Strengths and Opportunities ing climate-smart practices in the livestock sector is crucial for Tanzania to mitigate climate change, Despite the myriad of vulnerabilities and impedi- enhance resilience, and support livelihoods. ments to competitiveness, Tanzania’s livestock sector holds potent advantages and opportuni- Policy Recommendations ties for growth. The country’s strategic geographical location—boasting sea access and bordering seven Between 2023/24 and 2028/29, sustainable neighboring countries—positions it to capitalize on livestock development in Tanzania would require regional and global demand for meat, dairy, and other US$546 million (about US$109 million annually) livestock products. Its rich diversity of indigenous in public investment. This level of investment repre- livestock breeds presents an opportunity to cater to sents a fivefold increase over previous budgets and diverse consumer preferences both domestically and is 50 percent higher than the 2023/24 budget, and it xvi TANZANIA ECONOMIC UPDATE – HARNESSING THE OPPORTUNITY FOR A CLIMATE-SMART AND COMPETITIVE LIVESTOCK SECTOR IN TANZANIA is deemed feasible given the underfunding and high infrastructure, and implementing effective food safety absorption capacity of the livestock sector. With such regulations through One Health Approach. Prioritizing resources, the national authorities could pursue a climate-smart practices—such as the implementation series of policies and investments targeting productiv- of climate change adaptation and mitigation strate- ity, trade and value addition, climate adaptation and gies and renewable energy solutions—is essential to mitigation, and sector governance. These measures mitigate climate risks and reduce the sector’s carbon would involve sustainably improving the productivity footprint. Strengthening sector governance, improv- of the sector through improved access to veterinary ing institutional capacity, and adopting enabling services, vaccinations, and disease control mea- policy reforms are also crucial to ensure the effective sures, animal feeding as well as by expanding breed implementation of climate-smart livestock practices improvement programs and increasing public funding and foster competitiveness. Finally, an effective for research and development. Enhancing trade and governance framework and appropriate incentive value addition entails diversifying market opportuni- mechanisms are critical to ensure sustainable prac- ties, improving market linkages and transportation tices and greater private sector participation. Executive Summary xvii 1 RECENT ECONOMIC DEVELOPMENTS Economic Activity and Poverty livestock sectors and weighed on final consumption. Trends Apart from building a sound social security system, unleashing the full potential of Tanzania’s rapidly grow- Tanzania’s economy has maintained a strong ing livestock sector, which employs around 33 percent growth momentum amid multiple overlapping of the population and generates almost one-fifth of the shocks. Real GDP grew by an estimated 5.2 percent, income for the poorest rural households through live- year-on-year (y/y), in 2023, up from 4.6 percent in stock sales alone, could create more jobs, increase 2022. Despite the severe impact of droughts and farmers’ incomes, and contribute positively to climate floods on agricultural output and households’ real change mitigation (see the Special Section). income, consumption remained one of the three An improved trade balance and increased solid pillars of economic growth, following gross fixed gross fixed investment contributed positively investment and net exports (Figure 1). Still, economic to aggregate output. Lower domestic demand for growth is below its pre-pandemic average, and the imported non-food consumer goods, reduced global economy is expected to grow at a pace parallel to the oil and fertilizer prices, and increased transportation pre-pandemic potential output, revealing the lingering and travel receipts (bolstered by the sustainable effects of the COVID-19 crisis (Figure 2).1 growth of the tourism industry) helped improve Tan- Climate-related shocks to household zania’s net exports. As a result, the contribution of net income and future uncertainties dampened exports turned positive in 2023, accounting for nearly consumer demand in 2023. Following pent-up 40 percent of real GDP growth. This marked the first consumer demand in 2022, household consumption positive contribution from net exports since 2019. growth decelerated in 2023, with its growth contribu- tion falling to half its 2022 level. A prolonged drought 1 The World Bank’s utilization of its GDP estimates since and frequent flooding had a severe effect on the 2018 partly explains parallel growth between the pre- income sources of households in the agriculture and pandemic output trend and post-pandemic actual output. 1 Annual GDP Growth, Demand Side FIGURE 1 •  FIGURE 2 • Long-Term Growth Trends (% y/y change, contribution in ppt.) (Tsh trillion) 8 160 6.2 150 6 5.2 4.3 4.6 140 4 2.0 130 2 120 0 110 –2 100 –4 90 2015–2019 2020 2021 2022 2023 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Household consumption Government consumption Gross fixed investment Net export Pre- covid output trend Actual output Statistical discrepency Real GDP WB staff forecast (Apr-2024) Source: WB staff estimates. Source: NBS, WB staff estimates. Gross fixed investment, a usual driver of domestic nian shilling spent by the government could increase demand, increased to an estimated 4.0 percent in the output by around Tsh 0.41Tanzania shilling, under- 2023, mainly driven by public investment. According scoring the medium stimulative effect of fixed public to the latest World Bank estimate, an additional Tanza- investment (Box 2). BOX 2: TANZANIA’S GOVERNMENT SPENDING MULTIPLIER Expansionary fiscal policies are frequently employed to bolster aggregate demand and invigorate economic activities, particularly amid recessions characterized by anemic economic growth and elevated unemployment. It is therefore important for policymakers to identify the effectiveness of fiscal policy and quantify the effects of government spending on real GDP to determine public policy. This is especially the case for Tanzania, whose growth after the early 2010s was largely driven by public infrastructure investment (Figure B2.A).a Existing literature, however, has mainly focused on advanced economies, and few researchers have investigated the government spending multiplier, an index measuring the effects of public spending and real GDP, in lower middle-income countries such as Tanzania. This box presents the results of an assessment of short-run output effects of government spending in Tanzania,b using World Bank estimated quarterly data between 2000 and 2023. The assessment used a structural vector autoregressive (SVAR) model with 7 variables—real GDP, real government expenditure, real government revenue, extended broad money (M3), GDP deflator, real private consumption, and real private investmentc—and 4 shocks—business cycle shock, monetary policy shock, government spending shock, and government revenue shock. As many researchers have pointed out, government spending multiplier estimates vary according to the status of the economy and the monetary policy stance. Therefore, the assessment followed a widely used approach developed by Mountford & Uhlig (2009) that identified an independent government spending shock unrelated to the business cycle shock and monetary policy shock by imposing sign restrictions.d The findings show that Tanzania’s government spending multiplier is estimated at around 0.42 between 2000 and 2023.e This indicates that every Tsh 1 spent by the government could increase real output by Tsh 0.42. This number is similar to a reasonably precise estimate of 0.4 in a large sample covering 102 developing countries between 1970 and 2010 done by Kraay (2014).f A comparison of the estimated government spending multiplier for periods before and during/after the pandemic reveals that the estimate for 2000–2019 (pre-pandemic period) is much higher than that of 2000–2023 (Figure B2.B). The large difference in the effectiveness of government spending may be attributed to a lower spending multiplier during the pandemic (Kinda et al. 2022) when a higher level of uncertainty dampened consumer and investor confidence. The results also show that the spending multiplier crowds in real private consumption while crowding out real private investment, which is consistent with existing literature. (continued on next page) 2 TANZANIA ECONOMIC UPDATE – HARNESSING THE OPPORTUNITY FOR A CLIMATE-SMART AND COMPETITIVE LIVESTOCK SECTOR IN TANZANIA BOX 2: TANZANIA’S GOVERNMENT SPENDING MULTIPLIER (continued) Gross Fixed Capital Formation FIGURE B2.A •  FIGURE B2.B • Fiscal Spending Multiplier (% of GDP) (Level) 45 0.9 0.82 40 0.8 35 0.7 30 0.6 25 20 0.5 0.42 15 0.4 10 0.3 5 0.2 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 0.1 Private Sector Public Sector Total 0.0 2000–2019 2000–2023 Source: MFMod, and WB staff estimates. Source: WB staff estimates. a World Bank. 2023. Privatizing Growth: A Country Economic Memorandum for the United Republic of Tanzania. https://documents.worldbank.org/en/publication/documents- reports/documentdetail/099120523172572316/p177386065705608a0894401f03243fd2c6 b While recent studies have explored different values for the capital expenditure and revenue expenditure multipliers, this assessment focused only on the overall expenditure multiplier due to data limitations. c GDP used in this Box is estimated by WB. All variables are seasonally adjusted by applying the X-13 approach developed by the US Census Bureau. Apart from M3 and GDP deflator, other variables are interpolated from annual data using the quadratic sum method and calculated in per capita terms. The lag order of 6 is selected based on information criteria. d Like Mountford & Uhlig (2009), this assessment identified a business cycle shock if real GDP, real government revenue, real private consumption, and investment moved in the same direction in the following year after the shock, while a monetary policy shock was identified if M3 and GDP deflator moved in the opposite direction. Government revenue and spending shocks are orthogonal to the previous two shocks. e The spending multiplier is the one-year impact multiplier, defined as (GDP response in the fourth quarter) . (Initial spending shock * average government spending share of GDP) The findings are quite robust. The fiscal multiplier is estimated at around 0.45 when using a subsample (2003Q4–2023Q4), and at around 0.31 when adding 3-months T-bill rate into the model using quarterly data between 2000 and 2023. f Kraay, A. 2014. “Government spending multipliers in developing countries: evidence from lending by official creditors.” American Economic Journal: Macroeconomics, 6(4), 170–208. Leading indicators suggest a vibrant services However, the expansion of the industry sector in the first quarter (Q1) of 2024. According sector has been relatively subdued. The industrial to the NBS, the number of international tourist arrivals production index averaged 101.7 in Q1-2024, signifi- on Tanzania’s mainland soared by 27 percent, y/y, cantly below 106.3 recorded in the same period last to 0.52 million in Q1-2024. Burundi (representing year. While Tanzania’s frequent power blackouts have 10.4 percent of total arrivals during 3M-2022), Kenya ended, as an excess of electricity was generated by (8.9 percent), Italy (6.4 percent), France (5.9 percent), the Tanzania Electric Supply Company Limited, there and the United States (5.3 percent) are the top 5 has been no double-digit increase in electricity pro- source countries and account for one-third of total duction. The growth of electricity in Q1-2024 remained tourist arrivals. Total voice traffic minutes, a proxy of consistent with the same period last year, at 9.6 per- the telecommunication subsector, also grew by almost cent. Cement consumption contracted by 9.5 percent 10 percent in Q1-2024, building on an already high in Q1-2024, against a contraction of merely 1 percent growth of 24.3 percent, y/y, during Q1-2023. in Q1-2023 (Figure 3). A similar downward trend Recent Economic Developments 3 Electricity Generation and Cement FIGURE 3 •  FIGURE 4 • Poverty Incidence, 2011–2024 Consumption (Poverty rate, % ) (000' tones; % y/y growth (RHS)) 60 3.0 28 55 24 2.5 50 47.7 47.9 20 44.6 44.0 45 43.0 2.0 16 44.3 44.3 43.5 40 1.5 12 35 8 28.2 30 27.1 26.8 26.2 1.0 26.4 4 25 26.1 26.9 26.5 0.0 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 20 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2021 2022 2023 2024 Domestic cement consumption Electricity generation National poverty line - Tsh 49,320 International poverty line – US $2.15 a day (2017 PPP) Source: NBS, and WB staff estimates. Note: Only positive electricity generation growth were represented in the red dots. Source: 2011, 2018 Household Budget Survey and WB staff estimates. was observed in domestic cement manufacturing, erty, from 44.0 percent in 2022 to 43.5 percent in an indication of slower growth in manufacturing and 2023, largely attributed to high population growth, construction subsectors, which usually constitute limited social protection, and low productivity in the 70 percent of value-added in the industry sector. agriculture and livestock sectors (which together The irregular release of national account employ almost 70 percent of Tanzanians). Tanzani- statistics and high frequency data impedes the ans are highly vulnerable to shocks, highlighted by comprehensive analysis of recent developments recent flooding events and data showing an inverse in real sectors. There are often significant delays in relationship between exposure to climate-related the publication of GDP and high frequency indicators. shocks and ability to cope. For example, the district For example, new data on these statistics were not of Longido in northern Tanzania ranks as the most disclosed between early January and early May this impoverished and has one of the highest exposures year. The latest available data as of end of April are to drought. Poverty-reduction strategies should 9M-2023 for GDP and October 2023 for high fre- focus on enhancing agricultural productivity and quency indicators. This highlights the importance of commercialization among smallholder farmers, enhancing the timely publication of both ad hoc and improving market access, building the population’s routine statistics. productive capacities, fostering private sector Tanzania continues to witness slow growth through an enabling business environment progress in poverty reduction. In the absence with less regulatory barriers (Box 3), and expand- of updated official poverty data post-2018, find- ing social protection coverage. Equally important ings from the 2020/2021 National Panel Survey is ensuring that women have access to economic indicate a notable decline in household consump- opportunities and assets, including land, enabling tion, primarily attributed to the adverse effects of them to maximize their economic contributions, and the COVID-19 pandemic (Figure 4). Subsequent invest in girls’ education, which will likely lower fertil- estimates based on the effects of GDP growth on ity rates and further reduce poverty (see the special poverty indicate a slight reduction in extreme pov- topic of the last TEU). 4 TANZANIA ECONOMIC UPDATE – HARNESSING THE OPPORTUNITY FOR A CLIMATE-SMART AND COMPETITIVE LIVESTOCK SECTOR IN TANZANIA BOX 3: EN ROUTE TO ‘PRIVATIZE’ TANZANIA’S GROWTH Tanzania’s private sector is poised to play an important role in the Top Ten Business Environment FIGURE B3.A •  country’s development trajectory. As presented by the Ministry of Constraintsa for Firms in Finance (MoF) in the Plans and Budget priorities for 2024/25,a the Tanzania Government of Tanzania (GoT) recognizes the importance of the private sector as the engine of economic growth. The authorities (% of firms) plan to prioritize the facilitation of an inclusive and competitive 45 economy, deepening industrialization, and service provision as well 40 as investment and trade promotion. 35 30 However, regulatory burdens remain among the most critical 25 barriers to private sector growth. While there are ongoing efforts by 20 the GoT to improve private sector development, the implementation 15 of genuinely transformative reforms has been slow, and significant 10 barriers to doing business remain when comparing Tanzania with 5 averages for SSA and all economies in the World Bank 2023 0 Acces s to finance Electricity Tax rates Tax administration Business licences and permits Crime, theft and disorder Practi ces of the informal sector Cus toms and trade regulation s Acces s to land Transportation Enterprise Survey (Table B3.A and Figure B3.A). Survey datab confirm that domestic conditions for business entry and operation remain difficult in Tanzania. The country’s excessive regulatory burden creates a significant opportunity cost to formalization for firms, which incentivizes informal business practices. Moreover, Tanzania was ranked 105th out of 132 Tanzania Sub- Saharan Africa countries on business sophistication in the Global Innovation Source: Bank of Tanzania, WB staff estimates. Index 2023.c To leverage the potential of private sector-led growth, a The percentage of firms that consider a specific business environment obstacle there is an urgent need to accelerate the overhaul of the business- as the most important one. enabling environment and strengthen firms’ productivity and competitiveness. As part of ongoing reforms to improve the country’s investment climate, amendments to the Tanzania Investment Act 2023 were approved by the president in March 2024. These amendments aim to enhance investor protection guarantees, ensure alignment with international good practices, and significantly strengthen the investor protection framework. In Q4-2023, the Tanzania Investment Center (TIC) reported a year-on-year increase of 178 percent in the number of approved registered projects (from 58 to 161 projects), with an increase in their total capital from around US$770 million to US$1400 million.d TABLE B3.A • Regulations and Taxes in Tanzania and SSA, 2023 Indicator Tanzania SSA All Economies Senior management time spent dealing with the requirements of government regulation (%) 13.6 7.8 8.5 Percent of firms visited or required to meet with tax officials 92.5 64.4 44.1 If there were visits, average number of visits or required meetings with tax officials 2.6 2.9 2.3 Days to obtain an operating license 11.8 18.4 32.3 Days to obtain a construction-related permit 15.8 38.5 65.6 Days to obtain an import license 14.3 16.9 17.7 Percent of firms identifying tax rates as a major constraint 48.1 32.1 27.9 Percent of firms identifying tax administration as a major constraint 38.1 24.6 18.5 Percent of firms identifying business licensing and permits as a major constraint 25.4 14.4 12.8 Source: World Bank Enterprise Survey (2023). a MoF. 2023. Plan and Budget Guideline for 2024/25. December 2023. https://www.mof.go.tz/uploads/documents/en-1707721385-PLAN%20AND%20BUDGET%20 GUIDELINE%20FOR%202024-25.pdf. b World Bank. “Enterprise Surveys.” www.enterprisesurveys.org. c World Intellectual Property Organization. 2023. “Global Innovation Index 2023: Innovation in the face of uncertainty.” Geneva: WIPO. DOI:10.34667/tind.48220. d Tanzania Investment Center. “Quarterly Investment Bulletin October-December 2023.” https://www.tic.go.tz/uploads/documents/en-1709730086-BULLETIN%202nd%20 QUARTER-4.pdf. Recent Economic Developments 5 Monetary Policy and Inflation Tanzania was below the projected world average of 6.8 percent2 and lower than that of peer countries such Tanzania’s inflation has remained well below as Ghana and Ethiopia, which experienced double-digit the SSA average. Tanzania’s monthly inflation read- cumulative inflation. Moreover, Tanzania’s inflation rate ings remain consistent with the country’s inflation was the least volatile among regional peers, largely target band of 3 to 5 percent, despite the effects of the due to government interventions (Figure 5). COVID-19 pandemic, rate hikes in advanced econo- In the first four months (4M) of 2024, head- mies, and other external shocks. In 2023, inflation in line inflation averaged 3 percent y/y, a low level not seen since 2019 (Figure 6). Food and energy FIGURE 5 • Inflation in Tanzania and SSA Peers prices continued to drive the moderation in inflation. Cumulative food-price inflation fell from an average (% y/y change) of 9.6 percent in 4M-2023 to 1.5 percent in 4M-2024 Ethiopia (Figure 7), while inflation for energy, fuel and utilities Ghana picked up by 2.8 percentage points over the period. Zambia The stability of the country’s inflation has been due Lesotho to prudent monetary policy, declining global prices for Kenya some critical imports helped by pro-active government Mauritius measures to ensure adequate domestic food supply.3 Botswana Uganda Food and Non-Alcoholic Beverages FIGURE 7 •  Tanzania Inflation, January 2021–April 2024 Rwanda (% y/y change) Seychelles 12 –5 5 15 25 35 45 55 10 Average for 4M-2024* Inflation range since 2020 8 Source: NBS, WB staff estimates. * Data for Lesotho is 3M-2024. 6 CPI Inflation, January 2021–April 2024 FIGURE 6 •  4 (% y/y change) 2 14 0 12 Jan-21 Mar-21 May-21 Jul- 21 Sep-21 Nov-21 Jan-22 Mar-22 May-22 Jul- 22 Sep-22 Nov-22 Jan-23 Mar-23 May-23 Jul- 23 Sep-23 Nov-23 Jan-24 Mar-24 10 Food and non-alcoholic beverages inflation 8 Source: NBS, WB staff estimates. 6 3.9 4 2 Source: World Economic outlook, April 2024. 3.0 3 To counteract rising inflationary pressures, the government 2 has taken steps to ensure an adequate food supply to 0.9 meet national and regional needs. The national food 0 Jan-21 Mar-21 May-21 Jul- 21 Sep-21 Nov-21 Jan-22 Mar-22 May-22 Jul- 22 Sep-22 Nov-22 Jan-23 Mar-23 May-23 Jul- 23 Sep-23 Nov-23 Jan-24 Mar-24 supply increased by 124 percent in 2023/24, up from 114 percent in 2022/23. The government has also ensured the Core index Non-core index availability of fertilizers, with 418,942 tons of fertilizer sold All items (headline inflation) to farmers at subsidized prices in 26 regions in 2023 to reduce farmers’ production costs (imported inflation) and Source: NBS, WB staff estimates. increase the production of quality seeds and crops. 6 TANZANIA ECONOMIC UPDATE – HARNESSING THE OPPORTUNITY FOR A CLIMATE-SMART AND COMPETITIVE LIVESTOCK SECTOR IN TANZANIA Cumulative Energy, Fuel, and FIGURE 8 •  Contribution to PPI Inflation, FIGURE 9 •  Utilities Inflation 2020–2023 (% y/y change) (% y/y change, contribution in ppt.) 10 6 9.1 9 5 8 7.4 4 7 3 6 2 5 1 4 0 3.1 3 –1 2.3 Q1-2020 Q2-2020 Q3-2020 Q4-2020 Q1-2021 Q2-2021 Q3-2021 Q4-2021 Q1-2022 Q2-2022 Q3-2022 Q4-2022 Q1-2023 Q2-2023 Q3-2023 Q4-2023 2 1 Utility Manufacturing 0 Mining and quarrying Overall index 2021 2022 2023 4M-2024 Source: NBS, WB staff estimates. Source: NBS, WB staff estimates. Growth of the Money Supply, FIGURE 10 •  accounts for around one-fifth of core inflation—up January 2020–March 2024 from 2.8 percent in 2023 to 3.9 percent in 4M-2024. % y/y change As a result, the core inflation index rose from an aver- 32 age of 2.3 percent in 2023 to 3.7 percent in 4M-2024. Non-core inflation, which fell slightly from 8.2 percent 24 in 2022 to 8.0 percent in 2023, declined dramatically to 1.5 percent during 4M-2024. 16 The decline in the produce price index (PPI) has closely followed movements in the CPI. 8 It fell from a peak of 4.9 percent y/y, in Q3-2022 to 0 2.1 percent in Q1-2023, before sliding even further to 0.4 percent in Q4-2023, driven by the waning contri- –8 bution of manufacturing to inflation (Figure 9). While Jan-20 Apr-20 Jul- 20 Oct-20 Jan-21 Apr-21 Jul- 21 Oct-21 Jan-22 Apr-22 Jul- 22 Oct-22 Jan-23 Apr-23 Jul- 23 Oct-23 Jan-24 input costs for manufacturers of food, beverage, and tobacco products increased, costs for manufacturers Reserve money (M0) Extended broad money (M3) of chemicals, basic metals, and related products fell. Source: Bank of Tanzania, WB staff estimates. The growth in monetary aggregates has moderated. The annual growth of the extended broad money supply (M3) reached a high of 21.3 per- The slump in global oil prices passed cent in mid-2023, before settling at 13.8 percent in through to domestic energy, fuel, and utility March 2024. Further, the growth rate of reserve prices, but a recent reversal may increase infla- money (M0), the most liquid measure of the money tionary pressures. The cumulative energy-related supply, decelerated from 17.0 percent in June 2023 inflation fell from an average of 9.1 percent in 2022 to to 3.7 percent in December 2023, before increasing 2.3 percent in 2023, before increasing to 7.4 percent to 10.3 percent in March 2024 (Figure 10). The broad in 4M-2024 (Figure 8). This recent uptick in domes- monetary condition index also indicates a tightening of tic fuel prices pushed transport inflation—which Tanzania’s monetary conditions and BoT’s monetary Recent Economic Developments 7 Private Credit Growth and Its FIGURE 11 •  remain elevated, partly because of the forex interven- Drivers tions. The rate remains within the band of ±200 basis (% y/ychange, contribution in ppt.) points and is expected to have a minimal effect on the 30 7-day interbank lending rate, which currently stands at 7.28 percent. Pressure on lending rates from the 25 higher CBR will invariably materialize, although the 20 decrease in bank lending rates and improved asset quality over the last year will cushion the impact. 15 Lending rates charged by banks averaged 15.51 per- 10 cent in March 2024, down from 15.83 percent in 5 the corresponding month of 2023, and short-term lending rates (loans up to 1 year, which are more 0 prevalent for small and medium enterprises [SMEs]) –5 decreased from 16.67 percent to 16.17 percent in Jan-21 May-21 Sep-21 Jan-22 May-22 Sep-22 Jan-20 May-20 Sep-20 Jan-24 Mar-24 Jan-23 May-23 Sep-23 the same period. The overall deposit rates remained relatively stable, averaging 7.55 percent, although Others Agriculture Manufacturing Trade Transport and communication Personal Total the negotiated deposit rates increased slightly from 9.31 percent in March 2023 to 9.59 percent in March Source: Bank of Tanzania, WB staff estimates. 2024. Notably, the short-term interest rate spread5 nar- rowed further, from 8.73 percentage points in March 2023 to 7.23 percentage points in March 2024. policy stance since mid-2023 (Box 4). These trends The financial sector remains stable and are consistent with the BoT’s policies that aim to slow resilient to short-term shocks. The banking sector the growth of monetary aggregates against the back- is liquid, profitable, and adequately capitalized. Com- ground of the pressures on the exchange rate. mensurate with the increase in economic activity and Net domestic financial assets (NDA) use of financial services, capital adequacy—the ratio expanded by 8.1 percent in March 2024 and of liquid assets to demand liabilities—remains well remained the primary source of Tanzania’s liquid- above regulatory requirements. Moreover, the loans/ ity, supported by a broad-based expansion in customer deposit ratio is robust and stable. Notably, private credit offtake. Credit to the private sector asset quality is sound, with a non-performing loan reached an average annual growth rate of 22.9 per- (NPL) ratio of 4.4 percent—below the regulatory ratio cent in March 2023, before gradually declining to a of 5 percent. The BoT is closely monitoring the rise still robust 16.6 percent in March 2024 (Figure 11). in dollarization in the financial system resulting from Like in the previous year, credit growth continues to increased demand for foreign exchange. The increase be led by the agriculture sector, which benefits from in foreign currency deposits is indicative of banks’ government-supported programs.4 Moreover, credit preference to hold and transact in foreign currency, growth in manufacturing jumped from 2.3 percent in especially the US dollar. August 2023 to 24 percent in March 2024, and tour- ism appears to be recovering, with credit growth more than doubling for hotels and restaurants in the same 4 The government has a Tsh 1 trillion fund lent by the period. BOT at 3 percent to banks for lending to the agriculture The Bank of Tanzania (BoT) has increased sector. Another program coordinated by the National the rate to reduce supply-demand mismatch in Economic Empowerment Agency and managed by the Small Industries Development Organization offers loans the forex market while keeping inflation low. On to SMEs in the agriculture sector through AZANIA bank. April 3, 2024, the BoT announced an increase in the 5 The difference between the lending rate charged to central bank rate (CBR) from 5.5 percent to 6 percent. customers and the interest rate banks pay on deposits With limited depreciation of the Shilling, interest rates and borrowings. It is an indicator of a bank’s profitability. 8 TANZANIA ECONOMIC UPDATE – HARNESSING THE OPPORTUNITY FOR A CLIMATE-SMART AND COMPETITIVE LIVESTOCK SECTOR IN TANZANIA BOX 4: BROAD MONETARY CONDITION INDEX FOR TANZANIA Tanzania’s monetary policy framework is under transition. The authorities started in January 2024 to gradually replace the reserve money targeting regime, which had been used for almost three decades, with an interest-rate-based monetary policy regime.a While the interest rate becomes an important intermediate target to help government achieve inflation and output objectives, the growth rates of monetary aggregates and private credit will still be used to indicate Tanzania’s monetary conditions and the central bank’s monetary policy stance during the transition period. A modified popular, simple, and single monetary condition index (MCI) can be used to assess Tanzania’s monetary conditions and the central bank’s monetary policy stance. The MCI is used by various central banks, international organizations, and financial firms to evaluate monetary policies and environments in countries. The traditional MCI is defined as a weighted sum of changes in real interest rates and real exchange rates from their values in a selected base period.b This, however, is not suitable for Tanzania because: (i) the traditional MCI puts too much emphasis on the interest rate and exchange rate channels of the monetary policy transmission mechanism but ignores the monetary and credit channels currently present in Tanzania (as researched by the IMF);c and (ii) it works well for small open economies with fully flexible exchange rate regimes, such as Canada and New Zealand, but is less effective for countries such as Tanzania with a managed floating exchange rate regime. While a depreciation of the Canadian dollar contributes to loosening monetary conditions in Canada, a depreciation of the Tanzanian shilling is usually followed by a tightened monetary policy stance, as the central bank manages a relatively stable exchange rate. As a result, the following broad MCI that excludes the real exchange rate and introduces real extended broad money (M3) and real private credit (cr) may be more suitable for Tanzania: b Broad MCI = rt – rb + g (crt – crb) * 100, where rt, rb are the real interest rate at period t and base period b, crt, crb are the log of real private credit at period Broad t and base b = rt – rbb, MCI period + g (is crt – crb) * 100, the relative effect of cr and r on aggregate demand. d FIGURE B4.A • Traditional MCI and Broad MCI Broad MCI and Contribution of FIGURE B4.B •  Its Components (Index, base period: Jan 2020) 2 (Index, base period: Jan 2020) 4 1 3 0 2 –1 1 0 –2 –1 Tightening –3 –2 –4 –3 –4 –5 –5 –6 –6 2020M1 2020M3 2020M5 2020M7 2020M9 2020M11 2021M1 2021M3 2021M5 2021M7 2021M9 2021M11 2022M1 2022M3 2022M5 2022M7 2022M9 2022M11 2023M1 2023M3 2023M5 2023M7 2023M9 2023M11 2024M1 2024M2 2020M1 2020M3 2020M5 2020M7 2020M9 2020M11 2021M1 2021M3 2021M5 2021M7 2021M9 2021M11 2022M1 2022M3 2022M5 2022M7 2022M9 2022M11 2023M1 2023M3 2023M5 2023M7 2023M9 2023M11 2024M1 2024M2 Traditional MCI Broad MCI Interest Rate Credit Broad MCI Source: WB staff estimates. Source: WB staff estimates. Results show that the suggested broad MCI works better for Tanzania than the traditional MCI and indicate tighter monetary conditions since 2023. Derived from the empirical results estimated by Autoregressive Distributed Lag (ARDL) methodology,e the formulas of the two MCIs are: Traditional MCI = rt – rb + 1.7 (rert – rerb) * 100, and Broad MCI = rt – rb – 0.28 (crt – crb) * 100. A rise in the interest rate reduces aggregate output and increases the MCI, as do an appreciation in the Tanzanian shilling (an increase in real exchange rate [rer]) and a decrease in private credit. Therefore, a rising MCI indicates tightening monetary conditions, and vice versa. (continued on next page) Recent Economic Developments 9 BOX 4: BROAD MONETARY CONDITION INDEX FOR TANZANIA While the traditional and broad MCI indicate a similar trend between May 2020 and May 2021, the traditional MCI has failed to capture the movement of monetary conditions since mid-2021. Instead, it suggested a contradictory conclusion against the broad MCI (Figure B3.A), reflecting Tanzania’s managed floating exchange rate regime, under which an appreciation of the Tanzanian shilling is usually followed by loosening monetary conditions to stabilize the exchange rate. By contrast, the broad MCI can better depict the central bank’s monetary policy stance. It reflects tightened monetary conditions between January and March 2020 due to increased government borrowing to fund development projects, as well as more accommodative monetary policies (e.g., a credit window was introduced for the agriculture sector) during the pandemic and post-pandemic recovery. However, the general trend of loosening monetary conditions started to reverse rapidly since early 2023, when the regional US$ drought exerted continuing pressures on the country’s official reserve and forex market (Figure B3.B). a The BoT set the policy rate at 5.5 percent for the first quarter on January 19 and raised it by 50 basis points to 6.0 percent for the second quarter on April 4. Under this regime, the BoT will align the 7-day interbank cash market interest rate along the policy rate. b The definition of the traditional MCI=(rt – rb) + a g (rert – rerb), where rt, rb bare real interest rate at period t and base period b, rert, rerb are log of real exchange rate at period t and base period b, and a g is the relative effects of r and rer on aggregate output. c International Monetary Fund. 2023. “Reexamining the Monetary Policy Transmission Mechanism in Tanzania.” https://www.elibrary.imf.org/view/journals/002/2023/154/ article-A004-en.xml. d As real extended broad money (M3) usually follows the same pattern as credit, only credit is kept in the equation. However, adding M3 in the index calculation does not alter the general trend and results. e The ARDL model estimated real GDP growth rate as the dependent variable and the real interest rate and 12-month changes in the logarithms of real exchange rate as independent variables, using monthly data from May 2015 to February 2024 to get the relative effects for the traditional MCI. Similarly, the model excluded 12-month changes in the logarithms of real exchange rate and added 12-month changes in the logarithms of M3 and private credit in the set of independent variables, using the same sample to calculate the relative effects for the broad MCI. Fiscal and Debt Developments total government revenue grew by 27.4 percent, y/y, and reached Tsh 22.1 trillion, equivalent to 95.0 percent While fiscal consolidation has progressed slowly of the 8M target of Tsh 23.3 trillion. The government over the past few years, the government is remains committed to enhancing internal revenue col- expected to adopt measures to improve the coun- lection, which is vital for ensuring budget stability and try’s fiscal health. Supported by increased revenue sustainability. More than one-third of Tanzania’s financ- collection, the overall fiscal deficit narrowed from ing for the budget deficit is from foreign sources, with 3.2 percent of GDP during FY2018/19 to 1.9 percent the remaining from domestic sources, which is in line during FY2019/20. However, as widespread fiscal with budget projections. support was implemented in response to multiple Revenue collections surged by an impres- external shocks such as the COVID-19 pandemic, sive 27.4 percent, y/y, during 8M-FY2023/24. government public expenditure has soared since The increase was driven by the strong performance of FY2020/21, deteriorating the fiscal deficit while rev- income taxes, which witnessed a y/y increase of 36.3 enue remained stable as a share of GDP (Figure 12). percent, followed by the sales tax/value-added tax (VAT) The government’s FY2023/24 budget envisions a nar- and excise taxes (Figure 13). Import taxes increased rowing of the fiscal deficit through enhanced revenue by around 23.2 percent y/y in 8M-FY2023/24, while mobilization, which is already reflected in published non-tax revenue rose by 24.3 percent y/y during the data for the first eight months (8M) of FY2023/24. same period (Figure 14). The Government of Tanzania Tanzania’s primary fiscal deficit was an esti- is implementing a range of measures to bolster rev- mated 1.0 percent of GDP in 8M-FY2023/24, lower enue collection, including the promotion of IT systems than 2.3 percent of GDP in the same period in for accurate tax monitoring, expanding taxpayer and FY2022/23, reflecting an improvement in the coun- VAT registration through targeted campaigns, and try’s fiscal health (Table 1). This was well below the refining tax collection systems to make them more budget estimate of the fiscal deficit. In 8M-FY2023/24, user-friendly. The authorities have also prioritized tax revenue stood at 14.2 percent, surpassing 12 per- efforts to enhance withholding tax management for cent of GDP in the same period last fiscal year, and total government institutions and combat tax evasion and expenditure stood at 22.9 percent. In the same period, smuggling through strengthened border security. 10 TANZANIA ECONOMIC UPDATE – HARNESSING THE OPPORTUNITY FOR A CLIMATE-SMART AND COMPETITIVE LIVESTOCK SECTOR IN TANZANIA Overall and Primary Fiscal Balance FIGURE 12 •  8M Fiscal Revenues, 2019–2024 FIGURE 13 •  % of GDP (% contribution in ppt.) 1 30 25 20 –1 15 10 5 0 –3 –5 –10 –15 –5 2019 2020 2021 2022 2023 2024 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24e Non-tax revenue Other taxes (mainly Income taxes (Inc. LGAs) inland revenue) Overall fiscal balance Primary fiscal balance Sales/VAT and excise Taxes on imports on local goods Source: NBS, WB staff estimates. Source: Bank of Tanzania, WB staff estimates. Actual vs. Budget Revenue, FIGURE 14 •  Public Expenditure by Component, FIGURE 15 •  8M-FY2023/24 8M-FY2023/24 (% of GDP) (% share) 20 18.1 17.2 15 25.6 10 39.5 5 9.7 0 8M-FY2023/24 Actual 8M-FY2023/24 Budget 25.2 Taxes on imports Sales/VAT and excise Income taxes on local goods Other taxes (mainly Non-tax revenue Total revenue inland revenue) (Inc. LGAs) Source: Bank of Tanzania, WB staff estimates. Source: Bank of Tanzania, WB staff estimates. These initiatives reflect the government’s commitment on wages and salaries. Interest payments increased to optimize revenue while ensuring transparency and marginally from 1.8 percent of GDP in 8M-FY2022/23 compliance within the tax framework. to 2.2 percent of GDP during 8M-FY2023/24, while Expenditure in 8M-FY2023/24 closely spending on goods, services, and transfers increased mirrored the budget estimates driven by the from 4.0 percent to 5.8 percent of GDP in the same performance of development expenditure and period. At Tsh 7.4 trillion, actual spending on goods, predominance of recurrent expenditure. Recur- services, and transfers during 8M-FY2023/24 rent expenditure rose because of increased spending was higher than the budgeted level (Figure 15). Recent Economic Developments 11 TABLE 1 • Central Government Fiscal Operations (% of GDP) Fiscal Year (July to June) Jul–Feb (8M) 2018/19 2019/20 2020/21 2021/22 2022/23 2022/23 2023/24 Total Revenues 13.9 14.5 13.1 14.5 14.4 14.6 17.2 Tax revenu 11.5 12.0 11.0 11.9 11.8 12.0 14.2 Taxes on imports 4.2 4.1 4.2 4.7 4.6 4.7 5.4 Sales/VAT and excise on local goods 2.8 2.6 2.4 2.0 2.3 2.4 2.9 Income taxes 3.8 4.5 3.8 4.5 4.2 4.0 5.1 Other taxes (mainly Inland Revenue) 0.7 0.8 0.7 0.7 0.8 0.8 0.9 Non-tax revenue 2.3 2.4 2.1 2.6 2.6 2.6 3.0 Total expenditure and net lending 16.7 16.6 16.9 18.5 18.2 18.5 22.9 Recurrent expenditure 10.3 9.8 9.5 9.5 10.9 10.8 13.9 Wages and salaries 5.0 4.8 4.7 4.8 5.0 5.0 5.9 Interest payments 1.8 1.6 1.6 1.7 2.0 1.8 2.2 Domestic 1.2 1.0 1.2 1.2 1.5 1.3 1.5 Foreign 0.6 0.6 0.5 0.5 0.6 0.5 0.8 Other goods, services, and transfers 3.5 3.4 3.2 3.0 3.9 4.0 5.8 Development expenditure and net lending 6.4 6.8 7.4 9.0 7.3 7.7 9.1 Overall balance before grants –2.9 –2.1 –3.8 –4.0 –3.8 –3.8 –5.7 Grants 0.7 0.6 0.4 0.4 0.4 0.4 0.3 Adjustments to cash and other items (net) –0.9 –0.4 –0.5 0.0 –1.0 –0.6 2.2 Overall balance (cash basis) –3.2 –1.9 –3.8 –3.5 –4.4 –4.1 –3.2 Primary Fiscal Deficit –1.4 –0.3 –2.2 –1.9 –2.4 –2.3 –1.0 Financing 3.2 1.9 3.8 3.5 4.4 4.1 3.2 Foreign (net) 0.9 1.6 1.7 1.8 1.9 1.4 2.3 Domestic (net) 2.3 0.3 2.1 1.7 2.5 2.7 0.9 Source: Ministry of Finance and Planning and Bank of Tanzania. Note: Calendar year GDP for 2018/19 onwards is based on World Bank staff estimates which is converted to quarterly GDP using seasonal factors, from which fiscal year GDP is estimated. Strengthening infrastructure for the provision of social During FY2024/25, the government’s services, especially water, health, and education, was strategy is grounded in the principles of economic a crucial priority for the government during the previ- prudence. This involves enhancing private sector ous year. The country is actively financing strategic engagement in investment and business activities by bol- projects, notably the construction of a modern railway stering infrastructure. Additionally, the authorities plan to (Tanzania Standard Gauge Railway project) and the continue to mitigate the impacts of both natural and man- Julius Nyerere hydroelectric dam.6 The allocation of development funds has focused on ongoing strategic 6 Notes of Minister of Finance presenting in the Full projects as well as public-private partnership projects Parliamentary Committee. The System and Limitations that aim to reduce the government’s burden of financ- Proposals of the Government Budget for the year 2024– ing development projects. 25, March 2024. 12 TANZANIA ECONOMIC UPDATE – HARNESSING THE OPPORTUNITY FOR A CLIMATE-SMART AND COMPETITIVE LIVESTOCK SECTOR IN TANZANIA made disasters, foster stability in the global economy External Debt Stock by Share of FIGURE 16 •  and market prices, improve food security, and maintain Creditors peace, security, unity, and stability within the country (% of share) and in neighboring nations. The government plans to finance development projects through funds like the Mar-24 Road Fund, Railway Fund, Rural Electricity Fund, Rural Water Fund, and Rural Water Agency, while also enhanc- Dec-23 ing the public procurement system for better efficiency.7 The government aims to take various Dec-22 measures to increase revenue collection in FY2024/25. This will involve improving the business Dec-21 environment, broadening the tax base, and strength- Dec-20 ening tax law enforcement, alongside promoting the efficiency of the tax IT system, especially related to Dec-19 property. Additionally, the government aims to invest in productive sectors, formalize the informal sector, 0% 20% 40% 60% 80% 100% and improve tax evasion controls while enhancing Multilateral Bilateral Commercial Export credit service delivery at border centers.8 The most recent International Monetary Source: Bank of Tanzania. Fund/World Bank Debt Sustainability Analysis (June 2024) maintained Tanzania’s moderate risk rating of external and public debt distress. Tanzania external debt component of total public sector debt is assessed as having some space to absorb shocks. increased from 28.9 percent to 39.6 percent of GDP While indicators for external debt solvency and liquid- in FY2022/23. As a result, the central government ity remained below the policy-defined thresholds in continues to dominate Tanzania’s external borrow- the baseline scenario, the debt service-to-export and ing, constituting 71.7 percent of all internationally debt stock-to-exports ratios surpassed their respective outstanding debt as of end-March 2024. Borrowing thresholds in the export-shock stress test. Nonethe- from multilaterals, such as the World Bank and the less, the present value of the public debt-to-GDP ratio IMF, now constitutes slightly more than half of external is projected to remain comfortably below Tanzania’s borrowing, while the role of bilateral creditors has debt carrying capacity benchmark of 55 percent. By declined since 2020. A buildup of export credit during end-FY2023/24, total debt held by the public sector the same period has been reversed and replaced with is expected to reach 47.6 percent of GDP (of which other commercial and concessional sources of credit 45.7 percentage points are central government debt (Figure 16). and 1 percentage point domestic arrears), up from Meanwhile, domestic public debt stood 46.7 percent of GDP in FY2022/23. The FY2022/23 at Tsh 30,754 billion at end-March 2024, which public sector debt stock equates to Tsh 84.0 trillion represented a y/y increase of 14.5 percent. (approximately US$36.1 billion) in nominal terms and Domestic debt rose marginally from 36.5 percent of increased to an estimated Tsh 96.5 trillion (approxi- public sector debt at end-June 2022 to 36.7 percent mately US$36.5 billion) at end-FY2023/24. While both at end-June 2023. The shares of various instruments external and domestic debt grew, the share of domestic remained broadly stable between March 2023 and debt increased by 26 basis points in FY2022/23 before March 2024, with government securities accounting being expected to drop in FY2023/24, reflecting the for approximately 86 percent of total domestic debt, financing trends observed in the fiscal accounts. External debt maintains its dominance 7 Ibid. in the central government debt portfolio. The 8 Ibid. Recent Economic Developments 13 of which around 9 percent was made up of short-term a recovery in tourism receipts improved Tanzania’s Treasury Bills. Overdrafts continue to stand at about current-account position in 2023, with the CAD nar- 14 percent of total domestic debt. The government’s rowing to 4 percent of GDP. dependence on overdraft financing highlights contin- This positive momentum continued in ued scope to improve cash management practices. the first three months (3M) of 2024. The cur- Moreover, elevated costs associated with overdrafts rent account deficit declined to US$576.4 million exacerbate pressure on the budget. One-third of (equivalent to 2.9 percent of GDP) during 3M-2024, domestic debt is now held by commercial banks, up from US$926.0 million (equivalent to 4.7 percent of from 26.8 percent a year ago. The share of pension GDP) during 3M-2023. Despite net income outflows funds in total domestic borrowings fell by 2.9 percent- remaining at 0.8 percent of GDP over the period, age points to 26.7 percent between March 2023 and an improved trade balance helped narrow the CAD March 2024. Tanzania’s central bank also reduced (Figure 17). Driven by increased earnings from gold its share from 21.4 percent of total domestic debt to exports and tourism sectors, as well as reduced 20.2 percent between March 2023 and March 2024. imports bills, Tanzania’s trade balance shrank from US$770.9 million (3.9 percent of GDP) during 3M-2023 to US$425.7 million (2.2 percent of GDP) Balance-of-Payments Position during 3M-2024. This trend also mirrored an improved terms-of-trade position.9 Tanzania’s current-account deficit (CAD) has Bolstered by traditional and gold exports, improved gradually since 2022. It deteriorated Tanzania’s merchandise exports increased by sharply in 2022 amid escalating food and energy prices, spillovers from Russia’s invasion of Ukraine, 9 Terms of trade in Q3-2023 were 7.2 percent higher than and supply chain disruptions that pushed up the in Q3-2022, suggesting that Tanzania’s exports were import bill. As a result, the CAD more than doubled able to buy 7.2 percent more in imports than a year to around 7.7 percent of GDP, the highest level since ago. Terms of trade data for Q4-2023 and Q1-2024 are 2014. However, lower global commodity prices and unavailable at the time when preparing the section. Current Account Balance by FIGURE 17 •  Merchandise Exports, by FIGURE 18 •  Component Component (% of GDP) (% y/y change, contribution in ppt.) 25 25 20 21.1 20 15 10 15 5 0 10 9.7 –5 6.8 6.6 –2.1 –2.9 5 5.4 –3.4 –4.0 –4.7 –10 2.7 –7.7 –15 0 –20 –5 –25 2020 2021 2022 2023 3M-2023 3M-2024 –10 Goods exports Goods imports 2020 2021 2022 2023 3M-2023 3M-2024 Services exports Services imports Traditional goods Manufactured goods Income inflow Income outflow Gold Other minerals Curren t account balance Other export goods Goods exports Source: Bank of Tanzania, WB staff estimates. Source: Bank of Tanzania, WB staff estimates. 14 TANZANIA ECONOMIC UPDATE – HARNESSING THE OPPORTUNITY FOR A CLIMATE-SMART AND COMPETITIVE LIVESTOCK SECTOR IN TANZANIA FIGURE 19 • Tourism Receipts and Arrivals FIGURE 20 • Merchandise Imports by Component (Levels) (% y/y change, contribution in ppt.) 400 50 42.0 350 40 300 27.7 30 250 200 20 11.7 150 10 1.2 100 0 50 –9.1 –10 –3.4 0 2020 2021 2022 2023 3M-2023 3M-2024 Jan-21 Mar-21 May-21 Jul- 21 Sep-21 Nov-21 Jan-22 Mar-22 May-22 Jul- 22 Sep-22 Nov-22 Jan-23 Mar-23 May-23 Jul- 23 Sep-23 Nov-23 Jan-24 Mar-24 Capital goods Oil Fertilizers Industrial raw materials Tourism arrivals (000') Travel receipts (US$ million) Consumer goods Goods exports Source: Bank of Tanzania, WB staff estimates. Source: Bank of Tanzania, WB staff estimates. 2.7 percent during 3M-2024, slower than 9.7 per- Imports of goods and services in Tanzania cent during 3M-2023 (Figure 18). Led by a surge in was virtually flat in 3M-2024, decreasing by tobacco, cashew, and cotton exports—all attributed 0.7 percent over the period. Growth of goods largely to volume effects, Tanzania’s traditional exports imports decelerated from 11.7 percent in 3M-2023 to drastically rebounded to US$233.6 million by nearly merely 1.2 percent in 3M-2024, on the back of reduced 50 percent during 3M-2024, from a contraction of oil and fertilizers imports (Figure 20). As a result of 4.9 percent during the same period last year. Gold the moderation of the global commodity prices,11 exports rose by 7.2 percent during 3M-2024, building the import value of oil and fertilizer dropped by a on a 7.8 percent increase in 2023, due primarily to the combined 16.1 percent during 3M-2024, compared escalating price traded in the global market.10 In con- to a 35.7 percent surge during 3M-2023. Capital trast to gold, exports of other minerals experienced a imports, however, increased at 7.9 percent, reflecting 43.3 percent contraction during 3M-2024, which partly the increasing demand for transport, building and reflects waning external demand for coal and tanzanite. construction equipment, and machinery from the While growth of merchandise exports decel- ongoing mega projects. Meanwhile, services imports erated, the tourism industry stimulated export reduced by nearly 11 percent, resulting from a decline earnings. Tanzania earned US$1768.3 million foreign in insurance and freight services that illustrated the exchange from services exports during 3M-2024, which stagnant growth of merchandise imports as well as is 18.6 percent higher than the same period last year. dropped freight prices. Travel receipts, the largest component of Tanzania’s services exports, soared by 27.2 percent over the period, reaching US$970.7 million. This increase was 10 Global gold prices increased by 9.7 percent from an bolstered by the surging number of inbound tourist average price of US$1888.3/oz during 3M-2023 to US$2071.8/oz during 3M-2024, according to the World arrivals—registered at 0.52 million during 3M-2024 Bank “Pink Sheet” Data. (Figure 19). Receipts from freight services also rose 11 The oil prices dipped by 2 percent during 3M-2024, by around 6 percent and attracted US$579.9 million while fertilizer price index declined by nearly 30 percent, foreign income during 3M-2024. according to the World Bank “Pink Sheet” Data. Recent Economic Developments 15 Trend of Financial Account Net FIGURE 21 •  FDI, Tanzania and Regional FIGURE 22 •  Inflows Neighbors, 1990–2022 (% of GDP) (% of GDP) 10 8 8 7 6 6 5 4 4 2 3 0 2 1 –2 0 –4 –1 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2017 2018 2019 2020 2021 2022 2023 Direct investment Portfolio investment Rwanda Ethiopia Kenya Other investment Electricity generation Mauritius Uganda Tanzania Source: Bank of Tanzania, WB staff estimates. Source: World Bank; World Bank staff estimates. The capital and financial account surplus ment, comprising of portfolio investment and other declined to 3.8 percent of GDP in 9M-2023, investment, maintained at a combined total of 1.9 per- from 4.1 percent during the same period last cent, the same level as 9M-2022. year. This reduction is mainly caused by slumped Tanzania’s improved balance-of-trade and inbound capital transfers to the government, while current-account position partly relieved pressure foreign and non-foreign direct investment hovered on foreign-exchange reserves held by the Bank at a constant level. Tanzania’s general government of Tanzania (BoT). Gross foreign exchange reserves received US$88.5 million for development projects remain adequate and rose from US$5.0 billion by end- during 9M-2023, which is around one-third of the March 2023 to US$5.3 billion by end-March 2024, receipts during the same period a year ago, resulting while the coverage of official reserves declined from in a declined capital account surplus of 0.2 percent 4.5 months to 4.4 months in the same period.14 How- of GDP. By contrast, financial account (excl. reserves) ever, the shortage of foreign exchange (especially surplus amounted to 3.6 percent of GDP, at par with US dollars) has led to a further depreciation of the the surplus in 9M-2023 (Figure 21). Tanzania’s foreign direct investment (FDI), as a percentage of GDP, is relatively low compared to regional neighbors, and 12 The government has approved many investment-related bills to improve business environment, such as Tanzania experienced a downward trend over the past decade Investment Act (2022), Public Investment Bill (2023), (Figure 22). Recently, a favorable environment led by amendments to Public–Private Partnership Act (2023), pro-business policies,12 gradually improved global and newly approved amendments to Investment Act financing conditions, along with positive ratings from (2024). Fitch and Moody’s have helped Tanzania attract 13 On March 22, Moody’s upgraded Tanzania’s sovereign investments from the international financial market.13 credit rating from B2 to B1 with stable outlook, surpassing its regional peers (including Kenya, Rwanda, Uganda). FDI picked up slightly from 1.6 percent of GDP in 14 While the imports coverage decreased slightly, as 9M-2022 to 1.7 percent in 9M-2023 while an increase disclosed by the BoT, World Bank data suggest a of 178 percent in the number of approved registered constant level at 4 months of imports in both March projects was observed in Q4-2023. Non-FDI invest- 2023 and March 2024. 16 TANZANIA ECONOMIC UPDATE – HARNESSING THE OPPORTUNITY FOR A CLIMATE-SMART AND COMPETITIVE LIVESTOCK SECTOR IN TANZANIA Gross Official Reserves and FIGURE 23 •  Real GDP Growth FIGURE 24 •  Exchange Rate (% y/y change, contribution in ppt.) (Levels) 9 8.4 8 2600 8 7 2550 7 6.1 6 2500 5.8 6 5.3 5.2 2450 5 5 2400 4 4 2350 3 3 2300 2.3 2 2250 2 1 2200 1 0 2150 0 Jan-21 Mar-21 May-21 Jul- 21 Sep-21 Nov-21 Jan-22 Mar-22 May-22 Jul- 22 Sep-22 Nov-22 Jan-23 Mar-23 May-23 Jul- 23 Sep-23 Nov-23 Jan-24 Mar-24 9M-2018 9M-2019 9M-2020 9M-2021 9M-2022 9M-2023 Net taxes Services Industry Official foreign reserves (US$ billion) Months of imports Agriculture GDP Nominal exchange rate (RHS) Source: National Bureau of Statistics (NBS); World Bank staff estimates. Source: Bank of Tanzania, NBS, WB staff estimates. Tanzanian shilling since July 2023 when the govern- (1.9 million people) in 2022.15 Unlike the mainland, ment advocated for higher exchange rate flexibility. where over two-thirds of the population lives in rural The shilling has depreciated by 10.6 percent, from areas, only half Zanzibar’s population is in rural an average trading rate of Tsh 2322.9/US$ in March areas. Having around 880 km length cost lines, the 2023 to Tsh 2569.7/US$ in March 2024 (Figure 23). island is abundant in diverse marine resources. Since The BoT aims to ensure that the exchange rate aligns 2020, the Revolutionary Government of the Zanzibar with economic fundamentals and is determined by has been implementing a blue economy agenda,16 the market. In Q1-2024, the BoT sold US$133.6 mil- which envisions a sea-based economy with a climate- lion in the interbank foreign exchange market (IFEM) resilient, carbon-friendly, and sustainable growth to inject forex liquidity in banks. Additionally, the BoT path. The largest source of income generation in the mopped up excess liquidity in financial markets, facili- archipelago is tourism, followed by fisheries.17 tated the resolution of letters of credit, and increased Zanzibar’s economy expanded steadily dur- the value of transactions conducted outside the IFEM. ing the first nine months (9M) of 2023, supported The continued flexibility of the exchange rate will be by tourism and fisheries. Real GDP growth acceler- crucial to restore the balance between demand and ated from 5.2 percent, year-on-year (y/y), in 9M-2022 supply in the forex market and eliminate the distortive to 6.1 percent in the same period in 2023 (Figure 24). parallel foreign exchange market. The services sector is the largest sector on the island 15 Population and Housing Census 2022. Zanzibar Macroeconomic Assessment 16 For more details, see the Zanzibar Blue Economy Policy (Revolutionary Government of Zanzibar 2020, https:// Zanzibar is a semi-autonomous island in the faolex.fao.org/docs/pdf/tan208265.pdf). 17 According to the Zanzibar Investment Promotion United Republic of Tanzania (URT). The URT Authority, the fisheries sector provides a source of income consists of the mainland of Tanzania (Tanganyika) to about 20 percent of Zanzibar’s population. (Zanzibar and the island of Zanzibar, with the latter representing Investment Promotion Authority, “Blue Economy,” around 3.1 percent of the country’s total population https://www.zipa.go.tz/sectors/blue-economy/). Recent Economic Developments 17 Inflation, January 2021–February FIGURE 25 •  Fiscal Developments, FY2020/21– FIGURE 26 •  2024 FY2023/24 (% y/y change, contribution in ppt.) (% y/y change, contribution in ppt.) 10 1,000 8 6 500 4 0 2 0 –500 –2 Jun- 21 Jun- 22 Jun- 23 Jan-21 Mar-21 Dec-21 Mar-22 Dec-22 Mar-23 Dec-23 Sep-21 Sep-22 Sep-23 Feb-24 –1,000 Others Clothing and footwear Transport –1,500 FY2020/21 FY2021/22 FY2022/23 FY2023/24 Housing, water, electricity, gas, and other fuels Food and non-alcoholic beverages Domestic revenue Total expenditure Grants Headline inflation Cash adjustments Overall deficit Source: NBS; World Bank staff estimates. Source: Bank of Tanzania; WB staff estimates. and remains the strongest economic growth driver. cent over the same period, partly due to a recovery in The island’s stunning coastal scenery, ivory white crop production. Government measures18 to control sand beaches, and clear turquoise sea attracted sugar prices during a recent sugar shortage in the around 0.64 million international visitors in 2023, up URT also helped combat food inflation. A slowdown from 0.55 million in 2022. The resumption of tourism in food inflation, combined with falling prices related had a direct impact on the expansion of the accom- to transport as well as housing, water, electricity, gas, modation & food services subsector (6.6 percent, y/y, and other fuels, drove the declining trend in prices in 2023) and stimulated buoyant activities in other (Figure 25). related subsectors such as wholesale & retail trade The fiscal deficit in Zanzibar widened from Tsh (9.9 percent, y/y) and real estate (6.0 percent, y/y). 78.9 billion during the first half (H1) of FY2022/23 Overall, services sector grew by 6 percent. Supported to Tsh 542 billion during H1-FY2023/24, as the by the construction, mining, and quarrying subsec- increase in total expenditure outweighed that tors, the industry sector expanded by 10.2 percent in total revenue. Domestic revenue increased by in 9M-2023, building on the 11.3 percent expansion 22 percent during H1-FY2023/24, primarily supported recorded in 9M-2022. The agriculture sector, which by revenue from import, income, and value-added contributes the least to economic growth, rebounded taxes and excise duties. However, the government from contracting by 6.2 percent in 9M-2022 to expand- ramped up public expenditure by over 50 percent, ing by 6.9 percent in 9M-2023, supported by resumed from Tsh 687.7 billion during H1-FY2022/23 to Tsh growth in crops and double-digit growth in fisheries 1034 billion H1-FY2023/24 (Figure 26). Recurrent due to the government’s blue economy policy. expenditure surged by 17.2 percent over the period, Inflationary pressures eased in Zanzibar in while development expenditures, especially those 2023 and early 2024 as food and non-alcoholic beverage prices declined. Headline consumer price 18 For example, Zanzibar’s fair competition commission index (CPI) inflation fell from a record 8.4 percent at shut down over 100 shops that hoarded and sold sugar the beginning of 2023 to 5.1 percent in February 2024. at a higher price than the government-set indicative Food inflation declined from 11.6 percent to 8.7 per- price. 18 TANZANIA ECONOMIC UPDATE – HARNESSING THE OPPORTUNITY FOR A CLIMATE-SMART AND COMPETITIVE LIVESTOCK SECTOR IN TANZANIA related to local capital projects aligned with Zanzibar’s Current-Account Balance, 2019–2023 FIGURE 27 •  five-year development plan 2021–2026,19 increased (US$ million) by more than 150 percent, y-y. Over 90 percent of the 400 fiscal deficit during H1-FY2023/24 was financed by domestic banks, with the remaining sourced from for- 200 eign loans (e.g., commercial loans and concessional 0 loans from international partners). –80.6 –82.6 –235.7 Zanzibar’s current-account position also –200 –363.7 –413.6 deteriorated in 2023. The current-account deficit –400 (CAD) rose from US$358.8 million in 2022 to US$388.8 million in 2023 (Figure 27). Diminishing merchandise –600 exports and increased imports of goods and services –800 contributed to the overall deterioration. The produc- 2019 2020 2021 2022 2023 tion of cloves, Zanzibar’s most important cash crop, Goods exports Goods imports was more than halved between 2022 and 2023, Services exports Services imports Income inflow Income outflow owing to falling prices due to fierce international com- Curren t accout balance petition as well as erratic weather conditions triggered by climate change.20 This slowdown in clove foreign Source: Bank of Tanzania, WB staff estimates. earnings caused the value of goods exports to plum- met by 34.7 percent (y/y) to US$50 million, despite an increase in non-traditional exports, including sea- trend was consistent with government-fueled expen- weeds, manufactured goods, and fish products. Total diture on local capital projects. Nevertheless, the CAD merchandise imports observed a double-digit rise in narrowed to US$23.8 million during 2M-2024, from 2023, with capital goods imports (transport equip- US$53.0 million during 2M-2023, mainly driven by a ment and machinery) surging by 64 percent. This 330 percent increase in merchandise exports. 19 The strategic projects for FY2023/24 are implemented (iv) renovation of the Mnazi Referral Hospital and in 5 areas: (1) blue economy; (2) environment and construction of a referral hospital in Binguni. infrastructure; (3) economic reform; (4) human resources 20 While clove production depends heavily on a growth and social services; and (5) governance strengthening. environment of moderate rainfall and temperatures, more Planned projects include but is not limited to: frequent floods and droughts arising from the climate (i) construction of the Mangapwani fishing port and the change can adversely impact production (Kabote and modern fish market; (ii) a clean and safe water distribution Tunguhole 2022). Source: Kabote, S. J., & Tunguhole, project and the Zanzibar Energy Sector Transformation J. (2022). Determinants of clove exports in Zanzibar: and Access Project; (iii) construction of Nungwi Airport, Implications for policy. International Journal of Business upgrade of Pemba Airport, and improvement of 103 km and Economic Studies, 4(2), 127–147. of roads across the Pemba and Unguja Islands; and Recent Economic Developments 19 2 MACROECONOMIC OUTLOOK AND RISKS T anzania’s real GDP is projected to grow at accompanying regulations. Additionally, the govern- 5.4 percent in 2024 and average around ment needs to pursue measures to increase access its long-run potential of about 6 percent to finance by small and medium-sized enterprises over the medium term (Table 2). The projection (SMEs), improve the tax policy and administration, has been revised downward slightly from the 5.6 per- and reduce the cost of regulatory compliance and cent published in the twentieth edition of the Tanzania trading across the border. Economic Update. This is due to the slower-than- Headline inflation is projected to remain expected implementation of ongoing transformative low and stable over the medium term. It is set to structural reforms to facilitate private sector invest- decline to 3.3 percent in 2024 and remain around ment, persistent barriers that hinder private sector 3 percent over the medium term. Ongoing efforts development, and insufficient reforms to rebalance to increase the productivity of agriculture and the the demand and supply in the foreign exchange food supply, together with tight monetary policy, are (forex) market. Over the medium term, growth will be expected to support low and stable inflation over the supported by an improved business environment and medium term. To improve monetary policy imple- the complete implementation of structural reforms, mentation and control inflation, the Bank of Tanzania which are expected to crowd in both public and private (BoT) transitioned from a monetary targeting to an investment, including foreign direct investment (FDI). interest-rate-based framework in January 2024. Increased investment is expected to boost domestic Over the medium term, the current-account demand and exports while helping to generate addi- deficit (CAD) is anticipated to narrow further. It is tional foreign currency. Still, the authorities should projected at 3.3 percent of GDP in 2024 due to an accelerate the implementation of capital projects improved trade balance, bolstered by rapid growth of and approved legislation such as amendments to the gold, services, and manufactured exports. Supported Public-Private Partnerships Act (2023) and Tanzania by increased tourism, service exports are expected Investment Act (2023), especially through issuing of to continue its growth momentum, while an improved 21 business environment, including better administration Projections suggest a continued decrease of value-added tax (VAT) refunds, is likely to drive an in the poverty rate from 43.0 percent in 2024 to increase in manufactured exports, especially to East 41.7 percent in 2026. This downward trajectory is African Community member states and other neigh- supported by a promising macroeconomic outlook boring countries. Over the medium term, the CAD is and increased agriculture budget allocations aimed projected to narrow further to about 3 percent of GDP at unlocking productivity by promoting the intensifi- as transformative reforms to improve the business cli- cation of agriculture, including livestock (see Special mate are completed and help attract private investment Focus). Given that a significant number of the poor (including FDI) and enhance export competitiveness. are farmers in the drought-prone North-Western and Import growth is expected to slow as major capital Central regions, it is crucial to build the resilience investment projects are completed and global com- of vulnerable populations before the onset of unan- modity prices continue to moderate. An expected ticipated shocks. Efforts should be directed to ensure increase in FDI inflows will largely fund the CAD and access to adequate social protection. Despite the help keep official gross reserves at an adequate level. country’s safety net program, which reaches over A combination of improved revenue collec- 1.3 million households, well beyond the target set in tion and fiscal prudence is expected to narrow the national development plan, its coverage is insuf- the fiscal deficit over the medium term. The fiscal ficient given the scale of vulnerability. It is also critical deficit is projected to decline to 3.7 percent of GDP in to make climate-smart investments in agricultural 2024 and average near 3 percent in the medium term inputs and irrigation infrastructure, especially in on account of expected higher tax revenue collection drought-prone and impoverished regions like Tabora, and controlled expenditures. Domestic revenues are Shinyanga, Mara, and Simiyu. Equally important is projected to increase to 15.7 of GDP in 2024, before funding research into improved seed varieties and reaching 16.2 percent in 2026, while total expendi- livestock breeds. These proposed investments are tures are projected to stabilize at about 19 percent likely to create resilient and productive agricultural over the medium term. Official grants are projected to and livestock systems, which will sustain livelihoods remain at 0.5 percent of GDP over the medium term, and accelerate poverty reduction. in line with the government’s objective of reducing the Downside risks from both the domestic and country’s aid dependency. The expected increase in external environment cloud the macroeconomic domestic revenue will come from increased tax and outlook. Risks include delayed and incomplete non-tax collection generated from improvements in implementation of transformative structural reforms the business climate, private investments, and tax to support private sector development and women compliance and administration (including through the empowerment, as well as the impact of climate use of electronic devices). Public expenditures are change on tourism and agriculture productivity projected to stabilize at around 19 percent of GDP, as and resilience, including livestock (see the Special an expected increase in recurrent expenditures dur- Section). Despite the government’s commitment to ing the upcoming elections will offset the decline in pursue structural reforms, including the implementa- capital expenditures resulting from the completion of tion of major infrastructure projects and adoption of major capital projects. The fiscal deficit is expected to amendments to regulations related to private sector be financed by both foreign and domestic loans, with development, progress has somewhat slowed while the latter continuing to play a significant role as global significant barriers remain. According to the World commercial financing costs remain high. According Bank Enterprise Survey (2023),21 Tanzania lags the to the latest joint International Monetary Fund-World Sub-Saharan African (SSA) region on good economic Bank Debt Sustainability Analysis (June 2024), Tanza- governance in areas such as regulation, business nia’s risk of external debt distress remains moderate, licensing, and taxation, which are fundamental pillars and the public debt-to-GDP ratio is projected to gradu- ally decline over the medium term. 21 World Bank, “Enterprise Surveys,” www.enterprisesurveys.org. 22 TANZANIA ECONOMIC UPDATE – HARNESSING THE OPPORTUNITY FOR A CLIMATE-SMART AND COMPETITIVE LIVESTOCK SECTOR IN TANZANIA of a favorable business environment. Survey data con- weak global trade and investment, the continuing fall- firm that domestic conditions for business entry and out from external conflicts. To mitigate these risks, the operation, including in the agriculture and livestock government must continue to implement policies that sectors, remain inadequate, and an excessive regula- reinforce macroeconomic stability, improve the busi- tory burden creates a significant barrier for firms to ness environment, enhance productivity (including formalize. External risks include a potential slowdown in the agriculture and livestock sectors), strengthen in global growth due to lagged and ongoing effects of climate resilience, and build human capital and work- tight monetary policy, restrictive financial conditions, force skills, especially among women. Medium-Term Outlook, 2021–2026 TABLE 2 •  2021 2022 2023 2024 2025 2026 (Annual % change unless otherwise indicated) Est. Est. Est. Fcst. Fcst. Fcst. Real GDP Growth (at constant market prices) 4.3 4.6 5.2 5.4 5.8 6.2 Private Consumption 2.3 4.6 2.2 3.4 3.8 3.5 Government Consumption 9.0 8.4 3.1 7.7 10.3 5.2 Gross Fixed Capital Investment 7.8 9.6 3.8 5.1 5.9 8.5 Exports, Goods and Services 5.2 10.2 17.4 9.3 6.3 9.1 Imports, Goods and Services 9.6 23.7 2.3 4.2 4.1 6.5 Inflation (consumer price index) 3.7 4.3 3.8 3.4 3.2 3.0 Current Account Balance (% of GDP) –3.2 –5.6 –3.8 –3.3 –3.1 –2.9 Net Foreign Direct Investment (% of GDP) 1.6 1.7 1.8 2.3 2.6 2.8 Fiscal Balance (% of GDP in FY) –3.8 –3.9 –3.8 –3.7 –3.8 –3.3 Gross Nominal Debt (% of GDP in FY) a 42.6 45.4 46.7 47.6 46.9 45.7 Source: World Bank Staff Estimates. Note: Est. stands for Estimates and Fcst. stands for Forecasts. All variables are based on calendar year unless otherwise specified. Fiscal Year (FY) runs from 1st July to 30th June a As is the same in the published WB-IMF Joint Debt Sustainability Analysis in June 2024. Macroeconomic Outlook and Risks 23 3 SPECIAL FOCUS: HARNESSING A CLIMATE-SMART AND COMPETITIVE LIVESTOCK SECTOR Introduction tions that not only mitigate environmental degradation but also boost productivity and enhance the livestock There is potential for Tanzania to leverage its sector’s resilience and competitiveness. These initia- strengths in livestock production and trade. tives could also contribute to climate change mitigation. Despite robust production due to a large livestock Tanzania could grow its livestock sector if it population, low productivity and stagnant yields pursues appropriate policy reforms, institutional persist in the country’s livestock sector, reflecting low innovations, and investments that overcome the levels of public investment and insufficient private complex set of biophysical, organizational, and investment, hindering the realization of the sector’s financial challenges facing livestock producers full potential. Despite the high number of livestock, and traders. Adequate public investment is essen- exports of livestock products are low, an indication tial. While budget allocations to the livestock sector of low regional and international market integration. are rising, an estimated US$546 million in public Meanwhile, domestic consumption is surging, driven investment is needed to ensure sustainable livestock by population growth and rising demand in urban development in Tanzania over the next 5 years areas, and imports of key livestock products are (2023/24–2028/29). At about US$109 million a year, increasing to fill production shortfalls. this level of public investment represents a five-fold The livestock sector is susceptible to the increase over the budgets allocated to the livestock adverse impacts of climate change and challenges sector prior to 2021, and it is 50 percent more than that increase its vulnerability and blunt its competi- the 2023/24 budget. This high level of investment tiveness. Still, there is an opportunity for Tanzania to could be efficiently utilized by the sector given its embrace climate-smart measures and other innova- current underfunding and high absorption capacity. 25 FIGURE 28 • Livestock Density in Tanzania Livestock Population by Species, 2022 TABLE 3 •  Uganda Total livestock Per capita livestock population population Kenya Livestock Heads Rank in Heads/ Rank in Rwanda species (million) Africa person Africa Lake Zone Burundi Cattle 36.6 2 0.56 5 Central Zone Sheep 9.1 11 0.14 11 DRC Tanzania Coast Zone Goats 26.6 7 0.41 7 Chicken 98 7 1.50 8 Zambia Pigs 3.7 3 0.06 2 Source: FAOSTAT. Mozambique Tanzania’s total livestock population is also among the largest in Africa. Between 2010 and 2022, Tanzania’s Source: Gilbert et al. 2018. cattle, goat, sheep, and poultry population surged by an average of 83 percent, with the number of cattle more than doubling (Figure 29). Recent Trends and Developments in Compared to other countries in the region Tanzania’s Livestock Sector with large livestock populations, Tanzania’s large and growing livestock holdings make a relatively Tanzania’s livestock holdings are expansive, small contribution to GDP and agricultural GDP diverse, and multifunctional. Livestock are held (AgGDP). In 2022, the country’s livestock sector across the entire country but are concentrated in the accounted for 7.4 percent of GDP and 26.1 percent Central, Coast, and Lake zones (Figure 28). The main of AgGDP, lower than Ethiopia’s 19 percent and livestock species reared are cattle, goats, sheep, poul- 45 percent, respectively, and Kenya’s 12 percent try, and pigs, many of which serve multiple purposes and 40 percent, respectively (Figure 30). such as providing their owners with food, draft power, The livestock sector is an important source transport, income, and savings and contributing to of employment and income in Tanzania, espe- cultural and traditional practices. Production systems cially for the poorest rural households. The sector span arid, semi-arid, sub-humid, and humid agro- is an important source of income, offering opportuni- ecologies, and 80 percent of the country’s livestock ties throughout the value chain, from production to population is raised in agropastoral systems, 14 per- processing and marketing. It employs 33 percent of cent in pastoral systems, and the remaining 6 percent the population, or 4.6 million households (NBS 2021). on commercial ranches (Banda and Tanganyika Livestock sales account for 13.8 percent of household 2021; Mottet et al. 2018). income in rural areas, with the poorest rural house- Tanzania’s livestock population is one of holds deriving almost one-fifth of their income from the largest in Africa and globally, and it is growing such sales (Figure 31). In addition to its important rapidly. Its cattle population is immense at 36.6 mil- role in employment and income generation (and thus lion—second largest in Africa (behind Ethiopia)—and poverty reduction), the livestock sector makes signifi- represents 1.4 percent and 11.0 percent of the global cant contributions to other major national objectives and African total cattle population, respectively. such as food and nutrition security as well as gender Tanzania’s population of sheep, goats, chicken, and equality (Box 5). pigs is also large, with most ranking in the top ten on Between 2010 and 2021, livestock produc- the continent in terms of size (Table 3). Per capita, tion grew faster than crop production, driving an 26 TANZANIA ECONOMIC UPDATE – HARNESSING THE OPPORTUNITY FOR A CLIMATE-SMART AND COMPETITIVE LIVESTOCK SECTOR IN TANZANIA FIGURE 29 • Livestock Population, 2010–2022 A.Tanzania's livestock population (million) - 2010, 2022, and percent change B. Percentage change in livestock populations - 2010–2022 120 98 Cattle 109% 100 80 Goats 80% 60 54.3 40 36.6 Sheep 73% 26.6 20 17.5 15.7 9.1 5.25 0 Poultry 69% Cattle Goats Sheep Poultry 2010 2022 0% 20% 40% 60% 80% 100% 120% Source: FAOSTAT. FIGURE 30 • Contributions of Livestock to GDP and AgGDP in Tanzania and Neighboring Countries, 2022 A. Livestock shares of GDP in Tanzania and neighboring countries, 2022 B. Livestock shares (%) of Ag GDP in Tanzania and neighboring countries, 2022 Ethiopia 19 Ethiopia 45 Kenya 12 Kenya 40 Tanzania 7.4 Tanzania 26.1 Uganda 4.3 Uganda 17 0 2 4 6 8 10 12 14 16 18 20 0 5 10 15 20 25 30 35 40 45 50 Source: FAOSTAT. overall increase in agricultural production. Over (Panel A in Figure 33). Among these countries, this period, livestock production growth averaged only Tanzania registered sustained growth in per 4.9 percent per year, much higher than an average of capita livestock production over the period (Panel B 2.4 percent for crops and 3.0 percent for the agricul- in Figure 33). ture sector as a whole (Figure 32). However, livestock production growth From 2010 to 2021, the growth perfor- in Tanzania has been driven by expansion of mance of Tanzania’s livestock sector dwarfed the livestock population rather than sustained that of neighboring Ethiopia, Kenya, and Uganda yield increases. In recent years, livestock yields in Special Focus: Harnessing A Climate-Smart and Competitive Livestock Sector 27 Rural Household Income from FIGURE 31 •  and chicken, yields only increased for cattle meat and Livestock Sales by Income Quintile milk and goat meat between 2010 and 2022, growing Share (%) of rural household income from livestock sales by an annual average of 3.5 percent, 6.4 percent, 25 and 1.7 percent, respectively (Figure 34). Yields of goat and sheep meat generally exceeded global and 19.53 regional averages, but only goat meat yields showed 20 a clear upward trend. Yields of cattle meat and milk and chicken meat were well below global and regional 15 13.81 averages. 13.08 12.96 12.89 The consumption of livestock products has been surging in Tanzania, driven by popula- 10 tion growth, rising incomes, changing diets, and urbanization. While the country’s population 5 increased by an average of 3 percent per year between 2018 and 2022, its urban population expanded by an 0 annual average of 5.8 percent—higher than Tanza- 1 2 3 4 Total nia’s average per capita GDP growth of 4.2 percent Income quintile per year. As more Tanzanians move to cities and Source: Ntwalle 2019. adopt urban lifestyles, demand grows for convenient, processed, and value-added livestock products such Tanzania have registered mixed performance, with as packaged meats, dairy products, and ready-to- most being well below global and regional averages. eat meals. For example, per capita consumption of Among cattle meat and milk, goat meat, sheep meat, meat, milk, and eggs has been rising steadily (Baker BOX 5: THE LIVESTOCK SECTOR’S CONTRIBUTION TO KEY NATIONAL OBJECTIVES Food and nutrition security. A total of 14.9 million Tanzanians are undernourished, representing 23.5 percent of the population (higher than the African and global average of 19.3 percent and 9.3 percent, respectively) (FAOSTAT). Boosting food and nutrition security is therefore a major national objective. The livestock sector plays a vital role in enhancing nutrition and food security in Tanzania by: (i) contributing to dietary diversification through improved access to protein and essential nutrients such as iron, zinc, and vitamin B12, all of which are crucial to human health and can be attained through the consumption of meat, dairy products, and eggs; and (ii) expanding livelihoods and income generation through the sale of livestock and livestock products, thereby improving access to nutritious food. For instance, in Tanzania’s semi-arid Singida region, households with more livestock integrated into production systems have higher levels of food and nutrition security (Mdoe et al. 2022). Gender equality and women’s empowerment. Tanzania’s National Development Vision 2025 prioritizes the attainment of gender equality and women’s socioeconomic and political empowerment. Women in Tanzania are avid adopters of livestock-based livelihood activities when gender-based obstacles are removed or overcome. Conversely, low adoption rates among women are linked to norm-based socialization and limitations on women’s rights in male-dominated power hierarchies and resource ownership and control arrangements in households and communities. Livestock-derived livelihood activities in Tanzania provide opportunities for many women to generate income, become empowered, and actively participate in decision-making processes within their communities. Livestock are often the only collateral owned by women. In agro-pastoral communities in Dodoma and Morogoro, women with access to milk have greater financial independence within their households, allowing them to reduce their needs for costly loans (Galie and Kantor 2016; World Bank 2023). Youth employment. With half of its population aged 15 and younger, youth employment is a national priority in Tanzania. Three-quarters of youth are employed in the agriculture sector under largely informal and highly vulnerable conditions, and engaging this segment of the population is a major policy objective. While more data are needed to understand which type of livestock offers pathways to more formal and stable employment for youth in rural and urban areas, there is an opportunity to leverage the livestock sector to raise the youth employment rate. For example, young people own significantly more cattle than adults in Tanzania’s dairy system. The ability of youth to leverage these assets to increase their earnings and achieve more stable livelihoods depends on their access to education, adoption of improved production technologies and practices, and use of information and communication technologies tools (Bullock et al. 2023; MALF 2016; Nchanji et al. 2023). 28 TANZANIA ECONOMIC UPDATE – HARNESSING THE OPPORTUNITY FOR A CLIMATE-SMART AND COMPETITIVE LIVESTOCK SECTOR IN TANZANIA Livestock, Crop, and Overall FIGURE 32 •  consumption of milk and poultry grew by 82 percent Agricultural Production, 2010–2021 and 26 percent, respectively (Figure 35). Following Gross Production Indexes Agriculture, Crops, Livestock a dip between 2016 and 2019, the consumption of in Tanzania, 2010-2021 poultry doubled over the next two years, with the level 160 recorded in 2021 being 28 percent higher than that 140 recorded in 2010. The consumption of livestock products 120 in Tanzania is projected to continue to increase 100 rapidly, with consumption continuing to outstrip 80 production across key livestock products (Panel 60 A in Figure 36). Projections indicate a steady increase in livestock production due to improved productivity. 40 Productivity will benefit from the adoption of modern 20 practices, better genetics, and enhanced manage- 0 ment techniques, all of which will contribute to higher 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 output levels across key livestock species such as Agriculture Crops Livestock cattle, goats, sheep, and poultry (Dalberg 2019; Engida et al. 2015). However, despite these supply- Source: FAOSTAT. side improvements, the consumption of meat and milk Note: The production index is a measure of agricultural output changes in a given year relative to a base year. Production refers to the quantity produced and harvested for a is expected to exceed production by 2,050 million MT particular product during the reference period. The livestock production index includes and 5,400 million liters, respectively, by 2031 (Panel meat and milk from all sources, dairy products such as cheese and eggs, honey, raw silk, wool, and hides and skins. B in Figure 33). Tanzania’s livestock exports are low compared to those of other countries with large et al. 2016; Reardon et al. 2022; Wang et al. 2022). livestock populations. A comparison with Ethiopia Between 2010 and 2022, the consumption of eggs, is illustrative of Tanzania’s underperformance as a cattle, sheep, and goats more than doubled, while the livestock exporter. Ethiopia and Tanzania have almost FIGURE 33 • Total and per Capita Livestock Production in Tanzania and Neighboring Countries, 2010–2021 A. Gross Livestock Production Index (2014–16 = 100) B. Gross Per Capita Livestock Production Iindex (2014–16 = 100) 160 140 140 120 120 100 100 80 80 60 60 40 40 20 20 0 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Ethiopia Kenya Uganda Tanzania Source: FAOSTAT. Special Focus: Harnessing A Climate-Smart and Competitive Livestock Sector 29 FIGURE 34 • Yields of Major Livestock Products in Tanzania, 2010–2022 A. Cattle meat yields, Tanzania, World, Africa, East Afrifca - 2010–2022 B. Cattle milk yields, Tanzania, World, Africa, East Afrifca - 2010–2022 2,500 30,000 25,000 2,000 Yield (100g/animal) Yield (100g/animal) 20,000 1,500 15,000 1,000 10,000 500 5000 0 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 C. Goat meat yields, Tanzania, World, Africa, East Afrifca - 2010-2022 D. Sheep meat yields, Tanzania, World, Africa, East Afrifca - 2010-2022 250 300 250 200 Yield (100g/animal) Yield (100g/animal) 200 150 150 100 100 50 50 0 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 E. Chicken meat yields, Tanzania, World, Africa, East Afrifca - 2010-2022 18,000 16,000 14,000 Yield (100g/animal) 12,000 10,000 8,000 6,000 4,000 2,000 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Tanzania World Africa E Africa Source: FAOSTAT. 30 TANZANIA ECONOMIC UPDATE – HARNESSING THE OPPORTUNITY FOR A CLIMATE-SMART AND COMPETITIVE LIVESTOCK SECTOR IN TANZANIA FIGURE 35 • Consumption of Livestock Products, 2010–2021 A. Index of Consumption of Livestock Products (2014–16=100) B. Percentage increase in consumption of livestoc products in Tanzania - 2010–2021 250 200 Eggs 140% 150 Cattle 108% 100 Sheep & Goat 102% 50 Milk 82% 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Poultry 26% Cattle Sheep & goat Poultry Eggs Milk 0% 20% 40% 60% 80% 100% 120% 140% 160% Source: FAOSTAT. FIGURE 36 • Comparative Trends in Livestock Production and Consumption A. Livestock production and consumption indexes, B. Domestic Consumption-Production Gaps for Meat and 2010–2021 (2014–16 = 100) Milk (mmt) in 2021, 2026, and 2031 160 6,000 140 5,000 120 100 4,000 80 3,000 60 40 2,000 20 1,000 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 0 2021 2026 2031 Livestock production index Cattle meat consumption index Sheep & goat consumption index Milk consumption index Milk Meat Source: FAOSTAT. Source: URT 2017. equal per capita livestock populations—0.55 head/ Tanzania’s livestock exports are also low person in Ethiopia compared to 0.56 head/person relative to its crop exports. Between 2016 and in Tanzania (FAOSTAT). However, Ethiopia’s average 2020, the combined value of Tanzania’s exports of annual value of total intra-African exports of live ani- cattle meat, goat meat, and sheep meat averaged just mals and meat between 2010 and 2019 was US$150 US$70,000, US$1.98 million, US$3.22 million, respec- million, much higher than Tanzania’s US$15 million tively, compared to US$346 million over the same (Table 4). period for cashew nuts alone (FAOSTAT). In 2021 and Special Focus: Harnessing A Climate-Smart and Competitive Livestock Sector 31 TABLE 4 • Key Features of Livestock Exports, Tanzania and Ethiopia Key Feature of Livestock Exports Unit Tanzania Ethiopia Average annual value of total intra-African exports of live animals and meat (2010–2019) $US million 15 150 Average annual value of exports of live animals and meat to rest of world (2010–2019) $US million 5 75 Average share of intra-African exports of live cattle and other bovines (2015–2019) percent 4.2 12.5 Average share of intra-African exports of live goats (2015–2019) percent 0.5 2.4 Average share of intra-African exports of bovine meat carcasses and cuts (2015–2019) percent <0.6 2.1 Average share of intra-African exports of non-bovine meat carcasses and cuts (2015–2019) percent 2.6 36 Source: Kurtz et al. 2021. Imports of Selected Livestock FIGURE 37 •  and 658 percent, respectively, above their 2010 levels Products, 2010–2022 (Figure 37). Whole chicken, chicken meat, and milk powder imports in Tanzania, 2010–2022 ($000s) 7,000 Climate Change and Other Drivers of 6,000 Vulnerability22 5,000 Vulnerability in Tanzania’s livestock sector involves 4,000 complex interactions among environmental pres- 3,000 sures linked to climate change, socioeconomic conditions, and institutional constraints. 2,000 1,000 Climate change is exerting significant pressure 0 on Tanzania’s largely pasture-based livestock 2010–12 2011–13 2012–14 2013–15 2014–16 2015–17 2016–18 2017–19 2018–20 2019–21 2020–22 sector, with major negative impacts on produc- tion systems. Along with the rest of Eastern Africa, Whole chickens Chicken meat Milk powder Tanzania is experiencing sharp changes in rainfall and temperature patterns, with huge variations in Source: FAOSTAT. the overall level, intensity, and spatial and temporal distribution of annual rainfall (World Bank 2024). Changes in temperature and rainfall patterns are 2022, the combined value of exports of cattle, goat, leading to physiological strain and discomfort for and sheep meat was historically high at US$75 mil- livestock due to heat stress, reduced feed intake, lion due to a surge in sheep meat exports. Still, even decreased milk production, impaired reproduction, this record level of exports of these three products and increased susceptibility to diseases and meta- corresponded to only 17.5 percent, 11.1 percent, bolic disorders. The resource constraint and disease and 18.4 percent of Tanzania’s exports of cashews, issues are all expected to be exacerbated by climate horticultural products, and coffee, respectively, over change. These changes in climate are also leading the same period (FAOSTAT). to alterations in pasture availability, affecting the Under stagnant productivity growth and nutritional quality and quantity of forage resources surging domestic demand, Tanzania’s imports of livestock products are trending sharply upward. 22 This section draws from Baltussen et al. (2019), IMF In 2022, imports of whole chickens, chicken meat, (2023), Maziku et al. (2017), Mweya et al. (2017), URT and milk powder were 274 percent, 11,900 percent, (2017), WFP (2021), and World Bank (2023). 32 TANZANIA ECONOMIC UPDATE – HARNESSING THE OPPORTUNITY FOR A CLIMATE-SMART AND COMPETITIVE LIVESTOCK SECTOR IN TANZANIA TABLE 5 • Impact of Climate Change on Tanzania’s Livestock Systems Livestock production zone Production system Primary climate-related changes Impacts Central Agro-pastoral and • Prolonged dry spells • Heat stress semi-arid • Water scarcity • Pasture shortages and degradation • Erratic rainfall pattern • Longer travel to grazing land and water sources • Disease outbreaks • Overgrazing • Lower vegetation cover • Loss of biodiversity Coast Rainfed sub-humid • Sea-level rise • Destruction of livestock infrastructure and humid • coastal erosion • Livestock losses and displacement • Extreme weather events • Contamination of livestock drinking water • Saltwater intrusion • Pasture degradation • Floods and storms Lake Rainfed sub-humid • Greater variability in rainfall • Pasture loss and degradation and humid patterns and extreme temperatures • Reduced forage quality and availability • Increasing frequency and intensity • Spread and intensification of endemic livestock diseases of droughts and water scarcity • Trade restrictions Source: Kimaro et al. 2018; Lyimo et al. 2013; Mweya et al. 2017; WFP 2021. for livestock and compromising animal health, BOX 6: THE ONE HEALTH APPROACH growth, and reproduction. All livestock systems across Tanzania’s major livestock production zones The One Health approach underscores the interconnections are being negatively impacted by climate change among human, animal, and ecosystem health, recognizing their (Table 5). These trends are expected to persist and interdependence (WHO 2020). Livestock production poses various health risks, including zoonotic diseases, antimicrobial intensify in the coming decades, constraining efforts resistance, and environmental pollution. Zoonotic diseases, to improve stagnant and low national-level yields which transmit between animals and humans, constitute (BMZ/GIZ 2023). around 75 percent of emerging infectious diseases (WHO Many livestock farmers in Tanzania have 2021). Livestock production intensifies this risk by facilitating close contact between animals and humans, fostering disease limited access to essential resources such as transmission. Moreover, antibiotic use in livestock contributes to land, water, and fodder, particularly in arid and antibiotic resistance, a grave human health concern (FAO 2019). semi-arid regions. Large herds produced under rainfed extensive grazing systems depend on natural pasture for feed. Transhumance is a common Coast fever, foot-and-mouth disease, peste des petit practice to mitigate variation in feed and water avail- ruminants, Newcastle disease, Marek’s disease, and ability, accentuating competition between herders contagious bovine pleuropneumonia raise mortality and farmers for land and water. Land degradation and reduce fertility, and restrict trade, leading to economic deforestation further exacerbate vulnerabilities in the losses for livestock farmers. In 2015 alone, 329 animal livestock sector (Baltussen et al. 2019). disease outbreaks were reported involving 32 animal Several livestock diseases that affect disease conditions, causing over 5,800 deaths animal health, productivity, and market access (Maziku et al. 2017). are endemic across Tanzania and undermine Infrastructure and technical capacity for food safety. Diseases such as Rift Valley fever, East water supply, veterinary services, market access, Special Focus: Harnessing A Climate-Smart and Competitive Livestock Sector 33 and transportation are inadequate. Limited access competitiveness of Tanzania’s livestock sector by to veterinary care, vaccines, and diagnostic facilities limiting productivity, constraining market access, impairs disease management and control efforts, and hindering value chain development. while poor market infrastructure limits opportunities for value addition and market integration. Limited Relative to its contribution to the agriculture access to water also hampers animal productivity sector and overall economy, the livestock sec- (Kitalyi et al. 2022). In 2015, only 20 percent of live- tor is grossly underfunded from public sources. stock keepers had access to veterinary professionals Between 2017/18 and 2021/22, the sector’s alloca- (Caudell et al. 2022). tion of public expenditures was equivalent to a mere Livestock market risks are widespread and 0.03 percent of GDP, while it contributed 7.4 percent persistent, especially those linked to food-borne of GDP (World Bank 2022). Over this period, the diseases. Despite the presence of urban abattoirs livestock sector received 6.4 percent of the agricul- and some rural slaughterhouses, many livestock tural budget allocation and represented 10 percent destined for slaughter and for the commercial sale of of actual expenditures. Between 2017 and 2022, meat are killed at small and rural concrete slaughter 9 percent of the agricultural budget depended on slabs, usually owned by local butchers, where they are donor support, but none of this external aid went to slaughtered using simple tools (Waldman et al. 2020). the livestock sector. Tanzania is therefore a hotspot for bacterial zoonoses Despite its major economic potential, the that cause diarrhea and blood-stream infection (sep- livestock suffers from limited access to agricul- sis), both of which are major preventable causes of tural research and extension services and inputs. death (LLH 2024). Livestock farmers often suffer from inadequate Tanzania’s livestock sector faces numerous equipment, limited access to inputs, including fodder, economic risks and governance challenges. There seeds, and fertilizer, and veterinary or breeding ser- are significant fluctuations in input costs, changes vices (e.g., artificial insemination). Moreover, access in consumer preferences, and disruptions in supply to extension services is constrained, leading to sub- chains across the sector. Limited access to trade optimal use of inputs and poor animal husbandry credit, market information, and risk management tools practices by farmers (World Bank 2023). further exposes farmers to economic uncertainties Livestock producers (especially women and livelihood risks (Baltussen et al. 2019). Moreover, and youth), processors, and public institutions weak governance, inadequate policy frameworks, lack the necessary skills, knowledge, and and limited institutional capacity undermine efforts capacity to drive growth in the livestock sector. to address vulnerabilities facing farmers and other Inadequate training, education, and technical skills stakeholders in the livestock sector. Finally, incon- development hinders innovation, technology adop- sistent and incomplete implementation of policies, tion, and value chain upgrading, limiting productivity lack of coordination among stakeholders, and insuf- gains and market competitiveness (Kitalyi et al. 2022). ficient investment in research and extension services Many livestock producers in Tanzania face impede the adoption of climate-smart practices and challenges in accessing inputs such as quality sustainable livestock management techniques (World breeds, vaccines, feed supplements, and veteri- Bank 2023). nary services. The country has slightly more than 1,000 registered veterinarians (lower than Kenya’s 2,000) and over 4,100 veterinary paraprofessionals, Barriers to Competitiveness23 23 This section draws from Baltussen et al. (2019), CSIRO A range of structural, institutional, and sys- (2020 a-c), IFC (2018), Kibona et al. (2022), Maziku et al. temic challenges intersect with climate risks (2017), Mweya et al. (2017), Reardon et al. (2023), and and other drivers of vulnerability to reduce the URT (2017). 34 TANZANIA ECONOMIC UPDATE – HARNESSING THE OPPORTUNITY FOR A CLIMATE-SMART AND COMPETITIVE LIVESTOCK SECTOR IN TANZANIA most of whom are left unsupervised (Frumance et ning, land development, sustainable land use and al. 2021). In 2018, only 5 percent of livestock-rearing investment in livestock production systems (IFPRI households reported vaccinating their animals 2020; Lugoe 2011). against food and mouth disease, a deadly endemic Finally, many policies, regulations, and disease present in most of Tanzania (Casey-Bryars et administrative procedures are complex and al. 2018). inconsistent. Inadequate enforcement of standards Poor access to credit constrains the and trade regulations, coupled with bureaucratic adoption of modern practices and technologies, hurdles, creates uncertainties, increases compliance reducing productivity and competitiveness. costs, and limits market access for livestock products. Women and youth are especially disadvantaged, Incentives for private investment in the livestock limiting their contributions to productivity growth and sector are also ineffective (World Bank 2023). The income generation (Baltussen et al. 2019). inadequate business environment hampers private The country’s livestock market is widely sector participation in the livestock sector, which is dispersed, highly seasonal, fragmented, and critical to drive growth and create employment oppor- characterized by informal trading practices, low tunities (Box 7). standards, lack of market information, and limited value addition. Weak market linkages, unstable supply chains, and price volatility deter investments, Emerging Strengths and and inadequate marketing processes discourage Opportunities24 quality standards and hinder market competitiveness. Moreover, inadequate disease control, inefficient Despite the numerous vulnerabilities and barri- slaughtering practices, poor hygiene standards, and ers facing Tanzania’s livestock sector, there are lack of product differentiation reduce consumer confi- advantages and opportunities with profound dence, limit market opportunities, and constrain price strategic significance. premiums (Ekwem et al. 2023). Infrastructure for transportation, market The country’s strategic geographical location, access, and processing of livestock and livestock combined with its significant animal stocks and products is inadequate. Thin and low-quality road production potential, presents an opportunity networks, lack of cold storage facilities, and inef- to expand into regional and international export ficient logistics raise transaction costs, increase markets. With excellent sea access and 7 bordering post-slaughter losses, and restrict market opportuni- neighboring countries, Tanzania can capitalize on ties for livestock producers. Tanzania’s estimated growing demand for meat, dairy, and other livestock cold storage capacity in abattoirs, meat processing products in neighboring countries within both the East plants, and specialized retail establishments stands African Community (EAC) and the Southern African at 6,700 tons of meat per day, equivalent to 39 kg Development Community (SADC), as well as in global per capita annually. However, much of this capacity markets. Leveraging these opportunities requires remains underutilized, partly because poorly imple- strengthening compliance with relevant safety and mented cold chains result in post-slaughter losses quality standards. and waste of approximately 100,000 metric tons of Increasing demand for processed and meat each year—equivalent to 15 percent of Tanza- value-added livestock products—such as pack- nia’s yearly production (Mushi 2023). aged meat, dairy products, and ready-to-eat Land tenure insecurity and conflicts over meals—offers opportunities for investment and grazing rights lead to land degradation, resource overuse, and reduced investment in sustainable 24 This section draws from Banda and Tanganyika (2021), land management practices. Insecure land tenure FAO/NZAGRC (2019), URT (2017), URT (2022), Wang et and unclear land use plans hamper long-term plan- al. (2022), and World Bank (2023). Special Focus: Harnessing A Climate-Smart and Competitive Livestock Sector 35 BOX 7: BOOSTING PRIVATE INVESTMENT IN TANZANIA’S LIVESTOCK SECTOR According to Tanzania’s Livestock Sector Transformation Plan 2022/23–2026/27, the private sector has a vital role in driving the development of Tanzania’s livestock sector by providing investments, technologies, and expertise and creating opportunities for innovation, value addition, and market access. This is important to enhance the productivity and profitability of farmers. However, hurdles such as poor access to finance, infrastructure limitations, and regulatory challenges need to be addressed to fully unlock the sector’s potential and ensure inclusive growth for all stakeholders. An enabling environment for private investment in the livestock sector is critical. Currently, duplications, overlaps, and unclear mandates across public agencies such as the Directorate of Veterinary Services (DVS), local government authorities (LGAs), and Tanzania Meat Board (TMB) result in high operational costs of livestock-related businesses. An average dairy company in Tanzania must comply with 31 licensing requirements, 18 of which involve overlapping mandates. Such a firm is also subject to 12 inspections, of which 10 are overlapping (IFC 2018). These overlapping mandates and inspections create inefficiencies and an unnecessary burden on the government, which is required to finance entities with duplicative mandates, and the private sector, which needs to assume the costs associated with compliance. Rationalizing and streamlining the regulatory framework could reduce costs imposed by duplicative licensing and inspection requirements. This could reduce operational costs, increase competitiveness, and free up resources needed to finance productive processes. Key reforms to improve the business environment in the livestock sector include: • Removing overlapping mandates related to slaughter facilities registration, slaughter permits, meat registration/inspection, and issuance of livestock movement permits between the DVS, LGAs, and TMB. • Removing overlapping mandates for beef, goat, and mutton import and export permits between TMB, DVS, and the Tanzania Bureau of Standards. • Rationalizing taxes for feed (crop by products such as soya bean cake and maize bran), milk, and milk products. • Introducing tax incentives, subsidies, and other financial incentives to encourage private sector investment in the livestock sector. This could include tax breaks for agribusinesses, subsidized loans for livestock farming, and grants for research and innovation. Source: World Bank 2023. job creation in processing and value-addition embryos, and breeding stock. These products can facilities. By adding value to raw livestock products contribute to genetic improvement programs in other through processing, packaging, and branding, countries and support sustainable livestock produc- Tanzania can produce products such as canned tion systems worldwide while generating income for meat, frozen cuts, cheese, leather goods, and pet Tanzania’s livestock producers and traders. treats. These types of products can meet consumer Tanzania’s vast land resources and tradi- preferences for convenience, quality, and food safety tional knowledge in livestock management offer while capturing higher margins and enhancing market opportunities for implementing climate-smart competitiveness. agricultural practices. By adopting sustainable Tanzania’s rich diversity of indigenous live- land management techniques, leveraging animal stock breeds25 presents an opportunity to meet welfare-enhancing agroecological principles in its the diverse preferences and requirements of con- largely pasture-based production system, and pro- sumers in domestic and international markets. By moting climate-resilient livestock breeds, the country promoting indigenous breeds known for their unique can enhance its resilience to climate change while flavor, nutritional value, and resilience, the country can maximizing productivity and sustainability in the live- cater to multiple markets and differentiate its livestock stock sector. products based on quality and authenticity, tapping The country’s emerging digital technologi- into the growing demand for specialty and heritage cal landscape and increasing connectivity provide breeds. The country’s diverse indigenous livestock also offer opportunities for exporting livestock genet- 25 For instance, the Chagga and Pare cattle breeds, the ics and biotechnology products, including semen, Maasai goat breed, and the red Maasai sheep breed. 36 TANZANIA ECONOMIC UPDATE – HARNESSING THE OPPORTUNITY FOR A CLIMATE-SMART AND COMPETITIVE LIVESTOCK SECTOR IN TANZANIA opportunities for harnessing innovation in livestock BOX 8: METHANE INTENSITY REDUCTION AND production and trade. By embracing technology solu- CARBON FINANCE INCENTIVES tions such as mobile applications for veterinary services and biotechnology for genetic improvement, Tanzania Implementing mitigation measures in Tanzania aimed at can enhance productivity, efficiency, and competitive- improving breed quality, water management, pasture utilization, ness in the livestock sector, leveraging its strengths in feed quality, and animal health, in line with Tanzania’s Livestock traditional knowledge and cultural heritage. Sector Transformation Plan (2022/23–2026/27), yields promising results. Targeting 1 percent of the beef cattle The absorption capacity of the Ministry population, these interventions would result in a mere 2 percent of Livestock and Fisheries signals its ability increase in GHG emissions while boosting protein production by to increase public investment, especially for 52 percent compared to the business-as-usual scenario, thereby reducing emission intensity per kilogram of protein by 33 percent. development activities. Between 2017/18 and At the farm level, implementation of these measures is projected 2020/21, the average public budget execution rate to generate annual carbon revenues ranging from US$213 to was 99 percent in the livestock sector, pointing to the US$1,586 , contingent upon valuation (World Bank, 2023). huge untapped potential to use public investment to bridge investment gaps in the sector. The internal rate of return on livestock projects ranges from 15 to Key Components of Sustainable and FIGURE 38 •  86 percent, indicating the substantial viability of public Climate-Smart Livestock Systems investment in the sector (World Bank 2023). Tackling Methane: Tanzania’s Absolute Reduction of Livestock Sector – A Solution in reduction of emissions intensity through efficiency Climate Change Mitigation emissions gains The livestock sector is a significant contributor to Sustainable and Increasing carbon global GHG emissions, accounting for 14.5 per- Healthy diets climate-resilient stocks through livestock systems land management cent of total emissions, mainly due to methane production in animal digestive systems. Methane is 80 times more powerful than carbon dioxide in One Health Open and equitable approach trade in livestock warming the planet, making it a major driver of climate products change. Yet, it is much less understood and prioritized than carbon dioxide. Finance for methane abatement is alarmingly low, accounting for less than 2 percent of global climate finance (World Bank 2023). Globally, reducing GHG emissions from food systems is vital for achieving the objectives of the Paris Agreement. Despite the challenges post by climate change, change, and forestry sector) and the highest ensuring food security remains a paramount priority methane-emitting sector in Tanzania (Figure 39). in Tanzania, with domestic production—particularly in Within agriculture, enteric fermentation from live- the livestock sector—playing a pivotal role in protein stock is the largest category of emissions (Panel A production. This presents an opportunity to innovate, in Figure 40).26 As in other countries (Menghistu et collaborate, and implement sustainable solutions that not only mitigate emissions but also enhance food 26 Enteric fermentation is the digestive process in ruminant security and resilience. animals that breaks down carbohydrates into simple, In 2022, agriculture was the second highest digestible molecules, resulting in the production of GHG-emitting sector (after the land use, land-use methane as a by-product. Special Focus: Harnessing A Climate-Smart and Competitive Livestock Sector 37 FIGURE 39 • GHG and Methane Emissions by Sector, 2022 A. GHG emissions by sector in Tanzania, 2022 B. Methane emissions by sector in Tanzania, 2022 Land-use change 69.56 and forestry Agriculture 38.63 Agriculture 61.36 Transport 6.78 Land-use change Waste 6.38 2.81 and forestry Buildings 5.43 Industry 3.56 Waste 2.77 Electricity and heat 2.67 Manufactoring and 2.2 Other fuel combustion 0.46 construction Other fuel combustion 0.63 Fugitive emissions 0.25 Fugitive emissions 0.25 Aviation and shipping 0.24 0 10 20 30 40 50 60 70 80 0 5 10 15 20 25 30 35 40 45 GHG emissions (million mt of CO2 equivalents) Methane emissions (million mt of CO2 equivalents) Source: Friedlingstein et al. 2022. FIGURE 40 • Farmgate GHG Emissions and Emissions Intensity from Selected Agricultural Products, 2020 A. Farmgate GHG emissions in Tanzania, 2020 B. Emissions intensity from selected agricultural products in Tanzania, 2020 (kg CO2 /kg) Sheep meat 58.5 Enteric fermentation 31.4 Cattle meat 56.3 Other 12.1 Pig meat 8.9 Drained organic soils 6.9 Cow milk 4.4 Rice paddy 1.6 Synthetic fertilizer 5.3 Eggs 1 Manure left on pasture 4.3 Chicken meat 1 0 5 10 15 20 25 30 35 Non-rice cereals 0.2 GHG emissions (million mt of CO2 equivalents) 0 10 20 30 40 50 60 70 Source: FAOSTAT. al. 2021), dairy, cattle meat, and sheep production lation grows and the demand for livestock products registers the greatest emissions intensity in Tanzania increases, it is crucial to implement mitigation strate- (Panel B in Figure 40). gies, particularly for smallholder farmers that rely The livestock sector is a leading source of heavily on livestock for their livelihoods. GHG and methane emissions in Tanzania. A single Tanzania is exploring potential avenues for cow emits over 80 kg of methane annually. With accessing carbon finance through climate-smart 36.6 million cattle in the country, this sector stands livestock sector responsible investments, with the out as a notable emitter of GHG. As Tanzania’s popu- objective of complementing the country’s live- 38 TANZANIA ECONOMIC UPDATE – HARNESSING THE OPPORTUNITY FOR A CLIMATE-SMART AND COMPETITIVE LIVESTOCK SECTOR IN TANZANIA stock Transformation Plan (2022/23–2026/27). livestock development between 2023/24 and The World Bank has provided technical assistance to 2028/29. At about US$109 million/year, this level of the Government of Tanzania during the preparation public investment in the livestock sector is ambitious of a roadmap for sustainable livestock investments. but realistic. It represents a fivefold increment over The objective of this study was to assess Tanzania’s the budget for the livestock sector prior to 2021 and preparedness to access carbon markets for emission is 50 percent higher than the 2023/24 budget. This reductions resulting from the livestock sector and level of investment could be justified in the livestock identify strategies and pathways to reduce methane, sector given its current underfunding and absorption including: (i) implementing an absolute reduction capacity (World Bank 2023). of emissions (e.g., through the control of livestock The authorities could pursue several numbers, improved manure management, or the policy and investment reforms to strengthen use of renewable energy in processing); (ii) reduc- resilience and boost the competitiveness of the ing emission intensity through efficiency gains (e.g., livestock sector. These focus on boosting productiv- increased production per animal through optimized ity, strengthening trade and value addition, adapting feeding, breeding and animal health improvements to and mitigating climate change, and improving sec- through the adoption of a one health approach); and tor governance and institutions, with important roles (iii) increasing carbon stocks in rangeland soils and for the private sector. Specifically, the government trees (e.g., through soil organic carbon sequestration should consider: in grasslands and better pastureland management. Implementing mitigation interventions and Boosting Sustainable Productivity controlling the animal population over the next six years could potentially reduce emissions Enhancing access to veterinary services, vaccina- by 13 percent while increasing production by tions, and disease control measures to reduce 29 percent. Furthermore, Tanzania could generate livestock mortality rates and improve overall herd revenues from reducing carbon emissions if it adopts health. This would involve helping private veterinary appropriate policies and strengthens the institutional clinics and pharmaceutical companies expand their framework for monitoring, reporting, and verification. reach to remote areas to enable them to provide Embracing climate-smart practices and essential services such as vaccinations, disease methane mitigation initiatives in Tanzania’s live- diagnostics, and veterinary care. stock sector is important achieve the triple-win Strengthening and expanding breed objectives. These objectives are to limit global warming improvement programs to enhance the genetic in the near term, enhance resilience, and empower liveli- quality and productivity of livestock breeds. These hoods of the most vulnerable. By investing in innovative efforts should focus on traits such as milk yield, meat technologies and sustainable practices, the country quality, and disease resistance while prioritizing can significantly reduce methane emissions while driv- adaptability to local conditions and demands. Private ing economic growth, ensuring food security, and breeders and genetic companies can collaborate protecting the environment. This would not only position with research institutions and government agencies Tanzania as a pioneer in sustainable development but to introduce high-yielding, disease-resistant livestock also set a powerful example for other nations to follow breeds through breeding programs and artificial in terms of harnessing the potential of the livestock sec- insemination services. tor to create a greener future for generations to come. Improving rangeland and pasture man- agement. Practices such as agroforestry, land water and land management through landscape Policy Recommendations approach can not only enhance climate resilience, improve soil fertility and reduce erosion, but also An estimated US$546 million (Tsh 1.3 trillion) restore the quality of rangelands and increase soil of public investment is required for sustainable carbon. Regenerative grazing (matching livestock Special Focus: Harnessing A Climate-Smart and Competitive Livestock Sector 39 numbers to grassland carrying capacity, rotational niche markets offer opportunities for Tanzania to grazing to allow grassland to recover after grazing) differentiate its products, cater to specific consumer can stimulate plant growth and capture carbon in preferences, capture higher value in export trade, soil organic matter. and create new jobs. Some potential export markets Increasing and sustaining public funding for its livestock products include halal products; for research and development to address key organic and free-range products; indigenous challenges facing the livestock sector, such as breeds and specialty products with unique flavors disease management, feed efficiency, and cli- and qualities; ethnic and cultural products; and mate resilience. This aims to foster innovation and health and wellness products. Private exporters and technology transfer. Private companies can allocate agribusinesses can explore new market opportuni- resources to livestock research and development ties for Tanzania’s livestock products, diversifying initiatives focused on addressing key challenges in export destinations and product offerings to meet the livestock sector. the evolving demands of global consumers. Food Adequately funding and appropriately safety, quality assurance, and relevant certifications facilitating extension services and farmer coop- and accreditation schemes should be implemented eratives to provide ongoing support, training, and throughout the supply chain. knowledge-sharing opportunities for livestock Significantly improving market linkages producers (especially women and youth). A and transportation infrastructure, particularly major focus should be on facilitating the adoption of in remote and underserved areas. This could climate-smart technologies and practices, such as be done based on the One Health approach that agroforestry, water harvesting, and pasture manage- strengthens collaboration among stakeholders ment, and increasing the uptake and expansion of involved in human, animal, and environmental health, good animal husbandry practices under a One Health with the aim to enhance awareness, monitoring, and approach that prevents and mitigates climate-related adherence to trade-related standards. This would health threats.27 Given the vastness and geographic be supported by improved marketing practices, diversity of Tanzania and the spread of livestock including linking price premiums to product quality production, extension services would benefit from to give producers better incentives and ability to an electronic platform that supports communica- afford improved practices. This would require efforts tion among and between staff and farmers. Private to improve the capacity of and awareness among agribusinesses can provide both physical and digital producers, processors, inspectors and regulators, technical assistance, training, and advisory support to and consumers. The private sector, including agro- farmers, promoting the adoption of best practices and processing companies and traders, could invest modern digital technologies. in market infrastructure, cold storage facilities, and transportation networks to improve market access Enhancing Trade and Value Addition for livestock producers. Promoting private sector investment Diversifying market opportunities for Tanzania’s and intensifying value addition and processing livestock products by exploring new export markets, value-added processing, and product differentiation strategies to meet evolving con- 27 ‘One Health is an integrated, unifying approach to sumer preferences and market demands. The balance and optimize the health of people, animals, and country should leverage its abundant grazing lands, the environment. It is particularly important to prevent, predict, detect, and respond to global health threats diverse livestock breeds, and create a more sup- such as pandemics. The approach mobilizes multiple portive policy environment to proactively position sectors, disciplines, and communities at varying levels of itself as a reliable supplier of high-quality livestock society to work together. One Health involves the public in several potential niche export markets. These health, veterinary health, and environmental sectors. 40 TANZANIA ECONOMIC UPDATE – HARNESSING THE OPPORTUNITY FOR A CLIMATE-SMART AND COMPETITIVE LIVESTOCK SECTOR IN TANZANIA activities in the livestock sector to increase the stewardship, the country will mitigate the risk of zoo- competitiveness of Tanzania’s livestock products, notic diseases and antimicrobial resistance, thereby including meat, milk, and leather. Private agro- improving public health outcomes and enhancing processing companies could invest in meat and dairy consumer confidence in livestock products. processing facilities, leather tanneries, and the devel- opment of value-added products to increase the value Strengthening Climate Change Adaptation and marketability of Tanzania’s livestock products. and Mitigation Concurrently, strategic investments in infrastructure, including transportation networks, market facilities, Designing and effectively implementing climate- cold chain logistics, and essential agricultural inputs smart adaptation strategies and risk management such as animal feeds and seeds, could be comple- plans for the livestock sector. This would include mented by the establishment of private veterinary early warning systems, insurance schemes, and emer- services and livestock pharmacies. These initiatives gency response mechanisms to mitigate the impacts aim to improve the accessibility of services and of climate change on livestock production and trade. broaden market access for smallholder farmers. The Private insurers and risk management firms could creation of a favorable business environment, marked develop climate adaptation strategies and insurance by transparent and consistent policies, coupled with products tailored to the needs of livestock farmers, incentives to promote innovation and technology providing financial protection against climate-related adoption, is pivotal for fostering growth and bolstering risks and disasters. competitiveness. Leveraging public-private partner- Mitigating Methane Emissions for Climate ships can further enhance service delivery to farmers Action. This would involve prioritizing climate-smart and value-chain actors, amplifying the impact of these livestock production practices to reduce GHG emis- interventions. sions, including methane, and lay the foundation for Implementing and sustaining an effective carbon offset projects. Potential practices include and well-coordinated regulatory and institutional improved livestock feeding regimes and waste man- framework for food safety to boost private sector agement systems, rotational grazing, agroforestry, investment in the livestock sector. This would, manure management, and soil conservation. Private among other objectives, aim to reduce overlaps investors could support sustainable land manage- and duplications in mandates across agencies. Tax ment initiatives, such as reforestation projects and incentives, targeted subsidies, and other financial soil conservation programs, to enhance the long- incentives—such as tax breaks for agribusinesses, term productivity and resilience of grazing lands. subsidized loans for producers, and grants for Establishing and implementing a robust monitoring, research and innovation—could also be introduced to reporting, and verification system could provide the encourage private sector investment in the livestock foundation for accessing carbon financing, serving sector. as a significant incentive for both the government and Implementing a One Health approach farmers. within the livestock sector is pivotal for foster- Scaling up renewable energy solutions to ing comprehensive growth, bolstering health reduce the carbon footprint of livestock farm- outcomes, ensuring environmental sustainability, ing operations and provide sustainable energy and enhancing competitiveness. By integrating sources for powering facilities and equipment. the principles of One Health into livestock manage- Potential solutions include solar-powered water ment practices, Tanzania can forge a resilient and pumps and biogas digesters. Private companies interconnected system that optimizes productivity could invest in renewable energy solutions, such as while safeguarding the health of animals, humans, solar power and biogas, to reduce energy costs and and ecosystems alike. Through coordinated disease carbon emissions in livestock farming operations, surveillance, vaccination programs, and antimicrobial contributing to environmental sustainability. Special Focus: Harnessing A Climate-Smart and Competitive Livestock Sector 41 Improving Sector Governance, The government should develop the right incentives Institutional Capacity, and Enabling Policy mechanisms to encourage farmers to adopt good Reforms animal husbandry practices and enhance institutional capacity. By fostering partnerships between the Pursuing sector governance and policy reforms government, research institutions, the private sector, and institutional strengthening to implement and civil society, Tanzania can leverage collective climate-smart livestock practices and improve expertise to address challenges, drive innovation, competitiveness. An effective governance frame- and promote inclusive growth. This holistic approach work is essential to ensure that the necessary lays the foundation for a vibrant, sustainable, and policies, regulations, and incentives are in place to competitive livestock industry that contributes to food support sustainable practices and ensure the par- security, economic development, and environmental ticipation of all stakeholders in the livestock sector. sustainability. 42 TANZANIA ECONOMIC UPDATE – HARNESSING THE OPPORTUNITY FOR A CLIMATE-SMART AND COMPETITIVE LIVESTOCK SECTOR IN TANZANIA ANNEX 1 CORE MACROECONOMIC DATA SOURCES FOR THE REPORT Sector Series Latest Data Point Source Measurement Year Tanzania Mainland Real GDP at constant 2015 prices by activity GDP data: 2023 National Bureau of Statistics, Bank of Calendar Year and by demand, MFO Spring Survey 2023, Tanzania, Haver, Integrated Labor Force High frequency data: monthly tourist arrivals at Tanzania Mainland Q1-2024 Survey, World Bank staff estimates. by nationality, monthly electricity and quarterly cement production data. Inflation CPI Inflation (headline, food, non-food, core, April 2024 National Bureau of Statistics, Bank of Calendar Year energy), PPI inflation Tanzania, World Bank staff estimates. Monetary M3, reserve money, broad money and private March 2024 Bank of Tanzania Calendar Year sector credit Fiscal and Revenues, expenditures, grants, financing, Fiscal data: Ministry of Finance, Bank of Tanzania Fiscal Year Debt expenditure arrears; PPG debt (total, external 8M-FY2023/24 WB/IMF Debt Sustainability Analysis and domestic) Debt data: FY2023/24 (June 2024) External Current account, balance sheet, exports 3M-2024 Bank of Tanzania and National Bureau of Calendar Year and imports of goods and services, FDI, Statistics. government official reserve Zanzibar Real GDP at constant 2015 prices by activity, tourist GDP data: 9M-2023 Bank of Tanzania and Office of the Chief Calendar Year arrivals Government Statistician (OCGS) – Zanzibar Tourist data: 2023 Inflation Inflation (headline, food, non-food) February 2024 Bank of Tanzania Calendar Year Current Exports and imports of goods and services, February 2024 Bank of Tanzania Calendar Year account merchandise trade data Fiscal Revenues, expenditures, grants, financing H1-FY2023/24 Bank of Tanzania and OCGS – Zanzibar Fiscal Year 43 ANNEX 2 SUMMARY OF SPECIAL FOCUSES FROM THE LATEST TANZANIA ECONOMIC UPDATES TEU – Issue 20: “Overcoming Demographic Chal- icy has played a vital role in supporting inclusive and lenges While Embracing Opportunities” sustainable growth. However, total public spending in Infant and child mortality rates in Tanzania have Tanzania is below the average for Sub-Saharan Africa, significantly decreased over the past few decades, low-income countries, and lower-middle-income whereas fertility rates have only slightly decreased. countries, while budget execution rates in Tanzania Consequently, the population growth rate remains remain low, especially for development spending. This high, at three percent and the population is estimated special focus further identified policies and reforms to double every 23 years. This high growth rate is to close the policy and compliance gaps further expected to cause a surge in demand for essential ser- and increase revenue collection for improved public vices such as education and health, and employment spending, steering towards the National Development opportunities, outstripping the economy’s capacity to Vision 2025, which envisages Tanzania as a middle- provide them. Accelerating the demographic transition income country with well-developed human capital, in Tanzania could bring about shifts in the age structure an adequate supply of high-quality livelihoods, and which would contribute to economic growth and pov- rising living standards. erty reduction, helping the country reap the potential benefits of lower fertility rate. Priorities for policy action TEU – Issue 18: “Clean Water, Bright Future: The include renew commitment on family planning, expand Transformative Impact of Investing in WASH” access and strengthen completion of secondary edu- The provision of near-universal access to water, sani- cation for girls, and promote women’s empowerment. tation and hygiene (WASH) services can drastically improve multiple facets of Tanzania’s population. TEU – Issue 19: “The Efficiency and Effectiveness Although there has been progress towards increasing of Fiscal Policy in Tanzania” access to WASH services, achieving the Sustainable Over the past decade, Tanzania has made strides in Development Goals of the UN will require greater pri- broadening its tax collection efforts, and its fiscal pol- oritization. The Water Sector Development Program 45 (WSDP) has made significant progress; however, the exercise secure land rights, hold a bank account, or current WSDP-3 stands to have the largest impact have access to finance. These gender disparities towards providing near-universal access to WASH prevent women from maximizing their contribution to services yet. Achieving the goals of WSDP-3 would Tanzania’s economic development. mitigate the high volume of yearly deaths due to inad- equate WASH services, would significantly reduce TEU – Issue 16: “The Recovery Resilience, and economic loss, and would bring substantial increases Transformation of Tanzania’s Tourism Sector” in job creation and workforce productivity. With a Tanzania’s abundant nature and rich cultural majority of the population without adequate WASH resources are a considerable economic opportunity. services, the provision of near-universal access will The tourism sector can support the government’s be crucial for the development of Tanzania. broader development objectives by: (i) creating jobs, both directly and through backward linkages to other TEU – Issue 17: “Accelerating Growth by Expand- sectors; (ii) generating foreign-exchange earnings; ing Women’s Economic Opportunities and (iii) providing revenue to support the preservation Ensuring Equitable Access to Assets” and maintenance of natural and cultural heritage; and Over the last two decades, a growing share of Tanza- (iv) expanding the tax base to finance development nian women have entered salaried employment, and expenditures and poverty-reduction efforts. However, an increase in the female labor-force participation rate the COVID-19 crisis severely impacted Tanzania’s (LFPR) has accelerated Tanzania’s transition to lower- tourism sector as the disruption of global travel and middle-income country. However, women still face tourism activity resulted in job losses and business clo- multiple challenges, including persistent gender gaps sures. This prompted policymakers, investors, firms, in wage rates and agricultural productivity. Despite and development practitioners to reconsider tourism’s recent progress, women are less likely to own a home, underlying sustainability and value proposition. 46 TANZANIA ECONOMIC UPDATE – HARNESSING THE OPPORTUNITY FOR A CLIMATE-SMART AND COMPETITIVE LIVESTOCK SECTOR IN TANZANIA ANNEX 3 REFERENCES FOR THE SPECIAL SECTION AWF. 2024. Community Conservation: Transforming a BMZ/GIZ. 2022. Climate Risk Profile: Tanzania. 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