TANZANIA ECONOMIC UPDATE Harnessing the Opportunity for a Climate Smart and Competitiveness 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 conclusions 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........................................................................................................................................................................... vi Preface ............................................................................................................................................................................................................vii Executive Summary.......................................................................................................................................................................................viii i. Recent Economic Developments ............................................................................................................................................ viii ii. Harnessing A Climate Smart and Competitive Livestock Sector ......................................................................................... xi A. Recent Economic Developments .......................................................................................................................................................... 1 1. Economic Activity and Poverty Trends .................................................................................................................................... 1 2. Monetary Policy and Inflation..................................................................................................................................................... 5 3. Fiscal and Debt Developments................................................................................................................................................. 10 4. Balance-of-Payments Position .................................................................................................................................................. 14 5. Zanzibar Macroeconomic Assessment .................................................................................................................................... 17 B. Macroeconomic Outlook and Risks .................................................................................................................................................. 19 C. Special Focus: Harnessing A Climate Smart and Competitive Livestock Sector ............................................................................... 22 1. Introduction ................................................................................................................................................................................. 22 2. Recent Trends and Developments in Tanzania’s Livestock Sector .................................................................................... 22 3. Other Drivers of Vulnerability .................................................................................................................................................. 30 4. Barriers to Competitiveness ...................................................................................................................................................... 30 5. Emerging Strengths and Opportunities................................................................................................................................... 32 6. The Role of the Livestock Sector in Climate Change Mitigation ........................................................................................ 33 7. Policy Recommendations........................................................................................................................................................... 34 Annex 1: Core Macroeconomic Data Sources for the Report ...................................................................................................... 37 Annex 2: Summary of Special Focuses from the Latest Tanzania Economic Updates ............................................................ 38 Annex 3: References for the Special Section ................................................................................................................................... 39 List of Figures, Tables and Boxes List of Figures Figure 1 Annual GDP Growth, Demand Side ...................................................................................................................................... 1 Figure 2 Long-Term Growth Trends ...................................................................................................................................................... 1 Figure 3 Poverty Incidence, 2011–2024 .................................................................................................................................................. 3 Figure 4 Inflation in Tanzania and SSA Peers .................................................................................................................................. 5 Figure 5 CPI Inflation, January 2021 –March 2024 ......................................................................................................................... 5 Figure 6 Food and Non-Alcoholic Beverages Inflation, January 2021 –January 2024 ........................................................... 5 Figure 7 Cumulative Energy, Fuel, and Utilities Inflation.................................................................................................................... 6 Figure 8 Contribution to PPI Inflation, 2020–2023.............................................................................................................................. 6 Figure 9 Growth of the Money Supply, November 2019–January 2024 ........................................................................................... 6 Figure 10 Private Credit Growth and Its Drivers .................................................................................................................................. 7 Figure 11 Developments in Interbank Foreign Exchange Market ..................................................................................................... 7 Figure 12 Overall and Primary Fiscal Balance, FY17 –FY24 ...................................................................................................... 10 Figure 13 8M Fiscal Revenues, 2019 – 2024 ...................................................................................................................................... 10 Figure 14 Actual vs. Budget Revenue, 8M-2023/24 ..................................................................................................................... 10 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 ...................................................................................................................... 16 Figure 24 Real GDP Growth .................................................................................................................................................................. 17 Figure 25 Inflation, January 2021–February 2024 ............................................................................................................................... 17 Figure 26 Fiscal Developments, FY2020/21–FY2023/24 ................................................................................................................ 18 Figure 27 Current-Account Balance, 2019–2023................................................................................................................................. 18 Figure 28 Livestock Density in Tanzania .............................................................................................................................................. 23 Figure 29 Livestock Population, 2010–2022 ........................................................................................................................................ 23 Figure 30 Contributions of Livestock to GDP and AgGDP in Tanzania and Neighboring Countries, 2022 .......................... 24 Figure 31 Rural Household Income from Livestock Sales by Income Quintile ............................................................................ 24 Figure 32 Livestock, Crop, and Overall Agricultural Production, 2010–2022 ............................................................................... 25 Figure 33 Total and per Capita Livestock Production in Tanzania and Neighboring Countries, 2010–2022........................... 25 Figure 34 Yields of Major Livestock Products in Tanzania, 2010–2022 ......................................................................................... 26 Figure 35 Consumption of Livestock Products, 2010–2021 ............................................................................................................. 27 Figure 36 Comparative Trends in Livestock Production and Consumption .................................................................................. 27 Figure 37 Imports of Selected Livestock Products, 2010–2022........................................................................................................ 28 Figure 38 GHG and Methane Emissions by Sector, 2019 ................................................................................................................. 34 Figure 39 Farmgate GHG Emissions and Emissions Intensity from Selected Agricultural Products, 2020 ............................ 34 List of Tables Table 1 Central Government Fiscal Operations (% of GDP) .......................................................................................................... 12 Table 2 Medium-Term Outlook, 2021–2026 ....................................................................................................................................... 21 Table 3 Livestock Population by Species, 2022 ................................................................................................................................... 23 Table 4 Key Features of Livestock Exports, Tanzania and Ethiopia ............................................................................................... 28 Table 5 Impact of Climate Change on Tanzania’s Livestock Systems ............................................................................................. 29 List of Boxes Box 1 The State of Tanzania’s Economy in Six Charts ........................................................................................................................ x Box 2 Tanzania’s Government Spending Multiplier ............................................................................................................................. 2 Box 3 En Route to ‘Privatize’ Tanzania’s Growth ................................................................................................................................ 3 Box 4 Broad Monetary Condition Index for Tanzania......................................................................................................................... 7 Box 5 The Livestock Sector’s Contribution to Key National Objectives ....................................................................................... 24 Box 6 Boosting Private investment in Tanzania’s Livestock Sector................................................................................................. 32 Acronyms and Abbreviations AE Advanced Economy MCI Monetary Condition Index AgGDP Agricultural GDP MW Megawatt ARDL Autoregressive Distributed Lag NBS National Bureau of Statistics BoT Bank of Tanzania NDA Net Domestic Assets CAD Current Account Deficit NPL Non-Performing Loan CBR Central Bank Policy Rate OCGS Office of the Chief Government Statistician COVID-19 Coronavirus Disease of 2019 PPI Producer Price Index CO2 Carbon Dioxide ppts percentage points CPI Consumer Price Index Q3 The third Quarter CY Calendar Year RHS Right-hand Side DSA Debt Sustainability Analysis SADC Southern African Development Community DVS Directorate of Veterinary Services SGR Standard Gauge Railway EAC East African Community SMEs Small and Medium Enterprises EMDEs Emerging Markets and Developing Economies SSA Sub-Sharan Africa FAOSTAT Food and Agriculture Organization Database SVAR Structural Vector Autoregressive FDI Foreign Direct Investment TANCIS Tanzania Customs Integrated System FY Fiscal Year TEU Tanzania Economic Update GDP Gross Domestic Product TIC Tanzania Investment Center GHG Greenhouse Gas TMB Tanzania Meat Board GoT Government of Tanzania Tsh Tanzania Shilling H1 The First Half URT United Republic of Tanzania IFC International Finance Corporation US ($) United States (Dollars) IMF International Monetary Fund VAT Value Added Tax LGAs Local Government Authorities WB The World Bank LHS Left-hand Side y/y Year-over-Year or Year-on-Year MoF Ministry of Finance 2/3/8M The First Two/Three/Eight Months M0 Reserve Money M3 Extended Broad Money Supply Preface The Tanzania Economic Update (TEU) is a biannual report describing the recent evolution of Tanzania’s economy, and The special focus section of the report is on harnessing a each edition highlights a subject of critical interest to climate smart and competitive livestock, which was policymakers. The TEU series is also designed to reach a developed by Steven Were (consultant) and coordinated by broader audience of stakeholders that includes the private Ernest Ruzindaza (Senior Agriculture Economist) and sector, the government’s development partners, and the Emma Isinika Modamba (Senior Agriculture Economist). public. To ensure that the TEU is accessible to as wide a The chapter is an extraction from World Bank supported readership as possible, each edition is presented in a relatively analytical work “the Roadmap for Responsible Investments nontechnical style. Towards Sustainable Livestock in Tanzania�, and “Opportunities for livestock sector mitigation by accessing This twenty-first edition of the TEU was prepared by a team carbon markets� – Tanzania 2023. from the World Bank’s Macroeconomics, Trade and Investment (MTI) Global Practice, with contributions from Nathan M. Belete (Country Director, AECE1), Hassan several other Global Practices. The overall effort was led by Zaman (Regional Director, EAEDR), Abha Prasad, (Practice Emmanuel Mungunasi (Senior Economist, EAEM1) and Xu Manager for MTI, EAEM1), Preeti Arora (Operations Dong (Consultant, EAEM1). The analysis benefitted from Manager, AECE1), Francisco Obreque (Senior Agriculture advice provided by Aghassi Mkrtchyan (Program Leader, Economist and Acting Practice Manager, SEAE3) and EAEDR), Ana Cristina Gomez Canales (Senior Livestock Holger Kray (Practice Manager, SEAE3) provided guidance Specialist), and Amos Omore (Country Representative, and leadership throughout the preparation of the report. ILRI). Catherine Audax Mutagwa (Program Assistant, AECE1), Karima Ladjo (Senior Program Assistant, EAEM1) and Emmanuel Mungunasi (Senior Country Economist, Faith-Lucy Matumbo (Program Assistant, AECE1) EAEM1) prepared the macroeconomic outlook and risks supported the preparation for this edition of the TEU, with section. Xu Dong (Consultant, EAEM1) authored the assistance from Loy Nabeta (Senior External Affairs Officer, sections on recent economic activity, balance of payments ECRAE), who assisted with external communications. Oscar developments, and Zanzibar Macroeconomic Assessment, Parlback was responsible for the overall editing of the report. while the sections on monetary policy and inflation, and fiscal The pictures used were procured for this report unless and debt dynamics were crafted by Kaushiki Singh otherwise acknowledged. (Consultant, EAEM1). Pedro Olinto (Senior Economist, EAEPV) and Revocatus Washington Paul (ET Consultant, The findings, interpretations, and conclusions expressed in EAEPV) provided input on poverty trends, and Randa Akeel this publication do not necessarily reflect the views of the (Senior Financial Sector Specialist, EAEM1) prepared input World Bank’s Executive Directors or the countries they on financial sector development. Box 1 (The State of represent. The report is based on information current as of Tanzania’s Economy in Six Charts), Box 2 (Tanzania’s early-April 2023. Government Expenditure Multiplier), and Box 4 (Broad Monetary Condition Index for Tanzania) were prepared by The World Bank team welcomes stakeholder feedback on the Xu Dong (Consultant, EAEM1). Box 3 (En Route to content of the TEU. Please direct all correspondence to ‘Privatize’ Tanzania’s Growth) was prepared by Sophia Emmanuel Mungunasi (emungunasi@worldbank.org). Muradyan (Senior Private Sector Specialist, EAEF1). Executive Summary i. Recent Economic Developments Tanzania has managed a steadily robust growth path amid multiple increased by 27.4 percent, supported by the promotion of external shocks, with low and stable inflation by regional standards. IT systems to ensure accurate tax monitoring, an expansion While poverty reduction has progressed slowly, the government of taxpayer and VAT registration through targeted increased public spending on goods, services, and transfers during the campaigns, and efforts to combat tax evasion and first eight months (8M) of FY2023/24 to enhance the provision of smuggling. Public spending increased by 23.8 percent priority social services. Domestic revenue observed double-digit growth, during this period, reducing the fiscal deficit from 4.1 indicating the government’s commitment to revenue mobilization and percent to 3.2 percent of GDP. Almost 70 percent of the fiscal consolidation. The current-account deficit narrowed, driven by deficit is financed by foreign sources, while the remaining increased imports and a surge in foreign exchange earnings from the is financed domestically. The most recent IMF/WB Debt tourism sector. However, foreign exchange challenges persist, which has Sustainability Analysis, finalized in April 2023, determined motivated the Bank of Tanzania (BoT) to raise the policy rate and that Tanzania continues to face only a moderate risk of implement other prudent monetary policies. Over the medium term, external and public debt distress. the economy is set to grow at around 6 percent, supported by escalated The government has ramped up spending on goods, private investments resulting from a strengthened business services, and transfers. Public spending on goods, environment. A positive macroeconomic outlook and an enhanced services, and transfers totaled 5.8 percent of GDP during agricultural productivity have contributed to the estimated decline in 8M-FY2023/24, 0.5 percentage points (ppts) higher than poverty. Major risks to the outlook include incomplete implementation the budget target and nearly 2 ppts above actual spending of reforms, climate change, and a deterioration of the global economy. during 8M-FY2022/23. Other recurrent expenditure also Tanzania has managed a steady and strong growth rose in 8M-FY2023/24, with interest payments increasing path relative to regional peers, but the economy’s by 0.4 ppts and payments for wages and salaries rising by poverty-reduction potential remains underutilized. nearly 1 ppt of GDP. Ongoing large public investment Boosted by a buoyant services sector and more favorable projects, including a modern railway system, hydroelectric terms of trade, Tanzania’s real GDP growth rose from 4.6 plants, and roads remained a large component of public percent in 2022 to 5.2 percent in 2023, despite prolonged spending and totaled 9.1 percent of GDP in the same droughts and frequent flooding. While the country’s period. economic performance has been strong, poverty reduction Consistent with subdued global trade, the country’s has been slower than expected. A combination of factors, merchandise exports increased at a slower pace in including slow structural transformation, stagnant 2023. Merchandise export growth decelerated from 13.5 agricultural productivity, limited social safety net coverage percent during the first two months (2M) of 2023 to 9.1 (e.g., to mitigate shocks), and high population growth, has percent in the same period in 2024. While gold and other limited the impact of economic growth on poverty traditional exports (e.g., coffee, tobacco, and cashew) reduction. The country’s poor households are heavily contributed most of the increase, lower external demand dependent on the agriculture and livestock sectors, which for minerals caused a contraction in mineral exports employ 33 percent of the population and generate almost (excluding gold) and dragged growth. Meanwhile, increased one-fifth of the income for the poorest rural households tourism activity has stimulated services export earnings. but are particularly exposed to climate change-related Travel receipts, the largest component of the country’s shocks and face stagnant productivity growth. This services exports, have soared by 25 percent, reaching underscores the importance of prioritizing productivity- US$679.1 million in 2M-2024. This increase was bolstered enhancing public investment and adopting climate-smart by a surge in inbound tourist arrivals—registered at around strategies to improve the agriculture and livestock sectors 0.4 million during 2M-2024. (see Special Section). Goods and services imports growth was virtually flat The Government of Tanzania has made efforts to in 2M-2024, at just 1.2 percent. The ongoing improve the country’s fiscal health. Between 8M- implementation of mega projects such as the Standard FY2022/23 and 8M-FY2023/24, government revenues Gauge Railway project required transport, building, and viii construction equipment-related imports and increased the Inflation remained subdued during 3M-2024, averaging 3 demand for capital imports by a robust 20.6 percent during percent, y/y, a level not seen since 2019. Cumulative food 2M-2024. Nevertheless, the reduced value of imported oil price inflation fell from 7.3 percent in 2022 to 6.8 percent and fertilizer, combined with a decline in insurance and in 2023, before settling at 1.6 percent during 3M-2024. This freight services, prevented an escalation of the country’s was helped by various short-term fiscal support measures overall import bill. to ensure an adequate food supply to meet national and regional needs, as well as by the BoT’s financing support to Supported by increased export earnings and a reduced the agriculture sector. However, a recent pick-up in import bill, Tanzania’s trade balance and current- domestic energy, fuel, and utility prices due to increased account deficit have improved. The balance-of-trade global oil prices may undermine domestic consumption deficit narrowed from US$448.6 million (3.4 percent of among Tanzanian households. GDP) in 2M-2023 to US$189.7 million (1.4 percent of GDP) in 2M-2024. This sharp reduction resulted in an Tanzania’s GDP projection for 2024 has been revised improved current-account position, despite an increase in downward from 5.6 percent in the last TEU to 5.4 net income outflows from 0.8 percent of GDP to around percent. This is due to the slower-than-expected 1.1 percent over the same period. The country’s current- implementation of ongoing transformative structural account deficit declined from US$554.6 million, or 4.2 reforms to facilitate private sector investment as well as percent of GDP, during 2M-2023 to US$328.8 million, or persistent barriers that hinder private sector development. 2.5 percent of GDP, during 2M-2024. Over the medium term, growth is expected to average around its long-run potential of about 6 percent, as A gradual increase in foreign direct investment (FDI), improvements to the business environment and the foreign loans, and official reserves financed the complete implementation of structural reforms are likely to narrowing current-account deficit. Tanzania’s FDI attract more investment, including FDI. Headline inflation inflows are low compared to those of regional neighbors, is projected to remain low and stable over the medium term but a favorable business environment, plateauing interest as the newly adopted interest rate-based framework rates in advanced economies, and positive ratings from anchors inflation expectations. The current-account deficit Fitch and Moody’s have helped the country attract FDI. is expected to narrow further, driven by an improved trade Gross foreign exchange reserves remain adequate and rose balance. Meanwhile, a combination of increased revenue from US$4.6 billion by end-February 2023 to US$5.0 collection and controlled expenditures is expected to billion by end-February 2024. However, the coverage of narrow the fiscal deficit over the medium term. The foreign reserves was the same in both months, at 4.1 poverty rate, measured by the international poverty line, is months of imports. also projected to decline from 43.0 percent in 2024 to 41.7 Still, ongoing tensions in the foreign exchange market percent in 2026, supported by a promising macroeconomic persists, which has required the BoT to keep outlook and increased agriculture budget allocations. tightening its monetary policy stance. The Tanzanian Despite the robust and stable outlook, several risks shilling depreciated by 9.4 percent in one year, from an threaten economic growth. Key risks include delayed or average of Tsh2321.1/US$ in February 2023 to incomplete implementation of structural reforms, Tsh2538.8/US$ in February 2024. However, this appears damaging effects of climate change on the agriculture and to be inadequate to mitigate domestic demand pressures on tourism sectors, a worsening external global environment foreign exchange. In early April, the BoT decided to raise that lowers demand for the country's exports, and the policy rate by 50 basis points to 6 percent. In tandem, continued global inflationary pressures. To mitigate these the growth rate of extended broad money (M3) dropped risks, policymakers can continue to improve the business sharply from 21.3 percent in July 2023 to 13.1 percent in and investment environment, reduce the cost of regulatory February 2024, while private credit growth has decelerated compliance, strengthen Tanzania’s export competitiveness, to 16.8 percent in February 2024. and implement other structural reforms to attract greater Benefiting from prudent monetary and fiscal policies, private investment and spur resilient and inclusive private inflationary pressures have eased in Tanzania. sector-led growth. ix Box 1 The State of Tanzania’s Economy in Six Charts Figure B1. A Tanzania has weathered the impact of overlapping shocks and Figure B1. B Inflationary pressures have gradually eased on both the managed a steady and strong growth path by regional standards. mainland and in Zanzibar since the start of 2023 ... Trend in Real GDP Inflation, Mainland and Zanzibar Index, Q4-2019 = 100, Seasonal Adjusted Headline Inflation, Mainland 125 9 Core Inflation, Mainland Ghana 8 Headline Inflation, Zanzibar 120 7 115 Kenya 6 110 Mozambique 5 105 4 Tanzania 3 100 2 Uganda 95 1 90 Zambia 0 Oct-22 Oct-21 Oct-23 Apr-21 Apr-22 Apr-23 Jul-21 Jul-22 Jul-23 Jan-21 Jan-22 Jan-23 Jan-24 Source: Haver Analytics, WB staff estimates Source: NBS, BoT, WB staff estimates Figure B1. C … driven by the Bank of Tanzania’s tightening monetary Figure B1. D … the implementation of well -coordinated short-term policy stance, as indicated by decelerated growth of monetary aggregates fiscal measures, such as recent subsidies on sugar. and … Moentary Aggregates Tanzania's Fiscal Balance % y/y change % of GDP 32.0 Overall Fiscal Balance Primary Fiscal Balance 1 24.0 16.0 -1 8.0 0.0 -3 Oct-22 Oct-20 Oct-21 Oct-23 Apr-20 Apr-21 Apr-22 Apr-23 Jul-20 Jul-21 Jul-22 Jul-23 Jan-20 Jan-21 Jan-22 Jan-23 Jan-24 -8.0 -5 Reserve Money (M0) Extended broad Money (M3) FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24e Source: Bank of Tanzania, WB staff estimates Source: NBS, WB staff estimates Figure B1. F … and shore up official reserves. However, tensions in Figure B1. E Tanzania’s t erms-of-trade position has become favorable for the foreign exchange market persist following the currency its international trade, helping improve the trade deficit ... depreciation. Tanzania's External Sector Foreign Reserves and Exchange Rate Index (LHS);% of GDP (RHS) US$ billion (LHS); Tsh/US$ (RHS) 110.0 Terms of Trade Balance of Trade (RHS) 2.0 Official foreign reserves (US$ billion) 108.0 8.0 Nominal Exchange Rate (RHS) 2550 0.0 7.0 2500 106.0 -2.0 6.0 Depreciation 2450 104.0 5.0 2400 -4.0 102.0 4.0 2350 100.0 -6.0 3.0 2300 98.0 -8.0 2.0 2250 96.0 -10.0 1.0 2200 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 0.0 2150 Apr-21 Apr-22 Oct-22 Oct-21 Apr-23 Oct-23 Jul-21 Jul-22 Jul-23 Jan-21 Jan-22 Jan-23 Jan-24 2019 2019 2020 2021 2022 2023 Source: Bank of Tanzania, NBS, WB staff estimates Note: Higher ToT, more favorable trade environment. Source: Bank of Tanzania, NBS, WB staff estimates x ii. Harnessing a Climate-Smart and Competitive Livestock Sector Tanzania possesses considerable potential in The livestock sector faces major challenges related to livestock production and trade. While the country boasts a climate change such as erratic rainfall and higher large livestock population, climate-related risks and inadequate temperatures. These climate-driven challenges lead to investment from the public and private sectors impede sectoral growth fluctuating water and feed availability and intensify and international competitiveness. Nevertheless, with increasing resource competition and land degradation, especially in domestic demand and a burgeoning need for livestock products, there arid and semi-arid regions. They also interact with multiple is an opportunity to capitalize on this internal market while socioeconomic factors and institutional constraints in rural simultaneously exploring avenues for expanding exports. To realize areas, limiting access to essential resources like land, water, its livestock potential, Tanzania must prioritize climate-smart and fodder. Endemic livestock diseases further strain the measures and innovations that enhance resilience and boost sector, impacting animal health, productivity, and market productivity and incomes in the face of climate change. Public access. Inadequate infrastructure and technical capacity for investment projected at US$546 million over five years (US$109 water supply services, veterinary services, and market million/year) is necessary to effectively address the livestock sector's access hinder disease management and market integration, multifaceted challenges and significantly enhance its contribution to exposing livestock producers and traders to multiple Tanzania’s economy. In addition to climate change adaptation and intertwined risks. mitigation measures, an enabling environment for private investment is critical to ensure sustained innovation and efficiency gains in the Barriers to Competitiveness livestock sector. There are also various structural, institutional, and systemic challenges facing Tanzania’s livestock Recent Trends and Developments sector that intersect with climate risks, hampering productivity and impeding competitiveness. Despite Tanzania's livestock sector is expansive and crucial its significant contribution to GDP, the livestock sector for the livelihoods of many households. Diverse species receives disproportionately low public funding, such as cattle, goats, sheep, poultry, and pigs serve constraining investment in essential areas such as research, multifaceted roles, including as food, draft power, and extension services, and infrastructure. Livestock producers income. Compared to neighboring countries with similarly encounter difficulties in accessing inputs, technical large livestock populations (e.g., Ethiopia and Kenya), assistance, and credit, with women and youth especially Tanzania’s livestock sector’s contribution to GDP and impacted. Inadequate infrastructure further compounds agricultural GDP is relatively limited. Nevertheless, the these challenges, leading to inefficiencies in transportation, sector plays a vital role in income generation, especially for market access, and processing, while land tenure insecurity the poorest households, contributing significantly to exacerbates resource degradation. Additionally, limited employment, food security, nutrition, and women and skills and capacity among stakeholders, coupled with youth inclusion. Over the past decade, Tanzania has complex and inconsistent policies and regulations, experienced remarkable growth in livestock production, undermine efforts to drive growth and attract private outpacing crop production, albeit mainly through an investment in the sector. expansion of the livestock population rather than yield improvements. Urbanization, income growth, and changing lifestyles and diets are driving up the demand for Emerging Strengths and Opportunities livestock products, leading to a surge in consumption. Despite the myriad of vulnerabilities and However, domestic production struggles to meet rising impediments to competitiveness, Tanzania's demand, resulting in increased imports of key livestock livestock sector holds potent advantages and products, especially processed and value-added items. The opportunities for growth. The country’s strategic country’s livestock exports are lower than potential geographical location—boasting sea access and bordering exports, pointing to challenges in capitalizing on the seven neighboring countries—positions it to capitalize on sector's full economic potential. regional and global demand for meat, dairy, and other livestock products. Its rich diversity of indigenous livestock Drivers of Vulnerability breeds presents an opportunity to cater to diverse xi consumer preferences both domestically and research and development. Enhancing trade and value internationally while enabling exports of livestock genetics addition entails diversifying market opportunities, and biotechnology products. Moreover, increasing demand improving market linkages and transportation for processed and value-added livestock products offers infrastructure, and implementing effective food safety avenues for investment and job creation in processing regulations. Prioritizing climate-smart practices—such as facilities, enhancing market competitiveness. Leveraging the implementation of climate adaptation strategies and Tanzania's vast land resources and traditional knowledge in renewable energy solutions—is essential to mitigate climate livestock management, along with emerging digital risks and reduce the sector’s carbon footprint. technological advancements, can further enhance the Strengthening sector governance, improving institutional resilience, productivity, and efficiency of the sector. The capacity, and adopting enabling policy reforms are also high absorption capacity of the Ministry of Livestock and crucial to ensure the effective implementation of climate- Fisheries signals the potential for increased public smart livestock practices and foster competitiveness. investment, with livestock projects demonstrating Finally, an effective governance framework and substantial viability, paving the way for transformative appropriate incentive mechanisms are critical to ensure growth in the sector. sustainable practices and greater private sector participation. The Role of the Livestock Sector in Climate Change Mitigation Agriculture is a significant source of Tanzania’s greenhouse gas (GHG) emissions, with the livestock sector accounting for a large share of emissions. A recent analysis by the World Bank suggests that implementing measures to increase livestock production efficiency could significantly mitigate climate change by reducing GHG emissions. Targeting just 1 percent of the total beef cattle population over seven years could lead to a substantial reduction in emissions, equivalent to 3.9 percent of Tanzania's CO2 emissions in 2022. The analysis indicates that these interventions are economically viable and could generate significant revenues if supported by the right policy and institutional framework for monitoring and verification. Policy Recommendations Between 2023/24 and 2028/29, sustainable livestock development in Tanzania would require US$546 million (about US$109 million annually) in public investment. This level of investment represents a fivefold increase over previous budgets and is 50 percent higher than the 2023/24 budget, and it is deemed feasible given the underfunding and high absorption capacity of the livestock sector. With such resources, the national authorities could pursue a series of policies and investments targeting productivity, trade and value addition, climate adaptation and mitigation, and sector governance. These measures would involve sustainably improving the productivity of the sector through improved access to veterinary services, vaccinations, and disease control measures, as well as by expanding breed improvement programs and increasing public funding for xii A. Recent Economic Developments 1. Economic Activity and Poverty Trends Tanzania’s economy has maintained a strong growth income for the poorest rural households, could create more momentum amid multiple overlapping shocks. Real jobs, increase farmers’ incomes, and contribute positively GDP grew by an estimated 5.2 percent, year-on-year (y/y), to climate change mitigation (see Special Section). in 2023, up from 4.6 percent in 2022. Despite the severe Figure 2 Long-Term Growth Trends impact of droughts and floods on agricultural output and households’ real income, consumption remained one of the (Tsh trillion) 160 three solid pillars of economic growth, following gross 150 fixed investment and net exports (Figure 1). Still, economic 140 growth is below its pre-pandemic average, and the 130 economy is expected to grow at a pace parallel to the pre- 120 pandemic potential output, revealing the lingering effects 110 of the COVID-19 crisis (Figure 2). 100 Figure 1 Annual GDP Growth, Demand Side 90 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 (% y/y change, contribution in ppt.) pre-covid potential output Actual WB staff-Forecast (Apr-24) 8 6.2 Source: NBS, WB staff estimates 5.2 6 4.3 4.6 Household 4 2.0 consumption An improved trade balance and increased gross fixed 2 Government investment contributed positively to aggregate consumption 0 Gross fixed output. Lower domestic demand for imported non-food investment -2 Net export consumer goods, reduced global oil and fertilizer prices, -4 and increased transportation and travel receipts (bolstered 2020 2021 2022 2023 2015-2019 Statistical discrepency by the sustainable growth of the tourism industry) helped Real GDP improve Tanzania’s net exports. As a result, the Source: MFMod, WB staff estimates contribution of net exports turned positive in 2023, accounting for nearly 40 percent of real GDP growth. This Climate-related shocks to household income and marked the first positive contribution from net exports future uncertainties dampened consumer demand in since 2019. Gross fixed investment, a usual driver of 2023. Following pent-up consumer demand in 2022, domestic demand, increased to an estimated 3.8 percent in household consumption growth decelerated in 2023. A 2023, mainly driven by public investment. According to the prolonged drought and frequent flooding had a severe latest World Bank estimate, an additional Tanzanian effect on the income sources of households in the shilling spent by the government could increase real output agriculture and livestock sectors and weighed on final by around Tsh 0.41Tanzania shilling, underscoring the consumption. Apart from building a sound social security medium stimulative effect of fixed public investment (Box system, unleashing the full potential of Tanzania’s rapidly 2). growing livestock sector, which employs around 33 percent of the population and generates almost one-fifth of the 1 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 ).1 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. Figure B2.A Gross Fixed Capital Formation Figure B2. B Fiscal Spending Multiplier (% of GDP) (level) 45 40 0.90 0.82 35 0.80 0.70 30 0.60 25 0.42 0.50 20 0.40 15 0.30 10 0.20 5 0.10 0.00 0 2000-2019 2000-2023 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 Private Sector Public Sector Total Source: MFMod, and WB staff estimates. Source: WB staff estimates. This box presents the results of an assessment of short-run output effects of government spending in Tanzania,2 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 investment3—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. 4 The findings show that Tanzania’s government spending multiplier is estimated at around 0.42 between 2000 and 2023.5 This indicates that every Tsh1 spent by the government could increase real output by Tsh0.42. 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).6 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 consumption, and investment moved in the same direction in the 1 World Bank. 2023. Privatizing Growth: A Country Economic Memorandum following year after the shock, while a monetary policy shock was for the United Republic of Tanzania. identified if M3 and GDP deflator moved in the opposite direction. https://documents.worldbank.org/en/publication/documents- Government revenue and spending shocks are orthogonal to the reports/documentdetail/099120523172572316/p177386065705608a0 previous two shocks. 894401f03243fd2c6 5 The spending multiplier is the one-year impact multiplier, defined as 2 While recent studies have explored different values for the capital GDP response in the fourth quarter expenditure and revenue expenditure multipliers, this assessment . The (Initial spending shock ∗ average government spending share of GDP) focused only on the overall expenditure multiplier due to data findings are quite robust. The fiscal multiplier is estimated at around limitations. 0.45 when using a subsample (2003Q4–2023Q4), and at around 0.31 3 All variables are seasonally adjusted by applying the X-13 approach when adding 3-months T-bill rate into the model using quarterly data developed by the US Census Bureau. Apart from M3 and GDP between 2000 and 2023. deflator, other variables are interpolated from annual data using the 6 Kraay, A. 2014. “Government spending multipliers in developing quadratic sum method and calculated in per capita terms. The lag order countries: evidence from lending by official creditors.� American of 6 is selected based on information criteria. Economic Journal: Macroeconomics, 6(4), 170-208. 4 Like Mountford & Uhlig (2009), this assessment identified a business cycle shock if real GDP, real government revenue, real private 2 results also show that the spending multiplier crowds in real private consumption while crowding out real private investment, which is consistent with existing literature. The irregular release of national account statistics and shocks, highlighted by recent flooding events and data high frequency data impedes the comprehensive showing an inverse relationship between exposure to analysis of recent developments in real sectors. There climate-related shocks and ability to cope. For example, the are often significant delays in the publication of GDP and district of Longido in northern Tanzania ranks as the most high frequency indicators. For example, new data on these impoverished and has one of the highest exposures to statistics were not disclosed between early January and early drought. Boosting the development of Tanzania’s private May this year. The latest available data are 9M-2023 for sector is needed to stimulate economic growth and reduce GDP and October 2023 for high frequency indicators. This extreme poverty. However, there are barriers to doing highlights the importance of enhancing the timely business in Tanzania that remain to be addressed (Box 3). publication of both ad hoc and routine statistics. Figure 3 Poverty Incidence, 2011 –2024 (poverty rate, % ) Tanzania continues to witness slow progress in 60.0 poverty reduction. In the absence of updated official 55.0 47.7 47.9 poverty data post-2018, findings from the 2020/2021 50.0 44.344.644.344.043.543.0 National Panel Survey indicate a notable decline in 45.0 household consumption, primarily attributed to the 40.0 35.0 adverse effects of the COVID-19 pandemic (Figure 3). 28.2 26.4 26.1 27.1 26.9 26.8 26.5 26.2 30.0 Subsequent estimates based on the effects of GDP growth 25.0 on poverty indicate a slight reduction in extreme poverty, 20.0 from 44.0 percent in 2022 to 43.5 percent in 2023, largely 20112012201320142015201620172018201920202021202220232024 National Poverty Line - Tsh 49,320 attributed to high population growth, limited social International Poverty Line - $2.15 a day (2017 PPP) protection, and low productivity in the agriculture and Source: 2011, 2018 Household Budget Survey and WB staff estimates livestock sectors (which together employ almost 70 percent of Tanzanians). Tanzanians are highly vulnerable to Box 3 En Route to ‘Privatize ’ Tanzania’s Growth Tanzania’s private sector is poised to play an important role in the country’s development trajectory. As presented by the Ministry of Finance (MoF) in the Plans and Budget priorities for 2024/25, 7 the Government of Tanzania (GoT) recognizes the importance of the private sector as the engine of economic growth. The authorities plan to prioritize the facilitation of an inclusive and competitive economy, deepening industrialization, and service provision as well as investment and trade promotion. However, regulatory burdens remain among the most critical barriers to private sector growth. While there are ongoing efforts by the GoT to improve private sector development, the implementation of genuinely transformative reforms has been slow, and significant barriers to doing business remain when comparing Tanzania with averages for SSA and all economies in the World Bank 2023 Enterprise Survey (Table B3.A and Figure B3.A). Table B3.A Regulations and Taxes in Tanzania and SSA, 2023 PLAN%20AND%20BUDGET%20GUIDELINE%20FOR%202024 7MoF. 2023. Plan and Budget Guideline for 2024/25. December 2023. -25.pdf. https://www.mof.go.tz/uploads/documents/en-1707721385- 3 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). Survey data8 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 countries on business sophistication in the Global Innovation Index 2023. 9 To leverage the potential of private sector-led growth, there is an urgent need to accelerate the overhaul of the business-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 2023Q4, 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.10 Figure B3.A Top Ten Business Environment Constraints 11 for Firms in Tanzania (% of firms) 45 40 35 30 Tanzania Sub-Saharan Africa 25 20 15 10 5 0 Source: World Bank Enterprise Survey (2023). 8 World Bank. “Enterprise Surveys.� www.enterprisesurveys.org. https://www.tic.go.tz/uploads/documents/en-1709730086- 9 World Intellectual Property Organization. 2023. “Global Innovation BULLETIN%202nd%20QUARTER-4.pdf. Index 2023: Innovation in the face of uncertainty.� Geneva: WIPO. 11 The percentage of firms that consider a specific business DOI:10.34667/tind.48220. environment obstacle as the most important one. 10 Tanzania Investment Center. “Quarterly Investment Bulletin October-December 2023.� 4 2. Monetary Policy and Inflation Tanzania’s inflation has remained well below the SSA Figure 6 Food and Non-Alcoholic Beverages Inflation, average. Tanzania’s monthly inflation readings remain January 2021 –January 2024 consistent with the country’s inflation target band of 3 to 5 (% y/y change) percent, despite the effects of the COVID-19 pandemic, 12 rate hikes in advanced economies, and other external 10 shocks. In 2023, inflation in Tanzania was below the projected world average of 5.6 percent and lower than that 8 of peer countries such as Ghana and Ethiopia, which 6 experienced double-digit cumulative inflation. Moreover, 4 Tanzania’s inflation rate was the least volatile among regional peers, largely due to government interventions 2 (Figure 4). 0 May-21 Jul-21 Nov-21 May-22 Jul-22 May-23 Jul-23 Nov-22 Nov-23 Sep-21 Sep-22 Sep-23 Jan-21 Mar-21 Jan-22 Mar-22 Jan-23 Mar-23 Jan-24 Mar-24 Figure 4 Inflation in Tanzania and SSA Peers (% y/y change) Source: NBS, WB staff estimates Average for January–March 2024 Inflation range since 2020 In the first three months of 2024, inflation averaged 3 Ethiopia Ghana percent y/y, a low level not seen since 2019 (Figure 5). Zambia Food and energy prices continued to drive the moderation Lesotho in inflation. Cumulative food-price inflation fell from 9.8 Kenya Mauritius percent in 3M-2023 to 1.6 percent in 3M-2024 (Figure 6), Botswana Uganda while inflation energy, fuel and utilities picked up slightly Tanzania by 0.7 percentage points over the period. The stability of Rwanda Seychelles the country’s inflation has been due to prudent monetary -5.0 5.0 15.0 25.0 35.0 45.0 55.0 policy, declining global prices for some critical imports helped by pro-active government measures to ensure Source: NBS, WB staff estimates adequate domestic food supply.12 Figure 5 CPI Inflation, January 2021 –March 2024 The slump in global oil prices passed through to domestic energy, fuel, and utility prices, but a recent (% y/y change) 14 reversal may increase inflationary pressures. The 12 cumulative energy-related inflation fell from an average of 10 9.1 percent in 2022 to 2.4 percent in 2023, before 8 increasing to 6.8 percent in 3M-2024 (Figure 7). The core 6 inflation index, which accounts for 73.9 percent of the CPI basket, declined from an average of 3.0 percent in 2022 to 4 3.9 3.0 2.3 percent in 2023, before swelling to 3.6 percent in 3M- 2 0.9 2024. Non-core inflation, which fell slightly from 8.2 0 percent in 2022 to 8.0 percent in 2023, declined Apr-21 Dec-21 Oct-21 Apr-22 Dec-22 Apr-23 Dec-23 Oct-22 Oct-23 Nov-21 Nov-22 Nov-23 May-21 Jul-21 Aug-21 May-22 Jul-22 Aug-22 May-23 Jul-23 Aug-23 Sep-21 Sep-22 Mar-23 Sep-23 Mar-21 Jun-21 Mar-22 Jun-22 Jun-23 Mar-24 Jan-21 Feb-21 Jan-22 Feb-22 Jan-23 Feb-23 Jan-24 Feb-24 dramatically to 1.5 percent during 3M-2024. Core Index Non-Core Index All Items-(headline inflation) Source: NBS, WB staff estimates 12 To counteract rising inflationary pressures, the government has taken availability of fertilizers, with 418,942 tons of fertilizer sold to farmers steps to ensure an adequate food supply to meet national and regional at subsidized prices in 26 regions in 2023 to reduce farmers’ production needs. The national food supply increased by 124 percent in 2023/24, costs (imported inflation) and increase the production of quality seeds up from 114 percent in 2022/23. The government has also ensured the and crops. 5 Figure 7 Cumulative Energy, Fuel, and Utilities measure of the money supply decelerated from 17.0 Inflation percent in June 2023 to 3.7 percent in December 2023, (% y/y change) before increasing to 8.0 percent in February 2024 (Figure 9). The broad monetary condition index also indicates a 10 9.1 9 tightening of Tanzania’s monetary conditions and BoT’s 8 6.8 monetary policy stance since mid-2023 (Box 4). These 7 trends are consistent with the BoT’s policies that aim to 6 5 slow the growth of monetary aggregates against the 4 3.1 2.4 background of the pressures on the exchange rate. 3 2 1 Figure 9 Growth of the Money Supply, November 0 2019–January 2024 2021 2022 2023 2024 (till Mar 2024) Moentary Aggregates % y/y change 32.0 Source: NBS, WB staff estimates 24.0 The decline in the produce price index (PPI) has 16.0 closely followed movements in the CPI. It fell from a 8.0 peak of 4.9 percent y/y, in Q3-2022 to 2.1 percent in Q1- 2023, before sliding even further to 0.4 percent in Q4-2023, 0.0 driven by the waning contribution of manufacturing to Apr-20 Oct-21 Oct-23 Oct-20 Apr-21 Apr-22 Oct-22 Apr-23 Jul-20 Jul-21 Jul-22 Jul-23 Jan-20 Jan-21 Jan-22 Jan-23 Jan-24 inflation (Figure 8). While input costs for manufacturers of -8.0 food, beverage, and tobacco products increased, costs for Reserve Money (M0) Extended broad Money (M3) manufacturers of chemicals, basic metals, and related Source: Bank of Tanzania, WB staff estimates products fell. Figure 8 Contribution to PPI Inflation, 2020 – 2023 Net domestic financial assets (NDA) expanded by (% y/y change, contribution in ppt.) 10.8 percent in January 2024 and remained the primary source of Tanzania’s liquidity, supported by a broad- 6 based expansion in private credit offtake. Credit to the 5 private sector reached an average annual growth rate of 4 Utility 22.5 percent in February 2023, before gradually declining 3 Manufacturin to a still robust 16.8 percent in February 2024 (Figure 10). 2 g Mining and Like in the previous year, credit growth continues to be led 1 Quarrying by the agriculture sector, which benefits from government- Overall Index 0 supported programs. 13 Moreover, credit growth in -1 manufacturing jumped from 2.3 percent in August 2023 to 16.8 percent in February 2024, and tourism appears to be 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 recovering, with credit growth more than doubling for Source: NBS, WB staff estimates hotels and restaurants in the same period. The growth in monetary aggregates has moderated. The annual growth of the extended broad money supply (M3) reached a high of 21.3 percent in mid-2023, before settling at 13.1 percent in February 2024. Further, the growth rate of reserve money (M0), the most liquid 13The government has a Tsh 1 trillion fund lent by the BOT at 3 managed by the Small Industries Development Organization offers percent to banks for lending to the agriculture sector. Another program loans to SMEs in the agriculture sector through AZANIA bank. coordinated by the National Economic Empowerment Agency and 6 Figure 10 Private Credit Growth and Its Drivers percentage points in February 2023 to 7.04 percentage points in February 2024. (% y/y change, contribution in ppt.) 30 Others The financial sector remains stable and resilient to short-term shocks. The banking sector is liquid, 25 Agriculture profitable, and adequately capitalized. Commensurate with 20 Manufacturing the increase in economic activity and use of financial 15 Trade services, capital adequacy—the ratio of liquid assets to 10 demand liabilities—remains well above regulatory 5 Transport and communication requirements. Moreover, the loans/customer deposit ratio 0 Personal is robust and stable. Notably, asset quality is sound, with a -5 non-performing loan (NPL) ratio of 4.4 percent—below May-20 May-21 May-22 May-23 Sep-20 Sep-21 Sep-22 Sep-23 Jan-20 Jan-21 Jan-22 Jan-23 Jan-24 Total the regulatory ratio of 5 percent. The BoT is closely monitoring the rise in dollarization in the financial system Source: Bank of Tanzania, WB staff estimates resulting from increased demand for foreign exchange. The increase in foreign currency deposits is indicative of banks’ The Bank of Tanzania (BoT) has increased the rate to preference to hold and transact in foreign currency, reduce supply-demand mismatch in the forex market especially the US dollar. while keeping inflation low. On April 3, 2024, the BoT Figure 11 Developments in Interbank Foreign announced an increase in the central bank rate (CBR) from Exchange Market 5.5 percent to 6 percent. With limited depreciation of the Shilling, interest rates remain elevated, partly because of the forex interventions. The rate remains within the band of ±200 basis points and is expected to have a minimal effect on the 7-day interbank lending rate, which currently stands at 7.28 percent. Pressure on lending rates from the higher CBR will invariably materialize, although the decrease in bank lending rates and improved asset quality over the last year will cushion the impact. Lending rates charged by banks averaged 15.44 percent in February 2024, down from 15.96 percent in the corresponding month of 2023, and short-term lending rates (loans up to 1 year, which are more prevalent for small and medium enterprises [SMEs]) decreased from 16.85 percent to 16.10 percent in the same Source: Bank of Tanzania period. The overall deposit rates remained relatively stable, averaging 7.39 percent, although the negotiated deposit rates increased slightly from 9.37 percent in February 2023 to 9.52 percent in February 2024. Notably, the short-term interest rate spread 14 narrowed further, from 8.07 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.15 While the interest rate becomes an important intermediate target to help government achieve inflation and output objectives, the growth rates of monetary aggregates 14The difference between the lending rate charged to customers and 15The BoT set the policy rate at 5.5 percent for the first quarter on the interest rate banks pay on deposits and borrowings. It is an January 19 and raised it by 50 basis points to 6.0 percent for the second indicator of a bank’s profitability. quarter on April 4. Under this regime, the BoT will align the 7-day interbank cash market interest rate along the policy rate. 7 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 an d 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.16 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);17 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 managed floating exchange rate regimes. 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: 𝛽 𝛿 𝐵𝑟𝑜𝑎𝑑 𝑀𝐶𝐼 = (𝑟𝑡 − 𝑟� ) + (𝑀3𝑡 − 𝑀3� ) ∗ 100 + (�𝑟𝑡 − �𝑟� ) ∗ 100, 𝛾 𝛾 where 𝑟𝑡 , 𝑟� are the real interest rate at period t and base period b, 𝑀3𝑡 , 𝑀3� are the log of real extended broad money at period t and base period 𝛽 𝛿 b, �𝑟𝑡 , �𝑟� are the real interest rate at period t and base period b, is the relative effect of M3 and 𝑟 on aggregate output, and is the relative effect 𝛾 𝛾 of �𝑟 and 𝑟 on aggregate demand. Figure B3.A Traditional MCI and Broad MCI Figure B3. B Broad MCI and Contribution of Its Components (index, base period: Jan 2020) (index, base period: Jan 2020) Traditional MCI Broad MCI R M3 Credit Broad MCI 2 4 0 2 0 -2 -2 -4 -4 -6 -6 -8 -8 -10 -10 -12 -12 -14 2020M1 2020M4 2020M7 2021M1 2021M4 2021M7 2022M1 2022M4 2022M7 2023M1 2023M4 2023M7 2024M1 2020M1 2020M4 2020M7 2021M1 2021M4 2021M7 2022M1 2022M4 2022M7 2023M1 2023M4 2023M7 2024M1 2020M10 2021M10 2022M10 2023M10 2020M10 2021M10 2022M10 2023M10 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 a tightening of monetary conditions since July 2023. Derived from the empirical results estimated by Autoregressive Distributed Lag (ARDL) methodology,18 the formulas of the two MCIs are: 𝑇𝑟𝑎𝑑𝑖𝑡𝑖𝑜𝑛𝑎𝑙 𝑀𝐶𝐼 = (𝑟𝑡 − 𝑟� ) + 1.7(𝑟𝑒𝑟𝑡 − 𝑟𝑒𝑟� ) ∗ 100, and 𝐵𝑟𝑜𝑎𝑑 𝑀𝐶𝐼 = (𝑟𝑡 − 𝑟� ) − 0.52(𝑀3𝑡 − 𝑀3� ) ∗ 100 − 0.28(�𝑟𝑡 − �𝑟� ) ∗ 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 M3 and private credit. Therefore, a rising MCI indicates tightening monetary conditions, and vice versa. Both the traditional and broad MCI indicate a loosening of monetary conditions during the first eight months of 2020 and between November 2020 𝛼 18The ARDL model estimated real GDP growth rate as the dependent 16 The definition of the traditional MCI= (𝑟𝑡 − 𝑟� ) + (𝑟𝑒𝑟𝑡 − 𝛾 variable and the real interest rate and 12-month changes in the 𝑟𝑒𝑟� ), where 𝑟𝑡 , 𝑟� are real interest rate at period t and base period b, logarithms of real exchange rate as independent variables, using 𝑟𝑒𝑟𝑡 , 𝑟𝑒𝑟� are log of real exchange rate at period t and base period b, monthly data from May 2015 to February 2024 to get the relative 𝛼 and is the relative effects of 𝑟 and 𝑟𝑒𝑟 on aggregate output. effects for the traditional MCI. Similarly, the model excluded 12-month 𝛾 17 International Monetary Fund. 2023. “Reexamining the Monetary changes in the logarithms of real exchange rate and added 12-month Policy Transmission Mechanism in Tanzania.� changes in the logarithms of M3 and private credit in the set of https://www.elibrary.imf.org/view/journals/002/2023/154/article- independent variables, using the same sample to calculate the relative A004-en.xml. effects for the broad MCI. 8 and May 2021, as the government implemented accommodative monetary policies (e.g., introduced a credit window to the agriculture sector) in response to the COVID-19 pandemic. However, since mid-2021, the traditional MCI failed to capture the movement of monetary conditions. 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 indicated a general loosening of monetary conditions and accommodative monetary policies during the post-pandemic recovery. However, the general downward trend started to reverse, and monetary conditions has tightened since July 2023, when the central bank allowed the Tanzanian shilling to rapidly depreciate (Figure B3.B). 9 3. Fiscal and Debt Developments While fiscal consolidation has progressed slowly over Figure 13 8M Fiscal Revenues, 2019– 2024 the past few years, the government is expected to adopt measures to improve the country’s fiscal health. (% contribution in ppt.) 40 Supported by increased revenue collection, the overall fiscal deficit narrowed from 3.2 percent of GDP during 20 FY2018/19 to 1.9 percent during FY2019/20. However, as widespread fiscal support was implemented in response to 0 multiple external shocks such as the COVID-19 pandemic, government public expenditure has soared since FY2020/21, deteriorating the fiscal deficit while revenue -20 2019 2020 2021 2022 2023 2024 remained stable as a share of GDP (Figure 12). The Taxes on imports government’s FY2023/24 budget envisions a narrowing of Sales/VAT and excise on local goods Income taxes the fiscal deficit through enhanced revenue mobilization, Other taxes (mainly Inland Revenue) which is already reflected in published data for the first Non-tax revenue (Inc. LGAs) eight months (8M) of FY2023/24. Source: Bank of Tanzania, WB staff estimates. Figure 12 Overall and Primary Fiscal Balance, FY17 – Figure 14 Actual vs. Budget Revenue, 8M-2023/24 FY24 (% y/y change, contribution in ppt.) 17.2 18.1 20 (% of GDP) Overall Fiscal Balance Primary Fiscal Balance 1 10 -1 0 8M-FY2023/24 Actual 8M-FY2023/24 Budget Non-tax revenue (Inc. LGAs) -3 Other taxes (mainly Inland Revenue) Income taxes Sales/VAT and excise on local goods Taxes on imports -5 Total revenue FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24e Source: Bank of Tanzania, WB staff estimates. Source: NBS, WB staff estimates Revenue collections surged by an impressive 27.4 Tanzania’s primary fiscal deficit was an estimated 1.0 percent, y/y, during 8M-FY2023/24. The increase was percent of GDP in 8M-FY2023/24, lower than 2.3 driven by the strong performance of income taxes, which percent of GDP in the same period in FY2022/23, witnessed a y/y increase of 10.0 percent, followed by the reflecting an improvement in the country’s fiscal sales tax/value-added tax (VAT) and excise taxes (Figure health (Table 1). This was well below the budget estimate 13). Import taxes increased by around 7.5 percent y/y in of the fiscal deficit. In 8M-FY2023/24, tax revenue stood 8M-FY2023/24, while nontax revenue rose by 4.4 percent at 14.2 percent, surpassing the budget target of 12.5 percent of GDP, and total expenditure stood at 22.9 percent. In the y/y during the same period (Figure 14). The Government same period, local government revenue grew by 10 percent, of Tanzania is implementing a range of measures to bolster y/y, and reached Tsh 17.2 trillion, equivalent to 95.5 revenue collection, including the promotion of IT systems percent of the target of Tsh 18.0 trillion. The government for accurate tax monitoring, expanding taxpayer and VAT remains committed to enhancing internal revenue registration through targeted campaigns, and refining tax collection, which is vital for ensuring budget stability and collection systems to make them more user-friendly. The sustainability. More than one-third of Tanzania’s financing authorities have also prioritized efforts to enhance for the budget deficit is from foreign sources, with the withholding tax management for government institutions remaining from domestic sources, which is in line with and combat tax evasion and smuggling through budget projections. 10 strengthened border security. These initiatives reflect the This involves enhancing private sector engagement in government's commitment to optimize revenue while investment and business activities by bolstering ensuring transparency and compliance within the tax infrastructure. Additionally, the authorities plan to framework. continue to mitigate the impacts of both natural and man- made disasters, foster stability in the global economy and Expenditure in 8M-FY2023/24 closely mirrored the market prices, improve food security, and maintain peace, budget estimates driven by the performance of security, unity, and stability within the country and in development expenditure and predominance of neighboring nations. The government plans to finance recurrent expenditure. Recurrent expenditure rose development projects through funds like the Road Fund, because of increased spending on wages and salaries. Railway Fund, Rural Electricity Fund, Rural Water Fund, Interest payments increased marginally from 1.8 percent of and Rural Water Agency, while also enhancing the public GDP in 8M-FY2022/23 to 2.2 percent of GDP during procurement system for better efficiency.20 8M-FY2023/24, while spending on goods, services, and transfers increased from 4.0 percent to 5.8 percent of GDP The government aims to take various measures to in the same period. At Tsh 7.4 trillion, actual spending on increase revenue collection in FY2024/25. This will goods, services, and transfers during 8M-FY2023/24 was involve improving the business environment, broadening higher than the budgeted level (Figure 15). Strengthening the tax base, and strengthening tax law enforcement, infrastructure for the provision of social services, especially alongside promoting the efficiency of the tax IT system, water, health, and education, was a crucial priority for the especially related to property. Additionally, the government during the previous year. The country is government aims to invest in productive sectors, formalize actively financing strategic projects, notably the the informal sector, and improve tax evasion controls while construction of a modern railway (Tanzania Standard enhancing service delivery at border centers.21 Gauge Railway project) and the Julius Nyerere hydroelectric dam.19 The allocation of development funds has focused on ongoing strategic projects as well as public- private partnership projects that aim to reduce the government's burden of financing development projects. Figure 15 Public Expenditure by Component, 8M- FY2024 (% of share) 25.6 39.5 9.7 25.2 Source: Bank of Tanzania, WB staff estimates. During FY2024/25, the government's strategy is grounded in the principles of economic prudence. 19Notes of Minister of Finance presenting in the Full Parliamentary 20 Ibid. Committee The System and Limitations Proposals of the Government 21 Ibid. Budget for the year 2024-25, March 2024. 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 revenue 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 2.5 2.1 2.6 2.6 2.6 3.0 Total expenditure and net lending 16.6 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 6.3 6.8 7.4 9.0 7.3 7.7 9.1 Overall balance before grants -2.8 -2.1 -3.8 -4.0 -3.8 -3.8 -5.7 Grants 0.3 0.6 0.4 0.4 0.4 0.4 0.3 Adjustments to cash and other items (net) -0.7 -0.4 -0.5 0.0 -1.0 -0.6 2.2 Overall balance (cash basis) -3.2 -1.9 -3.8 -3.6 -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 3.6 4.4 4.1 3.2 Foreign Financing (net) 0.9 1.6 1.7 1.9 1.9 1.4 2.3 Domestic (net) 2.3 0.3 2.1 1.7 2.5 2.7 0.9 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. Source: Ministry of Finance and Planning and Bank of Tanzania. 12 external debt in total debt declined marginally from 66.4 The most recent International Monetary Fund/World Bank Debt Sustainability Analysis (April 2023) percent at end-June 2022 to 64.0 percent at end-June 2023, maintained Tanzania’s moderate risk rating of before increasing to 73.6 percent in January 2024. In external and public debt distress. While indicators for January 2024, Tanzania’s total debt fell marginally month- external debt solvency and liquidity remained below the on-month to US$45,855.8 million, potentially due to the policy-defined thresholds in the baseline scenario, the debt appreciation of the US dollar. In the same month, around service-to-export ratio surpassed its threshold in the 46 percent of external debt was sourced from multilateral export-shock stress test. Nonetheless, the present value of creditors, including the World Bank and International the public debt-to-GDP ratio is projected to remain Monetary Fund, mostly on concessional terms, and this comfortably below Tanzania's debt carrying capacity share is consistent with borrowing recorded in December benchmark of 55 percent. By end-FY2022/23, total debt 2023 (Figure 16). Meanwhile, domestic debt stood at Tsh held by the central government increased by 44.3 percent 30,505 billion at end-January 2024, which represented a of GDP, up from 42.5 percent of GDP in FY2021/22, and marginal month-on-month decline of 0.6 percent but a y/y reached Tsh 80.3 trillion (approximately US$34.5 billion) in increase of 15.1 percent. In fact, domestic debt rose from nominal terms, marking a 12.3 percent rise from the previous fiscal year. Notably, external debt grew by 8.2 33.6 percent of central government debt at end-June 2022 percent, while domestic debt surged by 20.3 percent. As a to 36.0 percent at end-June 2023. Government securities result, there was a notable shift in the country’s debt accounted for about 86 percent of the domestic debt composition toward domestic debt, reflecting the financing portfolio, but Treasury bills and overdrafts grew rapidly, trends observed in the fiscal accounts. with the stock of overdrafts increasing from 13.9 percent of total domestic debt in January 2023 to 15.0 percent in Figure 16 External Debt Stock by Share of Creditors January 2024. The government's dependence on overdraft (% of share) financing highlights the restricted dependability of the budget and ineffective cash management practices. Moreover, the elevated costs associated with overdrafts Jan-24 46 4 40.5 9.60 exacerbate pressure on the budget. Pension funds, commercial banks, and the BoT jointly held about 78 Dec-23 45.7 4.1 40.6 9.60 percent of domestic debt at end-January 2024, marginally down from 79 percent at end-January 2023, with pension Jan -23 47.3 7.9 28.1 16.70 funds leading the decline, followed by the BoT. 0% 20% 40% 60% 80% 100% % of External Debt Multilateral Bilateral Commercial Export Credit Source: Bank of Tanzania. External debt maintains its dominance within the Central Government debt portfolio. The share of . 13 4. Balance-of-Payments Position Tanzania’s current-account deficit (CAD) has Bolstered by traditional and gold exports, Tanzania’s improved gradually since 2022. It deteriorated sharply in merchandise exports increased by 9.1 percent during 2022 amid escalating food and energy prices, spillovers 2M-2024, slower than 13.5 percent during 2M-2023 from Russia’s invasion of Ukraine, and supply chain (Figure 18). Led by a surge in coffee, tobacco, and cashew disruptions that pushed up the import bill. As a result, the exports—all attributed largely to volume effects, CAD more than doubled to around 7.7 percent of GDP, Tanzania’s traditional exports drastically rebounded to US$ the highest level since 2014. However, lower global 182.8 million by 61.2 percent during 2M-2024, from a commodity prices and a recovery in tourism receipts contraction of around 14 percent during the same period improved Tanzania’s current-account position in 2023, last year. Gold exports rose by 12.3 percent during 2M- with the CAD narrowing to 4 percent of GDP. 2024 against a 7.8 percent increase in 2023, due primarily to the escalating price traded in the global market. 23 In Figure 17 Current Account Balance by Component contrast to gold, exports of other minerals experienced a (% of GDP) Goods Exports Goods Imports 47 percent contraction during 2M-2024, which reflects Services Exports Services Imports waning external demand for coal and tanzanite. Income Inflow 25.00 Income Outflow Current accout balance Figure 18 Merchandise Exports, by Component 15.00 (% y/y change, contribution in ppt.) 25 5.00 21.1 20 -5.00 15 -2.1 -2.5 13.5 -3.4 -4.0 -4.2 -7.7 10 9.1 -15.00 6.8 6.6 5 5.4 -25.00 0 2020 2021 2022 2023 2M-2023 2M-2024 Source: Bank of Tanzania, WB staff estimates -5 -10 This positive momentum continued in the first two 2020 2021 2022 2023 2M-2023 2M-2024 months (2M) of 2024. The current account deficit Traditional goods Manufactured goods Gold Other minerals Other export goods Goods Exports declined to US$ 328.8 million (equivalent to 2.5 percent of Source: Bank of Tanzania, WB staff estimates. GDP) during 2M-2024, from US$ 554.6 million (equivalent to 4.2 percent of GDP) during 2M-2024. Despite net income outflows rose from 0.8 percent of GDP to around While growth of merchandise exports decelerated, the 1.1 percent over the period, improved trade balance helped tourism industry stimulated export earnings. Tanzania narrow the CAD (Figure 17). Driven by increased earnings earned US$ 1206.6 million foreign exchange from services from gold exports and tourism sectors, as well as reduced exports during 2M-2024, which is 9.1 percent higher than imports bills, Tanzania’s trade balance shrank from US$ the same period last year. Travel receipts, the largest 448.6 million (3.4 percent of GDP) during 2M-2023 to US$ component of Tanzania’s services exports, soared by 25 189.7 million (1.4 percent of GDP) during 2M-2024. This percent over the period, reaching US$ 679.1 million. This trend also mirrored an improved terms-of-trade position.22 increase was bolstered by the surging number of inbound tourist arrivals—registered at around 0.4 million during 2M-2024 (Figure 19). Receipts from freight services also 22Terms of trade in Q3-2023 were 7.2 percent higher than in Q3-2022, 23Global gold prices increased by 8.1 percent from an average price of suggesting that Tanzania’s exports were able to buy 7.2 percent more US$ 1876.3/oz during 2M-2023 to US$ 2028.6/oz during 2M-2024, in imports than a year ago. Terms of trade data for Q4-2023 and Q1- according to the World Bank “Pink Sheet� Data. 2024 at the time when preparing the section. 14 rose by 10 percent and attracted US$ 385.3 million foreign Figure 20 Merchandise Imports by Component income during 2M-2024. (% y/y change, contribution in ppt.) 50 Figure 19 Tourism Receipts and Arrivals 42.0 40 (Levels) Tourism Arrivals (000') 30 27.7 400 20 Travel Receipts (US$ million) 350 10 8.4 300 3.8 250 0 -3.4 200 -10 -9.1 150 2020 2021 2022 2023 2M-2023 2M-2024 Capital goods Oil 100 Fertilizers Industrial raw materials 50 Consumer Goods Goods Imports 0 Source: Bank of Tanzania, WB staff estimates. Jul-21 Jul-22 Jul-23 Nov-21 Nov-22 Nov-23 May-21 Sep-21 May-22 Sep-22 May-23 Sep-23 Jan-21 Mar-21 Jan-22 Mar-22 Jan-23 Mar-23 Jan-24 The capital and financial account surplus declined to Source: Bank of Tanzania, NBS, WB staff estimates 3.8 percent of GDP in 9M-2023, from 4.1 percent during the same period last year. This reduction is Imports of goods and services in Tanzania was mainly caused by slumped inbound capital transfers to the virtually flat in 2M-2024, growing by just 1.2 percent government, while foreign and non-foreign direct over the period. Growth of goods imports decelerated investment hovered at a constant level. Tanzania’s general from 8.4 percent in 2M-2023 to merely 3.8 percent in 2M- government received US$ 88.5 million for development 2024, on the back of reduced oil and fertilizers imports projects during 9M-2023, which is around one-third of the (Figure 20). As a result of the moderation of the global receipts during the same period a year ago, resulting in a commodity prices,24 the import value of oil and fertilizer declined capital account surplus of 0.2 percent of GDP. By dropped by a combined 15.1 percent during 2M-2024, contrast, financial account (excl. reserves) surplus compared to a 45.6 percent surge during 2M-2023. Capital amounted to 3.6 percent of GDP, at par with the surplus imports, however, increased robustly at 20.6 percent, in 9M-2023 (Figure 21). Tanzania’s foreign direct reflecting the increasing demand for transport, building investment (FDI), as a percentage of GDP, is relatively low and construction equipment, and machinery from the compared to regional neighbors, and experienced a ongoing mega projects. Meanwhile, services imports downward trend over the past decade (Figure 22). Recently, reduced by nearly 12 percent, resulting from a decline in a favorable environment led by pro-business policies, 25 insurance and freight services that illustrated the stagnant declining interest rate in the US and other advanced growth of merchandise imports as well as dropped freight economies, along with positive ratings from Fitch and prices. Moody’s have helped Tanzania attract investments from the international financial market.26 FDI picked up slightly from 1.6 percent of GDP in 9M-2022 to 1.7 percent in 9M- 2023 while an increase of 178 percent in the number of approved registered projects was observed in Q4-2023. Non-FDI investment, comprising of portfolio investment 24 The oil prices dipped by 1 percent during 2M-2024, while fertilizer Partnership Act (2023), and newly approved amendments to price index declined by nearly 31 percent, according to the World Bank Investment Act (2024). “Pink Sheet� Data. 26 On March 22, Moody’s upgraded Tanzania’s sovereign credit rating 25 The government has approved many investment-related bills to from B2 to B1 with stable outlook, surpassing its regional peers improve business environment, such as Tanzania Investment Act (including Kenya, Rwanda, Uganda). (2022), Public Investment Bill (2023), amendments to Public–Private 15 and other investment, maintained at a combined total of exchange reserves held by the Bank of Tanzania 1.9 percent, the same level as 9M-2022. (BoT). Gross foreign exchange reserves remain adequate and rose from US$4.6 billion by end- Figure 21 Trend of Financial Account Net Inflows February 2023 to US$5.0 billion by end-February 2024. (% of GDP) 10 However, the coverage of foreign reserves was constant in both months, at 4.1 months of imports However, the shortage of foreign exchange has led to a 5 further depreciation of the Tanzanian shilling since July 2023 when the government advocated for higher exchange 0 rate flexibility. The shilling has depreciated by 9.4 percent, Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 from an average trading rate of Tsh2321.1/US$ in 2017 2018 2019 2020 2021 2022 2023 February 2023 to Tsh2538.8/US$ in February 2024 (Figure -5 Other Investment Portfolio Investment 23). In addition to allowing for a more flexible exchange Direct Investment Financial Account Net Inflows rate, the BoT has increased the sale of foreign exchange on Source: Bank of Tanzania, WB staff estimates. the interbank foreign exchange market, mopped up excess liquidity in financial markets, facilitated the resolution of letters of credit, and increased the value of transactions Figure 22 FDI, Tanzania and Regional Neighbors, 1990– 2022 conducted outside the interbank foreign exchange market. (% of GDP) Figure 23 Gross Official Reserves and Exchange Rate 8 (Levels) Official foreign reserves (US$ billion) 7 6 Months of Imports 5 8.0 2550 Nominal Exchange Rate (RHS) 4 7.0 2500 3 6.0 2450 2 1 5.0 2400 0 4.0 2350 -1 3.0 2300 -2 2.0 2250 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 1.0 2200 Rwanda Ethiopia Kenya 0.0 2150 Apr-21 Oct-21 Apr-22 Oct-22 Apr-23 Oct-23 Jul-21 Jul-22 Jul-23 Jan-21 Jan-22 Jan-23 Jan-24 Mauritius Uganda Tanzania Source: World Bank; World Bank staff estimates. Source: Bank of Tanzania, NBS, WB staff estimates Tanzania’s improved balance-of-trade and current- account position partly relieved pressure on foreign- 16 5. Zanzibar Macroeconomic Assessment Zanzibar is a semi-autonomous island in the United Figure 24 Real GDP Growth Republic of Tanzania (URT). The URT consists of the (% y/y change, contribution in ppt.) mainland of Tanzania (Tanganyika) and the island of 8.4 Zanzibar, with the latter representing around 3.1 percent 9 of the country’s total population (1.9 million people) in 8 7 5.8 6.1 2022.27 Unlike the mainland, where over two-thirds of the 5.3 5.2 Net taxes 6 population lives in rural areas, only half Zanzibar’s 5 Services population is located in rural areas. Having around 880 km 4 Industry 2.3 length cost lines, the island is abundant in diverse marine 3 Agriculture resources. Since 2020, the Revolutionary Government of 2 GDP 1 the Zanzibar has been implementing a blue economy 0 agenda, 28 which envisions a sea-based economy with a 9M-2018 9M-2019 9M-2020 9M-2021 9M-2022 9M-2023 climate-resilient, carbon-friendly, and sustainable growth path. The largest source of income generation in the Source: National Bureau of Statistics (NBS); World Bank staff estimates. archipelago is tourism, followed by fisheries.29 Zanzibar’s economy expanded steadily during the Figure 25 Inflation, January 2021 –February 2024 first nine months (9M) of 2023, supported by tourism (% y/y change, contribution in ppt.) and fisheries. Real GDP growth accelerated from 5.2 Others percent, year-on-year (y/y), in 9M-2022 to 6.1 percent in Clothing and Footwear the same period in 2023 (Figure 24). The services sector is Transport 10 Housing, Water, Electricity, Gas, and Other Fuels the largest sector on the island and remains the strongest Food and Non-Alcoholic Beverages economic growth driver. The island’s stunning coastal 8 Headline inflation scenery, ivory white sand beaches, and clear turquoise sea 6 attracted around 0.64 million international visitors in 2023, 4 up from 0.55 million in 2022. The resumption of tourism had a direct impact on the expansion of the 2 accommodation & food services subsector (6.6 percent, 0 y/y, in 2023) and stimulated buoyant activities in other Dec-23 Dec-21 Dec-22 Sep-21 Sep-22 Sep-23 Jun-21 Mar-23 Mar-21 Mar-22 Jun-22 Jun-23 Jan-21 Feb-24 -2 related subsectors such as wholesale & retail trade (9.9 percent, y/y) and real estate (6.0 percent, y/y). Overall, Source: NBS; World Bank staff estimates services sector grew by 6 percent. Supported by the construction, mining, and quarrying subsectors, the Inflationary pressures eased in Zanzibar in 2023 and industry sector expanded by 10.2 percent in 9M-2023, early 2024 as food and non-alcoholic beverage prices building on the 11.3 percent expansion recorded in 9M- declined. Headline consumer price index (CPI) inflation 2022. The agriculture sector, which contributes the least to fell from a record 8.4 percent at the beginning of 2023 to economic growth, rebounded from contracting by 6.2 5.1 percent in February 2024. Food inflation declined from percent in 9M-2022 to expanding by 6.9 percent in 9M- 11.6 percent to 8.7 percent over the same period, partly due 2023, supported by resumed growth in crops and double- to a recovery in crop production. Government measures30 digit growth in fisheries due to the government’s blue to control sugar prices during a recent sugar shortage in the economy policy. URT also helped combat food inflation. A slowdown in food inflation, combined with falling prices related to 27 Population and Housing Census 2022. Zanzibar’s population. (Zanzibar Investment Promotion Authority, 28 For more details, see the Zanzibar Blue Economy Policy (Revolutionary “Blue Economy,� https://www.zipa.go.tz/sectors/blue-economy/). Government of Zanzibar 2020, 30 For example, Zanzibar’s fair competition commission shut down https://faolex.fao.org/docs/pdf/tan208265.pdf). over 100 shops that hoarded and sold sugar at a higher price than the 29 According to the Zanzibar Investment Promotion Authority, the government-set indicative price. fisheries sector provides a source of income to about 20 percent of 17 transport as well as housing, water, electricity, gas, and Zanzibar’s current-account position also deteriorated other fuels, drove the declining trend in prices (Figure 25). in 2023. The current-account deficit (CAD) rose from US$358.8 million in 2022 to US$393.8 million in 2023 The fiscal deficit in Zanzibar widened from Tsh 78.9 (Figure 27). Diminishing merchandise exports and billion during the first half (H1) of FY2022/23 to Tsh increased imports of goods and services contributed to the 542 billion during H1-FY2023/24, as the increase in overall deterioration. The production of cloves, Zanzibar’s total expenditure outweighed that in total revenue. most important cash crop, was more than halved between Domestic revenue increased by 22 percent during H1- 2022 and 2023, owing to falling prices due to fierce FY2023/24, primarily supported by revenue from import, international competition as well as erratic weather income, and value-added taxes and excise duties. However, conditions triggered by climate change.32 This slowdown in the government ramped up public expenditure by over 50 clove foreign earnings caused the value of goods exports to percent, from Tsh 787.7 billion during H1-FY2022/23 to plummet by 34.7 percent (y/y) to US$50 million, despite Tsh 1034 billion H1-FY2023/24 (Figure 26). Recurrent an increase in non-traditional exports, including seaweeds, expenditure surged by 17.5 percent over the period, while manufactured goods, and fish products. Total merchandise development expenditures, especially those related to local imports observed a double-digit rise in 2023, with capital capital projects aligned with Zanzibar’s five-year goods imports (transport equipment and machinery) development plan 2021–2026, 31 increased by more than surging by 64 percent. This trend was consistent with 150 percent, y-y. Over 90 percent of the fiscal deficit during government-fueled expenditure on local capital projects. H1-FY2023/24 was financed by domestic banks, with the Nevertheless, the CAD narrowed to US$23.8 million remaining sourced from foreign loans (e.g. commercial during 2M-2024, from US$53.0 million during 2M-2023, loans and concessional loans from international partners). mainly driven by a 330 percent increase in merchandise exports. Figure 26 Fiscal Developments, FY2020/21 – FY2023/24 Figure 27 Current-Account Balance, 2019 – 2023 (% y/y change, contribution in ppt.) (US$ million) 1000 400 200 500 0 0 -80.6 -82.6 -200 -235.7 -500 -363.7 -400 -413.6 -1000 -600 -1500 -800 FY2020/21 FY2021/22 FY2022/23 FY2023/24 2019 2020 2021 2022 2023 Domestic Revenue Total Expenditure Goods Exports Goods Imports Grants Cash Adjustments Services Exports Services Imports Overall Deficit Income Inflow Income Outflow Source: Bank of Tanzania; WB staff estimates. Source: Bank of Tanzania, WB staff estimates. 31 The strategic projects for FY2023/24 are implemented in 5 areas: (1) of the Mnazi Referral Hospital and construction of a referral hospital blue economy; (2) environment and infrastructure; (3) economic in Binguni. reform; (4) human resources and social services; and (5) governance 32 While clove production depends heavily on a growth environment strengthening. Planned projects include but is not limited to: (i) of moderate rainfall and temperatures, more frequent floods and construction of the Mangapwani fishing port and the modern fish droughts arising from the climate change can adversely impact market; (ii) a clean and safe water distribution project and the Zanzibar production (Kabote and Tunguhole 2022). Source: Kabote, S. J., & Energy Sector Transformation and Access Project; (iii) construction of Tunguhole, J. (2022). Determinants of clove exports in Zanzibar: Nungwi Airport, upgrade of Pemba Airport, and improvement of 103 Implications for policy. International Journal of Business and km of roads across the Pemba and Unguja Islands; and (iv) renovation Economic Studies, 4(2), 127-147. 18 B. Macroeconomic Outlook and Risks Tanzania’s real GDP is projected to grow at 5.4 momentum, while an improved business environment, percent in 2024 and average around its long-run including better administration of value-added tax (VAT) potential of about 6 percent over the medium term refunds, is likely to drive an increase in manufactured (Table 2). The projection has been revised downward exports, especially to East African Community member slightly from the 5.6 percent published in the twentieth states and other neighboring countries. Over the medium edition of the Tanzania Economic Update. The revision term, the CAD is projected to narrow further to about 3 was due to slower-than-expected implementation of percent of GDP as transformative reforms to improve the ongoing transformative structural reforms to facilitate business climate are completed and help attract private private sector investment and persistent barriers that investment (including FDI) and enhance export hinder private sector development. Over the medium term, competitiveness. Import growth is expected to slow as growth will be supported by an improved business major capital investment projects are completed and global environment and the complete implementation of commodity prices continue to moderate. An expected structural reforms, which are expected to crowd in both increase in FDI inflows will largely fund the CAD and help public and private investment, including foreign direct keep official gross reserves at an adequate level. investment (FDI). Increased investment is expected to boost domestic demand and exports while helping to A combination of improved revenue collection and generate additional foreign currency. Still, the authorities fiscal prudence is expected to narrow the fiscal deficit should accelerate the implementation of capital projects over the medium term. The fiscal deficit is projected to and approved legislation such as amendments to the decline to 3.7 percent of GDP in 2024 and average near 3 Public-Private Partnerships Act (2023) and Tanzania percent in the medium term on account of expected higher Investment Act (2023), especially through issuing of tax revenue collection and controlled expenditures. accompanying regulations. Additionally, the government Domestic revenues are projected to increase to 15.7 of needs to pursue measures to increase access to finance by GDP in 2024, before reaching 16.2 percent in 2026, while small and medium-sized enterprises (SMEs), improve the total expenditures are projected to stabilize at about 19 tax policy and administration, and reduce the cost of percent over the medium term. Official grants are regulatory compliance and trading across the border. projected to remain at 0.5 percent of GDP over the medium term, in line with the government’s objective of Headline inflation is projected to remain low and reducing the country’s aid dependency. The expected stable over the medium term. It is set to decline to 3.3 increase in domestic revenue will come from increased tax percent in 2024 and remain around 3 percent over the and non-tax collection generated from improvements in medium term. Ongoing efforts to increase the productivity the business climate, private investments, and tax of agriculture and the food supply, together with tight compliance and administration (including through the use monetary policy, are expected to support low and stable of electronic devices). Public expenditures are projected to inflation over the medium term. To improve monetary stabilize at around 19 percent of GDP, as an expected policy implementation and control inflation, the Bank of increase in recurrent expenditures during the upcoming Tanzania (BoT) transitioned from a monetary targeting to elections will offset the decline in capital expenditures an interest-rate-based framework in January 2024. resulting from the completion of major capital projects. The fiscal deficit is expected to be financed by both foreign Over the medium term, the current-account deficit and domestic loans, with the later playing a large role as (CAD) is anticipated to narrow further. It is projected global financing costs remain high. According to the latest at 3.3 percent of GDP in 2024 due to an improved trade joint International Monetary Fund-World Bank Debt balance, bolstered by rapid growth of gold, services, and Sustainability Analysis (April 2024), Tanzania’s risk of manufactured exports. Supported by increased tourism, external debt distress remains moderate, and the public service exports are expected to continue its growth debt-to-GDP ratio is projected to remain near 50 percent 19 over the medium term. productivity and resilience, including livestock (see the special section on “Resilience and Competitiveness of the Projections suggest a continued decrease in the Livestock Sector in Tanzania�). Despite the government’s poverty rate from 43.0 percent in 2024 to 41.7 percent commitment to pursue structural reforms, including the in 2026. This downward trajectory is supported by a implementation of major infrastructure projects and promising macroeconomic outlook and increased adoption of amendments to regulations related to private agriculture budget allocations aimed at unlocking sector development, progress has somewhat slowed while productivity by promoting the intensification of significant barriers remain. According to the World Bank agriculture, including livestock (see Special Focus). Given Enterprise Survey (2023),33 Tanzania lags the Sub-Saharan that a significant number of the poor are farmers in the African (SSA) region on good economic governance in drought-prone North-Western and Central regions, it is areas such as regulation, business licensing, and taxation, crucial to build the resilience of vulnerable populations which are fundamental pillars of a favorable business before the onset of unanticipated shocks. Efforts should environment. Survey data confirm that domestic be directed to ensure access to adequate social protection. conditions for business entry and operation, including in Despite the country’s safety net program, which reaches the agriculture and livestock sectors, remain inadequate, over 1.3 million households, well beyond the target set in and an excessive regulatory burden creates a significant the national development plan, its coverage is insufficient barrier for firms to formalize. External risks include a given the scale of vulnerability. It is also critical to make potential slowdown in global growth due to lagged and climate-smart investments in agricultural inputs and ongoing effects of tight monetary policy, restrictive irrigation infrastructure, especially in drought-prone and financial conditions, weak global trade and investment, the impoverished regions like Tabora, Shinyanga, Mara, and continuing fallout from external conflicts. To mitigate Simiyu. Equally important is funding research into these risks, the government must continue to implement improved seed varieties and livestock breeds. These policies that reinforce macroeconomic stability, improve proposed investments are likely to create resilient and the business environment, enhance productivity (including productive agricultural and livestock systems, which will in the agriculture and livestock sectors), strengthen climate sustain livelihoods and accelerate poverty reduction. resilience, and build human capital and workforce skills, especially among women. Downside risks from both the domestic and external environment cloud the macroeconomic outlook. Risks include delayed and incomplete implementation of transformative structural reforms to support private sector development and women empowerment, as well as the impact of climate change on tourism and agriculture 33 World Bank, “Enterprise Surveys,� www.enterprisesurveys.org. 20 Table 2 Medium-Term Outlook, 2021 –2026 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 42.0 43.9 46.2 48.7 48.2 47.5 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 April 2023. For details, see United Republic of Tanzania, Country Report No. 23/153, April 2023, International Monetary Fund. Source: World Bank Staff Estimates 21 C. Special Focus: Harnessing A Climate Smart and Competitive Livestock Sector 1. Introduction There is potential for Tanzania to leverage its livestock sector's resilience and competitiveness. These strengths in livestock production and trade. Despite initiatives could also contribute to climate change robust production due to a large livestock population, low mitigation. productivity and stagnant yields persist in the country’s livestock sector, reflecting low levels of public investment Tanzania could grow its livestock sector if it pursues and insufficient private investment, hindering the appropriate policy reforms, institutional innovations, realization of the sector’s full potential. Despite the high and investments that overcome the complex set of number of livestock, exports of livestock products are low, biophysical, organizational, and financial challenges an indication of Tanzania’s failure to capitalize on regional facing livestock producers and traders. Adequate public and international markets. Meanwhile, domestic investment is essential. While budget allocations to the consumption is surging, driven by population growth and livestock sector are rising, an estimated US$546 million in rising demand in urban areas, and imports of key livestock public investment is needed to ensure sustainable livestock products are increasing to fill production shortfalls. development in Tanzania over the next 5 years (2023/24– 2028/29). At about US$109 million a year, this level of The livestock sector is susceptible to the adverse public investment represents a five-fold increase over the impacts of climate change and challenges that budgets allocated to the livestock sector prior to 2021, and increase its vulnerability and blunt its it is 50 percent more than the 2023/24 budget. This high competitiveness. Still, there is an opportunity for level of investment could be efficiently utilized by the Tanzania to embrace climate-smart measures and other sector given its current underfunding and high absorption innovations that not only mitigate environmental capacity. degradation but also boost productivity and enhance the 2. Recent Trends and Developments in Tanzania’s Livestock Sector Tanzania’s livestock holdings are expansive, diverse, largest in Africa (behind Ethiopia) - and represents 1.4 and multifunctional. Livestock are held across the entire percent and 11.0 percent of the global and African total country but are concentrated in the Central, Coast, and cattle population, respectively. Tanzania’s population of Lake zones (Figure 28). The main livestock species reared sheep, goats, chicken, and pigs is also large, with most are cattle, goats, sheep, poultry, and pigs, all of which serve ranking in the top ten on the continent in terms of size multiple purposes such as providing their owners with (Table 3). Per capita, Tanzania’s total livestock population food, draft power, transport, income, and savings and is also among the largest in Africa. Between 2010 and 2022, contributing to cultural and traditional practices. Tanzania’s cattle, goat, sheep, and poultry population Production systems span arid, semi-arid, sub-humid, and surged by an average of 83 percent, with the number of humid agroecologies, and 80 percent of the country’s cattle more than doubling (Figure 29). livestock population is raised in agropastoral systems, 14 percent in pastoral systems, and the remaining 6 percent on Compared to other countries in the region with large commercial ranches (Banda and Tanganyika 2021; Mottet livestock populations, Tanzania’s large and growing et al. 2018). livestock holdings have a relatively small contribution to GDP and agricultural GDP (AgGDP). In 2022, the Tanzania’s livestock population is one of the largest country’s livestock sector accounted for 7.4 percent of in Africa and globally, and it is growing rapidly. Its GDP and 26.1 precent of AgGDP, lower than Ethiopia’s cattle population is immense at 36.6 million––second 22 19 percent and 45 percent, respectively, and Kenya’s 12 percent and 40 percent, respectively (Figure 30). Figure 28 Livestock Density in Tanzania Source: Gilbert et al. 2018. Table 3 Livestock Population by Species, 2022 Livestock species Total livestock population Per capita livestock population Heads (million) Rank in Africa Heads/person Rank in Africa Cattle 36.6 2 0.56 5 Sheep 6.2 11 0.09 11 Goats 22.2 7 0.34 7 Chicken 40.0 7 0.61 8 Pigs 6.2 3 0.09 2 Source: FAOSTAT. Figure 29 Livestock Population, 2010 – 2022 A.Tanzania's livestock population (million) - 2010, B. Percentate change in livestock populations - 2010- 2022, and percent change 2022 120 98 Cattle 109% 100 million head 80 54.3 Poultry 80% 60 36.6 40 26.6 17.5 15.7 Sheep 73% 20 5.25 9.1 0 Goats 69% Cattle Goats Sheep Poultry 2010 2022 0% 20% 40% 60% 80% 100% 120% Source: FAOSTAT. Source: FAOSTAT. 23 Figure 30 Contributions of Livestock to GDP and AgGDP in Tanzania and Neighboring Countries, 2022 A. Livestock shares of GDP in Tanzania and neighboring B. Livestock shares (%)of Ag GDP in Tanzania and countries, 2022 neighboring countries, 2022 Ethiopia 19 Ethiopia 45 Kenya 12 Kenya 40 Tanzania 7.4 Tanzania 26.1 Uganda 4.3 Uganda 17 0 5 10 15 20 0 10 20 30 40 50 % GDP % AgGDP Source: FAOSTAT. Source: FAOSTAT. The livestock sector is an important source of Figure 31 Rural Household Income from Livestock employment and income in Tanzania, especially for Sales by Income Quintile the poorest households. The sector is a powerful engine for job creation and income generation, offering Share (%) of rural household income from livestock opportunities throughout the value chain, from production 25 sales to processing and marketing. It employs 33 percent of the 19.53 population, or 4.6 million households (NBS 2021). 20 income share (%) Livestock sales account for 13.8 percent of household 13.81 15 13.08 12.96 12.89 income in rural areas, with the poorest rural households deriving almost one-fifth of their income from such sales 10 (Figure 31). In addition to its important role in employment and income generation (and thus poverty reduction), the 5 livestock sector makes significant contributions to other 0 major national objectives such as food and nutrition 1 2 3 4 Total security as well as gender equality (Box 5). Source: Ntwalle 2019. income quintile 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 is 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). 24 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). Figure 32 Livestock, Crop, and Overall Agricultural Between 2010 and 2021, livestock production grew Production, 2010 – 2022 faster than crop production, driving an overall Gross Production Indexes Agriculture, Crops, Livestock increase in agricultural production. Over this period, in Tanzania, 2010-2021 - livestock production growth averaged 4.9 percent per year, 160 much higher than an average of 2.4 percent for crops and 140 3.0 percent for the agriculture sector as a whole (Figure 32). 120 100 From 2010 to 2021, the growth performance of 80 60 Tanzania’s livestock sector dwarfed that of 40 neighboring Ethiopia, Kenya, and Uganda (Panel A in 20 Figure 33). Among these countries, only Tanzania 0 registered sustained growth in per capita livestock 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 production over the period (Panel B in Figure 33). Agriculture Crops Livestock Source: FAOSTAT. 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 particular product during the reference period. The livestock production index includes meat and milk from all sources, dairy products such as cheese and eggs, honey, raw silk, wool, and hides and skins. Figure 33 Total and per Capita Livestock Production in Tanzania and Neighboring Countries, 2010 –2022 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 Ethiopia Kenya Uganda Tanzania Source: FAOSTAT. Source: FAOSTAT. 25 Figure 34 Yields of Major Livestock Products in Tanzania, 2010 – 2022 A. Cattle meat yields, Tanzania, World, Africa, East B. Cattle milk yields, Tanzania, World, Africa, East Afrifca - 2010-2022 Afrifca - 2010-2022 2500 30000 yield (100g/animal) 2000 25000 yield (100g/animal) 1500 20000 1000 15000 500 10000 0 5000 2010201120122013201420152016201720182019202020212022 0 Tanzania World Africa E Africa Tanzania World Africa E Africa Source: FAOSTAT. Source: FAOSTAT. C. Goat meat yields, Tanzania, World, Africa, East D. Sheep meat yields, Tanzania, World, Africa, East Afrifca - 2010-2022 Afrifca - 2010-2022 250 300 yield (100g/animal) 200 250 yield (100g/animal) 150 200 100 150 50 100 0 50 2010201120122013201420152016201720182019202020212022 0 2010201120122013201420152016201720182019202020212022 Tanzania World Africa E Africa Tanzania World Africa E Africa Source: FAOSTAT. Source: FAOSTAT. E. Chicken meat yields, Tanzania, World, Africa, East Afrifca - 2010-2022 20000 yield (100g/animal) 15000 10000 5000 0 Tanzania World Africa E Africa Source: FAOSTAT. However, livestock production growth in Tanzania and 1.7 percent, respectively (Figure 34). Yields of goat and has been driven by expansion of the livestock sheep meat generally exceeded global and regional population rather than sustained yield increases. In averages, but only goat meat yields showed a clear upward recent years, livestock yields in Tanzania have registered trend. Yields of cattle meat and milk and chicken meat were mixed performance, with most being well below global and well below global and regional averages. regional averages. Among cattle meat and milk, goat meat, sheep meat, and chicken, yields only increased for cattle The consumption of livestock products has been meat and milk and goat meat between 2010 and 2022, surging in Tanzania, driven by population growth, growing by an annual average of 3.5 percent, 6.4 percent, rising incomes, changing diets, and urbanization. 26 While the country’s population increased by an average of et al. 2022; Wang et al. 2022). Between 2010 and 2022, the 3 percent per year between 2018 and 2022, its urban consumption of eggs, cattle, sheep, and goats more than population expanded by an annual average of 5.8 doubled, while the consumption of milk and poultry grew percent—higher than Tanzania’s average per capita GDP by 82 percent and 26 percent, respectively (Figure 35). growth of 4.2 percent per year. As more Tanzanians move Following a dip between 2016 and 2019, the consumption to cities and adopt urban lifestyles, demand grows for of poultry doubled over the next two years, with the level convenient, processed, and value-added livestock products recorded in 2021 being 28 percent higher than that such as packaged meats, dairy products, and ready-to-eat recorded in 2010. meals. For example, per capita consumption of meat, milk, and eggs has been rising steadily (Baker et al. 2016; Reardon Figure 35 Consumption of Livestock Products, 2010 – 2021 A. Index of Consumption of Livestock Products (2014- B. Percentage increase in consumption of livestock 16=100) products in Tanzania - 2010-2021 250 Eggs 140% 200 Cattle 108% 150 100 Sheep & Goat 102% 50 Mlk 82% 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Poultry 26% Cattle Sheep & Goat Poultry 0% 50% 100% 150% Eggs Mlk percentage increase in consumption Source: FAOSTAT. Source: FAOSTAT. Figure 36 Comparative Trends in Livestock Production and Consumption A. Livestock production and consumption indexes, B. Domestic Consumption-Production Gaps for Meat 2010-2021 (2014-16 = 100) and Milk (mmt) by 2026 and 2031 6000 5400 mill mt for meat; mill litre for milk 200 5000 150 3700 4000 100 3000 2050 50 1500 2000 0 1000 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Livestock production index Cattle Meat Consumption Index 0 Meat Milk Sheep & Goat Consumption Index Mlk Consumption Index 2026 2031 Source: FAOSTAT. Source: URT 2017. The consumption of livestock products in Tanzania is contribute to higher output levels across key livestock projected to continue to increase rapidly, with species such as cattle, goats, sheep, and poultry (Dalberg consumption continuing to outstrip production across 2019; Engida et al. 2015). However, if recent dynamics key livestock products (Panel A in Figure 36). Projections persist, the consumption of meat and milk is expected to indicate a steady increase in livestock production due to exceed production by 2,050 million MT and 5,400 million improved productivity. Productivity will benefit from the liters, respectively, by 2031 (Panel B in Figure 36). adoption of modern practices, better genetics, and enhanced management techniques, all of which will 27 Tanzania’s livestock exports are low compared to compared to 0.56 head/person in Tanzania (FAOSTAT). those of other countries with large livestock However, Ethiopia’s average annual value of total intra- populations. A comparison with Ethiopia is illustrative of African exports of live animals and meat between 2010 and Tanzania’s underperformance as a livestock exporter. 2019 was US$150 million, much higher than Tanzania’s Ethiopia and Tanzania have almost equal per capita US$15 million (Table 4). livestock populations––0.55 head/person in Ethiopia 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 $US 15 150 exports of live animals and meat (2010-2019) million Average annual value of exports of live animals $US 5 75 and meat to rest of world (2010-2019) million Average share of intra-African exports of live percent 4.2 12.5 cattle and other bovines (2015-2019) Average share of intra-African exports of live percent 0.5 2.4 goats (2015-2019) Average share of intra-African exports of bovine percent <0.6 2.1 meat carcasses and cuts (2015-2019) Average share of intra-African exports of non- percent 2.6 36 bovine meat carcasses and cuts (2015-2019) Source: Kurtz et al. 2021. Tanzania’s livestock exports are also low relative to its Figure 37 Imports of Selected Livestock Products, crop exports. Between 2016 and 2020, the combined value 2010– 2022 of Tanzania’s exports of cattle meat, goat meat, and sheep meat averaged just US$70,000, US$1.98 million, US$3.22 Whole chicken, chicken meat, and milk powder imports million, respectively, compared to US$346 million over the in Tanzania, 2010-2022 ($000s) same period for cashew nuts alone (FAOSTAT). In 2021 7000 and 2022, the combined value of exports of cattle, goat, 6000 5000 and sheep meat was historically high at US$75 million due 4000 to a surge in sheep meat exports. Still, even this record level 3000 of exports of these three products corresponded to only 2000 1000 17.5 percent, 11.1 percent, and 18.4 percent of Tanzania’s 0 exports of cashews, horticultural products, and coffee, respectively, over the same period (FAOSTAT). Whole Chickens Chicken Meat Milk Powder Under stagnant productivity growth and surging Source: FAOSTAT. domestic demand, Tanzania’s imports of livestock products are trending sharply upward. In 2022, imports of whole chickens, chicken meat, and milk powder were Climate change is exerting significant pressure on 274 percent, 11,900 percent, and 658 percent, respectively, Tanzania's largely pasture-based livestock sector, above their 2010 levels (Figure 37). with major negative impacts on production systems. Along with the rest of Eastern Africa, Tanzania is experiencing sharp changes in rainfall and temperature patterns, with huge variations in the overall level, intensity, and spatial and temporal distribution of annual rainfall (World Bank 2024). Changes in temperature and rainfall patterns are leading to physiological strain and discomfort 28 for livestock due to heat stress, reduced feed intake, All livestock systems across Tanzania’s major livestock decreased milk production, impaired reproduction, and production zones are being negatively impacted by climate increased susceptibility to diseases and metabolic disorders. change (Table 5). These trends are expected to persist and These changes in climate are also leading to alterations in intensify in the coming decades (BMZ/GIZ 2023). pasture availability, affecting the nutritional quality and quantity of forage resources for livestock and compromising animal health, growth, and reproduction. Table 5 Impact of Climate Change on Tanzania’s Livest ock Systems Livestock Production system Primary climate-related Impacts production changes zone Central Agro-pastoral and • Prolonged dry spells • Heat stress semi-arid • Water scarcity • Pasture shortages and • Erratic rainfall pattern degradation • 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 and humid • coastal erosion infrastructure • Extreme weather events • Livestock losses and • Saltwater intrusion displacement • Floods and storms • Contamination of livestock drinking water • Pasture degradation Lake Rainfed sub-humid • Greater variability in • Pasture loss and and humid rainfall patterns and degradation extreme temperatures • Reduced forage quality and • Increasing frequency availability and intensity of • Spread and intensification droughts and water of endemic livestock scarcity diseases • Trade restrictions Source: Kimaro et al. 2018; Lyimo et al. 2013; Mweya et al. 2017; WFP 2021. 29 3. Other Drivers of Vulnerability34 Vulnerability in Tanzania's livestock sector extends infrastructure limits opportunities for value addition and beyond climate-related factors, involving complex market integration (Kitalyi et al. 2022). In 2015, only 20 interactions among environmental pressures, percent of livestock keepers had access to veterinary socioeconomic conditions, and institutional professionals (Caudell et al. 2022). constraints. Livestock market risks are widespread and persistent, Many livestock farmers in Tanzania have limited especially those linked to food-borne diseases. Despite access to essential resources such as land, water, and the presence of urban abattoirs and some rural fodder, particularly in arid and semi-arid regions. slaughterhouses, many livestock destined for slaughter and Large herds produced under rainfed extensive grazing for the commercial sale of meat are killed at small and rural systems depend on natural pasture for feed. Transhumance concrete slaughter slabs, usually owned by local butchers, is a common practice to mitigate variation in feed and water where they are slaughtered using simple tools (Waldman et availability, accentuating competition between herders and al. 2020). Tanzania is therefore a hotspot for bacterial farmers for land and water. Land degradation and zoonoses that cause diarrhea and blood-stream infection deforestation further exacerbate vulnerabilities in the (sepsis), both of which are major preventable causes of livestock sector (Baltussen et al. 2019). death (LLH 2024). Several livestock diseases that affect animal health, Tanzania’s livestock sector faces numerous risks and productivity, and market access are endemic across challenges. There are significant fluctuations in input Tanzania. Diseases such as Rift Valley fever, East Coast costs, changes in consumer preferences, and disruptions in fever, foot-and-mouth disease, peste des petit ruminants, supply chains across the sector. Limited access to trade Newcastle disease, Marek’s disease, and contagious bovine credit, market information, and risk management tools pleuropneumonia raise mortality reduce fertility, and further exposes farmers to economic uncertainties and restrict trade, leading to economic losses for livestock livelihood risks (Baltussen et al. 2019). Moreover, weak farmers. In 2015 alone, 329 animal disease outbreaks were governance, inadequate policy frameworks, and limited reported involving 32 animal disease conditions, causing institutional capacity undermine efforts to address over 5,800 deaths (Maziku et al. 2017). vulnerabilities facing farmers and other stakeholders in the livestock sector. Finally, inconsistent and incomplete Infrastructure and technical capacity for water supply, implementation of policies, lack of coordination among veterinary services, market access, and transportation stakeholders, and insufficient investment in research and are inadequate. Limited access to veterinary care, extension services impede the adoption of climate-smart vaccines, and diagnostic facilities impairs disease practices and sustainable livestock management techniques management and control efforts, while poor market (World Bank 2023). 4. Barriers to Competitiveness35 A range of structural, institutional, and systemic productivity, constraining market access, and challenges intersect with climate risks and other hindering value chain development. drivers of vulnerability to reduce the competitiveness of Tanzania’s livestock sector by limiting Relative to its contribution to the agriculture sector and overall economy, the livestock sector is grossly 34 This section draws from Baltussen et al. (2019), IMF (2023), Maziku 35This section draws from Baltussen et al. (2019), CSIRO (2020 a-c), et al. (2017), Mweya et al. (2017), URT (2017), WFP (2021), and World IFC (2018), Kibona et al. (2022), Maziku et al. (2017), Mweya et al. Bank (2023). (2017), Reardon et al. (2023), and URT (2017). 30 underfunded from public sources. Between 2017/18 equivalent to 39 kg per capita annually. Despite this and 2021/22, the sector’s allocation of public expenditures significant capacity, poorly implemented cold chains result was equivalent to a mere 0.03 percent of GDP, while it in post-slaughter losses and waste of approximately contributed 7.4 percent of GDP (World Bank 2022). Over 100,000 metric tons of meat each year—equivalent to 15 this period, the livestock sector received 6.4 percent of the percent of Tanzania’s yearly production (Mushi 2023). agricultural budget allocation and represented 10 percent of actual expenditures. Between 2017 and 2022, 9 percent The country’s livestock market is widely dispersed, of the agricultural budget depended on donor support, but highly seasonal, fragmented, and characterized by none of this external aid went to the livestock sector. informal trading practices, low standards, lack of market information, and limited value addition. Weak Agricultural research and extension services market linkages, unstable supply chains, and price volatility underserve the livestock sector despite its major deter investments, discourage quality standards, and hinder economic potential. Livestock farmers often suffer from market competitiveness. Moreover, inadequate disease inadequate equipment, inputs, and extension services for control, inefficient slaughtering practices, poor hygiene fodder production as well as lack of access to seeds and standards, and inadequate product differentiation reduce fertilizer and veterinary or breeding services (e.g., artificial consumer confidence, limit market opportunities, and insemination). Access to extension services is important to constrain price premiums (Ekwem et al. 2023). optimize the use of inputs and ensure proper animal husbandry practices by farmers (World Bank 2023). Land tenure insecurity and conflicts over grazing rights lead to land degradation, resource overuse, and Many livestock producers in Tanzania face challenges reduced investment in sustainable land management in accessing inputs such as quality breeds, vaccines, practices. Insecure land tenure hampers long-term feed supplements, and veterinary services. The country planning, land development, and investment in livestock has slightly more than 1,000 registered veterinarians (lower production systems (IFPRI 2020; Lugoe 2011). than Kenya’s 2,000) and over 4,100 veterinary paraprofessionals, most of whom are left unsupervised Livestock producers (especially women and youth), (Frumance et al. 2021). In 2018, only 5 percent of livestock- processors, and policymakers lack the necessary rearing households reported vaccinating their animals skills, knowledge, and capacity to drive growth in the against food and mouth disease, a deadly endemic disease livestock sector. Inadequate training, education, and present in most of Tanzania (Casey-Bryars et al. 2018). technical skills development hinders innovation, Poor access to extension services, technical assistance, and technology adoption, and value chain upgrading, limiting credit constrains the adoption of modern practices and productivity gains and market competitiveness (Kitalyi et technologies, reducing productivity and competitiveness. al. 2022). Women and youth are especially disadvantaged, limiting their contributions to productivity growth and income Finally, many policies, regulations, and generation. administrative procedures are complex and inconsistent. Inadequate enforcement of standards and Infrastructure for transportation, market access, and trade regulations, coupled with corruption and bureaucratic processing of livestock and livestock products is hurdles, creates uncertainties, increases compliance costs, inadequate. Thin and low-quality road networks, lack of and limits market access for livestock products. Incentives cold storage facilities, and inefficient logistics raise for private investment in the livestock sector are also transaction costs, increase post-slaughter losses, and ineffective (World Bank 2023). The inadequate business restrict market opportunities for livestock producers. environment hampers private sector participation in the Tanzania’s estimated cold storage capacity in abattoirs, livestock sector, which is critical to drive growth and create meat processing plants, and specialized retail employment opportunities (Box 6). establishments stands at 6,700 tons of meat per day, 31 Box 6 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. 5. Emerging Strengths and Opportunities 36 Despite the numerous vulnerabilities and barriers Development Community (SADC), as well as in global facing Tanzania’s livestock sector, there are markets. advantages and opportunities with profound strategic significance. Tanzania's rich diversity of indigenous livestock breeds37 presents an opportunity to meet the diverse The country’s strategic geographical location presents preferences and requirements of consumers in an opportunity to expand into regional and domestic and international markets. By promoting international export markets. With excellent sea access indigenous breeds known for their unique flavor, and 7 bordering neighboring countries, Tanzania can nutritional value, and resilience, the country can cater to capitalize on growing demand for meat, dairy, and other multiple markets and differentiate its livestock products livestock products in neighboring countries within both the based on quality and authenticity, tapping into the growing East African Community (EAC) and the Southern African demand for specialty and heritage breeds. The country’s diverse indigenous livestock also offer opportunities for 36 This section draws from Banda and Tanganyika (2021), 37For instance, the Chagga and Pare cattle breeds, the Maasai goat FAO/NZAGRC (2019), URT (2017), URT (2022), Wang et al. (2022), breed, and the red Maasai sheep breed. and World Bank (2023). 32 exporting livestock genetics and biotechnology products, livestock breeds, the country can enhance its resilience to including semen, embryos, and breeding stock. These climate change while maximizing productivity and products can contribute to genetic improvement programs sustainability in the livestock sector. in other countries and support sustainable livestock production systems worldwide while generating income for The country’s emerging digital technological Tanzania’s livestock producers and traders. landscape and increasing connectivity provide opportunities for harnessing innovation in livestock Increasing demand for processed and value-added production and trade. By embracing technology solutions livestock products—such as packaged meat, dairy such as mobile applications for veterinary services and products, and ready-to-eat meals—offers biotechnology for genetic improvement, Tanzania can opportunities for investment and job creation in enhance productivity, efficiency, and competitiveness in processing and value-addition facilities. By adding the livestock sector, leveraging its strengths in traditional value to raw livestock products through processing, knowledge and cultural heritage. packaging, and branding, Tanzania can produce products such as canned meat, frozen cuts, cheese, leather goods, The absorption capacity of the Ministry of Livestock and pet treats. These types of products can meet consumer and Fisheries is high, signaling its ability to increase preferences for convenience, quality, and food safety while public investment, especially for development capturing higher margins and enhancing market activities. Between 2017/18 and 2020/21, the average competitiveness. public budget execution rate was 99 percent in the livestock sector, pointing to the huge untapped potential to use Tanzania's vast land resources and traditional public investment to bridge investment gaps in the sector. knowledge in livestock management offer The internal rate of return on livestock projects ranges opportunities for implementing climate-smart from 15 to 86 percent, indicating the substantial viability of agricultural practices. By adopting sustainable land public investment in the sector (World Bank 2023). management techniques, leveraging animal welfare- enhancing agroecological principles in its largely pasture- based production system, and promoting climate-resilient 6. The Role of the Livestock Sector in Climate Change Mitigation The livestock sector is a leading source of Tanzania’s cattle meat production registers the greatest emissions greenhouse gas (GHG) and methane emissions. intensity in Tanzania (Panel B in Figure 39). Globally, it is a minor contributor to GHG emissions, with its 0.2 mt of CO2 equivalent/person/year in 2022 A recent World Bank analysis reveals significant accounting for less than 0.02 percent of global emissions potential for livestock-based climate change (Friedlingstein et al. 2022). Agriculture represents a large mitigation by implementing a mix of measures that share of this small contribution. Between 1990 and 2022, increase livestock production efficiency and thereby GHG emissions from agriculture doubled. In 2022, reduce methane emissions intensity (World Bank agriculture was the second-highest GHG-emitting sector in 2021). Interventions targeting 1 percent of the total beef Tanzania (after the land use, land-use change, and forestry cattle population over 7 years (2024 to 2030) would reduce sector) and the highest methane-emitting sector (Figure emissions by 574,768 tons of CO2-eq—equivalent to 3.9 38). Within agriculture, enteric fermentation from livestock percent of Tanzania’s CO2 emissions in 2022 (GCB 2023). is the largest category of emissions (Panel A in Figure 39).38 Successful achievement of higher targets for beef and the As in other countries (Menghistu et al. 2021), sheep and inclusion of other livestock products (e.g., sheep meat) 38Enteric fermentation is the digestive process in ruminant animals that breaks down carbohydrates into simple, digestible molecules, resulting in the production of methane as a by-product. 33 would generate higher revenues. A financial analysis it adopts the right policy and institutional framework for indicates that the implementation of these GHG mitigation monitoring, reporting, and verification. interventions would be economically viable and robust to reasonable assumptions regarding revenue and cost levels (World Bank 2021). It also demonstrates that Tanzania could generate revenues from reducing carbon emissions if Figure 38 GHG and Methane Emissions by Sector, 2019 A. GHG emissions by sector in Tanzania, 2022 B. Methane emissions by sector in Tanzania, 2022 Land-Use Change and Forestry 69.56 Agriculture 38.63 Agriculture 61.36 Transport 6.78 Waste 6.38 Land-Use Change and Forestry 2.81 Buildings 5.43 Industry 3.56 Waste 2.77 Electricity and Heat 2.67 Manufactoring and Construction 2.2 Other Fuel Combustion 0.46 Other Fuel Combustion 0.63 Fugitive Emissions 0.25 Fugitive Emissions 0.25 Aviation and Shipping 0.24 0 10 20 30 40 50 0 20 40 60 80 GHG emissions (million mt of CO2 equivalents) Methane emissions (million mt of CO2 equivalents) Source: Friedlingstein et al. 2022. Source: Friedlingstein et al. 2022. Figure 39 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) Enteric fermentation 31.4 Sheep Meat 58.5 Other 12.1 Cattle Meat 56.3 Pig Meat 8.9 Drained organic soils 6.9 Cow Milk 4.4 Synthetic fertilizer 5.3 Rice Paddy 1.6 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. Source: FAOSTAT. 7. Policy Recommendations An estimated US$546 million (Tsh 1.3 trillion) of in the livestock sector given its current underfunding and public investment is required for sustainable livestock absorption capacity (World Bank, 2023). development between 2023/24 and 2028/29. At about US$109 million/year, this level of public investment in the The authorities could pursue several policy and livestock sector is ambitious but realistic. It represents a investment reforms to strengthen resilience and boost fivefold increment over the budget for the livestock sector the competitiveness of the livestock sector. These focus prior to 2021 and is 50 percent higher than the 2023/24 on boosting productivity, strengthening trade and value budget. This level of investment could be easily expended addition, adapting to and mitigating climate change, and improving sector governance and institutions, with 34 important roles for the private sector. Specifically, the and between staff and farmers. Private agribusinesses can government should consider: establish extension services departments to provide both physical and digital technical assistance, training, and Boosting Sustainable Productivity advisory support to farmers, promoting the adoption of best practices and modern digital technologies. Enhancing access to veterinary services, vaccinations, and disease control measures to reduce livestock Enhancing Trade and Value Addition mortality rates and improve overall herd health. Private veterinary clinics and pharmaceutical companies can Diversifying market opportunities for Tanzania's expand their reach to remote areas, providing essential livestock products by exploring new export markets, services such as vaccinations, disease diagnostics, and value-added processing, and product differentiation veterinary care. strategies to meet evolving consumer preferences and market demands. The country should leverage its Strengthening and expanding breed improvement abundant grazing lands, diverse livestock breeds, and programs to enhance the genetic quality and supportive policy environment to proactively position itself productivity of livestock breeds. These efforts should as a reliable supplier of high-quality livestock in several focus on traits such as milk yield, meat quality, and disease potential niche export markets. These niche markets offer resistance while prioritizing adaptability to local conditions opportunities for Tanzania to differentiate its products, and demands. Private breeders and genetic companies can cater to specific consumer preferences, capture higher collaborate with research institutions and government value in export trade, and create new jobs. Some potential agencies to introduce high-yielding, disease-resistant export markets for its livestock products include: halal livestock breeds through breeding programs and artificial products; organic and free-range products; indigenous insemination services. breeds and specialty products with unique flavors and qualities; ethnic and cultural products; and health and Increasing and sustaining public funding for research wellness products. Private exporters and agribusinesses can and development to address key challenges facing the explore new market opportunities for Tanzania's livestock livestock sector, such as disease management, feed products, diversifying export destinations and product efficiency, and climate resilience. This aims to foster offerings to meet the evolving demands of global innovation and technology transfer. Private companies can consumers. allocate resources to livestock research and development initiatives focused on addressing key challenges in the Significantly improving market linkages and livestock sector. transportation infrastructure, particularly in remote and underserved areas. This could be done under a One Adequately funding and appropriately facilitating Health approach that strengthens collaboration among extension services and farmer cooperatives to provide stakeholders involved in human, animal, and ongoing support, training, and knowledge-sharing environmental health, with the aim to enhance awareness, opportunities for livestock producers (especially monitoring, and adherence to trade-related standards. This women and youth). A major focus should be on would require efforts to improve the capacity of and facilitating the adoption of climate-smart technologies and awareness among producers, processors, inspectors and practices, such as agroforestry, water harvesting, and regulators, and consumers. The private sector, including pasture management, and increasing the uptake and agroprocessing companies and traders, could invest in expansion of good animal husbandry practices under a One market infrastructure, cold storage facilities, and Health approach that prevents and mitigates climate- transportation networks to improve market access for related health threats.39 Given the vastness and geographic livestock producers. diversity of Tanzania and the spread of livestock production, extension services would benefit from an Implementing and sustaining an effective and well- electronic platform that supports communication among coordinated regulatory and institutional framework 39‘One Health is an integrated, unifying approach to balance and sectors, disciplines, and communities at varying levels of society to optimize the health of people, animals, and the environment. It is work together. One Health involves the public health, veterinary particularly important to prevent, predict, detect, and respond to global health, and environmental sectors. health threats such as pandemics. The approach mobilizes multiple 35 for food safety to boost private sector investment in practices include improved livestock feeding regimes and the livestock sector. This would, among other objectives, waste management systems, rotational grazing, aim to reduce overlaps and duplications in mandates across agroforestry, manure management, and soil conservation. agencies. Tax incentives, targeted subsidies, and other Private investors could support sustainable land financial incentives—such as tax breaks for agribusinesses, management initiatives, such as reforestation projects and subsidized loans for producers, and grants for research and soil conservation programs, to enhance the long-term innovation—could also be introduced to encourage private productivity and resilience of grazing lands. sector investment in the livestock sector. Scaling up renewable energy solutions to reduce the Intensifying value addition and processing activities carbon footprint of livestock farming operations and in the livestock sector to increase the competitiveness provide sustainable energy sources for powering of Tanzania's livestock products, including meat, facilities and equipment. Potential solutions include milk, and leather. Private agro-processing companies solar-powered water pumps and biogas digesters. Private could invest in meat and dairy processing facilities, leather companies could invest in renewable energy solutions, such tanneries, and the development of value-added products to as solar power and biogas, to reduce energy costs and increase the value and marketability of Tanzania's livestock carbon emissions in livestock farming operations, products. contributing to environmental sustainability. Strengthening Climate Change Adaptation and Improving Sector Governance, Institutional Capacity, Mitigation and Enabling Policy Reforms Designing and effectively implementing climate Pursuing sector governance and policy reforms and adaptation strategies and risk management plans for institutional strengthening to implement climate- the livestock sector. This would include early warning smart livestock practices and improve systems, insurance schemes, and emergency response competitiveness. An effective governance framework is mechanisms to mitigate the impacts of climate change on essential to ensure that the necessary policies, regulations, livestock production and trade. Private insurers and risk and incentives are in place to support sustainable practices management firms could develop climate adaptation and ensure private sector participation in the livestock strategies and insurance products tailored to the needs of sector. The government should develop the right livestock farmers, providing financial protection against incentives mechanisms to encourage farmers to adopt climate-related risks and disasters. good animal husbandry practices and enhance institutional capacity. This includes establishing a robust monitoring, Prioritizing climate-smart livestock production reporting, and verification system to ensure a better climate practices to reduce greenhouse gas emissions and lay resilient and competitive livestock sector in Tanzania. the foundation for carbon offset projects. Potential 36 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 GDP data: 2023 National Bureau of Statistics, Calendar Year activity and by demand, MFO High frequency data: Bank of Tanzania, Haver, Spring Survey 2023, monthly September 2023 for tourist Integrated Labor Force tourist arrivals at Tanzania arrivals and Q1/Q2 2023 Survey, Welfare Monitoring Mainland by Nationality, monthly for other data Survey, World Bank staff electricity and quarterly cement estimates. production data. National Bureau of Statistics, Inflation CPI Inflation (headline, food, non- March 2024 Bank of Tanzania, World Bank Calendar Year food, core, energy), PPI inflation staff estimates. Monetary M3, reserve money, broad money Bank of Tanzania Calendar Year February 2024 and private sector credit Fiscal and Debt Revenues, expenditures, grants, Fiscal data: 8M-FY2023/24 Ministry of Finance, Bank of Fiscal Year financing, expenditure arrears; Debt data: FY2023/24 Tanzania, United Republic of PPG debt (total, external and Tanzania, Country Report No. domestic) 23/153, April 2023, International Monetary Fund. External Current account, balance sheet, 2M-2024 Bank of Tanzania and National Calendar Year exports and imports of goods and Bureau of Statistics. services, FDI, government official reserve World Bank staff estimates, Outlook Global PMI index, global inflation March 2024 Bloomberg, Haver, World rate, 10-year government bond Bank Data Calendar Year yields, policy rate Zanzibar Real GDP at constant 2015 prices by GDP data: 9M-2023 Bank of Tanzania and Office activity, tourist arrivals Tourist data: 2023 of the Chief Government Calendar Year Statistician (OCGS) - Zanzibar Inflation Inflation (headline, food, non- Bank of Tanzania Calendar Year February 2024 food) Current account Exports and imports of goods and February 2024 Bank of Tanzania Calendar Year services, merchandise trade data Fiscal Revenues, expenditures, grants, H1-FY2023/24 Bank of Tanzania and OCGS - Fiscal Year financing Zanzibar 37 Annex 2: Summary of Special Focuses from the Latest Tanzania Economic Updates TEU – Issue 20: “Overcoming Demographic progress; however, the current WSDP-3 stands to have the Challenges While Embracing Opportunities� largest impact towards providing near-universal access to Infant and child mortality rates in Tanzania have WASH services yet. Achieving the goals of WSDP-3 would significantly decreased over the past few decades, whereas mitigate the high volume of yearly deaths due to inadequate fertility rates have only slightly decreased. Consequently, WASH services, would significantly reduce economic loss, the population growth rate remains high, at three percent and would bring substantial increases in job creation and and the population is estimated to double every 23 years. workforce productivity. With a majority of the population This high growth rate is expected to cause a surge in without adequate WASH services, the provision of near- demand for essential services such as education and health, universal access will be crucial for the development of and employment opportunities, outstripping the Tanzania. economy's capacity to provide them. Accelerating the demographic transition in Tanzania could bring about TEU – Issue 17: “Accelerating Growth by Expanding shifts in the age structure which would contribute to Women’s Economic Opportunities and Ensuring economic growth and poverty reduction, helping the Equitable Access to Assets� country reap the potential benefits of lower fertility rate. Over the last two decades, a growing share of Tanzanian Priorities for policy action include renew commitment on women have entered salaried employment, and an increase family planning, expand access and strengthen completion in the female labor-force participation rate (LFPR) has of secondary education for girls, and promote women’s accelerated Tanzania’s transition to lower-middle-income empowerment. country. However, women still face multiple challenges, including persistent gender gaps in wage rates and TEU – Issue 19: “The Efficiency and Effectiveness of agricultural productivity. Despite recent progress, women Fiscal Policy in Tanzania� are less likely to own a home, exercise secure land rights, Over the past decade, Tanzania has made strides in hold a bank account, or have access to finance. These broadening its tax collection efforts, and its fiscal policy has gender disparities prevent women from maximizing their played a vital role in supporting inclusive and sustainable contribution to Tanzania’s economic development. growth. However, total public spending in Tanzania is below the average for Sub-Saharan Africa, low-income TEU – Issue 16: “The Recovery Resilience, and countries, and lower-middle-income countries, while Transformation of Tanzania’s Tourism Sector� budget execution rates in Tanzania remain low, especially Tanzania’s abundant nature and rich cultural resources are for development spending. This special focus further a considerable economic opportunity. The tourism sector identified policies and reforms to close the policy and can support the government’s broader development compliance gaps further and increase revenue collection objectives by: (i) creating jobs, both directly and through for improved public spending, steering towards the backward linkages to other sectors; (ii) generating foreign- National Development Vision 2025, which envisages exchange earnings; (iii) providing revenue to support the Tanzania as a middle-income country with well-developed preservation and maintenance of natural and cultural human capital, an adequate supply of high-quality heritage; and (iv) expanding the tax base to finance livelihoods, and rising living standards. development expenditures and poverty-reduction efforts. However, the COVID-19 crisis severely impacted TEU – Issue 18: “Clean Water, Bright Future: The Tanzania’s tourism sector as the disruption of global travel Transformative Impact of Investing in WASH� and tourism activity resulted in job losses and business The provision of near-universal access to water, sanitation closures. This prompted policymakers, investors, firms, and hygiene (WASH) services can drastically improve and development practitioners to reconsider tourism’s multiple facets of Tanzania's population. Although there underlying sustainability and value proposition. has been progress towards increasing access to WASH services, achieving the Sustainable Development Goals of the UN will require greater prioritization. The Water Sector Development Program (WSDP) has made significant 38 Annex 3: References for the Special Section AWF. 2024. Community Conservation: Transforming a Degraded Cattle Ranch into a Thriving Giraffe Nursery and Community-Based Cattle Operation. 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