ISSUE 13 DECEMBER 2019 AFRICA REGION MACROECONOMICS, TRADE AND INVESTMENT GLOBAL PRACTICE TRANSFORMING AGRICULTURE Realizing the Potential of Agriculture for Inclusive THE WORLD BANK GROUP Growth and Poverty Reduction http://www.worldbank.org/tanzania/economicupdate TA N Z A N I A E C O N O M I C U P D AT E DECEMBER 2019, 13TH EDITION PAGE ii The World Bank Group Macroeconomics, Trade and Investment Global Practice, Africa Region Table of Contents Abbreviations and Acronyms................................................................. iii Acknowledgements..................................................................................iv Overview.................................................................................................... 1 Part One: The State of the Economy....................................................... 9 ....................................................................................... 10 1.1 Recent Economic Developments. 1.2 Macroeconomic Outlook and Risks...................................................................................23 Part Two: Transforming Agriculture.................................................... 29 2.1 Strategic Needs, Opportunities, and Challenges for Agriculture.................................30 2.2 Strategic Considerations in Carrying Out Agriculture Strategies.................................32 2.3 Tanzania’s Agricultural Transformation in Practice, 2008–14......................................35 2.4 Policy and Regulatory Issues in Sustaining Agricultural Transformation...................41 ................................................................................47 2.5 Increasing Investment in Agriculture. 2.6 Conclusions............................................................................................................................53 Annexes................................................................................................... 59 References............................................................................................... 73 PAGE i TA N Z A N I A E C O N O M I C U P D AT E DECEMBER 2019, 13TH EDITION Boxes Box 1: Private Investment and Sustainable Growth, Job Creation, and Poverty Reduction............................. 28 Box 2: Strategies for Making Agricultural Water More Productive....................................................................... 52 Figures Figure 1: Global Trends in GDP Growth, 2016–21....................................................................................................10 ...............................................................................................................................11 Figure 2: Energy and Metal Prices. Figure 3: H1 Growth by Sector, 2018–19, Percent....................................................................................................12 ............................................................................................................................13 Figure 4: Inflation, 2019-19, Percent. ......................................................................................................................15 Figure 5: Public Debt, 2017-19, Percent. Figure 6: Growth in Domestic Credit and M3, 2018-19, Percent...........................................................................16 Figure 7: Commercial Lending Rates, 2018-19, Percent..........................................................................................16 Figure 8: Current Account Deficit, 2016–19...............................................................................................................18 Figure 9: Exports and Imports, 2016–19, Percent Growth......................................................................................18 Figure 10: Official Gross Reserves and Foreign Inflows, 2015-19...........................................................................18 Figure 11: Nominal Exchange Rate, 2018–19, Percent.............................................................................................19 Figure 12: Real Effective Exchange Rate, 2018–19, Percent....................................................................................19 Figure 13: Ease of Doing Business Rankings, 2020, Percent................................................................................. 20 Figure 14: Tanzania’s Doing Business Rankings by Category, 2020..................................................................... 20 Figure 15: Number of Poor People, 2007, 2012, and 2018..................................................................................... 22 Figure 16: Sector of Employment by Poverty Status, 2018.................................................................................... 22 ............................................................ 48 Figure 17. Composition of the Ministry of Agriculture Budget, 2011–17. Tables Table 1: Fiscal Trends, 2016–20, Percent....................................................................................................................14 Table 2: Medium-Term Outlook, Annual Percent Change Unless Otherwise Indicated.................................. 24 Table 3: Government Actions to Improve Business Environment Assumed in the Baseline Outlook, Short- and Medium-Term.............................................................. 26 Table 4: Government Action to Improve Fiscal Policy Management Assumed in the Baseline Outlook, Short- and Medium-Term.............................................................. 27 Table 5: Employment, Thousands of Workers.......................................................................................................... 28 PAGE ii The World Bank Group Macroeconomics, Trade and Investment Global Practice, Africa Region Abbreviations and Acronyms ACT Agricultural Council of Tanzania ASDP Agriculture Sector Development Program BOT Bank of Tanzania CAADP Comprehensive Africa Agriculture Development Program CAD Current Account Deficit CSDI Centre For Sustainable Development Initiatives CPI Consumer Price Index EAC East African Community EPZ Export Processing Zones FAO Food and Agriculture Organization FDI Foreign Direct Investment FSA Farm Service Agency FSAP Financial Sustainability Assessment Program FYDP Five-Year Development Plan GDP Gross Domestic Product ICT Information and Communication Technology IMF International Monetary Fund MAFAP Monitoring and Analyzing Food and Agricultural Policies MDAs Ministries, Departments, and Agencies MFD Maximizing Finance for Development MIT Ministry of Industry and Trade MMT Million Metric Tons MOFP Ministry of Finance and Planning NAIVS National Agricultural Input Voucher Scheme NBS National Bureau of Statistics NFRA National Food Reserve Agency NPL Nonperforming Loan NBS National Bureau of Statistics NPS National Panel Survey QDS Quality Declared Seed SSA Sub-Saharan Africa SMSE Small and Medium Scale Enterprises TANESCO Tanzania Electric Supply Company Limited TASAF Tanzania Social Action Fund TFDA Tanzania Food and Drugs Authority TNBC Tanzania National Business Council TOSCI Tanzania Official Seed Certification Institute TRA Tanzania Revenue Authority TZS Tanzanian shilling UNIDO United Nations Industrial Development Organization US$ United States Dollar VAT Value-Added Tax PAGE iii TA N Z A N I A E C O N O M I C U P D AT E DECEMBER 2019, 13TH EDITION Acknowledgments This thirteenth edition of the Bella Bird (Country Director for Tanzania Economic Update was Tanzania, Malawi, Zambia and prepared by a joint World Bank team Zimbabwe, AFRVP), Abebe Adugna from the Macroeconomics, Trade (Practice Manager, E1M1), Holger Kray and Investment, Poverty, Finance, (Practice Manager, SAFA3), and Preeti Competition, and Innovation, Arora (Country Program Coordinator, and Agriculture and Food Global AFCTZ) provided guidance and Practices. Members of the team leadership throughout preparation of were Emma Isinika-Modamba, the report. Christopher Delgado, Sarah Simons, Rob Swinkels, Fatima Freeha, Neema Anne Grant provided editorial Mwingu, Gilead Teri, Solomon Baregu, assistance, and Faustina Chande, Miguel Saldarriaga, Loy Nabeta, and Diana Mwaipopo, Lydie Ahodehou, Emmanuel Mungunasi. John Litwack, Faith-Lucy Matumbo and Abdul Christopher Brett, and David Nyange Muhile managed design and printing. provide useful insights. William Battaile provided overall supervision. PAGE iv The World Bank Group Macroeconomics, Trade and Investment Global Practice, Africa Region Overview PAGE 1 TA N Z A N I A E C O N O M I C U P D AT E DECEMBER 2019, 13TH EDITION State of the Economy Tanzania was again one of the top credibility and resulting in accumulation growth performers in the region. of arrears and commercial domestic Official GDP figures show that growth debt. Moreover, spending pressures remained steady in the first half of the are rising as elections near: Tanzania year (6.9 percent in 2019 H1 compared held local elections in November 2019 to 6.8 percent in 2018 H1), driven by and will conduct a general election in higher public investment and by a October 2020. This has pushed up public recovery in exports. The independent recurrent spending. In combination with view of World Bank staff also suggests underperforming domestic revenue slightly improved economic activity and the pressure of public investment in 2019 but at a lower rate of growth, in large infrastructure projects, the fiscal 5.6 percent, up from our 5.4 estimate deficit has widened from 1.9 percent for 2018. Inflation has been low and of GDP in 2017/18 to 3.2 percent in stable and the balance of payments is 2018/19. Spending pressures are likely quite sound despite a widening current to continue, and fiscal management account deficit. Exports are recovering must be firm to ensure that priority from last year’s contraction. As of services, especially education and September 2019, gold exports, which health, are adequately funded. The account for 40 percent of nontraditional ambitious revenue target of 17.1 percent exports, were up 26 percent because of of GDP (in the previous fiscal year 14.0 both higher volumes and higher prices, percent was actually collected) and the and exports of manufactured goods higher budgeted spending may make it had risen by 33 percent. Thanks to more difficult to achieve the fiscal deficit goal arrivals, earnings from tourism also rose of 2.3 percent of GDP in 2019/20. 9 percent. Public debt is still sustainable, Fiscal management needs to be despite the recent jump in domestic strengthened, especially given the borrowing. Though Tanzania is at low intensification of spending pressures risk of debt distress, commercial debt in advance of elections. Revenue as a share of total public debt has risen forecasting is weak, undermining budget because domestic debt has risen by 2.3 PAGE 2 The World Bank Group Macroeconomics, Trade and Investment Global Practice, Africa Region percent of GDP to finance the 2018/19 policies that bolster private investment budget. This adds to the debt service and improve growth sustainability and bill, which already consumes nearly resilience. Bank staff expect real GDP 40 percent of domestic revenue and to grow by about 6 percent over the puts upward pressure on commercial medium term, but that will depend rates for lending to the private sector. on the speed of reforms to improve Moreover, arrears are not being fiscal management and the business tracked transparently, which raises environment for private investment concerns about how well the Ministry and growth. The main downside risk of Finance and Planning (MoFP) tracks is continued slow realization of reforms the effectiveness of fiscal policy. It is as global conditions weaken. Over important for the government to closely the medium term a drop in global monitor the debt portfolio and prioritize demand, tighter financing conditions, concessional borrowing as much as higher international energy prices, possible. and more volatile commodity prices could heighten uncertainty, discourage Progress in reforming Tanzania’s investment, and thus reduce growth. business environment has been slow. Tanzania trails its regional peers Special Topic: Transforming in terms of actual reforms. According Agriculture the World Bank Doing Business Report 2020, Tanzania ranks 141 out of 190 The Government’s Tanzania economies in ease to doing business, Development Vision 2025 and the trailing Rwanda, Kenya, and Uganda Five-Year Development Plan (FYDP II) and Sub-Saharan peers like Zambia, set out ambitious goals for reducing Malawi, and Mozambique. Despite an poverty and sustainably industrializing apparent government turn-around in so that the country can achieve its work of amending the Statistics Act, middle-income status by 2025. The opening consultations for drafting the government recognizes agriculture Business Facilitation and Investment as central to realizing its objectives of bill, and passing the Finance Act 2019, socioeconomic development, which the private sector still finds the business are well-articulated in the Second environment unpredictable and calls for Agriculture Sector Development faster reforms, particularly in terms of Program (ASDP II). Among the goals business regulation. of ASDP II are to transform agriculture by promoting commercialization, Growth prospects remain positive prioritizing high-potential commodity but sustainability is a concern unless value chains, and mobilizing capital private investment takes a larger role. by giving the formal private sector a Accelerating external headwinds make growing role in agriculture. it more urgent for Tanzania to adopt PAGE 3 TA N Z A N I A E C O N O M I C U P D AT E DECEMBER 2019, 13TH EDITION Because agriculture and related so, leading to a structural realignment value chains drive two-thirds of all of price incentives. Meanwhile, and jobs—three-quarters for the poor— relatedly, rapid growth in GDP in Tanzania the sector is central to creating and the rest of East and Southern Africa more and better jobs at scale and helped fuel rapid growth in domestic significantly reducing poverty. But demand for more highly processed such growth will require transforming foods and higher-priced calories from, agriculture, which may explain why the e.g. animal products and horticulture. rates of growth and poverty reduction Regional food trade also expanded discussed in the first part of this report rapidly, especially for high-value and are not yet high enough to achieve more-processed items. Tanzania’s aspirations. “Transforming Along with these demand trends, agriculture” is typically done by using there has been significant change more purchased inputs per unit of land, on the supply side, especially the hiring more labor, and cultivating more proliferation of medium-sized farms land. Farmers typically become more in Tanzania, from 23 percent of all involved in output markets for higher- farm land holdings in 2008 to 35 value products, and value chains from percent in 2014. The present report farm to table lengthen. Agriculture will draw on extensive recent empirical moves incrementally from a low- work (listed in Annex 14 and available productivity subsistence activity to a separately) that documents the commercialized high-productivity one. growing medium-scale farm segment Average labor productivity—and thus that employs, invests, and attracts farm incomes—will always rise with services, in effect launching agricultural agricultural transformation. Usually, transformation at scale. These farms so will returns to land, although how are in the 5–20 hectare (ha) range, much they rise may depend on whether compared to the typical smallholding unused new land is available at low cost of 1–2 ha. Tanzania also saw a steady to expand cultivation. decline in the proportion of farms that A number of factors have been driving were primarily subsistence-oriented the demand side for at least a decade, and small-scale—from 43 percent of quietly laying the groundwork for all farms in 2008 to 31 percent in 2014. transforming Tanzanian agriculture. Between 2008 and 2014, the real value After the global food price crisis of 2008, of aggregate agricultural production prices of food relative to other consumer grew by over 8 percent annually, but the items jumped by about 50 percent. absolute share of medium-sized farms Unlike much of the rest of the world, in total agricultural products sold rose they stayed higher in Tanzania and the by about 2 percent annually, ending in rest of East Africa and continue to do 2014 at 33.4 percent, compared to 3.8 PAGE 4 The World Bank Group Macroeconomics, Trade and Investment Global Practice, Africa Region percent for large farms (> 20 ha) and years has been enigmatic. Private 62.8 percent for small farms (< 5 ha). formal agribusiness investments have been modest. Comparison of Most important for scaling and agricultural census and household inclusion is that the growth in survey data for 2007–16 shows that medium-scale farms has produced land cultivated expanded by 7.7 percent strong, positive spillover effects on annually; yet average land productivity smallholders that are enhancing their in value terms stagnated at less than 0.4 economic inclusion. About half of percent annually, and land expansion medium-scale farms have “graduated” accounted for most agricultural from small-scale status and their success growth. Average labor productivity in stories have potential to pull along other agriculture does appear to be rising farmers. Medium-scale farmers not only modestly at about 1 percent annually, have strong community links, they also mostly because of a drop in average have a market orientation and links to labor input/ha. According to the other sectors, they invest in technology official national accounts data, growth and knowledge, and they attract in agricultural GDP averaged only 3.5 commercial services that can provide a percent from 2006 to 2016, but it seems basis for agri-food-based tax revenue. to have grown at 6.3 percent annualized In areas with greater concentrations in the first half (H1) of 2018 and 5.1 of medium- and large-scale farms, percent in 2019 H1. Thus, for Tanzanian small-scale farms are more likely to use agriculture the signs are promising, but improved seed and fertilizer, to cultivate progress will need to accelerate to meet a larger proportion of their land, and to national targets. A review of current receive agricultural extension and credit. sectoral policies in the topical studies Medium and larger farms have also been listed in Annex 14 and discussed below shown to help smallholders in the same suggests scope for policy changes that, zones to increase their incomes by their should the government wish to do so, demand for labor. Medium-scale farms would over time substantially speed up also generate effective demand for local growth. nonfarm production and services that offer options for households seeking to Here trade restrictions stand out move beyond smallholder farming. as an area for further reform, notwithstanding recent government Despite the centrality of agricultural efforts to improve incentives for transformation for the success of agribusiness, including local and present national development plans, national fiscal reforms. The most the favorable demand trends noted, counter-productive case is the use and the encouraging signs from the of export bans for maize and rice as a growth of medium-scale farming, short-term price stabilization tool, often agricultural performance in recent with a domestic food security objective. PAGE 5 TA N Z A N I A E C O N O M I C U P D AT E DECEMBER 2019, 13TH EDITION Analysis has found that the costs that the 2006 Abuja Declaration on Fertilizer. grain export bans create for farmers Only 16.5 percent of Tanzanian rural and the imposing country far exceed households applied inorganic fertilizer any benefit to domestic consumers. to any crops, and only 44 percent of These export bans are sometimes households used improved seed. replaced by export taxes, but these Private agribusiness investments also cut incentives to farmers, or by have been modest, especially from import tariffs to protect local producers. foreign sources, probably due to a Over time, commodity taxes and tariffs discouraging policy environment. On both increase rather than decrease average, between 2007 and 2017 only price volatility. Agricultural commodity 4 percent of FDI went into agriculture, taxes and tariffs typically benefit fisheries, and forests. Commercial bank traders and processors more than lending to agriculture is just 7 percent, farmers or consumers, to the detriment down from 10 percent in the past five of expanding trade. From a growth years. Policy and regulatory reforms perspective, restrictions on food exports to increase private investment in both deprive the country of opportunities input and output markets are needed in to expand to serve growing regional three areas: markets. Since 2017, central authorities have tried to limit the use of export bans Regulation of output markets and trade by promoting alternative policies that policy, to address problems caused by (1) stabilize the prices of staples, which if restrictive marketing requirements, such maintained will have positive results. as requirements to sell through closed auctions, that reduce competition; Improving the performance and and (2) discretionary trade policies, regulation of private agricultural including reinstatement of export bans input markets is vital for improving or stringent export licensing, that restrict agricultural productivity. Standards in trade and erode producer incentives. the informal sector are not regulated, both quality and product labelling are Revised regulation of input markets, to unreliable, and information on fertilizer improve (1) arrangements for fertilizer and seed performance is scarce. imports and distribution and fertilizer Although in the last decade Tanzania quality control and labelling; and (2) has substantially increased the number regulation of seeds, plant breeding, of farmers using improved seed, there variety registration, and seed quality is potential for greater utilization. The control. average fertilizer application in Tanzania is 8–10 kg /ha, far below the 50 kg/ha Sanitary and phytosanitary controls, to target set by African governments at (1) establish an institutional mandate PAGE 6 The World Bank Group Macroeconomics, Trade and Investment Global Practice, Africa Region for pest surveillance and risk analysis; Tanzania’s agricultural budgets are not (2) ensure more efficient issuance of fully executed, reaching only 83 percent phytosanitary certificates for cross- for recurrent expenditures in 2017/18— border trade; and (3) bolster institutional less than most other ministries but not arrangements for risk-based regulation inordinately so—but only 6 percent of food safety. for development spending, about 10 percent of the rate in most other Public spending is also essential ministries. for mobilizing private finance for agriculture by providing public goods, Critically for their future well-being, such as agricultural research and rural the resilience to climate change of the infrastructure, that are essential for livelihoods of at least 70 percent of productivity growth. The benefits of Tanzanians depends on the relationship these are not restricted to any one firm between agricultural productivity or farm and thus require shared public and soil and water management. funding. Public spending on agriculture The considerable growth of Tanzanian needs to shift from providing significant agriculture, especially since 2008, has private goods, such as subsidies to been due primarily to rapid expansion individual farms or firms, to providing of cropped area. Deforestation, erosion, core public goods that mobilize and inadequate fertility have caused the corresponding private investment in degradation of more than 60 percent of agricultural production and distribution. the land presently used for production Although in 2014 rural areas housed of crops, livestock, and forest products about 66 percent of the population, in and services. Tanzania must thus 2017 they received only 20 percent of better manage the productivity of public spending. Although more than 70 agricultural water and land. Climate- percent of Tanzanians depended directly smart agriculture requires shifting to or indirectly on agriculture for their adaptive water allocation, modernizing livelihoods, agriculture was allocated irrigation, and improving water and land only 2.5 percent of public spending, less management. than in neighboring countries. And even Finally, agriculture will continue to then, 33 percent of public spending be a driver of inclusive growth in on agriculture was for private goods, the Tanzanian economy and a major such as subsidies for buying fertilizers. source of productivity gains to support No country, especially not one just the desired structural transformation, beginning to transform its agriculture, and the new jobs it will bring. Although can hope to grow agriculture with less structural transformation is generally than 2 percent of public spending on characterized by workers leaving farming, it going to public goods like research, successful transformation also requires extension, and market institutions that the productivity of those remaining vital to raising productivity. Worse, PAGE 7 TA N Z A N I A E C O N O M I C U P D AT E DECEMBER 2019, 13TH EDITION rises sufficiently that agriculture can continue to feed growing urban areas, either directly or through growth in exports. In rural areas, agriculture and its associated value chains will remain the main source of employment for many years to come, particularly for the poor—and agricultural growth has been widely shown to be more pro- poor than nonagricultural growth. As Part 2 demonstrates, the midstream and downstream parts of agricultural value chains are also critical to creating better-paid jobs. Reforming policy and increasing investments will jumpstart the improvements in agricultural productivity that are critical to catalyze inclusive growth and structural transformation. In the past, land available for expansion has allowed growth in production without growth in land productivity, but future growth for agriculture will need to come from sustainably lowering the unit costs of production. PAGE 8 Macroeconomics,Trade The World Bank Group Macroeconomics, Tradeand andInvestment InvestmentGlobal GlobalPractice, AfricaRegion Practice,Africa Region 1 The State of the Economy PAGE 9 TA N Z A N I A E C O N O M I C U P D AT E DECEMBER 2019, 13TH EDITION 1.1 Recent Economic Developments Global growth has slowed. In both advanced and emerging in 2018 (Figure 1). The expected economies, growth has softened. In deceleration is partly due to softening the second quarter of 2019 (Q2), global global growth amid trade tensions, policy growth decelerated as trade tensions uncertainties, and falling commodity between the United States and China prices but also to such domestic factors escalated and as political uncertainty as the slow pace of domestic reforms rose throughout the world. The global and a drop in domestic demand due to economy is expected to grow by only sluggish private investment. 2.6 percent in 2019, below the 3.0 percent in 2018, and the forecast could The slow recovery in SSA masks be revised downward (Figure 1). The significant divergence between deterioration of global prospects has countries. Growth in resource-rich translated into lower commodity prices countries was less than expected as and capital flows, putting pressure investment dropped because of dimming on the external sector for emerging prospects in industry and mining. In economies as current account deficits 2019 Q2, growth decelerated in Nigeria, widen and exchange rates depreciate. South Africa, and Angola, the three largest economies in SSA. Resource- Economic activity in Sub-Saharan intensive economies are also suffering Africa (SSA) has slackened. Real GDP from fiscal constraints as tax revenues expanded more slowly than expected from commodities fall. However, in across the region in the first half of 2019 non-resource-intensive countries, fixed (H1) and is expected to grow by just investment has rebounded and growth 2.6 percent, barely up from 2.5 percent remains robust. Figure 1: Global Trends in GDP Growth, Figure 2: Energy and Metal Prices 2016–21 Source: World Bank, Africa’s Pulse, October 2019. Source: World Bank Commodity Price Data (The Pink Sheet). PAGE 10 The World Bank Group Macroeconomics, Trade and Investment Global Practice, Africa Region Downside risks have intensified. The volatility could continue to undermine recurrent escalation of trade tensions investor and consumer confidence and between major economies and higher translate into even weaker global growth political uncertainty generally could as external demand drops, reducing further discourage investors, as could Tanzania’s gains from higher exports of tighter global financial conditions, gold. more volatile commodity prices, and depressed growth globally and in SSA In the first half of 2019, growth has economies because of lower revenues remained steady and inflation has and larger current account deficits been low. (CADs). Narrower fiscal space could According to official data, real GDP heighten debt vulnerabilities, which in Tanzania grew by 6.9 percent in are already high in SSA—49 percent 2019 H1, a little higher than the 6.8 of SSA countries are either already percent in 2018 H1. GDP growth was in debt distress or at high risk of it. driven by the considerable expansion Domestically, adverse weather and in construction and mining, but slowing investment are the main risks to agriculture and service sectors slowed. the outlook: SSA is vulnerable to weather Nonmanufacturing industry, which shocks, especially drought, which could comprises construction, mining and depress agricultural output and export quarrying, water, and electricity, grew earnings and stimulate inflation. by a solid 15.3 percent in 2019 H1, Despite more volatile commodity double the 7.5 percent of a year earlier prices and financial flows, Tanzania’s (Figure 3). Growth in construction was commodity trade balance has largely driven by public investment; improved. Its external sector is growth in mining was led by a recovery particularly vulnerable to changes in gold production and a spike in coal in world prices for oil (20 percent extraction. Manufacturing expanded of imports) and gold (16 percent of by 5.0 percent in 2019 H1, compared to exports). Recent developments have 4.4 percent in 2018 H1 as production of generally been favorable; the value of industrial goods ramped up. In contrast, gold exports went up by 23 percent growth in agriculture decelerated from in the 12 months ending July 2019 as 6.3 percent in 2018 H1 to 5.1 percent gold prices bounced back from a low of in 2019 H1, largely because the fishing US$1,198 an ounce in September 2018 subsector contracted as fewer fish were to US$1,511 in September 2019—a caught; there was, however, higher level not seen since 2013 (Figure 2). production of maize, beans, sweet Oil prices have rebounded this year, potatoes, and millet. In the last five though they are still below last year’s years, agriculture has had the least average; and the oil import bill went volatile growth of all sectors, growing up by only a modest 9 percent in the on average about 6 percent per quarter. 12 months ending July 2019. However, This growth has been accompanied higher uncertainty and heightened by the rise of medium-scale farms and PAGE 11 TA N Z A N I A E C O N O M I C U P D AT E DECEMBER 2019, 13TH EDITION a noticeable jump in land and labor exports have risen. Supporting productivity (see Part Two). Meanwhile, data includes higher recurrent and services expanded by 5.8 percent, development spending in 2018/19, slightly down from 6.1 percent, because expansion of credit to the private sector, most components of the sector slowed. and more exports. Official high-frequency data also Though it remains sensitive to show a slight acceleration of growth domestic food prices, inflation is low in 2019 but at a lower aggregate rate and stable. It has ticked up due to than suggested by the official GDP higher food prices but it is well below data. World Bank staff estimates using the official 5 percent target. In recent high-frequency official data on spending months headline inflation rose slightly, suggest that real GDP growth in 2019 reaching 3.6 percent in October—up will be 5.6 percent, up from 5.4 percent from 3.2 percent a year ago but still in 2018; data through three quarters of below the target (Figure 4). Rising 2019 show that public consumption, prices pushed food inflation up to 6.0 gross fixed capital formation, and percent in October 2019, compared to Figure 3: H1 Growth by Sector, 2018–19, Percent Source: NBS. PAGE 12 The World Bank Group Macroeconomics, Trade and Investment Global Practice, Africa Region 3.1 percent and closer to the 1.8 percent Figure 4: Inflation, 2019-19, Percent average of the past three fiscal years. Domestic debt has jumped, exacerbating pressure on commercial lending rates for the private sector. In 2018/19, with the continuing dearth of external financing, domestic borrowing covered most government financing needs, but it reached 2.3 percent of GDP, far above the planned 0.9 percent Source: NBS. and the previous FY actual of 0.5 percent. Heavier domestic borrowing 2.5 percent a year earlier—prices of the has put upward pressure on treasury bill main crops in the CPI basket have been rates as commercial lending rates are rising since June. The price of maize rose still stubbornly high, about 17 percent 140 percent in the 12 months ending in FY2019/20 H2. External borrowing in October 2019 but the price of rice was about 0.9 percent of GDP, far rose by only 3 percent. Meanwhile, with below the 2.3 percent target. Delays global oil prices falling, energy inflation in project preparation and concerns plunged from 19.5 percent a year ago to about government policies, especially just 3.0 percent in October 2019; global regulation of statistics, were among the oil prices were down from US$76.70 in reasons for Tanzania receiving fewer October 2018 to US$57.30. However, concessional loans. It was expected falling fuel prices were offset by the that in 2019/20 two-thirds of the deficit fact that the weight of energy and fuels would be financed by nonconcessional in the CPI basket is only 8.7 percent loans, both external and domestic, compared to 37.1 percent for food. and one-third by external concessional loans. Domestic borrowing has risen in response to shortfalls in both Revenues have consistently fallen revenues and external financing. short of target, which implies serious The fiscal deficit for 2018/19 was an weaknesses in revenue forecasting. estimated 3.2 percent of GDP, close In 2018/19, domestic revenue came to the 3.1 percent budget target but in below both budget and previous higher than the 2 percent average of outturns due to less tax revenue, the last two years. The deficit has gone especially from value-added tax up largely because of revenue shortfalls; (VAT) and income tax: it constituted as in the previous two years, spending 14.0 percent of GDP compared to held at 17 percent of GDP. The 2019/20 the budgeted 15.5 percent and the budget targets a deficit of 2.3 percent previous year’s actual of 14.9 percent. of GDP—much lower than last year’s The problem arose from significant tax shortfalls and nontax overperformance. PAGE 13 TA N Z A N I A E C O N O M I C U P D AT E DECEMBER 2019, 13TH EDITION Table 1: Fiscal Trends, 2016–20, Percent 2016/17 2016/17 2017/18 2017/18 2018/19 2018/19 2019/20 Budget Actual Budget Actual Budget Prel. actual Budget In Percent of GDP Domestic revenue 16.3 15.3 16.2 14.9 15.5 14.0 17.1 Tax revenue 13.3 12.9 13.9 12.6 13.3 11.6 14.2 Nontax revenue 3.0 2.4 2.4 2.4 1.7 2.4 2.9 Total expenditure 21.8 17.3 20.8 17.0 19.5 16.9 20.4 Recurrent expenditure 11.4 10.6 11.0 10.7 10.5 10.4 11.5 Wages and salaries 5.8 5.1 5.9 4.6 5.5 5.0 5.6 Interest payments 1.5 1.6 1.4 1.7 1.6 1.8 1.8 Goods and services 4.1 3.9 3.8 4.4 3.5 3.6 4.0 Development expenditure 10.4 6.7 9.8 6.3 8.9 6.5 9.1 Domestically financed 7.7 4.7 7.3 4.5 7.3 5.0 7.2 Foreign financed 2.7 2.0 2.5 1.8 1.6 1.5 1.9 Grants 1.3 0.5 1.2 0.8 0.8 0.3 0.9 Overall fiscal deficit -4.3 -1.5 -3.4 -1.9 -3.1 -3.2 -2.3 Financing 4.3 1.5 3.4 1.9 3.1 3.2 2.3 Foreign (net) 2.9 1.6 2.4 1.4 2.3 0.9 1.3 Domestic (net) 1.4 -0.1 1.0 0.5 0.9 2.3 1.1 Source: MoFP. Tax revenue missed its target by 12.8 but there were considerable variation percent, with collections lower for by component. At 10.4 percent of GDP, income tax, excise duties, and VAT. spending on wages and salaries was Nontax overperformance of more much less than planned because of than 41 percent was supported in part limited new hiring, retirement of public by the new government Electronic servants (especially teachers), and Payment Gateway, which produced lack of salary adjustments. But outlays higher collection of land rents and some for both interest payments and goods government agency fees. Despite the and services were higher because of previous year’s depressing revenue preparation for local elections held in performance, however, the government November 2019 and general elections in revenue target for this year is an October 2020. As election preparations ambitious 17.1 percent of GDP. continue, the 2019/20 budget expects recurrent spending to rise to 11.5 Spending pressures are rising as percent of GDP due to higher allocations elections near. Though generally as for both wages and salaries and goods budgeted in 2018/19, this year recurrent and services. spending is expected to rise because of preparation for elections. Recurrent Execution of the development budget spending was in line with the budget, improved in 2018/19 but was still PAGE 14 The World Bank Group Macroeconomics, Trade and Investment Global Practice, Africa Region far short of plans. Spending on Public debt is currently sustainable, development projects and programs and Tanzania is at low risk of debt was equivalent to 6.5 percent of GDP distress, but the rising share of against a budgeted 8.9 percent, a 73 commercial debt, much of it domestic, percent execution rate and up from raises concerns about liquidity risks. 67 percent in the previous fiscal year. The IMF–World Bank Debt Sustainability Foreign-financed projects and programs Analysis, updated in January 2019, performed well, but the locally funded found the country’s risk of debt distress component was under-executed. The is low: at the end of 2018/19 the public result has been both delays in work on debt-to-GDP ratio was an estimated major capital projects and accumulation 37 percent, far below the 70 percent of arrears. The 2019/20 budget has threshold but up slightly from about 36.6 allocated about 9 percent of GDP for percent in 2017/18 (Figure 5).1 However, development spending, up slightly from commercial financing of the budget, the previous year’s 8.9 percent. which was just 4 percent in 2010/11, hit about 19 percent in 2018/19. As a result, Arrears are not being tracked in 2018/19 debt service consumed transparently. The latest verified arrears about 43 percent of domestic revenues in government domestic payments and will consume about 34 percent are for arrears accumulated through this fiscal year. In 2018/19 alone, the 2016/17, when it was TZS1.5 billion, government borrowed the equivalent of equivalent to about 1.5 percent of GDP. 2.3 percent of GDP domestically. The government has adopted a strategy to prevent new arrears and clear the Figure 5: Public Debt, 2017-19, Percent backlog, but progress has been limited. For example, 2017/18 arrears have still not all been verified, and the status of verification of 2018/19 arrears is not known. VAT refund arrears are also very high; about 70 percent have been verified for payment but are pending availability of funds. The government has installed an electronic system to shorten the time taken to verify VAT refund claims; but unfortunately, it is not Source: IMF and MoFP. yet operational. 1 This figure excludes debt for which relief is being negotiated and Treasury bills issued for monetary policy purposes. PAGE 15 TA N Z A N I A E C O N O M I C U P D AT E DECEMBER 2019, 13TH EDITION Monetary policy has eased and productive activities has been dynamic; credit growth is recovering. in September 2019, there was growth The Bank of Tanzania (BOT) continues in credit of 68.5 percent to agriculture, to loosen monetary policy. In July 45.1 percent to mining and quarrying, 2019, it dropped the minimum statutory and 24.0 percent to households. reserve requirement from 8 to 7 percent, However, for both hotels and restaurants after cutting the discount rate in August and trade, credit to the private sector 2018 from 9 to 7 percent. As a result, contracted in the 12 months ending growth in M3 reached 9.3 percent in September 2019. The growth in credit September 2019, up from 4.9 percent in to the private sector2 reflects an uptick September 2018 and 7.7 percent in June in consumer confidence that coincides 2019 (Figure 6). Total domestic credit with the liquidity-easing measures to the private sector and the central of the BoT and a gradual decline in government grew by 6.3 percent in nonperforming loans (NPLs). September 2019, though that is down Banks are extending credit to the from 7.2 percent in September 2018. private sector, but the rates are Credit to the private sector is relatively high. In the first nine months recovering. In the first nine months of of 2019, commercial lending rates 2019, its growth averaged 8.8 percent, averaged 17 percent, down from 17.5 far more than the 2.8 percent in the percent for the same period in 2018 same period in 2018 (Figure 6). While (Figure 7), and the main treasury bill personal credit to households is still the rate averaged 8.3 percent, up from largest share of outstanding credit to 5.9 percent in 2018, as a result of the private sector (29.9 percent at the more government borrowing from the end of September 2019), credit going to domestic market to finance the 2018/19 budget. Figure 6: Growth in Domestic Credit Figure 7: Commercial Lending and M3, 2018-19 Rates, 2018-19 Source: BOT. Source: BOT. 2 At 12 percent, credit to the private sector as a share of GDP is lower than the 14.5 percent of three years earlier. PAGE 16 The World Bank Group Macroeconomics, Trade and Investment Global Practice, Africa Region The banking sector is adequately As the Financial Sustainability capitalized, but NPLs threaten Assessment Program (FSAP) financial stability. As of April 2019, the recommended, the MoFP needs commercial bank core capital adequacy to promote more broad-based ratio of 17 percent was well above the 10 intersectoral efforts to address NPLs. percent required and the liquidity ratio This is important because of the of 33.6 percent was also comfortably negative spillovers that can affect the above the required 20 percent. Moreover, economy beyond the financial sector. BOT closures of failing banks in 2018 The delays and uncertainty linked to helped avoid the risk of contagion to court processes impinge on bank efforts the whole sector and demonstrate the to efficiently liquidate collateral and write BOT’s commitment to keep the financial off bad loans. The FSAP recommended sector stable. In closing banks, the BOT creating a multi-stakeholder public- signaled that failure of any bank to private working group to identify ways meet operational indicators will not be to ensure that legal and tax structures tolerated. However, as of April 2019, the support efficient resolution of NPLs NPL ratio of 11.1 percent was not much and to deal with companies that hold a better than the 11.5 percent seen in significant percentage of NPLs; but that March 2018, and far above the central recommendation has not been fully bank target ceiling of 5 percent. implemented. Measures to contain NPLs are partly contributing to lower bank profitability. Recovery in exports is outpaced by With NPLs high, banks must meet high import growth. provisioning requirements, which may The CAD is expanding as import be undermining profitability. The BOT growth outstrips the recovery in now requires that all banks specify exports (Figure 8). The CAD widened to NPL strategies and permanent loan 3.7 percent of GDP in the year ending recovery functions and has intensified September 2019, up from 3.4 percent bank supervision. After review of its in September 2018, as the 7.3 percent regulations and guidelines, it has added growth in imports exceeded the 5.2 staff to its bank supervision department. percent growth in exports. The higher The BOT has also made credit bureau import bill was largely driven by oil and reports mandatory for loan applications by capital goods imported for public and has directed banks and other investments in transport and energy financial institutions to adopt strategies sectors. to build up application processing, management, monitoring, and recovery measures. PAGE 17 TA N Z A N I A E C O N O M I C U P D AT E DECEMBER 2019, 13TH EDITION Exports of gold, tourism, and Foreign exchange inflows remain manufactured goods are recovering. low, and official gross reserves are Gold, which accounts for 40 percent down. Despite the recent recovery in of nontraditional exports, went up exports, inflows are still lower than 26.1 percent because of both higher historical averages. For example, volumes and higher prices, and exports external concessional borrowing is half of manufactured goods went up 32.6 the average of the past five years, and percent. More arrivals supported a rise between 2015 and 2018 FDI dropped by of 9.9 percent in tourism earnings. The a third, from US$1.5 billion to US$1.0 value of traditional exports fell by 106 billion (Figure 10). As a result, reserves percent, largely because lower earnings, have slipped from US$5.4 billion in especially from cashews, more than September 2018 to US$5.3 billion (5.4 offset higher earnings from coffee and months of imports) in September 2019 tea. (Figure 10). Figure 8: Current Account Deficit, 2016–19 Figure 9: Exports and Imports, 2016–19, Percent Growth Source: BOT. Source: BOT. Figure 10: Official Gross Reserves and Foreign Inflows, 2015-19 Source: BOT. Source: BOT. PAGE 18 The World Bank Group Macroeconomics, Trade and Investment Global Practice, Africa Region The shilling has remained stable. From between Tanzania and its major trading October 2018 to September 2019, it partners partly offset the decline in depreciated by 5 percent against the the nominal exchange rate (Figure 12). euro and 2–3 percent against the Kenyan The recent increase in the real effective shilling and the Chinese yuan, and it exchange rate has been accompanied by appreciated by 1–2 percent against higher exports of manufactured goods, the US dollar and the Indian rupee such as iron, steel, glass, and fertilizer. (Figure 11). To keep the shilling stable, the BOT has intervened to smooth out Reforms to improve the business fluctuations and maintain an orderly environment are moving slowly. interbank foreign exchange market. The Despite some improvement, Tanzania real exchange rate appreciated about ranks below most of its regional peers 2 percent between October 2018 and in ease of doing business. According September 2019; the inflation differential to the World Bank Doing Business report 2020, Tanzania ranks 141st of Figure 11: Nominal Exchange Rate, 2018–19, 190 economies, a slight improvement Percent from 144th a year before. Tanzania’s performance (Figure 13) continues to trail its neighboring peers Rwanda (38), Kenya (56), and Uganda (116), and other Sub-Saharan peers Zambia (85), Malawi (109), and Mozambique (138). Tanzania has serious problems in trading across the border, resolving insolvency, registering property, protecting minority Source: OANDA Exchange Rates. investors, and paying taxes (Figure 14). Though changes in the laws protecting Figure 12: Real Effective Exchange Rate, minority investors have boosted 201819, Percent Tanzania’s overall ranking, the concerns are primarily about such significant indicators as trading across borders, paying taxes and starting a business. The pace of reforms to improve the business environment is still too slow. 3 The business environment continues to be a major concern for the private sector. The government has yet to make Source: World Bank staff estimates. operational major reforms to improve 3 Kenya registered seven reforms, which made it easier to resolve insolvency, pay taxes, protect minority investors, get credit, register property, hook up to electricity, and get construction permits: Rwanda registered four, making it easier to hire workers, get electricity, get construction permits, and start a business. Uganda made it easier for businesses to get electricity. PAGE 19 TA N Z A N I A E C O N O M I C U P D AT E DECEMBER 2019, 13TH EDITION it, particularly legislative changes and process and lack of funds. Seen as cross-ministry actions. Such reforms further delaying VAT refunds is the would enhance the functions of the recent proposal to change the Budget Tanzania Bureau of Standards, Weights Act to give the Paymaster General power and Measures Department and ease to extend the period for approving the process for investors to get work spending of funds carried over from the and residence permits. Recently, the previous financial year from three to six government started consultations months. Progress in clearing payment on drafting the Business Facilitation arrears to contractors and suppliers and and Investment bill. To mitigate tax speeding up processing of VAT refund measures perceived as predatory it applications would improve private has also amended the Finance Act sector liquidity and reduce NPLs. 2019 to institutionalize the MoFP Tax Dispute Desk and the Office of the Tax To speed up the pace of business Ombudsman at the Tanzania Revenue environment reforms, the private Authority. However, the private sector sector needs to participate. The still finds the business environment Blueprint for Regulatory Reforms drafted unpredictable and calls for faster reforms, after consultations with the private particularly in business regulation. sector and endorsed by the government in May 2018, specifies actions to The business environment has also rationalize, or in some cases abolish, been affected by delayed payment of licensing requirements. Some actions VAT refunds to exporting firms and have been taken with the abolition of arrears to domestic suppliers. Some various fees, levies, and duplication of the VAT refund and supplier arrears of roles, notably those of the Tanzania have been delayed for more than three Food and Drugs Authority. Through years due to both a lengthy verification the Tanzania National Business Council Figure 13: Ease of Doing Business Figure 14: Tanzania’s Doing Business Rankings, 2020, Percent Rankings by Category, 2020 Source: World Bank Doing Business Report 2020. Source: World Bank Doing Business Report 2020. PAGE 20 The World Bank Group Macroeconomics, Trade and Investment Global Practice, Africa Region (TNBC), a Public Private Dialogue consumption spending rose from 39 (PPD) mechanism, the private sector to 42 percent in urban areas, primarily has recommended streamlining the because in Dar es Salaam the Gini index functions of the Tanzania Bureau of of inequality had risen from 36 in 2012 Standards, Weights and Measures and to 43 in 2018.5 streamlining the process for investors to get work and residence permits. High population growth limits the To push forward reforms, particularly growth rate of per capita GDP and those requiring legislative changes or reduces the welfare-enhancing effects cross-ministerial actions, the Tanzania of growth. Between 2007 and 2017 National Business Council (TNBC) itself Tanzania registered an average annual needs structural reform. growth rate of 6.3 percent—but this dropped to 3.3 percent when adjusted for population growth. More important High population growth is under- is the fact that the growth elasticity of mining efforts to reduce poverty. poverty more than halved, from a low Tanzania is continuing to improve of –1.02 in 2007–12 to an even lower living conditions for its people, –0.45 in 2012–18. This implies that a but since 2012 the pace of poverty 10 percent increase in GDP growth per reduction has slowed considerably capita can be expected to reduce poverty and the total number of poor people by only 4.5 percent. Elasticities for other has risen. According to the most recent developing countries are typically four household survey data, poverty in times larger, about –2.0. Mainland Tanzania decreased from 28.2 percent in 2012 to 26.4 percent in 2018.4 Growth in GDP was driven by sectors During this time however, the rate of where few people work and where population growth was higher than the even fewer of the poor are active. rate of poverty reduction, leading to an Fastest-growing are construction, increase in the total number of poor. information and communication By 2018, about 14 million Tanzanians technology (ICT), real estate, and lived in poverty, up from 12.3 million in nonmarket services. Each employs on 2012 and 13.2 million in 2007 (Figure average no more than 6 percent of the 15). Since 2012, too, low growth in population.6 However, they all tend to consumption for the bottom quintiles employ significantly more educated has exacerbated inequality, particularly and wealthier Tanzanians. Within in urban areas. Between 2012 and 2018 agriculture, where most Tanzanians the Gini coefficient based on per capita work, particularly the poorest (Figure 4 Poverty was also reduced in Zanzibar, from 34.9 percent in 2009–10 to 30.4 percent in 2014–15. The next round of the Zanzibar household survey (2019–20) is occurring currently, with completion expected by March 2020. 5 The welfare aggregate used to estimate poverty in Tanzania is based on per-adult equivalent consumption. Typically, Gini coefficients are reported on per-capita consumption. Gini coefficients based on per-adult equivalent expenditure increased from 0.37 to 0.41 in urban areas and from 0.29 to 0.32 in rural areas. 6 Employment in the fastest-growing sectors: construction 3 percent; ICT 0.3 percent; real estate 0.2 percent; non-market services 2 percent; mining 1 percent; transport 4 percent; and wholesale & trade 6 percent. PAGE 21 TA N Z A N I A E C O N O M I C U P D AT E DECEMBER 2019, 13TH EDITION Figure 15: Number of Poor People, Figure 16: Sector of Employment by 2007, 2012, and 2018 Poverty Status, 2018 Source: NBS. Source: NBS. 16), the crops and livestock subsectors Although chronic undernutrition has grew relatively fast at about 5 percent, dropped—the proportion of children but the subsistence farms that most of who are stunted (too short for their the poor operate appeared to benefit age) fell from 42 percent in 2010 to 35 only marginally from this growth. percent in 2015/16—it is still above the Moreover, income and consumption SSA average. rose much faster for better-educated Tanzanians than for those with less Social service delivery also improved, education and fewer endowments. but there are still large gaps, As a result, inequalities widened. This especially in rural areas. Access underscores the importance of focusing to electricity has risen, but only 29 on productivity-enhancing agricultural percent of Tanzanian households have investments (e.g., access to finance, access, far below the 45 percent SSA access to markets, better production average. Access to electricity is only 10 technologies, value chain development) percent in rural areas, and 7 percent and supporting diversification and for poor households. Access to safe building skills in non-farm activities (see drinking water is better, particularly Part Two). in urban areas, where the percentage of households using safe water has Human development outcomes, such doubled. But in 2018, the drinking water as education, have improved only of 34 percent of rural households was marginally. Net enrollment in primary still unimproved and unsafe. Though and secondary schools, both rural and access to basic and limited sanitation urban, went up slightly between 2012 has improved considerably in urban and 2018, but gross enrollment in both areas, it is still highly problematic in lower and upper secondary went down. rural areas. Between 2012 and 2018 PAGE 22 The World Bank Group Macroeconomics, Trade and Investment Global Practice, Africa Region the percentage of urban households Action Fund (TASAF) is essential for with improved sanitation rose from 36 meeting basic consumption needs, but to 51 percent, but in rural areas it went its coverage is limited to 10 percent of up from just 4.7 percent to a still low 11 households and it is not well-targeted to percent. those that need it most. Poverty reduction was driven by better access to basic services and 1.2 Macroeconomic Outlook infrastructure and more human and Risks capital, but the growth returns on these endowments have been dropping, so that poverty was reduced more slowly Growth prospects depend on the than expected. Because labor market pace of reforms. requirements have been changing even Real GDP growth is projected to rise as access to education has broadened gradually over the medium term, and the educational attainment of the assuming modest but steady reforms general population has gone up, the in the business environment and fiscal rewards for years of schooling below management. Tanzania has recently a certain level have dropped—and adopted new policies to lower the costs the gains in income and consumption of regulatory compliance for businesses, associated with primary education reduce government domestic payment are no longer large. Mobile phones arrears, and prevent new arrears.7 still positively affect the livelihoods of When completed, these reforms could the poor, but since 2012 the marginal help push economic growth higher by benefits have narrowed, especially in mobilizing more private investment. Our urban areas and in moderately poor outlook for the next two to three years households, for whom ownership of assumes that only part of the reform these assets has expanded rapidly but agenda will be realized—progress to opportunities for their productive use date has been relatively slow, and public have not. investment will continue to be one of the main drivers of GDP growth. As The disadvantages of poor households a result, annual growth will gradually are numerous: For instance, less access pick up, with modest improvement of to infrastructure and community the business climate and in FDI and services minimizes the opportunities other private investment (Table 2). available to them. Many are highly Given continuing financing constraints, exposed to food stress and insecurity. execution of the development budget Access to markets is limited, particularly is not likely to improve much. In the in the northwest and southeast areas, medium term the fiscal deficit is where poverty is typically worse. For expected to widen to about 3–4 percent many, access to the Tanzania Social of GDP, and higher imports to support 7 The Cabinet endorsed the Blueprint of Regulatory Reforms on May 18, 2018, and the government also adopted Treasury Circular No. 1 of 2018/19 on the Strategy to Control Government Arrears that was distributed to ministries, departments, and agencies on May 9, 2018. PAGE 23 TA N Z A N I A E C O N O M I C U P D AT E DECEMBER 2019, 13TH EDITION capital projects will likely expand the 0.75 pp a year. Similarly, based on DHS CAD to 6–7 percent of GDP. and nutrition surveys, malnutrition (stunting) declined by about 1 pp a Poverty reduction is expected to year between 2004 and 2014. At the continue to be modest. The poverty current level of 35 percent stunting, rate is predicted to decline by about 3 it would take 35 years for Tanzania percentage points (pp) by 2021 and the to eliminate malnutrition. Today the number of poor Tanzanians is expected median age for Tanzanians is about 18 to be fairly constant as population years and life expectancy is about 68. growth continues high and steady. The If the current generation is to reap the economic prospects of the poor—who benefits of economic growth in their mainly work in low-productivity farming productive lifetimes, Tanzania needs to or urban informal service jobs—are step up economic growth and poverty unlikely to brighten as long as growth is reduction. concentrated in capital-intensive sectors and in large urban areas. Agricultural transformation in Tanzania can do much to drive To reduce poverty significantly future growth and employment and Tanzania may need to aim at annual accelerate poverty reduction (Box GDP growth of about 10 percent. 1 and Part Two). In June 2018 the Holding all else constant, it will take government launched the Second about 35 years for Tanzania to eliminate Agriculture Sector Development poverty if poverty declines at a rate of Program (ASDP II), which plans to Table 2: Medium-Term Outlook, Annual Percent Change Unless Otherwise Indicated     2018e 2019f 2020f 2021f Real GDP growth, at constant market prices   5.4 5.6 5.8 6.1 Private consumption   7.2 5.5 5.2 5.1 Government Consumption   4.3 5.5 5.7 4.3 Gross fixed capital investment   7.7 8.0 8.8 10.2 Exports, goods and services   -3.9 2.5 3.2 3.5 Imports, goods and services   8.5 8.6 8.9 9.2           Inflation (consumer price index)   3.5 3.4 3.5 3.5 Current account balance (% of GDP)   -3.9 -4.2 -5.9 -7.2 Net foreign direct investment (% of GDP)   1.8 1.8 1.9 2.1             Fiscal balance (% of GDP, in FY)   -1.9 -3.2 -3.5 -3.9 Debt (% of GDP)   36.6 37.4 37.8 38.4 Primary balance (% of GDP, in FY)   -1.0 -1.9 -1.7 -2.1 Source: World Bank staff estimates and forecasts. PAGE 24 The World Bank Group Macroeconomics, Trade and Investment Global Practice, Africa Region transform the sector by promoting Arrears, those agendas have not been commercialization, prioritizing high- fully executed, and in the immediate potential commodity value chains, and future, progress in rolling out the mobilizing capital through a larger role for reforms is likely to be modest. the formal private sector in agriculture. ASDP II is designed ultimately to meet Government should make it a priority Tanzania’s increasing food requirements, to act on measures to foster greater accelerate investment in agribusiness, private sector participation in the and reduce poverty and inequality. economy. With global growth softening, Despite the central role of agriculture government should seize the moment in present national development plans, to push reforms before the global however, its performance over time and context becomes less benign. Table 3 across subsectors has been uneven; summarizes progress assumed in the private agribusiness investments have baseline outlook on government actions been modest; and there are growing to address issues: concerns about prospects for the sector. Part Two of this update provides Fiscal Management insights into four areas aligned with The government will need to build ASDP II that will be crucial for the budget credibility if it is to fully realize sector to drive growth and job creation: its fiscal policy goal of addressing structural transformation in Tanzania’s Tanzania’s significant infrastructure agri-food system; incentives and public and skills gaps. It has launched priority spending; the investment climate for projects in human development and agriculture and the food industry; and infrastructure to support growth and job management of natural resources and creation over the medium to long term. landscapes. However, to have maximum impact the projects must be adequately financed, Despite global problems, the risks and completed on schedule. Shortfalls continue to be largely within gov- in financing could add new domestic ernment control. arrears to an already unsustainable stock. Business Environment Poor management of public The dilatory track record of business investments creates debt-servicing reforms highlights the risk of problems, especially currency government inaction. With the and maturity mismatches. Large environment for private businesses infrastructure projects are expected to deteriorating, the public sector has been generate returns that can be used to mostly driving the economy—a growth service the loans that finance them. model not likely to be sustainable. If projects are not properly vetted or Despite adoption of important reforms completion is delayed, scheduled loan to support the private sector, such as repayments may begin before the the Blueprint for Regulatory Reforms projects generate adequate cash flow and the Strategy to Control Government PAGE 25 TA N Z A N I A E C O N O M I C U P D AT E DECEMBER 2019, 13TH EDITION and foreign exchange earnings. That current vulnerabilities of the financial may cause maturity and currency sector underscore the importance of mismatches at a time when Tanzania’s strong oversight and regulation of the fiscal space is already limited by high financial system to gradually lower debt service, falling external grants, and NPLs to the BOT indicative threshold the rising costs of providing services to of 5 percent, grow credit to the private a growing population. sector, and preserve financial stability. A worsening of financial sector If the country is to reach its vulnerabilities could jeopardize development goals, government must macro stability. High NPLs and high intensify its efforts to improve fiscal interest rates may erode the fragile policy design and execution. The recovery in credit to the private sector. FYDP II is rightly directed to facilitating Tanzania’s bank-dominated financial an ambitious increase in investment sector is small, concentrated, and at a in human and physical capital, but for relatively early stage of development. several years the national budget has Asset quality is a continuing concern, been significantly under-executed, and high NPLs are restricting the ability delaying completion of priority projects of banks to provide more, and more and keeping growth below potential. affordable, financing to businesses. The The baseline outlook assumes modest Table 3: Government Actions to Improve Business Environment Assumed in the Baseline Outlook, Short- and Medium-Term Government Short-Term Medium-Term Actions on: Fiscal Policy „„ Pay verified arrears to private contractors and suppliers first. „„ Speed up release of verified VAT refunds. „„ Ensure that tax administration is predictable and that tax agents collect taxes from businesses fairly. Private Sector „„ Broaden the current public- „„ Reduce the high cost of private dialogue on how recent compliance with regulations government policy changes are by fully executing the affecting private businesses and the Blueprint for Regulatory business environment. Reform. „„ Avoid unnecessary government interference in markets and improve predictability. Other „„ To support economic diversification, improve policies to attract investment in nonextractive sectors. PAGE 26 The World Bank Group Macroeconomics, Trade and Investment Global Practice, Africa Region but steady progress on the following international energy prices, and more short- and medium-term options to volatile commodity prices. Slowdowns enhance fiscal policy: in major economies, especially the Euro Area and China, are already dampening demand for Tanzania’s exports. Higher Additional Risks costs of commercial external loans can A fragile external environment could delay completion of the capital projects push growth below the baseline that such loans would have financed. medium-term projection. This would Rising global energy prices could also undermine current reforms and reduce push up the import bill, worsen the CAD, space for continuing to pursue the reform and further reduce official reserves. agenda. Among the external threats are more erosion of global demand, tighter financing conditions, higher Table 4: Government Action to Improve Fiscal Policy Management Assumed in the Baseline Outlook, Short- and Medium-Term Short-Term „„ Improve forecasts of revenue and tax collection. „„ Prevent generation of new arrears and clear the current stock, especially VAT. „„ Enhance external concessional financing and reduce commercial borrowing. Medium- Term „„ Intensify mobilization of domestic revenue to finance investment. „„ Improve the execution of critical projects and prioritize pubic investments that deliver high returns. „„ Carry out the FSAP recommendations. PAGE 27 TA N Z A N I A E C O N O M I C U P D AT E DECEMBER 2019, 13TH EDITION Box 1: Private Investment and Sustainable Growth, Job Creation, and Poverty Reduction Higher and more inclusive growth is needed to more effectively reduce poverty. Based on the latest estimate of Tanzania’s poverty elasticity of growth (–0.45 for 2012– 18), consistent growth approaching 10 percent a year would be needed to counter the slowing rate of poverty reduction. Besides reducing poverty, this growth rate would also allow Tanzania to catch up with countries like Bangladesh and Vietnam, which at the beginning of the 1990s were at the same level of per capita income but have since significantly accelerated their growth. Achieving 10 percent economic growth in the next three years would require more than doubling current investment. To maintain 10 percent growth over the next decade would take growth in investment averaging more than 16 percent a year. Because public investment cannot drive this much growth and also keep debt sustainable, private investment must lead the needed expansion. Moreover, private investment can accelerate job creation. Between 2007 and 2014 the economy grew at an annual average of 6.1 percent and employment grew 3.0 percent, i.e., 640,000 jobs were created every year, more than half in agriculture. In the next decade, nearly 800,000 youths are expected to enter the labor market every year. Given the current structure of the economy, one additional percentage point of GDP growth, led by investment in the most productive subsectors of agriculture, industry, and services, could create 220,000 new jobs a year. Table 5: Employment, Thousands of Workers 2007 2014 Agriculture 13,788 16,391 Industry 839 1,568 Services 5,355 6,542 Total 19,982 24,501 Source: Tanzania Jobs Diagnostics. The current transformation of agriculture offers an excellent opportunity to catalyze private investment and raise the incomes of the poor. Since agriculture accounts for 27 percent of total GDP and 67 percent of jobs, agricultural growth must be part of the strategy to create more and better jobs and alleviate poverty. As Section 2 shows, medium-scale farms could use more hired labor, purchased seed, credit, and chemicals than do smallholders, and they rent more traction services. The rise of medium-scale farms also creates jobs through higher demand for agricultural inputs and financial and transport services. Moreover, public investment in core public goods, such as agricultural research and more efficient irrigation, could also mobilize private investment in agricultural production and distribution, and could boost the transition to a modern agriculture that is based on medium-scale farms. It is estimated that 13 million days of additional work for hired agriculture labor annually have been created by the 368,000 medium-scale farms added in Tanzania between 2008 and 2014. By 2014 the additional work days were equivalent to US$225–300 million in net additional backward and consumer links. These results demonstrate that supportive policies and public investments that crowd-in private investment have tremendous potential to create jobs and boost the incomes of many Tanzanians. PAGE 28 The World Bank Group Macroeconomics, Trade and Investment Global Practice, Africa Region 2 TRANSFORMING AGRICULTURE PAGE 29 TA N Z A N I A E C O N O M I C U P D AT E DECEMBER 2019, 13TH EDITION 2.1 Strategic Needs, Opportunities, reduce poverty sustainably. Labor and Challenges for productivity in agriculture has gone Agriculture up slightly, but land productivity has stagnated. If it is to help Tanzania to The discussion thus far has argued that meet its growth and job targets, how high overall growth has not delivered the country views agriculture must poverty reduction fast enough to change. It can no longer be content be effective, and that higher and with a predominance of family farms of more inclusive agricultural growth is 1 to 2 ha that are barely connected to needed to make substantial progress markets but simply using hand tools and in creating more and better jobs and traditional practices to produce food for reducing poverty. Agriculture is central subsistence as the land degrades. to Tanzania achieving economic growth that is both higher and more inclusive, This has been recognized by the and will remain so for decades. It government, which identified supports the livelihoods directly to agriculture as a central vehicle about 55 percent of Tanzanians (and for realizing the socioeconomic 75 percent of the poor) and indirectly development objectives laid out in to another 15 percent. The indirect Tanzania Development Vision 2025 beneficiaries are concentrated in the and the Five-Year Development Plan midstream and downstream parts (FYDP II). These strategic documents of value chains, where, as will be formulate ambitious goals for reducing seen, emerging demand is creating poverty and industrializing sustainably the most visible changes in the jobs to achieve middle-income status by being created. Among midstream 2025. In June 2018 the government functions dependent to some extent on launched the Second Agriculture Sector agriculture are traders, transporters and Development Program (ASDP II), which processors; retailing is the most obvious maps the path for agriculture through downstream function (AGRA 2019). 2028. It plans to transform the sector by promoting commercialization, Yet in recent years, on the whole prioritizing high-potential commodity the performance of agriculture has value chains, and mobilizing capital by been less than stellar, little private expanding the role of the formal private investment has gone into agribusiness, sector in agriculture. Thus, through and there are growing concerns about ASDP II the government seeks to more the future. Growth in agricultural GDP easily meet Tanzania’s increasing food averaged only 3.5 percent from 2006 to requirements, accelerate agribusiness 2016—though 6 percent annual growth investment, and reduce poverty and is generally considered necessary to inequality. PAGE 30 The World Bank Group Macroeconomics, Trade and Investment Global Practice, Africa Region Fortunately, new research8 indicates Most important for Tanzania, that in about 2008 an agriculture the spread of medium-scale transformation began in Tanzania that commercialized farms has significant opens new paths to achieving growth positive spillover effects on the jobs, and alleviating poverty. “Agricultural incomes, and skills of smallholder transformation” is common shorthand farms. While one-third of Tanzania’s throughout the world for structural farms are now medium-scale (over 5 changes occurring as generally and less than 20 ha), two-thirds of these lower-income agriculture-dominant are farmed by people from the same economies evolve into more diversified locality and half are on land inherited by middle-income countries.9 Typically, the operator. Thus, medium-scale farms farm populations move into the non- tend to be in closer cultural and physical farm economy both locally and far away; proximity to their smallholder neighbors often, but not always, average farm than is often assumed. And the research sizes are scaled up as those who remain has established that smallholders near expand and intensify operations by medium-scale farms are significantly using more purchased inputs per unit of more productive and earn more than land, hire more labor, and cultivate more they had previously. They are also better- land. Farmers become more involved off than smallholders where there are in output markets, producing higher- fewer medium-scale farms. Moreover, value animal products and horticulture empirical analysis has identified very as demand for them rises, and value plausible ways that smallholders in chains from farm to table lengthen. medium-scale farming zones are already benefitting from the success of their In Tanzania, agricultural transformation medium-scale neighbors. Nationally, is indicated by changes in farm sizes and Tanzanian farm households that were ownership structure as urban capital traditional noncommercial smallholders gradually enters into agriculture. As living mainly on the low incomes their will be seen below, medium-scale farms farms generated went from 43 percent have higher labor productivity, use more in 2008 to 31 percent in 2014, and the purchased inputs, and are significantly share of commercialized and more more market-oriented. They also hire productive smallholders living mainly labor and spend in local markets. In from their higher farm income went many respects they are similar to highly from 19 to 25 percent of all farms. commercialized smallholder farms, but quite different from noncommercialized smallholders. 8 This chapter is based on recent analytical work by the World Bank and its partners at the request of the government. Annex 14 lists the briefs and two detailed reports available from the World Bank Advisory Services & Analytics Project “Closing the Potential-Performance Divide in Tanzanian Agriculture” (P165427). [[Make this an author-date cite and add it to refs.]] 9 The classic reference on this is Timmer 1988. PAGE 31 TA N Z A N I A E C O N O M I C U P D AT E DECEMBER 2019, 13TH EDITION Average labor productivity will always context in which agriculture can most rise with agricultural transformation. easily contribute to national growth Usually, so will returns to land, although and job creation, the topic of the next how much may depend on whether section. The following section then unused new land is available at low cost looks at the specifics of Tanzania’s to expand cultivation. What happens agricultural transformation and how it to the marginal productivity of labor can be supported. Policy and regulatory and thus agricultural wages in a market issues are central, as is explored in system depends on the supply of the next section, which identifies labor and its opportunity cost beyond changes necessary to take advantage agriculture. In Tanzania, we would expect of the opportunities structural change livelihoods of farm households to rise, presents. Finally, investment issues are with modest returns on land away from discussed in terms of how much is still cities as cultivated area expands, the needed to move agriculture to where it returns also rising once land expansion needs to be. becomes more difficult. Based on data from the Tanzania National Panel 2.2 Strategic Considerations in Carrying Out Survey (NPS) from 2008/2009 (2008) Agriculture Strategies to 2014/2015 (2014), average labor productivity per agricultural worker Ambitious economic growth and across all farm categories has risen employment targets like Tanzania’s slightly, at about 1 percent a year, require growth in manufacturing, for but land productivity has stagnated which agricultural outcomes matter at about 0.4 percent.10 By 2014, the in three ways: (1) Urban Tanzanians labor productivity of commercialized with lower incomes consistently spend smallholders and medium-scale farms about one-third of their disposable were substantially similar, but 50 incomes on food staples and minimally percent higher than that of smallholders processed goods made from staples, who were not commercialized but trying such as cereals.11 That is why rising to live by farming, and 200 percent that relative prices of cereals tend to spark of smallholders whose main livelihood wage demands by workers, raising came from the farm. national manufacturing costs in a competitive regional and world trade The promise of Tanzania’s embryonic environment.12 (2) Rising incomes agricultural transformation is real, in rural areas are critical to provide a but not yet realized. Delivering on the broad-based consumer market for local promise requires understanding the 10 Results for Tanzania in the rest of this section are from Wineman et al. 2019a, 2019b, which are based on Tanzania’s National Panel Survey (NPS) data for 2008/09 to 2014/15. 11 (Tschirley et al. 2015). 12 It is no coincidence that Asian countries that have been successful at labor-intensive industrialization first boosted agricultural productivity to keep food prices low even as urban demand soared. China is a primary example. PAGE 32 The World Bank Group Macroeconomics, Trade and Investment Global Practice, Africa Region manufactures and assembly plants.13 to the need for a reliable electricity (3) Agriculture provides the main raw supply, but draw material from 450,000 materials for Tanzanian manufacturing, farms throughout the country.15 as illustrated next. These trends in agricultural value Adding value in natural resource– chains are seen today throughout based industries by enhanced Africa. Africa-wide, farms contribute processing, especially mass about 40 percent of agricultural value- production of processed food products addition, the midstream of value chains for consumers, is recommended as a (traders, transporters, processors) starting point for Tanzania to stimulate another 40 percent, and the final growth in manufacturing.14 By 2012, in retail segment downstream about 20 fact, almost 25 percent of all registered percent16. Most significantly, about 80 manufacturing enterprises in Tanzania percent of midstream value-addition were in food processing, producing is from small- and medium-scale beverages, sugar and milk-based enterprises (SMSEs), mainly outside the products, edible oils, fish products, grain largest cities; these also tend to be more milling, tea and coffee, and bakeries labor-intensive than larger formal firms and confectionery. Agri-processing engaged in similar lines of business. The accounted for 55 per cent of total rapid growth of these agricultural and national formal manufacturing output food SMSEs offers the most immediate and up to 65 percent of total formal prospects of creating more and better employment. More than 80 percent jobs in agricultural value chains. of agri-processors are small and serve only the domestic market. Horticultural Like the rest of the region, Tanzania processing is typically directed to export needs competitive labor-intensive markets. In 2012 the 287 formal agri- sectors to absorb the growing youth processing companies each had 10 labor force. Rapid migration of young or more employees. Together, they people from remote or land-constrained employed 58,000 people, about two- agricultural areas adds to the ranks of thirds of them women—a startling those underemployed in low-skill urban number considering that in formal services.17 The low-productivity growth employment generally in Tanzania, of traditional smallholder agriculture can women hold only about one-quarter absorb only a small share of entrants to of the jobs. Most food processors are the labor force, provoking both migration based in Dar-es-Salaam, probably due and rapid growth in unpaid youth on farms More and better jobs need to 13 This thesis is strongly supported by a Social Accounting Matrix model fitted to Tanzanian data in Delgado et al..2000. Similar results have been shown for a large number of countries where domestic manufacturing has grown. 14 UNIDO 2013. 15 Kumar and Agarwal 2016; World Bank 2014, 2013; Sutton and Olomi 2012. 16 AGRA 2019. 17 There was a nearly 2.5 times increase in the numbers of unpaid urban youth from 2006 to 2014. See Petracco and Sanchez-Reaza 2018. PAGE 33 TA N Z A N I A E C O N O M I C U P D AT E DECEMBER 2019, 13TH EDITION be created, along higher-productivity and rice in 2017. In that year, wheat, agricultural value chains, to realistically palm oil, sugar, and maize amounted to confront issues of youth employment 7.1 percent of total imports by value.21 and expectations for a better life; for the Agriculture in Tanzania is also largely foreseeable future, no other sector can a price-taker in regional and global do this at the necessary scale.18 markets because it is small, and its trade, exchange rate, and fiscal policies Meanwhile, demand in Tanzania are mostly set outside agriculture.22 This is expected to continue to shift leaves it relatively little latitude to use dramatically from rural diets of domestic price policies alone to affect barely transformed staples to urban agricultural incentives, especially over diets of highly processed and pricier time.23 Furthermore, much of Tanzania’s horticultural and animal-sourced high agricultural growth since 2000 was food products.19 The value of food due to expansion of cultivated areas. consumption in Southern and Eastern Africa is expected to nearly triple The inescapable conclusion is that by 2050, when 80 percent of foods to meet the challenge of becoming purchased in the region are expected a leading rather than a lagging to be industrially processed.20 By 2050, sector in national economic growth it is projected that SSA as a whole will and job creation, as detailed in need to import one-third to one-half of Tanzania’s national strategies, growth its food supplies by value, raising the in agriculture must come from import bill by about US$150–US$200 intensification to lower the unit costs billion annually in present dollars. With of production. Smallholders currently its endowment of agricultural resources not part of these trends will need to be and favorable location, Tanzania is well- brought in by widespread market-led placed to exploit these growing regional processes; and value should be added markets, which are increasingly being by jobs in storage, marketing, transport, serviced by non-African exporters. processing, wholesaling, and retailing Tanzania borders on eight countries, within Tanzanian agri-food value several of them likely to be significant chains. Rapid growth in value chains food importers. midstream and downstream depends fundamentally on the competitiveness Yet despite its agricultural resources of producers upstream, as a necessary, and market opportunities, Tanzania if not sufficient, condition—a serious itself is a major importer of cereals, challenge, especially for many having brought in nearly 3.5 million smallholders, that must be addressed. metric tons (MMT) of maize, wheat, 18 Yeboah and Jayne 2018 19 Tschirley et al. 2015 20 Yeboah and Jayne 2018 21 MIT 2017 22 World Bank Group 2019 23 This argument, not new but still valid, is set out at length in Delgado et al. 2000. PAGE 34 The World Bank Group Macroeconomics, Trade and Investment Global Practice, Africa Region To meet the productivity challenge, all 2.3 Tanzania’s Agricultural farmers, including smallholders, will Transformation in have to Practice, 2008–14 „„ Acquire complex new knowledge about technology, its use, and Indicators of change by farm type, markets. 2008–14. Trends from 2008 to 2014 clearly „„ Invest in technology that makes show the start of agricultural soil more productive through both transformation; they also support a organic and conventional means. view that medium-scale farms are at „„ Better manage water, soil, and the forefront of the trends. This has agricultural technology for increased become obvious in the rise of average resilience to climate change. labor productivity in agriculture, greater use of purchased inputs and „„ Unlock financing to purchase inputs mechanization, more involvement in and locate sources. markets, use of hired labor, and rising incomes per farm. There are also „„ Build credit histories through mobile significant contractions in the number payment and other new finance of traditional subsistence-oriented small platforms. farms and migration of the landless, and „„ Identify and understand shifting the number of farms is growing. market opportunities. The numbers of both rural and „„ Decide which products will offer agricultural households are growing the best rate of return for their in Tanzania, but the share of rural investments. household income from agriculture is declining. From 2008 to 2014, as the The agricultural transformation population grew rapidly the number of currently underway in Tanzania rural households rose annually by nearly illustrates how current policies to 4 percent and the number of agricultural further national agricultural strategies households by 2 percent, compounded. can be improved to achieve widespread However, rural households deriving most and sustainable intensification, of their livelihoods from agriculture fell especially of smallholder agriculture. from 97 to 91 percent, and households The next section looks at agricultural engaged in agricultural activities fell from transformation in this light, and those 82 to 73 percent. Nationally. household that follow assess the implications incomes are increasingly leaning away of changes in emphasis in national from agriculture, with income derived agricultural policies to accelerate what from on-farm production falling from present national strategies require. 47 to 37 percent—even agricultural households are relying less on food PAGE 35 TA N Z A N I A E C O N O M I C U P D AT E DECEMBER 2019, 13TH EDITION produced on the farm. These trends any, is negative in terms of likelihood are consistent with farms becoming of possessing an improved breed. It more specialized, rising consumption appears that patterns of intensification of commercially processed food in rural differ, with cropping displaying more areas, and food markets becoming more dynamism than animal husbandry. reliable. Despite little use of purchased inputs, Farmers are becoming more likely to farms seem to have an increasingly engage in agricultural land and labor commercial orientation to crop markets and to practice some form of production. Farmers are marketing a agricultural intensification. Between larger share of their crops; between 2008 and 2014 farms hiring laborers 2008 and 2014 the average rose from for at least one day rose from 45 to 36 to 41 percent. That is not happening 50 percent. There are also indications with livestock products. Farmers who that the land market is becoming more sell some crops are increasingly likely to active, as farmers renting land rose from sell at the farm gate, where the share 12 to 16 percent. And in 2014, 38 percent has risen from 57 to 67 percent. This of farming households owned some suggests greater penetration of traders farmland acquired through purchase. into villages, improving market access for crop farmers. Growth in labor and land productivity in cropping often involves more The size and real value of agriculture modern inputs, such as improved have grown very rapidly but average seeds or agrichemicals, and the use productivity per hectare has gone up of machinery. By 2014, the percent of only marginally. Between 2008 and crop farms that used only family labor 2014 the value of main-season crop and only land they had customary (not production rose from TZS.3.2 trillion to rented) rights to, with no other inputs, 5.1 trillion in real inflation-adjusted 2015 had declined from 33 to 24 percent. As values, a compound annual growth rate for mechanization, by 2014, 7 percent of 8.1 percent.24 Meanwhile, the area were using a tractor to prepare land, 40 cultivated grew from 8.3 to 13.0 million percent were using improved seed, and hectares, 7.8 percent annually, but 28 percent had bought the improved there was an annual increment of only seed. 0.3 percent (compounded) in average productivity of land. Land expansion However, indicators of agricultural generally occurred on land that had intensification linked to investment been left fallow. in cropping were weak or flat. Just 16 percent of farms applied inorganic As is expected with agricultural fertilizer in 2014, and just 2 percent transformation, average labor bought agricultural inputs on credit. productivity is rising nationally; in Among livestock farmers, the trend, if 2014 the inflation-adjusted value of 24 At the June 30, 2015 exchange rate, the latter figure is equivalent to US$2.3 billion. PAGE 36 The World Bank Group Macroeconomics, Trade and Investment Global Practice, Africa Region crop production per labor-day was output, and there was noticeable up from TZS 3,962 to TZS 4,741—a growth in land productivity. Although compound annual growth rate of 3 by 2014 the absolute number of medium- percent. The rise is explained by a drop scale farms grew by just 2.5 percent, to in the number of work days applied to a 10.5 percent of all farms, their share of unit of cropped land in the main season, total cultivated farmland rose from 23 from 98 to 83 days per hectare (ha). to 37 percent, an 8.2 percent compound The increased use of purchased inputs annual rate, and their share in the total and mechanization basically kept land value of agricultural production rose productivity constant even with less from 18 to 30 percent, an 8.9 percent labor. compound annual rate. Their share in the total value of marketed agricultural Since the global and regional price products rose from 20 to 33 percent, a rises for food staples in 2008, farming compound rate of 8.7 percent annually. has become more oriented to staple Thus, on average medium-scale farms food crops (maize, rice, legumes, and not only accounted for a sizable share oilseeds), and specialization has gone of national agriculture through the up slightly. Farmers are increasingly period, but average productivity of their likely to derive at least 75 percent of land grew by 0.7 percent compounded their income from staple food crops, annually—more than twice the rate for cash crops, fruits and vegetables, or all farms. In 2014, there were about 9 livestock, with farms specializing in medium-scale farms for every large one one of these groups rising slowly but (more than 20 ha), and more than 8 consistently over the study period, from small farms for every medium one. 62 to 65 percent. In 2014 average gross income per There has been a steady and farm was higher on large farms than significant decline in the proportion on small and medium, but not nearly of farms categorized as primarily as much higher as might be expected. subsistence-oriented, farm-focused, Average income per large farm (>20 ha) and small-scale, down from 43 percent was TZS 4.47 million (about US$2,500 at of all farms in 2008 to 31 percent in the time), only 3.1 times higher than on 2014. The share of Tanzanian farms (by commercially oriented small farms and number of farms) categorized as small- 1.7 times higher than medium farms. scale (less than 5 ha) slipped from When nonfarm income (from self- 91 to 88 percent, and medium-scale employment, wages, transfers, and any farms (5–20 ha) went up from 8 to 10.5 other sources) is factored in, large farms percent. made 2.1 times as much as medium During the study period medium-scale farms (TZS 17.6 million, US$10,000 at farms became considerably more the time), and about 8 times as much important to national agricultural PAGE 37 TA N Z A N I A E C O N O M I C U P D AT E DECEMBER 2019, 13TH EDITION as commercially oriented small farms. Medium-scale farms are more likely However, they only made 1.7 times than other farms to be in rural areas, as much as commercially oriented farther away, on average, from a town small-farm households engaged in or a major road. They also tend to nonfarm activities, because the latter be held by farmers who reside in less had relatively high nonfarm income. densely populated areas and cluster Livestock accounted for more farm and where there is space for expansion— total household income for large farms. mostly in the Singida, Tabora, and Shinyanga regions, in the Western and Central zones. They use mechanical or Tanzania’s medium-scale farms link to and affect small farms. animal traction and improved seeds, seek agricultural credit and extension Growth in the number of medium- advice, and sell their crops. This scale farmers in Tanzania opens suggests that they may be able to attract up opportunities for a market-led services to their communities, deepen model for reducing poverty among the markets for agricultural inputs and smallholder farmers through positive outputs, and diffuse knowledge and spillovers. Medium-scale farmers are new technologies. highly market-oriented. They also have additional advantages as an engine of Even though spillover effects from sector transformation: they hire, invest medium- and large-scale to small- in technology and knowledge, and scale farms are similar in magnitude, attract commercial services that can those from medium-scale farms may provide agri-food-based tax revenue. be greater because of stronger local ties, and they can be found in more Because most medium-scale farms locations than large-scale farms. were previously small-scale, they offer They are only slightly more likely than models of success their communities small-scale farms to have a household can emulate. The immediate community head that immigrated into their present (nonmigrant) produces 65 percent of community (35 versus 32 percent). medium-scale farms, compared to 68 Large-scale farmers are significantly percent of small-scale farms; and half of more likely, at 51 percent, to have the medium-scale farmers possess land migrated into the community. Local they inherited. However, 54 percent of communities may have more trust in medium-scale farmers bought land and medium-scale than in large-scale farms. stayed in their communities, reinforcing their community ties. This suggests Growth in the number of medium- that one path for farmers to transition scale farms and other positive trends to medium-scale status is by buying in the study period may have been land adjoining their own holdings in the influenced by higher investment growing informal land market. and more agricultural reforms. The analysis period overlaps with the global food price crisis of 2007/08 and falls within the first phase of the Tanzania PAGE 38 The World Bank Group Macroeconomics, Trade and Investment Global Practice, Africa Region Agricultural Sector Development use tractors (or, rarely, oxen) rent them. Program (ASDP-I, 2006/07–2014/15) An increase of 10 percent in the share of and the fertilizer subsidy program farms in the region that are not small- (National Agricultural Input Voucher scale is associated with a 9 percent Scheme [NAIVS] 2008/09–2014/15). higher likelihood that a small-scale farm These all led to more investment in buys improved seed and 5 percent more agriculture, though they have since likely to buy fertilizer. A larger number of been scaled back. medium- and large-scale farms is also positively correlated with the likelihood Small-scale farms on average that a small-scale household ceases improved their agricultural outcomes to engage in agriculture—which is the nearer they were to medium- consistent with the theory that larger and large-scale farms. The presence farms generate off-farm multipliers of medium-scale farms in a district that produce options for small-farm generally builds and deepens markets households looking to quit farming. for agricultural inputs and outputs by augmenting local demand, which draws Medium-scale farms are leading the suppliers.25 Such positive spillovers translation of policy to a form that are obvious in Tanzania. Small-scale can best mobilize smallholders to use farms are more likely to use improved new knowledge and new commercial seed and fertilizer, cultivate a larger outlets. Their forward and backward proportion of their landholdings, and links in the rural economy benefit access agricultural extension services smaller-scale neighbors. It is therefore and credit in areas where there are more important to better understand how medium- and large-scale farms. policies and regulations influence farmer incentives and investment. Spillovers from medium to small come Policy attention should be directed to in different forms. They may come as meeting the diverse needs of farmers. skills or knowledge; after working for The next section discusses reforms to a medium-scale farmer, small-scale sustain and catalyze further agricultural farmers can apply the skills they have transformation in Tanzania. learned to their own farms; 57 percent of medium-scale farms hired some agricultural labor, compared with 42 Agricultural transformation in Tan- percent for small-scale farms, and on zania is affecting jobs. average they used hired labor 47 days Medium-scale farms in Tanzania use a year, compared with 12 for small-scale more hired labor, purchased seed, farms. Medium-scale farms are almost credit, and agricultural chemicals twice as likely as small-scale farms to than do smallholders and they rent use oxen or tractors to prepare land. more traction services. As the share of About half of the small-scale farms that medium-scale farms increases relative 25 Deininger and Xia 2018 PAGE 39 TA N Z A N I A E C O N O M I C U P D AT E DECEMBER 2019, 13TH EDITION to smallholders, other things being equal was about US$300 million. If net cash all those input sectors provide more production costs per farm other than employment. In the case of hired labor, for hired and family labor and land are the number of medium-scale farms in taken as amounting to about half of the Tanzania is estimated to have grown gross margin,29 it would appear that the from 408,000 to 776,000 between rise of medium-scale farms in Tanzania 2008 and 2014.26 At the same time, produced about US$150 million in research shows that medium-scale additional demand annually for farm farms hired 35 days more agricultural inputs and services other than hired labor on average than did small-scale agricultural labor by 2014. (Note: this is farms.27,28 It appears that growth alone a crude estimate of backward links for in the number of medium-scale farms the net addition to a much higher figure, created nearly 13 million additional days one solely attributable to the addition of of hired wage work annually on those more medium-scale farms.) farms, compared to no change in farm sizes and no change in smallholder Finally, there are the effects of the hiring practices. growth of commercial farming in rural areas on demand for local The rise of medium-scale farms also consumption services that arise created jobs through their demand for through circulation of additional local extra agricultural inputs and financial, incomes that would not be present traction rental, and (critically) if medium-scale farms had not transport services. Throughout appeared. Where local areas contain 2008–14, average gross farm margins underemployed labor and land, as in not per medium-scale farm were more only Tanzania but much of rural Africa, than double those of small-scale net new local demand for what those commercial farms and more than triple underemployed resources can produce those of farm-oriented noncommercial stimulates net new employment. smallholders. In 2014, the difference This growth multiplier for commercial in the gross margin of medium-scale agriculture was previously estimated farms compared to commercialized to be about 1.5–2.0 for both Tanzania smallholders was TZS 1.33 million and four other African countries.30 This (about US$810) per medium-scale range of multipliers implies that by 2014 farm.16 This leads to an estimate that the an increase in net agricultural margins additional gross margin of the 368,000 of US$150 million for the 368,000 medium-scale-farms that came into new medium-scale farms would have existence between 2008 and 2014 consumption-link effects of about US$75–150 million of additional value 26 Wineman et al. 2019a 27 Wineman 2019b 28 The 15 days in question are shown to a statistically significant difference (1 percent) from smallholders. 29 Admittedly a guess, but consistent with farm budgets for small-scale commercial farms in Kenya, see for example: Opio et al. 2015. Also see Ingosi n.d. 30 Delgado et al. 2000, 1998 PAGE 40 The World Bank Group Macroeconomics, Trade and Investment Global Practice, Africa Region in rural areas from consumer industries and nontradable goods.32 Although (primarily SMSEs) producing, e.g., agriculture has relatively little input into locally processed and perishable foods, or impact on macroeconomic policies construction materials, and furniture.31 that affect inflation and exchange rates, it often must deal with the consequences. In sum, the 368,000 medium-scale Changes in real exchange rates (adjusted farms added in Tanzania between for inflation relative to that of trading 2008 and 2014 can reasonably be partners) affect the relative prices and considered to have created 13 million costs of agricultural output, and the days of additional work annually for returns on investing in agriculture rather hired workers, and US$225–US$ 300 than other sectors. High interest rates million in net backward and consumer on agricultural loans stemming from links. The total effect of the 776,473 events outside agriculture can also medium-scale farms estimated to negatively affect agricultural growth. have been operating in 2014 would be Among direct effects are higher prices proportionately higher. Absent from this for capital goods and therefore a higher estimate is a component for forward cost of production. Expansionary fiscal links, as in, e.g., additional benefits policy also often tends to push up both for the agri-processors that account domestic interest rates and domestic for half of Tanzania’s manufacturing inflation, which is discouraging to value-added. Having cheaper and more producers of food and other tradable reliable raw materials is essential for agricultural goods. Thus, although their profitability and hiring, as it is for macroeconomic policies typically are not retail establishments. designed to address agricultural issues, 2.4 Policy and Regulatory they can significantly affect incentives Issues in Sustaining for agriculture that farmers have to take Agricultural as given. Transformation Conversely, very much of concern Because agriculture mainly produces to farmers are trade, domestic tradable outputs like food and export marketing, and regulation policies that crops and livestock, using mainly are focused on agricultural outcomes. nontradable inputs like land and These can give policymakers scope to labor, agricultural incentives are exacerbate or alleviate the impacts of very sensitive to macroeconomic macroeconomic policies on agricultural and trade policies that affect the incentives, which can influence farm trade-offs in prices between tradable prices and costs, at least within certain 31 The key to the multiplier idea is that local underemployed residents will be able to work producing something that was not previously in demand, but now is. That would include goods that are too bulky relative to value to be sold beyond the local area or imported (i.e. nontradables); hence there is little local supply until local purchasing power increases (See Delgado, 1998, 2000). 32 Or conversely the ratio of agricultural revenue to costs; usually referred to as the “real” exchange rate and calculated as the nominal trade-weighted exchange rate adjusted by the trade-weighted rate of foreign currency inflation to domestic inflation. A nominal devaluation of domestic currency that would normally favor exports can be overcome by a higher domestic inflation than trading partners, which encourages imports instead (see Krueger, Schiff, and Valdés 1988). PAGE 41 TA N Z A N I A E C O N O M I C U P D AT E DECEMBER 2019, 13TH EDITION limits and for specific activities. However, a perception of high agricultural they may or may not be effective in risk, and discourage investments in achieving strategic goals, tend to have agricultural production. Tanzania has unintended consequences, and often intermittently used maize export bans imply a nonmarket redistribution of for food security objectives to protect resources within the agriculture value consumers from high and rising prices. chain as a whole, covering inputs, These bans depressed prices to farmers production, transport, processing, and throughout the country by 7–26 retailing. percent.34 Mitigation efforts did not relieve the financial suffering of farmers. The efforts included input subsidies Trade policy affects agricultural in- centives. through the NAIVS program (2008/09– 2014/15) and output subsidies through Shifts in agricultural price policies— the National Food Reserve Agency. After such as those driven by valid short-run high transportation costs, margins for food security concerns—affect the intermediaries along the maize value production and consumption choices chain, and a local crop produce cess of of both farmers and consumers. Low- 3 percent, farmers received less than 50 price policies may help poor urban percent of the average wholesale price and rural landless consumers in the in the periods examined. Maize export short term but in the longer term they bans alone were estimated to have discourage agricultural production and raised national poverty by 0.4 percent trade, undermining food security.33 We when all direct and indirect impacts measured trade and market policies were worked out in a general equilibrium that affect agriculture, among them context.35 Since 2017, central authorities export bans, import traffic, export taxes, have tried to limit the use of export bans and market inefficiencies, in terms of by promoting alternative policies for relative price incentives for farmers and stabilizing the prices of staples. others in five commodity value chains: maize, rice, cashews, coffee, and cotton. The agricultural processing industry Standard price incentive indicators, is best promoted by a favorable such as the nominal rate of protection, investment environment rather than the nominal rate of assistance, and by taxes on export of raw materials. the market development gap, were Making such investment more attractive calculated for 2005–17. might be a commodity-specific focus on access to financial services, private Export bans, export taxes, and other investment in processing through types of trade restrictions exacerbate partnerships with international domestic price volatility, create 33 The reverse is also true, with high price policies designed to encourage food production affecting the poor negatively if other means of sustaining them are not found. 34 Diao,X., Kennedy,A., Mabisso,A. and Pradesha, A.. 2013. “Economywide Impact of Maize Export Bans on Agricultural Growth and Household Welfare in Tanzania: A Dynamic Computable General Equilibrium Model Analysis”, IFPRI Discussion Paper 01287, International Food Policy Research Institute, Washington, D.C. 35 Diao et al. 2013 PAGE 42 The World Bank Group Macroeconomics, Trade and Investment Global Practice, Africa Region entrepreneurs, and trade channels 2017 variable import levies of 25 to 75 more conducive for agents along the percent were applied to rice imports to value chain, such as fair enforcement protect domestic producers. This raised of legislation. Cashew processing could domestic rice prices in Dar es Salaam, to be a case in point: Taxes on agricultural the detriment of domestic consumers. export crops like cashew are passed However, rice farmers tend to be far down to farmers, significantly reducing inland, and transfer and transaction farmgate prices. The 15 percent export costs to coastal markets where imports tax on raw cashew values (f.o.b.), which arrive are high. Our study, conducted was designed to encourage domestic with the UN Food and Agriculture processing, depressed farmgate unit Organization, found that explicit tariffs prices by an average of 14 percent on imports only raised inland farmgate between 2005 and 2017. With about prices by about 14 percent on average, 90 percent of cashew exported raw and with most of the price margin wrought about a 6 percent global market share by protection—about 51 percent— for its exports, Tanzania is a price-taker going to urban wholesalers and traders. in international cashew markets. Thus, over time an export tax of 15 percent Farmers are unable to capture on raw nuts, if enforced, would lower domestic price increases caused by producer prices by about the same protection for a number of reasons: amount. How effective the export tax (1) Vast distances to markets and often would be in promoting addition of poor rural roads translate into high domestic value for cashews should per-unit transfer costs that deplete be evaluated in terms of the costs what the commodity can be sold for in to the sector, such as lower on-farm urban coastal markets. (2) Small and investment in productivity and declining unpredictable volumes of unbranded output. quality limit capacity to negotiate terms with traders. (3) Minimal access Improving price incentives for rice to storage and financing narrows farmers, and improving food security alternative marketing options. This in urban areas, is better achieved leaves considerable room for other by moving to decrease the costs of players to charge higher margins that domestic marketing and production. siphon off the effect of the tariffs along For rice, that could include warehouse the value chain before they reach the receipt systems, contract farming farm gate. for millers, better access to market information, keeping policy stable for Domestic marketing policy and producers and investors in milling and regulation depress agricultural in- storage, decreasing transport costs, and centives. improving irrigation. Import tariffs on rice As with rice, in agriculture generally intended to protect producers from low reducing marketing costs will likely prices and consumers from price shocks be the fastest and most durable way were not effective. Between 2005 and to improve prices for both producers PAGE 43 TA N Z A N I A E C O N O M I C U P D AT E DECEMBER 2019, 13TH EDITION (higher than now) and consumers Supplement No.4 (2017) also reduced (lower than now). High transport and the crop cess to a maximum of 3 other transfer costs severely reduce percent of farmgate prices for both food the competitiveness of Tanzania’s and cash crops. Further reforms have agricultural exports. Policies that since been introduced pursuant to the increase these costs are also inconsistent Blueprint initiative for improving the with the government’s goal, expressed business environment. However, policy in ASDP II, of making Tanzania a major inconsistency and limited predictability maize exporter. continue to create uncertainty for businesses. Agricultural taxes contribute to local government revenue but severely Making policies more predictable erode agricultural profits—a major and removing trade barriers, price disincentive for farmers. Produce cess controls, and export restrictions, (a local tax typically collected close to the such as complex licensing systems point of production) and other official or documentation requirements, will fees and charges often amount to more enhance the total volume of legal than 10 percent of farmgate prices; total trade flows through both additional taxes and fees amounted to 12 percent effort and less evasion. Lifting market of chargeable prices for cashew farmers access requirements that do not relate in Mtwara and 12.6 percent for coffee to food safety or other public policy producers in Moshi.17 For cashew, these concerns can help new suppliers, charges can be added to the effects of particularly those in remote rural a 15 percent export tax on raw cashew areas, to enter growing urban markets. exports (see above). Considering that Restrictive marketing requirements, net farm revenue is often only half of such as mandatory auctions or fixed gross revenue due to high costs, average physical marketplaces can also entrench taxation of the gross revenue (farmgate interests that reduce competition and price) of cashew farmers approaches lead to higher consumer prices that are about 50 percent of net revenue, a not passed down to the farmer.36 level confronting few other enterprises anywhere in any sector. Food security objectives are best addressed in advance, by The government has recently made interventions not focused on prices. efforts to improve the fiscal regime in Policies to consider are (1) establishing agriculture by removing over 100 fees a monitoring and early warning system and charges and enacting numerous that provides information on production, reforms to reduce production costs, trade, stocks, prices, climatic conditions, promote investments, and protect and nutritional needs, preferably at domestic industries. The Finance Act the local and district levels, given the heterogeneity of sector performance and 36 Kapur and Krishnamurthy 2014 PAGE 44 The World Bank Group Macroeconomics, Trade and Investment Global Practice, Africa Region food security situations; (2) maintaining commodities more competitive, and enough emergency food stocks to increase profits for both producers and address short-term volatilities due to, distributors of agricultural produce. e.g., weather shocks, food production shortfalls, and price shocks; (3) targeted Improving the performance safety net programs ensuring access to and regulation of private-sector food during shortages for predetermined agricultural input markets will be vulnerable populations; and (4) vital to agricultural productivity. coordination of trade arrangements put Standards in the informal sector are in place in advance between countries. not regulated, both quality and product Price-based policies to manage food labelling are unreliable, and information security are necessarily short-term, can on fertilizer and seed performance is have high fiscal costs, and often backfire scarce. Although in the last decade by discouraging production and optimal the number of Tanzanian farmers distribution of food. using improved seed has substantially increased, there is potential to further increase utilization. The average Regulatory issues affect input mar- fertilizer application in Tanzania is 8–10 kets and food safety. kg /ha,37 far below the 50 kg/ha target Effective private-sector input set by African governments at the 2006 markets, particularly for improved Abuja Declaration on Fertilizer; only 16.5 seed and fertilizer, can greatly percent of Tanzanian rural farms applied influence agricultural productivity inorganic fertilizer to any crops, and only and the competitiveness of Tanzania’s 44 percent use improved seed.38 agriculture. The Customs Tariff Act of 1976 exempted all agricultural inputs The good news is that objective from import duty. A number of tax international assessments score incentives also were granted in the Tanzania’s regulation higher than Income Tax Act of 2004, including a 100 comparator countries in relation percent capital allowance for agriculture to seed, finance, transport, water, and income tax exemption for export- and ICT).39 However, it has below- processing zones. Since then further average scores in variety registration; reforms have been introduced, including fertilizer import and distribution; tractor VAT exemptions for selected agriculture operations; plant protection; and products and selected capital goods agricultural trade. This helps identify such as machines and production regulatory weaknesses to target. Given plants, and corporate tax holidays on their importance, we would give priority strategic industries like leather. These to seeds.40 policy reforms were meant to reduce Public support for seeds should be production costs, make agricultural directed to investments that reduce 37 United Republic of Tanzania 2018 38 Tanzania National Bureau of Statistics 2017 39 World Bank 2017a 40 World Bank 2017a PAGE 45 TA N Z A N I A E C O N O M I C U P D AT E DECEMBER 2019, 13TH EDITION the costs, improve the quality, support „„ Use the Quality Declared Seed diversification and climate change system to help fill the gap between resilience, and encourage private formal certified and informal seeds. sector participation. Public investments „„ Hold clinics on laws and regulations should therefore (1) upgrade breeding, that apply to seed. certification, and measures to combat counterfeit seed to improve the quality Regulation of the fertilizer market and reduce the costs of seed; and (2) could be improved by incorporating encourage breeding of nonmaize crops known regional good practices for and climate-smart varieties to help fertilizer registration, import and create markets for these seeds and distribution, and quality control. This encourage greater private investment. will increase access to and use of quality Improving regulatory performance synthetic fertilizer in Tanzania. will be critical to leveraging the private investment that ASDP II envisages. Ensuring the safety of food supplied to domestic and export markets is Mobilizing the private sector through critical to building human capital, better policies and better application improving trade competitiveness, of regulations should be a priority. and attracting private investment Our analysis identified eight ways to to Tanzania. Tanzania is one of seven enhance seed performance: African countries that have suffered productivity losses from foodborne „„ Reduce the time required for release disease; in 2016 the cost exceeded and registration of new varieties. US$500 million.41 The economic „„ Increase the number of new climate- losses result from productivity losses, smart varieties released. treatment costs, the costs of mortality and suffering, and losses to business „„ Build institutional capacity for from food recalls and lost exports. inspection, certification, and Institutional arrangements for enforcing labelling of seeds and combatting food safety laws in Tanzania are counterfeits. complex and fragmented. There is also „„ Make early generation seeds (pre- considerable duplication of institutional basic, basic) more widely available. mandates. Both factors increase compliances costs for businesses. „„ Encourage diversification beyond maize seed. Because Africa’s regional markets are fast becoming the main targets for „„ Facilitate regional harmonization of both African and non-African food seed regulations to improve access exporters, belief in the quality and to seed and make more varieties integrity of Tanzania’s food safety available. 41 Jaffee et al. 2019 PAGE 46 The World Bank Group Macroeconomics, Trade and Investment Global Practice, Africa Region certification for exports will be critical 2.5 Increasing Investment in to commercial success. The recent Agriculture successes of both Rwanda and Uganda in growing market share in regional Whether the owners are smallholders inland markets for high-nutrition baby or large corporate farms, agriculture foods illustrates what can be done.18 and increasingly its support services are private businesses. Private Approaches to ensuring food safety investment is central to financing systems have been identified: Tanzania’s strategy for sustained growth, and to its economic transformation. „„ Build up leadership and address According to ASDP II, private investment duplication of institutional is expected to contribute US$20 billion mandates. of the total needed financing of US$45 „„ Prioritize public spending. billion. ASDP II also recognizes that public funding will not be sufficient „„ Shift to a risk-based food safety to meet its objectives and that private system. investment is therefore essential. This „„ Over the long term, move from section considers the policy, regulatory, compliance with compulsory and public investment issues central regulation to facilitation and creation to catalyzing private investment; of incentives for compliance with smallholders and especially medium- voluntary regulation. scale farmers can be effective models for smaller-scale investment. „„ Harmonize rules and processes within the East African Community In most countries, among them (EAC). Tanzania, spending on public goods is essential to create an environment More efficient phytosanitary that enables private-sector-driven inspection and certification agriculture, including smallholder procedures in an exporting country farms, to flourish. Thus, among like Tanzania can reduce the burden public goods are agricultural research, on export businesses and possibly standards-setting institutions, the rule encourage more trade. Initiating the of law, and infrastructure, such as roads, phytosanitary certification process whose benefits are available to all. Public electronically and enhancing on-site goods are thus fundamentally different inspection and issuance of certificates from private goods, such as subsidies would allow products to be packed and to specific parties, whose benefits are sealed in the same place as they are mainly captured by the receiving parties. inspected. This would reduce transport and logistics costs and allow for immediate export after inspection. PAGE 47 TA N Z A N I A E C O N O M I C U P D AT E DECEMBER 2019, 13TH EDITION Figure 17. Composition of the Ministry of Agriculture Budget, 2011–17 Source: FAO-MAFAP based on MAFAP Database (September 2018 version). Private investment can be pro- public investment in agriculture. moted by more thoughtful public Using a broad definition that includes spending on agriculture and rural supportive services and infrastructure development. like rural roads, Tanzania’s spending It has long been recognized that there on agriculture and rural development is a need for public investment in increased in absolute terms between agriculture and rural development to 2011 and 2018 but declined as a share provide the public goods necessary of the government budget. The share to crowd in private investment and of Tanzanian spending dedicated to help rural people help themselves. the rural sector generally, including That is why in the Maputo Declaration agriculture, averaged 20 percent, but African Union (AU) member states more than 75 percent of it was for committed to allocating at least 10 projects and programs for education, percent of total national budgets to health, and infrastructure. agriculture. It also led to AU support for Thus, agriculture-specific42 spending the Comprehensive Africa Agriculture averaged only 4 percent of total public Development Program (CAADP) to spending and by 2017 had fallen to encourage increased and more effective 42 The FAO-MAFAP narrow definition of public spending is more compatible with the CAADP definition of agricultural spending and it includes agriculture-specific spending (excluding some consumers’ transfers, such as cash transfers or public works programs and administrative costs). All agriculture supportive spending is also excluded. PAGE 48 The World Bank Group Macroeconomics, Trade and Investment Global Practice, Africa Region 2.5 percent, just one-quarter of the The highest share of Ministry of 10 percent CAAPD commitment of AU Agriculture spending in 2005–17 went member states. Tanzania’s percentage is to private goods in the form of input low on a regional scale and of particular subsidies, largely through the NAIVS. concern considering how much the The Ministry budget allocation declined livelihoods of 70 percent of Tanzanians over the period; as a share of the total depend on agriculture. Public spending, budget, it shrank from almost 3 percent on agricultural research and other to less than 0.5 percent The second public goods directly targeted to largest share went to the National Food incentivize private agricultural and food Reserve Agency (NFRA), which is also investments, needs to be both higher private-oriented spending (Figure 17). and more efficient. Even then, of the Policy reforms and public investments 2.5 percent of public spending going targeting infrastructure development to agriculture, one-third was for private will facilitate more private investment goods, such as subsidies for inputs.43 for growth in value-addition and No country, especially not one where creation of more and more-highly- agricultural transformation is just paid jobs. Roads connect farmers to beginning, can hope to grow its input and output markets, and public agriculture with less than 2 percent of investment in more and better market public spending going to agricultural infrastructure in secondary cities and public goods like research, extension, rural towns helps connect farm products and market institutions. The problem is to effective demand from processors compounded by Tanzania’s remarkably and consumers. Functional research and low execution rates for agricultural extension enable farmers to be more budgets: 83 percent for recurrent productive and thus more competitive spending in 2017/18, not inordinately and more resilient. Better policies lower than most other ministries, and regulation will be instrumental in but only 6 percent for development facilitating these processes for more spending—about one-tenth the rate inclusive growth. in most other ministries.44 Such low execution rates suggest how much the Finance for Development can be Ministry of Agriculture would benefit maximizing for agriculture in Tan- from building internal capacity to track zania. and report to policymakers on the Private investments in agribusiness progress of programs and projects, and have been modest, especially from eventually evaluate ways to improve foreign sources. Most of Tanzania’s FDI delivery. 43 Almost two-thirds of public spending on agriculture narrowly defined is apparently devoted to public rather than private goods like subsidies and transfers to individuals. However, the share attributed to public goods could be an over-estimate, because it includes expenditures that cannot be classified anywhere else, such as spending on agri-processing value chains as part of investments led by the Export Processing Zones Authority. It also includes some spending not disaggregated enough for proper classification, such as subnational spending. Improving collection, management, and harmonization of spending data from the regions to the federal level would support a much more detailed analysis and make it possible to monitor investment indicators for ASDP II. 44 World Bank 2017b PAGE 49 TA N Z A N I A E C O N O M I C U P D AT E DECEMBER 2019, 13TH EDITION has gone into extractives and supported to reduce risks to investors and lenders. the export of raw materials; employment A Maximizing Finance for Development links to the domestic economy have (MFD) approach requires a critical been few. On average, between 2007 review of each potential investment in to 2017 only 4 percent of FDI went infrastructure and services to examine into agriculture, fisheries, and forests.45 whether it is or can be provided by the Commercial bank lending to agriculture private sector, and if not whether that is just 7 percent, down from 10 percent in could become possible by changes in the past five years.46 Private investment policy and regulation, risk-sharing and and identifying opportunities for greater concessional finance, or performance- private participation will depend on a based public service contracts better understanding of the policy and regulatory reforms needed. Policy and regulatory reforms to increase private investment in both input and The main barriers to private output markets are necessary in three investment are policy, regulatory, and areas: institutional reforms issues that cost relatively little to remove. Reforms Regulation of output markets and trade should target improving the business policy, to address problems caused by (1) environment to make the country a restrictive marketing requirements, such more attractive investment destination. as requirements to sell through closed The reforms could start in areas where auctions, that reduce competition; Tanzania performs least well in the and (2) discretionary trade policies, World Bank Doing Business Indicators: including reinstatement of export bans (1) high barriers to business entry; (2) or stringent export licensing, that restrict high costs for compliance with tax laws trade and erode producer incentives. and the incentive for informality; and (3) Revised regulation of input markets, to significant restrictions on cross-border improve (1) arrangements for fertilizer trade.47 import and distribution and fertilizer For agribusiness, policy and quality control and labelling; and (2) regulatory reform should (1) identify regulation of seeds, plant propagation, areas where the public sector is variety registration, and seed quality crowding out the private sector or control. undermining competition; (2) remove Sanitary and phytosanitary controls, to policy distortions and barriers to trade (1) establish an institutional mandate that discourage private investment; for pest surveillance and risk analysis; (3) reduce regulatory barriers to (2) ensure more efficient issuance of investment and cut compliance costs; phytosanitary certificates for cross- and (4) make land tenure more secure 45 World Bank 2019b 46 Tanzania Agriculture Development Bank 2019 47 World Bank n.d. PAGE 50 The World Bank Group Macroeconomics, Trade and Investment Global Practice, Africa Region border trade; and (3) bolster institutional Performance-based public service arrangements for risk-based regulation contracts are another way to provide of food safety. services to agriculture. Properly designed, they can achieve better Private investment can be increased results than traditional public-sector, by risk-sharing and public-private input-based methods. Among areas partnerships (PPPs). There are both where public service contracts could be real and perceived risks inherent in explored are (1) certified seed inspection agriculture, as demonstrated by high by the Tanzania Official Seed Certification bank lending rates, currently 16.8 Institute; (2) food safety inspection and percent48, and low loan approvals, public awareness campaigns; (3) some that discourages investment. Reforms veterinary services. such as compulsory are needed to create incentives for vaccination, and public awareness private investment in infrastructure campaigns; and (4) provision of and management. Some risks can be extension services. Because effective reduced by providing guarantees and use of these contractual arrangements concessional financing to encourage will require a legal and administrative private investment in infrastructure that structure for enforcement, specific the private sector considers risky, such reforms will be needed to ensure they can as investments in downstream irrigation be carried out and to create incentives infrastructure, grain silos, and wholesale for private investment and participation. and retail markets for fresh produce. Performance-based contracting can Possible PPPs in public infrastructure create a positive dynamic for reform but range from design-build contracts should not be considered a substitute to design-build-operate concession for the institutional reforms necessary to agreements, for, e.g., rural roads, keep the sector functioning sustainably. upstream irrigation infrastructure, and strategic grain reserve warehouses. Finally, the government should also ensure that private investment A fundamental paradigm change is contributes to its strategic objectives required in how services are provided of poverty reduction, job creation, to agriculture, one that promotes a food security, and resilience to climate bottom-up, demand-side, output- change. The next subsection addresses oriented approach rather than one that the related pressing challenges to is top-down and supply-side-driven. agriculture. This will help much-needed services for agriculture to become more efficient; for instance, the current coverage and quality of extension services demand attention. 48 World Bank 2019b PAGE 51 TA N Z A N I A E C O N O M I C U P D AT E DECEMBER 2019, 13TH EDITION Policies and investments for better Because of removal of biomass, soil and water management can from, e.g., deforestation; erosion heighten the resilience of rural in- from lack of investment in soil and comes. water management; and inadequate As noted, the considerable growth maintenance of soil fertility from too of Tanzanian agriculture has been little use of fertilizers and manures, due primarily to rapid expansion of more than 60 percent of the land cropped area, especially after 2008. used to produce crops, livestock, This is not uncommon in Africa but and forest products and services is b now raises large strategic concerns degraded. The soil thus has a severely for a region very vulnerable to the diminished capacity to retain water effects of climate change and in 2016 and soil nutrients, grow crops, provide already suffering the consequences of forest products, support livestock, more frequent severe El Nino events. assure water availability and quality, In a global context Tanzania’s relatively and provide other essential ecosystem abundant land and water resources can services. This is a huge loss of national lead to dangerous complacency about natural capital. Moreover, most of the real threats of short- as well as long- rural poor live on degraded land, which term consequences. will make it especially hard to break the cycle of poverty. Box 2: Strategies for Making Agricultural Water More Productive 1. Modernize irrigation while improving water and land management. An increase in crop production per unit of water and land is central to any national water management strategy in Tanzania. Productivity increases, and commensurate increases in income, are made possible through a combination of improvements in water management, land management, and agronomic practices in both rainfed and irrigated cropping systems. While this requires better technologies for water storage and delivery, boosting the organic content of soils and tree cover can also greatly enhance both the soil fertility and the water retention of fields. Profitability is a critical external motivation to comply with new water regulations. 2. Shift to adaptive allocation of water resources based on availability. Water managers and communities need to be able to temporarily but equitably reduce water allocations during droughts in order to protect priority uses and reduce conflicts that could have serious social and economic impacts. Experience has shown that to realize water savings and mitigate drought impact technical measures must be coupled with institutional measures—monitoring, enforcement, land-planning, and agricultural and technical support to farmers. 3. Build resilience into farming on every scale. That means developing, adapting, and extending drought-resilient (and in some cases flood-resilient) cultivars, selecting crops based on current and projected water availability, and improving soil fertility management and plant protection. Food and trade policies can also be critical influences on crop selection; their drafters should take into account how they affect the availability of water. PAGE 52 The World Bank Group Macroeconomics, Trade and Investment Global Practice, Africa Region Component One of ASDP II clearly Tanzania has nine river basins. Some recognizes the stakes for agricultural areas of Tanzania have experienced productivity. Policy solutions to growing frequent severe droughts for years, land degradation vary but typically as has happened, e.g., in 8 of the last require better governance of land 20 years in the Pangani Basin. Climate resources based on local land use plans; change has aggravated the already high they also typically require institutions volatility in annual rainfall (up to 400 and enforcement in order to integrate percent) in most of the country. management of whole watersheds. That tends to involve participatory As Tanzania develops, agriculture planning, but also conflict management expands, and the population grows, (often between competing uses of demand for water, a finite resource, is land), institutions to help youth access surging. Tanzania’s plans to expand and land, and investment in mosaic forest modernize agriculture should include protection, contour bunding protected informed planning and management pathways for seasonal livestock of agricultural water use that builds movement, and water management resilience to the issues posed by drought (Box 2). These pathways for protecting and climate change. Tanzania still has a natural capital illustrate that climate- reasonably high per capita endowment smart agriculture cannot be done field of fresh water compared to some by field; it requires community-wide neighbors, so its main challenge is to buy-in and action. That can be facilitated use less water while making agriculture not only by effective local government more productive. The three strategic but also by climate finance options that actions outlined in Box 1 can help to give localities resources to work with in make that possible. return for monitorable progress.49 2.6 Conclusions Agriculture in Tanzania accounts for The Government of Tanzania is very an estimated 89 percent of national clearly committed to a proactive fresh water withdrawals—higher approach to rapid agricultural than the global average of about 70 transformation as a way to reduce percent and the Africa average of poverty and achieve shared prosperity. about 80 percent. Though 90 percent Agriculture’s role in these goals is clearly is used mainly for irrigation. any serious specified in such strategic documents effort to manage the general efficiency as the Tanzania Development Vision of water use requires thoughtful 2025, the Five-Year Development Plan attention to agricultural use. As is the II, and ASDP II. As of 2017, agriculture case in most countries, water, and was still the main source of livelihoods water use, are unevenly distributed, and for more than half the Tanzanian 49 There are numerous examples globally of funding sustainable management of productive landscapes. In East Africa, the ecological transformation of parts of Northern Ethiopia (Tigre) from eroded wastelands to lush areas is a stunning example, and Rwanda has been able to restore some of the most populated and degraded hillsides in the world. Details on world-wide examples can be are found in Global Commission on the Economy and Climate 2014. PAGE 53 TA N Z A N I A E C O N O M I C U P D AT E DECEMBER 2019, 13TH EDITION population. The share rises to 70 percent economic growth independent of for all households that receive some growth in exports of extractives. Most direct agricultural income, along with of Tanzania’s past agricultural growth households whose nonfarm livelihoods has come from expansion of the area depends on selling to farmers or cultivated. Since 2000 the value of processing and trading farm outputs. the country’s agricultural output has In 2014, households that depended on barely been growing faster than the agriculture directly or indirectly for their accelerating growth of the population, livelihood constituted a large majority of as is confirmed by the stagnant average the 47 percent of Tanzania’s mainland productivity of agricultural land. It is population estimated to be living below time for a policy regime that is more the US$1.90/day poverty line.50 consistent with the ASDP II focus on agricultural intensification and Tanzania’s ambitious targets for formalization. A review of well-meaning sustained economic and employment current sectoral policies suggests scope growth will require brisk growth in for changes that could accelerate manufacturing—for which robust sustainable agricultural growth, should agricultural growth is a precondition. the government wish to do so. Agriculture provides an increasing food supply, and thus more stable real wages, Trade restrictions are an obvious in a country where, except among the area for reform. The most counter- highest income groups, spending on productive example is the use of bans on food staples like cereals still consumes exports of maize and rice as a short-term more than 30 percent of average total price stabilization tool. Grain export bans household spending. This is especially globally, and in Tanzania specifically, important as labor and capital flow create costs for farmers and the country from agriculture to other sectors in imposing them that exceed any benefit urban areas. Agricultural incomes also for domestic consumers. Export bans must grow to create broad-based local are sometimes replaced by export taxes, demand for domestic manufactured but they also cut incentives for farmers consumer goods. Finally, more than half to produce more, or by import tariffs, of Tanzania’s current manufacturing where the official objective is to protect value-added occurs in agriprocessing, local producers. However, these taxes which as it grows will require ever more and tariffs increase rather than decrease reliable and higher-quality raw material. price volatility. Agricultural commodity taxes and tariffs typically benefit traders Long-term annual real growth of and processors more than farmers or agricultural GDP by 4 percent is not consumers, to the detriment over time enough: annual growth rates of 6 of both production and trade. From a percent need to be sustained and better growth perspective, restrictions on food supported by policy and investment. exports are most costly when regional Agriculture is crucial for further reducing trade partners become unwilling to poverty and promoting sustained entrust their own food security to 50 World Bank 2015 PAGE 54 The World Bank Group Macroeconomics, Trade and Investment Global Practice, Africa Region Tanzanian producers. Indeed, faced efficient irrigation, that mobilize private with the possibility of last-minute investment in agricultural production export bans, neighboring countries with and distribution. Although they less comparative advantage in grain housed 66 percent of Tanzanians, production persist in trying to grow rural areas received only 20 percent of high-cost maize and rice rather than public spending in 2014. Although 70 trade with Tanzania, preventing the percent of Tanzanians depend directly development of significant economies or indirectly on agriculture for their of scale in Tanzania’s food exports livelihoods, in 2017 agriculture received within the region. only 2.5 percent of public spending. And even then, 33 percent of public Also on the reform agenda are trade spending on agriculture was for private and subsidy approaches to food goods captured by specific persons security that are untargeted, high- or interests. No country, especially cost, and not very effective. Mobilizing not one just beginning to transform the private sector through policies to its agriculture, can hope to grow provide public goods that increase agriculture with less than 2 percent of the returns to private investment, and public spending going to agricultural better regulation can improve both public goods. It will also be critical for the availability of food and the means Tanzania to make public spending on to purchase it. Though Tanzania’s agriculture more efficient and to reduce regulation of agriculture shines in some the significant under-spending of public respects, in others there is much still to budgets for agricultural development. be done. Beyond what the private sector This is likely to require building capacity can do, finer targeting of social protection within the Ministry of Agriculture. to those who need it most is much more effective for food security than Despite Tanzania’s abundant agricultural price policies. Constructive endowment of land and adequate results are expected, however, once the water, to be successful an agricultural blueprint for improving the business strategy must now pay more environment is followed. thoughtful attention to policies and investments that further the ASDP Scarce public funds should be better II goals of making rural livelihoods targeted to mobilize private sector more resilient by better management finance, including for on-farm of soil and water. Almost all growth in investment by smallholders, through agricultural output in recent decades institutional and infrastructural has come from land expansion, often development that increases the preceded by deforestation. The vast returns to their labors. Public spending majority of lands currently in use on agriculture needs both to grow are significantly degraded, nutrients and to shift from providing significant and soil structure are not being fully private goods, such as input subsidies, replaced, and the capacity of the to providing core public goods, such as agricultural research and more PAGE 55 TA N Z A N I A E C O N O M I C U P D AT E DECEMBER 2019, 13TH EDITION land for production and ecosystem The extent to which the rise of services like water retention is declining. medium-scale farms helped Agriculture accounts for nearly 90 commercialize smallholders as a percent of water use and the need to group is the most significant finding increase the productivity of water per of our work, and the most promising crop and unit area has become evident. for Tanzanian agriculture. Medium- Solutions require watershed-level scale farmers are only slightly less likely approaches to improving land use and than small-scale farmers to originate in building up stakeholder buy-in for better their community (65 versus 68 percent), enforcement of agreed rules. which suggests that many medium- scale farms were once small-scale, and Despite a policy and regulatory their success has the potential to pull regime that does not seem favorable along other farmers. They are more likely to agricultural growth, it has become than small-scale farms to hire labor, clear that after 2008 a structural use nonmanual traction, use improved transformation of Tanzanian seeds, access agricultural credit and agriculture began with the rise of extension services, and sell what their medium-scale farms. The 4 percent farms produce. This suggests they annual average growth of agricultural may also be able to attract services to GDP over two decades captures neither their communities, deepen the markets the experience since the recovery from for agricultural inputs and outputs, the commodity boom in 2015, nor what and diffuse knowledge and new is happening in the most dynamic one- technologies. third of Tanzanian farms. Between 2008 and 2014 the value of main-season crop A rigorous analysis by location production rose from TZS 3.2 trillion to found that in areas with greater 5.1 trillion in real inflation-adjusted 2015 concentrations of medium- and values. This implies annual real growth large-scale farms, small-scale farms of 8 percent, a world-class achievement. are more likely to use improved seed At least in this period, agricultural and fertilizer, to cultivate a larger stagnation was not due to what was proportion of their land, and to access happening on the farm. Simultaneously agricultural extension and credit. with this growth rate, 35 percent of An increase of 10 percent in the share Tanzanian farms were medium-scale of farms in a given region that are (5–20 ha per farm) in 2014, compared not small-scale is associated with a 9 to 23 percent in 2008—a very rapid percent greater likelihood that a small- size scale-up compared to neighboring scale farm buys improved seed, and a countries. Tanzania also saw a steady 5 percent greater likelihood that it will decline in the proportion of farms use inorganic fertilizer. More medium- categorized as primarily subsistence- and large-scale farm neighbors is also oriented, farm-focused, and small-scale, positively correlated with the likelihood from 43 percent of all farms in 2008 to 31 percent in 2014. PAGE 56 The World Bank Group Macroeconomics, Trade and Investment Global Practice, Africa Region that a household moves away from This analysis found that in Tanzania small-scale agricultural activities but the 368,000 medium-scale farms remains in its home. This is consistent added between 2008 and 2014 were with a view that medium and larger associated with creation by 2014 of farms generate demand for labor and almost 13 million days of additional nonfarm production and services that paid work for hired agricultural offer options for small-farm households labor and US$225–300 million in net looking to leave farming. additional back and consumption growth links—with associated The increasing prominence in employment implications. The Tanzania of medium-scale farmers total effect of the estimated 776,473 presents opportunities for catalyzing medium-scale farms operating in 2014 agricultural transformation through would be proportionately higher. Absent a market-led model for reducing from this estimate is what would surely poverty among small-scale farmers be a sizable component of forward through positive spillovers. Medium- links, such as additional benefits for scale farmers not only have strong the agri-processors that account for market orientations and links, they half of Tanzania’s manufacturing value- invest in technology and knowledge added. Having cheaper and more and attract commercial services that reliable raw material is essential for their can generate agri-food-based tax profitability and hiring, as it is for retail revenue. And they have been shown to establishments. In general, policies help neighboring smallholders to also that better support the beginnings of raise their incomes. Efforts that channel Tanzania’s agricultural transformation policy and regulatory reform and will be central to both reducing poverty public investments into furthering the among smallholders and accelerating ASDP II should be given priority, in the the creation of more and better jobs expectation that this will be a pathway along agricultural value chains. for mobilizing both additional private investment in agricultural production and related services and for scaling up the growing pool of commercially- oriented smallholders. PAGE 57 TA N Z A N I A E C O N O M I C U P D AT E DECEMBER 2019, 13TH EDITION PAGE 58 Macroeconomics, The World Bank Group Macroeconomics Trade and and Fiscal Management Investment Global Practice,Africa GlobalPractice, Region AfricaRegion 3 Annexes PAGE 59 60 PAGE Statistical Annexes Annex 1. Key Macroeconomic Indicators 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 National Acciounts and Prices GDP at constant market price (% change) 5.3 6.3 7.7 4.5 6.8 6.7 6.2 6.9 6.8 5.4 Agriculture 4.2 3.2 2.5 3.4 2.8 6.9 5.4 4.8 6.0 4.5 Industry 3.4 9.2 11.8 4.2 10.5 6.0 9.7 11.7 10.7 9.1 Service 5.5 7.8 8.2 6.4 5.1 9.3 6.4 6.3 5.3 3.5 Inflation (e.o.p) 12.1 5.1 12.7 16.0 7.9 6.1 5.6 5.2 5.3 3.5 Per capita (in US$) 681.4 726 765 870 969 1000 912 934 1005 1056.0 TA N Z A N I A E C O N O M I C U P D AT E Fiscal (% of GDP, fiscal year) Revenue and grants 16.0 15.2 15.3 15.9 15.4 15.6 14.0 14.8 16.3 16.1 Tax and nontax revenue 12.2 11.8 11.9 12.6 12.8 13.5 12.8 14.3 15.3 15.3 Grants 3.8 3.4 3.4 3.2 2.6 2.1 1.2 0.5 1.0 0.8 Expenditure and net lending 19.6 20.4 19.5 18.9 20.5 18.5 17.1 18.3 17.4 20.0 Overall balance (excluining grants) -7.4 -8.6 -7.7 -6.2 -7.7 -5.0 -4.3 -4.0 -2.1 -4.8 Overall balance (including grants) -3.6 -5.2 -4.3 -3.0 -5.1 -2.9 -3.1 -3.5 -1.1 -3.9 Financing 3.4 4.8 4.8 3.6 5.0 3.3 3.3 3.5 1.5 3.9 Foreign financing (net) 2.7 3.4 2.2 3.0 3.9 3.0 3.1 1.4 1.6 2.5 Domestic financing (net) 0.6 1.4 2.6 0.6 1.1 0.3 0.2 2.1 -0.1 1.5 Money and Credit M3 (% change) 17.7 25.4 18.2 12.5 10.0 15.6 18.8 3.4 8.0 4.5 Credit to private sector (% change) 9.6 20.0 27.2 18.2 15.3 19.4 24.8 7.2 1.7 4.9 External sector (US$ million unless otherwise) Exports (goods and services) 5,086 5,743 7,051 7,987 8,335 8,886 8,877 9,341 8,813 9,447 Imports (goods and services) 7,876 8,365 9,996 12,946 12,871 13,966 13,348 11,597 9,596 11,519 DECEMBER 2019, 13TH EDITION Gross official reserves 2,930 3,482 3,610 3,797 4,357 4,638 4,285 3,870 5,022 4,944 (months of imports) 4.5 5.0 4.3 3.5 4.1 4.0 3.9 4.0 6.3 5.2 Current Account Balance (% of GDP) -7.8 -7.1 -7.9 -13.1 -10.5 -10.7 -9.8 -6.5 -3.0 -3.8 Exchange rate(Tsh/US$; e.o.p) 1,314 1,379 1,572 1,569 1,603 1,655 1,974 2,179 2,230 2,274 Debt Stock and Service Total public debt (% of GDP) 22.9 22.9 25.7 26.8 29.1 30.0 32.4 38.6 38.1 37.8 External debt (public sector, % of GDP) 16.2 17.6 20.2 21.1 22.6 23.2 24.7 30.8 22.3 23.9 Domestic public debt (% of GDP) 6.7 5.3 5.5 5.7 6.5 6.9 7.7 7.8 15.8 13.9 Source: World Bank, IMF, and Tanzanian authorities. Annex 2. Annual Real GDP Growth, Percent Change Economic Activity 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Agriculture and Fishing 4.2 3.2 2.5 3.4 2.8 6.9 5.4 4.8 5.9 5.3 Crops 4.5 4.8 3.5 4.3 4.4 9.4 7.6 5.4 6.4 5.0 Livestock 5.1 1.3 0.6 1.9 4.8 4.9 4.9 4.9 4.9 4.9 Forestry and Hunting 5.0 3.4 3.1 3.6 4.5 4.8 3.4 3.9 4.8 4.9 Fishing -0.1 0.9 2.5 3.0 -13.3 1.8 -4.5 1.2 8.3 9.2 Industry and construction 3.4 9.2 11.8 4.2 10.5 6.0 9.7 11.7 10.6 9.3 Mining and quarrying 18.4 7.2 6.0 6.7 4.5 6.4 10.0 7.4 5.3 1.5 Manufacturing 4.5 8.9 6.7 4.2 3.7 10.0 7.1 10.8 8.2 8.3 Electricity supply 4.0 13.4 -4.6 3.4 8.2 12.7 -2.0 8.8 1.0 5.8 Water supply; sewerage, waste management 4.1 2.5 -1.4 2.9 2.7 3.8 2.4 6.9 6.4 7.4 Construction -3.7 10.3 22.0 3.3 19.1 2.5 12.9 14.5 15.1 12.9 Services 5.5 7.8 8.2 6.4 5.1 9.3 6.4 6.3 5.3 6.3 Wholesale and retail trade; repairs 2.5 10.0 11.0 3.9 4.2 9.9 3.6 5.9 6.1 5.8 Transport and storage 6.7 10.7 4.2 4.2 6.0 8.7 5.4 5.7 6.7 11.8 Accommodation and Food Services 0.8 3.7 3.9 6.8 0.9 3.1 1.7 4.1 3.1 5.2 Information and communication 26.4 24.4 8.3 22.3 11.6 10.3 7.8 2.2 6.2 9.1 Financial and insurance activities 18.1 12.6 14.5 5.2 -1.1 10.5 11.3 1.1 -2.8 -0.5 Real estate and business services 3.2 8.3 3.1 6.5 9.5 10.3 7.6 11.4 4.4 4.4 Public administration and defence -1.0 -5.0 15.6 9.2 9.7 6.7 7.2 5.4 10.8 5.6 Education 8.9 6.3 5.4 7.5 0.3 13.4 10.4 10.4 7.3 6.6 Human health and social work activities 7.2 3.3 5.1 11.5 -3.1 8.4 5.1 5.6 7.6 8.1 Other Social and Personal services 4.4 5.6 5.6 6.7 8.9 9.8 5.1 11.7 12.0 6.5 The World Bank Group Macroeconomics, Trade and Investment Global Practice, Africa Region All economic activities 4.6 6.6 7.2 4.9 5.7 7.7 6.9 7.3 7.0 6.9 Net taxes 12.8 3.8 12.1 0.4 17.5 -2.2 -1.7 2.0 4.6 8.0 Total GDP 5.3 6.3 7.7 4.5 6.8 6.7 6.2 6.9 6.8 7.0 Source: National Bureau of Statistics. 61 PAGE 62 PAGE Annex 3. Share of Economic Activities in GDP, Current Market Prices Economic Activity 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Agr icultur e and Fishing 26.0 25.6 25.0 26.6 26.8 25.8 26.7 27.4 28.8 28.2 Crops 12.7 13.1 12.9 14.1 14.4 14.0 14.1 15.2 16.6 .. Livestock 8.5 8.0 7.6 7.4 7.7 6.8 7.6 7.6 7.5 .. Forestry and Hunting 2.6 2.5 2.4 2.8 2.8 3.0 3.1 2.9 2.8 .. Fishing 2.2 2.0 2.0 2.2 1.9 2.0 2.0 1.8 1.9 .. 0.00 0.00 0.00 0.00 0.00 0.00 TA N Z A N I A E C O N O M I C U P D AT E I ndustr y and constr uction 21.7 23.6 26.4 25.4 25.4 25.1 24.5 24.9 25.0 26.8 Mining and quarrying 2.9 4.1 5.1 4.9 4.3 3.8 4.3 4.9 4.4 5.1 Manufacturing 8.7 8.7 9.5 9.4 9.1 9.1 7.9 7.8 7.7 8.1 Electricity and water 1.6 1.5 1.0 1.3 1.2 1.4 1.3 0.8 0.8 0.7 Electricity 0.9 0.9 0.6 0.8 0.8 1.0 0.8 0.4 0.3 0.3 Water 0.7 0.6 0.5 0.4 0.4 0.4 0.4 0.4 0.4 0.4 Construction 8.5 9.3 10.7 9.7 10.9 10.8 11.1 11.3 12.2 13.0 0.00 0.00 0.00 0.00 0.00 0.00 Ser vices 44.6 43.3 41.4 43.1 42.8 44.1 43.3 42.5 38.0 37.0 Wholesale and retail trade; repairs 9.9 10.0 10.4 10.3 9.7 9.7 9.3 9.1 9.1 9.1 Transport and storage 8.3 7.8 6.9 6.0 7.2 7.5 7.3 7.0 6.7 6.5 Accommodation and Food Services 2.5 2.3 1.9 2.0 1.8 1.6 1.5 1.4 1.3 1.3 Information and communication 2.1 2.3 2.0 2.1 2.0 1.9 1.8 1.6 1.5 1.5 Financial and insurance activities 3.8 3.9 4.1 4.1 3.5 4.4 4.4 4.9 4.0 3.7 Real estate and business services 7.0 6.6 6.1 6.2 6.1 6.1 6.0 5.9 2.8 2.7 Public administration and defence 4.7 4.3 4.4 4.6 5.0 4.8 4.8 4.5 4.2 4.0 Education 2.9 2.9 2.5 2.4 2.4 2.5 2.6 2.5 2.4 2.4 DECEMBER 2019, 13TH EDITION Human health and social work activities 1.9 1.8 1.7 1.6 1.5 1.5 1.5 1.4 1.4 1.4 Other Social and Personal services 1.5 1.4 1.3 1.3 1.2 1.3 1.2 1.2 1.2 1.3 Activities of households as employers .. .. .. 2.4 2.6 2.8 2.9 3.0 3.2 3.2 All economic activities 92.3 92.5 92.8 95.0 95.1 95.1 94.5 94.8 91.8 92.1 0.00 0.00 0.00 0.00 0.00 0.00 Net taxes 7.7 7.5 7.2 5.0 4.9 4.9 5.5 5.2 8.2 7.9 T otal GDP 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Source: National Bureau of Statistics. Annex 4. Quarterly Real GDP Growth Rates, Percent Change Year Quarter Agricult Mining Manufa Electrici Water Constru Trade Accom Transpo Informa Financial Year Public Professi Adminis Real Educati Health Other All Taxes GDP at ure and c-turing ty c-tion and modati rt and tion & admi- onal, trative estate on services indust. on market quarryi Repair on & storage and insuranc nistrati Scientifi & at basic product prices ng restaur commu e on c& Support prices s ant nication Technic services al act. 1 4.3 -1.5 6.9 4.9 10.2 11.7 1.9 0.0 1.8 12.7 9.2 2.6 15.5 10.7 4.2 9.3 2.7 4.4 5.1 -18.1 2.9 2 8.0 10.7 6.6 9.0 -1.9 7.3 5.8 1.7 3.7 8.6 9.0 4.4 15.5 9.0 4.3 9.2 0.8 4.2 6.9 4.7 6.7 2015 3 4.6 3.3 8.5 -10.2 2.6 16.7 6.3 2.9 4.6 6.6 12.0 11.0 15.7 9.7 4.3 12.0 9.0 5.1 7.6 7.6 7.6 4 4.6 27.2 6.4 -9.8 -0.6 16.4 0.7 2.2 11.3 4.1 14.7 10.2 16.0 12.6 4.3 10.8 7.9 6.8 8.1 0.6 7.4 1 2.8 10.2 13.4 1.4 -1.1 17.3 9.6 3.3 9.9 3.8 11.5 19.6 16.5 17.8 4.3 20.6 15.7 9.2 9.4 13.0 9.7 2 8.0 14.9 9.7 5.4 8.6 11.4 5.6 0.6 8.6 2.1 4.1 15.5 16.9 20.5 4.3 17.9 11.2 10.8 9.2 -2.5 8.2 2016 3 6.0 14.4 7.3 11.7 4.0 23.4 6.4 3.6 5.1 2.2 -2.1 -6.2 17.2 20.9 4.3 1.7 -4.2 12.3 7.7 -3.8 6.6 4 3.1 -6.3 13.2 17.5 16.0 6.6 2.2 8.8 -0.2 1.0 -7.9 -3.9 17.4 19.1 4.3 3.7 1.1 14.3 3.5 2.9 3.4 1 6.5 9.9 5.2 4.4 1.6 12.0 1.9 4.7 5.3 12.6 -5.8 -5.9 17.6 15.5 4.4 1.3 0.1 12.6 5.5 -3.0 4.9 2 14.7 -4.6 9.6 -1.0 4.2 21.2 5.1 3.5 5.0 6.4 -2.5 0.1 16.4 12.3 4.4 5.6 6.8 11.4 7.1 0.3 6.6 2017 3 4.1 4.2 13.7 3.9 10.0 -0.3 5.8 2.5 6.9 1.9 -5.3 7.5 14.0 9.3 4.4 11.3 11.1 9.8 5.1 4.0 5.0 4 6.4 12.1 4.5 -3.1 16.4 28.8 11.3 2.3 9.6 4.5 2.6 8.3 10.5 6.5 4.4 11.0 12.8 7.7 9.8 15.6 10.3 1 6.5 -5.7 5.3 0.8 3.7 15.6 4.3 4.5 8.8 14.9 -2.9 8.8 12.6 5.2 4.4 11.2 17.4 8.7 7.0 7.0 7.5 2 6.1 6.8 3.6 6.8 6.1 5.2 4.0 6.7 13.5 12.4 -2.3 -0.7 11.2 5.4 4.4 4.1 5.9 8.4 5.5 5.5 6.1 2018 3 3.8 1.9 7.0 5.6 10.7 13.9 6.9 7.7 12.1 4.8 3.9 2.8 9.3 5.7 4.4 6.1 7.5 7.8 6.9 6.9 7.1 4 4.4 3.2 16.7 9.8 8.3 17.3 8.0 1.9 12.6 4.4 -0.5 1.8 6.9 6.1 4.5 5.0 2.2 5.6 7.9 7.9 7.1 1 6.3 10.0 4.8 9.7 8.0 13.2 3.8 1.1 11.1 9.6 5.6 2.7 6.6 8.7 4.5 3.6 -2.1 5.7 7.0 7.0 6.6 2019 2 4.0 17.2 5.2 4.3 10.0 19.6 5.5 2.6 7.0 10.3 5.0 4.7 6.8 8.5 4.5 5.8 2.4 6.7 7.7 1.2 7.2 Source: National Bureau of Statistics. The World Bank Group Macroeconomics, Trade and Investment Global Practice, Africa Region 63 PAGE 64 PAGE Annex 5. Inflation Rates, Percent Change Month Headline Food & Non Transport Housing, Furnishing, Clothing & Restaurants Miscel. Goods Alcoholic and Communi- Education Recreation & Health Overall Index Alcoholic Water,Electrici Housing Footwear and Hotels and Services Tobacco cation & Culture Beverages ty,Gas & Other Equipment & Entertainment (Exclude Food Fuel Routine consumed at Maintenance Restaurants) of House Weight (%) 100.0 47.8 9.5 9.2 6.7 6.72 6.4 4.5 3.3 2.1 1.7 1.3 0.9 Oct 2017 5.1 8.8 0.2 7.6 2.8 3.4 0.6 3.0 2.6 -0.9 0.8 1.9 2.1 TA N Z A N I A E C O N O M I C U P D AT E Nov 2017 4.4 7.4 0.1 7.8 1.8 3.1 0.3 2.6 2.5 -1.0 0.8 1.6 2.0 Dec 2017 4.0 6.2 0.0 8.3 1.3 2.9 0.3 2.5 2.6 -1.0 0.8 0.9 2.0 Jan 2018 4.0 6.3 0.3 7.1 1.8 2.7 0.8 2.6 2.6 -1.0 2.5 2.0 1.6 Feb 2018 4.1 5.4 1.6 8.6 1.6 3.3 0.9 2.7 2.3 -0.2 2.5 1.5 1.6 Mar 2018 4.0 4.7 1.4 10.4 1.9 3.2 0.8 1.2 2.0 -0.2 2.4 1.1 1.6 Apr 2018 3.8 3.6 1.8 13.1 2.0 2.6 0.8 0.9 1.6 0.1 2.4 1.2 1.6 May 2018 3.6 2.6 1.9 15.0 2.3 2.4 1.0 1.2 1.3 0.1 2.3 0.7 1.2 Jun 2018 3.4 3.4 1.7 12.0 2.4 2.2 0.7 1.4 0.3 -2.6 2.6 0.5 1.4 Jul 2018 3.3 2.8 2.5 12.3 2.6 2.4 0.8 1.2 0.8 -2.7 2.5 0.4 0.7 Aug 2018 3.3 2.2 3.4 12.3 3.1 2.7 1.1 1.2 1.2 -2.6 2.5 -0.2 1.7 Sep 2018 3.4 2.0 2.8 13.1 3.0 3.2 1.9 1.3 1.9 -2.6 2.5 -0.2 1.3 Oct 2018 3.2 1.2 3.0 14.1 2.8 3.4 1.9 1.6 1.9 -2.7 2.4 -1.0 0.8 Nov 2018 3.0 0.4 5.1 13.4 2.9 3.3 1.9 1.7 1.6 -2.7 2.4 -0.7 0.8 Dec 2018 3.3 1.0 5.1 12.1 4.0 3.6 2.7 2.6 2.2 -2.6 2.4 0.1 1.0 Jan 2019 3.0 0.7 4.0 11.7 3.9 3.7 2.6 2.5 2.2 -2.4 2.0 0.2 1.0 Feb 2019 3.0 0.5 3.3 12.3 4.1 3.3 3.6 2.6 2.5 -2.1 1.8 0.2 1.5 Mar 2019 3.1 0.1 4.1 13.0 4.3 3.4 4.8 3.1 3.2 -1.2 1.9 0.3 1.8 DECEMBER 2019, 13TH EDITION Apr 2019 3.2 0.9 3.4 11.4 4.2 3.6 4.9 2.7 3.2 -1.1 2.1 0.6 2.2 May 2019 3.5 2.2 4.1 8.8 4.3 3.7 4.9 2.5 3.4 -1.1 2.1 3.2 2.0 Jun 2019 3.7 2.3 4.8 8.9 4.1 3.1 4.8 2.4 4.2 1.0 1.8 3.4 1.8 Jul 2019 3.7 2.9 4.1 8.1 3.9 2.7 4.7 2.5 3.6 1.1 1.6 1.6 2.2 Aug 2019 3.6 3.7 2.7 6.3 3.7 2.9 4.6 2.5 2.1 0.7 1.6 1.8 1.4 Sep 2019 3.4 4.0 3.2 4.3 3.7 2.6 4.2 2.4 1.3 0.6 1.6 2.0 1.9 Source: National Bureau of Statistics. Annex 6. Food Crop Prices, Regional Averages, TZS per 100Kg Maize Rice Wheat Beans Sorghum Month Year Arusha Dar es Mbeya Arusha Dar es Mbeya Arusha Dar es Mbeya Arusha Dar es Mbeya Arusha Dar es Mbeya Salaam Salaam Salaam Salaam Salaam Oct 2017 53,714 54,207 200,313 191,389 66,214 121,404 166,875 194,681 62,357 95,148 - Nov 2017 51,417 52,288 50,333 177,000 188,054 181,667 69,000 118,167 134,167 197,500 201,736 210,833 59,500 89,885 - Dec 2017 52,625 52,083 53,000 201,563 189,306 188,750 67,071 113,722 192,000 175,000 200,000 200,000 66,222 83,000 - Jan 2018 51,750 47,828 49,000 210,000 189,643 185,833 73,900 110,889 125,000 160,000 207,917 207,500 62,833 86,917 - Feb 2018 48,417 49,427 203,000 196,563 72,778 114,115 160,313 197,135 58,429 79,690 - Mar 2018 48,091 54,958 179,708 194,750 69,850 126,538 145,000 193,281 55,278 79,091 - Apr 2018 46,333 46,375 216,667 210,000 70,625 128,750 199,375 56,500 101,250 May 2018 46,500 49,333 35,000 190,000 170,000 195,000 72,500 130,000 141,000 155,000 206,667 147,000 61,000 85,000 Jun 2018 44,300 49,286 35,000 185,000 171,071 186,667 65,600 126,429 136,833 149,500 185,000 151,583 48,100 92,857 Jul 2018 43,833 42,167 35,000 185,000 145,000 190,000 63,167 125,833 136,000 137,500 186,667 152,500 46,333 85,000 Aug 2018 37,250 45,483 181,875 164,188 63,188 127,500 118,750 191,875 44,688 88,083 Sep 2018 35,182 40,855 360,000 328,788 63,591 119,377 118,409 190,269 47,727 80,758 Oct 2018 34,071 36,524 31,000 180,000 167,024 180,000 63,857 127,381 100,000 120,000 186,429 170,000 44,000 76,190 90,000 Dec 2018 42,667 52,528 36,000 168,750 158,889 140,417 66,958 117,917 118,750 121,667 185,333 180,833 59,375 75,375 101,208 Jan 2019 43,275 58,200 36,000 177,000 171,333 140,000 66,500 126,667 120,000 123,500 192,567 180,000 39,100 77,667 101,500 Feb 2019 43,111 65,241 39,000 180,000 184,630 180,000 78,000 133,889 120,000 127,778 197,963 170,000 36,556 76,019 101,500 Mar 2019 43,818 55,894 39,455 181,818 184,318 151,818 80,909 133,788 130,000 131,591 190,758 190,000 35,045 77,273 102,500 Apr 2019 65,333 61,361 42,000 181,667 180,278 172,500 88,833 135,000 130,000 132,500 187,500 190,000 43,333 82,222 102,500 May 2019 62,500 68,056 43,875 195,000 173,889 172,500 85,889 132,407 130,000 148,889 187,963 190,000 44,500 87,778 102,500 Jun 2019 64,889 71,185 45,000 181,667 166,481 172,500 92,333 126,296 130,000 148,056 183,333 190,000 42,056 88,148 102,500 Jul 2019 69,667 75,583 52,500 175,417 166,389 148,750 76,875 126,250 130,000 155,417 181,944 .. 49,208 85,694 102,500 Aug 2019 72,136 77,432 60,000 191,818 178,864 125,500 89,000 129,318 160,000 147,773 190,000 162,000 55,818 92,955 145,000 Sep 2019 77,432 74,545 64,200 194,091 185,455 127,833 77,500 121,591 160,000 155,000 191,648 160,800 53,591 91,023 102,778 Source: Ministry of Industry, Trade, and Marketing. The World Bank Group Macroeconomics, Trade and Investment Global Practice, Africa Region 65 PAGE TA N Z A N I A E C O N O M I C U P D AT E DECEMBER 2019, 13TH EDITION Annex 7. Food Crop Prices, National Average, TZS per 100Kg. Month-Year Beans Maize Rice Round Sorghum Potatoes Oct-17 164,917 54,389 187,154 67,159 88,898 Nov-17 178,769 50,819 184,648 67,466 74,251 Dec-17 175,313 61,403 192,401 70,613 74,916 Jan-18 177,044 49,880 194,294 76,226 76,809 Feb-18 178,078 48,530 199,295 70,096 72,135 Mar-18 166,248 45,876 180,224 69,901 78,402 Apr-18 170,814 42,662 195,546 69,903 76,637 May-18 174,587 41,850 170,953 70,984 91,327 Jun-18 165,421 42,722 160,081 74,153 87,824 Jul-18 161,234 41,283 153,053 77,358 68,168 Aug-18 153,881 40,520 146,181 79,721 80,448 Sep-18 154,304 39,908 247,492 81,736 76,052 Oct-18 158,810 33,865 175,675 81,558 70,063 Nov-18 Dec-18 162,611 43,731 156,019 86,598 78,653 Jan-19 165,356 45,825 162,778 82,434 72,756 Feb-19 165,247 49,117 181,543 75,069 71,358 Mar-19 160,394 49,663 165,725 - 78,159 Apr-19 159,606 54,027 166,172 - 76,864 May-19 163,601 59,160 167,412 - 76,486 Jun-19 162,802 59,851 164,936 - 81,557 Jul-19 161,636 62,560 162,267 - 77,945 Aug-19 159,109 66,110 158,675 - 86,729 Sep-19 167,866 71,046 169,732 - 91,400 Source: Ministry of Industry, Trade, and Marketing. PAGE 66 Annex 8. Balance of Payments, Percent of GDP, Except Where Noted Otherwise 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 1. CA balance (including transfers) -7.8 -7.1 -7.9 -13.1 -10.5 -10.7 -9.8 -6.5 -3.0 -3.8 -3.9 Exports of Goods 11.7 12.4 15.0 15.5 12.9 12.0 11.1 12.4 9.9 9.0 8.5 o/w Gold Import of Goods -21.6 -20.2 -20.1 -22.4 -25.3 -22.5 -23.5 -23.7 -20.6 -20.9 -21.7 Services ( net) 0.6 0.5 0.5 0.2 1.3 1.4 1.7 2.0 3.6 3.2 3.1 Trade balance -10.6 -9.1 -9.5 -14.1 -12.1 -12.3 -10.9 -7.4 -5.6 -5.9 -5.9 Income ( net) -1.1 -1.5 -1.9 -1.8 -1.5 -1.4 -1.8 -1.9 -1.9 -1.9 -1.9 Current transfers ( net) 3.4 2.9 3.0 2.6 1.9 1.6 1.2 0.7 0.9 0.8 0.8 2. Capital and financial account 8.3 8.9 10.3 11.5 12.2 10.1 7.9 6.1 5.3 4.5 4.3 Capital account 1.4 1.7 1.7 2.2 1.8 1.6 0.9 0.7 0.9 0.9 0.8 Financial account 6.9 7.2 8.5 9.4 10.4 8.5 7.0 5.3 4.5 3.6 3.5 o/w Direct investment 3.9 3.2 4.6 4.2 4.6 4.4 3.4 3.3 1.8 1.9 1.8 3. Net errors and omission -0.4 -0.2 -2.1 2.4 -0.6 1.1 1.4 -0.3 0.1 0.6 0.0 4. Overall balance 0.1 1.6 0.3 0.8 1.1 0.5 -0.6 -0.8 2.4 1.2 0.4 5. Reserves and related items -0.1 -1.6 -0.3 -0.8 -1.1 -0.5 0.6 0.8 -2.4 -1.2 -0.4 Reserves assets -0.9 -1.9 -0.4 -0.8 -1.4 -0.5 0.7 0.9 -2.3 -1.0 -0.2 Use of Fund credit and loans 0.9 0.3 0.1 -0.1 0.3 0.0 -0.1 -0.1 -0.2 -0.2 -0.2 Source: Bank of Tanzania, IMF, and World Bank. The World Bank Group Macroeconomics, Trade and Investment Global Practice, Africa Region 67 PAGE 68 Annex 9. Fiscal Framework, Percent of GDP PAGE 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 Actual Actual Actual Actual Actual Actual Actual Actual Prel. Actual Estimates Revenue and grants 15.3 15.9 15.4 15.6 14.0 14.8 16.3 15.7 14.3 18.0 Domestic revenue 11.9 12.6 12.8 13.5 12.8 14.3 15.3 14.9 14.0 17.1 Tax Revenues 11.0 11.3 11.7 12.3 11.6 12.8 12.9 12.6 11.6 14.2 Non-Tax Revenues 0.9 1.3 1.1 1.2 1.3 1.5 2.4 2.4 2.4 2.9 Grants 3.4 3.2 2.6 2.1 1.2 0.5 1.0 0.8 0.3 0.9 Program grants 2.2 1.8 1.2 0.9 0.6 0.1 0.3 0.3 0.1 0.2 TA N Z A N I A E C O N O M I C U P D AT E o/w Basket funds 0.7 0.5 0.4 0.3 0.1 0.1 0.2 0.1 0.0 0.1 Project grants 0.8 1.1 1.0 0.9 0.6 0.4 0.7 0.5 0.2 0.7 Expenditure and net lending 19.5 18.9 20.5 18.5 17.1 18.3 17.4 17.0 16.9 20.4 Recurrent Expenditure 13.9 12.2 14.3 13.7 12.8 13.8 10.7 10.7 10.4 11.5 Wages and compensation 4.9 4.8 5.1 5.3 5.4 5.8 5.2 4.6 5.0 5.6 Interest Payments 0.7 0.8 1.2 1.3 1.5 1.5 1.6 1.7 1.8 1.8 Domestic 0.6 0.6 0.9 1.0 1.1 1.0 1.1 1.1 0.0 1.1 Foreign 0.1 0.2 0.3 0.3 0.4 0.5 0.5 0.6 1.8 0.7 Goods, services, and transfers 8.3 6.7 8.0 7.1 5.9 6.5 4.0 4.4 3.6 4.0 Development Expenditure 5.7 6.6 6.2 4.9 4.4 4.5 6.7 6.3 6.5 9.1 Domestically financed 2.0 3.3 2.9 2.5 2.7 3.0 4.7 4.5 5.0 7.2 Foreign financed 3.7 3.3 3.3 2.4 1.7 1.5 2.0 1.8 1.5 1.9 Overall balance (including grants) -4.3 -3.0 -5.1 -2.9 -3.1 -3.5 -1.1 -1.9 -3.2 -2.3 Financing 4.8 3.6 5.0 3.3 3.3 3.5 1.5 1.9 3.2 2.3 DECEMBER 2019, 13TH EDITION Foreign financing (net) 2.2 3.0 3.9 3.0 3.1 1.4 1.6 1.4 0.9 1.3 Gross foreign borrowing 2.3 3.2 4.1 3.3 3.4 2.0 2.6 2.5 0.0 2.9 Program loans 0.8 0.7 0.8 1.0 0.6 0.5 0.2 0.1 0.0 0.1 Project loans 1.3 1.0 1.1 0.7 0.8 0.8 1.2 1.2 0.0 1.1 Nonconcessional loans 0.2 1.4 2.2 1.6 2.0 0.7 1.2 1.2 0.0 1.7 Amortization -0.1 -0.1 -0.2 -0.2 -0.3 -0.6 -0.8 -1.1 0.0 -1.5 Domestic borrowing (net) 2.6 0.6 1.1 0.3 0.2 2.1 -0.1 0.5 2.3 1.1 Source: Tanzania authorities, IMF, and World Bank. Annex 10. Monetary Aggregates, Percent of GDP, Except Where Noted Otherwise 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Monetary aggregates M3 as % of GDP 22.9 24.6 24.1 23.5 22.1 22.5 23.4 21.1 20.8 20.3 M2 as % of GDP 17.2 18.0 17.1 17.2 16.3 16.8 16.7 15.3 15.4 15.0 M3 growth rate (%) 17.7 25.4 18.2 12.5 10.0 15.6 18.8 3.4 8.0 4.5 M2 growth rate (%) 20.8 21.8 15.0 16.0 10.9 17.0 13.4 5.3 10.4 3.8 Domestic credit Total Domestic credit (% of GDP) 13.3 15.2 16.8 17.7 17.7 19.4 21.6 19.3 17.0 17.5 Total domestic credit growth ( %) 21.3 32.8 33.8 21.3 17.4 24.1 26.8 2.5 -3.4 10.1 Private Sector credit ( % of GDP) 13.0 13.4 14.1 14.5 14.2 15.0 16.4 15.3 14.2 14.0 Private Sector credit growth ( %) 9.6 20.0 27.2 18.2 15.3 19.4 24.8 7.2 1.7 4.9 Interest rates structure Overall Tbills rate ( period average, %) 8.3 4.8 8.3 13.6 13.6 13.6 12.9 16.2 11.1 6.4 Average lending rate (%) 15.0 14.6 15.0 15.6 15.6 16.2 16.1 16.0 17.6 17.3 Average deposit rate( %) 6.8 5.9 6.3 8.4 8.3 8.4 8.9 9.2 10.0 8.2 Source: Bank of Tanzania. The World Bank Group Macroeconomics, Trade and Investment Global Practice, Africa Region 69 PAGE TA N Z A N I A E C O N O M I C U P D AT E DECEMBER 2019, 13TH EDITION Annex 11. Interest Rates Structure, Percent Item (Percent) 2018 2019 Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug A: Domestic Currency 1. Interbank Cash Market Rates Overnight 1.9 1.9 2.1 2.4 3.0 3.5 4.5 5.3 5.2 5.3 5.5 5.0 4.6 2 to 7 days 2.4 2.7 2.6 3.1 3.4 3.9 5.3 5.8 5.8 5.8 5.8 5.4 4.9 8 to 14 days 2.7 3.3 2.9 3.9 4.1 4.8 5.7 6.3 6.4 6.2 6.2 5.6 5.4 15 to 30 days 4.0 4.0 4.3 4.3 4.7 4.5 5.0 7.0 7.2 7.2 6.9 5.5 5.8 31 to 60 days 5.0 5.0 5.0 5.0 5.0 5.0 5.0 6.7 7.0 7.3 7.8 6.1 6.3 61 to 90 days 2.5 2.5 2.5 2.5 2.5 2.5 2.5 8.0 10.0 10.0 10.0 10.0 10.0 91 to 180 days 15.0 15.0 15.0 15.0 15.0 15.0 15.0 15.0 15.0 15.0 .. .. .. 181 and above 12.9 12.9 12.9 12.9 12.9 12.9 12.9 12.9 12.9 12.9 .. .. .. Overall Interbank cash market rate 2.2 2.3 2.3 2.7 3.3 3.7 4.7 5.6 5.5 5.6 5.7 5.4 4.9 2. Lombard Rate 4.0 4.1 4.1 4.1 4.5 6.8 6.8 7.9 7.8 8.0 8.2 7.6 7.0 3. REPO Rate 2.4 2.4 2.4 2.4 2.4 4.5 4.5 4.5 4.5 4.5 4.5 4.5 4.5 4. Reverse REPO Rate 3.8 4.3 5.4 6.6 4.8 4.1 4.2 5.7 5.1 5.1 5.3 5.8 5.4 5.Treasury Bills Rates 35 days 2.7 2.7 2.7 2.7 3.0 3.0 3.1 3.3 3.4 3.5 3.6 3.8 3.7 91 days 3.0 3.0 3.0 3.0 3.5 3.5 3.7 3.8 4.1 4.1 4.3 4.4 4.4 182 days 5.3 5.1 5.0 5.2 5.3 5.3 5.3 5.2 5.3 5.1 5.2 5.2 5.2 364 days 8.1 8.0 8.1 8.6 9.2 9.3 9.2 9.2 9.1 9.1 9.0 8.3 7.7 Overall Treasury bills rate 7.6 7.2 7.4 8.2 8.7 8.5 8.7 8.7 8.2 8.6 8.7 8.2 7.7 6.Treasury Bonds Rates 2-years 9.0 9.0 10.5 10.5 10.5 11.4 11.4 11.4 12.0 12.0 12.0 12.0 11.1 5-years 11.9 11.9 11.9 12.0 12.0 12.0 12.7 12.7 12.7 13.0 13.0 13.0 13.0 7-years 12.3 12.3 12.3 12.6 12.6 12.6 13.2 13.2 13.2 13.2 13.2 13.2 13.2 10-years 14.4 14.4 14.4 14.4 14.9 14.9 14.9 15.1 15.1 15.1 15.7 15.1 15.2 15-years 14.8 14.8 15.0 15.0 15.0 15.5 15.5 15.6 15.6 15.6 15.7 15.7 15.7 20-years 17.7 17.7 17.7 17.7 17.7 17.4 17.4 17.4 17.4 17.4 17.4 17.4 7. Discount Rate or Bank Rate 7.0 7.0 7.0 7.0 7.0 7.0 7.0 7.0 7.0 7.0 7.0 7.0 7.0 8. Savings Deposit Rate 2.7 2.7 2.6 2.6 2.6 2.6 2.5 2.6 2.5 2.4 2.4 2.5 2.4 9. Overall Time Deposits Rate 7.6 8.2 7.8 7.7 7.5 7.3 7.2 7.6 7.4 7.6 7.4 7.3 7.0 1 month 8.2 8.8 9.7 9.8 8.9 9.2 9.7 9.2 8.5 8.9 8.6 8.2 8.3 2 months 8.3 9.4 8.3 7.6 8.2 7.3 7.2 8.3 8.3 7.9 7.4 7.7 4.9 3 months 7.9 8.0 7.3 7.6 7.3 6.6 6.8 8.0 7.4 7.6 7.6 6.8 7.6 6 months 8.4 8.8 8.1 7.4 7.4 7.4 7.5 8.0 8.1 8.3 8.3 8.5 8.0 12 months 7.8 7.4 8.0 7.9 8.4 8.7 8.5 9.0 8.1 8.9 9.1 9.1 8.9 24 months 11.9 13.7 11.4 11.3 10.3 10.1 9.8 9.5 9.7 9.9 9.8 9.8 9.8 10. Negotiated Deposit Rate 9.4 9.0 8.4 8.9 9.2 8.8 9.1 8.8 9.1 8.7 8.8 8.7 9.0 11. Overall Lending rate 17.1 17.5 17.1 17.0 16.7 17.2 16.8 17.2 17.2 17.2 16.9 16.9 16.8 Short-term (up to 1year) 18.2 18.7 17.8 18.2 17.8 17.0 16.4 17.5 16.9 17.0 16.4 16.3 16.3 Medium-term (1-2 years) 17.9 18.3 17.8 17.7 17.6 18.2 18.0 17.8 18.3 18.2 18.2 18.3 18.2 Medium-term (2-3 years) 17.4 17.8 17.4 17.3 17.1 17.8 17.3 19.0 17.9 17.8 17.6 17.4 17.5 Long-term (3-5 years) 16.8 17.1 16.7 16.6 16.2 17.1 16.9 16.8 16.7 17.1 16.6 16.7 16.6 Term Loans (over 5 years) 15.2 15.8 15.9 15.1 14.9 16.1 15.5 15.1 16.2 15.7 15.6 15.7 15.2 12. Negotiated Lending Rate 15.9 15.7 14.9 15.9 15.3 14.9 14.8 14.6 14.6 15.3 14.4 14.4 14.3 B: Foreign Currency Savings Deposits Rate 0.7 1.1 0.7 1.6 1.9 2.0 2.1 1.7 1.8 1.7 2.1 2.2 2.3 Overall Time Deposits Rate 3.5 3.5 3.5 3.6 3.6 3.4 3.2 3.1 3.1 2.6 2.8 2.3 2.3 1-months 3.4 3.4 3.5 3.2 3.4 3.3 3.3 2.7 2.8 1.6 1.9 1.8 2.2 2-months 3.2 3.9 4.0 4.5 4.6 4.5 3.2 2.9 3.3 2.8 3.4 3.0 3.2 3-months 3.8 3.5 3.1 3.3 3.3 3.2 2.7 3.5 3.7 2.3 2.9 2.3 1.9 6-months 4.1 3.5 3.9 3.6 3.3 3.2 3.4 3.1 2.9 2.8 2.4 1.7 1.9 12-months 3.0 3.3 3.1 3.3 3.4 3.1 3.3 3.1 3.1 3.4 3.5 2.5 2.4 Overall Lending Rate 8.0 5.9 6.9 7.7 8.3 8.0 7.7 7.6 7.5 8.2 8.1 8.0 7.5 Short-term (up to 1year) 8.7 7.1 7.3 7.5 8.9 6.8 6.8 8.2 8.2 8.5 7.9 7.6 7.5 Medium-term (1-2 years) 8.0 5.7 6.9 8.1 9.2 8.4 8.2 5.9 5.4 8.4 8.4 8.6 8.6 Medium-term (2-3 years) 7.6 4.6 7.2 7.5 7.8 8.0 7.6 7.8 7.9 7.7 7.6 8.3 8.3 Long-term (3-5 years) 8.1 5.6 6.2 8.1 8.2 8.9 8.0 8.0 8.0 8.4 8.3 7.7 7.7 Term Loans (over 5 years) 7.4 6.7 7.0 7.4 7.5 8.0 8.0 7.9 7.9 8.0 8.0 8.0 5.4 Source: Bank of Tanzania. PAGE 70 The World Bank Group Macroeconomics, Trade and Investment Global Practice, Africa Region Annex 12. National Debt Developments, US$ Millions USD mn 2018/19 2019/20 Item Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug 1. Overal External Debt Committed/2 27,972 28,292 28,436 28,761 28,909 29,293 28,989 28,882 29,111 29,574 29,516 29,057 Disbursed outstanding debt 18,775 18,891 19,122 19,254 19,370 17,724 19,641 19,715 19,755 20,029 20,287 19,877 Undisbursed debt 9,196 9,401 9,314 9,507 9,538 9,569 9,348 9,167 9,355 9,545 9,228 9,180 2. Disbursed Debt by Creditor Category/2 18,775 18,891 19,122 19,254 19,370 19,724 19,641 19,715 19,755 20,029 20,287 19,877 Bilateral debt 1,003 989 995 1,025 1,034 1,033 1,033 1,035 1,042 1,057 1,052 1,057 Multilateral debt 9,531 9,635 9,596 9,719 9,816 9,862 9,853 9,849 9,885 9,966 9,737 9,664 Commercial debt 6,372 6,276 6,494 6,472 6,484 6,779 6,706 6,818 6,801 6,923 7,422 7,149 Export credits 1,869 1,992 2,036 2,038 2,036 2,049 2,050 2,013 2,027 2,083 2,077 2,007 3. Disbursded Debt by Borrower Category/2 18,775 18,891 19,122 19,254 19,370 19,724 19,641 19,715 19,755 20,029 20,287 19,877 Central Government 14,850 14,957 14,943 15,107 15,216 15,436 15,369 15,441 15,477 15,727 15,804 15,713 Parastatal Companies 168 167 167 137 138 126 125 127 125 95 94 83 Private Sector 3,758 3,767 4,012 4,010 4,017 4,163 4,147 4,147 4,154 4,207 4,389 4,081 4. Disbursed Debt by Use of Funds/2 18,775 18,891 19,122 19,254 19,370 19,724 19,641 19,715 19,755 20,029 20,287 19,877 BOP & Budget Support 2,766 2,727 2,755 2,753 2,765 2,955 2,948 2,931 2,927 2,836 2,822 2,824 Transport & Telecommunication 4,058 4,220 4,280 4,302 4,325 4,312 4,296 4,382 4,425 4,634 4,957 4,794 Agriculture 1,216 1,211 1,224 1,243 1,252 1,251 1,252 1,248 1,246 1,256 1,253 1,258 Energy & Mining 2,990 2,960 2,994 3,016 3,020 3,069 3,093 3,067 3,070 3,105 3,097 3,082 Industries 640 650 664 656 657 657 662 660 658 666 663 640 Social Welfare & Education 2,959 2,967 3,004 3,009 3,049 3,151 3,150 3,201 3,209 3,254 3,237 3,272 Finance and Insurance 1,045 1,042 1,052 1,185 1,193 1,222 1,218 1,193 1,191 1,186 1,182 1,018 Tourism 109 116 118 152 152 152 152 171 171 171 171 169 Real Estate and Construction 1,076 1,078 1,087 1,079 1,091 1,091 1,072 1,071 1,069 1,109 1,117 1,113 Others 1,916 1,920 1,944 1,859 1,866 1,864 1,798 1,791 1,789 1,812 1,788 1,707 5. Total Amount of Loan Contracted/1 7 0 0 19 14 32 12 15 4 1 1 0 Government 0 0 0 0 0 0 0 0 0 0 0 0 Parastatal Companies 0 0 0 0 0 0 0 0 0 0 0 0 Private 7 0 0 19 14 33 12 15 4 1 1 0 6. Disbursements/1 95 98 46 183 57 299 64 174 61 292 335 25 Government 86 98 45 183 43 261 62 174 61 262 335 24 Parastatal Companies 0 0 0 0 0 0 0 0 0 0 0 0 Private 9 0 2 0 14 38 2 0 1 30 1 1 7. Actual Debt Service/1 139 29 74 150 44 83 131 55 60 161 4 388 Principal 102 16 46 108 18 70 98 38 27 114 1 365 Interest 37 12 29 42 26 13 34 17 33 46 3 23 Others 0 0 0 0 0 0 0 0 0 0 0 0 8. Net Flows on debt/1 -7 81 1 75 39 229 -34 136 34 177 334 -340 9. Net transfers on debt1 -44 69 -28 33 13 216 -67 119 1 131 331 -363 10.Arrears by Creditors Category/2 4,428 4,386 4,448 4,436 4,506 4,603 4,729 4,733 4,726 4,789 4,863 4,604 Principal 2,647 2,587 2,643 2,630 2,684 2,752 2,850 2,860 2,845 2,898 2,918 2,726 Bilateral 321 311 309 316 321 321 318 321 319 621 320 316 Multilateral 104 114 115 119 123 133 142 117 118 117 118 111 Commercial 1,183 1,176 1,174 1,097 1,131 1,156 1,224 1,264 1,260 1,282 1,286 1,242 Export Credits 1,039 986 1,045 1,098 1,109 1,141 1,166 1,158 1,148 1,178 1,194 1,058 Interest 1,780 1,799 1,805 1,807 1,823 1,851 1,879 1,873 1,881 1,892 1,945 1,878 Bilateral 847 850 847 883 889 891 893 893 895 901 900 902 Multilateral 33 38 38 40 40 42 43 29 29 25 25 29 Commercial 537 569 572 508 516 534 550 554 553 536 590 587 Export Credits 363 342 349 376 378 384 393 397 404 429 430 361 11. External Debt Stock 20,556 20,690 20,927 21,061 21,193 21,575 21,520 21,588 21,636 21,921 22,232 21,755 12. Domestic Debt Stock 6,181 6,162 6,300 6,382 6,223 6,146 6,162 6,484 6,779 6,492 5,957 61,448 13. Total Debt Stock 26,737 26,852 27,226 27,443 27,416 27,721 27,682 28,071 28,415 28,413 28,190 27,903 End Period Exchange Rate 2,289 2,291 2,290 2,293 2,295 2,290 2,290 2,290 2,289 2,290 2,289 2,289 Source: Ministry of Finance and Bank of Tanzania. Note: 1During the period. 2Position at the end of the period. PAGE 71 TA N Z A N I A E C O N O M I C U P D AT E DECEMBER 2019, 13TH EDITION Annex 13. Poverty by Geographical Region Poverty Distribution of Poverty Distribution Headcount the Poor Headcount of the Poor HBS 2011/12 HBS 2011/12 HBS 2017/18 HBS 2017/18 1 Basic Needs Poverty Line = TSh 36,482 Urban 15.5 15.9 15.8 19.0 Rural 33.3 84.1 31.3 81.0 Regions Urban 21.7 14.4 15.8 16.0 Rural 33.3 84.1 31.3 81.0 Dar es Salaam 4.1 1.5 8.0 3.0 Total 28.2 100.0 26.4 100.0 1 Food Poverty Line = TSh 26,085 Urban 6.0 17.7 .. .. Rural 11.3 82.3 .. .. Regions Urban 8.7 16.7 .. .. Rural 11.3 82.3 .. .. Dar es Salaam 1.0 1.0 .. .. Total 9.7 100.0 8.0 100.0 Source: National Bureau of Statistics. Note: 1 Monthly expenditure per adult. Annex 14: Papers and Policy Briefs produced by the World Bank Advisory Services & Analytics Project, “Closing the Potential-Performance Divide in Tanzanian Agriculture” (P165427). 1. The Changing Face of Agriculture in Tanzania: Indicators of Transformation1. 2. Characteristics and Spillover Effects of Medium-Scale Farms in Tanzania2. 3. Agricultural Policy and Market Distortions in Tanzania: A Synthesis of The Evidence. 4. Trade Policy and Agriculture Performance. 5. The Agribusiness Enabling Environment in Tanzania. 6. Opportunities to Strengthen Performance of The Seed Sector. 7. Addressing the Food Safety Threat to Human Capital Development & Private Investment in Tanzania. 8. Maximizing Finance for Development of Agriculture in Tanzania. 9. Building a Climate-Resilient Agri-food System in Tanzania. 10. Pathway to Improved Production Runs Through Water Security. 11. Beyond Rock Bottom: Cultivating Integrated Soil Fertility Management in Tanzania. 1 Available in full report format and in policy brief format. 2 Ibid. PAGE 72 The World Bank Group Macroeconomics, Trade and Investment Global Practice, Africa Region References ACT (Agricultural Council of Tanzania). 2013. “Study on Produce Cess Taxation System in Tanzania.” Project Report, Center for Sustainable Development Initiatives (CSDI). Dar es Salaam, Tanzania. AGRA (Alliance for a Green Revolution in Africa). 2019. Africa Agriculture Status Report: The Hidden Middle: A Quiet Revolution in the Private Sector Driving Agricultural Transformation (Issue 7). Nairobi, Kenya: Alliance for a Green Revolution in Africa. Baffes, J.; V. Kshirsagar; and D. Mitchell. 2019. What Drives Local Food Prices? Evidence from the Tanzanian Maize Market. The World Bank Economic Review, 33(1) 160–184. Available at: doi: 10.1093/wber/lhx008 Delgado, C.; J. 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