issue 13documents.worldbank.org/curated/en/213061575479179256/... · 2019-12-04 · the world bank...

http://www.worldbank.org/tanzania/economicupdate

TRANSFORMING AGRICULTURERealizing the Potential of Agriculture for Inclusive

Growth and Poverty Reduction

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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 World Bank Group Macroeconomics, Trade and Investment Global Practice, Africa Region

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Table of Contents

Abbreviations and Acronyms ................................................................ iii

Acknowledgements .................................................................................iv

Overview ................................................................................................... 1

Part One: The State of the Economy ...................................................... 9

1.1 RecentEconomicDevelopments....................................................................................... 10

1.2 MacroeconomicOutlookandRisks..................................................................................23

Part Two: Transforming Agriculture ................................................... 29

2.1 StrategicNeeds,Opportunities,andChallengesforAgriculture................................30

2.2 StrategicConsiderationsinCarryingOutAgricultureStrategies................................32

2.3 Tanzania’sAgriculturalTransformationinPractice,2008–14......................................35

2.4 PolicyandRegulatoryIssuesinSustainingAgriculturalTransformation..................41

2.5 IncreasingInvestmentinAgriculture................................................................................47

2.6 Conclusions...........................................................................................................................53

Annexes .................................................................................................. 59References .............................................................................................. 73

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BoxesBox1:PrivateInvestmentandSustainableGrowth,JobCreation,andPovertyReduction............................ 28

Box2:StrategiesforMakingAgriculturalWaterMoreProductive...................................................................... 52

FiguresFigure1:GlobalTrendsinGDPGrowth,2016–21...................................................................................................10

Figure2:EnergyandMetalPrices...............................................................................................................................11

Figure3:H1GrowthbySector,2018–19,Percent...................................................................................................12

Figure4:Inflation,2019-19,Percent............................................................................................................................13

Figure5:PublicDebt,2017-19,Percent......................................................................................................................15

Figure6:GrowthinDomesticCreditandM3,2018-19,Percent..........................................................................16

Figure7:CommercialLendingRates,2018-19,Percent.........................................................................................16

Figure8:CurrentAccountDeficit,2016–19..............................................................................................................18

Figure9:ExportsandImports,2016–19,PercentGrowth.....................................................................................18

Figure10:OfficialGrossReservesandForeignInflows,2015-19..........................................................................18

Figure11:NominalExchangeRate,2018–19,Percent............................................................................................19

Figure12:RealEffectiveExchangeRate,2018–19,Percent...................................................................................19

Figure13:EaseofDoingBusinessRankings,2020,Percent................................................................................ 20

Figure14:Tanzania’sDoingBusinessRankingsbyCategory,2020.................................................................... 20

Figure15:NumberofPoorPeople,2007,2012,and2018.................................................................................... 22

Figure16:SectorofEmploymentbyPovertyStatus,2018................................................................................... 22

Figure17.CompositionoftheMinistryofAgricultureBudget,2011–17............................................................ 48

TablesTable1:FiscalTrends,2016–20,Percent...................................................................................................................14

Table2:Medium-TermOutlook,AnnualPercentChangeUnlessOtherwiseIndicated................................. 24

Table3:GovernmentActionstoImproveBusinessEnvironmentAssumedintheBaselineOutlook,Short-andMedium-Term............................................................. 26

Table4:GovernmentActiontoImproveFiscalPolicyManagementAssumedintheBaselineOutlook,Short-andMedium-Term............................................................. 27

Table5:Employment,ThousandsofWorkers......................................................................................................... 28

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Abbreviations and Acronyms

ACT AgriculturalCouncilofTanzaniaASDP AgricultureSectorDevelopmentProgramBOT BankofTanzaniaCAADP ComprehensiveAfricaAgricultureDevelopmentProgramCAD CurrentAccountDeficitCSDI CentreForSustainableDevelopmentInitiativesCPI ConsumerPriceIndexEAC EastAfricanCommunityEPZ ExportProcessingZonesFAO FoodandAgricultureOrganizationFDI ForeignDirectInvestmentFSA FarmServiceAgencyFSAP FinancialSustainabilityAssessmentProgramFYDP Five-YearDevelopmentPlanGDP GrossDomesticProductICT InformationandCommunicationTechnology IMF InternationalMonetaryFundMAFAP MonitoringandAnalyzingFoodandAgriculturalPoliciesMDAs Ministries,Departments,andAgenciesMFD MaximizingFinanceforDevelopment MIT MinistryofIndustryandTradeMMT MillionMetricTonsMOFP MinistryofFinanceandPlanningNAIVS NationalAgriculturalInputVoucherScheme NBS NationalBureauofStatisticsNFRA NationalFoodReserveAgencyNPL NonperformingLoanNBS NationalBureauofStatisticsNPS NationalPanelSurvey QDS QualityDeclaredSeedSSA Sub-SaharanAfricaSMSE SmallandMediumScaleEnterprisesTANESCO TanzaniaElectricSupplyCompanyLimitedTASAF TanzaniaSocialActionFundTFDA TanzaniaFoodandDrugsAuthority TNBC TanzaniaNationalBusinessCouncil TOSCI TanzaniaOfficialSeedCertificationInstituteTRA TanzaniaRevenueAuthorityTZS TanzanianshillingUNIDO UnitedNationsIndustrialDevelopmentOrganizationUS$ UnitedStatesDollarVAT Value-AddedTax


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Acknowledgments

This thirteenth edition of theTanzania Economic Update wasprepared by a joint World Bank teamfrom the Macroeconomics, Tradeand Investment, Poverty, Finance,Competition, and Innovation,and Agriculture and Food GlobalPractices. Members of the teamwere Emma Isinika-Modamba,Christopher Delgado, Sarah Simons,Rob Swinkels, Fatima Freeha, NeemaMwingu,GileadTeri,SolomonBaregu,Miguel Saldarriaga, Loy Nabeta, andEmmanuel Mungunasi. John Litwack,Christopher Brett, and David Nyangeprovide useful insights. WilliamBattaileprovidedoverallsupervision.

Bella Bird (Country Director forTanzania, Malawi, Zambia andZimbabwe, AFRVP), Abebe Adugna(PracticeManager,E1M1),HolgerKray(PracticeManager,SAFA3),andPreetiArora (Country Program Coordinator,AFCTZ) provided guidance andleadership throughout preparation ofthereport.

Anne Grant provided editorialassistance, and Faustina Chande,Diana Mwaipopo, Lydie Ahodehou,Faith-Lucy Matumbo and AbdulMuhilemanageddesignandprinting.

The World Bank Group Macroeconomics, Trade and Investment Global Practice, Africa RegionTA N Z A N I A E C O N O M I C U P D AT E DECEMBER 2019, 13TH EDITION The World Bank Group Macroeconomics, Trade and Investment Global Practice, Africa Region

PAGE1

Overview

The World Bank Group Macroeconomics, Trade and Investment Global Practice, Africa Region


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State of the Economy

Tanzania was again one of the top growth performers in the region.Official GDP figures show that growthremainedsteadyinthefirsthalfoftheyear(6.9percentin2019H1comparedto 6.8 percent in 2018 H1), driven byhigher public investment and by arecovery in exports. The independentviewofWorldBankstaffalsosuggestsslightly improved economic activityin 2019 but at a lower rate of growth,5.6 percent, up from our 5.4 estimatefor 2018. Inflation has been low andstableand thebalanceofpayments isquitesounddespiteawideningcurrentaccount deficit. Exports are recoveringfrom last year’s contraction. As ofSeptember 2019, gold exports, whichaccountfor40percentofnontraditionalexports,wereup26percentbecauseofbothhighervolumesandhigherprices,and exports of manufactured goodshadrisenby33percent.Thankstomorearrivals,earningsfromtourismalsorose9percent.

Fiscal management needs to be strengthened, especially given the intensification of spending pressures in advance of elections. Revenueforecastingisweak,underminingbudget

credibilityandresultinginaccumulationof arrears and commercial domesticdebt. Moreover, spending pressuresare rising as elections near: Tanzaniaheld local elections in November 2019and will conduct a general election inOctober2020.Thishaspusheduppublicrecurrentspending.Incombinationwithunderperforming domestic revenueand the pressure of public investmentinlargeinfrastructureprojects,thefiscaldeficit has widened from 1.9 percentof GDP in 2017/18 to 3.2 percent in2018/19. Spending pressures are likelyto continue, and fiscal managementmust be firm to ensure that priorityservices, especially education andhealth, are adequately funded. Theambitiousrevenuetargetof17.1percentofGDP(inthepreviousfiscalyear14.0percentwasactuallycollected)andthehigherbudgetedspendingmaymakeitdifficulttoachievethefiscaldeficitgoalof2.3percentofGDPin2019/20.

Public debt is still sustainable, despite the recent jump in domestic borrowing.ThoughTanzania isat lowrisk of debt distress, commercial debtasashareoftotalpublicdebthasrisenbecausedomesticdebthasrisenby2.3


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percentofGDPtofinancethe2018/19budget. This adds to the debt servicebill, which already consumes nearly40 percent of domestic revenue andputs upward pressure on commercialrates for lending to the private sector.Moreover, arrears are not beingtracked transparently, which raisesconcerns about how well the MinistryofFinanceandPlanning (MoFP) tracksthe effectiveness of fiscal policy. It isimportantforthegovernmenttocloselymonitorthedebtportfolioandprioritizeconcessional borrowing as much aspossible.

Progress in reforming Tanzania’s business environment has been slow. Tanzania trails its regional peersin terms of actual reforms. Accordingthe World Bank Doing Business Report 2020, Tanzania ranks 141 out of 190economies in ease to doing business,trailing Rwanda, Kenya, and Ugandaand Sub-Saharan peers like Zambia,Malawi, and Mozambique. Despite anapparent government turn-around initsworkofamendingtheStatisticsAct,opening consultations for drafting theBusiness Facilitation and Investmentbill, and passing the Finance Act 2019,theprivatesectorstillfindsthebusinessenvironmentunpredictableandcallsforfaster reforms, particularly in terms ofbusinessregulation.

Growth prospects remain positive but sustainability is a concern unless private investment takes a larger role. Accelerating external headwinds makeit more urgent for Tanzania to adopt

policiesthatbolsterprivate investmentand improve growth sustainability andresilience. Bank staff expect real GDPto grow by about 6 percent over themedium term, but that will dependon the speed of reforms to improvefiscal management and the businessenvironment for private investmentand growth. The main downside riskiscontinuedslowrealizationofreformsas global conditions weaken. Overthe medium term a drop in globaldemand, tighter financing conditions,higher international energy prices,and more volatile commodity pricescouldheightenuncertainty,discourageinvestment,andthusreducegrowth.

Special Topic: Transforming Agriculture

The Government’s Tanzania Development Vision 2025 and the Five-Year Development Plan (FYDP II) set out ambitious goals for reducing poverty and sustainably industrializing so that the country can achieve middle-income status by 2025. Thegovernment recognizes agricultureas central to realizing its objectives ofsocioeconomic development, whichare well-articulated in the Second Agriculture Sector Development Program (ASDP II). Among the goalsofASDP IIare to transformagricultureby promoting commercialization,prioritizing high-potential commodityvalue chains, and mobilizing capitalby giving the formal private sector agrowingroleinagriculture.


Because agriculture and related value chains drive two-thirds of all jobs—three-quarters for the poor—the sector is central to creating more and better jobs at scale and significantly reducing poverty. Butsuch growth will require transformingagriculture,whichmayexplainwhytherates of growth and poverty reductiondiscussedinthefirstpartofthisreportare not yet high enough to achieveTanzania’s aspirations. “Transformingagriculture” is typically done by usingmorepurchasedinputsperunitofland,hiringmore labor,andcultivatingmoreland. Farmers typically become moreinvolved in output markets for higher-value products, and value chains fromfarm to table lengthen. Agriculturemoves incrementally from a low-productivity subsistence activity to acommercialized high-productivity one.Average labor productivity—and thusfarm incomes—will always rise withagricultural transformation. Usually,so will returns to land, although howmuchtheyrisemaydependonwhetherunusednewlandisavailableatlowcosttoexpandcultivation.

A number of factors have been driving the demand side for at least a decade, quietly laying the groundwork for transforming Tanzanian agriculture. Aftertheglobalfoodpricecrisisof2008,pricesoffoodrelativetootherconsumeritems jumped by about 50 percent.Unlike much of the rest of the world,theystayedhigher inTanzaniaandtherest of East Africa and continue to do

so, leading to a structural realignmentof price incentives. Meanwhile, andrelatedly,rapidgrowthinGDPinTanzaniaandtherestofEastandSouthernAfricahelped fuel rapid growth in domesticdemand for more highly processedfoods and higher-priced calories from,e.g. animal products and horticulture.Regional food trade also expandedrapidly, especially for high-value andmore-processeditems.

Along with these demand trends, there has been significant change on the supply side, especially the proliferation of medium-sized farms in Tanzania, from 23 percent of all farm land holdings in 2008 to 35 percent in 2014. The present reportwilldrawonextensive recentempiricalwork (listed in Annex 14 and availableseparately) that documents thegrowing medium-scale farm segmentthat employs, invests, and attractsservices,ineffectlaunchingagriculturaltransformation at scale. These farmsare in the 5–20 hectare (ha) range,compared to the typical smallholdingof 1–2 ha. Tanzania also saw a steadydecline in theproportionof farms thatwere primarily subsistence-orientedand small-scale—from 43 percent ofallfarmsin2008to31percentin2014.Between2008and2014,therealvalueof aggregate agricultural productiongrewbyover8percentannually,buttheabsolute share of medium-sized farmsin total agricultural products sold rosebyabout2percentannually,ending in2014at33.4percent, compared to3.8


percent for large farms (> 20 ha) and62.8percentforsmallfarms(<5ha).

Most important for scaling and inclusion is that the growth in medium-scale farms has produced strong, positive spillover effects on smallholders that are enhancing their economic inclusion. About half ofmedium-scale farms have “graduated”fromsmall-scalestatusandtheirsuccessstorieshavepotentialtopullalongotherfarmers.Medium-scalefarmersnotonlyhavestrongcommunitylinks,theyalsohave a market orientation and links toothersectors,theyinvestintechnologyand knowledge, and they attractcommercialservicesthatcanprovideabasis for agri-food-based tax revenue.In areas with greater concentrationsof medium- and large-scale farms,small-scalefarmsaremorelikelytouseimprovedseedandfertilizer,tocultivatealargerproportionoftheirland,andtoreceiveagriculturalextensionandcredit.Mediumandlargerfarmshavealsobeenshowntohelpsmallholdersinthesamezonestoincreasetheirincomesbytheirdemandfor labor.Medium-scalefarmsalsogenerateeffectivedemandforlocalnonfarm production and services thatofferoptionsforhouseholdsseekingtomovebeyondsmallholderfarming.

Despite the centrality of agricultural transformation for the success of present national development plans, the favorable demand trends noted, and the encouraging signs from the growth of medium-scale farming, agricultural performance in recent

years has been enigmatic. Privateformal agribusiness investmentshave been modest. Comparison ofagricultural census and householdsurvey data for 2007–16 shows thatlandcultivatedexpandedby7.7percentannually; yet average land productivityinvaluetermsstagnatedatlessthan0.4percent annually, and land expansionaccounted for most agriculturalgrowth. Average labor productivity inagriculture does appear to be risingmodestly at about 1 percent annually,mostly because of a drop in averagelabor input/ha. According to theofficial national accounts data, growthin agricultural GDP averaged only 3.5percentfrom2006to2016,butitseemstohavegrownat6.3percentannualizedin the first half (H1) of 2018 and 5.1percentin2019H1.Thus,forTanzanianagriculturethesignsarepromising,butprogresswillneedtoacceleratetomeetnational targets. A review of currentsectoral policies in the topical studieslistedinAnnex14anddiscussedbelowsuggestsscopeforpolicychangesthat,should the government wish to do so,wouldovertimesubstantiallyspeedupgrowth.

Here trade restrictions stand out as an area for further reform, notwithstanding recent government efforts to improve incentives for agribusiness, including local and national fiscal reforms. The mostcounter-productive case is the useof export bans for maize and rice as ashort-termpricestabilizationtool,oftenwithadomesticfoodsecurityobjective.


Analysis has found that the costs thatgrain export bans create for farmersand the imposing country far exceedany benefit to domestic consumers.These export bans are sometimesreplaced by export taxes, but thesealso cut incentives to farmers, or byimporttariffstoprotectlocalproducers.Overtime,commoditytaxesandtariffsboth increase rather than decreaseprice volatility. Agricultural commoditytaxes and tariffs typically benefittraders and processors more thanfarmersorconsumers,tothedetrimentof expanding trade. From a growthperspective,restrictionsonfoodexportsdeprive the country of opportunitiesto expand to serve growing regionalmarkets.Since2017,centralauthoritieshavetriedtolimittheuseofexportbansby promoting alternative policies thatstabilize the prices of staples, which ifmaintainedwillhavepositiveresults.

Improving the performance and regulation of private agricultural input markets is vital for improving agricultural productivity.Standards inthe informal sector are not regulated,both quality and product labelling areunreliable, and information on fertilizerand seed performance is scarce.Although in the last decade Tanzaniahassubstantiallyincreasedthenumberof farmers using improved seed, thereis potential for greater utilization. TheaveragefertilizerapplicationinTanzaniais8–10kg/ha,farbelowthe50kg/hatarget set by African governments at

the2006AbujaDeclarationonFertilizer.Only 16.5 percent of Tanzanian ruralhouseholds applied inorganic fertilizerto any crops, and only 44 percent ofhouseholdsusedimprovedseed.

Private agribusiness investments have been modest, especially from foreign sources, probably due to a discouraging policy environment. Onaverage, between 2007 and 2017 only4 percent of FDI went into agriculture,fisheries,andforests.Commercialbanklendingtoagriculture is just7percent,down from 10 percent in the past fiveyears. Policy and regulatory reformsto increase private investment in bothinputandoutputmarketsareneededinthreeareas:

Regulationofoutputmarketsandtradepolicy,toaddressproblemscausedby(1)restrictivemarketingrequirements,suchas requirements to sell through closedauctions, that reduce competition;and (2) discretionary trade policies,including reinstatementofexportbansorstringentexportlicensing,thatrestricttradeanderodeproducerincentives.

Revised regulationof inputmarkets, toimprove (1) arrangements for fertilizerimports and distribution and fertilizerquality control and labelling; and (2)regulation of seeds, plant breeding,variety registration, and seed qualitycontrol.

Sanitary and phytosanitary controls, to(1) establish an institutional mandate


for pest surveillance and risk analysis;(2) ensure more efficient issuance ofphytosanitary certificates for cross-bordertrade;and(3)bolsterinstitutionalarrangements for risk-based regulationoffoodsafety.

Public spending is also essential for mobilizing private finance for agriculture by providing public goods, such as agricultural research and rural infrastructure, that are essential for productivity growth. The benefits ofthesearenotrestrictedtoanyonefirmor farmandthus requiresharedpublicfunding. Publicspendingonagricultureneedstoshiftfromprovidingsignificantprivate goods, such as subsidies toindividual farms or firms, to providingcore public goods that mobilizecorresponding private investment inagriculturalproductionanddistribution. Although in 2014 rural areas housedabout 66 percent of the population, in2017 they received only 20 percent ofpublicspending.Althoughmorethan70percentofTanzaniansdependeddirectlyor indirectly on agriculture for theirlivelihoods, agriculture was allocatedonly2.5percentofpublicspending,lessthaninneighboringcountries.Andeventhen, 33 percent of public spendingon agriculture was for private goods,suchas subsidies forbuying fertilizers. No country, especially not one justbeginning to transform its agriculture,canhope togrowagriculturewith lessthan 2 percent of public spending onit going to public goods like research,extension, and market institutionsvital to raising productivity. Worse,

Tanzania’s agricultural budgets are notfullyexecuted,reachingonly83percentforrecurrentexpendituresin2017/18—lessthanmostotherministriesbutnotinordinately so—but only 6 percentfor development spending, about10 percent of the rate in most otherministries.

Critically for their future well-being, the resilience to climate change of the livelihoods of at least 70 percent of Tanzanians depends on the relationship between agricultural productivity and soil and water management. The considerable growth of Tanzanianagriculture, especially since 2008, hasbeen due primarily to rapid expansionofcroppedarea.Deforestation,erosion,andinadequatefertilityhavecausedthedegradationofmorethan60percentofthe land presently used for productionofcrops, livestock,and forestproductsand services. Tanzania must thusbetter manage the productivity ofagricultural water and land. Climate-smart agriculture requires shifting toadaptive water allocation, modernizingirrigation,andimprovingwaterandlandmanagement.

Finally, agriculture will continue to be a driver of inclusive growth in the Tanzanian economy and a major source of productivity gains to support the desired structural transformation, and the new jobs it will bring.Althoughstructural transformation is generallycharacterizedbyworkersleavingfarming,successfultransformationalsorequiresthattheproductivityofthoseremaining


rises sufficiently that agriculture cancontinue to feed growing urban areas,either directly or through growth inexports. In rural areas, agriculture andits associated value chains will remainthe main source of employment formany years to come, particularly forthe poor—and agricultural growth hasbeen widely shown to be more pro-poor than nonagricultural growth. AsPart 2 demonstrates, the midstreamand downstream parts of agriculturalvaluechainsarealsocriticaltocreatingbetter-paid jobs. Reforming policy andincreasing investments will jumpstartthe improvements in agriculturalproductivitythatarecriticaltocatalyzeinclusive growth and structuraltransformation. In the past, landavailable for expansion has allowedgrowth in production without growthin land productivity, but future growthfor agriculture will need to come fromsustainably lowering the unit costs ofproduction.


The State of the Economy1

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1.1 Recent Economic Developments

Global growth has slowed.In both advanced and emerging economies, growth has softened. Inthesecondquarterof2019(Q2),globalgrowth decelerated as trade tensionsbetween the United States and Chinaescalated and as political uncertaintyrose throughout the world. The globaleconomy is expected to grow by only2.6 percent in 2019, below the 3.0percentin2018,andtheforecastcouldbe revised downward (Figure 1). Thedeterioration of global prospects hastranslatedinto lowercommoditypricesand capital flows, putting pressureon the external sector for emergingeconomies as current account deficitswidenandexchangeratesdepreciate.

Economic activity in Sub-Saharan Africa (SSA) has slackened.RealGDPexpanded more slowly than expectedacrosstheregioninthefirsthalfof2019(H1) and is expected to grow by just2.6percent,barelyupfrom2.5percent

in 2018 (Figure 1). The expecteddeceleration is partly due to softeningglobalgrowthamidtradetensions,policyuncertainties, and falling commoditypricesbutalsotosuchdomesticfactorsas the slow pace of domestic reformsandadropindomesticdemandduetosluggishprivateinvestment.

The slow recovery in SSA maskssignificant divergence betweencountries. Growth in resource-richcountries was less than expected asinvestmentdroppedbecauseofdimmingprospects in industry and mining. In2019Q2,growthdeceleratedinNigeria,South Africa, and Angola, the threelargest economies in SSA. Resource-intensive economies are also sufferingfrom fiscal constraints as tax revenuesfrom commodities fall. However, innon-resource-intensive countries, fixedinvestmenthasreboundedandgrowthremainsrobust.

Figure 1: Global Trends in GDP Growth, 2016–21

Source:WorldBank,Africa’sPulse,October2019.

Figure 2: Energy and Metal Prices

Source:WorldBankCommodityPriceData(ThePinkSheet).


Downside risks have intensified. Therecurrent escalation of trade tensionsbetween major economies and higherpolitical uncertainty generally couldfurther discourage investors, as couldtighter global financial conditions,more volatile commodity prices, anddepressed growth globally and in SSAeconomies because of lower revenuesand larger current account deficits(CADs). Narrower fiscal space couldheighten debt vulnerabilities, whichare already high in SSA—49 percentof SSA countries are either alreadyin debt distress or at high risk of it.Domestically, adverse weather andslowinginvestmentarethemainriskstotheoutlook:SSAisvulnerabletoweathershocks,especiallydrought,whichcoulddepress agricultural output and exportearningsandstimulateinflation.

Despite more volatile commodity prices and financial flows, Tanzania’s commodity trade balance has improved. Its external sector isparticularly vulnerable to changesin world prices for oil (20 percentof imports) and gold (16 percent ofexports). Recent developments havegenerally been favorable; the value ofgold exports went up by 23 percentin the 12 months ending July 2019 asgoldpricesbouncedbackfromalowofUS$1,198anounceinSeptember2018to US$1,511 in September 2019—alevel not seen since 2013 (Figure 2).Oil prices have rebounded this year,though they are still below last year’saverage; and the oil import bill wentup by only a modest 9 percent in the12 months ending July 2019. However,higher uncertainty and heightened

volatility could continue to undermineinvestorandconsumerconfidenceandtranslateintoevenweakerglobalgrowthas external demand drops, reducingTanzania’sgainsfromhigherexportsofgold.

In the first half of 2019, growth has remained steady and inflation has been low.According to official data, real GDP in Tanzania grew by 6.9 percent in 2019 H1, a little higher than the 6.8 percent in 2018 H1. GDP growth wasdriven by the considerable expansionin construction and mining, butagriculture and service sectors slowed.Nonmanufacturing industry, whichcomprises construction, mining andquarrying, water, and electricity, grewby a solid 15.3 percent in 2019 H1,doublethe7.5percentofayearearlier(Figure3).Growth inconstructionwaslargely driven by public investment;growthinminingwasledbyarecoveryin gold production and a spike in coalextraction. Manufacturing expandedby5.0percentin2019H1,comparedto4.4percentin2018H1asproductionofindustrialgoodsrampedup.Incontrast,growth in agriculture decelerated from6.3 percent in 2018 H1 to 5.1 percentin2019H1, largelybecausethefishingsubsectorcontractedasfewerfishwerecaught; there was, however, higherproduction of maize, beans, sweetpotatoes, and millet. In the last fiveyears, agriculture has had the leastvolatile growth of all sectors, growingonaverageabout6percentperquarter.This growth has been accompaniedbytheriseofmedium-scalefarmsand


a noticeable jump in land and laborproductivity(seePartTwo). Meanwhile,services expanded by 5.8 percent,slightlydownfrom6.1percent,becausemostcomponentsofthesectorslowed.

Official high-frequency data also show a slight acceleration of growth in 2019 but at a lower aggregate rate than suggested by the official GDP data.WorldBankstaffestimatesusinghigh-frequencyofficialdataonspendingsuggest that real GDP growth in 2019willbe5.6percent,upfrom5.4percentin2018;datathroughthreequartersof2019 show that public consumption,gross fixed capital formation, and

exports have risen. Supportingdata includes higher recurrent anddevelopment spending in 2018/19,expansionofcredittotheprivatesector,andmoreexports.

Though it remains sensitive to domestic food prices, inflation is low and stable. It has ticked up due tohigher food prices but it is well belowthe official 5 percent target. In recentmonths headline inflation rose slightly,reaching 3.6 percent in October—upfrom 3.2 percent a year ago but stillbelow the target (Figure 4). Risingprices pushed food inflation up to 6.0percent in October 2019, compared to

Figure 3: H1 Growth by Sector, 2018–19, Percent

Source:NBS.


2.5percentayearearlier—pricesofthemaincropsintheCPIbaskethavebeenrisingsinceJune.Thepriceofmaizerose140 percent in the 12 months endingin October 2019 but the price of ricerosebyonly3 percent.Meanwhile,withglobaloilprices falling,energy inflationplungedfrom19.5percentayearagotojust3.0percentinOctober2019;globaloilpricesweredownfromUS$76.70inOctober 2018 to US$57.30. However,falling fuel prices were offset by thefactthattheweightofenergyandfuelsin the CPI basket is only 8.7 percentcomparedto37.1percentforfood.

Domestic borrowing has risen in response to shortfalls in both revenues and external financing.The fiscal deficit for 2018/19 was an estimated 3.2 percent of GDP, closeto the 3.1 percent budget target buthigher than the 2 percent average ofthelasttwoyears.Thedeficithasgoneuplargelybecauseofrevenueshortfalls;as in theprevious twoyears, spendingheldat17percentofGDP.The2019/20budget targets a deficit of 2.3 percentof GDP—much lower than last year’s

3.1percentandclosertothe1.8percentaverageofthepastthreefiscalyears.

Domestic debt has jumped, exacerbating pressure on commercial lending rates for the private sector. In2018/19,withthecontinuingdearthofexternalfinancing,domesticborrowingcovered most government financingneeds, but it reached 2.3 percent ofGDP,farabovetheplanned0.9percentand the previous FY actual of 0.5percent. Heavier domestic borrowinghasputupwardpressureontreasurybillrates as commercial lending rates arestill stubbornly high, about 17 percentin FY2019/20 H2. External borrowingwas about 0.9 percent of GDP, farbelow the 2.3 percent target. Delaysin project preparation and concernsabout government policies, especiallyregulationofstatistics,wereamongthereasons for Tanzania receiving fewerconcessional loans. It was expectedthatin2019/20two-thirdsofthedeficitwouldbefinancedbynonconcessionalloans, both external and domestic,and one-third by external concessionalloans.

Revenues have consistently fallen short of target, which implies serious weaknesses in revenue forecasting. In 2018/19, domestic revenue camein below both budget and previousoutturns due to less tax revenue,especially from value-added tax(VAT) and income tax: it constituted14.0 percent of GDP compared tothe budgeted 15.5 percent and theprevious year’s actual of 14.9 percent.Theproblemarosefromsignificanttaxshortfallsandnontaxoverperformance.

Figure 4: Inflation, 2019-19, Percent

Source:NBS.


Tax revenue missed its target by 12.8percent, with collections lower forincome tax, excise duties, and VAT.Nontax overperformance of morethan41percentwassupported inpartby the new government ElectronicPayment Gateway, which producedhighercollectionoflandrentsandsomegovernment agency fees. Despite theprevious year’s depressing revenueperformance,however,thegovernmentrevenue target for this year is anambitious17.1percentofGDP.

Spending pressures are rising as elections near. Though generally asbudgetedin2018/19,thisyearrecurrentspending is expected to rise becauseof preparation for elections. Recurrentspending was in line with the budget,

but there were considerable variationbycomponent.At10.4percentofGDP,spending on wages and salaries wasmuch less than planned because oflimitednewhiring, retirementofpublicservants (especially teachers), andlackof salaryadjustments.Butoutlaysfor both interest payments and goodsand services were higher because ofpreparation for local elections held inNovember2019andgeneralelectionsinOctober2020.Aselectionpreparationscontinue, the 2019/20 budget expectsrecurrent spending to rise to 11.5percentofGDPduetohigherallocationsforbothwagesandsalariesandgoodsandservices.

Execution of the development budget improved in 2018/19 but was still

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

Domestic revenue 16.3 15.3 16.2 14.9 15.5 14.0 17.1Tax revenue 13.3 12.9 13.9 12.6 13.3 11.6 14.2Nontax 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 11.5Wages and salaries 5.8 5.1 5.9 4.6 5.5 5.0 5.6Interest payments 1.5 1.6 1.4 1.7 1.6 1.8 1.8Goods 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 9.1Domestically financed 7.7 4.7 7.3 4.5 7.3 5.0 7.2Foreign 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 2.3Foreign (net) 2.9 1.6 2.4 1.4 2.3 0.9 1.3Domestic (net) 1.4 -0.1 1.0 0.5 0.9 2.3 1.1

In Percent of GDP

Source:MoFP.


far short of plans. Spending ondevelopment projects and programswas equivalent to 6.5 percent of GDPagainst a budgeted 8.9 percent, a 73percent execution rate and up from67 percent in the previous fiscal year.Foreign-financedprojectsandprogramsperformed well, but the locally fundedcomponent was under-executed. Theresulthasbeenbothdelaysinworkonmajorcapitalprojectsandaccumulationof arrears. The 2019/20 budget hasallocated about 9 percent of GDP fordevelopmentspending,upslightlyfromthepreviousyear’s8.9percent.

Arrears are not being tracked transparently.Thelatestverifiedarrearsin government domestic paymentsare for arrears accumulated through2016/17, when it was TZS1.5 billion,equivalenttoabout1.5percentofGDP.Thegovernmenthasadoptedastrategyto prevent new arrears and clear thebacklog,butprogresshasbeenlimited.For example, 2017/18 arrears have stillnot all been verified, and the status ofverification of 2018/19 arrears is notknown. VAT refund arrears are alsoveryhigh;about70percenthavebeenverified for payment but are pendingavailability of funds. The governmenthas installed an electronic system toshorten the time taken to verify VATrefundclaims;butunfortunately,itisnotyetoperational.

Public debt is currently sustainable, and Tanzania is at low risk of debt distress, but the rising share of commercial debt, much of it domestic, raises concerns about liquidity risks.TheIMF–WorldBankDebtSustainabilityAnalysis, updated in January 2019,foundthecountry’sriskofdebtdistressislow:attheendof2018/19thepublicdebt-to-GDP ratio was an estimated37 percent, far below the 70 percentthresholdbutupslightlyfromabout36.6percentin2017/18(Figure5).1 However,commercial financing of the budget,whichwasjust4percentin2010/11,hitabout19percentin2018/19.Asaresult,in 2018/19 debt service consumedabout43percentofdomesticrevenuesand will consume about 34 percentthis fiscal year. In 2018/19 alone, thegovernmentborrowedtheequivalentof2.3percentofGDPdomestically.

Figure 5: Public Debt, 2017-19, Percent

Source:IMFandMoFP.

1 This figure excludes debt for which relief is being negotiated and Treasury bills issued for monetary policy purposes.


Monetary policy has eased and credit growth is recovering.The Bank of Tanzania (BOT) continues to loosen monetary policy. In July2019,itdroppedtheminimumstatutoryreserverequirementfrom8to7percent,aftercuttingthediscountrateinAugust2018 from 9 to 7 percent. As a result,growth in M3 reached 9.3 percent inSeptember2019,upfrom4.9percentinSeptember2018and7.7percentinJune2019 (Figure 6). Total domestic creditto the private sector and the centralgovernment grew by 6.3 percent inSeptember 2019, though that is downfrom7.2percentinSeptember2018.

Credit to the private sector is recovering. In thefirstninemonthsof2019, itsgrowthaveraged8.8percent,far more than the 2.8 percent in thesame period in 2018 (Figure 6). Whilepersonalcredittohouseholdsisstillthelargest share of outstanding credit tothe private sector (29.9 percent at theendofSeptember2019),creditgoingto

productiveactivitieshasbeendynamic;in September 2019, there was growthincreditof68.5percenttoagriculture,45.1 percent to mining and quarrying,and 24.0 percent to households.However,forbothhotelsandrestaurantsand trade, credit to the private sectorcontracted in the 12 months endingSeptember 2019. The growth in credittotheprivatesector2 reflectsanuptickin consumer confidence that coincideswith the liquidity-easing measuresof the BoT and a gradual decline innonperformingloans(NPLs).

Banks are extending credit to the private sector, but the rates are relatively high. Inthefirstninemonthsof 2019, commercial lending ratesaveraged 17 percent, down from 17.5percent for the same period in 2018(Figure 7), and the main treasury billrate averaged 8.3 percent, up from5.9 percent in 2018, as a result ofmore government borrowing from thedomesticmarkettofinancethe2018/19budget.

Figure 6: Growth in Domestic Credit and M3, 2018-19

Source:BOT.

Figure 7: Commercial Lending Rates, 2018-19

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.


The banking sector is adequately capitalized, but NPLs threaten financial stability.AsofApril2019,thecommercialbankcorecapitaladequacyratioof17percentwaswellabovethe10percent required and the liquidity ratioof 33.6 percent was also comfortablyabovetherequired20percent.Moreover,BOT closures of failing banks in 2018helped avoid the risk of contagion tothewhole sectoranddemonstrate theBOT’scommitmenttokeepthefinancialsectorstable.Inclosingbanks,theBOTsignaled that failure of any bank tomeet operational indicators will not betolerated.However,asofApril2019,theNPLratioof11.1percentwasnotmuchbetter than the 11.5 percent seen inMarch 2018, and far above the centralbanktargetceilingof5percent.

Measures to contain NPLs are partly contributing to lower bank profitability. WithNPLshigh,banksmustmeethighprovisioning requirements, which maybe undermining profitability. The BOTnow requires that all banks specifyNPL strategies and permanent loanrecovery functions and has intensifiedbank supervision. After review of itsregulationsandguidelines,ithasaddedstafftoitsbanksupervisiondepartment.The BOT has also made credit bureaureportsmandatoryforloanapplicationsand has directed banks and otherfinancialinstitutionstoadoptstrategiesto build up application processing,management,monitoring,andrecoverymeasures.

As the Financial Sustainability Assessment Program (FSAP) recommended, the MoFP needs to promote more broad-based intersectoral efforts to address NPLs. This is important because of thenegative spillovers that can affect theeconomy beyond the financial sector.The delays and uncertainty linked tocourtprocessesimpingeonbankeffortstoefficientlyliquidatecollateralandwriteoffbadloans.TheFSAPrecommendedcreating a multi-stakeholder public-private working group to identify waystoensure that legaland taxstructuressupport efficient resolution of NPLsandtodealwithcompaniesthatholdasignificantpercentageofNPLs;butthatrecommendation has not been fullyimplemented.

Recovery in exports is outpaced by import growth.The CAD is expanding as import growth outstrips the recovery in exports (Figure8).TheCADwidenedto3.7 percent of GDP in the year endingSeptember 2019, up from 3.4 percentin September 2018, as the 7.3 percentgrowth in imports exceeded the 5.2percent growth in exports. The higherimportbillwaslargelydrivenbyoilandby capital goods imported for publicinvestments in transport and energysectors.


Exports of gold, tourism, and manufactured goods are recovering.Gold, which accounts for 40 percentof nontraditional exports, went up26.1 percent because of both highervolumesandhigherprices,andexportsof manufactured goods went up 32.6percent.Morearrivals supporteda riseof9.9percentintourismearnings.Thevalue of traditional exports fell by 106percent,largelybecauselowerearnings,especially from cashews, more thanoffset higher earnings from coffee andtea.

Foreign exchange inflows remain low, and official gross reserves are down. Despite the recent recovery inexports, inflows are still lower thanhistorical averages. For example,external concessional borrowing is halftheaverageof thepastfiveyears,andbetween2015and2018FDIdroppedbya third, from US$1.5 billion to US$1.0billion(Figure10).Asa result, reserveshave slipped from US$5.4 billion inSeptember 2018 to US$5.3 billion (5.4monthsofimports)inSeptember2019(Figure10).

Figure 10: Official Gross Reserves and Foreign Inflows, 2015-19

Source:BOT.

Figure 8: Current Account Deficit, 2016–19

Source:BOT.

Source:BOT.

Figure 9: Exports and Imports, 2016–19, Percent Growth

Source:BOT.


The shilling has remained stable.FromOctober 2018 to September 2019, itdepreciated by 5 percent against theeuroand2–3percentagainsttheKenyanshilling and the Chinese yuan, and itappreciated by 1–2 percent againstthe US dollar and the Indian rupee(Figure11).Tokeeptheshillingstable,theBOThas intervenedtosmoothoutfluctuations and maintain an orderlyinterbankforeignexchangemarket.Thereal exchange rate appreciated about2 percent between October 2018 andSeptember2019;theinflationdifferential

betweenTanzaniaanditsmajortradingpartners partly offset the decline inthenominalexchangerate(Figure12).Therecentincreaseintherealeffectiveexchangeratehasbeenaccompaniedbyhigherexportsofmanufacturedgoods,suchasiron,steel,glass,andfertilizer.

Reforms to improve the business environment are moving slowly.Despite some improvement, Tanzania ranks below most of its regional peers in ease of doing business. Accordingto the World Bank Doing Business report 2020, Tanzania ranks 141st of190 economies, a slight improvementfrom 144th a year before. Tanzania’sperformance (Figure 13) continues totrailitsneighboringpeersRwanda(38),Kenya (56), and Uganda (116), andotherSub-SaharanpeersZambia (85),Malawi (109), and Mozambique (138).Tanzaniahasseriousproblemsintradingacrosstheborder, resolving insolvency,registeringproperty,protectingminorityinvestors,andpayingtaxes(Figure14).Thoughchangesinthelawsprotectingminority investors have boostedTanzania’soverallranking,theconcernsare primarily about such significantindicators as trading across borders,paying taxes and starting a business.The pace of reforms to improve thebusinessenvironmentisstilltooslow.3

The business environment continues to be a major concern for the private sector.Thegovernmenthasyettomakeoperational major reforms to improve

Figure 11: Nominal Exchange Rate, 2018–19, Percent

Source:OANDAExchangeRates.

Source:WorldBankstaffestimates.

Figure 12: Real Effective Exchange Rate, 201819, Percent

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.


it, particularly legislative changes andcross-ministry actions. Such reformswould enhance the functions of theTanzania Bureau of Standards, Weightsand Measures Department and easethe process for investors to get workand residence permits. Recently, thegovernment started consultationson drafting the Business Facilitationand Investment bill. To mitigate taxmeasures perceived as predatory ithas also amended the Finance Act2019 to institutionalize the MoFP TaxDisputeDeskandtheOfficeoftheTaxOmbudsman at the Tanzania RevenueAuthority. However, the private sectorstill finds the business environmentunpredictableandcallsforfasterreforms,particularlyinbusinessregulation.

The business environment has also been affected by delayed payment of VAT refunds to exporting firms and arrears to domestic suppliers. Someof the VAT refund and supplier arrearshavebeendelayedformorethanthreeyearsduetobotha lengthyverification

process and lack of funds. Seen asfurther delaying VAT refunds is therecent proposal to change the BudgetActtogivethePaymasterGeneralpowerto extend the period for approvingspendingoffundscarriedoverfromthepreviousfinancialyearfromthreetosixmonths. Progress in clearing paymentarrearstocontractorsandsuppliersandspeeding up processing of VAT refundapplications would improve privatesectorliquidityandreduceNPLs.

To speed up the pace of business environment reforms, the private sector needs to participate. TheBlueprint for Regulatory Reforms draftedafter consultations with the privatesectorandendorsedbythegovernmentin May 2018, specifies actions torationalize, or in some cases abolish,licensing requirements. Some actionshave been taken with the abolition ofvarious fees, levies, and duplicationof roles, notably those of the TanzaniaFood and Drugs Authority. ThroughtheTanzaniaNationalBusinessCouncil

Figure 13: Ease of Doing Business Rankings, 2020, Percent

Source:WorldBankDoingBusinessReport2020.

Figure 14: Tanzania’s Doing Business Rankings by Category, 2020

Source:WorldBankDoingBusinessReport2020.


(TNBC), a Public Private Dialogue(PPD) mechanism, the private sectorhas recommended streamlining thefunctions of the Tanzania Bureau ofStandards, Weights and Measures andstreamlining the process for investorsto get work and residence permits.To push forward reforms, particularlythose requiring legislative changes orcross-ministerial actions, the TanzaniaNationalBusinessCouncil(TNBC)itselfneedsstructuralreform.

High population growth is under-mining efforts to reduce poverty.Tanzania is continuing to improve living conditions for its people, but since 2012 the pace of poverty reduction has slowed considerably and the total number of poor people has risen.Accordingtothemostrecenthousehold survey data, poverty inMainlandTanzaniadecreasedfrom28.2percentin2012to26.4percentin2018.4During this time however, the rate ofpopulationgrowthwashigherthantherateofpovertyreduction, leadingtoanincrease in the total number of poor.By 2018, about 14 million Tanzanianslivedinpoverty,upfrom12.3millionin2012 and 13.2 million in 2007 (Figure15). Since 2012, too, low growth inconsumption for the bottom quintileshas exacerbated inequality, particularlyinurbanareas.Between2012and2018theGinicoefficientbasedonpercapita

consumption spending rose from 39to 42 percent in urban areas, primarilybecauseinDaresSalaamtheGiniindexofinequalityhadrisenfrom36in2012to43in2018.5

High population growth limits the growth rate of per capita GDP and reduces the welfare-enhancing effects of growth. Between 2007 and 2017Tanzania registered an average annualgrowth rate of 6.3 percent—but thisdropped to 3.3 percent when adjustedforpopulationgrowth.More importantis thefactthatthegrowthelasticityofpoverty more than halved, from a lowof –1.02 in 2007–12 to an even lower–0.45 in 2012–18. This implies that a10percent increase inGDPgrowthpercapitacanbeexpectedtoreducepovertybyonly4.5percent.Elasticitiesforotherdeveloping countries are typically fourtimeslarger,about–2.0.

Growth in GDP was driven by sectors where few people work and where even fewer of the poor are active. Fastest-growing are construction,information and communicationtechnology (ICT), real estate, andnonmarket services. Each employs onaveragenomorethan6percentofthepopulation.6 However, they all tend toemploy significantly more educatedand wealthier Tanzanians. Withinagriculture, where most Tanzanianswork, particularly the poorest (Figure

4 Poverty was also reduced in Zanzibar,from34.9percentin2009–10to30.4percentin2014–15.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.


16),thecropsand livestocksubsectorsgrewrelatively fastatabout5percent,butthesubsistencefarmsthatmostofthe poor operate appeared to benefitonly marginally from this growth.Moreover, income and consumptionrose much faster for better-educatedTanzanians than for those with lesseducation and fewer endowments.As a result, inequalities widened. Thisunderscorestheimportanceoffocusingon productivity-enhancing agriculturalinvestments (e.g., access to finance,access to markets, better productiontechnologies,valuechaindevelopment)and supporting diversification andbuildingskillsinnon-farmactivities(seePartTwo).

Human development outcomes, such as education, have improved only marginally. Net enrollment in primaryand secondary schools, both rural andurban, went up slightly between 2012and2018,butgrossenrollmentinbothloweranduppersecondarywentdown.

Although chronic undernutrition hasdropped—the proportion of childrenwho are stunted (too short for theirage)fellfrom42percentin2010to35percentin2015/16—itisstillabovetheSSAaverage.

Social service delivery also improved, but there are still large gaps, especially in rural areas. Accessto electricity has risen, but only 29percent of Tanzanian households haveaccess, far below the 45 percent SSAaverage.Accesstoelectricity isonly10percent in rural areas, and 7 percentfor poor households. Access to safedrinking water is better, particularlyin urban areas, where the percentageof households using safe water hasdoubled.Butin2018,thedrinkingwaterof 34 percent of rural households wasstill unimproved and unsafe. Thoughaccess to basic and limited sanitationhas improved considerably in urbanareas, it is still highly problematic inrural areas. Between 2012 and 2018

Figure 15: Number of Poor People, 2007, 2012, and 2018

Figure 16: Sector of Employment by Poverty Status, 2018

Source:NBS. Source:NBS.


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.

the percentage of urban householdswith improved sanitation rose from 36to51percent,butinruralareasitwentupfromjust4.7percenttoastilllow11percent.

Poverty reduction was driven by better access to basic services and infrastructure and more human capital, but the growth returns on these endowments have been dropping, so that poverty was reduced more slowly than expected. Because labor marketrequirementshavebeenchangingevenas access to education has broadenedand the educational attainment of thegeneral population has gone up, therewards for years of schooling belowa certain level have dropped—andthe gains in income and consumptionassociated with primary educationare no longer large. Mobile phonesstill positively affect the livelihoods ofthe poor, but since 2012 the marginalbenefits have narrowed, especially inurban areas and in moderately poorhouseholds, for whom ownership ofthese assets has expanded rapidly butopportunities for their productive usehavenot.

The disadvantages of poor households are numerous: Forinstance,lessaccessto infrastructure and communityservices minimizes the opportunitiesavailable to them. Many are highlyexposed to food stress and insecurity.Accesstomarketsislimited,particularlyin the northwest and southeast areas,where poverty is typically worse. Formany, access to the Tanzania Social

Action Fund (TASAF) is essential formeetingbasicconsumptionneeds,butits coverage is limited to 10 percent ofhouseholdsanditisnotwell-targetedtothosethatneeditmost.

1.2 Macroeconomic Outlook and Risks

Growth prospects depend on the pace of reforms.Real GDP growth is projected to rise gradually over the medium term, assuming modest but steady reforms in the business environment and fiscal management. Tanzania has recentlyadoptednewpoliciestolowerthecostsofregulatorycomplianceforbusinesses,reduce government domestic paymentarrears, and prevent new arrears.7When completed, these reforms couldhelp push economic growth higher bymobilizingmoreprivateinvestment.Ouroutlookforthenexttwotothreeyearsassumes that only part of the reformagenda will be realized—progress todatehasbeenrelativelyslow,andpublicinvestment will continue to be one ofthe main drivers of GDP growth. Asa result, annual growth will graduallypick up, with modest improvement ofthe business climate and in FDI andother private investment (Table 2).Givencontinuingfinancingconstraints,execution of the development budgetis not likely to improve much. In themedium term the fiscal deficit isexpectedtowidentoabout3–4percentofGDP,andhigher imports tosupport


capital projects will likely expand theCADto6–7percentofGDP.

Poverty reduction is expected to continue to be modest. The povertyrate is predicted to decline by about 3percentagepoints(pp)by2021andthenumberofpoorTanzaniansisexpectedto be fairly constant as populationgrowthcontinueshighandsteady.Theeconomic prospects of the poor—whomainlyworkinlow-productivityfarmingor urban informal service jobs—areunlikelytobrightenaslongasgrowthisconcentratedincapital-intensivesectorsandinlargeurbanareas.

To reduce poverty significantly Tanzania may need to aim at annual GDP growth of about 10 percent.Holding all else constant, it will takeabout35yearsforTanzaniatoeliminatepoverty if poverty declines at a rate of

0.75ppayear.Similarly,basedonDHSand nutrition surveys, malnutrition(stunting) declined by about 1 pp ayear between 2004 and 2014. At thecurrent level of 35 percent stunting,it would take 35 years for Tanzaniato eliminate malnutrition. Today themedianageforTanzanians isabout18years and life expectancy is about 68.If thecurrentgeneration is to reap thebenefits of economic growth in theirproductive lifetimes,Tanzanianeedstostep up economic growth and povertyreduction.

Agricultural transformation in Tanzania can do much to drive future growth and employment and accelerate poverty reduction (Box 1 and Part Two). In June 2018 thegovernment launched the Second Agriculture Sector Development 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 -2.1Source: World Bank staff estimates and forecasts.


transform the sector by promotingcommercialization, prioritizing high-potential commodityvaluechains, andmobilizingcapitalthroughalargerrolefortheformalprivatesector inagriculture.ASDP II is designed ultimately to meetTanzania’sincreasingfoodrequirements,accelerate investment in agribusiness,and reduce poverty and inequality.Despite the central role of agricultureinpresentnationaldevelopmentplans,however,itsperformanceovertimeandacross subsectors has been uneven;private agribusiness investments havebeen modest; and there are growingconcerns about prospects for thesector.PartTwoofthisupdateprovidesinsights into four areas aligned withASDP II that will be crucial for thesectortodrivegrowthandjobcreation:structural transformation in Tanzania’sagri-foodsystem;incentivesandpublicspending; the investment climate foragriculture and the food industry; andmanagement of natural resources andlandscapes.

Despite global problems, the risks continue to be largely within gov-ernment control.

Business Environment The dilatory track record of business reforms highlights the risk of government inaction. With theenvironment for private businessesdeteriorating,thepublicsectorhasbeenmostlydrivingtheeconomy—agrowthmodel not likely to be sustainable.Despite adoption of important reformsto support the private sector, such asthe Blueprint for Regulatory ReformsandtheStrategy to Control Government

Arrears, those agendas have not beenfully executed, and in the immediatefuture, progress in rolling out thereformsislikelytobemodest.

Government should make it a priority to act on measures to foster greater private sector participation in the economy.Withglobalgrowthsoftening,government should seize the momentto push reforms before the globalcontext becomes less benign. Table 3summarizes progress assumed in thebaselineoutlookongovernmentactionstoaddressissues:

Fiscal ManagementThe government will need to build budget credibility if it is to fully realize its fiscal policy goal of addressing Tanzania’s significant infrastructure and skills gaps. Ithaslaunchedpriorityprojects in human development andinfrastructuretosupportgrowthandjobcreationoverthemediumtolongterm.However,tohavemaximumimpacttheprojects must be adequately financed,and completed on schedule. Shortfallsin financing could add new domesticarrears to an already unsustainablestock.

Poor management of public investments creates debt-servicing problems, especially currency and maturity mismatches. Largeinfrastructure projects are expected togenerate returns that can be used toservice the loans that finance them.If projects are not properly vetted orcompletion is delayed, scheduled loanrepayments may begin before theprojects generate adequate cash flow

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 World Bank Group Macroeconomics, Trade and Investment Global Practice, Africa RegionTA N Z A N I A E C O N O M I C U P D AT E DECEMBER 2019, 13TH EDITION

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and foreign exchange earnings. Thatmay cause maturity and currencymismatchesatatimewhenTanzania’sfiscal space is already limited by highdebtservice,fallingexternalgrants,andtherisingcostsofprovidingservicestoagrowingpopulation.

A worsening of financial sector vulnerabilities could jeopardize macro stability. High NPLs and highinterest rates may erode the fragilerecovery incredit totheprivatesector. Tanzania’s bank-dominated financialsector is small, concentrated, and at arelatively early stage of development.Asset quality is a continuing concern,andhighNPLsarerestrictingtheabilityof banks to provide more, and moreaffordable,financingtobusinesses.The

current vulnerabilities of the financialsector underscore the importance ofstrong oversight and regulation of thefinancial system to gradually lowerNPLs to the BOT indicative thresholdof5percent,growcredittotheprivatesector,andpreservefinancialstability.

If the country is to reach its development goals, government must intensify its efforts to improve fiscal policy design and execution. TheFYDPII isrightlydirectedtofacilitatingan ambitious increase in investmentin human and physical capital, but forseveral years the national budget hasbeen significantly under-executed,delayingcompletionofpriorityprojectsand keeping growth below potential.Thebaselineoutlookassumesmodest

Table 3: Government Actions to Improve Business Environment Assumed in the Baseline Outlook, Short- and Medium-Term

Government Actions on: Short-Term Medium-Term

Fiscal Policy � Payverifiedarrearstoprivatecontractorsandsuppliersfirst.

� SpeedupreleaseofverifiedVATrefunds.

� Ensurethattaxadministrationispredictableandthattaxagentscollecttaxesfrombusinessesfairly.

Private Sector � Broadenthecurrentpublic-privatedialogueonhowrecentgovernmentpolicychangesareaffectingprivatebusinessesandthebusinessenvironment.

� ReducethehighcostofcompliancewithregulationsbyfullyexecutingtheBlueprintforRegulatoryReform.

� Avoidunnecessarygovernmentinterferenceinmarketsandimprovepredictability.

Other � Tosupporteconomicdiversification,improvepoliciestoattractinvestmentinnonextractivesectors.

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 World Bank Group Macroeconomics, Trade and Investment Global Practice, Africa RegionTA N Z A N I A E C O N O M I C U P D AT E DECEMBER 2019, 13TH EDITION

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but steady progress on the followingshort- and medium-term options toenhancefiscalpolicy:

Additional RisksA fragile external environment could push growth below the baseline medium-term projection. This wouldunderminecurrent reformsandreducespaceforcontinuingtopursuethereformagenda. Among the external threatsare more erosion of global demand,tighter financing conditions, higher

international energy prices, and morevolatile commodity prices. Slowdownsinmajoreconomies,especiallytheEuroAreaandChina,arealreadydampeningdemand for Tanzania’s exports. Highercostsofcommercialexternal loanscandelaycompletionofthecapitalprojectsthat such loans would have financed.Rising global energy prices could alsopushuptheimportbill,worsentheCAD,andfurtherreduceofficialreserves.

Table 4: Government Action to Improve Fiscal Policy Management Assumed in the Baseline Outlook, Short- and Medium-Term

Short-Term � Improveforecastsofrevenueandtaxcollection.

� Preventgenerationofnewarrearsandclearthecurrentstock,especiallyVAT.

� Enhanceexternalconcessionalfinancingandreducecommercialborrowing.

Medium- Term � Intensifymobilizationofdomesticrevenuetofinanceinvestment.

� Improvetheexecutionofcriticalprojectsandprioritizepubicinvestmentsthatdeliverhighreturns.

� CarryouttheFSAPrecommendations.

TA N Z A N I A E C O N O M I C U P D AT E DECEMBER 2019, 13TH EDITIONTA 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.BasedonthelatestestimateofTanzania’spovertyelasticityofgrowth(–0.45for2012–18),consistentgrowthapproaching10percentayearwouldbeneededtocountertheslowing rateofpoverty reduction.Besides reducingpoverty, thisgrowth ratewouldalsoallowTanzaniatocatchupwithcountrieslikeBangladeshandVietnam,whichatthebeginningofthe1990swereatthesamelevelofpercapitaincomebuthavesincesignificantlyacceleratedtheirgrowth.

Achieving 10 percent economic growth in the next three years would require more than doubling current investment. To maintain 10 percent growth over thenext decade would take growth in investment averaging more than 16 percent ayear.Becausepublic investmentcannotdrivethismuchgrowthandalsokeepdebtsustainable,private investmentmust lead theneededexpansion.Moreover,privateinvestmentcanaccelerate jobcreation.Between2007and2014theeconomygrewatanannualaverageof6.1percentandemploymentgrew3.0percent,i.e.,640,000jobswerecreatedeveryyear,morethanhalfinagriculture.Inthenextdecade,nearly800,000youthsareexpectedtoenterthelabormarketeveryyear.Giventhecurrentstructure of the economy, one additional percentage point of GDP growth, led byinvestment inthemostproductivesubsectorsofagriculture, industry,andservices,couldcreate220,000newjobsayear.

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 agricultureaccountsfor27percentoftotalGDPand67percentofjobs,agriculturalgrowthmustbepartofthestrategytocreatemoreandbetterjobsandalleviatepoverty.AsSection2 shows, medium-scale farms could use more hired labor, purchased seed, credit,andchemicalsthandosmallholders,andtheyrentmoretractionservices.Theriseofmedium-scalefarmsalsocreatesjobsthroughhigherdemandforagriculturalinputsandfinancialandtransportservices.Moreover,publicinvestmentincorepublicgoods,suchasagriculturalresearchandmoreefficientirrigation,couldalsomobilizeprivateinvestmentinagriculturalproductionanddistribution,andcouldboostthetransitiontoamodernagriculturethatisbasedonmedium-scalefarms.Itisestimatedthat13milliondaysofadditionalworkforhiredagriculturelaborannuallyhavebeencreatedbythe368,000medium-scalefarmsaddedinTanzaniabetween2008and2014.By2014theadditionalworkdayswereequivalenttoUS$225–300millioninnetadditionalbackwardandconsumerlinks.Theseresultsdemonstratethatsupportivepoliciesandpublic investments that crowd-in private investment have tremendous potential tocreatejobsandboosttheincomesofmanyTanzanians.

TRANSFORMING AGRICULTURE2

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2.1 Strategic Needs, Opportunities, and Challenges for Agriculture

The discussion thus far has argued that high overall growth has not delivered poverty reduction fast enough to be effective, and that higher and more inclusive agricultural growth is needed to make substantial progress in creating more and better jobs and reducing poverty. AgricultureiscentraltoTanzaniaachievingeconomicgrowththat isbothhigherandmore inclusive,and will remain so for decades. Itsupports the livelihoods directly toabout 55 percent of Tanzanians (and75 percent of the poor) and indirectlyto another 15 percent. The indirectbeneficiaries are concentrated in themidstream and downstream partsof value chains, where, as will beseen, emerging demand is creatingthe most visible changes in the jobsbeing created. Among midstreamfunctionsdependenttosomeextentonagriculturearetraders,transportersandprocessors;retailingisthemostobviousdownstreamfunction(AGRA2019).

Yet in recent years, on the whole the performance of agriculture has been less than stellar, little private investment has gone into agribusiness, and there are growing concerns about the future. Growth inagriculturalGDPaveragedonly3.5percentfrom2006to2016—though6percentannualgrowthis generally considered necessary to

reduce poverty sustainably. Laborproductivity in agriculture has goneup slightly, but land productivity hasstagnated. If it is to help Tanzania tomeet its growth and job targets, howthe country views agriculture mustchange. It can no longer be contentwithapredominanceoffamilyfarmsof1 to2ha thatarebarely connected tomarketsbutsimplyusinghandtoolsandtraditionalpracticestoproducefoodforsubsistenceasthelanddegrades.

This has been recognized by the government, which identified agriculture as a central vehicle for realizing the socioeconomic development objectives laid out inTanzania Development Vision 2025 and the Five-Year Development Plan (FYDP II). These strategic documentsformulateambitiousgoals for reducingpoverty and industrializing sustainablyto achieve middle-income status by2025. In June 2018 the governmentlaunchedtheSecond Agriculture Sector Development Program(ASDPII),whichmaps the path for agriculture through2028. It plans to transform the sectorby promoting commercialization,prioritizing high-potential commodityvalue chains, and mobilizing capital byexpandingtheroleoftheformalprivatesector in agriculture. Thus, throughASDPIIthegovernmentseekstomoreeasily meet Tanzania’s increasing foodrequirements, accelerate agribusinessinvestment, and reduce poverty andinequality.


Fortunately, new research8 indicates that in about 2008 an agriculture transformation began in Tanzania that opens new paths to achieving growth and alleviating poverty. “Agriculturaltransformation” is common shorthandthroughout the world for structuralchanges occurring as generallylower-income agriculture-dominanteconomies evolve into more diversifiedmiddle-income countries.9 Typically,farm populations move into the non-farmeconomybothlocallyandfaraway;often, but not always, average farmsizesarescaledupasthosewhoremainexpand and intensify operations byusingmorepurchasedinputsperunitofland,hiremorelabor,andcultivatemoreland. Farmers become more involvedin output markets, producing higher-valueanimalproductsandhorticultureas demand for them rises, and valuechainsfromfarmtotablelengthen.

In Tanzania, agricultural transformation is indicated by changes in farm sizes and ownership structure as urban capital gradually enters into agriculture. Aswillbeseenbelow,medium-scalefarmshavehigherlaborproductivity,usemorepurchased inputs, and are significantlymore market-oriented. They also hirelabor and spend in local markets. Inmanyrespectstheyaresimilartohighlycommercialized smallholder farms, butquitedifferentfromnoncommercializedsmallholders.

Most important for Tanzania, the spread of medium-scale commercialized farms has significant positive spillover effects on the jobs, incomes, and skills of smallholder farms. While one-third of Tanzania’sfarms are now medium-scale (over 5andlessthan20ha),two-thirdsoftheseare farmed by people from the samelocalityandhalfareonlandinheritedbytheoperator.Thus,medium-scalefarmstendtobeincloserculturalandphysicalproximitytotheirsmallholderneighborsthanisoftenassumed.Andtheresearchhas established that smallholders nearmedium-scale farms are significantlymore productive and earn more thantheyhadpreviously.Theyarealsobetter-off than smallholders where there arefewer medium-scale farms. Moreover,empirical analysis has identified veryplausible ways that smallholders inmedium-scalefarmingzonesarealreadybenefitting from the success of theirmedium-scale neighbors. Nationally,Tanzanian farm households that weretraditionalnoncommercialsmallholdersliving mainly on the low incomes theirfarmsgeneratedwentfrom43percentin2008to31percent in2014,andtheshare of commercialized and moreproductive smallholders living mainlyfrom their higher farm income wentfrom19to25percentofallfarms.

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.


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.

Average labor productivity will always rise with agricultural transformation.Usually,sowillreturnstoland,althoughhow much may depend on whetherunusednewlandisavailableatlowcostto expand cultivation. What happensto the marginal productivity of laborandthusagriculturalwagesinamarketsystem depends on the supply oflabor and its opportunity cost beyondagriculture.InTanzania,wewouldexpectlivelihoods of farm households to rise,withmodestreturnsonlandawayfromcities as cultivated area expands, thereturnsalsorisingoncelandexpansionbecomes more difficult. Based ondata from the Tanzania National PanelSurvey (NPS) from 2008/2009 (2008)to 2014/2015 (2014), average laborproductivity per agricultural workeracross all farm categories has risenslightly, at about 1 percent a year,but land productivity has stagnatedat about 0.4 percent.10 By 2014, thelabor productivity of commercializedsmallholders and medium-scale farmswere substantially similar, but 50percenthigherthanthatofsmallholderswhowerenotcommercializedbuttryingtolivebyfarming,and200percentthatof smallholders whose main livelihoodcamefromthefarm.

The promise of Tanzania’s embryonic agricultural transformation is real, but not yet realized. Deliveringonthepromise requires understanding the

context in which agriculture can mosteasily contribute to national growthand job creation, the topic of the nextsection. The following section thenlooks at the specifics of Tanzania’sagricultural transformation and how itcanbesupported.Policyandregulatoryissues are central, as is explored inthe next section, which identifieschanges necessary to take advantageof the opportunities structural changepresents. Finally, investment issues arediscussedintermsofhowmuchisstillneededtomoveagriculturetowhereitneedstobe.

2.2 Strategic Considerations in Carrying Out Agriculture Strategies

Ambitious economic growth and employment targets like Tanzania’s require growth in manufacturing, for which agricultural outcomes matter in three ways: (1) Urban Tanzanianswith lower incomesconsistently spendabout one-third of their disposableincomesonfoodstaplesandminimallyprocessed goods made from staples,such as cereals.11 That is why risingrelative prices of cereals tend to sparkwage demands by workers, raisingnational manufacturing costs in acompetitive regional and world tradeenvironment.12 (2) Rising incomesin rural areas are critical to provide abroad-basedconsumermarketforlocal


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.

manufactures and assembly plants.13(3) Agriculture provides the main rawmaterialsforTanzanianmanufacturing,asillustratednext.

Adding value in natural resource–based industries by enhanced processing, especially mass production of processed food products for consumers, is recommended as a starting point for Tanzania to stimulate growth in manufacturing.14 By2012,infact,almost25percentofallregisteredmanufacturing enterprises in Tanzaniawere in food processing, producingbeverages, sugar and milk-basedproducts,edibleoils,fishproducts,grainmilling, tea and coffee, and bakeriesand confectionery. Agri-processingaccounted for 55 per cent of totalnational formal manufacturing outputand up to 65 percent of total formalemployment. More than 80 percentof agri-processors are small and serveonlythedomesticmarket.Horticulturalprocessingistypicallydirectedtoexportmarkets. In 2012 the 287 formal agri-processing companies each had 10or more employees. Together, theyemployed 58,000 people, about two-thirds of them women—a startlingnumber considering that in formalemployment generally in Tanzania,women hold only about one-quarterof the jobs. Most food processors arebased in Dar-es-Salaam, probably due

to the need for a reliable electricitysupply,butdrawmaterialfrom450,000farmsthroughoutthecountry.15

These trends in agricultural value chains are seen today throughout Africa. Africa-wide, farms contributeabout40percentofagriculturalvalue-addition,themidstreamofvaluechains(traders, transporters, processors)another 40 percent, and the finalretail segment downstream about 20percent16. Mostsignificantly,about80percent of midstream value-additionis from small- and medium-scaleenterprises(SMSEs),mainlyoutsidethelargestcities;thesealsotendtobemorelabor-intensivethan largerformalfirmsengagedinsimilarlinesofbusiness.Therapid growth of these agricultural andfoodSMSEsoffersthemostimmediateprospects of creating more and betterjobsinagriculturalvaluechains.

Like the rest of the region, Tanzania needs competitive labor-intensive sectors to absorb the growing youth labor force. Rapid migration of youngpeoplefromremoteorland-constrainedagricultural areas adds to the ranks ofthoseunderemployedinlow-skillurbanservices.17 The low-productivity growthoftraditionalsmallholderagriculturecanabsorbonlyasmallshareofentrantstothelaborforce,provokingbothmigrationand rapid growth in unpaid youth onfarms More and better jobs need to


be created, along higher-productivityagriculturalvaluechains,torealisticallyconfront issues of youth employmentandexpectationsforabetterlife;fortheforeseeablefuture,noothersectorcandothisatthenecessaryscale.18

Meanwhile, demand in Tanzania is expected to continue to shift dramatically from rural diets of barely transformed staples to urban diets of highly processed and pricier horticultural and animal-sourced food products.19 The value of foodconsumption in Southern and EasternAfrica is expected to nearly tripleby 2050, when 80 percent of foodspurchased in the region are expectedtobeindustriallyprocessed.20By2050,it isprojected thatSSAasawholewillneedtoimportone-thirdtoone-halfofits food supplies by value, raising theimport bill by about US$150–US$200billionannually inpresentdollars. Withitsendowmentofagriculturalresourcesandfavorablelocation,Tanzaniaiswell-placedtoexploitthesegrowingregionalmarkets, which are increasingly beingserviced by non-African exporters.Tanzania borders on eight countries,several of them likely to be significantfoodimporters.

Yet despite its agricultural resources and market opportunities, Tanzania itself is a major importer of cereals, having brought in nearly 3.5 million metric tons (MMT) of maize, wheat,

and rice in 2017. In that year, wheat,palmoil,sugar,andmaizeamountedto7.1 percent of total imports by value.21Agriculture in Tanzania is also largelya price-taker in regional and globalmarkets because it is small, and itstrade,exchangerate,andfiscalpoliciesaremostlysetoutsideagriculture.22Thisleaves it relatively little latitude to usedomestic price policies alone to affectagricultural incentives, especially overtime.23Furthermore,muchofTanzania’shighagriculturalgrowthsince2000wasduetoexpansionofcultivatedareas.

The inescapable conclusion is that to meet the challenge of becoming a leading rather than a lagging sector in national economic growth and job creation, as detailed in Tanzania’s national strategies, growth in agriculture must come from intensification to lower the unit costs of production. Smallholders currentlynotpartofthesetrendswillneedtobebrought in by widespread market-ledprocesses; and value should be addedbyjobsinstorage,marketing,transport,processing, wholesaling, and retailingwithin Tanzanian agri-food valuechains. Rapid growth in value chainsmidstream and downstream dependsfundamentally on the competitivenessofproducersupstream,asanecessary,if not sufficient, condition—a seriouschallenge, especially for manysmallholders,thatmustbeaddressed.

18 Yeboah and Jayne 201819 Tschirley et al. 201520 Yeboah and Jayne 201821 MIT 201722 World Bank Group 201923 This argument, not new but still valid, is set out at length in Delgado et al. 2000.


To meet the productivity challenge, all farmers, including smallholders, will have to

� Acquire complex new knowledgeabout technology, its use, andmarkets.

� Invest in technology that makessoil more productive through bothorganicandconventionalmeans.

� Better manage water, soil, andagriculturaltechnologyforincreasedresiliencetoclimatechange.

� Unlockfinancingtopurchaseinputsandlocatesources.

� Buildcredithistoriesthroughmobilepayment and other new financeplatforms.

� Identify and understand shiftingmarketopportunities.

� Decide which products will offerthe best rate of return for theirinvestments.

The agricultural transformation currently underway in Tanzania illustrates how current policies to further national agricultural strategies can be improved to achieve widespread and sustainable intensification, especially of smallholder agriculture.The next section looks at agriculturaltransformation in this light, and thosethat follow assess the implicationsof changes in emphasis in nationalagricultural policies to accelerate whatpresentnationalstrategiesrequire.

2.3 Tanzania’s Agricultural Transformation in Practice, 2008–14

Indicators of change by farm type, 2008–14. Trends from 2008 to 2014 clearly show the start of agricultural transformation; they also support a view that medium-scale farms are at the forefront of the trends. This hasbecome obvious in the rise of averagelabor productivity in agriculture,greater use of purchased inputs andmechanization, more involvement inmarkets, use of hired labor, and risingincomes per farm. There are alsosignificant contractions in the numberoftraditionalsubsistence-orientedsmallfarmsandmigrationofthelandless,andthenumberoffarmsisgrowing.

The numbers of both rural and agricultural households are growing in Tanzania, but the share of rural household income from agriculture is declining.From2008to2014,asthepopulationgrewrapidly thenumberofruralhouseholdsroseannuallybynearly4percentandthenumberofagriculturalhouseholdsby2percent,compounded.However,ruralhouseholdsderivingmostof their livelihoods fromagriculture fellfrom97to91percent,andhouseholdsengagedinagriculturalactivitiesfellfrom82to73percent.Nationally.householdincomes are increasingly leaning awayfrom agriculture, with income derivedfrom on-farm production falling from47 to 37 percent—even agriculturalhouseholds are relying less on food


produced on the farm. These trendsare consistent with farms becomingmore specialized, rising consumptionofcommerciallyprocessedfoodinruralareas,andfoodmarketsbecomingmorereliable.

Farmers are becoming more likely to engage in agricultural land and labor markets and to practice some form of agricultural intensification. Between2008 and 2014 farms hiring laborersfor at least one day rose from 45 to50 percent. There are also indicationsthatthelandmarketisbecomingmoreactive,asfarmersrentinglandrosefrom12to16percent.Andin2014,38percentof farming households owned somefarmlandacquiredthroughpurchase.

Growth in labor and land productivity in cropping often involves more modern inputs, such as improved seeds or agrichemicals, and the use of machinery. By 2014, the percent ofcrop farms that used only family laborandonlylandtheyhadcustomary(notrented) rights to,withnoother inputs,haddeclinedfrom33to24percent.Asfor mechanization, by 2014, 7 percentwereusingatractortoprepareland,40percentwereusingimprovedseed,and28 percent had bought the improvedseed.

However, indicators of agricultural intensification linked to investment in cropping were weak or flat. Just16 percent of farms applied inorganicfertilizer in 2014, and just 2 percentbought agricultural inputs on credit.Among livestock farmers, the trend, if

any, is negative in terms of likelihoodof possessing an improved breed. Itappears that patterns of intensificationdiffer, with cropping displaying moredynamismthananimalhusbandry.

Despite little use of purchased inputs, farms seem to have an increasingly commercial orientation to crop production. Farmers are marketing alarger share of their crops; between2008 and 2014 the average rose from36to41percent.Thatisnothappeningwith livestock products. Farmers whosellsomecropsareincreasinglylikelytosell at the farm gate, where the sharehas risen from 57 to 67 percent. Thissuggestsgreaterpenetrationoftradersinto villages, improving market accessforcropfarmers.

The size and real value of agriculture have grown very rapidly but average productivity per hectare has gone up only marginally. Between 2008 and2014 the value of main-season cropproductionrosefromTZS.3.2trillionto5.1trillioninrealinflation-adjusted2015values,acompoundannualgrowthrateof 8.1 percent.24 Meanwhile, the areacultivatedgrewfrom8.3to13.0millionhectares, 7.8 percent annually, buttherewasanannual incrementofonly0.3 percent (compounded) in averageproductivity of land. Land expansiongenerally occurred on land that hadbeenleftfallow.

As is expected with agricultural transformation, average labor productivity is rising nationally; in 2014 the inflation-adjusted value of

24 At the June 30, 2015 exchange rate, the latter figure is equivalent to US$2.3 billion.


crop production per labor-day was up from TZS 3,962 to TZS 4,741—acompound annual growth rate of 3percent.Theriseisexplainedbyadropinthenumberofworkdaysappliedtoaunitofcroppedlandinthemainseason,from 98 to 83 days per hectare (ha).The increaseduseofpurchased inputsand mechanization basically kept landproductivity constant even with lesslabor.

Since the global and regional price rises for food staples in 2008, farming has become more oriented to staple food crops (maize, rice, legumes, and oilseeds), and specialization has gone up slightly. Farmers are increasinglylikely to derive at least 75 percent oftheir income from staple food crops,cash crops, fruits and vegetables, orlivestock, with farms specializing inone of these groups rising slowly butconsistentlyoverthestudyperiod,from62to65percent.

There has been a steady and significant decline in the proportion of farms categorized as primarily subsistence-oriented, farm-focused, and small-scale, downfrom43percentof all farms in 2008 to 31 percent in2014.TheshareofTanzanianfarms(bynumberoffarms)categorizedassmall-scale (less than 5 ha) slipped from91 to 88 percent, and medium-scalefarms(5–20ha)wentupfrom8to10.5percent.

During the study period medium-scale farms became considerably more important to national agricultural

output, and there was noticeable growth in land productivity.Althoughby2014theabsolutenumberofmedium-scalefarmsgrewbyjust2.5percent,to10.5percentofall farms,theirshareoftotal cultivated farmland rose from 23to37percent,an8.2percentcompoundannualrate,andtheirshareinthetotalvalue of agricultural production rosefrom 18 to 30 percent, an 8.9 percentcompound annual rate. Their share inthetotalvalueofmarketedagriculturalproductsrosefrom20to33percent,acompoundrateof8.7percentannually.Thus, on average medium-scale farmsnot only accounted for a sizable shareof national agriculture through theperiod,butaverageproductivityoftheirlandgrewby0.7percentcompoundedannually—morethantwicetherateforall farms. In 2014, there were about 9medium-scalefarmsforeverylargeone(more than 20 ha), and more than 8smallfarmsforeverymediumone.

In 2014 average gross income per farm was higher on large farms than on small and medium, but not nearly as much higher as might be expected. Averageincomeperlargefarm(>20ha)wasTZS4.47million(aboutUS$2,500atthetime),only3.1timeshigherthanoncommerciallyorientedsmall farmsand1.7 times higher than medium farms.When nonfarm income (from self-employment,wages,transfers,andanyothersources)isfactoredin,largefarmsmade 2.1 times as much as mediumfarms (TZS 17.6 million, US$10,000 atthe time),andabout8 timesasmuch


as commercially oriented small farms.However, they only made 1.7 timesas much as commercially orientedsmall-farm households engaged innonfarm activities, because the latterhad relatively high nonfarm income.Livestockaccountedformorefarmandtotalhouseholdincomeforlargefarms.

Tanzania’s medium-scale farms link to and affect small farms. Growth in the number of medium-scale farmers in Tanzania opens up opportunities for a market-led model for reducing poverty among smallholder farmers through positive spillovers. Medium-scale farmers arehighly market-oriented. They also haveadditional advantages as an engine ofsector transformation: they hire, investin technology and knowledge, andattract commercial services that canprovideagri-food-basedtaxrevenue.

Because most medium-scale farms were previously small-scale, they offer models of success their communities can emulate. Theimmediatecommunity(nonmigrant) produces 65 percent ofmedium-scale farms, compared to 68percentofsmall-scalefarms;andhalfofthemedium-scalefarmerspossesslandthey inherited. However, 54 percent ofmedium-scalefarmersboughtlandandstayedintheircommunities,reinforcingtheir community ties. This suggeststhat one path for farmers to transitionto medium-scale status is by buyinglandadjoiningtheirownholdingsinthegrowinginformallandmarket.

Medium-scale farms are more likely than other farms to be in rural areas, farther away, on average, from a town or a major road. They also tend tobe held by farmers who reside in lessdensely populated areas and clusterwhere there is space for expansion—mostly in the Singida, Tabora, andShinyanga regions, in theWesternandCentral zones.Theyusemechanicaloranimal traction and improved seeds,seek agricultural credit and extensionadvice, and sell their crops. Thissuggeststhattheymaybeabletoattractservices to their communities, deepenthemarkets foragricultural inputsandoutputs, and diffuse knowledge andnewtechnologies.

Even though spillover effects from medium- and large-scale to small-scale farms are similar in magnitude, those from medium-scale farms may be greater because of stronger local ties, and they can be found in more locations than large-scale farms.They are only slightly more likely thansmall-scale farms to have a householdheadthatimmigratedintotheirpresentcommunity (35 versus 32 percent).Large-scale farmers are significantlymore likely, at 51 percent, to havemigrated into the community. Localcommunities may have more trust inmedium-scalethaninlarge-scalefarms.

Growth in the number of medium-scale farms and other positive trends in the study period may have been influenced by higher investment and more agricultural reforms. Theanalysisperiodoverlapswiththeglobalfood price crisis of 2007/08 and fallswithin the first phase of the Tanzania


Agricultural Sector DevelopmentProgram (ASDP-I, 2006/07–2014/15)and the fertilizer subsidy program(National Agricultural Input VoucherScheme [NAIVS] 2008/09–2014/15).These all led to more investment inagriculture, though they have sincebeenscaledback.

Small-scale farms on average improved their agricultural outcomes the nearer they were to medium- and large-scale farms. The presenceof medium-scale farms in a districtgenerally builds and deepens marketsfor agricultural inputs and outputs byaugmentinglocaldemand,whichdrawssuppliers.25 Such positive spilloversare obvious in Tanzania. Small-scalefarms are more likely to use improvedseed and fertilizer, cultivate a largerproportion of their landholdings, andaccess agricultural extension servicesandcreditinareaswheretherearemoremedium-andlarge-scalefarms.

Spillovers from medium to small come in different forms.Theymaycomeasskills or knowledge; after working fora medium-scale farmer, small-scalefarmers can apply the skills they havelearnedtotheirownfarms;57percentof medium-scale farms hired someagricultural labor, compared with 42percent for small-scale farms, and onaverage they used hired labor 47 daysayear,comparedwith12forsmall-scalefarms.Medium-scale farmsarealmosttwice as likely as small-scale farms touse oxen or tractors to prepare land.Abouthalfofthesmall-scalefarmsthat

usetractors(or,rarely,oxen)rentthem.Anincreaseof10percentintheshareoffarms in the region thatarenotsmall-scale is associated with a 9 percenthigherlikelihoodthatasmall-scalefarmbuysimprovedseedand5percentmorelikelytobuyfertilizer.Alargernumberofmedium- and large-scale farms is alsopositivelycorrelatedwith the likelihoodthat a small-scale household ceasesto engage in agriculture—which isconsistent with the theory that largerfarms generate off-farm multipliersthat produce options for small-farmhouseholdslookingtoquitfarming.

Medium-scale farms are leading the translation of policy to a form that can best mobilize smallholders to use new knowledge and new commercial outlets. Their forward and backwardlinks in the rural economy benefitsmaller-scale neighbors. It is thereforeimportant to better understand howpolicies and regulations influencefarmer incentives and investment.Policy attention should be directed tomeeting the diverse needs of farmers.The next section discusses reforms tosustainandcatalyzefurtheragriculturaltransformationinTanzania.

Agricultural transformation in Tan-zania is affecting jobs. Medium-scale farms in Tanzania use more hired labor, purchased seed, credit, and agricultural chemicals than do smallholders and they rent more traction services.Astheshareofmedium-scale farms increases relative

25 Deininger and Xia 2018


tosmallholders,otherthingsbeingequalall those input sectors provide moreemployment.Inthecaseofhiredlabor,the number of medium-scale farms inTanzania is estimated to have grownfrom 408,000 to 776,000 between2008 and 2014.26 At the same time,research shows that medium-scalefarms hired 35 days more agriculturallabor on average than did small-scalefarms.27,28 Itappearsthatgrowthalonein the number of medium-scale farmscreatednearly13millionadditionaldaysof hired wage work annually on thosefarms,comparedtonochange infarmsizes and no change in smallholderhiringpractices.

The rise of medium-scale farms also created jobs through their demand for extra agricultural inputs and financial, traction rental, and (critically) transport services. Throughout2008–14, average gross farm marginsper medium-scale farm were morethan double those of small-scalecommercialfarmsandmorethantriplethose of farm-oriented noncommercialsmallholders. In 2014, the differencein the gross margin of medium-scalefarms compared to commercializedsmallholders was TZS 1.33 million(about US$810) per medium-scalefarm.16Thisleadstoanestimatethattheadditionalgrossmarginofthe368,000medium-scale-farms that came intoexistence between 2008 and 2014

was about US$300 million. If net cashproduction costs per farm other thanforhiredand family laborand landaretakenasamountingtoabouthalfofthegrossmargin,29itwouldappearthattheriseofmedium-scalefarmsinTanzaniaproduced about US$150 million inadditional demand annually for farminputs and services other than hiredagriculturallaborby2014.(Note:thisisa crude estimate of backward links forthenetadditiontoamuchhigherfigure,onesolelyattributabletotheadditionofmoremedium-scalefarms.)

Finally, there are the effects of the growth of commercial farming in rural areas on demand for local consumption services that arise through circulation of additional local incomes that would not be present if medium-scale farms had not appeared. Where local areas containunderemployedlaborandland,asinnotonlyTanzaniabutmuchofruralAfrica,net new local demand for what thoseunderemployed resources can producestimulates net new employment.This growth multiplier for commercialagriculture was previously estimatedto be about 1.5–2.0 for both TanzaniaandfourotherAfricancountries.30Thisrangeofmultipliersimpliesthatby2014an increase in net agricultural marginsof US$150 million for the 368,000new medium-scale farms would haveconsumption-link effects of aboutUS$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


inruralareasfromconsumerindustries(primarily SMSEs) producing, e.g.,locallyprocessedandperishablefoods,constructionmaterials,andfurniture.31

In sum, the 368,000 medium-scale farms added in Tanzania between 2008 and 2014 can reasonably be considered to have created 13 million days of additional work annually for hired workers, and US$225–US$ 300 million in net backward and consumer links. The total effect of the 776,473medium-scale farms estimated tohavebeenoperating in2014wouldbeproportionatelyhigher.Absentfromthisestimate is a component for forwardlinks, as in, e.g., additional benefitsfor the agri-processors that accountfor half of Tanzania’s manufacturingvalue-added.Havingcheaperandmorereliable raw materials is essential fortheirprofitabilityandhiring,as it is forretailestablishments.

2.4 Policy and Regulatory Issues in Sustaining Agricultural Transformation

Because agriculture mainly produces tradable outputs like food and export crops and livestock, using mainly nontradable inputs like land and labor, agricultural incentives are very sensitive to macroeconomic and trade policies that affect the trade-offs in prices between tradable

and nontradable goods.32 Althoughagriculturehasrelativelylittleinputintoor impact on macroeconomic policiesthataffectinflationandexchangerates,itoftenmustdealwiththeconsequences.Changesinrealexchangerates(adjustedfor inflation relative to that of tradingpartners) affect the relative prices andcosts of agricultural output, and thereturnsoninvestinginagricultureratherthan other sectors. High interest rateson agricultural loans stemming fromevents outside agriculture can alsonegatively affect agricultural growth. Among direct effects are higher pricesforcapitalgoodsandthereforeahighercost of production. Expansionary fiscalpolicyalsooftentendstopushupbothdomestic interest rates and domesticinflation, which is discouraging toproducers of food and other tradableagricultural goods. Thus, althoughmacroeconomicpoliciestypicallyarenotdesignedtoaddressagriculturalissues,they can significantly affect incentivesforagriculturethatfarmershavetotakeasgiven.

Conversely, very much of concern to farmers are trade, domestic marketing, and regulation policies that are focused on agricultural outcomes.These can give policymakers scope toexacerbate or alleviate the impacts ofmacroeconomicpoliciesonagriculturalincentives, which can influence farmpricesandcosts,atleastwithincertain

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).


limitsandforspecificactivities.However,they may or may not be effective inachieving strategic goals, tend to haveunintended consequences, and oftenimply a nonmarket redistribution ofresources within the agriculture valuechain as a whole, covering inputs,production, transport, processing, andretailing.

Trade policy affects agricultural in-centives.Shifts in agricultural price policies—such as those driven by valid short-run food security concerns—affect the production and consumption choices of both farmers and consumers. Low-price policies may help poor urbanand rural landless consumers in theshorttermbut inthe longertermtheydiscourage agricultural production andtrade, undermining food security.33 Wemeasured trade and market policiesthat affect agriculture, among themexportbans,importtraffic,exporttaxes,and market inefficiencies, in terms ofrelativepriceincentivesforfarmersandothers infivecommodityvaluechains:maize,rice,cashews,coffee,andcotton.Standard price incentive indicators,suchasthenominalrateofprotection,the nominal rate of assistance, andthe market development gap, werecalculatedfor2005–17.

Export bans, export taxes, and other types of trade restrictions exacerbate domestic price volatility, create

a perception of high agricultural risk, and discourage investments in agricultural production. Tanzania hasintermittently used maize export bansfor food security objectives to protectconsumersfromhighandrisingprices.Thesebansdepressedpricestofarmersthroughout the country by 7–26percent.34 Mitigation efforts did notrelievethefinancialsufferingoffarmers.The efforts included input subsidiesthroughtheNAIVSprogram(2008/09–2014/15)andoutputsubsidiesthroughtheNationalFoodReserveAgency.Afterhigh transportation costs, margins forintermediaries along the maize valuechain,andalocalcropproducecessof3percent,farmersreceivedlessthan50percentof theaveragewholesalepricein the periods examined. Maize exportbans alone were estimated to haveraised national poverty by 0.4 percentwhen all direct and indirect impactswereworkedoutinageneralequilibriumcontext.35Since2017,centralauthoritieshavetriedtolimittheuseofexportbansby promoting alternative policies forstabilizingthepricesofstaples.

The agricultural processing industry is best promoted by a favorable investment environment rather than by taxes on export of raw materials. Makingsuchinvestmentmoreattractivemight be a commodity-specific focuson access to financial services, privateinvestment in processing throughpartnerships with international

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


entrepreneurs, and trade channelsmore conducive for agents along thevalue chain, such as fair enforcementoflegislation.Cashewprocessingcouldbeacaseinpoint:Taxesonagriculturalexport crops like cashew are passeddowntofarmers,significantlyreducingfarmgateprices.The15percentexporttaxonrawcashewvalues(f.o.b.),whichwas designed to encourage domesticprocessing, depressed farmgate unitprices by an average of 14 percentbetween 2005 and 2017. With about90percentofcashewexportedrawandabout a 6 percent global market shareforitsexports,Tanzaniaisaprice-takerin international cashew markets. Thus,over time an export tax of 15 percenton raw nuts, if enforced, would lowerproducer prices by about the sameamount. How effective the export taxwould be in promoting addition ofdomestic value for cashews shouldbe evaluated in terms of the coststo the sector, such as lower on-farminvestmentinproductivityanddecliningoutput.

Improving price incentives for rice farmers, and improving food security in urban areas, is better achieved by moving to decrease the costs of domestic marketing and production. For rice, that could include warehousereceipt systems, contract farmingfor millers, better access to marketinformation, keeping policy stable forproducers and investors in milling andstorage,decreasingtransportcosts,andimprovingirrigation. Importtariffsonriceintendedtoprotectproducersfromlowpricesandconsumersfrompriceshockswere not effective. Between 2005 and

2017variable import leviesof25to75percentwereappliedtoriceimportstoprotectdomesticproducers.ThisraiseddomesticricepricesinDaresSalaam,tothe detriment of domestic consumers.However, rice farmers tend to be farinland, and transfer and transactioncoststocoastalmarketswhereimportsarrive are high. Our study, conductedwith the UN Food and AgricultureOrganization, found that explicit tariffson importsonlyraised inlandfarmgatepricesbyabout14percentonaverage,withmostofthepricemarginwroughtby protection—about 51 percent—goingtourbanwholesalersandtraders.

Farmers are unable to capture domestic price increases caused by protection for a number of reasons:(1)Vastdistancestomarketsandoftenpoor rural roads translate into highper-unit transfer costs that depletewhatthecommoditycanbesoldforinurban coastal markets. (2) Small andunpredictable volumes of unbrandedquality limit capacity to negotiatetermswithtraders.(3)Minimalaccessto storage and financing narrowsalternative marketing options. Thisleaves considerable room for otherplayers to charge higher margins thatsiphonofftheeffectofthetariffsalongthe value chain before they reach thefarmgate.

Domestic marketing policy and regulation depress agricultural in-centives.As with rice, in agriculture generally reducing marketing costs will likely be the fastest and most durable way to improve prices for both producers


(higher than now) and consumers (lower than now).High transportandother transfer costs severely reducethe competitiveness of Tanzania’sagricultural exports. Policies thatincreasethesecostsarealsoinconsistentwith the government’s goal, expressedinASDPII,ofmakingTanzaniaamajormaizeexporter.

Agricultural taxes contribute to local government revenue but severely erode agricultural profits—a major disincentive for farmers.Producecess(alocaltaxtypicallycollectedclosetothepoint of production) and other officialfeesandchargesoftenamounttomorethan10percentoffarmgateprices;totaltaxesandfeesamountedto12percentofchargeablepricesforcashewfarmersin Mtwara and 12.6 percent for coffeeproducersinMoshi.17Forcashew,thesechargescanbeaddedtotheeffectsofa15percentexporttaxonrawcashewexports (see above). Considering thatnet farm revenue is often only half ofgrossrevenueduetohighcosts,averagetaxationofthegrossrevenue(farmgateprice) of cashew farmers approachesabout 50 percent of net revenue, alevel confronting few other enterprisesanywhereinanysector.

The government has recently made efforts to improve the fiscal regime in agriculture by removing over 100 fees and charges and enacting numerous reforms to reduce production costs, promote investments, and protect domestic industries. The Finance Act

Supplement No.4 (2017) also reducedthe crop cess to a maximum of 3percentoffarmgatepricesforbothfoodand cash crops. Further reforms havesince been introduced pursuant to theBlueprint initiative for improving thebusiness environment. However, policyinconsistency and limited predictabilitycontinue to create uncertainty forbusinesses.

Making policies more predictable and removing trade barriers, price controls, and export restrictions, such as complex licensing systems or documentation requirements, will enhance the total volume of legal trade flows through both additional effort and less evasion.Liftingmarketaccess requirements thatdonot relateto food safety or other public policyconcerns can help new suppliers,particularly those in remote ruralareas, toentergrowingurbanmarkets.Restrictive marketing requirements,such as mandatory auctions or fixedphysicalmarketplacescanalsoentrenchinterests that reduce competition andleadtohigherconsumerpricesthatarenotpasseddowntothefarmer.36

Food security objectives are best addressed in advance, by interventions not focused on prices. Policiestoconsiderare(1)establishingamonitoringandearlywarningsystemthatprovidesinformationonproduction,trade,stocks,prices,climaticconditions,and nutritional needs, preferably atthe local and district levels, given theheterogeneityofsectorperformanceand

36 Kapur and Krishnamurthy 2014


foodsecuritysituations;(2)maintainingenough emergency food stocks toaddress short-term volatilities due to,e.g., weather shocks, food productionshortfalls,andpriceshocks;(3)targetedsafetynetprogramsensuringaccesstofoodduringshortagesforpredeterminedvulnerable populations; and (4)coordinationoftradearrangementsputinplace inadvancebetweencountries.Price-based policies to manage foodsecurityarenecessarilyshort-term,canhavehighfiscalcosts,andoftenbackfirebydiscouragingproductionandoptimaldistributionoffood.

Regulatory issues affect input mar-kets and food safety.Effective private-sector input markets, particularly for improved seed and fertilizer, can greatly influence agricultural productivity and the competitiveness of Tanzania’s agriculture. The Customs Tariff Act of1976 exempted all agricultural inputsfrom import duty. A number of taxincentives also were granted in theIncomeTaxActof2004,includinga100percentcapitalallowanceforagricultureand income tax exemption for export-processing zones. Since then furtherreformshavebeenintroduced,includingVATexemptionsforselectedagricultureproducts and selected capital goodssuch as machines and productionplants, and corporate tax holidays onstrategic industries like leather. Thesepolicy reforms were meant to reduceproduction costs, make agricultural

commodities more competitive, andincreaseprofitsforbothproducersanddistributorsofagriculturalproduce.

Improving the performance and regulation of private-sector agricultural input markets will be vital to agricultural productivity.Standards in the informal sector arenotregulated,bothqualityandproductlabellingareunreliable,andinformationon fertilizer and seed performance isscarce. Although in the last decadethe number of Tanzanian farmersusing improved seed has substantiallyincreased, there is potential to furtherincrease utilization. The averagefertilizerapplicationinTanzaniais8–10kg/ha,37farbelowthe50kg/hatargetsetbyAfricangovernmentsatthe2006AbujaDeclarationonFertilizer;only16.5percentofTanzanianruralfarmsappliedinorganicfertilizertoanycrops,andonly44percentuseimprovedseed.38

The good news is that objective international assessments score Tanzania’s regulation higher than comparator countries in relation to seed, finance, transport, water, and ICT).39 However, it has below-average scores in variety registration;fertilizerimportanddistribution;tractoroperations; plant protection; andagricultural trade. This helps identifyregulatoryweaknessestotarget.Giventheirimportance,wewouldgiveprioritytoseeds.40

Public support for seeds should be 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


the costs, improve the quality, support diversification and climate change resilience, and encourage private sector participation.Publicinvestmentsshouldtherefore(1)upgradebreeding,certification, and measures to combatcounterfeitseedto improvethequalityand reduce the costs of seed; and (2)encouragebreedingofnonmaizecropsand climate-smart varieties to helpcreate markets for these seeds andencourage greater private investment.Improving regulatory performancewillbecritical to leveraging theprivateinvestmentthatASDPIIenvisages.

Mobilizing the private sector through better policies and better application of regulations should be a priority.Our analysis identified eight ways toenhanceseedperformance:

� Reducethetimerequiredforreleaseandregistrationofnewvarieties.

� Increasethenumberofnewclimate-smartvarietiesreleased.

� Build institutional capacity forinspection, certification, andlabelling of seeds and combattingcounterfeits.

� Make early generation seeds (pre-basic,basic)morewidelyavailable.

� Encourage diversification beyondmaizeseed.

� Facilitate regional harmonization ofseedregulationsto improveaccessto seed and make more varietiesavailable.

� Use the Quality Declared Seedsystemtohelpfillthegapbetweenformalcertifiedandinformalseeds.

� Holdclinicsonlawsandregulationsthatapplytoseed.

Regulation of the fertilizer market could be improved by incorporating known regional good practices for fertilizer registration, import and distribution, and quality control. ThiswillincreaseaccesstoanduseofqualitysyntheticfertilizerinTanzania.

Ensuring the safety of food supplied to domestic and export markets is critical to building human capital, improving trade competitiveness, and attracting private investment to Tanzania. Tanzania is one of sevenAfrican countries that have sufferedproductivity losses from foodbornedisease; in 2016 the cost exceededUS$500 million.41 The economiclosses result from productivity losses,treatmentcosts, thecostsofmortalityand suffering, and losses to businessfrom food recalls and lost exports.Institutionalarrangementsforenforcingfood safety laws in Tanzania arecomplexandfragmented.There isalsoconsiderableduplicationofinstitutionalmandates. Both factors increasecompliancescostsforbusinesses.

Because Africa’s regional markets are fast becoming the main targets for both African and non-African food exporters, belief in the quality and integrity of Tanzania’s food safety

41 Jaffee et al. 2019


certification for exports will be critical to commercial success. The recentsuccessesofbothRwandaandUgandain growing market share in regionalinland markets for high-nutrition babyfoodsillustrateswhatcanbedone.18

Approaches to ensuring food safetysystemshavebeenidentified:

� Build up leadership and addressduplication of institutionalmandates.

� Prioritizepublicspending.

� Shift to a risk-based food safetysystem.

� Over the long term, move fromcompliance with compulsoryregulationtofacilitationandcreationof incentives for compliance withvoluntaryregulation.

� Harmonize rules and processeswithintheEastAfricanCommunity(EAC).

More efficient phytosanitary inspection and certification procedures in an exporting country like Tanzania can reduce the burden on export businesses and possibly encourage more trade. Initiating thephytosanitary certification processelectronically and enhancing on-siteinspection and issuance of certificateswouldallowproductstobepackedandsealed in the same place as they areinspected.Thiswouldreducetransportand logistics costs and allow forimmediateexportafterinspection.

2.5 Increasing Investment in Agriculture

Whether the owners are smallholders or large corporate farms, agriculture and increasingly its support services are private businesses. Privateinvestment is central to financingTanzania’sstrategyforsustainedgrowth,and to its economic transformation.AccordingtoASDPII,privateinvestmentisexpectedtocontributeUS$20billionofthetotalneededfinancingofUS$45billion. ASDP II also recognizes thatpublic funding will not be sufficientto meet its objectives and that privateinvestment is therefore essential. Thissectionconsidersthepolicy,regulatory,and public investment issues centralto catalyzing private investment;smallholders and especially medium-scale farmers can be effective modelsforsmaller-scaleinvestment.

In most countries, among them Tanzania, spending on public goods is essential to create an environment that enables private-sector-driven agriculture, including smallholder farms, to flourish. Thus, amongpublic goods are agricultural research,standards-setting institutions, the ruleoflaw,andinfrastructure,suchasroads,whosebenefitsareavailabletoall.Publicgoodsarethusfundamentallydifferentfrom private goods, such as subsidiesto specific parties, whose benefits aremainlycapturedbythereceivingparties.


Private investment can be pro-moted by more thoughtful public spending on agriculture and rural development.It has long been recognized that there is a need for public investment in agriculture and rural development to provide the public goods necessary to crowd in private investment and help rural people help themselves.That iswhy in theMaputoDeclarationAfrican Union (AU) member statescommitted to allocating at least 10percent of total national budgets toagriculture.ItalsoledtoAUsupportforthe Comprehensive Africa AgricultureDevelopment Program (CAADP) toencourageincreasedandmoreeffective

public investment in agriculture.Using a broad definition that includessupportive services and infrastructurelike rural roads, Tanzania’s spendingon agriculture and rural developmentincreased in absolute terms between2011and2018butdeclinedasashareof the government budget. The shareof Tanzanian spending dedicated tothe rural sector generally, includingagriculture, averaged 20 percent, butmore than 75 percent of it was forprojects and programs for education,health,andinfrastructure.

Thus, agriculture-specific42 spending averaged only 4 percent of total public spending and by 2017 had fallen to

Source: FAO-MAFAP based on MAFAP Database (September 2018 version).

Figure 17. Composition of the Ministry of Agriculture Budget, 2011–17

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.


The highest share of Ministry of Agriculture spending in 2005–17 went to private goods in the form of input subsidies, largely through the NAIVS. TheMinistrybudgetallocationdeclinedover theperiod;asashareof thetotalbudget,itshrankfromalmost3percentto less than 0.5 percent The secondlargestsharewenttotheNationalFoodReserve Agency (NFRA), which is alsoprivate-orientedspending(Figure17).

Policy reforms and public investments targeting infrastructure development will facilitate more private investment for growth in value-addition and creation of more and more-highly- paid jobs. Roads connect farmers toinput and output markets, and publicinvestment in more and better marketinfrastructure in secondary cities andruraltownshelpsconnectfarmproductsto effective demand from processorsandconsumers.Functionalresearchandextension enable farmers to be moreproductive and thus more competitiveand more resilient. Better policiesand regulation will be instrumental infacilitating these processes for moreinclusivegrowth.

Finance for Development can be maximizing for agriculture in Tan-zania.Private investments in agribusiness have been modest, especially from foreign sources.MostofTanzania’sFDI

2.5 percent, just one-quarter of the10 percent CAAPD commitment of AUmemberstates.Tanzania’spercentageislowonaregionalscaleandofparticularconcern considering how much thelivelihoodsof70percentofTanzaniansdependonagriculture.Publicspending,on agricultural research and otherpublic goods directly targeted toincentivizeprivateagriculturalandfoodinvestments, needs to be both higherand more efficient. Even then, of the2.5 percent of public spending goingtoagriculture,one-thirdwasforprivategoods,suchassubsidiesforinputs.43

No country, especially not one where agricultural transformation is just beginning, can hope to grow its agriculture with less than 2 percent of public spending going to agricultural public goods like research, extension, and market institutions.TheproblemiscompoundedbyTanzania’s remarkablylow execution rates for agriculturalbudgets: 83 percent for recurrentspending in 2017/18, not inordinatelylower than most other ministries,but only 6 percent for developmentspending—about one-tenth the ratein most other ministries.44 Such lowexecutionratessuggesthowmuchtheMinistry of Agriculture would benefitfrombuilding internalcapacitytotrackand report to policymakers on theprogressofprogramsandprojects,andeventually evaluate ways to improvedelivery.

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


hasgoneintoextractivesandsupportedtheexportofrawmaterials;employmentlinks to the domestic economy havebeen few. On average, between 2007to 2017 only 4 percent of FDI wentintoagriculture,fisheries,andforests.45Commercialbanklendingtoagricultureisjust7percent,downfrom10percentinthepastfiveyears.46Privateinvestmentandidentifyingopportunitiesforgreaterprivate participation will depend on abetterunderstandingof thepolicyandregulatoryreformsneeded.

The main barriers to private investment are policy, regulatory, and institutional reforms issues that cost relatively little to remove. Reformsshould target improving the businessenvironment to make the country amoreattractiveinvestmentdestination.Thereformscouldstart inareaswhereTanzania performs least well in theWorld Bank Doing Business Indicators:(1) high barriers to business entry; (2)highcostsforcompliancewithtaxlawsandtheincentiveforinformality;and(3)significant restrictions on cross-bordertrade.47

For agribusiness, policy and regulatory reform should (1) identifyareas where the public sector iscrowding out the private sector orundermining competition; (2) removepolicy distortions and barriers to tradethat discourage private investment;(3) reduce regulatory barriers toinvestment and cut compliance costs;and(4)make landtenuremoresecure

toreduceriskstoinvestorsandlenders.AMaximizingFinanceforDevelopment(MFD) approach requires a criticalreview of each potential investment ininfrastructure and services to examinewhetheritisorcanbeprovidedbytheprivate sector, and if not whether thatcould become possible by changes inpolicy and regulation, risk-sharing andconcessional finance, or performance-basedpublicservicecontracts

Policyandregulatoryreformstoincreaseprivate investment in both input andoutput markets are necessary in threeareas:

Regulation of output markets and trade policy,toaddressproblemscausedby(1)restrictivemarketingrequirements,suchas requirements to sell through closedauctions, that reduce competition;and (2) discretionary trade policies,including reinstatementofexportbansorstringentexportlicensing,thatrestricttradeanderodeproducerincentives.

Revised regulation of input markets, toimprove (1) arrangements for fertilizerimport and distribution and fertilizerquality control and labelling; and (2)regulation of seeds, plant propagation,variety registration, and seed qualitycontrol.

Sanitary and phytosanitary controls, to(1) establish an institutional mandatefor pest surveillance and risk analysis;(2) ensure more efficient issuance ofphytosanitary certificates for cross-

45 World Bank 2019b

46 Tanzania Agriculture Development Bank 2019

47 World Bank n.d.


bordertrade;and(3)bolsterinstitutionalarrangements for risk-based regulationoffoodsafety.

Private investment can be increased by risk-sharing and public-private partnerships (PPPs). There are bothreal and perceived risks inherent inagriculture, as demonstrated by highbank lending rates, currently 16.8percent48, and low loan approvals,that discourages investment. Reformsare needed to create incentives forprivate investment in infrastructureand management. Some risks can bereduced by providing guarantees andconcessional financing to encourageprivateinvestmentininfrastructurethattheprivatesectorconsiders risky, suchasinvestmentsindownstreamirrigationinfrastructure,grainsilos,andwholesaleand retail markets for fresh produce.Possible PPPs in public infrastructurerange from design-build contractsto design-build-operate concessionagreements, for, e.g., rural roads,upstream irrigation infrastructure, andstrategicgrainreservewarehouses.

A fundamental paradigm change is required in how services are provided to agriculture, one that promotes abottom-up, demand-side, output-orientedapproachratherthanonethatis top-down and supply-side-driven.Thiswillhelpmuch-neededservicesforagriculture to become more efficient;for instance, the current coverage andquality of extension services demandattention.

Performance-based public service contractsare another way to provide services to agriculture. Properlydesigned, they can achieve betterresults than traditional public-sector,input-based methods. Among areaswherepublicservicecontractscouldbeexploredare(1)certifiedseedinspectionbytheTanzaniaOfficialSeedCertificationInstitute;(2)foodsafetyinspectionandpublicawarenesscampaigns;(3)someveterinaryservices.suchascompulsoryvaccination, and public awarenesscampaigns; and (4) provision ofextension services. Because effectiveuseof thesecontractualarrangementswill require a legal and administrativestructure for enforcement, specificreformswillbeneededtoensuretheycanbecarriedoutand tocreate incentivesforprivateinvestmentandparticipation.Performance-based contracting cancreateapositivedynamicforreformbutshould not be considered a substitutefortheinstitutionalreformsnecessarytokeepthesectorfunctioningsustainably.

Finally, the government should also ensure that private investment contributes to its strategic objectives of poverty reduction, job creation, food security, and resilience to climate change.Thenextsubsectionaddressesthe related pressing challenges toagriculture.

48 World Bank 2019b


Policies and investments for better soil and water management can heighten the resilience of rural in-comes.As noted, the considerable growth of Tanzanian agriculture has been due primarily to rapid expansion of cropped area, especially after 2008.This is not uncommon in Africa butnow raises large strategic concernsfor a region very vulnerable to theeffects of climate change and in 2016already suffering the consequences ofmore frequent severe El Nino events.Inaglobal contextTanzania’s relativelyabundantlandandwaterresourcescanlead to dangerous complacency aboutreal threats of short- as well as long-termconsequences.

Because of removal of biomass, from, e.g., deforestation; erosion from lack of investment in soil and water management; and inadequate maintenance of soil fertility from too little use of fertilizers and manures, more than 60 percent of the land used to produce crops, livestock, and forest products and services is b degraded.Thesoil thushasaseverelydiminished capacity to retain waterand soil nutrients, grow crops, provideforest products, support livestock,assure water availability and quality,and provide other essential ecosystemservices.Thisisahugelossofnationalnatural capital. Moreover, most of theruralpoorliveondegradedland,whichwillmakeitespeciallyhardtobreakthecycleofpoverty.

Box 2: Strategies for Making Agricultural Water More Productive

1. Modernize irrigation while improving water and land management. AnincreaseincropproductionperunitofwaterandlandiscentraltoanynationalwatermanagementstrategyinTanzania.Productivityincreases,andcommensurateincreasesin income, are made possible through a combination of improvements in watermanagement,landmanagement,andagronomicpracticesinbothrainfedandirrigatedcroppingsystems.Whilethisrequiresbettertechnologiesforwaterstorageanddelivery,boostingtheorganiccontentofsoilsandtreecovercanalsogreatlyenhanceboththesoilfertilityandthewaterretentionoffields.Profitabilityisacriticalexternalmotivationtocomplywithnewwaterregulations.

2. Shift to adaptive allocation of water resources based on availability.Watermanagersandcommunitiesneedtobeabletotemporarilybutequitablyreducewaterallocationsduringdroughts inorder toprotectpriorityusesandreduceconflicts thatcouldhaveserioussocialandeconomicimpacts.Experiencehasshownthattorealizewatersavingsandmitigatedroughtimpacttechnicalmeasuresmustbecoupledwithinstitutionalmeasures—monitoring,enforcement, land-planning,andagriculturalandtechnicalsupporttofarmers.

3. Build resilience into farming on every scale.Thatmeansdeveloping,adapting,andextendingdrought-resilient(andinsomecasesflood-resilient)cultivars,selectingcrops based on current and projected water availability, and improving soil fertilitymanagementandplantprotection.Foodandtradepoliciescanalsobecriticalinfluencesoncropselection;theirdraftersshouldtakeintoaccounthowtheyaffecttheavailabilityofwater.


Component One of ASDP II clearly recognizes the stakes for agricultural productivity. Policysolutionstogrowingland degradation vary but typicallyrequire better governance of landresourcesbasedonlocallanduseplans;they also typically require institutionsand enforcement in order to integratemanagement of whole watersheds.That tends to involve participatoryplanning,butalsoconflictmanagement(often between competing uses ofland), institutionstohelpyouthaccessland, and investment in mosaic forestprotection, contour bunding protectedpathways for seasonal livestockmovement, and water management(Box2).Thesepathwaysforprotectingnatural capital illustrate that climate-smart agriculture cannot be done fieldby field; it requires community-widebuy-inandaction.Thatcanbefacilitatednot only by effective local governmentbutalsobyclimatefinanceoptionsthatgivelocalitiesresourcestoworkwithinreturnformonitorableprogress.49

Agriculture in Tanzania accounts for an estimated 89 percent of national fresh water withdrawals—higher than the global average of about 70 percent and the Africa average of about 80 percent.Though90percentisusedmainlyforirrigation.anyseriousefforttomanagethegeneralefficiencyof water use requires thoughtfulattention to agricultural use. As is thecase in most countries, water, andwateruse,areunevenlydistributed,and

Tanzania has nine river basins. Someareas of Tanzania have experiencedfrequent severe droughts for years,as has happened, e.g., in 8 of the last20 years in the Pangani Basin. Climatechangehasaggravatedthealreadyhighvolatility in annual rainfall (up to 400percent)inmostofthecountry.

As Tanzania develops, agriculture expands, and the population grows, demand for water, a finite resource, is surging. Tanzania’splanstoexpandandmodernize agriculture should includeinformed planning and managementof agricultural water use that buildsresiliencetotheissuesposedbydroughtandclimatechange.Tanzaniastillhasareasonablyhighpercapitaendowmentof fresh water compared to someneighbors, so its main challenge is touselesswaterwhilemakingagriculturemore productive. The three strategicactions outlined in Box 1 can help tomakethatpossible.

2.6 Conclusions

The Government of Tanzania is very clearly committed to a proactive approach to rapid agricultural transformation as a way to reduce poverty and achieve shared prosperity. Agriculture’sroleinthesegoalsisclearlyspecified in such strategic documentsas the Tanzania Development Vision 2025, the Five-Year Development Plan II, and ASDP II. As of 2017, agriculturewasstill themainsourceof livelihoodsfor 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.


population.Thesharerisesto70percentfor all households that receive somedirect agricultural income, along withhouseholds whose nonfarm livelihoodsdepends on selling to farmers orprocessing and trading farm outputs.In2014,households thatdependedonagriculturedirectlyorindirectlyfortheirlivelihoodconstitutedalargemajorityofthe 47 percent of Tanzania’s mainlandpopulationestimatedtobelivingbelowtheUS$1.90/daypovertyline.50

Tanzania’s ambitious targets for sustained economic and employment growth will require brisk growth in manufacturing—for which robust agricultural growth is a precondition. Agricultureprovidesanincreasingfoodsupply,andthusmorestablerealwages,in a country where, except among thehighest income groups, spending onfoodstaples likecereals still consumesmore than 30 percent of average totalhousehold spending. This is especiallyimportant as labor and capital flowfrom agriculture to other sectors inurban areas. Agricultural incomes alsomustgrowtocreatebroad-based localdemand for domestic manufacturedconsumergoods.Finally,morethanhalfof Tanzania’s current manufacturingvalue-added occurs in agriprocessing,whichasitgrowswillrequireevermorereliableandhigher-qualityrawmaterial.

Long-term annual real growth of agricultural GDP by 4 percent is not enough: annual growth rates of 6 percent need to be sustained and better supported by policy and investment. Agricultureiscrucialforfurtherreducingpoverty and promoting sustained

economic growth independent ofgrowth in exports of extractives. Mostof Tanzania’s past agricultural growthhas come from expansion of the areacultivated. Since 2000 the value ofthe country’s agricultural output hasbarely been growing faster than theaccelerating growth of the population,asisconfirmedbythestagnantaverageproductivity of agricultural land. It istime for a policy regime that is moreconsistent with the ASDP II focuson agricultural intensification andformalization.Areviewofwell-meaningcurrentsectoralpoliciessuggestsscopefor changes that could acceleratesustainableagriculturalgrowth, shouldthegovernmentwishtodoso.

Trade restrictions are an obvious area for reform. The most counter-productiveexampleistheuseofbansonexportsofmaizeandriceasashort-termpricestabilizationtool.Grainexportbansglobally, and in Tanzania specifically,createcostsforfarmersandthecountryimposingthemthatexceedanybenefitfor domestic consumers. Export bansaresometimesreplacedbyexporttaxes,buttheyalsocutincentivesforfarmersto produce more, or by import tariffs,wheretheofficialobjectiveistoprotectlocal producers. However, these taxesandtariffsincreaseratherthandecreaseprice volatility. Agricultural commoditytaxesandtariffstypicallybenefittradersand processors more than farmers orconsumers, to thedetrimentover timeof both production and trade. From agrowthperspective,restrictionsonfoodexports are most costly when regionaltrade partners become unwilling toentrust their own food security to

50 World Bank 2015


Tanzanian producers. Indeed, facedwith the possibility of last-minuteexportbans,neighboringcountrieswithless comparative advantage in grainproduction persist in trying to growhigh-cost maize and rice rather thantrade with Tanzania, preventing thedevelopment of significant economiesof scale in Tanzania’s food exportswithintheregion.

Also on the reform agenda are trade and subsidy approaches to food security that are untargeted, high-cost, and not very effective. Mobilizingthe private sector through policies toprovide public goods that increasethe returns to private investment, andbetter regulation can improve boththe availability of food and the meansto purchase it. Though Tanzania’sregulationofagricultureshinesinsomerespects,inothersthereismuchstilltobedone.Beyondwhattheprivatesectorcando,finertargetingofsocialprotectionto those who need it most is muchmore effective for food security thanagricultural price policies. Constructiveresultsareexpected,however,oncetheblueprint for improving the businessenvironmentisfollowed.

Scarce public funds should be better targeted to mobilize private sector finance, including for on-farm investment by smallholders, through institutional and infrastructural development that increases the returns to their labors. Publicspendingon agriculture needs both to growand to shift from providing significantprivategoods,suchas inputsubsidies,to providing core public goods, suchas agricultural research and more

efficient irrigation, thatmobilizeprivateinvestment in agricultural productionand distribution. Although theyhoused 66 percent of Tanzanians,rural areas receivedonly 20 percentofpublic spending in 2014. Although 70percent of Tanzanians depend directlyor indirectly on agriculture for theirlivelihoods,in2017agriculturereceivedonly 2.5 percent of public spending.And even then, 33 percent of publicspendingonagriculturewasforprivategoods captured by specific personsor interests. No country, especiallynot one just beginning to transformits agriculture, can hope to growagriculture with less than 2 percent ofpublic spending going to agriculturalpublic goods. It will also be critical forTanzania to make public spending onagriculturemoreefficientandtoreducethesignificantunder-spendingofpublicbudgets for agricultural development.ThisislikelytorequirebuildingcapacitywithintheMinistryofAgriculture.

Despite Tanzania’s abundant endowment of land and adequate water, to be successful an agricultural strategy must now pay more thoughtful attention to policies and investments that further the ASDP II goals of making rural livelihoods more resilient by better management of soil and water. Almostallgrowthinagricultural output in recent decadeshas come from land expansion, oftenpreceded by deforestation. The vastmajority of lands currently in useare significantly degraded, nutrientsand soil structure are not being fullyreplaced, and the capacity of the


land for production and ecosystemserviceslikewaterretentionisdeclining.Agriculture accounts for nearly 90percent of water use and the need toincrease the productivity of water percropandunitareahasbecomeevident.Solutions require watershed-levelapproaches to improving land use andbuildingupstakeholderbuy-inforbetterenforcementofagreedrules.

Despite a policy and regulatory regime that does not seem favorable to agricultural growth, it has become clear that after 2008 a structural transformation of Tanzanian agriculture began with the rise of medium-scale farms. The 4 percentannual average growth of agriculturalGDPovertwodecadescapturesneithertheexperiencesincetherecoveryfromthecommodityboomin2015,norwhatishappeninginthemostdynamicone-thirdofTanzanianfarms.Between2008and2014thevalueofmain-seasoncropproductionrosefromTZS3.2trillionto5.1trillioninrealinflation-adjusted2015values.This impliesannual realgrowthof8percent,aworld-classachievement.At least in this period, agriculturalstagnation was not due to what washappeningonthefarm.Simultaneouslywith this growth rate, 35 percent ofTanzanian farms were medium-scale(5–20haper farm) in2014, comparedto 23 percent in 2008—a very rapidsizescale-upcompared toneighboringcountries. Tanzania also saw a steadydecline in the proportion of farmscategorized as primarily subsistence-oriented,farm-focused,andsmall-scale,from43percentofallfarmsin2008to31percentin2014.

The extent to which the rise of medium-scale farms helped commercialize smallholders as a group is the most significant finding of our work, and the most promising for Tanzanian agriculture. Medium-scalefarmersareonlyslightlylesslikelythansmall-scalefarmerstooriginateintheircommunity(65versus68percent),which suggests that many medium-scalefarmswereoncesmall-scale,andtheir success has the potential to pullalongotherfarmers.Theyaremorelikelythan small-scale farms to hire labor,use nonmanual traction, use improvedseeds, access agricultural credit andextension services, and sell what theirfarms produce. This suggests theymay also be able to attract services totheircommunities,deepenthemarketsfor agricultural inputs and outputs,and diffuse knowledge and newtechnologies.

A rigorous analysis by location found that in areas with greater concentrations of medium- and large-scale farms, small-scale farms are more likely to use improved seed and fertilizer, to cultivate a larger proportion of their land, and to access agricultural extension and credit.An increase of 10 percent in the shareof farms in a given region that arenot small-scale is associated with a 9percent greater likelihood that a small-scale farm buys improved seed, and a5 percent greater likelihood that it willuse inorganic fertilizer. More medium-and large-scale farm neighbors is alsopositivelycorrelatedwith the likelihood


that a household moves away fromsmall-scale agricultural activities butremains in its home. This is consistentwith a view that medium and largerfarms generate demand for labor andnonfarm production and services thatofferoptionsforsmall-farmhouseholdslookingtoleavefarming.

The increasing prominence in Tanzania of medium-scale farmers presents opportunities for catalyzing agricultural transformation through a market-led model for reducing poverty among small-scale farmers through positive spillovers. Medium-scale farmers not only have strongmarket orientations and links, theyinvest in technology and knowledgeand attract commercial services thatcan generate agri-food-based taxrevenue.Andtheyhavebeenshowntohelp neighboring smallholders to alsoraisetheirincomes.Effortsthatchannelpolicy and regulatory reform andpublic investments into furthering theASDP II shouldbegivenpriority, in theexpectationthatthiswillbeapathwayfor mobilizing both additional privateinvestment in agricultural productionand related services and for scalingup the growing pool of commercially-orientedsmallholders.

This analysis found that in Tanzania the 368,000 medium-scale farms added between 2008 and 2014 were associated with creation by 2014 of almost 13 million days of additional paid work for hired agricultural labor and US$225–300 million in net additional back and consumption growth links—with associated employment implications. Thetotal effect of the estimated 776,473medium-scale farmsoperating in2014wouldbeproportionatelyhigher.Absentfromthisestimateiswhatwouldsurelybe a sizable component of forwardlinks, such as additional benefits forthe agri-processors that account forhalfofTanzania’smanufacturingvalue-added. Having cheaper and morereliablerawmaterialisessentialfortheirprofitabilityandhiring,as it is for retailestablishments. In general, policiesthat better support the beginnings ofTanzania’s agricultural transformationwillbecentraltobothreducingpovertyamong smallholders and acceleratingthe creation of more and better jobsalongagriculturalvaluechains.

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 World Bank Group Macroeconomics, Trade and Investment Global Practice, Africa RegionThe World Bank Group Macroeconomics and Fiscal Management Global Practice, Africa Region

PAGE59

Annexes3


Stat

isti

cal A

nnex

es

Ann

ex 1

. Key

Mac

roec

onom

ic In

dica

tors 2

00

92

01

02

01

12

01

22

01

32

01

42

01

52

01

62

01

72

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nd

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GD

P a

t co

nst

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t m

ark

et

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ce (

% c

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5.3

6.3

7.7

4.5

6.8

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6.9

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Ag

ricu

ltu

re4

.23

.22

.53

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.86

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.86

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stry

3

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1.8

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10

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fla

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12

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16

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cap

ita

(in

US$

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81

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26

76

58

70

96

91

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93

41

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Fisc

al

(% o

f G

DP

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sca

l y

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eve

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nd

gra

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16

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15

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ce: W

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F, a

nd T

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aut

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ex 2

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DP

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, Per

cent

Cha

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4.5

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Sour

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Sta

tistic

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Stat

isti

cal A

nnex

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Ann

ex 1

. Key

Mac

roec

onom

ic In

dica

tors 2

00

92

01

02

01

12

01

22

01

32

01

42

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52

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62

01

72

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bt

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nd T

anza

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ex 3

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mic

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Ann

ex 4

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onHe

alth

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er

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ices

All

indu

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at b

asic

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s on

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ket

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es

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81.

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8.0

1.9

12.6

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1.8

6.9

6.1

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5.6

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16.

310

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54.

55.

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27.

2

2018

2019

2016

2017

2015

Sour

ce: N

atio

nal B

urea

u of

Sta

tistic

s.


Ann

ex 5

. Infl

atio

n Ra

tes,

Per

cent

Cha

nge

Mon

thHe

adlin

e Ov

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l Ind

exFo

od &

Non

Al

coho

lic

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rage

s (E

xclu

de Fo

od

cons

umed

at

Rest

aura

nts)

Tran

spor

tHo

usin

g,

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er,E

lect

rici

ty,G

as &

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er

Fuel

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ishin

g,

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ing

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pmen

t &

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ine

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ance

of

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se

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hing

&

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stau

rant

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d Ho

tels

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el. G

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an

d Se

rvice

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coho

lic a

nd

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cco

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mun

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& En

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& Cu

lture

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th

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ght (

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3.8

3.6

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201

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Apr 2

019

3.2

0.9

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11.4

4.2

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May

201

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52.

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01.

9

Sour

ce: N

atio

nal B

urea

u of

Sta

tistic

s.

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 World Bank Group Macroeconomics, Trade and Investment Global Practice, Africa RegionA

nnex

6. F

ood

Cro

p Pr

ices

, Reg

iona

l Ave

rage

s, T

ZS p

er 1

00Kg

Mon

th Y

ear

Arus

haDa

r es

Sala

amM

beya

Arus

haDa

r es

Sala

amM

beya

Arus

haDa

r es

Sala

amM

beya

Arus

haDa

r es

Sala

amM

beya

Arus

haDa

r es

Sala

amM

beya

Oct

201

753

,714

54,2

0720

0,31

319

1,38

966

,214

121,

404

166,

875

194,

681

62,3

5795

,148

-No

v 20

1751

,417

52,2

8850

,333

177,

000

188,

054

181,

667

69,0

0011

8,16

713

4,16

719

7,50

020

1,73

621

0,83

359

,500

89,8

85-

Dec

2017

52,6

2552

,083

53,0

0020

1,56

318

9,30

618

8,75

067

,071

113,

722

192,

000

175,

000

200,

000

200,

000

66,2

2283

,000

-Ja

n 20

1851

,750

47,8

2849

,000

210,

000

189,

643

185,

833

73,9

0011

0,88

912

5,00

016

0,00

020

7,91

720

7,50

062

,833

86,9

17-

Feb

2018

48,4

1749

,427

203,

000

196,

563

72,7

7811

4,11

516

0,31

319

7,13

558

,429

79,6

90-

Mar

201

848

,091

54,9

5817

9,70

819

4,75

069

,850

126,

538

145,

000

193,

281

55,2

7879

,091

-Ap

r 201

846

,333

46,3

7521

6,66

721

0,00

070

,625

128,

750

199,

375

56,5

0010

1,25

0M

ay 2

018

46,5

0049

,333

35,0

0019

0,00

017

0,00

019

5,00

072

,500

130,

000

141,

000

155,

000

206,

667

147,

000

61,0

0085

,000

Jun

2018

44,3

0049

,286

35,0

0018

5,00

017

1,07

118

6,66

765

,600

12

6,42

9

13

6,83

3

149,

500

185,

000

151,

583

48,1

0092

,857

Jul 2

018

43,8

3342

,167

35,0

0018

5,00

014

5,00

019

0,00

063

,167

125,

833

136,

000

137,

500

186,

667

152,

500

46,3

3385

,000

Aug

2018

37,2

5045

,483

181,

875

164,

188

63,1

8812

7,50

011

8,75

019

1,87

544

,688

88,0

83Se

p 20

1835

,182

40,8

5536

0,00

032

8,78

863

,591

119,

377

118,

409

190,

269

47,7

2780

,758

Oct

201

834

,071

36,5

2431

,000

180,

000

167,

024

180,

000

63,8

5712

7,38

110

0,00

012

0,00

018

6,42

917

0,00

044

,000

76,1

9090

,000

Dec

2018

42,6

6752

,528

36,0

0016

8,75

015

8,88

914

0,41

766

,958

117,

917

118,

750

121,

667

185,

333

180,

833

59,3

7575

,375

101,

208

Jan

2019

43,2

7558

,200

36,0

0017

7,00

017

1,33

314

0,00

066

,500

126,

667

120,

000

123,

500

192,

567

180,

000

39,1

0077

,667

101,

500

Feb

2019

43,1

1165

,241

39,0

0018

0,00

018

4,63

018

0,00

078

,000

133,

889

120,

000

127,

778

197,

963

170,

000

36,5

5676

,019

101,

500

Mar

201

943

,818

55,8

9439

,455

181,

818

184,

318

151,

818

80,9

0913

3,78

813

0,00

013

1,59

119

0,75

819

0,00

035

,045

77,2

7310

2,50

0Ap

r 201

965

,333

61,3

6142

,000

181,

667

180,

278

172,

500

88,8

3313

5,00

013

0,00

013

2,50

018

7,50

019

0,00

043

,333

82,2

2210

2,50

0M

ay 2

019

62,5

0068

,056

43,8

7519

5,00

017

3,88

917

2,50

085

,889

132,

407

130,

000

148,

889

187,

963

190,

000

44,5

0087

,778

102,

500

Jun

2019

64,8

8971

,185

45,0

0018

1,66

716

6,48

117

2,50

092

,333

126,

296

130,

000

148,

056

183,

333

190,

000

42,0

5688

,148

102,

500

Jul 2

019

69,6

6775

,583

52,5

0017

5,41

716

6,38

914

8,75

076

,875

126,

250

130,

000

155,

417

181,

944

..49

,208

85,6

9410

2,50

0Au

g 20

1972

,136

77,4

3260

,000

191,

818

178,

864

125,

500

89,0

0012

9,31

816

0,00

014

7,77

319

0,00

016

2,00

055

,818

92,9

5514

5,00

0Se

p 20

1977

,432

74,5

4564

,200

194,

091

185,

455

127,

833

77,5

0012

1,59

116

0,00

015

5,00

019

1,64

816

0,80

053

,591

91,0

2310

2,77

8

Mai

zeRi

ceW

heat

Bean

sSo

rghu

m

Sour

ce: M

inis

try

of In

dust

ry, T

rade

, and

Mar

ketin

g.


Annex 7. Food Crop Prices, National Average, TZS per 100Kg.

Month-Year Beans Maize Rice Round Potatoes

Sorghum

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-18Dec-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.

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 World Bank Group Macroeconomics, Trade and Investment Global Practice, Africa RegionA

nnex

8. B

alan

ce o

f Pay

men

ts, P

erce

nt o

f GD

P, E

xcep

t Whe

re N

oted

Oth

erw

ise

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

2013

/14

2014

/15

2015

/16

2016

/17

2017

/18

2018

/19

1. C

A ba

lanc

e (in

clud

ing

tran

sfer

s)-7

.8-7

.1-7

.9-1

3.1

-10.

5-1

0.7

-9.8

-6.5

-3.0

-3.8

-3.9

Expo

rts o

f Goo

ds11

.712

.415

.015

.512

.912

.011

.112

.49.

99.

08.

5o/

w G

old

Impo

rt of

Goo

ds

-21.

6-2

0.2

-20.

1-2

2.4

-25.

3-2

2.5

-23.

5-2

3.7

-20.

6-2

0.9

-21.

7Se

rvic

es (

net)

0.6

0.5

0.5

0.2

1.3

1.4

1.7

2.0

3.6

3.2

3.1

Trad

e ba

lanc

e -1

0.6

-9.1

-9.5

-14.

1-1

2.1

-12.

3-1

0.9

-7.4

-5.6

-5.9

-5.9

Inco

me

( net

)-1

.1-1

.5-1

.9-1

.8-1

.5-1

.4-1

.8-1

.9-1

.9-1

.9-1

.9Cu

rrent

tran

sfer

s ( n

et)

3.4

2.9

3.0

2.6

1.9

1.6

1.2

0.7

0.9

0.8

0.8

2. C

apita

l and

fina

ncia

l acc

ount

8.3

8.9

10.3

11.5

12.2

10.1

7.9

6.1

5.3

4.5

4.3

Capi

tal a

ccou

nt1.

41.

71.

72.

21.

81.

60.

90.

70.

90.

90.

8Fi

nanc

ial a

ccou

nt

6.9

7.2

8.5

9.4

10.4

8.5

7.0

5.3

4.5

3.6

3.5

o/w

Dire

ct in

vest

men

t3.

93.

24.

64.

24.

64.

43.

43.

31.

81.

91.

83.

Net

err

ors a

nd o

miss

ion

-0.4

-0.2

-2.1

2.4

-0.6

1.1

1.4

-0.3

0.1

0.6

0.0

4. O

vera

ll ba

lanc

e0.

11.

60.

30.

81.

10.

5-0

.6-0

.82.

41.

20.

45.

Res

erve

s and

rela

ted

item

s-0

.1-1

.6-0

.3-0

.8-1

.1-0

.50.

60.

8-2

.4-1

.2-0

.4Re

serv

es a

sset

s-0

.9-1

.9-0

.4-0

.8-1

.4-0

.50.

70.

9-2

.3-1

.0-0

.2Us

e of

Fun

d cr

edit

and

loan

s0.

90.

30.

1-0

.10.

30.

0-0

.1-0

.1-0

.2-0

.2-0

.2

Sour

ce: B

ank

of T

anza

nia,

IMF,

and

Wor

ld B

ank.


Ann

ex 9

. Fis

cal F

ram

ewor

k, P

erce

nt o

f GD

P

2010

/11

2011

/12

2012

/13

2013

/14

2014

/15

2015

/16

2016

/17

2017

/18

2018

/19

2019

/20

Act

ual

Act

ual

Act

ual

Act

ual

Act

ual

Act

ual

Act

ual

Act

ualP

rel.

Act

ual

Estim

ates

Reve

nue

and

gran

ts15

.315

.915

.415

.614

.014

.816

.315

.714

.318

.0D

omes

tic r

even

ue

11.9

12.6

12.8

13.5

12.8

14.3

15.3

14.9

14.0

17.1

Tax

Reve

nues

11.0

11.3

11.7

12.3

11.6

12.8

12.9

12.6

11.6

14.2

Non

-Tax

Rev

enue

s0.

91.

31.

11.

21.

31.

52.

42.

42.

42.

9G

rant

s 3.

43.

22.

62.

11.

20.

51.

00.

80.

30.

9Pr

ogra

m g

rant

s2.

21.

81.

20.

90.

60.

10.

30.

30.

10.

2o/

w B

aske

t fun

ds0.

70.

50.

40.

30.

10.

10.

20.

10.

00.

1Pr

ojec

t gra

nts

0.8

1.1

1.0

0.9

0.6

0.4

0.7

0.5

0.2

0.7

Expe

nditu

re a

nd n

et le

ndin

g19

.518

.920

.518

.517

.118

.317

.417

.016

.920

.4Re

curr

ent E

xpen

ditu

re13

.912

.214

.313

.712

.813

.810

.710

.710

.411

.5W

ages

and

com

pens

atio

n4.

94.

85.

15.

35.

45.

85.

24.

65.

05.

6In

tere

st P

aym

ents

0.7

0.8

1.2

1.3

1.5

1.5

1.6

1.7

1.8

1.8

Dom

estic

0.6

0.6

0.9

1.0

1.1

1.0

1.1

1.1

0.0

1.1

Fore

ign

0.1

0.2

0.3

0.3

0.4

0.5

0.5

0.6

1.8

0.7

Goo

ds, s

ervi

ces,

and

tran

sfer

s8.

36.

78.

07.

15.

96.

54.

04.

43.

64.

0D

evel

opm

ent E

xpen

ditu

re5.

76.

66.

24.

94.

44.

56.

76.

36.

59.

1D

omes

tical

ly fi

nanc

ed2.

03.

32.

92.

52.

73.

04.

74.

55.

07.

2Fo

reig

n fin

ance

d3.

73.

33.

32.

41.

71.

52.

01.

81.

51.

9

Ove

rall

bala

nce

(incl

udin

g gr

ants

)-4

.3-3

.0-5

.1-2

.9-3

.1-3

.5-1

.1-1

.9-3

.2-2

.3Fi

nanc

ing

4.8

3.6

5.0

3.3

3.3

3.5

1.5

1.9

3.2

2.3

Fore

ign

finan

cing

(net

)2.

23.

03.

93.

03.

11.

41.

61.

40.

91.

3G

ross

fore

ign

borr

owin

g2.

33.

24.

13.

33.

42.

02.

62.

50.

02.

9Pr

ogra

m lo

ans

0.8

0.7

0.8

1.0

0.6

0.5

0.2

0.1

0.0

0.1

Proj

ect l

oans

1.3

1.0

1.1

0.7

0.8

0.8

1.2

1.2

0.0

1.1

Non

conc

essi

onal

loan

s0.

21.

42.

21.

62.

00.

71.

21.

20.

01.

7A

mor

tizat

ion

-0.1

-0.1

-0.2

-0.2

-0.3

-0.6

-0.8

-1.1

0.0

-1.5

Dom

estic

bor

row

ing

(net

)2.

60.

61.

10.

30.

22.

1-0

.10.

52.

31.

1

Sour

ce: T

anza

nia

auth

oriti

es, I

MF,

and

Wor

ld B

ank.


Ann

ex 1

0. M

onet

ary

Agg

rega

tes,

Per

cent

of G

DP,

Exc

ept W

here

Not

ed O

ther

wis

e

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Mon

etar

y ag

greg

ates

M3

as %

of G

DP

22.9

24.6

24.1

23.5

22.1

22.5

23.4

21.1

20.8

20.3

M2

as %

of G

DP

17.2

18.0

17.1

17.2

16.3

16.8

16.7

15.3

15.4

15.0

M3

grow

th ra

te (%

)17

.725

.418

.212

.510

.015

.618

.83.

48.

04.

5M

2 g

row

th ra

te (%

)20

.821

.815

.016

.010

.917

.013

.45.

310

.43.

8D

omes

tic

cred

it

Tot

al D

omes

tic c

redi

t (%

of G

DP)

13.3

15.2

16.8

17.7

17.7

19.4

21.6

19.3

17.0

17.5

Tota

l dom

estic

cre

dit g

row

th (

%)

21.3

32.8

33.8

21.3

17.4

24.1

26.8

2.5

-3.4

10.1

Priv

ate

Sec

tor c

redi

t ( %

of G

DP)

13.0

13.4

14.1

14.5

14.2

15.0

16.4

15.3

14.2

14.0

Priv

ate

Sect

or c

redi

t gr

owth

( %

)9.

620

.027

.218

.215

.319

.424

.87.

21.

74.

9In

tere

st r

ates

str

uctu

re O

vera

ll Tb

ills

rate

( pe

riod

aver

age,

%)

8.3

4.8

8.3

13.6

13.6

13.6

12.9

16.2

11.1

6.4

Aver

age

lend

ing

rate

(%)

15.0

14.6

15.0

15.6

15.6

16.2

16.1

16.0

17.6

17.3

Aver

age

dep

osit

rate

( %)

6.8

5.9

6.3

8.4

8.3

8.4

8.9

9.2

10.0

8.2

Sour

ce: B

ank

of T

anza

nia.


Annex 11. Interest Rates Structure, Percent

Item (Percent)

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


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



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

20192018

Source: Bank of Tanzania.


Annex 12. National Debt Developments, US$ Millions

USD mn

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


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


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 -3409. 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

2019/202018/19

Source: Ministry of Finance and Bank of Tanzania.

Note: 1During the period. 2Position at the end of the period.


Annex 13. Poverty by Geographical Region

Poverty Headcount

Distribution of the Poor

Poverty Headcount

Distribution of the Poor

HBS 2011/12 HBS 2011/12 HBS 2017/18 HBS 2017/18

Basic Needs Poverty Line 1 = TSh 36,482Urban 15.5 15.9 15.8 19.0Rural 33.3 84.1 31.3 81.0

RegionsUrban 21.7 14.4 15.8 16.0Rural 33.3 84.1 31.3 81.0Dar es Salaam 4.1 1.5 8.0 3.0

Total 28.2 100.0 26.4 100.0

Food Poverty Line 1 = TSh 26,085Urban 6.0 17.7 .. ..Rural 11.3 82.3 .. ..

RegionsUrban 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. TheChangingFaceofAgricultureinTanzania:IndicatorsofTransformation1.

2. CharacteristicsandSpilloverEffectsofMedium-ScaleFarmsinTanzania2.

3. AgriculturalPolicyandMarketDistortionsinTanzania:ASynthesisofTheEvidence.

4. TradePolicyandAgriculturePerformance.

5. TheAgribusinessEnablingEnvironmentinTanzania.

6. OpportunitiestoStrengthenPerformanceofTheSeedSector.

7. AddressingtheFoodSafetyThreattoHumanCapitalDevelopment&PrivateInvestmentinTanzania.

8. MaximizingFinanceforDevelopmentofAgricultureinTanzania.

9. BuildingaClimate-ResilientAgri-foodSysteminTanzania.

10. PathwaytoImprovedProductionRunsThroughWaterSecurity.

11. BeyondRockBottom:CultivatingIntegratedSoilFertilityManagementinTanzania.

1 Available in full report format and in policy brief format.

2 Ibid.


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