One thing that Tanzania has going for it, is its fairly diversified economy. When COVID-19 was ravaging the global economy and destroying tourism-dependent countries, mining (particularly gold mining) kept Tanzania’s balance of payments and the shilling buoyant. Three years prior, when gold exports dropped dramatically, tourism kept the economy and the shilling afloat. Not to mention the agriculture and manufacturing potential that Tanzania has, given its strategic location in the continent as a gateway to the East and Central Africa region.
In its semi-annual economic update published this month, the World Bank reported Tanzania to be performing better than its regional peers in almost every metric. Both the pandemic and the conflict in Ukraine have had negative consequences for inflation and agricultural inputs. But Tanzania’s inflation is well below its regional peers. The relatively stable exchange rate likely mitigated the impact of adverse global trends in domestic inflation. The better news is that according to last year’s World Bank Report, even manufacturing exports are on an upward trajectory (32.3% growth during the first three quarters of 2021), reflecting Tanzania’s improving relations with EAC member states and other regional neighbours.
Whilst it is safe to say that Tanzania’s economy has vast potential left, two metrics remains stubbornly concerning. One it the minimal decline in poverty rates, which has hovered around 26%-27% for a very long time. While economic growth is important, prosperity should also be shared, and there is quite a bit Tanzania can do about it. The other is the relative decline in the levels of Foreign Direct Investments (FDI) in absolute terms since 2015. It is on the second item, that I would like to turn my attention to the trade and investment relations between the European Union and Tanzania.
The European Union has been a historically strong economic partner for Tanzania. In a report issued last year, 12% of Tanzanian imports originated from EU states whilst 10% of exports went the other way. The EU consolidated contribution to overseas development in Tanzania stood at a significant 27%. In addition to that, there are significant EU investments in agriculture (particularly in Arusha) as well as tourism. Data suggests that EU investors’ focus seem to be long-term, given the industries they tend to invest in.
In the EU-Tanzania business forum kicking off this week, delegates, leaders, policy makers and businesses will be keen to explore the potential for deepening business relations between the two parties. This is welcome news for Tanzania as it seeks to attract FDI with the view of fostering shared prosperity. The EU-Tanzania business forum kicks off at the time when the EU is stepping up its offer to its partners with major investments in infrastructure development around the world. Between 2021 and 2027, EU institutions and EU Member States jointly are expected to mobilise up to €300 billion of investments in a range of sectors, including digital, climate and energy, transport, health as well as education and research.
But it is not just about European FDI, it is also about how Tanzania can benefit, trade-wise, from linking with European businesses. But for us to make that happen, I think two things must happen.
Samwel Ndandala is an Associate Director with Deloitte Consulting Limited. The views presented are his own and not necessarily those of Deloitte. He can be reached at firstname.lastname@example.org