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State of the Tanzania Economy President's Office, Planning Commission 25 th November 2013

STATE OF THE TANZANIA ECONOMY PREPARED FOR THE NATIONAL POVERTY POLICY WEEK. State of the Tanzania Economy President's Office, Planning Commission 25 th November 2013 J.K Nyerere Conference Centre, DSM. Outline. MACROECONOMIC PERFORMANCE SECTOR GROWTH PERFORMANCE GOVERNMENT SECTOR

margaret-duke
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State of the Tanzania Economy President's Office, Planning Commission 25 th November 2013

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  1. STATE OF THE TANZANIA ECONOMY PREPARED FOR THE NATIONAL POVERTY POLICY WEEK State of the Tanzania Economy President's Office, Planning Commission 25th November 2013 J.K Nyerere Conference Centre, DSM

  2. Outline • MACROECONOMIC PERFORMANCE • SECTOR GROWTH PERFORMANCE • GOVERNMENT SECTOR • INVESTMENT AND FINANCIAL SECTOR DEVELOPMENTS • EXTERNAL SECTOR DEVELOPMENTS • TRENDS IN POVERTY & WELFARE • WHERE ARE WE ON Vision 2025? • DEALING WITH ECONOMIC CHALLENGES

  3. 1. MACROECONOMIC PERFORMANCE • Macroeconomic performance over the period of last 10 years is impressive, underpinned by steady implementation of policy/structural reforms; weathered through the global recession occurred in 2009; but can and should do better improving productivity and competitiveness. • GDP growth (2002-2012) averaged 7.0% p.a.; it is projected to rise up to 7.1% for 2013, compared to 6.9% in 2012. In the medium term, GDP growth is projected to rise by up to 7.7% by 2016. Between 2007and 2012 Tanzania recorded and average annual growth rate of 6.8%, above the average for SSA of 5.2%. Tanzania has done well compared with Sub-Saharan Africa (SSA) (Figure 1)

  4. Fig. 1: Annual average growth rates of SSA and Tanzania compared 2005-2012)

  5. Inflationaveraged 8.2% p.a.(2002-2012) buttressed by tight monetary policy and cash budgeting but increased to 16.1% in 2012, due to high world market prices for oil and food in 2012. • On monthly basis inflation peaked at 19.7% in January 2012, the highest observed in the past decade, however it went down drastically to 6.3% in October 2013. Maintaining low and stable inflation has become a major challenge for maintaining macroeconomic stability. • Comparison with neighbouring/trading partners (Table 1).

  6. Table 1a. Inflation in Tanzania Compared to Neighbouring Countries (annual)

  7. Table 1b. Monthly Inflation for Tanzania, Kenya and Uganda (monthly)

  8. On the look out against inflation: • Variability in world market oil prices; • Trends in food supply and distribution in Tz, Kenya and Uganda • Stability of the shilling against US Dollar. • Scope for restricted money supply) -growth of money supply (for instance, M1 decelerated to 16.3% in 2012/13 vs 22.4%in 2011/12 (annual) • Scope for restrictive fiscal – reducing government domestic financing – it was 2.5% of GDP in 2012 down from 3.6% in 2011.

  9. 2. SECTOR GROWTH PERFORMANCE • 2002-2012 averages indicate that the fasted growing sub-sectors (annual average of more than 8 %) were mining and quarrying (9.9%), manufacturing (8.6%) Wholesale and retail trade (8.3%), Transport and communication (11.1%), and Financial intermediation (10.6) (Table 2). • 2002-2012 average growth for agriculture was only 4.2%; 4.3% in 2012 and 3.6% in 2011. In the second quarter of 2013, the sector grew by 5.3 compared to 5.1 in the corresponding quarter in 2012. reflecting low productivity, for an undercapitalized sector- Should be at least6% plus. • The service sector contributes by an annual average of 46% of GDP compared to Agriculture (24%), and industry & construction (20%) – trend structural change (Figure 2).

  10. Table 2: Real GDP Growth by Sector 2007 -2012 (%) Source: NBS Data for year 2013 are projections

  11. Fig. 2 Declining share of Agric. vs Industry and Services 1998-2012

  12. 3. GOVERNMENT SECTOR Revenue performance • Significant improvement in domestic revenue collections in the recent years. E.g. Monthly collections increased from an average of TZS37.0 bn in 1995/96 to around TZS 800.0 bn in 2013/14. Domestic revenue effort for 2013/14 was 20.1% of GDP compared to 18.0% of GDP in 2012/13. Good performance due to improved tax administration and tax policy reforms (Fig.3). • Domestic revenue collected during July – September 2013 was TZS 3,083.2 billion below the period estimate by 14 %. This reflects delays in implementing new revenue measures approved by the Parliament • Programme and projects (loans and grants) increased from TZS 812,113 million and 1,063,808 million in 2008/09 TZS 1,163,131 million and 1,796,874 million in 2012/13 respectively. But the ratios to GDP on a decreasing trend over the recent past (to quantify).

  13. Fig.3 Revenue Trend from 2000/01 – 2011/12

  14. Revenue issues: Expanding the scope for domestic resource mobilisation • Non-tax revenue from natural resources, especially sub-sectors of forestry, fishing (esp. deep see fishing), wildlife/tourism: efforts to curb predatory/ destructive harvesting to go hand in hand with investments in innovative ways of increasing productivity while ensuring sustainability of stocks. • Increasing efficiency and contribution of state-owned enterprises • Public Private Partnerships (PPP) preparations – legislation and regulations

  15. Government expenditure • Government expenditure has been growing from 15% of GDP in 2001/02 to 26.0% in 2007/08, with recurrent expenditure grow faster - 2001/02 it grew by 11.8 of GDP compared to 3.5% of capital expenditure while in 2011/12 reaches 16.9% recurrent and capital 9.6% resp. (Fig. 4). • Overall deficit, inclusive of grant receipts, has been above 3.5 % of GDP for the past ten years as a result of government’s expansion of expenditure. • External debt declined from US$7.268 bn for 2002/03 to US$6.999 bn in 2008/09. In GDP ratios the debt declined to 39.9% in 2011/12 but increased to US$10.354 bn in 2011/12. • DSA shows room for borrowing, and that risk for debt distress is low. PV of debt to GDP stands at 36%, = below 50% limit. Debt service to export ratio is 3.4 %, far below the 25% threshold. • Govt to continue borrowing on non-concessional terms in the medium term - US$ 700 million in 2013/14 to 2016/17, complemented by a 1 % of GDP borrowing from domestic sources.

  16. Fig. 4 Government Expenditure Pattern, 2001/12 - 2011/12

  17. 4. INVESTMENT AND FINANCIAL SECTOR DEVELOPMENTS • Investment increased from 18% of GDP in 2002 to 34% in 2012 compared to 21.7% for SSA in 2012. However, saving remains low (18% of GDP in 2012) compared to 18.9% average for SSA. • FDI is projected to have increased to US$ 854.2 million in 2012 from US$ 387.6 million recorded in 2002 reflecting investment in tourism infrastructure/hotels and mining exploration (Table 4). • Challenges to attracting more FDI include limited infrastructure (roads, port, railway, power); business environment concerns; and limited access to capital/markets by domestic entrepreneurs.

  18. Table 4: FDI to Tanzania 1995-2011 Source: Bank of Tanzania

  19. Financial sector developments • Expanding financial system. • Growing from 2 to 48 banks and financial institutions by 2012 with 530 branches. Similarly, bureaux de change were 211, of which 29 were in Zanzibar. Modern payment system using advanced technology (ATMS, TISS, cell phones) • Private sector credit grew from 6.7% of GDP in 2003 to 17.7% in June 2012.

  20. Issues in financial development • Rural urban gap in access –physical distribution constrained by distance, income level low in rural areas and hence possible profitability/vs risk by financial institutions, including microfinance • Interest rate spread – high borrowing rates against low deposit rates, not accessible to SMEs; at the same time, banks considering lending risky. • Credit reference bureau on customer information may alleviate riskiness • Stock market development still in infancy, awareness, keenness in the market limited • Insurance growing, limited mainly to formal urban/modern sector. Agriculture least covered.

  21. 5. EXTERNAL SECTOR DEVELOPMENTS Export performance • Over the last ten years, exports improved mainly on the account of increased value of non-traditional exports (minerals, fish and fish products, manufactured goods, and oil seeds). However traditional exports (cotton, coffee, cashew nuts, tobacco, tea) have not perform relatively well though there are sign of improvements. • The ratio of export of goods to GDP has relatively increased from 9.1% in 2002 to 21.0% (twice) in 2012. Merchandise exports increased to USD 5,912.3 million by December 2012, compared to USD 5,097.9 million registered during the same period in 2011, equivalent to an increase of 16.0 % (Table 5).

  22. Traditional exports reached USD 956.7 million in 2012 compared to USD 206.1 million in 2007. This reflects an increase in export volumes of coffee, cotton and cashew nuts. • Service receipts increased to USD 2,632.1 million in 2012 compared to USD 920.1 million in 2002. The increase in service receipts was largely attributed to improvements in transportation, insurance, travel and other business receipts. • Diversification and competitiveness issues remain critical. Imports • In the past decade, imports of goods grew from 14% to GDP in 2002 to 36% to GDP in 2012. Merchandise imports amounted to USD 10,324.9 million (fob) in 2012, compared to USD 9,827.5 million in 2011 (increase of 5.1 %) • Service imports (payments for transport, construction, financial and communication services) increased to USD 2,362.6 million in 2012 from USD 2,208.1 million in 2011 (a increase of 7.0%). Current Account • During 2012, the current account deficit was USD 3,658.1 million compared to USD 3,992.2 million in 2011. • The decreased deficit in the current account was attributed by improve in exports of goods and services.

  23. 6. TRENDS IN POVERTY & WELFARE • Real per capita GDP increased from US$304 (2002 average) to US$647 in 2012. • As per HBS 2007, Population below the basic needs poverty line declined from 35.7% in 2001 to 33.3% in 2007 (Rural: 37% in 2007 vs 39% in 2001). Population below food poverty line: 17% in 2007 vs 19% in 2001. • Recent results from the 2010/11 National Panel Survey shows that: • As per Poverty and inequality remained stable in Tanzania between 2008/09 and 2010/11. That the Gini coefficient which measures inequality went from 0.36 to 0.37 and poverty headcount up from 15 % to 18 %. • that access to electricity had increased from 13 % to 17 % between 2008/09 and 2010/11. • Access to safe drinking water in Tanzania is about 74 % of urban households compared to about 40 % of rural counterparts. • Secondary and higher education enrolment has risen between 2008/09 and 2010/11 from 23 % to 27 % and from 3 % to 4 % resp. • Stunting has fallen across the board from 43 % in 2008/09 to 35 % in 2010/11. The proportion of stunted children in rural areas is always higher than in urban areas.

  24. MDGs country report since 2006 Most recent HBS results here [ ]. • However, all show persistence of rural-urban divide and different degrees (usually %) of deprivation. • Survey results/analyses useful in pinpointing out where poverty bites most, most vulnerable sections of society, for subsequent targeting of social/economic support e.g. through social protection, provided adequate public funds have been generated and targeting is accurate. • Rarely, however, do we acknowledge public goods put in place – as reported by the MKUKUTA Annual Implementation Reports (MAIRs)and Annual Development Plans – the added stock of physical facilities such as roads, education and health facilities – notwithstanding the O&M issues • Productive capacity for goods and services (growth) is paramount for expanding the base for resources needed for social support

  25. 7. WHERE ARE WE ON Vision 2025?

  26. Long Term Perspective Plan (LTPP) 2011/12–2025/26

  27. First Five Year Development Plan -2011/12-2015/16 • LTPP occasioned by need to revert back to defining a roadmap toward development aspirations in the context of five year horizon • Re-awakening to Tanzania’s latent growth potentials in the country natural resources such as minerals and geographical advantages such as natural harbours, gateway to neighboring countries, to the economic might of our nation. • informed and acting on the previous analyses of the critical growth constraints to arrive at the FYDP core priorities: agriculture uncontested priority sector, in dire need for specific productivity-enhancement interventions mainly adoption of mechanization and commercialization, improved inputs supported by research, marketing oversight against middlemanship etc..

  28. Given the expanse of the country, infrastructure for transport to support access to markets for farm products and inputs, • energy together with industry for value-addition on agricultural and mining output and employment generation, water(for productive activities, irrigation and domestic use); and • human capital development as a cross-cutting key driver, as noted earlier, for knowledge and innovation capacities that are required by all sectors to raise productivity and competitiveness, including capacities in policy design, implementation and evaluation.

  29. Economic services in particular financial services, tourism and trade formerly remote areas now with improved transport and energy in rural areas to enhance availability of financial services in rural areas, more professional staff (health and education workers, agricultural experts) into areas with facilities. • Great anticipation for progress on rural infrastructure, to narrow the rural-urban divide, while targeting urban-based poverty, particularly among educated and less-educated unemployed. • with rural areas accessing services, provisioning for business and finance support to youth or women, organized productive groups by state and non-state actors becomes easier, through “packaged interventions”.

  30. 8. DEALING WITH ECONOMIC CHALLENGES • The economy highly susceptible to many shocks: despite the fact that, macroeconomic stability has been maintained since the mid 1990s, • In 2012, the annual rate of inflation increased sharply to 19.7 % largely associated with the drought, and persistent increase in petroleum prices in the world markets. • Preparedness for such shock requires strengthening productive capacity at every opportunity and build stocks (food and foreign exchange reserves) • Domestic revenue has recently increased, yet the tax base needs to widen further. • Substantial progress has been made in strengthening tax administration, which underlies most of the recent increase in revenue mobilization. But also, public spending has increased significantly. Challenge - how to more efficiently use the resources in order to sustain the widening expenditure base, with emphasis on development spending, so programmed as to anticipate recurrent obligations generated by development spending. Cutting down on some recurrent spending items feasible.

  31. Austerity budgetary measures may be necessary; not compromising critical public service delivery and focus on key national infrastructure services (esp. transport and energy) and nation-building. • The manufacturing sector: has grown at an average of 8.8% per year since 2002; contribution to GDP, low at around 8%. The sector has growth potential derived from its linkages to the rest of the economy include. agriculture sector and country’s natural resource base, esp. forestry, minerals and fisheries. access to financial capital for SMEs; technology; infrastructure (especially energy); skilled labor; reduce compliance costs (due to regulation) and enhance its international competitiveness.

  32. Mining Sector: has been the most dynamic sector, expanding at an average growth of around 9.9% (2002-2012), but its share to GDP remains small of about 3%. – ensuring that the sector is linked with domestic economy by improving prospects for domestic value addition, by creating requisite skills. • Trade deficit has increased: • Rising of exports have been more than offset by the increase in imports, resulting in an increase in the trade deficit. – ensure that imports are of productive nature (capital and intermediate goods).

  33. Drive for export development through increased knowledge and technology (K&T) content – for expertise inputs for agriculture all the way to manufacturing: • Domestic technological deepening and upgrading for moving from resource-based, low technology manufacturing to medium and high-tech production would require re-invigorated/ if designed education and training programs (for requisite skills/competencies) –needed- competitive labor force • Preparing to participate in and realize the benefits of the country’s natural resources, in the main, the gas discoveries – through building requisite K&T skills for the local people and firms

  34. Policy and procedural-related snags to competiveness to be addressed – red tape/ why is Tanzania sliding on the world scale of competitiveness (important for domestic and foreign investments as well) • Capacity strengthening for small producers on good trade practices, ability to meet environmental/health standards (good for both domestic and foreign consumers); negotiation around other technical and non-technical barriers to trade

  35. Management of public investment more efficiently: Capacity in public investment management and execution of the development budget are going to be essential tools for Tanzanians to handle large infrastructure projects including those related to gas sub-sector. Implementation effectiveness as challenge – BRN has to work, meant to inculcate and show results of disciplined, committed determination to work out agreed detailed programmes. Needed correct attitudes towards public funds and property, hard work and self-less service for nation-building.

  36. End THANK YOU FOR LISTENING L. Rutasitara Deputy Executive Secretary (Macroeconomy), President’s Office-Planning Commission, Dar es Salaam

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