Privatising Growth

“Privatising Growth” is the theme of a recent World Bank (WB) “Country Economic Memorandum” report (CEM) on Tanzania (issued in December 2023).  This theme encapsulates the required direction of travel to realise the country’s strong projected future GDP growth, for example the IMF’s December 2023 Country Report (IMF CR) projection of medium term growth of 6.5 percent. 

Any projection is based on assumptions.  The IMF CR caveats that risks to the outlook in the near term are tilted to the downside citing  both global and domestic risks.  Global risks in the short term include intensification of regional conflicts, increased commodity price volatility, an abrupt global slowdown or recession; and in the medium term, spillovers from deepening geoeconomic fragmentation are seen as a particular risk.  Domestic risks in the short term include natural disasters related to climate change, failure to arrest emerging forex market imbalances, and poorly executed scale-up of public investment projects; in the medium term, complacency in reform implementation is seen as a key risk. 

Structural reforms are essential to unlock Tanzania’s growth potential, according to the IMF CR.  It notes that streamlining business regulations will help improve the business environment and promote private sector development, and that structural reforms should aim to streamline bureaucratic procedures, simplify the business regulatory regime, enhance regulatory transparency, and improve public policy predictability.

The WB CEM notes that while the past two decades have seen robust growth, the growth drivers have changed with an increasing dependence on public investment in infrastructure, a slowdown in structural transformation and a diminishing role for exports.  As regards exports, it highlights that the exports to GDP ratio increased from 9.6 percent in 2000 to 20.9 percent in 2012, but then reduced to 14.3 percent by 2021.  Overall, it concludes that there is a “domestic market conundrum” characterised by public investments and the domestic market having increasingly driven growth as opposed to private investments and exposure to international markets.  The resulting challenges include combining inclusiveness and domestic market orientation, and balancing growth inducing public investments and fiscal commitments.

Against this backdrop, and aligned to the “Privatising Growth” theme, the WB CEM lists five policy priorities, namely (i) accelerating business climate reforms, (ii) boosting inclusion and resilience, (iii) enhancing productivity and resilience in agriculture, (iv) building Tanzania’s tourism back better, and (v) reducing trade costs and leveraging regional integration.

On business climate reforms it observes that to “privatise” growth Tanzania needs to accelerate reforms that improve the business enabling environment and foster investments.  On challenges in terms of market entry and business operations it comments that “compared to their regional peers, Tanzanian businesses pay significantly more in taxes relative to their profits, with too many filings, ever changing requirements, and delays and arrears in reimbursements”.  It continues that “these issues strain cash flows, drive informality, and distort firm size distribution” and that “while authorities have taken steps to improve matters, more needs to be done”. 

Access to finance is another business climate concern listed, with the report noting that Tanzania historically has had some of the lowest levels of domestic credit to the private sector and highest lending interest rates as compared to its peer countries.  Initiatives proposed include: expanded credit information coverage and a robust national ID system for better credit verification; an effective system for the recovery of collateral; improved judicial and regulatory foundations for the recovery of non-performing loans; and upgraded digital infrastructure to support full digital financial services, including savings and credit management.

The need to catch up with the world in the digital realm is also highlighted, with the current regulatory framework seen as deterring investment in digital technologies and inflating prices for users, resulting in Tanzania’s digital development being behind that of its peers on several fronts.

On agriculture, it emphasises the looming climate change threat and that adaptation efforts must scale rapidly. Measures recommended include an improved regulatory and policy environment for the sector, boosting public investment in agriculture, and fostering a digital revolution in agriculture.

Noting that Tanzania’s tourism sector is at a juncture, with major potential for growth, it highlights the need to address long-standing regulatory and infrastructure bottlenecks so as to attract and mobilise private investors.  Other priorities include ensuring the accessibility of areas beyond Zanzibar and the Northern Circuit, and the development of a targeted destination planning, investment strategy, and management to expand regional tourism. 

On trade and regional integration, it notes that exports are hampered by low productivity growth and high trade costs, including from logistical and procedural challenges; for example, border compliance costs for exports and imports in Tanzania are significantly higher than in comparator countries.  Tariff and non-tariff barriers also create additional frictions.  Overall it emphasises the reduction of the costs of trade as an urgent policy priority.

So, as we look forward, provided that we fully embrace the theme of “Privatising Growth” and its related action imperatives, then there is every reason to be optimistic about robust future growth. 

By David Tarimo, Country Senior Partner, PwC Tanzania