Sample Economics Paper on ‘’Tanzania is currently classified as –a middle income country’’

1.0. Introduction

Over the past decade, Tanzania’s economy experienced strong growth with an average real gross domestic product (GDP) increase of 6.3%. Despite the fact that Tanzania’s GDP growth rate slowed down  to 5.8% in 2019, it reached USD 55.5 billion, catapulting the country to the 2nd largest economy in East Africa and the 7th largest in Sub-Saharan Africa. The leading contributors to the economy of Tanzania in 2018 were services (37%), followed by agriculture (28%), industry and construction (27%), and others (8%). The World Bank forecasts the economic growth of Tanzania to slow down even further in 2020, to 2.5% because of the impact of the COVID-19 pandemic on the Tanzanian economy which has affected the labour market, production capacity, and productivity. In particular, the pandemic has halted the tourism sector, and slumped the exports of manufactured and agricultural goods.

On average, the Tanzanian economy has been growing at around 5.5% per year over the last 15 years, but it has been growing at around 7% on average per year during the last 10 years (Economic Survey (ES), 2006-2009).

Figure 1: The GNI per Capita 2010-2020 (World Bank, 2020)

2.0. Who makes and controls the economy ranking?

The World Bank is the body which is responsible for assigning the world’s economies based on the gross national income (GNI) per capita in current US dollars  against thresholds adjusted annually for inflation (Espen et al., 2019). The World Bank has classified the world’s economies to four income groups namely: low, lower-middle, upper-middle, and high-income countries. These classifications are updated every year on July 1st by the Bank’s Development Data Group. GNI is a reliable indicator to measure the social and economic wellbeing of the population.  Table 1 below shows the summary of the countries’ income classification used by the World Bank in 2020.

Group classification July 1, 2020 (new) July 1, 2019 (old)
Low income Less than 1,036 Less than 1, 026
Lower-middle income 1, 036 – 4,045 1,026 – 3,995
Upper-middle income 4,046-12,535 3,996 – 12,375
High income Greater than 12, 535 Greater than 12,375

Table 1: Countries income classification for 2020 (World Bank, 2020)

Tanzania has now crossed into the threshold for lower-middle income status from the low income. The upgrade for Tanzania is the result of the country’s strong economic performance of over 6% real gross domestic product (GDP) growth on average for the past decade. Per capita income is the formal criteria for low – and middle-income countries (LMIC) classification (Espen et al 2019). One of the Tanzania’s Development Vision (TDV) 2025 target was to attain lower middle-income status by 2025 but this dream has been achieved 5 years earlier owing to the country’s steady economic growth, good governance of national resources by the government, peace, stability, and unity; a well-educated and learning society; and a competitive economy capable of sustainable growth and shared benefits. Investing in both human development and physical capital have been major keys to achieving these broad goals and improving the quality of life for all Tanzanians.

3.0. What does this status mean for Tanzania?

This status means that Tanzania’s economy is growing and it reflects the country’s economic reforms put forward by the government in managing the national resources. This status has increased Tanzania’s reputation in the region and it will now enable Tanzania to have open access to international credit markets subject to the prevailing interest returns, which now ends the previous eligibility to low cost loans and preferential access to regional blocs. In addition, the new status will boost the credit worthiness of Tanzania as a nation, and also help to ease off the shackles of donor dependency.

Economists across East Africa have weighed in on this recent development. According to Prof Honest Ngowi of Mzumbe University, “for a country, this is a milestone because it attracts favourable credit as well as foreign investors due to the impression that living standard and consumption has improved.” However, he cautions that On the negative side, Tanzania will now be considered to have matured and therefore cannot access some grants and some concessional loans it received as a low-income country”.

Prof Delphin Rwegasira of the University of Dar es Salaam’s Economics Department, also acknowledged that the economic upgrade ‘‘reflects improvement in poverty reduction, and is a step forward in the country’s development. For a country, moving into lower middle-income status boosts its credit worthiness, and that is good for Tanzania, which has ambitious growth plans.”  (The Citizen, Saturday July 4th 2020).

4.0. The reason for Tanzania’s upgrade to low-middle income economy

The World Bank has categorized Tanzania as a lower-middle income country after the country made economic reforms, including making consistent plans and taking hard decisions aimed at improving its economic development. Discipline in financial expenditure and the prevailing peace and tranquillity also helped the country to earn the middle income status from the World Bank. Other values that made the East African nation to move up from the lower middle income status included the reinforcement of the leadership ethics, the implementation of flagship projects and investment in human development.

Moreover, the driving force of Tanzania’s upgrade to the lower middle income economy has been caused by its annual GDP growth rate averaged 7% over the past 5 years, making it one of the 20 fastest growing economies in the world, and beating the Sub-Saharan Africa average GDP growth rate of 4.4% during the same period. This rise in the GDP growth has in turn elevated Tanzania’s GNI per capita from $ 1,020 to $ 1,080 catalyzing the current economic status by the World Bank. This new found status is credited to His Excellency President John Pombe Magufuli for his leadership skills which strongly prioritized and emphasized his efforts to clamp down on corruption, improved public administration and management of public resources.

Specifically, the average GDP growth and raise in economic status for Tanzania is supported by:

  • Improvement and stability in power supply mainly from natural gas, which is expected to boost performance of other sectors including manufacturing and trade.
  • Revival of the central railway line in standard gauge and increase in the capacity and efficiency of the Dar es Salaam and Tanga Ports.
  • Implementation of economic policies under the Five Year Development Plan II (FYDP II).
  • Scaling-up of onshore gas production and construction of oil pipeline from Uganda to Tanzania.

Contributing factors towards the Tanzania’s upgrade to low-middle income economy (AFDB, 2020):

  • Inflation fell to an estimated 3.3% in 2019 from 3.6% in 2018 due to an improved food supply. The Tanzanian shilling was fairly stable in 2019, exchanging at an average of 2,290 to the dollar, compared with 2,263 in 2018.
  • Sustained political stability with a strong record of economic governance that focuses on progress toward long-term development goals.
  • Strategic geographical location and its diversified economy with abundant natural resources
  • The current administration’s ambitious development agenda focuses on creating a better business environment through improved infrastructure, access to financing, and education progress. It seeks to capitalize on previously underexploited strengths and opportunities. The government prioritizes efforts improving public administration, and managing public resources for improved social outcomes as it implements the Tanzania National Vision 2025.
  • The 2019 Global Competitiveness Report pointed to some key improvements in ICT adoption, macroeconomic stability, financial system, and business dynamism.

5.0. The economic, trade and social implication of Tanzania’s low-middle economy status

5.1. Economic implication

  • Production of improved and high quality goods and services which will ultimately raise the standards of the
  • Improvement in infrastructure
  • Improvement in agriculture and crop production
  • Improved industrialization sector and manufacturing in
  • Improved mining and quarrying including natural gas, gold, tanzanite, diamond coal, iron ore, uranium, nickel, chrome, tin, platinum, coltan, ad niobium

5.2. Trade implication

Due to the new economic status, Tanzania is open to foreign trade, which represents 32% of its gross domestic product (GDP) (World Bank, 2020). The country’s trade policy aims to create local industries that are more competitive and diversify its export sector in order to stimulate economic growth.

5.3. Social implication

The 2019 Tanzania Mainland Poverty Assessment notes that poverty decreased by eight percentage points in 10 years, down from 34.4% in 2007 to 26.4% in 2018. Today, Tanzania records 14 million poor people, up from 13 million in 2007. The 2019 Tanzania poverty assessment highlights Tanzania’s continued economic growth and poverty reduction over the past 10 years. The analysis notes that continued efforts by the government to improve service delivery helped to drive reduction in poverty. Continued government efforts to improve living conditions have resulted in a sustained increase in access to basic services and improvements in human capital outcomes, which in turn have helped to reduce poverty.

6.0. Conclusion

Tanzania’s economic growth achievement is commendable as it has come 5 years earlier to the set Tanzania Development Vision (TDV) 2025. The good governance of national and public resources, corruption reduction and transparency plays a key role in economic growth. However, for Tanzania to progress to the upper middle income status there should be improvement in different sectors from its current growth such agriculture, health, education, industry, trade, water supply, infrastructure, employment, and poverty reduction so as to reduce the dependence rate.

 

REFERENCES

African Economic Outlook, 2020, African Development Bank

Badiee, S. (2012). “A Review of the Analytical Income Classification. Let’s Talk Development.

Collier, P. (2007). The Bottom Billion: Why the Poorest Countries Are Failing and What Can Be Done About It. Oxford: Oxford University Press.

Espen, Prydz, and Wadhwa Divyanshi. 2019. “Classifying Countries by Income.” The World Bank.

Fardoust, S. et. al (2010). “Postcrisis Growth and Development: A Development Agenda for the G-20.” Washington, DC: World Bank.

Gimenez, L., D. Jolliffe, and I. Sharif. 2014. “Bangladesh, a Middle Income Country by 2021: What Will It Take in terms of Poverty Reduction?” Bangladesh Development Studies, 37 (1- 2): 1-19.

Ministry of Planning, Economy and Empowerment, 2007 .The Economic Survey (ES) 2006, The United Republic of Tanzania, Dar es Salaam

Ndulu, B., 2009, The Global Financial and Economic Crisis: Challenges and Responses, Presentation made at the Bank of Tanzania (BoT), Dar es Salaam

Ministry of Finance and Economic Affairs, 2008. The Economic Survey (ES) 2007, The United Republic of Tanzania, Dar es Salaam

Ministry of Finance and Economic Affairs, 2009. The Economic Survey (ES) 2008. The United Republic of Tanzania, Dar es Salaam

Ministry of Finance and Economic Affairs, 2010, The Economic Survey (ES) 2009, The United Republic of Tanzania, Dar es Salaam

The citizen: Tanzania joins lower middle income ahead of schedule July 2 2020.

World-Bank. 2013. “Newest Country Classifications Released.” Data.

TABLES AND FIGURES

Table 1: The GNI Per Capita 2010-2020

Figure 1: Countries Income Classification for 2020