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Tanzania Phase 2

Research report

Research report

This paper examines the impact of the recent global financial crisis in Tanzania. It gives a snapshot view of the economic, financial and social effects of the current global economic downturn and summarises national policy responses to ensure that past economic achievements are not overturned.

At macro level, the crisis has reversed Tanzania’s gross domestic product (GDP) growth projection from 8% to 5% for 2009/10. This has negative implications in terms of investment, employment and income for various actors in the economy. The banking sector started worrying that trade in finance was becoming increasingly more risky as export commodity prices continued to lose value in world markets, export orders reduced and tourism revenues dwindled.

Early in 2009, there were indications that the crisis had adversely affected a number of sectors, including agriculture, mining and tourism. By May 2009, the government estimated a loss of about $255 million in domestic income as a result of the crisis. By the third quarter of 2009, the financial sector was still sound, although some banks experienced an increase in non-performing loans and a decline in equity prices on the stock exchange and in foreign exchange inflow.

Trade suffered some setbacks: agricultural exports, minerals and gemstones and traditional and non-traditional crops recorded negative growth. However, trade in industrial goods recorded a positive trend, accounted for by the increase in trade between Tanzania and its neighbours in the East African Community (EAC). Manufactured goods, horticultural products and fish and fish products also recorded improved performance.

Some multinational companies have decided to close operations and hundreds of workers have been declared redundant as a result of the crisis. There was a decrease in foreign direct investment (FDI) projects (for 2009), and low employment creation from the registered projects, despite an increase in FDI value.

The Tanzanian government has come up with a number of policy responses to the global crisis, which has also provided some challenges and opportunities for the country. The challenges lie in Tanzania’s low domestic revenue generation capacity and productivity and weak infrastructure. Opportunities include the potential to diversify as a result of the country’s large natural resources base and the change to increase export income by expanding regional trade in the EAC.

H.B. Lunogelo, A. Mbilinyi and M. Hangi