Tanzania: pro-business reforms projected to back growth

Medium-term outlook: infrastructure investments spell upside bias for growth

We now expect GDP growth at 4.8% y/y – 5.1% y/y in 2023, from our previous forecast of 5.9% y/y. Growth in 2022 had eased to 4.8% y/y, from 4.9% y/y in 2021. As of 2024, growth should reach 5.7% y/y – 6.0% y/y.

Per preliminary data, GDP growth had averaged 5.2% y/y in the 9-m to Sep 22, implying a decline of 3.5% y/y in Q4:22. While this would indicate q/q growth of 12.5% y/y in Q4:22, up from a 2.9% q/q contraction in Q3:22, it still undershoots the Q4 average of 14.8% q/q growth from 2019 to 2021.

Growth in 2022 was subdued primarily by the large agricultural sub-sector where it eased to 3.3% y/y, from 3.9% y/y in 2021. The Tanzania Meteorological Authority (TMA) had warned that the long rains season (Mar to May 23) would be uneven. Furthermore, the TMA expects the onset of El Niño rainfall during the short rains season (Q4:23). These inherent downside risks, to agricultural productivity and private consumption expenditure, may therefore outweigh the favourable base effects for growth in this sector this year.

Additionally, weaker global demand for key merchandise exports, such as cashew nuts, may subdue exports over the coming year.

Growth in the services sub-sector, which accounts for around 35% of GDP in nominal terms, recovered to 5.2% y/y in 2022, from 5.0% y/y in 2021 and 4.3% y/y in 2020, spearheaded by the tourism and financial services sector. We expect the tourism sector to continue to recover over the coming year despite slower global growth.

However, ever poorer FX liquidity may constrain growth in the manufacturing sector over the coming year. Growth in the manufacturing sub-sector subsided to 4.2% y/y in 2022, from 4.8% y/y in 2021 and 5.8% y/y in 2019.

The government remains committed to investing in infrastructure, which should buoy growth over the medium term. Projects, such as the Standard Gauge Railway (SGR), will likely underpin the transport sector, once completed and connected to neighbouring landlocked countries.

Furthermore, the authorities are confident of securing a Host Government Agreement (HGA) for the LNG project in H2:23, which may increase investment spending in the medium term and perhaps see GDP growth exceed our current forecasts.