DAR ES SALAAM, Tanzania, January 29, 2015 –Tourism is already a major contributor to Tanzania’s economy. However, as the latest Tanzania Economic Update published by the World Bank argues, this strategic industry can grow and create more high-paying jobs, and closer linkages with businesses and local communities. To realize this opportunity, the government should simplify its system of taxes and fees and make its revenue allocations more transparent.
“There is no doubt Tanzania is in a good place with tourism and yet could do considerably better,” says Philippe Dongier, Country Director for Tanzania, Burundi and Uganda. “Tanzania has abundant natural tourism attractions and is well recognized internationally including. The country received one million visitors in 2013 bringing in US$ 1.5bn in foreign exchange earnings, which is remarkable by any account. But there is potential for further growth as also emphasized by the Government; and some of the needed reforms are quite urgent as the status quo could be costly for the country.”
Tourism directly employs close to half a million Tanzanians and contributes to almost 20 percent of total exports. It represents approximately 3.4 percent of Tanzania’s total GDP but the level could reach an estimated 10 percent when considering its indirect impacts on other areas such as agriculture and transportation. In view of this, tourism is considered to be a high priority under President Jakaya Kikwete’s development agenda, as well as that of the National Business Council. The industry has the goal is to multiply by eight the revenues from tourism by 2025 or to double the sector’s annual growth rate observed in recent years.
“This target is indeed achievable but only if there is a change in policies and mindsets among all stakeholders,” says Jacques Morisset, World Bank Lead Economist who authors the report.
To increase tourism’s benefits to the economy and the public, the latest Update proposes three strategic directions. The first is to diversify tourism activities from the current emphasis on high end tourism in the north around Arusha and Zanzibar where up to 90 percent of tourism activities are currently concentrated. The report recommends realizing other opportunities, especially in the South, and developing attractions and activities that cater to tourists on more modest travel budgets, including more local and regional visitors.
The second direction is to further integrate local communities and small operators into tourism activities, through benefit-sharing processes. While such efforts already exist in Tanzania, they are still at a small scale and have had limited impact on the ground. The report highlights best practices where training and linkages programs developed jointly by the private and public sectors have brought about higher quality standards while also increasing the participation of the local business community and workers in tourism activities.
The third direction requires revisiting the current complex system of taxes and fees, and the non-transparent use of revenues collected from tourism. The Economic Update recommends that the system of taxes and fees should be made simpler and enforced more equitably with the goal of reducing transaction costs for businesses and closing loopholes that create space for illegal payments. Furthermore, the distribution of the revenues needs to be streamlined so that these can easily be tracked to increase benefits for the majority of citizens. The government also has to boost its management of natural resources through the smart application of incentives and sanctions to protect endangered species as well as land and water use.
Apart from the discussion of Tanzania’s tourism as the special focus of this edition of the Tanzania Economic Update,, the publication analyses the state of the economy. The recent rebasing of the GDP and the latest household budget survey have challenged the traditional view of the Tanzanian economy. The country's income per capita, at USD 950, is now closer than before to reaching middle income status and the poverty rate declined from 33 percent 2007 to 28 percent in 2012. Meanwhile, the economy continued to expand by around seven percent in 2014 with controlled inflation averaging five percent.
“The main vulnerability of Tanzania's macroeconomic management remains its fiscal policy, and it is imperative for the Government to rectify this situation,” says Morisset.
Urgent action is required to address fiscal risks currently faced by the Government's budget as a result of missed revenue targets, the arrears with the pension funds and contractors, and the partial withholding of budget support by development partners which has led to the Government’s increased borrowing on the local financial market. While the Government appears ready to take the necessary actions to address these risks, the report warns there is no room for complacency when the country is gearing up for a national referendum in April 2015 on the proposed new constitution and general elections in October 2015.
