2018 was a positive year for the economy with solid and sustained performance over the past 3 years. This year’s performance was mainly driven by domestic demand and expansion of bank credit, especially to households, and trade and manufacturing companies.
The GDP performance for the year was estimated at 6.7% in 2018, from 6.8% in 2017. The performance was mainly driven by the expansion in the construction sector with projects such as the Standard Gauge Railway (SGR) and Rural Energy Agency (REA) triggering GDP growth. Furthermore, the expansion of Air Tanzania resulted in the growth of the service industry, trade sector, as well as providing a welcome boost to tourism which all supported this continued GDP growth.
The medium-term outlook is positive, with growth projected at 6.6% in both 2019 and 2020, supported by large infrastructure spending, with opportunities likely to arise from peace and political stability in the country. Annual Average Headline Inflation decreased to 3.5% in 2018 down from 5.3% recorded in 2017.
The decrease was mainly attributed to decrease in annual average inflation rate for food items to 3.7% from 9.6% in 2017. However, non-food items annual average inflation rate increased to 4.3% from 3.2% recorded in 2017. Headline inflation is projected to marginally increase to 5.2% in 2019 and 5.1% in 2020 due to increased government spending.
The Tanzanian Shilling (TZS) maintained its firm levels against the dollar closing the year at 2,281.23 compared to TZS 2,230.06 in December 2017, depreciating at 2.3%. The average Lending rate eased to 17.39% in Dec 2018 from 17.60% in Dec 2017.
Treasury Bills yields for the 91, 182 and 364 day T-bills were stable throughout the year, closing the year at 3.0%, 5.22% and 8.74% respectively. From a regulatory standpoint, monetary policy was accommodative in the year, with the BOT slashing its discount rates in August 2018, from 9% to 7%, and we expect this to be maintained in the same level in 2019.
With regards to the banking sector, tightening liquidity environments, higher core capital requirements and high NPLs could prompt banks to seek mergers or acquisitions.
Some headwinds that may be expected arise largely from economic policy uncertainty with stunted private sector growth. Moreover, poverty and income inequality remain high despite high economic growth, largely as a result of youth unemplyment, which increased to 7.3% in 2016, compared with 5.7% in 2012.
The country however sees great opportunities that may arise in 2019, which are centered around peace and political stability.
These opportunities are mainly borne from the country’s abundant natural resources, a strategic geographic location, and immense development potential for tourism.
The Export Zone Processing Agency has accelerated manufacturing exports and helped the country achieve structural transformation attracting close to $1 billion in foreign direct investment and revive the manufacturing sector into one of the fastest growing in Africa.