Tanzania banks on tourism, exports to ease dollar crunch

Tanzania largely depends on tourism earnings and exports of gold and traditional crops for its foreign exchange earnings.

Read:  How traders in Tanzania are being ripped off in elaborate dollar racket

Exports of tobacco, tea, coffee, cashew nuts, cotton, sisal and cloves have been rising steadily in recent years, earning the country $953 million last year, up from $628 million in 2021, according to BoT figures.

Tanzania earned $1.3 billion from tourism in 2021, but receipts soared to $2.5 billion and $3.4 billion in 2022 and 2023, respectively.

Gold brought in $2.7 billion, $2.8 billion and $3.06 billion in 2021, 2022 and 2023, respectively.

With projections pointing to a further rise in tourist arrivals and gold prices, BoT is optimistic that foreign exchange challenges the country has faced in recent months will soon be history.

"We anticipate a surge in revenue from tourism beginning this May, coupled with exports of traditional crops such as cotton, sesame and others," BoT director of economic research and policy Suleiman Misango told The Citizen on the sidelines of a media training programme on interest-based monetary policy.

As of last week, gold prices rose to $2,353.95 per ounce to extend their record-breaking streak, buoyed by the precious metal’s haven qualities amid the ongoing Middle East turmoil.

According to Dr Misango, the spike will likely improve Tanzania's current account as the country is among Africa’s top five gold producers. Part of the reserves, he said, are being held in gold and therefore likely to benefit from the increase in gold prices.

Dr Misango highlighted expectations for an improvement in the trade balance, attributing it to decreasing inflation in many countries. This, he explained, would increase the purchasing power of consumers abroad, benefiting Tanzania's exports.

Read:  Dollar crunch ‘cost Tanzania oil firms Sh300 billion’

The government has implemented multifaceted strategies to address the foreign exchange crisis, including reducing dependence on dollar imports for commodities that could be locally produced, such as palm oil and sunflower oil. This involved developing improved seed varieties to reduce cooking oil imports.

Additionally, the government waived taxes on solar products to lower import costs, aiming to reduce dependence on the dollars and alleviate its shortage.

Reports also listed proactive government measures taken in the previous year, including providing export credit guarantee schemes and supporting local businesses to boost exports.

Meanwhile, Dr Misango provided statistics indicating positive trends in trade, with exports of goods and services increasing to $13,996 million by the end of December 2023, compared to $11,985 million in 2022. Imports, on the other hand, decreased slightly to $16,224 million from $16,674 million during the same period.

He projected a gradual improvement in the current account deficit, expecting it to reach 3.2 percent of GDP in subsequent quarters, driven by increased tourism and the export season.

In February 2024, the current account deficit narrowed to $2,701.4 million, a significant improvement from $5,133.6 million in the corresponding period in 2023, attributed to moderate import prices and robust export performance.

Prof Abel Kinyondo of the Dar es Salaam University College of Education emphasised the importance of gold in supporting the country during the Covid-19 pandemic alongside the significance of diversifying revenue streams from tourism.

Independent financial analyst Christopher Makombe said the Tanzanian shilling could rally against the US dollar in the coming months, driven by dollar inflows from agricultural exports and the resilience of the tourism industry.

“Recent initiatives by BoT to enhance forex flows through hotel bureaus are a positive step towards propping up the local currency against the dollar,” he said.