# **II. COUNTRY CONTEXT**

Tanzania, with a working age population of 25.8 million persons in 2014, is predominantly rural with over 12 percent of the population residing in Dar es Salaam and 26 percent in other urban areas. The agricultural sector, with 13.3 million persons, accounts for the highest share of total employment (66.3 percent), followed by the informal sector (21.7 percent) and the formal private sector (7.9 percent). Non-agricultural employment is primarily in wholesale and retail trade, and repair of motor vehicles and motorcycles with 12.7 percent of total employment, hospitality (3.9 percent), manufacturing (3.1 percent), transportation (2.6 percent) and construction (2.1 percent).<sup>8</sup> Tanzania has enjoyed relatively high growth rates over the past decade, averaging over 7 percent per annum between 2002 and 2013, economic performance that is significantly better than that of Uganda and Kenya. However, growth has been driven by fiscal expansion financed by external aid, which rose from 3 percent of GDP in 2000-2001 to 12 percent in 2010-2011. Furthermore, despite sustained growth, only a few sectors have grown rapidly, notably Information and Communication Technology (ICT), financial services, mining, wholesale and retail trade, and construction. Among these, only construction and trades have generated a significant number of jobs. Agricultural growth has averaged about 3 percent per annum, implying a decline in agricultural productivity. Agriculture-related industries have also grown at a lower rate. For all these reasons, the country has made little progress in reducing poverty since the early 2000s.

The prospects for growth, however, continue to be good, despite a number of downward pressures such as the slowdown in China, which affects exports and inflows of Foreign Direct Investment (FDI), shortfalls in domestic revenues, a fall in concessional aid inflows, and increases in nonconcessional borrowing.<sup>9</sup> Various sectors with growth potential, or sectors that support growth, include agriculture, key infrastructure sectors (energy, port, railways, roads, air transport, ICT, as well as water and transportation) and selected manufacturing sectors such as textiles, leather, fertilizers, and cement. Moreover, investments in natural gas (which are supposed to begin in 2016) are expected to yield 8,000 to 10,000 jobs in the medium term (mainly in construction) as well as between 20,000 and 35,000 indirect jobs (World Bank, 2014a).

The focus of policy has been to enhance growth of firms in manufacturing and service sectors with growth potential, as well as to improve the productivity of the agriculture and household enterprise sector, which constitute the majority of businesses in Tanzania. But the inadequacy of workplace skills is a major policy issue as the education level of Tanzania’s population compares unfavorably with many of its competitors and other middle-income countries.

Clearly, inadequate workforce skills are not the only constraint on economic growth – others include access to credit, land title, reliable power, Internet and other infrastructure – but it is an important obstacle. Skills imparted by basic education, such as literacy and numeracy, are essential

> 8 Tanzania National Bureau of Statistics (2015). 9 Since 2011, aid inflows have stabilized at 9 percent of GDP.

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