Tanzania Must Risk Becoming "Broke" to Create 20 Million Jobs

There is a dangerous idea in economic policy that Tanzania needs to collect more money from the economy before it can afford to create a better economy. The instinct is understandable, since government needs revenue to build roads, schools, hospitals, electricity networks, water systems and public institutions, and whenever revenue falls short, the natural response is to look for another tax, another levy, another fee, another compliance requirement or another activity that can be brought into the tax net. But there is a point at which this logic becomes self-defeating, because a government can become so focused on extracting revenue from the economy that it begins to reduce the very economic activity from which future revenue must come. Tanzania needs to consider the opposite proposition. If this country seriously wants to create between 10 million and 20 million additional productive jobs over the next 20 years, the government may have to accept collecting less money from some activities today in order to create a much larger economy tomorrow. That means deregulation, eliminating some taxes and levies, reducing the cost of formalisation, and allowing businesses in high-employment sectors to operate at margins that make expansion worthwhile. It means accepting that there will be years in which the government deliberately leaves money on the table because the private sector can generate a much greater economic return by retaining that money and investing it. In other words, Tanzania may need to risk becoming "broke" before it becomes rich, though that does not mean bankrupting the state. It means being willing to tolerate a temporary reduction in government revenue in carefully selected areas where every shilling left in the hands of producers has the potential to generate several shillings of new economic activity, wages, exports, investment and eventually taxable income. The distinction matters enormously. A government that loses tax revenue because it has become incapable of collecting what is legally owed is weak, while a government that deliberately gives up some immediate revenue because it has calculated that a lower tax burden will cause investment, production and employment to expand is pursuing an economic strategy. Tanzania needs much more of the second kind of revenue loss and considerably less of the first. The Real Question Is Not How Much Tax We Can Collect Tanzania's tax revenue stood at just 12.8% of GDP in 2024, according to World Bank data, well below the 17-20% range that Tanzania's own development planners have identified as the level the country actually needs to sustainably finance its infrastructure and social spending ambitions. Even a broader measure of domestic revenue mobilisation, which counts non-tax revenue alongside taxes, put the figure at only 15.8% of GDP in 2024/25, still short of what the country requires. At the same time, the country faces a much larger structural challenge in creating productive opportunities for a population that is becoming younger, larger and increasingly urban, which creates a policy paradox that the usual response only makes worse: the instinctive answer to a revenue gap of four to seven percentage points of GDP is to tax harder, but the same data that reveals the gap also reveals why taxing harder cannot close it, since 71.8% of Tanzania's workforce operates informally, rising to 82% outside agriculture specifically. You cannot tax your way to a 17-20% revenue ratio by squeezing a formal economy that only a fifth of working Tanzanians actually participate in, because the tax base itself is too narrow, and no rate increase applied to a narrow base produces the revenue a broad base would generate at a lower rate. The country can increase the amount of money collected from the existing economy, but that does not necessarily mean it is creating a stronger economy. A company that pays another levy is not necessarily becoming more productive, a manufacturer that spends more money complying with administrative requirements is not necessarily hiring another worker, a farmer who faces another charge before his produce reaches the market is not necessarily planting more hectares, a hotel that pays more fees is not necessarily building another room, and a transporter facing another layer of charges is not necessarily purchasing another truck. Revenue collection is therefore not the same thing as economic development, and the question Tanzania should be asking is much harder than how much can be collected: how much economic activity can we create for every shilling of revenue that government chooses not to collect? That is the calculation that should sit at the centre of the country's industrial, investment and employment policy. Twenty Million Jobs Means Thinking at a Different Scale The target sounds enormous until it is translated into an annual requirement. Ten million jobs over 20 years means creating an average of 500,000 additional jobs every year, while 20 million jobs means approximately one million additional jobs every year for two decades, which is not a normal employment programme but an economic restructuring programme. The World Bank has previously warned that Tanzania would need to create more than one million jobs annually to absorb the growing number of young people entering the labour market, and the urgency behind that figure is easy to understate if you look only at Tanzania's official youth unemployment rate, which sits at a modest-looking 2.2-2.4%. The more honest number is the youth NEET rate, those not in employment, education or training, which stands at roughly 14%, and a low headline unemployment rate paired with a much higher NEET rate does not describe a healthy labour market. It describes a country where young people have quietly stopped counting themselves as job seekers, because 66% of the workforce remains trapped in low-productivity agriculture and there is nowhere else obvious to go, and that is the population the 20 million jobs target actually has to absorb, not the smaller, more comfortable number implied by the official unemployment statistic. It is worth being explicit about what each of those jobs is actually expected to do once it exists, because the argument for sacrificing revenue today only holds if the jobs created translate into something measurable tomorrow. A person who moves from subsistence farming or informal hustling into a formal job at a processing plant, a hotel, a logistics company or a manufacturer does not simply stop being unemployed. That person begins earning a wage that can be taxed through PAYE, begins spending that wage in ways that generate VAT, and often begins saving or borrowing in ways that pull them into the formal financial system for the first time. Multiply that by ten million people and Tanzania is not simply solving an employment statistic, it is creating ten million new points of contact between citizens and the tax system, most of which do not exist today. Some of those ten million will not stop at being employees. A share of them will start their own businesses once they have capital, skills and market access, a driver who saves enough to buy a second truck, a farm worker who leases land and hires three neighbours, a hotel employee who opens a guesthouse of their own. Each of those new businesses becomes a second-generation taxpayer and a second-generation employer, hiring people who were not counted in the original ten million at all. This is the actual mechanism behind the twenty-year bet: it is not that Tanzania sacrifices revenue and hopes something good happens eventually. It is that every job created is expected to become, in time, a direct source of income tax, a direct source of consumption tax, and in a meaningful share of cases, the seed of another business that repeats the same cycle. That compounding effect, jobs into taxpayers, taxpayers into business owners, business owners into new employers, is the actual return the government is underwriting when it accepts lower revenue today. This means Tanzania cannot solve its employment problem primarily through government recruitment. The state cannot employ 20 million people, cannot build a public institution for every young Tanzanian entering the labour market, and cannot finance its way out of unemployment through an ever-expanding public payroll. The only institution capable of generating employment at that scale is the economy itself, meaning millions of farms, factories, construction companies, hotels, transport companies, logistics firms, technology companies, fisheries, mines, processors, retailers, exporters, energy businesses and service companies must become larger, more productive and more numerous, and each job created inside that economy is also, from the state's perspective, a future taxpayer, a potential employer, and a potential business owner, which is precisely why the jobs target and the revenue target are the same target viewed at different points in time. The government's job is therefore not to become the largest employer, but to make it extraordinarily attractive for the private economy to become one. Tanzania Needs to Tax Consumption Less and Production Differently This is where the argument becomes politically uncomfortable, because some taxes should be reduced or eliminated precisely because they are economically inefficient. There are sectors where the government is effectively taxing an activity before that activity has achieved scale, businesses that face multiple licenses, local levies, sector charges, transaction costs and compliance requirements before they have reached the size at which those costs become manageable, and productive investments that become less attractive because the investor has to calculate not only the statutory tax rate but the accumulated cost of permits, fees, inspections, local charges and uncertainty. Tanzania's own tax reform discussions recognise the need to improve the business environment, simplify business operations, support SMEs, promote agriculture, tourism, manufacturing, mining and financial services, broaden the tax base and streamline levies and fees, but the question is whether Tanzania is prepared to take that principle far enough. A factory that employs 5,000 people should not be treated economically in the same way as an activity that employs five people. A company investing billions of shillings in an export-oriented processing plant should not face the same policy logic as a business whose principal activity is importing finished consumer goods. A hotel that creates hundreds of direct jobs and thousands of indirect jobs should not be evaluated only according to how much tax can be collected from it this year, and a large agricultural processor that creates markets for tens of thousands of farmers should be viewed partly through the economic activity it creates beyond its own balance sheet. The state must learn to distinguish between taxation that funds development and taxation that prevents development from reaching scale. The Industries That Can Create Millions of Jobs Cannot Be Treated as Ordinary Taxpayers Tanzania already identifies agriculture, manufacturing, tourism, mining, energy, transportation, ICT, telecommunications, real estate and services among priority investment areas, but identifying priority sectors is not enough. The country needs to identify the sectors capable of producing employment at extraordinary scale and then design a fiscal regime around their expansion. Agriculture is an obvious example, and the scale of the opportunity is larger than it first appears, since 66% of Tanzania's workforce already works in agriculture, but the sector generates only around a quarter of GDP, the clearest possible evidence of a workforce trapped in low-productivity activity rather than a sector lacking people. Tanzania does not need another decade of exporting large quantities of agricultural commodities while importing products that could have been processed domestically; the opportunity is in irrigation, commercial farming, storage, cold chains, food processing, animal feed, textiles, leather, edible oils, packaging, fertiliser, agricultural machinery and regional food distribution, precisely the value chain that could turn a workforce majority into a productivity majority. Manufacturing is another, because a factory does not only employ the people standing on its production line, it creates demand for transport, maintenance, packaging, warehousing, construction, security, food services, accounting, logistics, engineering, raw materials and distribution, which is why the World Bank identifies manufacturing as one of the sectors capable of generating significant employment and economic activity through its links across the economy. Tourism presents another enormous opportunity because its employment footprint extends far beyond hotels into transport, agriculture, food production, entertainment, construction, crafts, conservation and aviation, and the same logic applies to logistics, construction, energy, fisheries, mining services, digital services and regional trade. The objective should be to find the sectors in which one investment can create hundreds or thousands of additional economic opportunities around it, then tax those sectors according to the economic activity they create rather than merely according to what can be extracted from them immediately. The Government Should Compete Against Its Own Tax Revenue This is the radical part. Every major tax incentive should have a question attached to it: what are we giving up, and what are we getting in return? If government gives up TZS 100 billion in revenue, perhaps the investor should be required to demonstrate a credible pathway toward creating 10,000 jobs, generating exports, buying from Tanzanian suppliers, processing local raw materials or developing productive infrastructure, and the incentive should not be permanent but should carry a clearly defined period, measurable targets and consequences if the promised investment does not materialise. This is not a case for indiscriminate tax holidays. Tanzania has already experimented with investment incentives, including preferential corporate tax treatment and capital allowances in selected sectors, and the next stage should be more disciplined, treating incentives as investments by the state and evaluating them according to the economic returns they generate. If a tax concession creates thousands of jobs, billions of shillings in new investment, significant exports and a network of domestic suppliers, it may be extraordinarily cheap, but if another concession produces no investment, no employment and no measurable economic benefit, it should disappear. The government should be willing to lose revenue where the economy gains more than the Treasury loses. The Most Important Tax Base Is the One That Does Not Exist Yet Tanzania's future tax problem cannot be solved simply by increasing the burden on the businesses that already exist, because those businesses are a strikingly small share of the total economy. With 71.8% of the workforce operating informally, rising to 82% outside agriculture, the formal, taxable economy Tanzania currently squeezes for revenue is the minority case, not the majority one, and every additional levy imposed on that narrow formal base pushes marginal businesses further toward the informal side of that 82% figure rather than pulling informal businesses toward the formal side. The country needs millions of new taxpayers, millions of workers earning taxable incomes, hundreds of thousands of companies generating taxable profits, exporters generating foreign exchange, manufacturers buying local inputs, farmers moving from subsistence production into commercial production, and small businesses growing into medium businesses and medium businesses growing into large ones. That is how the tax base expands, and it is also, not incidentally, how the 71.8% informality rate falls, since formalisation becomes attractive precisely when the state has made growing large enough to be worth taxing more rewarding than staying small enough to avoid it. The most productive tax policy may therefore be the policy that creates the largest number of people and companies capable of paying taxes in the future. A government can collect TZS 1 trillion from an economy that is barely expanding, or it can temporarily sacrifice part of that revenue to help build an economy that eventually generates TZS 5 trillion more in taxable activity, and the second government may look fiscally irresponsible in the short term while looking, twenty years later, like the more financially disciplined one. Tanzania Should Deregulate the Path to Scale The problem is not only taxation. A company can survive a moderate tax rate and still fail under the weight of dozens of smaller costs, since a business may need permits from different authorities, sector-specific approvals, local government charges, environmental processes, inspections, registration requirements and multiple compliance obligations. None of these costs necessarily looks devastating in isolation, but together they can make formal expansion unattractive, and the 82% non-agricultural informality rate is the visible result of exactly that accumulation, not one business deciding informality is preferable, but millions of individually rational decisions adding up to a national pattern. This is particularly damaging because Tanzania needs scale rather than millions of permanently tiny businesses simply surviving from one month to another. It needs businesses capable of employing 50 people, then 200, then 1,000; farmers cultivating hundreds of hectares through commercial structures rather than thousands of farmers operating entirely outside formal markets; processors large enough to compete with imports; transport companies large enough to operate regional fleets; hotels large enough to attract international tourism markets; and technology companies capable of selling beyond Tanzania. Scale is what turns economic activity into mass employment, and scale requires a regulatory environment that does not punish growth. There Is a Difference Between a Poor Government and a Government Willing to Invest in Growth Critics will understandably ask what happens when government revenue falls: who pays for hospitals, who pays teachers, who builds roads, who finances security, who maintains public infrastructure. Those are legitimate questions, made sharper rather than weaker by the poverty numbers Tanzania is already contending with, an estimated 41-43% of the population, roughly 27-29 million people, living below the $2.15-a-day extreme poverty line, and 68%, about 46 million people, below the $3.65-a-day line. A government that cannot fund basic services risks deepening exactly that poverty, but those figures cut both ways, because an economy this poor, with a tax base this narrow, was never going to tax its way out of the problem regardless of how aggressively it tried. The 12.8% tax-to-GDP ratio is not low because Tanzania under-taxes its formal businesses; it is low because the formal, taxable economy is still too small, and no amount of squeezing a small base closes a gap that requires a bigger base to close. Those questions cannot become an excuse for refusing to restructure the economy, and the answer is to distinguish between essential public revenue and economically destructive extraction. Government should protect the revenue needed for essential services while aggressively removing charges that suppress productive investment, reduce inefficient exemptions while creating targeted incentives for employment and production, and collect taxes more effectively from a broader economy rather than repeatedly increasing the burden on the same narrow formal base. Tanzania does not need a smaller state, it needs a more economically intelligent one, a state that understands the private sector is not simply a source of money for government but the mechanism through which millions of citizens can obtain incomes. The Singapore Lesson Is Not That Government Should Spend More This is also where Tanzania's current fascination with successful economies needs to become more sophisticated. Countries such as Singapore demonstrate what happens when a state builds institutions capable of supporting high productivity, investment and human capital, but the visible features of a successful economy are often the least useful things to copy. You cannot copy Singaporean salaries without Singaporean productivity, cannot copy Singaporean public spending without Singaporean revenue capacity, cannot copy Singaporean infrastructure without Singaporean capital formation, and cannot copy Singaporean institutions simply by passing the same laws. The same principle applies to taxation: a rich country can collect large amounts of revenue because it has a large and highly productive economy from which to collect it, while a developing country must be careful not to tax the process of becoming productive. Tanzania's challenge is therefore not simply to collect more, it is to make the economy worth taxing. The Twenty Year Bet Imagine that Tanzania formally adopted a twenty-year employment objective, with ten million additional productive jobs as the minimum ambition and twenty million as the stretch target. The government would then work backwards, asking how many jobs agriculture and agro-processing can generate, how many manufacturing can generate, how many tourism can generate, how many construction and housing can generate, how many logistics and transport can generate, how many energy can generate directly and indirectly, how many mining can generate through domestic processing and supplier industries, how many ICT and digital services can generate, how many fisheries and the blue economy can generate, and how many regional exports can generate. Then comes the uncomfortable question that should be asked before another tax is introduced: what tax revenue is Tanzania willing to sacrifice to make those jobs possible? If eliminating a levy costs government TZS 50 billion but makes a TZS 2 trillion investment viable, the decision should not be based simply on the TZS 50 billion that Treasury loses. If reducing a tax rate causes an industry to expand sufficiently to employ 100,000 people, generate exports and create hundreds of domestic suppliers, the state should calculate the economic return rather than simply the immediate revenue loss, and if deregulation allows an industry to grow tenfold, the government should be willing to accept that the first few years may produce less revenue per unit of activity. The objective is not to maximise the tax collected from today's economy. The objective is to build tomorrow's economy. Tanzania Has to Become Comfortable With Losing Money This may be the most difficult political lesson, because governments like revenue since revenue is visible, and a minister can announce that tax collection increased by hundreds of billions of shillings and present it as an achievement. The economic activity that never happened because a tax was too high is invisible: the factory that was never built does not appear in the budget, the hotel that was never constructed does not appear in the revenue statistics, the farmer who never expanded production does not appear in the tax collection report, and the young person who never received a job because a company decided Tanzania was too expensive does not appear anywhere, and does not show up in the 2.2% headline unemployment figure either. That young person appears only in the 14% NEET rate, a statistic most budget speeches never mention, precisely because it measures the cost of the invisible decisions this section describes rather than the visible ones a minister can announce. That is why governments systematically underestimate the cost of taxation that prevents economic expansion, and Tanzania needs to start measuring that invisible cost. For every major tax, levy, licensing requirement and regulatory charge, the government should ask whether it increases or reduces productive capacity, for every proposed tax incentive it should ask how many jobs, how much investment, how many exports and how much domestic production it is expected to create, and for every successful incentive it should calculate the eventual tax base created by the policy. That would fundamentally change the conversation. The Government Should Be Willing to Lose the First Shilling Tanzania does not have a shortage of economic opportunity, it has a shortage of economic scale. The country has land, minerals, agricultural potential, a strategic coastline, tourism assets, a large domestic market and access to some of the fastest growing consumer markets in Africa, and the World Bank continues to identify private sector growth, human capital and job creation as central to Tanzania's development challenge. The question is whether the policy environment allows these advantages to compound, because a government obsessed with collecting the first shilling can prevent the second, third and fourth shillings from ever being created, while a government willing to sacrifice the first shilling can sometimes create an economy capable of generating thousands of shillings later. That is the gamble Tanzania should be prepared to take, not reckless borrowing, not fiscal indiscipline, not permanent tax holidays for politically connected investors, and not abandoning public services, but a deliberate twenty-year national bet that Tanzania will temporarily accept lower revenue from selected productive activities in exchange for dramatically higher investment, production, exports, wages and employment. Tanzania cannot tax its way into prosperity. It has to grow its way into a tax base large enough to finance prosperity, and if creating 10 million to 20 million jobs requires the government to collect less money today so that Tanzanians can earn much more money tomorrow, then perhaps the most responsible thing the government can do is to become a little poorer before it becomes much richer. A country does not become rich by extracting more from a small economy. It becomes rich by building an economy so large that even moderate taxation produces extraordinary public revenue. FAQ Why should Tanzania reduce taxes if government already needs more revenue? Because the objective should be to expand the future tax base rather than simply maximise collections from today's economy, and with a tax-to-GDP ratio of just 12.8% and 71.8% of the workforce operating informally, squeezing the existing narrow formal base cannot realistically close the gap to the 17-20% ratio Tanzania needs. Does this mean Tanzania should abolish taxes? No, the argument is for selective tax and regulatory reform in sectors with high potential for investment, production, exports and employment, with incentives carrying clear targets, time limits and performance requirements. How many jobs does Tanzania need to create? A target of 10 million jobs over 20 years requires an average of 500,000 additional jobs annually, while 20 million requires approximately one million jobs annually, an urgency understated by the official 2.2% unemployment rate but made clear by the 14% youth NEET rate. How do these jobs actually translate into government revenue? Each formal job creates a wage that can be taxed through PAYE and spending that generates VAT, pulling workers into the formal financial system. A share of those workers eventually start their own businesses, becoming second-generation taxpayers and employers in turn, which is the compounding mechanism that justifies sacrificing revenue today. Which sectors could create jobs at scale? Agriculture and agro-processing, which employs 66% of the workforce but generates only about a quarter of GDP, alongside manufacturing, tourism, construction, logistics, energy, fisheries, mining services and processing, ICT and digital services, transport and regional trade. What does "risk becoming broke" actually mean? Accepting a calculated short-term reduction in government revenue where the economic return from lower taxes or fewer regulatory barriers is expected to be substantially larger, not deliberately creating fiscal insolvency or abandoning essential government spending. What should Tanzania measure when giving tax incentives? Investment created, jobs created, wages generated, exports, domestic procurement, local value addition and the eventual tax revenue generated by the expanded economic activity.