Significant measures have been taken to liberalize the Tanzanian economy along market lines and encourage both foreign and domestic private investment. Beginning in 1986, the Government of Tanzania embarked on an adjustment program to dismantle state economic controls and encourage more active participation of the private sector in the economy. The program included a comprehensive package of policies which reduced the budget deficit and improved monetary control, substantially depreciated the overvalued exchange rate, liberalized the trade regime, removed most price controls, eased restrictions on the marketing of food crops, freed interest rates, and initiated a restructuring of the financial sector.

In February 2007 the International Monetary Fund (IMF) completed the final review of Tanzania's second Poverty Reduction and Growth Facility (PRGF) arrangement and approved a three-year Policy Support Instrument (PSI) as a successor to the PRGF. Tanzania had implemented a second three-year PRGF in August 2003. From April 2000 to June 2003, the Tanzanian Government successfully completed a previous three-year PRGF. The PRGF was the successor program to the Enhanced Structural Adjustment Facility (ESAF) Tanzania had from 1996-1999. Tanzania also embarked on a major restructuring of state-owned enterprises. Overall, real GDP growth has averaged about 6% a year over the past seven years, higher than the annual average growth of less than 5% in the late 1990s, but not enough to improve the lives of average Tanzanians. The economy remains overwhelmingly donor-dependent. Tanzania had an external debt of U.S. $5.311 billion (end of December 2008), down from U.S. $5.36 billion recorded as of the end of December 2007. Domestic debt increased to U.S. $1.67 billion from U.S. $1.43 billion during December 2006 to December 2007. During 2007, external debt service payments amounted to U.S. $42.0 million compared with U.S. $90.3 million paid in 2006. The drastic fall in the actual debt service is associated with the debt relief arising from the Heavily Indebted Poor Countries initiative (HIPC) and Multilateral Debt Relief Initiative (MDRI), and accumulation of arrears on non-serviced debts.

Agriculture constitutes the most important sector of the economy, providing about 27% of GDP and 80% of employment. Cash crops, including coffee, tea, cotton, cashews, sisal, cloves, and pyrethrum, account for the vast majority of export earnings. While the volume of major crops--both cash and goods marketed through official channels--have increased in recent years, large amounts of produce never reach the market. Poor pricing and unreliable cash flow to farmers continue to frustrate the agricultural sector.

Accounting for about 22.7% of GDP, Tanzania's industrial sector is one of the smallest in Africa. It was hard hit during the 2002-2003 drought years and again in 2005-2006 by persistent power shortages caused by low rainfall in the hydroelectric dam catchment area, a condition compounded by years of neglect and bad management at the state-controlled electric company. Management of the electric company was contracted to the private sector in 2003.

The main industrial activities (90%) are dominated by small and medium sized enterprises (SMEs) specializing in food processing including dairy products, meat packing, preserving fruits and vegetables, production of textile and apparel, leather tanning, and plastics. A few larger factories (10%) manufacture cement, rolled steel, corrugated iron, aluminum sheets, cigarettes, beer and bottling beverages, fruit juices, and mineral water. Other factories produce raw materials, import substitutes, and processed agricultural products. Poor infrastructure in water and electricity supply systems continues to hinder factory production. In general, Tanzania's manufacturing sector targets primarily the domestic market with limited exports of manufactured goods. Most of the industry is concentrated in Dar es Salaam.

Despite Tanzania's past record of political stability, an unattractive investment climate has discouraged foreign investment. Government steps to improve the business climate include redrawing tax codes, floating the exchange rate, licensing foreign banks, and creating an investment promotion center to cut red tape. In terms of mineral resources and the largely untapped tourism sector, Tanzania could become a viable and attractive market for U.S. goods and services.

Zanzibar's economy is based primarily on the production of cloves (90% grown on the island of Pemba), the principal foreign exchange earner. Exports have suffered with the downturn in the clove market. Tourism is a promising sector with a number of new hotels and resorts having been built in recent years.

The Government of Zanzibar legalized foreign exchange bureaus on the islands before mainland Tanzania moved to do so. The effect was to increase the availability of consumer commodities. The government has also established a free port area, which provides the following benefits: contribution to economic diversification by providing a window for free trade as well as stimulating the establishment of support services; administration of a regime that imports, exports, and warehouses general merchandise; adequate storage facilities and other infrastructure to cater for effective operation of trade; and creation of an efficient management system for effective re-exportation of goods.

The island's manufacturing sector is limited mainly to import substitution industries, such as cigarettes, shoes, and processed agricultural products. In 1992, the government designated two export-producing zones and encouraged the development of offshore financial services. Zanzibar still imports much of its staple requirements, petroleum products, and manufactured articles.

GDP (2008): $18.3 billion.
Average growth rate (2008): 7.1%.
Per capita income (2008): $442.
Natural resources: Hydroelectric potential, coal, iron, gemstones, gold, natural gas, nickel, diamonds, crude oil potential, forest products, wildlife, fisheries.
Agriculture (2008): 27% of GDP. Products--coffee, cotton, tea, tobacco, cloves, sisal, cashew nuts, maize, livestock, sugar cane, paddy, wheat, pyrethrum.
Industry/manufacturing (2008): 22.7% of GDP. Types--textiles, agro-processing, light manufacturing, construction, steel, aluminum, paints, cement, cooking oil, beer, mineral water and soft drinks.
Trade (2008): Exports--$2.49 billion (merchandise exports, 2008): coffee, cotton, tea, sisal, cashew nuts, tobacco, cut flowers, seaweed, cloves, fish and fish products, minerals (diamonds, gold, and gemstones), manufactured goods, horticultural products; services (tourism services, communication, construction, insurance, financial, computer, information, government, royalties, personal and other businesses). Major markets--U.K., Germany, India, Japan, Italy, China, Bahrain, Malaysia, South Korea, Thailand, Pakistan, Indonesia. Primary imports--petroleum, consumer goods, machinery and transport equipment, used clothing, chemicals, pharmaceuticals. Major suppliers--U.K., Germany, Japan, India, Italy, U.S., United Arab Emirates, Hong Kong, Singapore, South Africa, Kenya.