Overall Score: 57 World Rank: 108 Region Rank: 15 of 46 Economic Summary Tanzanias economic freedom score is 57, making its economy the 108th freest in the 2011 Index. Its score is 1.3 points lower than last year, reflecting declines in six of the 10 economic freedoms. Tanzania is ranked 15th out of 46 countries in the Sub-Saharan Africa region, and its overall score is slightly lower than the world average. Tanzania has made considerable gains in income growth and poverty reduction over the past decade. While small in size, Tanzanias financial sector is developing rapidly, and credit is increasingly allocated at market rates, supporting the development of a vibrant entrepreneurial sector. Tanzanias competitive tax rates and openness to foreign investment further promote private-sector dynamism. Despite these recent gains, Tanzania lacks the strong commitment to further institutional reforms that are essential to the development of a strong private sector. Private property rights are weakly protected and poorly defined, deterring investment. Tanzanias burdensome regulatory system and restrictive labor regulations constrain economic activity, while widespread corruption and volatile prices add to the daily cost of conducting business. Business Freedom 46 Tanzanias business environment remains hampered by continuing problems in the regulatory framework. Although requirements for launching a business are not time-consuming, the licensing process is costly and often causes delays. Bankruptcy proceedings are fairly straightforward but relatively lengthy. Trade Freedom 69.6 Tanzanias weighted average tariff rate was 10.2 percent in 2009. Tanzania is a member of the East African Community Customs Union. Some import and export restrictions, import permit and licensing requirements, inefficient and slow customs administration, weak enforcement of intellectual property rights, and corruption add to the cost of trade. Ten points were deducted from Tanzanias trade freedom score to account for non-tariff barriers. Fiscal Freedom 79.8 Tanzania has moderate tax rates. Both the top income tax rate and the top corporate tax rate are 30 percent. As of July 2009, companies that have listed 30 percent of their share capital with the public are subject to a reduced rate of 25 percent. Other taxes include a value-added tax (VAT), a transfer tax on motor vehicles, and a fuel levy on petroleum products. In the most recent year, overall tax revenue as a percentage of GDP was 14.8 percent. Government Spending 80.5 In the most recent year, total government expenditures, including consumption and transfer payments, increased slightly to 25.5 percent of GDP. The privatization or restructuring of state-owned enterprises has progressed. Monetary Freedom 68.8 Inflation has been high, averaging 11.2 percent between 2007 and 2009. The government influences prices through regulation, subsidies, and state-owned enterprises and utilities. Ten points were deducted from Tanzanias monetary freedom score to account for measures that distort domestic prices. Investment Freedom 60 Foreign and domestic investors receive equal treatment under the law in most sectors. There is no limit on foreign ownership in an enterprise, and investment is not screened. Burdensome bureaucracy, inadequate infrastructure, and corruption are ongoing deterrents to investment. Enforcement of commercial law through the courts is difficult. Companies with more than 60 percent foreign ownership may not be listed on the local stock exchange. Foreign exchange and capital transactions are permitted with few restrictions. Profits, dividends, and capital can be repatriated. Foreign investors may lease land for up to 99 years, but all land belongs to the government. Financial Freedom 50 Direct government influence on Tanzanias relatively small financial system has gradually diminished. Credit is allocated largely at market rates, and a range of commercial credit instruments are available to the private sector. Restrictions on foreign banks, which account for around 50 percent of banking assets, are minimal. More than 20 commercial banks are licensed and operating, and over 50 percent are foreign-affiliated. The National Microfinance Bank was partially privatized in 2005, and further sales of the states remaining 51 percent share have been planned. A leasing finance law was implemented in 2008, but its overall impact has been mixed. Pension funds, which remain poorly supervised, have been growing rapidly in recent years. Capital markets are rudimentary, reflecting the lack of efficiency and depth in the financial sector. Property Rights 30 The legal system is slow and subject to corruption. A commercial court has been established to improve the resolution of commercial disputes. Recent reforms have been aimed at establishing a reliable system of transferable property rights. Legislation conforms to international intellectual property rights conventions, but violations are not seriously investigated, and courts lack experience and training in IPR issues. Freedom From Corruption 26 Corruption is perceived as widespread. Tanzania ranks 126th out of 180 countries in Transparency Internationals Corruption Perceptions Index for 2009, a steep decline from 2008. Corruption remains a major concern for foreign investors. While giving or receiving a bribe (including bribes to a foreign official) is a criminal offense, the enforcement of laws, regulations, and penalties to combat corruption has largely been ineffective. The government launched a series of high-profile corruption prosecutions in late 2008, but there were no high-level corruption prosecutions in 2009. Corruption is economy-wide, and measures to combat it are applied impartially to foreign and domestic investors. Labor Freedom 59 Tanzanias labor regulations are not modern and flexible enough to support a vibrant labor market. The non-salary cost of employing a worker is moderate, but dismissing an employee is difficult and costly.