The government plays an important role in economic development. For instance in the 1980s the government adopted the policy of trade liberalization, which led to the mushrooming of commercial activities in Tanzania. Many local and foreign investors started investing in this sector. Since then, the commercial sector has been expanding tremendously. There is some ineffectiveness of the government in economic development.Some of this ineffectiveness are:
1.Signing weak contracts with investors which do not consider the national interests, for instance mining contracts and privatization of Tanzania railway Cooperation (TRC) to Tanzania Railway Limited (TRL).
2.Poor tax collection where the government loses a lot of money due to unnecessary tax exemptions and tax avoidance.
3.Failure to control inflation. The increase in inflation is attributed to a combination of exogenous shocks. Some of the exogenous shocks include the hike in global oil and flood prices, the decrease in demand and price of primary exports in the world market. Other shocks include extreme weather conditions, which adversely affect agricultural produce and power supply, and consequently inhibit the growth of other sectors of the economy.
4.The poor transport system affects the economic development of Tanzania. For instance, traffic jams in cities is due to poor infrastructure and city planning.
5.Inefficiency of power supply. The government has failed to make proper use of the available waterfalls, natural gas, coal and uranium to solve the power problems in the country hence affecting economic production in various sectors like industries.
6.Lack of good governance and accountability shows the inefficiency of the government in spearheading economic development. There has been rampant corruption in Africa which hinders economic development.
7.Dependence on foreign aid to finance the budget of the nation affects the economic development of the country especially where the aid is not given on time. For instance, the government prefers the General Budget Support (GBS) as one of the sources of external financing modalities. The GBS contributed Tshs.4 billion in 2008/2009 budget.