Amidst a colorful combination of short-term and long-term plans, reviews and hopes, Tanzania is an economy that claims a stable economic growth, and yet has a lot to achieve in the next decade. Over the past decade, Tanzania has recorded an annual GDP growth rate of 7% and more (in USD current prices). While this has been a strong performance, relative to the rest of Africa and the world, it continues to be low-income country with a large rural poor population.
For a long time, the country’s government focused on very limited sources of funding and has recently put emphasis on PPPs and FDIs. Despite this limited strategy, Tanzania has enjoyed a steady inflow of overseas development aid from donor countries and other international development assistance from the World Bank and IFC, with annual ODA disbursements of 12% or more on average since 2006. This dependence on external funding for the country’s budget does not paint the picture of a self-sustaining stable economy, especially in a scenario where the donor country might have to re-prioritize their budget spending. Much of this international assistance has also supported the inception of micro-enterprises in various sectors such as agriculture, food processing and healthcare.
Microfinance and micro-enterprises in Tanzania have played an important role historically and continue to pave the way for entrepreneurs. Given the large poor rural population in Tanzania (one of the reasons outlined for a lower-than-desired economic growth is lack of focus on the upliftment of the rather large rural poor of the country) microfinance is especially one of the most important drivers for economic growth. Empirical studies and papers have found that entrepreneurs and young firms are a bigger source of job creation than large incumbent firms. Entrepreneurship also increases household income and reduces income inequality, especially in rural areas. These points above highlight the very need of having entrepreneurs in Tanzania.
With respect to microfinance and micro-enterprises, men and women have equally benefited and come forward to setup ventures in Tanzania. A case in point is the Integrated Training Programme for Women Entrepreneurs in the Food Processing Industry setup by United Nations Industrial Development Organization and the Small Industries Development Organization (SIDO) of Tanzania running since 1993. The program, whose main objective is to promote women entrepreneurs in the food processing industry via micro-enterprises and SMEs, has been very successful in training women (managerially and technically), creating new ventures and expanding existing businesses.
Several studies have shown that access to finance is imperative for the growth of entrepreneurship. Microfinance helps small entrepreneurs acquire new technologies, expand to compete in a global or regional market and build network with large firms. Tanzania’s microfinance providers are licensed, hence making sure that the system functions well and does not undermine projects taken by aspiring entrepreneurs.
As much as one would want to witness a steep growth of such SMEs and microenterprises, there remain basic constraints in the form of complex regulations, inadequate formal financing system and a large unorganized business environment. The World Bank’s Doing Business index ranked Tanzania at 134 in 2013 (out of 185 studied economies). Amongst the various pillars that measure ease of doing business in Tanzania, the country has made little or no progress on majority of those pillars during 2005-2012. Tanzania’s performance on the pillars of obtaining construction permits, registering a property, getting credit, and taxation process is poor and even below the sub-Saharan African average.
Where on one hand it seems that the government is a long way from achieving a good rank on ‘doing business index’, it has certainly increased its focus on improving the infrastructure in their country. As laid out in the latest five-year development plan, dedicated amounts and accountable positions have been assigned to development of energy, transport, water and ICT, as well as other pillars of education, public policy and governance. For instance, Tanzania, the largest country within the East African Community (EAC), has a lot to benefit from regional infrastructure improvement of the road and railway transportation within the EAC. The government has identified this as an important goal and set aside budget for direct investment in roads that improve regional integration. The Tanzanian government is also promoting the development of reliable and sustainable energy sources.
The Tanzanian government’s Vision 2025 has identified priority and strategic areas to propel economic growth and create employment opportunities. These are – infrastructure, agriculture, industry, human resource development, and tourism, trade and financial services. Here are a few examples of a small ventures setup by local entrepreneurs in these areas:
– At Kapele village, young entrepreneurs, after having received skills training from volunteers of Restless Development, mobilized available water resources to start vegetable gardening in 2012. This group was successful in enjoying the fruit of their effort and now plan to develop a network with nearby villages.
– Efam, Ltd., is a water infrastructure company started by a woman entrepreneur, Fatma Mdoe. Exim Bank with support from IFC, the Gender Action Plan and Canadian International Development Agency (CIDA) has provided loan services to Fatma’s company to achieve her target growth in addition to a business skills training to help her successfully run her company.
– Gaimo Construction Ltd. is a construction business started by Monica Gaimo along with her spouse. The company has more than 200 employees and undertakes projects to build roads, bridges and large houses. Through a business and financial literacy training program, Monica got in touch with Exim Bank’s Women Entrepreneurship Financing program. This facilitated access to capital and in turn enabled her firm to bid for larger and higher-end projects.
– With grants and training from USAID, entrepreneurs are improving mechanization processes in agriculture, hence improving their productivity and increasing competitiveness in the global and regional markets. USAID is also promoting policies that enable private participation and hence promoting investment in this sector.
Having gone through the challenges faced by entrepreneurs in Tanzania – poor access to capital, lack of government focus on rural areas, high corruption prevalence, complex taxation process, obstacles in registering property – one could say, in conclusion, that to be successful in the country in the next decade, local entrepreneurs need to work with the system and leverage available tools in the country today. The theme and the action plan should be to grow with the economy (and help grow the economy) and in the long term more tools and support to expand businesses will come along with the way. The most important tool available today to entrepreneurs is microfinance – especially because it is a well-functioning formal ecosystem in Tanzania. Overseas development aid is also being channeled into the country and an efficient way to get access to such aid is to educate oneself – attend training programs and workshops, network with other entrepreneurs to hear their story, etc. Other important tools being promoted by the government are PPPs, FDIs, Special Economic Zones, and skills training programs.
Apart from these tools, business owners and aspirers need to look into the potential of ‘mobile’ technology. This article does not mention any examples, and that is intentional to highlight that this still remains an untapped resource. Mobile payment, e.g., M-PESA launched by Vodacom on lines of the highly successful example of Kenya, is one of the areas that has been initiated in the country, but is still behind most large African economies. Mobile technology, and ICT in the long run, has the power to enhance services such as healthcare, education, financial services, agriculture, and utilities. In a country with a large rural population and less-than-desired road or railway infrastructure, mobile technology can help reach remote areas and hence contribute to an inclusive growth process.
Lastly, regional integration will play a crucial role in the growth of the country and hence its entrepreneurs. Existing business owners and those who want to setup a venture with an aim of growing big, need to ‘think regional’ and ‘grow regional’. Tanzania, being a part of many regional associations such as the East African Community, Southern African Development Community, African Union, and World Trade Organization, has a lot to offer in terms of networking and cooperation, as well as learning from best practices employed elsewhere in Africa.
To all those aspiring Tanzanian entrepreneurs, here are some key takeaways – grow with the system and use the tools available today to your best advantage, leverage microfinance, tap into the potential of mobile, target inclusive growth of rural areas, and think regional!