Tanzania - Enterprise sector in changing environment

Countty Background Papers ": . 56873 .. •• Tanzania: Enterprise Sector in Changing Environment Center for International Business Research Helsinki School of Economics - Helsinki, Finland muI Karl Paakkari  Africa Regional Program on Enterprise Development The World Bank . Tanzania Country Ba~~round Paper Enterprise Sector in Changing Environment Prepared by Helsinki Kari Paakkari November 12, 1992 Tanzania 0 km 200 400 I ZAIRE UGANDA 0 miles 100 200 <II( :: <II( :I 0 en Mam roads Main ra,lINavs Inrer:1atlonal tloundarles ~ Main alTOOrTS KENYA INDIAN OCEAN ZAMBIA MQZAMBIQUE MOZAMBIQUE  RPEDlTanzania Country Background Paper . Enterprise Sector in Changing Environment SUMMARY 1) During the first few years of independence, the economic development of Tanzania was primarily based on private investment. During the period of 1961- 1967, average GOP growth surpassed 6 per cent a year and the number of new enterprises doubled from 220 in 1961. However. the inflow of foreign resources did· not pick up as the Government wanted. Kenya continued to interest European (British) investors more than Tanzania, which was often considered only a secondary market 2) After the Arusha Declaration in 1967, the govemment continued to establish parastatals at an increasing rate and to nationalize existing large scale industries, commerce and financial institutions. The number of parastatal organizations grew rapidly and the introduction of Basic Industry Strategy (BIS) in 1975 led to establishment of heavy production like pulp· and paper, chemical, iron and steel industries. 3) Until the mid-seventies economic growth was still 4.7 per cent a year, but it involved already emerging structural imbalances in the economy, like excessive external investment financing, deficits in the current account and the government budget. During the latter part of the 1970s the growth started to decline and contributed by the second oil crises, the war with Uganda and also the indifferent and even hostile attitude of the govemment towards entrepreneurship and the private sector. This policy hampered private investment and left enterprises without conducive business environment with necessary support and incentives. 4) The period of crises (1979-1985) included both virtual collapse of the economy and the start-up of new thinking which was reflected in the Structural Adjustment Programme (SAP) launched in 1982. Per capita income decreased in 1981-83, after which a slight improvement took place. The previous government investment strategy (BIS) had left Tanzania with a great number of large-scale, import-dependent and inefficient parastatals, which in the beginning of the 1980s were often operating at about 30 % capacity or less. 5) The 1984/85 budget included several adjustment measures. such as a 35 % devaluation, 40-60 % increase in agricultural producer prices and introduction of forex retention accounts for exporters. At the same time, the country r~ached an agreement with the IMF, which led to an infusion of badly needed foreign exchange and gave a better ground for economy's reconstruction. 6) The Economic Recovery Programme (ERP) was lauched in 1986 and it succeeded to reverse the declining trend of the economy and to establish the initial transition toward market economy in Tanzania. The GOP grew by 4.5 % a year in 1986-90. Other positive indicators were decreaSing inflation, increasing capacity utilization and exports partially as a result of a removal of the Shilling overvaluation, trade liberalization and gradual abolishment of price controls. Karl Poa/dcQri RPEOITanzania Country Background Paper Enterprise Sector in Changing Environment ii 7) In 1989 the government instituted a second phase of the economic recovery plan, the Economic and Social Action Programme (ESAP). The ESAP is a medium-term package up to 1992 focusing on detailed sectoral objectives and economic policies. The ERP-period was already su~ssful in terms of economic growth and this trend continues although at a lower level. High inflation and unbalanced foreign trade are among the major negative features of the Tanzanian economy. 8) During the ERP the government was largely successful in meeting annual fiscal targets. Cost savings were gained by freezing the employment levels in the public service and by abolishing subsidies to parastatals. Budget deficits have been increasingly financed from foreign resources with import support. adjustment lending. project loans and grants. It has improved domestic credit availability by the private sector. 9) There are about 400 parastatal companies in Tanzania. Lack of competitive pressure has led in many companies to inefficiencies in administration and low productivity. The government is now implementing the parastatal rehabilitation program with an objective to eliminate most of their budgetary support by 1992193. Some 45 state owned enterprises are to be wholly or partially privatized. 10) Tanzania's financial sector is undeveloped, there is no competition, and the quality of services is generally low. National Bank of Commerce (NBC) has a virtual monopoly on comm~rcial banking business. Other reasons for service deterioriation are internal inefficiency. the government interference, foreign currency loans and non-performing co-operatives and parastatals. To reverse the alarming situation Financial Sector Reform Program was initiated by the Presidential Commission in July 1990 and followed up by a new Banking Act in April 1991. 11) The Tanzanian manufacturing sector is composed of small and medium size private enterprises, large scale parastatals established in the 1960s and 1970s and the informal sector. The manufacturing performance was generally favorable until the mid-1970s, after which the sector declined almost continuously over the next 10 years. Extensive public industrial investments had led to poorly deSigned and high-cost production, and they did not match with the economy's ability to eam foreign currency for operational purposes. 12) The trade and industry policy reforms, undertaken since the mid-1980s coupled with increased availability of external resources. have provided a markedly improved environment for both large and small scale industries. Accordingly, the manufacturing value added increased nearly 7 per cent a year during 1987-90. 13) According to a survey in 1988, there were 711 establishments with more than 10 persons, which employed a total of about 114,000 people. Of them, some 69 per cent were working for public and 31 per cent for private employers. As for small manufacturing, some 17,800 such establishments have been identified in Tanzania. They are primarily very small employing only 1-4 persons. Karl PtIiIkkJ1.rl  RPEDlTanzania Country Background Paper Enterprise Sector in Changing Environment iii 14) .In general. food and beverages together with textiles (including wearing apparel) are the biggest sub-sedors of Tanzanian manufacturing. Of the above 711 industrial establishments, 162 are engaged in food processing and 135 in textile industries. Those subsedors covered in 1988 about 40 % of gross output and 63 % of manufaduring employment. Other significant manufaduring includes petroleum produds and chemicals, basic metals and metal produds, printing and publishing, and transport equipment. 15) Dar es Salaam has the largest concentration of industrial establishments, 266 (37 %) of all the 711 employing more than 10 persons. Those establishments produced primarily food, beverage, textiles, paper produds and printing, fabricated metal products and transport equipment. Other important industrial centres are in Tanga, Arusha, and Kilimanjaro, Mwanza and Morogoro. 16) Among manufadured exports, textile and cement have been dominant, with their combined share f1uduating around 50 per cent in the 1980s. There are no adual export industries in Tanzania, because official policies have favored to supply the domestic market in the first place. Combined with the currency overvaluation and restridions on competing imports the chosen policy sealed Tanzanian manufaduring effedively out of the international competition, quality requirements and produd development. 17) Indigenous entrepreneurship is at an early stage of development and mainly limited to small scale businesses. The reason for weak development of African·owned businesses has been the lack of conducive enterprise environment rather than a lack of entrepreneurship itself. Along with liberalization, the number of small scale firms established in Dar es Salaam between 1986 and 1990 was about 2,500, which is three times the total number of similar firms established in almost 20 years from 1967 to 1985. 18) In spite of official harassment in earlier years, informal and small enterprise sector growth has been rapid. Based on the number of licenses issued to micro entrepreneurs, informal employment in Tanzania exceeded one million at the end of the 1980s. The respedive figure for 1978 is 570,000. The informal sectors size may be as high as 30 per cent of the GOP compared to only 7 per cent in 1975. . 19) In the first part of the 1980s and until 1987 the flow of foreign direct investments into Tanzania was insignificant. Since then, foreign investors have started to show at least some interest in the country. However, there have been a few "real" equity investors so far indicating that confidence in Tanzania as a country for profitable business has been low. The law still allows to expropriate private property, but it does not specify how the compensation is determined. 20) Only in the latter part of the 1980s, the Tanzanian official policy started to be more conducive to entrepreneurship and private business development. An Investment Promotion Center with a new Investment Promotion Code were introduced in 1990. Entrepreneurs exped now that the government will support it by removing remaining constraints to productive adivity. KtJri PtJOlcIcJui RPEDlTanzania Country Background Paper. Enterprise Sector in Changing Environment Iv 21) A real constraint for business development is the lack of viable investment opportunities. Insufficient physical infrastructure like wom-out roads and railways together with poor telecommunication system compose a severe barrier to business development. When adding to this unreliable or non-existing supply of power and water in many locations, and insufficient supply of serviced industrial sites, investors require a high retum to balance the risk they undertake. 22) With help of donors, the govemment has in recent years introduced new instruments to improve foreign exchange availability. The main instruments are the Open General License (OGL) system established in February 1988. Export Retention Scheme and Own Funded Import Scheme. In spite of all the described schemes, there were in 1991 considerable arrears of prOfits and extemal debt service payments waiting for repatriation from Tanzania. 23) Enterprise sector has suffered for years from non-availability of long term loans for investment purposes and from poor services of commercial banks. Financiers have often a passive attitude towards clients, because there is no competition. The efficient crowding-out of the private sector with public sector borrowing for the needs of administration. parastatals and other purposes has been a long-lasting phenomenon. 24) Tanzania's new investment promotion policy offers non-discriminatory opportunities to both local and foreign investors. Fully owned foreign ventures are possible. Investment priorities have been stated and the investment Code offers generous investment incentives like duty exemptions, .tax holidays and onld fairly free repatriation 'of capital gains. 25) Business training opportunities in Tanzania are still quite heterogeniC, and insufficient by their coverage. Availability is often limited by its cost or simply because the demand exceeds the training supply. Other institutional support require development as well and entrepreneurs have only recently started to organize themselves into associations. An example of the sector oriented .organizations is the Tanzania Forestry Industries Association. established in 1989, to support its members with various services and to represent the interest 'of forest based industries to authorities. . 26) In spite of pertaining and numerous bottlenecks in the business environment, the development outlook as seen by entrepreneurs is encouraging regarding capacity utilization, exports and investment. If the govemment reform policies continue uninterrupted, the overall economic outlook is prospective. The World Bank scenarios on the GOP growth for 1991-1995 vary between 4-5 per cent annually, Small enterprises including informal sector participants are expected to contribute significantly to the economic growth. KIlri PfHllcJaJri Table of Contents Page 1 Introduction .......................................................................................... 1 2 Overview of the Economic Development••••..•••.•••••..•••.•••.•••..••.•••.••.••• 2 2.1 Post Independence Period ............................................................... 2 2.2 Establishment of Socialism ............................................................... 2 2.3 Economic Performance in the 1970s ................................................ 3 2.4 Economic Crises ............................................................................... 4 2.5 Structural Adjustment Period ............................................................ 6 2.6 Current Economic Performance ....................................................... 7 3 Public Sector ................................•....................................................... 8 3.1 The Government Finance ................................................................. 8 3.2 Parastatals and Privatization ............................................................ 9 4 Financial Sector ................................................................................... 10 5 Manufacturing ...................................................................................... 13 5.1 Development ................................................. ~ .................................. 13 5.2 Size of Establishments ..................................................................... 14 5.3 Sub-sectors ...................................................................................... 15 5.4 Location ........... :................................................................................ 16 5.5 Export Ttade ...................................................................................... 17 5.6 Technology .....................................................:................................. 17 5.7 Subsectors of the Study ................................................................... 18 6 Enterprise Initiative .............................................................................. 19 6.1 African Entrepreneurship ..............•................................................... 19 6.2 Informal Sector ................................................................................. 19 6.3 Cooperatives .................................................................................... 20 6.4 Women as Entrepreneurs................................................................. 21 6.5 Foreign Investment. ......'.................................................................... 22 7 Enterprise Environment .iII ••••••••••••••••••••••••••••••••••••••••••••••••••• ~ •••••••••••••••• 22 7.1 Changing Perception on Enterprise Sector ...................................... 22 7.2 Infrastructure ......... :.......................................................................... 23 7.3 Legal and Regulatory Framework ...............................................: .... 23 - IPC and Enterprise Establishment.. ........................................... 23 - Taxation ..................................................................................... 24 - Property Rights and land Availability ........................................ 24 - labor Market and Regulations .................................................. 25 - Price Control and Trade Policies ............................................... 26 - Foreign Exchange Availability ................................................... 26 7.4 Credit Policies .................................................................................. 27 7.5 Investment Policies and Incentives .................................................. 27  7.6 Business Training Opportunities ...................................................... 28 7.7 Institutional Support ................................................................... ....... 29 7.8 Constraints for Enterprise Development. .......................................... 30 8 Enterprise Development Outlook ....................................................... 31 RPEDlTanzania Country Background Paper Enter;erise Sector in Changing Environment 1 1 Introduction Tanzania has been chosen as one of the eight target countries for the research program of Regional Program on Enterprise Development (RPED) organized and managed by the World Bank. RPED research will include in each country three components, the first of which is an extensive survey on enterprises in four to five major sub-sedors of manufaduring. The survey will. result in a country study aiming at to provide better understanding on private enterprise sector and to contribute to business enabling environment of that country. The two other components are in depth case studies based on the survey data and similar studies on business support arrangements in the country. As regards the country study on Tanzania, the preparatory phase has commenced including a Tanzania Country Background Paper, in the following. The paper will help design the study and it will provide necessary country-specific and sedor-oriented background information to the members of study groups who will visit Tanzania during the RPED program. The objectives of this paper are: a) to review the development of Tanzania's economy. major policies and regulatory environment of the enterprise sector, b) to describe the institutional framework that is related to manufacturing enterprises, c) to analyze the status of manufaduring enterprises and their main features. d) to gather information on studies, reports and other publications relevant to RPED and further work. The paper has been prepared as a desk study in Finland utilizing available local and international sources of information. Because no interviews were conducted in Tanzania, the paper may lack up-to-date views and professional opinions on the topic. A separate visit was. however, made to the World Bank in Washington, D.C. for gathering further information on Tanzania. The paper is strudured as follows: Chapter 2 presents an overview on the economic development of Tanzania to provide background information. on the changing policies and circumtances of the enterprise sedor during the past 30 years. Chapters 3 and 4 relate specifically to the public finance with parastatals and the performance of the financial sedor. Chapter 5 reviews the development and position of the manufaduring sedor in the Tanzanian economy. Chapter 6 focusses on the enterprise initiative in Tanzania, the driving force for business development. Chapters 7 and 8 concentrade on the current operating environment and development outlook of the enterprise sedor. The findings of the paper are summarized under a separate chapter. KIlrl Paolduui  RPEDlTanzania Country Background Paper ,Enterprise Sector in Chanping Environment 2 2 Overview of the Economic Development 2.1 Post Independence Period At independence in 1961, Tanzania was largely dependent on subsistence agriculture and the main export goods were sisal, coffee and cotton. Industrial sector was nearly non-existent and the number of manufacturing employment in 1961 wa.s estimated to be about 22,000 out of a work force of some 5 million. During the first few years, the economic development of Tanzania was primarily based on private investment, although the government started to establish quite soon state-owned enterprises. Otherwise, official economic policy was neutral; no particular sector -private or public- was favored. The available data shows that during the period of 1961-1967 the economic development was favorable. Average GDP growth surpassed 6 per cent a year and the number of new enterprises doubled from 220 in 1961. Many of them were in the manufacturing sector, but instead of indigenous Africans, economic activity was largely initiated by migrants from South Asia [1,3]. By mid-1960s, it turned out that the private sector investment and the inflow of funds by foreign investors and donors had been overestimated. The pace of development did not satisfy the government, and to improve the situation, business incentives like accelerated depreciation, tariff protection, guarantees of profit repatriation were introducted in the First Five Year Plan (1964-1969). Kenya continued to interest European (British) investors much more than Tanzania, which often was considered only a secondary market for Kenya-based operations. 2.2 Establishment of Socialism Along with increasing economic activity, the political and economic philosophy called for economic independence, self-reliance and greater emphasis on lifting of poverty, employment generation and rural-urban equinty. This philosophy was spelled out in the Arusha Declaration in 1967. The declaration was based on public ownership of important economic establishments, rural and agriculture1 development, national self-reliance and provision of social services like education and health-care to the people. The Declaration had far reaching economic and social implications in the late 1960s and the 1970s. The government continued to establish parastatals at an increasing rate and to nationalize existing large scale industries, commerce and financial institutions. The number of parastatal organizations grew to about 400 by 1981. In rural areas, the ujamaa village program was introduced. Villages were first organized on a voluntary basis, but soon followed by compulsory relocation 1 In practice, agriculture did not receive as much attention in national planning as development of industrial production [1]. . KIln Paakk4n RPEDfTanzania Country Background Paper Enterprise Sector in Changing Environment 3 from 1973 onwards with some 13 million people having been moved by 1976. Traditional cooperatives were brought under state control and land was taken into public ownership. As regards the social sectors, the Declaration led to considerable increase in the provision of educational, health and other social services. 2.3 Economic Perfonnance in the 1970s The Tanzanian economic performance is characterized from the time of the Arusha Declaration to the end 1970s with the following macroeconomic indicators: Tabl,e 1: Selected MacrO-indicators, 1966-1980. Annual °k.growth 1966-75 1976·80 Gross Domestic Product 4.7 2.0 GOY per capita 1.5 -4.7 Ex~orts -6.9 -5.7 Imports 0.6 2.1 Terms of Trade, rate of change 3.9 -S.7 Inflation 12.1 16.5 Gross Investment/GOP, % 20.7 24.7 Nat'l Savings/GOP, % 15.5 15.6 Source:World Bank: Tanzania Economic Report Towards Sustainable Development in the 1990s [S] Until the mid-seventies economic growth was still 4.7 % a year on the average, although the country suffered from the first oil shock in 1973 and two years' severe drought. The growth involved, however, emerging structural imbalance~ and weaknesses in the economy. The worst imbalances could be seen in the investment financing. current account and the government budget: • Domestic savings. (private, parastatal, government) did not keep pace with increased investment, which led to excessive use of foreign aid for capital formation. • Tanzania's widening current account deficit reflected not only the gap between investments and savings, but also declining exports and increasing imports. • The amounting fiscal deficit of the government led to a triple of the national debt from 1973 to 1978 [4]. An important policy measure was the introduction of Basic Industry Strategy (BIS) /(Qri PaaIdaui . RPEDlTanzania Country Background Paper Enterprise Sector in Changing Environment 4 in 1975. BIS was to replace the country's dependeAce on foreign investment and aiming at restructuring of industrial production, Africanizing of business management . and establishment of heavy production like pulp and paper, chemical, iron and steel industries. As it will be shown below, the outcome of the donor supported strategy did not futfil the expectations, but led to large investment of funds in inefficient public enterprises with low returns. During the latter part of the 1970s the average GOP growth declined to 2.0 % a year and the macroeconomic imbalances continued to worsen. Domestic investments were increasingly financed with development aid, because commercial lending was drying up. Soon also donors started to be concerned about low returns of aid financed investments and by the early 1980s many of them realized that excessive external support only allowed the government to sustain inappropriate macroeconomic policies. Consequently, availability of aid funding became more difficult resulting in production cuts and shortages of basic consumer goods. In addition to internal problems, the country was hit with external shocks in 1978. The second oil price increase, successive droughts and the war with Uganda contributed to the upcoming economic crises. Another reason to the declining economy was the indifferent and even hostile attitude of the government towards entrepreneurship and the private sector. This policy hampered private investment and left enterprises without conducive business environment with necessary support and incentives. , 2.4 Economic Crises The period of crises (1979-1985) in the Tanzanian economic development included both virtual collapse of the economy and the start-up of new thinking which was reflected in the Structural Adjustment Programme (SAP) launched in 1982. However, the impact of policy changes on economy could only be seen over a longer period of time. As shown in Table 2, per capita income continued to decrease by 1.6 % a year in 1981-83, after which a slight improvement took place. Karl PQII/ctQri  RPEOITanzania Country Background Paper . Ente!:erise Sector in Changing Environment 5 Table 2: Growth of Selected Macro-indicators, 1981-1985. Annual %-arowth 1981-83 1984-85 1986-90 Gross Domestic Product 0.5 2.7 4.5 GOY per capita -1.6 0.9 0.2 Exports -8.1 -2.4 10.2 Imports -7.0 -11.3 1.3 Terms of Trade, rate of chang~ -1.0 3.8 -7.9 Inflation 29.4 33.2 25.0 Gross InvestmenUGDP, % 18.4 15.5 21.1 Nat'l Savinas/GDP, % 11.4 8.6 -0.2 Source: World Bank: Tanzania Economic Report Towards Sustainable Development in the 1990s [5]. The compression of imports due to lack of foreign exchange continued the shortage of consumer goods as well as of industrial raw materials and spare parts. Consequently, utilization of production capacity fell further while infrastructure, transport system and the capital stock of manufacturing deteriorated. The previous government investment strategy (BIS) had left Tanzania with a great number of large-scale, import-dependent and inefficient parastatals, whid1 in the beginning of the 1980s were often operating at about 30 % capacity or less. The villagization process, in tum, had caused a drop in agricultural production and a sharp increase in food imports. The downward spiral in the economy was ready and it accumulated both extemal and fiscal imbalances undermining the achievements gained in education, health and other social services. In addition to the extemal factors mentioned above, several weaknesses in the govemment's own policy were identified. These included: • inadequate incentives and resources for the agricultural sector; • a poorly implemented industrialization strategy; • excessive administrative controls over economic activity; and • the continued growth in the size of the public sector without due regard to the limited financial resources. [6] During the early 1980s a number of "survival plans" were introduced but they Kari PaoIdt:ari  RPEDlTanzania Country Background Paper ,~_. Enterprise Sector in Changing Environment 6 failed to address the key problems. Also, the govemment was resistant to many corrective measures such as devaluation and fiscal restraint, which the Intemational Monetary Fund (lMF) set as conditions for its support. As the crises deepened, the above mentioned SAP for 1983-1985 was launched: 1) to achieve better macroeconomic balance, 2) to provide better incentives to agriculture, 3) to improve the efficiency of parastatals. The 1984/85 budget included several adjustment measures such as a 35 % devaluation, 40-60 % increase in agricultural producer prices and introduction of forex retention accounts for exporters. The SAP represented a partial tumaround in the official economic policies, but still stronger adjustments were required to reverse the deterioration of the Tanzanian economy [7]. 2.5 Structural Adjustment Period The following rescue operation was initiated in June 1986, when the govemment embarked on a three-year comprehensive and medium-term Economic Recovery Programme (ERP). At the same time, the country reached an agreement with the IMF, which led to an infusion of badly needed foreign exchange and gave a better ground for economy's reconstruction. ERP was a more definite deciSion by the govemment to break with the past policies in order to reverse the severe economic decline. The major objectives of the ERP were to "achieve a positive growth rate in per capita income, lower the inflation rate, and restore a sustainable· balance of payments position" [9]. The operational targets included 1) increased food and export crops output through price and non-price incentives such as an improved crop marketing system and foreign exchange availability; . 2) increased industrial capacity utilization through expanded foreign exchange allocation to industry; 3) re-directing govemment investment expenditure from heavy industrial expenditure towards rehabilitating infrastructure; 4) adoption of restrained fiscal and monetary poliCies. The new policies of the govemment were welcome by the intemational donor community and further resources were made available together with program support from IDA. External funding decre~sed the govemment's borrowing needs in the domestic market which improved the private sector's access to bank credits. Over the three years of the ERP, Tanzania's economy including agriculture improved and the GOP grew by 4.5 % a year in 1986-90, Table 2. Other positive indicators were decreasing inflation, increasing capacity utilization and exports partially as a result of a removal of the Shilling overvaluation, trade liberalization and gradual abolishment of price controls. K.ari PtlllkkJlri RPEDlTanzania Country Background Paper Enterprise Sector in Changing Environment 7 Although the country remained facing a number of obstacles (such as worn..out infrastrudure, weak financial services and export earnings), the ERP succeeded in its main objective, to establish the initial transition toward market economy. 2.6 Current Economic Performance In 1989 the government instituted a second phase of the economic recovery plan which they called the Economic and Social Action Programme (ESAP). The ESAP is a medium-term package up to 1992 focusing on detailed sectoral objectives and economic policies. The ESAP complements the ERP with special attention given to improving the quality of life of the low income groups. The financing of health, education, housing and other social services had been cut in half from 1981 to 1986 or from 21 to 11 % of total government expenditure. Other measures implemented under the ESAP include: 1) continued adjustment of the exchange rate; 2) continued industrial restructuring; 3) continued external trade policies liberalization and 4) infrastructural rehabilitation. The government is on the way to make long-term public sedor expenditure redudion through trimming of the civil service. The recent economic development and outlook for 1993 is summarized in the Table below: .  RPEDlTanzania Country Background Paper Enterprise Sector in Changing Environment 8 Table' 3: Key Economic Indicators, 1990-1993 % real change, 1990 1991 1992 1993 GOP at factor cost 3.5 3.8 2.5 5.0 of which - Agriculture 6.6 4.6 2.0 6.0 -Industry - 5.0 4.0 5.0 - Services - 2.5 2.5 3.0 Consumer price inflation 19.7 22.3 20.0 20.0 Million USD Exports (fob) 408 410 420 450 Imports (cif) 1,364 1,410 1440 1t SOO Current account balance -425 -400 -400 -375 Source: EIU: Tanzania, Mozambique. Country Report No 31992. The ERP-period in 1966-1989 was successful in terms of economic growth and the above figures indicate that this trend continues although at a lower level. The severe drought in the agricultural sector. which accounts for some 55 per cent of economic activity, is currently curtailing the growth. However, the GOP is expected to increase to 5 per cent in 1993. High inflation, about 20% and unbalanced foreign trade are among the major negative features of the Tanzanian economy. In 1990191 Tanzania could cover only 30 per cent of the imports with export income. Availability of foreign currency for foreign payments is secured as long as donors cover the gap in foreign trade. 3 Public Sector 3.1 The Government Finance' The weakness of the existing data makes it difficult to analyze the government finance. In general terms, however. the government was largely successful in meeting annual fiscal targets during the ERP. Since the mid 1980s. the revenues have recovered, principally due to a better performing economy, Kari PlIIlkJcJlri  RPEDlTanzania Country Background Paper Enterprise Sector in Changing Environment 9 Table 4: Government Budget and Financing as Percent of GOP Budget 1985/6 1988/89 1989/90 Total Revenue 14.9 19.9 20.0 Total EXDenditure, 23.1 28.3 24.7 of which - Recurrent EXPenditure 19.2 21.6 21.2 - DeveloDment Expenditure 3.9 6.6 3.5 Overall Deficit after Adj. -5.9 -9.4 -5.3· Financina - Foreian 1.6 7.1 4.3 - Domestic 4.4 2.2 1.0 Source: World Bank: Tanzania Economic Report Towards Sustainable Development in the 1990s [51. tax adjustment and increased collection effort. Recurrent expenditure rose during the latter part of the 1980s primarily because of the increase in extemal debt servicing due to devaluations. Cost savings were gained by freezing the employment levels in the public service with a few exceptions and by abolishing subsidies to parastatals. Development expenditure showed an increase as well. but it also reflected depreciation of the exchange rate because foreign exchange component of the investment budget is relatively large.· The real development expenditure almost halved in value and in relation to GOP in 1986-1990. When considering that the same fall took also place in the early 1980s, the level of investment expenditure was extremely low and could be seen in the deteriorating infrastructure and other services in Tanzania. In 1989/90 the total revenues composed about SO % of the total expenditures. Recent budget deficits were increasingly financed from foreign resources with import support, adjustment lending, project loans and grants. It is consistent with the ERP policy that official domestic borrowing is reduced in order to improve credit availability by the private sector. The long term debt of Tanzania in 1991 amounted to USD 4.9 billion (= 194 %/GDP). but its service of exports was only 16.5 per cent. 3.2 Parastatals and Privatization If excluding holding companies and non-active ones, there are about 400 parastatal companies in Tanzania. They have operated up to recent years both commercially and finanCially in protected environment. Lack of competitive pressure has led in many companies to inefficiencies in administration and low Karl PaQ/dcari RPEDlTanzania Country Background Paper Enterprise Sector in Changing Environment 10 productivity. According to a survey by the World Bank on the financial performance of 364 parastatals in 1989, there were 189 enterprises making losses amounting to TSh 32.9 billion (USD 144 million). On the other hand, the remaining 175 companies reported a pre-tax profit totalling TSh 16.2 Billion (USD 71.7 million). To reverse the 'economic malfunctioning of the parastatals and their increasing burden to the economy, the govemment has considered various measures at least since 1983. In 1983 the President appointed a special commission (the Hamad Commission) to review the performance and to propose action for reform. The recommendations led to certain cost savings through lay-off of workers, administrative reforms and closing down or to divestment of some 20 parastatals. However, financial support to parastatals increased throughout the 1980s and was nearly 9 per cent of the govemment total expenditures in 1989/90. Parastatal dividends paid to the budget were negligible. The government is now continuing the parastatal rehabilitation with an objective to eliminate most of their budgetary support by 1992193. Because of the limited resources available, the govemment is also looking for private investors to invest in parastatals. Some 45 state owned enterprises are to be wholly or partially privatized and some of them have already been put up for sale. The prime constraints of privatization are non-existent capital market, and limited financial and managerial resources of indigenous private sector. To speed up the process, the World Bank is helping the govemment in privatization together with donors. 4 Financial Sector Tanzania's financial sector is undeveloped and mainly owned and controlled by the government. There is no competition, and the quality of services is generally low. The capital market is non-existing and there are no stock exchange or merchant banks to provide modem underwriting, brokerage and investment management services. Apart from the Bank of Tanzania, there are three commercial banks, National Bank of Commerce (NBC), Co-operative and Rural Development Bank and the People's Bank of Zanzibar. NBC has virtual monopoly on banking business. There are two development banks, Tanzania Investment Bank and the Tanzania Development Finance Limited, and' a few smaller financing institutions like Post Office Savings Bank and Housing Bank. In addition, there are almost 400 savings and credit organizations and more than 200 multipurpose cooperatives involved in financial intermediation in rural areas. Informal financial market can also be found serving non-indigenous entrepreneurs in the first place. In the following, there is a brief description on the performance of the prinCipal financial institutions as regards the support to the enterprise sector [15]: Kari Paa/ckQri RPEOlTanzania Country Background Paper Entererise Sector in Changing Environment 11 National Bank of Commerce (NBC) NBC is financing small enterprises through its Small Enterprise Department and Women Development Project Department. The branch network covers all districts and now the bank is expanding itself on village level. The maximum loan amount is 250,000 USD equivalent in Shillings with a maximum term of 10 years. The loan interest in 1991 was 21-23 per· cent per annum. A full collateral is required, either fixed assets, guarantee or a bank deposit. NBC has 7 business development centers which provide free of charge services for project preparation. Loan decision power is decentralized to regions up to TSh 30 million. In addition to the govemment, NBC is funded among others by SIDA and KfW through the treasury. NBC has been criticized for its inefficiency, long loan processing time (112 - 1 year) and non-performing portfolio. Based on an interview in October 1991, the NBC management was of an opinion that there are also other reasons for poor services: Clients have often only a vague idea of a bankable project and their business standards may not fulfil the bank's requirements. Also, most of the portfolio (1,500 clients) come from the early eighties when there was poiitical pressure for financing non-viable projects. Small Industries Development Organization (SIDO) 5100 operates under the Ministry of Trade and Industry and it is responsible for promoting and offering techno-economic, marketing and management services and training to small industries. Its network consists of 20 regional offices, 17 industrial estates and 10 training and production centers. SIOO does not provide finance, only machinery and equipment on a hire purchase basis with SIDA's assistance. Collateral requirement is limited to the asset in question. Since 1989 the hire purchase program has been extended to informal sector with a maximum finance of 100,000 TSh on concessional terms. Another special program of 5100 is the Support to Women Entrepreneurs. Recipients get preferential treatment; only 10 per cent down payment is required (25 % normally) plus a low interest rate. It is also supported by SIOA. the latest allocation being SEK 2 million. SIOO has prepared a strategy-paper for the 1990s to decentralize. its operations and to improve efficiency through administrative reforms. Ca-operative and Rural Development Bank (CRDS) CROB was established with an Ad of 1971 for financing of cooperative sedor. It is jointly owned by the govemment, BOT and the Cooperative Union of Tanzania. The share capital is TSh 1.4 billion. Major financiers are BOT, the govemment, multi- and bilateral donors and deposits. CROB has 11 branch offices in the country and it Kari PfllildcD.ri  RPEDlTanzania Country Background Paper __ _ Enterprise Sector in Changinp Environment 12 employs some 1,200 people. CRDS's lending to enterprise sector in agro-industries and manufacturing has been quite limited. The mainstream of the financing has been extended as seasonal loans to cooperative unions. In 1987-89 sma" scale industries received only 10-15 per cent of the loans. eROS lending has also been directed to parastatals and ujamaa village authorities. Thegovemment has frequently intervened in CRDS's activities leading to finanCing of inviable projects and to a situation where most of the TSh 16 billion portfoliO is no~performing. CRDS's financial status is critical. The restructuring of eROS includes components for the portfolio assessment, operational and organizational refurbishment, search for new (private) shareholders and recapitalization. eROS is expected to operate as an independent commercial bank in the future. Tanzania Investment Bank (TIB) TIS has recently expanded its lending activities to small enterprises with two programs. Until now the lending minimum has been so high that it has excluded a large number of small entrepreneurs from the bank's financing. The Fund for SmalllMedium Scale Sector is one of the programs. Acceptable projed size under this program is from 100,000 TSh to TSh 56 million. Using the 1991 exchange rate the lower project limit equals to 1,800 FIM. The second newly established program is' the Women Fund, TSh 55 million. The objective of this fund is to provide medium and long term loans, technical assistance . and advice to enable women to manage their investment projeds. In the case of TIS, the restructuring means to review the portfolio, to identify the areas of new activities and new sources of funding. The govemment has already increased TIS's share capital. One of the development areas of TIS is to establish a regional office network of 5 offices. Shortage of funds is hampering the network establishment. In recent years, the entire Tanzanian banking system has seriously deteriorated and it has become insolvent. Major reasons indude intemal inefficiency and extemal factors such as govemment interference, foreign currency denominated loans and non-performing co-operatives and parastalals. The govemment has responded to the alarming situation with the Financial Sector Reform Program initiated by the Presidential Commission in July 1990 and followed up by a new Sanking Act in April 1991. The reform of the financial sector started with non-performing portfolio assessment and is to be followed by recapitalization. Restructuring of existing institutions is expected to last at least for two years. This means that an entrepreneur has to wait for some time for improvement in banking services. The Kari PaaIdctui  RPEDlTanzania Country Background Paper Enterprise Sector in Changing Environment 13 funds availability may gradually improve due to decreasing borrowing by the govemment. 5 Manufacturing 5.1 Development The real manufacturing value added increased every year from independence until the mid-1970s. This was first the result of some private investment and after 1967 almost exclusively public investment in manufacturing. In the late 1970s there was a rapid expansion of large industrial investments within the parastatal and almost 40 % of the total public investment went to those purposes. However, the investments were not supported by domestic savings, but by a remarkable build-up of extemal assistance to Tanzania in 1973-81. As described above, those investments led to poorly designed and high-cost production, and they did not match with the economy's ability to eam foreign currency for operational purposes. The production stagnated in the latter part of 1970s and declined rapidly until 1986 with accumulating losses. Among the factors contributing to the declining economy in the 1970s was the non-supporting attitude of the govemment towards the private sedor and entrepreneurship. The private sector continued to account for a significant share of economic activity, but 'it did not receive adequate attention or resources in national planning .. ' Private sector development was also curtailed with the Leadership Code, which did not allow civil servants and party leaders to partiCipate in private businesses. By the early 1980s, the administrative allocation of foreign exchange resulted in substantial capacity underutilization and restridive import licensing isolated ,domestic industry from extemal competition. Domestic competition was curbed through price controls and other regulatory policies. Consequently, the share of manufacturing in GOP decreased markedly during 1976-1988, as shown below: Karl PQQ/ckari RPEDlTanzania Country Background Paper Enterprise Sector in Changing Environment 14 Picture 1. Sectoral Division of GOP, %-Shares. 1976 1979 1982 1986 1988 Source: World Bank: Tanzania Economic Report Towards Sustainable Development in the 1990s [5]. When agricultural production increased to more than 60 per cent of GOP by 1988. the share of manufacturing declined from 13 in 1976 to only some 4 per cent in1988. As for comparison. the respective share in Kenya is 11, in Malawi 14 and in Zimbabwe 26 per cent of the GDP[11]. The informal sector was possibly the only booming sector during that time in Tanzania. Its growth was feed by unemployment and' low earnings forcing people to search for additional income. Although not included in official national accounts, it has· been estimated that "the second economy' grew from almost 7 per cent in 1975 to 31 per cent in 1986 of the Tanzanian economy [81. The trade and industry policy reforms, undertaken since the mid-19BOs coupled with increased availability of external resources, have provided a markedly changed environment for both large and small scale industries. The main reforms initiated during the ERP were the exchange rate adjustment. the policy of own- funded imports, ready access to foreign exchange through the creation of Open General License (OGL) facility. tariff and sales tax reforms and finally the provision of export incentives and internal trade liberalization. Enterprises responded to these reforms accordingly and manufacturing value added increased nearly 7 per cent a year during 1987-90 [12]. 5.2 Size of Establishments Up-to-date information on the Tanzanian manufacturing has not been available. Based on a Surevey on Industrial Production, 1988 [22]. the number of manufacturing establishments, output and employment of the units employing more than 10 persons,were: Karl PtIIIk/cari  RPEDlTanzania Country Background Paper Enterprise Sector in Changins Environment 15 Table 5: Manufacturing Establishments in Tanzania, 1988. Establishment Private Public Total Number of Establishments 502 209 711 Value Added, TSh bn 4.2 7.2 11.4 Persons Engaged 36,007 79,156 114,163 The 711 establishments employed about 114,DOO people, of whom 69 per cent were working for public and 31 per cent for private employers. As a comparison and according to the 1988 Census, there were about 700,000 wage and salary eamers in Tanzania. The size of the labor force was estimated to be 9 million. By their size (value added/establishment), public establishments are about 4 times larger and their efficiency (output/person) is slightly lower than in the private sector. According to the same statistiCS, manufacturing industry by employment in Tanzania is heavily biased towards larger enterprises; the share. of establishments employing less than 50 persons in manufacturing is 55 per cent but their employment share only 7 per cent. Annex 4. Information on registrated small scale industrial establishments employing less than 10 persons is in Annex 3. In 1989, some 17,800 such establishments were identified in Tanzania. They are primarily (90 %) very small employing only 1-4 persons and their spatial distribution is more even around the country than that of larger establishments. 5.3 Subsedors The earliest of the larger manufacturing enterprises were established in the agricultural processing sector (cigarette manufacture, meat canning, brewing, pyrethrum processing and cashewnut shelling) or provided agricultural inputs such as fertilizer and implements. Import substitution followed. Textile capacity was expanded in the 1970s and there are six large mills in operation. Typical sub-sectprs of the private sector enterprises include household products, plastiCS, paints, soaps, cosmetics, furniture and wood products, motor vehicle bodies and electrical equipment assembly. They are also covering a number of other product lines in small-scale manufacturing. In general, food and beverages together with textiles (including wearing apparel) are the biggest sub-sectors of Tanzanian manufacturing. Of the above 711 manufacturing establishments, 162 were engaged in food processing and beverage, and 135 in textile industries. By value added the main sub-sectors of manufacturing are the following: Kmi PaokJcari RPEOITanzania Country Background Paper Enterprise Sector in Changing Environment 16 Picture 2: Manufacturing Production by Value Added in 1988, (%). Other Products Paper & Printing 21% 6% Metal 7% Products 20% Chemicals & 11% Fertilizers Textiles & Wearing Source: Survey of Industrial Production. Food products and textiles covered in 1988 about 35 % of value added and 63 % of manufacturing employment. Other significantsub·sectors include chemicals including petroleum products, basic metals and metal 'products, printing and publishing, and tobacco. 5.4 Location Dar es Salaam has the largest concentration of industrial establishments, 266 (37 %) of all the 711 employing more than 10 persons. Those establishments produced primarily food, beverage, textiles, paper products and printing, fabricated metal products and transport equipment. The Dar as Salaam region also contains the largest concentration of private sedor establishments. Picture 3: Location of Industrial Establishments in 1988. 147 Other Regions Morogoro 48 Mwanza 47 52 Kilimanjaro M 2~ Arusha 87 Tanga Dar as Salaam Total number of establishments 711 Source: Bureau of Statistics: Industrial Survey 1988. Following Dar es Salaam, other important industrial centres are Tanga, Arusha, . Karl PQQkIaui  RPEDlTanzania Country Background Paper . Enterprise Sector in Chaniini Environment 17 Kilimanjaro, Mwanza and Morogoro. In all these centres, food, beverages, tobacco and textiles are important products. Tanga's main industries are the fertilizer plant and the steel-rolling mill. Food and beverage production is also concentrated in Mbeya and lringa. Areas where there is little industrial development include Kigoma, Mtwara, Rukwa, Ruvuma, Singida and Dodomo, each with less than 10 establishments. The government policy is aiming at a better spatial balance of industrial development and it has divided the country into six industrial growth zones. Efficient implementation of the policy will remain dependent on the private sector interest to move to less developed areas and the rehabilitation of transport and communication networks to link factories, consumers and suppliers. 5.5 Export Trade The export of manufactured products did not play any particular role in the economic policies until mid-1980s. During the Third Five-Year Development Plan, 1975-1981, when the Basic Industries Strategy was' adopted, export manufacturing was regarded only as a logical extension of the domestic demand. The primary objective was to utilize domestic resources to produce manufactured goods for the domestic market. The surplus over and above the domestic requirements would be sold abroad. As there was no deliberate policy set up for promotion of export manufacture, it never really picked up and fluctuated within 15-23 per cent of the total exports. Combined with the currency overvaluation and restrictions on competing imports the chosen policy sealed Tanzanian manufacturing effeCtively out of the international competition, quality requirements and product development. The value of international trade was only realized in 1984/85, when the export retention scheme and later on export duty drawback system were introduced as part of the new economic policies. The retention scheme was set up to promote non-traditional exports meaning mainly manufactures. After it was reinforced with devaluation, there started to be signs of improved export performance. Among manufactured exports, textile and cement have been dominant, with their combined share fluctuating around 50 per cent in the 1980s. Tanzania also exports petroleum products in excess of domestic consumption of the oil refinery, which uses imported crude oil as its main input. By and large, the share of manufactures in total exports, USD 408 million in 1991, was USD 73 million or 18 percent. 5.6 Technology Recent study results [10} indicate that enterprises themselves do not regard product or production technology as any major operational problem. It may be assumed, however, that the technological capability of Tanzanian manufacturing is generally inadeqate. First, most enterprises in Tanzania supply only the domestic market without foreign competition and therefore the market pressure for Karl Patlldulrl RPEDlTanzania Country Background Paper Enterprise Sector in Changing Environment 18 technological development has been low. Second, direct foreign investment to Tanzania has been nearly non-existing, which also means low technology transfer particularly to the private sector. As regards parastatals, they have had a privileged access to techinical assistance and production equipment through donor funds, and benefitted from modem technology transfer. Even so, it is a well known fact that the utilization level of that capacity has been generally poor. The Tanzanian technology supporting system includes a number of institutions [231, one of them being Tanzania Commission for Science and Technology (COSTECH) established in 1986. The main functions of COSTECH are to promote scientific research and technology development in the country and to act the chief advisor to the government on science and technology policy. Another institution is the Tanzania Bureau of Standards (TBS) for standardization and quality control of commodities. While the efficient operations of those institutions have been effected by shortage of funds, the technology development of Tanzania is also hampered lack of risk financing to support innovative entrepreneurs and suitable materials leading to poor product quality. 5.7 Subsectors of the Study The Tanzania country study will focus on five manufacturing subsectors: Table 5: Subsectors of the Tanzania Study. Sector ISIC Gross No. of No. of Category Output Persons Estab- Million Employed lishments TSh Food and Beverages 311-313 9,800 38,854 162 Textiles and Wearing 321-322 11,086 35,080 135 Leather Products, Shoes 323-324 1,031 4,786 28 Wood Products, 331-332 1,185 5,312 122 Furniture Fabric. Metal Products 381 1,686 3,849 49 Manufacturing 3 51.759 114,163 711 Source: Survey of Industrial Production. The five subsectors comprise 47 per cent of gross output, 70 per cent of establishments and 75 per cent of employment in manufacturing industry. In addition, it can be observed, .!hat • out of the 49 establishments in manufacturing employing more than 500 persons 31 belong to the food and textile sectors, Kari paDlt:/ulri RPEOfTanzania Country Background Paper Enterprise Sector in Changing Environment 19 • that most establishments are small but most employment is in large ones, • that small enterprises dominate wood-, leather- and metal- based production whereas in food and textiles the establisrlment size is more evenly distributed, • that out of the five subsectors, textiles. leather and metal products in particular are concentrated in Dar es Salaam and • that the private sector's highest coverage is in wood and metal products and that of the public sector in food, textiles and leather products. Further statistical information on the subsectors is in Annex 4. 6 Enterprise Initiative 6.1 African Entrepreneurship Due to historical reasons and Tanzania's own policies in the 1970s and early 1980s, the country is still relying to a large extent on entrepreneurs of Asian origin. Some 90 per cent of private industry and trade outside the informal sector are owned and managed by those entrepreneurs. Indigenous entrepreneurship is at a much earlier stage of development and mainly limited to small scale businesses. However, based on the findings of a World Bank sectoral survey on furniture, construction and horticulture, there exists an abundant supply of indigenous (African) entrepreneurs in Tanzania [5]. They appear to posses both initiative and 'commitment to sustained business development. The reason for weak development of African-owned businesses has been more the lack of conducive enterprise environment than a lack of entrepreneurship itself. Along with liberalization, the number of small scale firms established in Dar es Salaam between 1986 and 1990 was about 2,500, which is three times the total number of similar firms established in almost 20 years from 1967 to 1985. A major shortcoming is still the low level of indigenous business skills and management education. 6.2 Informal Sector In the 1970s and until mid-1980s the official policy and the Party (CCMlChama Cha Mapinduzi) in Tanzania were openly against informal sector or micro entrepreneurs. The government tried to curtail their businesses because the operations did not constitute ·'productive work" and they lay outside the authorities' control. Entrepreneurship also violated a party code against earning of additional income. In spite of official harassment, informal and small enterprise sector growth has been rapid. Based on the number of licenses issued to micro entrepreneurs, informal employment in Tanzania exceeded one million at the end of the 1980s. Kari PaolcIt:mi RPEDlTanzania Country Background Paper Enterprise Sector in Chansing Environment 20 The respective figure for 1978 is 570,000. The basic reason to the employment growth is that for many people running an own enterprise has been the only means for survival. During the last 15-20 years the real income in Tanzania has declined drastically while consumer prices have increased. Also inability of the formal sector to provide jobs, necessary products and services has promoted micro businesses. It was estimated that as much as 90 per cent of the urban household income in Dar es Salaam is derived from informal sector activities by family members [16]. A recent survey by International Labor Organization (ILO) in Zanzibar [17] revealed that 53 per cent 'Of all households partiCipate in one way or other in informal sector activities. In general, the informal (parallel) sector's size may be as high as 30 per cent of GOP compared to only 7 per cent in 1975. National accounting does not include the transactions of the informal sector. Since mid-1980s there has been a policy shift in Tanzania towards acceptance and legalization of informal entrepreneurs. Their employment impact, .use of local raw materials and supply of local markets with cheaper goods are now being recognized. Hawking and street trading act was accepted in 1990. Also the Leadership Code was recently revised so that a second job is again possible for party members. The most severe constraint of the informal sedor has been identified to be lack of access to capital. Nearly 80 per cent of the entrepreneurs surveyed by ILO have relied on business profits to finance expansion [8]. 6.3 Cooperatives In 1982 the Tanzanian Parliament approved the Cooperative Act aiming to create self-reliance in rural areas with the help of cooperative societies. In upcoming years, the number of societies increased rapidly with political backup. An unfortunate feature of the program was that societies were ·usually established without proper attention to economic viability. management quaJity and financial control. The outcome by the end of the 1980s was that many societies had run into operational disruptions and massive indebtedness. The Tanzanian cooperative system is presently undergoing a major restructuring along the following lines: • The government direct control and interference will be removed and to be replaced by member-controlled cooperatives. • Economic viability will be the sole objective of a cooperative instead of previous political and economic objectives. • Membership through equity will be open to everybody and the members will select the management of a cooperative. Ko.ri PIIIIIdaJri  RPEDlTanzania Country Background Paper . Enterprise Sector in Changing Environment 21 The overall structure of cooperatives in Tanzania will contain primary and secondary societies, Apex societies and the Federation. The secondary unions will be owned and controlled by primaries through democratic procedures. The main function of the government will remain to create and maintain conducive environment to cooperative movement. Necessary legislative framework (Act) has been accepted and action plans are being formulated to guide the restructuring of the cooperative system. The new cooperative formulation with economic viability criterium will bring a society closer to a normal commercial enterprise. To improve operational efficiency and profitability, societies may also establish joint businesses with private sector if deemed necessary. The organizational and financial restructuring of cooperatives will obviously be a long process requiring outside assistance and business training. 6.4 Women as Entrepreneurs In the 1980s and early 1990s women have become increasingly involved in income-generating activities in Tanzania. Based on a survey [16],65 per cent of those who started small businesses between 1982-87 were women, while in the previous five years women made up only 28 per cent of starting businesses. Women are most actively engaged in petty trading, services like small restaurants, tailoring shops and hair salons, and in small manufacturing (bakeries, textiles) to some e~ent. If the findings of a ILO survey [17] in Zanzibar are applied to mainland Tanzania, women are equally represented if not more than men, in very small business activities. Out of the nearly 90,000 informal sector operators in Zanzibar about 51 per cent were women. Most often they were as sole owners engaged in manufacturing (making mats, fibre products, clothing and food processing), retail sales (street vendors) and in restaurant businesses. Non-availability of credit from government-run lending institutions is an often mentioned problem that women entrepreneurs are facing in Tanzania [18]. The reason is usually the lack of collateral. In Tanzania women do not hold property or land in their name and therefore they cannot usually obtain a credit, either. On the other hand, specific lending programs have been set up to support women who own and manage small enterprises. For example, eROS and NBC have special credit schemes for women. The former has received grant funds for this purpose from bilateral and international agencies (DANIDA, FAa, ILO) and the latter has opened within its normal resources Women Development Project Department. In the field of skills development, the Institute of Finance Management carried out in 1990 a pilot program for women in collaboration of ILO. The program was to train women to apply credits from banks and to improve their record-keeping skills. Karl PaokkDri  RPEDlTanzania Country Background Paper . Enterprise Sector in Changing Environment 22 6.5 Foreign Investment In the first part of the 1980s and until 1987 the flow of foreign direct investments into Tanzania was insignificant. Since then. foreign investors have started to show at least some interest in the country. According to the data by the Bank of Tanzania (BOT). the accumulated foreign investments in Tanzania were in 1990 only USD 9 million and divided as follows: Sector MUSD Agriculture and mining 5.4 Manufacturing 1.4 §ervices 2.2 Total 9.0 About 90 per cent of the investments are in kind and only 10 per cent in cash. There have been a few "rea'" equity investors so far indicating that confidence in Tanzania as a country for profitable business has been low. At present. foreign investors in Tanzania operate under the Foreign Investment Protection Act of 1963. Both foreign and local investments seem to be picking up now. In October 1990 • June 1991 the approved applications (projects) by the Investment Promotion Center (IPC) amounted to TSh 57.6 billion or USD 255 million. Of the 144 approved projects 58 (40 %) are either joint·ventures or fully owned by foreigners. On the average. the project cost is TSh 400 million (USD 1.8 million) and the number of persons employed 137. IPC has received so far as many as 650 applications but many of them do not fulfil es.tablished requirements. An example of ariSing commercial interest in Tanzania is a joint venture agreement by the government with Portman Mining of Australia for the development of the existing Pugu Kaolin Mines outside Dar es Salaam. The new company will be known as East African Kaolin, with Portman owning 80 and the government 20 per cent of the share capital. The company intends to expand capacity to 240,000 tons per year from the current production level of only 3,000 tons. 7 Enterprise Environment 7.1 Changing Perception on Enterprise Sector Only in mid-eighties with major policy reforms towards market economy, the Tanzanian official policy started to be more conducive to entrepreneurship and private business ,development. After six years of adjustment, Tanzania may be entering a period of sustained growth. Entrepreneurs' expectations are that the govemment will continue to have a positive attitude towards private investment Kllrl PQQ/cJcQrl RPEDlTanzania Country Background Paper Enterprise Sector in Changing Environment 23 and will support it by removing remaining constraints to productive activity. According to a survey conducted in 1991 [10]. over 90 % perceived that the attitude of government officials was supportive. Furthermore, almost all producers interviewed expected to expand not only production but capacity. and most had concrete plans to enter into new lines of activity. Therefore, there are strong indications on the private sector recovery and expansion. 7.2 Infrastructure In spite of positive expectations by entrepreneurs. the real constraint is the lack of viable investment opportunities. Insufficient physical infrastructure like worn-out roads and railways together with poor telecommunication system compose a severe barrier to business development. When adding to this equipment shortages and unreliable or non-exisling supply of power and water in many locations, investors require a high return to balance the risk they undertake. Several donor-aided rehabilitation programs to improve the infrastructure are either in preparation or in implementation. The most extensive program is taking place in the roads sector with the financing of the World Bank. Other programs relate to improving the railway system, harbor facilities, telecommunications and power supply. 7.3 Legal and Regulatory Framework - IPC and Enterprise Establishment To speed up the local and foreign investments an Investment Promotion Center was established in 1990. IPC is deSigned to be a one-stop office to facilitate speedy acquisition of necessary permits to establish a business enterprise. Since IPC commenced its operations in October 1990 the administrative procedure to establish an enterprise has clearly been spelled out for the first time. The following steps are required: a) Company Registration The Ministry of Trade and Industry. b) Application to IPC IPC will submit the application to the relevant ministry for registration and comments. A feasibility study or respective information is required on the project. c) Bank of Tanzania approval BOT will make its own evaluation on the application before making a decision to release foreign exchange for Karl PaaIckilrl RPEDlTanzania Country Background Paper Enterprise Sector in Changing Environment 24 importation purposes. d) Certificate of Status To ensure subsequent repatriation of funds and to get exemption from duties and taxes the foreign investor has to obtain a Certificate of Status from the Ministry of Finance. e) Other approvals and procedures These include land leasing. fulfilling safety and health regulations and acquiring labor permits. The IPC system is fairly straight forward but there is no information on how effectively IPC is fulfilling its mission. Anyhow, attention was already paid to efficiency in its statue, that IPC must respond to applications for investment license within 60 days. The main weaknesses that have been found, are the unclear objectives and authority of IPC. The center needs to define its functions and its relationship with other govemment authorities, prepare an investment promotion strategy and plan its organization and staffing [8]. - Taxation Corporate income tax rate in Tanzania is 50 per cent. The taxation system is troubled with arbitrary practices. [101 Tax assessment is often done without any clear guidelines on acceptable deductions. Effective corporate tax rates are thereby increased, and a climate of distrust is created between producers and tax authorities. During the ERP: there were a number of sales tax reforms, but until recently there have been 18 different sales tax rates, ranging from 10 to 300 per cent. The 1990/91 budget reduced the number of sales tax categories to 4; namely 0,20,30 and 40 per cent. In addition to domestic goods, also imports are subject to sales tax according to the local scale. Until the mid-1980s the Tanzanian customs tariff structure was overshadowed by quantitative restrictions and centralized allocation of foreign exchange. Since that, the role of tariff schedule has become more pronounced along with the introduction of own-funded import scheme and with opening of the OGL facility. In 1991 the previous complex tariff structure was simplified by reducing the number of tariff rates to 4 ad valorem rates: 20, 30, 40 and 60 per cent. Customs tariffs are 30 per cent on most intermediate and capital goods and 60 per cent on most consumer goods. Also, a number of inputs were given zero duty rates. - Property Rights and Land Availability Legal protection of private property rights in Tanzania has been weak in the past. In light of the previous nationalizations, the crucial issue is how well the private Karl PQQ/ckQri  RPEDlTanzania Country Background Paper Entew"se Sector in Changing Environment 25 property is legally protected against expropriations in the future. The Foreign Investment Protection Code of 1963 provided only limited guarantees of compensation for nationalization. According to the Constitution of Tanzania, it is prohibited to expropriate private property "without due process of law providing for payment of full and fair compensation". The law does not specify, however, how the compensation is determined and therefore it is likely to be a disincentive rather than an incentive to private entrepreneurship, and particularly to foreign investors. Furthermore, bankruptcy legislation is lacking, and it is unclear whether there is any patent legislation. The new Investment Promotion Code of 1990 explicitly expresses the importance of protection of private property, both foreign and domestic enterprises. However, it remained unclear how much the legal protection of private property has increased; the question of nationalization is not addressed in the code. The new investment code states that land is owned by the government and can only be leased. In addition, village land is not available for commercial activities of outsiders. Private or public investors may lease land in other areas but in practice the access to industrial sites is very limited [10]. Although many municipalities have made considerable effort to provide industrial plots, the supply of serviced sites is by far outstripped by current demand for adequate industrial location. Those industrial plots which are more easily available, often lack electricity, water and other facilities. Such costs constitute an additional entry barrier for new entrepreneurs. A presidential commission is currently working to revise the land policy, after which allocation of title deeds also to private individuals may become possible. - Labor Market and Regulations Labor hiring conditions are specified in The Regulation of Wages and Terms of Employment Order, 1990. According to it the minimum pay (1991) is 2,500 TSh/month (11 USD) and employees are entitled to 28 days' leave annually with full pay. Allowances and other compensations are • rent allowance (300 TSh) if an employee is not occupying employer's accommodation, • transport allowance (500 TSh) if transport is not provided by the employer and • paid sick leave up to 3 months. Other benefits like clothing, meals, medical services and insurance have been left to the employer's discretion. The Order does not give any ruling to laying-off conditions. Tanzanian labor regulations can be desaibed liberal. For example, the meaning Karl PaaklclJri  RPEDlTanzania Country Background Paper ____ Enterprise Sector in Changing Environment 26 of the defined minimum pay rate may be questioned. Given the high inflation, the pay is so low that it is simply insufficient to make up a family's living without any further income and benefits. The basic salary of a skilled worker in 1991 was 15- 20,000 TSh (66-88 USD) per month and that of a foreman's 25,000 TSh. The companies employing more than 10 permanent persons have to accept the presence of labor unions. - Price Control and Trade Policies . The government's price decontrol program, started already 1984, has proceeded well. For example, monopolized grain prices paid by cooperatives to farmers have been replaced by minimum and indicative prices. Actual prices are now dependent on market conditions. Internal trade and import liberalization have increased availability of consumer goods in rural areas. It has also improved motivation for increased efficier:-cy of farmers. By 1991 only fertilizers and petroleum products were regulated. - Foreign Exchange Availability The previous foreign exchange rate policy led to considerable overvaluation of the Shilling. It discouraged exporters and encouraged importers and manufacturers for capital intensive production. The black market rate of the dollar exceeded 7-8 times the official rate. Since 1986 the effective exchange rate (= adjusted for consumer prices)-has considerably decreased. Enterprises may purchase foreign exchange at so called bureau rate, which was 395 TShiUSD in May 1992. For comparison, the official parity rate was 300 and the black market rate 425 TShiUSD. As part of the Economic Recovery Program the government has in recent years introduced new instruments to improve foreign exchange availability. The main instruments are the Open General License (OGL) system established in February 1988, Export Retention Scheme and Own Funded Import Scheme. OGL was established to provide industrialists a direct access to foreign exchange to import raw materials, intermediate and capital goods. Importation of some consumer goods is also possible under the system. An import license has to be applied from BOT. The process takes normally 4-5 days. It was reported,however,that the OGL funding falls short of demand. An importer may still have to wait for foreign exchange as long as 6 months. The system is fully dependent on the funding by the World Bank and bilateral donors. As presented in the Consultative Group Meeting in June 1991, the estimated OGL requirements were put at USD 360 million for 1991/92. The idea of the Export Retention Scheme is to promote non-traditional exports, in particular. When exporters must normally surrender all foreign exchange to the Kari PQQ/ck.ari RPEDlTanzania Country Background Paper Enterprise Sector in Changing Environment 27 central bank, authorized exporters may retain up to 50 per cent of their foreign exchange earnings for the purpose of importing spare parts and other inputs of produdion. The scheme is also applicable to the remittance of dividends and profits. The retention scheme has been successful and the foreign trade statistics show an upward trend of non-traditional exports. Own Funded Import Scheme was established already in 1984. It is used for importing classified goods by those importers who can finance the goods from their own foreign currency resources. Advantages of this system is its flexibility and that an importer does not need to apply for foreign currency. In spite of all the described schemes, there were in 1991 considerable arrears of profits and external debt service payments waiting for repatriation from Tanzania. The available foreign currency resources are not large enough to settle these payments. Therefore the government has established a debt to equity mechanism as part of the new investment policies. External payment arrears will be treated as foreign investment if invested in Tanzania. 7.4 Credit Policies Interest rates on loans as well as the credit allocation itself by financial institutions have been stridly controlled by the government The situation is gradually changing because of the ongoing banking sedor restruduring projed by the World Bank. In any case, the enterprise sedor has suffered from non-availability of long term loans for investment purposes and from poor services of commercial banks. Financiers have often a passive attitude towards clients, because there is no pressure for improvement due to lack of competition. As for the cost of money, the'1991 rates on bank loans ranged from 20 to 31 per cent and on deposits from 16 to 29 per cent per annum. Subsidized interest rates are usually applied to special schemes. An example is a credit program for women by eRDB charging 13 per cent on 3-years credits. The efficient crowding-out of the private sedor with public sedor borrowing for the needs of administration, parastatals, loss-making cooperatives and marketing boards of Tanzania has been a long-lasting phenomenon. The private sector's share of total credits was still 39 per cent in 1970 but declined to about 6 per cent in 1980 and remained on that level or lower until 1987. Since then the share has somewhat increased as economic reform policies have been implemented based on support of external financial resources. 7.5 Investment Policies and Incentives The adoption of the Investment Promotion Code and establishment of the Investment Promotion Center (IPC) in 1990 were Significant reforms of the Tanzanian govemment for enterprise sedor development. With certain exceptions local and foreign investors will have an equal access to investment opportunities. Karl PDDkkari RPEDlTanzania Country Background Paper Enterprise Sector in Chan2in2 Environment 28 The new code classifies investments sectorwise as follows: 1) Sectors that are controlled and nonnally reserved for public or joint investments with the private sector (airlines), 2) Sectors reserved exclusively for investment of the public sector (radio and television). 3) Sectors reserved exclusively for Tanzanian citizens (retail and wholesale trade). Tanzania's investment promotion policy offers non-discriminatory opportunities to both local and foreign investors. Fully owned foreign ventures are possible. Investment projects which are given top priority are those that seek to increase exports, reduce imports, improve managerial or technological capabilities, or provide adequate safeguards against environmental degradation. The code offers generous investment incentives like the following: • All machinery, supplies and materials for production are exempt from import duties and from local sales tax. • A tax holiday is available on the profits earned during the first 5 years after which 50 per cent is charged on taxable profits. • No limitations are set for the amount of capital gains to be . repatriated but a withholding tax of 1()"20 per cent is applied for dividends, royalties and interest payments abroad. In addition and as mentioned above, an exporter is allowed to retain up to 50 per cent of foreign exchange earnings to settle overseas remittances in respect of profits and other obligations. 7.6 Business Training Opportunities When excluding vocational training, major institutions arranging seminars and courses on management and business adlTlinistration are the following [15]: Name of Institute Description ·of Activities Institute of Finance IFM is the leading and self-supporting institution, est. in Management (IFM) 1972, for education of management and business administration. Staff is 210 with 50 professionals and the annual budget TSh 250 million. Training includes 3- year diploma courses, weekend programs on business topics and executive development programs. KariPfUIkktui RPEDlTanzania Country Background Paper Enterprise Sector in Changing Environment 29 University of Dar es The Faculty of Commerce 'of the University has a Salaam capacity of about 200 students per annum and it runs courses in management, marketing, produdion and accounting. College of Business This college provides pradical type of business training Education with a 2-year diploma course in English and a 1 year course in Kiswahili. Institute of 10M is focusing on the public sedor development Development (health administration, local government) but it also Management (10M) provides courses for private enterprises. Business related subjeds leading to a diploma are business administration, accounting and Quantitative methods. National Institute of In 1988 NIP offered 94 courses. each 1-2 weeks in Productivity (NIP) marketing, produdivity, projed management, etc. Currently NIP is in financial difficulties and many of the staff have resigned. In addition, specialized' training opportunities can be found elsewhere. For example, FINNIOA-supported Forest Industries Training Institute in Moshi, Nseketa Bankers Academy in the field of banking and Small Industries Consultancy and Training Assistance '(SICATA). SICATA is administered by SIOO and it runs among others ILO's program "Improve Your Business" sponsored by SIOA As a summary, business training opportunities in Tanzania are still quite heterogenic and insufficient by their coverage. Availability is often limited as demand exceeds training supply. Also, smaller entrepreneurs may not participate in training because of its cost. The operations of some institutions like IFM are based on self-supportance and hence on training fees. 7.7 Institutional Support In the official sedor, the prime institutions for enterprise support are the earlier mentioned SIOO and the Small Scale Industry Unit within the Ministry of Trade and Industry. This unit advises the government on policy issues, disseminates information on business opportunities, and coordinates among 'donors, government and implementing agencies. The enterprise sector in Tanzania has only recently started to organize itself into associations. In many countries, businesses associations form a well fundioning system which is needed to look after the interest of member enterprises and to maintain contacts .with authorities and other relevant parties. An example of the sector oriented organizations is the Tanzania Forestry Industries Association, Karl PQQ/dcarl  RPEDlTanzania Country Background Paper Enterprise Sector in Changing Environment 30 established in 1989, to support its members with various services and to represent the interest of the forest based industrialists to authorities. Tanzania Chamber of Commerce, Agriculture and Industry (TCCAI) was established in 1988. TCCAI has some 3,000 members and it serves primarily the interests of African entrepreneurs. There is another chamber for Asian business community. The main functions of TCCAI are to distribute business and trade information to members, to provide support for problem-solving and to constitute a forum for dialogue with the govemment and to organize trade fairs, seminars and business training. The annual budget of TCCAI is about TSh 5 million and it has a staff of 5 persons. Association of Tanzanian Employers was established already in 1955 but activities were down for a long period. In recent years, membership has picked up again with more private enterprises. The association's activities are in labor relations but it is also running a small enterprise promotion program. Entrepreneurship Development Fund started in 1887 by a group of private businessmen to assist entrepreneurs with financing, business advice and feasibility studies. New associations have been recently established to support women as self-employed or entrepreneurs. An example of those is Businesswomen's Association of Tanzania, formed in 1990. It has particularly paid attention to women's difficulties to raise bank credits. It can be concluded that the enterprise sector and its own institutions are still emerging in Tanzania if compared, for example, with Kenya. Their possibilities to influence government policies affecting individual enterprises are limited. Small scale entrepreneurs are totally without a joint association to express their views. 7.8 Constraints for Enterprise Development According to a World Bank sectoral survey and supported by other sources, a poor access to financing represents ·the most serious constraint to small and medium size enterprises in Tanzania. In 1988 only 6.6 per cent of the total credit was allocated to the private sector compared to 53 per cent in Kenya and 37 per cent in Malawi. Being a non-creditworthy country, Tanzanian enterprises have only a limited access to commercial loans from abroad. Even if they did, currency risk would certainly make foreign borrowing very expensive. Another financial restriction is that only a small portion of development aid has been allocated for the benefit of the private enterprise sector. . Common reasons for not borrowing from banking sector are that • banks usually require fixed property as collateral, • their other requirements (feasibility study, financial statements) cannot be met and • their loan processing is often extremely slow and arbitrary. Ktlri Ptltlkktlri RPEOrranzania Country Background Paper Enterprise Sector in Changing Environment 31 On the other hand, the faulty party may not always be the inefficient bank but a client who has been unable/unwilling to fulfil the bank's data requirements. According to the above survey, other constraints faced by small enterprises are • lack of access to industrial sites, • bureaucratic procedures of authorities (sales and income tax officers, licensing authorities, providers of public utilities, etc.) and • corruption in a form of side payments. The survey also pointed out other obvious obstacles like poor communication, transport, electricity and water supply services. 8 Enterprise Development Outlook The Economic Recovery Program in 1986-1989 affected positively on industrial enterprises, in particular. Their performance has clearly improved in terms of output, capacity utilization and exports when compared to earlier years. As for investment expectations, the enterprise development outlook seems to be also encouraging in spite of pertaining and numerous bottlenecks in the business environment. According to an investment survey in late 1989, local enterprises in the sample were planning to invest significantly, and many to raise the export share of their sales... Information on real investment development since that is not available. The removal of restrictions and constraints has a direct impact on enterprise performance. There are large investment programs going on in Tanzania to remove physical constraints such as poor roads, transport and communication services. In addition, the government is phasing out a number of administrative restrictions and controls. During the next 1-2 years the liberalization of the economy is expected to include the following measures: Credit and financial sector pOlicies. BOT is replacing direct interest control by a more liberalized system including a single maximum lending ·rate and free setting of deposit rates. By restructuring the existing banking system and by allowing foreign banks to enter the market, the objectives are increased competition and improved banking services. Exchange rate policy. The medium term (2-3 years) objective of the government is to achieve and to maintain an equilibrium exchange rate based on indicators like the parallel market rate. . Kari PlJOlcJcari RPEDlTanzania Country Background Paper Enterprise Sector in Changing Environment 32 Import policies. With the expansion of the OGL system, objectives are to shorten the negative list and to eliminate all quantitative restrictions on imports with certain exceptions (health, security). Industrial and trade policies. Some of the reforms affecting industries· include elimination of still existing controls on intemal trade and distribution.· Corporate laws and business regulations will be reviewed as well as licensing and industrial land zoning. In the future, Tanzanian commercial and industrial development is planned to be based more on private initiative and less on the public sectors intervention in productive activities. The role of the govemment in the economy will remain crucial, but its tasks are still required to be redefined. At the same time donors are facing a new situation and they may have to reconsider how to allocate aid between the private and public sectors. If the govemment reform policies continue uninterrupted, the overall economic outlook is prospective. The World Bank scenarios on the GOP growth for 1991- 1995 vary between 4-5 per cent annually. Small enterprises .including informal sector participants are expected to contribute significantly to the economic growth. KIlrl PaaJdcarl  Annex 1 REFERENCES 1. World Bank: Parastatal in Tanzania Towards a Reform Program, Report No. 71Q()..TA, 1988. For official use only. 2. World Bank: Tanzania, An Agenda for Industrial Recovery, Report No. 6357- TA, 1987. For official use only. 3. Henley John S: The Regeneration of Tanzanian Industry, Liberalisation and Privatisation, Issues and Progress. UNIDO 1990. 4. World Bank: World BanklTanzania Relations, 1961-1987, Report No. 8329, January 16, 1990, Vol I-II. . 5. World Bank: Tanzania Economic Report Towards Sustainable Development in the 1990s, Report No. 9352-TA, June 11,1991, Volumes I-II. 6. I BRDIIDA: Country Briefs, June 6, 1992. 7. World Bank: Tanzania, Status Report for Debt Initiative, February 16,1988. 8. World Bank: Tanzania, Private Sector Assessment and Strategy Paper. April . 17. 1992, (Draft). 9. World Bank: Tanzania, Industrial Rehabilitation and Trade Adjustment Program, Report No. P-4944-TA. November 22. 1988. 10. Dutz Mark. Frischtak Claudio: -Industrial Adjustment and Restructuring. Reflections from Tanzania·. World Bank. April 1992 (draft). 11. World Bank: World Development Report 1992. . 12. Economist Intelligence Unit: Tanzania Country Profile 1991-92. 13. MFEAP: Economic Survey 1987. Dar es Salaam, June 1988. 14. Swantz Marja-Liisa 1989: Transfer of Technology as an Intercultural Process. Finnish Anthropological Society. Helsinki. 15. Finnida 1992: Support to Entrepreneurship in Developing Countries, Phase 11: Requirements in Selected Developing Countries. January 1992. 16. Tripp Aili Mari 1990: Deindustrialization and the Growth of Women's Economic Associations and Networks in Urban Tanzania, a draft paper for the UNUIWIDER project -Empowering Women in the Casualized Trades·, May 1990. . . 17. ILO 1991: Informal Sector Survey - Zanzibar. Technical Report. 18. Case. University of Wisconsin-Madison. 19. Maliyamkono T.L & Bagachwa M.S.D. 1990: The Second Economy in Tanzania. Eastem African Studies. 20. Tanzania Investment Bank 1990: Annual Report. July 1989 - June 1990. 21. National Bank of Commerce 1989: Annual Report and Accounts for the Year ended 30th of June 1989. 22. Bureau of Statistics. Planning Commisssion: Survey of Industrial Production, 1988. Dar es Salaam. 23. Chambua S.E. 1990: History and Perfo~anoe ,of Major Technology Generating Intitutions in Tanzania. University of Dar as Salaam, January 1990.  Annex 2 STATISTICAL TABLES on the Economy of Tanzania Year Value Population (million) 1990 24.5 Area {1.000 km2> 1990 945 GOP (MUSO) 1990 2.060 GOP per capita (USO) 1990 110 Indicator 1987 1988 1989 1990 1991 GOP at market prices. BTSh 227.5 331.2 406.5 495.9 630.0 Real GOP growth 5.1 4.2 3.3 3.6 3.8 Consumer price inflation % 30.0 31.2 25.8 19.7 22.3 exPOrts. fob. million USD 353 380 415 408 410 Imports. cit, million USD 1.150 1192 1230 1364 1.410 Current account. million USD -313 -387 -367 -425 -400 External debt. million USD 4885 5.132 5.072 5._ .. Ext. Debt Service Ratio. % 25.1 23.6 21.8 25.8 .. Manufaduring Index. 1985=100 107 115 117 114 .. Exchange Rate TSh/USD 64 99 143 195 219 Sector, 1985- 1973- 1980- 1990 1991 1973 1980 1991 Gross Domestic Produd 5.9 2.3 2.9 4.2' 4.5 Net Indired Taxes .. .. .. .. .. Agriculture 3.1 0.2 4.1 2.9 4.0 Industry 7.0 1.8 O.S 9.2 6.7 (of which Manufadurina) 8.7 2.6 0.1 7.8 4.7 Services 12.9 7.2 1.6 3.0 4.5 Exports 6.3 -4.6 0.3 13.9 10.0 Imports 7.7 -0.2 -0.4 0.0 5.2 Total Expenditures 6.6 2.7 2.2 2.0 4.0 Total ConsumDtion 5.S 2.3 2.4 2.0 3.7 Private ConsumPtion .. 4.9 2.0 2.2 3.8 General Government .. 4.3 6.0 0.0 6.9 Gross Domestic Investment 9.6 4.2 0-1 2.0 3.5 Gross Domestic Savina 1.5 -9.7 0.0 14.5 2.2 i Sector 1965-1989 1980-1990 GOP 3.9 2.8 ~riculture 1.6 4.1 Industry 4.2 0.0 Manufacturing 5.6 -0.4 Services 10.8 1.3 Sector 1965 1990 GOP Million USO 790 2,060 GOP % 100 100 Agriculture 46 59 Industry 14 12 Manufacturing 8 10 Services 40 29 Comoonent 1_ 1973 1180 1989 1990 1991 Gross Domestic Product 100.0 100.0 100.0 100.0 100.0 100.0 Net Indirect Taxes 7.6 12.3 11.1 13.1 14.11 2.6 Agriculture 42.3 34.6 39.5 51.2 .. .. Industry 13.0 16.1 15.1 10.4 .. .. (of which Manufacturing) 7.0 9.6 9.7 7.5 .. .. Services ' 37.1 37.0 34.4 25.2 .. .. Resource Balance 0.9 -6.1 -13.2 -33.1 -39.2 -38.4 Exports 26.1 23.7 13.2 18.9 22.1 22.1 Imports 25.1 29.8 26.3 52.0 61.3 60.5 Total ExPenditures 99.1 106.1 113.2 133.1 139.2 138.4 Total Consumption 83.1 85.1 90.2 108.4 115.5 114.5 Private ConsumDtion 72.6 70.5 77.1 95.4 .. .. General Govemment 10.5 14.6 13.0 13.0 .. .. Gross Domestic Investment 14.6 21.1 23.0 24.7 23.7 23.9 Gross DomestiC Savina 15.5 14.9 9.8 -8.4 -15.5 -14.5 Index 1980 1986 1988 1989 1990 1991 Consumer Prices 15.6 n.o 131.2 167.9 208.7 248.1 GOP Deflator 21.7 75.0 140.6 166.0 184.3 219.1 ii Item 1965- 1973· 1980- 1990 1991 1973 1980 1991 Consumer Prices 9.9 15.1 28.6 24.3 18.8 GOP Deflator 2.9 15.5 23.4 11.0 18.9 Commodity 1980 1983 1986 1989 1990 Aluminum 148.5 112.2 48.1 55.1 93.9 Beer 165.5 170.5 168.9 139.2 116.6 Cement 161.5 140.3 270.1 332.8 375.1 Cigarettes 182.2 147.8 105.7 109.5 144.0 Iron Sheets 99.1 116.1 46.S 121.7 90.5 Petroleum 90.2 73.4 73.5 90.2 66.2 Shoes 196.8 92.8 66.7 26.0 15.0 Textiles 2.1 91.0 69.0 70.5 99.9 Volume Index 1980 1987 1988 1989 1990 1991 Coffee 103.1 100.0 91.8 108.2 116.2 116.4 Tea 111.1 100.0 93.3 98.6 124.9 142.5 Cotton 70.4 100.0 115.5 117.2 90.6 121.4 Tobacco 42.7 100.0 119.2 112.3 97.1 112.4 Value at Current Prices (millions US$) Coffee 144 109 108 100 89 86 Tea 22 18 16 19 24 25 Cotton 49 44 69 83 70 89 Tobacco 13 12 13 12 10 12 Manufactures 85 63 69 66 67 73 Residual 270 101 98 126 132 123 Total ~rts FOB 583 347 373 406 392 408 iii Value at Current Prices 1980 1987 1988 1989 1990 1991 (million USD) Food 149 76 97 270 146 157 Fuel and enemy 290 170 155 157 180 156 Other Consumer goods 102 116 234 205 189 204 Other intermed goods 172 177 273 331 344 378 capital goods 506 811 50S 3SS 503 538 Totallmoorts CIF 1.219 1,150 1,267 1.351 1,383 1,432 Totallmoorts CIF Volume Index 105.2 100.0 105.1 99.1 98.S 104.1 Index 1980 1987 1988 1989 1990 1991 Merch. Exports 111.9 1oo.D 106.0 103.9 89.4 S3.3 Merch. Imoorts 101.4 100.0 102.0 115.6 116.9 116.5 Merch. Terms of Trade 110.3 100.0 103.0 89.8 76.4 71.5 Creditor 1980 1987 1988 1989 1990 1991 Multilateral Creditors 518 1.347 1.408 1.481 1742 1.951 Bilateral Creditors 1.112 2.653 2.825 2,907 3,383 2.801 Private Creditors 257 292 237 223 190 182 Private NOrHIuaranteed 84 15 13 13 12 10 Total Long Term Debt 1.970 4,307 4484 4.824 5,306 4.944 1980 1987 1888 1989 1990 1991 Debt/Exports 280.85 880.0 910.1 . 880.3 994.4 873.5 Debt/GOP 3S.34 124.8 135.9 164.0 221.5 193.7 Debt ServicelExports 12.36 16.90 17.20 17.80 18.50 15.90 Sources: IBRenDA Country Briefs (As of June 1992) Tanzania: Draft F>rivate Sector Assessment and Strategy Paper, Wand Bank, June, 1992. EIU: Tanzania, Mozambique, Country Report No. 3/1992. iv  Annex 3. Number of Small Scale Industrial Establishments of Tanzania, 1989. Region/Employees ·~-4 '-% .,5.-;9 .. ..... % Total %1 Dar es Salaam 3,035 18.9 359 20.5 3,394 19.0 Arusha 800 5.0 39 2.2 839 4.7 Tabora 72B 4.5 59 3.4 787 4.41 I Lindi 298 1.9 52 3.0 350 2.0 !Coast 225 1.4 22 1.3 247 1.4 ! : Tanga 990 6.2 100 5.7 1,090 6.1 I ~ Kilimanjaro 1.2B5 B.O 112 6.4 1,397 . 7.B 1 ; Mwanza 949 5.9 104 5.9 1.053 5.9 iRuvuma I 520 3.2 87 5.0 607 3.4 jKagera , 479 3.0 61 3.5 540 3.0 7.1 399 iRukwa 274 1.7 125 2.21 . !Mtwara 357 2.2 36 2.1 393 2.2 i Mara 636 4.0 48 2.7 684 3.B j I ; Kigoma 3B3 2.4 14 O.B 397 2.21 ;Shinyanga 601 3.7 51 2.9 652 3.71 ;Singida 34B 2.2 60 3.4 40B 2.3 i : Iringa 642 4.0 74 4.2 716' 4.0\ ; Dodoma 1,114 6.9 210 12.0 1,324 7.41 : Morogoro 759 4.7 57 3.3 816 4.6 I : Mbe:ta 1.673 ,10.4 B3 4.7 1.756 9.B II iTOTAL 16.096 100.0 '.753 100.0 17,849 100.0 i Source: Central Statistical Office  Annex 4. STATISTICS ON SELEcrED MANUFAcrURING INDUSTRY OF TANZANIA - 1988 Source: Survey oflndustrial Production Gross Output in manufacturing by Size, 1988 - Million TSh Sector/Size 10-19 20-49 50-99 100-499 500+ Total Food and Beverage 205 382 1.196 3.977 3.840 9.600 -%ofTotal 2 4 12 41 40 100 Textiles and Wearing 108 194 253 5.998 4.533 11.086 -%ofTotal 1 2 2 54 41 100 Leather Prod., Shoes 24 25 35 470 477 1.031 I 1-% of Total 2 2 3 46 46 100, j IWood Prod., Furniture 147 246 251 541 0 1.185 t·%ofTotal 12 21 21 46 0 100 I I Fabric. Metal Products 42 159 537 651 277 1.666 • % of Total 3 10 32 39 17 100 Total Manufacturing 867 1.941 4.446 23.545 20.960 51.75~ -%ofTotal 2 4 9 45 40 10 Sub-sectorsIManufacturing., % 61 52 51 49 44 47 Penons Engaged in Manufacturing by Size, 1988 Sector/Size 10-19 20-49 50-99 100-499 500+ Total Food and Beverage 574 1.248 2.453 6.554 26.025 36.854 Textiles and Wearing 550 356 1.494 10.175 22.485 35.060 Leather Prod., Shoes 122 201 324 1.544 2.595 4.786 Wood Prod., Furniture 680 1.605 669 2.358 0 5.312 Fabrie. Metal Products 183 419 729 1.891 627 3.849 Total Manufacturine 3.031 5.290 8.539 31.792 65.511 114.163 . Sub-sectorslManufacturing, % 70 72 66 71 79 75 Number of Establishments in Manufacturing by Size, 1988 Sector/Size 10-19 20-49 50-99 100-499 5OP+ Total Food and Beverage 45 36 33 32 16 162 Textiles and Wearing 41 13 19 47 15 135 Leather Prod., Shoes 8 8 4 7 1 28 Wood Prod., Furniture 50 50 10 12 0 122 Jiabric. Metal Products 15 15 10 8 1 49 Tota) Manufacturine 225 168 118 151 49 711 Sub-sectorsIManufacturing, % 71 73 64' 70 67 70  page 2 Sector Contribution in Manufacturing by Ownership, 1988 I Number of Persons Engaged Sector Public % Private % Total Food and Beverage 27.871 76 8.983 24 36.854 100 Textiles and Wearing 26.152 75 8.908 25 35.060 100 Leather Prod.• Shoes 4.133 86 653 14 4.786 100 Wood Prod.• Furniture 2.517 47 2.795 53 5.312 100 Fabric. Meta) Products 1.853 48 1. 996 52 3.849 100, ITotal Manufacturing 79.156 69 35.007 31 114.163 n Number of Establishments Sector Public % Private ./8 Total OJ. Food and Beverage 67 41 95 59 162 100 Textiles and Wearing S3 39 82 61 135 100 Leather Prod" Shoes 10 36 18 64 28 100 Wood Prod.• Furniture 24 20 98 80 122 100 Fabric. Metal Products 9 18 40 82 49 100 i Total Manufacturin~ 209 29 502 71 711 100 m Value Added - Million TSh I I Sector Public % Private % Total % Food and Beverage 1.419 65 759 35 2.178 100 Textiles and Wearing 1.184 64 668 36 1.852 100 Leather Prod.• Shoes 187 92 16 8 203 100 Wood Prod., Furniture 189 S3 171 48 360 100 Fabric. Metal Products 189 36 340 64 529 100 Total Manufacturin~ 7.175 63 4.183 37 11.358 100 ('I) (I) CD CO Q. Spatial Distribution of Manufacturing, 1988• .~~~."'''== -. Dar es KJliman- Moro- Other %' ofl Se£~~~_. ____.___ . __.__. Salaam Tanga Amaha jaro pro Mwanza Mbey. lringa Regions Total Manul·1 Food and Beverage • N~: ~JP.crs .. !;~ ..1.079 ___ 2.206.. u 1.721 1.600 13.139 740 760 3.090 6.519 36.854 32,3. • No. of Establishments 38 16 17 13 IS 10 10 10 33 162 22,8 • Value Added, MTSh --415-- 45 187 272 396 49 185 261 368 2.178 19,2 • Vai~c Added.~-·------' 19 2 9 12 18 2 8 12 17 100 Textiles and Wearing • !'JQ. Qfpers. J;ngaged 13.631 2.007 4.009 1.582 3.511 5.612 710 239 3.759 35.060 307 • No. of Establisbments 53 18 5 7 13 16 5 I 17 135 190 • y,ih;C-Added, MTSh 495 267 139 42 727 1.852 163 ;. No:·Of·Pcrs. E'ng., % - - - 3 9 - 6 II 5 10 16 2 1 11 100 Leather Prod., Shoes •J'I!!.:..~ per~ Engaged 3.009 87 154 486 699 321 10 20 0 4.786 4,2 • • No. of ESlablishments 8 2 4 5 ] 4 1 I 0 28· 3,9 -*yalue Added, MTSh III 3 8 12 56 12 0 1 0 203 1.8 • Value Added, % 55 4 6 28 6 0 0 0 100 Wood Prod., Furniture • ~~~~f.pers. Engaged 1.294 1.096 209 676 400 84 193 345 1.015 5.312 4:71 ... No. of Establishmenls 33 18 6 12 11 5 8 I 28 122 172 •vallie Addcd,-MTSb-- 76 62 26 42 10 6 6 82 49 359 32 • ViiiiieAdded,-% - - 21---17 7 12 3 2 2 23 14 100 • Fabric. Metal Products ·J~~~:!lf P~rs. Engaged _ 2.925 to 284 39 0 196 271 34 90 3.849 3.4 • !'J~:~ Es!..ablishm~nls 24 I 9 3 0 4 2 2 4 49 6.9 ·Y!!lue ~dded, MTSh 435 _ _ _ I 49 8 0 24 6 I 5 529 4.7· • Value Added. % 82 0 9 2 0 S 1 0 I 100 Total Manufacturing ~ NQ: oCpers. Engaged 41.481 9.192 8.795 6.029 20.738 7.288 2.774 4.659 13.207 114.163 100,0 • No. of ESlablishments 266 87 64 52 48 47 31 21 95 711 100.0 ·-Y~iue_Added. MTSh • c¥alue A~ % 4.905 43 1.655 IS 717 6 662 6 884 8 833 7 182 2 783 7 7 3 6 . 11.]57 6 100 100,0 1