BizCLIR

The instant diagnostic is organized so that 12 components of a healthy and prosperous economy are considered discretely and related to each other where appropriate. This format represents much of the Western construct about economics, civil society and the individual’s relationship to the state and other institutions. However, certain issues and dynamics are so prevalent across this analytical framework that they warrant special mention. These can be thought of as crosscutting themes or topical “layers” falling over all areas of review. In this diagnostic, the layers include:

1. The need for all reforms to be conceived and applied with Tanzania’s status as an agriculture-based economy in mind
The importance of agriculture in Tanzania’s economy cannot be understated. Agriculture is by far the dominant sector for employment and will necessarily continue to be Tanzania’s major source of new jobs in the near and medium term. But subsistence farming continues to dominate the rural sector and is the primary source of livelihood for approximately 45% of the population. Both the government and donors must devise ways to make agriculture jobs ones that move far beyond subsistence and allow for growth from increased productivity, trade, and entrepreneurship.

Indeed, there is an emerging consensus that far more needs to be done by governments and donors to recognize the fundamental place of agriculture not only in Tanzania, but most African economies. In particular, laws and institutions relating not only to agricultural productivity, but also to the ability to seize opportunities in agriculture and access markets, need strengthening. Among other measures, agriculture-dependant African economies need improved seeds, water, infrastructure, credit, and extension services.

Throughout nearly all of this report’s chapters, the importance of agriculture and the special needs of rural communities in Tanzania are recurring themes. In addition to a chapter devoted to agriculture-specific issues – including access to seeds, fertilizer, pesticides, and know-how – the special interests of rural and agricultural communities are emphasized in discussions of Starting a Business (Cooperatives), Employing Workers, Registering Property, Getting Credit, Trading Across Borders, Infrastructure, and others.

2. The persistence of informality in the commercial environment
According to one study, “approximately 98% of all businesses [in Tanzania] operate extra-legally because of the insurmountable regulatory and administrative obstacles they would have to overcome to register, incorporate and conduct their business activities legally.” This number is somewhat speculative – in fact, this diagnostic identified insufficient understanding of the makeup of the informal sector.

Tanzanian enterprises that operate in the informal sector forego: (a) access to assistance programs normally only available to formal sector enterprises; (b) access to the mainstream credit system; (c) easier enforcement of contracts because the name, address, and other particulars of businesses are known; and (d) the ability to become part of the property-owner sector, which enables them to obtain collateral for loans. In addition, the state cannot collect taxes from informal enterprises and is unable to collect information that can be used as a basis for economic and other planning.

Thus, as Tanzania strengthens its legal regime in support of long-term economic growth, there is a particular need to increase the rate at which enterprises join the formal sector. As discussed in this report’s chapters on Starting a Business and Dealing with Licenses, Tanzania has devoted considerable effort to streamlining certain registration and licensing requirements. But more action is needed. Additional steps include improving outreach and information provided to new and small entrepreneurs; reducing registration fees and costs; reducing and simplifying taxes; and generally abolishing all unnecessary or duplicative regulations, particularly at the local levels. Until the rate of formalization increases, Tanzania’s “gray economy” will hold in check the increases in productivity that the country desperately needs.

3. The importance of strengthening the capacity of local and regional institutions
Much of Tanzania’s economic progress in recent years is attributable to the country’s abandonment of socialism and reform of its heavy reliance on large national institutions to run the economy’s affairs. Decentralization is a key part of this effort. Over the past generation, responsibility for administrative matters has devolved more and more to local and regional institutions.

But resources and knowledge have not kept up with this transformation. Throughout this report, there are examples of how local institutions are not functioning properly or are not being properly served. As a preliminary matter, access to Tanzania’s quickly evolving regime of laws and regulations is poor. Possible sources of information – law libraries, book stores, electronic resources – do not yet meet the significant need for access to the new regimes, particularly outside of urban centers. Institutions that are charged with implementing the law are at a threshold disadvantage – they may not even know what the applicable authority is. In particular, local institutions that have little or not internet access suffer from a severe lack of access to information.

In addition, a great deal of authority is vested with village councils, but these councils often do not have the internal capacity or the resources they need to properly execute their functions. From adequate transportation to office supplies, village councils are lacking. They often are not in the position or habit of documenting their work, thus leading to a lack of transparency and guidance for the future. They are also vulnerable to arbitrary and non-transparent interference in their functions by nationally based institutions.

Moreover, with respect to agricultural development, knowledge that would greatly benefit small farmers does not reach them through the nation’s extension services. There are large national associations representing private sector interests, but they function far less effectively at the local level. Relatively strong universities and research institutions located in the nation’s capital are unable to serve the interests of rural constituencies, and similar institutions at the local level are weak and lack resources.

There are numerous additional examples throughout this report of how key institutions at the local level are unable to meet their core missions. Future assistance initiatives must move substantially into rural environments to better understand and respond to local needs.

4. The demand for more accessible and more relevant information in all sectors
In addition to the problem of access to laws and regulations, there is a dearth of reliable information sources in Tanzania. As discussed in this report’s chapter on Getting Credit, access to credit information concerning potential borrowers is negligible, thus vastly increasing the risk of granting and the cost of receiving credit. Similarly, as discussed in the Enforcing Contracts chapter, court data is poorly maintained, another factor that heightens business risk. Investors also find a lack of company information when seeking to do business in Tanzania. Finally, as detailed in the Trading Across Borders chapter, collection of critical trade data also is weak, which makes it hard to document demand and promote the country as a destination for trade.

The absence of reliable information pertaining to both the private and public sectors undermines the entire economy and diminishes productivity and the potential for growth. Development and distribution of sound information sources should be an ongoing priority.

5. The growing significance of regionalism
As evidenced by its membership in the EAC, including its participation in a regional customs union, Tanzania recognizes that its growth policies for the future implicate greater reliance on its neighbors. The country borders five landlocked countries and offers the port of choice for eastern Congo. Tanzania’s neighbors depend on its roads, rails, ports, and other infrastructure. Tanzania’s place in Eastern Africa also presents enormous opportunities for trade in services – including professional services, franchised businesses, and trade facilitation services. Although harmonization of country practices and regionalism generally is beyond the scope of this report, they are important themes that should be taken into account as Tanzania plans for its future growth.