Employing Workers
Tanzania’s overarching goal of turning the private sector into an engine of economic growth and poverty reduction depends greatly on its ability to develop a functioning and efficient labor market. That, in turn, means transforming the laws and institutions that regulate and support the labor market from decades in service to a failed centralized socialist economic model to a reformed regulatory system in service to an expanding free-market economy.
A promising national effort, with substantial international support, has begun. Legal and institutional labor reforms are underway with the aim, on one hand, of effectively protecting workers while, on the other, facilitating the greater labor force flexibility and skill levels needed to enable employers to compete successfully in the global economy. As one signal of that national intent, Tanzania’s most recent labor and employment law reform – the Employment and Labour Relations Act (ELRA) – states that its first objective is “to promote economic development through economic efficiency, productivity and social justice.”
By enacting this law along with its institutional reform counterpart, the Labour Institutions Act (LIA), the government has initiated significant labor market reforms designed to complement the economic liberalization that it began more than a decade earlier. And more is on the labor and employment law reform agenda: new laws on occupational health and safety, workers’ compensation, social security, labor market policy and employment promotion, skills development, labor market information and statistics, and employment services are in the planning stage. The result is meant to be a rational labor and employment regulatory system that will advance economic development, bring more business out of the unregulated and unprotected informal sector, and promote respectable work.
Labor market policy has thus become an important element in Tanzania’s economic liberalization agenda that has concentrated on broad-based structural reforms to enhance the business environment and the government’s financial management. Labor reforms are increasingly recognized as crucial to reaching the higher level of economic growth needed for sustained development. An efficient labor market is surely a crucial ingredient of that development strategy. Promoting job creation policies through widespread legal and regulatory change, more effective public and private institutions for skill training, and better protecting the wellbeing of workers will enhance economic development and spread the benefits of growth to broader segments of the labor force.
Over the past decade Tanzania has achieved strong overall economic performance, which has been grounded on a sound macroeconomic policy framework, progress on the structural reform agenda, and substantial donor assistance that now constitutes nearly one-half of the government budget. Since 2000, real GDP growth has averaged 6.3 percent per year, one of the highest in Sub-Sahara Africa, while inflation has held at single-digit levels. The mining, construction, retail/trade and manufacturing sectors have led this growth, which has enabled government spending to expand at a swift pace and an increase support for new initiatives, including important poverty reduction efforts. Critical labor force goals of that strategy for 2010 are to create one million new jobs and to reduce the unemployment rate to 6.9 percent from 12.9 percent, as last measured in the 2000/2001 national survey.
One notable example of the poverty reduction strategy’s success, with important implications for the future labor market, has been a renewed national emphasis on education. By building more schools, reducing school fees, and initiating programs to ameliorate the worst forms of child labor, primary school enrollment has increased from less than 60 percent in 2000 to more than 95 percent in 2006. Over the same period there has been a lower dropout rates, and the pass rate for primary school students has more than doubled. The number of secondary schools also doubled from 2002 to 2006.
There are other noteworthy gains presaging labor market strengthening as well. Progress in structural diversification of the economy is reflected in the manufacturing sector, which sustained annual growth averaging seven percent between 2001 and 2005. During the same period, mining and quarrying output grew by more than 14 percent per year, and construction by more than 11 percent. Foreign investment doubled, to US$325 million, from 1995 to 2005. The African Development Bank projects real GDP growth to pick up strongly to 6.8 percent in 2007 and to seven percent in 2008. If sustained, that would enable Tanzania to meet its goal of halving poverty by 2015.
Major challenges remain, however, including high unemployment and pervasive poverty, per capita GDP that is still too low, serious capacity constraints in the public sector, weak infrastructure, and insufficient human capital. Only five percent of adults have a secondary education, and meager vocational skills impede Tanzania’s ability to compete in global markets.
Although labor market policy alone will not solve these problems, accelerating progress on Tanzania’s fundamental development issues across the board will have an important positive impact on the labor market. For example, improved prevention and treatment of malaria and HIV/AIDS will bring about a healthier and more productive workforce. In addition, micro-credit reforms, in both the agriculture sector and small enterprises in the informal economy, can contribute to expanding those sectors, which will be necessary in order to absorb Tanzania’s labor force growth, which is estimated to be close to one million workers per year.
Much of that is addressed elsewhere in this report. The focus of this section is on Tanzania’s labor market policies, laws and regulations, the institutions that administer and enforce them, the stakeholders that depend on them, and elements of civil society that advocate for legal and institutional reforms. Since 1995, national economic policy has centered on enabling private sector-led development. Therefore, this section primarily concerns how laws and institutions affect private sector employers and workers (including the remaining state-owned enterprises slated for privatization), on which the country depends for sustained economic growth and poverty alleviation.
Because the emphasis is on the fast-changing labor and employment regulatory scheme, much of the focus is further narrowed to the private formal sector of the economy. As in much of the developing world, the labor and employment laws and regulations, as a matter of practical application, essentially have no reach beyond the licensed, taxpaying private formal sector.
The majority of the workforce is employed elsewhere – mainly agriculture, the growing informal economy, and public agencies – so it should be noted that the actual effective reach of the labor market regulations and institutions discussed here extends to a small fraction of the economy. As one illustration, the formal sector absorbs only 40,000 among the 700,000 who graduate annually from primary, secondary, and tertiary schools. This point highlights how essential it is for Tanzania to shape and administer its labor and other regulatory reforms with the goal of minimizing barriers that keep micro-enterprises, and their workers, locked into the informal economy. It is those workers who need social protections at least as much as the workers in the formal sector.
