Prospects for a Tanzanian transformation

Researchers, policy makers, and representatives of international institutions recently gathered in Dar es Salaam to discuss prospects for a transformation of Tanzania’s economy. The country has experienced significant growth over the past two decades, but this growth has not been inclusive, and transformation is necessary in order to ensure that the fruits of growth are shared going forward. The event, opened by Director of UNU-WIDER Finn Tarp, Executive Director of REPOA Donald Mmari, and the Danish Ambassador to Tanzania H.E. Einar Hebogård Jensen, consisted of the presentation of results from four key pieces of joint UNU-WIDER - REPOA research on socio-economic transformation in Tanzania. Experts of diverse backgrounds were in attendance and the event presented an opportunity to share research results and shape future discussions on economic policy in Tanzania.

The role and effectiveness of Special Economic Zones in Tanzania

Carol Newman presented the results of a survey of firms based in Special Economic Zones (SEZs) in Tanzania. Like many other Sub-Saharan African countries, Tanzania uses SEZs as a tool for stimulating the industrialization process. Firms in SEZs are usually offered a wide range of incentives including tax breaks, subsidies and superior infrastructure. However, there is evidence that some firms feel they can perform better outside SEZs, and that there are constraints preventing SEZs from operating as effectively as they could.

Newman’s presentation highlighted five key constraints that, if overcome, could make SEZs in Tanzania more effective.

  1. Difficulties in hiring waged labour
  2. Difficulties in accessing power and fuel
  3. Difficulties in getting licenses and permissions from the authorities
  4. Lack of clarity in government policy in relation to SEZs
  5. Bureaucracy – very high number of compliance visits
Extractives in Tanzania – an opportunity that must be managed

Alan Roe highlighted the enormous potential benefits natural gas extraction could bring to Tanzania both in terms of improved power supply and increased government revenues. However, Roe stressed, in order to ensure that the growth spurred by new extractive projects is inclusive, the government needs policies/strategies so that other sectors of the economy are not left behind. Skills and knowledge must be emphasized and the government should focus on building human capacity in all sectors.

Financial development in Tanzania

Blandina Kilama’s presentation at the event highlighted the significant development that has taken in Tanzania’s financial sector over the past two decades. She argued that financial development alone does not necessarily result in an allocation of capital that is conducive to high real investment, accumulation and employment generation. A successful developmental financial system, Kilama suggested, needs to be closely related to industry and industrial policy. In particular, medium- and smaller-sized banks that serve domestic enterprises need more long-term funding that would allow for long-term lending for innovation and industrial development.

Tanzania’s informal sector

97 per cent of all businesses in Tanzania are informal, and they employ 2.4 million people, accounting for 22 per cent of total employment. Given the important role informal firms play in providing jobs in the Tanzanian economy, UNU-WIDER’s Tony Addison suggested there is an urgent need to raise productivity in the sector to raise workers’ earnings. In order to do this the informal sector needs to increase linkages to the formal economy, participation in supply chains, and take advantage of export markets. There is also a need for the informal sector to move away from only production towards also providing services; a key challenge in doing so is shifting to higher value-added products and services. If productivity is successfully increased, perhaps eventually, informal enterprises will formalize and contribute to tax revenues.

For more information on this event visit the event page here, or take a closer look at the research on the Jobs, poverty and structural change in Africa project page.

The views expressed in this piece are those of the author(s), and do not necessarily reflect the views of the Institute or the United Nations University, nor the programme/project donors.

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