ENTREPRENEURSHIP DEVELOPMENT IN TANZANIA by Stewart Mbegu

ENTREPRENEURSHIP DEVELOPMENT IN TANZANIA

      The absence of start-up capital

      Costly funding (because of inexperience, high interest rates, shareholders demands)

      High risk (where environmental threats/challenges far outweigh opportunities - high interests rates undermine cash flow and profitability)

      Legal restrictions

      Lack of training

      Poor community image (e.g. dishonesty, previous failures, etc)

      Insufficient local skills (if these have to be imported or trained at great expense, it may undermine viability

      Business networks (become competitive with stronger networks)

      Inertia (Many individuals simply never get around to performing the myriad activities essential to starting a business. Laziness, doubt, and fear may fuel paralysis)

Problems of MSE Sector in Tanzania

Low level or lack of education and training

       Only 5% of respondents interviewed in the 1991 Informal Sector Survey (NISS 1991) had post-primary education.

       Over half were primary school leavers while 22% had not attended any school, while another 22% had attended some primary school.

       They are confronted with double barriers related to difficulties in accessing information and the inability to articulate their needs as well as failure to deal with bureaucratic challenges involving tax regimes, licensing procedures and regulations which demand literacy skills (Mlingi 2000).

Limited Access to finance

       MSE operators have neither the collateral nor sophistication abilities (knowledge, skills) to prepare elaborate business plans and loan proposals required to access bank loans

       Most rely on savings or informal sources

       A number of micro-credit programmes / institutions (MFIs) have been set up.   However, MFIs are few in number and coverage compared to the need for their services. The few who access credit are able to acquire only a fraction of what they need

       MFIs are concentrated in geographical areas with relatively better-developed infrastructure and higher incomes (Arusha, Dar es Salaam, Mwanza and Mbeya). Other regions, such as Rukwa, Mtwara and Singida have been relatively neglected because of higher costs of operating therein.

       In terms of support, there is a bias towards trading activities; over 70% of loans by all MFIs go to the trade sector. 

       MFIs typically provide short-term financing. The repayment period is short and usually there is no grace period.  This is one reason Micro-Finance Services (MFS) are concentrated in the trading area

       Medium and long-term financing is not available from MFIs.

       MFIs typically charge very high interest rates, ranging between 30 and 40% annually.  These high rates are attributable to high overheads and transaction costs. These rates of interest are a disincentive to long-term borrowing.

       Many operators rely on informal moneylenders. However these have extremely high lending rates (as high as 130% per year). These high interest rates are camouflaged by short repayment periods

Lack of Premises

       According to the National Informal Sector Survey (NISS 1991), 86% of MSE operates in premises or locations that are not legally recognized. As much as 60% of MSE operators operate along the streets and in open spaces.

       Lack of premises is to a large extent cause the lack of credit; it is not easy for lenders to give loan to someone without a permanent structure

       The problem of lack of premises has lead to repeated confrontation between the police and MSE operators, some of which has lead to unfortunate incidents. This problem is compounded by inconsistent government position on the use of open spaces. On occasions, government officials issue contradicting statements as to which areas can be used by IS operators

Lack of reliable markets

       Most operators rely on immediate neighbourhoods, which have very limited purchasing power.

       Competition in the MSE sector is worsening because of continuous entry of school leavers, the retrenched, retirees, etc. The retrenched are retirees sometimes displace the less educated because of their higher education, access to information and networks

Poor infrastructure

       The business infrastructure in Tanzania is deficient especially in terms of:

       Telecommunications, power, water, transport and business consulting services.

       The infrastructure in the MSE in urban areas almost non-existence.

       A hostile regulatory framework

       The regulatory environment in Tanzania is extremely cumbersome:

       For example, there are 27 different taxes and     levies that apply to various businesses and one has to know which apply to their particular    enterprise (Mlingi 2000)

       To the MSE operators, the process is too long and so technical that it hinders all efforts to              adhere to tax regimes, licenses or other fees   and commitments required for business. As a      result of the hostile regulatory framework, many IS operators opt to remain informal and small

Development Prospects of the MSE Sector

       Rate of growth on number of enterprises

       The sector shows the highest employment growth, estimated at 10% per annum.  The government expects the sector to absorb 62.5% of all new job seekers or 440,000 people every year.  The poor, the retrenched, retirees, the lowly paid and majority of school and college graduates will inevitably continue to seek employment in the sector.

       More people join crowded industries / sector

       For example the 1984 survey found a total of 6,520 enterprises in Dar es Salaam with an average workforce of 5.8 workers. The 1991 survey recorded 211,000 in the city with an average workforce of 1.5 workers. The percentage of enterprises with permanent  structures declined from 71.2% in 1984 to 30% in 1991, meaning that degree of informality also increased significantly.

       Shifting away from rural agriculture, into urban informal sector as an occupational choice (rural dwellers’ livelihoods are increasingly dependent on cash incomes)

       Notable shift has occurred in gender composition

       In 1991, women accounted for 35% while men   accounted for 65% of the labour force.  A survey                by ESRF (1996) found 55% of total enterprises          sampled to be owned by women.

       The average quality of products and services offered has been improving as owners and customers become increasingly sophisticated with regard to quality and hygiene conscious.

       Composition of MSE owners with regard to educational level:

       The 1991 study (URT) did not record any university graduate in the MSE sector.

       In the Dar es Salaam Informal Sector Survey of 1996, there were 1,527 graduates among the business operators

                (Olomi, 2001)