The private sector is an important ally
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As such, the private sector must be seen and respected as an important partner in development. Politicians and government leaders should refrain from issuing blanket statements ridiculing or condemning the whole industry when reprimanding a particular firm that has violated rules.
The private sector is an important ally in the economic development of any economy. A study by the Tanzania National Bureau of Statistics shows that out of 2.14 million people employed in the formal sector in 2014, 67 per cent were in the private sector. As such, the private sector must be seen and respected as an important partner in development. Politicians and government leaders should refrain from issuing blanket statements ridiculing or condemning the whole industry when reprimanding a particular firm that has violated rules.
Because businesses are driven by self-interest and, sometimes, greed, it can be expected that a few of them will try to avoid paying taxes and engage in unlawful acts. When found guilty of such violations, the culprit must be punished in accordance with the law. However, condemning and threatening the whole sector can have a chilling effect even on those who abide by the rules. Sometimes business firms are described with disdain almost reminiscent of the language used during the ujamaa period when a private entrepreneur was unconditionally regarded an exploiter. A capitalist (bepari in Swahili) was synonymous with an exploiter, a tick that sucked people’s blood, or a thief.
Recent renewed calls to promote the industrial sector will bear fruit only if there is a concerted and sustained effort to create an environment conducive for the private sector to operate in the production of goods and services. First and foremost, investors want a clear and predictable legal and procedural system. Businesses can thrive even in a highly bureaucratic system (of course, that is not what is recommended), as long as the system is stable and predictable enough to allow businesses to assess their risks. It is of little value to streamline the process for getting an export permit, for example, when the process can be interfered with, arbitrarily, by a cabinet member, regional commissioner, or district commissioner without recompense. The situation for investors is often that of confusion as they are not even sure how much authority the local governments (their initial contact) actually have. Apparently, a decision by a district official appointed by the president can supersede a decision by the local government.
Yet the need to grow the industrial sector is clear, considering that a large percentage of Tanzania exports is still in raw form or only semi-processed. One can claim that this is a residual impact of colonialism or is due to the existing tariff structures of developed countries. Indeed, many studies have shown that developed countries have escalated tariff structures where trade barriers on processed products are higher than those for raw materials. Notwithstanding the colonial legacy and the biased trade policies of developed countries, Tanzania can develop a successful industrial sector. Moreover, Tanzania has easy access to markets in the East African Community (EAC) and the Southern African Development Community of which it is a member.
A nationwide industrial policy in Tanzania should mimic the strategy used to promote production in the export processing zones. For example, every district could earmark dedicated geographical areas for industrial production and provide the services necessary for production in those areas to thrive. Measured and varied tax incentives can be offered depending on various factors such as the number and quality of jobs created, the backward and forward linkages established and strengthened, environmental friendliness, and promotion of gender equity. Having a concentration of industrial firms in a given location allows economies of scale in provision of services. At the same time, it allows producers to benefit from external economies of scale as firms learn better practices from each other.
The government may also consider establishing a development bank that will be the main financing agent for industrial development. The idea is not to go back to the era of dysfunctional public banks, but rather to have a bank that has the technical expertise to assess industrial and other development projects. Whatever is to be done to promote industrial production in Tanzania, it is imperative to include the private sector and other stakeholders in strategic planning. That plan must avoid the approach taken in the 1960s and 1970s which was both myopic and unimaginative. Instead of creating a friendly environment for the private sector, it established inherently inefficient government monopolies. A viable industrial policy must allow competition.
If done properly, the creation of industrial zones may bring about strong and healthy competition between districts and regions for potential investors. However, that must start by acknowledging that enterprises in the private sector make an important contribution to economic development while taking the risks associated with starting and running an enterprise.
Richard E. Mshomba is Professor of Economics, La Salle University, Philadelphia, Pennsylvania, U.S.A.
