Why Tanzania’s startup ventures fail to survive beyond three years

The internal weaknesses, they add, are compounded by external pressures such as high taxation, limited access to finance, bureaucratic procedures, fragile startup ecosystems and infrastructure gaps that raise operating costs and discourage early-stage growth.

Small and medium enterprises (SMEs), which account for more than 90 per cent of businesses in Tanzania, are the most exposed.

Despite contributing about 35 per cent of gross domestic product (GDP) and employing nearly 60 per cent of the workforce, SMEs operate in what many stakeholders describe as a hostile environment for survival.

A study by the Tanzania Investment and Consultant Group Ltd (TICGL) shows that between 60 and 70 percent of startups in the country fail within three years of establishment.

Limited access to credit remains a major constraint. Only about 15 percent of SMEs are able to secure formal loans, forcing most entrepreneurs to rely on personal savings or informal borrowing, often at high cost.

“Many entrepreneurs start businesses without a clear understanding of cash flow, taxation and long-term planning,” said Mr Levis Bahi, an entrepreneurship lecturer at Saint Augustine University of Tanzania. “When the first shock comes—whether it is a tax demand, a rent increase or delayed payments—the business collapses.”

He noted that entrepreneurship in Tanzania is often treated as a fallback option rather than a professional discipline. “We teach theory, but the ecosystem still does not allow young entrepreneurs to fail, learn and restart,” he said.

The TICGL report, titled Doing Business in Tanzania 2025–2030, argues that while Tanzania is strategically positioned to become a regional trade powerhouse, systemic barriers continue to weaken its competitiveness within the East African Community (EAC) and the African Continental Free Trade Area (AfCFTA).

Taxation is among the most cited pain points. SMEs face a corporate tax rate of 30 percent, alongside import duties of up to 25 percent, significantly eroding profit margins. By comparison, Rwanda applies a 15 percent SME tax rate.

The study further notes that business registration in Tanzania takes an average of 26 days, while tax compliance consumes about 195 hours annually.

“These costs may look manageable on paper, but for a young business they can be fatal,” said startup mentor and entrepreneur Mr Michael Nyamwero. “When compliance becomes more expensive than growth, entrepreneurs either give up or remain informal.”

Infrastructure gaps also deepen the challenge. Mr Jumanne Mtambalike, chief executive officer of Sahara Ventures, said startups require speed, flexibility and access to markets to survive. “When infrastructure is slow and policies are rigid, innovation dies early,” he said.

Access to early-stage funding remains another major obstacle. Ms Janeth-Kareen Kilonzo, co-founder of Plate AI, said many startups struggle to bridge the gap between ideas and investable businesses.

“Investors want traction, but you need capital to build traction. That gap is where many promising ideas disappear,” she said.

For agribusiness startups, limited market intelligence can be equally damaging. Mr Baraka Chijenga, co-founder of Kilimo Fresh Foods Africa Ltd, said many enterprises fail because they do not fully understand demand, pricing and logistics.

“Without proper market research, even good products fail,” he said.

To reverse the trend, TICGL has proposed a reform blueprint anchored on taxation, entrepreneurship support and infrastructure investment.

On tax and regulation, the firm recommends reducing corporate tax from 30 per cent to 20 per cent and lowering import duties to 15 per cent.

According to the study, such changes could boost SME profits by between five and seven per cent, saving individual businesses between $2,000 and $5,000 annually.

Across 10,000 SMEs, the reforms could lead to the creation of between 20,000 and 30,000 jobs.

The study also proposes streamlining business registration to seven days through one-stop service centres, similar to Rwanda’s model, a move that could improve Tanzania’s Ease of Doing Business ranking by up to 20 positions.

On startup support, TICGL recommends investing $8 million to establish entrepreneurship hubs in Dar es Salaam and Arusha, alongside $20 million in seed funding. The hubs would support about 400 startups annually with grants ranging from $20,000 to $50,000.

Modelled on Nigeria’s Lagos tech ecosystem, the initiative could reduce startup failure rates to between 40 and 50 per cent, create 14,000 jobs and add up to $2 billion to GDP by 2030, the report says.

Infrastructure reform forms the third pillar. TICGL estimates that a $1.05 billion investment in the Dar es Salaam port, the Tazara Railway, road networks and digital logistics could cut port dwell times to between five and seven days and reduce logistics costs to about 10–12 per cent of export value.

Such improvements could boost EAC trade by up to $1.5 billion annually and add between $0.5 billion and $1 billion to GDP each year. While the proposals have attracted attention, the government has said reforms are already under way.

In earlier remarks, the Minister for Planning and Investment, Prof Kitila Mkumbo, said the government was prioritising a more conducive investment climate through legal restructuring, policy harmonisation and institutional reforms.

“Our goal is to ensure that Tanzania becomes the easiest place for investors to operate,” Prof Mkumbo said, citing the merger of the Tanzania Investment Centre and the Export Processing Zones Authority into the Tanzania Investment and Special Economic Zones Authority as part of efforts to simplify procedures.

However, analysts caution that policy reform alone will not be enough. Entrepreneurship lecturer at the University of Dodoma, Dr Rosalyn Kimei, said sustainable businesses emerge where skills, supportive systems and risk-tolerant cultures intersect.

“If we want businesses to survive beyond three years, we must invest equally in people, policies and infrastructure,” she said, noting that the survival of startups will ultimately determine whether Tanzania’s ambition to become a regional trade hub is realised.