Selected industrialisation challenges in Tanzania

Industrialisation is among the key goals of Tanzania’s fifth phase government. This is seen in several areas including in the Second Five Years Development Plan and annual plans and budgets following it. There have been several discussions on industrialisation in Tanzania. This piece is a contribution to such discussion. It focuses on selected challenges that captains and titans of the industry do face in the industrialisation space. It is informed by the author’s several studies including interviews with key private sector players with in depth hands-on knowledge and experience on the matter. The challenges are many, closely related and at time self-reinforcing. However, they all revolve around the axis of investment and business environment and climate and can be put in various broad categories as done in what follows.

Labour issues

Labour is among the key factors of production in virtually all sectors of the economy including the industrial and related ones such as agriculture. There are number of labour-related challenges for those venturing in industrial and related investments in Tanzania. Challenges include inadequate skills and talents in the domestic labour marker in general and for specific industrial projects in particular. Skills that are in short supply relative to the demand for the same include soft skills such as trust, creativity, innovation, team spirit, communication, courage and many others along that line. There is also scarcity of hard skills especially for some particular industrial experts. Other challenges have been related to workers discipline and mentality as well as work and residence permits including their costs and time taken to be granted. There is also mismatch between skills supply and demand in quantity and quality leading to low productivity.

Unfair competition

In a free market economy competition is inevitable and basically healthy for consumers and producers. Unfair competition, however, is unhealthy. Tanzanian industrialists face the challenges of unfair competition in various ways. These include via the routes of cheap imported industrial goods as well as illicit trade that brings counterfeits and sub-standard industrial goods in the market. When the initial position is not at a level playing ground, the affected industrialists may not be able to take off let alone growing and prospering.

Regulations

Regulations have good aim of protecting both producers and consumers. In the context of market structure, regulations are good in ensuring that no one abuses his or her market power. What becomes challenging in the industrialisation process in Tanzania include multiple regulations some of which are contradicting each other. There have also been multiple and high regulatory fees, many regulators as well as lack of one stop centre for the said multiple regulatory authorities. All these inflate the cost of doing business and therefore leading to reduced industrial sector competitiveness. Of the key challenges related to regulations is predictability of regulatory frameworks. Investors wish to have long-term and stable regulatory framework. The 2018 blueprint can partly deliver solutions by fixing what is broken in the regulations space. What is needed are smart regulations. These are regulations that avoid over regulating that can be counter-productive for investments and businesses. It constitutes bad investment and business climate.

Tax issues

No one disputes the importance of paying taxes. However there are tax issues that stand to challenge those venturing in the industrial sector. They include predictability of fiscal regime, relatively high tax rates, multiplicity of taxes and long time taken for tax refunds. Unrefunded tax constitutes locked capital and related opportunity costs of not having the money at disposal for industrialisation purpose. There is also cost related to human resources dedicated to making tax refund follow ups with the authorities. Other challenges in the tax space include tax incentives misuse by some beneficiaries, For authorities this is wastage of tax revenues that is badly needed for provision of public goods and services. For competing industries it constitutes unequal playing ground from competition perspectives. Those misusing tax incentives will have lower cost and therefore become more cost competitive than those not misusing the facility.

Other tax challenges for industrialists include tax avoidance, evasion and illicit financial flows; challenges related to the use of Electronic Fiscal Devices (EFDs); Skills Development Levy (SDL) which has been seen to be of relatively high rates and its use in other areas than in developing skills in general and skills for industrialisation in particular. There are also challenges related to taxing the informal sector. When it is not properly taxed it constitutes unfair competition to those in the formal industrial sector who are taxed. Others are challenges related to easy of paying taxes including estimation methods and inadequate one stop centre for paying taxes. There is also a challenge of availability of and access to long-term and structured finance for industrialisation. The 15 per cent upfront payment of import duty on industrial sugar is a specific challenge for industries using this factor input. It is worth noting that there have been many reforms to address some of the above challenges by the authorities including the Ministry of Finance and Planning through Tanzania Revenue Authority (TRA).

Corruption

Corruption increases cost of doing business, presents non-level playing ground for example in procurement, brings sub-stand goods and services in the industrial factor-input and final output markets.

Technology

Tanzanian-type economies face the challenges related to availability of and access to recent technologies in general and for industrialisation in particular. Challenging too is upgrading of existing technologies to cope with today’s state of the art high technology.

Value chain issues

There are generally disorganised supply and value chain linkages. This leading to challenges related to reliable supply of industrial factor inputs including raw materials as well as factor outputs. This includes lack of adherence to agreed supply schedule in quantity and quality, agreed frequency and time etc.

The author is Professor of Economics and Principal at Mzumbe University Dar Es Salaam Campus College . He is available through [email protected] or +255 754 653 740