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Why billions of dollars still remain in extralegal sector

Monday February 15 2021
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TBS Director General, Dr Athuman Ngenya

By Alfred Zacharia

Dar es Salaam. A number of small scale businesses fail to get formalised due to the stringent conditions and costs associated with the acquisition of business licences and certificates, it was revealed at the weekend.

This suggests that much more needs to be done despite the fact that more than a decade has elapsed since Tanzania embarked on formalisation of informal trade activities.

A diagnosis by Peruvian economist, Prof Hernando de Soto, which was conducted during the administration of late Benjamin Mkapa as President (1995-2005) established that Tanzania’s land, property and businesses in the extralegal sector were valued at around $29 billion.

And, speaking in Dar es Salaam at the weekend, traders said they mostly depend on trade exhibitions and street-vending of their products because legally acquiring a business licence that would give them access to formal markets had proved to be too expensive for them.

“We started manufacturing soap in 2014 when we had a capital of Sh500,000. It was difficult to afford paying more than Sh1 million to get the licence,” said the Buchi Herbal Product Company (BHPC) marketing manager, Mr Ally Kubuli.

It was until February 13, 2021 that the company managed to acquire a Tanzania Bureau of Standards (TBS) licence.

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Founded by two people including Mr Kubuli, the company has so far employed six people, producing 10 cartons of soap per month.

With plans to recruit more four people, the company will start to increase production to 1,000 cartons per month and sell to both formal and informal markets.

“Our capital now stands at Sh6 million. With our financial muscles and a TBS licence, we will start selling our products at various cosmetic shops, supermarkets besides exporting to neighbouring countries,” he noted.

The Buchi Herbal Products Company represents a number of other small and medium companies and individuals who lack formal markets due to lack of business licences.

But, according to the TBS Director General, Dr Athuman Ngenya, the government has been providing funds to support small and medium entrepreneurs to acquire TBS licences and certificates, thus helping them to formally run their businesses and access markets.

“For the past three years, the government has spent a total of Sh550 million as payment for TBS licences and certificates for Micro, Small and Medium Enterprises (MSMEs),” he said without mentioning the number or other details of the beneficiaries.

According to him, the beneficiries get support from the government for seven years consecutively - after which they must stand alone and start to pay the licence and certificate costs.

“At first, the government pays the full costs. But the beneficiaries start paying a quarter of the cost after three years until they graduate - and start paying full costs,” he noted.

He said TBS licences and certificates provide confidence to consumers, and help traders to access local and international markets.

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