What it takes to realise industrial development in Tanzania

Major debates and plans on Tanzania’s economic future have recently dwelt on industrialisation. One of the fifth phase government’s main economic plans is to have industrial economy. This is clear given the potential of industrial economy. This includes, but not limited to direct and indirect jobs and, therefore, income creation, foreign exchange earnings through exports and foreign exchange savings through import substitution, government revenue from related taxes and non-tax charges as well as inter-sectoral linkages both backward and forward that trigger development of many other sectors.

For eventual success in industrialisation, it is important to interrogate and contribute ideas on what it takes for the Tanzanian economy to industrialise.

Desired industrialisation

Drawing from President John Magufuli’s speech in parliament on November 20, 2015, there are three main typologies of industries that the government desires to attain. These are mass employment-creating industries, industries for domestic mass consumption goods and industries for export goods. For its part, the ruling party’s 2015 election manifesto aims at accomplishing and implementing the third phase of Sustainable Industrial Development Plan 2010–2020. It also aims at attaining industrial sector contribution in Vision 2015. It desires to construct agro-processing, middle, large and basic industries and industries that use domestic raw materials.

It also desires to strengthen existing industries and increase industrial sector GDP contribution from 9.9 per cent in 2013 to 15 per cent in 2020 and have 40 per cent of Tanzania’s employment coming from the industrial sector by 2020. It also desires to mobilise the private sector to invest in middle and large industries and protect them against competition from foreign industries. It also desires to increase sub-regional, regional and global preferential markets access. Good as these are, there is a need for critical look of what it takes to attain desired industrialisation above.

Employment creating industries

The desire is to have 40 per cent of employment in Tanzania coming from the industrial sector by 2020 although the current per cent is not given in the manifesto or the president’s speech. For Tanzania to attain mass employment-creating industrialisation, it has to opt for labour intensive industrialisation if it means jobs coming direct from industries. Labour intensive production techniques employ more labour than capital and create more jobs. However, there are several downsides of labour intensive production and by extension labour intensive industrialisation.

These include limited ability to enjoy economies of scale through large-scale production, less speed in production, less efficiency and at times less quality and standardisation of products. For this type of industrialisation, employment can only be created along industrial value chain nodes through backward and forward integration. It calls for strong inter-sectoral linkages and a holistic approach to industrialisation. All sectors related to the industrial sector need to be adequately developed.

Industries for mass consumption

The government targets industries that will produce goods for mass domestic consumption. They include, but not limited to textile, footwear, cooking/edible oil etc. There are many economic advantages embedded in the consumption of domestically produced goods and services. They include saving of foreign currencies that would have imported the goods, more domestic jobs creation and related individual incomes as well as government revenue through tax and non-tax charges.

However, there is a need to interrogate theories and practices of consumer behaviour. Tanzanian consumers have their tastes and preferences for goods and services. These may not be necessarily in favour of domestically produced goods. In the Tanzanian context, there is an emerging and complex high and middle class with by and large tastes and preferences skewed towards imported consumables. This can be attributed to higher quality and better brands of imports. For local industries to produce goods and services for mass domestic consumption, there is a need to ensure that they meet the needs of consumers as captured in their tastes and preferences.

Export oriented industrialisation

The government desires to have industries that will export goods. This is a good thing. To be able export industrial goods, domestic value addition and a move away from the current predominantly export of unprocessed raw materials is important. Among the key implications is availability of and access to export markets for the ‘made in Tanzania’ industrial goods. Currently, the main industrial goods from Tanzania include agro-processed products.

To access the export market, there is a need to meet and adhere to demand of quality and standards. For food and beverage products, for example, issues of sanitary and phytosanitary conditions as well as traceability are very important. Important too, in exporting is the ability to meet and adhere to quantity and supply frequencies. Performance of African countries – Tanzania included - in the AGOA market access opportunity should be able to give us lessons.

A way forward

For desired industrialisation to be attained, there is a need for a friendly and supportive investment and business climate. This includes issues related to infrastructure both hard and soft, utilities especially electricity, skills and talents and fiscal regime. There is also a need to learn from earlier industrialisation moves in Tanzania.