ECONOMIC REVIEW | PRIVATE SECTOR DEVELOPMENT
AND CROSS-CUTTING ISSUES|
|SPECIAL DEVELOPMENT ISSUE|
LINKAGE BETWEEN MACRO ECONOMIC PERFORMANCE AND POVERTY SITUATION
187. Tanzania has come a long way in its efforts towards socio-economic development and in transforming its economy from a state-led to a market oriented economy. A few years after independence in 1961, Tanzania chose the path of African socialism and self-reliance for national development. Under that path, all major means of production and businesses were directly controlled by the State.
188. Despite the achievements of the socialism and self-reliance policy in social development in the 1970s and early 1980’s particularly in primary education, health services delivery and water supply; the policy did not bring about the expected results due to macroeconomic imbalances resulting from world economic instability, increase in petroleum prices, the War against Idd Amin of Uganda and the breakdown of the East African community (EAC).
189. As a response to that economic crisis, the Government has been undertaking various economic reforms since 1980s. The reforms included the implementation of the National Economic Survival Program (NESP) of 1981 and the Structural Adjustment Program (SAP) of 1983. However, those programmes were not supported by development partners.
190. In 1986, the Government started the implementation of Economic Recovery Programmes I & II, which were supported by the development partners (World Bank and International Monetary Fund). Those programmes were followed by several other programs. The implementations of these reforms were accompanied by the Government abdicating itself from direct ownership and control of the major means of production. As a consequence, the public sector reduce its roles to core functions of policy formulation; economic management; provision of socio-economic infrastructure; provision of legal and regulatory framework; managing the rule of law and order; and selected areas of public-private sectors partnership. Basically, this development makes the private sector an engine of economic growth rate needed to achieve the objective of reducing poverty.
191. Since the 1990s, the participation of the private sector in the development process has been strengthened. Furthermore, a number of initiatives have been undertaken to strengthen and widen the contribution of private sector in socio-economic development. The Tanzania Development Vision 2025, and its implementation tools, the National Strategy for Growth and Reduction Poverty (NSGRP), popularly known in Kiswahili as “MKUKUTA”, Medium Term Plan (MTP) and various sectoral strategies spell out the importance of private sector as the engine for economic growth. MKUKUTA places high priority on accelerating broad based growth by developing interventions to sectors where the majority of the poor with the highest growth potential are found. In all those initiatives, the private sector development has been accorded special attention, as it is expected to contribute to realizing the national goals of accelerating growth, increase in income and reducing poverty.
192. With a view to facilitating the private sector to contribute effectively towards socio-economic development, an enabling business environment has been identified as among the key drivers. Policies and reforms undertaken have so far, enabled Tanzania to put in place a stable macro-economic framework for private sector growth. Nonetheless, there are still areas that need further improvements so as to unleash economic potentials, including further improvements in the business regulatory environment.
Status of the Private Sector
194. The SMEs are constrained by lack of adequate finance, technical and managerial skills. Furthermore, they also lack proper facilitative infrastructure and market information to properly link to domestic and external markets. In addition, the businesses are inhibited by excessive and conflicting regulations which make their transition from informal to the formal sector difficult.
195. The government has undertaken various reforms that touch and nurture the private sector, but the latter’s response has been low partly due to its infancy. Furthermore, there still exist several regulatory and administrative procedures that hinder development of the businesses and consequently impair their growth.
196. Following existence of such bottlenecks in the development of private sector, the Government has recently taken several initiatives to strengthen the private sector. The Government, the private sector and development partners have recognized problems faced by SMEs and acknowledged the extensive work which remains to be done to bring about a fully functioning private sector.
Developments in the Private Sector in Tanzania
199. The TNBC functions through consultative meetings held twice a year. The meetings brings together key players in Public and Private Sector who are members of the council to discuss and agree on key issues pertaining to private sector development and economic growth. So far, the council has successfully conducted three Meetings. The first was in March 2002, which was also used to launch the council. The Second meeting was held in November 2004 and the third in March 2005.
200. The council has also facilitated one Local Investors Round Table that was held in June 2002 and five International Investors Round Table meetings. The first of the International Investors Round Table was held in July 2002, the second in May 2003, the third in November 2003, the fourth in November 2004 and the fifth in May 2005.
The Rationale and Objective of the BEST Programme
Components of the BEST Programme
Table 10.1: Components of the BEST Programme and Areas of Focus
Expected Results of the BEST Programme
The Beneficiaries of the Strengthened Business Environment
206. The perspective of the BEST Programme as discussed earlier, is to have a private sector which includes businesses of all sizes and stages of development ranging from small traders in the informal sector, to large established manufacturing companies and potential new large foreign and indigenous investors. All these businesses contribute to the growth of the national economy and all will benefit from a more enabling environment. Even more importantly, the programme emphasizes the creation of an environment conducive to the inclusion of women and youth in mainstream economic activity.
207. It is particularly important to note that small businesses will benefit more given that small businesses are currently the majority accounting for 80 percent of all businesses and 98 percent of those are in the informal sector. Furthermore, small businesses are disproportionately inhibited by excessive and conflicting regulations, which make the transition from the informal to the formal sector very difficult. This creates the phenomenon of the “missing middle” in which the economy includes a large number of very small businesses and a few large well-established businesses, lacking the dearth of the fast growing entrepreneurial businesses, which are the life-blood of growth in many successful economies.
Properties and Businesses Formalization Programme