The growing role of the private sector in the Tanzanian economy was recognised in the new national development plan, MKUKUTA II, which was approved in September 2010. Tanzania has undertaken a series of macroeconomic reforms that have led to sound macroeconomic conditions, a key priority consideration for a favourable business climate. However, the government’s objective of creating a vibrant private sector seems to have been undermined by institutional barriers and weak policy implementation on many fronts. The business climate has somewhat deteriorated during the past two years as indicated by the drop in the World Bank’sDoing Business Report 2012, ranking from 125th to 127th position out of 183 countries. Areas that have deteriorated most are tax payments, investor protection, registration of property and enforcing contracts. Trading across borders has improved considerably.
Continued interruptions to the electricity supply remain the most serious concern for businesses in Tanzania. The demand for electricity exceeds supply by about 28%. While most large firms have access to private generators, many small firms do not. Increasing demand coupled with stagnant supply points to a structural problem. Greater private sector participation, particularly through public-private partnerships, could help.
The poor quality of port infrastructure, lack of efficient intermodal connections and high operating costs hold Tanzania back from exploiting its strategic geographical location. Access to finance is another bottleneck to the development of the private sector. However, Tanzania has made considerable efforts to reform the financial sector.
Improvements have been made in addressing corruption, including investigation of high profile cases. The corruption perception has eased as reflected in Transparency International’s Corruption Perception Index: Tanzania’s rank has dropped from 126 out of 180 countries in 2009 to 116 out of 178 in 2010. However, rent seeking continues to obstruct private sector enterprise. Persistent shortages of skilled labour and restrictions on hiring foreign labour represent another challenge for foreign private firms operating in Tanzania. The cost of labour, however, is not a major drag on firm competitiveness. The upward revision of the minimum wage in May 2010 is unlikely to have a serious negative effect on the private sector.
Excerpt from African Economic Outlook 2012: Tanzania