Tanzania Investment and Consultant Group Ltd

| Economic Research Centre

Opportunities, Challenges, and the Road to 2030

Small and Medium Enterprises (SMEs) are the backbone of Tanzania’s economy, accounting for 35% of the Gross Domestic Product (GDP) and providing 50% of national employment. The sector, which includes over 95% of the country’s businesses, spans industries such as agriculture, manufacturing, services, and construction. Despite its scale, Tanzania SMEs face systemic barriers that inhibit their growth and sustainability. This article explores the current landscape of Tanzania’s SME sector, emphasizing market dynamics, policy frameworks, and resource access.

1. Market Distribution and Sector Dynamics

SMEs are concentrated in four primary sectors:

This distribution reflects the sector’s diversity and potential; however, 72% of Tanzania SMEs operate informally, limiting their access to credit and government incentives. As of 2023, only 30-50% of SMEs survive past five years, highlighting the need for increased support and formalization.

2. Financial and Resource Accessibility

The financial accessibility for Tanzania SMEs remains limited, with only 20% of SMEs obtaining formal financial services. High-interest rates (17-20%) and stringent collateral requirements make traditional financing inaccessible for many, leading most SMEs to rely on personal savings. Technological resources are also unevenly distributed, with urban areas adopting digital solutions such as mobile money at higher rates than rural areas, where infrastructure and digital literacy are lagging.

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3. Regulatory Challenges and Policy Initiatives

High compliance costs, complex tax structures, and prolonged registration procedures discourage many SMEs from formalizing. Tanzania ranks 141st on the World Bank's Ease of Doing Business Index, with 70% of SMEs reporting compliance difficulties due to multiple tax obligations and labor regulations.

Figures:

4. Investment Landscape and Opportunities

High-potential sectors, including agribusiness, ICT, and tourism, present opportunities for growth. Tanzania’s agribusiness SMEs make up 40% of the sector, benefiting from regional demand and the nation’s arable land. The ICT sector is expanding, driven by rising mobile penetration and digital adoption, creating prospects for e-commerce and digital financial services. However, challenges such as inadequate infrastructure and limited financing hinder SME investment and sectoral expansion.

Figures:

5. Projections for 2030 and Conclusion

If Tanzania strengthens support for SMEs, particularly through simplified regulatory frameworks, digital infrastructure, and financing options, the SME sector’s GDP contribution could reach 45% by 2030, with employment rising to 60%. Improving access to formal financing, especially in rural areas, and expanding digital infrastructure are crucial steps for empowering SMEs to drive economic resilience and sustainability.

2030 Projections:

In conclusion, Tanzania’s SMEs are essential for economic stability and job creation. With targeted policies and resources, SMEs can enhance their impact on the economy, contributing to a diversified, inclusive, and resilient Tanzania by 2030.

To promote sustainable economic growth, Tanzania is increasingly leveraging Public-Private Partnerships (PPPs) to improve financial efficiency and boost investment in key sectors. Over the 2021/22 to 2024/25 fiscal years, Tanzania allocated a total of 54.575 trillion TZS to its development budget, with 33.794 trillion TZS sourced domestically. By implementing PPPs under an 80-20 cost-sharing model, the government aims to reduce its financial burden, enhance service delivery, create jobs, and increase revenue through private sector collaboration. This article explores the impact and strategic approach of PPPs in Tanzania’s economic development.

1. Development Budget Allocation and Funding Trends

Across four fiscal years, Tanzania’s development budget reveals a structured approach to funding large-scale infrastructure, energy, social services, and economic development projects. The allocation data highlights the prioritization of domestic financing over external funds, underscoring a commitment to fiscal responsibility and self-reliance.

Fiscal YearTotal Development Budget (TZS Trillions)Domestic Funding (TZS Trillions)External Funding (TZS Trillions)
2021/2213.3310.372.96
2022/2315.0012.312.70
2023/2411.49N/AN/A
2024/2514.75511.1143.640
Total54.57533.7949.3

This budget structure, with over 60% sourced domestically, signals Tanzania’s shift towards utilizing internal revenue for growth, allowing foreign financing to focus on specific, large-scale projects.

2. Key Recurring Projects and Economic Impact

Tanzania’s development agenda targets large-scale projects in infrastructure, energy, social services, and economic development to achieve comprehensive growth.

3. Financing Strategies for Development

To finance these ambitious projects, Tanzania adopts a diversified approach, with the following methods:

4. Economic Benefits of Public-Private Partnerships (PPPs)

PPPs offer a unique model for maximizing resource utilization while minimizing financial risks to the government. The 80-20 cost-sharing model illustrates substantial economic benefits:

a) Cost Savings

Through PPPs, project costs are shared, reducing government expenditure. For instance:

b) Increased Investment and Economic Output

By leveraging PPPs, Tanzania’s 54.575 trillion TZS development budget could attract an estimated 43.66 trillion TZS from the private sector, enabling increased investments in other critical areas.

c) Risk Mitigation

With an 80% private sector contribution, the government’s risk exposure is substantially reduced. For example, in a 200 billion TZS project, a cost overrun of 30 billion TZS would mean the government only covers 6 billion TZS, transferring the remaining 24 billion TZS risk to private investors.

d) Enhanced Revenue Sharing

Infrastructure projects like the Julius Nyerere Hydropower Project can enhance revenue through efficient PPP implementation. With a 2,115 MW capacity, an estimated revenue of 10 million TZS per MW annually could see a 15% efficiency increase under PPPs, yielding an additional 31.725 billion TZS in revenue.

e) Job Creation and Economic Stimulation

PPPs can create approximately 10,000 jobs, injecting 10 billion TZS into the economy annually. This job creation benefits local economies and provides citizens with employment opportunities, improving livelihoods and increasing domestic consumption.

f) Long-term Economic Growth

By facilitating infrastructure development, PPPs can increase trade efficiency by 5%, which translates to a 1 trillion TZS boost in annual economic output. This growth benefits both the government and private sector through improved services and a broader tax base.

5. Strategic Advantages of PPPs for Tanzania’s Development Goals

The strategic implementation of Public-Private Partnerships in Tanzania is driving sustainable economic growth, enhancing service delivery, and creating employment opportunities. By balancing risk, leveraging private investment, and focusing on key sectors, Tanzania is building a resilient economy that benefits both the public and private sectors. Through continued collaboration, PPPs will play a crucial role in realizing Tanzania’s long-term development goals.

Addressed Infrastructure, Regulatory Efficiency, and Public Service Challenges

The Business Ready 2024 report provides an assessment of Tanzania's business environment based on three key pillars: Regulatory Framework, Public Services, and Operational Efficiency

  1. Regulatory Framework: Tanzania scored 65.00 points, placing it in the third quintile, meaning its regulatory environment is moderately favorable. This includes regulations that govern business entry, labor, taxation, and financial services, though there is room for improvement in areas like market competition and insolvency.

What it Means: The Regulatory Framework pillar focuses on the laws, rules, and regulations that businesses must follow in Tanzania. A score of 65.00 indicates that while the regulatory environment is moderately favorable, it still has areas that need improvement.

What is Measured: This pillar assesses the rules, laws, and regulations that businesses must follow as they enter, operate, and exit the market. It focuses on whether these regulations are clear, fair, and supportive of entrepreneurial activity.

Key Areas Measured:

What It Tells About Tanzania:

  1. Public Services: Tanzania's score for public services is 51.56 points, placing it in the fourth quintile. This reflects challenges in public service provision that support businesses, including utility services and government institutions related to business regulation.

What it Means: This pillar evaluates the quality of government-provided services that help businesses comply with regulations, such as utility services (electricity, water), online tax services, and other government support structures.

What is Measured: This pillar looks at the quality of public services provided by the government that are necessary for businesses to function, including utility services, government transparency, and the infrastructure that supports business compliance with regulations.

Key Areas Measured:

What It Tells About Tanzania:

  1. Operational Efficiency: Tanzania performed better in operational efficiency with a score of 62.15 points, placing it in the third quintile. This category measures how efficiently businesses can comply with regulations and access public services.

What it Means: The Operational Efficiency pillar measures how easy it is for businesses to comply with regulations and access services. Tanzania’s score in this pillar suggests that businesses face some challenges but generally have moderate success in navigating the regulatory landscape and accessing the services they need.

What is Measured: This pillar evaluates how easy it is for businesses to comply with the regulatory framework and access public services. It measures the practical implementation of the rules and services described under the first two pillars.

Key Areas Measured:

What It Tells About Tanzania:

Tanzania's scores in the Business Ready 2024 report provide valuable insights into the country's economic development by highlighting strengths and challenges in its business environment. Here's a breakdown of what these figures reveal about Tanzania's economic development:

1. Regulatory Framework (Score: 65.00)

2. Public Services (Score: 51.56)

3. Operational Efficiency (Score: 62.15)

Overall Economic Development Insights:

Strategic Recommendations for Economic Development:

  1. Invest in Infrastructure: Improving utility services, especially reliable electricity and internet access, will lower operational costs and improve productivity across sectors, boosting overall economic growth.
  2. Strengthen the Legal and Regulatory Environment: Enhancing regulations related to market competition, insolvency, and business disputes will create a more favorable environment for entrepreneurship and innovation, encouraging more domestic and foreign investment.
  3. Improve Public Service Delivery: Streamlining processes such as tax filing, permit issuance, and customs procedures through digitalization would significantly reduce the cost of doing business and improve Tanzania’s global competitiveness.
Business Ready 2024 Executive SummaryDownload

As of the period ending on December 31, 2023, both NMB Bank and CRDB Bank have exhibited notable financial performance, reflecting various key metrics that are indicative of their operational strength and market presence.

NMB Bank reported total assets amounting to 12.2 trillion Tanzania Shillings, representing a remarkable 19% growth. This increase underscores the bank's ability to expand its asset base, possibly through effective investment strategies or successful acquisition initiatives. On the other hand, CRDB Bank demonstrated a total asset growth of 14%, reaching 13.2 trillion Tanzania Shillings. Although slightly lower than NMB Bank's growth rate, this still signifies a substantial increase in the bank's overall financial standing.

In terms of total deposits, NMB Bank recorded 8.4 trillion Tanzania Shillings, marking an 11% growth. This suggests a consistent influx of funds into the bank, likely driven by customer trust and effective deposit mobilization efforts. CRDB Bank, while also experiencing growth, posted a total deposit figure of 8.9 trillion Tanzania Shillings, reflecting an 8% increase. This showcases the bank's ability to attract and retain deposits, albeit at a slightly lower growth rate compared to NMB Bank.

Loan and advances, a critical aspect of banking operations, showed significant growth for both institutions. NMB Bank reported a loan and advances portfolio of 7.7 trillion Tanzania Shillings, reflecting a substantial 28% increase. This growth may indicate the bank's proactive approach in extending credit facilities to businesses and individuals. Similarly, CRDB Bank exhibited a robust performance in this area with a loan and advances portfolio of 8.5 trillion Tanzania Shillings, reflecting a commendable 23% growth.

Moving on to profitability, NMB Bank demonstrated strong financial results. The bank reported a profit before tax of 775 billion Tanzania Shillings, indicating a notable 26% increase. Additionally, the profit after tax for NMB Bank amounted to 542 billion Tanzania Shillings, reflecting a similar 26% growth. These figures underscore the bank's ability to generate profits efficiently, possibly through effective cost management and revenue generation strategies.

CRDB Bank, while also delivering positive financial results, exhibited a profit before tax of 599 billion Tanzania Shillings, showing a 20% increase. The profit after tax for CRDB Bank stood at 424 billion Tanzania Shillings, reflecting a 21% growth. These figures indicate the bank's capacity to maintain solid profitability, although at a slightly lower growth rate compared to NMB Bank.

Hence, both NMB Bank and CRDB Bank demonstrated commendable financial performance for the period ended December 31, 2023, with NMB Bank showcasing higher growth rates in key areas such as total assets, total deposits, loan and advances, as well as profitability. These financial indicators provide valuable insights into the operational efficiency and market competitiveness of the two banks during the specified period.

The health and competitiveness of these banks in the Tanzania financial sector:

The financial data reveals that both NMB Bank and CRDB Bank are robust financial institutions, with NMB Bank showcasing higher growth rates in key areas. Investors, regulators, and other stakeholders may use this information to assess the banks' financial health, operational strategies, and overall market competitiveness.

Asset Growth and Stability:

NMB Bank has shown a higher growth rate in total assets (19%) compared to CRDB Bank (14%). This suggests that NMB Bank has been successful in expanding its asset base, possibly through strategic investments or acquisitions, making it a key player in the market.

Deposit Mobilization:

Both banks experienced growth in total deposits, indicating the ability to attract and retain customer funds. NMB Bank's 11% growth in deposits may suggest effective deposit mobilization efforts, while CRDB Bank, with an 8% growth, also demonstrated strength in this area but at a slightly lower rate.

Lending Activities:

Both banks exhibited substantial growth in loan and advances portfolios, suggesting active participation in lending to businesses and individuals. NMB Bank's 28% growth and CRDB Bank's 23% growth in this category indicate a willingness to extend credit and support economic activities.

Profitability:

NMB Bank reported higher growth rates in both profit before tax (26%) and profit after tax (26%) compared to CRDB Bank, which reported a 20% growth in profit before tax and a 21% growth in profit after tax. This signifies that NMB Bank was more efficient in managing costs or generating revenues during the specified period.

Overall Competitiveness:

The data suggests that NMB Bank had a relatively stronger financial performance during this period, with higher growth rates in key metrics. However, CRDB Bank also demonstrated positive growth across various parameters, indicating its stability and competitiveness in the market.

Market Positioning:

NMB Bank's higher growth rates across multiple financial indicators might position it as a more dynamic and rapidly growing institution. CRDB Bank, while still showing positive growth, might be perceived as slightly more conservative or stable in its approach.

The forecasting performance in the coming year (2024) requires consideration of various factors, including economic conditions, regulatory changes, and the banks' strategic initiatives.

Growth Trajectory:

nmb-q4-2023Download
crdb-q4-2023Download
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