Author: Dr. Bravious Felix Kahyoza PhD, FMVA CP3P, Email: braviouskahyoza5@gmail.com)

An Institutional Economics Perspective

Institutional economics examines how institutions—the formal rules (laws, regulations, property rights) and informal norms (customs, traditions, social networks)—shape economic behavior, reduce transaction costs, and influence growth. Pioneered by economists like Douglass North, who described institutions as the "rules of the game" in society, this field explains why some countries prosper while others stagnate. Strong institutions lower uncertainty, encourage investment, and promote efficient resource allocation, while weak ones breed corruption, insecurity, and inefficiency.

In Tanzania, a lower-middle-income economy heavily reliant on agriculture, mining, and tourism, institutions have played a pivotal role in its economic trajectory. From post-independence socialist policies to liberalization reforms and recent resource nationalism, Tanzania offers rich examples of how institutional changes affect growth. This article explores these dynamics, drawing on real-world cases from land tenure, mining, governance, and the informal sector.

Historical Evolution of Institutions in Tanzania

Tanzania's institutional framework has evolved dramatically. After independence in 1961, President Julius Nyerere's Ujamaa (African socialism) policy emphasized collective farming and state control, nationalizing key industries and abolishing freehold land ownership. This created strong informal institutions based on communal values but weakened incentives for individual investment, contributing to economic decline by the 1980s.

In 1986, Tanzania adopted structural adjustment programs with the IMF, shifting toward market-oriented institutions: privatization, trade liberalization, and stronger property rights. Growth averaged 6-7% annually in the 2000s and 2010s. However, persistent challenges like weak enforcement and corruption highlight "institutional hiatus"—gaps between formal rules and practice. Recent studies using autoregressive distributed lag (ARDL) models show that improvements in institutional quality (e.g., rule of law, government effectiveness) significantly boost GDP growth from 1990-2021.

Land Tenure and Agricultural Productivity

Agriculture employs over 65% of Tanzanians and contributes about 30% to GDP, making land institutions critical. Under the 1999 Village Land Act, all land is publicly owned, with villages granting rights of occupancy. This system aims to protect communal customs but often creates insecurity, as titles are hard to obtain and disputes common.

Insecure property rights discourage long-term investments like irrigation or tree planting. Farmers fear eviction or loss of improvements, leading to lower productivity. For instance, in rural areas like Iringa and Mbeya, studies show that untitled land receives 20-30% less investment in soil conservation.

Positive reforms provide counter-examples. The USAID-funded Feed the Future Tanzania Land Tenure Assistance (LTA) project (2015-2023) issued over 100,000 Certificates of Customary Rights of Occupancy (CCROs) in villages. Results were striking: titled farmers invested more in perennial crops, accessed credit easier (using titles as collateral), and saw yields rise by up to 20%. In one village in Pwani Region, women with joint titles increased farm investments, reducing gender disparities rooted in customary laws favoring men. The World Bank's Tanzania Land Tenure Improvement Project further demonstrates how formalizing rights reduces conflicts and boosts economic activity.

These examples illustrate North's idea: secure property rights lower transaction costs and unlock capital, driving growth in Tanzania's largest sector.

Mining Sector Regulations and Resource Nationalism

Mining, contributing 10% to GDP and over 50% of exports (mainly gold), showcases how regulatory institutions affect foreign investment and revenue. Under President John Magufuli (2015-2021), reforms like the 2017 Mining Act amendments mandated 16% state equity in large mines, higher royalties, and local content requirements.

The Mining (Local Content) Regulations (amended in 2025) require 100% Tanzanian ownership in certain services, local banking, and insurance procurement. For example, companies like Barrick Gold renegotiated contracts, paying billions in settlements and committing to local hiring. This increased government revenue but initially deterred FDI due to perceived unpredictability.

Under President Samia Suluhu Hassan (since 2021), institutions have become more investor-friendly while retaining local benefits. The 2022 State Participation Regulations clarified equity rules, and 2025 amendments strengthened oversight. In Geita Region, small-scale miners benefiting from technical support regulations formed cooperatives, improving safety and output. However, challenges persist: artisanal miners often operate informally, evading taxes due to weak enforcement.

These cases highlight "extractive institutions" (per Acemoglu and Robinson): when rules favor elites or are inconsistently applied, they hinder inclusive growth. Better-designed institutions could balance revenue with investment.

Corruption, Governance, and Business Environment

Corruption erodes trust in institutions, raising business costs. Tanzania ranks moderately on the Corruption Perceptions Index, but petty corruption in licensing and customs is rampant. The Prevention and Combating of Corruption Bureau (PCCB) prosecutes cases, yet fear of retaliation deters reporting—over 75% of citizens hesitate to speak out.

Examples abound in public procurement. In the Stiegler's Gorge dam project (now Julius Nyerere Hydropower), allegations of inflated contracts delayed progress and raised costs. In contrast, improved governance in ports (e.g., Dar es Salaam) via digital clearance reduced bribery, cutting cargo dwell time by days and boosting trade.

Informal institutions like economy of affection (family/clan networks) sometimes enable corruption but also provide social safety nets. In urban areas, machinga (street vendors) rely on informal norms to navigate harassment, contributing to the informal economy (over 40% of GDP).

The Informal Economy and Customary Norms

Tanzania's informal sector employs most workers, especially women in cross-border trade. Informal institutions—tribal customs, trust-based lending (vikoba savings groups)—fill gaps left by formal ones. In markets like Kariakoo, vendors use social sanctions to enforce contracts without courts.

However, this duality limits scaling: informal businesses rarely access formal credit or markets. During COVID-19, informal traders suffered without social protection, highlighting weak bridging institutions.

Pathways Forward

Tanzania's experiences affirm institutional economics: quality institutions drive growth. Land titling boosts agriculture, mining reforms capture resource rents (with risks), and anti-corruption efforts build trust. Challenges like enforcement gaps and informal-formal tensions persist.

Prioritizing reforms—digital governance, inclusive land policies, transparent mining contracts—could accelerate progress. As studies show, even marginal institutional improvements yield substantial economic dividends. Tanzania's story is one of potential: strong institutions can transform its abundant resources into shared prosperity.

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:

• Agriculture: Accounts for 40% of SMEs, playing a vital role in food security and rural employment.
• Manufacturing: Covers 30%, primarily focusing on food processing, textiles, and consumer goods.
• Services: Represents 25%, encompassing retail, hospitality, and professional services.
• Construction: Holds 5%, spurred by urbanization and infrastructure development initiatives​.

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.

Figures:

• Formal Financial Access: 20% of SMEs​.
• Mobile Money Penetration: 53%, primarily benefiting urban SMEs​.

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:

• Ease of Doing Business Ranking: 141 out of 190 countries.
• Tax Compliance Difficulty: 70% of SMEs struggle with regulatory requirements​.

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:

• Agribusiness Sector: 40% of SMEs​.
• Projected FDI Growth: +50% with infrastructure and policy improvements by 2030​.

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:

• GDP Contribution: 45% (up from 35%).
• Employment Contribution: 60% (up from 50%)​(SME Market Landscape).

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.