Barriers and Opportunities

Tanzania's workforce is predominantly informal, with 71.8% of workers engaged in unregulated jobs such as small businesses, street vending, and casual labor. Despite government efforts to formalize employment, only 28.2% of workers are formally employed. Transitioning from informal to formal employment remains a major challenge due to financial, regulatory, and skills-related barriers. This article explores the barriers preventing formalization and the opportunities that can facilitate the transition, using figures from the 2025 Employment Study.

Employment Structure in Tanzania

• 49% of the workforce is informally employed, with most working in agriculture, retail, and transportation.
• Only 23% of respondents have formal jobs, highlighting the difficulty in transitioning from informal work.
• 27% remain unemployed, signaling a gap in job creation.

Transitioning from informal to formal employment requires addressing key challenges such as business registration costs, financial access, and skill mismatches.

Barriers to Transitioning to Formal Employment

1. High Cost of Business Registration

Many informal businesses struggle with registration fees, taxation, and compliance costs.

• 21% of respondents cited business registration costs as a major obstacle.
• 16% identified high taxation, making it expensive for small businesses to formalize.
• 10% noted complex legal procedures, delaying the transition process.

2. Limited Financial Access

Small businesses and informal workers lack access to credit and financial support.

• 28% of respondents said lack of credit prevents them from formalizing.
• 20% lack collateral, making it difficult to secure business loans.

Without affordable financial services, many small businesses stay informal to avoid financial risks.

3. Skills and Education Gaps

Workers with low education levels struggle to find formal employment.

• 83% of formal workers have at least a bachelor’s degree, compared to 10% in informal jobs.
• 50% of informal workers only have a secondary education, limiting their transition options.
• Without vocational training and skills development, informal workers remain excluded from formal jobs.

4. Lack of Awareness of Formalization Benefits

Many informal workers do not understand the advantages of transitioning to formal employment.

• 54% of respondents are unaware of social security and tax incentives for formal workers.
• 35% prefer informal jobs due to their flexibility and independence.

Opportunities for Transitioning to Formal Employment

1. Government Incentives for SMEs

The government is introducing programs to support small businesses and ease registration.

• 38% of respondents support tax reductions for small businesses to encourage formalization.
• 31% want simplified business registration to reduce bureaucracy.
• 25% believe SME-friendly loan programs can help businesses transition.

2. Expansion of Vocational and Technical Training

Providing skills training can help workers qualify for higher-paying, formal jobs.

• 35% of respondents want digital skills training, which aligns with new job trends.
• 29% support entrepreneurship programs, helping small business owners formalize.

3. Digital Platforms for Business Formalization

E-commerce and digital banking allow small businesses to register and operate legally online.

• 38% of respondents believe that online registration makes formalization easier.
• 35% say mobile banking allows informal businesses to accept digital payments.

Conclusion and Policy Recommendations

Tanzania's informal sector remains dominant, but financial constraints, skill gaps, and regulatory burdens make formalization difficult. Addressing these barriers can unlock new job opportunities and improve economic stability.

Policy Recommendations:

1. Reduce Business Registration Costs – Introduce low-cost registration for SMEs.
2. Expand Access to Microfinance – Offer low-interest loans for informal businesses.
3. Strengthen Vocational Training Programs – Equip workers with formal job skills.
4. Promote Digital Tax and Registration Systems – Simplify online business formalization.
5. Raise Awareness on Formalization Benefits – Educate workers on social security and tax incentives.

NOTE:

The research and case studies presented in this report were conducted by Tanzania Investment and Consulting Group Limited (TICGL) to analyze employment trends, macroeconomic stability, and job creation dynamics in Tanzania. The study covered a sample size of 2,500 respondents, representing diverse economic sectors and geographic regions. A mixed-methods approach was employed, integrating quantitative surveys (85%), structured interviews (10%), and focus group discussions (5%) to gather both statistical data and qualitative insights. The research was conducted across six key regions: Dar es Salaam (25% of respondents), Mwanza (18%), Arusha (15%), Dodoma (14%), Mbeya (12%), and Morogoro (16%), ensuring a balance between urban and rural employment patterns.

The findings indicate that Tanzania’s workforce is 71.8% informal (25.95 million workers) and 28.2% formal (10.17 million workers), highlighting a significant divide in job security, wages, and access to social protection. Among the 2,500 surveyed individuals, formal employment accounts for 23% (550 individuals), predominantly in government (32% of formal jobs), banking and financial services (25%), manufacturing (18%), and education and healthcare (15%). On the other hand, informal employment constitutes 49% (1,170 individuals), with key sectors including agriculture (35% of informal workers), small businesses and trade (28%), transportation (15%), and casual labor (12%). The remaining 27% (650 individuals) were unemployed, with youth unemployment (ages 18–35) reaching 33%, significantly higher than the national average of 9.2%.

Employment trends indicate that formal employment is projected to rise to 38% by 2030, driven by industrialization, digital transformation, and policy reforms. However, major barriers continue to slow the transition, including limited job availability (42%), skills mismatches (26%), and bureaucratic challenges (21%). The study also found that women make up 65% of the informal workforce, primarily due to barriers in accessing formal jobs, while 72% of youth are engaged in informal employment due to limited entry-level job opportunities.

To bridge the gap between formal and informal employment, Tanzania must focus on expanding SME growth, strengthening vocational training programs, improving access to financial services for small businesses, and reducing bureaucratic hurdles for business registration. This report emphasizes the key trends, challenges, and opportunities shaping Tanzania’s employment landscape and highlights the role of public-private partnerships, investment in digital workforce expansion, and targeted policy interventions in creating a more structured and inclusive workforce by 2030.