Sida, commissioned Southern African IDEAS (Pty.) Ltd., to review a range of assessment reports on the Tanzanian investment climate and business environment since 2005 in order to inform relevant development partners in their forthcoming discussions with the government.

The report was provided to the members of the Development Partners Group on Private Sector Development and Trade.

The review sought to improve the general understanding development partners in Tanzania have of key problems and constraints in the investment climate and business environment and to improve the quality of their understanding of these issues and their discussions with government. It is envisaged that this would better inform the design of investment climate and business environment reform strategies that the Government of Tanzania will initiate. This includes the joint assessments of the Government of Tanzania’s reform programmes, such as Mkukuta 2, Roadmap and BEST 2.

When all the main findings and the reform priorities were synthesised, the following top reform priorities were identified:

HIGH PRIORITY INVESTMENT CLIMATE REFORMS

Improving national infrastructure: electricity, transport and port facilities

This is a major priority for reform in Tanzania. Within this domain, the issues associated with electricity, transport and the ports are the most significant binding constraints to enterprise competitiveness and growth. While, improving national infrastructure is a high-cost reform, it could lead to significant outcomes. While much of this could only be achieved in the long-term, there are some immediate technical assistance interventions that could be of use in the short-term.

Improve access to finance by Tanzania enterprises

The lack of access Tanzanian enterprises have to finance is a major investment climate concern, which deserves priority attention. This is a field that would involve work with commercial banks as well as Tanzania’s Savings and Credit Cooperative Societies. Depending on the approach taken, the costs involved would vary. Reforms in this field could produce benefits in the short-term and could be relatively cheap, depending on the strategy pursued. While this would be a national reform, it could also focus on specific sector and locations.

MEDIUM PRIORITY INVESTMENT CLIMATE REFORMS

Reducing corruption and strengthening the rule of law

While there appear to be mixed opinions on the issue of corruption in Tanzania, it is clear that this is an issue that requires significant attention both in the short and long term. Specific risks for corruption appear to be found in government procurement, regulatory and licensing procedures, privatisation processes, taxation administration, and customs clearance and the ports.

HIGH PRIORITY BUSINESS ENVIRONMENT REFORMS

Improving business registration and licensing regulations and procedures

There are significant problems associated with business registration and licensing in Tanzania. Indeed, compared to its neighbours, Tanzania has performed badly in this field. These problems contribute to informality and undermine Tanzania’s competitiveness in the region. Tanzania needs to reduce the number of steps and associated costs required to start a business. It should provide better information and public awareness on the process and benefits of business registration and licensing, and should delink the revenue and regulatory functions of licensing. Reform in this area of the business environment, along with taxation, has a direct impact on the informal economy. Benefits could be realised quickly and at a low cost.

Strategically reviewing taxation

An overall strategy for taxation appears wanting and the dangers of cumulative central, district and local taxation are mounting. Increasing local taxes are a particular concern, as is the narrow tax base on which all tax revenues rely. While reform in this topic would occur at national and sub-national levels, technical assistance could realise benefits in this field relatively quickly.

MEDIUM PRIORITY BUSINESS ENVIRONMENT REFORMS

Customs, export and import reform: maximising Tanzania’s locational advantages by facilitating trade

While not a major priority on its own, reforming customs and export and import procedures will maximise the locational advantages Tanzania enjoys, but has not exploited. Tanzania needs to re-evaluate and refrain from the imposition of export taxes. Unlike the upgrading of port facilities, supporting this kind of regulatory reform is relatively cheap and results can be seen quickly.

Modernising labour law and regulation and promoting compliance

The legal and regulatory framework for labour is a major concern for many formal enterprises and often a reason for remaining informal.  While this is not a high priority for reform, it is one with links into the informal economy and to the possible improvement of firm-level productivity.

Southern African IDEAS

June 2010