One of the focal points of the Tanzanian government’s long-term development strategy is industrialisation. In the five-year development plans (FYDPs) that serve as the foundation for the Tanzania Development Vision 2025, manufacturing is a key component. The second FYDP – covering 2016 to 2021 – set a sectoral growth target of over 10% annually, along with an increase from just under one-quarter to just under one-third of total exports.
Unrealised Potential
The government’s focus on industrial development fits with a broader trend of countries from South Africa to Ghana and Ethiopia hoping to stoke a rise in manufacturing in order to boost employment and value addition. However, Tanzania has several comparative advantages that establish the sector as a promising arena of growth. One of the most salient of these is the large and rapidly expanding population; the Ministry of Finance and Planning (MoFP) estimates that there were 25.8m Tanzanians of working age in 2014, and that the labour force is expanding by 2.3% annually. Around 800,000 Tanzanians enter the labour market each year, many of them destined for the agriculture sector, which employs 66% of the population. In line with government goals to transition to a middle-income country, high-skilled workers need to make up a minimum of 12% of the labour force, up from the current 3%.
Resource Rich
The country also possesses a wide array of natural resources including sizeable underexploited gas reserves, and raw minerals such as coal, tin, gemstones, iron ore, uranium, salt and soda ash. A long coastline and access to the Indian Ocean grants Tanzania the potential to establish itself as the lowest-cost trade destination for the Great Lakes Region. The emergence of a major logistics cluster would potentially act as a further catalyst for manufacturing and processing industries supplying co-located trading entities based there.
Despite this favourable environment, Tanzania’s industrial sector is widely considered to be under-performing. According to the MoFP, industry accounted for 23% of GDP in 2015, down from 29% a decade earlier. Manufacturing activity – the core of the more broadly defined industrial sector – shows a similar pattern; in 2005 it accounted for 7.3% of total GDP, but by 2015 this had fallen to 5.2%.
Legacy Challenges
Tanzania’s industrial sector began to see a significant increase in activity in the 1990s as privatisation took hold. Prior to that, the manufacturing segment was relatively modest. In the post-colonial era between 1961 and 1967 there were only 186 companies in the market, during which period it contributed just 4% of GDP, and was dominated by foreign fast-moving consumer goods producers such as Coca-Cola and British American Tobacco. Following the Arusha Declaration, which paved the way for a more socialist economic strategy, the industrial sector became dominated by the state. However, by the early 1990s the government began to divest itself of commercial assets across the economy, and 196 industrial firms were privatised in the process. The publication in 1996 of a 25-year Sustainable Industrial Development and Competitiveness Policy sought to foster new growth, putting manufacturing at the centre of its drive to create jobs and boost exports. This strategy was tweaked in 2010 to produce the Integrated Industrial Development Strategy 2025, which placed greater emphasis on export-led industrialisation.
However, legacy challenges remained, including competition from imported goods, unreliable power supply, and obsolete plants and machinery, all of which have proven difficult to overcome. Of the nearly 200 industrial privatisations in the early 1990s, the MoFP deemed only 34 firms to have attained satisfactory outcomes in terms of production, profitability and contribution to tax revenues.
As well as macro and infrastructural issues, the industrial sector faces other challenges. These include: weak domestic value chains; low levels of diversification due to inadequate skills; poor productivity, largely due to restricted access to finance, modern technologies and technical know-how; a challenging business environment; and a lack of incentives for both the private and public sectors to prioritise research and development (R&D).
Looking Ahead
Tanzania’s new industrial policy, established in the MoFP’s FYDP II, is cognisant of these issues. As part of the plan, the government aims to boost the contribution manufacturing makes to GDP to 12.5% by 2020, and has proposed market interventions to do so. It will establish special economic and export processing zones, for example, as well as a new logistics centre. Dedicated industrial parks will also be added to the mix, while R&D institutions will be granted more investment support.
Bagamoyo
While the FYDP II does not provide details regarding specific initiatives, a master plan has been developed for a major project at Bagamoyo. Located around 50 km from Dar es Salaam, the Bagamoyo Special Economic Zone, if developed as planned, will include: industrial and trade parks with serviced plots, incentives stipulated in the amendments of the Export Processing Zones Act of 2002; and a tourism park.
Proposals for a new airport and seaport, as well as accompanying facilities for both, will allow for the trans-shipment of goods without being subject to Customs procedures; a free trade zone, where activities can take place without the application of import duties or other taxes; a science and technology park featuring a university, which will also benefit from Bagamoyo’s proximity to the University of Dar es Salaam; and an international business centre, which will house the offices of multinational firms and service companies.
Targeted Industries
The strategy also identifies several industries that together are capable of providing a platform from which manufacturing activity can be expanded. Targeted sectors include petrochemicals, pharmaceuticals, building and construction, agriculture and agro-processing (cotton to clothing, textiles and garments, and leather), and coal, iron and steel production.
Beyond manufacturing, a number of primary industries are to receive special attention over the short term. Mining and metals are slated to see infrastructure support and skills development, while the construction sector is to receive a new financing option in the form of a specialised bank.
A wide range of interventions in agriculture include skills promotion, R&D innovation and the introduction of alternative products. The science and technology arena will also be opened up to more international cooperation agreements, with the government planning to increase R&D support and expenditure. This is a sweeping approach, and the success of the programme will depend on the ability of the government to bridge the gap between the proposal and implementation stages, although so far it has had a mixed reception.
In January 2017 the executive director of the Tanzania Private Sector Foundation publicly urged the government to reform its special economic zone framework, which he claimed was not suitable for attracting large investments from industrial interests in large-scale markets such as China. This call came during the same month China’s minister of foreign affairs announced the government’s intention to back Tanzania’s industrialisation efforts by supporting the nation’s infrastructure development – particularly with regard to roads, railways, and the construction of ports in Bagamoyo and Zanzibar.
It is too early to say whether the government’s current approach will be more effective than its previous initiatives, but there is clearly an appetite for sector reform from domestic and foreign players.
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