Tanzania: Pilot Rural Investment Climate Assessment. Stimulating Nonfarm Microenterprise Growth

Abstract

Tanzania’s Pilot Rural Investment Climate Assessment (RICA) measures the economic environment of non-farm entrepreneurs. The pilot assessment has three key objectives: it aims to better understand the rural non-farm economy in Tanzania, shed light on rural enterprise dynamics and business constraints, and reflect on areas where government policies are readily directed to help promote rural non-farm enterprise activity. The RICA is based on an analysis of a unique survey data set collected by the National Bureau of Statistics (NBS) during January and March 2005, covering enterprises, households, and communities in all seven geographical zones of the country. Selected findings are: (i) Non-farm activities are an important source of income for approximately 1.4 million rural households, (ii) Tanzanian rural non-farm enterprises differ from their urban counterparts, (iii) the predominant entrepreneurial activity is trading, (iv) labor productivity is typically low, (v) formal enterprises have higher levels of labor productivity than informal, (vi) the rate of new firm creation appears to be lower than in other African countries, and (vii) only a minority of enterprises propels employment growth. The pilot approach call for a careful evaluation of the following recommendations, which presented to stimulate dialogue and future analysis: (i) favorable policies and investments for agriculture play a big role for rural enterprises, (ii) maintaining favorable internal trade policies may therefore be of utmost importance in determining enterprise performance, (iii) microcredit and savings may offer a tool for promoting rural non-farm activity in buoyant rural markets, (iv) easing bottlenecks in rural infrastructure is important, (v) exploring options for better telecommunications via private sector cell phone nodes may be an attractive policy option to stimulate entrepreneurial activities, (vi) continuation of business registration reform and effective implementation at the local level remains a high priority, and (vii) future analysis should address knowledge gaps.Tanzania; rural labor markets; enterprise performance; informal sector