REFORMING INSTITUTIONS AIMED AT IMPROVING THE …€¦ · The research title was ‘Reforming Institutions aimed at improving the Enabling Environment for Pro-Poor Private Sector

REFORMING INSTITUTIONS AIMED AT IMPROVING THE ENABLING ENVIRONMENT

FOR PRO-POOR PRIVATE SECTOR DEVELOPMENT “A Tanzanian Case Study”

Nathalie van der Poel Frans van Gerwen

Donath Olomi

MDF Training & Consultancy

November 2005

Submitted under theme 2 “Designing Donor Supported Reform Programmes”

International conference: Reforming the Business Environment

from assessing problems to measuring results

Cairo, Egypt 29 November - 1 December 2005

Executive summary research linked to main issues of Cairo Conference This conference paper contains the results of a research carried out between January – March 2005 in Tanzania. The research title was ‘Reforming Institutions aimed at improving the Enabling Environment for Pro-Poor Private Sector Development’. The research was commissioned by the OECD/DAC/POVNET task team on Private Sector Development (PSD), through DGIS/DDE (Ministry of Foreign Affairs, the Netherlands) and carried out by MDF Training & Consultancy. The research constitutes a first step in identifying how institutional arrangements can be improved in order to stimulate multi-stakeholder dialogue and partnerships, private investment, growth, and sharing the benefits of growth. The scope of this study was to assess the drivers, bottlenecks and success factors for the enabling environment for pro-poor PSD and to identify ideas and recommendations for its strengthening. Specific focus is given to the consultation, negotiation, conflict resolution and decentralised planning processes at micro, meso and macro level during development and implementation of Poverty Reduction Strategies (PRS). This includes the role of different stakeholders involved; government, private sector, civil society, NGOs and development partners. However, specific emphasis was placed on the role of the private sector in these processes. The paper presents main constraints for MSMEs at grassroots level and a newly developed public-private sector dialogue framework which enables the analysis and assessment of different vertical and horizontal dialogue processes that take place between different levels (national, regional, local and sub-local) of the private and public sector. As a result, main constraints for pro-poor PSD can be linked to the respective levels where they should be resolved. Where dialogue processes are lacking or fail, these constraints will not be suitably addressed, warranting the need for institutional reform or development interventions. In addition, the consultation process for the new National Strategy for Growth and Reduction of Poverty was analysed with respect to input from the private sector, and attention for key constraints for pro-poor PSD.

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Based on the results and conclusions reached by linking main constraints for MSMEs, the informal sector and Pro-Poor PSD in general, to the different levels within public and private sector institutions where these constraints could or should be addressed and resolved, concrete and practical recommendations have been developed to improve the business environment and resolve and alleviate these constraints. Although some of these recommendations are specific for Tanzania, most of them can easily be extrapolated to the situation in other countries. One of the main conclusions of this research is that a change of mind set is required, especially in the public sector at local level, to move from a controlling to a facilitating and service oriented role with respect to PSD. This requires horizontal public-private dialogue processes, not only at national, but also at local (district or municipal) level. In a country such as Tanzania, with a strong socialist past, this change will need to be commenced from the highest political levels. Also, suitable incentives will need to be developed to motivate people to change and enter into public-private dialogue. The research is relevant to several of the controversial issues of this conference: • Why should enterprise size matter: The research conducted shows that most development interventions historically are geared to medium and large enterprises, especially those with an international dimension. However, measures put in place for this segment of the business community may not necessarily benefit smaller enterprises, entrepreneurs from the agricultural or the informal sector, where most of the world’s poor are employed. It is concluded that micro and small enterprises, entrepreneurs operating in the informal sector, as well as entrepreneurs from marginalised groups such as women or youth, experience considerably more constraints in accessing information, business development services etc. Often, the costs involved in obtaining this information or e.g. access to credit or a business license, is prohibitive. In addition, they often lack the capacity to understand the implications of changes in rules and regulations and to make their voice heard by the relevant authorities. • How to promote public private dialogue. Based on the public-private dialogue framework developed in the research, recommendations have been developed as to how public-private dialogue at different levels (national, local, sub-local) can be promoted or improved. The most important recommendations of this research are the following: i) Horizontal dialogue processes need to be established and reinforced at the district/municipal

level, as specific problems related to PSD need to be resolved at the lowest possible level. If these horizontal dialogue processes are lacking, problems are transferred to a higher hierarchical level where they tend to get lost.

ii) Organisations representing product, sub-sector and marginalised groups, to adequately voice the concerns of their constituents or provide a meaningful contribution to any dialogue process or communication platform need to be build and strengthened. Associations representing different groups of poor entrepreneurs that do exist, lack adequate resources and capacity to play their role at district/municipal level, and to form linkages to private sector organisations at higher levels.

iii) Much informal communication and negotiation exists at (sub) district/municipal levels. Although such informal communication processes can certainly provide a positive contribution to solving specific problems, they can also considerably weaken any incentives to participate in endeavours to establish formal horizontal dialogue processes between the public and the private sector. This requires alternative forms of conflict resolution with an integrated perspective on informal and formal dialogue processes.

• How to manifest a demand for reform of the business environment. The research clearly shows that the business community itself should instigate a demand for reform. However, especially at grassroots level, a huge lack of sub-sector or product associations exists that have the capacity to promote and support this demand for reform. Those associations that do exist, lack capacity to make any meaningful contribution to dialogue processes. It is

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therefore recommended that development interventions support the creation and strengthening of sub-sector or product associations, or associations representing marginalised groups, on a demand-driven basis. • What is the connection between the informal economy and the business environment? The research conducted indicates that the size of the informal economy is very much related to the constraints experienced when trying to become part of the formal economy. For many poor entrepreneurs, the cost of formalisation is prohibitive. With respect to this question, it can be concluded that the consultation process that was carried out for the NSGRP (National Strategy for Growth and Reduction of Poverty) in Tanzania was inclusive and well organised. Much effort was made to consult with a wide variety of stakeholders from public, private and civil society organisations at national and grassroots level. However, a number of issues important to pro-poor PSD do not feature prominently enough in the NSGRP, which has limited the possibilities for connecting the informal economy to the business environment. • What are the local dimensions to business environment reform programmes? As the study clearly concentrated on pro-poor PSD, many constraints at grassroots level have been identified and especially the public-private dialogue processes at local level have been analysed. The public-private dialogue framework developed therefore includes the local and sub-local level. • How can donors collaborate in business environment reforms? The study shows that at least in Tanzania, many PSD development programmes exist or are being implemented. However, co-ordination between the different development partners is lacking, leading to overlap and omissions. Also, some PSD programmes, especially those at grassroots level, have been very successful but insufficient mechanisms are in place to ensure dissemination of lessons learnt and recommendations, to other PSD development initiatives. The following recommendations can be made to development partners: i) Pro-poor economic growth cannot be achieved by focusing interventions only at the private or

the public sector. Successful pro-poor PSD requires linking PSD and governance programmes in one holistic intervention strategy.

ii) The continuing efforts of the Government of Tanzania in government decentralisation and participatory planning and budgeting deserve continuing support. However, focus should be on realisation of a change in mind-set of (sub) district/municipal government authorities, from a controlling to a facilitating and service oriented organisation, especially with respect to the private sector. This shift in mind-set will take time and will require strong leadership from the top, and considerable efforts in establishing incentives for change.

iii) It is recommended that development partners support capacity building and creation of sub-sector and product associations at grassroots level on a demand-driven basis.

iv) Many grassroots PSD programmes have been carried out, some of which with great success. Lessons learnt and best practices from these programmes should be collected and disseminated to development partners and national level decision makers so that they can be integrated and translated into effective PSD strategies, programmes and policies.

v) Co-ordination of different PSD programmes, strategies and policies, as well as related interventions should be improved, both at grassroots as well as at national level.

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LIST OF ACRONYMS ACB Akiba Commercial Bank ACMA Advocacy Component Management Agency (component of BEST programme) ADAT Artisans Development Association of Tanzania ADF African Development Foundation ALAT Association of Local Authorities Tanzania BEST Business Environment Strengthening Tanzania (Programme) BFIA Banking and Financial Institutions Act BOT Bank of Tanzania BRELA Business Registration and Licensing Agency CBO Community Based Organisation CDO Community Development Officer CGAP Consultative Group for the Poor CMSA Capital Markets and Securities Agency CRDB CRDB Bank CREW Credit Scheme for Rural Women CSO Civil Society Organisation CTI Chamber of Tanzanian Industries DAC Development Assistance Committee DC District Commissioner DCB Dar es Salaam Community Bank DED District Executive Director DFID Department for International Development (U.K.) DPG Development Partners Group DSE Dar es Salaam Stock Exchange EOTF Equal Opportunities for all Trust Fund FAWETA Federation of Associations of Women Entrepreneurs of Tanzania FBO Faith Based Organisation FDSP Financial Sector Deepening Programme FEMAC Feminist Activism Coalition HIPC Highly Indebted Poor Countries HQ Head Quarters IFC International Finance Corporation ILO International Labour Organisation KCB Kilimanjaro Community Bank LGRP Local Government Reform Programme MCB Mwanga Community Bank MJCA Ministry of Justice and Constitutional Affairs MEDA Mennonite Development Association MFIs Micro-Finance Institutions MGCDC Ministry of Gender, Community Development and Children MIT Ministry of Industry and Trade MKUKUTA NSGRP (Kiswahili) MOF Ministry of Finance MoLYD Ministry of Labour and Youth Development MTEF Mid-Term Expenditure Framework MUCOBA Mufindi Community Bank NBC National Business Council NBS National Bureau of Statistics NEDF National Entrepreneurship Development Fund NGO Non-Governmental Organisation NIGP National Income Generating Programme NMB National Micro Finance Bank NPES National Poverty Eradication Strategy NPF NGO Policy Forum NSGRP National Strategy for Growth and Reduction of Poverty

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OECD Organisation for Economic Co-operation and Development PER Public Expenditure Review PMS Poverty Monitoring System PMMP Poverty Monitoring Master Plan PO President’s Office PO-PP President’s Office - Planning and Privatisation PO-RALG President’s Office – Regional Administration and Local Government POVNET Network on Poverty Reduction PPW Poverty Policy Week PRBS Poverty Reduction Budget Support PRGF Poverty Reduction Growth Facility PRSC Poverty Reduction Support Credit PRS(P) Poverty Reduction Strategy (Paper) PSD Private Sector Development PSO Private Sector Organisation PTF Presidential Trust Fund RAS Regional Administrative Secretary RC Regional Commissioner REPOA Research on Poverty Alleviation ROSCAS Rotating Savings and Credit Societies SACCOS Saving and Credit Co-operative Societies SACAS Savings and Credit Associations SEDA Small Enterprise Development Agency SELF Small Enterprise Loan Facility SHG Self-Help Groups SIDO Small Industries Development Organisation SME Small and Medium Enterprises TAFOPA Tanzanian Food Processors’ Association TANGO Tanzanian Association of Non-Governmental Organisations TAMFI Tanzanian Association of Micro-Finance Institutions TAS Tanzanian Assistance Strategy TBS Tanzanian Bureau of Standards TCCIA Tanzanian Chamber of Commerce, Industry and Agriculture TGT Tanzania Gatsby Trust TIC Tanzanian Investment Centre TNBC Tanzanian National Business Council ToR Terms of Reference TPB Tanzania Postal Bank TPRI Tanzania Plant Research Institute (T)PSF Tanzanian Private Sector Foundation TRA Tanzanian Revenue Authority UNDP United Nations Development Programme UNIDO United Nations Industrial Development Organisation URT United Republic of Tanzania VAT Value Added Tax VIBINDO Dar es Salaam Society for Informal Sector VPO Vice President’s Office WDF Women Development Fund WEC Women Executive Committee WEG Women Economic Group YOSEFO Youth Self Employment Foundation ZDF Zanzibar Development Fund

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TABLE OF CONTENTS

1 Introduction pag 1 2 Methodology pag 2 3 The NSGRP Consultation Process pag 3 4 Main Constraints for Pro-Poor Private Sector Development pag 7 5 The Public-Private Dialogue Framework pag 9 6 Linking the problems in Pro-Poor Private Sector Development with pag 22 Dialogue Processes 7 Conclusions and Recommendations on Research Questions. pag 24

Annex 1 References. pag 28 Annex 2 Key actors in private sector development interviewed for the study. pag 31 Annex 3 Government ministries responsible for PSD and their participation in pag 33 the consultation process. Annex 4 Government agencies responsible for PSD and their participation in pag 34 the consultation process. Annex 5 Private sector organisations and their participation in the pag 35 consultation process. Annex 6 Civil society organisations and their participation in the consultation pag 36 process. Annex 7 Development partners active in PSD and their role in the pag 37 consultation process. Annex 8 List of important strategies, programmes and policies that bear pag 38 relevance to PSD. Annex 9 Institutional analysis of different stakeholders in PSD. pag 40 Annex 10 Analysis of strategies, programmes and policies involved with PSD. pag 45 Annex 11 Pro-poor PSD: Problems at grassroots level. pag 47 Annex 12 Overview of credit facilities in Tanzania. pag 50 Annex 13 Taxation. pag 56

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EXECUTIVE SUMMARY This research focused on three main issues with respect to reforming institutions aimed at improving the enabling environment for pro-poor private sector development in Tanzania: 1) Which issues important to poor entrepreneurs are insufficiently addressed in the PRSP

(Poverty Reduction Strategy Paper, now called NSGRP)? 2) How can local participatory planning processes be created, strengthened and linked to the

national planning process? 3) What can donors do to facilitate bottom-up planning in a PRSP? With respect to the first question, it can be concluded that the consultation process that was carried out for the NSGRP (National Strategy for Growth and Reduction of Poverty) was very inclusive and well organised. Much effort was made to consult with a wide variety of stakeholders from public, private and civil society organisations at national and grassroots level. However, a number of issues important to pro-poor PSD do not feature prominently enough in the NSGRP or are omitted altogether, in the following domains: i) Lack of capacity and transparency of governance, ii) Insufficient access to credit (including more practical aspects such as long distances to the

nearest credit facility), iii) Low awareness and capacity of individuals and organisations with respect to PSD and with

respect to policies, strategies, rights and obligations, iv) Lack of forms of associations, especially for specific sub-sector, product or marginalised

groups at grassroots level, v) Complex and non-transparent tax regime, in particular with respect to the effects of VAT on

people at the bottom of the pyramid, vi) Existence of wide-spread price fixing, vii) Insufficient access to markets and weak market linkages, and viii) Expensive inputs. More information on the details of these eight different aspects can be found in chapters 4 and 6. Regarding the second question above, a framework was developed that is used to model the complex reality of institutional arrangements for public-private dialogue at national, regional, district/municipal and sub-district level in Tanzania. The framework was used to better understand the dialogue processes at different institutional levels, from which some important conclusions are drawn: ix) Horizontal dialogue processes need to be established and reinforced at the district/municipal

level, as specific problems related to PSD need to be resolved at the lowest possible level. If these horizontal dialogue processes are lacking, problems are transferred to a higher hierarchical level where they tend to get lost.

x) A huge shortage exists of organisations representing product, sub-sector and marginalised groups, to adequately voice the concerns of their constituents or provide a meaningful contribution to any dialogue process or communication platform. Associations representing different groups of poor entrepreneurs that do exist, lack adequate resources and capacity to play their role at district/municipal level, and to form linkages to private sector organisations at higher levels.

xi) Much informal communication and negotiation exists at (sub) district/municipal levels. Although such informal communication processes can certainly provide a positive contribution to solving specific problems, they can also considerably weaken any incentives to participate in endeavours to establish formal horizontal dialogue processes between the public and the private sector.

Chapters 5 and 6 provide more details with respect to specific conclusions on the public-private dialogue framework.

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As for the third question, the following recommendations can be made to development partners: xii) Pro-poor economic growth cannot be achieved by focusing interventions only at the private or

the public sector. Successful pro-poor PSD requires linking PSD and governance programmes in one holistic intervention strategy.

xiii) The continuing efforts of the Government of Tanzania in government decentralisation and participatory planning and budgeting deserve continuing support. However, focus should be on realisation of a change in mind-set of (sub) district/municipal government authorities, from a controlling to a facilitating and service oriented organisation, especially with respect to the private sector. This shift in mind-set will take time and will require strong leadership from the top, and considerable efforts in establishing incentives for change.

xiv) It is recommended that development partners support capacity building and creation of sub-sector and product associations at grassroots level on a demand-driven basis.

xv) Many grassroots PSD programmes have been carried out, some of which with great success. Lessons learnt and best practices from these programmes should be collected and disseminated to development partners and national level decision makers so that they can be integrated and translated into effective PSD strategies, programmes and policies.

xvi) Co-ordination of different PSD programmes, strategies and policies, as well as related interventions should be improved, both at grassroots as well as at national level.

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INTRODUCTION 1.1 General background This document provides findings, conclusions and recommendations on the research: ‘Reforming Institutions aimed at improving the Enabling Environment for Pro-Poor Private Sector Development’. This research was carried out between January – March 2005. This assignment was commissioned by the OECD/DAC/POVNET task team on Private Sector Development (PSD), through DGIS/DDE (Ministry of Foreign Affairs, the Netherlands) and carried out by MDF Training and Consultancy. The research constitutes a first step in identifying how institutional arrangements can be improved in order to stimulate multi-stakeholder dialogue and partnerships, private investment, growth, and sharing the benefits of growth. The subject country of this assignment is the United Republic of Tanzania. Parallel to this research an identical assignment with similar Terms of Reference (ToR) was carried out in Vietnam. The scope of this study is to assess the drivers, bottlenecks and success factors for the enabling environment for pro-poor PSD and to identify ideas and recommendations for its strengthening. Specific focus is given to the consultation, negotiation, conflict resolution and decentralised planning processes at micro, meso and macro level during development and implementation of Poverty Reduction Strategies (PRS). This includes the role of different stakeholders involved; government, private sector, civil society, NGOs and development partners. However, specific emphasis is placed on the role of the private sector in these processes.1 1.2 Research Questions 1. Will the outcome of a “bottom up” facilitation process which enables local institutions to play a

role in the economic planning process, lead to different priorities for improving the business climate compared to those identified in the formal PRSP, especially with regard to the impact on the poor? If so, what are the differences?

2 For which issues a more “bottom up” planning process is desirable in order to take the interests of the local private sector, especially those of poor (potential) entrepreneurs, into account?

3 Are methodologies and institutional arrangements missing at meso2 level for “scaling up” local participatory processes – involving private (formal and informal) and public sector entities - in order to link them to the national planning process? What is missing for realising a “bottom up” approach?

4 Which institutional arrangements can be created or/and enforced at the meso level in order to reinforce bottom up processes, including new methodology for analysis and planning, and capacity to apply it?

5 How can bottom up planning be made part and parcel of a PRS process? What can donors do to facilitate this?

1 The ToR for this research was focused on private sector participation in PRSP and pro-poor economic growth processes. Other organisations (RNE in Tanzania, Hakikazi, NPF) presently carry out research on civil society involvement in PRSP processes, which is complementary to this study. 2 Much confusion exists with respect to ‘meso’ level, as it can mean something entirely different depending on context. The meso level is considered to be the decision making level between individual citizens (micro) and the national level (macro); being the district or municipal government in Tanzania. However, in other countries such as e.g. Vietnam, the provincial government would be considered as meso level. In the remainder of this report, meso level is considered as district or municipal level. However, meso PSO organisations are organisations between micro and macro PSOs, often operating at regional level.


2 METHODOLOGY In order to answer the research questions as provided above, the following approach was taken:

• Analysis of the PRSP consultation processes, implementation arrangements, Monitoring & Evaluation System and Communication Strategy;

• Interviews with relevant stakeholders from the public and private sector at national level and at district level in Northern Tanzania (annex 2);

• Institutional analysis of structural and institutional arrangements (vertical and horizontal) within the different levels of government, and (horizontally) between public and private sector organisations (PSOs);

• Analysis of PSD strategies, programmes and policies (annex 8); • Realisation of two multi-stakeholder workshops (at district and national level) to validate

findings and to discuss preliminary recommendations; • Incorporation of feedback and comments by DGIS/DDE, the RNE in Tanzania and

OECD/DAC/POVNET PSD group;


3 THE NSGRP OR MKUKUTA CONSULTATION PROCESS 3.1 On the consultation-process for MKUKUTA The preparation of Tanzania’s second PRSP in 2004 was based on lessons learnt during the formulation of the first PRSP in 2000/2001. A serious effort was made to organise an inclusive and participatory process of consultation and to expand the focus of the PRSP from poverty reduction to include economic growth. The second PRSP is called the National Strategy for Growth and Reduction of Poverty (NSGRP or in Kiswahili: MKUKUTA). The research team has executed an extensive analysis on both the first PRSP as well as the second NSGRP consultation processes, which is available in a separate report3. Below follow the main conclusions and observations as to the development of MKUKUTA based upon that analysis. The consultation process for MKUKUTA was co-ordinated by the Vice President’s Office (VPO); the State Ministry responsible for poverty reduction. The process involved three phases or rounds, starting in March 2004 and resulting in a final draft document on January 15, 2005. The participatory character and inclusiveness of the consultation process was remarkable and many people in the government, private sector and civil society at central and local levels were involved. Many stakeholders facilitated consultation processes within their own constituencies, whilst a grassroots level consultation process reaching out to 168 villages covering some 18,000 citizens, was conducted by the Association of Local Authorities of Tanzania (ALAT). Combining the different consultation efforts, it is estimated that a total of 1100 CSOs and approximately 35,000 people participated in the consultations. Whilst private sector participation was weak in the first round of these consultations, this was redressed in the second and third consultation rounds. A special effort was made to solicit the views of PSOs through the Tanzanian Private Sector Foundation. The process of consultation on MKUKUTA resulted in a final draft that is widely recognised and appreciated by the different stakeholders. Ownership of MKUKUTA is strongly developed and it sets an important international example and reference for stakeholder consultation processes in other countries. Although the overall appreciation of the consultation process is very positive, some concerns are identified: • People at grassroots level, as well as grassroots level associations and government

representatives, often lack access to information regarding MKUKUTA and its consultation process, and/or do not have the capacity to comprehend its contents or those of other relevant policies. This very much limits them to conduct a useful consultation within their constituency or to contribute in a meaningful way.

• Some stakeholders such as (micro) finance institutions were not consulted, whilst the issue of access to credit is an important aspect in the strategy on economic growth.

• Issues related to taxation, fiscal reforms and decentralisation have received limited attention in the strategy.

• Although some 1100 CSOs were consulted, many local associations representing marginalised groups such as the informal sector, subsistence farmers, youth etc., in particular in rural areas, were not able to participate.

• Insufficient time and capacity was available to thoroughly analyse the extensive amount of data generated during the different consultation rounds.

The general consensus and appreciation of the contents of MKUKUTA is understandable, as the document contains many priority issues relevant to all parts of society. However, the challenge remains as to how to finance and prioritise them. Allocation of roles, responsibilities and specific budgets to the different sector-ministries responsible for implementation also remains a concern. The initial costing of all actions in MKUKUTA far exceeded available government resources and 3 Final report “Reforming Institutions aimed at improving the enabling environment for pro-poor private sector development”, Van der Poel, van Gerwen and Olomi, April 2005, MDF


expected commitments from development partners. For the first year (2005), only 60% of the initially required budget has been secured. The process of budgeting and negotiation on allocation of these budgets has been less participatory than in developing the contents of the strategy. This has caused some frustration amongst stakeholders, which may be aggravated when insufficient resources are available for implementation of MKUKUTA. 3.2 On co-ordination of implementation of MKUKUTA MKUKUTA still has to be ratified by the parliament of Tanzania and the process of financial negotiation with bilateral and multilateral development partners is still ongoing. Specific budgets still have to be allocated to different implementing partners, with implementation due to start in July 2005. At this moment in time, it is therefore only possible to analyse the implementation and co-ordination arrangements as described in MKUKUTA. The implementation arrangements of MKUKUTA are complex and many different ministries and other organisations are involved. This is particularly the case in relation to the aspects of economic growth and PSD. VPO is responsible for MKUKUTA, whilst PO-PP is responsible for PSD (and programmes such as BEST). MIT is responsible for SME development, but its SME unit severely lacks capacity, only consisting of 4 people. Other ministries such as MoF (Financial Sector Deepening Programme), MoLYD (moving the informal sector into the formal economy) and the Ministry of Agriculture are all expected to implement elements of MKUKUTA. However, PSD cross-cuts the different sector ministries and although this is recognised in MKUKUTA, it is not reflected in its implementation arrangements and co-ordination structure. Particularly PO-PP, VPO and MIT face a big challenge in ensuring that implementation of the different elements of MKUKUTA related to PSD is adequately co-ordinated. For a more detailed analysis of the different PSD related strategies, programmes and policies, please refer to annex 8. For a detailed description of the institutional arrangements with respect to PSD, please refer to annex 10. An overview of government ministries and agencies responsible for PSD is provided in annexes 3 and 4. The MKUKUTA document presents the major roles and responsibilities of different actors within the government but is less specific on the roles and responsibilities of stakeholders in the private and public sector. Key national level processes in MKUKUTA are: • NSGRP and Poverty Monitoring System (NSGRP/PMS); • Public Expenditure Review (PER) and Medium Term Expenditure Framework (MTEF); and • Tanzania Assistance Strategy (TAS), Poverty Reduction and Growth Facility (PRGF), Poverty

Reduction Budget Support (PRBS), Poverty Reduction Support Credit (PRSC). These processes are said to be co-ordinated, planned and monitored by government, private and civil actors, but specific arrangements are not clear (although a specific document on the PMS contains a short description of a mixed steering committee and it specifies some roles of other actors in implementation of PMS). In order to ensure that private and civil actors effectively participate in co-ordination mechanisms and will be involved in implementation of actions within MKUKUTA, many concrete arrangements still have to be worked out. Another major challenge in the implementation of MKUKUTA is the effective transfer and translation of mandates and tasks to the regional, district and sub-district levels within the government. This has to be done in a context where the mindset and motivation of many government officials at the lower levels is not yet favourable for co-ordination and co-operation with external stakeholders from the private and civil sector. This requires a serious effort in sensitisation, awareness raising and capacity building of lower level government officials. At the same time, capacity building efforts have to address technical and managerial aspects of implementation of poverty reduction and economic growth actions. Finally, communication between central (state and sector ministries) and local governments requires improvement. The distance between central and local level is large and communication and co-ordination mainly occurs indirectly via PO-RALG. Regional secretariats only have a limited


role and mandate in vertical co-ordination and integration between local and national government. A more detailed analysis on national and local government decentralisation and communication is provided in annex 9. 3.3 On Monitoring and Evaluation of MKUKUTA A final important aspect of MKUKUTA is the monitoring and evaluation of its implementation. Again it is not yet possible to present a detailed analysis on implementation arrangements, as final plans to this extent are being developed at this moment. In February 2005, a report on the Poverty and Monitoring System (PMS) of the past period of the PRSP was presented with recommendations on improving the PMS with respect to the new MKUKUTA. This report confirms that the PMS in the past period has developed into a mature and well functioning system and therefore its main characteristics will remain in place in the coming period. There are many reports and reviews available on the PMS and the Poverty Monitoring Master Plan (PMMP) [ref 34, 35, 36, 37, 38, 39]. The PMS brings together information from three main sources; • Routine data, collected by local, regional and national government departments, • Official investigations, carried out by the National Bureau of Statistics (NBS) and • Special studies, carried out by a range of formal and independent researchers. The PMS is managed by a Poverty Monitoring Steering Committee, consisting of members of the government, private sector and civil society. There are four Technical Working Groups responsible for development and implementation of plans for poverty monitoring related work: • Surveys and Census, chaired by NBS. It designed a survey programme covering work until

2012. This work includes the National Census, Household Budget Surveys (HBS), Demographic and Health Surveys (DHS), Labour Force Surveys (LFS) and Agricultural Surveys.

• Routine Data Systems, chaired by PO-RALG. It assists in improving the systems used by national, regional and local government offices to analyse, exchange and distribute information. The improved systems will allow a wider range of people to have easier access to more relevant and useful information.

• Research & Analysis, chaired by PO-PP. It sets priorities and suggests funding mechanisms for research and analysis. It provides analysis to broaden understanding about the amount and causes of poverty in the country, and about the impact of poverty reduction policies. In research and analysis there is intensive co-ordination between PO-PP and REPOA, an independent civil society organisation.

• Dissemination, Sensitisation and Advocacy, chaired by VPO. This involves co-ordination of a programme for distribution of information resulting from poverty monitoring, and it also raises awareness about trends in poverty amongst all relevant stakeholders. This group has recently developed a communication plan for dissemination of the progress of MKUKUTA, in which data generated by the PMS take an important place.

The PMS generated yearly progress reports on the first PRSP with overall good quality information on the progress over the past years. It is expected to continue to do so in the following years of implementation of MKUKUTA. Limited capacities of local and regional governments and of the NBS to generate good quality baseline data for surveys, censuses and routine data still provides a bottleneck in monitoring and evaluation. This lack of good baseline data limits the quality of analysis in the progress reports. In the new MKUTUTA sets of indicators have been developed for two of the main components of the strategy (economic growth & income poverty reduction, improvement of quality of life and social well being), but no SMART and verifiable indicators are yet available for the third component (Governance and Accountability). Although other stakeholders are involved in the generation of M&E data and research, only the ‘research and analysis’ component is carried out jointly with an external organisation: REPOA. The


involvement of CSOs and PSOs in monitoring and evaluation and/or provision of base-line data in general, is limited in the PMS. This does not reflect the importance given to monitoring and evaluation of MKUKUTA by civil society. TANGO, NGO Policy Forum and Hakikazi Catalyst4 are the most important and active networks within civil society, that have the potential to provide independent monitoring and evaluation data on the poverty reduction strategies of the government. More co-operation between government, CSOs and PSO in M&E of MKUKUTA is in fact expected by these networks and could be explored in the final review of the PMS before implementation of MKUKUTA commences. 4 Research on Poverty Alleviation (REPOA) is an independent non-profit Tanzanian non-governmental organisation (NGO), established in 1994. It has the overall objective of deepening our understanding of the causes, extent, nature, rate of change and means of combating poverty in Tanzania. The NGO Policy Forum (NPF) brings together approximately 70 national and international NGOs that are engaged with critical policy processes in Tanzania. A major focus is to make policies more transparent, democratic and accountable to the people. Tanzania Association of Non-Governmental Organisations (TANGO) is the largest and longest standing national umbrella organisation serving the Tanzanian NGO community. TANGO was founded in 1988 by 22 NGOs. It now has over 485 member organisations. Hakikazi Catalyst advocates for activities which empower marginalised people to have an effective voice in influencing decisions affecting their lives, achieve sustainable livelihoods and civil and political rights, and enjoy equal status with others at local, national and international level. Hakikazi Catalyst collects, digests, presents and distributes information so as to popularise participation in the policy making and dissemination process. It also provides process support to civil society organisations by helping them clarify and monitor their strategic and operational plans, especially concerning lobbying and advocacy work.


4. MAIN CONSTRAINTS FOR PRO-POOR PRIVATE SECTOR DEVELOPMENT

Many efforts have been made by the national government to improve the enabling environment to “make the private sector the engine for growth”. Examples of some positive developments are the abolishment of some 40 nuisance taxes, easing of certain licensing requirements and streamlining formal business registration. In spite of this progress, a number of problems remain that severely hamper pro-poor PSD5. Based on the research and interviews conducted, both at national and district level, the following main constraints were identified in creating an enabling environment for pro-poor PSD. They are presented here in order of priority as mentioned during the different interviews (annex 2). 1. Lack of capacity and transparency of governance:

• Attitude and mind-set of government officials (controlling versus facilitating). • Lack of capacity, with respect to specific knowledge as well as on conflict handling,

facilitation, leadership, management and communication skills. • Procedures and regulations, red tape, annual renewal of licenses. • Formalisation through registration involves 13 steps and BRELA and other regulatory offices

are only available in the main commercial cities, making costs of transport and registration prohibitive.

• Lack of possibilities to register property or land, leading to less investment. • Power differences and harassment.

2. Insufficient access to credit: This was considered the most important problem in PSD by most interviewees, especially at grassroots level. For more details on financial infrastructure and credit facilities in Tanzania, please refer to annex 12.

• Lack of knowledge on loans, interest rates, record keeping etc. • Infrastructure: closest (micro) finance organisation is too far, transport and travel costs are

prohibitive. • Extremely high requirements to obtain credit (need to be licensed/registered, need for

collateral, attending weekly meetings, credit history etc.). • Lack of collateral (land registration still problematic). • High interest rates (25 – 40%). • Inefficient (micro)-finance institutions (mismanagement, long loan processing times). • Size of loans available often insufficient for required investment. • Lack of overdraft facilities, leading to liquidity problems. • Lack of guarantee schemes to lenders. • Short repayment time (and therefore no opportunity for long-term investments). This is an

important issue for SMEs and e.g. agricultural producers that would like to diversify but cannot afford to plant a different crop such as coffee, which needs 5 years until first harvest.

3. Low awareness and capacity of individuals and organisations:

• Lack of knowledge on rights and obligations, especially at grassroots level. • Lack of entrepreneurial skills (socialist legacy). • Lack of business skills (management, accounting, logistics, negotiation, financial). • Lack of awareness on policies, regulations, taxes, etc. • Conflicting advice of different BDS providers. • Lack of mutual trust and communication, facilitation and conflict resolution skills in multi-

stakeholder dialogue processes. 5 A presentation was given on these constraints, from a grassroots level perspective. A transcript of this presentation, with more detail on the practical implications of these constraints, is provided in annex 11.


4. Lack of forms of association: • Especially at grassroots level, there is a huge shortage of producer group or sub-sector

associations who support market-linkage and value chain development and adequately advocate for their constituency so that issues specific to these groups are considered in dialogue, planning and budgeting processes.

• Those associations that do exist, often lack capacity, both in knowledge, as well as in ability to attend meetings, travel and voice issues and concerns.

• Associations that are a member of a PSO (e.g. TCCIA) only have one vote, irrespective of how many people they represent, leading to dilution of their issues in horizontal and vertical dialogue processes.

• Much mistrust and lack of co-operation between co-operatives and other grassroots level organisations.

5. Complex and non-transparent tax regime:

• Abolishment of nuisance taxes is not transparent; many local authorities have replaced them with other fees, bylaws and licences.

• Harassment by the Tanzanian Revenue Authority (TRA). • Standardised fees that are not comparable between urban and rural settings. • VAT can not be reclaimed by e.g. small farmers, yet it is invoiced to them by transporters,

and when they buy inputs such as diesel, packaging material etc. This has resulted in a dramatic reduction of profitability (10-20%).

• VAT system works on monthly instead of yearly summaries, which is dramatic for seasonal businesses (they can not claim VAT expenses back if they do not sell in the same month).

• Agricultural inputs are VAT exempt, yet not all inputs and some of the important ones (such as fertiliser) are not available at reduced prices.

• Small or informal businesses without VAT registration cannot sell to established businesses as these cannot claim VAT back when they buy these products. There is lack of understanding of the regulations with respect to this issue.

• Agricultural inputs from other countries are VAT exempt. Yet, when made in Tanzania, manufacturers have to pay VAT on raw materials to produce the same products, making it difficult to compete.

6. Existence of wide-spread price fixing:

• Trader syndicates exist that fix prices or prevent people from accessing the local market to keep prices artificially high.

• No access to price information and lack of negotiation skills. • No appropriate mechanism to address complaints.

7. Insufficient access to markets and weak market-linkages • Co-operatives are inefficient, ineffective and badly managed; there is mistrust against them. • Competition with subsidised products from the west, or cheaper, better quality products from

Uganda and Kenya is a problem. • Wholesalers can import cheap, low quality products at wholesale prices (usually from India

or Dubai), making it difficult for local producers to compete. • Backward and forward linkages are virtually non-existent and knowledge on how to establish

them is lacking, preventing growth and knowledge sharing. • Lack of business premises (especially important for informal sector).

8. Expensive inputs:

• Power, telephone, other utilities. • Licensing and registration fees (although already significantly improved) (see also 1). • Cost of capital (see point 2). • Transport (bad roads). • Raw materials (e.g. in construction). • Long lead times, especially to get paperwork in order. • Lack of suitable and affordable equipment.


5 THE PUBLIC-PRIVATE DIALOGUE FRAMEWORK Based on the research that was carried out over the course of this study, and the main constraints that were identified in creating an enabling environment for pro-poor PSD, a public-private dialogue framework was developed in order to better understand the institutional setting in which these constraints can be discussed and resolved (figure 1 below). It is important to state here that this framework is merely a simplified model of a far more complex reality, which can be used as a tool to try to better understand the different processes and institutions that are important in PSD in Tanzania. Figure 1: Public-Private dialogue framework

As shown in figure 1, the public-private dialogue framework consists of two vertical columns, each showing the different hierarchical levels of the public (pink) and the private (blue) institutional structure. A third vertical column is depicted in light blue behind the dark blue private sector column in ‘shadow’ showing the different hierarchical levels of Civil Society Organisations (CSOs). This does not mean that CSOs are considered less important as a stakeholder in dialogue processes, but it illustrated that the focus of this study is limited to the public and private sectors. The framework can equally be used to model public-civil society dialogue or tri-partite dialogue processes, by extending the framework into a third dimension. In the conclusions provided below, comments are also made with respect to the role of CSOs within the framework. The public sector column (pink), shows the different hierarchical levels of its institutional structure: from national government via regional level to district or municipal councils, and further down to divisions, wards and individual villages. It should be explained here that as a result of the government decentralisation process, roles and responsibilities of the regional level have been reviewed. As a result the regional level has been awarded a more advisory role in assessing the planning and budgeting proposals of the different districts within the region, as well as providing advice on specific technical issues for the different sectors within the district or municipal councils, such as trade, agriculture, health etc. Top-down communication now takes place directly from national to district/municipal level, merely informing the regional level. However, bottom-up communication along the same line is not yet very well developed.

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The private sector (and CSOs) column (blue), also shows the hierarchical levels in its institutional structure: from national/macro level PSOs such as e.g. TPSF, via regional/meso level to local/micro PSOs active at district or municipal level, such as e.g. district branches of TCCIA. At grassroots level, many forms of association exist, and a distinction can be made between informal associations, representing a particular informal sector or group (e.g. local fruit vendors), rural associations such as farmer working groups or credit & savings circles, and urban associations such as an association of shop owners in a particular area. At this grassroots level, the distinction between PSOs and CSOs is blurred as there often is an overlap of objectives such as access to credit, training, etc. At this level CSOs tend to integrate actions in PSD in their mandates while PSOs do the same with actions related to a civil society agenda. The framework also shows seven numbered main communication or dialogue lines6. Four vertical and three horizontal lines were identified as most important, each depicting a particular intra- or inter-sector dialogue process. Of course many diagonal communication lines may exist as well, e.g. between a particular district level PSO and e.g. a sector ministry at the national level. However, this type of diagonal communication tends to be incidental and informal by nature, and no major evidence of their existence was found. However, it may well be that this framework will look different in other countries or contexts. The seven main dialogue processes as indicated within the framework are listed below, and in subsequent pages, conclusions and recommendations are made related to each of these processes. In order to guide the reader, the particular process or area within the framework, which is discussed, is highlighted in yellow in the framework at the top of each page. Main dialogue processes identified:

1. Vertical dialogue within the private sector between district/municipal and national level 2. Vertical dialogue within the private sector between sub-district and district/municipal level 3. Vertical dialogue within the public sector between district/municipal and national level 4. Vertical dialogue within the public sector between sub-district and district/municipal level 5. Horizontal dialogue between private and public sector at national level 6. Horizontal dialogue between private and public sector at district/municipal level 7. Horizontal dialogue between private and public sector at sub-district level

One can wonder at this stage why no horizontal dialogue between private and public sector at the regional level is added to above list. This omission is not accidental. Although horizontal dialogue processes may exist at the regional level in other countries, no significant evidence to this extent was found in Tanzania. Before each specific dialogue process is discussed in the following paragraphs, some main conclusions and recommendations addressing the overall framework are made below. Main conclusions and recommendations with respect to the overall public-private dialogue framework: 1. Pro-poor economic growth cannot be achieved by focusing interventions only on either the

private or the public sector, but requires linking PSD and governance programmes in one holistic intervention strategy.

2. Issues need to be resolved at the lowest possible level, either within or between the different sectors, as they tend to get lost when transferred to higher hierarchical levels.

3. Problem solving requires institutionalised horizontal co-ordination and dialogue both within and between public and private sector.

4. Learning from local experiences requires vertical communication and translation into strategies at regional and national level.

5. Dialogue processes need to involve all representative stakeholders to ensure integration of PSD in pro-poor economic growth.

6 No specific distinction is made in the framework between informal or formal dialogue, although the emphasis lies on analysis of formal dialogue processes. In practice, informal dialogue constitutes an important and powerful mechanism. This informal dialogue can follow the same seven lines as formal dialogue, but can also follow other, e.g. diagonal lines. In the analysis of all processes informal dialogue is taken into account.


6. There is a huge shortage of representative associations at grassroots level that can adequately voice the opinions and concerns of their specific constituency and thus become a serious dialogue partner. This severely hampers dialogue at all levels, vertical as well as horizontal.

7. Many informal horizontal dialogue processes between different stakeholders exist and can certainly have a positive influence. However, they can also weaken commitment to more formal horizontal dialogue processes.


5.1 Vertical dialogue within private sector between district/municipal and national level

5.1.1 The private sector in Tanzania comprises of a wide and

diverse range of different actors, which can be distinguished in Micro, Small and Medium Enterprises (MSMEs), large (international) enterprises, the informal sector, representative associations such as chambers of commerce or specific product associations, (micro) finance institutions and Business Development Service (BDS) providers. Co-ordination and vertical integration of different private sector actors at different levels is still at an incipient stage. Chambers such as the TCCIA and CTI, have developed into serious dialogue partners and private sector advocacy organisations, with a formal vertical integration structure from the district or regional to the national level. TCCIA is the most inclusive representative PSO, both with respect to diversity of members (ranging from associations of smallholders to larger urban enterprises), as well as in geographic coverage (21 regional and 60 district branches). However, even TTCIA only represents a fraction of private sector entrepreneurs, with a strong bias for medium to large urban based manufacturing, trading or service delivery enterprises, as opposed to the agricultural or informal sector. Consequently, the issues particular to the latter two, tend to get diluted in bottom-up communication processes from the local to the national level. A more detailed assessment of TCCIA, including recommendations, is provided in annex 15.

5.1.2 Strengthening of the function of regional Chambers of Commerce in co-ordination, conflict

resolution and channelling information between national and district chambers is needed to adequately balance urban and rural interests and those of traders, industrial and agricultural entrepreneurs. E.g. TCCIA developed a decentralised institutional structure with regional and district branches, but the linkages between these levels are still weak. This is caused by two main factors: - The capacity within district chambers is low, both in terms of Human Resources and

Financial/Technical means; - Most regional chambers in fact act as urban branches within the same district, focusing

on larger, urban based entrepreneurs and not on co-ordination and conflict resolution in the interest of all district chambers or between different regions. As such, the mandate of the regional chamber as a channel for upwards and downwards linkages between the local and national level is relatively weak.

5.1.3 Based on the success of the NBC model in Uganda, a similar structure was founded in

Tanzania, including the establishment of the TPSF as a national apex organisation for all PSOs (see annex 9 for more details). TPSF endeavours to be inclusive and also represents associations of informal sector entrepreneurs, such as VIBINDO. However, associations representing SMEs, and particularly micro, informal and agricultural entrepreneurs at the national level, constitute a minority of the members of TPSF, thus preventing a truly level playing field. Those associations that do have a national representation such as e.g. FAWETA or TAFOPA, often lack capacity, both in terms of knowledge and understanding, as well as in terms of (financial) resources, such as the ability to hire an able executive person to represent them at meetings. This prevents them from being considered as an equal dialogue partner and undermines their efforts to bring specific issues to the attention of NBC or national decision and policy makers.

5.1.4 A shortage of associations that represent the diverse issues of specific sub-sectors or

product groups is prevalent at all levels. The consequence of this is that the concerns of poor entrepreneurs from the agricultural, informal or micro-sector at district/municipal or grassroots level are not communicated upwards and market-linkages are not sufficiently established, because vertical integration and institutional mechanisms for bottom-up communication processes are largely lacking. Associations that do exist at the

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district/municipal level, depend on upward communication through PSOs, which does not always guarantee that their issues are adequately voiced.

5.1.5 Co-ordination between BDS providers at district/municipal,

regional or national level is not yet well established. This causes gaps and overlaps in BDS delivery to different target-groups within and between districts and regions, as well as contradictions in messages and methodologies in providing BDS and (micro) finance services to these target-groups. This lack of co-ordination is also present at the level of (inter)national development partners involved in programmes and funding agreements with different BDS providers (and sometimes implementing these programmes themselves), based on different views on methodology and sustainability of BDS and financial services. In some districts, this has even resulted in a form of competition between different BDS providers, which is hampering co-operation and dialogue between different PSO actors, as well as between public and private stakeholders.

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5.2 Vertical dialogue within private sector between sub-district and district/municipal level

5.2.1 A wide range of private sector actors exists at the district and

sub-district level. Three main groups can be distinguished: associations representing the informal sector, rural and urban private sector organisations, each catering to their own specific constituency and advocating their own specific issues. Also, at this level, the distinction between PSOs and CSOs is blurred as most have overlapping interest and sometimes advocate similar issues. Most of these organisations are not formally registered. Typical examples are farmers groups, Savings and Credit Associations (SACAs) in which groups of farmers/producers jointly save and provide rotating credit to members of the circle, groups of informal food vendors or specific producer groups such as flower seed producers. Formal rural organisations are the primary co-operative societies and the Savings and Credit Co-operatives (SACCOs), and often one can find producers or specific sub-sector associations both in rural and urban areas, some of which have a form of vertical integration with district or even regional associations. Primary co-operative societies are linked to regional or zonal co-operative unions. However, since their reintroduction by the government in 1984, they have suffered from mismanagement and inefficiency, resulting in loss of trust of the people they should represent. Co-ordination and co-operation within the PSOs at the sub-district level exists, but is not institutionalised and largely occurs informally, although some of the associations mentioned above have become a member of the local district branch of the TCCIA or their national product association, in an attempt to become part of an institutionalised PSO.

5.2.2 The common denominator between almost al (sub) district level PSOs is a serious lack of

capacity. Capacity problems exist with respect to specific technical expertise in storage, production and market access, financial expertise, entrepreneurial and business skills and skills in communication and negotiation processes. The supply of capacity building services through BDS providers is limited, and it often covers only technical and financial aspects. By not addressing the required skills development, the sustainability of technical and financial capacity investments is often low.

5.2.3 Local PSOs such as the district branches of chambers of commerce, only have a limited

outreach and membership levels remain low (typically around 50 with only a fraction of these active). This can largely be attributed to the limited capacity of district chambers to deliver good quality and relevant services and to the fact that membership fees are high in comparison to the immediate value of the services delivered by these chambers, especially for the majority of informal, micro and small entrepreneurs. Service delivery can only be attained when serious efforts are being taken to formalise internal capacity building efforts through training and a comprehensive HR policy. It can be argued that if PSOs are considered as instrumental in service delivery and advocacy on promoting pro-poor growth, some form of subsidy depending on income of members should be provided, with full sustainability and cost recovery an issue to be considered in the future.

5.2.4 In an attempt to address their low levels of membership and alleviate the burden of

membership fees for small, micro and informal entrepreneurs, especially from the rural, agricultural sector, some chambers of commerce allow associations representing these actors, to become a member at reduced cost. All individuals belonging to this association pay a very small fee and can have full access to the services provided. However, the association, even if it comprises of more individuals than the combined membership of the chamber, can only have one vote. This arrangement, albeit laudable, leads to unequal representation of concerns and issues, and concerns of these associations tend to be marginalised by individual members representing larger enterprises.

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5.2.5 With such a diverse membership, ranging from small, informal,

agricultural producer associations to large, urban traders, many conflicts of interest emerge within district and regional TCCIA branches, as well as within other local PSO organisations. As the impression still exists that TCCIA is biased towards the larger enterprises, many small, micro and informal entrepreneurs are reluctant to become a member, as they believe their concerns will not be adequately addressed. In addition, it is recommended that TCCIA develop a strategy on whom they can represent, as these conflicting interests will undermine its credibility and they can not be everything to all people.

5.2.6 The situation and problems of producers in different agricultural sub-sectors, such as cash

crops, cotton or small cattle breeding, are very specific and therefore need specific solutions. In each of these sub-sectors, market-linkages and value-chains have to be developed. To strengthen the negotiation power and capacity of the producers, associative structures at the grassroots level need to be established and strengthened. These associative structures to promote interests of specific rural producers in specific value-chains and market-linkages, should be complimentary to local chambers of commerce that promote more general business-interests.

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5.3 Vertical dialogue within public sector between district/municipal and national level

5.3.1 The strong focus of economic growth in the NSGRP and the

public statements of the president considering the private sector as “the engine for growth” in Tanzania, show a clear commitment from the national government to involve the private sector in strategies for development. However, when moving from the national to the regional and district level, evidence of this commitment weakens considerably and is sometimes even non-existent. At the district/municipal level few government officials are aware of NSGRP, the consultation process that preceded it, or other relevant policies such as the SME policy or the Trade policy. Traditional views on PSD stemming from the socialist era remain persistent and are often still characterised by a serious lack of trust. A change of mind-set amongst regional and district level government officials is a prerequisite for any successful PSD intervention. This process of culture change from a controlling to a facilitating and service oriented government organisation, can only be achieved through a top-down process of sensitisation, awareness raising and capacity building, reaching out to all regional and district/municipal government officials across sectors, including government agencies and para-statals such as BRELA, TRA, TPRI etc. Adequate mechanisms to reward good behaviour and address malpractice should be incorporated into such a process.

5.3.2 The role, responsibilities and mandate of regional secretariats have changed considerably in

the LGRP. In the new institutional arrangement, regional secretariats have an advisory role to district/municipal governments in assessing district planning and budget proposals and providing specific technical advice. Regional advisers and local district/municipal officers are main counterparts at these two government levels. Some reports mention that the regional secretariats at present are insufficiently equipped to perform a role in vertical integration of the different government levels, as well as in inter- and intra-regional horizontal co-ordination, planning and conflict-resolution [ref 40, 41]. Economic development and growth generally does not stop at the boundaries of a district but is regional by nature, using natural regional resources and requiring intra- and inter-regional linkages (roads, electricity etc.).

5.3.3 District/municipal government budget reforms resulted in a more efficient and transparent

system of budget allocation and taxation [ref. 42, 43]. At the same time, it resulted in a drastic reduction of local revenue, which undermines decentralised and financially autonomous local governance. Fiscal reform needs to address the following issues in relation to local governments: • Combine central transfer of grants to local governments with local revenue generation; • Taxation is not only an instrument to increase local revenues but also an instrument for

local accountability and empowerment; • All government levels should have at least one tax revenue source of income; • There is a strong need for redistribution and equalisation mechanisms to address regional

imbalances (between districts). Local sources of revenue strengthen local governance and dialogue processes at the district

level. At the same time regional and national co-ordination is needed to address regional and urban-rural unequal distribution of revenue-income and expenditure. In the present fiscal reform process it is not clear which government level and institute is or should be responsible for redistribution and equalisation mechanisms horizontally between districts and vertically between districts and the national government level.

5.3.4 Communication between the different sector ministries and district/municipal government

officials is top-down and occurs indirectly via PO-RALG (see annex 9). Bottom-up communication processes are weak, slow and often non-existent without any form of feedback mechanism. The top-down and indirect communication lines greatly inhibit effective

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co-ordination between different government levels. Regional secretariats are not placed in the hierarchical line from national to district/municipal government co-ordination but are mainly outside advisers to district/municipal governments, which complicates communication lines even further. However, district/municipal government officials do rely on their regional counterpart to communicate issues upwards to the national level. These complicated vertical communication mechanisms need to be simplified and it should be assessed how a direct communication channel between sector-ministries and their direct counterparts at the district/municipal government level can be established. It is recommended that the role of PO-RALG should focus on co-ordination of actions of sector-ministries but not on implementation of these actions.

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5.4 Vertical dialogue within public sector between sub-district and district/municipal level

5.4.1 District governments, particularly those covering large rural

areas, lack sufficient resources to effectively reach out to every part of the district. Most districts only employ one officer covering each sector; community development, education etc. Wards and village councils provide sub-district support but also lack resources, information and knowledge. Distances are large; infrastructure is lacking or in bad shape and communication is difficult if not impossible. As a result the rural population in the districts (where 80 % of Tanzanian poor reside), has less access to service delivery by local government institutions than those in urban areas. A more detailed assessment is warranted on how outreach and service delivery could be improved, e.g. by bi-weekly rotating consultations from district government representatives, as has successfully been implemented in certain parts of Uganda, by empowering and building capacity within existing wards and village councils, or by establishing partnerships in service provision with local civil or private sector organisations if present.

5.4.2 Participatory planning and budgeting mechanisms have been adopted across Tanzania after

having been piloted in former DRDP districts. This involves prioritisation, planning and associated budgeting from sub-village to village councils, to wards, to divisions and eventually to district council level. At each level, plans and priorities are compiled and screened, assessing synergies and needs for co-operation and co-ordination. These mechanisms seem to be functioning surprisingly well, allowing villages and wards to determine their own priorities and budget allocation, and even creating the motivation to source other funds if a priority was established but no district funds were allocated. However, there is still a large deficiency in knowledge and capacity of (sub) district government authorities to effectively conduct these participatory budgeting processes.

5.4.3 The lack of capacity and resources at the sub-district level, in particular with Wards and

Village councils, should be addressed. Interventions to improve capacity at these levels should include: • Mechanisms to improve accountability of wards and villages to their constituents should

be formalised and improved. Communication is largely informal, making it difficult for citizens to raise concerns, provide criticism or voice their disagreements.

• Parallel to mechanisms for fiscal redistribution and equalisation that have been proposed in fiscal reform programmes at higher levels, district governments could develop intra-district redistribution mechanisms to equalise tax income and expenditures between urban centres and rural periphery. This could be linked to the local participatory budgeting mechanisms that were introduced in the decentralisation programme and LGRP.

• Within the LGRP, funds should be made available for the development and implementation of a comprehensive and inclusive Human Resource Development policy that considers the need for quality staff recruitment, development, change of mindset and motivational issues and incentives at all government levels.


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5.5. Horizontal dialogue between private and public sector at national level

5.5.1 As mentioned before and in annex 9, the private sector has

developed forms of internal integration at different levels. At the national level, the TPSF is recognised as an inclusive private sector organisation and powerful dialogue partner through its representation in the NBC, which is headed by the President of Tanzania. At this national level, public-private dialogue is well established and both sectors are committed to engage in constructive dialogue with effective and efficient resolution of issues. However, the NBC is not statutory, has no formal vertical links to regional or district level organisations and consists of a very unlevel playing field, with larger enterprises and their associations dominating the discussion and an under-representation of SMEs and in particular micro, informal and agricultural sectors.

5.5.2 Within the national government, several state and line ministries are responsible for PSD

and its linkage with poverty reduction. PO-PP is responsible for PSD and programmes such as BEST. VPO is responsible for the NSGRP. MIT is responsible for SMEs. Several other ministries (such as agriculture, co-operatives and marketing, livestock and natural resources and MLYD) are also involved in actions related to PSD. This great number of different actors at the national government level has created a very confusing situation for external private sector actors. It is not clear to whom issues related to PSD should be addressed and, sometimes, parallel initiatives between private sector actors and different ministries add to this confusion. Co-ordination within the government on PSD and NSGRP needs to be improved and clear “windows” need to be established for dialogue and negotiation with external actors. Please refer to annex 9 and 10 for further details on these issues.

5.5.3 Within the Private Sector, the group of micro, small and medium enterprises forms the vast

majority of economic actors. MSME development is key to PSD and economic growth. However, the capacity in the SME section within MIT (only 4 staff), is too limited to play a key role in monitoring and co-ordination of SME development. Annex 9 provides more details.

5.5.4 Within the framework of public-private sector dialogue processes and growing trust at the

national level, the government and private sector could consider new forms of public-private partnerships. A partnership between BRELA and TCCIA could be explored, in providing business licensing and registration services. This task is still highly centralised as BRELA only has an office in Dar es Salaam and travel and transport costs are prohibitive for many entrepreneurs wanting to formalise their business. An arrangement like this would greatly facilitate service delivery to entrepreneurs at the district level. An added advantage would be that TCCIA would have a source of income and new possibilities to increase membership, whilst BRELA would acquire access to a cost-effective mechanism to implement business-registration and licensing and acquire local business statistics.

5.5.5 The number, quality and geographical coverage of BDS providers are insufficient to meet

demands, especially with respect to the agricultural sector and micro, small and informal entrepreneurs. Although large and well established enterprises can afford to pay for BDS, this is certainly not the case for entrepreneurs at the bottom of the pyramid. Although some form of cost sharing is already practised, it is unrealistic to expect full cost recovery in the medium to short term. An important issue to be discussed within the national government in its efforts to facilitate the integration of informal enterprises into the formal economy and promote the agricultural sector and MSMEs, is how these BD services should be delivered and funded. BDS-providers, relevant sector ministries (and international development partners involved) should develop a more coherent vision and strategy on subsidised BDS delivery for the poorest segments of the MSME, informal and agricultural-spectrum and a vision on financial sustainability (and cost-recovery) of BDS delivery in the medium and top segments of this spectrum.


Villages

Wards

Divisons

Macro CSOs

Regional Govt.

Micro CSOs

MesoCSOs

Macro PSOs

Meso PSOs

Micro PSOs

Urban CBOs

Rural CBOs

Informal Assoc.

Urban PSOs

Rural PSOs

Informal Assoc.

6

2

National Govt.


5.6 Horizontal dialogue between private and public sector at district/municipal level

5.6.1 Public-Private dialogue processes at the district/municipal level

do take place but are not yet sufficiently established and institutionalised. Main bottlenecks in these dialogue processes are:

• At the district/municipal level, private and public actors often have limited knowledge and awareness of motivation, problems and interests of the other party. The old mental models stemming from the socialist era are still responsible for a persistent lack of mutual trust. There is no commitment to engage in a real dialogue and negotiation is mainly taking place on the basis of positions and not principles.

• More successful experiences in public-private dialogue have depended mainly on the initiative of a small number of champions, often with the assistance of external facilitators. When these champions leave, the dialogue process often suffers serious setbacks and time has not been sufficient to embed the dialogue process in formal institutional arrangements.

• The existence of channels for informal communication and negotiation can certainly have a positive impact on communication processes. However, these informal communication and negotiation processes can also considerably weaken commitment from relevant stakeholders to formal dialogue processes. Many people prefer to solve their problems individually through quick and informal channels. These channels include illegal methods such as offering bribes or intimidation. As long as these informal channels are effective and it is possible to reach quicker or cheaper solutions in this manner, people will not be inclined to opt for formal dialogue processes or become a member of an advocacy organisation.

5.6.2 During the past years much experience has been obtained with different formats of public-

private dialogue processes, such as District Advisory Committees (including public, private and civil actors), Local Business Councils (in analogy to the NBC), Public-Private Dialogue forums, etc. Some of these experiences have been analysed and documented and present good lessons and best practices that can be replicated in other PSD programmes.

5.6.3 As at most other levels, public-private dialogue is dominated by the interests of larger and better organised business people. Subsistence farmers, women organisations, the handicapped, youth, informal sector and other marginalised groups have specific interests that cannot always be voiced in public-private dialogue processes or be represented by PSOs. These specific groups need to obtain a place both within PSOs, when business interests are concerned, or as separate interest groups at a broader and more inclusive table of local dialogue between public, private and civil sector. Only when all these interests can be discussed within local development plans, can these plans effectively contribute to pro-poor economic growth. To this extent, there is a large shortage of associations representing these marginalised groups, and within the associations that exist, capacity is often too low for them to be able to contribute to any discussion in a meaningful way. Capacity building interventions at grassroots level should seriously assess this constraint.


Villages

Wards

Divisons

Macro CSOs

Regional Govt.

Micro CSOs

MesoCSOs

Macro PSOs

Meso PSOs

Micro PSOs

Urban CBOs

Rural CBOs

Informal Assoc.

Urban PSOs

Rural PSOs

Informal Assoc.

6

2

National Govt.


5.7 Horizontal dialogue between private and public sector at sub-district level

5.7.1 Dialogue processes between public and private sector at sub-

district level are almost exclusively informal. The dialogue tends to be dominated by the more powerful and richer business people in the community. In addition, there is often a conflict of interest as these people sometimes also represent sub-district government. These informal arrangements lead to increased power imbalances at the community level. Poorer or uneducated people seldom have access to these informal communication channels and they are often victim of informal arrangements that benefit the rich and powerful. Sub-local problem-solving and conflict resolution between different interest groups requires the presence of formal mediators or facilitators that have credibility and weight with all parties concerned. In order to reach out to all sub-district communities, some form of flexible and mobile mediation might be considered, although it might be a challenge to adopt this within the cultural context. To this extent, it is also very important that formal mechanisms for accountability of village councils, wards and other sub-district government bodies is established and that this mechanism provides for credible conflict resolution mechanisms (see also recommendation 5.2.3).

5.7.2 A serious and notorious lack of knowledge on rights, obligations, policies, rules and

regulations exists amongst the population at sub-district level. Awareness raising and sensitisation on rights and obligations is needed and requires information in understandable and local languages. There are not yet many organisations that work on these aspects of capacity building, but some examples are available such as Hakikazi Catalyst. These initiatives need to be replicated in order to reach out to a wider geographical area.


6 LINKING THE CONSTRAINTS IN PRO-POOR PRIVATE SECTOR DEVELOPMENT WITH THE DIALOGUE PROCESSES

The institutional framework presented in chapter 5 can be used to identify which of the existing dialogue processes are most suitable to resolve specific problems and challenges in pro-poor economic growth. As indicated in the 7 main conclusions and recommendations with respect to the overall public-private dialogue framework presented at the beginning of chapter 5, some important basic principles apply. Looking at the grassroots level problems for PSD presented in chapter 4, and applying these principles, we can present some general insights as to how some of these problems could be addressed: Lack of capacity and transparency of governance The required change of mindset, especially at (sub) district/municipal government, from a controlling to a facilitating and service oriented organisation, is cumbersome and sometimes painful for all people affected, even at the best of times. Accountability of (sub) district/municipal government as well as suitable mechanisms to resolve complaints and malpractice need to be addressed in this process. Such an effort can only be successfully implemented in top-down processes that require a continuous, strong leadership and drive over a considerable time and take due consideration of the incentives of (sub) district/municipal government officials. Insufficient access to credit As indicated, lack of access to credit has several causes: • Lack of availability, suitability and affordability of credit: conditions to provide affordable, suitable

and available credit cannot be addressed at the district/municipal level but require an internal dialogue within the private sector on how to improve financial service delivery and to change mind-sets from risk-aversion to risk-taking by (micro) finance organisations. In other aspects a public-private dialogue at national level is needed to discuss cost of capital (macro-economic policies) and possibilities for setting up guarantee schemes for (micro)-finance institutions (annex 12).

• Some causes are very elementary, such as long distances to financial institutions and lack of infrastructure or transport. These issues can be addressed at a district/municipal level, either within the financial institutions themselves (e.g. to provide extension services to rural areas) or in public-private dialogue, as with infrastructural improvements.

• Lack of knowledge and capacity to acquire access to credit is a problem that requires a solution at the district/municipal level by providing information and capacity building on credit facilities. Efforts to this extent need to be co-ordinated between PSOs and BDS providers at higher levels in order to ensure co-ordination of these services and to avoid contradicting measures.

Low awareness and capacity of individuals and organisations Capacity building at grassroots level is a complex process that requires a holistic approach from many stakeholders. Specific issues related to governance and to private entrepreneurship could be addressed through vertical co-ordination within each sector, while issues related to dialogue and negotiation between public and private sector need to be co-ordinated between public and private sector organisations. Awareness raising (e.g. on the fact that the private sector is the engine for growth) can only be done through a top-down approach where good behaviour at the lower levels should be enforced and rewarded. Capacity building requires an opposite approach; it should be based upon a thorough bottom-up needs assessment and developing demand oriented and tailor-made solutions for specific target-groups and problems. Lack of forms of association Awareness raising on the advantages of associations is both a top-down and bottom-up dialogue process between small entrepreneurs from different sub-sectors or representing different groups


who have discovered a need to this extent, and BDS providers who can assist endeavours in this area. Initiatives for association usually require a bottom-up process. Facilitation and capacity building to strengthen this bottom-up process either horizontally or top-down, can greatly benefit these associations. Complex and non-transparent tax regime Problems related with the tax-regime need to be solved at the level where they occur. Reform of national tax regulations such as VAT, that have a large impact on entrepreneurs at the bottom of the pyramid, need to be discussed and resolved between the public and private sector at the national level (i.e. at NBC). Issues related to district/municipal taxation should preferably be resolved in a public-private dialogue at the district/municipal level. However, taxation issues at this level need to be systematised and analysed at a higher level to identify if there are more general taxation problems that need to be solved in providing top-down instructions and rules and regulations for district/municipal governments. Existence of wide-spread price fixing Although price fixing seems to be a problem that is specific to differences in interests and power in the value-development and market linkage chains, it is unlikely that this problem can be resolved by private sector internal dialogue only (although the attempts for solutions should certainly start there). Enforcement of rules and control and monitoring of behaviour of traders is required by an external actor. District/municipal and regional governments could play a role in the enforcement of these rules. A second part of the solution is to provide better market information to rural producers. This problem can be resolved within the private sector by setting up initiatives for market-price information and market possibilities. Insufficient access to markets and weak market linkages Access to markets is a complex issue that needs interventions and dialogue at all levels: Markets are dependent on macro-economic and trade policies, as well as local production capacity. Solving issues with respect to market access requires a thorough process of bottom-up analysis of concrete problems and finding solutions at each specific level. Public-private dialogue is required at all levels, as the market in Tanzania is far from self-regulating and it is doubtful if it should become so without addressing power and capacity differences between key actors. Expensive inputs The issue of expensive inputs is largely caused by macro-economic, international trade and taxation measures put in place by the national government. Privatisation measures (e.g. in the telecom sector) have not led to reduced prices, although access has widely improved. Privatisation of previously government owned utilities such as power, will not lead to lower prices if capacity shortages in these sectors continue to exist. Whilst some inputs might become available by stimulating local or regional production (e.g. in agriculture or the construction industry), most inputs are imported at international market prices. These issues therefore need to be addressed at the national level in a dialogue that should be based on bottom-up communication processes from the local level. Above linkages between the different problems identified in pro-poor economic growth in Tanzania and the public-private dialogue framework presented, show a variety of routes to solve these problems. It also demonstrates that some solutions need to be found and implemented in a top-down approach while others require a bottom-up approach.


7 CONCLUSIONS AND RECOMMENDATIONS ON RESEARCH QUESTIONS

From documentation available and through the interviews conducted, the following conclusions and answers can be given to the research questions as formulated in section 1.2. 1. Will the outcome of a “bottom up” facilitation process which enables local institutions to play

a role in the economic planning process, lead to different priorities for improving the business climate compared to those identified in the formal PRSP, especially with regard to the impact on the poor? If so, what are the differences?

The answer to this question, in short, is yes. Even though all stakeholders consulted were pleased and impressed with the consultation process and the recommendations from the private sector consultations (through TPSF) were almost fully incorporated into the final version of the NSGRP, a number of very instrumental and important constraints for PSD at the local level received little attention. It is doubtful whether informal, women and micro-sector entrepreneurs, especially from the rural, agricultural sectors were sufficiently consulted. MSMEs should logically have been consulted through organisations such as SIDO, local TCCIA branches, commercial banks, micro-finance institutions, BDS providers and (international) NGOs with grassroots PSD programmes. Women entrepreneurs should probably have been consulted through FAWETA, TAFOPA and other women entrepreneur organisations. However, no substantial evidence was found that this actually took place in a comprehensive manner. However, one should not forget that the NSGRP is a strategy, and that specific priorities will need to be addressed in the policies and concrete action plans that will be developed as a result of this strategy. It is therefore difficult to speak of differences in priorities. The priorities that would have featured more prominently, and will need to receive considerable attention in subsequent implementation, are the main problems as described in chapter 4 and annex 13: 1. Governance: in particular mindset of government officials with respect to PSD, especially at

(sub) district/municipal level. 2. Access to credit (see annex 12 for a more detailed analysis). 3. Awareness and capacity, in particular with respect to entrepreneurial and business skills. 4. Lack of association. Indeed, VPO cannot be fully blamed for not having been able to find

representative associations to consult with, as there is a large shortage of associations for specific producer, sub-sectors and marginalised groups.

5. Impact of tax regulations at the grassroots level such as VAT (see also annex 13). Although taxation issues should be addressed in the FSDP, some reference as to their specific impact on PSD should have been included in the NSGRP.

6. Problems related to price fixing. 7. Access to markets; most initiatives at grassroots level are currently being developed and

implemented by development partners or NGOs supported by them. The need to translate best practices and lessons learnt from these programmes into national governmental policies and action plans is evident.

8. Expensive inputs. This issue does feature strongly in the NSGRP, but the relationship between expensive inputs and VAT, especially for non-VAT registered entrepreneurs is not emphasised.

2. For which issues a more “bottom up” planning process is desirable in order to take the

interests of the local private sector, especially those of poor (potential) entrepreneurs, into account?

All issues that require allocation of resources by district/municipal as well as national government, should be prioritised according to bottom-up planning processes. The government has recognised this in preparing national budgets according to participatory planning and budgeting, based on successful pilots in the former DRDP districts, starting at village level and moving up to national level via wards, divisions and district councils. However, these participatory planning and budgeting


processes do not allow a specific role for PSOs, and the prevalent mistrust between public and private sector at local level, prevents certain issues important to the private sector, from being adequately considered within this process. Prioritisation and allocation of budgets tend to be politically motivated. To ensure successful incorporation of the issues as described under question 1 above, in the governmental planning process, the horizontal public-private dialogue processes at different government levels as described in chapters 5 and 6 will need to be institutionalised. The question asks specifically which issues should be addressed in bottom-up planning processes. Those are the issues that cannot be satisfactorily resolved at the local level, in particular governance issues, certain conditions for improved access to credit, information and knowledge sharing, tax issues, price fixing, macro-economic measures related to access to markets and expensive inputs (see chapter 6 for more details). In addition, the district/municipal level actors that will eventually be responsible for the implementation of the NSGRP, will need to be empowered to provide input into subsequent action plans, definition of responsibilities and roles, and resulting required resources and funds. Although the development of NSGRP was very consultative, the development of subsequent implementation plans, determination of roles and responsibilities and allocation of resources was not. 3. Are methodologies and institutional arrangements missing at meso level for “scaling up” local

participatory processes – involving private (formal and informal) and public sector entities - in order to link them to the national planning process? What is missing for realising a “bottom up” approach?

Methodologies and institutional arrangements at the local, district/municipal level to include PSOs in the national planning process are still at an incipient stage. As described in chapter 5, different forms of horizontal public-private dialogue processes exist with varying success. However, none of them are formalised and institutionalised, which is an important aspect of their vulnerability. The following aspects need to be addressed to institutionalise these processes and link PSD issues to the national planning process:

• Create trust and change of mindset between public and private actors. • Formalise the public-private dialogue processes so that they become less dependent on a

limited number of key champions. • Limit informal dialogue processes between individual actors as they can seriously

undermine the formal dialogue endeavours. • Ensure that lessons and best practises generated in these dialogue processes, are

transferred into other PSD programmes on a nation-wide scale. • Ensure inclusion of all interests into these dialogue processes, including those of small

subsistence farmers, the informal sector, MSMEs, women etc, and prevent that the dialogue process and the issues discussed are being dominated by the larger, more powerful businesses. This can only be attained when capacity building of associations representing these marginalised groups, is supported.

4. Which institutional arrangements can be created or/and enforced at the meso level in order

to reinforce bottom up processes, including new methodology for analysis and planning, and capacity to apply it?

As mentioned under question 3, the institutionalisation of horizontal public-private dialogue processes at the district/municipal and sub-district level is an important prerequisite to reinforce bottom up processes. However, also within the public and the private sector, bottom-up and top-down communication processes need to be improved. With respect to the public sector, the following issues need to be resolved (see 5.3 and 5.4):

• A change of mindset, which can only be achieved by thoroughly assessing incentives of government officials.

• Clarification of the role of the regional secretariats, especially in upward and downward dialogue processes.


• Allocation of sufficient resources at the district/municipal level for the local government to adequately perform its role and carry out its responsibilities, including fiscal redistribution and equalisation mechanisms.

• Reinstate communication lines between different sector ministries and their district/municipal counterparts, as opposed to indirect communication via PO-RALG.

• Build and improve capacity at district/municipal level, as most government officials at this level lack awareness, knowledge and information on many programmes, strategies and policies, including MKUKUTA.

• Install mechanisms to improve accountability of district/municipal and sub-district government.

To improve bottom-up processes within the private sector, the following recommendations can be made (see 5.1 and 5.2):

• Ensure equal representation of entrepreneurs at the bottom of the pyramid, in particular from the agricultural sector, in apex PSOs such as TCCIA.

• Formalise bottom-up communication processes to include issues raised from marginalised sectors at regional and national level meetings.

• Strengthen the capacity and improve service delivery of apex PSO organisations such as TCCIA.

• Clarify the role and responsibilities of regional chambers and include conflict resolution and intra- and inter-district co-ordination in their mandates.

• Ensure a level playing field within TPSF and NBC, including representatives from MSMEs, women, the agricultural and the informal sectors.

• Provide capacity building support to associations representing marginalised groups from the private sector and promote formation of these associations so that they can adequately voice their concerns at all levels and form vertical linkages with other apex organisations at the national level.

• Ensure formal intra-sector co-ordination at all levels of different PSD programmes, BDS delivery etc. to prevent duplication, omission and conflicting messages.

5. How can bottom up planning be made part and parcel of a PRS process? What can donors do

to facilitate this? Despite some concerns as indicated, a real and remarkable effort has been made to create a bottom-up consultation process. As the NSGRP has now been completed, the challenge remains in translating it into more concrete sector action plans, including an implementation and communication plan. Much concern exists that in contradiction to the consultation process, the implementation and planning process is predominantly orchestrated by the national government, without allowing sufficient input and empowerment from district/municipal government in determining local priorities, roles, responsible actors and required resources. It is therefore recommended that sufficient room is provided within specific sector plans to allow district/municipal government levels to determine their own planning, budgeting, allocation of roles and responsibilities within these sector plans. Also, as was concluded in the main conclusions at the beginning of chapter 5, issues should be solved at the lowest possible level, as they tend to get lost when transferred bottom-up to higher hierarchical layers. This requires sufficiently empowered and able government and PSO representatives at the district/municipal and sub-district levels. However, when assessing the considerable improvements that have been realised between generating the first and the second PRSP, as well as the institutionalisation of participatory planning and budgeting processes from village level upwards, one can only conclude that bottom-up planning is one of the principles on which the government of Tanzania bases its operations. Formalisation and extension of this principle to the development of implementation strategies, sector plans and budget allocation mechanisms, as well as improving efforts to include marginalised groups at the grassroots level, is something that will take time, despite efforts already made to this extent.


It is recommended that development partners continue to support these initiatives. However, better and formalised co-ordination mechanisms are required at all levels of development interventions, to prevent overlap, omissions and conflicting programmes. Even at the national level, many similar initiatives are developed by different development partners in parallel. Lessons learnt and best practices generated in the many different interventions, should be more widely shared and disseminated to ensure incorporation of these into national level strategies, policies and follow up programmes. The most important conclusion with respect to promoting an enabling environment for pro-poor PSD, is that PSD intervention programmes should integrate PSD and governance issues in one holistic approach as their interdependence is clearly demonstrated by this research.


ANNEX 1: REFERENCES [1] Proposal work plan and methodology research project; Reforming institutions aimed at

improving the enabling environment for Pro-Poor Private Sector Development, MDF Training and Consultancy, 6 January 2005.

[2] Evaluation of the District Rural Development Programme and Formulation of future

Netherlands support to Decentralisation and Local Development in the ‘ex-DRDP’ districts, Final Report, Volume I: Evaluation Report, MDF Training and Consultancy, January 2004.

[3] Mid Term Review Private Sector Development Programme Tanzania, Final Report, Mbise,

Mwazyunga, Wijmenga, November 2001. [4] Private-Public Partnerships in Dialogue, a guide to showing the next step, Private Sector

Development Strategy, PSDP 2000-2002. [5] BEST Appraisal Document, date and author unknown. [6] Terms of Reference for Advocacy Component Management Academy (ACMA), Managing

the Private Sector Advocacy (PSA) Fund under the Business Environment Strengthening for Tanzania (BEST) Programme, date and author unknown.

[7] Activity appraisal document for project aid, date and author unknown. [8] World Development Report 2005, World Bank Group, ??? [9] Promoting Entrepreneurship in Partner Countries, Guidance note business climate scan,

Ministry of Foreign Affairs, DDE, Netherlands, date and author unknown. [10] Accelerating Pro-Poor Growth through Support for Private Sector Development, DAC

Network on Poverty Reduction, OECD, 2004. [11] Chapter 3, socio-economic reforms in 2002-2003, 3rd PRSP progress report, Government of

Tanzania, March 2004. [12] Chapter 3, socio-economic reforms in 2001-2002, 2nd PRSP progress report, Government of

Tanzania, March 2003. [13] Joint Assessment WB/IMF, 2nd PRSP progress report, September 2003. [14] Review, Private Sector Development Programme, Royal Netherlands Embassy, Frans van

Gerwen, Donath Olomi, Flora Mndeme Musonda, MDF-ESA, November 2004. [15] Accelerating Pro-Poor growth through Support for Private Sector Development, an analytical

framework, date and author unknown. [16] Introduction to the Programme for Business Environment Strengthening for Tanzania

(BEST), Enhancing Growth and Reducing Poverty in Tanzania, United Republic of Tanzania, date and author unknown.

[17] Business Environment Strengthening for Tanzania (BEST), Enhancing Growth and Reducing

Poverty in Tanzania, United Republic of Tanzania, Vols, I, II, III, IV, Annex A, B, Ministry of Trade and Industry, October 2003.

[18] Handbook for the development of District Specific Policies for District Councils in Tanzania,

DRDP, MDF, 2005.


[19] Tango for Organisations, 40 tools for Institutional Development and Organisational Strengthening, MDF Training and Consultancy, April 2004.

[20] Annual Business Climate Scan Tanzania 2004, Royal Netherlands Embassy Tanzania,

2004. [21] Poverty Reduction Strategy II, First draft for second round consultations, United Republic of

Tanzania, Vice President’s Office, August 2004. [22] Poverty Reduction Strategy II, First draft for second round consultations, Annex II, Matrices

of Broad Outcomes, Goals, Targets, Cluster Strategies, Sectors and Actors, United Republic of Tanzania, Vice President’s Office, August 2004.

[23] Guidelines for the second round PRSP Consultation, Government of Tanzania, 2004. [24] National Strategy for Growth and Reduction of Poverty (NSGRP), final draft, United Republic

of Tanzania, Vice President’s Office, 15th January 2005. [25] Private sector paper on Mainstreaming Employment and Incorporating Priority Concerns:

Inputs of the Private Sector into the PRS Review, S. Wangwe et. al., Tanzania Private Sector Foundation (TPSF), 10 July 2004.

[26] Tanzania, the Performance Assessment Framework for PRBS/PRSC, Annual Review,

November 2004, Draft, Ministry of Finance, 1st December 2004. [27] Small and Medium Enterprise Development Policy, The United Republic of Tanzania,

Ministry of Industry and Trade, April 2003. [28] An Institutional Sector and Organizational Assessment (ISOA) of the SME Section and Other

Stakeholders, The United Republic of Tanzania, Ministry of Industry and Trade, 19th November 2002.

[29] Policy Paper on Local Government Reform, Local Government Reform Programme, United

Republic of Tanzania, Ministry of Regional Administration and Local Government, October 1998.

[30] Poverty Reduction Strategy II Consultations, Report to the Vice President’s Office, Draft II,

Avy Mbelle, 21 June 2004. [31] Guide for the Poverty Reduction Strategy Review, United Republic of Tanzania, Vice

President’s Office, November 2003. [32] Proposed Action Plan for the Poverty Reduction Strategy Review, Draft 1 for consultation

with stakeholders, United Republic of Tanzania, Vice President’s Office, 7 October 2003. [33] Thesis Jessica Hartog RNE… title? [34] Poverty Monitoring Master Plan, Government of Tanzania, 2001 [35] PRSP Institutionalisation study (chapter 9), Final Report, Evans Alison (ODI) and Ngalwea

Erasto (REPOA), 2001 [36] Income and poverty status predictors for Tanzania, NBS, Tanzania and Oxford Policy

Management Ltd, U.K., 2001 [37] Developing a multi-layer survey programme at the NBS for poverty monitoring in Tanzania,

Peter Wingfield Digby and Joseph Semboja (OPM), 2001


[ 38] MKUKUTA communications strategy, draft, VPO, February 2005 [39] Guidelines for the review of the PMS, VPO, February 2005 [40] Local Government Reform Programme, joint government-donor review, pages 45-49, 2004. [41] Final synthesis report, - A comparative analysis of the experiences of decentralisation in

Kenya, Tanzania and Uganda, NCG, 2004. [42] Local Government Fiscal Review, Co-ordinating Block Grant Implementation team, 2004. [43] Draft inception report, Development of a strategic framework for the financing of local

governments in Tanzania, Georgia State University, 2004.


ANNEX 2: Key actors in Private Sector Development interviewed for the study Key actors in PSD interviewed during first mission (30 January – 4 February 2005).

Office Name and Position Role Research on Poverty Alleviation (REPOA)

Dr. Donald Mmari Consultancy Coordinator

JICA Ms. Tamahi Yamauchi Poverty Monitoring Advisor UNDP Mr. Amon M. Manyama National Economist (programme

specialist) Tanzania Private Sector Foundation (TPSF)

Mr. Louis P. Accaro Executive Director

VIBINDO Society Mr. Madanga FAWETA 1 Mrs. V. Rutengwe

2 Mrs. Rwiza Chair person Secretary

Ministry of Industry and Trade Mr. Desystant Massawe Assistant Director, Head of SME Section

Ministry of Industry and Trade Ms. Jane A. Lyatuu Senior Trade Officer, SME Section Ministry of Industry and Trade Mr. Bede Lyimo

Responsible for BEST programme

TCCIA Mr. Mariot Kalanje Executive Director Confederation of Tanzania Industries (CTI)

Mr. Geoffrey N. Mackanja

Economist

Confederation of Tanzania Industries (CTI)

Ms. Theckla Myovela Business Consultant

Vice President’s Office Mr. Ibrahim D. Ugulum PRS Consultation Analyst Vice President’s Office Mr. David Howlett Poverty Environment Advisor Local Government Reform Programme

Mr. Alfred L. R. Kabagire

Programme Manager, Local Government Reform Programme

Ministry of Industry and Trade Mr. J. Mrema Director of Planning (NSGRP) SNV

Mr. Lameck Kikoka Senior Advisor Private Sector Development

Royal Netherlands Embassy

Mr. Emmanuel Maliti Mr. Paul Tholen Ms. Jessica Hartog

Programme officer Economics/ First Secr. Local Governance/ Internship

Tanzania Association of Non-Governmental Organisations (TANGO)

Mrs. Mary Rusimbi Executive Director, TNGP

Presidents Office Planning and Privatisation

Mr. L.T. Msongole Director, Policy Information Development

World Bank Country Office, Tanzania

Dr. Mpango Senior Economist World Bank

Economic and Social Research Foundation (ESRF)

Prof. Samuel Wangwe Consultant/Facilitator, private sector input

Ministry of Finance Mr. Bedason Shallanda Assistant Director, macro-economics University of Dar es Salaam Dr. A. Mbelle Senior research Fellow, Consultant

Economic Research Bureau/NSGRP


Key actors in PSD interviewed during second mission (6 – 18 March 2005). No. Name Position Organisation 1 Mr. James Obama General Manager Pride Tanzania 2 Ms. Mariel Mensink Advisor SNV 3 Mr. Mustapha Akunaay Executive secretary Tanzania Association of Tour Operators

(TATO) 4 Mr. Bonniface Mariki District Executive Officer TCCIA Hai District Branch 5 Mr. Samwel N. Moshi Director/Entrepreneur and

Regional Chairman TCCIA Kilimanjaro

6 Mr. Edwin W. Shetto Regional Executive Officer TCCIA regional branch Arusha 7 Mr. Reuben Shoo Operations Manager FAIDA Market Link Co. Ltd 8 Mr. Adolf K. Mushi Agronomist FAIDA Market Link Co. Ltd 9 Mr. Abdallah S. Kiluvia Regional Manager SIDO Arusha 10 Mr. Felician Ifunya Chief Executive Officer Micro and Small Enterprises Services

Company Ltd. 11 Mr. John Mlay Adisor SNV 12 Mr. Ekko Oosterhuis Director Safflo food products ltd. 13 Mr. Emmanuel Kallonga Director Hakikazi Catalyst 14 Mr. Tungaraza District Co-operatives officer Arumeru district council 15 Ms Susan Laizer Chairperson Tanzanian Food Processors Association

(TAFOPA) 16 Mr. Tjerk Scheltema General Manager Multiflower 17 Mr. Nko Absolum Executive Officer TCCIA Arumeru District Branch 18 District Executive Director and

team Monduli District council

19 Mr. Issa Kajia Vice Chairman Industry/Entrepreneur

TCCIA Monduli District Branch

20 Mr. Samson Sarakikya Community Development Officer

Arusha Municipal Council

21 Mr. Phillemon Kisamo Executive Director Tanzania Horticultural Association (TAHA)


ANNEX 3: Government Ministries Responsible for PSD and their participation in the consultation process Actors in PSD Responsibilities Participation in the

consultation process Vice President’s Office (VPO) Development and co-ordination of the implementation of poverty

eradication efforts, including the Poverty Reduction Strategy (PRS) by ensuring that the Planning Commission, all sectoral ministries and other stakeholders formulate and implement their policies in line with the NSGRP.

Chaired the technical committee and participated in drafting and consultative workshops.

Ministry of Labour and Youth Development (MLYD)

Formulation and implementation of policies and strategies for employment promotion in sectors especially for the most disadvantaged in society such as the disabled, women and youth.

Ministry of Community Development Women Affairs and Children (MCDWAC)

Formulation and implementation of policies and strategies for women empowerment in all spheres of life including business.

Ministry of Industry and Trade (MIT) Policy and strategy development for the promotion of Micro, Small and Medium Enterprises. The Small Industry Development Organisation, which is the government’s main agency in this sphere, falls under this ministry.

Director of planning was member of drafting team.

Ministry of Justice and Constitutional Affairs (MJCA)

Reviewing laws to ensure a suitable legal framework for business activities.

President’s Office - Regional Administration and Local Government (PO-RALG)

Effective and efficient functioning of local governments at district/municipal level. The local governments are in turn responsible for creating an enabling environment for business in their respective jurisdictions.

Prime Minister’s Office Development and co-ordination of the Rural Development Strategy, part of which deals with SMEs.

Was part of technical committee.

Ministry of Agriculture and Food Security Development of agricultural development strategy and policy and for promotion of agriculture and agri-business in general.

Ministry of Water and Livestock Development Livestock development, including the marketing of agricultural and livestock products.

Was part of technical committee.

Ministry of Co-operatives and Marketing Co-operative development strategy and marketing systems, particularly for agricultural products.

President’s Office - Planning and Privatisation (PO-PP)

Overall responsibility for private sector development and co-ordination of all policies at national level.

Was part of technical committee and drafting team.


ANNEX 4: Government agencies responsible for PSD and their participation in the consultation process Government Agencies Role Participation in the

consultation process Business Registration and Licensing Agency (BRELA)

Company incorporation, registration of business names, patents, etc None

Capital Markets and Securities Agency (CMSA) Development and regulation of capital markets None Dar es Salaam Stock Exchange (DSE) Listing of companies and trading in securities Participated in the private

sector consultations Tanzania Revenue Authority (TRA) Tax administration None Tanzania Investment Centre (TIC) Facilitation of investment, both foreign and local None Board of External Trade (BET) Export promotion and import/export facilitation None Bank of Tanzania (BOT) Preparation of a regulatory framework for lending to micro enterprises None Tanzania Bureau of Standards (TBS) Development and enforcement of standards None Small Industry Development Organisation (SIDO)

Promotion of SMEs, including industrial ones None

Research and Development (R&D) Institutions Technology development, brokerage and transfer None Vocational Education and Training Authority (VETA)

Vocational training None

Universities and other post-secondary training institutions

Training, research and consultancy in the area of PSD and entrepreneurship

University of Dar es Salaam lecturers participated as consultants in drafting team


ANNEX 5: Private Sector Organisations (PSO) and their participation in the consultation process. Private Sector Organisations Membership/Representing Participation in the

consultation process Tanzania Chamber of Commerce, Industry and Agriculture (TCCIA)

6000 members, regional chambers in all 20 mainland regions and district chambers in 70 districts, mostly micro, small and medium enterprises

None

Federation of Association of Female Entrepreneurs in Tanzania (FAWETA)

10 regional branches in mainland Tanzania, women entrepreneurs Not even aware

Viwanda na Biashara Ndogongodo (VIBINDO), which brings together informal enterprises and their employees in Dar es Salaam

Over 39,000 members in Dar es Salaam, mostly informal business operators and employees in the informal sector

Significant

Tanzania Food Processors’ Association (TAFOPA) Informal, micro and small food processors in Tanzania, with 6 regional branches, 80% of membership is women

Not even aware

Confederation of Tanzania Industries (CTI) Mainly large industrial enterprises. Branches in 3 regions with 220 members. Significant. Tanzania Private Sector Foundation (PSF) An umbrella organisation of private sector organisations, with 120 members,

including TCCIA and CTI, but excluding many associations of informal, micro and small business operators

Significant

Federation of Informal Sector Operators in Tanzania (FISOTA)

This is a country-wide umbrella organisation of informal sector associations, but has not been able to co-ordinate and meet because it lacks the resources

None


ANNEX 6: Civil Society Organisations and their participation in the consultation process Civil Society Organisation Responsibility Participation in the consultation process Tanzania Association of Non-Governmental Organisations (TANGO)

Umbrella organisation for NGOs Participated in the NGO Policy Forum

Bunge foundation Capacity building of members of parliament Sensitised members of parliament on contents of NSGRP Research on Poverty Alleviation (REPOA) Independent research on poverty issues One consultant participated in the drafting team NGO Policy Forum Advocacy Forum for non-state actors Conducted consultative workshops and prepared recommendations Tanzania Gender Networking Programme Research, education, information

dissemination, advocacy for gender issues Translated and disseminated consultative guidelines, presented recommendations alone as well as in collaboration with other forums

Hakikazi Catalyst Translates policies and strategies into understandable English and Kiswahili, advocates for informal sector.

Organised national CSO consultation process involving 130 CSOs.


ANNEX 7: Development Partners active in PSD and their role in the consultation process. Development Partners Role in PSD Participation in consultation process International Labour Organisation (ILO) Supports capacity building for gender mainstreaming in the SME

section of the Ministry of Industry and Trade Was part of the Development Partners Group (DPG) which gave views on the draft NSGRP

United States Agency for International Development (USAID)

Supports private sector development in 6 rural regions of Tanzania Was part of the Development Partners Group (DPG) which gave views on the draft NSGRP

The World Bank Supports development and implementation of PRS and PSDs Was part of the Development Partners Group (DPG) which gave views on the draft NSGRP

Danish International Development Agency (DANIDA)

Supports development of the Private Sector Development Strategy, the BEST Programme and implementation of parts of the Trade Policy

Was part of the Development Partners Group (DPG) which gave views on the draft NSGRP

Swedish International Development Agency (Sida)

Supports a number of activities, including the BEST Programme, Financial Sector Deepening and implementation of parts of the Trade Policy


Canadian International Development Agency (CIDA)

Supports a number of PSD activities including the Financial Sector Deepening Programme


Norwegian Agency for International Development (NORAD)



Department for International Development (DFID) (U.K.)



United Nations Development Programme (UNDP)

Supports a number of PSD activities including planning to support implementation of the SME Development Policy


United Nations Industrial Development Organisation (UNIDO)

Supports a number of PSD activities including its own country PSD programme and is planning to support implementation of the SME Development Policy


Royal Netherlands Embassy (RNE) Supports a number of activities, including the BEST Programme, Financial Sector Deepening and implementation of parts of the Trade Policy


Japanese International Co-operation Agency (JICA)

As yet not many programmes on PSD, but active in consultation process.



ANNEX 8: List of most important strategies, programmes and policies that bear relevance to PSD. Strategies Relevance to PSD Responsible organisation Relationships with other

organisations Tanzania Development Vision 2025 Broad aspirations and strategies for

building a competitive economy driven by the private sector

President’s Office – Planning and Privatisation (POPP)

POPP (planning), VPO (poverty eradication) as well as sector ministries

National Poverty Eradication Strategy Broad strategies for poverty reduction including through SME development


MoF (budget), all sector ministries

Poverty Reduction Strategy (PRS) now NSGRP (National Strategy for Growth and Reduction of Poverty)

Overall framework for poverty reduction, NSGRP has dominant focus on pro-poor growth.

Vice President’s Office (VPO) MOF (budget), POPP (planning), WB (financing), all sector ministries (input/implementation of relevant strategies)

Rural Development Strategy (RDS) Rural transformation, including rural industrialisation and development of District private sector development programmes

Prime Minister’s Office (PMO) POPP (planning), PO-RALG (implementation)

Private Sector Development Strategy (PSDS)

Still being developed President’s Office – Planning and Privatisation (POPP)

PO-PP, All sector ministries with PSD roles.

Tanzania Assistance Strategy (TAS) Co-ordinates donor assistance, including in PSD

Ministry of Finance (MoF) MoF, PO-PP, all sector ministries.

Programme for Business Environment Strengthening in Tanzania (BEST)

Focuses on creating an enabling environment for the private sector


TIC (one component), commercial court, MJCA (legal reforms), TPSF, MIT (SME policy), MoF (budget)

Public Service Reform Programme (PSRP)

Capacity building of the public sector to improve service delivery to among others, the private sector

President’s Office – Public Service Management

MoF (budget), all ministries, public agencies.

Financial Sector Reform Programme (FSRP)

Improving framework for financial intermediation

Ministry of Finance BOT

Local Government Reform Programme (LGRP)

Improving the functioning of local authorities in creating appropriate environment and delivering services to various local constituencies, including the private sector

President’s Office – Regional Administration and Local Government (PO-RALG)

MoF (budget)

Legal Sector Reform Programme (LSRP)

Reforming the legal and regulatory framework, including the part which affects the private sector

Ministry of Justice and Constitutional Affairs

PO-PP (BEST) all ministries

Financial Sector Deepening Programme

Improving outreach of financial services, especially to rural enterprises and households

Ministry of Finance MIT (SMEs)


Building and Strengthening Local Government Institutions in Tanzania Programme (follow up of DRDP)

Improving the functioning of local authorities in creating appropriate environment and delivering services to various local constituencies, including the private sector

President’s Office – Regional Administration and Local Government (PO-RALG)

MoF (budget)

Policies National Trade Policy Promoting internal and external trade Ministry of Industry and Trade MoF (budget), VPO (NSGRP), MJCA,

EWURA, other regulators SME Development Policy 2003-2013 Enhancing growth of micro, small and

medium enterprises Ministry of Industry and Trade MoF (budget), VPO, PMO, PO-RALG

Sustainable Industrial Development Policy (SIDP) 1996-2020

Enhancing development of the industrial sector

Ministry of Industry and Trade MoF (budget), MJCA, MLYD (labour laws), MEM (energy)

National Micro-Finance Policy (2000) Increasing outreach, efficiency and effectiveness of micro finance services

Ministry of Finance MoF (budget), BoT, MIT

Agricultural and Livestock Policy Modernisation, growth and commercialisation of agriculture and livestock activities

Ministry of Agriculture and Food Security

MoF (budget)

Minerals Policy of Tanzania Promoting sustainable mining and small scale miners

Ministry of Energy and Minerals MoF (budget), MEM (energy), VPO (environmental issues), MIT

Gender and Women Development Policy

Promoting gender equality and women economic empowerment

Ministry of Gender, Children and Community Development

MoF (budget), MIT (SMEs)

Co-operative Development Policy Promoting co-operative activities, including production and marketing oriented ones

Ministry of Co-operatives and Marketing

MoF (budget), MIT

National Energy Policy Promoting more affordable energy for industry and other users

Ministry of Energy and Minerals MoF (budget), VPO, MEM

Other important plans National Poverty Monitoring System (NPMS)

Participative structure with many agencies, responsible for M&E of all indicators under different strategies.

Vice President’s Office MoF (budget), all sector ministries


Annex 9: INSTITUTIONAL ANALYSIS OF DIFFERENT STAKEHOLDERS IN PSD In addition to the dialogue framework presented earlier, a more detailed, descriptive institutional analysis Of the different stakeholders in PSD is provided below. Government ministries Within the central government, the main actors in poverty reduction and PSD are the Vice President’s Office (VPO), which is responsible for co-ordinating poverty reduction initiatives and the President’s Office - Planning and Privatisation (POPP), which is responsible for development, planning and monitoring and sector ministries. The sector ministries directly responsible for private sector development are the Ministries of Industry and Trade, Agriculture and Food Security, Water and Livestock, Labour and Youth Development, Community Development Gender and Children and Co-operatives and Marketing (figure 10.1). Other ministries also deal with private sector issues, but less directly. The roles of the different ministries are summarised in annex 3. The relationships among these ministries and between them and the local governments are as shown in figure 10.1 below: Figure 10.1: Relationship amongst government ministries and between central and local government. Co-ordination of poverty reduction initiatives was assigned to the Vice President’s Office in the 1990s, apparently to keep the otherwise under-utilised office busy.

The local authorities were delinked from sector ministries as part of the decentralisation process in the 1990s. The Municipal/District Executive Director (DED) now operates under an elected Council and reports directly to the President’s Office (Regional Administration and Local Government (PO-RALG)). All Municipal/District level officers responsible for trade, agriculture, livestock, labour, community development, etc. report directly to the DED, who in turn reports to PO-RALG. The regional offices perform a secretarial and advisory role, whilst most of the activities are done at the district level. The sectoral officers at the regional offices are considered technical experts to advise the Regional Administrative Secretary (RAS).

When analysing this institutional set-up, a number of problems was identified by stakeholders as complicating NSGRP and PSD policy consultations, co-ordination and implementation.

President’s Office (PO)

PO-Public Service Management (PSM) Vice President’s Office (VPO)

PO- Regional Admin and Local Government (PO-RALG)

PO-Planning and Privatisation Commission (POPP)

Sector Ministries: Industry and Trade, Agriculture and Food Security, Rural Development, Labour and Youth, Water and Livestock, Natural Resources and Tourism, etc

Prime Minister’s Office

District and Municipal Councils


1. The delinking of poverty reduction initiatives from the PO-PP to the VPO has made development planning and monitoring of implementation appear fragmented. The initial thinking was that poverty reduction was sufficiently distinct from mainstream development planning that it could be handled separately. With the integration of economic growth into the NSGRP, the rationale for this separation is highly questionable. The NSGRP is taking on a much wider role in development planning and management than the VPO was expected to handle as the strategy is now seen as the key development framework by the government and development partners, through which most financial resources will be channelled. However, other actors see the NSGRP as a project, which still leaves most medium and long-term development planning and management under the PO-PP.

2. Second, co-ordination and monitoring of local level initiatives from the sectoral ministries is

now problematic, since there is no direct line of communication between local government and sector ministries which are responsible for national policies and strategies. Sector ministries can communicate information to the local government but since the local governments are not answerable to them, they are not obliged to respond. It is therefore possible to send information about what is happening, but very difficult to receive information back from the local government level as to their opinion or the status at local level.

3. Third, there is very limited co-ordination among the various policies, strategies and actors

responsible for private sector development. Co-ordination is problematic within institutions, between related institutions (such as ministries) and among different types of institutions involved in PSD. Part of the problem is that there is no culture of sharing information, even among officers or departments within a single institution. Because of the local government reforms there is no direct link between the Ministry of Industry and Trade (MIT), which is the main PSD actor at central government level, and the local government.

4. Fourth, capacity of the SME Section in MIT, which is supposed to spearhead and monitor

SME development, is severely limited in many ways. Compared to the fact that over 90% of the Tanzanian working population is employed in the informal, micro or SME-sector, the SME section within MIT receives very little focus. As main problems can be mentioned:

• There are just three staff members who are very much over-worked. • Staff remuneration and hence attraction and retention possibilities are quite low. • Physical capacity in terms of facilities and systems is very limited. • The status of the unit (as a section) is inappropriate because key decisions and

budget allocations are made at departmental level. • Also, the section is misplaced under the industry division, which deals with

industrial development only, while the section is supposed to deal with all types of SMEs.

5. As PO-RALG is the responsible ministry to implement the NSGRP at local government level

and co-ordinate this implementation with all other strategies, programmes and policies, it has an important responsibility. However, capacity within PO-RALG is very limited. a. PO-RALG consists of 240 people at central level, 83 people per regional level (21

regions), 60 people per district level (106 districts) and 5 people per divisional level (4/5 per district). That is where government ends.

b. Local authorities sometimes overlap and sometimes separate districts, which can result in conflicting and overlapping responsibilities.

c. For effective NSGRP implementation, the co-ordination between VPO and PO-PP is crucial. The input and level of authority of PO-RALG into this process is not clear.

d. An important process in implementing the NSGRP and other programmes at local level, is the ongoing decentralisation process. However, decentralisation cannot be separated from local taxation. At the moment, it seems that local taxation is used in the first place as an instrument for income generation for local governments. How local taxation should be used as a mechanism for improving the enabling environment for PSD, needs to be further investigated.


Government Agencies There are a number of government agencies dealing in one way or another with PSD, which are listed in Annex 4. Some of these, such as Tanzania Investment Centre (TIC), Board of External Trade, Small Industries Development Organisation (SIDO) and Research and Development institutions play a promotion role. Others, such as the Tanzania Bureau of Standards (TBS), Capital Markets and Securities Agency (CMSA) and Business Registration and Licensing Agency (BRELA), play a regulatory role. Yet others, such as the Dar es Salaam Stock Exchange (DSE) play a facilitative role. Except for the DSE, which participated in the consultative workshop involving the private sector, none of the other agencies were involved in the development of the NSGRP. Private Sector Organisations There are many different business associations in Tanzania, which responsibility is to advocate for their members’ rights and provide such services as business information and advice. A number of organisations exist with a potential for national multi-sectoral outreach and these are the Tanzania Chamber of Commerce, Industry and Agriculture (TCCIA) and the Federation of Women Entrepreneurs in Tanzania (FAWETA). The former has a national membership of about 6,000, 20 regional branches (in all mainland regions) and some 60 district branches. The later has almost no capacity, with 10 regional branches of which most are inactive. There are also a number of sectoral PSOs, which represent informal and micro enterprises. These include Tanzania Food Processors’ Association (TAFOPA), Viwanda na Biashasha Ndogndogo (VIBINDO) Society, Artisans Development Association of Tanzania (ADAT), etc. VIBINDO represents various informal sectors in Dar es Salaam and is the largest with over 39,000 members. The Confederation of Tanzania Industries (CTI) is one of the strongest associations. Traditionally, its membership consisted of large enterprises but it has now established an SME department to take care of the interests of smaller manufacturers. It has 220 members and branches in three regions. In terms of national representation, TCCIA is the organisation which is active and reaches out to the widest network of micro, small and medium sized enterprises. For a more detailed analysis on TCCIA, please refer to annex 15. The position of the other associations of micro and small enterprises is even worse than that of TCCIA. FAWETA and TAFOPA have difficulties even maintaining their offices and did not even know about the consultation process.

The Tanzania Private Sector Foundation (TPSF) was formed as a national umbrella organisation for all business and employer associations, taking responsibility for policy advocacy. It has 120 members from different parts of the country, including TCCIA, CTI and VIBINDO. However, most other associations of informal, micro and small business operators are not yet members. The Tanzania National Business Council (TNBC) was established in 2001. It brings together 20 key ministries at Principal Secretary level and 20 key representatives of the business community under the Chairmanship of the President of the United Republic of Tanzania. It serves as a dialogue forum and decisions taken by it to improve the business environment are supposed to be implemented immediately, since the key decision-makers in government and its institutions (TRA, TIC) are also represented. It is considered a very powerful instrument that can speedily and effectively address complaints and issues brought forward by private sector organisations via the PSF.


The organisation of the private sector for advocacy purposes can be depicted as follows: The main gaps in terms of the organisation of the private sector and its participation in the TPSF and consequently in the NSGRP consultative process, have to do with representation of the informal, micro and small enterprises sectors. Since the majority is not represented via the TPSF, their input was limited to possible participation during the ALAT led consultation processes at district and village level, which can not be qualitatively ascertained, and what was advocated by VIBINDO, which represents the informal sector from Dar es Salaam, the largest urban centre in the country. Also some donor organisations or NGOs could have voiced the concerns of the informal, micro and small enterprises sector, but if this happened, it was through an indirect and less transparent process. Although VIBINDO managed to put some issues specific for the informal sector on the NSGRP agenda, it can hardly be taken as representative for the remaining rural part of the country. It is therefore quite possible that the concerns of small scale farmers, pastoralists and women entrepreneurs were not heard because these were not formally involved in the process on account of lack of or weak organisation as noted above. It has been observed that peasants often nominate a speaker for them whenever a stranger approaches them, and this speaker may not say what the real issues and priorities are. Information is missing as to whether the consultations specifically included the private sector at the district and village levels and hence some important issues affecting the private sector at that level may have been missed out. Depending on the quality of the district and village level consultations, there is not yet a mechanism in place to really collect the voices of peasants. Some people have suggested that Members of Parliament do represent them, but this is highly disputed. It has also been observed that some other actors, such as micro-finance institutions and the Tanzania Association of Micro-Finance Institutions (TAMFI) could have given some useful input on matters related to access to finance as well as constraints facing their members/clients, but these were not included in the consultation processes. For more information on different financial institutions within Tanzania, please refer to annex 14. Also, there are other (in)formal ways for the private sector to lobby and advocate their issues with central government in addition to the TPSF and TNBC, such as discussion platforms, informal communications, workshops etc. However, these routes do not seem very accessible to representatives from the rural, agricultural, informal and micro-enterprise sectors. Civil Society Organisations A large number of civil society organisations (CSO) exist in Tanzania. These include Faith Based Organisations (FBOs), Non-Governmental Organisations (NGOs), Community-Based Organisations (CBOs), etc. A list of some of the prominent ones is shown in Annex 6. In addition there are several theme based forums which bring together several CSOs to advocate for specific issues. For example, the Feminist Activism Coalition (FEMAC) brings together 40-45 organisations that consider gender as an issue in development. There are also other groups dealing with macro policy issues. The broadest of all is the NGO Policy Forum (NPF) which brings together various

TNBC

TPSF 20 Government Ministries and Agencies

TCCIA CTI Other PSO


state and non-state actors to deliberate and advocate on a wide range of developmental issues. These were also invited to participate in the consultation process, and did so very effectively. The contribution of CSOs in the consultative process was quite significant. Many issues were discussed at different forums and brought to the VPO for inclusion into the first draft PRSP by the drafting team members. Most issues were not related directly to PSD. The ones which touch on PSD include: The CSOs believe that they were able to have an impact on the consultative process, although not everything they wanted was taken on board. The most significant impact was getting the government to see things in a different perspective, for example realising that domestic violence and the fact that women spend many hours and energy on water sourcing, negatively affects labour productivity and including “both men and women” in the targets to be achieved. Also the need to include employment as a key issue, and hence to stress growth as a pre-requisite for poverty reduction was argued strongly by CSOs. The main issues relating to the input of CSOs is that often the most articulate and the most vocal are heard, and these may not necessarily represent the interests of the deprived grassroots communities. Development Partners Many development partners are involved in PSD in Tanzania. Annex 7 contains a list of the key development partners. Increasingly, the development partners are co-ordinating their initiatives. The most significant ones have organised themselves into a Development Partners Group (DPG) (formerly DAC), that includes a specific PSD sub-group, where they share information and even advocate for specific positions. Within the group, some like-minded development partners are even co-operating more closely. An increasing number of these partners prefer to finance joint large sector programmes, rather than working in projects. It is therefore natural that they would co-ordinate their participation and even financing of the NSGRP. The DPG decided that NSGRP will be the main framework guiding their development funding. The DPG was one of the groups invited from the beginning to provide ideas on the NSGRP. However, the group decided that it would be improper to provide their inputs early, because it would have been taken as a prescription. Instead, they waited until the first draft came out and then provided their co-ordinated inputs. Even these were made in terms of the broad observations on the major thrusts, rather than on specifics.


ANNEX 10: ANALYSIS OF STRATEGIES, PROGRAMMES AND POLICIES INVOLVED IN PSD Tanzania prepared and adopted Development Vision 2025 in 1999 and the National Poverty Eradication Strategy (NPES) in 1997, which spell out a vision for a society free of abject poverty and improved social conditions. The United Nations Development Programme developed the Millennium Development Goals (MDGs) for developing countries, including Tanzania. Sector policies, strategies and programmes, as well as the NSGRP have all responded to these frameworks and aspirations. Annex 8 provides an overview of the most important strategies, programmes and policies that bear relevance to PSD, including a brief description of the PSD content, and the responsible government ministry. However, please note that responsibilities with respect to planning, budget allocation and monitoring and evaluation can be located with other government actors. Where applicable, this is indicated. There are many overlaps among the policies and strategies with a bearing on PSD. The overlaps are summarised below.

Table: Overlaps in PSD Policies and Programmes

ISSUE POLICIES/STRATEGIES COVERING IT Improved Legal and Regulatory Framework SMEDP, BEST, ASDP, RDS, STP Improved Physical Infrastructure SMEDP, BEST, RDS, STP Entrepreneurship and Business Training SMEDP, ASDP Improved Access to Information SMEDP, ASDP, STP Improved Access to Technology SMEDP, RDS Improved Marketing Services SMEDP, RDS, ASDP Enhanced Access to Finance SMEDP, NMFP, RDS Improved Institutional Framework for SMEs Development

SMEDP, BEST, including the ACMA component.

Enhanced Rural Industrialisation SMEDP, RDS SMEDP= SME Development Policy BEST = Business Environment Strengthening Programme for Tanzania ASDP= Agricultural Development Strategy RDS= Rural Development Strategy STP= Strategic Trade Policy ASDS=Agriculture Sector Development Strategy If separate programmes are implemented without co-ordination, there is bound to be a lot of duplication, confusion and waste of effort. This duplication is surprising because policy and strategy formulation is co-ordinated by an inter-ministerial technical committee and approved by the Cabinet. Some actors consider policies as mere statements of priorities and broad frameworks, which can be implemented by multiple sector ministries and hence duplications in the statements are healthy because they will intensify actions on those priorities. During the development of the NSGRP, sector ministries were asked to provide issues which they thought should be included in the document, and indeed many issues were picked from sector policies and strategies and included in the NSGRP document and will be financed as far as resources under the NSGRP will allow. The sector ministries will however continue looking for funds to finance activities not included in the NSGRP from various sources including the Ministry of Finance. The relationship amongst the various government policies and strategies with a bearing on PSD is as follows:


SMEDP= SME Development Policy BEST = Business Environment Strengthening Programme for Tanzania ASDP= Agricultural Development Strategy RDS= Rural Development Strategy STP= Strategic Trade Policy

Vision 2025

National Poverty Eradication Strategy

Sector Strategies: SMEDP BEST, ASDP, RDS, STP, ADS

NSGRP


ANNEX 11: PRO-POOR PSD: PROBLEMS AT GRASSROOTS LEVEL “I do not trust the government, I do not know how to provide for my family, I have lost hope and confidence…what can I do?” The following provides a transcript of a power point presentation presented at the multi-stakeholder workshop at national level on 17th of March 2005 in Dar es Salaam. It is based on an extensive number of interviews conducted during the course of this study, with a variety of stakeholders (annex 2). During these interviews, people were asked to provide practical examples of the constraints they face in daily life with respect to growing, formalising or evolving their business. The following provides an overview of the most important problems, in the words of the people that were interviewed. Main problems as identified during grassroots level interviews: 1. Access to credit 2. Awareness and capacity 3. Lack of association 4. Tax regime 5. Price fixing 6. Access to markets 7. Expensive inputs 1. Access to credit • The closest finance organisation is 50 km away; it costs too much to go there regularly... • Loan processing is slow: I lose opportunities and it is difficult to win back that market... • I don’t have assets or my assets are not acceptable as collateral. • The interest rate is very high (22 - 45 %) and I have to pay back within 6 months • The loan is only available to groups and weekly meetings are required, involving transport cost

and time away from my business. • The size of the loan is not high enough for me to make the necessary investment, so I better

spend it on education of my children... • I need to pay interest in weekly instalments, but my business is seasonal. Why can I not pay

back after my harvest? • As a matter of fact, I really do not know what a loan is, how I can compare interest rates, how I

should keep records or make a plan …. • We do not have a culture of saving and I do not receive much interest rate with the bank, so I

better buy a goat or invest in a house... • I have a good business, but my customers take 2 months to pay… This means I have no

liquidity, but I cannot get an overdraft from the bank so my business goes bankrupt.. 2. Awareness and capacity • I do not know what MKUKUTA is, what are the opportunities for me and how can I access

them? • We have a socialist legacy, so I do not know much about the market economy. • How can I improve my entrepreneurial skills? • Different Business Development Services Providers have been active in this area, yet they give

me conflicting advice. One advice actually made me poorer. Whom should I trust? • I would like to formalise my business, but it involves 13 steps and BRELA offices are located in

Dar es Salaam and I cannot afford to travel that far... • How can I register my business property or my land, so I can prove it is mine?


3. Lack of association • I would like to be consulted and have my problems taken into account by the government, but

there is no association that represents my problems and the local government does not listen to me....

• The farmer association that I belong to counts 120 farmers and is a member of the district chamber of the TCCIA. Yet we only get one vote, so our issues are overruled by larger business members.

• I now belong to a Mviwata (farmer working group) but there is a lot of tension with the local co-operatives… this prevents good working relations...

4. Tax regime • Nobody can tell me which taxes, licenses and registrations were abolished. However, local

authorities keep inventing new taxes and bylaws to counter reduced income. • TRA and local govt. keep harassing me and I cannot do anything about it... • I am just a small kiosk owner in Monduli, yet I have to pay the same tax fee as a kiosk owner in

Dar es Salaam… How is this possible? On VAT: • I am a small farmer and do not have a TIN. Transport, diesel, packaging is sold to me including

VAT, which I cannot claim back. This is the most dramatic problem to my business as it reduced my profitability by 10-20%

• The VAT system works on monthly summaries, yet my business is seasonal. I cannot claim VAT expenses back if I did not sell or export in the same month.

• Also, it takes up to 2 years to receive my VAT claim back! This costs me a lot of money each year...

• Agricultural inputs such as fertilizer are VAT exempt, to help the farmers. So how can it be that diesel is VAT exempt for the mining industry but not for the agricultural sector, as it represents 20% of my input?

• I make jams and other processed food items in my house and would like to sell to local hotels and supermarkets, but I have no VAT registration. They do not want to buy my product because they cannot claim VAT back…. What can I do?

• I have a metal works business that can make garden rakes, but I have to pay VAT on all raw materials. Yet, garden rakes from South Africa are VAT exempt, because they are an agricultural product… How can I compete?

5. Price fixing • Trader syndicates fix prices and prevent me to access the local market so that they can keep

prices artificially high. • I have no access to price information, my product is perishable and I lack negotiation and

business skills, so eventually I sell to the trader at very low price... • The authorities do nothing to get a grip on the traders, yet these make huge profits at my

expense. I went to the TCCIA but I am scared to become a member because the traders are also a member...

6. Access to markets


• The co-operatives used to ensure that my product was sold, but now they are mismanaged, inefficient and they never paid me for my product...

• With free trade and globalisation I need to compete against subsidized products from the west and higher quality, cheaper products from Kenya and Uganda.

• Large businesses can get wholesale prices and can import from Dubai, I cannot compete with them...

• How can I find linkage to another enterprise that can use my products? How can I learn about quality, storage, timely delivery and transport?

• I am an informal fruit vendor and would like to grow my business but I have no business premises and the local government keeps chasing us away...

7. Expensive inputs • Power, water and telecom cost are extremely high. Other agricultural inputs such as fertilizer is

subsidised, but it is not available in my district…. • I bought a processing machine from Uganda but it does not work…and nobody can advise me

how to fix it or where I can buy a good one... • The TPRI comes bi-weekly and demand very high fees for pest control… I get sick from the

chemicals they want me to use, and although better ones are available I am not allowed to use them...


ANNEX 12: OVERVIEW OF CREDIT FACILITIES IN TANZANIA The poor and rural people in Tanzania have a big demand for financial services. About 85 % of Tanzanians live in rural areas and the provision of financial services to these areas has been very limited. A study by the Bank of Tanzania (BOT) established that 82% of households were saving in their home-environment. Although 21 % of households had bank accounts, the amount saved was only 12 % of their total household savings. 79 % is willing and ready to save if appropriate products and saving mechanisms are available. The study also showed that 94% were willing to borrow more if resources and appropriate methodologies were available. The development of the micro-finance industry has relied heavily on donor-supported projects, NGOs, government projects and Savings and Credit Co-operatives (SACCOs). Institutions that provide micro-finance services in rural Tanzania can be categorised as formal, semi-formal and informal financial institutions. Formal financial institutions These are institutions that are subjected to specific banking regulations and supervision. Included here are commercial banks, Community Banks and Non-Banking financial intermediaries. Banks are now entering the micro-finance industry in different scenarios and some of them have started micro-finance windows. These include NMB, AKIBA Commercial Bank (ACB), CRDB Bank, Kilimanjaro Cooperative Bank (KCB), Mufindi Community Bank (MUCOBA), Mwanga Community Bank (MCB), Dar es Salaam Community Bank (DCB). Except for the CRDB which provides wholesale lending to rural SACCOs, the outreach of these banks has been mainly limited to urban areas. Semi-formal financial institutions Semi-formal financial institutions are registered entities subject to all relevant general laws (including commercial law) but not (normally) subject to bank regulation and supervision. Included in this group are SACCO’s, SACA’s and Financial NGO’s. SACCOs In trying to address the shortage of credit facilities in rural areas, CSOs and government have been promoting the formation of formal Savings and Credit Co-operatives (SACCOs) and informal Savings and Credit Associations (SACAs). SACCOs are the oldest micro-finance providers in Tanzania. They are legalized under the Cooperative Society Act of 1991 and are supervised by the cooperative department of the Ministry of Cooperatives and Marketing. In Tanzania, SACCOs have registered different degrees of success. SACCOs which common bond is the work place and which are composed of educated people, have endured the test of time and have recorded some degree of success. Well functioning SACCOs are popular because of their ability to provide low-cost emergency or consumption loans without the burdensome bureaucratic procedures associated with formal banks. Rural SACCOs tend to be formed by small groups of rural smallhold farmers or agricultural producers who organise themselves to save and provide credit to one of the group members as and when required. This trend has taken on strongly and was supported by the government through allowing the official registration of these circles under the new Co-operative act as SACCOs. The SACCOs are promoted through the Ministry of Co-operatives and Marketing, and some support is sometimes available through the local Co-operatives development officer. Scattered in all the regions of the country, these SACCOs have wide institutional outreach into the rural areas and hence great potential as rural financial intermediaries. However, most of the SACCOs have weak financial bases and their inability to operate strictly on commercial principles further minimises their chances of becoming sustainable.


However, much mistrust exists against co-operatives, leading to the formation of many informal Savings and Credit Circles, either within farmer working groups or in other forms. In some districts, these circles organise themselves in a District S&C circle association, allowing inter-circle facilitation of credit. The formation of larger circles is not recommended, as people feel less ownership and there is an increased risk of mismanagement. Financial NGO’s Increasingly more micro-finance institutions are present in Tanzania, with promotion by the government through the recently established micro-finance policy (2000). To allow the formation of NGO-MFIs, the existing banking laws and regulations were slightly amended, still requiring every MFI to meet strict banking regulations on aspects such as reserves in place, risk assessment etc. This is one prohibiting factor in increased flexibility for MFIs in Tanzania. In Uganda, specific MFI legislation was developed, allowing such flexibility. Some MFIs in Tanzania argue for MFIs to be registered under co-operative law instead of banking law, to enable them the same flexibility. TAMFI (Tanzanian Association of Micro-Finance Institutions) was established as an apex body for the MFIs and is also linked to an international MFI apex organisation. Unlike SACCOs, most financial NGOs depend on donor funds. Some have very impressive repayment rates. There are a number of these NGOs operating in Tanzania, including PRIDE, FINCA, Poverty Africa, Youth Self Employment Foundation (YOSEFO), Mennonite Economic Development Foundation (MEDA), Community Development Foundation (CDF), Action for Relief and Development Assistance (AFREDA), Presidential Trust Fund (PTF), Credit Scheme for Rural Women (CREW), Equal Opportunity for all Trust Fund (EOTF). NGO-MFIs offer financial services (mostly credit) to targeted groups and mainly to women. Credit offered ranges from Tsh. 25,000 (US $ 25) to Tsh. 1,000,000 (US $ 1,000) depending on the MFI, and how long one has been in the programme. The loan amounts are usually graduated, on the basis of how long one has been in the programme and the client’s repayment pace. Most NGO-MFIs have a peer evaluation and guarantee mechanism that is designed to limit individual borrowing to manageable levels. Typical terms and conditions are as follows: A group needs to be established and formally registered, comprising of around 5 people. The group needs to meet on a weekly basis and interest needs to be repaid weekly as well. Interest rates are high: 24 – 45%. Loans need to be fully repaid in short periods of time, usually around 6 months, and sometimes with a maximum of 2 years. Loan amounts are small (Tsh 50,000 – 1 million), and often not enough to cover the investment needed. No grace period is available, making it difficult for e.g. seasonal businesses to borrow, as they can only repay the loan after harvest has been sold or after an order has been shipped and paid. No advice on bookkeeping, accounting, planning and other necessary business skills is offered. A large majority of MFIs are urban based, making it difficult for rural groups to have access (time and transport costs). The loan recovery rate of some of the micro-finance institutions amounts to >99 %, with a capital at risk of <1%, suggesting an extremely risk averse attitude. Reserves tend to cover approximately one month disbursements, so this may be seen as low, but could be addressed through a government or BOT reserves guarantee. When access to capital is such a major problem, and yet recovery rates are so high, increased risk taking by these institutions should be promoted. Based on this information, the very stringent requirements attached to a loan could be relaxed, making credit more accessible to a larger part of the poor population. However, lack of business skills and understanding of many borrowers with


respect to the nature of a loan, interests, comparison between different available loans, record keeping etc., remains a major problem that will need to be addressed at the same time. Some micro-finance institutions are experimenting with individual loans, to people that have built up a credit history through borrowing in one of the group schemes. This seems to work well, even with higher amounts (Tsh 2 – 10 million) and with monthly instead of weekly instalments. This trend should be promoted and shared with other micro-finance institutions in the country. The establishment of small rural agencies would make it much easier for rural micro and informal enterprises to have access to credit. It would also allow room for the development of schemes more suitable to the agricultural sector, allowing interest and loan repayment in line with seasonal activities. TCCIA In an attempt to address the credit needs of their members, as well as increase membership, some TCCIA district branches (e.g. Same, Monduli) have also started to experiment with offering micro-finance facilities to individual members and non-members. Their advantage is that they tend to know their members reasonably well, thus enabling lending at less risk and perhaps less stringent requirements. However, this scheme is still under development. Informal financial providers Informal providers are those, which do not conform to any regulations or laws. Also disputes are rarely settled by submitting them to the legal system. These providers include moneylenders and traders, self-help groups (SHGs), rotating savings and credit associations (ROSCAs) and family and friends networks. ROSCAs and SHGs combine both savings and credit arrangement and are owned and controlled by the group. Although they are many, each operates at a very limited scale. Government Managed Micro-Finance Funds and Programmes There have been a number of government funds and/or programmes dealing with micro-finance services. Government Development Funds There are a number of funds and programmes managed by the government in Tanzania mainland and Zanzibar. Those currently operating in Tanzania mainland include the Women Development Fund (WDF), Youth Development Fund (YDF) and Small Enterprise Loan Facility (SELF). YDF is not very active due to high default rates. Originally both WDF and YDF operated in Zanzibar, but now they have stopped. Currently, the only government fund operating in Zanzibar is the Zanzibar Development Fund (ZDF). Women Development Fund (WDF) was established through a government initiative by the Ministry of Gender, Community Development and Children in 1993. The purpose of WDF is to issue loans to women to enable them to create employment on a self – help basis. WDF is administered by Community Development Officers at District/Municipal/Regional Levels. Each District/Town/City Council is supposed to contribute 10% of its revenue to the YDF and WDF in order to increase funds for credits to women and youth. This means that the fund has a potential for becoming substantial and hence having a very big impact on the community. However not many local authorities have actually contributed this required 10%. The target group of the Fund is women of 18 years and above. However, women with children are allowed to borrow regardless of age. Loans are disbursed to groups of five women who will guarantee each other out of their free will. Loans are repaid with an interest of 10% for 11 months and interest received remains in the Councils. The interest rate is far below the going market rate in the micro-finance industry, and loans repayment is done monthly.


Main clients of WDF are Tanzanian women doing legal business. The funds are usually sent to district/town/city council by the ministry, in which case each council administers the disbursement and repayment of loans. The Ministry of Finance has the responsibility of issuing funds and procedures for the Fund administration to the Ministry of Gender, Community Development and Children (MGCDC). MGCDC issues funds to Councils and also manages the fund. The Regional Secretariat coordinates the districts fund plans and advises the MGCDC. Districts/municipal councils issue loans to women and make follow-up of loan repayments. The Fund at district/municipality is administered by different committees and this includes: - District Loan Committee composed of District/Town/City Executive Director (Chairperson), District Community Development Officer (Secretary), CDO (Gender), Planning Officer, MPs, and two women group representatives. Their responsibilities include scrutinizing, discussing loan applications and approving loans to applicants. Ward Loan Committee composed of Ward Executive Officer (Chairperson), Community Development Officer (Secretary), Extension Worker, and two group women representatives. Their responsibility includes compiling of loan application from all villages in that ward, advice to applicants and making follow up on loan repayments. Group Committee composed of all women in the group. Their responsibility include discussing loan applications before forwarded to ward level and issuing guarantee to each member of the group. Enforcement is through collateral (mainly household items) and follow-ups using ward level officers. Ward officers have other duties and they do not have enough time to follow up the loans. This may account for the low repayment rate (20 to 70% depending on Council). In practice, the scheme does not insist on savings. WDF has operated for a number of years, and the success rate is very low. The Fund has high delinquency rate. The fund is politicised by councillors and other local council officials who use it as a way of winning popularity. For example, Ilala Municipality has not been able to disburse loans earmarked for last year (2003/04) due to indecisiveness of the councillors. In some cases, councillors try to influence decisions on which groups should be given loans. As a result, some borrowers see the loans as an appreciation for their support to certain politicians or party and hence do not feel the need to repay. Monitoring and administrative costs are very high relative to the amount of funds allocated to each local government (Tsh. 4 million). In some local governments, decisions have been made to contract out delivery of credit to some independent financial institutions. The Ilala Municipality in Dar es Salaam has contracted two agents to administer its 10% contribution to the WDF. In Tukuyu, The District Council has contracted the Ward level Savings and Credit Co-operative Societies (SACCOs), also known as “Benki-Kata” to manage the WDF from the MGCDC as well as its 10% contribution. Repayment rate has increased from about 50% when the fund was being managed by the District Council to 100% now. The local government directors (Municipal and District Executive Directors) believe that the WDF would be better managed and more beneficial if it is merged with other funds issued by the local governments and managed by financial institutions. However, the MGCDC still prefers and insists that the (WDF) fund should be managed by the Council. The Youth Development Fund (YDF) was established for the same purpose, except that it is managed through the Ministry of Labour and Youth Development. The Small Enterprise Loan Facility (SELF) is a micro-finance project, which is executed by the VPO through joint financing by the Government of Tanzania and the African Development Fund (ADF). Its primary objective is to enhance access of the poor, especially in rural areas, to micro finance services through eligible Micro-Finance intermediaries. SELF’s vision is “to reduce poverty in Tanzania through facilitation of sustainable micro-finance services that enhance economic opportunity of enterprising rural and urban poor”.


The project operations cover three main areas. These are (i) disbursement of credit funds, (ii) provision of support and building institutional capacity of existing partner institutions in line with standard industry best practice principles, and (iii) sensitisation and promotion of grassroots/community-based financial institutions, including SACCOs, to ensure wider outreach. It is intended that these services shall be provided in a sustainable manner. SELF wholesales its loan funds to intermediary micro-finance institutions (MFIs) for on-ward lending to final clients, especially in rural areas. The project started its pilot phase in six pilot regions of Coast, Morogoro, Dodoma, Singida, and Mtwara and Lindi. The project is now rolled out to other regions. It could be used as a source of seed funds for those MFIs which lack financial capacity to deliver credit to rural areas. Financial Sector Deepening Trust A group of development partners (DIFD, RNE, CIDA, Sida) interested in micro-finance supported the government to introduce a joint Financial Sector Deepening Programme. The 5-year program seeks to (i) improve policy and institutional framework for delivery of financial services (ii) enhance access of micro-finance institutions to formal financial markets, (iii) enhance appropriate services for finance providers (iv) increase understanding across the financial sector, government and donors of best practice in the Tanzanian context, (v) increase capitalization of micro-finance providers (vi) increase institutional support to MFIs and (vii) increase range of financial services available to meet the needs of poor households, micro, small and medium enterprises. The financial deepening group is chaired by DFID and the program is managed by an independent company on behalf of the partners. Rural Financial Services Programme This is a 7-year programme, covering 21 districts in Tanzania, aiming at building the capacity of rural micro-finance institutions to mobilise savings and offer credit to rural communities and also strengthen formal institutions to offer services to micro-finance institutions. SIDO (Small Industries Development Organisation) SIDO is a parastatal, which has recently made very significant improvements in service delivery under new management. It has regional offices in all regions, and used to focus on small industrial enterprises, but now also welcomes other SMEs, mainly dealing with trade. In trying to address the credit needs that were not provided by other financial institutions, SIDO now administers two lending schemes: National Enterprise Development Fund (NEDF): maximum loan of Tsh 500,000. Regional revolving fund for small industries: maximum loan of Tsh 6 million. The interest rates for these schemes are 22% and recovery rate up to now is around 80%. More than 2000 enterprises have thus been assisted in the Arusha area but the major problem seems to be the amount of the loan, which is hardly ever enough for the more capital intensive small industries for which it is intended. Micro Credit Delivery Mechanisms In Tanzania, the following methodologies are dominant: Group Lending. This methodology is used by most MFIs. Credit is delivered to groups that guarantee the loan. Peer pressure becomes a substitute for collateral (i.e. there is a joint liability for the whole group). The loan can be disbursed to either an individual member of the group or the group itself, which in turn provides the loan to individual members. In Tanzania, institutions employing such methodology include PRIDE, FINCA, PTF, AKIBA, POVERTY AFRICA. Individual Lending.


Under this methodology credit is delivered to individuals according to their ability to provide the MFI with assurance of payment and some level of security. Institutions practising this methodology include NMB, CRDB (Juhudi Credit Scheme), MEDA, All Community Banks and AKIBA Commercial bank. Wholesale lending. Under this methodology, credit is extended to micro-finance institutions which in turn on lend to retail clients. CRDB, SELF Project and NIGP are involved in wholesale lending. Guarantee Schemes Whilst the need for Guarantees and alternative financing products is very great, there are few initiatives to address this, all of which are donor supported. These are the CRDB Small Business Guarantee Fund and the Mtaji Fund (both supported by RNE), the Private Agriculture Sector Support Guarantee Fund (Ministry of Agriculture), the NIGP Fund (managed by Ernst and Young and supported by UNDP) and the government funded Export Guarantee Fund, which is managed by the BOT. The success of these schemes will depend on the continuation of thorough risk assessment and a good auditing mechanism to prevent abuse of the guarantee schemes, both by credit officers of these institutions, as well as potential borrowers. Bank of Tanzania (Central Bank) The Bank of Tanzania (BOT) has the overall responsibility for supervising financial institutions. Until now, it is guided by the 1991 Banking and Financial Institutions Act. However, in line with the 2000 Micro-finance Policy, regulations for the micro-finance industry are currently being finalised (the final draft is ready) under the Bank’s Directorate of Micro-Finance. In addition, the bank is managing a Guarantee scheme as noted above. However, this is a temporary arrangement while capacity for managing them is developed elsewhere. The idea is to have autonomous guarantee funds, operating on commercial terms, established outside government.


ANNEX 13: TAXATION PSD cannot be seen independently from taxation. As a matter of fact, it is our opinion that any attempts to improve the business environment, in particular for pro-poor PSD, should start with a thorough analysis of (business) taxes, levies, fines and in particular VAT. Although taxation was not part of the ToR of this study, its implications are so important for pro-poor PSD, that some of the major points as mentioned by many of the entrepreneurs and PSOs that represent them, are provided below. 1. Change of mindset The largest obstacle in co-operation and dialogue between representatives of the private sector and government officials, is the mind-set of the latter, especially when it comes to taxation issues. The private sector is still largely seen by many (older) government officials as a cash-cow, only interested in increased profit and not making a positive contribution to society. Although central government seems to be convinced of the importance of the private sector, both in terms of its role in economic growth and in reduction of poverty, many government officials at district and municipal level have adhered to the preconceptions and prejudices of the old, socialist days. A change of mindset, from a controlling government to a facilitating, service oriented organisation towards its citizens, is the most important challenge to be met in order to promote pro-poor PSD. This is particularly true for the TRA, who remain focussed on revenue increase, instead of increase in economic growth. As TRA seem to be only involved from the sideline in planning and budgetary processes, including the development and implementation of MKUKUTA, there is a strong case for arguing that efforts to improve the business climate should start here. 2. Nuisance taxes Under strong pressure from the private sector, the government abolished some 40 nuisance taxes between 2002 and 2004, most of which were administered at local district or municipal level. These measures have included abolishment of the annual license renewal fee and business licenses fees for businesses with a turnover of less than 20,000 dollars. In addition, measures were approved to limiting crop cess to 5% of farm gate price and then only to districts where the crop originates, and limiting local taxes to those listed in the Local Government Finance Act 1982 and Finance Act 2003. However, even though the national government transferred funds to district and municipal councils to largely mitigate against reduced tax income, many local authorities re-instated the same nuisance taxes under a different name, or adopted by-laws to the same extent. Since no lists of local tax regulations, levies and fines are available and local authorities and TRA officials have much power, many small entrepreneurs are unable to obtain correct and independent information with respect to their rights and obligations. In addition, there is a huge lack of suitable auditing and control, resulting in taxes, fees, levies and fines being administered without proper receipt or documentation, and with most funds being unaccounted for. The following is recommended and requires a strong commitment and top-down approach from central government:

• Provide a clear and transparent taxation regime at municipal and district level, considerably curbing the variety and nature of additional local by-laws and other (indirect) taxation proposals.

• Ensure adequate and accessible information with respect to local taxes, levies, fees, fines and their administration, including rights and obligations of different business sectors and actors.

• Provide for a platform where disputes can be addressed, such as the different forms of private-public dialogue that were identified (see annex 15). This may require an official facilitator/ombudsman, who is both credible and acceptable by all stakeholders. Transparency with respect to identification and punishment of perpetrators should be incorporated. It should be noted here that the judicial system is seldom used by people seeking to redress a dispute with government authorities. It was quoted that this does not form part of the Tanzanian culture, which is much more geared towards conflict resolution through dialogue. In addition, it was mentioned that an objective hearing is not possible, and that people who took judicial steps against government authorities incurred ´accidental´ fires at their properties, or where harassed in other ways.


• Allow for proper and comprehensive auditing and control mechanisms by an independent organisation to prevent abuse and misuse of regulations and collected funds.

• Adopt a comprehensive HR policy, to address motivation and competence issues, revise job descriptions and assess the salary structure of local government authorities.

• Empower regional government authorities to have a co-ordination and conflict resolution role in inter-district, intra-regional and inter-regional issues.

3. Value Added Tax (VAT) In 1998, the GoT changed from a sales tax system to a VAT system. It was reported through different channels that this has been the most dramatic problem and major cause of increased poverty, especially for small farmers and micro and informal entrepreneurs at the `bottom of the value chain´, representing 90% of the working population. The issues:

• VAT registered businesses can re-claim VAT they incurred in doing business. However, non-VAT registered businesses, such as many farmers and people employed in the informal sector cannot, even though they incur VAT expenses by companies who calculate this through in providing services and goods to them. This means that many necessary items have a 20% VAT on top of them which cannot be compensated for. Especially in the agricultural sector, it was quoted that this has squeezed out the 10-20% margin that used to exist there. The VAT system assumes adequate vertical integration and official registration so that all businesses can claim VAT back when they sell. However, these preconditions are both not met in Tanzania.

• In seeking to redress the above problem, the government allowed all agricultural inputs such as seed and fertilizer to be VAT exempt. However, this does not include other important agricultural inputs such as diesel (can amount to 30% of cost of input), transport, packaging etc. In addition, vital inputs such as fertilizer were supposed to be provided at subsidised cost, but are not available in all districts.

• An added complication is that the Tanzanian VAT system requires monthly summaries instead of yearly ones. This is dramatic for seasonal businesses such as agriculture, as it implies that inputs incurred in e.g. March, cannot be offset against sales from a harvest in October!

• VAT is also a constraint for forward linkages by the informal sector. Small informal non-VAT registered producers cannot sell to VAT registered companies such as e.g. supermarkets or hotels, since these cannot claim VAT back on these products. Even though regulation exists to mitigate for this, many businesses are not aware of these regulations and therefore do not buy from informal producers.

• Manufacturing industries that produce VAT exempt products such as e.g. garden rakes for the agricultural sector, still need to pay VAT on their raw materials such as stainless steel, as they cannot prove it is being used solely for agricultural products. This means they cannot compete against VAT exempt imports such as garden rakes from South Africa. This is killing local manufacturing industry, especially when linked to agricultural products and thus prevents vertical integration and backward and forward linkages.

• Even when a VAT claim is made, it often takes up to 2 years before the money is refunded, without compensation for interest or inflation. This is very costly to many businesses.

4. Other impeding factors with respect to cost of inputs, subsidies, exporting etc.

• The largest problem for the agricultural industry is competing against subsidised agricultural products on the global market. Even though outside the scope of this study, it is mentioned to provide a comprehensive picture.

• Taxation regimes, export subsidies, drawback systems etc, differ greatly between neighbouring countries such as Kenya, Uganda and Zambia, and with main competitors such as India and China. Assessment, and resulting integration and streamlining of these regulations is recommended.

• Export support in the form of guarantees and VAT exemption is available in Tanzania. However, the process is not very transparent, conditions that need to be met to qualify are unclear and the process is lengthy and costly and seems to favour large, international enterprises.


• High growth sectors such as tourism, flower growing and mining seem to suffer disproportionally from visits by various government agencies that come to collect taxes, fines and levies. This has lead to reduction of growth and even closure of otherwise promising and sustainable enterprises. Examples mentioned are:

• Bi-weekly visits to flower growers by the TPRI that request high fees for their controls and do not allow cheaper and healthier pesticides.

• Export forms charged at $20 • An incomprehensible amount of taxes, road tolls, levies and fees for tour operators

and hotel owners, amounting to an effective tax of 70% (as quoted by TATO). A strong commitment from central government is required to redress above problems, including investing in a sensitisation campaign for local government and government agencies officials as to the importance of the private sector in increasing economic growth and reducing poverty, as well as to their individual roles and responsibilities in facilitating a conducive environment for the private sector.

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REFORMING INSTITUTIONS AIMED AT IMPROVING THE …€¦ · The research title was ‘Reforming Institutions aimed at improving the Enabling Environment for Pro-Poor Private Sector