BE 447 


ENTREPRENEURSHIP
27th Nov, 2017, Session IV

Suma Mwaitenda
1
 



SMALL BUSINESS ENVIRONMENT IN TANZANIA







 LECTURE OBJECTIVES
• To define what constitutes a small business
• To identify the key characteristics that
make small businesses different from other
types of business organizations
• To outline the importance of small business
to a country’s economy
• To examine the business environment of
Tanzania
 INTRODUCTION
• Small business has played a role in history since
practically the beginning of recorded time.
• The status of small business has been rising
globally
• There are dozens of publications devoted to
small business today because of their
contribution to the economic development.
• Small business enterprises play an important role
as an entrepreneurial engine of growth and as a
major source of employment.
 DEFINING SMALL BUSINESS
There is no generally agreed definition of
the “small business”.
• Businesses are viewed as big or small
depending on the yardstick and cutoff
point used.
• However, small business can be defined by
using quantitative and qualitative
yardsticks as they used to measure growth
of the firm.
 Qualitative Yardstick
Their growth occurs through changes in the firm and its
owners or managers.

• Qualitative growth –Independently owned and operated

• Owners contribute most, if not all, of the capital and
therefore face financial loss if the venture fails
• Owners can make choices freely without external
interference
• Small market share and often reliant on small number of
customers
• Owner/manager runs the business in a personalized way,
without formal management structure in place.
 Quantitative Yardsticks
Quantitative growth has to do with
changes that are readily measurable
✓ it is defined quantitatively according to:
• Number of its employees
• The business’s sales revenue
• The value of firm's asset
• Share of ownership held by the owner/
manager
 

Some of the definitions are


A small business is a firm with the following

features:
1. Its share of the market is relatively small
2. Capital is supplied and ownership is
held by an individual or a small group
and
3. Area of operation is mainly local.
workers and owners are in one
community, but markets need not
necessarily be local.
(American Committee for Economic Development)
 Some of the definitions 


- Economically- a small firm has a relatively

small share of the market.
- Managerially- it is administered by its
owners or part owners in a personalized
way, rather than a formalized management
structure.
- Financially - it is independent, therefore
owner-managers are free in taking their
principal decisions.
 Following the above
• It is apparent that a small firm in the UK,
Japan, China, or USA might not be small in
Tanzania, or alternatively a large firm in
Tanzania might not be large in the above
countries.
• Accordingly Tanzanian SME scholars,
policy makers and other stakeholders
recently (2003) agreed that it is appropriate
to adapt a combination of variables.
Tanzanian Definition of SMEs
 THE STRENGTH OF SMALL
BUSINESS
• Financial performance
– In many industries, they can respond more
quickly and at less cost than big businesses to
the quickening rate of change in products and
services, processes and markets
– Small manufacturers earn a higher return on
owners equity that large ones
– They have become more attractive to talented,
individualistic men and women
 THE STRENGTH OF SMALL
BUSINESS
• Innovation
– In small business, ideas are stock in trade
– Incentives to innovate are greater because:
• small business has potential to create or capture an
entire industry, while big business often stands pat,
protecting its market niche.
• the prospect of generous financial rewards
• Small business’s creative drive
WHY THERE IS MUCH INTEREST IN
SMALL BUSINESS
• They help to diversify a nation economic
base and provide it with the opportunity to
respond to various market conditions
• Provide individuals with the opportunity to
overcome social inequality and the
capacity to respond to new market trends
and opportunities
• Provide health competition for bigger
business and the monopolistic power
WHY THERE IS MUCH INTEREST IN
SMALL BUSINESS
• Assist in the development and dissemination of
technology and innovations
• Many of them are responsible for new product
innovation that result in adding value to a
country’s economy
• They cater for market segment and niches that
are not catered for by large corporations, which
might have perceived them as too small and
unprofitable
• They are important contributor to an economy’s
employment growth
 ADVANTAGES OF OWNING SMALL
BUSINESS
• Being one’s owner boss allows the small
business operator considerable freedom,
autonomy and the capacity to inject their
“personal touch” into the business
• The owner can align the business with his or her
personal goals and interests
• There are potential financial rewards
• Offers an opportunity to contribute to the society
• Permits the owner to provide support ,
employment and other opportunities to family
members.
 DISADVANTAGES OF OWNING
SMALL BUSINESS
• Constant change and volatile markets make for
an uncertain existence, including uncertain
income
• Long hours and hard work
• Stress
• Potential for financial loss
• Increased responsibilities, including looking after
employers
• The need to do multiple tasks means the owner
must be multiskilled.
 Roles played by Small Businesses
in Tanzania
• Source of income to over 70% of the population
• Employ over 70% of the labour force
• Source of government revenue – tax payment
• Provide affordable goods and services to low
income earners
• A market for large organisations
• Training ground/seedbed for entrepreneurs
• Available in almost all regions hence support for
equitable development
 LEVELS OF THE SMEs
ENVIRONMENT
1. Macro – Policies, Regulatory framework,
culture, etc

2. Meso – Institutional framework for

supporting SMEs e.g. financial institutions,
boards, sectoral level, etc.

3. Micro- firm level features, strategies, etc

TRADITIONAL MACRO ISSUES
• Costly and cumbersome regulatory framework/
Unsupportive policies
• Administrative bureaucracy
• An under-developed enterprise culture
• Poor/costly infrastructure
• Corruption
• Contract enforcement
• Property rights
• Access to land (serviced)
• etc
NON-TRADITIONAL MACRO ISSUES

• Globalization/global competition
• Foreign Direct Investments
• Subsidies by foreign governments
• Substandard and used (very cheap) goods
• Trade Agreements – Reciprocal/non-
reciprocal
• HIV/AIDS
 MESO-LEVEL ISSUES
• Institutional support framework
• Access to finance
• Competition based challenges/ many
SMEs are not demand-driven
• Limited outreach/limited deployment of
local and foreign markets
Some Government Institutions Dealing with SMEs

 Business Advocacy Organizations

• Tanzania Chamber of Commerce, Industry and Agriculture

(TCCIA).

• Confederation of Tanzanian Industries (CTI)

• Federation of Associations of Female Entrepreneurs in

Tanzania (FAWETA).

• Jumuia ya Viwanda na Biashara Ndogondogo (VIBINDO)

 Advocacy Organizations (Cont)

• Artisans’ Development Agency – Tanzania (ADAT),

• Tanzania Food Processors Association (TAFOPA)

• The Tanzania Private Sector Foundation (TPSF)

• National Business Council.

 ACCESS TO FINANCE
Some key challenges include:
• Collateral
• High interest rates
• Low amounts
• Take too long to process loans
• Low capacity of banks and financial
institutions
 MICRO-LEVEL ISSUES
• Owners/managers/employees capabilities
– Attitudes
– Knowledge
– Skills/exposure
• Strategies for, and management of growth
• Networking
• Family businesses and succession
• Gender and entrepreneurship
SME RELATED OPPORTUNITIES
• Most developments in the external
environment can be a source of
opportunities for SMEs:
– Economic liberalisation
– Economic intergration
– Privatisation

• There are a lot of specific product/market

opportunities, which are under or
unexploited
 SME RELATED POLICIES/
PROGRAMMES IN TANZANIA
• A number of policies and programs have been
put in place over time in order to improve the
business environment in Tanzania: These
include:
• The SME Policy, 2003
• Strategic Trade Policy, 2003
• The Land Act, 1990
• National Microfinance Policy, 2000
• Poverty Reduction Strategy Paper (PRSP), 2001
• The Agriculture Sector Development Strategy
(ASDS), 2000
 SME Development Policy (2003-2013)


– Improved Legal and Regulatory Framework

– Improved Physical Infrastructure
– Entrepreneurship and Business Training
– Improved Access to Information
– Improved Access to Technology
– Improved Marketing Services
– Enhanced Access to Finance
– Improved Institutional Framework for SMEs
Development
– Enhanced Rural Industrialisation
– Cross-cutting issues: Environment, Gender, HIV/AIDS
 Strategic Trade Policy, 2003
• The objective is to raise efficiency in domestic
production and building a diversified export
sector.
• Specific objectives include building an integrated,
diversified and competitive economy capable of
participating more effectively in the multilateral
trading system, stimulation and encouragement
of adding value of domestic products,
stimulation of investment flows in areas where
Tanzania has a comparative advantage and
attainment of long-term current account and
balance of payment.
National Micro-Finance Policy, 2000

• Its overall objective is to provide a basis for

the evolution of an efficient and effective
microfinancial system in the country that
serves the low segment of the society and
thereby contribute to economic growth and
reduction of poverty.
Poverty Reduction Strategy Paper (PRSP), 2001


• Provides a framework which ensures

that resources released from
decreased debt service are used for
poverty reduction. Approaches
include;
1. Sustaining macro-economic stability;
2. Rural sector development and export
growth;
3. Private sector development
 Agricultural Sector Development Strategy (ASDS),
2000


• Key Issues:
1. Strengthening the institutional framework for
managing agricultural development.
2. Increasing private sector participation through
creation of a favourable climate for commercial
activities
3. Clarifying public and private roles in improving
support services
4. Improving net returns from farms in the short
term and commercialising agriculture in the
medium to long term
 Business Environment Strengthening for
Tanzania
Aims at ensuring that the services that government
provides to the private sector are efficient and effective”
Components:
• Achieving better regulation
• Improving commercial dispute resolution
• Strengthening Tanzania Investment Centre (TIC)
• Changing culture of government; and
• Empowering private sector advocacy.
 Rural Development Strategy
• Strategies to stimulate rural development:

1. Rural industrialisation - incentives for attracting SMEs

to locate in rural areas

2. Districts allocate specific areas for SMEs to operate

3. Establishing an enabling environment at the local level

4. Introducing private sector development programme at

district level
 End

Thank you!