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Boost SMEs for faster economic development
2006-02-17 06:46:35
By Editor
An important economic sub-sector is taking root in Tanzania. This sector involves small- and medium-scale entrepreneurs, most of which are based in urban centres.
This economic sector is relatively new in Tanzania because soon after independence the political emphasis was put on farmers and workers especially after the Arusha Declaration was promulgated in February 1967.
The then ruling Tanganyika African National Union declared that Tanzania was a land of workers and farmers.
The party was silent on businessmen and women after its government nationalized banks and large- scale farmers.
The TANU government tried to carry out business activities in form of regional trading corporations. And the subsequent Chama Cha Mapinduzi government inherited this state of affairs.
The result was an economic disaster when the government was forced to subsidize the activities of the Regional Trading Corporations ( RTCs).
When wise economic counsel prevailed, the government pulled out of such loss-making businesses that were a veritable burden to taxpayers. The co-operative movement also collapsed, casting its members into economic wilderness.
In mid 90s, small groups of entrepreneurs started forming in Tanzania in the light of the fact that indigenous Tanzanians wanted to take a more active part in business activities that were controlled by non-indigenous Tanzanians.
The problem for indigenous Tanzanian entrepreneurs then was that of capital. It is still a problem because primitive accumulation of wealth is not easy and the majority of banks believe it is too risky to give loans to entrepreneurs who do not have managerial and business skills to run enterprises efficiently and profitably.
However, the spirit is now changing. Some banks have started assisting small and medium-scale enterprises financially, especially when the central bank has initiated a credit guarantee scheme through the banks.
The most recent is the National Bank of Commence (NBC) that has initiated a strategic plan to provide free business-related training to SMEs. The objective of the plan is to assist SMEs with requisite tools to improve and formalize their businesses.
The bank’s SMEs Business Banker, Peter Kingu, has said: ’’NBC has taken the initiative to offer these skills for free to bolster SMEs’ capacity in running lucrative and economic businesses.’’
Opening a recent three-day seminar for SMEs on business management and training scheme in Dar es Salaam, Kingu said the programme was designed to help SMEs on how to start their business and maintain them.
He also said that this was part of NBC’s corporate responsibility to spread the skills to the SMEs, thus increasing the pace of Tanzania’s economic growth and the reduction of poverty.
The programme would dwell on such topics as finance, book-keeping, how to find, maintain and expand markets and human resource management.
Other subjects, intended to be taught in the training, included production management, banking, such as the importance of saving money, and procedures and conditions to get bank loans.
SMEs form one of the rapidly growing economic sectors. Latest figures indicate that 95 per cent of Tanzania’s industrial sector is made up of SMEs, with an estimated 3.2 million entrepreneurs and 1.3 million business entities.
Economic experts say the sector contributes significantly to job creation and stimulates economic growth in both urban and rural areas.
But the majority of SMEs still lack capital, skills and knowledge to run their businesses efficiently.
Bankers say they have money to offer as loans to the SMEs, but they are hesitant to do so because of lack of appropriate and effective legal systems in Tanzania.
’’Most of the SMEs have no fixed assets that could serve as collateral in order to secure bank loans.
The government’s SMEs guaranteed system covers 50 per cent only of the loans needed by SMEs and the rest should be covered by SMEs themselves,’’ said Kingu, adding: ’’Very few SMEs in Tanzania can afford to cover the remaining 50 per cent.’’
Despite these problems, NBC was trying to provide loans to the SMEs. Data show that last year the bank disbursed 30bn/- in loans to the SMEs.
However, it seems that such SMEs mainly exist in urban centres.
The rural areas, where the majority of Tanzanians live, do not have utilities such as electricity and roads needed for the growth of enterprises.
We, therefore, recommend that local governments and voluntary agencies take note of this situation and institute measures that will rectify this anomaly.
Otherwise, the majority of Tanzanians, living in rural areas, will just be spectators to the nascent economic growth that is taking place in urban centres.
Although it is not possible that all Tanzanians can be equal, we feel that the economic gap between those who live in urban centres and rural areas should not be too big.
Once this is done, the movement of people from rural areas to urban centres will slow significantly. Let us learn from India where SMEs flourish and create wealth in the informal sector of the economy.
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