IMPORT PERFORMANCE DETERMINANTS IN TANZANIA CONSTRUCTION INDUSTRY

Robert Suphian1 ABSTRACT Tanzania construction industry policy tells the goal of the industry development as to be a competitive industry that will be able to undertake most of the construction projects in Tanzania and be able to export its services and products. This is contrary to the fact that the industry is dominated by foreign services providers to the tune of approximately 70 percent in terms of market share. This study employed an econometric model estimation to answer the question of what determines the import performance of construction services in Tanzania for the period 1985-2008. The Ordinary Least Square technique adopted and applied for regression analysis using Stata 10 software. Findings reveal that four out of five variables are significant in determining the performance of construction services imports to Tanzania. While the total country GDP is insignificant, both FDI inflows to the industry and cost of construction or affordability negatively determine the construction services imports of Tanzania. Both productivity and total country imports are positive determinants for the construction services imports. To safeguard the existence, participation and performance of local construction services providers, the Government is advised to consider the above determinants in its policy making machinery especially encouraging investment based services imports which in the long run will build capacity of local construction services providers and ultimately reduce the foreign dominance of foreign providers.
Keywords: Performance, Construction, Trade

1 Introduction Construction industry is one of the most booming industries in the whole world. The industry contributes a huge chunk to the world GDP amounting to 1/10th of the same. It has immense potential in generating huge amount of employment. It has been found out that construction industry offers employment to around 7 percent of the total employed work force around the globe. It is the largest sector in respect of consumption of energy as it consumes around 2/5th of the total consumed energy throughout the world. Resource utilization in case of construction industry amounts to half of the total resource used all over the world (Economy Watch, 2009). Construction is a major component of investment; hence expansion in construction activity is closely related to economic growth. Construction output grows particularly fast, often exceeding the rate of growth of the economy as a whole, as countries put their basic infrastructure in place during the early stages of development (Bon and Crosthwaite, 2000).
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Robert Suphian is an Assistant Lecturer at the University of Dar es Salaam Business School E-mail: [email protected], [email protected] Mobile: +255 754 996 274

1.1 Necessity for Performance Measurement in Construction Sector Performance measurement can be defined as the process of quantifying the efficiency and effectiveness of an action (Amaratunga and Baldry, 2000). Therefore performance measurement is the process of determining how successful organizations or individuals have been in attaining their objectives and implementing their strategies (Evangelidizs, 1992). Performance measurement has received great attention from the researchers over the last few decades (Bassioni et al., 2004). Globalization and the increase of competition in the business environment created a need for measuring performance and determining critical success factors. Traditionally, various industries have measured their performance in financial terms mainly profit and turnover. These financial measures of performance have been the sole measures of a companys success. However, performance measurement based around financial measures cannot cope with the recent changes occurring in the construction industry, particularly due to the emergence of new technologies and increased intensity of competition (Kaplan and Norton, 1992). 1.2 Services under GATS The Uruguay Round of meetings at Punta Del Este in 1986 generated much excitement with the promise to initiate negotiations aimed at developing a framework for trade in services. The literature direction once more was towards policies that explored methods and implications for trade liberalization (Hindley, 1988). The conclusion of the General Agreement of Trade in Services (GATS) allowed governments to obtain exact information on their target markets and to negotiate for the reduction or removal in trade barriers among nations (LEK, 1994). Construction and related engineering services, termed physical construction services are defined in General Agreement of Trade in Services (GATS) as involve the implementation of an investment project, and include the following sub-sectors: general construction work for buildings; general construction work for civil engineering; installation and assembly work; building completion and finishing work and lastly others which refers to pre-erection work at construction sites, special construction work including foundation work; water well drilling, roofing, masonry, and renting of equipment for construction or demolition of buildings or civil engineering works with operator. This work can be carried out either by general contractors who do the complete construction work for the owner of the project or on own account; or by subcontracting parts of work to specialized contractors. GATS also defines four ways in which a service can be traded, known as modes of supply which are services supplied from one country to another (like international telephone calls), officially known as cross border supply; consumers from one country making use of a service in another country (like tourism), officially known as consumption abroad; a company from one country setting up subsidiaries or branches to provide services in another country (like a bank from one country setting up operations in another country), officially known as commercial presence; and individuals travelling from their own country to supply services in another (like an actress or construction worker), officially known as movement of natural persons.

1.3 Statement of the Problem Services sector has the potential to make a major contribution to economic growth. Trade in services continues to play a key role in the economies of Least Developed Countries (LDCs), in particular those that are Members of the World Trade Organization (WTO) and part to the Multilateral Trading System (MTS). Heavy domestic support measures, export subsidies in agriculture and tariff escalation continue to inhibit LDC exports to developed countries and advanced developing countries. In developed countries and in most countries other than the LDCs, their local construction industries have the lions share in market opportunities. However, for LDCs, the construction industries are dominated by foreign services providers to the tune of at least 60 percent in terms of market share. For example in Southern Africa Development Community (SADC) region with the exception to South Africa, local contractors and consultants have approximately 30 percent market share in the region; Malawi (77 percent), Swaziland (60-70 percent), Tanzania (approximately 70 percent) and South Africa (10-20 percent). Tanzania construction industry policy (2003) tells the goal of the construction industry development is to develop an internationally competitive industry that will be able to undertake most of the construction projects in Tanzania and export its services and products and ensure value for money to industry clients as well as environmental responsibility in the implementation of Construction projects. Hence the question of what determines the performance of foreign construction services in Tanzania needs to be answered. 1.4 Objectives a) To assess the performance of construction service sector in Tanzania b) To assess the import performance determinants for construction industry c) To determine desirable market entry strategies for local construction services providers to be competitive. 1.5 Research Questions The study is expected to answer the following questions; a) How does construction service sector of Tanzania perform? b) What factors determine the imports of foreign construction services? c) What could be the proper market entry strategies for local services providers? 2 Construction Industry in Tanzania The Tanzania construction industry policy (2003) defines construction industry as a sector of the economy that transforms various resources into constructed physical economic and social infrastructure necessary for socio-economic development. It embraces the process by which the said physical infrastructure are planned, designed, procure, constructed or produced, altered, repaired, maintained, and demolished. The constructed infrastructure includes: Buildings; transportation systems and facilities which are airports, harbours, highways, subways, bridges, railroads, transit systems, pipelines and transmission and power lines. Also include structures for fluid containment, control and distribution such as water treatment and distribution, sewage collection and treatment distribution systems, sedimentation lagoons, dams, and irrigation and canal systems and finally underground structures, such as tunnels and mines.

2.1 Tanzania Construction Industry Policy (2003) Construction Industry Policy aims at creating an enabling environment for the development of a vibrant, efficient and sustainable local industry that meets the demand for its services to support sustainable economic and social development objectives. Its vision is to have a dynamic, efficient and competitive local construction industry that is able to undertake construction projects of any magnitude and participate effectively in providing its services in the regional and global market place. The mission is to create an enabling environment for the development of a vibrant, efficient and sustainable local industry that meets the demand for its services to support sustainable economic and social development objectives. The goal of the construction industry development is to develop an internationally competitive industry that will be able to undertake most of the construction projects in Tanzania and export its services and products and ensure value for money to industry clients as well as environmental responsibility in the implementation of construction projects. 2.2 Major Institutional Players in the Construction Industry The construction industry in Tanzania includes companies and firms working as Consultants, Contractors Sub-contractors, Quantity Surveyors, Architects, material and component producers, plant and equipment suppliers, builders and merchants. Examples are; The Ministry of Infrastructure Development Representing the Government The National Construction Council (NCC) The Tanzania Bureau of Standards (TBS) Training and Research Institutions The Contractors Registration Board (CRB) The Architects and Quantity Surveyors Registration Board (AQRB) The Engineers Registration Board (ERB) Professional Associations 2.3 Construction Industry Status At current prices in the year 2008, the growth rate was 10.5 percent as compared to 9.7 percent of 2007. The growth attributed by the construction of residential buildings, roads and land improvements. More over the contribution of construction services to the national GDP was 7.7 percent in year 2008 compared to 7.8 percent of 2007. In the year 2006 the industry registered notable growth of 33.8 percent from 8.8 percent registered in year 2005 largely stemming from increase of infrastructure projects, roads, rehabilitation programs, port rehabilitation and residential houses. In line with the registered growth its share to GDP also increased to 7 percent from 6 percent attained in 2005. During 2000, growth of the construction activities slowed down for a second consecutive year declining to 8.4 percent from 8.7 percent in 1999. The slowdown is mainly explained by postponement of government funded construction projects however the industry contribution to GDP remained unchanged at 4.6 percent. The trends for industry GDP and total country GDP are clearly shown in figure 1 below.

Figure 1: Gross Domestic Product in Current Price (1985-2008)

20000 GDP in USD $ 15000 10000 5000 0 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Total Country GDP Construction GDP

Source: Authors generation using Economic Surveys (1985-2008) 2.3.1 GDP and GFCF Contributions Average contribution to country GDP at current prices over the period of analysis is about 4.83 percent with a maximum of 5.98 percent in year 1990 and a minimum of 3.08 percent in 1985. Also the average contribution to country GFCF over the period of analysis is about 54.05 percent with a maximum of 69 percent in year 1988 and a minimum of 44 percent in 1993. The trends between 1985 and 2008 are shown in the figure 2 below. In comparison with other construction industries of East Africa, especially Kenya Tanzania is performing better. The average contribution of Kenyan construction industry2 to the GDP at current prices over the period 19802000 was 3.165 percent with a maximum of 4.8 percent in 1999 and minimum of 2.4 percent in 1981. The average contribution to the GFCF over the period was 22.061 percent with a maximum of 165.782 percent in 1990 and a minimum of -32.685 in 1985. Figure 2: Construction Contribution to the GDP and GFCF at Current Prices
Construction contribution in % 80 70 60 50 40 30 20 10 0 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 % share in GFCF % share in GDP

Source: Authors generation using Economic Surveys (1985-2008)

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Government of Kenya, Economic Surveys (1996-2000)

There is no sector of the Rwandan economy3 that shows more promise than the construction sector and associated industries. Between the years 2003 to 2008, the construction sector grew by 351 percent from an average annual output of US$100 millions in 2003 to an estimated US$351 millions. There are over 30 companies in the industry with an annual turnover of approximately over US$1.7 millions. South Africa Construction Industry Development Board (CIDB) reports the industry percentage GDP contribution as 2006 (6.9), 2007(7.8), 2008(7.8) and 2009(8.3). The Board also projects the contribution to be 8.9 percent in 2010 and 9.5 percent in 2011. 2.3.2 Construction Industry Performance over Other Services Sectors Construction industry performs better in total country GDP contribution as compared to other services. Table 3 below shows the GDP contribution from all services sectors as reviewed from year 2001 constant prices where construction services took not below fourth position under the period named. The industry took the lion position in the years 1998, 1999, 2002 and 2003 as the main contributor of the national GDP over all services and twice followed by communications services. The industry took last position in the year 2000 as mainly attributed by postponement of government funded construction projects. Table 1: Contribution of Services Sectors (%) to the GDP (At constant 2001 Prices)
Sectors Construction Trade and Repairs Hotels and Restaurants Transport Communication Financial Intermediation R. Estate and Business Public Administration Education Health Others 98 10.8 6.3 7.3 4.3 5.3 4.5 3.6 3.2 6.6 2.4 4.0 99 9.6 6.0 6.0 3.8 6.6 4.0 3.7 2.7 3.6 3.2 9.5 00 0.1 4.3 4.1 4.3 5.6 3.9 5.1 10.7 4.0 5.1 3.1 01 7.9 6.4 4.8 4.9 8.7 6.9 3.4 10.5 11.4 5.6 3.1 02 13.1 8.3 6.4 5.9 10.4 10.1 8.1 9.2 7.0 8.6 2.1 03 15.6 9.7 3.2 5.0 15.6 10.7 7.1 9.6 2.8 8.7 2.0 04 14.5 5.8 3.6 8.6 17.4 8.3 7.3 13.6 4.0 7.8 3.0 05 10.1 6.7 5.6 6.7 18.8 10.8 8.4 11.4 4.0 8.1 2.6 06 9.3 9.5 4.3 5.3 19.2 11.4 8.0 6.5 5.0 8.5 3.7 07 9.5 9.8 4.4 6.5 20.1 10.2 7.5 6.7 5.5 8.8 3.2 08p 9.6 9.9 4.4 5.4 20.5 9.5 5.7 7.5 5.8 8.9 3.0

Source: NBS and Economic Surveys (1998-2008) 2.3.3 Challenges in Construction Industry The performance of the construction sector is affected by both internal and external factors that constrain the extent to which the benefits of high growth reach a large, domestic and informal construction sector and an even smaller group of emerging SMEs operating in the formal sector. The major constraints are low capacity and capability of local contractors and consultants due to a weak resource base and inadequate skills and experience; inadequate and erratic work opportunities emanating from contracts that favour foreign firms, particularly in the case of large donor funded public investment and infrastructure projects.

Reported by Rwanda Development Board (2008)

Other challenges are inefficiencies in the public procurement system that lead to rent-seeking and financial mismanagement in public/private sectors; lack of supporting institutional mechanisms to facilitate easier access to key inputs in the industry including access to finance and equipment; stringent donor conditions for infrastructure financed by development partners and poor working environment, including low safety standards and occupational hazards on construction sites (MITM, 2008). Also existence of weak and constraining policies and regulatory framework; low productivity and quality of domestic firms due to a low technology base and limited skills and experience. Lastly, collapsing of structures has now become a common occurrence in Tanzania. Buildings, culverts, dams, tunnels, drainages, bridges, and other infrastructural facilities have been collapsing causing direct and indirect losses and loss of people's lives and properties. Various investigations have been done by government, professional bodies, and other institutions. Nevertheless, the failure disasters and their consequential effects have continued to occur as observed on 21st June, 2008 when, a ten-storey building tumbled down at Kisutu area in Ilala Municipality in Dar es Salaam City.

Dar es Salaam Residents Look At a Collapsed Building along Kisutu Street

Source: IPP Media (2008) 2.4 Products or Services in the Market Marketing in the construction industry is defined as finding information about the economy, the client and competition. It was also found to mean having the goods at the right time, the right place and the right price (Wheeler and Woon, 1987). Like other markets, construction industry market of Tanzania possesses many activities from the supply side consumer side with the basic parts of inputs, processes and outputs for consumption. Figure 4 below shows the details of activities taken place between suppliers and customers.

Figure 3: Activities in Construction Service Business

INPUTS S U P P L I E R S Materials Procedures Methods Information Man power Skills Knowledge Training Plants Expertise Design Paperwork Assembly Buildings
Erection

Process

OUTPUTS Procedures Services Information C U S T O M Roads E Dams R Harbours S Airports

Construct Maintain Rehabilitate Repair

Source: Merged from Lema (1996) and Oakland (1995)

2.4.1 Markets Available in Construction Different sizes of the construction firms are important considering the different hierarchy of markets available in construction industry. For example, Hindle (1997a) gave a hierarchy of markets for building construction, showing the level of technology required and the expected participation of different types and size of contractors. This is shown in figure 5 below. The informal and small formal firms can operate at the low end of the market where the technology and managerial skills involved are also on the low side. According to Hillebrandt (2000), there are few large projects and many small projects. Hindle also urged that, large firms which undertake large projects are few and small firms which undertake small projects are many.

Figure 4: A Hierarchy of Markets for Building Construction

LOW TECHNOLOGY/ MANAGEMENT SKILL HIGH

INFORMAL

FORMAL
HEAVY INDUSTRIAL HOSPITALS/LABS COMMERCIAL- high rise BUILDING- high rise SCHOOLS/LIBRARIES/CLINICS COMMERCIAL- low rise LIGHT INDUSTRIAL HOUSING- low rise

DOMESTIC-alteration & addition DOMESTIC- repair & decoration

SMALL

SIZE OF FIRM/RESOURCE REQUIRED

LARGE

Source: Hindle (1997a)

2.4.2 Appropriate Market Entry Strategies for Local Construction Firms Therefore the following entry modes discussed below are suitable for Tanzanian local firms. Competitive Service Delivery Mode This remains the best for Tanzania local construction firms to enter the domestic market and compete with foreign firms at short and long run. The business of the firm must be better than that of the competitor for competitiveness. This can be seen difficult for local construction firms but can be done through working on five performance areas as suggested by Slack (1991). The areas are making things right; making things fast; making things on time; changing what is to be produced or delivered and finally making things cheap. Joint Venture or Strategic Alliances Mode Tanzanian local firms can also enter the market by joining forces with another local firms or foreign firms already operating in the domestic market in the areas of management, financing and decision making. It is a higher risk mode as it entails a degree of resource commitment to other venture. Joint Ventures may also be known as strategic alliances (Johansson, 1997) and include all forms of distribution, manufacturing, and research and development alliances. Partnership Mode Tanzanian local firms can also form partnership with other firms operating inside or outside the country especially in the areas of subcontracting projects, research and development, training and
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tendering. The reasons of sub-contracting well explained by Lee (1997), who is quoted below when describing the sub-contracting situation in the construction industry of Singapore: Although construction projects are awarded to registered main contractors, in practice, the main contractors always sub-contract out nearly all labour to trade sub-contractors (kepalas). The tender system does not encourage main contractors to provide direct employment to construction workers. A substantial proportion of the work on any project is actually carried out by the trade sub-contractors, leaving the main contractors the task of overall management and control. Only in some smaller projects, the main contractors may directly employ workers to carry out the works. In fact, most of tradesmen and workers in the industry are employed by kepalas or trade sub-contractors. The trade sub-contractors are therefore an important component in the construction industry. 2.5 Patterns of Supply The patterns of imports of construction services take the form of modes of supply as stipulated by the GATS. Article I of the GATS defined trade in services as per four modes of supply named cross-border movement of services products; movement of consumers to the country of importation; the establishment of commercial presence in the country where the service is to be provided and finally temporary movement of natural persons to another country, in order to provide the service there. The construction services imports to Tanzania are embodied largely in three modes- Mode I, Mode III and Mode IV. In mode I for example foreign Architects using todays technology provide a design services to clients in Tanzania. The technology used is that of internet and the business is commonly known as the electronic business (e-business). Also consulting services are provided in mode under the same e-business environment. In mode II, foreign firms have managed to establish commercial presence in Tanzania and continue to provide construction services. The foreign commercial presence in Tanzania can be seen in all firms of contracting, consulting, architects, quantity surveying and engineering. In mode III, foreign firms have their persons working temporarily here in Tanzania in line with activities explained in mode II above. 3 Theoretical Background and Review of Literature The concept of trade in services was initiated in the mid 1970 by policy makers primarily in the USA. The literature is descriptive and policy-oriented (Sapir and Winter, 1994), occupied with establishing the importance of trade in services, and succeeded in drawing attention to the lack of government intervention in promoting trade in services especially in the General Agreement on Trade and Tariffs (GATT). The 1980's brought more analytical and empirical research that explained trade in services by the same factors that determined trade in goods (Shelp, 1981). By the mid 1980's it became apparent that the principles of comparative advantage of trade, as applied to goods, were also applicable to services (Deardorff, 1985). 3.1 International Transactions in Services Transactions of services in the construction industry are diverse and therefore have to be classified according to the nature of the activity taking place at any one point in time.

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Table 2: Typology of International Transactions in Services Provider does not move User does not move Commodity Trade (Type 1) Provider moves Temporary Movement Factor Trade (Type 3) Permanent Movement FDI/Migration (Type 4)

Temporary Movement Commodity Trade (Type 2) Permanent Movement Migration Source: Sapir & Winter (1994) User moves

An Architect for example can, using today's technology provide a design service to a client in another country, by doing so the Architect would have participated in Commodity Trade - Type 1 -(Table 2) which resembles international trade in goods and is therefore marketed in the same manner as goods. If in the course of providing this service, the Architect moves temporarily to the user's country, then he would be participating in Factor Trade - Type 3, which is trade in services and satisfies the requirement of proximity. When the Architect decides to operate an office in the foreign country, he will be performing a Foreign Direct Investment - Type 4- (FDI) transaction for the production of goods on an international level. However, if the Architect decides to operate an office through local staff and frequent visits he would have reverted to Factor Trade - Type 3, a trade in services character. On the other hand, a contractor or a building sub-contractor operating internationally is required to be present at the location of production for the life cycle of the physical erection of the facility, or until the completion of his/her service. The involvement of the contractor and subcontractor is a Factor Trade (Type 3). It can be concluded then that commodity trade can take place in construction services when it involves the movement of the embodied factor services. Factor trade on the other hand involves the international movement of disembodied factors of production and it occurs in the construction services sector. 3.2 Conceptual Framework for Industry Performance Analysis Ofori (1998) suggests the following as some of the categories of indicators that may be used to measure and describe the construction industry, including among others; construction in the economy; level of implementation; volume of material inputs; level of imports into construction; corporate development; distribution of involvement; affordability, and productivity. The indicators suggested by Ofori may be categorized into macro-economic and intra-industry indicators. Macro-economic indicators relate either to the drivers and/or originators of growth in the construction industry or measure the global output of the construction industry in relation to the economy as a whole. In order to describe the macro-level performance of the construction industry, a categorization is necessary, namely: Economic performance indicators, Quality

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performance indicator, Environmental performance indicators, and Informal sector performance indicators. Figure 5: Construction Industry Performance Analysis
Feedback Govern ment
Investment Policy

Corporate Development Distribution of Investment

Other sectors

Demand Production

Level of Implementation - Level of import

Macro Economic

FDI

Demand Production

Indicators

- Material input - Productivity

Afforda bility

Construction Industry

Source: Tindiwensi (2000) Figure 5 suggests the conceptual model describes the inputs and outputs into the construction industry in regard to Construction Industry Development (CID). The model suggests that intervening or driving-force issues to CID include government policy and investment, demand from other sectors of the economy and the stimulant to demand and production as a result of Foreign Direct Investment (FDI). The output or macro-economic indicators measure the global performance of the construction industry and serve as input/feedback to government policy and investment decision in the construction industry and also as stimulant to FDI. The construction industry has a continuous exchange with other sectors of the economy between demand and production. The level of demand by other sectors of the economy may also depend on their own intervening factors of government and FDI. The intra-industry indicators presented above are by nature straightforward and easy to measure and represent. This is because each one of these indicators can be directly measured. The macroeconomic indicators are rather complex and require several measures to describe them. Economic performance indicators describe the contribution of the construction industry to the national economy. This indicator may be measured in terms of proportional contribution to GDP, Gross Fixed Capital Formation (GFCF), and amount of manpower employed by the industry (Lema and Price, 1998).
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3.3 Empirical Evidences Tindiwensi et al. (2002) in their study of historical macro-economic performance of the Uganda construction industry for the period 1975/76 to 2001/02 they used established macro-economic indicators. The indicators used are percentage contribution to gross domestic product and gross fixed capital formation. The major political and economic policy shifts are also presented in the same period in an attempt to explain the trends in the level and volatility of the performance indicators presented. It was found out that the contribution of construction to gross domestic product (GDP) follows the same growth pattern as that of GDP itself. Their study is very interesting; however the addition of micro-industry performance indicators could yield a broader picture. Francois (1999) has fit a gravity model to bilateral services for the United States of America and its major trading partners, taking Hong Kong and Singapore to be free trade benchmarks. The independent variables include GDP per capita and Western Hemisphere dummy variable. The results indicated that Brazil has the highest estimated tariff equivalent for business/financial services (35.7 percent), followed by Japan, China, other South Asia, and Turkey at about 20 percent. The estimated tariff equivalents are considerably higher for construction servers, in the 40-60 percent range for China, South Asia, Brazil, Turkey, Central Europe, Russia, and South Africa, and in the 10-30 percent range for the industrialized countries. From this study the GDP is seen as a strong determinant of service transaction between the countries. The study was good though it may lead to different results when considering economies of LDCs like Tanzania.

Metwally (2004) tests the relationship between FDI, export and economic growth in three countries, Egypt, Jordan, and Oman respectively from 1981 to 2000 by using a simultaneous equation model. The result suggests that the export of goods and services are strongly influenced by the inward FDI in these three countries. But the analysis of Brecher and Diaz-Alejandro (1977), gives us evidence that foreign capital can lower the economic growth by earning excessive profits in a country with severe trade distortions such as high tariffs. Carkovic and Ross (2002) also concluded in their econometric study on FDI and GDP growth that the exogenous component of FDI does not exert a robust, independent influence on growth. All studies were good; however no consensus has yet been reached on the steady state as well as dynamic effects of FDI on growth. While some studies argue that the impact of FDI on growth is highly heterogeneous across countries with relatively open economies showing statistically significant results, the other studies maintains that the direction of causality between the two variables depends on the recipient countrys trade regime. Thus, most studies do not pay any serious attention to the possibility of a bi-directional link between the two variables in reference. Davis (2008) conducted a research into the question of whether there is a problem of low or declining productivity in the building and construction sector in New Zealand and, if so, what factors are likely to be contributing to this situation. It paints a somewhat bleak picture of productivity growth in the sector since the late 1980s. The overall conclusion is that productivity appears low, relative to the construction sectors in other countries, and that productivity growth over time has been poor. There are a variety of possible reasons for slow productivity growth including factors related to regulation, investment, competition, innovation, enterprise and skills.
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While the specific causes of poor productivity are unclear from the available research, there are indications that there may be issues in the areas of skills, investment quality, and innovation and management practices. Kajeweski and Sultan (2002) conducted a research to examine the behaviour of the main construction costs and building rates, concurrently with socioeconomic behaviour, for the purpose of identifying some of the deficits in construction activities in developing countries, such as Yemen. This was achieved by examining past and current trends in the construction industry over the last two decades. Comparisons with other developing and regional countries were established and finally a scale of international development was established. The scale is Construction Development Index (CDI) which can give a very simple and direct indicator for monitoring the affordability and construction cost development, which can be helpful for local and international comparisons. The study was good and hence provides for the need to link it with the performance of construction industry as to whether affordability impact negatively or positively. 4 Methodology This study tests the following hypotheses; a) Foreign direct investment (FDI) in construction industry has a positive relationship with construction services imports of Tanzania. b) Country GDP has negative relationship with construction services imports. c) Cost of construction has negative relationship with construction services imports. d) Productivity has a negative relationship with construction services imports. e) Total country imports have positive relationship with construction services imports. 4.1 Model Framework Following Redding and Venables (2004) the supply capacity estimate is given by the exponential of exporter country dummy times its coefficient. That is (1) SC = exp( count ) , Where count i = supply capacity of country i; and foreign market access is attained by using the following formula (2) Where

FMA =

exp( partnj )disty

ije

exp( 2bordij ) ,

xij = value of exports from country j

partn j = export partner market capacity count i = supply capacity

distij = bilateral distance costs

2boardi j = boarder dummy

FMA

= foreign market access.

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Combining equations (1) and (2) they arrive at conclusion that, supply capacity of a country is determined by the following equation (3)
In ( x ) = a + In (GDP ) + In ( POPU i ) + In ( FMA ) + In (t ) + COMP + U

Where POPi is population, t i is internal transport costs and related features and COMPi is a variable or set of variables affecting export sector competitiveness, either directly or indirectly.

4.2 The Model Borrowing knowledge from the above equations, the formulated regression model below can be used to measure the determinants for the construction services import performance in Tanzania. Therefore the model also can be used in estimating the relationship between import growth of the construction services industry and other factors. IMPCITZt = + 1CIFDIGDPt + 2GDPTZt + 3CoCTZt + 4PCITZt + 5IMPTZt + Where, IMPCITZ = Import Performance in Construction Industry of Tanzania CIFDIGDP = Construction Industry Foreign Direct Investment as the ratio of GDP GDPTZ = Gross Domestic Product of Tanzania CoCTZ = Cost of Construction in Tanzania PCITZ= Productivity in Construction Industry of Tanzania IMPTZ= Import performance of Tanzania = Error term t = Time - 5 = Coefficients 4.2.1 Dependent Variables From the literature studied; Import Performance in Construction Industry of Tanzania (IMPCITZ) depends upon many determinants. Hence the IMPCITZ is taken as the imported value of construction industry. The rationale of using this variable is to be able to analyze the impact of the variables to be studied thereafter. 4.2.2 Independent Variables As suggested by different scholars in the theoretical and empirical reviews, different variables can be influencing the performance of the construction industry differently. Hence the independent factors considered are
t

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Construction Industry Foreign Direct Investment (CIFDIGDP) This refers to the ratio of the annual FDI inflows to GDP value for the period of under review. FDI to GDP ratio (CIFDIPGDP) in Tanzania export will be taken as a proxy for capital formation, and thus technology since it has a bearing on export volume. The increase in FDI inflows is expected to cause the increase in import of Tanzania construction industry. Domestic Product of Tanzania (GDPTZ) This is the total annual output, which is used as a proxy for the supply capacity of the country. The literature shows that GDP impacts negatively on import growth of many economies. Hence, a negative coefficient is expected. Cost of Construction in Tanzania (CoCTZ) The CoCTZ is measured by using Construction Development Index (CDI) commonly known as affordability indicator. Hence the CDI is taken as the ratio of construction cost per metre square (cost/m2) to the parity purchasing power per capita (PPP/capita). The literature shows that CDI enables the industry to be more responsive in relation to construction costs and affordability in a particular country. Productivity in Construction Industry of Tanzania (PCITZ) The PCITZ is measured using Multifactor Productivity (MFP). MFP is defined as the ratio of output to combined inputs of labour and capital. MFP is a more comprehensive productivity measure because it identifies the contribution of both capital and labour to output. Changes in MFP can reflect the influence of factors such as technical progress, improvements in the work force, improvements in management practices and economies of scale. Some literature confirms negative relationship with services imports. Import Performance of Tanzania (EXPTZ) Import performance is the export growth index applied to proxy Tanzania imports. This is an endogenous variable to be used in the model of this study and it is measured as import growth index with 2000 being a base year.

5 Data tests 5.1 Distribution of the Data Results in table 3 below indicate that the mean and median of all variables are close to each other; therefore the data are approximately distributed normally. Using Jacque-Bera test; two variables which are construction industry imports (InIMPCITZ) and productivity in construction industry (InPCITZ) are greater than 5.99 which is critical value of Chi2 at 5 percent level with 2 degrees of freedom. Hence the two variables fail Jacque-Bera test though agreed with the first test of degree of closeness of the mean and median. However, this test is only valid asymptotically, so it relies on having a large sample size. Users with data sets smaller than 100 observations should be wary about using this test.

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Table 3: Summary of Descriptive Statistics of the Variables (1985-2008)

stats Mean Median Minimum Maximum Standard Deviation Skewness Kurtosis Jarque-Bera Probability Observations (N) Stats Mean Median Minimum Maximum Standard Deviation Skewness Kurtosis Jarque-Bera Probability Observations (N) InIMPCITZ 4.718917 4.80676 1.695616 6.231347 0.9222443 -1.188814 6.099387 15.2593147 0.000486 24 InCOCTZ 5.518553 5.730797 4.271095 6.063413 0.5601579 -1.025142 2.882517 4.21746674 0.121392 24 InCIFDIGDP -0.2441521 0.3707067 -3.218876 1.11678 1.361207 -1.077755 2.685479 3.9542890 0.138464 20 InPCITZ -0.849326 -0.898945 -0.980829 -0.41855 0.1515384 1.633468 4.709727 13.5960372 0.001116 24 InGDPTZ 8.905037 8.966572 8.254529 9.546169 0.4230515 0.0521966 1.569606 2.0569250 0.357556 24 InIMPTZ 4.667529 4.600145 3.988984 5.517453 0.4467597 0.5041686 2.628858 1.1544903 0.561443 24

Source: Authors computation using data from different sources (2009) 5.2 Correlation Analysis Results in table 4 below show that most of variables are correlated each other with exception to almost no correlation between total country imports (InIMPTZ) and construction industry production (InPCITZ). Though most of exogenous variables are highly correlated to the endogenous variables, it is difficult to detect multi-co linearity in the series because among these one is dependent (InIMPCITZ) and the rest are explanatory variables. Therefore, strong observation is drawn from the model estimation. Table 4: Summary of Correlation Test for the Variables
Inimpcitz Incifdigdp Inimpcitz 1.0000 Incifdigdp 0.5107 1.0000 Ingdptz 0.7547 0.7487 Incoctz 0.6372 0.8762 Inpcitz 0.0944 0.493 Inimptz 0.8808 0.7045 Ingdptz Incoctz Inpcitz Inimptz

1.0000 0.6236 0.3164 0.7583

1.0000 0.3866 0.7891

1.0000 0.0038

1.0000

Source: Stata 10 output

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5.3 Unit Root Test The unit root results for all variables at levels are presented in Table 5 below. Table 5: Results for Unit Root Test at Levels Variable InIMPCITZ InCIFDIGDP InGDPTZ InCOCTZ InPCITZ InIMPTZ Note: (i) (ii) (iii) (iv) McKinnon (1991) critical values are used to reject the null hypothesis of the unit root I(0) indicates the variable is stationary I(1) indicates the variable is integrated at order one Critical values for ADT are *1% = -3.750; **5% = -3.000 and ***10% = -2.630 ADF Test Statistics -1.088 -4.364 -0.668 -4.650 -1.813 -0.155 Order of integration I(1) I(0)* I(1) I(0)* I(1) I(1)

The ADF statistics tests for (InCIFDIGDP) and (InCOCTZ) confirm that the variables are ideal for regression analysis, while the rest show acceptance of the null hypothesis of unit root test at levels. This situation suggests the need for further test for stationarity of variables at first difference with hypothesis which states that, in the first difference all variables are not stationary or have unit roots. Table 6 below gives out the results. Table 1: Results for Unit Root Test at First Difference Variable ADF Test Statistics Order of integration d.InIMPCITZ -5.548 I(0)* d.InCIFDIGDP -2.653 I(0)*** d.InGDPTZ -6.439 I(0)* d.InCOCTZ -2.509 I(1) d.InPCITZ -2.568 I(1) d.InIMPTZ -3.428 I(0)** (i) McKinnon (1991) critical values are used to reject the null hypothesis of the unit root (ii) I(0) indicates the variable is stationary (iii) I(1) indicates the variable is integrated at order one (iv) Critical values for ADT are *1% = -3.750; **5% = -3.000 and ***10% = -2.630

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Table 6 above shows results for two variables (d.InCOCTZ) and (d.InPCITZ) accept null hypothesis of unit root test at first difference, while the rest reject. This situation suggests the need for further stationarity test of variables at second difference with hypothesis which states that, in the second difference all variables are not stationary or have unit roots. Table 7 below gives out the results where all variables reject the null hypothesis; therefore all variables are integrated at order zero and now become ideal for regression analysis. Table 2: Results for Unit Root Test at Second Difference Variable d2.InIMPCITZ d2.InCIFDIGDP d2.InGDPTZ d2.InCOCTZ d2.InPCITZ d2.InIMPTZ Source: Stata 10 output Note: (i) (ii) (iii) (iv) McKinnon (1991) critical values are used to reject the null hypothesis of the unit root I(0) indicates the variable is stationary I(1) indicates the variable is integrated at order one Critical values for ADT are *1% = -3.750; **5% = -3.000 and ***10% = -2.630 ADF Test Statistics -6.538 -3.893 -6.351 -4.635 -3.923 -5.400 Order of integration I(0)* I(0)* I(0)* I(0)* I(0)* I(0)*

5.4 Co-integration Tests Results are provided in Table 8 where eignvalue statistics reject the null hypothesis that there are zero co-integrating vectors or three common trends. The test suggests that there are four long-run relationships. Also, residuals generated from long run equations on non-stationary variables, were tested for stationary using ADF test. Like other variables, residuals were found to be stationary at second difference with ADF statistic test of -6.568 which falls within 1 percent critical value. This suggests that variables in the model are co-integrated. Table 8: Johansen Co-integration Test Maximum rank Eigen value 0 . 1 1 2 0.96682 3 0.85487 4 0.76325 5 0.56909 6 0.32186 Source: Stata 10 output Trace statistic 310.3426 112.0993 64.4163 37.3942 17.2235* 5.4377 5% Critical value 104.94 77.74 54.64 34.55 18.17 3.74

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When performing a sequence of trace tests at a given significance level to produce an estimate of the number of co-integrating equations, the * indicates that this estimator has selected the number of co-integrating equations corresponding to this row of the table. Also * denotes rejection of the hypothesis at 5 percent significance level. Trace statistic indicates one cointegrating equations at 5 percent significance level. 5.5 Error Correction Model (ECM) Following the Engel and Granger theorem, the original model reparameterized into an error correction model. An error correction term (ECT_1) was introduced in the model and hence the final model ready for regression anlaysis becomes;
d2.InIMPCITZt = + 1d2.InCIFDIGDPt + 2d2.InGDPTZt + 3d2.InCoCTZt

+ 4d2.InPCITZt + 5d2.InIMPTZt + 6ECT_1+

The model with its associated lags was estimated using Ordinary Least Square (OLS) for time series data covering years from 1985 to 2008. Thus, an error correction term lagged once (ECT_1), which is the residual from the long run equation of non stationary variables, is included as one of the explanatory variables in the general overparameterized error correction model of determinants of import performance equation. This term captures the long run relationship by attempt to correct deviations from the long run equilibrium path. Its coefficient can be interpreted as the speed of adjustment from short run behaviour to long run equilibrium. 6 Empirical Results This section reports the econometric results on import performance determinant in Tanzania construction industry from year 1985 to 2008. Table 9 below presents the estimation of the over parameterised model. Table 9: Estimated OLS Results with (d2.InIMPCITZ) as a Dependent Variable
Variable d2.InCIFDIGDP d2.InGDPTZ d2.InCOCTZ d2.InPCITZ d2.InIMPTZ ECT_1 Constants Coefficients -0.5393688 1.36668 -1.341537 1.155324 1.455877 -2.071576 -0.0376446 Std Error 0.1075003 1.130655 0.6586154 0.566397 0.5887013 0.4805386 0.0510639 t-value -5.02 1.21 -2.04 2.04 2.47 -4.31 -0.74 p-value 0.001* 0.261 0.076*** 0.076*** 0.039** 0.003* 0.482 95% CI -0.7872649 -1.240615 -2.860307 -0.1507895 0.0983291 -3.179701 -0.1553982

-0.2914726 3.973976 0.1772326 2.461438 2.813425 -0.9634524 0.080109

Source: Stata 10 d2 and In in the beginning of variables are second difference and natural logarithm Probability (F-statistics) = R squared = 0.8629 0.0042 Adjusted R squared = 0.7600 F-Statistics (6, 8) = 8.39 Durbin-Watson d-statistics = 2.19 Number of Observations = 15 *, ** and *** indicates significance at 1%, 5% and 10% respectively 20

6.1 Diagnostic Tests The regression results in table 9 show the goodness of fit is satisfactory (adjusted R squared uquals to 0.7600) meaning explanatory variables in the model explain about 76 percent of the changes in the import performance in the construction industry of Tanzania from 1985 to 2008. More over, the F-statistic of 8.39 with probabilty of 0.0042 confirms that the overall model is statistically significant at second differences hence rejects the null hypothesis that right hand variables except constants have zero parameter coefficients. The model also proved not having a serious serial correlation among variables as confirmed by Durbin-Watson statistics of value 2.19 being greater than the conventional mark of 2.0.

6.2 Interpretation and Discussion of Results 6.2.1 Construction industry FDI From the OLS results in table 9, FDI flows into construction industry is negative and statistically significant at 1 percent level with probability value equals to 0.001. The result rejects the null hypothesis of this study that the foreign direct investment has a positive relationship with construction services imports. Carmem et al. (2007) explains the main reason for this could be the presence of robust contemporaneous and lagged complementarily from FDI to services imports which are corroborated by a long-run approach. An interesting result is the substitutive effect arising when the dynamic accumulation of FDI is taken into account. Such complementary and substitute effects are robust in average but they also depend on the specific group of countries considered. Therefore changes in the FDI flows to construction industry have impacts to services imports because the unit increase will decrease the construction services imports to Tanzania by 53.94 percent. This consequence is in line with the study performed by Domician (2007) which was testing the impact of FDI on export performance-lessons from Tanzania for the period 1976 to 2005. The result shows that, a unit increase in present FDI stock results in a proportionate 13.7 percent fall in export earnings. This implies that the FDI possesses negative effect when considering either import or export earnings. 6.2.2 Cost of Construction or Affordability From the OLS results in table 9, cost of construction is negative and statistically significant at 10 percent level with probability value equals to 0.076. The result agrees with the null hypothesis that cost of construction or affordability has negative relationship with the construction services imports. Hence changes in costs of construction have impacts to services imports because the unit increase will decrease the construction services imports to Tanzania by 134.15 percent. The study on behaviour of construction costs and affordability in developing countries, a Yemen case study conducted by Kajewski and Sultan (2002) concluded that, despite international awareness of sustainable construction, the cost rates for construction activities and resources have been continuously increasing. Construction costs registered an increase in rates year after year at
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scales much faster than inflation. In view of the increase in cost for basic input materials like steel, cement brick timber and other materials as well as the cost of construction labour, buildings cost increase in average of 13.35 percent annually even when inflation is in single digit. It stated by Ofori (2000) that the economies of many developing countries are currently confronted by severe difficulties owing to a combination of lower commodity prices, higher energy costs, falling exchange rates and rising inflation. Therefore the performance of construction sector will always be hindered by the price fluctuations. 6.2.3 Productivity From the OLS results in table 9, productivity is positive and statistically significant at 10 percent level with probability value equals to 0.076. The result rejects the null hypothesis that productivity has a negative relationship with construction services imports. Both domestic factors and international factors influence total factor productivity in a country. Among international factors, openness to trade is one of the important factors affecting total factor productivity. Therefore changes in productivity have impacts to services imports because its unit increase will increase the construction services imports to Tanzania by 115.53 percent. The result is supported by the study conducted by Garrik (2006) who provided strong evidence that Indonesian supplier productivity benefits from downstream imports. The 0.117 coefficient on downstream imports suggests that factory output increases approximately 0.12 percent as the proportion of downstream materials imported rises by 1 percent. Given that the level of downstream imports increased by about 10 percent from 1988 to 1996 in many industries, the realized gain is about a 1 percent increase in output in many sectors. When weighted by firm output, the overall level of downstream imports increased by 5 percent, suggesting about a 0.6 percent (0.12 times 5) increase in productivity from 1988 to 1996. Since the total increase in productivity in the relevant period is 19 percent, the effect of downstream imports represents roughly 3.15 percent of the total gains in productivity. 6.2.4 Total Country Imports From the OLS results in table 9, the variable is positive and statistically significant at 5 percent level with probability value equals to 0.039. The result agrees with the null hypothesis that total country imports have positive relationship with construction services imports. This is due to the fact that the total country imports depend also on the construction industry imports and others. Therefore changes in total country imports have impacts to services imports because its unit increase will increase the construction services imports to Tanzania by 145.6 percent. Greenaway et al (2003) in their study applied a dynamic panel approach to investigate the impact of imports of services on economic growth with a panel of 82 countries. The results suggest that imports of services have a significant positive impact on economic growth in developed countries and a negative impact in developing countries. The result also suggests that imports of other services have significant positive effect in developed countries while imports of transportation and travel have no significant effect.

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6.2.5 Country GDP From the OLS results in table 9, the variable is statistically insignificant because it possesses a probability value of 0.261 which has exceeded the critical value of 0.1. Inspite of its insignificancy the variable has a positive coefficient which means a positive determinant. This result rejects the null hypothesis that country GDP has negative relationship with construction services imports. This might be caused by the insignificancy of the variable due to data problems. Result shows that, a unit increase in GDP will increase the construction services imports by 136.67 percent. Han and Ofori (2001) suggested that unless the capacity of the construction industry of any country grow faster than the GDP the industry could constrain overall national socio-economic development. Also proportion of GDP contributed to the construction industry in the developing countries range between 3-5 percent. The construction industry is a main contributor to the national economy, therefore the more developed the industry is the more the contribution to the economy. 6.2.6 Error Correlation Term The coefficient of lagged once error correlation term (ECT_1) is negative and statistically significant at 99 percent confidence level with p-value equals to 0.003. The result agrees with the null hypothesis that the sign should be negative for equilibrium to be restored. The magnitude of the coefficient is (-2.071576) which implies that will take two years for a shock which has attacked the construction services imports performance to restore its equilibrium level. The significance of the coefficient associated with the (ECT_1) further supports the acceptance of the co-integration hypothesis (Harris, 2000). 7 Recommendations and Policy Implications 7.1 Performance of Construction Services Industry Though the construction industry is performing well, the main interest remains to the overall participation of local construction services providers which is very low. Most of local construction services providers are small or medium enterprises (SMEs). The SMEs development policy was formulated in 2003 to serve as guidance to all stakeholders involved in development. The overall objective of the policy is to foster job creation and income generation through promoting the creation of new SMEs and improving the performance and competitiveness of the existing ones to increase their participation and contribution to the Tanzanian economy. Foreign firms used to win about 80 percent of government tenders for construction services. Currently the government is implementing measures contained in the PPA 2004 in order to increase participation of local firms in tender processes. The three categories measures are packaging (splitting) of contacts in the sizes which allows the participation of many small firms; splitting aside jobs of up to a certain value to local firms only and lastly granting a margin of preference in favour of local firms in the tenders where they compete with foreign firms. Existing policies are adequately addressing the needs for the local services providers but are generally not covering how to face specific issues of local providers in LDCs like capital formation and market access. Marketing construction services needs firms to have adequate capital and be sure of the market conditions. Therefore the Government should put in place
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support mechanism for local services providers from the formation stages to marketing stages. In favouring local services providers, the Government should also be very careful not to violet the national treatment principle of as found in all three WTO agreements (Article 3 of GATT, Article 17 of GATS and Article 3 of TRIPS). The principle states that, imported and locally produced goods should be treated equally at least after have entered the market, the same should apply to foreign and domestic services, and to foreign and local trademarks, copyrights and patents. 7.2 Import Performance Determinants in Construction Services (1985-2008) FDI in Construction Industry The policy exists for investing in the country is the National Investment Policy of 1996 from the Tanzania Investment Centre (TIC). The policy direction is to initiate and support measures that will enhance the investment climate in the country for both local and foreign investors. The Government investment attitude is to increase number of foreign direct investments in the country. Institutional support for priority investment projects is readily available from the Tanzania Investment Centre (TIC) and other Government institutions. The problem with the existing policy is that, great efforts have been put in promotion and inviting investors to the country without specifically addressing what exactly types, limitations and modes of investments the country is demanding. FDI remains the engine for imports reduction if at all channelled to reduce dependence economy. The main focus should be in enhancing capacity building and the ultimate benefits to be achieved. Therefore FDI flowing to construction industry of Tanzania should follow the same trend and over all modes of services defined by GATS, policies should emphasize strongly on commercial presence, where a service is provided by establishing a presence in the country where the service is consumed. The emphasis on this mode will ultimately enhance technology and skills transfer to Tanzanian, hence reduction in imports construction services demand. Cost of Construction In Tanzania the monetary policy of the Bank of Tanzania is the one used in controlling the inflation. The objective of monetary policy is to achieve a low and stable rate of inflation. The Bank of Tanzania focuses on the Consumer Price Index (CPI) to measure inflation. The rate of change in the overall CPI is referred to as the headline inflation rate. The inflation rate excluding food prices is often referred to as the non-food inflation rate. It is a measure of price movements, which are largely influenced by policy factors, but can also be frequently affected by external factors. Though there are initiatives to reduce inflation in the Tanzania market, its gradual increase experienced recently is brought by the uncontrolled external factors. To allow the execution of an efficient and sustainable construction activity within affordability conditions, the construction costs should be reduced or alternatively the GDP per capita is increased. The GDP per capita must reach certain levels to allow a satisfactory and sustainable development of the construction activities through the purchasing power. Any reduction in purchasing power will similarly affect the construction industry. The development of the construction industry should lead to affordable construction activities and materials, which is one of the main issues of sustainability in the developing countries. The development of the
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construction industry to achieve efficiency, quality, affordability and then sustainability is strongly tied to the economy. Since economies fight for cost reductions, its achievements will results to increase in the construction services imports. Because consumers are cost sensitive, they will be benefited much with the services from local providers as many will afford. Productivity in Construction Industry From an overall efficiency perspective, the focus of productivity measurement is usually on growth rates. This is analogous to the focus on GDP growth rates rather than the overall level of GDP. While the latter is what is important for overall welfare, the great policy concern should be whether overall welfare is improving or not. Previous measurement of construction sector productivity points to a low level of labour and multifactor productivity within the sector, and poor productivity growth over time. An alternative, and more action-oriented approach, would be for government to engage with the sector to jointly identify factors that hinder productivity improvement in the sector, and to develop strategies for addressing them. While research can form part of the information base for this, it will also makes effective use of the knowledge that already resides in the sector. This is more likely to lead to concrete and tangible initiatives in the short- to medium-term. Also developing a joint public-private programme of initiatives for enhancing sector productivity is very crucial. A variety of action-research initiatives should be implemented as part of the approach (e.g. initiation and evaluation of demonstration projects that promote modern construction methods). The main interest is to increase competitiveness for local construction services providers but study finding shows that increasing productivity means increasing construction services imports. Hence increasing productivity is crucial but discouraging imports is difficult because the foreign firms do follow favourable environment conditions including cheap labour in productivity, capital productivity and favourable conditions for multifactor productivity. Total Country Imports In reality construction services imports contributes to total country imports by 0.92 percent in average over the period 1985 to 2008 with maximum contribution of 1.7 percent in 1990 and a minimum of 0.1 percent in 1987. The amount of contribution is small and can be accommodated for some times. Therefore the government motive should be in facilitating investments based construction services imports which in long run will be reducing the percentage contribution to total country import. Those investments based imports should be directed in building capacities of local services providers in order to become competitive in the domestic market and finally in the outside market as there will be in line with the national trade policy. Also the National Construction Industry Policy of November 2003 provides policy directions for promoting the establishment of financing schemes that support export activities and creating incentives for export. Therefore not only promotion should be encouraged but also sustainable environment should be on place for local service providers.
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Tanzania GDP Tanzania GDP is statistically insignificant in explaining changes taking place the model proposed by this research but remains important in explaining changes when linked to trade balance issues. This is because GDP is a function of trade balance (export-imports) and other factors including investments, Government expenditure and consumption. The National Trade Policy (2003) is the one used in ensuring the trade balance contributes significantly to the GDP. That policy emphasizes on export led growth and addresses mechanism for export facilitation with the objective of stimulating the entry of private sector services providers, especially banks and insurance companies. With all efforts in increasing trade balance, BOT reports the current 2007/2008 account balance widened to a deficit of US$2,327.7 million from a deficit of US$1,553.2 million recorded in 2006/2007. The deterioration in the current account was largely attributed to an increase in imports of goods and services that surpassed the increase in exports. As a ratio of GDP, the current account deficit increased to 14.9 percent compared to 13.1 percent in the year ending June 2007. Therefore, the policy has failed to achieve its objectives of bringing about the export led growth due to poor performance in exporting goods and services following persisting problems of supply constraints and standards limitations. For example the country is almost a net importer of the construction services. Therefore the Government policies should focus on solving problems hinders export performance. 7.3 Market Entry Strategies for Local Construction Services Providers Competitive service delivery mode remains the best for Tanzania local construction firms to enter the domestic market and compete with foreign firms at short and long run. The business of the firm must be better than that of the competitor for competitiveness. This can be seen difficult for local construction firms but can be done through working on five performance areas. The areas are making things right; making things fast; making things on time; changing what is to be produced or delivered and finally making things cheap. Other strategies to follow are joint ventures or strategic alliances and partnership modes.

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