Evolution of Entrepreneurship in

Tanzania
LUKAS MICHAEL SUMANI
 THE HISTORY OF ENTREPRENEURSHIP IN
TANZANIA
• 1. During the Colonial Era
• During colonial days, Indigenous productive
activities were suffocated by colonial
regulations and competition from imports.
• Throughout the colonial period, a consistent
policy was adopted to keep the colony as a
producer of raw material for use in industries
in Europe, and, consequently, dependent on
manufactured goods from colonial masters.
• There was also a deliberate policy to limit
participation of indigenous Africans, and to a lesser
extent, Asians, in business activities.
• Thus, manufacturing, importing and exporting,
banking and insurance were mainly done by
Caucasians.
• Asians, most of who had been brought in to work as
clerks during railway construction projects in the
early 1960s, were encouraged to operate as sub-
wholesalers and retailers.
• Arabs operated mainly as retailers.
• Africans participation in business was
restricted to very small firms, such as
dukawalas (tiny shops).
• Except for a few offspring of chiefs, the few
Africans who went to colonial schools received
only elementary education to enable them to
understand clerical and other very low duties
in the public and private sector.
• Therefore, at independence, the indigenous
population was just as marginalized in their
own country as the economy was in the
international market.
• For example, in 1961, about 34,581 Africans
and 7,500 Asians held retail trading licenses,
but Asians handled well over two-thirds of the
trade volume (Rweyemamu, 1979).
• Economic and social marginalization of Africans was
part of a deliberate colonial policy of dis-empowering
the indigenous population and hence making it easy to
rule.
• Africans were made to believe that they were
“naturally” inferior to other races and everything
• African was backward.
• Naturally, this environment had a negative effect on
development of entrepreneurial values and
competencies, including self-esteem, a belief in the
ability to make things happen, confidence, initiative,
aggressiveness, etc.
• However, the social and economic context created in
various parts of the country presented different
opportunities for the development of entrepreneurship
in Tanzania.
• For example, European missionaries and farmers settled
in some mountains areas of the country (Kilimanjaro,
Tukuyu, Bukoba, Songea etc), where they introduced
Christianity, education and commercial agriculture.
• They also encouraged the local population to cultivate
commercial crops and to establish cooperatives.
• This development not only inspired the local
population and exposed to new desires and
opportunities, but it also led to land shortages
which forced them to think and act in non-
traditional ways in pursuing of livelihoods and
“success.”
• Logically, the meaning of “success” to an offspring
of a peasant farmer laboring every year for family
subsistence will be vastly different from another
who has experienced commercial farming, is
aware of the possibilities and benefits of formal
education.
Post-independence and Socialist Era (1967-1985)

• Tanganyika’s first five-year development plan (1961-1966)

envisaged developing the economy by attracting foreign
direct investment (FDI).
• Towards the end of the five-year period, it was apparent
that the expected FDI was not flowing in as expected.
• There was also a concern that not much had been
achieved by way of redressing the legacy of the marginal
position of Africans in the economic field left by the
colonial government.
• The leadership started looking for alternative
development strategies.
• In 1967, the government officially adopted a radical
transformation to a socialist development strategy,
through the Arusha Declaration.
• Activities categorized as constituting the
“commanding heights” of the economy, including
banking, import-export, insurance, large houses,
farms, schools, hospitals, etc were also
nationalized.
• The government invested heavily in the
nationalized entities as well as new ones.
• Consistent with the socialist policy, private business
entrepreneurship in Tanzania was actively discouraged in
favor of government, community-based or co-operative-
owned ventures.
• Regulations were introduced to bar civil servants and
leaders of the ruling party from engaging in business
activities.
• Since all educated Africans were civil servants, this means
that, business activities were left to Asians and those
indigenous people who had no job opportunities, and these
tended to be people who had no substantial education.
• Theoretically the socialist policy encouraged peoples’
participation in decision making.
• However, in practice, the government embraced a
centralized; mainly top-down decision-making approach.
• It made a whole range of decisions, from who should go to
which school or college, where one had to live, crops to be
grown, their prices and where they should be sold, salary
levels, etc. a culture of dependency on the state and
unquestioning obedience took root in all walks of life.
• This must have contributed to stifling development of
entrepreneurial values such as initiative, willingness to take
risks, need for achievement and related competencies.
• The break-up of East African Community in
1977 coincided with a combination of other
unfortunate events heralding a long economic
crisis in Tanzania.
• The events included the international oil crisis
of the early 1970s and a costly war between
Tanzania and Uganda in 1978/79.
• The economic crisis was manifested by a serious
shortage of foreign exchange and consumer products,
industrial capacity under-utilization, inflation and
decline in real purchasing power among wage
earners, forcing them to undertake petty business
activities to supplement their meager earnings.
• Similarly, real crop prices dropped compelling
peasants and their dependants to diversify income
sources by engaging in small ventures within the rural
areas or in urban centers.
• The response of the citizen to the crisis
demonstrated that even the socialist policy had not
completely subdued the entrepreneurial agility of
the society.
• Tanzanians from all walks of the life responded to
the challenge by establishing makeshift backyard
factories, smuggling goods from neighboring
countries or hoarding whatever little was available
from the local industries and selling the same at
exorbitant prices.
• Others established informal agricultural
activities, animal husbandry, retail and other
projects to supplement the dwindling formal
incomes and take advantage of the failure of
state companies to meet the basic needs.
• However, this “second economy” met strong
resistance from the state which only saw its
dysfunctional role
• The informal private business activities were
seen as being in conflict with country’s resolve
to build an egalitarian society, as it created a
class which owned no allegiance to the goals of
the society (Maliyamkono and Bagachwa, 1990).
• In 1983, the government implemented a
ruthless campaign against “economic
saboteurs,’ confiscating property and arresting
business operators of different kinds.
• As Maliyamkono and Bagachwa (1990) noted, the
dysfunctional approach to the second economy
failed to distinguish elements within the second
economy which constituted potential assets and
those which were socially and economically
detrimental to the development of healthy
economy.
• The crackdown on economic players in 1983
delayed the social and political legitimization of
entrepreneurial activities in Tanzania.
Liberalization and Economic restructuring (1986 to date)

• The economic crisis that began in the mid-1970s

intensified in the early 1980s, forcing the
government to liberalize trade and start
implementing a radical transformation programme
with the urging and support of the World Bank and
the International Monetary Fund (IMF) from 1986.
• The Economic Restructuring Programme involved
liberalization of virtually all sectors of the economy
and privatizing and nationalizing employment in
the public sector.
• Under the ERP, the government gradually changed
its economic policy from reliance on state-run
enterprises to promotion of foreign investment
and local entrepreneurship in Tanzania.
• The private sector is now seen as the engine of
economic growth and the role of government has
been redefined to focus on facilitation rather than
direct ownership and operation of enterprises.
• Aware of its limitation to help out in the situation,
the government started encouraging workers to do
so. For example, in 1992, the government
deliberately reduced the working week by half a
day to give employees more time to engage in
income generating projects to supplement their
official incomes.
• This played a significant role in enhancing the
legitimacy of activities of entrepreneurship in
Tanzania.
• The reforms did not fully ease the problem of low salaries.
• On the contrary, the retrenchments, freezing of
employment, privatization of state enterprises and
disengagement of the government from some activities led
to substantial job losses and limited openings for school
and college graduates.
• Their most pronounced effect has been a substantial net
increase in the number of people whose only means of
survival is self-employment.
• Most of those who cannot find jobs as well as salaried
workers have, out of necessity, started micro and informal
businesses to enable them to eke out a living.
• Since the mid-1990s, entrepreneurship in Tanzania
as a career has been acquiring increasing
legitimization.
• The proportion of individuals consciously choosing
self employment, even among the highly
educated, has been increasing. For example, while
a 1991 survey of the informal sector (URT, 1991)
did not record any University graduate, a 1995
study (URT, 1995) recorded 1582 graduates in the
sector.
• In a 1997 survey of University of Dar es Salaam (UDSM)
students by the Faculty of Commerce and Management
(FCM,1998), 81% of students indicated that they were
interested in setting up their own enterprises.
• In a tracer study of the FCM Alumni (Kaijage, 2000)
“entrepreneurship” was rated second (next only to
computer-related courses) among aspects that were
very important but not significantly covered in the B
Com programme.
• In a 2004 survey of final year students, Mufa (2005)
found that the proportion of those running businesses
while studying had increased from 7% in 1997 to 16%.
 Challenges facing entrepreneurship
development
1. Lack of affordable capital to begin start-ups
2. Lack of truly entrepreneurial skills – it is
entrepreneurial spirit driven by economic
necessity/survival. There is very little innovation
and creativity or opportunity driven businesses
(mostly cut and paste businesses)
3. Inward looking mindset of citizens – do not look
beyond their backyard
4.Language barrier – much information is available
in English and little is written in Swahili
5.Lack of entrepreneurship training centers – Only
UDSM Entrepreneurship Centre and mostly targets
graduates and business owners, less to the
ordinary citizen.
6.Absence of entrepreneurship curriculum in
schools/colleges or university
7.Lack of leadership and management skills
8.Unregulated competition from outside world
9.Corruption and official harassment
10.High taxation level
• End of slide show