THE ROLE OF FINANCIAL INSTITUTIONS ON SUCCESS OF MSMEs

THE ROLE OF FINANCIAL INSTITUTIONS ON SUCCESS OF SMALL AND MEDIUM ENTERPRISES IN TANZANIA. A CASE STUDY OF DAR-ES-SALAAM REGION

By: FRANK GLADSTONE MOSHI
This study aims at assessing the role of financial institutions on the success of SMEs in the country. Though the success of SMEs have been linked to the accessibility of financial services by various scholars, yet the way financial institutions influence success of SMEs has never been explored. To undertake the study ten financial institutions were involved which included commercial banks, micro finance institutions and SACCOs. A total of 95 SMEs were randomly selected from a population of 93430 SMEs found in Dar es Salaam region. Two sets of questionnaires were constructed one set for SMEs owners and other for the financial institution.

The responses of the participants were analyzed using the statistical package for social sciences (SPSS). The study found that financial institutions have little influence on SMEs financing because most of SME owners or managers frequently used retained earnings or profit (self-financing) and funds from relatives/friends to finance their business as a source of finance.

The study recommends to financial institutions to rigorously market their services to SMEs which have not subscribed to their services. The study also recommends the relaxation of lending conditions so that SMEs can access loans at affordable interest rates. The study further recommends a future research to be done that shall incorporate a wide range of SMEs, with a bigger sample size.

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PROBLEMS OF OFFICIAL FOOD EXPORT PERMITS TO EAST AFRICA

PROBLEMS OF OFFICIAL FOOD EXPORT PERMITS TO EAST AFRICA COMMUNITY (EAC) AND SOUTHERN AFRICA DEVELOPMENT COMMUNITY (SADC)
THE CASE OF TANZANIA

By: TANZANIA EXPORTERS ASSOCIATION (TANEXA)
This report presents findings of the study on problems caused by requirements for obtaining a letter of authorization to export staple cereal foodstuff from Tanzania. The study has, in-short, established the practice causes several problems to Tanzanian food exporters, small cross-border food traders and smallholder farmers.

The study has established that the requirement to obtain a letter authorizing export of food only applies to staple foodstuffs, mainly maize, rice, sorghum and millet. It does not apply to fruits.

Export businesses of 61.1percent of food exporters who were interviewed reported to be highly constrained by the food permit system. 19.1percent were severely and 38.1percent significantly negatively affected. 56percent, more than half of those interviewed said food export permits have caused their businesses to incur loss of profit. This calls for urgent measures to improve the cost of doing business and/or the business climate for exporting food commodities to EAC and SADC

Lack of awareness, transparency and clarity on what is required in relation to the letter of authorization to export food is not clear. As a result, even when these letters are not required, they continue to be issued.
Integrated Food Security and Nutrition Assessment System (IFSNAS) which is more famously known in Kiswahili as “MfumowaUchambuziwaUhakikawaChakulanaLishe” (MUCHALI) is responsible for triggering the notice which necessitates the need to obtain letters of authorization to export staple cereal foodstuff.

The problem with the way the MUCHALI operates is its assessment is not based at district-level. As a result, it gives a notice of generalized food insecurity when, in-fact, there is only localized food deficits. This makes the system to impose quotas and/or bans even in areas where there is food sufficiency

The process of issuing letters of authority to export food is top-heavy. A prospective food export trader has to go through 5 different steps in-order to obtain a letter of authorization. This may take 2-4 weeks and needs traveling to district, regional and the Ministry of Agriculture, Food Security and Cooperatives (MoAFSC) in Dar-es-Salaam.

This top-heavy process has excluded the poor from participation in food trade. Food trade in instead dominated by specialized “clearing and forwarding” agents who know how to obtain all letters of authorization to export food. They re-use them for people to export their cereal foodstuff at a fee.

There is no evidence to suggest the letter of authorization to export staple cereal crop has in-fact reduced the amount of food outflows. This is because corruption is persistent, and allows food to flow, especially if there is a quota/ban.

Overall, these letters of authorization to export food have contributed to high cost of doing food export business, delays, loss of income/profit and lack of competitiveness, in terms of time and reliability of delivery time of Tanzania staple cereal food products in neighboring countries.

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COMPETITIVENESS IMPACTS OF BUSINESS ENVIRONMENT REFORM

COMPETITIVENESS IMPACTS OF BUSINESS ENVIRONMENT REFORM (CIBER) Regulatory Constraints to the Competitiveness of the Tourism Sector in Tanzania: Platform for Advocacy
By: ZakiRaheemand Alex Mkindi

The administrative burdens in the Tanzanian tourism sector place a heavy cost on businesses in terms of time and money.Businesses would be more willing to pay levies if the levies were more streamlined and more transparent.

TOUR OPERATORS
Taxes and Licenses
Tour operators face 12 tax and license payments, including those for their certificate of registration; business license; TALA (Tourist Agent Licensing Authority) license (for tour operations, camping, and mountain climbing); value-added tax (VAT); corporate and withholding tax; skills development levy (SDL); municipal service; National Social Security Fund (NSSF); and work permits.This study’s tour operators cite the TALA licensing process, in particular, as one of the most burdensome procedures.Without acknowledging the financial crisis, the Tanzania Revenue Authority (TRA) is skeptical of businesses reporting lower year-over-year turnover. Tourism businesses feel they are not directly benefitting from the SDL.
Vehicle Regulations

Tour operators incur 11 duties, licenses, and fees for each vehicle they employ, including those for the import and excise duty; VAT; vehicle registration and inspection; road license; insurance; fire safety sticker; safety sticker; Surface and Marine Transport Regulatory Authority (SUMATRA) sticker; and frequency radio license.
Mandating that local and foreign tour operators license 5 to 10 vehicles, respectively, is viewed by the sector as a barrier to entry.

The present import duty–excise duty–VAT costs add an extra 62 percent to the cost of the vehicle.
A lack of access to credit creates burdens for small, locally owned operators. Foreign operators can receive cheaper credit, and Tanzanian banks presently do not have tourism-specific loan products.
Fees
Tanzania has the highest park fees in the Southern and Eastern Africa region.
Unregulated and uncoordinated gate fees along national roads hinder a tour operator’s ability to plan a tour package.
A lack of streamlined debit-card payment systems increases administrative burdens and risk exposure for tour operators.
HOTELIERS
Hotels face a minimum of 14 taxes, licenses, and fees, including those for VAT; corporate tax; dividend withholding tax; stamp duty on rent; payroll levy/SDL; property tax; municipal service levy; land rent; work permits; TALA; Occupational Safety and Health Authority (OSHA) fees; Copyright Society of Tanzania (COSOTA) fees; Tanzania Food and Drug Authority (TFDA) permit; and sign board fees.
Frequent and unannounced visits by different government officials continue to burden hoteliers.
Changing license, tax, and fee regulations for the hotel industry obliges hotel management to constantly stay abreast of new regulations and plan for upcoming ones.
The new electronic fiscal devices (EFDs) offer opportunities for improved tax collection; however, the issue of how to address purchases in U.S. dollars and other currencies must be addressed, among otherpractical considerations.

ANALYSIS OF PRIORITIZED ISSUES
Standard Cost Model for Tour Operators and Hoteliers
A Tanzanian tour operator spends an average of 745 hours per year (more than four months) on regulatory procedures, costing Tsh 2.9 million.
A Tanzanian hotel spends 1,042 hours a year (nearly six months) on regulatory procedures, costing Tsh 3.4 million.
The administrative costs of doing business for the Tanzanian tourism sector exceed Tsh 1.1 billion per year.
Investment in Training versus Skills Development Levy
The most recent TRA figures state that the SDL accumulated Tsh 72 billion in 2008. Therefore, it can be estimated that at least Tsh 4.32 billion (6 percent of the total SDL) was contributed by businesses in the tourism sector.
Both small and large tourism businesses invest a great deal in in-house skills training. This investment amounts to between 100 percent and 900 percent more than what these businesses pay in terms of an SDL and 20 percent to 60 percent of total payroll.
At least 20 percent to 40 percent of in-house training investment is directed toward basic skills.
RECOMMENDATIONS
Reduction of Administrative Burdens
Streamline the TALA documentation process;
Streamline the vehicle registration process; and
Combine the municipal service levy and sign board fees.
TCT Support for SDL Reforms
TCT and the Public–Private Partnership (PPP) should support the ongoing advocacy efforts of the Association of Tanzanian Employers (ATE) to reform the SDL.
PPP should consider lobbying the Ministry of Labor to allow TCT or the joint Ministry of Natural Resources and Tourism–National College of Tourism entity to possibly have some oversight or management capabilities over the SDL funds collected from the tourism sector.

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CHARGING PROCEDURES OF WHARFAGE CHARGES

2. A SITUATION ANALYSIS REPORT TO EXAMINE THE CHARGING PROCEDURES OFWHARFAGE CHARGES FOR CARGO PASSING AT DAR ES SALAAM PORT
By: AproniusMbilinyi +255 756 514 644 (apronius2000@yahoo.co.uk)

The Dar es Salaam port is the country’s major port which handles over 90% of all import and export trade; majority of the cargos handled are for domestic consumption (71%) and the remaining traffic about 29% of the total cargo is for transit to the other landlocked countries(2012 TPA statistics). DSM port is equipped with different types of cargo handling facilities; these facilities handle containers, general cargoes, petroleum, liquid bulk, dry bulk, and vehicles. The facilities are integral parts of the port, with the exception of the container terminals which is operated under the concession agreement between the Tanzania Ports Authority (TPA) and the Tanzania International Container Terminal Services (TICS). However, TPA still handles some of the containers and other cargo such as general cargo and fuel. The port has five major terminals divided into two categories; the bulk liquid cargo and the dry cargo terminal, these terminals are: the container terminal operated by TICS, the container terminal operated by TPA, Bulk liquid terminal, general cargo terminal and the passenger terminal.

The port also serves the six landlocked countries (Zambia, Malawi, DR Congo, Burundi, Rwanda and Uganda). The DSM port is a starting point for two major transportation corridors; Central corridor served by TRL railway line (1.0m gauge) and DSM corridor served by TAZARA railway line (1.067m gauge). Currently the DSM Port performs the role of both a landlord and an operator; as the operator the port handles one container terminal and the other terminals and as the landlord has sub-contracted (concessioned) the container terminal being handled by the Tanzania International Container Services (TICS). As the owner, DSM Port is tasked with the functions of promoting the use, improvement and development of other manor ports and their hinterlands (TPA, 2012).

Following the economic liberalization and privatization of the 1990s; the performance of Port of Dar es Salaam has improved substantially and became one of the most efficient port in the whole or Sub-Sahara Africa (World Bank 2012). The reforms went hand in with the increase in economic activities that increased trade and traffic through the Port; consequently the port existing facilities could not support the increased trade and the earlier improved performance started to deteriorate gradually, and by the mid 2000’s the performance was very weak. The deterioration of the Tanzanian’s port services, especially the Dar es Salaam Port resulted in long delays at anchorage, long dwell time, long ship turnaround, corruption and high cost of port service charges as compared to other competitor ports (World Bank 2012). These port challenges are believed to have added the cost of doing business in the country and constrain the growth of the Tanzania manufacturing sector and industrial growth and therefore prompted the Confederation of Tanzania Industries (CTI) to conduct this situation analysis study to document how port charges (wharfage) are being estimated in DSM port as compared to other neighbouring ports. The study also aimed at collecting views from port users regarding the quality of port services with the view of proposing practical measures to the government of Tanzania on how to improve the DSM port services. Both primary and secondary data/ information were collected in this study; whereas Primary information were gathered from major port actors (both public and private) such as Port terminal operators, Port services providers, regulating organs, importers, exports, transporters, shipping companies, clearing and forwarding agents and other logistical agents. Additional information was also collected from the same type of Port actors in Mombasa in Kenya and Beira in Mozambique. Secondary information was collected from online sources (various websites), Ports annual reports, past studies and various reports.

Study Findings
Regarding the base for calculating wharfage charges at DSM port; the study finds that DSM port applies an ad valorem system (CIF value) and the weight, volume or size system in estimating wharfage charges for cargo passing at the port. However, the ad valorem system (CIF value) is the dominant system, while Mombasa Port only applies weight, volume or size system. At the same time Beira Port does not charge wharfage fee for cargo except for bulk liquid cargo using an ad valorem system (FOB and FAS). The FOB and FAS ad valorem wharfage charges for bulk liquid cargo at Beira are comparatively higher than DSM and Mombasa Port.
The other key finding is that both methods being applied to estimate Wharfage charges at DSM port (ad valorem and weigh/size system) for general and containerized cargo applies comparatively higher rates and therefore makes the port wharfage charges comparatively higher than Mombasa. These findings are not different from the earlier findings by the World Bank that came to a conclusion that Wharfage charges and other costs make DSM Port an expensive destination port.
Most of the interviewed Port users are not happy with services provided by the main port service providers (TPA, TICS, TRA and ICDs etc); their perception is that the services are comparatively expensive and un-transparent (e.g. corridor fees), inefficient, obscured by corruption and bureaucratic, weak customer care, unnecessary delays, conflict of interests for players in the port and generally the port faces weak governance structure and lack of innovations. However, the Minister’s current efforts to reform the port management is encouraging, although the sustainability of such personal efforts which is not institutionalized is still questionable.
The analysis of basic indicators finds that, at the moment DSM port does not reach the set benchmarks and international standards; this is manifested by inability of the port to reach the set performance benchmarks by the regulator (SUMATRA) such as the dwell time, ship and cargo turnaround time and other set indicators by the port itself and the international benchmarks; this can be attributed to lack of substantial investments in terms of necessary port infrastructures and lack of proper regulations. However, it is encouraging to find that the recent reforms have been improving the port performance and the set benchmarks.

Recommendations
From the analysis and findings of this study, it is recommended that :
1. The fact that wharfage charges being applied in DSM port seem to be above its neighbuor Mombasa and the fact that the ad valorem system is the old system of wharfage charge estimation and most advanced ports have abandoned it. There is a need for Port stakeholders (including CTI) to submit their request to the regulator (SUMATRA) so that TPA justifies the formula and the bases for wharfage charges estimation using the ad valorem system unlike its neighbor ports who apply the weight, volume or size system.
2. Regarding port services; most of the major interviewed port users perceived that the port quality of services as weak and therefore they are not happy with the port services provider (TPA, TICS, TRA, and ICDs). CTI needs to work with the regulator (SUMATRA) and the responsible government institutions(PMO, BESTAC and the responsible Ministry) and advocate for port services improvement; if not, the port is likely to lose its regional competitiveness in facilitating regional trade to the land locked countries such as Ruanda, Burundi, Zambia, Malawi and DRC.
3. CTI should discuss with the Permanent Secretary of the Ministry of Transport and Communication (Port improvement committee chairman) regarding the plan to revive the port improvement committee which according to port stakeholders does not seem to work as planned before. This is because the committee used to meet regularly and provide an avenue for sorting out port challenges. There is also a need for CTI to forge a link and become one of the port improvement committee member where CTI can advocate for reforms at the port and push for wharfage charging system review if the current formula is not justifiable.

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ENHANCING SMES CONTRIBUTION TO EMPLOYMENT AND POVERTY REDUCTION

ASSOCIATION OF TANZANIAN EMPLOYERS (ATE) ENHANCING SMES CONTRIBUTION TO EMPLOYMENT AND POVERTY REDUCTION WITHINNATIONAL POVERTY REDUCTION STRATEGY
By: Dr.Donath R. Olomi, University of Dar es Salaam Entrepreneurship Centre (UDEC)

The Association of Tanzania Employers (ATE) has made a strategic decision of taking a more pro-active role in contributing to Small and Medium Enterprise (SME) development, as a way of furthering its mission of improving labour relations in the private sector. In 2004/05, the Association conducted a study of the influence of policies, laws and regulations on SMEs, with particular emphasis on effects on access to market, an issue known to influence quantity and quality of jobs in SMEs. This was conducted with support from the International Labour Organisation’s Bureau for Employer’s activities, under a project designed to enhance SMEs contribution to job creation and poverty within national poverty reduction strategy. The study established that the public procurement and standards regulatory regimes are among the main issues hampering access to markets for SMEs. Subsequently a more in-depth study was conducted on these two issues. ATE and the ILO decided to share the results with other stakeholders for validation and also as part of a wider agenda of engaging them in a reform process. This document presents results of the study as well as the inputs from the stakeholders’ workshop.

Approach
The initial study was done mainly through a review of literature.Four policy fields judged to have the greatest potential for influencing SMEs access to markets were selected: finance, taxation, standards and trade. The results suggested that areas with the greatest effect on performance of SMEs are related to access to government procurement and food standards. A deeper analysis was done in these areas through interviews with senior officials in the related regulatory bodies.

Issues and constraints related to public procurement
There are a lot of potentials for SMEs to sell to central and local governmentinstitutions. Access is most severely constrained in sub-sectors where there are also strong foreign companies. Recent reforms have seen the enactment of a new Public Procurement Act (PPA) 2004 and related regulations, establishing a Public Procurement Regulatory Authority (PPRA) a PublicProcurement Appeals Authority (PPAA) and providing preferential treatmentfor local enterprises, most of which are SMEs. The preferential treatment forinclude: exclusive preference for local companies for project ranging fromTshs 50 million 1 billion (depending on type of activity); margin of preference for locally owned firms, ranging from 4% to 10% (depending on local participation); margin of preference for locally manufactured or mined goods of up to 15%; and splitting of contracts to make them accessible to local companies.

Despite these efforts, SMEs may not benefit from these developments. Regulations and guidelines for PPA, 2004 are yet to be disseminated widely to the public. PPRA perceives that access to government procurement will be limited to fairly well established SMEs. For this reason, they communicate in English and then through the Internet and serious newspapers, avenues that reach a very small proportion of SMEs. As a result, awareness of the provisions among central government, local government, public institutions, business associations and SMEs themselves is very low.

Issues and constraints related to food standards
The main laws regulating foods and drugs are Tanzania Food, Drug and Cosmetics Act, 20031and the Standards Act No 3 of 1975 (as amended by act No 1 of 1977). The main standards related issues affecting SMEs access to markets are that (i) the Laws and their regulations are largely out of reach of most MSEs, (ii) Unclear role of the regulatory bodies, especially the Tanzania Bureau of Standards (iii) weaknesses in the administration of the two laws. The role of TBS is not quite clear in the minds of the public. Some consumers, retailers, institutional buyers and even SME operators believe that one is not allowed to sell any manufactured product without TBS certification. In reality, TBD standards mark is voluntary. Even some senior official of TBS argue that it is illegal to manufacture and sell any product without TBS certification.

There is a widespread ignorance of standards and regulations that have a strong bearing on market access. This is attributed to inadequate communication by TBS and TFDA. All materials are in English and centralized in their Dar es Salaam offices, meaning that they are inaccessible to those who cannot read documents written in English or those who operate outside Dar es Salaam. Their libraries do not keep easy to read and follow guidelines and procedures which would be useful to a small business operator.

Although both TBS and TFDA provide very important services to enterprises, they only have offices in Dar es Salaam. They are expected to function through Health Officers in all local governments throughout the country. However, rather than facilitate the process, some health officers are a hindrance as they charge MSEs exorbitant costs for travel and subsistence to send and collect samples for testing to Dar es Salaam.

Conclusions and recommendations
It is recommended that the PPRA adopts a more broad-based stance towards promoting local company’s access to public procurement, taking into account that different types and sizes of enterprises can access public contracts.Documents and messages from PPRA, TBS and TFDA to the public should be designed and communicated in an easy to follow form, language and media. Guidelines should be prepared for local government and SMEs. The relevant ministries should sensitise their staff on the nature, reality and importance of SMEs and review laws and regulations to conform to the reality in terms of compliance and enforcement capacity. The ministries should also support decentralisation of testing facilities in other parts of the country.

Business Associations should pro-actively seek and disseminate information on public procurement and standards and communicating this effectively to members. The associations should work with the regulatory agencies to come up with effective communication mechanism. They should also identify capacity limitations and come up with initiatives to address them.
Way forward
During the stakeholder workshop, participants agreed in principal that the report reflects the situation in the procurement and standards regimes and that the barriers identified are real. Also the recommendations proposed were considered appropriate ways of addressing these constraints. As a way forward, it was agreed that ATE could take leadership, in the context of the ILO Bureau of Employer’s Activities support to ATE in helping address some of these barriers as follows:
• The validated report be circulated to key stakeholders who are supposed to take action. These include the relevant regulatory bodies, business associations, the Ministry of Finance, Ministry of Health, the Business Environment Strengthening Programme for Tanzania (BEST) Programme, etc
• A working group be constituted, comprising representatives of key business associations and regulatory agencies to come up with mechanisms and instruments for improving the way information is communicated.
• ATE should explore the possibility of building partnerships with other actors, including media organisations to periodically communicateinformation pertinent to access to markets.
• A few micro-enterprises should be selected and assisted through awareness and capacity building to meet the TFDA and TBS standards. These few cases should then be showcased as role models, demonstrating that it is possible to complete the certification

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WIDENING YOUR FINANCIAL FUTURE - A 2013 FINSCOPE SURVEY

WIDENING YOUR FINANCIAL FUTURE

A 2013 FINSCOPE SURVEY

FinScope Tanzania 2013 is the third cycle of surveys measuring the demand for and access to financial services amongst adults throughout the mainland and Zanzibar. The information it contains provides a vital component in the progress towards financial inclusion.
It reveals what services people do and do not use and why; what barriers; what barriers prevent more use. It also gives insights into people’s attitudes and behavior, into gender differences, urban and rural coverage, trends and choices – all with a perspective which now spans seven years.
According to the report, education remains an area of deep concern. Financial service providers in all categories need to develop products which recognize the low level of education of most consumers.
Nearly a quarter of total adult population in the country (5,554,717) is dependent on others for their main source of income while the number of people whose main source of income comes from formal employment remains very low.
Evidence from FinScope Tanzania 2013 suggests that there are many reasons to be optimistic. The finding reveals a significant drop in the number of people who are totally excluded. In 2009 11.7 million people fell into this category, a figure which almost halved by 2013. The overriding reason for this encouraging trend is the remarkable rise in the use of mobile financial services.
Half the adult population in Tanzania – the highest proportion anywhere in Africa – has learned how to use the system and is increasingly benefiting from its expanding services.
Though the most common use of mobile financial services is currently remitting, advances in the technology and innovation are beginning to offer a greater range of secure and affordable products and services. Projections indicate that many more people will be using mobile financial products and services for a wider range of transactions and facilities over the next few years.
Advances in the range and flexibility of insurance products has led to a rise in their popularity, most of which is concentrated in the health care sector. More people are taking out insurance to protect their family against the potentially high cost of health care and medical bills.
The increase in use of bank products and services has been more modest. Although there has been a rise in levels of saving, most people who want a credit facility find it in the informal, not the formal sector. It is the remote, rural areas where a significant proportion of the population live, that cause the greatest concern. Banks need to tackle the problem not just of limited access, but of conditions which are too stringent for many potential customers.
Many more appropriate products abd services, tailored to people living in these parts of the country are needed before financial inclusion can have sustainable future in Tanzania.

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