Business reforms underway but bottlenecks persist-IMF

USA: TANZANIA’S determination to attract investment and boost private sector growth is evident through a series of ongoing reforms.

Yet, the country continues to face significant obstacles that hamper business competitiveness, as highlighted in the recently released IMF Country Report on Selected Issues.

One of the most pressing challenges is access to finance. Despite robust economic growth, the country’s financial sector remains shallow. As of 2023, outstanding domestic credit to the private sector stood at just 16.4 per cent of GDP, well below Kenya’s 31.6 per cent, Rwanda’s 22.7 per cent and the Sub-Saharan Africa (SSA) average of 33.4 per cent.

The IMF report noted that “access to finance is ranked by Tanzanian firms as the most binding constraint to business,” with 84 per cent of firms relying on own funds to finance purchases of fixed assets, a figure described as “high even by regional standards.”

This limited access reflects what the report calls a “shallow and underdeveloped financial sector, dominated by banks, with only nascent capital markets.” Structural barriers—including weak financial market infrastructure, insufficient credit information and the absence of an effective collateral registry— continue to suppress private sector lending.

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In parallel, while Tanzania has made progress in expanding electricity access, reliability issues still constrain businesses. National access to electricity grew from 14.8 per cent in 2010 to 48.3 per cent in 2023, but the country still lags behind regional peers like Kenya (76.2 per cent) and Rwanda (63.9 per cent).

The IMF points out that “a significant challenge for those with electricity connections is the poor reliability and quality of service,” largely due to “a deteriorating network with overloaded transformers, distribution feeders longer than industry good practice, poorly configured networks that hinder isolation of faults and limited operations and maintenance services.” Transport infrastructure, however, has seen noticeable improvements.

The proportion of firms identifying transportation as a major obstacle dropped from 38.2 per cent in 2013 to 9.4 per cent in 2023.

This success follows significant public investments, though the IMF cautions that “the country’s road density remains low at 9.6 km per 100 per square km of land area, which could be an impediment to private sector productivity.” Corruption, while less severe than in many African nations, remains a concern.

According to the 2023 Enterprise Survey, only 7.0 per cent of firms reported at least one bribe payment request, compared to a Sub-Sahara Africa (SSA) average of 21 per cent. This represents progress, supported by Tanzania’s improvement in Transparency International’s Corruption Perceptions Index—up 11 points between 2015 and 2024 to a score of 41.

Yet, the government acknowledges that “corruption vulnerabilities still persist” and has launched the National AntiCorruption Strategy and Action Plan Phase Four (NACSAP IV) 2023–2030 to address them. Regulatory burden remains another critical bottleneck.

The IMF report highlights that “14 per cent of firms’ senior management time is spent on dealing with regulations, compared to an average of 8.0 per cent for SSA and lower middle-income countries.” High business start-up costs, cumbersome licensing and redundant processes continue to weigh heavily on the private sector.

To tackle these issues, the government introduced the Blueprint for Regulatory Reform in 2018, aimed at “simplifying the business-regulatory regime to avoid duplications and overlaps of mandates among regulatory agencies” and promoting transparency through digital platforms.

While there has been progress—including fee reductions, electronic systems and one-stop centres—challenges endure.

The IMF Country Report No 25/164 concludes that for Tanzania to achieve a vibrant and resilient business environment, it must accelerate reform implementation while addressing these persistent barriers. As the report aptly states, sustained efforts are “essential to unlocking the full potential of the private sector and fostering inclusive growth.”