Non-farm household enterprises provide an important opportunity for employment in Tanzania. Agriculture is still the primary economic activity of the country, but the economy is shifting away from it and the number of people employed in this sector has been declining since 2006. At the same time, nearly 850,000 individuals a year enter the labor market seeking gainful employment and non-farm household enterprises are growing rapidly. Across the country, 65.9% of households reported household enterprises as a primary or secondary employment.
Due to the growing importance of non-farm household enterprises, our team conducted a study to understand why household enterprises are not growing and what their major constraints are to productivity gains.
We used two methodologies to look into these issues: a qualitative analysis including focus group discussions, key informant interviews, life stories, and a community mapping exercise with 385 individuals from different districts across Tanzania; and a quantitative survey that was carried out to more than 7,400 poor households. The study identified four main bottlenecks for household enterprises in Tanzania:
Access to finance was the major constraint to starting or growing a household enterprise. The majority of respondents identified it as the biggest constraint to day-to-day operations and an additional 24% identified it as the second largest obstacle. Here are some interesting facts:
- Most household enterprise owners (about 90%) have not tried to get a loan from a formal financial institution in the last year. Those that do borrow do so from informal sources (i.e. neighbors, relatives, and friends).
- Household enterprises’ start-up capital comes from own savings or gift from family and friends.
- Lack of funds and capital was the main reason why households not running a household enterprise did not have a business or stopped operating one.
- The reason why household enterprises do not borrow is related to complicated paperwork and procedures, difficulty to make periodic payments, high-interest rates, and lack of collateral.
- Only 10 percent of household enterprises have a bank account and 30 percent have a mobile money account.
Participants of our study also highlighted how poor roads and infrastructure limit mobility and prevent Household enterprise owners from operating in nearby markets or getting access to inputs that could be useful to grow their household enterprises. Access to nearby local and regional markets could help household enterprises to grow their businesses, but poor roads and lack of reliable transportation limit their access.
Although 98 percent of household enterprises think that education or skills are useful for their business, most participants did not consider it as a major constraint to their productivity. Most participants were not aware of the skills they lack, nor the potential benefits additional skills could provide for their businesses. However, some participants believe that more entrepreneurial and business skills would help. Regarding skills they value, interpersonal and communication skills, as well as physical strength and technical and vocational skills, were highlighted in the quantitative survey.
With all these insights, the study is informing the design of the next phase of Tanzania’s Productive Social Safety Net program under Tanzania Social Action Fund (TASAF). The program started in 2000 providing cash transfers and public works to the poorest households in the country, many of whom are household enterprise owners. Since 2013, the government piloted a livelihoods enhancement component that included support for savings groups to the poorest people in the country. Our study along with learnings from the pilot are helping the government to redesign the project with the objective of scaling up the livelihoods enhancement component so that household enterprises become more productive and grow over time.
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