A new breed of legal support

Why entrepreneurship is crucial to job creation and economic growth

2016-11-29 09:52:16

By Paul Kibuuka

At the time the world is struggling to respond to unemployment rate among youths, entrepreneurship becomes a critical imperative to unlock growth, create jobs and support the development of small businesses.

In a developing economy like Tanzania with a population of more than 45 million people, about 64.1 per cent of the population is aged between 0-24 years and 29.5 per cent is aged from 25 to 54 years.

And because the annual population growth rate stands at 3.14 per cent, it will take Tanzania 23 years to double, hence come 2035, the population will have more than doubled to 90 million.

Unfortunately, the increasing population has been inversely proportional to the capacity of the economy to create jobs to absorb the growing number of people entering the labour market.

Some studies have found that out of between 800,000 and 1,000,000 graduates entering the Tanzanian labour market, it is only 40,000 who access formal education. The situation gets even worse when the private sector is not well developed enough to absorb a bigger part of the expanding labour force that is unabsorbed by the formal market.

President Jakaya Kikwete, who has been very concerned with the unemployment rate in Tanzania, recently told participants at a New York conference on “Achieving Sustainable Development through Employment Creation and Decent Work” that though joblessness is a global concern, things are getting worse in Africa. He, along with other top leaders, called for enhanced efforts to create more jobs for the jobless before things get out of shape.

Mr. Kikwete said statistically, in the last decade, Africa managed to create only 37 million job opportunities, of which only 28 per cent was decent. The figure was much less than the 122 million new entrants into the continent’s labour market annually, leading to an increasing gap that requires a concerted and sustained effort to close.

He suggested that one of the efforts is to accelerate youth empowerment for self-employment through sustainable programmes. This could therefore mean investing in entrepreneurship development to enable job creation and promote economic growth.

It should be noted that in the 1970’s and 1980’s when Tanzania’s socialist project of development failed to fully provide social welfare and economic well-being of all citizens, some citizens had to seek alternative forms of earning a living, which resulted into some practices of entrepreneurship.

The period was characterized by serious economic crisis which forced the government to liberalize trade and accept the implementation of the IMF/World Bank Structural Adjustment Programme (SAP) in 1982 and the Economic Restructuring Programme (ERP) in 1986.

Thousands of jobs were lost in the SAP-induced retrenchments and privatization of state-owned enterprises as well as the government’s withdrawal from some activities; hence, emerged a number of people whose only means of survival was self-employment.

According to Sylvester Jotta, a lecturer at St. Augustine University of Tanzania’s Entrepreneurship Development Centre, most of those who could not find jobs started micro and informal businesses to enable them to eke out a living.

“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 entrepreneurship activities,” he said.

To date, the Tanzanian government acknowledges the crucial role that entrepreneurship ought to play in the Tanzanian economy. According to FK EconoConsult’s principal consultant, Isidore Leka Shirima, with high unemployment, the government realizes that in order to alter the socio-economic scene of the country it would have to support a rigorous endeavor to develop entrepreneurship.

Indeed, this commitment by the government has led to a number of initiatives; including, policies to assist, support and develop small and medium enterprises through the Small Industrial Development Organization (SIDO); the National Economic Empowerment Council’s Mwananchi Empowerment Fund, providing financial help to entrepreneurs in rural areas to fulfill their dreams; the Tanzania Private Sector Foundation’s Business Development Gateway, which provides entrepreneurs with business ideas and risk grants; the Tanzania Commission for Science and Technology’s GIST Entrepreneurship Bootcamp; and the National Youth Council, which helps youths acquire skills and find resources for starting and running a business.

From a social innovation perspective, the key players continue to be civil society organizations (CSOs), such as, Twaweza, TGNP Mtandao Ltd and the Tanzania Youth Alliance (TAYOA) all of which seek to continually tackle the many social issues faced by the Tanzanian society. These include the fight against HIV/AIDS, high unemployment and poor living conditions. CSOs also seek to operate at grassroots levels within poor communities.

Furthermore, these CSOs provide vital policy input and research into the social conditions of the poorest Tanzanians so as to activate funds and set appropriate development goals that might otherwise have been overlooked.

At present, entrepreneurship receives continued emphasis in our education system. While the gap between education and real world requirements still exists, a number of programs have been developed to encourage entrepreneurial creativity, which can ultimately strengthen businesses and reinvigorate the economy.

In 2013, the University of Dar es Salaam Entrepreneurship Centre (UDEC) analyzed entrepreneurship education and business practice by making a follow-up of the trained entrepreneurs at the college. The results were impressive. Small businesses grew both in operation and employment, further shining a spotlight on the promising entrepreneurial sector in Tanzania.

Shambani Graduates Enterprise’ founders are among the trained entrepreneurs who, after getting skills and capital, expanded their operations. Launched in 2003 by three Sokoine University graduates, Shambani Graduates Enterprise had a 30-litre milk processing capacity per day.

Four years later, in 2007, the company participated in UDEC’s businesses plan competition and won an award of Euros 30,000. So far, its processing capacity has increased to 2,500 litres of milk per day. Before, there were only 2 employees and currently the number has grown to over 25.

“The company creates employment, promotes milk consumption and is a useful example for graduates to create wealth and jobs through agricultural-based entrepreneurship,” notes UDEC deputy director, Dr.Goodluck Charles.

If we could support thousands of entrepreneurs like Shambani Graduates Enterprise through providing capital and mentoring opportunities and creating an enabling business environment, it would mean a lot; businesses would grow and pay taxes on profits, create jobs and opportunities for Tanzanian families as well as produce goods and services to meet demand.

While I strongly believe in the growth potential of Tanzania as a frontier market that is critical for entrepreneurship and job creation, there are challenges which hamper the country’s development.

A weak infrastructure, particularly in rural areas, is holding back the development of entrepreneurship. Unstable power supply and expensive and poor bandwidth connectivity is also restricting development and business growth.

A further major challenge is the heavy regulatory framework that exists in Tanzania. Fragmentation of regulation in the country is another major barrier for the growth of businesses.

For instance, in the manufacturing sector, there are 10 or 15 regulators going after manufacturers on every different issue and approximately 22 laws guiding the industrial sector.

I hope that under the Big Results Now (BRN) initiative, the government will continue to seriously work on these challenges that discourage business growth and entrepreneurship.

Different World Bank’s “Ease of Doing Business” reports have been presenting a ranking of countries based on the degree of ease of doing business. A poor ease of doing business ranking is embarrassingly bad for attracting local and foreign investment.

Tanzania’s rank has been worsening from 2012 to 2013, where the country was ranked 127 and 143 respectively; the rank worsened to 145 out of 189 economies in 2014. Even in terms of the Global Competitiveness Reports of 2009/2010 and 2013/2014, the country was ranked 100 and 125 respectively out of 148 economies.

Reading from the data, the global ranking of Tanzania’s business and regulatory environment is still volatile and unfriendly to entrepreneurship by the private sector.

However, there still remain opportunities for Tanzania. The increase in the number of entrepreneurship bootcamps and startup hubs will enable information and knowledge sharing and also catalyze entrepreneurial activities and innovation across the country. The development of urban and sub-urban areas will also facilitate more small business owners to get the critical support they need.

Besides that, investment in entrepreneurs should not only address Small and Medium Enterprises (SMEs) in general, but focus specifically on facilitating the creation and development of young, high-growth firms.

A growth plan for Tanzania should focus on creating the proper framework conditions for easing access to credit and facilitating investment in innovation, research and development. Similarly, a strong investment in improving infrastructure, the regulatory environment and the business and management skills of the current and future workforce is imperative if we are to support entrepreneurship for economic growth and job creation.

Lastly, while it’s really encouraging to see some of our schools, colleges and universities incorporate entrepreneurship in their curricula, there should be focus on apprenticeships and internships to allow for sharing of expertise and learning – and ultimately bridge the gap between theory and real-world, relevant practical innovations.

Paul Kibuuka is the Managing Partner of Isidora & Company Advocates. Email: Twitter: @isidoralaw

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