By Business Insider Reporter
A new International Monetary Fund (IMF) study has linked poor firm productivity in Tanzania to persistent obstacles in the business environment, calling for urgent structural reforms to unlock the country’s private sector potential.
Drawing from the latest World Bank Enterprise Survey data, the study finds that limited access to finance, burdensome tax administration, and inadequate transport infrastructure are statistically and significantly associated with lower productivity levels among Tanzanian firms – particularly in the manufacturing sector.
“The data shows that firms facing financial constraints and high tax compliance costs tend to be less productive,” the IMF report notes. “Transport-related challenges also contribute to the productivity gap.”
While the study did not find statistically significant links between productivity and either regulatory burden or electricity reliability, it emphasizes that these remain critical bottlenecks.
About one-third of Tanzanian firms report experiencing power outages, and numerous diagnostic assessments, including those by the Tanzanian authorities, have identified excessive regulation as a major obstacle to business.
“Even where statistical significance is lacking, the real-world impact is visible,” the report says. “Regulatory complexity and unreliable electricity continue to weigh on firm operations and confidence.”
Key reform areas
To reverse the declining trend in Total Factor Productivity (TFP), the IMF recommends a multi-pronged reform agenda centred on four key areas:
1. Access to finance
The financial system remains shallow, with most firms relying on their own resources for investment. The IMF calls for reforms to strengthen credit infrastructure, including:
Expanding the availability and quality of credit information;
Establishing legal frameworks for secured transactions and collateral registries;
Upgrading digital systems to support financial inclusion through mobile payments and data sharing.
2. Tax administration
The report urges continued modernization of the Tanzania Revenue Authority (TRA), recommending automation of tax systems and implementation of risk-based compliance frameworks to reduce unnecessary audits and face-to-face interactions.
“Delays in VAT refunds and unpredictable tax enforcement are hurting business liquidity and investor confidence,” it warns.
3. Regulatory reforms
Although some progress has been made under the initial Blueprint for Regulatory Reforms, the IMF emphasizes the need to consolidate regulatory agencies, eliminate redundancies, and digitize approval processes, in line with the upcoming Blueprint II.
4. Infrastructure development
While government investments in transport are showing positive results, the IMF says more is needed to ensure lasting impact, particularly in energy and electricity reliability.
“Investments in grid rehabilitation, digitalization, and cost-reflective tariffs will be crucial to strengthen TANESCO and ensure consistent service,” the report notes.
The IMF’s message is clear: Tanzania’s private sector cannot thrive without decisive reforms. As the country pursues its Vision 2050 agenda, tackling long-standing business environment issues will be essential to sustaining economic growth and generating quality jobs. “Improving firm productivity is not a side issue – it’s central to Tanzania’s development goals,” the report concludes.
