NICE LITTLE EARNER

Tanzania 2014 | INDUSTRY & MINING | REVIEW: INDUSTRY

Increasing industrialization is helping to boost economic growth, with a strong focus now being given to value-added in manufacturing.

The industrial sector contributes around 9% to GDP, and is focused on food, beverages, tobacco, fertilizers, textiles, furniture, and wood products. Despite its small size, the sector is one of the most reliable and significant sources of government revenue, accounting for over 50% of collections. Today, the sector is the third largest foreign exchange earner in Tanzania, behind agriculture and tourism, and is the source of around 20% of the country's exports. It is also a significant employer, with SMEs generating around 24% of jobs in the country. This figure is also expected to increase to as much as 40% by 2015 as the government promotes more value-added in manufacturing.

Although one of the least industrialized countries in the region, manufacturing value-added has increased from $894 million to $1.9 billion over the past decade. With the country's GDP growth over the last 10 years making it one of the top four fastest-growing economies in the world—along with Uganda, China, and Mozambique—analysts have been quick to point out the familiar correlation between economic growth and industrialization.

The country's manufacturing industry is concentrated in a few low-tech areas, making it sensitive to imports. Food and beverages account for around 50% of total manufacturing value-added, followed by non-metallic mineral products with 11%, tobacco with 7%, and textiles with 5%. The greatest manufacturing center is Dar es Salaam, the country's largest city, with more than 50% of all manufacturing firms located there. Arusha, in the north of the country, is the second largest manufacturing base, with the remaining 14% spread between Mwanza, Singida, Tanga, Kagera, and Kilimanjaro, according to Tanzanian paper Daily News of Tanzania.

A GROWTH STORY

Tanzania has a long history of manufacturing, with some of the first steel produced in the area as far back as 1400 BC. In recent times, Tanzania has struggled to get the ball rolling, although a focus on value-added is now beginning to attract investors.

In 1986, the government liberalized its trade and investment policies, a move that dealt a blow to much of the manufacturing industry as the country was flooded with cheap imports. In the early 1990s, a program was launched to privatize many of the state's enterprises in order to encourage competitiveness and innovation and get Tanzanian products into the international marketplace. Today, private-owned companies dominate the manufacturing sector, representing around 91% of output. Public-owned companies now number only slightly above 50 and represent only 8% of manufacturing firms, with the remaining 1% public-private ventures. The country's industrial sector is now guided by the Sustainable Industrial Development Policy (SIDP), the main purpose of which is to promote industrialization. The SIDP envisions, by 2025, a semi-industrialized country in which industrial output accounts for over 40% of GDP. The government has also worked to boost the investment environment, an effort that has seen the country become East Africa's number one FDI destination—the country has pulled in an average of $627 million per annum over recent years, around 40% of the total amount invested in East Africa.

GOT THE GOODS

Representing approximately 50% of produced goods, the food and beverage sector is the largest manufacturing segment. Manufactured food products include dairy products, canned fruit, vegetables, fish, animal and vegetable oils, grain, sugar and confectionary, and animal feeds. The beverages sector is involved in the distilling of ethyl alcohol, the blending of spirits, and the production of wine, cider, and beer. The sector also produces soft drinks and carbonated water. The food and beverages industry has further potential for expansion, with steady growth recorded in per capita food consumption, which is expected to increase by over 12% in 2013, while mass grocery retail sales are also forecast to increase by 16.3% in the same year. The second largest contributor to overall manufacturing output comes from non-metallic mineral products, representing 11% of output. This includes the manufacture of pottery, china, earthenware, and glass and glass products, as well as bricks, tiles, cement, concrete, gypsum, and plaster products. Production in the segment has been on the rise since the early 1990s and took off in the latter half of the decade as cement mills were privatized—cement production currently stands at 3.25 million tons a year, and is expected to increase to 6.75 million within the next three years, making Tanzania a net exporter of the core building material.

Textiles represent 5% of manufacturing output. Leather was the first sub-sector to undergo privatization, and is currently the focus of government plans to enhance the local industry in order to see more finished products take their place in the country's export mix—nearly 90% of exports are raw hides and skins. Other activities in the textiles sector include spinning, weaving, the finishing of textiles, and the manufacture of carpets, rugs, cordage, rope, and twines.

The country also produces wood and paper products, such as paperboard, fiberboard, light packaging, heavy packaging, and stationery. Tanzania also has a nascent chemicals industry, producing basic industrial chemicals, fertilizers, pesticides, plastic materials and products, pharmaceuticals, soap, detergents, perfumes and other cosmetics, and paint. In addition to petroleum refining, rubber products are also produced in the country, including tires and various industrial products. Basic metal products are also produced, including cutlery, tools, fixtures, and window frames.

As the country strives to reach its goal of industrialization, Tanzania needs to begin the long climb to value-added in order to reduce the export of raw materials and work its trade up the value chain. Through the SIDP, the government aims to increase the role of the private sector and boost both domestic and foreign investment. Already a significant source of revenue, the promotion of products higher up on the value chain can only be positive for the East African country as it presents its products to a competitive global market.