Business Environment in Tanzania

Geographically, Tanzania is located on the Eastern part of Africa. She borders the Indian Ocean between Kenya and Mozambique. The country also shares borders with and acts as the gateway to Uganda, Rwanda, Burundi, Democratic Republic of Congo (DRC), Zambia and Malawi. Tanzania occupies a total area of 945090 sq. km. 886040 sq. km makes up the land area with the remaining covered by water.

Targeted or Potential Market in Tanzania

Tanzania offers a wealth of market opportunities for both domestic and foreign markets with her population of over 41.8 million consumers and growth rate of 2.04%. Her rapidly growing economy and high levels of domestic investment spending, with 20% urban, offers a sizeable market that will remain an important target destination for local and foreign product and services. On top of that, Tanzania is part of the two distinct market areas: East African Community (EAC), that is comprised of five countries, and Southern Africa Development Community (SADC), amounting to the sum of over 527 million consumers. Tanzania is a trading partner with some European Union (EU) countries, China, India, the United Arabic Emirates (UAE) and the United States.

Cultural Environment and Suggested Market Entry Strategy 

In Tanzania, indigents make up the largest (99%) ethnic group on mainland. There are over 120 tribes each with its own idiolect, but Kiswahili remains the national language. Both English and Kiswahili are the official languages. For foreigners entering Tanzanian market local contracts, cultural appreciation and relationship building are important. Joint ventures and shared ownership are preferred by the Tanzanian government, especially in acquiring land. Marketing can be done by the local agents or distributors or sometimes can easily be done by establishing joint ventures. Advertisement and promotions can be done in various national and international media such as Media Advertising Company Limited, (The Express)Daily and Sunday NewsBusiness TimesThe GuardianThe CitizenThe East AfricanCoastal Television Network (CTN), Dar es Salaam Television Network, Independent Television (ITV), and Tanzania Broadcasting Corporation (TBC). Pervasive corruption and bureaucratic obstacles can be reduced by working with local lawyers and by insisting that contracts and offers be made in writing.

Money, Finances and Payment Systems in Tanzania

The Tanzanian shilling is the national currency. The currency is issued in denomination of 5, 10, 20, 50, 100 and 200 shillings coins. Other denominations are in notes of 500, 1,000, 5,000 and 10,000 shillings. The US dollars, euro, pounds and Kenyan shilling can be used in some parts of Tanzania. The shilling exchange rate is freely determined in the Inter-bank Foreign Exchange Market (IFEM). In Tanzania there are more than 23 licensed banks. There are also a number of licensed non-bank financial institutions offering banking related services. Baking and non-bank financial institutions are free to set their own interest rate policy.

Recently, there are limited numbers of financial instruments in the market. The main ones are treasury bills and bonds and corporate bonds traded on the Dar es Salaam Stock Exchange. However, Tanzania is largely a cash economy. Direct cash settlement is the most popular way for individuals to conduct business. For business-to-business transactions, most companies (both local and foreign) choose to make payments via check. Companies prefer to make payment by check for the internal and external management and control of funds. Companies tend to prefer direct payment in cash for petty transactions. For parties in different cities or regions, direct payments through commercial bank accounts in form of wire transfers and SWIFT are very common. Payments above Tsh 10 million (about USD 6,700) cannot be made by check but should be made through electronic transfer. For international trade transactions, documentary credits such as letters of credit (LOCs), documentary collections and drafts are widely used. Prepayment, cash with order and cash-in -advance advance, are the most desirable terms by the local sellers.

Business Legal Environment

Registering a company in the United Republic of Tanzania is the right of those who wish to associate and  organise themselves into a company pursuant to the existing company laws (Company’s Act 2002). The forms of business organization are private companies, non-private companies (public), foreign companies and parastatal, or state owned companies. All these companies should be registered by the Business Registration and Licensing Agency (BRELA) under the Ministry of Industries, Trade and Marketing. Any company incorporated in Tanzania is treated as a resident and any foreign company incorporated in Tanzania is treated as resident if the management and control of the affairs of the entity is exercised in Tanzania. Other forms of businesses are sole proprietor, partnership and joint venture, which should be licensed by the Tanzania Revenue Authority.

In Tanzania only the Finance Ministry and its agencies, such as Tanzania Revenue Authority (TRA), has the authority to issue tax and other exemptions. Ministries proposing contracts with such exemptions do not have such authority unless the agreement is endorsed formally by the TRA. Income tax is levied on the profit of Tanzania resident companies and foreign companies trading through branch or agency. Any business with annual taxable turnover of more than Tsh 40 million must register for VAT. For imported goods, VAT is payable at the time of importation together with any customs and excise duties. However, under the Fair Competition Act of 2003, a Fair Competition Commission was established to promote and protect consumers from unfair and misleading market conduct.

Labor Regulations in Tanzania

The Employment and Labor Relation Act of 2004 sets certain minimum employment standards and grants certain fundamental rights and protection from child labor below the age of 14, forced labor, discrimination on basis of race, sex, color, disability, age, pregnancy, etc., and freedom of association, including the right to form and join trade unions. The maximum working period is six days in a week, working 45 hours in a week, 12 hours a day. Overtime hours (50 in a four-week cycle) are continuous working hours without a break in 15 hours. Leave entitlement consists of 28 consecutive days including weekends and public holiday for every 12 months of consecutive employment.

In conclusion, according to the “Doing Business” report for 2007 and 2008, Tanzania ranked 142 out of 175 countries on ease of doing business and rated among ten best reformers. There are no African countries ranking in the top 25. South Africa stands at the 29th position. In December 2003, Business Environment Strengthening Tanzania (BEST) was launched to improve the business environment for the private sector by improving administrative, legal and regulatory policies. The program seeks to achieve its objectives through five interlinked components, namely; achieving better regulation, improving commercial dispute resolution, strengthening the Tanzania Investment Centre, changing the government culture and empowering private sector advocacy.

By John A. Massawe