Evaluating the Impact of Chinese Partnership on the Small and Medium Enterprise (SME) Landscape in Tanzania

Introduction

Tanzania, with its rich resource base and strategic geographical location, has become a focal point for international partnerships, particularly with China. By evaluating the SME sector, we gain insights into how foreign investments influence the local business environment. Examining the cooperation with China would unravel the impact of cross-cultural collaborations, technology transfers, and trade dynamics on the entrepreneurial landscape. Understanding how Tanzanian SMEs engage with Chinese partners provides a valuable perspective on innovation, market access, and the potential for sustainable development. Such an analysis not only sheds light on the current state of affairs but also has the potential to inform strategic decisions for fostering resilient and mutually beneficial partnerships, ultimately contributing to the socioeconomic growth of Tanzania.

Tanzania’s SME Landscape

Post-independence, Tanzania adopted a centrally planned economy, with authorities channelling efforts to build up public domains, neglecting private sector growth (“The Game-Changing Role of SMEs in Tanzania’s Economy”). As a result, Tanzania’s private sector remains relatively young, where large locally grown enterprises are few and far between.

Today, more than 95% of businesses in Tanzania are small enterprises according to the Tanzania Chamber of Commerce, Industry and Agriculture (TCCIA). However, this figure also accounts for survivalist enterprises with income generation less than the minimum income standard or poverty line, including vendors, brokers, itinerant traders, and hawkers (“Tanzania’s Small and Medium Enterprises (SMEs)”). In such enterprises, asset values are minimal and employees often go unpaid.

The informality of Tanzania’s SMEs has stunted the sector’s growth, with many enterprises failing to secure much needed financial resources from banks (“Tanzania’s Small and Medium Enterprises (SMEs)”). Financial institutions offering such resources require collaterals, accurate accounting information and documentation – most of which smaller Tanzanian SMEs are unable to provide.

Apart from the access to financial resources, SME development is also constrained by unfavorable regulatory stipulations, undeveloped infrastructure, poor business development services, and poorly coordinated institutional support frameworks (Sitorus).

The Impact of Chinese Intervention

2024 marks the 60^th anniversary of the establishment of diplomatic ties between China and Tanzania (Xinhua). Chinese and Tanzanian cooperation saw projects such as the Belt and Road Initiative as well as the construction and refurbishment of the Tanzania-Zambia railway line (TAZARA) (“Ambassador Chen Mingjian”).

Chinese partnership has been largely beneficial to Tanzania, facilitating economic growth and recovery. Trade between both countries has been flourishing in the past few years, with merchandise exports reaching USD$6.83 billion (Figure 1.1).

Figure 1.1

Most of Tanzania’s exports to China also enjoy China’s Preferential Tariff treatment. These include cotton, sisal, sesame seeds, wet goat skins, seashells, waste plastics and sea weeds (“Statement on Sino-Tanzania relations”).

Specific to SMEs, there has also been growing interest amongst Chinese investors in Tanzanian companies. Initially, this interest was mainly directed at industries such as construction, manufacturing, natural resources and textiles. Nonetheless, bigger Chinese investors are now looking to invest in the mining, energy and agriculture segments (“Statement on Sino-Tanzania relations”). More recently, Chinese development assistance has expanded to encompass concessional and commercial loans in key sectors (Chen and Voncujovi). China Development Bank (CDB) had issued a USD$1 billion loan to African SMEs with aims of helping them “acquire more financing, enhance local businesses’ access to foreign currency exchanges, and improve Africa’s industrial infrastructure.” (Runde et al.). By 2018, CDB reported that it had invested in approximately 500 projects, amounting to USD$50 billion over the years (Runde et al.). In the agribusiness sector, Chinese companies procured their supplies from local Tanzanian SMEs.

Nevertheless, it must also be acknowledged that Chinese private capital and investors have a limited relationship with SMEs in Tanzania. While there are a handful of Chinese programmes designed to support African SMEs, majority of Chinese funding had gone directly to governments to support infrastructure or Chinese-owned firms in the region (Runde et al.). Comparably, Chinese investment in local SMEs, both directly or via intermediaries, was far more limited. Moreover, while Chinese investments in the private sector has increased over time, few Chinese firms are sharing technology and expertise with Tanzanian SMEs, restricting local capabilities. We see this in the decrease in labour force participation rates over the years despite Tanzania’s economic growth trends (Figure 1.2).