Tanzania Business Enabling environment support (BEES) program

1. Tanzania Business Enabling environment support (BEES) program • Presentation to the Tanzanian private sector donors’ group • Maria Miller • Mary Agboli

2. Tanzania’s Development Challenge: Lack of Quality Jobs • Tanzania’s economy has grown at 6.5% since 2004, yet approximately 12 million Tanzanians continue to live below the poverty line with increasing disparity in living standards between the country’s rural and urban populations • With between 800,000 - 1,000,000 young people entering the labor market every year, a higher growth rate is needed to lift the country out of poverty • Growth has been mainly driven by ICT, financial services and construction sectors which do not generate significant jobs; increased productivity in agriculture can offer job opportunities • Tanzania firms are slowly industrializing, their growth is however sub-optimal as compared to other regional firms • Trade openness is below the level suggested by Tanzania’s per capita income, mainly due to non tariff barriers and logistical challenges • Few new firms to absorb labor – Tanzania’s entrepreneurship and innovation lags behind other East African countries which limits the private sector’s ability to grow. Skills further impede progress

3. Opportunities for Private Sector Development • A development agenda, with industrialization at the heart of the search for growth and jobs, and commitment from the top leadership within the Government • Significant potential for growth in agriculture value added (crops, livestock and fisheries) that could benefit jobs and income of the larger population • Tourism already provides significant benefits to Tanzania and could bring even greater benefits, if managed appropriately and linked to the local economy • A growing manufacturing sector and related services present job creation opportunities • Tanzania’s geographical location provides opportunities for the country to become the sea gateway for the neighboring landlocked countries

4. Constraints Inhibiting Private Sector Growth • Tanzania has consistently announced efforts to reform the business environment over the past decade; implementation and impact of these reforms has proven more challenging • Productivity, export diversification, foreign direct investment (FDI) attraction and technological intensity still lag behind emerging countries, including those within the EAC • Non-extractives based FDI and domestic private sector investment remain small (private investment stalled at 14-18 percent over the last few years) • This is largely due to remaining weaknesses in the enabling environment where the regulatory framework remains difficult -- licensing and taxation are particularly burdensome • Existing entrepreneurial capacity cannot be easily unlocked and diversification is limited • These findings are confirmed in the country’s ranking on the Doing Business 2018 report where Tanzania ranks 137 of 190. Its Global Competitiveness ranking is 113 out of 137 (2017/2018 report)

5. Program Objective • To promote sustainable and inclusive economic growth through better economic foundations, increased trade and business growth support, with a specific focus on SMEs Budget: $12.1M Secured to date: $6.7M Implementation Period: July 2016 – Dec 2020

6. Cross cutting Integration of gender sensitive programing & PPD

7. Expected Outcomes • Improved regulatory environment for businesses (men and women) through streamlined licensing, rationalized inspections and improved regulatory impact assessment mechanisms; • Improved tax administration for businesses (men and women) through streamlined procedures, improved VAT refund management, streamlining of key sector taxes and enhanced tax incentive regime; • Reduction in Non-Conforming Measures resulting in enhanced competitiveness for businesses (men and women) and increased integration of Tanzania into the EAC through elimination of Non-Tariff Barriers to trade, especially related to free movement of services; • Improved cross-border trade facilitation for (male and female owned) businesses importing and exporting through reduction of costs, simplification of risk management protocols and facilitation of trade logistics related information, communications and technology (ICT) solutions; • Enhanced market access for agribusinesses (male and female), enhanced private sector investment mobilization (male and female) and product diversification in tourism and increased investment (male and female) related to light manufacturing, each through strengthened value chain and policy coordination

8. Implementation Status • All internal program approvals fully secured • Various technical missions to Tanzania • Building client and stakeholder ownership (overall program expected to be anchored at PMO level with individual components anchored at respective line ministries) • Gathering program baselines and agreeing on program evaluation criteria • Providing technical inputs to ongoing policy initiatives, including WBG Development Policy Operations; • Facilitating design of institutional frameworks to support reform initiatives (e.g., licensing committee, PPD) through sharing of best practices • Recruitment of local STC to support Public Private Dialogue • Some challenges: Multiple changes of counterparts within key ministries; Dodoma impact

9. Vertical Economy-Wide Reforms

10. Business Regulation • Market Failure: • Business licensing, permits and inspections are identified as major constraint to doing business. Licensing is cumbersome, costly, duplicated by different entities and prone to corruption. The licensing regime is yet to be geared toward clear policy objectives that protects the public good. So far the licensing regime is mainly used to collect fees and statistics. • Objectives: • Increase efficiency and reduce business compliance costs: undertake a comprehensive review and streamlining of all business licenses at the national, subnational and sector levels • Reduce uncertainty and de-risk business operations: provide clear, objective, transparent and predictable regulatory. • Improve effective and efficient government to business services: provide integrating services and reducing redundancy among institutions, streamlining procedures, introducing risk-based approaches, dissemination of information and coordination/collaboration among regulatory authorities Stakeholders and Partners: Gov: Primary: PMO, PDB, MITI, BRELA, Secondary: Line ministries, city centers and local authorities Key Stakeholders: CTI, TCCIA, TPSF, other private sector entities

11. Business Regulation – Activities • Licensing and Inspection Functions with the licensing committee • Create/activate an informational license portal and publish all licenses and other formalities • Analyze the different licenses and ensure they satisfy the criteria of being (a) needed, (b) legal and (c) friendly. • Streamline required procedures/processes needed to secure licenses • Support introduction of risk based approaches for newly reformed and newly issued licenses • Provide technical support to facilitate regulatory/legislative actions required to advance licensing reform • Support B2G feedback mechanisms so the private sector can provide feedback on government services (in conjunction with PPD platforms) • Business Registration: to be coordinated with the Doing Business program • Consolidation and streamlining of registry requirements between institutions and move into unification of the registration application and electronic registration (including informational and transactional aspects of business registration) • Assess the need for industrial and business licenses required at registration stage • Cross-cutting themes: Training and capacity building; reform communication strategies; and exposure to international good practices and country experiences

12. Tax Administration • Market Failure: • Business Climate: High/Multiple tax rates, Activities of Informal sector, VAT Refunds (2.2 billion), time to register a business or property (26 days/67 days) 40% iro tax registration • Tax Administration: Time, cost & number of tax payments; tax Audit and Refund processes partially risk based; complicated and non-integrated tax procedures or systems; no study of tax expenditures; inadequate revenue/refund forecasting • MSME Taxation: Beyond VAT threshold increase no simplification of policy and compliance requirements for presumptive tax payers • Objective: To reduce cost of compliance with government regulations through: • improved tax administration, • streamlined tax procedures, • improved practice in sector specific taxation Alignment with partner operations: Support TRA achieve corporate plan objectives as earlier agreed with TRA Compliment existing DP support (DANIDA, USAID, DFID, IMF East AFRITAC Support)

13. Tax Administration Activities • Business Climate & Tax Administration • Support towards streamlining key tax processes including refunds and audits, • Support integration/interface of TRA with key third party institutions & government agencies, • Implementation of risk-based service and audit actions; • Analytics to inform government decisions related to sector taxes in agribusiness and tourism; • Streamlining of tax incentives regimes; and • TA towards IDRAS implementation • MSME Taxation: analytical work to inform review of presumptive work thresholds; simplification of presumptive and MSME compliance requirements • Tax Analytics and PPD: To support government decisions in improving policy and regulations

14. Regional Integration: Services • Market Failures: • Many services sectors are limited by restrictions to foreign investment, including by other EAC countries. This constrains Tanzania’s ability to further develop an agile and effective services sector and also limits its ability to develop its industrial base, a stated goal of the GoT. Figure 10. Tanzania: Services contribution to manufacturing export value-added (percent), 2011 Figure 11. Tanzania: services inputs to services exports (percent), 2011 Stakeholders and Partners: Gov: Primary: MITI, Secondary: Trade-related ministries Key Stakeholders: Private Sector Foundation, other private sector entities

15. Regional Integration: Services • Objective: To help Tanzania reduce restrictions on services • The team proposes to: • Build upon the work done in the EAC Scorecard, which identified a list of services sectors that Tanzania had committed for liberalization that still retain restrictions.

16. Regional Integration: Services • Identify key sectors for liberalization- EAC Partner States have committed to liberalization in a number of services sectors. Partner States followed a positive list approach, scheduling only those sub-sectors they were willing to open up. As such, Tanzania has committed to liberalize 59 sub-sectors across the modes of supply by December 31, 2015. Article 16 (5) of the CMP commits Partner States to refrain from introducing any new restrictions on the provision of services. Based on a prioritization exercise done within the EAC Scorecard consultations, identify a set of services barriers that can be eliminated. • Conduct consultations with key stakeholders, utilizing the PPD platform to build support for liberalization. identify 2-5 priority laws /regulations /NCMs that are seen by stakeholders and the technical experts as achievable reforms having an impact on the ability of the country to attract new investment. • Assist in the implementation of reforms - work with relevant agencies to implement identified reforms in the selected areas. This could include assisting in the development of mechanisms to implement commitments, assisting in drafting and implementing legislation or related regulations and capacity building, including increased dialogue and information sharing regarding the impact of maintaining restrictions in the area of services on Tanzania’s ability to attract investment into and expand other sectors of the economy • Education/Information dissemination– As part of the consultation process, build support for further services liberalization: seminars, workshops, case studies, etc. • Data gathering - as resources allow, conduct a study of relevant investors in services sectors to assess key barriers. • Capacity building - use discussion to build capacity on trade in services and services negotiations in relevant ministries with a view to providing support to negotiators in CFTA, Tripartite, etc.

17. Trade Facilitation and Border Management • Market Failure: • Inefficient port and customs operations are increasing trade costs and are identified as major constraints to doing business: • All containers now being scanned and subject to customs physical inspection resulting in huge port delays. With no risk management currently in place, compliant containers are physically inspected along with non-compliant • Lack of coordination among 32+ government agencies involved in administering and regulating cross border trade • VAT is imposed on transit goods which contributed to a 20% drop in transit traffic at the port of Dar. This is in contravention of Article 11.2 of the Trade Facilitation Assessment (TFA) • Objective: To reduce the time and costs to trade Stakeholders and Partners: Gov: Primary: TRA, MITI, Secondary: Trade-related ministries Key Stakeholders: TAFFA, TCCIA, other private sector entities Note: DPO triggers include NSW and NTFC

18. Trade Facilitation and Border Management Activities • Re-visit assessment and challenges outlined in recent TFA -- leverage the gap analysis and identified constraints (i.e., validate the gaps, including the status and capacity of all relevant agencies; identify important actions; and develop and support implementation of sequenced action plan across gov and private sector) • Objectively identify category B and C and re-validate category A, given that TFA assessment was done in 2014 under previous IT system for Customs (i.e., ASYCUDA ++ ); TRA is now using a locally developed system, TANCIS – Tanzania Customs Integrated System • Support to NTFC (National Trade Facilitation Committee) to draft an implementation plan to close gaps identified under categories B & C • Streamline documentation and procedures - complete a Business Process Review (BPR) for technical border-control agencies and other institutions involved in int’l trade transactions; identify and recommend areas for improvement; • Complete assessment of customs clearance and border management procedures; risk management, customs valuation and use of ICT in border management process; • Conduct TRS (Time Release Study) for Dar port – aim is identify specific areas for assistance to support i) Customs Reform and Modernizations Strategy; and ii) TRA 5th Corporate Plan for 2017-2018 • Support development of risk management systems – TA for key border-related agencies related to implementation of risk management expansion, including support for : • Creation of a Customs Risk Management Unit; • Further develop the second phase for the Compliant Trader Program (national) and AEO - Authorized Economic Operator (regional) • Integration of scanner image analysis capability into risk management methodologies • Assist gov and key stakeholders to develop a vision for implementation of a National Single Window (NSW)

19. Unlocking Investment in Key Sectors

20. Agribusiness • Market Failure: • With estimated export earnings in 2015 totaling US$545m (38% of agriculture foreign earnings) and employment of 2.5m people (Tanzania Horticulture Assoc.), horticulture is among the sub-sectors with the best potential for creating jobs. In addition to land access, the sector’s growth is however limited by poor institutional coordination and heavy regulatory burdens, including excessive taxes/fees and burdensome inputs registration processes. • In addition, formation of linkages that could support job growth in the sector is limited by weak SME capacity. Exacerbating this constraint is limited capacity of Tanzania’s Small Industries Development Organization (SIDO), the entity charged by the GoT to support SME development. Few SIDO advisors have experience with growing SMEs and therefore lack practical knowledge of how to proceed. An upskilling of SIDO’s staff is critical to facilitate Tanzania’s SME development. • Objective: To improve sector competitiveness and promote increased private investment in horticulture. The Agribusiness component aims at supporting investment generation and growth in high value horticulture value chains by: • 1) Improving horticulture sub-sector coordination mechanisms to ensure a more concerted effort by relevant agencies around horticulture sub-sector promotion; • 2) Fostering SME linkage models for inclusive investments; and • 3) Streamlining horticulture sub-sector key regulatory and administrative barriers Stakeholders and Partners: PMO, MALF, TSB, EAC, TAHA, Seed Association, Fertilizer Association, Local authorities, SIDO, Local authorities, Lead firms, SMEs

21. Agribusiness Activities • Improving Horticulture Sub-sector Coordination Mechanisms • Coordinate and harmonize objectives and plans among relevant institutions within the horticultural value chains for a shared vision and strategy • Support a periodic national PPD platform on agricultural inputs (seeds, fertilizers and pesticides) • Support for inclusive investment models (e.g., SME linkages) • Identify 2-3 SIDO regional offices that serve a large population, or potential population, of entrepreneurs • Evaluate the enterprises supported by SIDO from the perspective of numbers supported per SIDO regional office business developer, enterprise starting metrics (turnover/profit, employees, etc.) and growth metrics (e.g., current turnover, employees, etc.) for those business developers • Implement a three-year cutting edge development program newly developed by the WBG that will include a mix of theoretical (e.g., strategy, financial awareness, marketing, etc.) and practical training (business diagnostics, improving distribution and production and standards and certifications, etc.) • Streamlining sub-sector key regulatory and administrative barriers • Introduce an electronic import permits processing process for agro-chemicals • Streamline and harmonize the Plant Protection Act, Pesticides Act and Tropical Pesticides Research Institute Act to create to facilitate importation, registration and distribution of agro-chemicals • Streamline horticulture licensing, inspection, taxation and registration of agro-chemical dealers • Review and revise legal frameworks for agro-inputs consistent with regional guidelines and protocols

22. Tourism • Market Failure: • Tourism represents a significant portion of the economy and is the largest export services sector (WTTC TZ Econ Impact Report, 2016). In 2015, it contributed nearly 12% of GDP. Travel and tourism services totaled US$2.2b (>25% total exports and 60% of services receipts) (WTTC and MNRT). The industry directly supported nearly .5m jobs in 2015, and through backward linkages was responsible for 1.3m jobs (12.2% of total employment) (WTTC and MNRT). • Over 80% of leisure tourism is generated by the world-class wildlife and landscapes of the “northern circuit” and Zanzibar. Other, less developed regions, also hold potential. Notwithstanding, the sector is burdened by dated policies, excessive regulatory barriers and a lack of a comprehensive development strategy. The existing policy is 20 years old and regulations date back to 1985. The lack of coherence between the GoT’s growth objectives and the existing sector policy framework poses significant risks to the sector’s future and its potentially transformative role as an inclusive economic driver. • Objective: Pull together various WBG interventions in the sector by ensuring that a clear sector strategy and policy are adopted. Use this entry to prioritize and drive necessary reforms. Also, focus on developing a public and private sector investment plan for the Southern Circuit, define the product offers and strengthen sector coordination to support this effort. Stakeholders and Partners: MNRT, Tanzania Tourist Board, TATO, Local Authorities, TIB

23. Tourism Activities • Review and revise the National Tourism Policy and Tourism Law in the context of the Private Sector Competitiveness Project that is financing a National Tourism Strategy • Advance and support sector specific reforms in tourism licensing, taxation, and investment procedures • Design an investment plan around an integrated destination development program for the Southern Circuit that is linked to ongoing WBG programs: REGROW, DPO, Private Sector Competitiveness, as well as other development partners (USAID, GIZ, KFW, DFID) • Target and package new investment opportunities – including PPP options, community based investments etc. – in the Southern Circuit and take these to market

24. Light Manufacturing • Market Failure: • Tanzania is predominantly an agriculture and services-based economy, with a low manufacturing footprint. Tanzania’s manufacturing sector represents less than 10%of GDP, which compares poorly to other countries in the region and lags far behind East Asian countries, such as Vietnam, that have proven to be successful in harnessing manufacturing as an engine of growth. • In recognition of this, the GoT has set a goal of manufacturing reaching 18% by 2025 in its Five Year Development Plan II. The sector’s growth is however hampered by inadequate infrastructure and access to industrial land and low availability of skilled labor. Compounding these challenges is a weak business climate plagued by burdensome regulations and excessive bureaucracy. Combined with low access to finance, these challenges contribute to a high-cost low-productivity manufacturing environment, making firms less globally competitive. • Objective: To support Tanzania's growth in manufacturing value addition and related employment in high priority manufacturing sectors. Stakeholders and Partners: Ministry of Industry and Trade, EPZA, Investment Center, TPSF, Confederation of Industries, REPOA, Economic Social Research Foundation, Tanzanian private sector manufacturers

25. Light Manufacturing Activities • Assessment and prioritization: Assess Tanzania’s manufacturing competitiveness, exploring value addition opportunities, market and industry trends, and investment and employment generation possibilities for several key sectors. • Development of sector strategy roadmaps: Engage with industry sector groups to develop sector strategy roadmaps, undertaking deep-dive analyses to understand market needs and Tanzania’s positioning toward competitors in order to gain strategic clarity. • Implementation of prioritized activities: Support industry stakeholders to undertake the key strategic initiatives. These will include market and technology linkages, export and investment promotion activities, institutional strengthening, etc.

26. Cross-cutting: Public-Private Dialogue (PPD) • Market Failure: • Concerns regarding the business environment in Tanzania persist. Indeed, recent government actions have had a mixed impact on the business climate and on investor confidence which affects the trust of the private sector. Furthermore, despite an existing PPD structure in the country, the private sector in not systematically engaged in a structured policy dialogue that can impact positively a pro-growth reform agenda. • Objective: Foster a participatory, inclusive, and reform-oriented policy dialogue among public and private actors by improving the national PPD institutional architecture and process in Tanzania. Stakeholders and Partners: Chief Secretary, PMO, Ministries, TNBC, TPSF, Best-Dialogue, Chambers of Commerce, Private Sector, Industry and Trade Associations, etc.

27. Cross-cutting: Public-Private Dialogue (PPD) Activities • Build the capacity of the key stakeholders from the public and private sector that should partake in the policy dialogue • Recommend and implement best practices to operationalize PPD • Identify and activate sectoral PPD working groups • Work specifically with TNBC and TPSF on improving coordination

28. Cross-cutting: Public-Private Dialogue (PPD) Activities - Updates • Status: • Recommendations to improve the operational PPD structure are being drafted and discussed with the government. • Next steps: • Brief assessments of 2 sub-national PPD structures (Dodoma and Tanga) • Elaboration of a short set of practical recommendations on how to improve the operationalization of PPD in Tanzania • Build the capacity of the Tanzania National Business Council (TNBC) and the Tanzania Private Sector Foundation on the mechanics of PPD • Discuss and agree on the specifics of a strategic partnership with actors working on PPD at the sub-national level to ensure the synergy between the center and the regions • Raise awareness of the public on the benefits of PPD through media placements (blogs, articles, social media material)

29. Cross-cutting: Gender • Market Failure • Business Environment: Feedback loops between women business associations and government need strengthening as well as better understanding of the obstacles women face with registration and licensing • Tax Administration: Level of formal female-owned or managed firms remains low; formalized ventures may experience additional procedural burdens in the form of harassment, increased bribery, and lack of access to information. Lack of information on how women are affected also problematic • MSMEs: Although female entrepreneurship remains high, quality is low. Female businesses stymied at the micro/small levels due to lack of financing, soft skills, networks, etc. • Agribusiness: Women, particularly in horticulture, remain a high percentage of the labor force (aprox. 90%), but remain in low-skilled work. Lack of access to land ownership due to culturally patrimonial community land ownership remains problematic • Trade Logistics: Female small-scale cross border traders in the Great Lakes region experience higher transaction costs and sexual harassment due to their vulnerability at customs sites. Research also show that Tanzanian women-owned or managed firms that export remain small and less competitive than their male counter-parts • Objective:To enhance the business environment for women business owners, increase their voice in policy and decision making and address impediments that hinder their participation in agriculture and tourism. Stakeholders and Partners: Gov: PMO, relevant line ministries; Key Stakeholders: TPSF, TNBC, women membership organizations

30. Cross-cutting: Gender Activities • Potential Interventions • Business Environment: Increase PPD mechanisms between WBAs and government. • Collaborate with DANIDA on their local investment climate programming between women entrepreneurs and LGAs. • Tax Administration: Collect gender-disaggregated data on how tax procedures that favor MSMEs affect women owned and managed firms v. men. • Provide tax literacy training targeted towards women-firms who may have difficulties understanding or accessing complicated tax administration information. • Collecting data on whether women owned/managed firms face particular procedural obstacles when paying their taxes (e.g. harassment, higher instances of bribery, difficulty accessing information) than men (focus group, questionnaire, interviews of tax officials and women entrepreneurs). • MSMEs, Agribusiness and Tourism: Develop female-focused business incubators (with a focus in agribusiness and tourism) to grow and scale MSMEs and eventually link products and services to global value chains (e.g., via WeCONNECT certifications).

32. Tanzania BEES Team Members