The World Bank Group in Tanzania
Chapter 3 | Support to Private Sector Development in Tanzania
Highlights
The World Bank Group identified the main constraints to private sector development through extensive analysis and surveys. Bank Group support addressed some of the main constraints in access to energy, access to finance, and availability of the skills demanded by Tanzanian firms.
Bank Group support contributed to increasing electricity access for firms and adapted to the government’s change of interest in policy reforms away from support for private sector participation in the electricity sector, which disrupted Bank Group programs.
Both the World Bank and the International Finance Corporation targeted constraints to finance for firms and achieved positive outcomes by increasing mobile finance and credit information services. Yet lack of attention to demand-side factors limited outcomes.
The purpose of this chapter is to evaluate the Bank Group’s support to boosting private sector development in Tanzania. The chapter assesses the relevance and effectiveness of the Bank Group’s efforts to boost private sector development by improving electricity access, increasing access to finance, and improving job skills.
The Bank Group identified several private sector development constraints during the first strategy period. The Bank Group conducted several Investment Climate Assessments between 2004 and 2014, including two countrywide analyses (2004 and 2014) and a pilot rural, micro, and small manufacturing enterprise Investment Climate Assessment in Zanzibar (2007). At the beginning of the evaluation period, firms reported that the biggest obstacles to private businesses in Tanzania were corruption, access to finance, access to electricity, informality, tax regulations, and availability of skills. Private sector development constraints affected Tanzania relatively more than they affected the rest of Sub-Saharan Africa (figure 3.1). The differences were particularly pronounced for availability of skills, which was identified by more than twice as many Tanzanian firms (as a share of all firms) as a constraint to doing business than the average for firms in Sub-Saharan Africa. The judicial system, licenses, and labor regulations were also more problematic for firms in Tanzania than in Sub-Saharan Africa. Weaknesses in financial intermediation were reflected by the fact that 83 percent of Tanzanian firms relied on internal finance for investment (compared with 78 percent in Sub-Saharan Africa) and only 15 percent of firms reported a bank loan or line of credit (compared with 24 percent in Sub-Saharan Africa). More than a quarter of firms in 2013 operated entirely outside the banking system, without a checking or savings account. Firms were also hampered by inadequate electricity supply, which led to more power outages in Tanzania than in Sub-Saharan Africa (9.2 compared with 8.3 in a typical month). Given the importance of human capital for long-term growth and poverty reduction, at the beginning of the evaluation period, Tanzania had among the lowest indicators of education achievement in Africa, with an average of five years of schooling in its adult population and about a 2 percent tertiary enrollment rate.
Figure 3.1. Factors Identified by Tanzanian Firms as Constraining Their Development
Figure 3.1. Factors Identified by Tanzanian Firms as Constraining Their Development
Source: World Bank 2014a.
Note: SSA = Sub-Saharan Africa.
Bank Group support addressed most of the constraints except for informality. Corruption—the most often cited constraint to doing business in Tanzania—was part of the World Bank support in both strategy periods. In line with the government’s strong anticorruption commitment, the FY12–15 CAS aimed at curbing corruption by focusing on improving service delivery, such as enhancing bureaucratic processes, tax policies and tax administration, and the efficiency and transparency of public management. In the second part of the evaluation period, the new administration’s stance on corruption became even stronger with the adoption of a “zero tolerance” policy. The FY18–22 CPF continued strengthening public sector capacity to deliver public services to businesses, including by facilitating access to service delivery information to empower citizens to voice their opinions on public sector providers by leveraging information and communication technology. The second most cited problem was access to affordable and reliable electricity; this was followed by informality, taxes, and lack of worker’s skills.
World Bank Group Support to Improve Access to Electricity for Private Firms
Firms considered lack of access to reliable and affordable electricity to be a major impediment to doing business. At the beginning of the CPE period, the power sector was suffering from a growing power generation deficit. This was caused by the country’s heavy reliance on hydrogeneration, insufficient water levels (along with reliance on one major river basin for over half of the installed hydrogenerating capacity), and insufficient development of new generation capacity. Several business surveys and reports from the World Bank and other institutions indicated that the accessibility, quality, and affordability of electricity in Tanzania was a major constraint to private sector development (World Bank 2014a, 2017b). The situation of the energy sector called for a major expansion of generating capacity, coupled with investments in transmission and distribution, to reduce energy transmission losses. To meet these challenges, the government of Tanzania proposed a mix of private and public sector financing options. In 2014, the government approved a new Electricity Supply Industry Reform Strategy and Roadmap 2014–25, which envisaged, among other initiatives, greater private sector participation in both generation and distribution.
Relevance of World Bank Group Support to the Energy Sector
The Bank Group addressed the two constraints of energy access and quality. The Bank Group, the largest development partner to finance the energy sector, aligned its focus to the constraints identified by the government strategies by increasing generation capacity and upgrading and expanding transmission and distribution infrastructure during both strategy periods. The Bank Group’s efforts to promote the exploration and use of natural gas was part of the strategy to diversify the sources of power generation away from dependence on hydro sources. Whereas the support to gas-powered energy generation was more environmentally friendly than the alternative diesel-powered energy generation used during periods of droughts, the strategy also included expanding renewable energy sources (solar, wind, mini hydro), some of which led IFC to promote private sector participation initiatives.
The Bank Group leveraged both public and private sector support to build energy infrastructure. The lending program to Tanzania’s energy sector over the evaluation period included 10 operations financed by the World Bank and 3 by IFC for a total commitment of $1.7 billion. Investment projects supported grid and off-grid (renewable) infrastructure development. Regional operations were to allow Tanzania access to a huge and competitive power market via the Southern African and Eastern African Power Pools.1 DPOs included prior actions to (i) reduce the cost of power supply and promote private participation in the sector through improvements in operational efficiency and use of key performance indicators and (ii) strengthen the policy and institutional framework for managing the country’s natural gas resources by supporting the adoption of a national Natural Gas Policy, as well as measures to verify the amount of the country’s gas reserves. These investments were accompanied by a capacity-building operation to promote public-private partnerships for augmenting power generation.
The Bank Group complemented its lending program with relevant analytic and advisory activities in the energy sector. On the World Bank side, advisory services focused on initiating a policy dialogue on the gas sector and the preparation of a Gas Economic Policy Note (World Bank 2014b) for Tanzania on the potential growth impact from natural gas. By following this approach, engaging in advisory services as an entry point for advancing energy sector policies, the Bank Group adopted one of the lessons from IEG’s evaluation World Bank Group Support to Demand-Side Energy Efficiency (World Bank 2023d). The Bank Group also provided technical assistance on the development of public-private partnership activities. IFC’s advisory services focused on promoting the increased competitiveness of firms in the energy market by developing a commercial market for off-grid solar products and an increased renewable power generation.
Bank Group support in Tanzania was relevant to the objective of improving access to electricity. Improved access to electricity was part of most operations’ project development objectives in the energy sector. The Bank Group addressed the key constraints of availability and reliability of energy through investments to (i) commission additional generation capacity in gas-fired and renewable energy facilities, (ii) build up cross-border transmission capacity to achieve regional integration, and (iii) rehabilitate and expand transmission and distribution infrastructure. For example, the Backbone Transmission Investment Project, whose project development objective consisted of increasing the availability and reliability of grid-based power to the northern regions of Tanzania, was designed against the backdrop of the Power System Master Plan, which had identified areas of future load growth from economic activity in the north, with most of the generation capacity (hydro and gas) located in the south. Two of these operations were evaluated by IEG, which rated their objectives as highly or substantially relevant. Furthermore, IFC’s currently active PanAfrican Energy project, with the aim to improve the availability and reliability of natural gas supply, is of national strategic importance because the Songo Songo gas field supplies nearly half of Tanzania’s grid electricity generation.
The Bank Group supported the quality and reliability of energy services mostly through three projects. Improving quality (that is, voltage fluctuation) and reliability in urban load centers was a key part of the project development objective of the Tanzania Energy Development and Access Expansion Project, the Backbone Transmission Investment Project, and the Zanzibar Energy Sector Transformation and Access Project. Key activities designed to achieve an increase in the quality and reliability of power included investments in (i) high-voltage transmission lines and the rehabilitation and upgrading of substations, (ii) renewable energy battery-storage infrastructure for grid support, and (iii) installation of supervisory control and data-acquisition grid monitoring and control systems. The first two of these projects, which provided equipment to upgrade substations and install high-voltage transmission lines, were evaluated by IEG (ICRR and Project Performance Assessment Report) and rated substantial for relevance of design.
Effectiveness of World Bank Group Support to Improve Access to Energy
During the evaluation period, the Bank Group helped increase the access to, stability, and reliability of electricity services through successful infrastructure projects. Projects that were successful or are on track to having successful outcomes are mostly those involving investments in hard infrastructure, such as the construction of transmission backbone infrastructure and rehabilitation of distribution networks. Similarly, IFC’s financing of investments in four natural gas wells (PanAfrican Energy project) is near closing and has been performing satisfactorily as it is expected to result in improved delivery of critical gas supplies from the Songo Songo gas fields to downstream power producers. This is consistent with the results of business surveys conducted by the World Economic Forum in Tanzania. The data show an improvement in the rating of the quality of the energy services over the 2012–17 period (latest available data; WEF 2012, 2017).
Although progress in the electricity sector was achieved during the first part of the evaluation period, it slowed in the later part. In the first part of the evaluation period, access to electricity increased from 2.5 percent in 2010 to 33 percent of the population in 2016, and reliability improved, with end user voltage increasing from 190 volts in 2010 to 220 volts by December 2015, above target (World Bank 2018b). Later in the evaluation period, generation capacity did increase; however, not significantly. Installed capacity had increased to 1,608 megawatts, 60 percent of which came from natural gas and 39 percent from hydrogeneration, thereby succeeding to some extent in diversifying away from the earlier dependence on hydro sources. However, nonresidential connections to electricity did not reach their target.2 Transmission and distribution lines constructed or rehabilitated under the program were less than half of the target. The first and second Power and Gas Sector DPOs that had the intention to promote private sector participation in the sector and develop an institutional framework for managing the country’s gas resources did not achieve their objectives. The goal of promoting greater private sector participation stalled after 2016, and the DPOs received a moderately unsatisfactory rating for overall outcome by IEG. The Tanzania Utility Strengthening Project (scheduled for FY19) did not materialize because of lack of interest from the new government, leaving the objective of improving sector operational performance unfulfilled. In addition, despite some progress, renewable energy generation capacity had fallen way behind the CPF target by 2022.
In response to the government’s waning commitment to policy reforms, the Bank Group adapted its approach in the energy sector. Interviews with task team leaders and the country director reveal that the World Bank made efforts to adapt its approach, moving away from policy-oriented operations and concentrating on infrastructure operations to improve connectivity. This was in the hope that continued improvement of access would help enhance sustainability and the role of the private sector in energy generation. The Bank Group also saw an opportunity to move the program forward by focusing on support to Zanzibar (as with the Zanzibar Energy Sector Transformation and Access Project), as the local government there had historically greater autonomy of action and was more willing (post-2016) to support private sector participation in renewable energy generation.
World Bank Group Support to Improve Access to Finance for Private Firms
Tanzania’s banking system faced scale and efficiency challenges at the start of the evaluation period (IMF 2010). Credit to the private sector as a share of GDP was lower in Tanzania compared with regional peers (figure 3.2). The 2013 Enterprise Survey confirmed that Tanzanian firms relied mainly on retained earnings and informal sources for financing, with bank loans and trade credits meeting just a fraction of their financing needs (World Bank 2014a). Smaller firms encountered more difficulties in accessing loans and overdraft facilities and relied more on nonfinancial institutions (financial nongovernmental organizations, savings and credit cooperatives, and money lenders) to finance their investments and operations. The inability to access finance, especially long-term finance, was a major reason behind the inability of small firms to grow and create good jobs.3
The World Bank’s analytic work identified access to finance as a key private sector development constraint. The 2014 Country Economic Memorandum, Tanzania: Productive Jobs Wanted, identified the constraints to access to commercial lending by Tanzanian firms on both the supply and the demand side (World Bank 2014c). Demand-side constraints included lack of financial education, lack of regular income, borrowing mostly for consumption, and negative perceptions on the quality of financial services offered. Tanzania Economic Update: Money Within Reach—Extending Financial Inclusion in Tanzania delved into actions to deepen financial inclusion and expand access to affordable long-term credit (World Bank 2017a). The 2018 Financial Sector Assessment updated the findings of the 2010 Financial Sector Assessment Program report (IMF 2010) and provided a detailed analysis of the measures needed to improve access to finance by the enterprise sector (IMF 2018). These findings were augmented by other World Bank and IFC analyses conducted as part of lending or technical assistance. The World Bank’s analytic work, together with academic literature and interviews of stakeholders, identified the following priorities to improve access to finance for enterprises in Tanzania:
- High credit risk faced by small firms. The difficulty of obtaining financial information about potential borrowers raised the risk and cost to commercial banks of extending credit to small firms. Further, inadequate secured transaction systems prevented entrepreneurs with insufficient fixed assets, particularly women, to meet the collateral requirements to access credits.
- Incomplete supply of financial products and mobile financial services. Available financial products favored mainly entrepreneurs or companies with fixed assets. Micro, small, and medium enterprises (MSMEs) and rural enterprises often found that banks did not have products and services designed for their businesses. Further, the nascent capital market was not playing its traditional role of long-term resource mobilization.
- Limited trust between financial service providers and customers. Limited financial education among potential borrowers and weak protection of consumers’ rights contributed to a lack of trust.
Figure 3.2. Domestic Credit to Private Sector
Figure 3.2. Domestic Credit to Private Sector
Source: World Development Indicators.
Figure 3.3. Results Chain of World Bank Group Support to Improve Access to Finance in Tanzania
Figure 3.3. Results Chain of World Bank Group Support to Improve Access to Finance in Tanzania
Source: Independent Evaluation Group (based on World Bank documents).
Note: CMSA = Capital Markets and Securities Authority; MSMEs = micro, small, and medium enterprises; TMX = Tanzania Mercantile Exchange.
The Bank Group developed strategies to overcome these constraints to finance. Both the FY12–15 CAS and the FY18–22 CPF focused on strengthening the soundness of the financial sector, increasing access to financial services and financial inclusion, and building the foundations for long-term finance. Figure 3.3 outlines the results chain of Bank Group support to improve access to finance in Tanzania during the evaluation period. It shows that the Bank Group targeted all three key constraints to access to finance with several interventions, aiming at improving the availability and use of financial products to increase credit to Tanzanian firms.
Relevance of World Bank Group Support to Improve Access to Finance
The Bank Group was relevant in supporting Tanzania’s credit information system. With advisory services from IFC and technical and financial support from the World Bank and other partners, Tanzania had put in place a credit reporting regulatory framework, drawing participation of most regulated deposit-taking entities in the system. The 2014 additional financing for the Private Sector Competitiveness Project supported the development of reporting standards for microfinance institutions. During 2014–18, IFC provided advisory services to support the integration of microfinance institutions and other lenders (for example, finance companies and cooperative societies) into the credit bureau system. The technical assistance focused on helping the credit bureaus and lenders improve data quality, develop a strategy for integrating the nonregulated entities into credit reporting, increase awareness and education among the lending community on credit reporting, and strengthen the capacity of the Bank of Tanzania to exercise oversight over the system.4 Bank Group support was highly relevant for enhancing credit risk assessment and lowering transaction costs for customers and providers alike.
However, Bank Group support did little to expand the range of collateral options, despite recognizing their relevance for small firms. The additional financing for the Private Sector Competitiveness Project did not implement the planned activities to address the weakness of the collateral system—the only demand-side activity. A trigger for the second operation of the Business Environment and Competitiveness for Jobs DPO series would have supported submission to parliament of the Secured Transactions Act to expand sources of available collateral, but the operation was canceled in 2017.
The Bank Group supported the interoperability among mobile money service providers to develop mobile financial services. The 2014 additional financing for the Private Sector Competitiveness Project supported the development of standards for supervising mobile financial services. The first operation of the 2015 programmatic series of the Business Environment and Competitiveness for Jobs DPOs had a prior action to support the creation of a unified legal framework for payment systems. In addition, IFC provided Scheme Rules advisory services during 2014–18 to develop standards and regulations for interoperable mobile financial services and a marketing campaign to increase interoperable peer-to-peer transactions. These interventions were relevant for expanding mobile financial services in Tanzania—a key component of promoting financial access.
IFC’s support improved mobile money and merchant payment networks, which proved important during the COVID-19 pandemic. During 2019–22, IFC partnered with Vodacom Tanzania—the largest telecommunication and mobile money services provider in the country—to carry out extensive marketing campaigns that focused on customer acquisition, agent network management, merchant acquisition, and digitization of payments. In 2022, IFC renewed its partnership with Vodacom Tanzania to improve the use of digital payment services by increasing merchant payments acceptance and building the customer and merchant value proposition through new product development, merchant management, and training activities. These interventions were highly relevant, especially as the COVID-19 pandemic underscored the need for digital financial services as the most effective way to facilitate access to finance to MSMEs.
The Bank Group was also relevant in supporting the development of capital markets to expand long-term financing opportunities in Tanzania. In 2014, the Bank Group supported the establishment of Tanzania Mercantile Exchange (TMX) as a company under public-private partnership among the government, public institutions, and the private sector and licensed by the Capital Markets and Securities Authority. The Bank Group also provided technical assistance to upgrade the Automated Trading System and the Central Depository Security System at the Dar es Salaam Stock Exchange. Further, as an additional vehicle to deliver long-term financing to SMEs, in 2015, the Bank Group provided technical assistance to the Bank of Tanzania to develop a supervisory framework for leasing. Given the growing demand for long-term financing to SMEs, these interventions were timely and relevant for promoting access to different sources of finance by firms.
IFC was relevant in supporting several initiatives to deepen financial inclusion and increase financial access. This included the introduction of several financial products to increase access to finance for SMEs, notably women-owned SMEs. IFC’s engagement in Tanzania included support to SMEs through trade financing (guarantees), a warehouse finance facility, and an agricultural commodity financing facility and local currency facility to help expand the lenders’ reach in MSMEs. These investments were accompanied by IFC advisory services aimed at strengthening the lender’s ability to assess SME credit risks. Supporting women-owned SMEs was an important component of IFC engagement and resulted in an IFC subscription to a gender bond issued by the National Microfinance Bank (NMB) in 2022 to provide access to finance for women-owned SMEs. It was the first gender bond in Sub-Saharan Africa. All this engagement was conducted thanks to a long-term partnership with two systemic banks, CRDB (formerly known as the Cooperative and Rural Development Bank) and NMB, which had the largest branch network in the country. In addition, IFC provided advisory services to the National Bank of Commerce to strengthen its ability to serve SMEs by designing a new SME business model, improving SME credit-related processes, and training staff to effectively serve the targeted SME segments. IFC also invested in greenfield projects to nurture homegrown banks to serve the lower- and middle-income strata of the society and MSMEs by providing technical assistance and grant funding.
IFC provided the bulk of the Bank Group’s support to increasing access to finance, and World Bank lending no longer focused on this area during the second strategy period because of lack of interest by the new government. The Bank Group supported Tanzania to address the constraints to access to finance, but World Bank lending ceased during the second strategy period as overall engagement in private sector development by the new government deteriorated. Yet IFC found opportunities to more than double its investment volume through large commitments in 2021–22 to two of the largest banks in Tanzania, which accounted for half of IFC’s total portfolio during the evaluation period.
Effectiveness of World Bank Group Support to Improve Access to Finance
Bank Group support contributed to reducing nonperforming loans by improving Tanzania’s credit reporting system. In 2012, with technical assistance from IFC and financial support from the World Bank and other partners, Tanzania launched a credit reporting system that included a central bank–managed Credit Reference Databank and two licensed private credit bureaus, which pulled data from the databank to create credit reports. The establishment of the credit reporting system filled a key gap in Tanzania’s financial infrastructure (IMF 2010). By the end of 2013, most of the licensed banks in the country were participating in the system. With further technical assistance from IFC, the Bank of Tanzania and the lenders worked to improve data quality and incorporated microfinance institutions into the credit reporting system with the 2018 Microfinance Act.5 Available statistics and feedback from Bank of Tanzania officials confirmed that the greater availability of accurate credit information made a significant contribution to reducing nonperforming loans (figure 3.4, panel a). Improvements in credit information depth and credit bureau coverage are also evidenced by the Doing Business indicators on getting credit. Tanzania achieved its best score among all the areas measured by the Doing Business indicators in the indicators of getting credit. However, the new government in 2016 canceled the Secured Transactions Act, and there was noncompliance of some banks and microfinance institutions to submit credit data (of the more than 700 microfinance institutions, only 10 are submitting credit data currently; figure 3.4, panel b).
IFC effectively created interoperability standards for mobile financial services through a facilitator role. One of the key factors that facilitated the development of mobile money in Tanzania was the introduction of interoperability arrangements among the mobile money providers in 2015, which provided an additional incentive for vendors and customers to sign up for mobile money accounts. With funding from the Bill & Melinda Gates Foundation and the Financial Sector Deepening Trust, IFC helped ensure buy-in from key mobile network operators, banks (CRDB and NMB, both IFC clients), and the regulator and achieved results above expectations (figure 3.5). IEG rated the project’s outcome achievement satisfactory, its impact achievement excellent, and its development effectiveness successful.
Figure 3.4. Commercial Banks’ Nonperforming Loans–to–Total Gross Loans Ratio in Tanzania and Doing Business Indicators on Getting Credit (Credit Bureau Coverage)
Figure 3.4. Commercial Banks’ Nonperforming Loans–to–Total Gross Loans Ratio in Tanzania and Doing Business Indicators on Getting Credit (Credit Bureau Coverage)
Sources: Doing Business Indicators (database), World Bank, http://www.doingbusiness.org; Statista.com.
IFC helped accelerate merchant payments and expand mobile financial services in Tanzania. IFC supported mobile financial services by identifying and supporting a strategic partner, Vodacom. As a result of this partnership, Vodacom Tanzania was able to turn a disorganized and unprofitable payment business into one with a segmented approach to and cluster-based management of merchant acquisition, branding, value-added services, pricing, and performance tracking. This allowed Vodacom to expand its M-PESA (mobile pay) business exponentially (table 3.1). Further, the enhanced interoperability also paved the way for mobile financial services to expand from payments to credits. Working with commercial banks, Vodacom started offering loan products to MSME merchants and plans to launch stock financing to distributors. This experience also had a demonstration effect and inspired other mobile operators and financial institutions to introduce similar products and services.
Figure 3.5. Account Penetration and Financial Access in Tanzania
Figure 3.5. Account Penetration and Financial Access in Tanzania
Source: World Bank 2017a.
Note: OECD = Organisation for Economic Co-operation and Development.
Table 3.1. Monthly Vodacom M-PESA Growth
|
M-PESA Growth |
2019 |
2022 |
|
New merchants (no.) |
2,000 |
17,000 |
|
Active new merchants (no.) |
1,000 |
10,000 |
|
New subscribers (no.) |
40,000 |
100,000 |
|
Value of transaction (T Sh, millions) |
150 |
790,000 |
|
Revenue (T Sh, millions) |
200 |
3,800 |
Source: Vodacom Tanzania.
Note: M-PESA is a mobile banking system operated by Vodacom Tanzania.
Despite positive contributions, IFC’s projects did not achieve several of their objectives. An IFC advisory services project received a development effectiveness rating from IEG of mostly unsuccessful because CRDB decided to prioritize the development of the rating tool over other components (that is, risk management practices and asset quality) and because the increase in loan issuances (by nearly 50 percent) was hard to attribute to the advisory services project.6 In addition, although CRDB and NMB enjoy the largest branch networks in Tanzania, their rural outreach was deposit taking only,7 limiting the impact of IFC’s strategic partnership with these large banks. Despite IFC’s initial capital injection, AccessBank (a microfinance bank) encountered a series of internal and external difficulties, notably government interventions in major cash crops, which negatively affected its performance (for example, decline in number of accounts, outstanding agricultural loans, and portfolio quality).8 IFC investments in other Tanzanian banks were small but also encountered difficulties achieving commercial success at a time when large deterioration of asset quality was also experienced by other financial institutions in Tanzania.9
The Bank Group helped the government set up several elements (governance, pricing, and audit) to develop Tanzania’s capital markets. Bank Group technical assistance, including that from the World Bank Treasury, assisted the government on a variety of issues (such as governance, pricing, redemption, information technology, and audit) related to the development of the local money market and of the retail and government securities markets. Bank Group assistance helped the Dar es Salaam Stock Exchange become self-sustaining rather than dependent on government subsidies and link the Bank of Tanzania central depositary system for government bonds to the stock exchange. The Bank Group’s East African Common Market Scorecard motivated the government to remove restrictions on corporate bonds and opened government bonds to regional investors. IFC’s participation in the bond issuance by the Tanzania Mortgage Refinance Company and the gender and green bonds by commercial banks boosted investor confidence in Tanzania’s capital market and contributed to the success of these bonds.
The Bank Group assisted in the creation of TMX. TMX was inaugurated in 2015 and began operations in 2019. The Bank Group helped TMX prepare the listing of the first commodity, sesame seeds, and cashew nuts, the fourth commodity to be listed. TMX continues to follow the same process that the Bank Group introduced—for example, no commodity is listed until a value chain analysis is done to ensure price discovery and transparency. Nevertheless, Tanzania’s capital market remains small, with 28 companies listed on the Dar es Salaam Stock Exchange and five commodities traded on TMX.
The Bank Group’s activities enhanced consumer confidence in the financial system and promoted formal financial services. The Bank Group provided relevant support to the development of the legal and regulatory framework for new financial products and to the strengthening of financial sector stability and supervision. The Bank Group helped complete the legal and regulatory framework for 25 new financial products. In 2014, the Bank Group supported strengthening financial sector regulation and frameworks for deposit insurance, and in 2022, the First Inclusive and Resilient Growth development policy financing had a prior action on enhancing financial stability and sector resilience through an increase in the share of banks meeting the Basel II and III capital adequacy ratio. These activities helped enhance consumers’ confidence in the financial system and promote greater use of formal financial services, as demonstrated by the significant reduction in female financial exclusion from 30 percent in 2017 to 19.4 percent in 2023 (FinScope Tanzania 2023). However, fostering trust in the financial sector requires not only strengthening the regulatory framework to protect consumers but also educating consumers on financial products. Several interviews with the Bank of Tanzania, the capital market regulator, commercial banks, and private sector associations pointed to the need to further enhance financial literacy among the public to raise awareness of different financial products and the benefits of using the formal financial system to meet their financing needs.
World Bank Group Support to Boost Skills for Private Sector Development
Tanzania’s education system has not provided the skills needed by the private sector. At the beginning of the evaluation period, more than 50 percent of employers in Tanzania rated education as a major obstacle to doing business (Tan et al. 2016). Tanzanian firms faced a deficit in the set of competencies needed to productively work (Tan et al. 2016; World Bank 2015; figure 3.6). These competencies include cognitive skills (such as basic literacy and numeracy), noncognitive skills (also called soft skills, such as teamwork, language, and information technology), and job-specific skills. Tanzania trailed its comparators in completed upper secondary and tertiary education, with only 3.4 percent and 1.7 percent of the working age population compared with, for example, 22 percent and 4.6 percent in Kenya. In addition, learning outcomes were inadequate. A 2012 assessment of children in standard 3 showed that only 26 percent were able to read standard 2 level stories in Kiswahili, and only 44 percent were able to successfully complete standard 2 level multiplication problems (Uwezo Tanzania 2013). Box 3.1 highlights the efforts that development partners have made in supporting education in Tanzania.
Figure 3.6. Firms Reporting Skills as Inadequate Relative to Needs
Figure 3.6. Firms Reporting Skills as Inadequate Relative to Needs
Source: Tan et al. 2016.
Note: IT = information technology.
Box 3.1. Development Partners Supporting the Education Sector in Tanzania
During 2011–22, the World Bank was the largest contributor to education development in Tanzania, providing 58 percent of support or more than US$2 billion (table B3.1.1). The African Development Bank has recently launched a five-year US$34 million support to improve the quality and equity of technical and vocational education and training. Another African Development Bank project (US$12 million) focuses on Zanzibar and seeks to increase youth’s and women’s access to alternative learning and skills training opportunities. The African Development Bank also provides support to entrepreneurs through training on business development and financial literacy. The Canadian International Development Agency supports the government in building the capacity of technical and vocational institutions to deliver effective skills training.
Table B3.1.1. Support for Education by Development Partner
|
Development Partner |
Commitment (US$, millions) |
Share (%) |
|
World Bank (IDA) |
2,073 |
58 |
|
United States |
271 |
8 |
|
Sweden |
265 |
7 |
|
United Kingdom |
183 |
5 |
|
Canada |
157 |
4 |
|
African Development Fund |
84 |
2 |
|
Other development partners |
521 |
15 |
|
Total |
3,554 |
Source: Organisation for Economic Co-operation and Development Creditor Reporting System Aid Activity (database), International Development Statistics (accessed May 31, 2023).
Note: The data exclude aid from China. IDA = International Development Association.
Relevance of World Bank Group Support to Skills Development
The World Bank focused on building human development outcomes through higher education to strengthen the country’s labor skills. The corresponding World Bank portfolio over the evaluation period consisted of projects focusing on tertiary and vocational education—hence, directly addressing private sector needs for a more skilled workforce. The Science and Technology Higher Education Project and subsequent additional financing approved in 2008 and 2016, respectively, aimed at increasing the quantity and quality of higher education graduates with an emphasis on science and technology and on taking into account labor market requirements in higher education curricula. The Higher Education for Economic Transformation Project, approved in 2021, aimed at strengthening the learning environment and labor market alignment of priority programs at higher education institutions and improving the management of the higher education system. In addition, the World Bank supported a PforR to strengthen skills development capacity and labor market–driven skills development opportunities (Education and Skills for Productive Jobs PforR). Technical and vocational education and training (TVET) activities included the development of the National Skills Development Strategy (2016–26) for the development of skills in the fields of science and technology, several assessments on the TVET system, human resources needs, and a quality assessment.
World Bank support for skills development focused on improving the access to and quality of higher education and vocational training. In the early years of the evaluation period, the World Bank concentrated on raising the number and quality of higher education graduates, with special emphasis on science and technology, and laying the foundations for improved responsiveness of tertiary education to the labor market. World Bank support moved to strengthen the institutional capacity of Tanzania’s skills development system and to promote the expansion and quality of labor market–driven skills development opportunities in select economic sectors. In 2021, World Bank support focused on strengthening the learning environment and labor market alignment of higher education institutions and improving the management of the higher education system. During the review period, World Bank support focused on the two areas of quality and access, as illustrated in table 3.2, which presents the number of interventions focusing on each area.
Project design ratings confirm the relevance of World Bank support to skills development. The ICRR for the Science and Technology Higher Education Project was given a relevance of design rating of substantial (World Bank 2016b). The project responded to the immediate need for improved skills in the workforce—namely, in the areas of science, technology, math, and English—and supported several activities that strengthened links between higher education institutions and the private sector.
Table 3.2. Challenges to Tanzania’s Skills Development System Addressed by World Bank Projects
|
Challenges |
Projects Addressing Challenge (no.) |
|
|
Absence of incentive mechanisms |
||
|
Quality and access |
Lack of incentives for teachers and school administrators |
3 |
|
Quality and access |
School managers lacking incentives and skills |
2 |
|
Quality |
Identification of weak students |
1 |
|
Inadequate working conditions |
||
|
Access |
ICT systems and libraries |
2 |
|
Access |
Information systems |
2 |
|
Quality and access |
Learning environment |
3 |
|
Inadequate resources and competencies |
||
|
Quality |
Inadequate teacher skills |
4 |
|
Quality |
Math, science, and English instruction |
1 |
|
Quality |
Professional development of teachers |
2 |
|
Access |
Delivery mechanisms for capitation grants |
1 |
Source: Project Appraisal Documents.
Note: ICT = information and communication technology.
Effectiveness of World Bank Group Support to Skills Development
World Bank support helped create a more skilled labor force for the private sector. Closed projects show the achievement of their objectives. The capacity of the skills development system improved, as reflected in an increase in science and technology graduates from 1,300 to 6,700 by the end of the project period, against a target of 3,000. Similarly, the number of lecturers holding a Doctor of Philosophy degree and a Master of Science degree increased from 564 in 2012 to 2,573 in 2015, above the target of 1,650 (the Science and Technology Higher Education Project; World Bank 2016b). In addition, 135 programs in technical and vocational education were delivered, against an original target of 110 programs. The number of program beneficiaries was estimated at 66,700 in 2021–22, exceeding the target of 44,000. The Skills Development Fund was operational and provided about 45,700 trainees with internships, exceeding a target of 38,000 trainees. Six Sector Skills Councils were established against a target of four, and they were engaging the private sector in developing more than 100 training curricula. Employability of short-term students one year after graduation was estimated at 80 percent, exceeding the 45 percent end-of-program target (Education and Skills for Productive Jobs PforR at completion in 2022; World Bank 2023b).
Several statistics support the positive contribution of the education projects. Surveys of businesspeople in Tanzania over the 2012–17 period report an inadequately educated workforce as less of a constraint (WEF 2012, 2017). At the same time, enrollment in university increased from 38,610 in 2012 to 90,911 in 2022, and the number of university graduates also increased from 46,294 in 2017 to 57,742 in 2022 (figure 3.7). Employment data show an improvement in employment outcomes for university graduates over the evaluation period, with the share of the labor force with university degrees increasing from 1.2 percent in 2014 to 1.7 percent in 2020–21 (NBS 2022).
Figure 3.7. University Admissions and Graduates in Tanzania, 2012–22
Figure 3.7. University Admissions and Graduates in Tanzania, 2012–22
Source: Tanzania Commission for Universities 2022.
World Bank support through TVET prepared youth for a productive working life. For example, TVET providers were able to enroll school dropouts, pregnant girls, and young mothers who previously were banned from attending regular schools. From a target of 224, the number of new courses in science and technology disciplines at participating institutions reached 273. Examples of new courses include Environmental Studies, English and Communication Skills, Biotechnology, Sustainable Energy, Computer Systems Engineering, and Food Quality and Control. The availability of these courses contributed to the enrollment of 9,738 students in science and technology disciplines. Appropriate information and communication technology–enhanced methods identified from pilot experiments were established to improve teacher training (World Bank 2016b, 2023b). In Zanzibar, the Ministry of Education and Vocational Training implemented critical education reforms, such as teacher professional development, inspection, and examination. The projects with IEG-validated ratings received ratings of highly satisfactory, and Implementation Completion and Results Report ratings were highly satisfactory and satisfactory.
Conclusion
Bank Group support to the private sector contributed to the improvement in access to electricity and in the supply of skilled workers in Tanzania, although finance remains a constraint for Tanzanian firms. According to the latest firm-level survey, the share of firms that reported access to energy as a significant constraint dropped from 46 percent in 2013 to 13 percent in 2023 (figure 3.8). Similarly, the share of firms that considered an inadequately educated workforce a significant constraint decreased from 40 percent in 2013 to 1 percent in 2023. Only access to finance remains a significant constraint, with 40 percent of firms identifying it as a significant constraint in 2023 compared with 44 percent in 2013. Similarly, macroeconomic indicators show no significant change in credit access for firms, with the domestic credit to the private sector (percent of GDP) in 2022 remaining at approximately the same level as 2012.
Figure 3.8. Factors Identified by Tanzanian Firms as a Major Constraint in 2023
Figure 3.8. Factors Identified by Tanzanian Firms as a Major Constraint in 2023
Source: World Bank 2023a.
Note: SSA = Sub-Saharan Africa.
- The Tanzania–Zambia Transmission Interconnector.
- A total of 31,524 nonresidential connections were achieved against a target of 80,000 (World Bank 2022b).
- MSMEs are estimated to be 97 percent of the enterprises in Tanzania, the majority of which are informal. Very few micro and small enterprises grow into medium-size businesses (3.7 percent of total). Large firms (more than 100 employees) represent only 0.5 percent of the total enterprises but account for 61 percent of industrial employment (IMF 2018).
- Triggers for the (canceled) third operation would support an action of IFC’s advisory services on the Microfinance Act to provide a legal, regulatory, and supervisory framework for microfinance operations, including credit information sharing requirements.
- “Micro finance banks (Tier 1) are now regulated and supervised by the [Bank of Tanzania],” which has also “put in place the regulations for microfinance institutions (MFIs; Tiers 2, 3, and 4)” (World Bank 2021c, 36).
- IFC’s advisory services (600155) and Evaluative Note (2017).
- Lending of these banks in rural areas is done on a wholesale basis through cooperatives to bypass the challenge of underwriting and monitoring many small loans to farmers.
- Additional difficulties included internal management changes.
- Expanded Project Supervision Report Evaluative Note 2017, FINCA Tanzania 2 (33362) and Expanded Project Supervision Report Evaluative Note 2018, and DTBT (Diamond Trust Bank Tanzania) Tier I and II (31696).