The History of Entrepreneurship in Tanzania – 3 Distinctive Eras in Perspective

In a previous post, we established the difficulties in constituting definitions of entrepreneurship. In this article, we explore three eras of entrepreneurship in Tanzania. This historical context begins during colonial times, goes through independence, socialism, and finally, the current industrial economy era.


1. During the Colonial Era

During colonial days, totalitarian rule continued. Indigenous productive activities were suffocated by colonial regulations and competition from imports. Throughout the colonial period, a consistent policy was adopted to keep the colony as a producer of raw material for use in industries in Europe, and, consequently, dependent on manufactured goods from colonial masters. There was also a deliberate policy to limit participation of indigenous Africans, and to a lesser extent, Asians, in business activities.

Thus, manufacturing, importing and exporting, banking and insurance were mainly done by Caucasians. Asians, most of who had been brought in to work as clerks during railway construction projects in the early 1960s, were encouraged to operate as sub-wholesalers and retailers. Arabs operated mainly as retailers.

Africans participation in business was restricted to very small firms, such as dukawalas (tiny shops). Except for a few offspring of chiefs, the few Africans who went to colonial schools received only elementary education to enable them to understand clerical and other very low duties in the public and private sector. Therefore, at independence, the indigenous population was just as marginalized in their own country as the economy was in the international market. For example, in 1961, about 34,581 Africans and 7,500 Asians held retail trading licenses, but Asians handled well over two-thirds of the trade volume (Rweyemamu, 1979).

Market Entrepreneurship in Tanzania

Economic and social marginalization of Africans was part of a deliberate colonial policy of dis-empowering the indigenous population and hence making it easy to rule. Africans were made to believe that they were “naturally” inferior to other races and everything African was backward. Naturally, this environment had a negative effect on development of entrepreneurial values and competencies, including self-esteem, a belief in the ability to make things happen, confidence, initiative, aggressiveness, etc.

However, the social and economic context created in various parts of the country presented different opportunities for the development of entrepreneurship in Tanzania. For example, European missionaries and farmers settled in some mountains areas of the country (Kilimanjaro, Tukuyu, Bukoba, Songea etc), where they introduced Christianity, education and commercial agriculture. They also encouraged the local population to cultivate commercial crops and to establish cooperatives.

This development not only inspired the local population and exposed to new desires and opportunities, but it also led to land shortages which forced them to think and act in non-traditional ways in pursuing of livelihoods and “success.” Logically, the meaning of “success” to an offspring of a peasant farmer laboring every year for family subsistence will be vastly different from another who has experienced commercial farming, is aware of the possibilities and benefits of formal education and at the same time is aware that he will not have enough land even for his family’s subsistence as he grows up.

2.   Post-independence and Socialist Era (1967-1985)

Tanganyika’s first five-year development plan (1961-1966) envisaged developing the economy by attracting foreign direct investment (FDI). Towards the end of the five-year period, it was apparent that the expected FDI was not flowing in as expected. There was also a concern that not much had been achieved by way of redressing the legacy of the marginal position of Africans in the economic field left by the colonial government. The leadership started looking for alternative development strategies.

In 1967, the government officially adopted a radical transformation to a socialist development strategy, through the Arusha Declaration. Activities categorized as constituting the “commanding heights” of the economy, including banking, import-export, insurance, large houses, farms, schools, hospitals, etc were also nationalized. The government invested heavily in the nationalized entities as well as new ones.

Consistent with the socialist policy, private business entrepreneurship in Tanzania was actively discouraged in favor of government, community-based or co-operative-owned ventures. Regulations were introduced to bar civil servants and leaders of the ruling party from engaging in business activities. Since all educated Africans were civil servants, this means that, business activities were left to Asians and those indigenous people who had no job opportunities, and these tended to be people who had no substantial education.

Theoretically the socialist policy encouraged peoples’ participation in decision making. However, in practice, the government embraced a centralized; mainly top-down decision-making approach. It made a whole range of decisions, from who should go to which school or college, where one had to live, crops to be grown, their prices and where they should be sold, salary levels, etc. a culture of dependency on the state and unquestioning obedience took root in all walks of life. This must have contributed to stifling development of entrepreneurial values such as initiative, willingness to take risks, need for achievement and related competencies.

The break-up of East African Community in 1977 coincided with a combination of other unfortunate events heralding a long economic crisis in Tanzania. The events included the international oil crisis of the early 1970s and a costly war between Tanzania and Uganda in 1978/79. The economic crisis was manifested by a serious shortage of foreign exchange and consumer products, industrial capacity under-utilization, inflation and decline in real purchasing power among wage earners, forcing them to undertake petty business activities to supplement their meager earnings. Similarly, real crop prices dropped compelling peasants and their dependants to diversify income sources by engaging in small ventures within the rural areas or in urban centers.

The History of Entrepreneurship in Tanzania - 3 Distinctive Eras in PerspectivePin
Entrepreneurship in Tanzania

The response of the citizen to the crisis demonstrated that even the socialist policy had not completely subdued the entrepreneurial agility of the society. Tanzanians from all walks of the life responded to the challenge by establishing makeshift backyard factories, smuggling goods from neighboring countries or hoarding whatever little was available from the local industries and selling the same at exorbitant prices. Others established informal agricultural activities, animal husbandry, retail and other projects to supplement the dwindling formal incomes and take advantage of the failure of state companies to meet the basic needs.

However, this “second economy” met strong resistance from the state which only saw its dysfunctional role. The informal private business activities were seen as being in conflict with country’s resolve to build an egalitarian society, as it created a class which owned no allegiance to the goals of the society (Maliyamkono and Bagachwa, 1990). In 1983, the government implemented a ruthless campaign against “economic saboteurs,’ confiscating property and arresting business operators of different kinds.

As Maliyamkono and Bagachwa (1990) noted, the dysfunctional approach to the second economy failed to distinguish elements within the second economy which constituted potential assets and those which were socially and economically detrimental to the development of healthy economy. The crackdown on economic players in 1983 delayed the social and political legitimization of entrepreneurial activities in Tanzania.

3.   Liberalization and Economic restructuring (1986 to date)

The economic crisis that began in the mid-1970s intensified in the early 1980s, forcing the government to liberalize trade and start implementing a radical transformation programme with the urging and support of the World Bank and the International Monetary Fund (IMF) from 1986. The Economic Restructuring Programme involved liberalization of virtually all sectors of the economy and privatizing and nationalizing employment in the public sector.

Under the ERP, the government gradually changed its economic policy from reliance on state-run enterprises to promotion of foreign investment and local entrepreneurship in Tanzania. The private sector is now seen as the engine of economic growth and the role of government has been redefined to focus on facilitation rather than direct ownership and operation of enterprises.

The reforms did not fully ease the problem of low salaries. On the contrary, the retrenchments, freezing of employment, privatization of state enterprises and disengagement of the government from some activities led to substantial job losses and limited openings for school and college graduates. Their most pronounced effect has been a substantial net increase in the number of people whose only means of survival is self-employment.

Most of those who cannot find jobs as well as salaried workers have, out of necessity, started micro and informal businesses to enable them to eke out a living. Aware of its limitation to help out in the situation, the government started encouraging workers to do so. For example, in 1992, the government deliberately reduced the working week by half a day to give employees more time to engage in income generating projects to supplement their official incomes. This played a significant role in enhancing the legitimacy of activities of entrepreneurship in Tanzania.

Since the mid-1990s, entrepreneurship in Tanzania as a career has been acquiring increasing legitimization. The proportion of individuals consciously choosing self employment, even among the highly educated, has been increasing. For example, while a 1991 survey of the informal sector (URT, 1991) did not record any University graduate, a 1995 study (URT, 1995) recorded 1582 graduates in the sector.

In a 1997 survey of University of Dar es Salaam (UDSM) students by the Faculty of Commerce and Management (FCM,1998), 81% of students indicated that they were interested in setting up their own enterprises. In a tracer study of the FCM Alumni (Kaijage, 2000) “entrepreneurship” was rated second (next only to computer-related courses) among aspects that were very important but not significantly covered in the B Com programme. In a 2004 survey of final year students, Mufa (2005) found that the proportion of those running businesses while studying had increased from 7% in 1997 to 16%.

Marketing, Academic Posts, Learning Resources and Reviews, twice a month.
I hate spam too. Unsubscribe at any time.

2 thoughts on “The History of Entrepreneurship in Tanzania – 3 Distinctive Eras in Perspective”

Leave a Comment