Critical Analysis Of The Impact Of Sme's In The Promotion Of Such Business In The Tanzanian Economy.

Critically discuss the impact of SME’s policy in the promotion of such business in the economy and clearly indicate the major hurdles of the policy it had encountered since its inception and suggest the way forwarD.

he Policy on SME’s development was created by the Government in conjunction with other stakeholders to create a conducive macroeconomic environment that will allow SMEs to emerge, survive and grow the reason being SME’s contribute third of the GDP of Tanzania economy. The recent Policy was introduced in 2002.

Since its inception the policy had the following impact on the promotion of business economy;

There have been establishment of a mechanism for handling SME business disputes as well as introduction of tax incentives for SMEs and training and sensitization SMEs on property rights for example through public talks and through BRELA day i.e. Business registration and licencing Authority whereby the officials gave speech on the property rights.

To a great extent there’s an improvement to infrastructural facilities which provide a basic support for the growth of the sector likewise there is development in teaching entrepreneurship through education and training and fostering pro-active entrepreneurship attitude within the civil service and local government service.

There have been introduction of measures that help in reducing the risks and transaction costs of lending to increase competition in the financial sector and strengthen the capabilities to serve small and medium enterprises. The government will provide seed capital and other financial resources for SMEs. Local government authorities will allocate and develop areas for use of SMEs.

In the non-financial services sector, the Government has been able to encourage and support market development and thus has facilitated greater demand and supply of BDS. The government has supported the establishment and strengthening of extension services for the SMEs.

The Government has promoted consultations and had entered into partnership with the private sector by ensuring appropriate representation of SME relevant issues on the agenda of the Tanzania National Business Council.

The Government has facilitated the acquisition and adaptation of technologies as well as it enhances networking between R&D Institutions and SMEs in a bid to upgrade technologies so as to raise the productivity and competitiveness of the sector through facilitating joint ventures aimed at enhancing technology upgrading and transfer.

There have been creations by the government of support programmes aiming at improving SMEs’ access to market such as promotion of business linkages between large and small enterprises as well as SMEs participation in local and international markets through trade fairs and missions for example Trade shows at Makumbusho and Mnazi Mmoja, Sabasabasa and Nanenane.

Further liberalization of financial sector is another effect of the policy. The Government has liberated the financial sector to and allowed financial institutions and other banks to ask for loan from the BOT to assist the SME’s owners to have access to financial help. For example there have been multiple establishments of financial institutions to that effect such as Smart, Blue financial services, Bank M, Access Bank and so on.

Despite its impact on the promotion of SME’s business, the policy has faced the following hurdles as explained hereunder:

Financial constraint, the policy has failed to be fully implemented due to financial problems. Since the Government for a long time now has been busy paying external debts, thus giving a little help or aid to the SME’s sector.

Another hurdle the policy has faced is the unclear and measurable goals. This is because the policy has covered a wide area of SME’s and the time frame provided was not enough since Tanzania and those responsible firms have other things to take care of thus it is difficult for the policy to be fully implemented.

Despite of various interventions aimed at improving the business environment in Tanzania, the legal and regulatory framework is bureaucratic, costly and centralised. These characteristics of the legal and regulatory environment affect all sizes of businesses adversely. However, SMEs are further constrained in this environment in comparison to larger businesses due to the disproportionately heavy costs of compliance arising from their size. As a result most of informal enterprises have failed to formalise and micro enterprises have been unable to grow and graduate into Small and Medium Enterprises.

The tax regime in Tanzania is also unfavorable for SMEs development. Taxes are many, rather high and collected by various authorities including Tanzania Revenue Authority and the Local Government Authorities. Furthermore, entrepreneurs are ignorant of tax matters and the cost of complying with tax regulations is considered high. Whereas taxation of businesses is a necessity for national economic development, the present tax regime imposes a major burden on SMEs.

The poor infrastructure in Tanzania including working premises, roads,