Poverty and Human Development Report 2009 - UNDP in Tanzania

pOVertY aND hUMaN DeVeLOpMeNt repOrt 2009
followed closely by an enabling business environment characterised by ease of entry, expansion
and closure. An environment of reduced uncertainties and costs of doing business, as well as
clear management of government and market failures provides incentives for the private sector
to assume risk.
Tanzania has the advantage of political stability over many other sub-Saharan African countries,
but it has done poorly in creating an enabling business environment. 102 It is important that the
business environment is conducive to efficient use of resources, as well as allowing ease of
entry for new businesses. At a general level, the state needs to ensure a level playing field for
all private business. Competition by firms in the market has proven to be far more effective
against unnecessary monopolistic rent-seeking than any price-setting mechanisms the state
could prescribe and enforce.
However, when promoting the private sector, the state may need to take proactive measures
to develop and nurture the formation of strong national players in the private sector, so that
they may compete effectively with international players. The challenge is to support the
emergence of such national champions without succumbing to political patronage and capture,
all the while maintaining a competitive environment. A good example would be for the state to
support the merger of small national banks to form a larger bank that has broad national reach
and can withstand regional and global competition. Such an intervention may be necessary
while the local business sector is still nascent, particularly where this is aimed at supporting
the development agenda. In the context of ongoing banking and financial reforms in Tanzania
this kind of intervention would not necessarily reduce competition since the number of banks
operating in the country is increasing and competition in the banking sector is rising.
The Market
Developing economies face the challenge of establishing and strengthening incentive structures
and systems to support implementation of the agreed development agenda. These are necessary to
guide development actors (both public and private), and to ensure effective and efficient utilisation
of resources and shared benefits of growth. Governments often use the market as an instrument
for allocating resources because of the market’s capacity to allocate resources efficiently.
Efficient functioning of the market requires strong institutional oversight, the establishment
and enforcement of property rights and contracts, competition and consumer protection, and
information systems to close the gap between buyers and sellers. In developing economies,
oversight institutions are often missing, inadequately equipped to perform their function
effectively, or may sometimes be unrealistic in their demands of the market. This may lead to the
102 To date, the private business sector has generally been viewed as selfishly interested in profit-making at
the expense of the welfare of society, but the contribution of this sector in producing goods and services,
generating employment and public revenue, and providing training and skills development is undervalued.
These widespread negative perceptions among Tanzanians about the contribution of the private business
sector must be reversed.
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