Overview Of Manufacturing Industries
Overview of the research study
Manufacturing is the process of introducing a product or service in the market.
Manufacturing is one of the key sectors of Tanzania‟s economy. Manufacturing sector has a great potential of economic transformation for achieving the growth of economy through its contribution income .The policy emphasizes a need to improve economic infrastructures which have direct connection with industrial activities.
Manufacturing sector should one of the priority sector of economy. The policy emphasizes a need to improve economic infrastructures which have direct connection with industrial activities. The vision recognizes the role of industrial sector in transforming Tanzania from a least developed to a middle income country.
Manufacturing is one of the key sectors of Tanzania‟s economy. Statistics indicate that manufacturing contribution to GDP in 2011 was 10.1%, and over the past eight years, average growth rate of manufacturing sector in the country was 8.4%. In 2010 Tanzania‟s growth rate of GDP was 7.4%, which was lower than the rate of growth of the manufacturing sector (URT, 2012).
Background information to the problem
Manufacturing is one of the key sectors of Tanzania‟s economy. Statistics indicate that manufacturing contribution to GDP in 2011 was 10.1%, and over the past eight years, average growth rate of manufacturing sector in the country was 8.4%. In 2010 Tanzania‟s growth rate of GDP was 7.4%, which was lower than the rate of growth of the manufacturing sector (URT, 2012). The manufacturing sector has a great potential of economic transformation for achieving
sustainable economic growth through its contribution to national income, employment, improvement in the balance of payments and the overall economic development In view of this, manufacturing sector should be one of the priority sectors of the economy.
of the sector is basically in line with the Sustainable Industrial Development Policy 1996-2020 (SIDP) that intends to enhance sustainable development of manufacturing to encourage private sector participation through increased investment in the sector.
The policy emphasizes a need to improve economic infrastructures which have direct connection with industrial activities. SIDP is committed to National Development Vision 2025 that raises a need to develop a diversified and semi-industrialized economy with a substantial industrial sector comparable to typical middle income countries as a way to build strong and competitive economy.
The vision recognizes the role of industrial sector in transforming Tanzania from a least developed to a middle income country.
As the government emphasizes on “Kilimo Kwanza” a Kiswahili connotation for “First Priority is on Agriculture”, manufacturing comes into the picture as one of the areas that need high attention in respect of the backward and forward linkages between the two sectors.
For example, since high value agricultural products (vegetables, spices, fruits, fish, and livestock products) require processing before reaching the markets, enhancing productivity and efficiency in food processing industries is necessary; and effectiveness in domestic production of industrial inputs to agriculture is of paramount importance.
In addition and besides these linkages between industry and agriculture, manufacturing development is of strategic significance to the country‟ international economic relations.
Development of the sector will lead to diversification away from the primary sector, thus reducing risks and vulnerability to the long-term deteriorating commodity terms of trade and the associated loss in real income. It has relatively great possibility of technological transfer and adaptation and creation of technology.
Despite the considerable role of manufacturing sector and great efforts to create a dynamic industrial environment in Tanzania, there have been many obstacles to performance of the sector over a long period of time.
Most initiated manufacturing investments have not survived for long, mainly because of a number of problems including infrastructure, inefficient macroeconomic policies and lack of reliable utilities. In reaction to such constraints, stakeholders of the sector
and in particular, Confederation of Tanzania Industries (CTI) have endeavored to alleviate the notable impediments in manufacturing. As a result, a number of achievements have been recorded in terms of reduction in the cost of doing business in Tanzania, including: removing a number of nuisance taxes and reducing tax rates; improving relationship between the Government and the private sector; streamlining business licensing and procedures; and improving the business legal and regulatory framework.
Notwithstanding these accomplishments, non-availability of adequate and quality electric power at affordable cost remains one of the major problems facing competitiveness of Tanzanian industries.
According to the Stakeholders‟ Forum on Tanzania Power Sector organized by CTI in 2008, high cost of electricity in Tanzania and lack of assured power supply will continue to retard growth of the industrial sector despite many resources available if adequate measures are not taken.
Over the last 20 years, the energy sector has been experiencing challenges which adversely affect electricity generation, transmission and distribution. Specifically, frequent power rationing, outages and low voltage have been affecting consumers of electricity and more particularly, the manufacturers who depend on electricity as one of their main inputs in the production processes.
The estimation made in most literature is that on average, the cost of electricity to the total production cost in industries normally ranges between 15% and 40%.
The leading issue is that despite a pivotal role played by industrial sector in the economy, and besides efforts made so far to iron out encumbrances affecting manufacturing performance; unavailability of assured electricity supply has remained a critical impasse.
Though all stakeholders of energy and manufacturing are concerned about inadequate power supply, there is slow speed of the Government to unraveling manufacturing from setbacks of the shortage and unreliability of electricity supply.
Power supply is characterized by frequent power-cuts, rationing, shortages and low voltage, which in essence entail high production costs to manufacturing firms. This is because some of them either stop production for a number of hours due to unavailability of power, or resort to temporary use of other too costly sources of energy (notably fuel).
Lack of assured electricity supply is one of the major impediments in Tanzania‟s investment climate given that investors are so much concerned about power input in their production processes, both in the contexts of tariffs and supply reliability. The deadlock of
unreliable electricity supply to manufacturing industries seems to have arisen from existence of the non-enforceable energy supply policy. This is a gap that needs to be bridged, and to that end, this study is very instrumental in fast tracking to the solution process
The objectives of this project are divided into main and specific
The objective of this research study is to present facts that can help the government and other stakeholders in improving availability of reliable electric power supply to manufacturers so as to enhance their competitiveness in both domestic and international markets. This is based on the fact that reliable power supply enhances productivity, promotes business development and industrial expansion with a view of improving quality of life to many Tanzanians through formal employment creation in industries inter alia.
This study is a product of policy research for advocacy purpose, thus its concerns are focused to a larger extent on actionable/malleable questions rather than the common theoretical research questions. The study has two main questions searching for the overall reasons and possible solutions to intermittent electricity supply to manufacturing firms in Tanzania:
- What are the major reasons for unreliable electricity supply to manufacturers?
- What can the Government do to overcome the problem of unreliable electricity supply to manufacturers?
The study shows that the major root causes of the challenge of electricity to manufacturers are as follows.
- Policy hindrances
– The country‟s Energy Policy does not explicitly provide enforceable provision for TANESCO (or other energy producers) to assure electricity supply (as an obligation) to manufacturers.
- Poorly coordinated policies that hinder private investors‟ effective participation in the energy sector to compete well with the overwhelming TANESCO monopoly
- Power generation, transmission and distribution problems facing TANESCO:
- The worn out infrastructure amid the unsolved fate of TANESCO privatization
- Insufficient production as TANESCO generates electricity without any reserve margin for any emergency event
- Overdependence on hydro-power production which is susceptible to weather changes; the use of the natural gas alternative could be enhanced to produce electricity as drought leads to water shortages and thus low TANESCO generation capacity
- Significant technical and non-technical losses including: poor transmission infrastructure, too long transmission distances with a lot of drains; and vandalism on the power system infrastructure
- Operational problems causing big losses, dependency on Government capital injections; inefficiency in customer service, long lags in electricity billing and delays in tariffs reviews; most of these problems emanate from the monopoly nature of TANESCO
- Slow implementation of the Power Sector Reforms including restructuring of TANESCO and speeding up implementation of the Electricity Bill of 2008 and the projects developed from the Power Sector Master