A Policy Position Paper by Maida Waziri[1]
- The position of this paper is that there is an urgent need to address the lacuna in development policies, laws and regulations about cottage (home based) industries. If addressed cottage industries will be able to establish business linkages, partnerships and subcontracting relationships to complement small, medium and large industries.
- Failure to recognize and encourage modern cottage (home based) industries is a recipe for slow economic development and a break in adding value to agriculture and other produce. Tanzania mainland projects to have all villages[1] connected to electricity (national grid) come December 2022. That power should be used for value addition especially in processing, which may result in faster economic development. Tanzania has also made great strides in the rural and urban areas in providing pipe water, good road networks, access to good hospitals, which greatly favours development of cottage industries if legalised and linkages created with the markets, industrial parks, Export Processing Zones, and so on, the industrialisation drive will gain momentum.
- The upcoming micro, small and medium enterprise development policy should have a clear cut position about home-based micro and small industries including a roadmap to enactment of Micro, Small & Medium Enterprises Development Act.
INTRODUCTION
This Policy Position paper is prepared based on the request of the President of the United Republic of Tanzania, who is also the Chairperson of the Tanzania National Business Council (TNBC), Her Excellency Samia Suluhu Hassan. TNBC is a presidential forum for public and private sector dialogue on improving the country’s business environment and investment climate. The President chaired the 12th TNBC meeting[1] in Dar es Salaam, June 25, 2021; with the theme ‘Ufanisi wa Biashara na Uwekezaji katika Uchumi wa Kati’ ( ‘Efficiency of Trade and Investment in a Middle Income Economy’). At the meeting, the author made a position to the TNBC meeting, that, for Tanzania to take giant steps in economic development, it is vital to have policies, laws and regulations that in reality supports the development of cottage and small industries.
According to the author, Tanzania has made giant strides in the provision of electricity to rural and urban localities across the nation. Energy Access Situation Report, published by the National Bureau of Statistics in 2017, indicated that “67.5 percent of the Tanzania Mainland population had access to grid electricity with rural (49.3 per cent) and urban (97.3 per cent).”
The big question, the author poses, how can this power be used to harness development? At home, one of the answers is in the cottage industries. The majority of Tanzanians just use power for lighting and few use it for production. This is a critical issue that needs to be addressed at the policy level. It is a business environment paradigm that is critical for greater national development, that will improve the lives of the majority of Tanzanians. According to the author, local content in business should start at home and create linkages with markets, industrial parks, Export Processing Zones, and so on. The current policy and regulatory framework for the support, formalization, financing and taxation of businesses does not work for cottage (home based industries) which is what most Tanzanians can start with, given their low level of resource and skills endowments. The President of the United Republic of Tanzania directed the author to meet with the Ministry of Industry and Trade to share the position for possible implementation, for the good of the nation.
2. BACKGROUND INFORMATION
The Government of Tanzania, since independence, has strived to promote Small-scale Industries (SSIs). In 1966 it established National Small-Scale Industries Corporation (NSCIC) under the National Development Corporation (NDC). It did not work as envisioned. In 1973 the Small-Scale Industries Development Organisation (SIDO) replaced NDC[2]. SIDO, up to today, provides services as per its mandate. SIDO’s – a parastatal under the Ministry of Trade, Industry and Investment, its objective was to develop the Small-scale Industries (SSIs) in Tanzania. The author would like to acknowledge that SIDO has been very helpful to those who can access its services while establishing small scale industries, especially youth, women and those with disabilities. Nevertheless, for those who want to create cottage industries at home, often, it is not easy to support them, and the law in most cases does not allow manufacturing of most products at home without meeting stringent conditions, which need capital.
One of the significant inherent weaknesses in the policies, laws, and regulations governing Small-scale Industries (SSIs) operations is leaving cottage industries out, their operations and requirements. The establishment of cottage industries (home-based small industries) is almost impossible for lack of support from policies, laws, and regulations since independence. Cottage industries are supposed to evolve into SSIs, then medium industries and then into substantial industrial enterprises.
This Policy position paper outlines issues that the author is convinced that they need attention to and revisit the related policies, laws and regulations, for substantial growth and smooth and successful operations of the cottage industry in Tanzania.
The beauty of the cottage industry is that it just requires some knowledge to start and very little or no monetary capital to take off at the lowest level- home. In most cases, the raw materials used in the cottage industry to manufacture products are available in the surrounding environment. Minimum tools and equipment are needed and in the modern world of small machines, it presents a new dynamic.
The potential of growth for the cottage industry is excellent with support through a conducive business environment. The Tanzanian dream should be for every Tanzanian to be able to start a business operation right from home and grow it into big industrial enterprises to fit into industrial parks and Export Processing Zones and even major out into other countries.
“Cottage industries in Tanzania have a remarkable ability to survive” was the conclusion of a paper titled “The Cottage Industries in Tanzania: Can They Survive?” by Stein Kristiansen, Et al, first published May 1, 2005.
3 Understanding cottage industry in the modern world
The most basic definition of cottage industry is “a business or manufacturing activity carried on in people’s homes[3].” This meaning is derived from Oxford Language. This term was widely used in the western world in the eighteenth and nineteenth centuries to refer to home-based system of manufacturing[4]. In India, the term is used to refer to goods and services produced at home, like sewing, craft production, sales and marketing, typing, bookkeeping, auto repair etc.
In the context of Tanzania, it is important to distinguish cottage industries from Small-scale Industries and Micro, Small & Medium Enterprises, as presented in the 2002/3 SME policy document. The closest cottage industry that can be placed in SME policy is in the micro enterprises that are largely informal.
Back in 2002/3 SMEs were estimated to comprise over 3 million enterprises[5] and contributed to 27% of overall GDP. In 2018 the number of SMEs were 4.5 in 2018 up from 3 million and 1.5 million in 2012 and 2003 respectively, according to the SMS draft policy, 2020 .
The Small and Medium Enterprises Development Policy (2003) recognised SMEs to mean “micro, small and medium enterprises,” and “sometimes referred to as micro, small and medium enterprises (MSMEs). According to the policy: Micro enterprises are those engaging up to 4 people, in most cases family members or employing capital amounting up to Tshs.5.0 million. The majority fall under the informal sector. Small enterprises- are mainly formalised and engage between 5 and 49 employees or capital investment from Tshs.5 million to Tshs.200 million. Medium enterprises- employ between 50 and 99 people. There is no reference to the cottage industry, and it is expected to fall anywhere in MSMEs. Its potential and the number of Tanzanians it can cover warrants policy recognition and advancement.
Diverse research indicates that Cottage industries have great potential to solve the problem of unemployment and also to help in the equitable distribution of wealth in developing countries according to Adeoye[6], I.A, et al.
4 The Case of India
In the case of India cottage industries (CI) fall under the Ministry of Micro, Small & Medium Enterprises. Yet India has a Ministry of Commerce and Industry. CI is a major breadwinner for the majority of households. Diverse sources indicate that Cottage and small scale industries are involved in about 40% of the total industrial output in India[7]. The Government of India has numerous agencies to help the cottage and small scale industry. Some of them include the Small Scale Industries Board, Khadi and Village Industries Commission, All India Handicrafts Board, AH India-Handloom Board, and Central Silk Board. In the case of Pakistan, cottage or household industries provide employment to 80% of the industrial labor force. The main cottage industries in India include cotton weaving, carpet making, silk weaving, leather industry, metal handicrafts, and small food processing.
5 VOWET Experience
A number of VOWET members started business off working at home. Even the author of this paper, started off as a hawker[8] in Dar es Salaam, and later on a tailoring business at home, that was not registered or recognised under the law. Only after years, she was able to formalise after a lot of challenges. Her story is the story of millions of Tanzanians with no money capital, who try to venture out into business enterprises. The entry is full of barriers that can easily be shorted out by the right policies, laws and regulations, 123
For example:
- In food processing the requirement for premises registration is the same for cottage industry, just as SMEs. One needs compliance to Tanzania Food, Drugs and Cosmetics (Food Hygiene) Regulations, 2006[9]. This is cumbersome for home business, which just needs the use of materials nearby. There are many other litany of laws that treat every business as if it is starting with substantial money capital and managers who have formal education. To comply with these regulations will require travelling to the local government office as well as multiple national regulators’ offices which can cost hundreds of thousands of shillings
- For any business to be formally recognized (which is needed to access support, finance and markets), it must have a Tax Identification Number. In addition, the founder has to indicate how much tax he/shall pay for the 1st year, and start paying the first installment of 25% of the annual estimate in 3 months’ time. The TIN is processed for free at the nearest TRA office. Yet, to go through the application and processing, it will need to travel to several offices. This costs money, while many cottage industry operators start with very little or no money.
- A cottage industry relies on family labour which may not be paid much, yet the law will require operators to comply to labour regulations, including minimum wage, PAYE, Pension contributions, etc
- The cottage industry business may not generate real profits for years, yet the owner is forced to estimate profits and taxes when getting the TIN and start paying taxes in three months’ time
- The cost of a business license alone (Tshs 50,000) can easily exceed the capital of many of the investors in cottage industry (which can be their skills, part time use or convention of home appliances, equipment donated from relatives, etc).
6 The great potential
Tanzania is fighting hard to become an industrialized nation. Currently, we are still largely an agricultural economy based nation, for the vast majority. Cottage industry can help to add value and propel the nation into a people driven industrialisation, which will also mean increased employment opportunities.
- Agriculture related cottage industries
Tanzania has enjoyed food sufficiency for almost two decades, and the government has been rooting for value addition. At the farm level, the government has been encouraging mechanisation, even using small machines. There have been many efforts to raise productivity in agriculture over the last decades. For example, Tanzania has the largest planted area of maize in all Southern and East Africa[10]. Yet, most of the maize is exported as raw material. Largely, the maize at home is used only for flour, makande and livestock feed. Yet, there are many products that can be made from maize right at home- corn starch, alcohol, Gypsum Drywall boards, and so on. In Mexico and USA maize is used to produce over 50 products.
Most agricultural products in Tanzania are a big fit for cottage industries. We should ask ourselves how many fruits go to waste during their season. Cottage industry means farmers can be legally allowed to dry their fruits and sell pulp. One can have a fridge at home but a dryer for fruits, to use it commercially, even at micro level it is subjected to multiple legal requirements that cottage or micro business cannot afford.
- Skills related cottage industries
A cross section of Tanzanians are know to be great at woodwork, metal work, textile; shoe-making, pottery, handcrafts, fishing, fishing boat making, construction related- eg nails making, include, soap making, tie and die, knitting, weaving baskets, bread making and so on. Many of this can be done at home and present a great potential to employ thousands if a legal promotion framework is made.
7 Reforms Needed
For cottage industry to work, there is a need to include it in the upcoming SME development policy. As per the November 2020 draft[11], there is no mention of cottage industry, which needs a new legal framework, to actualise the dream of industrialisation for the common mwananchi.
There is a need for the upcoming MSME development policy to clearly root for the establishment of legal Promotion of cottage industries in rural and urban areas in Tanzania. This should include establishment of cottage and small industries board or commission. This will be responsible for setting up a favourable regulatory environment for the cottage industry and small industries to thrive. This way every year the government can keep tabs on how many cottage industries are able to graduate into SMEs.
This paper proposes that there should also be enactment in Parliament of Micro, Small & Medium Enterprises Development Act, which should legalise the standing of home industries, according to the Tanzania setting, without necessity depending on colonial laws that banned home production/processing.
SIDO[12], was established by an Act of Parliament which largely, has been beneficial to members of the public able to access it, it is important for it to be empowered by the government to offer extension services to the cottage industries across the country. This needs to be addressed in the new policy.
Alternatively, Tanzania can borrow a leaf from Cottage and Small Industry Policy, 2019[13]– as a stand-alone policy, of the Ministry of Economic Affairs Royal Government of Bhutan. There is a need to correct a mistake we have been making since independence up to now.
8 Conclusion
Since independence agriculture has been the mainstay of the economy in terms of taking care of the largest number of the populace. To improve on that, as the nation supports huge industrialisation drives that require huge investments, it is important also to lay a foundation for the cottage industry to become the backbone of the rural economy. Massive cottage industries have a great potential to complement large industries through business linkages, partnerships and subcontracting relationships.
[1] https://www.tanzaniainvest.com/economy/bagamoyo-port-liganga-iron-ore-mchuchuma-coal-projects
[2] http://www.fao.org/3/s8380e/s8380e0f.htm
[3] https://www.lexico.com/definition/cottage_industry
[4] https://www.encyclopedia.com/finance/finance-and-accounting-magazines/cottage-industries
[5] https://blogs.worldbank.org/eastasiapacific/improving-access-finance-smes-tanzania-learning-malaysia-s-experience
[6] https://www.futa.edu.ng/journal/papers/paper_3_1508318081.pdf
[7] https://enterslice.com/learning/a-complete-analysis-on-cottage-industries-in-india/
[8] https://www.amazonswatchmagazine.com/others/impact-inspire/tanzanian-entrepreneur-seamstress-who-dared-to-construct-a-great-life-in-a-male-world/
[9] http://trade.tanzania.go.tz/media/Guidelines%20for%20Registration%20and%20Licensing%20of%20Food%20Premises.pdf
[10] http://www.fao.org/fileadmin/user_upload/ivc/PDF/SFVC/Tanzania_maize.pdf
[11] https://drive.google.com/file/d/15ZdZLxDSyFLGmjiNfUQPKLpA6ezm1DmC/view?usp=sharing
[12] https://www.mit.go.tz/uploads/documents/sw-1618825864-The_Small_Industries_Development_Organization_Act,_28-1973_sw.pdf
[13] https://drive.google.com/file/d/1e-iakiFwuZhJ7UquUZUO5Q4gYAU2Gsvy/view?usp=sharing
[1] https://allafrica.com/stories/202106220176.html
[1] Maida Waziri is the President of Voice of Women Entrepreneurs Tanzania (VOWET), Member of TPSF Construction Sector Skills Council and Tanzania Chamber of Commerce, Industry and Agriculture (TCCIA)
July 2021