Tanzania manufacturing: Sector opportunity scan - Part I (2018)

1. Tanzania manufacturing sector scan A summary of key sectors Draft document for stakeholder consultation and input June 2018

2. Outline 2 Manufacturing sectors overview 01 02 03 The business environment Public interventions 04 Sector prioritization 05 Annexes

3. 3 Manufacturing sectors overview01 • Overview • Food products • Beverages • Edible oil • Plastics • Cement • Cotton, textile and apparel • Chemicals • Wood and furniture • Iron and steel • Soap • Glass • Paper and paperboard • Leather and related products • Pharmaceuticals • Fertilizer • Twine and cordage • Jute • Summary

4. Manufacturing sectors Overview 4 • Compared to the region’s economies, Tanzania’s manufacturing value added remains low at only 6% of GDP, which has been declining in recent years. • According to 2013 industrial census data, Tanzania’s top manufacturing sectors by output are: food products, beverages, edible oils, plastics, chemicals, cement and cotton, textile & apparel (CTA). • In some of these sectors Tanzania also has substantial imports, which in the cases of edible oils, plastics and CTA comprise a mix of both inputs into its own domestic industry as well as finished goods that are in direct competition with these same industries. • These sectors are also among its top exports. • Imports of iron & steel, pharmaceuticals and fertilizers are notably high relative to the local production base. 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 %ofGDP Ethiopia Kenya Mozambique Tanzania Uganda Vietnam Manufacturing value added Share of manufacturing as a percent of GDP, compared to select countries Top manufactures by production and export value Value in $ millions; 2013 industrial census and ITC data Sources: Trade Map, International Trade Centre: http://www.trademap.org/; Census of Industrial Production, 2013. - 200 400 600 800 1,000 1,200 Fertilizer Pharmaceuticals Leather Paper Glass Soap Iron & steel Wood & furniture Chemicals CTA Cement Plastics Edible oils Beverages Food products Domestic production (IC) Imports (ITC) Exports (ITC) 1800

5. Manufacturing sectors Overview: Imports 5 • China, India and South Africa dominate Tanzania’s manufacturing-related imports, accounting for over two thirds of their value (with a share of 35%, 13% and 10% respectively). They are also the top 3 importers into Tanzania across a number of different products, with all three dominant in iron and steel. • Saudi Arabia is a key supplier of inputs for Tanzania’s plastics industry, while Malaysia and Indonesia supply into edible oil processing. • Pharmaceutical imports are dominated by India, followed by France and Kenya. • Though not so dominant in terms of value, Kenya has a notable presence across a number of different products in addition to pharmaceuticals, including soap, edible oil, cement and glass products. Top 3 importers into Tanzania by product Value in $ millions and CAGR, both 10-year average, except food products 2015 values Top 10 importers into Tanzania for key manufactures Value in $ millions, 10-year average; count of products in which the country features as a top 3 importer into Tanzania Sources: Trade Map, International Trade Centre: http://www.trademap.org/ 0 2 4 6 8 10 12 - 50 100 150 200 250 300 350 No.productsintop3 $,millions Value No. products in top 3 0% 5% 10% 15% 20% 25% - 100 200 300 400 500 600 700 $,millions Singapore Netherlands Belgium Russia Finland Pakistan France Japan UAE Saudi Arabia Kenya Malaysia Indonesia South Africa India China ROW 10-yr CAGR

6. CTA Cement Plastics Glass Paper Iron and steel Tanning extracts Soap Leather Fertilizers Edible oils Pharmaceuticals Wood and furniture Chemicals Food products -1% 1% 3% 5% 7% 9% -20% 0% 20% 40% 60% GlboalGrowth Tanzania Growth Manufacturing sectors Overview: Exports • Extractive and agriculture-based products account for over 70% of Tanzania’s exports. • Key manufacturing sector exports include: edible oils, CTA, food products, plastics, glass and cement. • Certain industries chosen as focal points of the government’s industrialization strategy – leather, pharmaceuticals, and CTA – exhibit low or declining export growth. Source: Trade Map, International Trade Centre: http://www.trademap.org/ Selected manufactures: Tanzania vs. global growth 10-yr avg. values, 10-yr CAGR; export data only Manufactures within Tanzania’s top 20 exports Other includes remaining products - 1,000 2,000 3,000 4,000 5,000 6,000 7,000 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 $,millions Other Wood and articles of wood; wood charcoal Other vegetable textile fibres Salt; plastering materials, cement, etc. Glass and glassware Other made-up textile articles Iron and steel Mineral fuels, mineral oils, etc. Oil seeds and oleaginous fruits, etc. Wadding, special yarns; twine, etc. Coffee, tea, maté and spices Fish and crustaceans, molluscs Edible fruit and nuts Residues and waste from food industries Tobacco and manufactured tobacco Animal or vegetable fats and oils Electrical machinery and equipment Edible vegetables, roots and tubers Ores, slag and ash Natural or cultured pearls 6

7. Manufacturing sectors Food products 7 • In 2013, Tanzania produced $1.75 billion of food products and imported $167 million. Most of this local production is comprised of flour, baked goods and sugar. • Sugar and flour comprise the majority of food product imports, growing at 10% annually. Tanzania is a sugar deficit country, producing only 60% of its demand; therefore, the government is focusing on increasing local production. • Tanzania imported $400 million in wheat and maize grain in 2013, used mainly as inputs into baked goods production. • Tanzania’s food product exports, comprising mainly of flour, have been growing at 3% annually from 2006-2015 (except for brief spikes in 2013 and 2014 as a result of temporary surges in sugar re-exports). Sources: Trade Map, International Trade Centre: http://www.trademap.org/; Census of Industrial Production, 2013; Rabobank industry note #386. Note: See annex on food products data estimation approach. Food market composition 2013 values. Estimate based on industrial census and trade data. Product share estimated using various data sources. Food product exports 10-yr growth: 3%; 5-yr growth: -14% - 500 1,000 1,500 2,000 Local Production Imports $,millions Baked goods Flour Sugar Other Sugar Baked goods Flour 55% 12% 11% 14% Congo Kenya India Rwanda Burundi ROW Export destinations 10 years, 2006-2015; based on ITC trade data - 50 100 150 200 250 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 $,millions Sugar Flour Baked goods Food product imports 10-yr growth: 10%; 5-yr growth: -6% - 50 100 150 200 250 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 $,millions Sugar Flour Baked goods

8. Manufacturing sectors Beverages 8 • Tanzania produced $1.1 billion of beverage products in 2013 mostly comprised of beer and sodas. • International companies – Coca Cola and SAB Miller – participate in this sector through joint ventures with local companies. Larger local firms include Tanzania Breweries, SS Bakhresa and METL. • Exports have grown at 10% annually. Soda exports are the main driver of growth at 28% annually, with an explosion in growth over the five years from 2011-2015 of 72% annually. • Key export countries for beverages include Kenya and Tanzania’s land locked neighbors. Sources: Trade Map, International Trade Centre: http://www.trademap.org/; Census of Industrial Production, 2013, BMI Research, “Tanzania: Food and Drink Report Q4 2016” Beverage export growth 10-yr growth: 10%; 5-yr growth: 13% 10-yr CAGR 6% 28% Top export destinations 2015 values. Size $12 million - 5 10 15 20 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 $,millions Alcohol Soda Water Overview: • Major food and beverage producer with operations in Tanzania and other countries in the region • Produces Azam Cola, Coca Cola’s largest local competitor • Fruit juice pulp sourced locally for mango, orange and pineapple • Distribution network with both formal retail outlets and kiosks is key competitive strength. Top concerns: • Generally positive view: “We are now more bullish on Tanzania – especially for manufacturers.” • Access to skilled labor. 28% 17% 13% 8% 34% Kenya Congo Uganda Rwanda ROW Rise in soda exports Beverages market composition 2013 values. Size: $1.1 billion. Estimate based on industrial census and trade data. 0 200 400 600 800 1000 1200 Local production Imports $,millions Beverages Alcohol Soda Water

9. Manufacturing sectors Edible oil 9 • Tanzania produced $487 million in edible oil in 2013 and imported $233 million mainly from Malaysia, Indonesia, and Kenya, to comprise a total estimated market of $870 million. Import growth has declined 5% annually in the last five years. • Exports spiked in 2014 to $277 million from a previous average of $37 million. Annual growth was steady at 18% during the pre-spike period after which growth accelerated to 211% from 2013 to 2015, fueled mostly by exports. Preliminary 2016 data indicates exports may have dropped back to $22 million. • The top two exports are sesame oil (64% of 2015 exports to China) and palm oil (30% of 2015 exports to Congo). • Tanzania has comparative advantages due to its sizeable arable area and favorable climate, but exports are constrained by low productivity, lack of investment in the industry, and deforestation concerns. Sources: Trade Map, International Trade Centre: http://www.trademap.org/; Census on Industrial Production (2013). Seed Change Tanzania: https://www.seedchangetanzania.org/wp-content/uploads/2017/08/Seed-Change-Palm-Oil- Value-Chain-Report.pdf, last accessed 12 Jan 18 Top export destinations 2015 values. Size: $342 million 66% 30% 4% China Congo Other Edible oil import and export growth Exports consist mostly of mostly palm and sesame oil; imports mostly palm oil Edible oil market composition 2013 values. Size: $720 million. Estimate based on industrial census and trade data. - 100 200 300 400 500 Local production Imports $,millions Other Palm oil Local production - 100 200 300 400 500 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 $,millions Imports Exports 18% CAGR 211% Sesame oil

10. Plastics market composition 2013 values. Size: $870 million. Estimate based on industrial census and trade data Manufacturing sectors Plastics 10 • In 2013, Tanzania produced $390 million in plastics but imported $480 million. However, approximately 75% of imports are inputs into Tanzania’s plastics industry. • Other imports are finished articles that include tubes, pipes, and various plastics articles, primarily sold into the construction industry and the retail sector. • In the 9-year period from 2006 to 2014, imports grew at 16% before dropping substantially in 2015. • Exports are a small fraction of the industry’s output, and have declined 3% in the last 10 years with this decline accelerating in the last 5 years to 17%. • Exports of $33 million in 2015 went predominantly to regional neighbors (Kenya, Zambia and Mozambique), although one third was plastic waste shipped to China. Sources: Trade Map, International Trade Centre: http://www.trademap.org/; Census of Industrial Production 2013, Tanzania Mainland Statistical Report Plastics exports by product 5-yr avg. Size: $48 million Plastics imports by product 10-yr growth: 10%; 5-yr growth: 1% - 100 200 300 400 500 600 Local production Imports $,millions Articles of plastic Tubes, pipes, hoses Polymers, resins, silicones Local production -50% -40% -30% -20% -10% 0% 10% 20% 30% - 10 20 30 40 50 CAGR $,millions 5-yr Avg 5-yr CAGR Overview: • Plasco is a medium-sized Tanzanian company started in 1992 that provides high quality, custom pipes largely for infrastructure projects. • Roughly 90% of Plasco’s products are supplied to the domestic market. Top concerns: • Shortage of skilled labor; invests significantly in training current staff and augments it with expatriates. • Work permits difficult to acquire and retain yet high need for technical staff persists. • Competition from companies originating from donor countries who receive preferential treatment in procurement. - 100 200 300 400 500 600 700 2006200720082009201020112012201320142015 $,millions Polymers, resins, silicones Tubes, pipes, hoses Articles of plastic 16%

11. Manufacturing sectors Cement 11 • In 2014, Tanzania consumed and imported 5 million tons of cement, representing an estimated market size of $450-550 million. About 60% of cement is produced locally (est. $330 million) while the rest (est. $220 million) is imported. The sector has grown 10.5% annually, driven largely by a boom in real estate construction and government investment in infrastructure projects. • Similarly to plastics, despite a sustained period of import growth, imports have recently dramatically declined due to a slow down in the construction sector. • Tanzania exported $54 million in cement and related products primarily to regional neighbors in 2015 (DRC, Burundi and Malawi). Cement comprised almost 60% of exports in 2015. • Tanzania is now the dominant cement supplier to the DRC, passing South Africa. At 73% and 17% growth respectively, Rwanda and China are also making gains in this market. Sources: Trade Map, International Trade Centre: http://www.trademap.org/, Standard Investment Bank, East Africa Cement Sector, http://sib.co.ke/media/docs/East-African-Cement-Sector-VU-(Jan%202016).pdf, last accessed 12 Feb 18 Top export destinations 2015 values. Size: $52 million Top suppliers of cement to the DRC 5-yr CAGR -22% -7% 27% 18% 3% 73% Declining leaders Growing competition 58% 18% 11% 9% 4% Congo (DRC) Burundi Malawi Kenya Zambia 61% 39% Local production Imports Cement market composition 2014 values, measured by quantity. Total 5 million tons - 20 40 60 80 100 120 140 160 180 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 $,millions Cement Gypsum Salt Other Cement import growth 10-yr growth: 22%; 5-yr growth: -3% 0 10 20 30 40 50 60 2006200720082009201020112012201320142015 $,millions South Africa Uganda Tanzania Namibia Rwanda China

12. Overview: • $1 billion local conglomerate with operations across entire CTA value chain, from spinning to manufacturing garments • Exports regionally – with South Africa as a new growth market – and exploring entering the US under AGOA. Top concerns: • Inconsistent tariff enforcement • Excess capacity reduces advantages from economies of scale • Ad hoc government policies create uncertainty • Influx of second-hand clothing limits domestic market opportunities. Manufacturing sectors Cotton, textile and apparel 12 • In 2013, Tanzania’s cotton, textile & apparel (CTA) output was $316 million, of which about 60% was sold locally while the rest was exported. • Over the last five years, cotton (largely unprocessed) accounted for almost half (44%) of CTA exports, although this has been declining rapidly in recent years. This decline generally follows a worldwide decline in cotton prices. • Though from a small base, apparel exports are growing well, particularly knit apparel at 26%. But this still pales in comparison to Ethiopia. • The majority of apparel exports are to the US (50% in 2013) and South Africa (22%) as well as regional markets (Kenya 10% and Uganda 7%). Sources: Trade Map, International Trade Centre: http://www.trademap.org/; Census of Industrial Production 2013, Tanzania Mainland Statistical Report. Notes: There is a large export data discrepancy between Trademap and Industrial census data for 2013. Tanzania exports a significant amount of second hand clothing as well as sacks/bags; these are not included in this analysis Market composition 2013 values. Size: $316 million. Textiles likely includes basic processed cotton CTA export growth overview 10-years; including raw cotton 10-yr CAGR -9% 16% -7% 26% 13% - 20 40 60 80 100 120 140 160 180 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 $,millions Cotton Yarn/Sewing Thread Woven Fabrics Apparel - Knit Apparel - Not Knit 80% 20% Textiles Apparel 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% - 20 40 60 80 100 120 140 160 Apparel - Knit Apparel - Not Knit Apparel - Knit Apparel - Not Knit Apparel - Knit Apparel - Not Knit Tanzania Tanzania Ethiopia Ethiopia Kenya Kenya $,millions 10-yr Avg 10-yr CAGR Comparison of Tanzania with selected neighbors Tanzania has the lowest base with growth in the middle of the pack

13. Manufacturing sectors Cotton, textile and apparel: WBG analysis 13 A study by the World Bank on light manufacturing in Tanzania reviewed the opportunities and challenges of the CTA sector, also suggesting areas for action. Country advantages • As the fifth largest cotton producer in Africa and fourth largest organic cotton producer in the world, Tanzania has a significant natural competitive advantage and ability to participate across the entire CTA value chain. • Tanzania has cheaper labor than China and a large base of potential workers given high unemployment rates. • With direct port access and duty free access to EU and US markets, Tanzania has a marketing advantage it can leverage to get into global supply chains. Challenges • Despite low cost of labor, production costs relative to China are still high (see chart) partially due to low availability of skilled workers. • Cotton yields are low, quality variable and supply unreliable, leading local garment producers to import inputs. • Limited integration to global supply chains limits Tanzania’s ability to fully utilize its duty-free access. • Inadequate access to industrial land has limited the number of foreign investors able to move into Tanzania. Priority focus areas • Reduce production costs and delivery times to become more internationally competitive. • Improve local skill base to increase productivity and reduce reliance on expatriate workers to reduce overall costs. • Increase integration with global supply chains to raise exports and improve penetration to EU and US markets. Source: Dinh, H. T. and Monga, C. 2013. Light Manufacturing in Tanzania: A Reform Agenda for Job Creation and Prosperity. WBG Structure of Tanzania textile & apparel sector Number of firms; 2010 data 0 2 4 6 8 10 12 Numberofcompanies Make up of cost differential to produce a polo shirt: Tanzania relative to China

14. Manufacturing sectors Chemicals 14 • In 2013, Tanzania’s chemical industry produced $315 million and imported $166 million in organic and inorganic chemicals. The majority of local production is comprised of agrochemicals (excluding fertilizers), pesticides and soap. • Tanzania’s imports, mostly from China, India, Kenya, Korea and Australia, have been growing at 13% annually, although in recent years growth slowed to 9%. • Tanzania’s exports are negligible at approximately $7 million annually over the last 10 years, facing an 18% annual decline over the period. • While local production comprises a sizeable part of the industry, imports still play a major role in meeting market demand. Sources: Trade Map, International Trade Centre: http://www.trademap.org/; Census of Industrial Production, 2013 Notes: Industrial census data for chemicals mainly consists of fertilizers and ‘other chemicals’. Only other chemical is included in the data above because fertilizers are covered separately. ‘Other chemicals’ also includes soap, despite being covered separately cannot be extracted form the ‘other chemicals’ data above. Industrial census data includes other products not included in the ITC trade data, potentially understating total chemicals trade. Top suppliers of chemicals to Tanzania 10-year avg. values. Size: $168 million Chemicals market composition 2013 values. Estimate based on industrial census and trade data. Chemicals imports vs. exports ITC data for organic chemicals and inorganic chemicals only - 50 100 150 200 250 300 350 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 $,millions Exports Imports 18% 13% 12% 12% 9% 36% China India Kenya Korea, Republic of Australia ROW 0 50 100 150 200 250 300 350 Local production Imports $,millions Local production Organic chemicals Inorganic chemicals

15. Manufacturing sectors Wood and furniture 15 • Tanzania produced $290 million of wood and furniture products in 2013 and imported $114 million. • Imports mainly consist of furniture from China, South Africa, and Kenya, growing at 12% annually for the past 10 years. • Exports of wood and related products grew 16% annually over the same period, while furniture exports exploded at almost 40% annually. • Wood exports consist mainly of chipped and sawn wood to India, Kenya and China, while furniture is mainly exported to more immediate neighbors (and may also include re-exports). • While Tanzania’s furniture sector benefits from easy access to inputs, it looses out against competitors as a result of production inefficiencies, with production of a basic chair costing $30 in Tanzania compared to $13 in China for the equivalent product. Sources: Trade Map, International Trade Centre: http://www.trademap.org/; Census of Industrial Production, 2013, Tanzania Mainland Statistical Report. Dinh, H. T. and Monga, C. 2013. Light Manufacturing in Tanzania: A Reform Agenda for Job Creation and Prosperity. WBG Top export destinations by product 10-yr avg. values. These products are exported to very different markets Wood and furniture export growth 10-years. Furniture exports have exploded in recent years 10-yr CAGR 16% 39% Wood and furniture market composition 2013 values. Size: $404 million. Estimate based on industrial census and trade data. - 10 20 30 40 50 60 70 80 90 $,millions Wood Furniture - 5 10 15 20 25 30 Wood Furniture $,millions Congo Burundi Mozambique Comoros Congo DRC United Arab Emirates Italy China Kenya India CAGR 39% CAGR 16% Furniture production cost penalties Wooden chair production. China vs. Tanzania, 2010 - 50 100 150 200 250 300 350 Local production Imports $,millions Other furniture Prefabricated buildings Furniture (excl. seats) Wood imports Wood production Furniture 0 1 2 3 4 5 6 Inefficiencies Absenteeism Rejects Materials waste $/woodenchair China Tanzania

16. Manufacturing sectors Iron and steel 16 • In 2013, Tanzania produced about $100 million of iron and steel but imported $522 million, mainly flat iron steel and bars, rods, and ingots from China, South Africa, Japan, and India. • Imports have grown strongly at 17% over the past 8 years, but have declined recently. This is likely a result of the recent slow down of the Tanzania construction industry. Imports include both inputs into its own production, as well as end products that compete directly with the local industry. • Exports account for a fair share of local production at between $6 - $30 million, going mainly to regional markets: Comoros 67% and DRC 18% in 2015. (Export data may also include re- exports). • Tanzania has over 126 million metric tons of proven iron ore reserves, estimated at $50 billion. Despite plans to launch the Liganga mining project, production is not fully underway. Sources: Trade Map, International Trade Centre: http://www.trademap.org/; Census of Industrial Production, 2013; Construction Review: https://constructionreviewonline.com/2016/05/coal-and-iron-ore-projects-in-tanzania-to-commence- early-2017; WBG analysis. Overview: • Kamal Steel is a leading producer of high-quality steel in Tanzania. • Kamal exports about 20% of production to neighboring countries. • Optimistic about local market given upcoming infrastructure projects. • Kamal sources inputs by importing steel billets primarily from South Africa and melting local scrap. • Kamal has also ventured into the development of an industrial park after encountering difficulty in access to land early in their tenure. Top concerns: • Access to finance due to conservative lenders. • Competition from new companies. Iron and steel imports 10-yr growth: 7%; 5-yr growth: -6% 0 100 200 300 400 500 600 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 $,millions Other articles Tubes and pipes Tanks, drums, and similar containers Other iron/steel products Waste Bars, rods, ingots Flat-rolled iron/steel -22% CAGR Iron and steel exports 10-yr growth: 20%; 5-yr growth: 8% - 20 40 60 80 100 120 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 $,millions Tubes and pipes Tanks, drums, and similar containers Other articles Other Waste Bars, rods, ingots Flat-rolled iron/steel 17% CAGR

17. Manufacturing sectors Soap 17 • Local soap production was estimated at $87 million in 2009, with imports of $18 million. • Most manufacturers produce for the local market, where competition is intense due to: o Imported products, which have been growing at 18% over 10 years, mostly come from Kenya, China, and India o Competition from the local food processing industry for which soap is a byproduct from oil o Reliance on imported palm oil as an input, raising the cost of production and reducing competitiveness against finished imports. • Tanzania exported $20 million in soap in 2015. Although exports have grown 9% annually in the last ten years, they slowed to 1% over the last five years. • Top export destinations are primarily to regional neighbors, mainly to DRC (74% of exports in 2015) but also Uganda (14%). Sources: Trade Map, International Trade Centre: http://www.trademap.org/; local production data derived from 2009 data from UNIDO International Yearbook of Industrial Statistics, 2012, page 789; WBG analysis. Overview: • Established 110 years ago, Tarmal Industries is one of the oldest soap manufacturers, producing soap primarily for the domestic market • It was also an early technology adopter with among the first automated lines in the country. Top concerns: • Cheap imports intensify competition • Consumer trends towards cheaper soaps • Current political uncertainty has delayed potential investments to upgrade equipment • Infrastructure underdeveloped making it more expensive to source local inputs such as palm oil • Competition from the edible oil industry • Skills shortages require hiring expensive expatriate workers. Soap imports vs. exports Top export destinations 2015 values. Size: $19 million 74% 14% 8% Congo (DRC) Uganda Malawi Rwanda Burundi 10-yr CAGR 18% 9% - 20 40 60 80 $,millions Imports Exports Soap industry 2009 values. Size: $105 million - 20 40 60 80 100 Local production Imports $,millions Other Soap Organic surface- active agents Local production

18. Manufacturing sectors Glass and glassware 18 • In 2013, Tanzania’s glass industry produced $72 million and imported $36 million, appearing to meet much domestic demand from local production (which is twice the size of imports). • Tanzania’s imports are from are China, the United Arab Emirates, and Kenya. • Tanzania exported $54 million of glass and glass products in 2015, mainly to regional neighbors (Malawi, Congo, Rwanda), providing Tanzania an opportunity to leverage its natural resources to become a major regional player – especially in light of declining growth in its closest regional competitors. 2016 data indicates an increase in exports of 273% over 2015, comprising of bottles and carboys to the DRC although further validation of this data is required. • A recent Chinese investment of $80 million in 2016 to build a float glass factory in Tanzania, with a daily capacity to produce 600 tons should further increase the prominence of this sector domestically and regionally. Sources: Trade Map, International Trade Centre: http://www.trademap.org/; Census of Industrial Production, 2013; http://www.tanzaniainvest.com/industry/giga-tanzanian-announces-usd-80-million-investment-to-setup-float-glass-factory Glass exports by product Tanzania compared to select glass exporters Bottle and carboys exports - 10 20 30 40 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 $,millions Bottles and carboys Float glass Sheet glass Other Glass market composition 2013 values. Size: $108 million. Estimate based on industrial census and trade data. -40% -30% -20% -10% 0% 10% 20% 30% - 100 200 300 400 Egypt South Africa Tanzania Kenya Uganda CAGR $,millions 5-yr Avg 5-yr CAGR - 20 40 60 80 Local Production Imports $,millions Other Sheet glass Bottles and carboys Safety glass and mirrors Float glass Local production - 50 100 150 200 250 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 $,millions Exports Imports 4 times Glass imports vs. exports 10-yr CAGR 21% 104% 31% 21%

19. Manufacturing sectors Paper and paperboard 19 • Tanzania produced $60 million of paper and related products in 2013 and imported $102 million. • Imports were mainly from South Africa, India, China, Korea, and Spain, consisting of uncoated kraft paper and paperboard products, and newsprint and packaging materials. Imports have grown at 7% annually for the last 10 years although this growth shifted into an annual 2% decline in the last 5 years. • Exports were $40 million in 2015, growing 19% annually over ten years, although this growth has slowed to 3% in the last five years. • Within the larger product category, uncoated kraft paper accounts for about 60% of exports, mostly to Kenya. This represents roughly 5% of Kenya’s paper imports. Sources: Trade Map, International Trade Centre: http://www.trademap.org/; Census of Industrial Production, 2013, Tanzania Mainland Statistical Report. 76% 7% 6% 6% 5% Kenya Uganda Malawi Burundi Congo (DRC) Top export destinations 2015 values. Size: $34 million Top 10 suppliers of paper to Kenya 5-yr avg. Size: $559 million 18% 22% 11%11% 6% 9% 10% 6% 3% 4% India Egypt China Sweden USA United Kingdom Tanzania Russia Finland Indonesia Paper and paperboard export growth - 5 10 15 20 25 30 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 $,millions Uncoated Kraft Labels Registers Other 10-yr CAGR 15% 87% 30% 29% Paper and paperboard market composition 2013 values. Size: $162 million. Estimate based on industrial census and trade data. 0 20 40 60 80 100 120 Local production Imports US$,millions Other Registers and labels Newsprint Cartons, boxes, and packing Paper and paperboard Uncoated kraft Local production

20. Manufacturing sectors Leather and related products • Despite having the third largest livestock population in Africa, Tanzania produced only $40 million of leather and related products in 2013, comprising of leather hides, footwear, and tanning extracts (a leather sector input – see next page). Tanzania imported $12 million in mostly finished leather goods. • Furthermore, of Tanzania’s 2015 exports of $37 million of leather and related products, the majority is in tanning extracts. Leather hides amounted to only $11 million, the majority being semi-processed wet blue, exported mainly to China and Italy. • In the last ten years, exports have grown at only 1%, with growth declining by 8% annually over the last five years. However, due to a 40% export tax on raw hides, official data may not capture a significant portion of leather being informally exported. Sources: Trade Map, International Trade Centre: http://www.trademap.org/; Census of Industrial Production 2013, Tanzania Mainland Statistical Report 38% 28% 18% 9% 7% China Hong Kong Italy Pakistan India Top export destinations 5-yr avg. Size: $8 million. Leather and related products 0 2 4 6 8 10 12 2006 2015 Other Trunks, various cases and other goods Raw hides and skins Tanned or crust hides Exports of leather and leather products 10-yr industry transformation into wet-blue Leather products industry size 2013 values. Size: $48 million. Estimated based on government and trade data. Excludes tanning extracts. - 5 10 15 20 25 30 35 40 Local Production Imports $,millions Leather articles Trunks and cases Leather footwear Tanning and leather products 20

21. - 10 20 30 40 50 60 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 $,millions Manufacturing sectors Leather and related products: Tanning and dyeing extracts 21 • Tanzania exported $33 million of tanning and dyeing extracts in 2015. In the last ten years, exports have grown 31% with growth accelerating to 79% over the last five years. • The primary product in this segment is tanning extract (from wattle), which in 2015, which comprised 78% of exports or $25 million, growing at almost 100% annually over the last five years. Tanzania has rapidly become the world’s third largest producer of wattle extract, accounting for 21% of global production in 2015, behind Brazil (36%) and South Africa (31%). • Tanzania’s exports go to Bangladesh (88%) and India (9%). Source: Trade Map, International Trade Centre: http://www.trademap.org/ Tanning, dyeing extracts growth Top three global producers of wattle Data for last five years 0 10 20 30 40 50 60 70 2011 2012 2013 2014 2015 $,millions South Africa Brazil Tanzania Leather and related exports 2015 values. Size: $37 million. 30% 70% Leather and related products Tanning extracts

22. Manufacturing sectors Pharmaceuticals 22 • In 2013, Tanzania produced $37 million of pharmaceuticals but imported $313 million. Imports have grown 18% annually over the last 10 years • Most local production is focused on generics or antiretroviral therapy drugs, although the industry is in decline due to stiff import competition and business constraints that include poor infrastructure and lack of reliable access to clean water. • Compared to other countries in the region, Tanzania’s pharmaceutical export industry is negligible, with less than $1 million in exports in 2015. • The government of Tanzania is planning to support local manufacturing capacity by focusing on diversifying production, supporting R&D and improving quality. Sources: Trade Map, International Trade Centre: http://www.trademap.org/; Census of Industrial Production 2013, Tanzania Mainland Statistical Report. REPOA brief No. 43 (July 2014), “Reversing Pharmaceutical Manufacturing Decline in Tanzania: Policy Options and Constraints”; Tanzania’s Second Five Year Development Plan 2016/17– 2020/21: Summary of proposed actions and financing plans for implementation, ODI-SET. Key imports 2015 values. 10-yr CAGR Top 5 import sources 5-yr avg. Size: $331 million 56% 12% 12% 10% 10% India Kenya USA Denmark France Pharmaceutical industry 2013 values. Size: $350 million. Estimate based on industrial census and trade data. Exports of regional pharmaceutical producers 5-yr avg. and CAGR -30% -20% -10% 0% 10% 20% 30% 40% - 100 200 300 400 500 South Africa Kenya Uganda Tanzania CAGR $,millions 5-yr Avg 5-yr CAGR 0% 5% 10% 15% 20% 25% 30% 0 50 100 150 200 250 300 350 Medicaments Blood Other CAGR $,millions 2015 10-yr CAGR 0 50 100 150 200 250 300 350 Local production Imports $,millions Local production Medicaments Blood Other

23. Manufacturing sectors Fertilizer 23 • Tanzania’s local production of fertilizer was less than $29 million. The country imported $176 million of mostly nitrogen- based fertilizer making the total market an estimated total of $205 million. • In 2015, Tanzania exported $12 million in fertilizer, dramatically lower than a 2010 peak of $99 million. In the last ten years, this industry has grown only 2% with its dramatic decline beginning in 2011 at a rate of 30% annually. • Top export destinations are Tanzania’s neighbors, primarily Burundi, Rwanda and Zambia. Sources: Trade Map, International Trade Centre: http://www.trademap.org/; Census of Industrial Production, 2013; https://www.reuters.com/article/tanzania-investment/tanzania-to-begin-building-3-bln-fertiliser-plant-this-year- idUSL5N18H192. Note: Local production data represents an upper limit as it includes non-fertilizer products. Rebound opportunity? • Tanzania has 57 trillion cubic feet of natural gas, a hydrocarbon source of ammonia, one of the most common fertilizer inputs. • The Tanzania Petroleum Development Corporation signed an agreement with a consortium of investors to build a $3 billion fertilizer. • The status of this project is currently unknown, although project was slated to commence in 2016. Fertilizer industry 2013 values. Size: $205 million. Estimate based on industrial census and trade data. Fertilizer imports vs. exports - 50 100 150 200 250 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 $,millions Imports Exports 38% -30% - 50 100 150 200 Local production Imports $,millions Potassic/phosphate and animal/vegetable based Nitrogen-based Local production 10-yr CAGR 12% 2%

24. Food products • At close to $2 billion, Tanzania’s food products industry is one of the country’s largest. Primary food products include flour, sugar, and baked goods (which includes bread). Imports are a significant amount of the country’s inputs, in particular sugar and grain. Beverages • At $1 billion, Tanzania’s beverage industry meets much of the country’s demand. Beer and soda make up the bulk of production, although other alcoholic and non-alcoholic drinks also account for local production. Prospects for growth include organic in-country growth and increased regional exports. Edible oil • Estimated at well over $0.5 billion, Tanzania’s edible oil market is large. Local production is partly dependent on imported inputs, mainly from Indonesia and Malaysia. There is potential for growing an export market to regional neighbors and China (mainly sesame oil). Plastics • The plastics sectors is wholly dependent on imported inputs, but with Tanzania’s limited imports of plastic articles, it appears that the industry is largely able to meet domestic demand, with some extra production being exported to the immediate region. There could be prospects for increased use of recycled inputs. Cement • Tanzania’s cement industry has seen recent increases in installed capacity, responding to high demand that spurred annual import growth of 22%. The country is beginning to expand its regional export footprint, particularly to neighboring countries without the same local supply base. CTA • As one of the world’s largest growers of cotton, the country has an opportunity to participate across the entire CTA value chain. However, cotton exports have recently dramatically fallen, and though apparel exports are fast rising, though from a small base and not as fast as competitor countries such as Ethiopia. Chemicals • Local production of agrochemicals, paints and varnishes, and soap amount to $315 million, with additional imports of about half as much in value. Most of the country’s production is consumed locally with negligible exports. Manufacturing sectors Sector summaries 24

25. Wood and furniture • Tanzania produces wood and furniture products although it still relies heavily on imports, which amount to about half of local production. Furniture exports have risen fast, mainly to regional markets. However, if Tanzania is to be able to capitalize on it inputs endowment, it will have to address cost disadvantage issues in furniture manufacturing. Iron and steel • While Tanzania produces iron and steel, the large majority of its domestic needs are met through imports, used as both inputs into its own domestic production and as finished goods for construction and other industrial uses. Soap • Focused on mass-market products, Tanzania’s soap industry meets most local demand, with limited imports. However, it is facing increased competition from new entrants from the edible oil sector for which soap is a byproduct. Glass • Tanzania’s glass industry appears to meet most domestic demand for bottles, replying on imports for most other glass products. Recent investments in local glass production could dramatically increase Tanzania’s exports, making it a dominant regional player. Paper • Tanzania’s paper industry is largely served by imports, although Tanzania exports about as much paper as it produces annually. Additional research is required to determine the composition of local production and imports, but it is likely that Tanzania exports packaging materials while imports meet the diversity of domestic paper demand. Leather • Tanzania’s leather industry appears to be undergoing moderate structural change from exporting mostly raw leather to semi-processed wet blue. But export values remain low, despite having one of Africa’s largest input bases. Pharmaceuticals • Tanzania relies primarily on imports to meet its domestic needs and evidence suggests that its local industry is in decline. Fertilizer • Tanzania meets its fertilizer needs through imports, although until recently it even had sizable fertilizer exports. This may change should the Tanzania Petroleum Development Corporation plans to build a sizeable fertilizer plant materialize. 25 Manufacturing sectors Sector summaries (cont’d.)

26. 26 The business environment02 • Overview • Access to finance • Electricity and water provision • Tax rates and technology use • Trade logistics

27. Source: World Bank Enterprise Surveys, http://www.enterprisesurveys.org/ Top business obstacles, manufacturing firms Percent of firms identifying the problem as the main obstacle, 2006 and 2013 Manuf. firms 2013 All firms 2013 Access to finance 42% 38% Electricity 32% 25% Tax rates 8% 8% 27 Business environment Overview: Challenges for Tanzania’s manufacturers • Tanzania’s manufacturers perceive electricity, access to finance and tax rates as the top problems to their operations. While an overwhelming 75% of them identified electricity as the main obstacle in 2006, in 2013 access to finance surpassed electricity as the top constraint. • However, differences between sectors emerge: o Food processing and textiles sector firms electricity remains the top constraint. o Access to finance was identified as the main problem by 64% of furniture firms. o 14% of food processing firms identified transportation as the top constraint, compared to 8% for all manufacturing firms. 75 6 5 32 42 8 3 4 Electricity Access to finance Tax rates Transportation Acces to land TZ 2006 TZ 2013 Top business obstacles per manufacturing subsector Percent of firms identifying the problem as the main obstacle, 2006 and 2013 14 7 10 10 8 27 29 64 42 44 37 16 32 Food Textiles & garments Furniture TZ, all mfg. firms Electricity Access to finance Tax Rates Transportation

28. Business environment Access to finance 28 • The percentage of manufacturing firms with credit lines and working capital finance declined from 2006 to 2013. Only 19% of manufacturing firms reported having either in 2013, which is several percentage points below the SSA average and significantly below the benchmark for all countries. The problem is worse for furniture manufacturers, where only 7% and 11% had a loan or working capital finance, respectively. • During the same period, the value of collateral needed for a loan nearly doubled, jumping from 143% to 272%. The latter is comparable to the level required from all Tanzanian firms (240%), suggesting that lending risk increased throughout the economy. Nevertheless, it is quite high compared to the SSA average of 215%. Lenders regard loans to textile and garments firms with as a higher risk, requiring nearly double collateral value compared to other manufacturing sector firms (517%). Use of financial services, selected indicators Percent of Firms Collateral requirements Value of collateral needed for a loan, % of loan amount 146 272 517 240 215 206 TZ 2006 TZ 2013 TZ txt. & garments TZ all firms, 2013 SSA All countries 22 25 19 19 7 11 22 23 34 30 Firms with a bank loan/line of credit Firms using banks to finance working capital %offirms TZ 2006 TZ 2013 TZ furniture SSA All countries Note: The value of collateral required for loans to furniture firms was not available. As noted, very few of these firms have loans, which may explain why the collateral value requirement is not known. Source: World Bank Enterprise Surveys, http://www.enterprisesurveys.org/

29. Business environment Electricity and water provision 29 Electricity provision Number of outages per month, hours and losses as % of annual sales Water provision Percent of firms experiencing insufficiencies and number per month • Inadequate electricity provision increases costs, disrupts production and reduces profitability for manufacturing firms. • In Tanzania, while the number of electrical outages per month are below the SSA average, manufacturing firms report higher duration (7 hours), leading to losses equivalent to 16% of annual sales. By comparison, outages in Kenya and in SSA average one hour less, and reported losses amount to only 8% of sales. • Many manufacturing subsectors depend on reliable and efficient sources of water for their operations. Overall, water provision has improved in Tanzania, as the share of firms with water shortages declined from 49% to 31%, and the number of monthly shortages reduced form 6 to 2. • However, those improvements have yet to reach food manufacturers – 59% of them report experiencing on average 5 shortages a month. Between 2006 to 2013 those levels have not changed much. 8 7 16 6 6 8 9 6 8 6 5 5 Number of electrical outages in a typical month Average duration of a typical electrical outage (hours) Average losses on electrical outages (% of annual sales) TZ 2013 Kenya SSA All countries 49 6 31 2 59 5 24 2 15 1 Percent of firms experiencing water insufficiencies Number of water insufficiencies in a typical month TZ 2006 TZ 2013 Food mfg. SSA All countries Sources: World Bank Enterprise Surveys, http://www.enterprisesurveys.org/ and World Bank Doing Business 2017, www.doingbusiness.org

30. Business environment Tax rates and technology use 30 Total tax burden, 2018 Total tax rate expressed as a % of profit as estimated by WB Doing Business, 2018 • At an estimated 45% of profits, the total tax burden in Tanzania is just under the SSA average 46%; however, this level is high when compared with Kenya and Mozambique (both 37%), as well as Malawi, Rwanda and Botswana where the tax burden is even lower. • High labour taxes of 18% exceeds all benchmarks. Likewise, taxes other than on profit and labor, while lower than the SSA average, are higher in comparison to neighboring countries. 22 30 20 31 26 21 18 2 12 5 6 18 14 4 5 2 1 2 6 14 Botswana Kenya Malawi Mozambique Rwanda Tanzania SSA Profit tax (%) Labor tax and contributions (%) Other taxes (%) Technology adoption and use, selected Indicators Percent of firms, 2013 or latest year available • Tanzanian firms are lagging behind Kenyan firms in terms of investing in international quality certifications, licensing the latest technology from abroad, and on-line presence. • A significant higher share of Tanzania’s food manufacturers report having invested in obtaining quality certifications, foreign technology license and online presence when compared to textiles and garment and furniture manufacturers. 21 18 26 12 9 13 5 2 9 16 11 23 33 20 50 11 15 31 Percent of firms with an internationally-recognized quality certification Percent of firms using technology licensed from foreign companies Percent of firms having their own web site TZ food TZ textiles & garments TZ furniture TZ mfg., all firms Kenya mfg. firms SSA Sources: World Bank Enterprise Surveys, http://www.enterprisesurveys.org/ and World Bank Doing Business 2017, www.doingbusiness.org

31. 31 • Timely and cost efficient access to imported inputs and markets are of vital importance for a competitive manufacturing sector. Cumbersome regulations are placing Tanzania-based manufacturers at a disadvantage when sourcing inputs and selling abroad. • Clearing exports and imports through customs are headed in the wrong direction, more than doubling from 2006 to 2013, reaching 12 and 32 days. This is significantly longer than the SSA average of 10 and 16 days. • Likewise, complying with export and import border regulations costs nearly twice as much in Tanzania when compared to the SSA average. Clearing exports and imports, manufacturing firms Days to clear exports and imports through customs, 2006 and 2013 Border compliance costs USD to comply with regulations to export and import a shipments, 2018 5 14 12 32 10 16 10 20 8 12 Days to clear exports through customs Days to clear imports through customs TZ 2006 TZ 2013 SSA Kenya All countries 1160 143 592 150 1350 833 687 112 Tanzania Kenya SSA OECD high-income Exports Imports Business environment Trade logistics Sources: World Bank Enterprise Surveys, http://www.enterprisesurveys.org/ and World Bank Doing Business 2017, www.doingbusiness.org

32. 32 Public interventions03 • Overview • Government of Tanzania • World Bank Group • UNIDO & ODI • Summary

33. Public interventions Overview of key manufacturing-focused inititaves 33 • Several organizations have been working on industrialization in Tanzania including the government, private sector, development organizations, and research institutions. This list provides a high-level, non-exhaustive summary of key stakeholders who are involved in Tanzania’s industrialization effort. Government Private sector Development organizations Think tanks & academia Ministry of Finance and Planning • Prepared the National Five Year Development Plan 2016/17 – 2020/21 (FYDP II) Ministry of Industry, Trade and Investment • Integrated Industrial Development Strategy, 2010- 2025 Planning Commission • Commissioned study by ODI and SET supporting preparation of FYDP II Confederation of Tanzania Industries • Business membership organization that speaks on behalf of its members to government. Has a diverse representation from manufacturing sector Tanzania Private Sector Foundation • Designed to advocate and seek change in public policy in order to promote a better business environment Tanzania National Business Council • A business advisory council formed by presidential circular providing a forum for public and private sector dialogue World Bank Group • Authored Light Manufacturing in Tanzania Report • Designing lending support project focused on support for Tanzania’s industrialization over the next four years UNIDO • Co-authored Tanzania’s Industrial Competitiveness Report 2012 ODI • Supported GoT in preparing report on FYDP II commissioned by the Planning Commission REPOA • Supported ODI in the preparation of Tanzania’s FDYP II Economic and Social Research Foundation • Research organization that has also contributed to key analyses of Tanzania’s development agenda

34. Key Objectives 1. Build a base for transforming Tanzania into a semi- industrialized nation by 2025 2. Foster development of sustainable productive and export capacities 3. Consolidate Tanzania’s strategic geographical location through improving the environment for doing business and positioning the country as a regional production, trade and logistic hub 4. Promote availability of requisite industrial skills (production and trade management, operations, quality assurance, etc.) and skills for other production and services delivery 5. Foster and strengthen implementation effectiveness, including prioritization, sequencing, integration and alignment of interventions 6. Intensify and strengthen the role of local actors in planning and implementation 7. Ensure global and regional agreements (e.g. Africa Agenda 2063 and SDGs) are adequately mainstreamed into national development planning and implementation frameworks for the benefit of the country. Public interventions Government of Tanzania: Overview of FYDP II 34 Sources: National Five Year Development Plan 2016/17-2020/21; ODI-SET, Tanzania’s Second Five Year Development Plan 2016/17–2020/21: Summary of proposed actions and key action points 34 Priority areas for action • There are four priority areas for action: (i) fostering economic growth and industrialization; (ii) fostering human development and social transformation; (iii) improving the environment for business and enterprise development; and (iv) strengthening implementation effectiveness. • The Plan emphasizes interventions to promote industrialization, including establishing special economic zones SEZs)/EPZs and industrial parks, strengthening research and development (R&D), promoting local content and developing capacity. • Second Five Year Development Plan (FYDP II 2016/17-2020/21) places particular emphasis on the role of industrialization as a driver of growth, transformation and poverty reduction in Tanzania, themed as “Nurturing Industrialization for Economic Transformation and Human Development.” Priority sectors and actions • Petrol, gas and chemicals; pharmaceuticals; building and construction; agriculture and agro-processing (cotton to clothing, textiles and garments, leather); coal; and iron and steel. • The Plan supports value addition in metal and minerals industries, and looks to improve agricultural productivity and deepen agricultural value chains. • FYDP II envisages an important role for the private sector in leading investments to drive industrialization. The government is expected to provide a conducive policy and regulatory framework, as well as land and supportive infrastructure.

35. Public interventions Government of Tanzania: FYDP II’s priority sectors Sources: Tanzania’s Second Five Year Development Plan 2016/17–2020/21: Summary of proposed actions and financing plans for implementation. ODI-SET 35 CTA Leather Pharmaceuticals • Expand and improve the production, pricing and distribution of quality seed cotton • Improve cotton farmers’ access to operating capital • Revamp cotton production and attract new investment into the textile and garment industries • Support marketing and SME promotion initiatives • Improve the policy environment to raise the efficiency and competitiveness of the cotton-to- clothing value chain. • Improve the quality and quantity of hides and skins • Enhance the sustainability of the leather sector • Strengthen the policy and institutional framework for the development of the sector. • Promote domestic pharmaceutical production and diversification of supplies to meet domestic demand • Revitalize R&D to enable faster technological catch up • Improve the quality of locally manufactured pharmaceuticals • Improve the general business environment and marketability of locally manufactured pharmaceuticals • Raise the number of pharmaceutical products produced in Tanzania. • The government is implementing Tanzania’s Second Five-Year Development Plan (FYDP II) in stages, focusing on key sectors each stage. The first stage focuses on three value chains: cotton to textiles, leather to leather products, and pharmaceuticals. • Key interventions along these value chains focus mostly on supply-side interventions such as improving cotton seed quality, improving the supply and quality of hides, and diversifying domestic production of pharmaceuticals. In addition to upgrading infrastructure, the government will also seek to catalyze R&D and enhance access to credit for farmers while attracting new investors into planned economic zones.

36. Light Manufacturing in Tanzania P4R focus (draft) Intervention areas Public interventions World Bank Group 3636 • Identifies “four sectors as representative examples of labor-intensive light manufacturing industries that have a history of production in developing economies”: agro-processing; textile and apparel; leather and related products; and wood and wood products • Policy prescriptions focus on both sector-specific interventions as well as cross-cutting constraints. These include access to credit, skills shortage, poor infrastructure, and weak institutional capacities. • Recognizing the intimidating nature of previous to-do lists, this analysis limits its policy prescriptions to three areas: 1) industrial and sectoral strategies; 2) vocation and technical skills training; and 3) institutional support and coordination. Within each of these areas, specific policy recommendations are given organized by short, medium, and long-term actions. A strategy based on the two pillars of structural transformation and job creation that focuses on: • Integrated spatial development solutions supporting local and cross- border value chains in competitive sectors (e.g. agro-processing, basic manufacturing, services and tourism, oil and gas) • Inclusive growth focusing on youth and women empowerment • High-growth MSMEs and non-farm household enterprises • Trade and regional integration. 1. Strengthening Tanzania’s industrialization infrastructure and attracting anchor investors in selected priority sectors 2. Strengthening of small industries (MSMEs) in priority sectors within industrial estates (clusters, parks and/or SEZ) 3. Improving access to regional markets by removing barriers to regional integration, and improving trade logistics. • A pipeline $100 million Program for Results (P4R) financing project will focus on improving the investment climate and supporting industrial growth through facilitating increased domestic value addition in more inclusive and sustainable industrial estates. • A 2013 WBG study, “Light Manufacturing in Tanzania: A Reform Agenda for Job Creation and Prosperity” proposed a number of interventions for catalyzing industrialization. Sources: Internal WBG resources; Dinh, H. T. and Monga, C. 2013. Light Manufacturing in Tanzania: A Reform Agenda for Job Creation and Prosperity. WBG

37. Public interventions UNIDO & ODI 37 Sources: UNIDO & GoT, Tanzania Industrial Competitiveness Report 2012 ODI-SET, Preparation of Tanzania’s Second Five Year Development Plan (FYDPII) 2016/17 – 2020/21 37 • After a comprehensive analysis of Tanzania’s industrial prospects, UNIDO provides policy prescriptions along nine broad thematic areas: 1. Prioritizing industrial policy; 2. Consensus, ownership and leadership for industrial development; 3. Bringing industrial development initiatives to the local level; 4. Thinking of industrial policy both in the short and long term; 5. Fostering industrial diversification; 6. Regular industrial reports and data collection for industrial intelligence; 7. Reviewing the regional integration agenda for industrial policy; 8. Science, technology and innovation for industrial development; 9. Skills development for industry. • These recommendations are generally consistent with both the government’s own objectives and recommendations from other development partners. • UNIDO and the Overseas Development Institute (ODI) have provided the government with technical assistance. UNIDO contributed to several versions of the Tanzania Industrial Competitiveness Report, including a seminal 2012 report. In 2015, ODI authored the “Preparation of Tanzania’s Second Five Year Development Plan (FYDP II) 2016/17 – 2020/21” report commissioned by the Planning Commission through their Supporting Economic Transformation (SET) program. • Both UNIDO and ODI have close working relationships with the government of Tanzania and have the capacity to provide additional technical support across a range of thematic areas. UNIDO • ODI’s SET program focused on the following set of priorities: o Combining public/private coordination with accountability to ensure effective implementation (especially in SEZs and with PPPs); o Institutional building and especially providing a public agency with the capacity and power to manage coordination challenges in its drive to industrialization; o Investment climate improvement through policy improvements targeted especially towards infrastructure, technology transfer and innovation, human capital development, improving the fiscal and regulatory burden, improved public financing of key industries, and domestic private sector development. ODI-SET

38. Public interventions Summary 38 Rank Govt. FYDPII ODI SET UNIDO TCR ‘12 WBG P4R WBG Dinh, Monga Total 1 Sectoral diversification 4 5 5 5 4 23 2 Institutional coordination 5 5 5 3 4 22 3 Improving business climate / policy harmonization 3 4 5 3 5 20 4 Strengthening SEZs / clustering 3 4 3 5 5 20 5 Infrastructure development 5 2 3 5 4 19 6 Skills development 4 4 5 3 3 19 7 Regional trade 3 3.5 4 4 4 18.5 8 Strengthening domestic firms / improving linkages 5 3 3 4 2 17 9 Improving access to finance 5 2.5 2 4 2 15.5 10 Investment promotion / one stop shops 4 3 2 2 2 13 [Scale: 5 – Dedicated focus; 4 – High level of focus; 3 – Some focus as part of other work streams; 2 – Negligible focus; 1 – No focus] • In general, the government of Tanzania and development organizations converge on three major priorities: 1) sector diversification to develop Tanzania’s industrial sectors; 2) institutional coordination which includes undertaking capacity building; and 3) improving the business climate through a drive towards regulatory improvements. • The WBG places additional emphasis on strengthening SEZs and increasing skills development while the government emphasizes improving access to finance and strengthening domestic firms. Sources: High-level interim/draft team assessment.

39. 39 Sector prioritization04 • Why prioritize and how? • Findings for key manufacturing sectors • Process and next steps

40. Sector prioritization Why prioritize and how? 40 • Tanzania’s industrialization challenge is substantial: the country has a lower level of manufacturing compared to other countries in SSA, a region that itself trails other developing and emerging market economies in terms of their ability to leverage manufacturing as an engine of employment and growth. However, the government is eager to address this, and impatient to make gains in addressing the country’s industrialization deficit. • In light of the size of the challenge, the limited progress made to date, and the usual constraints on resources, it is necessary to develop a clear strategic focus, so as to make real gains in a limited number of areas, and then use these gains and the experience gathered to scale up the effort. • Developing such strategic focus begins with identifying manufacturing sector growth and investment opportunities, and ranking the opportunities relative to each other. However, such a prioritization process must be careful and deliberative, ensuring that it is inclusive, transparent, and well informed, avoiding the mistakes of closed-door processes of ‘picking winners’ that lack private sector buy-in and risk subsequently wasting time and resources. • This decision-making process puts into practice the idea of coordination or deliberation councils, advanced by Rodrik and others. While this effort is particularly important when focus sectors are prioritized, such a coordination and deliberation process is also required over the course of implementation of sector support interventions to both guide and advocate for a manufacturing competitiveness effort, and discuss course adjustment should decisions initially taken prove to not meet expectations. • Sources: Rodrik, D. “Industrial Policy for the Twenty-First Century.” November 2004; internal WBG document on Country Private Sector Diagnostics. Public-private coordination mechanisms • Writing about institutional structures for addressing information and coordination externalities, Rodrik advocates for strategic collaboration between public and private sectors “to elicit information about objectives, distribute responsibilities for solutions, and evaluate outcomes as they appear.” • Elaborating on the function of such coordination and deliberation councils, Rodrik says: • “They would be the setting in which private- sector interests would communicate their requests for assistance to the government, and the latter would goad the former into new investment efforts. • These councils would seek out and gather information … on investment ideas, achieve coordination among different state agencies when needed, push for changes in legislation and regulation to eliminate unnecessary transaction costs or other impediments, generate subsidies and financial backing for new activities when needed, and credibly bundle these different elements of support along with appropriate conditionalities. • … Preferably, the larger of these councils would have their staff of technocrats.”

41. Sector prioritization Why prioritize and how? (contd.) 41 • This process of sector prioritization centers on assessing key manufacturing sectors considering four questions along two dimensions of desirability and feasibility. Each is assessed using country-level, sector-specific data where available, or where there is no clear data then a qualitative assessment of each sector’s performance on that measure is used. Sources: WBG internal documents. Inclusion & jobs • Value-added per worker ($) • Direct jobs • Female to male ratio Economic growth • Domestic value addition ($ millions) Competitiveness • Gains in world market share • Product complexity index score Integration & connectivity • Exports ($ millions, 2011-2015 avg) • 5 year export growth (2011-2015) Resilience & stability • Assessment of independence of natural resources Environmental sustainability • Million metric tons of CO2 equivalent Demand • World market size (2015) • World market growth Production factors Labor skills • Ratio of non-skilled to skilled workers Revealed comparative advantage index (RCI) • Export share relative to global trade share (2015) Key inputs Energy • BTU usage per sector (based on US data) Transport • Value to weight ratio Finance • FDI investment into sector Institutions Regulatory barriers • Assessment of regulatory impact on sector Rule of law and property rights • Assessment of comparative investment mobility and investment depth/intensity Desirability • What is the desirability of the sector in terms of the potential impact from the sector’s output growth on the country’s development objectives? • What is the sector’s current performance and how does it contribute to development impact? How fast is it growing in terms of output quantity and quality? Feasibility • Under current conditions in the country, is profitable and transformative private sector activity in the sector feasible? If not, where are the constraints? • To what extent can conditions in the country be improved – within a limited time horizon – to bring about profitable and transformative private sector activity in the sector?

42. Sector prioritization Findings for key manufacturing sectors The application of this framework to the manufacturing sectors reviewed above finds a number of emerging clusters: • CTA and wood and furniture emerge as front-running sectors, with both exhibiting strong value addition and employment attributes, and bolstered by good global demand in terms of absolute market size and recent growth trends. Exports for wood and furniture have grown well recently. • Food products, beverages and edibles oils score well as a result of their size in Tanzania, and therefore a source of value addition and employment – both vital metrics. Beverages scores particularly well in terms of value-addition per worker and edible oils on exports (size and growth). All three also do relatively well on measures of environmental sustainability. • Pharmaceuticals and plastics score well on desirability due to comparatively high product complexity and lower than average natural resource dependence scores, and on feasibility as a result of strong global demand and growth. However, this potential market opportunity is not met by Tanzania’s sectors, which do not perform particularly well on export measures. Both face higher than average regulatory pressures – health and safety for pharmaceutical and environmental for plastics. Sources: Rodrik, D. “Industrial Policy for the Twenty-First Century.” November 2004; internal WBG document on Country Private Sector Diagnostics. * Note: CTA domestic manufacturing value-added data likely includes basic processing of cotton, which while it moves processing beyond a raw form of cotton, is also not substantially a manufacture. In this case, CTA would achieve a lower relative positioning on feasibility. • A group of more capital intensive industries generally cluster in the bottom left, driven mainly by their limited employment affects, below average domestic value addition and high energy consumption (which effects both feasibility and desirability through power use and their environmental footprint). They score well in terms of product complexity, but this is countered by Tanzania’s limited global market share. Relative feasibility and desirability Manufacturing sectors’ performance on 1-5 scale against a number of sector attributes Food products Beverages Edible oils Chemicals Soap Fertilizer Cement Iron and steel Paper and paperboard Cotton, textile, apparel Leather and related products Plastics Furniture and wood Glass Pharmaceutical 1.5 2.0 2.5 3.0 1.0 1.5 2.0 2.5 3.0 3.5 Feasibility Desirability

43. CTA • Potential to capture substantial part of value chain in- country (only for cotton products) • Good global growth • Apparel is low-skilled, labor intensive • Existing support from development agencies to build on • GoT priority • Majority of sector size is in cotton • Limited traction to date in apparel despite over a decade of preferential export market access • Increasing value chain pressures to reduce lead times, combined with heightened focus on environmental and social compliance Wood and furniture • Potential to capture substantial part of value chain in- country • Broad spectrum of skills development options • Good global growth • Most wood is exported with limited processing • Limited historical traction in furniture (though recent signs of growth) • Consumer concerns with sustainability will require stringent environmental safeguards Food products • As one of the country’s largest industries, it is a good source of value addition and jobs • Clear link to farmers and Tanzania’s agricultural potential • Natural barriers to entry as a result of bulk and/or perishability • Limited depth of value chain, with competitive differentiation lying less in production and more distribution and retail • Still quite import dependent for inputs, particularly grains and sugar • Dominated by a few large firms, limiting public interventions’ spillover advantages • Oftentimes politicized products, potentially constraining scope of competitiveness interventions Beverages • A large industry, so good source of value addition and jobs • Links to other large manufacturing supply sectors, including glass and plastics • Natural barriers to entry as a result of bulk • Limited depth of value chain, with competitive differentiation lying less in production and more distribution and retail • Dominated by a few large firms, limiting spillover advantages of public interventions Sector prioritization Findings from desirability-feasibility analysis (contd.) 43 Opportunities Challenges • The cluster of food, beverages and edible oil products surface as strong potential focus sectors in terms of their economic impact, yet they face a low ceiling in terms of future value addition development opportunities. • In contrast, pharmaceuticals presents enormous value addition and expansion opportunities; however the learning curve for Tanzania will be very steep. • Plastics presents great variety in terms of product opportunities, from relatively simple manufactures to industry 4.0 applications. • CTA and wood and furniture present a broad spectrum of processing opportunities, yet Tanzania has not truly seized them to date.

44. Edible oil • A large industry, so good source of value addition and jobs • Clear link to farmers and Tanzania’s agricultural potential • Natural barriers to entry as a result of bulk • Interesting niche opportunity in sesame oil • Limited depth of value chain, with competitive differentiation lying less in production and more distribution and retail • Still quite import dependent for inputs, particularly palm oil Plastics • Diverse range of product opportunities, including industry 4.0 applications • Natural barriers to entry as a result voluminous products • Relatively easy access to inputs • Regulatory pressures due to negative environmental impacts • Complexity of developing circular economy value chain • Aside from recycled plastics, no domestic source of inputs Pharmaceuticals • Large import substitution opportunity • Strong global growth • GoT priority • Regulatory barriers to entry, particularly in export markets • High value, low volume product presents few natural barriers to imports • Skills and R&D intensive Sector prioritization Findings from desirability-feasibility analysis (contd.) 44 Opportunities Challenges

45. Sector prioritization Process and next steps 45 • The manufacturing competitiveness project’s implementation efforts are targeted on a limited number of manufacturing sectors so as to ensure that limited resources are deployed to address specific constraints, thereby improving the possibility of achieving tangible and business-relevant gains. • The choice of which sectors the project should focus on will be undertaken through a consensus-driven, joint public- private process. This will entail convening a group of industry and public sector representatives – from business leaders to budding entrepreneurs, government officials to representatives of think-tanks – to contribute to a decision-making process in which quantitative and qualitative data are combined to drive a decision on which two sectors to initially focus the project’s efforts. • The decision will most likely focus on the short-list of food products, CTA, beverages, edible oil, plastics and pharmaceuticals, but it can also include any of the sectors profiled above. Finalizing prioritization: 1. Solicit input from public-private manufacturing stakeholders 2. Confirm initial focus sector decision 3. Agree on next steps (Timeframe: August-September 2018) Note: See annex for more project details.

46. 46 Annexes05

47. Facilitate investment and growth in high potential manufacturing sectors Objective Project activities Approach Technical and executional support for implementation of prioritized initiatives Technical expert input, investment promotion, market and technology access and linkages, capacity building, institutional strengthening, public-private dialogue Sector strategic roadmap and action plan Annex 1 Project background: Manufacturing competitiveness overview 47 • Challenge: Tanzania is predominantly an agriculture and services- based economy, with a low manufacturing footprint. Tanzania’s manufacturing sector represents less than 10% of GDP with an overall declining trend from a high of 13% of GDP in the 1970s. This compares poorly to other countries in the region, and lags far behind East Asian countries that have proven to be successful in harnessing manufacturing as an engine of growth and employment. Addressing Tanzania’s relative underperformance in manufacturing has therefore become a focus of the Government. In its Second Five- Year Development Plan, the Government has prioritized manufacturing as a key contributor in its drive to become a semi- industrialized country. • Objective: The objective of the manufacturing component of the Tanzania Business Enabling Environment Support project is to support Tanzania's growth in manufacturing value addition and related employment in high priority manufacturing sectors • Implementation: The project will be implemented over a period of four years in three phases: 1. Assessment and prioritization: Assess Tanzania’s manufacturing competitiveness; identification and prioritization of high- potential value opportunities for manufacturing growth; identification of a limited set of sectors on which to focus the project’s support (currently two sectors at this stage). 2. Development of sector strategy roadmaps: Engage industry sector groups to develop sector strategy roadmaps; design and sequence intervention support required, clarifying roles for the government, private sector and supporting institutions. 3. Implementation of prioritized activities: Lead execution of key multi-year, competitiveness initiatives ( - this is the main focus of the project’s efforts). Includes support in technical capacity building, market and technology linkages, export and investment promotion, institutional strengthening; underpinned by public-private dialogue process to ensure jointly owned and implemented solutions. Note: The manufacturing competitiveness activities are a component a larger Tanzania Business Enabling Environment Support project (BEE). The objective of BEE is to build inclusive and sustainable private sector-led growth, competitiveness and investment in Tanzania. This is achieved through a focus on: Cross-cutting economy-wide reforms, that include streamlining business regulation and tax administration, regional integration and enhancing trade logistics; Unlocking investment in key sectors, focused on agribusiness, manufacturing and tourism. The project is implemented by the World Bank Group and funded by the Government of Canada.

48. Annex 2 Food products parameters and data estimations 48 • According to 2013 industrial census data, Tanzania produced $2.7 billion of food and related products (ISC Rev 4 code 10). This includes a range of food-related items, ranging from fresh fruit and vegetables to processed food products. • The main focus in the manufacturing context is on processed foods, therefore mainly on edible oil ($500 million), flour ($750 million) and ‘other’ food products ($1 billion). • To get an estimation the relative share of products within the ‘other’ category of the census data, food products data from the Global Consumption Database (2010) was drawn on. This shows that over three-quarters of these other products are covered by two products: baked goods (largely bread) and sugar. • These products were then used for analyzing trade data for food products, assessing imports and exports of flour, baked goods and sugar. Sources: Trade Map, International Trade Centre: http://www.trademap.org/, UN Statistics Division, World Bank Group Global Consumption Database: http://datatopics.worldbank.org/consumption/country/Tanzania 101 - Processing and preserving of meat 102 - Processing and preserving of seafood 103 - Processing and preserving of fruit and vegetables 104 - Manufacture of vegetable and animal oils and fats 105 - Manufacture of dairy products 106 - Manufacture of grain mill products and starches 107 - Manufacture of other food products 1071 - Manufacture of bakery products 1072 - Manufacture of sugar 1073 - Manufacture of cocoa, chocolate and confectionery 1074 - Manufacture of pasta products 1075 - Manufacture of prepared meals and dishes 1079 - Manufacture of other food products - Coffee, tea, spices - Vinegar and - Special foods (e.g. baby food, infant formula) - Miscellaneous foods (e.g. yeast, extracts, egg prod.) Food products codes ISIC Rev 4 code 10 Tanzania’s food products 2013 values. Size: $2.7 billion. 41% 35% 11% 10% Baked goods Sugar Coffee, tea, cocoa Special food products Confectionary, chocolate Jams, marmalades, honey Pasta ‘Other’ food products Share based on consumption data - 200 400 600 800 1,000 Other food products Meat Dairy products Fruits/vegetables Seafood Vegetable/animal oils Milled grains and starches $, millions

49. Annex 4 Sector prioritization: Definitions of desirability and feasibility 49 Source: WBG internal documents. Note: This methodology was developed by the WBG for Country Private Sector Diagnostics. 49 • Each sector’s desirability in terms of its contribution to development objectives is measured across six categories: inclusion and jobs, economic growth, competitiveness and productivity, integration and connectivity, resilience and stability, and environmental sustainability. • Reform feasibility is assessed across four categories: demand, production factors, key inputs and institutions. Some of these categories contain further subcategories. For instance, key inputs are broken down into energy, transport, and finance. The four categories of feasibility also correspond to a simple demand-supply market failures assessment of a sector. The first category measures demand for the sector’s output. The second category, production factors, measures supply capacity in the country, including labor, land, and natural resources, and pertinent capital, approximated by existing capabilities. The third category, key inputs, assesses market failures in secondary markets that are of importance to the sector and might prevent market creation, while the fourth category, institutions, deals with issues that might create market failures in the sector itself. • Desirability and feasibility dimensions can be roughly equated to measurements of the social returns (desirability) versus the risk-adjusted private returns (feasibility) of investment in each sector. A sector needs to score high on both criteria for the private sector to be able to make a meaningful contribution to development objectives—even if social returns are high, the private sector will not step in unless a sufficient share of the returns can be appropriated by the investing firm to generate a profit.

Tanzania manufacturing: Sector opportunity scan - Part I (2018)

Tanzania manufacturing: Sector opportunity scan - Part I (2018)

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