Introduction

Liberty Sparks is a research-oriented think tank committed to fostering education and advancing the principles of a free-market economy. At the core of our initiatives is the Ujirani Mwema Project, a program dedicated to researching and advocating policy reforms for “trading across borders” in Tanzania. This project, funded by the ATLAS NETWORK and IATP, seeks to improve the business environment in Tanzania. The Ujirani Mwema Project targets key sectors, namely agriculture, mining, and manufacturing, with a focus on addressing challenges and recommending policy reforms. The first report was on on agricultural trade and this report is on manufacturing trade. It is imperative to modernize the industry to bolster yields, facilitate exports, engage in value-added processing, and foster cross-border agricultural trade.

The manufacturing sector in Tanzania faces numerous challenges and remains a top priority for the government’s development efforts aimed at poverty reduction and increased productivity. In response, Liberty Sparks has initiated a cross-border manufacturing trade project that conducts an extensive analysis of the enabling environment for manufacturing trade, specifically, the government policies, laws, regulations, and institutions that govern the cross-border movement of manufactured goods. This project aims to improve the business landscape in Tanzania to facilitate cross-border manufacturing trade.

Objectives and Methodology

The main objective of this assignment is to assess the status of the manufacturing sector, particularly in relation to cross-border trade, and to propose strategies for enhancing Tanzania’s business environment to facilitate such trade. The focus is on analyzing the administrative requirements, procedures, costs, and time involved in cross-border manufacturing operations, with the aim of recommending improvements. Through this effort, Liberty Sparks seeks to provide policymakers with valuable insights into the current state of cross-border manufacturing trade in Tanzania and its potential for growth. By identifying key challenges and opportunities, the study supports policy reforms aimed at creating a more efficient and conducive business environment. These reforms are anticipated to reduce administrative complexities, lower costs, and streamline processes, making cross-border trade more accessible and competitive for Tanzanian manufacturers.

To achieve the study’s objectives, a mixed-methods approach was employed, incorporating both quantitative and qualitative research techniques, supported by extensive desk research. The assignment involved a thorough literature review, alongside the use of both qualitative and quantitative methods. As part of the quantitative approach, a structured questionnaire was developed and distributed to manufacturers via working groups, with Google Forms used to facilitate efficient data collection. The collection of primary data was critical, as well as the analysis of secondary data to validate and complement the findings. Both data sources played a key role in building a comprehensive, evidence-based understanding of the study’s focus. Additionally, participatory tools, techniques, and methodologies were employed to gather and verify information. This participatory approach ensured that diverse stakeholder perspectives were integrated, enhancing the credibility and depth of the findings. In achieving the assignment’s objectives, the study carried out the following activities:

Conducted a desk study by reviewing current and past research and reports on cross-border manufacturing trade.
Organized roundtable discussions and interviews with high-level informants and decision-makers.
Analyzed the collected data using both quantitative and qualitative methods, and drafted the study report.
Facilitated a stakeholders’ workshop.
Produced a high-level policy position paper with recommended interventions.

Key Findings and Messages

Despite efforts to modernize its foreign trade, Tanzania’s manufacturing sector has seen limited improvement in recent years. While the country has focused on promoting the private sector agenda through key manufacturing stakeholders and implemented several policy reforms, further policy revisions are still necessary. The complexities of cross-border trade, such as tax payments, business registration, permits, and property registration, continue to present significant challenges. Many companies struggle with these obstacles when engaging in cr oss-border trade. Together, these challenges create a complicated landscape, requiring businesses to remain highly attentive, adaptable, and strategic in their planning to manage the associated risks effectively. Below are the key messages from the study:

Trade barriers, tariffs and customs duties affect 85% of cross-border transactions, raising costs and reducing profits. Cumbersome customs procedures impact 68% of trade, causing delays of 4 to 7 days for clearing goods. These inefficiencies disrupt supply chains, increase costs, and hinder companies’ competitiveness due to slower market responsiveness.
Logistics issues, this highlights the time and costs associated with customs compliance, mandatory inspections, and handling at Tanzania’s main ports or borders for imports and exports. Key metrics include border compliance, domestic transit, and documented compliance. Poor infrastructure, such as inadequate roads and inefficient ports, further delays shipments, raising transportation costs and causing losses.
Trade regulations and compliance issues, these issues affect 28% of companies, adding administrative burdens and requiring constant vigilance to meet trade requirements. Complex customs procedures, bureaucratic inefficiencies, and corruption delay clearance, complicating cross-border manufacturing trade. Disparities in regulations, product standards, and labeling between countries increase compliance costs and cause further delays for manufacturers.
Legal and regulatory framework issues, navigating legal and regulatory frameworks accounts for 32% of the challenges companies face. Varying rules across countries require constant adaptation, specialized legal advice, and compliance teams. This adds administrative burdens, increases non-compliance risks, and can lead to penalties, legal disputes, or operational delays.
Currency exchange rate fluctuations, currency fluctuations affect 78% of transactions, creating uncertainty that disrupts profitability. Unpredictable exchange rate shifts challenge manufacturers in maintaining stable pricing and profit margins, complicating revenue forecasting and cost management. This volatility hinders effective planning, budgeting, and execution of cross-border transactions, reducing competitiveness.
Policy instability, policy instability affects 55% of cases, increasing risk as sudden shifts in trade regulations disrupt long-term planning and daily operations. Changes in tariffs or restrictions can hinder crucial trade routes, forcing manufacturers to adopt flexible strategies to mitigate delays, costs, and competitiveness challenges.
Language and cultural barriers, these barriers continue to be a major obstacle, making communication and negotiations with foreign partners more complex. Cultural differences, language barriers, and varying business practices can lead to misunderstandings, delays, or conflicts during negotiations, ultimately hindering collaboration and the smooth execution of international business agreements.
The lack of market information, this issue impacts 77% of companies, hindering informed decisions about markets and partners. Incomplete data and fluctuating conditions complicate risk evaluation, limiting access to new export opportunities and affecting timely market entry decisions.
Access to finance, access to finance is critical, as limited affordable options restrict manufacturers’ investments in expansion and modernization. Without sufficient capital, they struggle with technology adoption and quality improvements, hindering growth and innovation compared to competitors with better financial resources.

Recommendations

Addressing these challenges is vital for sustaining growth and enhancing Tanzania’s competitiveness in regional and global markets. The government has initiated measures like trade agreements, simplified customs procedures, improved transport infrastructure, and regulatory harmonization to facilitate cross-border manufacturing trade. However, persistent issues continue to hinder progress in the sector.

Fostering collaborative efforts, creating a conducive environment for cross-border manufacturing trade requires collaboration among the government, private sector, and regional bodies. Coordinated efforts to streamline regulations, reduce tariffs, and promote best practices can enhance competitiveness, encourage investment, and drive economic growth in the sector.
Provide conducive environment for MSME development and competitiveness, the growth of MSMEs is vital for cross-border manufacturing trade. Collaborative efforts among regional organizations like EAC, SADC, and AfCFTA can enhance economic integration, support capacity-building, and strengthen competitiveness, while encouraging partnerships with research institutions and establishing quality standards through the Tanzania Bureau of Standards.
Build capacity for utilizing ICT for exports, building export capacity involves implementing ICT systems to reduce corruption and enhance trade efficiency, along with developing market intelligence and providing comprehensive export guides. These measures will empower businesses with the knowledge and tools needed to succeed in cross-border trade.
Improve market intelligence, manufacturing enterprises need to be facilitated to tap emerging market opportunities more effectively. This will involve proactive engagement with domestic, regional, and international markets to identify and capitalize on emerging trends, consumer preferences, and trade agreements. By leveraging technological advancements, such as e-commerce platforms and digital marketing strategies, we can connect farmers directly with consumers, bypassing traditional supply chain barriers and maximizing returns.
Implement a selective protection policy, trade policies have favored imports over domestic manufacturing. Implementing selective protection measures, such as targeted tariffs and subsidies, can create a supportive environment for localization, nurturing domestic production and stimulating local economic activity.
Promotion of special economic zones, promoting Special Economic Zones (SEZs) can attract foreign and domestic investors by offering tax breaks, reduced tariffs, and streamlined regulations, creating a more appealing business environment. SEZs enhance job creation, improve local employment opportunities, and facilitate access to international markets, boosting trade balance.
Extension of free port, free port facilities should be expanded to handle increased trade and larger volumes of goods. This will boost trade efficiency by reducing logistical bottlenecks, speeding up processing, and lowering transportation costs, enhancing regional competitiveness. Extensions must meet criteria such as infrastructure readiness and regulatory compliance.
Management of capital formation, influenced by interest rates, is vital for economic growth, enhancing productivity and job creation. However, capital formation in SADC countries exceeds that of other integration countries, highlighting the importance of diversity. Understanding these differences can help nations improve their economic strategies and promote growth.
Targeting promotion efforts, enhance promotional efforts that encourage investors in neighboring countries to extend their production capabilities to Tanzania and investments in Tanzania could extend their capacities to neighboring countries.
Promote implementation of local content policy, promote the implementation of local content policy ensuring that linkages between foreign investment and investment in various supply industries is encouraged.
Technology transfer and spinoffs, large companies which have developed capacity to compete in the country and outside can facilitate spinoffs in which smaller local companies can invest in non-core activities, become their spinoffs and suppliers of various goods and services.
Targeted investments should use land as an empowerment tool, granting derivative rights to landowners and requiring at least 30% local ownership in the investing entity. This approach ensures that local stakeholders benefit from both land and investments, promoting equitable and sustainable development.