African men farming a field
The project supports Seed Change Tanzania and oil palm development in Kigoma through nursery demonstration plots established to provide training and hands-on knowledge transfer to hundreds of farmers in the region.

Local Investment Climate (LIC), Tanzania

Public-private dialogue for local investments and business promotion

Tanzania's tax base is small and the country grapples with high levels of poverty. The Local Investment Climate Programme aims to reduce regulatory and economic barriers facing the private sector and create an economic environment in which businesses can grow and thrive.

As a result of expansions in capital-intense sectors such as telecoms, mining, and natural gas, Tanzania has been one of the fastest-growing economies in the world for the past decade. However, the fact that the economic growth rate comes from capital-intensive sectors means that the improving economy has very little real impact on Tanzania’s ordinary citizens.

A significant proportion of Tanzania’s population lives under the poverty line. According to the World Bank, 67.9% of Tanzanians live on less than $2 per day, with approximately 80% of people affected by poverty living in the rural areas. A big source of this poverty is the fact that most of Tanzania’s business sector is informal in nature and highly uncompetitive. Few people are formally employed in these conditions, leaving them with limited options for survival except to start informal businesses of their own, which do not earn them large enough incomes to lift them out of poverty.

Through four phases of Business Sector Programme Support (BSPS), the Danish International Development Agency (Danida) has been involved in private sector development in Tanzania for 20 years. BSPS IV, which is running from 2013 to 2019, prioritises one of Tanzania’s development objectives:

Improved employment and income opportunities for farmers and micro, small, and medium enterprises (MSMEs) through green, inclusive growth.

Business Sector Programme Support IV Final Programme Document

Having learned from the previous phases, BSPS IV takes a bottom-up, human rights-based approach, ensuring that stakeholders on the ground can influence the outcomes and objectives of the programme’s subcomponent projects, which centre on agricultural market development, improvements to the business environment, and access to finance. Furthermore, BSPS IV has ensured that there will be an improved coherence and communication between its subcomponent projects by selecting a limited number of engagement partners.

Breaking down barriers to business

The Local Investment Climate (LIC) Programme is one of BSPS IV’s engagement partners, which contributes to the business climate improvement subcomponent. LIC is the only BSPS IV programme which operates at a sub-national level and focuses on two regions, Dodoma and Kigoma. NIRAS was contracted to manage LIC, which works on addressing the critical constraints to business growth and economic development at a local level. The programme started in 2014 by piloting its interventions in two local government authorities (LGAs) in each region (Dodoma Municipal Council and Kongwa District Council in Dodoma and Kigoma Ujiji Municipal Council and Kasulu District Council in Kigoma). Since then, LIC has expanded to cover all 14 districts and 16 LGAs in Dodoma and Kigoma.

A map of Tanzania showing the locations of Dodoma and Kigoma

At the heart of LIC’s interventions lies the recognition that there are two interdependent sides to the issue of economic development. The public sector has an important role in creating an enabling environment for private sector development, while a thriving private sector is crucial for increased revenue collection by the public sector in order to fund public goods such as education, health, infrastructure, etc. Therefore, LIC works simultaneously with LGAs and local business communities in the target regions to their mutual benefit, engaging both sides in public–private dialogues (PPDs) to find ways to positively alter the local economy’s dynamics, reduce the costs and risks associated with doing business, and strengthen the private sector’s competitiveness. The PPDs and the actions that are taken as a result strengthen the local economy and improves the revenue base for the LGAs. In addition to facilitating public–private dialogue, LIC also plays a supporting role in implementing these initiatives to ensure they are as effective as possible. This is largely done through the national implementation partners that are part of the project and represent both the public and private sector.

These organizations and government bodies also serve the function of documenting LIC’s experiences and sharing these experiences and lessons with other regions in Tanzania to facilitate the nationwide implementation of the programme’s methods. For example, the Tanzania National Business Council has recently developed national guidelines for PPD with the support of LIC, which will be applied in all regions in Tanzania.

Other than utilising PPDs, LIC engages in strengthening market linkages and value chains for sectors that have been selected as targets by BSPS IV. In Dodoma, LIC focuses on value chains for horticulture, beef and hide, grapes, sunflower, poultry, and mushrooms. In Kigoma, LIC works with cassava, palm oil, fishery, sunflower, and rice paddy farming value chains. LIC is involved in private sector development within these sectors, both through direct interventions through support to clusters and through the Small Industrial Facilitation Fund (SIFF).

Women selling sardines (known as dagaa) on the Kiribizi landing site and market, one of LIC's investment projects

SIFF has been developed to fund interventions in local clusters and business facilities, where the investment will boost productivity, encourage the flow of further investments into the local economy, and unlock critical constrains in local markets and value chains. Both private and public entities can apply for funding of projects that are owned or run by public–private partnerships. Investments made by SIFF are often a response to needs identified in regularly held district business councils in which the public and private sectors are equally represented.

One exciting form of intervention by LIC is in forming a Special Purpose Vehicle (SPV), a business entity that allows for public sector infrastructure to benefit from private sector-style management. Below is a video about how the use of an SPV has brought about improvements to the Kiribizi Landing Site. 

Contributions to sustainable development

While LIC was launched before the adoption of the Sustainable Development Goals (SDGs), the programme’s interventions created several outcomes that are contributing to several goals and targets.

By piloting an innovative and cost-effective land use planning approach, engaging in cluster and value chain studies, and investing in 12 value chains through SIFF, the programme is working towards SDG 2.3: double the agricultural productivity and the incomes of small-scale food producers through secure and equal access to land, other productive resources and inputs, knowledge, financial services, markets, and opportunities for value addition and non-farm employment.

LIC also ensures that women participate in public–private dialogues and supports female entrepreneurs and business owners, thereby contributing to SDG 5.5: ensure women’s full and effective participation and equal opportunities for leadership at all levels of decision-making in political, economic, and public life.

The programme contributes to SDG 8.3 – promote development-oriented policies that support productive activities, decent job creation, entrepreneurship, creativity, and innovation, and encourage formalization and growth of micro-, small-, and medium-sized enterprises, including through access to financial services – through several activities:

  • The establishment and facilitation of public–private dialogues platforms, notably District Business Councils (DBCs) and Regional Business Councils (RBCs)
  • The construction of One-Stop Business Centres, which operate on a district level to provide entrepreneurs with access to the information they need to comply with national and local laws and regulations, and take steps towards becoming formal, sustainable, and competitive entities.
  • The development of District Business Databases, which allow LGAs to track the issuing of local business licenses and to generate a profile of the local business community that can be used to monitor and facilitate local private investment. These databases also support information analysis for the preparation of improvement strategies for LGA revenue collection.
  • The participatory formulation of Local Business Environment Reform Plans. As a major product of the public–private dialogues mechanism, these plans are agreements between LGAs and the business community on practical ways forward for local reform efforts, focusing on legal and regulatory factors that can be addressed at the district or regional level.

LIC supports beneficiaries through the SIFF to help them obtain commercial loans and to scale projects beyond SIFF investments, thereby contributing to SDG 9.3: increase the access of small-scale industrial and other enterprises, particularly in developing countries, to financial services, including affordable credit and their integration into value chains and markets.

A revenue collector with a new point-of-sale machine provided by LIC

Finally, LIC contributes to SDG 17.1 – strengthen domestic resource mobilisation, including through international support to developing countries, to improve domestic capacity for tax and other revenue collection – by providing LGAs with point-of-sale machines for improved revenue collection.

Find out more about the Local Investment Climate Programme.