Paper
Small Enterprise Growth and the Rural Investment Climate: Evidence from Tanzania
Analyzes the business constraints for development of private sector initiatives in rural areas
35 pages
This paper analyzes characteristics of small, informal, non-farm rural enterprises, their employment growth patterns, and constraints in doing business in rural Tanzania. Using data from the Rural Investment Climate Survey, the paper describes a low-return sector struggling to compete in a difficult business environment. Findings include:
- Private sector constraints in rural Tanzania mainly operate from the supply side;
- Better access to finance, road infrastructure and rural cell phone communication is correlated with higher enterprise employment growth;
- Demand-side constraints are relatively less important due to good performance by the agricultural sector during 2000-2005;
- Enterprises operate mainly in agricultural retail and wholesale trade, with small and young enterprises growing faster than others;
- Subjective and objective measurements of business constraints are broadly comparable.
The findings show that marginal improvements in the rural investment climate matter for growth. The dominance of the agriculture sector indicates that most rural enterprises in Tanzania are highly dependent on agricultural performance. This highlights the importance of favorable policies and investment for agriculture.
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