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Section 2: Labour & Land Resources in Tanzania

Fitch Solutions Labour Market Risk Index

  • Tanzania is placed in fifth position out of 11 East Africa states and in 149th position out of 201 states globally in the Fitch Solutions Labour Market Risk Index.
  • Tanzania outperforms the East Africa average overall, notably in the components of availability of labour and education; however, the country underperforms regionally for labour costs.
Chart: Labour Market Risk, 2019
Chart: Labour Market Risk, 2019

Labour Market Risk Index: Methodology and Components

  • 100 = Lowest risk; 0 = Highest risk
  • The overall Labour Market Risk score is calculated from the average of the Availability of Labour, Education and Labour Cost sub-component scores.
  • Education: the education sub-component focuses on general and tertiary schooling. Scores are based on enrolment at each level of education and interest in technical subjects, such as science, manufacturing, construction and engineering. This gives an indication of the talent pool available in a country, and emphasises higher value technical skills.
  • Availability of Labour: the availability of labour score takes into account the size of the workforce, the quality, age and health of the labour pool and its composition (both with regards to the nationality of workers, and their occupations).
  • Labour Cost: this sub-component assesses worker flexibility and the cost of hiring in a particular country. It includes factors such as the minimum wage, severance pay and unemployment. The scores are calculated to reward the countries with the lowest cost of hire.

Labour Supply and Skills

The size of Tanzania's labour force offers a number of significant benefits for investors. The country boasts one of the largest percentages of the working-age population in employment in the region and has a large youthful population. Though the country also has a relatively high life expectancy by regional standards, the quality of healthcare that is available to the masses is poor and will weigh on labour productivity. Firms are likely to face disruptions due to risks of absenteeism and high staff turnover. Nonetheless, the large population and abundance of labour in the primary sector represents a key competitive advantage for businesses, particularly those in labour-intensive industries.

Investors in Tanzania will face challenges with the low quality of education in the country. Although basic education is free and compulsory, widespread poverty in many households translates to low education attainment levels. Risks are heightened by the prevalence of child labour in the country, which negatively impacts retention and attendance rates. Though improvements in access to education will increase the proportion of the labour pool with a formal education, deficiencies in quality and resources exacerbate the skills shortage in the country as literacy and numeracy levels remain low. Many firms in the construction, high-level manufacturing and technology industries risk higher costs needed to train local workers and financial costs associated with importing skilled foreign workers to supplement the skills shortage in these fields.

Tanzania's localisation policies are moderate in general and are geared towards the employment and upskilling of its citizens. Companies looking to employ foreign workers are generally restricted to five expatriates although there is a possibility of having more foreign workers to take up managerial or technical positions if no local can fill the position. Foreign workers also needed to possess a skill that is in short supply in the country in order to be able to work in Tanzania.

Chart: Working Age Population, 2018
Chart: Working Age Population, 2018

Labour Costs and Regulations

The average monthly minimum wage in Tanzania is US$50.39. Although this is low by global standards, it is uncompetitive regionally. Workers in Tanzania are also less productive than their regional peers, representing a notable disadvantage for firms. In general, local employees produce less work in an hour compared to workers in countries such as Uganda, Burundi and Sudan.

Table: Minimum Wage
Table: Minimum Wage

That said, notable advantages to firms come in the form of the flexibility of Tanzania's labour force, where factors such as its low number of paid holidays, less time-consuming redundancy notice period and regionally competitive severance packages mitigate labour costs. Hiring and firing practices in Tanzania are not highly restrictive and employers enjoy some bargaining power when setting wages. Some rigidity exists as firms are not permitted to use fixed-term contracts for permanent positions, decreasing the flexibility of hiring seasonal and short-term workers often associated with construction work.

Tanzania and Zanzibar ascribe to their own labour laws, but trade unions are generally weak throughout national territory. In 2017, 23 trade unions existed in mainland Tanzania and unions covered approximately 17% of workers in the formal sector. In Zanzibar, approximately 40% of the workforce is unionised under the Zanzibar Trade Union Congress, but workers are restricted from joining mainland-based labour unions. Workers are legally able to strike and cannot be fired for participating in a lawful strike. The right to collectively bargain exists for private sector workers on the mainland, while disputes are overseen and concluded with the assistance of the Commission for Mediation and Arbitration, lowering the likelihood of prolonged conflict between labour and management.

Table: Labour Regulations
Table: Labour Regulations

Land Resources, Construction Permits and Registering Property

The Tanzania Investment Act of 1997 and the Land Act of 1999 stipulates that occupation of land by non-citizen investors is restricted to lands for investment purposes. Land can be leased for up to 99 years, but individual Tanzanians are not able to sell land to foreigners. Tanzanians can enter into joint ventures with foreign investors and provide the use of land while retaining ownership themselves. Foreign investors can lease land through the Tanzania Investment Centre (TIC), which has established designated plots of land (known as 'land bank') available for foreign investors.

The Government of Tanzania can expropriate property when it is in the 'national interest', but the Tanzanian Investment Act guarantees payment of fair, adequate and prompt compensation, along with access to the court of arbitration for the determination of adequate compensation.

It takes an average of 184 days to acquire a construction permit, above the Sub-Saharan Africa average of 145.7 days. Tanzania's uncompetitive performance in this regard is mainly due to the large number of procedures required to obtain the permit. However, the cost of construction permits remains competitive at 6.6% of warehouse value, performing better than the wider regional average of 8.8%. Businesses also face more difficulty in registering a property as it takes 67 days and involves eight procedures.

Table: Registering Property
Table: Registering Property

 

Manufacturing in East Africa: Tanzania

Section 1: Industrial Manufacturing Focus
Section 2: Labour & Land Resources
Section 3: Infrastructure
Section 4: Regulations & Tax Incentives
Appendix: Relevant Government Bodies
        
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Content provided by Picture: Fitch Solutions – BMI Research
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