Understanding the Role of Rural Non-Farm Enterprises in Africa’s Economic Transformation: Evidence from Tanzania

Abstract

Tanzania's recent growth boom has been accompanied by a threefold increase in the share of the rural labour force working in nonfarm employment. Although households with nonfarm enterprises are less likely to be poor, a substantial fraction of these households fall below the poverty line. Heterogeneity in the labour productivity of rural nonfarm businesses calls for a two-pronged strategy for rural transformation. Relatively unproductive enterprises may be part of a poverty reduction strategy but should not be expected to contribute to employment and labour productivity growth. Failure to account for this heterogeneity is likely to lead to disappointing outcomes.

Jobs in Global Value Chains: New Evidence for Four African Countries in International Perspective

“…Levels in Bangladesh, China, Malaysia and Turkey are well above 35% in comparison. This finding reflects the findings of a low share of manufacturing in overall GDP or employment in most African countries as found by andDiao et al (2017). Yet, as outlined above, GVC jobs can also be generated in more upwards stages of production, that is through backward linkages into domestic sectors in the venerable Hirschmann (1958) tradition.…”

“…First, more data on informal and small-scale enterprises alongside the formal sector firms. Diao et al (2018) suggest that there is an important subset of small yet highly productive micro firms in what they denote the "inbetween" sector. These are firms that are informal, yet share important characteristics with formal firms such as keeping written accounts in a ledger, and owners saving money in a formal bank account.…”

“…Hence it does not cover micro and informal firms in manufacturing that may play a dynamic role as well as suggested byDiao et al (2018). Using Tanzania's first nationally representative survey of micro-, small-, and medium-sized enterprises (MSMEs) they estimate that non-agricultural MSMEs contributed roughly one percentage point to economy-wide labor productivity growth in Tanzania between 2002 and 2012.…”

Africa’s Unfolding Economic Transformation

“…Several key factors have contributed to Africa's recent transformations and their relative importance varies by country. Diao and colleagues have emphasised endogenous growth of the informal economy, and foreign financial inflows (Diao, Harttgen, et al, 2017;Diao, Kweka, & McMillan, 2017;Diao, Magalhaes, & McMillan, 2018). Tschirley et al (2015) emphasise urbanisation, rising incomes, and dietary transformations.…”

“…In countries such as Bangladesh, China, and South Korea, labour-intensive and export-oriented manufacturing pulled people out of farming into activities that provided much greater labour productivity and returns per capita. While African countries' labour forces are diversifying out of farming, the major forms of off-farm employment growth are in informal goods and services' sectors, some of it providing gainful employment but most of it in activities with low entry barriers and low returns to labour (Diao, Harttgen, et al, 2017, Diao, 2018. Jobs registering the highest employment growth are those driven by rapid population growth such as construction, agricultural wage labour, trading of food, clothing, cooking goods, construction materials, and personal care services.…”