Growth of small agro-processing firms and their influence on employment creation, Tanzania

PhD ThesisThe small agro-processing sub-sector accounts for over 80% of all firms in Tanzania. However, the firms have not been effective in absorbing new labour in the market, as reflected by the unemployment rate, which increased from 5% in 2001to 10% in 2011. The low rate of labour absorption has been partly attributed to the slow growth of small agro-processing firms, which grew by only 10%. Labour productivity also is perceived to be low. Hence firms within the sub-sector have not performed to their expected potentials. However, no in depth analysis has been done to confirm these facts, especially in relation to labour productivity and firms’ growth. This study examined the growth of small agro-processing firms and their influence on employment focusing on labour productivity in Mbeya and Morogoro Regions of Tanzania. A total of 102 firms represented different types and location in the study area. Time series and cross-sectional data were collected from sampled districts and firms. Employment creation trends, labour productivity performance and factors affecting the firm’s growth were examined using descriptive statistics and multiple regression analysis. The analysis show that about 63.6% of firms operated under capacity, hence employing below their potential due to low supply of raw-materials, inadequate capital, and poor marketing systems as well as high cost of energy. Labour productivity growth was influenced by experience, education, training and physical capital. Also the growth of firms was influenced by the value of raw-materials, manager’s education and energy cost. Small agro-processing firms in Morogoro Region grew faster (62.7%) compared to firms in Mbeya (37.3%). The difference may be due to Morogoro having better access to factor and product market hence having lower transport cost for inputs and reduced distribution cost of processed products. The study recommends that the government and non-governmental organizations to promote the production of high value of raw-material as contributing factor by 30% to growth of firms. Such interventions will have a significant effect in employment growth. Furthermore, the government and other non-governmental organization should improve human and physical capital, while emphasising technological innovation and adherence to processing products according to standards set by responsible authorities