The business environment in Tanzania after socialism: challenges of reforming banks, parastatals, taxation and the civil service

In the process of structural adjustment and economic liberalisation, former strong socialist sub-Saharan African countries are experiencing additional challenges in their efforts tu develop the private sector, compared to tho se that had relatively market oriented economies. Tanzania is known for its past strong socialist orientation. This article assesses the country's eff ort to reform the banking system, state owned enterprises, taxation system and the public services sector, and the emergence of the private sector. Co mparisons are made where relevant with the experiences from transition econ omies in Eastern Europe. Major reforms have taken place in all the sub-sectors, and there is signifi cant increase in the participation by the private sector ill the economy wi th increased production. Private banks have increased from zero in 1994 to thirteen in 1998. Over 40 PPT cent Of former state owned enterprises have b een divested, 50 per cent of which were sold. Some are performing well, con tributing to government income and reversing the drain through subsidy. The taxation system has improved. It now recognises the role played by the pri vate sector and has introduced new mechanisms to collect taxes e.g., VAT, a nd plugging tax evasion loopholes. Private sector investment has increased and major developments are notable in mining and tourism. Although the overall impact of liberalisation on the areas examined has bee n positive, significant weaknesses remain, especially in the regulatory fra meworks required to prevent abuses of their position by private enterprises . Both corruption and an uncertain legal environment inhibit the realisatio n of benefits from reform. The 'trickle down' of welfare to poorer sections of society has been inadequate, as has the extension of financial services to small businesses and rural areas. Further public investment is required , especially in health, education and infrastructure.