Determination of enterprise performance and efficiency

A useful quantitative tool for assessing a firm's efficiency is the domestic resources cost (DRC). The DRC is the cost of the domestic resources (factors) that are necessary to save or earn one unit of foreign exchange by producing a unit of value added (valued at border prices). Unfortunately the data collected in this study is not detailed enough to permit use of the DRC methodology. A crude indicator of firm-level performance has been used instead, namely the labour surplus, or value added per worker.

Table 8.5 (pp. 238-9) provides information on surplus generation in the sample firms in the metals and engineering sector for the years for which data was available. Themi has the worst performance in the sample. Even in nominal terms it had a negative value added and hence negative surplus and productivity in 1985 and in 1990. In real terms the situation is even more alarming. NEM's performance has been rather mixed. The firm's real value added per worker declined from TSh50 000 in 1983 to TSh5 500 in 1986. It has since recovered and rose to TSh85 800 in 1990. The best performers are Afrocooling and Matsushita, which show rising surplus levels and real value added per worker, especially after 1985.

But when Table 8.5 is read alongside Table 8.4 the emerging picture is rather confusing. Trends in export performance in the most productive firms have not been encouraging. Afrocooling's exports has declined between 1989 and 1991, Matsushita's exports declined from US$1 045 000 in 1986 to a low of US$31 000 before rising marginally to US$107 000. Export earnings for the worst performers rise between 1986 and 1991.

The overall picture that emerges is that, despite an increasingly favourable macropolicy environment for export enterprises and modestly successful attempts to acquire and build technological capabilities within Afrocooling, Matsushita and NEM, these relatively efficient non-textile firms are losing their export market shares.

The textile industry in Tanzania has, in the 1980s, expanded its productive capacities. Despite the expansion, output has been declining, from 93.0 million square metres of cloth in 1980. when industry capacity was 200 million, to 62.5 million in 1992, when capacity had reached 252 million 5 square metres of cloth per annum (see Table 8.7). The poor performance of the industry has been attributed to lack of foreign exchange for inputs and spares, frequent interruptions in the supply of electricity and water, aged plant and machinery, inadequate credit facilities, an inappropriate or hostile macroeconomic environment which gives an unfair competitive edge to textile imports, unhelpful rules and regulations, etc. (see e.g. Mbelle, 1992).

The export performances of the individual firms covered in this study have also not been very good. Three firms which are apparently the frontier firms in the industry (Canvas, Friendship and JV), recorded average capacity utilization rates of 80 per cent, 49.9 per cent and 45.3 per cent respectively in 1990. Polytex and Tanganyika had utilization rates of less than 30 per cent.

A logical conclusion of the above trend is that proper export incentives, a realistic exchange rate, a competitive pricing regime and a stock of technological capabilities are essential but not sufficient conditions for sustainable export growth. Other factors certainly matter. As pointed out earlier, significant advances have been achieved in establishing an exchange rate regime that would serve as an incentive to exporters. However, a number of anomalies persist in the regulatory environment which urgently need to be rectified if successful exporting is to take place. One major problem mentioned by all firms in the sample is that of cumbersome, bureaucratic and lengthy procedures for licensing, access to credit and foreign exchange, and export documentation. Some exporters have to travel long distances from the regions to Dar es Salaam simply to register themselves. Those based in Dar es Salaam have to commute from one corner of the city to another seeking approval from various institutions such as the Ministry of Lands and Natural Resources, the Ministry of Industries and Trade, BET, the NBC (National Bank of Commerce), the Investment Promotion Centre (IPC) and the Bank of Tanzania (BOT). There are also still tight bureaucratic bottlenecks in the administration of foreign exchange allocation, resulting in long lead times for imports. Such long and cumbersome procedures involving many institutions impose implicit extra costs (in terms of delays, etc.) on exporters. Delays could be even more disastrous for risk exports such as fresh fruits and fish.

All this suggests the need to establish some kind of an export centre that would offer at one location a package of relevant export services such as registration, licensing, proofs of ownership, export advice and export promotion. Delays in allocating foreign exchange could be substantially reduced if the OGL (Open General Licence) and import support funds were merged and their allocations were issued under similar conditions, and if forex facilities were made available through commercial banks only where letters of credit could be issued against their equivalent value in Tanzanian Shillings.

Supportive infrastructure is another important prerequisite for successful exporting. Expensive, sporadic and unreliable transport and communications are a serious impediment to the exporters of non-traditional goods. Reliability of delivery is also critical. High transport costs contribute greatly to the lack of competitiveness of exports. Poor telecommunications and constant power and water interruptions also raise the costs of doing business and compound the problem of lack of information.

There are serious weaknesses in the existing supportive institutional infrastructure as well. A survey of selected non-traditional exporters carried out in 1990 revealed that seven out of ten firms faced problems in accessing information about markets or lacked skills in designing products, packaging and controlling quality. Moreover, most of the exporters interviewed were ignorant about the modalities of exporting to the PTA member countries (Bagachwa et al., 1990). Some of these deficiencies can be remedied by private agents as they build up experience but others require the establishment of specialized and informed service institutions. As already pointed out, some relevant institutions exist in Tanzania but these seem to provide only limited support as far as technical services, training, information and export standards are concerned.

Successful exporting requires a conducive macroeconomic setting and a functioning infrastructure. Once these are in place, adequate incentives and the right capabilities and support institutions are required. Proper export incentives, a realistic exchange rate and a competitive pricing regime are essential in increasing the profitability of exports. The dynamic process of acquiring technological capabilities through learning, adaptation and improvements will be the key to efficiency and productivity gains over time. With the appropriate superstructure of specialized and informed institutions, there will be opportunities for exporters to get the necessary advice on market outlets, product quality, standards, packaging, etc. Policy-makers must seriously address these needs if they wish to make a positive contribution to the promotion of non-traditional exports in Tanzania.