Applying the sub-sector analysis in practice: FAIDA s experiences in Northern Tanzania

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1 Author: John Bet Editor: Maya Artist: Roy DTP: Hannah 3rd Draft #11 Appying the sub-sector anaysis in practice: FAIDA s experiences in Northern Tanzania SUB-SECTOR ANALYSIS BEFORE AFTER L ike many other deveoping countries, Tanzania has recenty gone through a process of market iberaization. Many Tanzanians took advantage of the diminishing state interference in economic ife and started their own business. These newborn entrepreneurs aimed to capture the new commercia opportunities, and at the same time, empoy themseves and generate their own income. Some entrepreneurs were successfu, whie others were not. The FAIDA project was one of the incentives born out of the idea that microenterprises needed support on the ins and outs of doing business. FAIDA is a sma enterprise deveopment project executed by the Netherands Deveopment Organization ( SNV ). Since 1994 FAIDA supports microenterprises operating in the Northern Zone of Tanzania. Its main focus is on Business Deveopment Services, Financia Assistance and Linking Farmers to Profitabe Markets. In Swahii, FAIDA stands for profit or added vaue. APPLYING THE SUB-SECTOR ANALYSIS IN PRACTICE: FAIDA S EXPERIENCES IN NORTHERN TANZANIA 1

2 Appying the sub-sector anaysis (SSA) approach, FAIDA was abe to maximize the use of its imited resources and pan effective interventions in promoting and assisting microenterprises in the Northern Zone of Tanzania. For a deveopment organization ike FAIDA, SSA proved to be a rapid and usefu too to attain a high impact in terms of empoyment and income generation among microenterprises. SSA heped FAIDA to: identify sub-sectors with growth potentia; know the needs and demands of microenterprises; and generate an action pan consisting of everage interventions. What is a sub-sector? A sub-sector is a network of firms that suppy raw materias, transform them into a product, and distribute this product to a particuar consumer market. In genera, the main characteristic of a sub-sector is the fina commodity it produces or the raw materia it uses. FACTORY 2 Best Practices and Strategies in Microenterprise Deveopment

3 What is sub-sector anaysis? The objective of SSA is to pan effective action for microenterprise support in a specific sub-sector. SSA recognizes that sma firms operate within a arge production and distribution environment. It systematicay studies this economic environment in order to understand the opportunities and constraints facing microenterprises and to deveop sensibe poicies and interventions to support existing and starting microenterprises. It draws a schematic map of the sub-sector focusing on the economic reationships between microenterprises and other actors in the sub-sector. It traces options avaiabe for microenterprises to capture the growth potentias within the sub-sector. GEMINI stands for Growth and Equity through Microenterprise Investments and Institutions. In the 90s, this project initiated the debate on how to promote microenterprise deveopment. Four key concepts in SSA The GEMINI project has been instrumenta in appying SSA to microenterprise support. Their approach distinguishes four main concepts: Vertica Perspective Microenterprises work in vertica suppy chains where they buy inputs and se outputs Vertica reations often invove arger firms Coordination Linkages among firms Reguation of produce fow within sub-sector Outside poicies/ reguations infuence market interaction/ access Sub-sector Anaysis Leverage Cost- effective interventions for microenterprise support Focus on reaching many microenterprises Interventions mutipy benefits/reduce perfirm costs Competition Microenterprises compete among themseves and with arger firms Microenterprises seek their comparative advantages/ niche The SSA steps FAIDA adapted the GEMINI methodoogy to suit Tanzanian conditions. The ack of reiabe secondary data and the imited resources avaiabe for conducting an SSA has ed FAIDA to concentrate on eight main steps. APPLYING THE SUB-SECTOR ANALYSIS IN PRACTICE: FAIDA S EXPERIENCES IN NORTHERN TANZANIA 3

4 Sub-sector anaysis fow Description FAIDA exampe Economic mapping The main economic sectors and sub-sectors in a region or province are reviewed through gathering quaitative information i.e. size of a subsector, its growth potentia and the roe of microenterprises. In Arusha, mining, fruit/vegetabes, and tourism have growth potentias. Microenterprises are invoved in fruit/ vegetabes. Introduction to sub-sector Drawing sub-sector map Reguatory environment Information on the overa production and distribution activities and the position of microenterprises within the sub-sector. Information is mainy gathered through interviewing key informants. The map pictures the compex interaction of business activities of the different parties active in the sub-sector. It summarizes the sub-sector s principa functions, its participants and its channes. Review of forma and informa business rues. Support organizations and their activities are described. Anaysis of the sub-sector s business environment and its competitiveness. Different channes exist: home consumption; sae at oca markets and exportation. Produce is mainy from smahoders. Prices fuctuate during the season. Expertise avaiabe from regiona research institute. Seeds are imported. Impements are readiy avaiabe. Consumer s demand is strong and growing. Niche markets exist for expatriates and tourists. Access to internationa airport. Judge potentia Based on the information gathered in the previous steps, it is judged whether growth prospects and the potentia for successfu interventions are positive. If not, the SSA stops here. Growth potentia as a resut of increase in consumption, niche markets and export. Sma-scae farmers are abe to grow the produce. Anayze dynamics Anayze how the sub-sector is changing over time, thus to identify its opportunities and constraints. Focus on the position of microenterprises. Demand grows and exportation is starting. Smahoders and microenterprises are increasingy interested to get invoved. Sources of everage Interventions that infuence arge number of microenterprises are identified and activey expored. Leverage points can be found in poicy constraints or imited competition at a particuar eve or ocation. Generay, the intervention assists a group of microenterprises engaged in the same activity. Introduce fruit processing. Inform microenterprises about export potentia. Introduce aternative, high quaity produce for expatriates and tourism. Improve Business Deveopment Services Impement actions Impemention of the identified interventions, incudes coaboration with reevant actors and support organizations. Make fruit drying technoogy avaiabe to microenterprises. Link exporters to sma-scae farmers. Promote oca seed production. Extension on new/high quaity produce. Assist microenterprises in making Business Pans. Promote Business Deveopment Services for microenterprises. 4 Best Practices and Strategies in Microenterprise Deveopment

5 Simpified sub-sector map for fruit and vegetabes in Arusha region consumer markets processing retaiing whoesaing assembing trade production Channe A. Channe B. Channe C. Channe D. Channe E. Arusha urban producers Sma oca markets Roadside markets Middemen Middemen Street vendors Centra market pace in Arusha town Peri-urban producers Groceries, supermarkets, retai shops etc. Loca sma-scae processing Rura producers Middemen Dar es Saaam Kenya Exporters Producers outside Arusha region Processed products from outside region APPLYING THE SUB-SECTOR ANALYSIS IN PRACTICE: FAIDA S EXPERIENCES IN NORTHERN TANZANIA 5

6 FAIDA interventions based on SSA Fruit and vegetabes sub-sector in Arusha region FAIDA payed an active roe in faciitating a contract farming arrangement between an exporter and smascae producers of green beans and chiis. In addition, FAIDA introduced and promoted simpe soar drying technoogies for fruits. Thus an aternative for the fresh market was created for farmers. Dried fruits are fetching a good price in oca and regiona markets. Furniture sub-sector in Arusha town FAIDA identified two main everage points. Firsty, carpenters coud increase their productivity and improve the quaity of their produce, when wood woud be graded and dried propery. FAIDA promoted wood drying among seected microenterprises and introduced them to appropriate drying technoogy. Secondy, the commercia use of by-products coud improve business revenues. FAIDA assisted a oca entrepreneur in marketing sawdust cooking stoves. Dairy sub-sector in Arusha town FAIDA assisted in deveoping a coaboration between a group of sma-scae mik producers and a sma dairy processor from Arusha town. The dairy farmers are provided a guaranteed market outet and price, whie the processor is ensured of a constant raw materia suppy. In addition, FAIDA assisted the processor with business training and advice and faciitated access to credit. FACTORY 6 Best Practices and Strategies in Microenterprise Deveopment

7 Gypsum sub-sector in Same district FAIDA faciitated the formation of an organization of sma-scae miners. In addition, FAIDA provided business training to smahoder miners and assisted them in obtaining oans in order to increase their working capita. Bee keeping sub-sector in Kondoa district The anaysis of the bee keeping sub-sector in Kondoa district ed FAIDA to promote oca production of ow cost bee hives and the use of protective cothing and bee smokers. FAIDA, in coaboration with existing extension agents, disseminated information on improved harvesting methods; practices to reguary inspect the coony; use of protective cothing; processing of high quaity beeswax; and oca production of candes to beekeepers. Strengths and weaknesses of SSA Strengths Weaknesses appicabe in environments where reiabe statistics are extremey scarce a quick too to get to know a sub-sector provides a cear insight on the roe of microenterprises in a sub-sector anayses opportunities and constraints for microenterprise growth indicates and expores intervention points that create everage due to ack of secondary data, anaysis reies heaviy on primary data coection techniques and expertise imited knowedge on interna organizationa bottenecks of existing microenterprises APPLYING THE SUB-SECTOR ANALYSIS IN PRACTICE: FAIDA S EXPERIENCES IN NORTHERN TANZANIA 7

8 Lessons earned Among the many aternatives avaiabe to support microenterprises in Northern Tanzania, SSA heped FAIDA to seect a imited number of everage interventions. Whie appying the approach in practice, FAIDA earned that: An organization can ony conduct an SSA when its staff is activey invoved in the whoe process. This wi ensure that proper support is given to the impementation of the identified interventions. Athough interventions at poicy eve might have a high potentia impact, FAIDA experienced that it is very difficut to reaize poicy changes. Usuay 20 to 30 working days are needed to conduct an SSA (excuding impementation phase). There is a need to reguary update SSAs since the sub-sector is often highy dynamic due to changes in interna (e.g. number of actors) and externa factors (e.g. market forces), and SSA is highy instrumenta to: Identify sub-sectors with growth potentia; Anayze the opportunities and constraints of microenterprises in a sub-sector; Get to know the microenterprises and understand their needs and demand; and Generate actions that make a difference. References Boomgard, James J; Stephen P. Davies; Steven J. Haggbade and Donad C. Mead, A Sub-sector Approach to Sma Enterprise Promotion and Research, GEMINI Working Paper No. 10. Haggbade, Steven J. and Matthew S. Gamser, A Fied Manua for Sub-sector Practitioners: Toos for Microenterprise Programs: Non-financia Assistance Section, GEMINI Technica Note Series. Van der Land, Henri and Penie Uiwa, Appying Sub-sector Anaysis in Tanzania, Sma Enterprise Deveopment, Vo. 8, No. 4, pp The origina term for microenterprises that was used in this paper is micro and sma enterprises (MSEs). Prepared by: John Bet RESOURCE BOOK PRODUCED THROUGH A PARTICIPATORY WRITESHOP ORGANIZED BY THE INTERNATIONAL INSTITUTE OF RURAL RECONSTRUCTION (IIRR) WITH SUPPORT FROM THE CITIGROUP FOUNDATION, SMALL ENTERPRISE EDUCATION AND PROMOTION (SEEP) NETWORK AND SWISSCONTACT. 8 Best Practices and Strategies in Microenterprise Deveopment