41669 Innovation in Tanzania: Insights, Issues and Policies1 Jean-Eric Aubert ­ World Bank Institute (with Godwill Wanga, Consultant) Introduction This note discusses the innovation climate in Tanzania and the policies being pursued there. This is part of the background work carried out for the Country Economic Memorandum exercise, with a focus on the growth determinants in that country. This background work also includes a report analyzing the country's readiness to the knowledge economy2, providing benchmarking elements in the broader context of Tanzania's technological development, business environment, governance, the educational basis and ICT infrastructure, as well as the innovation system. This note was essentially prepared on the basis of a number of field visits in Tanzania made between February 6 and 15, 2005. The field visits took place in Dar es Salaam, Arusha, and Moshi as well as Mwanza at the end of February. We also visited numerous organizations (enterprises, R&D institutes, universities, government agencies, NGOs). A list of these organizations and persons met is given in Annex 1. This note is in three parts: Part 1 discusses the main issues bearing on the innovation climate present in Tanzania; Part 2 illustrates them with some examples taken from the places and organizations visited, and Part 3 makes some policy recommendations. Annexes 2 and 3 include detailed information on the fishing industry and the cut flower industry.3 1This report was mostly completed in April 2005 and has served as the basis for the section of the World Bank Country Economic Memorandum dealing with innovation policy (Chapter 8). The author wishes to thank all the persons he met during the mission and who provided very valuable information, as well as the World Bank Country office in Dar Es Salaam, more specifically Mrs. Mary-Anne Mwakangale, for her very useful assistance. 2 Anuja Utz, Fostering Innovation, Productivity and Technological Change: Tanzania in the Knowledge Economy, Knowledge for Development Program, World Bank Institute, October 22, 2004 3 The annexes on the fishing industry and on the cut flower industry have been prepared by Godwill Wanga, Consultant, Economic and Social Research Foundation 1 1. The Innovation Climate: Main Issues Innovation and poverty reduction Innovation should be understood as the spread of a new or improved technology or practice, but in a given environment and not in absolute terms. In this perspective two levels can be identified: - at a micro level, there is the spread of available technologies for use by firms, individuals or households which improve their productivity, welfare, living conditions, etc. - at a meso level, there is the development of new industries, based on foreign or local technologies and a source of new jobs, income, exports, etc. Innovation contributes in the reduction of poverty in several ways: - it fuels economic growth through the generation of wealth and jobs, by providing the basis for new activities, industries or services. - it induces productivity gains, which is a source of wealth as well as a means for maintaining existing jobs against foreign or other competition. - And, last but not least, innovation is helping to maintain self sustainability of local communities, for instance through appropriate technologies, in preventing the destructive process of urbanization. This does not necessarily translate into monetary gains and does not formally contribute to growth, but it is essential in preventing these vicious circles that lead to poverty and dependency. A lack of innovative dynamism Tanzania has benefited from a relatively strong economic growth in recent years. Although new sectors such as the fishing industry have grown spectacularly, there has not been, however, much innovation in recent years in Tanzania. The main changes have resulted in the wider distribution of commodities and services that significantly impact on the day-to-day life of the population, such as cell phones and small commuting vehicles (dala-dalas) ­ but do not change, even marginally, the conditions of development of the country. A very low RD/GDP ratio of about 0,25 per cent4 is a reflection of this lack of innovative dynamism. It should be kept in mind that in developing countries innovation always precedes research, because research is developed principally to improve imported technologies; also, the capacity to invest in research depends on the capability to generate wealth which in its turn depends on achievements in innovation. Foreign Direct Investment can be an important source of technology-transfer. In Tanzania, compared to neighboring countries, this Foreign Direct Investment is relatively high but the impact on the technology and on innovation capabilities is modest. As we shall see later, no specific mechanisms seem to be in place for promoting the transfer of 4The national S&T expenditure is estimated at $ 22 million for a GDP of some $ 8.5 billion. 2 knowledge and technology (nor for channeling a large part of the income generated by lucrative industries such as gold mines). A problematic governance and business environment A number of factors explain this lack of innovative dynamism. Firstly there is a problematic overall environment. In the last decade or so significant improvements have been made after the socialist model was gradually abandoned. However: - There is a lack of effectiveness and implementation in government action despite a number of policy plans. This has affected many policy areas and slowed down the reform process. - The overall governance and business environment continues to be beset by corruption. - The infrastructure is inadequate: the country's development is compromised because of poor regional and feeder roads, frequent power cuts and an insufficient telecommunication network. - There is a weak banking system notably for providing credit to business, and capital markets are almost nonexistent. The chart below shows how costs affect the business environment in Tanzania as compared to four other countries. Costs as percentage of sales In increasing order of magnitude: Poland, China, Brazil, Indonesia and Tanzania. Costs due to unreliable infrastructure and bribery practices are particularly high. 3 0 C o n t r a c t e n fo r c e m e n t d iffi c u lt ie s R e g u la t io n 2 5 B r ib e s C r im e U n r e lia b le in fr a s t r u c t u r e 2 0 esl safot 1 5 cenreP1 0 5 0 P o la n d C h in a B r a z il In d o n e s ia T a n z a n ia 3 Inadequate Innovation Policies The S&T infrastructure in Tanzania is relatively developed with a number of technological institutes and universities that cover most basic sectors and disciplines. The institutes are also relatively well-organized with a Commission for S&T (COSTECH) responsible for defining and implementing national S&T policies along with organisms in charge of promoting industry and SMEs, notably the SME agency (SIDO). However, this set-up suffers from a serious lack of means and resources and, more importantly, is bogged down by inadequate policies and ideas. The innovation policies lack both vision and funds. The innovation system in place has been inherited from the centrally planned regime. Innovation is wrongly seen as beginning with R&D ­ to be principally developed in public institutes ­ and then being passed over to enterprises. This outdated linear vision is far removed from a real innovation process, particularly in view of the Tanzanian reality as we shall see later. On top of this, there has been a deliberate policy, inspired by the principles of liberalization and privatization, that wrongly seeks a complete hands-off stand from the government. This has meant pushing the public R&D institutes to market their competencies and technologies and in cutting resources for S&T, without providing any needed incentives to entrepreneurs to put in greater innovative efforts, and without making any investment in public goods or setting down any appropriate regulations for ensuring and encouraging a climate of stimulating innovation (competition, quality promotion, protection of property rights, etc). A misused R&D infrastructure As a result of the policy outlined above, the R&D and technology infrastructure is misused. This infrastructure, a legacy of the socialist regime, is relatively large, with an adequate set-up for metrology, measurement, prototype making, etc. The government has cut resources to the institutes by pushing them to market their services and technologies. But this has been done without creating any mechanism for the articulation of demands by enterprises, public organizations, or local communities. So the institutes have proposed a lot of inapplicable/unapplied inventions (often the same between one institute and another), and have unjustifiably ventured into production activities. The limitation imposed on investment in S&T has also affected the development of S&T potential in new technologies such as micro-electronics and biotechnology, although some competencies have been developed at the level of university structures. The advice and support given by donors in regard to innovation and innovation policy are also questionable. Generally, there has been an encouragement of the liberalization approach without understanding the key roles to be played by government in the creation or maintenance of a climate conducive to innovation; in fact, it has encouraged inertia among government bodies. There is insufficient and scattered support of innovative 4 activities offered by bilateral and multilateral programs, lacking a critical mass effect and being poorly coordinated, although a number of programs are well designed as shown later. Some programs tend also to be related to the donors' self-interest (for instance to favor cooperation with their own country's firms). Finally policy advice is very fashion-sensitive: today there is a hype for clusters, but the policies to boost clusters are unclear, even in advanced countries where the concept was first elaborated. Conclusion: A New Role for the Government In conclusion, we can say that there are a lot of ideas and goodwill, and a decent technology infrastructure. But there is a lack of innovation in various forms, and notably in agriculture, welfare, etc where we have seen very modest improvement. Adequate responses are practically non-existent. In order to improve this situation the government role needs to be reassessed in a truly new perspective. The government has a significant role to play in the maintenance and upgrading of the knowledge and technology infrastructure, in organizing an institutional and legal framework that supports innovation and in creating the adequate financial incentives to motivate individuals and groups in innovative and entrepreneurial efforts. This is not the type of direct support and supply-driven approach characteristic of a State controlled economy. What needs to be done is to transfer the policy principles which inspired innovation policies in developed countries to the specific context of Tanzania responding to the country's needs and opportunities. To better understand what those needs and opportunities better let's examine more closely a few illustrative examples. II. Innovation Processes: Selected Examples Let's present and discuss these examples in the two categories outlined above: - The dissemination of technologies which are largely known and operative, but not much used so far in the Tanzanian context - The development of new industries introducing new technologies, services and activities within Tanzania Technology Dissemination Interlocking bricks This example is particularly illustrative of the issues at stake. A technology has been designed and successfully tested to make bricks with local materials and compressed without cement. This is a very relevant technology for (poor) rural communities. It originated in South Africa and has been perfected by several inventors in Tanzania, 5 notably by the Housing RD center. The machine to manufacture such bricks costs about USD 450. This is not a considerable sum, but it is still relatively expensive for a Tanzanian individual or a household with an average annual income of some USD 300. However, no scheme exists for helping interested individuals or communities either to use or buy the machine. Moreover, there is no mechanism to inform and familiarize potential users with the technology. Therefore, the technology does not get disseminated throughout the country, even though this would have a considerable positive impact on the economy, the society and the environment. Meanwhile the Housing RD institute ­ which has a budget of USD 400,000 (funded at 60 % on outside contracts) ­ has received a USD 250,000 support for ICT training and management improvement from the World Bank, but nothing to help in the dissemination of the brick technology: is it the best way to fight poverty? The generic problem illustrated by the brick technology example affects more broadly the dissemination of innovations in the agricultural machinery sector. Agricultural machinery There is a plethora of (similar) "inventions" supplied by RD institutes, NGOs, etc... in response to definite, crucial needs, but very few mechanisms to help in their selection and dissemination (information, testing, credit, etc). An institute devoted to agricultural machinery RD (CAMARTECH) was established in the early 80s near Arusha. With a staff of about 50 workers, it is relatively well equipped, but because of very mediocre approach road, almost inaccessible and without resources. Like other public institutes, it has been pushed to manufacturing and selling prototypes. It does this on an ad hoc basis, crowding out potential entrepreneurs in the business sector. Nevertheless these efforts have facilitated the dissemination of several locally significant technologies such as solar stoves, biogas boilers, etc (in thousands). Note that when it was established, the institute initially had eight workshops spread out in Tanzania where local farmers could come, test their ideas, repair their machinery, check out new technologies, etc. But these workshops have gradually disappeared due to lack of funds, and insufficient interest on the part of the government, etc. Development of new industries Let's examine three examples in this category: the rapid development of the fishing industry around the Victoria Lake, generally considered to be a success story but which is not without serious social and ecological drawbacks, the modest development of the cut flower industry, and the emerging cultivation of a plant for a new anti malaria drug ­ which could prove to be a globally significant innovation. 6 The Fishing Industry The development of the fishing industry has principally taken place around the Victoria Lake, leading to the creation of several hundred thousand jobs (including those in fish processing, transport, etc). About 80,000 fishermen are permanently employed. Exports ­ principally toward the European markets ­ are flourishing, amounting annually to over 100 million USD. The industry took off about a decade ago after the successful introduction in the Victoria Lake of a new species--the Nile perch ­ which prospers very well. Tanzanian fishermen developed the industry successfully to the detriment of their Kenyan and Ugandan competitors by meeting the strict quality-control norms in force for accessing EU markets. They have also modernized their processing (for fillet making) and conservation equipment and installed efficient logistics and transport systems at the Mwanza airport to fly out their production. Ships have also been motorized, with appropriate credit facilities offered to fishermen. Therefore it is a well-coordinated action, of a systemic nature, involving various types of actors and segments of activities which have been the key in making the industry successful. For more details see annex 2. This, however, has not happened without some drawbacks and problems. Firstly, the ecological balance of the lake has been very seriously disturbed by the extensive development of the Nile perch which has, according to certain sources, destroyed over 200 other species. Secondly, the overall social setting has been seriously destabilized. Villages around have lost their population that has migrated to the cities which has led to over-urbanization with its consequent problems of violence, drug trafficking, prostitution and addiction-related behavior. Finally shipping activities abroad are in the hands of dubious (foreign) flight companies which encourage the traffic of weapons to the neighboring countries affected by conflicts.5 The Cut Flower Industry Tanzania would appear to be an ideal place for a dynamic cut flower industry. There is a perfect climate, a largely mastered technology, willing investors. However Tanzania today lags behind, although first initiatives for implanting these green-house based activities started 15 years ago. There are in Tanzania today only 85 hectares of green- houses, while Kenya has 1200 hectares, Ethiopia 1500 hectares (in two years), and Uganda 200 hectares. Why is this? A number of factors seem to explain this situation. There is an over regulatory burden and bureaucracy: licenses to establish new green-houses are hampered by inappropriate land property laws, the authorities (TPRI) in charge of checking and authorizing use of fertilizers are slow and troublesome. There is a lack of appropriate credit for would-be entrepreneurs. 5These issues are convincingly documented in a film entitled "Darwin's Nightmare" (made by Hubert Sauper, an Austrian director). 7 The airport infrastructure is good with a very modern airport built near the Kilimanjaro, the main site for flower cultivation. However, this private status airport, has an agreement of monopolistic use with the Dutch airline (KLM) which transports the flower-freight to Amsterdam ­ the European market hub that centralizes the whole auction process. As there is not enough regular freight, and KLM cannot ensure a fully reliable service, conditions of export are uncertain and producers prefer to send their stuff to Nairobi or Dar es Salaam: this means high transport costs, reducing profitability and the motivation for producing in Tanzania. However, Tanzanian producers have been trying to organize themselves for surviving, also by cooperating with Kenyan producers for promoting research and development activities (e.g. tests of new plants). For more details on the factors affecting the cut flower industry see annex 3. A New Crop of Global Significance Let's end this series of examples by mentioning a new plant ­ arthemisia -- useful in an anti-malaria drug which is being developed in the Arusha region and could become a veritable success story. An American NGO (Technoserve) working in Tanzania (and other African and developing countries) has identified opportunities for cultivating a plant that can provide a new drug for malaria; it works closely with the World Health Organization which furnishes market requirements and certifications. Tanzania has much higher yields than China (so far the only potential competitor). A market of USD 2 to 5 million over the next 3 years has been identified. If successful, the cultivation of this new plant offers an excellent opportunity of diversification for coffee producers, many of whom are in a crisis following the decline in world coffee prices and the deterioration of their production quality. If this success materializes, it will owe much to the role played by the American NGO, which is very well plugged into global organizations and strongly business-oriented. The role of foreign investors Before making any general inferences from this series of examples, it is worth commenting on the role of FDI in the upgrading of technology in the country. FDI is universally recognized as the most rapid way to upgrade the technological level of a country and to increase its level of activity. However, the long term impact on the country's development depends largely on the effective transfer of knowledge ­ both technical and managerial ­ which flows out from FDI-generated activities and the linkages established with the local industry (sub-suppliers), R&D institutes, and educational institutions. Although there is a significant FDI in Tanzania, the long term impact, from this viewpoint, on the innovative competency of the country is not obvious. FDI undoubtedly plays a great role in several Tanzanian industries, including the fish, hotel, tourist, as well as the cut flower industry mentioned above. It is also a determining factor in textiles and clothing as well as in the rapidly growing mining activities (notably gold). However, the 8 number of knowledgeable executives of Tanzanian origin is still very small. Most, if not all managerial positions, tend to be occupied by foreign expatriates with a few exceptions. Linkages with local suppliers of technology do not seem important and, in any event, they do not seem to be stimulated by any governmental schemes. Therefore the long term transfer of knowledge and technology are not ensured, and the long term sustainability of the concerned industries is in doubt, if foreign investors decide to withdraw from the country. Conclusions To conclude, a number of policy orientations emerge from the above observations. There is a need to: · Reverse current policy approaches based on technology push without resources or markets · Establish mechanisms and incentives facilitating the expression and credit- worthiness of demands by "clients", entrepreneurs, local communities, etc. · Put in place critical masses; the current scale of effort has to be multiplied several times. · Have a systemic approach to tackle the different components of innovation promotion. III. Policy Recommendations Instruments and mechanisms need to be put in place to concretize the policy principles outlined above. Against this background, there is a large pool of experience in advanced countries from which policy makers in Tanzania can draw in order to adapt it to the specific conditions of their country and, more generally, to the challenges of the developing world. The main lessons of this experience of advanced countries are summarized in Box 1. 9 Box 1. Innovation Policy Schemes ­ Relevant OECD Countries' Experience Innovation policies in OECD countries have been developed since the late sixties and a considerable experience has been accumulated since then. Of particular relevance to Tanzania and other developing countries are those schemes which concern financial and other supports to SMEs and the management of R&D and technology infrastructure. Financial and other support to SME SMEs have been the first target of innovation policies, either because they were considered as an important potential source of innovations or a major provider of jobs. As these enterprises are scattered throughout the territory and need to be approached through close contacts, a key instrument was the establishment of local offices, connected to central bodies. A key element for having these structures functioning well was to have them funded partly by local authorities or organizations such as the Chamber of commerce, as a means for ensuring local ownership. As these enterprises also generally need a combined support of technical, financial, managerial and marketing assistance, these offices were equipped to provide such packages as were needed, by drawing upon expertise, if necessary, in universities, public laboratories or consultant networks. And as SMEs generally do not have financial resources for developing their innovation projects, ad hoc mechanisms had to be established. They were generally of a twofold nature: a) provision of seed money in form of grants to develop ideas, generally up to the prototypes, b) development money for the next phase leading to technical realization and market tests, either in form of matching funds given on condition that equivalent resources be provided by the innovator or other interested parties, or in form of subsidies reimbursable in case of success. In addition, measures were taken to facilitate the provision of venture money either for organizing venture capital funds (organizations supported by public money) or for regional development companies. Financing of R&D Structures and Research-Industry Relations The second important aspect of innovation policy has been the management of R&D and technology infrastructure. Such infrastructure was conceived as a public good to be supported by the government. However it was also understood that it needs to develop activities relevant to the market and conversely that the market should be in demand for these activities and therefore ready to pay for part of the costs. Two types of action follow from such a perspective: - First, funding of RD laboratories combining both sure and precarious resources, the first type being provided on a regular basis by governments, and the second type being obtained by contracts with the business sector or government agents; but the balance between the two would have to be adapted to the nature of research being pursued. Ratios between sure and precarious resources therefore evolved between 50/50 per cent for those laboratories providing technical research and services (such as metrology, testing, quality control, etc) that can and have to be paid by the business sector; and 70/30 for those structures pursuing a research of a more basic nature. - Complementary to these funding principles, incentives were provided to facilitate the development of a competitive market for the use of these structures and also to stimulate research-industry interactions which are at the heart of the innovation process. These incentives have been principally of two sorts; firstly there were small subsidies offered to small and medium firms paying 50 per cent of their contracts with accredited public or university laboratories, and/or RD expenses spent in the employment of an in-house researcher seconded by these laboratories; secondly there were significant grants provided to projects developed through university-industry collaboration conditioned to the provision of matching funding by the private sector (sometimes these being focused on specific technologies that the government wanted to promote). 10 In this perspective, an image is commonly used among policy maker communities in advanced countries. They see their role as one of a gardener who has to care for flowers and ensure their growth. In order to grow, a flower needs to be watered ­ this is principally the role of financial incentives. It needs also an appropriate soil; this is, in the innovation perspective, the injection of all forms of knowledge through technical information, assistance, and research. It is then necessary to remove weeds that prevent or affect the growth of the plant: these are all the measures for eliminating bureaucratic practices, over-regulation, inappropriate conditions for redistribution of income and wealth generated by innovations, and so on. In a similar vein, a recent study by the World Bank on ten examples selected in low and medium income countries identifies essential government actions in the development of competitive industries in such countries6. The provision of appropriate skills and support for technology acquisition and development come first, then come actions of a regulatory nature (e.g. standards, quality control, etc) and of a lower importance various types of support to enterprises and industry organizations for export promotion, investment, etc. 6 The work involves undertaking a series of studies that cover the extremes of the industrial spectrum: wheat and maize in India; salmon and wine in Chile, Nile perch in Uganda, oil palm in Malaysia, cut flowers in Kenya, medium tech electronics in Malaysia, high tech electronics in Taiwan, and software exports from India. The industries are chosen based on exceptional comparative performance in the last decade, large contributions to overall growth and for the potential that technological change played an important role in its success. (Source: Vandana Chandra And Erik Tallroth, "Understanding the "How To" of Technological Change For Growth," Concept Note PREMEP-ESSD Partnership, The World Bank, Draft, April 19, 2004). Forthcoming publication. 11 ROLE OF THE PUBLIC SECTOR Electronic Electronic IT ­ Maize Grapes Oil palm Salmon Wine Nile Cut - - Taiwan India - - India ­ - Chile - Perch ­ flowers Malaysia India Malaysia Chile Uganda - Kenya Spin-offs X X X X X Export & inv X X X X prom. Tech X X X X X X X X X acq/development Regulation/ X X X X X X X compliance Support to X X X X X Industry organization Tech skills X X X X X X X X X X development This will guide our recommendations regarding the establishment of an effective government support to innovation. We will complement these by more general remarks about the broader innovation climate, and related to education and governance issues. Establishing Efficient Support for Innovation As observed above, there is a need for a systemic approach providing complementary support on three basic aspects: financial, technical and regulatory. Financial support There is, in the Tanzanian context, a crucial lack of resources on the demand side for accelerating the design, testing, use and dissemination of technology. It is suggested to establish two complementary schemes, based on simple matching fund principles, providing -- in grant form -- 50 per cent of the funding required for the development (R&D phase) of small and medium sized projects (e.g. up to USD 20,000): · User scheme: allowing in particular groups and communities to buy needed technologies, in providing, if appropriate, complementary funding in in-kind form (labor for community purpose) 12 · Developer scheme: would fund 50 per cent of technical services or R&D projects undertaken by SME with R&D institutes (public, academic, etc), and would, therefore, help indirectly but more effectively R&D institutes to put their competences in service of the communities (note that this type of scheme is in place in a number of advanced countries). In addition, it is important that the management of such support schemes be given primarily to sub-national levels. Regional and local commissions would screen and select projects with support of appropriate expertise (including foreign ones). This is a primary condition for efficient management, reducing the bureaucracy which would ineluctably affect schemes administered at the central level. The latter, however, would have to supervise and control the overall process. Technical support Based again on the experience accumulated in advanced countries, it is suggested to establish a network of locally-based and owned structures serving the needs of rural and urban communities for technical advice, information, assistance (design, marketing, etc) These structures should be adapted to different sectors; e.g. extension services for agriculture, design and manufacturing workshops for industry, etc.; and they should also be conceived and operated as antennas of central bodies to which they would be strongly connected (IT, data bases). They should be established on a clearly expressed demand from local communities, being funded on a 50/50 cost sharing basis, local organizations (municipalities, business or farmer association, etc) matching the resources put by the Central government. Regulatory support Regulatory-related actions have to be implemented for dealing with several issues: · The above mentioned actions that have been suggested aim at stimulating service-based contracts and formalizing new linkages between the business sector and the R&D infrastructure, and require the establishment of clear legal and administrative procedures. It is, therefore, recommended to review, adjust and standardize relations on appropriate models. This may concern many issues: use of public or university laboratory equipment and personnel by firms, temporary employment of university researchers by business enterprises, intellectual property rights, etc. · There is in many sectors a need for developing quality awareness and quality control, and related accreditation and certification procedures. A crash program should be implemented with this in view. It could yield very significant results within a short time span. · There is a major financial problem for those firms or individuals who are in the leading position of producers and can not get credit from the banking system. The government has recently established a credit guarantee 13 mechanism which is supposed to facilitate the mobilizing of banks and the financial sector. It does not seem to work well enough. An audit needs to be carried out to examine in detail what mechanisms can be put in place to complement this incentive: micro credit schemes, equity investment procedures (such as the Dutch PSOM which support 30% of investment of individual firms in the flower industry), and others. · Finally there should be a systematic review of obstacles of all nature ­ taxes, regulations, customs, bureaucratic requirements, corruption, etc. -- which affect the innovative process. The best approach is to establish sector audit commissions which would enquire in the concerned communities (entrepreneurs, farmers, etc) and would recommend to the concerned authorities the necessary changes. These commissions should be independent from the usual administrative channels and should not be disbanded after their reports for change and reform. They should be entrusted to examine subsequent follow up actions and report back. An Innovation Multipurpose Facility (IMF) In order to implement and fund efficiently the multi-component program proposed above, it is suggested to establish a new ad hoc facility, which would be administered at the Presidential office level. It should be endowed with an important corpus of funds and should operate with a maximum of flexibility and use for the different types of policy actions mentioned above. This instrument could be named the Innovation Multi-purpose Facility. Funding needs can be estimated at USD 10-15 million per year; if matched by an equivalent spending from the private sector (currently almost zero), this would lead to doubling the current national S&T expenditures. They would then reach 0.5 % of GDP. Such funds could be received from and administered by the WB with the concourse of bilateral and other multilateral organizations. It can reach its full scale within 3-4 years after an initial pilot phase. The impact on the economy would be perceptible within 5 years or so. We would suggest that the whole Government support mechanism be modeled on the TASAF scheme established for social purposes and very efficiently administered at the Presidential level (see Box 2 below). 14 Box 2. Tanzania Social Action Fund (TASAF) The Tanzania Social Action Fund (TASAF) is one of the main development programs that addresses the problem of poverty which is widespread in the country. The main objective of TASAF is to increase and enhance the capacity of poor communities and stakeholders to prioritize, implement or execute, and manage sustainable development initiatives/ projects and, in the process, improve socio-economic services and opportunities. The TASAF leads and contributes positively in reducing poverty by: · Providing extra resources for the creation of community assets at the village level (e.g., schools, bridges, clinics, water points, etc.; · Targeting incomes to very poor households working on public assets like roads, forest lots, and small dams; and · Addressing institutional development issues at the community level, districts, and central government for sustainable poverty reduction measures. TASAF Funding The main sources of funds to finance the activities implemented through TASAF are from IDA and the GOT. However, the Local Government and communities also contribute in cash and in kind. Cumulatively until December 31st 2004, IDA has disbursed US$ 61,216,884.18 and the GOT has paid TZS 3,902,000,000.00 (US$ 3,483,928.57) to match the World Bank funds. About 98% of the funds have been disbursed. Phase I of TASAF (November 2000-October 2004) was confined to 40 Tanzania Mainland districts and Unguja and Pemba (Tanzania Island). A total of 1704 sub-projects were executed in the four years through Community Development Initiatives (CDI- 1338 projects), Social Support Programs (SSP-61 projects) and Public Works Program (PWP-305 projects) arrangements. This is a significant contribution to the quality of life of the concerned communities. Capacity Building The TASAF has completed various training-programs to develop capabilities at all levels. In this respect, through several targeted capacity building interventions, TASAF has been able to train about 20,000 members of democratically elected Community Project committees (CPC); more than 1,500 District Facilitators; about 200 NGOs/CBOs as well as district/island management teams. The CPCs were trained on simple booking, procurement and project management. These CPCs enhanced the implementation of TASAF supported community sub-projects successfully. Key Factors for Success of TASAF · Recognition and Adaptation of Community Know-How: TASAF acknowledges that poor communities in Tanzania have the technical know-how among themselves which can help them implement their own projects. Thus, development of the people can be enhanced only if it is done by the people themselves. · Apolitical non-Partisanship: The TASAF has been apolitical, i.e. being aloof from politics. Thus, it promoted and facilitated all types of people to cooperate and work together for their own development. · Participatory Management Approach: The TASAF has various stakeholders including the Government of Tanzania (GOT), the revolutionary Government of Zanzibar (RGOZ), the World Bank, and the local councils and rural communities. The TASAF promoted and facilitated participation between stakeholders including poor communities in the implementation of the programs. The TASAF confirms that with appropriate guidance and facilitation, poor communities have the necessary capacities to identify, execute, and sustainably own basic services. · Direct Funding: The TASAF implemented the direct funding of the community managed (sub) projects. In addition, mandatory community contribution for community development initiatives has been enforced. · Decentralized Planning Process: The TASAF allowed and strengthened the decentralized planning process for all the activities. Thus, transparency and full public accountability have been promoted. 15 Improving the Broader Innovation Climate Education and Innovation In order to complement the actions proposed above and which provide a relatively direct support to innovation in a medium term perspective, action is recommended on the educational and training needs with a longer term perspective. Progress is noticeable in education enrolments in Tanzania both at the basic and higher levels7. However, a number of issues need to be considered with the innovation perspective in mind: · In the field interviews which we conducted in foreign firms and subsidiaries, a number of our representatives pointed out a lack of intellectual vitality among Tanzanian employees8. This might be a question of generations, as a large number of Tanzanians have been exposed to a socialist type of culture of which some aspects do not stimulate the intellectual inclination needed for innovation. In any event it is strongly suggested to reconsider and change the educational methods to make the youth more autonomous, and more risk- oriented. · In parallel, there is a need to develop a true technical culture (not a theoretical one). This means imparting a more practical knowledge to youth that they can relate to their day-to-day life. This effort should be put in a broader perspective looking to the nature of knowledge and know-how that is taught and acquired by the youth and the student population in Tanzania. The concept of functional literacy ­ going beyond the concept of simple literacy ­ has been elaborated in advanced countries and specific surveys are implemented for testing countries' achievements from this viewpoint. Some developing countries have begun to participate in such surveys. Tanzania could usefully join this group. · In supplement, there are some sectors which are already in need for specific skills. For instance in the cut flower industry, although it is affected by low growth rates, we have been informed of a skill deficit. Appropriate programs have to be designed with concerned colleges and universities in close collaboration with farmers and enterprises. · At a higher level, as in all African countries, there is a need to develop a cadre of well-trained scientists and engineers of international caliber well-plugged into the international networks. This has to take place in centers of excellence. In this connection, the plan to establish in Arusha one of the four 7See Anuja Utz, op.cit 8This was illustrated by comparisons of the number of managers needed to supervise employees in factories producing the same goods in Tanzania and in neighboring countries, and belonging to the same MNC. The ratio of supervisors/employees is significantly higher in Tanzania. 16 centers, currently envisaged, for the Africa ST Institute (Eastern Africa), supported by the Nelson Mandela Foundation, offers very interesting perspectives. · Finally one should think about the creative use of the expatriate diaspora and try and attract it back. Efficient schemes should be designed with this in view. In a similar vein one could think of putting in place mechanisms to attract on a permanent basis a high level of foreign expertise, following for instance the experience of Costa Rica attracting pensioners from advanced countries with powerful fiscal and other incentives. Governance and Innovation Inappropriate conditions of governance are recognized to be a major obstacle to the development of African countries, and Tanzania suffers from them as well, despite noticeable progress over the recent decades. They affect the business environment, as well as the management and development of basic infrastructure including the knowledge-related one such as education and research institutions, without mentioning the conditions of wealth redistribution, including incomes generated by new industries and activities. Experience shows that traditional structures of governance, notably those functioning at local levels, can be an essential element for improving the overall management of African countries, reducing corruption tendencies, facilitating appropriate redistribution of food and other basic goods, moderating actively the decision processes in local communities.... This should be kept in mind, notably when thinking about the institutional mechanisms which can facilitate a true re-appropriation of technology by the local communities and the population at large. Preventing the negative effects associated with the somewhat anarchic development of an industry such as the fishing industry around Lake Victoria requires efficient measures woven into the basic socio-political fabric of the country, in which local communities are fully associated with the key decisions and discuss modalities of development of new activities of local and national significance. To begin with, we would suggest establishing such mechanisms for the further development of the tourism industry which offers considerable opportunities to the country and needs adequate regulations for preventing an anarchic and destructive exploitation of its unique social, cultural and ecological assets. 17 Conclusions To sum up, the innovation climate in Tanzania is weak, and it is doubtful that the current trends of economic growth and poverty reduction will be sustained unless more innovation, in all forms, even the most modest ones, takes place. Government policies pursued in this area so far are insufficient and too passive. Nevertheless a technological infrastructure and a certain administrative capability exist which allow the putting in place of a proactive set of actions that take advantage of the dearth of innovations and goodwill and competencies of actors. This requires a significant investment in a new scheme for innovation promotion devoted principally to serving grass root needs and markets on a truly decentralized basis. For this it is recommended to begin with a pilot phase on a fast track procedure. 18 Annex 1. List of Organizations visited and Persons interviewed Dar Es Salaam 1. Dr. Asifa P. Nanyaro, Director General, TIRDO, Dar es Salaam 2. Mr. Mike Laizer, Director General, SIDO 3. Mr. Rogers Alfayo Msuya, Senior Scientific Officer, COSTECH 4. Eng. Benedict C. Mukama, Senior Scientific Officer, COSTECH 5. Dr. Raphael M.L., Director, Centre for Development and Transfer of Technology, COSTECH 6. Prof. Burton L. M. Mwamila, Dean, College of Engineering and Technology PCET, University of Dar es Salaam 7. Dr. A.K. Temu, Senior Lecturer, , PCET, University of Dar es Salaam 8. Col. M. B. Mashauri, Director General, Tanzania Automative Technology Centre 9. Mr. Rogers Sezinga, Managing Director, Tan Discovery Mineral Consultants Co. 10. Eng. Dr. G.M. Kawiche, Chief Executive, National Housing & Building Research Agency 11. Mr. M.P.J. Ulungi, Assistant Director of Immigration Services, Ministry of Home Affairs 12. Mr. Massawe, Head of Small and Micro Enterprises Unit, Ministry of Industry and Trade 13. Ms. Nkya, Assistant Director of Fishing Division, Ministry of Tourism and Natural Resources 14. Mr. Januarius Mrema, Director of Planning and Policy, Ministry of Industry and Trade 15. Mr. Juma Hamisini, Desk Officer, Science and Technology Division, Ministry of Higher Education, Science and Technology 16. Mr. Finias B. Magesa - Renewable Energy Coordinator, TATEDO (NGO) Arusha 17. Mr. Thomas Dixon, Technoserve (US-based NGO for technology and entrepreneurship) 18. Mr. Ajay Shah, General Manager, Sunflag (Textiles and Garments) Ltd.. 19. Mr. Fred Lyaruu, Cargo Manager, KLM 20. Mr. Eligi M. Mushi, Accountant, TCCIA 21. Mr. Joseph Giovinazzo, General Manager, Hortanzia Ltd.. 22. Mr. E. Ngwandu, Director General, CARMATEC 23. Mr. Wilson Baitam, Director of Agrotechnology, CARMATEC 24. Mr. Leon W. Malisa, Principal Marketing Officer, ESAMI (African Mangement Institute) 25. Mr. Andrew Mollel, Managing Director, Kijenge Animal Products Ltd. 19 26. Mr. Msola, Director General, TEMDO 27. Mr. Colman Ngallu, Chairman, Tanzania Horticulture Association (TAHA), and Managing Director, Tengeru Flowers Ltd. Moshi 28. Prof. Suleiman Chambo, Principal, Moshi Cooperative College 29. Prof. Mallya, KCMC 30. Mr. Kimaro, General Manager, KNCU Mwanza 31. Mr. Rwekaza Charles, Acting Regional Fishery Officer 32. Mr. Lawrence, Finance Manager, Meremeta Mining Company Limited, Musoma 33. Mr. Muthu Subbiah, General Manager, New Mwanza Hotel 34. Mr. Kennedy Chagu, Accountant and Administration Manager, Tancan Mining Services Ltd.. 35. Mr. M. Mbwelle, Administration and Finance Manager, Major Mining Company Ltd.. 20 Annex 2. The Fishery Industry in Tanzania Fishery Industry Potential: Tanzania has a potential both marine and inland fisheries. It is a coastal state endowed with fishery resources. The country has a coastline of about 800 kilometers declared as Exclusive Economic Zone (EEZ) but which has not yet been exploited. The marine water covers 64,000 square kilometers, which includes the Indian Ocean and the EEZ, which covers 223,000 square kilometers. The fresh water includes the riparian-shared waters of the great East African lakes namely Lake Victoria, Tanganyika and Nyasa. There are also other small natural lakes, manmade lakes, river systems and many wetlands with fish potential. All this covers 58,000 square kilometers. These lakes are rich in natural resources including fisheries, which are a major economic resource for Tanzanians in particular. It is estimated that the present annual fish catch is more than 350,000 metric tons. Fishery production from Lake Victoria (on the Tanzanian side) is about 60% of the total inland production. There are many fish processing industries in the country and seven of them are located in Mwanza. These include foreign (Omega Fishing Ltd., Mwanza Fishing Ltd., and Tan Perch Ltd.) and local majority shareholding industries (Vick Fish Ltd., Tanzania Fish Processors, Nile Perch Ltd. and Chain Food Ltd.). Importance of the Fishery Industry: GDP Contribution: The contribution of this sector to the GDP for the past five years has been staggering between 1.6 and 3.1%. However, the fishery sector has a multiplier effect on to other sectors of the economy. For instance, the increased number of engine powered boats and other vessels have increased fuel consumption and the number of operators, etc, and hence stimulated economic growth. Employment: About 500,000 persons are formally and informally employed in fishery activities. In Lake Victoria (on the Tanzanian side) alone the number of fishermen who are permanently employed is 80,000. Also, there are a few others who earn their livelihood from the sector by being employed in the fishing and fishery-related activities such as fish trade, processing, net manufacturing, boat building, etc. In addition, there are various secondary activities, which have emerged mostly in the islands. It is estimated that after every two years the fishery population has witnessed a doubling trend. Traditional fishermen: The traditional sector produces about 90% of the total fish catch in the country; only 10% is derived from industrial fishing. Most of the fish caught is consumed locally while Nile perch, sardines and prawns are for exports. 21 Food Contribution: The Fishery industry contributes about one third of the animal protein or 30% of the total intake to the Tanzanian population. Also, the fishery industry in Lake Victoria provides food for more than 4 Million people living in the Tanzanian catchment. Export Trade: In 2003, Tanzania earned US$ 112,056,067 (F.O.B value) on export of about 37,300 tons of Nile perch fillets and its products. Main Factors behind the Success of the Fishery Industry Mechanized Fishing: The country has witnessed a general shift from traditional to mechanized fishing. For instance, most of the fishermen have replaced the pedal and sail boats with powered vessels. This shift has been possible because of the income accrued to reliable markets and rising price of fish and fishery products in both local and international markets. In addition, the fishermen have received finance from foreign investors who are not allowed to own fishing vessels but only processing plants or industries. The fish processors have facilitated the procurement of fishing vessels, gears and other important tools in order to improve the fish catching and supply to their industries. There are also local manufacturers of fishery technologies including fishnets, boats and other gears. These have facilitated the realization of economies of scale in fishing and fish processing activities with competitive advantages. Compliance with EU Standards: The EU Commission sends experts every year to inspect the fish processing industries, fishermen and other fishery related facilities and resources and determine whether they comply with the EU approved standards. The EU standards are very sensitive on cleanliness, hygiene, environmental health and sanitary conditions, etc. Tanzania has harmonized most of its internal standards with those of the EU and now conducts all the inspections. The country's compliance with such international standards has improved the marketability of the fish and fishery products originating from Tanzania. Community Participation through Licensing Process: Although foreign investment is restricted to the EEZ, the joint venture arrangements between foreigners and local investors have rectified the conditionality. That is, the restricted fish processors use local partners as agents to do fishing on their behalf for their industries. Thus, foreign vessels within the joint venture umbrella can also fish in local lakes, particularly for large-scale exports. In addition, the vessel licensing of local fishermen has created increased opportunity for employment for local people whose earnings are being ploughed back into the economy. Further, the flat licensing fee for investment in EEZ has led to increased investment in fishing although it is still under-fished. Improved Transportation System: The industrial fish processors have been sub- contracting the transport service to carriers based in the EU and other international markets. For instance, during the field survey, we found one cargo flight at Mwanza Airport and the interview confirmed that it had been waiting for the fishery cargo for the past three days. However, this has been possible due to the horizontal networking among 22 the industrial fishery processors who team up their exportable goods and hire cargo flights according to the fishery volume. External and Government Support Schemes: There are various national projects supporting the development of fishery industry in Tanzania. For instance, the Lake Victoria riparian states of Kenya, Uganda and Tanzania have been sharing Lake Victoria under the Lake Victoria Fisheries Organisation (LVFO) supervision since 1994. The programs under the LVFO include resource, environment and socio-economic research and monitoring; Fisheries policy, legislation, institution and processes; Aquaculture research and development; Human resources and infrastructure capacity building; and Information and database. The three projects under implementation include the fisheries management plan (IFMP) financed by the EU (Euro 29.9 Million); the socio-economics of the Nile Perch fishery on Lake Victoria Phase II (NORAD/IUCN); and the production and marketing of value-added fishery products in East and Central Africa (CFC/COMESA/FAO). Expansion in the Internal Market: There is high demand for fish and fishery products such as fresh fillet, frozen fillet, etc. Such high demand is related to the high rate of population growth and the diminishing rate of other substitutes of fishery products like beef. The Acting Regional Fishery Officer in Mwanza stated that about TZS 400 million is running the fishery economy every day. Such high liquidity finances the economies of scale in fishery-related activities and hence its growth. Outstanding Problems in the Fishery Industry Overfishing: The development of export markets especially for the Nile perch has attracted many investors into the Lake Victoria fishery industry. However, this has resulted in high fishing pressure accompanied by unsustainable fishing practices and methods and degradation of the fish habitat, which endanger future sustainability of Lake Victoria fisheries. The recent research program (Lake Victoria Fisheries Research Project-LVFP) has found that the fish stocks in Lake Victoria are declining. The government has planned several projects to address identified shortfalls in the fishery industry with the aim of making it sustainable. Unsustainable fishing practices: Fish is renewable resources which are limited, and therefore, they have to be conserved, managed and developed on a sustainable basis. The interviews revealed that there is illegal fishing using inappropriate gears, which kills immature fish and hence threatens the fishery ecosystem. Also, the eutrophication processes, indigenous fish species and frequent fish kills put the lakes under intense pressure from both human and natural processes. Further, deforestation and poor control of industrial effluents in the potential resources (lakes, rivers and seas/ oceans) affects the fishery industry. Investment Discrimination: Foreign investors are discriminated against the local ones in terms of fees. The study has noted that there is a significant gap between the foreign and local fishing fees. In addition, the fish processors are not allowed to conduct fishing. 23 However, due to the high corruption of responsible authorities and conflicting views and decisions between politicians and experts, some of the laws and regulations are difficult to enforce. Bureaucratic Registration and Licensing Process: The government separates boat registration from licensing to provide for administrative steps, additional service to the private sector and supports government recordkeeping and sources. For instance, the procured boat could be registered and kept in the dock for about six months before its' licensing. Alternatively, the registration and licensing processes can be carried out simultaneously, requiring no additional time. High Post-Harvest Losses: The post harvest loss is one of the problems identified in our interviews. The interviews reported that most of traditional fishermen lack the capacity to procure modern fishing boats that would accommodate ice block, fish and fishing gears. This amalgamates food insecurity and unsustainable fishing practices thus resulting in poverty. Lack of capital among fishermen resulting in poor fishing equipment: There are traditional fishermen who lack resources to procure engine-powered boats and hence strain to catch immature fish in the offshore areas using pedal boats or other gears. Ineffective enforcement of fishery laws and its subsidiaries: As pointed out above, the fishery Act of 1970 has governed the fishing industry. This Act provides for parastatal and central executed economy at the expense of the private sector. With the recent reforms, the Act has almost been outdated. In a way, the fishery industry lacks effective legislation and regulatory mechanisms and hence its economic performance is limited. Lack of entrepreneurship and fish farming skills: The country has a low level of entrepreneurial and fish farming skills like the making of fishponds, etc. Most fishermen depend on natural systems like rivers, lakes and sea for fishery activities. For instance, fishermen have suffered due to inadequate training in fish farming skills, inadequate fish farming inputs, hatchery and pond construction and management techniques, lack of entrepreneurial skills in order to diversify fishing activities, etc. Poor infrastructure: The fishing industry suffers from poor landing sites and beaches and other social and physical infrastructures. For instance, the interviews reported that there is a high post-harvest loss due to lack of storage facilities, poor roads and landing sites. This could as well be attributed to poor fishery extension services provided by ill- trained fishery officers/ personnel. As a result, the quality of the netted fish has been poor. Furthermore, the lack of effective fisherman associations, cooperatives or groups is responsible for a gap in the participatory management of the fishery industry. These weaken the coordination and cooperation of fishery stakeholders to uphold their interests as compared to the other sectors of the economy. Low Market Price of Fish and Fish Products and High Tax Rates: Despite high demand and declining stocks, fishermen indicated that they were getting very low prices 24 compared to the international market (although no figure was mentioned). Also, the lack of value-adding processes adversely affect the market price of fishery products. 25 Annex 3: The Cut Flower Industry Background Tanzania has a young flower industry as compared to Kenya and other countries. It has started dealing in cut flowers since the early 1990s. Before the 90s, there were only two companies, which dealt with natural summer flowers planted and sold in Europe. The significant changes occurred in 1996/1997, mainly due to an external push, support and effective demand. Currently, Tanzania has the capacity to export 100 tons of commodities (mainly flowers) every week. Innovations in the Cut Flower Industry The hydroponic green-houses: After the 1990s, the new technology introduced normal green-houses. Currently, Tanzania has introduced hydroponic green-houses. These houses grow flowers on soil-less media, use plastic, drip lines, and plant flowers. It is believed that this new technology depends 100% on what you give it including fertilizer, water, and temperature. The technology also requires the investor to feed the green-house from the fertilization room (or a pump-house). This technological innovation ensures management of plant in a pre-planned way. That is, the flower-houses depend upon predetermined balanced levels of fertilizers, irrigation, and chemicals. For instance, the fertilization rooms under the field assistant have to determine the pH level of the ordinary water whether high or low by using the pH meter and predicing their effect on the plant. In case of deficiency or shortage of any required input, the computer sensor indicates the levels of required inputs in the field or the green-house. Cargo Flights: The KLM and other cargo flights facilitate trading between Tanzania and the external world. Of late, the KLM has been operating Boeing 747s and has recently introduced the MD11 for carrying passengers and a considerable volume of cargo to EU and other markets. Thus, the KLM is commended for providing a solution to international problems affecting fresh produce in terms of speedy transportation and adaptation of sanitary and phyto-sanitary (SPS) conditions with regard to flowers and vegetables. Joint Venture arrangements: most of the successful flower farms are joint ventures between local people and foreigners mainly from the Dutch and other EU countries. This arrangement, at least, ensures marketing, cost minimization and high returns for their fresh produce. Employment The flower industry is labor-intensive with many people employed at very low wages and salaries. For instance, in the Arusha and Kilimanjaro regions alone, the flower industry employs about 4000 people, the fresh vegetables (fruits have not been tried yet) about 26 3000 people, and 1000 people are employed in semi-processing (totaling 8000). The level of employment has been increasing to improve the performance in terms of export volumes. Since there has not been much assistance in terms of productivity, the flower growers have kept on adding volumes to take care of high costs and low margin earned with flowers. The flower industry survives through increase in export volume and wage- cuts for supporting continuous investment in order to expand farms and increase employment. Collaboration between Tanzania and Kenya The producers in both countries are collaborating in various areas. Implicitly, they share knowledge, skills and employment of workers who come from other farms. Of late, the leaders of Tanzania Horticultural Association Ltd. (THAL) and Kenya Flower Council (KFC) have met in Nairobi and prepared a joint proposal of identified issues for technical assistance by potential donors. The key issues identified include the market price and freight. They are also planning for a joint research in order to improve the general performance of the flower industry in both countries. Key Constraints on the Flower Industry Market Prices: The interviews suggest that Tanzanian trade in produces has not broken free from the monopoly of international markets against African growers. Tanzanian growers (for flowers included) have also no say at all in the pricing of the commodity, have no say in the pricing of agricultural inputs and prices of green-houses nor on the freight. Flower prices are determined in favor of the foreign investors. For instance, the auction market (e.g., Dutch auction) has worked out that the Dutch farmers get a net profit 10% for each kg of flowers. On the other hand, the same market has worked out the mechanism to ensure that Tanzanian (traditional) farmers get a gross margin of 16% per kg, despite the level of costs incurred. This mechanism entails that in order to survive in the flower industry local artisan farmers are forced to enter into a joint venture with the Dutch farmers. Their survival depends on this with regard to Dutch auctions. These issues have been adversely influencing the flower industry in Tanzania. High freight rate and landing, parking, handling and other fees: The major cost factor is freight. The freight is high due to high landing and parking fees in Tanzania. For instance, the KLM complains that Tanzania charges very high landing and parking fees and fuel prices, 15% more compared to Kenya, Uganda and Ethiopia. In addition, DAHACO levies US$0.04 for each kg handled by each carrier and exporter, creating a cost of US$0.08 per kg of cargo. Other charges/fees are attributed to prerequisites of international civil aviation organization (ICAO), Air service license (ASL) and air operator certificates (AOC), etc. Consequently, the profit margin is low and thus discourages many airlines from operating flights in the country. Unequal competition: In addition, artisan farmers incur a cost of about 45% of the market price while the Dutch farmers incur only 1%. The governments of the respective countries subsidize the balance. For instance, a consignment with market value of Euros 27 16,000 will generate a profit of Euro 15,000 to the Dutch Farmers, not comparable to Euros 8,000 earned by the traditional farmers of East African Countries. The main items contributing to such huge costs include terrorism, insurance, etc, in Africa. Unfair Price Competition: The pricing and costing aspects as carried out by the international flower auctions reveal that there is no competition. That is, a traditional grower who incurs 45% cost per kg and earns 16% as gross margin per kg can not compete with a Dutch farmer who earns a net margin of 10% while incurring only 1% of the total cost per kg of flowers. Poor Customs Procedures: The TRA has introduced a new post-shipment inspection, where all imports have to go through the T-SCAN system. Therefore, all imports have to go through the DIA for inspection, certification and approval for taxation. The KLM, which lands at KIA (Kilimanjaro International Airport) before DIA (Dar Es Salaam International Airport), has thus a limited space to carry even 20 tons of flowers per day. As a solution, the KLM has introduced the process of offloading imports at KIA and trucking them to DIA under hired motorcade or convoy with police and customs officials at huge costs. The KLM confirmed that this process would not be sustainable and would stop it soon because of the costs, delays, damages and sometimes loss of items belonging to importers. Unreliable and Insufficient Volume of Exports and the Kenyan Route: the export consignment of flower-cuttings and cut flowers has shown a declining trend in the past three years. There is no new farming project which has been implemented so far in the flower industry in this area. In addition, the Kenyan route, which carries about 40% of the export consignment, discourages the carriers from introducing a new cargo flight in the region. Besides, some advantages attributed to the improved export trade between countries have been grabbed by Kenya through this route at the expense of Tanzanian farmers. The KLM, which introduced the MD11 (bigger freight capacity than the Boeing 747 model), is going to stop it after 2 months of operation due to diseconomies of scale reflected in losses attributed to a limited volume of exportables. Growers can not afford cost pertaining to transportation of cargo to DIA for KLM carriers and instead they prefer transportation to Jomo Kenyata International Airport (JKIA) for other carriers despite the hassles experienced with regard to time-consuming custom procedures, road tolls and poor roads on the Kenyan route. 28