The 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 agroprocessing
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 rawmaterials,
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.