We examine the question of workforce skills for small and medium enterprises (SMEs) in Tanzania
and find a mixed picture full of potential. On the one hand, education access has expanded at all
levels and a more educated cohort is now entering the labor market - signaling the availability of a
more skilled workforce for SMEs. On the other hand, acute shortages of secondary and postsecondary
graduates persist.
Disturbingly, the quality and relevance of primary education has come into question. It is unclear
whether increased access to primary education is actually translating into acquisition of crucial
basic skills in the country. In light of this, it is unsurprising that education attainment no longer
appears to be a reliable proxy for relevant skills, as perceived by employers. Further, SMEs seem to
have very little meaningful connection with education institutions for recruitment of workers.
A related but equally concerning problem relates to the culture of recruitment among SMEs in
Tanzania. It is one of passive hiring, wherein firms rely on networks and referrals to identify
employees instead of actively seeking them through open advertising and links with education
providers.
In this backdrop there is room for cautious optimism. SMEs seem increasingly to realize and
emphasize the importance of workforce skills, even though, in relative terms, they are likely to be
significantly more pre-occupied with infrastructure constraints. Interestingly, a large share of firms
that have recently failed consider inadequate workforce skills to be a contributing factor of above
average importance to firm failure.
Tanzanian firms have high propensity to invest in employee training – not just for job-specific
technical skills – but also for behavioral and other skills. Rates of the on-the-job training in
Tanzania are higher than many other countries in Sub-Saharan Africa and close to global averages.
We find that firms that invest more in searching for employees are also more likely to be training
employees, indicating that investments in employee search and training are not substitutes but
complements.
Firm size and sector appear to be particularly crucial in defining the workforce skills and SME
productivity relationship. Not surprisingly, small firms have lower skill profiles and lower
propensity to train. Even though this could reflect, in part, financial and informational challenges
small firms face in skilling their employees, this behavior might not be entirely constraint driven.
Research has shown that returns to training are typically lower for small firms. In terms of sector,
firms in the services sector seem to be doing particularly well relative to other sectors, specifically
trade and agriculture, on seeking and fostering workforce skills.