TABLE OF CONTENT PAGES
1. Introduction…………………………………………………………… ..2
2. Community profile……………………………………………………… 2
3. Current Economic conditions……………………………………………..4
4. Components of the community which are growing rapidly………………6
5. Components of the community which are either
declining or performing poorly………………………………………… .7
6. Investment opportunities……………………………………………….....9
7. Tools use in Community Economic Analysis…………………………...11
8. Conclusion and recommendation………………………………………..13
9. Reverences………………………………………………………………13
1. INTRODUCTION
Community Economic Analysis is an examination of how a community functions economically. The central purpose of carrying out community Economic analysis is to establish how to help a community do something about its job and income situation.
In this paper we shall provide economic analysis for Kikatiti division, in Meru district, Arusha region. In our analysis, we shall first explore current economic conditions in the area before examining the components of the community which are growing.
We shall then, provide the components of the community which have been either declining or performing poorly before thoroughly examining the investment opportunities in the area. To make our analysis complete, we shall also provide the tools or techniques used in the data collection before concluding and making recommendations.
2. COMMUNITY PROFILE
The community hosting the project is Kikatiti ward. It is located 23 kms east direction of Arusha town along the Great north road. Kikakiti ward is within Meru districts Council. Other wards in the same division are Sakila, and Njeku. Other neighbouring villages are Maji ya Chai in the West and Kia in the far East.
Administratively, Kikatiti Division is headed Divisional Secretary. Below him are Ward Executive officers. Other administrators are ward councilors, Village heads and Sub-village heads. Other supportive administrators are Education officers, health officers and agricultural extension workers.
Some of the committees in place include the environmental committee, security committee, food security committee, health committee, and infrastructure committee.
Kikatiti is located in the equatorial type of climate but its climate is highly influenced by the presence of Mount Meru. It lies in the eastern part of Mount Meru; here it is on the wind ward side. It lies in the eastern part of Mount Meru, hence it is on the wind ward side. It therefore receives orographic type of rainfall which falls heavily in the months of February, March and April and Moderate in October, November and December. It is estimated to receive about between 1200 to 1500mm of rainfall per year. The temperature in area is high up to 32oC during hot seasons. Humidity varies with temperature.
The Northern part of Kikatiti is gentle slopping and some parts have undulating land. In Southern part, there is low land with rolling plain as well. The rugged surface of the land in the North has been due to heavy rainfall.
Kikatiti division has population of 12781 people composed of 5970 males and 6811 females. The children are 8460 while adults are 4321.
SUMMARIZED POPULATION TABLE
S/N
WARD
MALE
FEMALE
TOTAL
1
Kikatiti
3119
3235
6354
2
Njeku
1264
1350
2614
3
Sakila
1597
2216
3813
5980
6801
12781
Source: Kikatiti Division Office
The demographic structure of Kikatiti Division can be summarized in the table below:
CATEGORY
AGE
MALE
FEMALE
TOTAL
Children
0 -6
1038
1660
2698
Primary school pupils
7 -14
2397
2245
4624
Secondary school students
15 – 19
625
495
1120
Youth
20 – 35
809
1274
2083
Middle-aged
36 – 55
669
1209
1878
Old
56 - 100
65
313
378
5980
68801
12781
SORCE: Kikatiti Divisional Office
Kikatiti division has one government school and private school. It has also six government Primary schools and one private primary school. Thee secondary schools have 1120 student as shown above.
It is estimated that 70% of the population above 19 years are primary school dropout, 25% were able to study up to secondary school level. The remaining 5% are not able to read and write in any language.
Kikatiti Division is predominantly an agricultural region with over 80% of the population engaged in agricultural activities. The rest of the population is in the self-employment with few civil servants. The agriculturalist earn between TShs. 40,000 to TShs 60,000.00 per year while the majority of the self-employed people people earn between Tshs. 150,000 to 200,000 per month. However, the civil servants earn much higher amount of salary per month, the minimum being TShs. 80,000 per month.
Kikatiti division is divided into two parts by Great North road. The murram feeder-rods are also available, joining the three villages of Kikatiti that is, Sakila, Njeku and Kikatiti ward.
Electricity and water is available in the area but there are several houses without electricity due to lack of funds. Other social services available in the area include seven primary schools, two secondary schools, two dispensaries and a police post. Mobile phone in the area have really facilitates communication. Very few households are still lacking these gargets.
Environmentally, Kikatiti is still poorly managed. Large unplanned dumps of garbage in Kikatiti trading centre is a clear testimony of this. The large dustbin, in which garbage is dumped, sometimes over flows inviting the community of flies, rats, goats, people and dogs. Meru District council has the responsibility of collecting and disposing garbage but the frequency in which is done is still wanting.
The data displayed in the divisional office shows that out of 2215 household, 824 have poor latrines and 38 households still lack toilets.
3. CURRENT ECONOMIC CONDITIONS
3.1 Agriculture
Kikatiti Division is predominantly an agricultural region with over 80% of the population engaged in agricultural activities. The rest of the population is in the self-employment with few civil servants. The people involved in agriculture earn between Tshs 40,000 to Tshs 60,000 per year. The major income-earning crops grown in the area include maize, beans, bananas, coffee and rice.
3.2 Industries
Kikatiti region is not very much endowed with large industries but the majority of the population practice handcraft. Such industries activities include welding, carpentry, and tailoring. These are basically done on very small scale and earnings are basically for subsistence use.
3.3 Trade
Kikatiti is also a business centre with a lot of business activities conducted in the area. The major business activities includes restaurants, wholesale and retail trade, bars, butchers, stationery, groceries, furniture and guest houses. These trade activities are facilitated by the Great North Road which pass across the area.
Kikatiti has also two major market days. These are Tuesdays and Fridays. Major items sold in the market include agricultural products produced in the area and livestock such as sheep, goals, donkey and cattle.
3.4. Quarrying
Kikatiti is also endowed with sand and stones which are extracted for sale either is the community or in the neighboring communities. Big lorries and trucks loaded with stone and sand are the common sight in the area.
3.5.Transportation
The presence of Great North road and the feeder roads the rural part of Kikatiti makes transportation a very lucrative business in area. It serves as a terminal area for most of the small passenger vehicles playing from Arusha town to Kikatiti shopping centre. Big passenger vehicles also stop at Kikatiti to collect passengers from Dar es Salaam and Moshi regions.
3.6. Pastoralism
In the lowland, people keep a large number of cattle, sheep, goats and donkeys. This is generally encouraged by large communal pasture in the area. In the upland, people keep few animals and the majority keeps two or three cows for milk. The product which is generally milk is sold locally for household consumption.
3.7. Lumbering
The indigenous forest found in the community facilitates lumbering activities in the area. However, with the strict government regulation, this activity is confined to exotic trees which are artificially planted.
3.8 Social activities
The social activities available in the Kikatiti community include 7 primary school and one secondary school, Police Post, two dispensaries three mosques and twelve churches. The presence of these social activities accelerates the presence of economic activities such as trade.
3.9. Tourism
The presence of hills and indigenous forest in the region encourages both local end foreign tourists in the region. Kiktiti is only but 5 kilometers from Kilimanjaro International Airport – the major tourist receiving centre in Arusha region and only but 3 kilometres from Ngurdoto Hotel. These two tourist centres encourages tourism activities in the Kikatiti region.
3.10.Horticuture
The climatic conditions in the area enable the growth of flowers in the area. This has attracted many investors and provides employment to the majority of people in the community.
4. COMPONENTS OF THE COMMUNITY WHICH HAVE BEEN GROWING
4.1 Housing
The construction of houses in the shopping centre is growing very fast. This is due to available construction materials in term of stones and sand. Though the high cost of cement in the region curtails the constant growth of housing activities, the immigrants still improves the capital availability.
4.2. Micro financing
There are quite a number of micro financing institutions in the area which provide loans under very reasonable terms and conditions. These financial institutions include Pride Tanzania, compassion, CRDB, Akiba Cormmercial Bank, Bracs foundation and SEDA.
4.3.Investment
Most of the immigrants do so with intention of establishing mall and medium enterprises. Most of these investors are encouraged by the rapid population increase in the area which provides market for their products.
4.4. Employment Aspect
As a result of rapid increase in economic activities, the majority of Kikatiti community members are employed in various sectors. However, the earning is still very low and averages TShs 40,000/= per month
4.5.Agricultural Supplies
The improved economic activities have encouraged the farmers to improve their agricultural products due to ready market available in the area. The crops which have experienced rapid growth are maize production, tomatoes, onions and green vegetables.
4.6. Informal sectors
The majority of the youth with or without formal business skills readily engage in informal sectors as a source of livelihood. The itinerant traders are common sight in the area. The small scale food vendors have also been on the increase.
5. COMPONENTS OF THE COMMUNITY WHICH HAVE BEEN DECLINING OR POOLY PERFORMING
5.1 Carpentry
Carpentry has been facing gradual decline in community despite the fact that there are now more trained personnel in the business than before. This decline has been due to the rapid increase in wood prices, environmentalist and government restrictions on tree cutting and imported wood products.
5.2. Tailoring
Tailoring as one of economic component of the community is also on rapid decline. The reason for this decline is the importation of second hand clothes. Poor working tools have been another cause of the decline.
5.3. Home loans
Despite the fact that there are many micro financing institutions in the region, provision of home loans has not only been on decline but most of the financial institutions have been reluctant to advance loans to home developers.
5.4.Living Wages
The majority of the people employed in the community earn below minimum living wages. Apart from the civil servants, all the rest of employees do not earn substantial amount of salary. These include shop attendants, house servants, waiters machine attendants, tailors and carpenters. This is attributed to low level of training, less profit for the respective sectors, lack of labour union and lack of alternative job opportunities.
5.5.Less affordable Housing
He house rent in the community has tremendously been on increase making the cost of living to increase. The increase on house rent is attributed to rapid increase in population hence increasing demand for housing, high cost of construction materials and shortage of houses.
5.6. Difficulties in filling highly specialized jobs
Most of highly specialized jobs like medicine, high school teachers and engineers are very difficult to be filled by community members. This is attributed to few locally trained personnel, low wages for them as compared to other community and lack of social amenities in some parts of the region.
5.7. Hostile Business Environment
The community has also experienced hostile business environment due to government and District council personnel harassment. The government, through. taxation and licensing regulations, coercively reinforce the payment of dues from the business community. The district council personnel on the other hand, also forcefully obtain the council receipts from the public. The difficulty in operating the business in the community is also due to last of warehousing facilities.
6. INVESTMENT OPPORTUNITIES
6.1 Food Canning
From several bananas and tomatoes produced in the area, an investor can establish a food canning industry and utilize the readily available raw materials. The banana produced in the area can also be used to brew alcohol as it is in the Banana investment. The other resource that is available in the community which can facilitate the establishment of such industry is the cheap labour.
6.2. Garbage Recycling
There is no single industry in the community which is involved in the recycling of garbage. A lot of plastic paper bags are produced in the region but they end up being wasted. The pieces of metals and glasses can also be utilized in the similar manner.
6.3.Poultry Farming
Attempting to keep large chicken farm can be really a lucrative business due to readily available market for such products. The fast growing tourism industry locally and the neighbouring community can easily serve as a market for such products.
6.4. Lumbering
The large pieces of land in the area can facilitate the growing of exotic trees which can serve as a source for lumbering activities. The indigenous forest available in the area can also be economically utilized as raw material for lumbering in the area.
6.5. Animal Product Industry
An Investor can also establish an industry for processing milk, butter and cheese which are at the moment not in place. The large amount of milk produced in the community is basically being used locally for drinking without for processing.
6.6. Brick Making
The community is endowed with red clay soil in the lowland which can be used for brick making on the large scale. The sand and stones quarried in the area can also be utilized for block making. The market in this regard is also readily available due to the construction activities taking place in the region.
6.7. Quarrying and Sand Mining
The stones available in the community can as well be subjected to large scale quarrying and serve the community better rather than doing it on small scale and subjecting the community to poverty. Sand mining can also be done on large scale hence improve the community’s income.
6.7. Education Facilities
There is also an investment opportunity in the education sector. The rapid increase in population and only but two secondary schools available without a college can facilitate the investment in education as lucrative business. The students are forced to travel 25 kilometers from the community to seek the same service from Arusha town.
6.8. Health Facilities
A large health facility in the region can be a good investment due to lack of referring hospital in the area. In the similar manner patients have to be taken either to KCMC or Mt. Meru Hospital or Tengeru about 70 km, 25km and 10km away from the community.
6.10. Tourism Facilities
Tourism in a fast growing industry in the region but there is no single facility in terms of a hotel or a tour guide firm in the community. Because of now readily available market, this venture can improve to be a good investment.
6.11. Transportation Services
The population in the area is rapidly growing and the available passenger vehicles cannot adequately serve the community. So there is also need to invest in this service. The sand mining and quarrying activities also requires big lorries and trucks. These activities can guarantee full operation of the investment throughout the year. There are also two market days in a week and most of the market supplies comes from the neighboring communities hence the need for transportation services.
6.12. Flower Industry
Good climatic conditions available, water and cheap labour can be utilized to establish several flower industries in the region.
6.13. Cultural and Artistic Facilities.
Establishment of cultural and artistic activities will be an investment which has never been ventured into in the community. This may include traditional dancing and Christian choirs, wood curving, basket making and mat weaving.
7. TOOLS USED IN COLLECTING DATA FOR COMMUNITY ECONOMIC ANALYSIS
In our attempt to carry out community economic analysis, we applied the following tools to collect the data:
7.1. Participant Observation
This technique of data collection is also known as direct observation. In this method the researcher becomes part and parcel of people under observation. The participant observer commits himself to a group of people for a given time, such as several days, weeks or months.
In our attempt to collect the data for Community Economic Analysis, we applied this method. The method assisted us to collect data relating to types of business activities existing in the area, the means of transportation and, the garbage produced in the community.
In applying participant observation we got to know the ideas of the people we were studying, we were able to record the data as we observed and we were also able to get first hand information.
7.2. Semi – structured Interview
Interview is an oral administration of a questionnaire or an interview schedule. Interviews are therefore face to face encounters. In this tool, a researcher needs to have a maximum cooperation from the respondents.
During our Community Economic Analysis data collection exercise, this method assisted us to collect the data relating to the businesses which are performing well and those that are declining. We were also able to identify the reason for their poor performance as well.
We applied this method because we could be able to compare answers from different respondents to see their validity. It was also possible to use quantitative analysis to analyze the data. The method is also less time consuming.
7.3. Structured Questionnaire
This method of data collection involve preparing questions which are accompanied by a list of all possible alternatives from which respondents select the answer that best describes their situation.
This method enabled us to collect personal data such as the earning for employees, the sales volume for business community and the secrets behind good performance of the businesses.
We applied this method in collection the data for Community Economic Analysis because the data collected was easier to analyze, the method was easier to administer and economical in terms of time and money.
7.4. Focus Group Discussion
This is a technique whereby the researcher convenes a meeting involving people of different profession, skills and qualification. Then the researcher’s work is to brain storm the meeting by asking a question of his interest. As the participants discuss the question, he/she records the resolution.
This technique enabled us to collect data on the investment opportunities available in the community.
7.5. Secondary Data/Documents
This is the past and present literatures and official current or previous investigation reports are consulted. In the process, the information or data are supplemented.
This technique of data collection enabled us to check the reliability of the data obtained. In conducting Community Economic Analysis, this method was necessary in order to establish the number of people in the community.
8. CONCLUSION AND RECOMMENDATIONS
A good Community Economic Analysis can reflect the community’s potential to provide the member with better standard of living. An investor can also identify the community’s investment opportunity through the analysis carried out and invest accordingly. So the importance of Community Economic Analysis cannot be undermined in this regard.
In our analysis, qualitative/description approach was used throughout however, we recommend that other tools of Community Economic Analysis can also be used to give more insight as far as the resources of the community is concerned. Such tools may include: Reilly’s law, input-out analysis, pull factor, Trade area capture, potential sales, Location quotient, Population-Employment ratio, Shift-share: National growth component, Industrial mix component, competitive share component and employment and Income multiplier.
9. REFERENCES
1. Ronald J. Hustedde, Ron Shaffer and Glen Pulver (1993) – community Economic Analysis – A How to Manual Lowa State University Printing Press.
2. Hossea M.M. Rwegoshora, A guide to Social Science Research Institute of Social Work. Dar es salaam. Mkuki na Nyota Publishers Ltd. .o. Box 4216 Dar es salaam –Tanzania.
3. Mutasa F.L. (2003) - Principles of Economics. Tanzania Institute of Bankers. Dar-es-salaam.
4. Center for Community Enterprise. (2003). Tools and Techniques for Community Recovery & Renewal. W.W.W. cedworks. com
Thursday, November 13, 2008
FINANCIAL SERVICES IN KKTT COMMUNITY
TABLE OF CONTENT PAGES
Introduction…………………………………………………………………………….2
Definition of terms……………………………………………………………………..2
Community profile…………………………………………………………………….4
Financial services in our community………………………………………………….4
Proposal on what should be done to ensure that our community access reliable financial services……………………………………………………………………….7
Conclusion……………………………………………………………………………..9
Reference…………………………………………………………………………….10
1. INTRODUCTION
In this paper, we shall examine the available financial services in our community and provide the proposals on what should be done to ensure that our community access reliable financial services.
In our attempt to achieve this, we shall first provide the definitions of key terms such as financial services, business and investment growth and the economy. We shall then explore the subject matter of our discussion.
Upon completing the discussion, we shall conclude our work by providing the possible recommendations. Finally, we shall provide the references of our work.
2. DIFINITION OF TERMS
2.1. Financial services
Financial services are the services which are connected with money. These services are composed of financial institution and financial matters. The providers of such services may include formal financial services such as commercial banks, saving banks, development banks, and non financial institutions such as insurance companies, NSSF, PPF and LAPF.
Financial services also include quasi formal financial services which do not fall under the regulatory powers of Bank of Tanzania, but are regulated by the government. Such institutions include NGOs offering financial services such as SACCOS and other government and donor backed institutions such as microfinance.
Financial services also include informal financial services which are not regulated neither by the Central Bank of Tanzania nor by the government machinery. These are mostly based on trust between the parties involved in the transactions. Such services include those offered by unregistered Routine Saving and Credit Associations (ROSCA), traditional money lenders and those offered by family members and friends.
2.2. Importance of financial services
· They supply medium of exchange and operative mechanism,
· Provide obvious and convenient way in which lenders can save money. So they provide saving facilities,
· They provide lending facilities at a fee,
· Provide maturity transformation. They bridge the gap between the wish of the most lenders for liquidity and desire of most borrowers for loans of a longer periods,
· Act as a medium of implementation of financial intermediaries of monetary policy,
· They help individual and the household to meet basic needs and protect against risks,
· They improve the economic welfare of the community and enterprise stability or growth of low income households,
· They sources of business training,
· They are involved in creation of new entrepreneurs and
· Act as a source of employment for the majority of the people.
2.2. Business and Investment Growth
Business and investment growth refers to the positive changes that can take place in the general activities involving undertaking with the aim of making profits as well as improvement in the capital stock. Any positive changes in regard to these phenomena leads to the general increase in employment levels, increase in people’s income, high level of consumption hence the economic growth.
2.3. Economy
This is a set of institutions within which a community decides what, how and for whom to produce. It is a framework through which a society allocates scarce resources among competing uses or it is an allocative mechanism of a society.
3. COMMUNITY PROFILE
Our community is based in Usa River, Arumeru District in Arusha province. Usa river is located 20 kilometers east of Arusha town. Usa River is divided into Manyata, Magadini, Mjimwema and Ngarasero.
Administratively, Usa River division is headed by Division Secretary. Below him are Ward Executive officers and sub ward chairmen. These chairmen are assisted by five cell representatives who normally elect one of them to become their secretary. Villages and hamlets are under village and hamlet councils respectively.
Usa River division lies in equatorial regions however, the climate of Usa River is influenced by Mount Meru. It lies in the eastern part of Mt. Meru, hence it is on the windward side. It therefore receives orographic type of rainfall which falls heavily in the months of February, March and April and moderate in October, November and December. It is estimated to receive about between 1200 and 1500mm of rainfall per year. The temperature in the area is high up to 32◦c during hot seasons. Humidity varies with temperature.
5. FINANCIAL SERVICES THAT ARE AVAILABLE IN OUR COMMUNITY
These financial services include formal, quasi formal and informal financial services. Each financial service provider do it on the basis of its own internal objectives, whether profit, poverty alleviation, self-help, or other motivation as described below:
5.1. PRIDE Tanzania
Promotion of Rural Enterprise Initiative Development (PRIDE) was opened in our community in 2006 as a subsidiary of Mianzini. This is an NGO which provide loans to small and medium enterprise under good terms. So far at Usa River, the organization has estimated members of 400 divided into groups of 50 people which are further sub-divided into groups of 5. For one to secure a loan, one needs to register and take 8 weeks upon contributing Tshs.1500 per week. There is no collateral needed but ones guarantors include oneself, immediate members and the entire group 50. The loans range from Tshs.100 000 to Tshs.2 000 000. Other terms are that one must have a business unit and be above 18 years.
5.2. BRAC Foundation
Brac Foundation came into our community in 2006. This microfinance operates as an NGO. This is for the groups of female only whose land (including household) is not more than 3 acres, works for other enterprises, sale manual labour, have small business etc. The admission fee is Tshs.1 500 and each member has to renew her membership with a renewal fee of Tshs.1 000. A member must also be aged between 20-50 years.
Loans are disbursed after four weeks of regular attendance of weekly meeting. Loan and its service charge are realized in 48 equal installments during weekly meeting. Loan service charge is 20%. 0.5% of loan sanctioned amount is charged as loan appraisal fee. 10% of loan amount is deducted during disbursement as loan security deposit (refundable).
5.3. SACCOS
Umoja wa Wanawake Tanzania (UWT) established Savings and credit cooperative Society (SACCOS) in 2006 with the aim of mobilizing savings from the women in Usa River community. Women were required to pay a registration fee of Tshs.10 000. The interest rate for the borrowed loan is 10% per annum. Other financial services offered by UWT SACCOS are the school fees loans and emergence loans. To operate on the safe side, UWT SACCOS insure every loan issued with the Alliance Insurance Company Ltd against bad debts arising due to the death and permanent disability of borrower.
5.4. CRDB Bank
The members of Usa River community have also been able to access “One Billion for each Political Region” through CRDB bank. However, the condition was such that one needed to be the member of a group. So, Umoja wa Wanawake Tanzania (UWT), Usa River branch comfortably got the loan at 8% interest rate which it lends its SACCOS members at the interest of 10%. CRDB bank which officially started operating in February, 2008 decided to open up their branch at Usa River so that its customers may access it easily.
5.5. Knight Foundation
Akiba commercial bank has actually attracted the majority of the poor through the Knight Foundation. The members who are women are entitled to a minimum loan of Tshs.150 000 after undergoing 2 weeks training programme on entrepreneurship. These loans carry interest rate of 20% per annum with maximum loan refund period of 12 months. Loan refund and interest are done simultaneously on the monthly basis.
5.6. COMPASION
Compassion is an NGO which provide loans to the poor women who are infected with HIV/AIDS from the revolving funds. These loans are provided without interest charges. The borrower is only but encouraged to refund the principal amount which is again doubled and given back to the borrower. This process continues until the organization feels that the borrower is stable enough to be left on her own then the principal amount is forfeited by the organization.
5.7. Traditional money lenders
Some women, either operating individually or in groups lend money to fellow women at very high interest rates. For example, Mama Bella charge Tshs.10 000 per month for every Tshs.100 000 loaned. Other requirement includes entry fee of Tshs.1 500 and a deposit of Tshs.10 000. Any failure to pay within the required time carry a penalty of Tshs.3000 for every day delayed.
5.8. Family members and friends
Some members of Usa River community also access finance through family members and friends. In most cases these are interest free loans and the requirement for payment is in short term. These loans are provided on sheer trust with no legal obligation. Though these loans are more convenient to the borrowers but nevertheless they carry more risks of running into bad debts on the side of the lenders.
5.9. Employers salary advances
The members of Usa River community who are employed also get financial assistance from their respective employers. For instance, Mukidoma School Company limited provides its employees with salary advances to carter for their extra needs. These advances are offered on the basis of interest free and the payment is conveniently spread over twelve months.
5.10. Donor community
Some donors are also in forefront to provide financial services in this community. For instance, Amani primary school and Agape College of Management Training were built under strong foundation of the donors funds. In Amani primary school, pupils who are admitted are assisted to get sponsorship abroad. But in Agape college, donors funds all the operation of the college; an act which end up benefiting all students.
6. PROPOSALS ON WHAT SHOULD BE DONE TO ENSURE THAT OUR
COMMUNITY ACCESS RELIABLE FINANCIAL SERVICES
There are a number of proposals on what should be done to ensure that our
community access reliable financial activities. However, our discussion will basically
revolve around the most realistic and practical proposals as discussed below:
6.1. Gender Equity
Access to financial services should be available to both men and women. In order to achieve gender equity in the delivery of services, it may be necessary to make special efforts to incorporate features that make the services accessible to all.
6.2. Collateral Substitutes and Repayment Incentives
A variety of collateral substitutes and repayment incentives can be used so that loans are not secured in a conventional sense, but are adequately protected against risks. The techniques used today by most financial service providers in trying to make their loans more secure may hinder or even scare away the potential borrowers.
6.3. Government Intervention
Government intervention in the operation of the financial service providers is very important in order to avoid over exploitation of the public. As it is now most financial service provider have their own interest rates, some of which are very exploitative. For instance, the loan that PRIDE Tanzania which was secured at interest rate of 8% from “One billion for each Political region”-President Jakaya Mrisho Kikwete initiative, is being charged 30% interest. So the government should try and protect the public against such exploitation.
6.4. Governance
Institutions should have sound governing structures suitable to their institutional types. Participation by clients may in some instances be a fundamental principle of the good governance structure as it is in the SACCOS. However, the government and political interference should be kept at minimum.
6.5. Develop Microfinance
There is need to develop microfinance and Micro financial institutions (MFIs) which can deal in small transactions efficiently. In this respect, evolution of microfinance and MFIs will be very useful because they will be able to handle small transactions more efficiently as well as establish a long term relationships with the borrowers.
6.6. Improve the Credit Worthiness of the Poor
Innovation to assist more poor people to become credit worthy and in order to have long term relationship with formal financial institutions should be encouraged. As it is now, most of the poor are denied loans because of the fear that they will not be able to service the loans efficiently hence leading to bad debts.
6.7. Investing In Social and Physical Infrastructure
Most of the micro entrepreneurs find loan repayment difficult because the means of facilitating the transfer of their products is poorly developed. For instance, during the rain season, most roads are impassable hence the movement of goods to the market becomes very difficult. The development of schools and health centers will mean that the entrepreneurs will spend little money on transport in trying to get those services.
6.8. Discourage Debt Cycles
The practice of loan repayment by making fresh loans from money lenders has resulted in the creation of debt cycles. This practice actually makes the borrower always indebted to the lending institution hence failing to improve on means of coming out of poverty. Micro credit therefore may lead the poor to be caught up in the debt trap if they are not able to generate enough income for payment.
6.9. Provide education and training
Most of the Usa River community members lack knowledge on how to properly utilize the borrowed loans on the targeted ventures. Most of them still have the habit of diverting loans for the purpose which they initially did not have in mind. In the process they fail to refund the loans at the scheduled time. Some of them, as result have ended up losing their properties to their lenders.
6.10. Encourage the formation of SACCOS
Saving and Credit Cooperative Societies (SACCOS) have so far proved to be the best sources of finance for most small scale entrepreneurs since they provide loans at the lowest interest possible. The procedures required in obtaining loans is also simple and under short term notice. Beside that, the members are also eligible for dividend sharing at the end of the year.
7. CONCLUSION
The role of credit evolve as a determinant of the success of entrepreneurial activity but deep analysis of the entrepreneurial activity shows that finance does not in itself create opportunities rather it is the entrepreneurial nature of the people which lead them to see the various ways in which they can generate income. Nevertheless, credit plays an instrumental role in enhancing the capability of entrepreneur to utilize the available opportunity.
The high interest rates charged by most micro-financing institution is real discouraging to most financial services beneficiaries most of whom end up hooked by these loans to an extent that they become mere workers of financial organization. SACCOS have so far proved to be the best source of funds for the rural community if they adhere to cooperative principles. However, in the recent past, SACCOS have been reduced to be mere agents of financial institution particularly when they borrow money on behalf of the members at high interest rates and lend to their members at equally high interest rates.
8. REFERENCE
Microfinance and sustainable micro entrepreneurship development. Also available at http://www.ediindia.org/Creed/data.Nisha%2Bharti.htm
Chavan, P. & Ramakumar, R. (2002). “Micro-Credit and Rural Poverty: An analysis of Empirical Evidence” Economic and Political weekly, March 9, 2002.
United Republic of Tanzania, Ministry of industry and trade (2002). Small and Medium Enterprise Development Policy, The government printer, Dar es Salaam-Tanzania.
United Republic of Tanzania, Ministry of Finance (2002). National Micro-Finance Policy, The government printer, Dar es Salaam-Tanzania.
Ambilikile, C. M.(2004). Economics for Advanced level paper two and professional studies, Afroplus Industries Ltd. Dar es Salaam
Introduction…………………………………………………………………………….2
Definition of terms……………………………………………………………………..2
Community profile…………………………………………………………………….4
Financial services in our community………………………………………………….4
Proposal on what should be done to ensure that our community access reliable financial services……………………………………………………………………….7
Conclusion……………………………………………………………………………..9
Reference…………………………………………………………………………….10
1. INTRODUCTION
In this paper, we shall examine the available financial services in our community and provide the proposals on what should be done to ensure that our community access reliable financial services.
In our attempt to achieve this, we shall first provide the definitions of key terms such as financial services, business and investment growth and the economy. We shall then explore the subject matter of our discussion.
Upon completing the discussion, we shall conclude our work by providing the possible recommendations. Finally, we shall provide the references of our work.
2. DIFINITION OF TERMS
2.1. Financial services
Financial services are the services which are connected with money. These services are composed of financial institution and financial matters. The providers of such services may include formal financial services such as commercial banks, saving banks, development banks, and non financial institutions such as insurance companies, NSSF, PPF and LAPF.
Financial services also include quasi formal financial services which do not fall under the regulatory powers of Bank of Tanzania, but are regulated by the government. Such institutions include NGOs offering financial services such as SACCOS and other government and donor backed institutions such as microfinance.
Financial services also include informal financial services which are not regulated neither by the Central Bank of Tanzania nor by the government machinery. These are mostly based on trust between the parties involved in the transactions. Such services include those offered by unregistered Routine Saving and Credit Associations (ROSCA), traditional money lenders and those offered by family members and friends.
2.2. Importance of financial services
· They supply medium of exchange and operative mechanism,
· Provide obvious and convenient way in which lenders can save money. So they provide saving facilities,
· They provide lending facilities at a fee,
· Provide maturity transformation. They bridge the gap between the wish of the most lenders for liquidity and desire of most borrowers for loans of a longer periods,
· Act as a medium of implementation of financial intermediaries of monetary policy,
· They help individual and the household to meet basic needs and protect against risks,
· They improve the economic welfare of the community and enterprise stability or growth of low income households,
· They sources of business training,
· They are involved in creation of new entrepreneurs and
· Act as a source of employment for the majority of the people.
2.2. Business and Investment Growth
Business and investment growth refers to the positive changes that can take place in the general activities involving undertaking with the aim of making profits as well as improvement in the capital stock. Any positive changes in regard to these phenomena leads to the general increase in employment levels, increase in people’s income, high level of consumption hence the economic growth.
2.3. Economy
This is a set of institutions within which a community decides what, how and for whom to produce. It is a framework through which a society allocates scarce resources among competing uses or it is an allocative mechanism of a society.
3. COMMUNITY PROFILE
Our community is based in Usa River, Arumeru District in Arusha province. Usa river is located 20 kilometers east of Arusha town. Usa River is divided into Manyata, Magadini, Mjimwema and Ngarasero.
Administratively, Usa River division is headed by Division Secretary. Below him are Ward Executive officers and sub ward chairmen. These chairmen are assisted by five cell representatives who normally elect one of them to become their secretary. Villages and hamlets are under village and hamlet councils respectively.
Usa River division lies in equatorial regions however, the climate of Usa River is influenced by Mount Meru. It lies in the eastern part of Mt. Meru, hence it is on the windward side. It therefore receives orographic type of rainfall which falls heavily in the months of February, March and April and moderate in October, November and December. It is estimated to receive about between 1200 and 1500mm of rainfall per year. The temperature in the area is high up to 32◦c during hot seasons. Humidity varies with temperature.
5. FINANCIAL SERVICES THAT ARE AVAILABLE IN OUR COMMUNITY
These financial services include formal, quasi formal and informal financial services. Each financial service provider do it on the basis of its own internal objectives, whether profit, poverty alleviation, self-help, or other motivation as described below:
5.1. PRIDE Tanzania
Promotion of Rural Enterprise Initiative Development (PRIDE) was opened in our community in 2006 as a subsidiary of Mianzini. This is an NGO which provide loans to small and medium enterprise under good terms. So far at Usa River, the organization has estimated members of 400 divided into groups of 50 people which are further sub-divided into groups of 5. For one to secure a loan, one needs to register and take 8 weeks upon contributing Tshs.1500 per week. There is no collateral needed but ones guarantors include oneself, immediate members and the entire group 50. The loans range from Tshs.100 000 to Tshs.2 000 000. Other terms are that one must have a business unit and be above 18 years.
5.2. BRAC Foundation
Brac Foundation came into our community in 2006. This microfinance operates as an NGO. This is for the groups of female only whose land (including household) is not more than 3 acres, works for other enterprises, sale manual labour, have small business etc. The admission fee is Tshs.1 500 and each member has to renew her membership with a renewal fee of Tshs.1 000. A member must also be aged between 20-50 years.
Loans are disbursed after four weeks of regular attendance of weekly meeting. Loan and its service charge are realized in 48 equal installments during weekly meeting. Loan service charge is 20%. 0.5% of loan sanctioned amount is charged as loan appraisal fee. 10% of loan amount is deducted during disbursement as loan security deposit (refundable).
5.3. SACCOS
Umoja wa Wanawake Tanzania (UWT) established Savings and credit cooperative Society (SACCOS) in 2006 with the aim of mobilizing savings from the women in Usa River community. Women were required to pay a registration fee of Tshs.10 000. The interest rate for the borrowed loan is 10% per annum. Other financial services offered by UWT SACCOS are the school fees loans and emergence loans. To operate on the safe side, UWT SACCOS insure every loan issued with the Alliance Insurance Company Ltd against bad debts arising due to the death and permanent disability of borrower.
5.4. CRDB Bank
The members of Usa River community have also been able to access “One Billion for each Political Region” through CRDB bank. However, the condition was such that one needed to be the member of a group. So, Umoja wa Wanawake Tanzania (UWT), Usa River branch comfortably got the loan at 8% interest rate which it lends its SACCOS members at the interest of 10%. CRDB bank which officially started operating in February, 2008 decided to open up their branch at Usa River so that its customers may access it easily.
5.5. Knight Foundation
Akiba commercial bank has actually attracted the majority of the poor through the Knight Foundation. The members who are women are entitled to a minimum loan of Tshs.150 000 after undergoing 2 weeks training programme on entrepreneurship. These loans carry interest rate of 20% per annum with maximum loan refund period of 12 months. Loan refund and interest are done simultaneously on the monthly basis.
5.6. COMPASION
Compassion is an NGO which provide loans to the poor women who are infected with HIV/AIDS from the revolving funds. These loans are provided without interest charges. The borrower is only but encouraged to refund the principal amount which is again doubled and given back to the borrower. This process continues until the organization feels that the borrower is stable enough to be left on her own then the principal amount is forfeited by the organization.
5.7. Traditional money lenders
Some women, either operating individually or in groups lend money to fellow women at very high interest rates. For example, Mama Bella charge Tshs.10 000 per month for every Tshs.100 000 loaned. Other requirement includes entry fee of Tshs.1 500 and a deposit of Tshs.10 000. Any failure to pay within the required time carry a penalty of Tshs.3000 for every day delayed.
5.8. Family members and friends
Some members of Usa River community also access finance through family members and friends. In most cases these are interest free loans and the requirement for payment is in short term. These loans are provided on sheer trust with no legal obligation. Though these loans are more convenient to the borrowers but nevertheless they carry more risks of running into bad debts on the side of the lenders.
5.9. Employers salary advances
The members of Usa River community who are employed also get financial assistance from their respective employers. For instance, Mukidoma School Company limited provides its employees with salary advances to carter for their extra needs. These advances are offered on the basis of interest free and the payment is conveniently spread over twelve months.
5.10. Donor community
Some donors are also in forefront to provide financial services in this community. For instance, Amani primary school and Agape College of Management Training were built under strong foundation of the donors funds. In Amani primary school, pupils who are admitted are assisted to get sponsorship abroad. But in Agape college, donors funds all the operation of the college; an act which end up benefiting all students.
6. PROPOSALS ON WHAT SHOULD BE DONE TO ENSURE THAT OUR
COMMUNITY ACCESS RELIABLE FINANCIAL SERVICES
There are a number of proposals on what should be done to ensure that our
community access reliable financial activities. However, our discussion will basically
revolve around the most realistic and practical proposals as discussed below:
6.1. Gender Equity
Access to financial services should be available to both men and women. In order to achieve gender equity in the delivery of services, it may be necessary to make special efforts to incorporate features that make the services accessible to all.
6.2. Collateral Substitutes and Repayment Incentives
A variety of collateral substitutes and repayment incentives can be used so that loans are not secured in a conventional sense, but are adequately protected against risks. The techniques used today by most financial service providers in trying to make their loans more secure may hinder or even scare away the potential borrowers.
6.3. Government Intervention
Government intervention in the operation of the financial service providers is very important in order to avoid over exploitation of the public. As it is now most financial service provider have their own interest rates, some of which are very exploitative. For instance, the loan that PRIDE Tanzania which was secured at interest rate of 8% from “One billion for each Political region”-President Jakaya Mrisho Kikwete initiative, is being charged 30% interest. So the government should try and protect the public against such exploitation.
6.4. Governance
Institutions should have sound governing structures suitable to their institutional types. Participation by clients may in some instances be a fundamental principle of the good governance structure as it is in the SACCOS. However, the government and political interference should be kept at minimum.
6.5. Develop Microfinance
There is need to develop microfinance and Micro financial institutions (MFIs) which can deal in small transactions efficiently. In this respect, evolution of microfinance and MFIs will be very useful because they will be able to handle small transactions more efficiently as well as establish a long term relationships with the borrowers.
6.6. Improve the Credit Worthiness of the Poor
Innovation to assist more poor people to become credit worthy and in order to have long term relationship with formal financial institutions should be encouraged. As it is now, most of the poor are denied loans because of the fear that they will not be able to service the loans efficiently hence leading to bad debts.
6.7. Investing In Social and Physical Infrastructure
Most of the micro entrepreneurs find loan repayment difficult because the means of facilitating the transfer of their products is poorly developed. For instance, during the rain season, most roads are impassable hence the movement of goods to the market becomes very difficult. The development of schools and health centers will mean that the entrepreneurs will spend little money on transport in trying to get those services.
6.8. Discourage Debt Cycles
The practice of loan repayment by making fresh loans from money lenders has resulted in the creation of debt cycles. This practice actually makes the borrower always indebted to the lending institution hence failing to improve on means of coming out of poverty. Micro credit therefore may lead the poor to be caught up in the debt trap if they are not able to generate enough income for payment.
6.9. Provide education and training
Most of the Usa River community members lack knowledge on how to properly utilize the borrowed loans on the targeted ventures. Most of them still have the habit of diverting loans for the purpose which they initially did not have in mind. In the process they fail to refund the loans at the scheduled time. Some of them, as result have ended up losing their properties to their lenders.
6.10. Encourage the formation of SACCOS
Saving and Credit Cooperative Societies (SACCOS) have so far proved to be the best sources of finance for most small scale entrepreneurs since they provide loans at the lowest interest possible. The procedures required in obtaining loans is also simple and under short term notice. Beside that, the members are also eligible for dividend sharing at the end of the year.
7. CONCLUSION
The role of credit evolve as a determinant of the success of entrepreneurial activity but deep analysis of the entrepreneurial activity shows that finance does not in itself create opportunities rather it is the entrepreneurial nature of the people which lead them to see the various ways in which they can generate income. Nevertheless, credit plays an instrumental role in enhancing the capability of entrepreneur to utilize the available opportunity.
The high interest rates charged by most micro-financing institution is real discouraging to most financial services beneficiaries most of whom end up hooked by these loans to an extent that they become mere workers of financial organization. SACCOS have so far proved to be the best source of funds for the rural community if they adhere to cooperative principles. However, in the recent past, SACCOS have been reduced to be mere agents of financial institution particularly when they borrow money on behalf of the members at high interest rates and lend to their members at equally high interest rates.
8. REFERENCE
Microfinance and sustainable micro entrepreneurship development. Also available at http://www.ediindia.org/Creed/data.Nisha%2Bharti.htm
Chavan, P. & Ramakumar, R. (2002). “Micro-Credit and Rural Poverty: An analysis of Empirical Evidence” Economic and Political weekly, March 9, 2002.
United Republic of Tanzania, Ministry of industry and trade (2002). Small and Medium Enterprise Development Policy, The government printer, Dar es Salaam-Tanzania.
United Republic of Tanzania, Ministry of Finance (2002). National Micro-Finance Policy, The government printer, Dar es Salaam-Tanzania.
Ambilikile, C. M.(2004). Economics for Advanced level paper two and professional studies, Afroplus Industries Ltd. Dar es Salaam
ECONOMIC INTEGRATION
TABLE OF CONTENT PAGES
1. Introduction
2. Past and Present Efforts On
Economic Integration in Africa
3. Emergence of Various Economic
Integration Bodies in Africa
4. Forms of Economic Integration
5. Economic Benefits of Regional
Economic Integration
6. Reasons for failures of Africa’s
Regional Economic Integration
7. Conclusion
8. References
1. INTRODUCTION
Economic integration refers to the cooperation of several countries for the sake of enjoying economic benefits. It is aimed at increasing the benefits of international trade and may result in political integration. Political integration can be national or inter-state. National Political integration is the one in which there is creation and maintenance of national unity among different ethnic groups in a country. Inter-state political integration is the political union between two or more independent countries.
The earliest scholarly writing on economic integration had their origins in the theory of comparative advantage in the international trade. Jacob Viner (1950) and Robert Heller (1972) are two outstanding economists who have made contributions to the theory of economic integration. Their work has been instrumental in the development of modern ideas about economic integration and trade liberalization. They argue that economic integration should be aimed primarily at enhancing resource productivity and allocation. Proponents of the traditional school believe that certain requisite conditions must be present in order to realize the goal of economic integration. They include, but not limited to, the existence of substantial amounts of intra-regional trade and complementary economies. In addition, the size of foreign trade as percentage of the gross domestic product should be relatively small. The traditionalist further suggest that the larger the size of the potential union, the greater the likelihood of obtaining beneficial results. Finally, they argue that the possibilities of having a beneficial integration scheme will be greater to the extent that individual country tariff rates prior to union are high in comparison to the common external tariff established after the union (Heller, 1972).
In this paper, we shall examine the economic benefits of economic integration with reference to various, economic integration such as the East African Community (EAC). The Southern African Development Community (SADC), the Economic Community of West African States (ECOWAS), the Common Market for Eastern and Southern African (COMESA) and the European Economic Community (EEC).
In our provision for benefits of economic integration we shall basically assume that the economic integration has already attained the highest level of integration, that is, total Economic integration whereby there is free movement of commodities and a few factors of production among, member states and there is also a unification of monetary, fiscal, social and other policies. The member countries here can start using a common currency. In addition, supra-national authority will be erected which makes decisions binding to all member countries.
This paper also intends to provide the reader with the insights about several efforts and intentions the African leaders used to have and yet still pursuing in a bid to pull their countries out of poverty, misery and ultimately improve the well- being of their citizens.
Conclusion will be drawn basing on lessons learned and our own experience.
2. PAST AND PRESENT EFFORTS ON ECONOMIC INTEGRATION IN AFRICA
During the colonial period there were many attempts to integrate African Economies. At this time all of the integration efforts were financed by European capital.
These schemes however were not designed to improve economic growth and development in the colonies but to further European objectives and Interests. The Primary objective was to insert the African economies into International capitalist system. The colonial state was tasked with the role of facilitating the integration of African Economies into the Global Capitalist Economy as part of the overall strategy to advance the interests of the forces of Western Imperialism. In other words, the primary aim of the colonial integration scheme was the extraction of Africa’s minerals and natural resources and the protection of the continents large but untapped market for manufactured goods imported from the metropolitan countries. In essence the integration schemes established by the colonial authorities provided a larger policy framework for deepening the exploitation of Africa and integrating the continent into the Western Capitalist System. In order to actualize this aim the imperial powers first imposed their currencies on Africa. Thereafter, they imposed various forms of taxes (direct and indirect) on the colonies and monopolized both export and Import trade in Africa.
The colonial governments also constructed roads and railways. Provision of such infrastructure however, was not designed to promote the development of the colonies, but to facilitate both export and imports trade. While these integration schemes during colonial era, furthered the capitalist exploitation of Africa by European mercantile companies a great majority of them did not survive when the colonies gained independence.
The demise of the many colonial-era integration schemes however, did not mark the end to Africa’s interest in regionalism. Shortly after independence many countries indicated an interest in creating new and more viable integration schemes. Interest in regionalism was motivated by several factors which include:
Many post-Independence African Leaders felt an urgent need to integrate their relatively small economies with those of their neighbours in order to create larger and move viable markets, which could support the type of development projects that were expected to provides jobs for a restless population and generate the resources needed to confront poverty.
There was fear that without unity and cooperation, many of the newly independent countries could not effectively rip the benefits of independence and deal effectively with many societal issues, including the alleviation of poverty.
There was a desire by the newly elected leaders to rid their countries off colonial institutions and establish new ones that were locally focused and enhanced their ability to undertake economic growth and development
African leaders were eager to emulate the relative success of the European Economic Community (Onwuka, 1982; Onwuka and Sesay, 1995).
3. EMERGENCE OF VARIOUS ECONOMIC INTEGRATION BODIES IN AFRICA
In 1964, the Central African Customs and Economic Union (UDEAC) was formed to liberalize and promote trade among the French colonies in the Region.
In East Africa, former British Colonies, namely Kenya, Uganda and Tanzania, established the East African Community (EAC) in 1967 to further integrate their economies, increase trade among them, facilitate free movement of people of the region, provide the three heads of state a forum to discuss the economic and political issues of concern to their countries, manage the East Africa examination council and provide common services like those of all railways, harbours, post and telecommunication and airways.
However, EAC could not last for more than ten years. It collapsed in 1977 due to dissatisfaction among the members that Kenya was favoured, differences in ideologies, political misunderstanding between Tanzania and Uganda (Nyerere and Idd Amin), the fall of President Milton Obote in 1971 and the restriction of the transfer and exchange of currency.
On 1st January, 2001, the East African Heads of state formally launched the New East African Community at a ceremony held at Sheikh Amri Abeid Stadium in Arusha. It is imperative to note that so far Rwanda and Burundi have also joined EAC. The new EAC aims at widening and deepening cooperation among the Partner States in, among other areas, political, economical, social, cultural, health, education, science and technology, defense, security, legal and judicial affairs for their mutual benefit. This will be achieved through the establishment of a custom union as the entry point of the community, common market, subsequently a monetary Union and ultimately a political federation of the East African States.
In West Africa the Mano River Union (MRU) was created in 1973, consisting of Guinea, Liberia and Sierra Leone. The MRU was different from (EAC) and UDEAC in the sense that geographical proximity was an overriding factor. In 1974, the CEAO, linking six francophone countries in West Africa was formed.
The Economic Community of West African States (ECOWAS) remains the largest economic grouping in Africa with member states from different colonial backgrounds. This was formed in 1975 with member states being Guinea, Ivory Coast, Mauritania, Senegal, Benin, Mali, Niger, Burkina Faso, Gambia, Nigeria, Ghana, Sierra Leone, Liberia, Guinea-Bissau, Togo, Cameroon and Cape Verde. This organization aimed at eliminating custom duties between member states, harmonizing agricultural economic monetary policies, financing dam projects and mineral extractions, improving transport and communication among the member states, abolishing obstacles to the free movement of persons, services and capital, creating a collective bargaining power with the industrialized world and finally setting ventures so as to reduce economic dependency on the outside world.
In Southern Africa, Angola, Botswana, Lesotho, Malawi, Mozambique, Namibia, Swaziland, Tanzania, Zambia and Zimbabwe established the Southern African Development Coordination Conference (SADCC) IN 1980. The original aim of SADCC was to reduce dependence on the apartheid regime in South Africa (Legume 1979). It was later renamed the Southern African Development Community (SADC) following the collapse of apartheid regime in South Africa, and the subsequent admission of democratic South Africa into the regional scheme. SADC now aimed at improving trade arrangements among the member states, improving transport and communication links and systems, developing agriculture and industries, developing and harnessing of energy and energy resources, developing and training of manpower, using appropriate financial policy and reducing dependency on other nations.
The emergence of New Global Economic order after the collapse of the former Soviet empire in the early 1990s has had significant impact on regional economic groupings around the globe. Efforts have also been made at the continent level to increase cooperation among African countries as a way to enhance economic growth and development as well as improve Africa’s participation in the global economy. In 1980, African leaders adopted the Lagos plan of action as a blueprint for the development of the continent.
In 1991, at the summit of African Heads of State in Abuja the African Economic Community (AEC) was established. Known as the Abuja treaty; it is aimed at liberalizing trade establishing a custom union and ultimately creating a common market.
Similarly, the Preferential Trade Area for Eastern and Southern African States (PTA) established in 1981 was transformed in 1994 to the common market for Eastern and Southern Africa (COMESA). To date, the member countries include Angola, Malawi, Lesotho, Mozambique, Zambia, Swaziland, Zimbabwe, Botswana, Mauritius, Sudan, Comoro Islands, Djibouti, Ethiopia and Somalia.
COMESA aimed at promoting and facilitating cooperation among the member states in trade, industry, agriculture, transport and communication, harmonizing and coordinating development strategies, policies and plans within the region, improving the environment for investment and private sector growth and generally accelerate the economic development of the individual member states, encouraging cooperation in monetary and financial affairs to facilitate sub-regional integration, establishing joint industrial and agricultural institutions with the aim of increasing the sub-region’s production capacity, building a strong economic base for members as a step towards the economic independence of the region and improving security and overall welfare of the people.
However, Tanzania pulled out of COMESA in September, 2000. Reasons for Tanzania’s withdrawal from COMESA were: failure to realize its goals of strengthening, developing and positively maintaining socio-economic relations with other countries, lack of seriousness among the members in implementing the set objectives, the need for trimming its membership in score of regional economic groupings because of conflicting interests, Tanzania was already having low national rates, hence to continue being a member of COMESA and therefore reduce the tariffs on the movement of goods could mean experiencing revenue losses and making the exports to other countries with high tariff rates less competitive, there were a lot of cheap manufactured products entering Tanzania and these could contribute in the decline of the local industries which tend to produce high costs and hence expensive products and finally dissuasion by South Africa which argued that by Tanzania being the member of COMESA it would sow discord and also interfere with serious efforts of SADC in creating the Free Trade Zone, which would encompass even the members of COMESA.
As part of the new wave of regionalism blowing across the world, the United States, Canada and Mexico successfully brought their economies closer by establishing the North American Free Trade Area (NAFTA). The European Economic Community has evolved into a single market called the European Union (EU). In 1995, EU member countries agreed with the twelve Mediterranean countries to form the EUROMED with the hope of establishing a free trade area force by 2020 (Bergsten, 1996). Also, the EU has used its Horizon 2000 under the Lome IV Agreement—now overtaken by the new ACP-EU Agreement ( otherwise known as the Cotonou Accord), signed in June 2000 at Cotonou, Benin—to further integrate the Union with selected developing countries from Latin America, Asia and the Mediterranean (Parfift, 1996).
Tanzania is related to European Union through membership in the Lome convention. The basic provision of Lome Convention include: trade cooperation whereby goods from ACP countries to have a free access into EEC, free of custom duty and other charges; protection of ACP industries whereby ACP countries can impose tariff against the industrial products from the EEC; stabilization of Export Earnings (STABEX) whereby EEC countries guarantee the stability of the earnings from the ACP exports; ACP countries to have more control over the EEC Development Fund than formerly; ACP countries were now at liberty to enter into the equally favourable agreement with other industrialized or even the developing countries; and any ACP country can opt to out of the Lome Convention if the agreement is no longer satisfactory.
In bid to reposition the Asian-Pacific countries in the new global division of power, the Association of Southern Asian Nations (ASEAN) is taking steps to redress the imbalance in its compensatory mechanism and to relocate industries to less developed member-states.
4. FORMS OF ECONOMIC INTEGRATION
According to Bela Balasa (1961), economic integration can be classified according to the five levels or stages of development as follows:
4.1. A free Trade Area
In this stage the member countries eliminate trade restrictions such as tariffs, imports and export quotas or device which obstruct the free movement of goods or services among them. But each member country is free to establish independent tariffs (taxes on imports) against non-member countries (third countries).
4.2. A Custom Union
In addition to having abolished trade restrictions among member countries as in a free trade area, the members have a common tariff against non-members (third countries).
4.3. A Common Market
In this case, on top of what takes place in customs union there is a free factor movement among the member countries. This means that capital and labour are free to move within the region. The nationals can find employment in any member country.
4.4. An Economic Community (Union)
It embodies all the elements of the common market, in addition the member countries institute joint ownership of certain enterprises e.g. roads, railways, ports, telecommunications, e.t.c. All economic policies in this case are harmonized or are common.
4.5. Total Economic Integration
In this case, not only there is free movement of commodities and other factors of production among the member states as in an economic union, but also there is a unification of monetary, fiscal, social and other policies. The members can start using a common currency. In addition, is supra-national authority, which makes decisions binding to all member countries.
5. ECONOMIC BENEFITS OF REGIONAL ECONOMIC INTEGRATION
5.1. Expansion of market
The economic integration leads to abolition or reduction of trade barriers among the member countries. The abolition of trade barriers increase the size of the market for the goods produced by member countries. For example, in the former East Africa Community (EAC), the three East African Countries i.e. Kenya, Uganda and Tanzania enjoyed expanded market among themselves. Even the present EAC enables the industries operating under it to access a wider market than before the integration. On the other hand, COMESA has enabled member states to become more cooperative in the field of trade.
The integration also enables the member countries to attain a common voice in advocating for the market of the goods. For instance, through African Growth and Opportunity Act (AGOA), African Countries have continued to open up their economies and build free markets.
However, the benefits of enlarged market cannot be fully realized because of poor infrastructure like poor roads, railways etc. That is, most part of African Countries is still inaccessible.
5.2. Establishing a good condition for Industrial Development and investment
Economic integration enable member countries to establish good condition for industrial development for instance, one of the achievements of the Economic Community for West African States (ECOWAS) was to set up special energy resources development fund for exploiting energy resources and financing dam projects. This would enable the member countries to access both water and energy resources which are the necessities of industrial development. Through COMESA, member states are able to access financial assistance from the Trade and Development Bank for financing trade and development projects.
However, the political instability among, most ECOWAS members such as Ghana, Algeria and Ivory Coast may hinder the positive progress of the collective activities of ECOWAS. The success of COMESA is also limited by the absence of the economically important nations like Nigeria and South Africa hence lifting trade barriers only may not necessary increase trade volume among the countries. A smaller group centred on one economically dominant nation is more sensible than having such a big organization full of economic vagaries due to inefficiency.
5.3. Promoting Transport and Communication
Transport and communication may be facilitated among the member countries of economic integration in order to ease distribution of goods and achieve efficient information flow. For instance, in the former EAC the three countries were efficiently joined by East African Railway, the Great North road, East African Airway and East Africa Ports and harbour. Even the present EAC enjoys the services of Vodacom and Zain as communication industries. This has been done through agreement with Kencel and Safari COM of Kenya and MTN and Mango of Uganda.
However, some Economic integration, such as ECOWAS still experience poor communication and transport systems i.e. the region is not well linked by transport and communication systems. There are few roads and railway lines as well as language variation which bar mutual interaction among the members.
5.4. Intensified security, fraternity and Unity
Economic integrating enables the member countries to enjoy intensified security, fraternity and unity. The countries under the same economic integration are unlikely to go into war because of the frequent forum for discussing problems facing them. The people in general and leaders in particular develop the feeling that they belong to one state. ECOWAS, for instance, has been in the fore front in defending the Liberian independence and the independence of other member states.
However, intensified security fraternity and unity among the member countries may be short-lived in a case where there is a frequent change of leaders as was experienced in EAC. Following the overthrow of President of Uganda in 1971 by Idd Amin Daddah, the continuity of EAC war put at stake. The difference between Uganda and Tanzania was so much intensified that the EAC was to collapse in 1977 and the two countries ultimately went into war in 1978.
5.5. Transfer of Technology
Economic integration leads to exchange of technology among the member countries for instance, the technology which was developed in Kenya, the Money Maker Pump is now used effectively in other two countries, that is, Uganda and Tanzania.
The diffusion of technology among the member states of economic integration may also not be very effective particular when these countries are in the same level of technological development as it is experienced in the EAC.
5.6. Employment Opportunities
There are possibilities of increase in employment due to free movement of factors of production and expansion in investment. For instance, the new EAC is committed to enhancing free movement of factors of production (labour, services and persons) and the right to establish residence. The free movement of the people of the region will foster greater cooperation and profound understanding among the people of the region. The old EAC managed to achieve the objective of freedom of movement of people.
However, the free movement of the factors of production particularly labour may be curtailed by cultural differences. This may be in terms of different religions and political ideologies. There are some countries within the community which may be skewed towards Muslim and others towards Christian for example within Nigeria, in the Northern part, they cherish Muslim principles while in the Southern part, they cherish Christianity.
5.7. It enables countries to specialize
Economic integration enables each country to specialize in the product of a commodity of its comparative advantage. Specialization leads to increase in output and gain from trade. For instance, within the Southern African Development Community (SADC), South Africa may specialize in production of industrial products and Tanzania specialize in production of agricultural products because of the vast fertile land and then the exchange of these products may effectively take place.
However, there is a danger of having movement of goods in one direction leaving other countries without goods. This can encourage the occurrence of polarized development in which same countries develop at a higher speed than others. This was one time experienced in the old EAC where, it was thought, Kenya developed faster at the expense of Uganda and Tanzania. In practice, member continues tend to produce the same goods and hence be forced to look for market outside the region.
5.8. It encourages the Diversification of the Economies
Member countries of economic integration may be encouraged to diversify their economies. As it is today, most countries in most economic integration, particularly in Less Developed Countries (LDC), very much depend on agriculture as source of their revenue. But upon forming economic integration countries may diversify their economies by developing service industries such as tourism, transport and communication and manufacturing industries because of high demand for manufactured products in the region. For example, through the New EAC, the member countries aim as developing a collective and coordinated policies and approaches to the promotion and marketing of quality tourism, conservation and utilization of wildlife and other tourist sites in the community.
However, the benefit of diversified economies can be realized when there is promotion of peace, security and stability within the region and good neighborliness among the partner states.
5.9. Stimulating a smooth Development of Trade
Economic Integration also aims at stimulating a smooth development of trade by using a common currency. A common currency removes complication of converting currencies which sometimes tends to be cumbersome and time consuming leading to inefficiency and ineffectiveness in the commercial aspects. For instance, the member states of European Economic Community have progressed further into trade following the introduction of EURO currency on the 1st January 2002.
However, lack of the common market, poor organization of local market and wide spread poverty in less Developed Countries, do not allow for the positive cooperation among the member countries. Since the purchasing power of the people is still low.
5.10. Promoting the capacity for rational or sustainable use of resources
The new East Africa Community also aims at adopting the concerted measures in joint efficient management and sustainable utilization of natural resources within the community and to cooperate and coordinate partner states’ environmental policies and actions for the protection and conservation of natural resources and the environment against all forms of degradation and pollution arising from different development activities. ECOWAS, on the other hand has managed to set up special energy resources development fund for exploiting energy resources.
However, the above objective can be realized if the EAC’s member states promote good governance, including adherence to the principle of democracy, rule of law accountability, transparency, social, equal opportunities and gender equality.
5.11. It leads to Political Cooperation and Sharing of Ideas
EAC just like ECOWAS, aims at unifying political matters which are aimed at safeguarding common values, fundamental interests and the independence of the community. Likewise, they also aim at developing and consolidating democracy and the rule of law and respecting human right and fundamental freedoms. They further aim at promoting cooperation at international level and to enhance the eventual establishment of a political federation of the partner states.
The success of the above objective will entirely depend on the commitment of the leaders to drop their lust for power and be ready to relinquish some of their powers to other leaders.
6. REASONS FOR FAILURES OF AFRICA’S REGIONAL ECONOMIC INTEGRATION
To the larger Extend failures override successes in all attempted Regional Economic Integration in Africa. All the attempts turned out to be an outright failure. These are many reasons provided by different scholars and theories.
One theory is the dependency theory which site that the failure of economic Integration schemes has been brought about by all African countries having their economies relying too much on the Economies of the North for critical production inputs like capital and technology.
The other major reason for failure is because most integration schemes were established for opportunistic purposes and not to enhance development. There was no effort on the part of many post-independence leaders to engage their citizens in discussions in development policy, a process that would have resulted in the design of more effective and viable integration schemes.
Many of African leaders simply engaged in integration talks or opted to join integration schemes in an effort to draw attention away from their failures or unwillingness to deal with mass poverty and other societal problems.
The other critical reason for failure in Africa’s Regional Economic Integration is the low volume of intra-regional trade in Africa. Much more important is the structure of production. It will be misleading to expect trade within African integration networks to improve when the member-states produce virtually the same goods - mostly primary commodities. With the manufacturing sector contributing an average of 5 percent to the gross domestic products (Omoweh, 1995) trade between and among African regional schemes is not expected to improve in the nearest future. The solution to poor trade outlook within African economic integration schemes lies in industrialization. Trade among the member states may also be curtailed by the differences in currency among the member states and the rate at which the currencies fluctuates in relation to the US dollar. Such a state of currencies creates problems or hinders trade among the member countries.
Political Instability characterized by civil wars as it is among the ECOWAS members. Ghana, Algeria, Ivory Coast and Nigeria have experienced several military coups and this has been prevailing since their independence. Some countries have border disputes such as Benin and Togo, Mali and Upper Volta leading to the disruption of attainment of the original goals.
Different levels of Economies – common tariffs become a problem to agree upon. Some countries might be in favour removing tariffs while other countries might be unwilling as they want to protect their economies (i.e. market for their locally produced products). Disparity among the member countries militates against the automatic viability of the organization. Some other countries are poor while others are rich. For example in West Africa, Nigeria is rich and other small countries can lose confident in Nigeria and hence can feel inferior to participate in decision making and implementation of objectives of the organization. The same may also apply to member states of EAC over Kenya and member states of SADC over South Africa.
The divided allegiance may be another failure of economic integration. For instance, some countries are members of ECOWAS while they are also members of other organizations such as Commonwealth, the French Community e.t.c. All these organizations place heavy demand on ECOWAS. Also members fail to contribute substantial amount of dues to ECOWAS. In the case of EAC, some member states are also members of Commonwealth as well as COMESA.
A poor transport and communication system, which is a common phenomenon in most Third World Countries, is a big barrier in fostering trade. Shipping facilities are poor and there are no linkages between the member states. The railway systems among the member countries are also having different gauges, leading to escalation of the problem of transport and communication within COMESA’s sphere of influence, for instance. ECOWAS’ member states on the other hand, have few roads and railway lines as well as language variation which bar mutual interaction among the members.
Reluctance by some leaders to hand over power to the group may be another barrier to the success of economic integration. Some leaders are not ready to resign a part of their powers to the other people. They want to be in power all the time even if they do not perform efficiently and effectively.
Environmental problems like floods in Malawi and Mozambique, Earthquakes, diseases like Ebola in Uganda and the Democratic Republic of Congo and AIDS disrupt cooperation due to the emerging fear of the spread of such moribund diseases as well as drought conditions which cause agricultural failure.
7. CONCLUSION
In the face of the emerging global economic order, many countries are becoming more interested than they have been before in regional economic Integration. If integration is undertaken properly and with the participation of the people (that is, the design of Integration scheme is bottom up and not top down) it could provide African countries with a lot of benefits, including improving the continents ability to participate in and benefit from the new global economy. However if African economies fail to create viable integration schemes they are certain to suffer marginalization in the International Economy.
The benefits driven from Economic integration by the member states cannot be undermined. All over the World trade blocs are currently under construction, recent examples being MERCOSUR of Latin America and AFTA in Asia. These have actually made Africa feel that it should not lag behind.
Whether a country should join an economic integration or not is not a big issue but a careful evaluation should be done to safeguard the country against the disadvantages which are accompanied with economic integration. Such disadvantages may include trade diversion whereby a low cost trade may be replaced by a high cost trade and some countries may be compelled to buy goods of poor quality within the region.
8. REFERENCES
1. Ambilikile C.M. (2004), Economics for Advanced level paper two and professional studies, Afroplus Industries Ltd, Dar es Salaam
2. Balassa, B. (1966), The theory of Economic Integration (Homewood, IL: Richard Irwin).
3. Bergsten, F.C. (1996), “Globalizing Free Trade” Foreign Affairs (May/June), pp.105-120.
4. Heller, R. (1972), International Trade: Theory and Empirical Evidence (Englewood Cliffs, NJ: Prentice-Hall).
5. Msabila, D.T. (2005), Georgaphy, an integrated approach and Human Geography Afroplus Industries Ltd. Dar es Salaam.
6. Okechukwa Ukaga and Osita G. Afoaku (2005) Sustainable Development in Africa, Africa World Press- Asmara Eritrea.
7. Omoweh, D.A. (1995), Industrialization in Nigeria: Problems and Prospects (Tokyo: IDE).
8. Omoweh, D.A. (2001), Political Economy of Steel Development in Nigeria: Lessons from South Korea (Trenton, NJ: Africa World Press)
9. Onwuka, R.I. (1982), Development and Integration in West Africa: ECOWAS (Ile-Ife, Nigeria: University of Ife Press)
10. Onwuka, R.I. and Sesay, A. (eds.) (1985), The future of Regionalism in Africa (London: Macmillan).
11. Parfift, T. (1996), “The Decline of Euro Africa? Lome’s Wild Term Review,” Review of African Political Economy, Vol.23, No. 67, pp 53-66.
1. Introduction
2. Past and Present Efforts On
Economic Integration in Africa
3. Emergence of Various Economic
Integration Bodies in Africa
4. Forms of Economic Integration
5. Economic Benefits of Regional
Economic Integration
6. Reasons for failures of Africa’s
Regional Economic Integration
7. Conclusion
8. References
1. INTRODUCTION
Economic integration refers to the cooperation of several countries for the sake of enjoying economic benefits. It is aimed at increasing the benefits of international trade and may result in political integration. Political integration can be national or inter-state. National Political integration is the one in which there is creation and maintenance of national unity among different ethnic groups in a country. Inter-state political integration is the political union between two or more independent countries.
The earliest scholarly writing on economic integration had their origins in the theory of comparative advantage in the international trade. Jacob Viner (1950) and Robert Heller (1972) are two outstanding economists who have made contributions to the theory of economic integration. Their work has been instrumental in the development of modern ideas about economic integration and trade liberalization. They argue that economic integration should be aimed primarily at enhancing resource productivity and allocation. Proponents of the traditional school believe that certain requisite conditions must be present in order to realize the goal of economic integration. They include, but not limited to, the existence of substantial amounts of intra-regional trade and complementary economies. In addition, the size of foreign trade as percentage of the gross domestic product should be relatively small. The traditionalist further suggest that the larger the size of the potential union, the greater the likelihood of obtaining beneficial results. Finally, they argue that the possibilities of having a beneficial integration scheme will be greater to the extent that individual country tariff rates prior to union are high in comparison to the common external tariff established after the union (Heller, 1972).
In this paper, we shall examine the economic benefits of economic integration with reference to various, economic integration such as the East African Community (EAC). The Southern African Development Community (SADC), the Economic Community of West African States (ECOWAS), the Common Market for Eastern and Southern African (COMESA) and the European Economic Community (EEC).
In our provision for benefits of economic integration we shall basically assume that the economic integration has already attained the highest level of integration, that is, total Economic integration whereby there is free movement of commodities and a few factors of production among, member states and there is also a unification of monetary, fiscal, social and other policies. The member countries here can start using a common currency. In addition, supra-national authority will be erected which makes decisions binding to all member countries.
This paper also intends to provide the reader with the insights about several efforts and intentions the African leaders used to have and yet still pursuing in a bid to pull their countries out of poverty, misery and ultimately improve the well- being of their citizens.
Conclusion will be drawn basing on lessons learned and our own experience.
2. PAST AND PRESENT EFFORTS ON ECONOMIC INTEGRATION IN AFRICA
During the colonial period there were many attempts to integrate African Economies. At this time all of the integration efforts were financed by European capital.
These schemes however were not designed to improve economic growth and development in the colonies but to further European objectives and Interests. The Primary objective was to insert the African economies into International capitalist system. The colonial state was tasked with the role of facilitating the integration of African Economies into the Global Capitalist Economy as part of the overall strategy to advance the interests of the forces of Western Imperialism. In other words, the primary aim of the colonial integration scheme was the extraction of Africa’s minerals and natural resources and the protection of the continents large but untapped market for manufactured goods imported from the metropolitan countries. In essence the integration schemes established by the colonial authorities provided a larger policy framework for deepening the exploitation of Africa and integrating the continent into the Western Capitalist System. In order to actualize this aim the imperial powers first imposed their currencies on Africa. Thereafter, they imposed various forms of taxes (direct and indirect) on the colonies and monopolized both export and Import trade in Africa.
The colonial governments also constructed roads and railways. Provision of such infrastructure however, was not designed to promote the development of the colonies, but to facilitate both export and imports trade. While these integration schemes during colonial era, furthered the capitalist exploitation of Africa by European mercantile companies a great majority of them did not survive when the colonies gained independence.
The demise of the many colonial-era integration schemes however, did not mark the end to Africa’s interest in regionalism. Shortly after independence many countries indicated an interest in creating new and more viable integration schemes. Interest in regionalism was motivated by several factors which include:
Many post-Independence African Leaders felt an urgent need to integrate their relatively small economies with those of their neighbours in order to create larger and move viable markets, which could support the type of development projects that were expected to provides jobs for a restless population and generate the resources needed to confront poverty.
There was fear that without unity and cooperation, many of the newly independent countries could not effectively rip the benefits of independence and deal effectively with many societal issues, including the alleviation of poverty.
There was a desire by the newly elected leaders to rid their countries off colonial institutions and establish new ones that were locally focused and enhanced their ability to undertake economic growth and development
African leaders were eager to emulate the relative success of the European Economic Community (Onwuka, 1982; Onwuka and Sesay, 1995).
3. EMERGENCE OF VARIOUS ECONOMIC INTEGRATION BODIES IN AFRICA
In 1964, the Central African Customs and Economic Union (UDEAC) was formed to liberalize and promote trade among the French colonies in the Region.
In East Africa, former British Colonies, namely Kenya, Uganda and Tanzania, established the East African Community (EAC) in 1967 to further integrate their economies, increase trade among them, facilitate free movement of people of the region, provide the three heads of state a forum to discuss the economic and political issues of concern to their countries, manage the East Africa examination council and provide common services like those of all railways, harbours, post and telecommunication and airways.
However, EAC could not last for more than ten years. It collapsed in 1977 due to dissatisfaction among the members that Kenya was favoured, differences in ideologies, political misunderstanding between Tanzania and Uganda (Nyerere and Idd Amin), the fall of President Milton Obote in 1971 and the restriction of the transfer and exchange of currency.
On 1st January, 2001, the East African Heads of state formally launched the New East African Community at a ceremony held at Sheikh Amri Abeid Stadium in Arusha. It is imperative to note that so far Rwanda and Burundi have also joined EAC. The new EAC aims at widening and deepening cooperation among the Partner States in, among other areas, political, economical, social, cultural, health, education, science and technology, defense, security, legal and judicial affairs for their mutual benefit. This will be achieved through the establishment of a custom union as the entry point of the community, common market, subsequently a monetary Union and ultimately a political federation of the East African States.
In West Africa the Mano River Union (MRU) was created in 1973, consisting of Guinea, Liberia and Sierra Leone. The MRU was different from (EAC) and UDEAC in the sense that geographical proximity was an overriding factor. In 1974, the CEAO, linking six francophone countries in West Africa was formed.
The Economic Community of West African States (ECOWAS) remains the largest economic grouping in Africa with member states from different colonial backgrounds. This was formed in 1975 with member states being Guinea, Ivory Coast, Mauritania, Senegal, Benin, Mali, Niger, Burkina Faso, Gambia, Nigeria, Ghana, Sierra Leone, Liberia, Guinea-Bissau, Togo, Cameroon and Cape Verde. This organization aimed at eliminating custom duties between member states, harmonizing agricultural economic monetary policies, financing dam projects and mineral extractions, improving transport and communication among the member states, abolishing obstacles to the free movement of persons, services and capital, creating a collective bargaining power with the industrialized world and finally setting ventures so as to reduce economic dependency on the outside world.
In Southern Africa, Angola, Botswana, Lesotho, Malawi, Mozambique, Namibia, Swaziland, Tanzania, Zambia and Zimbabwe established the Southern African Development Coordination Conference (SADCC) IN 1980. The original aim of SADCC was to reduce dependence on the apartheid regime in South Africa (Legume 1979). It was later renamed the Southern African Development Community (SADC) following the collapse of apartheid regime in South Africa, and the subsequent admission of democratic South Africa into the regional scheme. SADC now aimed at improving trade arrangements among the member states, improving transport and communication links and systems, developing agriculture and industries, developing and harnessing of energy and energy resources, developing and training of manpower, using appropriate financial policy and reducing dependency on other nations.
The emergence of New Global Economic order after the collapse of the former Soviet empire in the early 1990s has had significant impact on regional economic groupings around the globe. Efforts have also been made at the continent level to increase cooperation among African countries as a way to enhance economic growth and development as well as improve Africa’s participation in the global economy. In 1980, African leaders adopted the Lagos plan of action as a blueprint for the development of the continent.
In 1991, at the summit of African Heads of State in Abuja the African Economic Community (AEC) was established. Known as the Abuja treaty; it is aimed at liberalizing trade establishing a custom union and ultimately creating a common market.
Similarly, the Preferential Trade Area for Eastern and Southern African States (PTA) established in 1981 was transformed in 1994 to the common market for Eastern and Southern Africa (COMESA). To date, the member countries include Angola, Malawi, Lesotho, Mozambique, Zambia, Swaziland, Zimbabwe, Botswana, Mauritius, Sudan, Comoro Islands, Djibouti, Ethiopia and Somalia.
COMESA aimed at promoting and facilitating cooperation among the member states in trade, industry, agriculture, transport and communication, harmonizing and coordinating development strategies, policies and plans within the region, improving the environment for investment and private sector growth and generally accelerate the economic development of the individual member states, encouraging cooperation in monetary and financial affairs to facilitate sub-regional integration, establishing joint industrial and agricultural institutions with the aim of increasing the sub-region’s production capacity, building a strong economic base for members as a step towards the economic independence of the region and improving security and overall welfare of the people.
However, Tanzania pulled out of COMESA in September, 2000. Reasons for Tanzania’s withdrawal from COMESA were: failure to realize its goals of strengthening, developing and positively maintaining socio-economic relations with other countries, lack of seriousness among the members in implementing the set objectives, the need for trimming its membership in score of regional economic groupings because of conflicting interests, Tanzania was already having low national rates, hence to continue being a member of COMESA and therefore reduce the tariffs on the movement of goods could mean experiencing revenue losses and making the exports to other countries with high tariff rates less competitive, there were a lot of cheap manufactured products entering Tanzania and these could contribute in the decline of the local industries which tend to produce high costs and hence expensive products and finally dissuasion by South Africa which argued that by Tanzania being the member of COMESA it would sow discord and also interfere with serious efforts of SADC in creating the Free Trade Zone, which would encompass even the members of COMESA.
As part of the new wave of regionalism blowing across the world, the United States, Canada and Mexico successfully brought their economies closer by establishing the North American Free Trade Area (NAFTA). The European Economic Community has evolved into a single market called the European Union (EU). In 1995, EU member countries agreed with the twelve Mediterranean countries to form the EUROMED with the hope of establishing a free trade area force by 2020 (Bergsten, 1996). Also, the EU has used its Horizon 2000 under the Lome IV Agreement—now overtaken by the new ACP-EU Agreement ( otherwise known as the Cotonou Accord), signed in June 2000 at Cotonou, Benin—to further integrate the Union with selected developing countries from Latin America, Asia and the Mediterranean (Parfift, 1996).
Tanzania is related to European Union through membership in the Lome convention. The basic provision of Lome Convention include: trade cooperation whereby goods from ACP countries to have a free access into EEC, free of custom duty and other charges; protection of ACP industries whereby ACP countries can impose tariff against the industrial products from the EEC; stabilization of Export Earnings (STABEX) whereby EEC countries guarantee the stability of the earnings from the ACP exports; ACP countries to have more control over the EEC Development Fund than formerly; ACP countries were now at liberty to enter into the equally favourable agreement with other industrialized or even the developing countries; and any ACP country can opt to out of the Lome Convention if the agreement is no longer satisfactory.
In bid to reposition the Asian-Pacific countries in the new global division of power, the Association of Southern Asian Nations (ASEAN) is taking steps to redress the imbalance in its compensatory mechanism and to relocate industries to less developed member-states.
4. FORMS OF ECONOMIC INTEGRATION
According to Bela Balasa (1961), economic integration can be classified according to the five levels or stages of development as follows:
4.1. A free Trade Area
In this stage the member countries eliminate trade restrictions such as tariffs, imports and export quotas or device which obstruct the free movement of goods or services among them. But each member country is free to establish independent tariffs (taxes on imports) against non-member countries (third countries).
4.2. A Custom Union
In addition to having abolished trade restrictions among member countries as in a free trade area, the members have a common tariff against non-members (third countries).
4.3. A Common Market
In this case, on top of what takes place in customs union there is a free factor movement among the member countries. This means that capital and labour are free to move within the region. The nationals can find employment in any member country.
4.4. An Economic Community (Union)
It embodies all the elements of the common market, in addition the member countries institute joint ownership of certain enterprises e.g. roads, railways, ports, telecommunications, e.t.c. All economic policies in this case are harmonized or are common.
4.5. Total Economic Integration
In this case, not only there is free movement of commodities and other factors of production among the member states as in an economic union, but also there is a unification of monetary, fiscal, social and other policies. The members can start using a common currency. In addition, is supra-national authority, which makes decisions binding to all member countries.
5. ECONOMIC BENEFITS OF REGIONAL ECONOMIC INTEGRATION
5.1. Expansion of market
The economic integration leads to abolition or reduction of trade barriers among the member countries. The abolition of trade barriers increase the size of the market for the goods produced by member countries. For example, in the former East Africa Community (EAC), the three East African Countries i.e. Kenya, Uganda and Tanzania enjoyed expanded market among themselves. Even the present EAC enables the industries operating under it to access a wider market than before the integration. On the other hand, COMESA has enabled member states to become more cooperative in the field of trade.
The integration also enables the member countries to attain a common voice in advocating for the market of the goods. For instance, through African Growth and Opportunity Act (AGOA), African Countries have continued to open up their economies and build free markets.
However, the benefits of enlarged market cannot be fully realized because of poor infrastructure like poor roads, railways etc. That is, most part of African Countries is still inaccessible.
5.2. Establishing a good condition for Industrial Development and investment
Economic integration enable member countries to establish good condition for industrial development for instance, one of the achievements of the Economic Community for West African States (ECOWAS) was to set up special energy resources development fund for exploiting energy resources and financing dam projects. This would enable the member countries to access both water and energy resources which are the necessities of industrial development. Through COMESA, member states are able to access financial assistance from the Trade and Development Bank for financing trade and development projects.
However, the political instability among, most ECOWAS members such as Ghana, Algeria and Ivory Coast may hinder the positive progress of the collective activities of ECOWAS. The success of COMESA is also limited by the absence of the economically important nations like Nigeria and South Africa hence lifting trade barriers only may not necessary increase trade volume among the countries. A smaller group centred on one economically dominant nation is more sensible than having such a big organization full of economic vagaries due to inefficiency.
5.3. Promoting Transport and Communication
Transport and communication may be facilitated among the member countries of economic integration in order to ease distribution of goods and achieve efficient information flow. For instance, in the former EAC the three countries were efficiently joined by East African Railway, the Great North road, East African Airway and East Africa Ports and harbour. Even the present EAC enjoys the services of Vodacom and Zain as communication industries. This has been done through agreement with Kencel and Safari COM of Kenya and MTN and Mango of Uganda.
However, some Economic integration, such as ECOWAS still experience poor communication and transport systems i.e. the region is not well linked by transport and communication systems. There are few roads and railway lines as well as language variation which bar mutual interaction among the members.
5.4. Intensified security, fraternity and Unity
Economic integrating enables the member countries to enjoy intensified security, fraternity and unity. The countries under the same economic integration are unlikely to go into war because of the frequent forum for discussing problems facing them. The people in general and leaders in particular develop the feeling that they belong to one state. ECOWAS, for instance, has been in the fore front in defending the Liberian independence and the independence of other member states.
However, intensified security fraternity and unity among the member countries may be short-lived in a case where there is a frequent change of leaders as was experienced in EAC. Following the overthrow of President of Uganda in 1971 by Idd Amin Daddah, the continuity of EAC war put at stake. The difference between Uganda and Tanzania was so much intensified that the EAC was to collapse in 1977 and the two countries ultimately went into war in 1978.
5.5. Transfer of Technology
Economic integration leads to exchange of technology among the member countries for instance, the technology which was developed in Kenya, the Money Maker Pump is now used effectively in other two countries, that is, Uganda and Tanzania.
The diffusion of technology among the member states of economic integration may also not be very effective particular when these countries are in the same level of technological development as it is experienced in the EAC.
5.6. Employment Opportunities
There are possibilities of increase in employment due to free movement of factors of production and expansion in investment. For instance, the new EAC is committed to enhancing free movement of factors of production (labour, services and persons) and the right to establish residence. The free movement of the people of the region will foster greater cooperation and profound understanding among the people of the region. The old EAC managed to achieve the objective of freedom of movement of people.
However, the free movement of the factors of production particularly labour may be curtailed by cultural differences. This may be in terms of different religions and political ideologies. There are some countries within the community which may be skewed towards Muslim and others towards Christian for example within Nigeria, in the Northern part, they cherish Muslim principles while in the Southern part, they cherish Christianity.
5.7. It enables countries to specialize
Economic integration enables each country to specialize in the product of a commodity of its comparative advantage. Specialization leads to increase in output and gain from trade. For instance, within the Southern African Development Community (SADC), South Africa may specialize in production of industrial products and Tanzania specialize in production of agricultural products because of the vast fertile land and then the exchange of these products may effectively take place.
However, there is a danger of having movement of goods in one direction leaving other countries without goods. This can encourage the occurrence of polarized development in which same countries develop at a higher speed than others. This was one time experienced in the old EAC where, it was thought, Kenya developed faster at the expense of Uganda and Tanzania. In practice, member continues tend to produce the same goods and hence be forced to look for market outside the region.
5.8. It encourages the Diversification of the Economies
Member countries of economic integration may be encouraged to diversify their economies. As it is today, most countries in most economic integration, particularly in Less Developed Countries (LDC), very much depend on agriculture as source of their revenue. But upon forming economic integration countries may diversify their economies by developing service industries such as tourism, transport and communication and manufacturing industries because of high demand for manufactured products in the region. For example, through the New EAC, the member countries aim as developing a collective and coordinated policies and approaches to the promotion and marketing of quality tourism, conservation and utilization of wildlife and other tourist sites in the community.
However, the benefit of diversified economies can be realized when there is promotion of peace, security and stability within the region and good neighborliness among the partner states.
5.9. Stimulating a smooth Development of Trade
Economic Integration also aims at stimulating a smooth development of trade by using a common currency. A common currency removes complication of converting currencies which sometimes tends to be cumbersome and time consuming leading to inefficiency and ineffectiveness in the commercial aspects. For instance, the member states of European Economic Community have progressed further into trade following the introduction of EURO currency on the 1st January 2002.
However, lack of the common market, poor organization of local market and wide spread poverty in less Developed Countries, do not allow for the positive cooperation among the member countries. Since the purchasing power of the people is still low.
5.10. Promoting the capacity for rational or sustainable use of resources
The new East Africa Community also aims at adopting the concerted measures in joint efficient management and sustainable utilization of natural resources within the community and to cooperate and coordinate partner states’ environmental policies and actions for the protection and conservation of natural resources and the environment against all forms of degradation and pollution arising from different development activities. ECOWAS, on the other hand has managed to set up special energy resources development fund for exploiting energy resources.
However, the above objective can be realized if the EAC’s member states promote good governance, including adherence to the principle of democracy, rule of law accountability, transparency, social, equal opportunities and gender equality.
5.11. It leads to Political Cooperation and Sharing of Ideas
EAC just like ECOWAS, aims at unifying political matters which are aimed at safeguarding common values, fundamental interests and the independence of the community. Likewise, they also aim at developing and consolidating democracy and the rule of law and respecting human right and fundamental freedoms. They further aim at promoting cooperation at international level and to enhance the eventual establishment of a political federation of the partner states.
The success of the above objective will entirely depend on the commitment of the leaders to drop their lust for power and be ready to relinquish some of their powers to other leaders.
6. REASONS FOR FAILURES OF AFRICA’S REGIONAL ECONOMIC INTEGRATION
To the larger Extend failures override successes in all attempted Regional Economic Integration in Africa. All the attempts turned out to be an outright failure. These are many reasons provided by different scholars and theories.
One theory is the dependency theory which site that the failure of economic Integration schemes has been brought about by all African countries having their economies relying too much on the Economies of the North for critical production inputs like capital and technology.
The other major reason for failure is because most integration schemes were established for opportunistic purposes and not to enhance development. There was no effort on the part of many post-independence leaders to engage their citizens in discussions in development policy, a process that would have resulted in the design of more effective and viable integration schemes.
Many of African leaders simply engaged in integration talks or opted to join integration schemes in an effort to draw attention away from their failures or unwillingness to deal with mass poverty and other societal problems.
The other critical reason for failure in Africa’s Regional Economic Integration is the low volume of intra-regional trade in Africa. Much more important is the structure of production. It will be misleading to expect trade within African integration networks to improve when the member-states produce virtually the same goods - mostly primary commodities. With the manufacturing sector contributing an average of 5 percent to the gross domestic products (Omoweh, 1995) trade between and among African regional schemes is not expected to improve in the nearest future. The solution to poor trade outlook within African economic integration schemes lies in industrialization. Trade among the member states may also be curtailed by the differences in currency among the member states and the rate at which the currencies fluctuates in relation to the US dollar. Such a state of currencies creates problems or hinders trade among the member countries.
Political Instability characterized by civil wars as it is among the ECOWAS members. Ghana, Algeria, Ivory Coast and Nigeria have experienced several military coups and this has been prevailing since their independence. Some countries have border disputes such as Benin and Togo, Mali and Upper Volta leading to the disruption of attainment of the original goals.
Different levels of Economies – common tariffs become a problem to agree upon. Some countries might be in favour removing tariffs while other countries might be unwilling as they want to protect their economies (i.e. market for their locally produced products). Disparity among the member countries militates against the automatic viability of the organization. Some other countries are poor while others are rich. For example in West Africa, Nigeria is rich and other small countries can lose confident in Nigeria and hence can feel inferior to participate in decision making and implementation of objectives of the organization. The same may also apply to member states of EAC over Kenya and member states of SADC over South Africa.
The divided allegiance may be another failure of economic integration. For instance, some countries are members of ECOWAS while they are also members of other organizations such as Commonwealth, the French Community e.t.c. All these organizations place heavy demand on ECOWAS. Also members fail to contribute substantial amount of dues to ECOWAS. In the case of EAC, some member states are also members of Commonwealth as well as COMESA.
A poor transport and communication system, which is a common phenomenon in most Third World Countries, is a big barrier in fostering trade. Shipping facilities are poor and there are no linkages between the member states. The railway systems among the member countries are also having different gauges, leading to escalation of the problem of transport and communication within COMESA’s sphere of influence, for instance. ECOWAS’ member states on the other hand, have few roads and railway lines as well as language variation which bar mutual interaction among the members.
Reluctance by some leaders to hand over power to the group may be another barrier to the success of economic integration. Some leaders are not ready to resign a part of their powers to the other people. They want to be in power all the time even if they do not perform efficiently and effectively.
Environmental problems like floods in Malawi and Mozambique, Earthquakes, diseases like Ebola in Uganda and the Democratic Republic of Congo and AIDS disrupt cooperation due to the emerging fear of the spread of such moribund diseases as well as drought conditions which cause agricultural failure.
7. CONCLUSION
In the face of the emerging global economic order, many countries are becoming more interested than they have been before in regional economic Integration. If integration is undertaken properly and with the participation of the people (that is, the design of Integration scheme is bottom up and not top down) it could provide African countries with a lot of benefits, including improving the continents ability to participate in and benefit from the new global economy. However if African economies fail to create viable integration schemes they are certain to suffer marginalization in the International Economy.
The benefits driven from Economic integration by the member states cannot be undermined. All over the World trade blocs are currently under construction, recent examples being MERCOSUR of Latin America and AFTA in Asia. These have actually made Africa feel that it should not lag behind.
Whether a country should join an economic integration or not is not a big issue but a careful evaluation should be done to safeguard the country against the disadvantages which are accompanied with economic integration. Such disadvantages may include trade diversion whereby a low cost trade may be replaced by a high cost trade and some countries may be compelled to buy goods of poor quality within the region.
8. REFERENCES
1. Ambilikile C.M. (2004), Economics for Advanced level paper two and professional studies, Afroplus Industries Ltd, Dar es Salaam
2. Balassa, B. (1966), The theory of Economic Integration (Homewood, IL: Richard Irwin).
3. Bergsten, F.C. (1996), “Globalizing Free Trade” Foreign Affairs (May/June), pp.105-120.
4. Heller, R. (1972), International Trade: Theory and Empirical Evidence (Englewood Cliffs, NJ: Prentice-Hall).
5. Msabila, D.T. (2005), Georgaphy, an integrated approach and Human Geography Afroplus Industries Ltd. Dar es Salaam.
6. Okechukwa Ukaga and Osita G. Afoaku (2005) Sustainable Development in Africa, Africa World Press- Asmara Eritrea.
7. Omoweh, D.A. (1995), Industrialization in Nigeria: Problems and Prospects (Tokyo: IDE).
8. Omoweh, D.A. (2001), Political Economy of Steel Development in Nigeria: Lessons from South Korea (Trenton, NJ: Africa World Press)
9. Onwuka, R.I. (1982), Development and Integration in West Africa: ECOWAS (Ile-Ife, Nigeria: University of Ife Press)
10. Onwuka, R.I. and Sesay, A. (eds.) (1985), The future of Regionalism in Africa (London: Macmillan).
11. Parfift, T. (1996), “The Decline of Euro Africa? Lome’s Wild Term Review,” Review of African Political Economy, Vol.23, No. 67, pp 53-66.
BUSINESS PLAN: meat point butchers
TABLE OF CONTENT PAGE
1. Executive Summary…………………………………………. 3
2. Introduction…………………………………………………..4
3. The business firm and the industry……………………………5
4. the product…………………………………………………….6
5. Markets………………………………………………………..7
6. Marketing……………………………………………………..8
7. Design and development………………………………………9
8. Manufacturing and operation………………………………….10
9. Management……………………………………………………11
10. Benefit and justification of the project…………………………12
11. Financial aspect and project worthiness………………………..12
12. conclusion……………………………………………………….13
13. Annex ………………………………………………………….14
14. Documents required to accomplish the project………………….16
15. Reference:………………………………………………………..17
PROJECT AT A GLANCE
REQUEST FOR TSHS 7,300,000 FOR CONSTRUCTION OF A BUTCHERY
PROJECT NAME: MEAT POINT BUTCHERS
PROJECT APPLICANT: JARED OSENO
PROJECT OWNER: JARED OSENO
PROJECT TARGET:
1. To provide high hygiene standard, reliable, variety and high quality goat meat.
2. To provide employment opportunities to the youth
3. To meet high demand for goat meat
4. To improve the income of the owner
PROJECT LOCATION: USA-RIVER, ARUSHA
PROJECT CONTACTS:
Director,
Meat Point Butchers,
P.O. Box 778,
Usa River, Arusha.
1. EXECUTIVE SUMMARY
MEAT POINT BUTCHERS will be a company which is generally like any other butcheries but its mission specifies and makes it different from others. MEAT POINT BUTCHERS is going to practice all necessary ethical manipulation in seeing that the company runs at a profit which can sustain it for unforeseeable future period.
1.1. Purpose of the plan
The main purpose of this plan is to enable the proprietor of MEAT POINT BUTCHERS to acquire a Bank loan before January, 2009. This will facilitate the expansion of the business so that it can operate on the large scale and therefore enjoy the economies associated with large scale operation.
1.2. Mission of The Business
MEAT POINT BUTCHERS shall be selling goat meat of different weights to the Usa River community and the neighbourhood with the aim of supporting the government effort to eradicate poverty among the youth without compromising the standard and the benefits expected to accrue to the consumers.
1.2. The Finance needed and its purpose
There are some other businesses in place which sell almost the same products that MEAT POINT BUTCHERS would like to venture in but they do it with very little capital such that they have failed to meet the demand of the customers. It is on this basic ground that MEAT POINT BUTCHERS is now requesting a bank loan of Tshs7,300,000.
The project’s initial cash outlay is expected to be Tshs10,300,000. Out of this Tshs3,000,000 will come from the family’s past saving and Tshs7,300,000 from the bank loan. The family’s saving will entirely be used to rent the business premises including the building. The loan will be used to acquire equipments such as weighing scale, hooks, refrigerator, knives, a file (a sharpener) and a computer; furniture and fittings, a pick up and the stock in terms of goats.
1.3. The Project Description
The project requires 6 large rooms which will serve as an office, refrigeration room, the sales room, kitchen for roasting goats’ meat, a changing room and a store. The project also requires a large space for the customers who will need to enjoy the roasted goats’ meat. Besides that, we shall also require to construct a slaughter house, manure pool and a shed to keep goats waiting to be slaughtered.
This business venture will require a half hectare of land for providing parking yard for our customers who would like to eat roasted goat meat. There will be two gates, one for off-loading and production personnel entrance and the other for entrance of our customers.
The capital being requested is needed before January, 2009 so that we can start to operate in the beginning the year 2009. The company shall start paying back the loan after the first year of operation at the agreed rate between the MEAT POINT BUTCHERS and the BANK. The collateral shall be our equipments and the log book of our vehicle.
1.4. Highlights of Financial projections
The project economic life is expected to be 5 years and the loan repayment period also covers the same period. The project will operate as a sole proprietorship. A some of Tshs10,300,000 will be needed at the beginning of in the first year as working capital covering the preliminary expenses. Later years revenue generated from the project operations will provide working capital. We shall also set aside Tshs1,500,000 to cater for unforeseen contingency.
2. INTRODUCTION
Goat meat is a common delicacy admired by many but because of its scarcity, some customers stay without it for such a long time. The scarcity does not arise from the livestock keepers’ point of view but on the processors side. Most of the people eat it during the funerals, wedding, and when they patron bars during drinking spree but these occasions hardly occur. The house wives, the teetotalers and the youth have always been on the lacking side. MEAT POINT BUTCHERS will in this respect facilitate the availability of the product to all.
Livestock keepers, on the other hand will get ready market for their goats and there is no doubt at a better price. The contribution to the government revenue will also be enhanced through tax payment and license acquisition. It is therefore due to these benefits that we thought of establishing a butcher of its own kind in order to meet the needs of the majority stakeholders.
3. THE BUSINESS FIRM AND THE INDUSTRY
3.1. Purpose of the Firm
The purpose of this company is to undertake the processing of goat meat for Usa River community and the neighbouring communities. This is aimed at fulfilling the customer’s needs of hygiene standard, reliable, variety and high quality goat meat. The company also aims at supplying goat meat at the least cost possible in order to maximize profit. This kind of strategy will enable the company to service loan and at the same time meet the need of the owner and the entire community.
3.2. Historical Background
MEAT POINT BUTCHERS was launched in June, 2005 with main objective of selling beef to the consumers in Usa River. Due to the low capital, the proprietor could adequately cope up with the competition from well established butchers which had the ability to slaughter on cow/bull per day. So the proprietor took the initiative of changing the business product from selling beef to selling goat meat in January, 2006.
Changing the operation of the business enabled the firm to operate at a profit margin of 30%. However the demand for goats’ meat has been increasing every year. It is on this ground that the owner has thought of operating MEAT POINT BUTCHERS on a large scale.
3.3. Past performance record
Due to its low capital, MEAT POINT BUTCHERS used to perform on small scale. However, since the beginning of this year, it has been able to slaughter a minimum of two goats during the week days and 5 goats during the weekends. This could enable the business to earn Tshs.30,000 to Tshs.50,000 per day.
3.4. Short term objectives
To distribute goat meat to the entire Usa River division,
To increase the income of the proprietor and the family,
To meet the high demand for goat meat in Ngarasero, Usa River,
To increase the food variety in the area,
To provide high hygiene standard, reliable, variety and high quality goat meat and
To provide employment opportunities to the youth.
Long term objectives
To supply high quality goat meat around Arusha region,
To increase the number of employees and
To capture export market.
3.5. Description of the Industry
Livestock industry in Tanzania is still a potential industry in the sense that very little investment has been done in the sector. Most of the products are only but locally consumed with very little exports done. The livestock keepers still keep indigenous breed with very little output in terms of beef, skin and hides, milk, bones and manure.
High concentration has been in beef. Goat meat, mutton and other domestic animals have actually been ignored and only left for sacrifice and ceremonies.
4. THE PRODUCT
Since we shall be the producers of customer oriented products, we will also provide other benefits like hygienic, ready to eat meat in form of roasted meat with constant supplies. This will make our product different from our competitors thus attracting our customers more. Neither the price nor the quality of the products will vary in different segments but we shall strive to perform our activities with as minimum cost as possible.
We shall sell our products in 3 different units, that is, 0.5kg, 1kg and 2kgs. The sales will be made to both who would wish carry the product home and those who would want to eat it as roasted meat.
The by-products such as tripe (utumbo), liver, and head will be sold to small butchers and soup makers around, Hides and skins will be sold to Tannery industry in Arusha through the vendors, Bones and blood will be sold for dog feed and kitchen and Manure will be sold to farmer.
The uniqueness of our product will revolve around the packaging, pricing and after sale services. Well motivated worker will always be able to serve the customer with great smile. The customer’s complains relating to selling meat with more bones will be avoided since a goat has very light bones and where necessary debonning will be done.
5. MARKETS
5.1. Our customers
Our customer will be from all walks of life. Since our products will be sold at different small units, we shall be able to attract both rich and average income earners. Many of our comers will come from our community and upon being advertised we shall also draw customers from the neighbourhood.
5.2. Market segments
Our target customers will be grouped in two major segments which are also helpful in the distribution strategy. These are:
The local community and
The neighbouring communities.
Under these major segments we have sub-segments each having its customers.
Both our local community and neighbouring communities’ customers need similar products with characteristics such as high quality product, durable products, constant supply, varieties and convenient sizes, products usable instantly, soft meat and reasonably priced product that is time saving.
5.3. Competitors
MEAT POINT BUTCHERS competitors are the local butcheries around which deal in selling beef. However, we shall have a niche over these butchers since customers would want to buy meat which is not stale and also the durability element which the butchers do not offer. With reference to other sellers in other communities our product will also tend to much cheaper because of low cost of labour.
The roasting element in our service is also unique in the sense that other butchers do not practice this. They only target domestic consumers but not luxury lot.
5.4. Characteristics of our Product
The critical success of our firm revolves around the characteristics of its products as described below:
High quality products which are free from foot and mouth diseases
Reasonable price which is affordable,
Convenient in size,
Constant in supply,
Durability, roasted meat can stay for a longer time and can be instantly used and
Hygiene product which is highly treated and free from sickness.
5.5. Competitors Response
We are sure that our competitors shall not sit back and watch as we take their customers and the market share. We expect them to react in all manners to bring our business down to ashes especially now that we are dealing in highly demanded goat meat. We also realize that we have indirect competition from those selling products like fish and pork. This is not a big threat since in the Islam dominated area, we are confident to say that we have greater advantage over pork and fish producers as more people like roasted goat meat.
Having had the market share of up to 60%, we will be ready to compete. We shall maintain and expand our market for we want to be ahead of our competitors.
6. MARKETING
Marketing may be defined as all activities and procedures that enable the smooth movement of items that have value from a source (seller) to a destination (buyer) in the exchange for other items that also have value. This may be described under the following sub-heading
6.1. Sustainable Competitive advantage
These advantages include:
Sales force that will reach our customers in both local and neighbouring communities,
Constant supply due to outstanding distribution strategy of depots and
Attractive packaging methods that is easy to carry.
6.2. Pricing Policy
Our products will be priced as follows:
0.5 kilogram will be sold at Tshs.1,500,
1 kilogram will be sold at Tshs. 3,000 and
2 kilogram will be sold at Tshs.6,000.
However, the price of our products can change in accordance with the changes in the cost of production.
6.3. Advertising and promotion
We shall penetrate the market through extensive promotion. This will be done through various ways as follows:
· Posters and painting on the walls of shops and buildings. This will be able to lure even the illiterates,
· Radio Injili which is locally listened to. We shall aim for certain times like before and after news
· Arusha Times which is widely read by the locals and the neighbouring communities This will be done in the front space.
· Billboards which will be strategically placed on the main and busy roads. These billboards will be attractive in order to catch the attention of the passersby.
6.4. Growth strategy
We do not intend to stop promoting our products until we are sure that they are regionally accepted and taken as one of the products in the shopping list. However, after the end of the second year, we will reduce our advertisement in radios and newspaper. We shall make sure that the products are well distributed and made available to the customers at all times when they need them.
We shall also increase the depots by 100% in the year 2010 to ensure constant supply in order to achieve our goal of 60% growth in the market share.
7. DESIGN AND DEVELOPMENT
The production level will increase according to the projected increase in sales forecast for each year respectively from 2009-2013 at the rate of 20%, 30%, 40%, 50% and 60%. In the future, that is, in 10 years time, we aim at producing canned goat meat for both local and foreign consumption.
7.1. Difficulties experienced and potential risks
Foot and mouth diseases,
Rift valley fever,
Electricity cut off,
The employees welfare,
Political stability,
Climatic changes and
Hygiene
8. MANUFACTURING AND OPERATION
The process of manufacturing begins where the livestock keepers bring their goats to the MEAT POINT BUTCHERS. In the time of scarcity, we may be forced to go and buy the goats from auction markets such as Kikatiti, Mbauda, Moshi, and Makanya in Same. We would like point out that we shall not face the shortage of raw materials since we have millions of goats in Tanzania.
8.1. Physical Location of the Business
The proposed location of the project will be at Ngarasero in Usa River in Meru District, Arusha region. Ngarasero will serve as the best alternative because it is more densely populated along the old Moshi road and surrounded by many bars, guest houses, small business enterprises and good infrastructure in terms of electricity and water.
8.2. Steps in Manufacturing
The following are the steps which are undertaken in manufacturing section:
· The goats are received at the off loading bay where they are inspected by both veterinary government officer and our quality controller,
· The animal may be kept in our shed in case our refrigerator,
· The animal is then slaughtered by a Moslem who is employed specifically for this job,
· The slaughtered goat is then hooked by its hind legs before skinned,
· This second inspection then takes place where the inspectors checks the head, heart and the lungs to determine whether the animal is fit for consumption or condemned.
· The goat is then split into two pieces and kept in a deep freezer waiting to be sent either to the sales section or roasting section.
· The by- products such as head, intestines, heart, lungs and liver are sold to the waiting customers. The skins are also sold immediately.
9. MANAGEMENT
The overall management of MEAT POINT BUTCHERS will be vested in me as a Managing Director as well as the owner of the business. My wife will serve as my assistant as well as a cashier and a secretary. As a managing director, I shall also serve as a purchasing officer. An accountant will be required to serve as a book keeper and clerk as well.
The personnel required are all in the production organization but crucial process is to have:
Production manager who will supervise all the production process
A highly qualified and well paid meat inspector who will collaborate with the government meat inspectors to adhere to the standard we require,
5 skinning men who will use pressure knives to avoid damaging the skin
4 men who will work as roasters
10 girls who will work as waiter
4 security guards to man both gates
In the sales and distribution department, we shall have 7 sales persons and two drivers. We shall also require 6 cleaners and one Moslem for slaughtering.
Overall, the project needs a total of 43 well motivated workers who will work in two shifts in order to avoid to being tired because tired worker make mistakes and cause accidents especially in roasting and skinning.
Training to our staff will be conducted through the following:
Workshop and seminars- this will be conducted by both public health and veterinary officers,
On job training – this will be while working. This method is cheap and more practical and could have a lasting impact and
Attend shows and exhibitions- this will open up the employees’ mind in absorbing the ways of producing new products in the market.
Other benefits to employees will include medical, housing and performance incentives such praise, salary increment annually, promotions and retirement benefits.
10. BENEFITS AND JUSTIFICATION OF THE PROJECT
MEAT POINT BUTCHERS is committed to its mission and purposes of seeing that it is able to create and keep customers within the 5 years of forecast. This business will be able to meet all her obligations comfortably and still be able to earn a gross profit of 300%. And out of which it will able to secure all the expenses and still retain practicable figure of Tshs365,513,000 This is possible because of plenty of resources such as cheap goats, cheap labour and good government policy on Small and Medium Enterprise Development Policy of our country.
The economic life of the project is long enough to allow the following:
Repayment of loan and interest amounting to Tshs32,860,000.
Payment of tax (VAT) which is 20% at the end of the project implementation period.
11. FINANCIAL ASPECT AND PROJECT WORTHINESS
11.1. Assumptions and considerations
It has been assumed that:
The project economic life will be 5 years,
The bank loan to be secured will be repaid within period of 5 years with one year grace period and
Interest rate is 30% per annum.
11.2. Project viability
The project has a Net Present value (NPV) of Tshs144,380,000 at a discounting rate of 30% and Tshs.109,664,000 at a discounting rate of 40% which shows that it is worth undertaking.
In view of this analysis, the project is both financially and commercially viable and worth undertaking.
12. CONCLUSION
Since the project has the capacity to repay back the bank loan it is therefore recommended for funding.
ANNEX I
CASH FLOW FORECAST IN TSHS.’OOO
ITEM/YEAR
0
2009
2010
2011
2012
2013
CASH INFLOW
Equity
3000
Term loan
7300
Sales Revenue
72,000
79200
87120
95812
105393.2
Depreciation
400
400
400
400
400
TOTAL INFLOW
10300
72400
79600
87520
96212
105793.2
CASH OUTFLOW
Investment
10300
Operating cost
7240
7960
8752
9621.2
10579.32
Payment
7250
6812
6734
6386
5678
TOTAL OUTFLOW
14490
14772
15486
16007.2
16257
Net cash flow
57910
64828
72034
80204.8
89536.2
Opening Balance
57910
122738
194772
274976.8
Closing Balance
57910
122738
194772
274976.8
365,513
ANNEX II
DISCOUNTED CASH FLOW IN TSHS.’000
ITEM/YEAR
0
2009
2010
2011
2012
2013
Net Benefit
(10300)
57910
64828
72034
80204.8
89536.2
DF 30%
1
0.769
0.592
0.455
0.35
0.122
Discounted cash flow
(10300)
44532.79
38378.176
32775.47
28071.68
10923.4164
NPV=144,380
DF 40%
1
0.714
0.51
0.26
0.186
0.133
Discounted cash flow
(10300)
41347.74
33062.28
18728.84
14918
11908.3146
NPV=109,664
(C) DOCUMENTS REQUIRED TO ACCOMPLISH BEFORE THE BUSINESS GETS FINANCIAL ASSISTANCE
· Business license issued by Meru municipal council,
· Tin number for tax purposes,
· Certificate of registration and
· Health certificate.
(d) Way of overcoming huddles anticipated in executing the business
· Always to have goat meat inspected before releasing for sale,
· Employing highly qualified veterinary officers,
· Goats to be inspected before and after slaughtering and
· To emphasized on good refrigerators.
REFERENCE:
1. Bagavath & Pillai, R.S.N. (2006). Management Accounting. S. Chand & Company Ltd, Ram Nagar, New Delhi.
2. Engler, Calvin. (1988). Management Accounting. The Maple-Vail Book Manufacturing Group, United States of America.
3. Investment appraisal: An introduction. Provided in class
1. Executive Summary…………………………………………. 3
2. Introduction…………………………………………………..4
3. The business firm and the industry……………………………5
4. the product…………………………………………………….6
5. Markets………………………………………………………..7
6. Marketing……………………………………………………..8
7. Design and development………………………………………9
8. Manufacturing and operation………………………………….10
9. Management……………………………………………………11
10. Benefit and justification of the project…………………………12
11. Financial aspect and project worthiness………………………..12
12. conclusion……………………………………………………….13
13. Annex ………………………………………………………….14
14. Documents required to accomplish the project………………….16
15. Reference:………………………………………………………..17
PROJECT AT A GLANCE
REQUEST FOR TSHS 7,300,000 FOR CONSTRUCTION OF A BUTCHERY
PROJECT NAME: MEAT POINT BUTCHERS
PROJECT APPLICANT: JARED OSENO
PROJECT OWNER: JARED OSENO
PROJECT TARGET:
1. To provide high hygiene standard, reliable, variety and high quality goat meat.
2. To provide employment opportunities to the youth
3. To meet high demand for goat meat
4. To improve the income of the owner
PROJECT LOCATION: USA-RIVER, ARUSHA
PROJECT CONTACTS:
Director,
Meat Point Butchers,
P.O. Box 778,
Usa River, Arusha.
1. EXECUTIVE SUMMARY
MEAT POINT BUTCHERS will be a company which is generally like any other butcheries but its mission specifies and makes it different from others. MEAT POINT BUTCHERS is going to practice all necessary ethical manipulation in seeing that the company runs at a profit which can sustain it for unforeseeable future period.
1.1. Purpose of the plan
The main purpose of this plan is to enable the proprietor of MEAT POINT BUTCHERS to acquire a Bank loan before January, 2009. This will facilitate the expansion of the business so that it can operate on the large scale and therefore enjoy the economies associated with large scale operation.
1.2. Mission of The Business
MEAT POINT BUTCHERS shall be selling goat meat of different weights to the Usa River community and the neighbourhood with the aim of supporting the government effort to eradicate poverty among the youth without compromising the standard and the benefits expected to accrue to the consumers.
1.2. The Finance needed and its purpose
There are some other businesses in place which sell almost the same products that MEAT POINT BUTCHERS would like to venture in but they do it with very little capital such that they have failed to meet the demand of the customers. It is on this basic ground that MEAT POINT BUTCHERS is now requesting a bank loan of Tshs7,300,000.
The project’s initial cash outlay is expected to be Tshs10,300,000. Out of this Tshs3,000,000 will come from the family’s past saving and Tshs7,300,000 from the bank loan. The family’s saving will entirely be used to rent the business premises including the building. The loan will be used to acquire equipments such as weighing scale, hooks, refrigerator, knives, a file (a sharpener) and a computer; furniture and fittings, a pick up and the stock in terms of goats.
1.3. The Project Description
The project requires 6 large rooms which will serve as an office, refrigeration room, the sales room, kitchen for roasting goats’ meat, a changing room and a store. The project also requires a large space for the customers who will need to enjoy the roasted goats’ meat. Besides that, we shall also require to construct a slaughter house, manure pool and a shed to keep goats waiting to be slaughtered.
This business venture will require a half hectare of land for providing parking yard for our customers who would like to eat roasted goat meat. There will be two gates, one for off-loading and production personnel entrance and the other for entrance of our customers.
The capital being requested is needed before January, 2009 so that we can start to operate in the beginning the year 2009. The company shall start paying back the loan after the first year of operation at the agreed rate between the MEAT POINT BUTCHERS and the BANK. The collateral shall be our equipments and the log book of our vehicle.
1.4. Highlights of Financial projections
The project economic life is expected to be 5 years and the loan repayment period also covers the same period. The project will operate as a sole proprietorship. A some of Tshs10,300,000 will be needed at the beginning of in the first year as working capital covering the preliminary expenses. Later years revenue generated from the project operations will provide working capital. We shall also set aside Tshs1,500,000 to cater for unforeseen contingency.
2. INTRODUCTION
Goat meat is a common delicacy admired by many but because of its scarcity, some customers stay without it for such a long time. The scarcity does not arise from the livestock keepers’ point of view but on the processors side. Most of the people eat it during the funerals, wedding, and when they patron bars during drinking spree but these occasions hardly occur. The house wives, the teetotalers and the youth have always been on the lacking side. MEAT POINT BUTCHERS will in this respect facilitate the availability of the product to all.
Livestock keepers, on the other hand will get ready market for their goats and there is no doubt at a better price. The contribution to the government revenue will also be enhanced through tax payment and license acquisition. It is therefore due to these benefits that we thought of establishing a butcher of its own kind in order to meet the needs of the majority stakeholders.
3. THE BUSINESS FIRM AND THE INDUSTRY
3.1. Purpose of the Firm
The purpose of this company is to undertake the processing of goat meat for Usa River community and the neighbouring communities. This is aimed at fulfilling the customer’s needs of hygiene standard, reliable, variety and high quality goat meat. The company also aims at supplying goat meat at the least cost possible in order to maximize profit. This kind of strategy will enable the company to service loan and at the same time meet the need of the owner and the entire community.
3.2. Historical Background
MEAT POINT BUTCHERS was launched in June, 2005 with main objective of selling beef to the consumers in Usa River. Due to the low capital, the proprietor could adequately cope up with the competition from well established butchers which had the ability to slaughter on cow/bull per day. So the proprietor took the initiative of changing the business product from selling beef to selling goat meat in January, 2006.
Changing the operation of the business enabled the firm to operate at a profit margin of 30%. However the demand for goats’ meat has been increasing every year. It is on this ground that the owner has thought of operating MEAT POINT BUTCHERS on a large scale.
3.3. Past performance record
Due to its low capital, MEAT POINT BUTCHERS used to perform on small scale. However, since the beginning of this year, it has been able to slaughter a minimum of two goats during the week days and 5 goats during the weekends. This could enable the business to earn Tshs.30,000 to Tshs.50,000 per day.
3.4. Short term objectives
To distribute goat meat to the entire Usa River division,
To increase the income of the proprietor and the family,
To meet the high demand for goat meat in Ngarasero, Usa River,
To increase the food variety in the area,
To provide high hygiene standard, reliable, variety and high quality goat meat and
To provide employment opportunities to the youth.
Long term objectives
To supply high quality goat meat around Arusha region,
To increase the number of employees and
To capture export market.
3.5. Description of the Industry
Livestock industry in Tanzania is still a potential industry in the sense that very little investment has been done in the sector. Most of the products are only but locally consumed with very little exports done. The livestock keepers still keep indigenous breed with very little output in terms of beef, skin and hides, milk, bones and manure.
High concentration has been in beef. Goat meat, mutton and other domestic animals have actually been ignored and only left for sacrifice and ceremonies.
4. THE PRODUCT
Since we shall be the producers of customer oriented products, we will also provide other benefits like hygienic, ready to eat meat in form of roasted meat with constant supplies. This will make our product different from our competitors thus attracting our customers more. Neither the price nor the quality of the products will vary in different segments but we shall strive to perform our activities with as minimum cost as possible.
We shall sell our products in 3 different units, that is, 0.5kg, 1kg and 2kgs. The sales will be made to both who would wish carry the product home and those who would want to eat it as roasted meat.
The by-products such as tripe (utumbo), liver, and head will be sold to small butchers and soup makers around, Hides and skins will be sold to Tannery industry in Arusha through the vendors, Bones and blood will be sold for dog feed and kitchen and Manure will be sold to farmer.
The uniqueness of our product will revolve around the packaging, pricing and after sale services. Well motivated worker will always be able to serve the customer with great smile. The customer’s complains relating to selling meat with more bones will be avoided since a goat has very light bones and where necessary debonning will be done.
5. MARKETS
5.1. Our customers
Our customer will be from all walks of life. Since our products will be sold at different small units, we shall be able to attract both rich and average income earners. Many of our comers will come from our community and upon being advertised we shall also draw customers from the neighbourhood.
5.2. Market segments
Our target customers will be grouped in two major segments which are also helpful in the distribution strategy. These are:
The local community and
The neighbouring communities.
Under these major segments we have sub-segments each having its customers.
Both our local community and neighbouring communities’ customers need similar products with characteristics such as high quality product, durable products, constant supply, varieties and convenient sizes, products usable instantly, soft meat and reasonably priced product that is time saving.
5.3. Competitors
MEAT POINT BUTCHERS competitors are the local butcheries around which deal in selling beef. However, we shall have a niche over these butchers since customers would want to buy meat which is not stale and also the durability element which the butchers do not offer. With reference to other sellers in other communities our product will also tend to much cheaper because of low cost of labour.
The roasting element in our service is also unique in the sense that other butchers do not practice this. They only target domestic consumers but not luxury lot.
5.4. Characteristics of our Product
The critical success of our firm revolves around the characteristics of its products as described below:
High quality products which are free from foot and mouth diseases
Reasonable price which is affordable,
Convenient in size,
Constant in supply,
Durability, roasted meat can stay for a longer time and can be instantly used and
Hygiene product which is highly treated and free from sickness.
5.5. Competitors Response
We are sure that our competitors shall not sit back and watch as we take their customers and the market share. We expect them to react in all manners to bring our business down to ashes especially now that we are dealing in highly demanded goat meat. We also realize that we have indirect competition from those selling products like fish and pork. This is not a big threat since in the Islam dominated area, we are confident to say that we have greater advantage over pork and fish producers as more people like roasted goat meat.
Having had the market share of up to 60%, we will be ready to compete. We shall maintain and expand our market for we want to be ahead of our competitors.
6. MARKETING
Marketing may be defined as all activities and procedures that enable the smooth movement of items that have value from a source (seller) to a destination (buyer) in the exchange for other items that also have value. This may be described under the following sub-heading
6.1. Sustainable Competitive advantage
These advantages include:
Sales force that will reach our customers in both local and neighbouring communities,
Constant supply due to outstanding distribution strategy of depots and
Attractive packaging methods that is easy to carry.
6.2. Pricing Policy
Our products will be priced as follows:
0.5 kilogram will be sold at Tshs.1,500,
1 kilogram will be sold at Tshs. 3,000 and
2 kilogram will be sold at Tshs.6,000.
However, the price of our products can change in accordance with the changes in the cost of production.
6.3. Advertising and promotion
We shall penetrate the market through extensive promotion. This will be done through various ways as follows:
· Posters and painting on the walls of shops and buildings. This will be able to lure even the illiterates,
· Radio Injili which is locally listened to. We shall aim for certain times like before and after news
· Arusha Times which is widely read by the locals and the neighbouring communities This will be done in the front space.
· Billboards which will be strategically placed on the main and busy roads. These billboards will be attractive in order to catch the attention of the passersby.
6.4. Growth strategy
We do not intend to stop promoting our products until we are sure that they are regionally accepted and taken as one of the products in the shopping list. However, after the end of the second year, we will reduce our advertisement in radios and newspaper. We shall make sure that the products are well distributed and made available to the customers at all times when they need them.
We shall also increase the depots by 100% in the year 2010 to ensure constant supply in order to achieve our goal of 60% growth in the market share.
7. DESIGN AND DEVELOPMENT
The production level will increase according to the projected increase in sales forecast for each year respectively from 2009-2013 at the rate of 20%, 30%, 40%, 50% and 60%. In the future, that is, in 10 years time, we aim at producing canned goat meat for both local and foreign consumption.
7.1. Difficulties experienced and potential risks
Foot and mouth diseases,
Rift valley fever,
Electricity cut off,
The employees welfare,
Political stability,
Climatic changes and
Hygiene
8. MANUFACTURING AND OPERATION
The process of manufacturing begins where the livestock keepers bring their goats to the MEAT POINT BUTCHERS. In the time of scarcity, we may be forced to go and buy the goats from auction markets such as Kikatiti, Mbauda, Moshi, and Makanya in Same. We would like point out that we shall not face the shortage of raw materials since we have millions of goats in Tanzania.
8.1. Physical Location of the Business
The proposed location of the project will be at Ngarasero in Usa River in Meru District, Arusha region. Ngarasero will serve as the best alternative because it is more densely populated along the old Moshi road and surrounded by many bars, guest houses, small business enterprises and good infrastructure in terms of electricity and water.
8.2. Steps in Manufacturing
The following are the steps which are undertaken in manufacturing section:
· The goats are received at the off loading bay where they are inspected by both veterinary government officer and our quality controller,
· The animal may be kept in our shed in case our refrigerator,
· The animal is then slaughtered by a Moslem who is employed specifically for this job,
· The slaughtered goat is then hooked by its hind legs before skinned,
· This second inspection then takes place where the inspectors checks the head, heart and the lungs to determine whether the animal is fit for consumption or condemned.
· The goat is then split into two pieces and kept in a deep freezer waiting to be sent either to the sales section or roasting section.
· The by- products such as head, intestines, heart, lungs and liver are sold to the waiting customers. The skins are also sold immediately.
9. MANAGEMENT
The overall management of MEAT POINT BUTCHERS will be vested in me as a Managing Director as well as the owner of the business. My wife will serve as my assistant as well as a cashier and a secretary. As a managing director, I shall also serve as a purchasing officer. An accountant will be required to serve as a book keeper and clerk as well.
The personnel required are all in the production organization but crucial process is to have:
Production manager who will supervise all the production process
A highly qualified and well paid meat inspector who will collaborate with the government meat inspectors to adhere to the standard we require,
5 skinning men who will use pressure knives to avoid damaging the skin
4 men who will work as roasters
10 girls who will work as waiter
4 security guards to man both gates
In the sales and distribution department, we shall have 7 sales persons and two drivers. We shall also require 6 cleaners and one Moslem for slaughtering.
Overall, the project needs a total of 43 well motivated workers who will work in two shifts in order to avoid to being tired because tired worker make mistakes and cause accidents especially in roasting and skinning.
Training to our staff will be conducted through the following:
Workshop and seminars- this will be conducted by both public health and veterinary officers,
On job training – this will be while working. This method is cheap and more practical and could have a lasting impact and
Attend shows and exhibitions- this will open up the employees’ mind in absorbing the ways of producing new products in the market.
Other benefits to employees will include medical, housing and performance incentives such praise, salary increment annually, promotions and retirement benefits.
10. BENEFITS AND JUSTIFICATION OF THE PROJECT
MEAT POINT BUTCHERS is committed to its mission and purposes of seeing that it is able to create and keep customers within the 5 years of forecast. This business will be able to meet all her obligations comfortably and still be able to earn a gross profit of 300%. And out of which it will able to secure all the expenses and still retain practicable figure of Tshs365,513,000 This is possible because of plenty of resources such as cheap goats, cheap labour and good government policy on Small and Medium Enterprise Development Policy of our country.
The economic life of the project is long enough to allow the following:
Repayment of loan and interest amounting to Tshs32,860,000.
Payment of tax (VAT) which is 20% at the end of the project implementation period.
11. FINANCIAL ASPECT AND PROJECT WORTHINESS
11.1. Assumptions and considerations
It has been assumed that:
The project economic life will be 5 years,
The bank loan to be secured will be repaid within period of 5 years with one year grace period and
Interest rate is 30% per annum.
11.2. Project viability
The project has a Net Present value (NPV) of Tshs144,380,000 at a discounting rate of 30% and Tshs.109,664,000 at a discounting rate of 40% which shows that it is worth undertaking.
In view of this analysis, the project is both financially and commercially viable and worth undertaking.
12. CONCLUSION
Since the project has the capacity to repay back the bank loan it is therefore recommended for funding.
ANNEX I
CASH FLOW FORECAST IN TSHS.’OOO
ITEM/YEAR
0
2009
2010
2011
2012
2013
CASH INFLOW
Equity
3000
Term loan
7300
Sales Revenue
72,000
79200
87120
95812
105393.2
Depreciation
400
400
400
400
400
TOTAL INFLOW
10300
72400
79600
87520
96212
105793.2
CASH OUTFLOW
Investment
10300
Operating cost
7240
7960
8752
9621.2
10579.32
Payment
7250
6812
6734
6386
5678
TOTAL OUTFLOW
14490
14772
15486
16007.2
16257
Net cash flow
57910
64828
72034
80204.8
89536.2
Opening Balance
57910
122738
194772
274976.8
Closing Balance
57910
122738
194772
274976.8
365,513
ANNEX II
DISCOUNTED CASH FLOW IN TSHS.’000
ITEM/YEAR
0
2009
2010
2011
2012
2013
Net Benefit
(10300)
57910
64828
72034
80204.8
89536.2
DF 30%
1
0.769
0.592
0.455
0.35
0.122
Discounted cash flow
(10300)
44532.79
38378.176
32775.47
28071.68
10923.4164
NPV=144,380
DF 40%
1
0.714
0.51
0.26
0.186
0.133
Discounted cash flow
(10300)
41347.74
33062.28
18728.84
14918
11908.3146
NPV=109,664
(C) DOCUMENTS REQUIRED TO ACCOMPLISH BEFORE THE BUSINESS GETS FINANCIAL ASSISTANCE
· Business license issued by Meru municipal council,
· Tin number for tax purposes,
· Certificate of registration and
· Health certificate.
(d) Way of overcoming huddles anticipated in executing the business
· Always to have goat meat inspected before releasing for sale,
· Employing highly qualified veterinary officers,
· Goats to be inspected before and after slaughtering and
· To emphasized on good refrigerators.
REFERENCE:
1. Bagavath & Pillai, R.S.N. (2006). Management Accounting. S. Chand & Company Ltd, Ram Nagar, New Delhi.
2. Engler, Calvin. (1988). Management Accounting. The Maple-Vail Book Manufacturing Group, United States of America.
3. Investment appraisal: An introduction. Provided in class
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