The Role of Asians in Tanzanian Business

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					 The Role of Asians in Tanzanian Business

           Paper presented at the

           FAU conference 2006

         Breaking New Ground?
Development Research 2005-2015 and Beyond

       Copenhagen Business School

              May 10th – 11th

        First draft, not to be quoted


             Stein Kristiansen
School of Management, Agder University College
  Servicebox 422, 4604 Kristiansand, Norway
 Phone: + 47 38 14 15 21, Fax: + 47 38 14 10 27


The paper traces differences between entrepreneurs of Asian and African origins in the
Tanzanian economy. It also questions why Asians tend to be leading and more
innovative, and how indigenous business people could strengthen their competitive edge
in the current Tanzanian business context.

Traditionally, the diaspora from British India, especially the Gujarati from the border
area between present India and Pakistan, played a crucial role in East African urban
businesses. Recently, market liberalisation tends to facilitate their business expansion
into new geographical and business areas, thus representing an engine for economic
growth but also a challenge for local entrepreneurs with limited social and financial
capital and access to information.

The empirical section of the paper is composed of case studies of Tanzanian
entrepreneurs of Asian and African origin. Findings support the presumption that Asians
tend to be more innovative and enjoy higher rates of firm growth as compared to their
indigenous African counterparts. Examples are presented of how religious faith and
strong in-group solidarity constitute bases for mutual trust and circulation of information
far beyond the nuclear family. This represents valuable resources, especially in a formal
institutional context characterised by judiciary malfunctions and information market
failures. Most small-scale African entrepreneurs, on the contrary, lack cohesion and
shared identity outside their families or neighbourhoods. Their educational basis is also
weak, mobility and social networks are limited, and their financial capability is generally
frail compared to Asian competitors.

   1. Introduction

In Tanzania as in most of Africa, business entrepreneurs have recently got increased
opportunities to enact their business environments and develop profitable enterprises with
a wide geographical range. Obviously, opportunities are not equal for all, and we see
clear tendencies towards increasing social differences with recent economic growth on
the African continent. Local and small-scale entrepreneurs are easily marginalised in
open competition with ‘alien’ business people (Kilby 1983) or foreign investors. In sub-
Saharan Africa, there are clear indications that enterprises owned by Asians and
Europeans are bigger, more innovative, and grow faster than neighbouring firms owned
by native Africans (Ramachandran and Shah 1999). In Tanzania, while social differences
increase, voices are getting stronger to establish measures to facilitate the development of
indigenous business entrepreneurs. Debates on indigenisation of the economy (uzawa)
have been banned in Tanzania for many years but now seem to go on lively (Fazal 2005).

Alien entrepreneurs have historically figured prominently in the business life of less
developed areas (Glade 1983). The alien entrepreneurship theory points at three main
reasons for alien entrepreneurs’ advantage in business development, compared to the
local population. Firstly, they have developed a superior amount of financial capital,
market access, and technical knowledge. Secondly, discriminatory policies, such as
limited occupational choices or land ownership rights, stimulate entrepreneurial
performance. Lastly, cooperation with fellow aliens creates networks of trust and access
to information and capital (Kilby 1983).

This paper looks more in detail into mechanisms of social capital development and
entrepreneurial advantages of Asian Tanzanians as compared to indigenous people. The
paper is organised as follows. A presentation of the Asian diaspora in East Africa follows
after this introduction. Thereafter, a theoretical basis is built up, focusing on aliens and
social capital. In section 4 we present four case studies from Tanzanian wood business, of
which two are of African and two are of Asian origin. The paper is closed by a
concluding discussion in section 5.

2. The Asian diaspora in East Africa

Migration from South Asia to East Africa mostly took place during the late nineteenth
and early twentieth centuries. The majority of migrants, both Hindus and Muslims, came
from Gujarati-speaking areas on the northwest coast of India, near the border to Pakistan
(Nagar 1996, Mangat 1969, Gregory 1993). Asians remained small minorities in all three
countries of the former British East Africa, only 1% in Uganda and Tanzania and 2.6% in
Kenya. However, their concentration in urban areas, and mainly in the capital cities of
Dar es Salaam, Kampala, and Nairobi, gave them added visibility. On the eve of
independence, Dar es Salaam had 36% of Tanzania’s Asian population, Kampala had
27% of those in Uganda, and Nairobi had 49% of Kenya’s Asians (Gregory 1993). Like
other middleman-minorities, East African Asians developed strong in-group solidarity
and were viewed by others as clannish (van den Berghe 1968).

Asians played a dominant role in foreign trade and wholesale as well as retail businesses
in Tanganyika, Kenya, and Uganda. They also occupied intermediary government
positions. For all the three territories in the early 1960s, Europeans in government
positions earned an average annual income of £1,560, compared to 564 for Asians, and
only 75 for Africans (Ghai 1965).

Asians in former British East Africa constituted what sociologists refer to as a
‘middlemen minority’, an ethnic group that occupies an intermediate niche in the
economic system, as traders, shopkeepers, moneylenders, and professionals (Bonacich
1973). The creation of an Asian middlemen minority in East Africa was inextricably
linked to the political constitution of races by the British colonial state. The British policy
created a tripartite racial system, which included Asians (people of Indian and Pakistani
origin), Europeans (all whites) and Africans (all blacks) as distinct races. The distinction
was made despite huge ethnic and cultural variation within each group. Arabs, as well as
people of mixed racial backgrounds, do not easily fit into the tripartite scheme. The Asian
communities of East Africa are also fragmented along lines of religion, language, region
of origin, class and caste (Nagar 1997). Also indigenous Africans are divided among a
high number of ethnic groups.

The Asians are split in major religious groups of Hindus, Muslims, Sikhs and Catholics,
and in a high number of sub-groups. One particular sub-group of the Asian diaspora, the
Muslim Gujarati (Khojas), are often portrayed as particularly business orientated and
successful entrepreneurs. This general perception reflects their past role in colonial East
Africa, where they had a relatively privileged life and gained social status, principally
derived from employment in commerce or as professionals. The Khojas arrived on the
East African coast as traders from around 1840 (Janmohamed 1997). They were later
predominantly recruited as labour force on the railway projects in the region. The Khojas
settled all over Eastern Africa and, with each other’s help, they prospered as traders.
Subsequently, they invited their families, friends and fellow countrymen from British
India to join them and share in their ventures. By the 1940s, as it became more
established, this East African community had begun to lose its home orientation (Ghai
1965). Towards 1970, the Muslim Gujarati community was generally highly skilled, well
educated, and fairly prosperous. Indeed, there was essentially no ‘unskilled’ category
recognised amongst these people in virtually the whole of East Africa (Ghai 1965). In the
last 30 years, East African Muslim Gujarati have migrated to many parts of the world for
a number of reasons, often associated with political turmoil and spoiled business
opportunities in their adopted home region.

The colonial social policies created a ‘racialized social system’ (Bonilla-Silva 1996), and
the tripartite racial order was maintained by the segregated systems of education, health
care, prisons, social clubs, and residences. Although racial segregation was not part of
official British policy, colonial concerns over hygiene, intermarriage, and sexuality were
used to justify racial separation. Colonial officials reasoned that only residential and
social segregation could protect European colonists from physical contamination and the
health dangers posed by other races (Hopkins 1966). They also feared that racial contact

might produce interracial marriages and offspring, thereby challenging racial boundaries
and the categories of colonial rule (Stoler 1989). For the Africans, the segregation policy
created more hostility against the Asians than against the Europeans. The reason was a
general opinion that Asians got too big a piece of the cake.

A number of factors account for the dominant feelings of hostility against Asians among
native Africans. Being occupants of intermediate positions above the Africans, the Asians
were in more direct contact with Africans on a daily basis, and they kept positions in the
occupational hierarchy to which educated Africans aspired. As supervisors of African
labour, shopkeepers selling daily necessities, or merchants purchasing African
agricultural products, Asians came to be perceived by many African men and women as
responsible for their exploitation and domination. Stereotypes of Asians as clannish,
greedy and dishonest were not simply a result of colonial administration. They were
reinforced in the daily life of local communities and grounded in different cultural
traditions concerning time, work discipline, and ambitions.

The racial thinking and distinctions are old-fashioned and misleading. Still, however,
huge and significant differences exist among people of European, Asian and African
origin when it comes to business development in East Africa (Ramachandran and Shah
1999). African entrepreneurs own almost 90 percent of very small firms, i.e. those
consisting of less than ten employees. Asians, on the other hand, own most of the firms of
more than 250 employees, for instance, in Tanzania and Kenya. A significantly higher
fraction of Asian and European entrepreneurs have university degrees, have worked in a
foreign-owned or managed firm, and currently own another business. However, more
African entrepreneurs have established their own businesses; Asian entrepreneurs are
more likely to have inherited or bought their businesses. Africans also have the highest
share of female entrepreneurs, while the Asians’ businesses are formally totally
dominated by men. Firms owned by Asians also grow at a significantly higher rate than
indigenous Africans’ firms (Ramachandran and Shah 1999).

3. Alien culture and social capital: a theoretical approach

In spite of its centrality in most of the economic processes, culture has a low profile in
neoclassical economics (DiMaggio 1994: 29). The process of production is very often
analysed as a ’chemical process of combining elements’ instead of it being a ’complex
socio-economic process with actors and their ends’ (Zafirovski 2000: 573). In the
economic recovery programmes carried out in Africa, very little attention has been paid
to the different preconditions necessary for entrepreneurial success among different
ethnic groups and sub-cultures. Certainly, ethnic groups in Africa live in diverse societies
with their specific cultures, and consequently have different backgrounds and reasons for
making economic priorities and decisions. It has been generally observed that better
access to education, financial capital, and business information among the Asian enclaves
contributes to the superior standing of the ethnic Asian business people when compared
with native Africans. Ethnic and cultural resources give them a different possibility to

rise from their local settings and enact their business environments in a manner
conducive to innovation and competitive strengths (Kristiansen and Ryen 2002).

Culture, in our perspective, may be defined as a collective subjectivity (Alasuutari 1995:
25), a shared set of values, norms and beliefs, which are reflected in the relative status
accorded to different roles in the society. Culture probably has its influence on the
formation of social capital. In the words of Woolcock (1998: 154), most people ‘live,
vote, pray, and recreate as members of various but distinct social groups that shape one’s
very identity, values, and priorities’. Geertz (1984: 25) defined ‘sub-culture’ as ‘practices
and local knowledge’.

Local customs and traditions within the national African contexts are often closely related
to ethnicity, which probably are of vital importance for the development of social
networks and trust, which are main ingredients of people’s social capital. According to
Coleman (1988), persons’ actions are shaped, redirected and constrained by their social
and cultural context, which includes norms, interpersonal trust, social networks, and
social organisation. Kristiansen and Ryen (2002) found that the Asian diaspora in East
Africa cleverly maintains sub-cultural characteristics that are of importance for
entrepreneurial endeavour and success.

Studies on entrepreneurship often make a distinction between family resources and ethnic
resources (Min and Jaret 1985). According to Rogoff and Heck (2003), ‘families are an
important source of the oxygen that fuels the fire of entrepreneurship’. However, kinship
is a cultural attribute, and kinship and family roles can also be regarded as integral
elements of ethnic or cultural resources (Light and Karageorgis 1994). The success of
diaspora entrepreneurship is actually traced to ethnic resources, like ‘kinship and
marriage systems, trust, social capital, entrepreneurial values and attitudes …’ (Light and
Karageorgis 1994: 659-60). Diaspora in this context is defined as people who are
dispersed from an original homeland and who are connected through networks and share
a number of common cultural traits. Asian groups in East Africa are typical examples
(Mohan 2002: 83). Co-ethnic entrepreneurs are seen to be actively involved in utilising
these resources in their businesses, so that their enterprises can benefit from group
resources on different occasions (Light 1984, Chen and Cheung 1985). Among the
cultural traits making a difference in social capital development between groups of Asian
and African origin in the East African context, are probably factors like group cohesion,
mobility, and level of education. These are dealt with in some detail below.

The identity of shared membership is instrumental for developing emotions like pride and
self-confidence within a social group. Specific ethnic groups, and religious sects that
encourage a sense of ‘apartness’, have strong bonding qualities and moral conformity,
wherein social contacts and trust can be developed (Casson 1995). Asian and African
groups in Tanzania differ widely with regards to collective subjectivity and group
cohesion. The different cultural heritage and customs related to social organisation
thereby probably have substantial impacts on their various social capital formations.
Asian communities in East Africa are characterised by their satisfaction with non-
acculturation, and are also able to utilise the cohesive element of its traditional group as

its social capital (Bonilla-Silva 1996). Group identity and embeddedness may be
intensified by a feeling of being geographically at distance from the majority of related
people (Mohan 2002, Zukin and DiMaggio 1990). Most of the native African ethnic
groups in Tanzania, on the contrary, seem to lack the cohesion and the sense of shared
identity found among the diaspora. Decades of nation building and policies of dissolving
sub-national unity may have contributed to this situation. There is a lack of confidence in
the value of collective action among most Tanzanians, which results in a preference to act
on one’s own to solve problems in business and other fields, ‘many of which cannot be
dealt with on such a basis’ (Hyden 2001: 162).

When dealing with mobility as a cultural quality, we refer mainly to attitudes and habits
of geographical travelling. The sense of mobility is part of a group’s collective
subjectivity and as such is a cultural variable that has implications on social capital
development. Mobility has an influence on the ability to pick up new ideas and
knowledge and to develop wider networks. Kenyon et al. (2002) found a general and
strong correlation between limited access to physical mobility and the lack of access to
social networks. Also in this respect, a significant difference is noted between typical
groups of ethnic Asian and African origin in the Tanzanian context. Asians are generally
much more mobile and regard mobility as an integral part of their identity, with roots to
their trading ancestors moving across the Indian Ocean.

The use of information and communication technologies may in some cases be an
alternative to physical mobility (Kenyon et al. 2002). However, the use of internet for
instance is also determined by factors related to sub-cultures. In the African context,
those with more education tend to be more exposed to technical innovations in general
and the use of internet specifically (Mwesige 2004). This fact clearly also point in the
disfavour of African Tanzanians in the development of business enterprises.

One main factor behind business success in sub-Saharan Africa is formal education, both
secondary and at university level (Ramachandran and Shah 1999). Entrepreneurs’ level of
education is significantly correlated with their firms' growth. Obviously, the value one
puts on education and the efforts one mobilises for achievements in schools are to a great
extent related to culture and traditions, and hence vary significantly among ethnic groups
and sub-cultures. In Tanzania, almost all members of Asian sub-groups complete at least
secondary education. The corresponding figure for the African Tanzanian population
graduating from secondary school stands at less than 5%.

Social capital is an attribute that is created in interactions among people. It contributes to
increase the strength and value of individual qualities, like intelligence and work
experience, and it is manifested in norms and networks that enable people to act
collectively (Coleman 1988, Burt 1997). Social capital is commonly defined as ‘the
information, trust, and norms of reciprocity inherent in one’s social networks’ (Woolcock
1998: 153). One’s social capital may have positive or negative effects on entrepreneurial
activities (Coleman 1988, Burt 1992). Putnam (2000: 23) made a distinction between two
specific dimensions of social capital, namely bridging (or inclusive) and bonding (or
exclusive). The bridging networks open for access to external assets and facilitate

information diffusion, whereas the bonding social capital is good for mobilising solidarity
but may ‘create strong out-group antagonism’, which could limit entrepreneurial
potentials. Social capital related to sub-cultures and ethnic enclaves often seem to
combine the bonding qualities and non-acculturation with bridging networks to related
ethnic groups in other geographical settings. This can be observed among trade diaspora
in various parts of the world (Light and Karageorgis 1994, Mohan 2002).

Social capital of various groups or sub-cultures may reflect different levels of trust in
social relationships and have an impact on information search and transaction costs.
Social capital is also responsible for creating norms for behaviour (Collier 1998) and thus
forms the basis for accumulation of human capital (Westlund and Bolton 2001). Social
capital relates to qualities on micro, meso, and macro levels (World Bank 2000), though
most researchers focus on the latter two. On the micro level, social capital is understood
as individual social skills such as cooperative behaviour, conflict resolution, and
tolerance (Glaeser et al. 2000). At the meso level, social capital is related to membership
in local communities and associations, whereas at a macro level, focus is on a wider
social environment like the institutional and government systems and structures.
Research has recognised that social mechanisms on all these three levels are important
for entrepreneurship (Woolcock 1998). Since this study is an attempt to investigate the
effects of sub-culture on entrepreneurship within the same macro regime, the primary
focus therefore is on factors at the meso and micro levels.

According to Baron and Markman (2000: 107), ‘social capital provides individuals with
an important type of credential - a favourable social identity that can be converted into
significant, tangible benefits’. Research on mechanisms behind social capital formation
has been neglected, and theoretical support is limited for analysing relations between
cultural qualities and social capital. Despite that fact and based on the foregoing
discussion, it should be obvious that cultural traits have an impact on at least two aspects
of social capital: trust, and social networks.

Any business transaction requires some level of security, which can be guaranteed
through trust, legal measures, or coercion (Lyon 2000). Under conditions where actors
cannot rely on formal legal institutions, trust is the most important factor to facilitate
business transactions. In societies with well-established judiciary, inter-personal trust is
less important. High-trust cultures are generally characterised by an efficient operation of
informal cartels, employers’ associations, and credit facilities, thus reducing the
transaction costs and facilitating the process of innovative actions. Reporting on small-
scale indigenous entrepreneurs in Tanzania, Trulsson (1997) found that the lack of
trustworthiness beyond the family or kinship level is a major obstacle for establishing and
expanding small businesses. The situation is definitely different for most Asian business
people within the same objective environment. Circles are closed around certain business
lines. Within and between such communities, people trust each other, and any effort to
break these rules might have negative consequences.

Social networks are ways that allow entrepreneurs to reduce transaction costs and
commercial risks. They also aid in the processes of learning and information

dissemination. Studies on entrepreneurship are increasingly seeing the need for
entrepreneurs and new companies to get engaged in networks in order to survive
(Huggins 2000). In a region where capital markets are at rudimentary level, where the
financial disclosures are limited, and the contract laws are weak, these interpersonal
networks are critical as they help people to take risk and move economic resources.
Social networks develop on the basis of cultural qualities and they do differ widely across
different sub-cultural groups in Africa. The Asian business networks in East Africa are
wider and more comprehensive when compared to the native African business people.
McCormick (1997: 120), in a study of garment industry in Kenya, found that networks
differed greatly, and are segregated by ethnicity and level of education. Network
characteristics ‘at least partially explain the different operating styles and growth
potential among garment manufacturers’. The same study pointed out the immense
commercial advantages the Asians had due to such networks.

In summing up this section, we underline the importance that sub-cultural characteristics
related to ethnicity have on elements of social capital formation, like trust and social
networks. This relationship is illustrated in the left part of Figure 1. In the right part of the
figure, the arrow points from the social capital qualities to the entrepreneurial resources.
Previous studies tend to agree that social capital gives access to resources that the
entrepreneur needs for the start-up and business development processes, thereby linking
the social capital theory to the resource dependency theory (Thompson 1967, Pfeffer and
Salancik 1978). Entrepreneurial resources are defined as assets that entrepreneurs need to
successfully establish and develop a new business, and these resources could be
informational, affective, or material (Kanter 1983). In section 4, we take a closer look at
entrepreneurial resources and business development success among a selection of
entrepreneurs in a Tanzanian town.

     Sub-cultural                                                           Entrepreneurial
    characteristics                       Social capital                       resources
                                                                              -   Motivation
     -   Group                                                                -   Ideas
         cohesion                     - Social networks                       -   Information
                                                                              -   Capital
     -   Mobility                     -   Trust                               -   Market
     -   Education                                                            -   Bureaucratic

Figure 1: Interplay between sub-cultural characteristics, social capital, and
entrepreneurial resources

4. Case studies from Tanzanian wood business

The following case studies are based on data collected around 2000 in the town of Tanga,
Tanzania. They have previously been used in Kristiansen (2004) and Jenssen and
Kristiansen (2004). During sessions of fieldwork in Tanga, we interviewed all the twelve
formally registered and licensed enterprises related to wood works in the town. The
businesses were identified from a list presented by the local government office
responsible for business registrations. Entrepreneurs of Asian origin are owners of seven
companies, which are generally bigger and more dynamic than the remaining owned by
native African businesspeople. There are many more carpentry workshops owned by
native Africans operating in the informal sector of the economy.

Tanga is the fifth largest town in Tanzania, with a population of 300,000. Located on the
coast of the Indian Ocean in the northern part of the country, the shelter bay formed a
commercial node in the Arab trading network for centuries, based on upcountry resources
of wood, ivory, gold and men. When the Germans came to Tanzania, their interest in
Tanga was equally strong. Even the name Tanganyika was first initiated by the Germans,
- referring to the vast woodland, nyika, beyond Tanga. The town developed into a
commercial centre, later also attracting manufacturing industries. In the 1970s it was the
second biggest industrial town in Tanzania, with cornerstone enterprises in cement, steel
and plastics. The majority of these were parastatals, which experienced severe problems
during the economic crisis of the late 1970s and early 1980s. Most of them were closed
down during the 1990s and consequently most of the employees lost their jobs.

   -   Rajabu, an African Tanzanian

The Ntaka enterprise was founded in 1995 by Mr. Rajabu, aged 30. The entrepreneur
completed only primary school and could not find an opportunity for a secondary
education; his family belongs to a local ethnic group and was too poor to secure
education to the high number of children. He joined a vocational training centre for a nine
months course in carpentry skills and thereafter got employment as a journeyman with a
local factory. His low salary was a main motive for quitting, and by only his small,
private savings, he managed to purchase the basic tools for carpentry work and start on
his own in 1989. He walked around in the town with his toolbox searching for on site
carpentry jobs. Successfully he got some contracts and could continue his saving, but
most assignments were short-lived and he was not able to establish lasting relations to
customers until his business got a permanent address in 1995. He then used additional
savings to construct a tiny hut and establish his workshop. Having a premise, he also
formally registered his business with the relevant local authorities.

A breakthrough in his carpentry business came in 1996 with some assistance from the
Small Industries Development Organization (SIDO) and a UK charity organisation
offering second-hand tools. The entrepreneur is happy with the British tools; although
they are used, they are of high quality and better than those available in the local market.
With the new equipment, Rajabu could more than double production, and the number of
employees was increased by three. Products manufactured by Ntaka include beds,

cupboards, office chairs, and dining-room suite. The entrepreneur also accepts repair
jobs, in the workshop or on site. The items are relatively simple, and all customers are
from the town: ‘Mostly ordinary people from Tanga come to my place.’ All inputs
required by Ntaka are locally available, according to Rajabu within a radius of three
kilometres. The entrepreneur has never been outside Tanzania and very seldom goes out
of Tanga.

Rajabu is satisfied with his enterprise and his modest business development. Customers
come regularly to make orders, and he seems to have built up a good reputation in the
neighbourhood. His earnings are subjectively satisfactory, while his ambitions are low.
He is unconscious about any potential value of social networking. When discussing the
topic, he mainly brings up his two main wood suppliers. The entrepreneur emphases the
importance of returning cash-paying customers, but his relation to them is of an ordinary
seller-buyer type and not of importance to the development of his social capital. His
family members and friends are numerous but mostly unrelated to his business activities.
For an outsider, it is easy to imagine how extended networking and closer social relations
could have added resources to the benefit of his business.

   -   Ally, another African Tanzanian

The Kajembe Saw Mill was founded in 1996. The owner, Mr. Ally, 43, is a native
Muslim from Tanga. His business is struggling to survive and there is no growth in
annual turnover. His profitability is weak. The workshop receives, on average, one order
every week. The company’s net income is around 1,000 USD per year.

Mr. Ally holds a secondary education certificate from a local government school. After
completing his education he worked with the government in the region, and also had a
stint in Egypt and as seaman onboard Greek ships. He takes pride in the fact that he has
been to many European countries. The jobs abroad brought him money, which he
invested in initiating his business. He bought equipment from Germany, which included a
saw machine, a lathe machine, drilling machines, and other basic tools for a carpentry
workshop. After being in foreign soils for more than a decade he returned in 1996 to set
up his business by an investment of USD 10,000. The amount is far on the higher side
when compared to other wood workshops owned by African Tanzanians in the town.

Mr. Ally was new to this line of business. His enterprise firstly rendered services to other
small-scale furniture makers in the vicinity and included wood smoothing, cutting,
shaping and grooving. Since he had neither formal knowledge nor any practical
competence in woodworks, he faced immense difficulties. He also had no opportunity to
get himself trained by superiors and by experienced entrepreneurs in the wood-business.
The German machinery was inappropriate. The local furniture makers preferred hard
wood, which his machines had difficulties to process. In the words of Mr. Ally, ‘What we
need, is more modern machinery enhancing the quality of our work, but access to credit
is very difficult in Tanzania. I’ll probably have to go to sea again to make more money.’
Loans from friends or relatives were unheard of.

Mr. Ally’s family has been engaged in various businesses in Tanga for generations. His
father owned a grocery shop, and three of his brothers are also involved in various
businesses. Ally is one of the seven brothers and three sisters from this family. Two of his
brothers are in Italy, one in France and the remaining three are doing their businesses in
Tanzania. His brothers abroad send him technical news and also provide him with many
innovative ideas. He also receives support from his sister who owns a wood workshop in
the same town. The cooperation is without any written contracts and mostly based on
micro-level trust. The meso and macro-level trust, however, is lacking in relations with
customers and other potential business partners in the vicinity.

Ally is more educated when compared to other African small-scale entrepreneurs in this
line of business. He also has more geographical mobility reflecting openness to the
surrounding world of the sub-culture of Muslim trading families in this old harbour town
of the Swahili coast. The group cohesion is also strong within the family, though it is
limited to the close circle of brothers and sisters. In this case, Ally is not a typical African
entrepreneur, held back by the insatiable and inescapable demands by extended families.
The entrepreneur keeps himself at some distance from his local companions and
customers, and he is not much involved in socialising with religious affiliates or with
other ethnic and social groups. The intra-community trust for Ally is high, but the size of
the community is small - only comprising his close family. His social capital motivates
him in development of his business and facilitates the flow of ideas and basic business
information. However, other entrepreneurial resources, like wider market access, supplier
information, capital, and political contacts, are rather confined. This has been the reason
why his success in business is limited.

    -   Aliasger, an Asian Tanzanian

Sawcol Ltd. is the name of a furniture workshop in Tanga owned by Mr. Aliasger, aged
45 and of Asian origin (Muslim Gujarati). He also operates in other business lines, like
auto works. His great-grandfather came from India to Tanganyika to work for the
Germans on a railway project. Aliasger is proud of his family background: ‘in our family
we are artisans by birth, - my grandfather was a carpenter. He was famous in hand
crafting and building houses since German colonial era in this country.’ Ownership,
competence and skills were transferred through the generations, and the family was able
to expand and open branches in several other regions. In 1968, however, all the family’s
businesses were nationalised and they got only a very minor compensation. The family
was dispersed, Aliasger’s father went back to India, an uncle went to Britain, and another
to Canada. Aliasger himself followed family members to Britain for engineering
education and technical training, after completing his secondary education in Tanzania.
Upon his return to Tanzania he worked for a couple of years with two different American
companies as a workshop technician and later as a manager. In 1978 he was ready to re-
establish the wood-processing business from his own savings. ‘You would laugh if you
saw it now’, he says, proudly picking up a black-and-white photograph of a tiny hut from
his working desk drawer. Sawcol Ltd. started operations with only two tiny machines and
a few basic working tools, producing simple furniture and undertaking some construction
works. Ten years later he obtained a loan on favourable conditions from the Small

Industries Development Organization (SIDO) for the purchase of machinery. Aliasger
admits that these machines were crucial for the development of his enterprise. When
asked how the company secured the loan, and how they managed to pay it, he simply said
with a smile: ‘We were the best by that time. We repaid the loan by a single check’.
Currently the company has 54 employees.

The enterprise produces all kinds of furniture as well as doing general wood construction
work. According to Aliasger, his enterprise targets the high quality market segment
‘including big hotels, diplomats and executives from government and non-government
offices’. The company has more than 30 suppliers of timber and wood nationwide, out of
which six are ‘reliable’ sellers of more than 80% of the raw materials. Complaining on
restrictive laws and regulations on the use of wood, the entrepreneur concludes with a
smile: ‘If you do everything legally, you don’t get anything’. At several occasions the
entrepreneur meets with government officials visiting his enterprise for inspections:
‘They make a lot of unnecessary demand, but the reason behind is to ask for bribery. The
more one follows the government rules and regulations, the more one is harassed’.

According to his own opinion, he is very successful in business. However, the company
recently is facing stiff competition from imported furniture. He plans to add more capital
to his business through external financiers. Additional capital would be used to procure
other modern machines and increase the operating capital. He has no interest in securing
any loan from the local credit institutions, accusing them for corruption and charging too
high interest rates these days. Instead he has made an application for a credit from a
Japanese institution. The entrepreneur travels a lot and meets co-ethnic people all over.
He proudly talks about Bombay, Singapore, Bangkok and Switzerland. He also puts on
the table the ticket for his next business trip to Europe. When asked who mostly affects
his business positively, he replied confidently: ‘first is my family and second my friends’.

He is born into a family with pride and competence in wood business, and also with high
expectations to progress. He has two brothers, one in Germany and the other in England;
they support him with new ideas, and sometimes they send him catalogues on new
designs that he copies for his customers. He is among the 23 members of the Rotary Club
of Tanga. The group members have social gatherings every evening. He is also a member
of the Swimming Club, the Asian Business Community, and he regularly meets
acquaintances in the Mosque. The entrepreneur uses his social network very consciously,
mostly to obtain new ideas and information, which makes his business adaptive.
According to himself, flows of information are strong in his network, and he is aware of a
number of resources they create in his business, including market access and good
relations to persons in administrative positions.

   -   Akberali, another Asian Tanzanian

Tanga Timber Sales Ltd. was founded in 1968. Mr. Akberali, in his early 40s, is its
managing director. The main activity undertaken by the company is the production and
sale of furniture, while alongside the company is also involved in trading of timber and
salt farming. The enterprise has 35 salaried employees and another ten carpenters on

contract. The annual turnover of the company is around 75,000 USD and its profit rate
around 20%. The entrepreneur is of the opinion that the enterprise is doing well. In his
words: ‘the workers are well paid, directors are running good cars and live comfortably,
… dividends are distributed among shareholders’.

All shareholders belong to the Akberali family and they are all Muslims and Gujarati.
The family has been entrepreneurial for generations, which Akberali considers of utmost
importance for the development of his entrepreneurial values and attitudes. After
completing his secondary school in Dar es Salaam in 1975, he attained a professional
certificate in accounting, followed with a Diploma in Business Administration, and
finally a Bachelor of Science degree in wood technology from England. He joined the
family business in 1982 soon after completing his studies. Three of the six shareholders
are involved in various positions in the company. His father too is involved. The
production manager is his own brother who has just returned from abroad, after
undergoing a Bachelor of Science degree in furniture designing and production. Other
close relatives and shareholders include a dentist in the US, a priest in India, and a sister
married to a businessman in Nairobi, Kenya. The family members are in close contact by
modern means of communication. They also meet regularly. Moving across varied and
diverse cultures does not seem to be related to any substantial barriers, from East Africa
to India to Britain and the US. They form a very cohesive group and are within an
expanded community of Gujarati in East Africa and around the world.

The entrepreneur has very well developed social skill. He keeps close contacts with all
his business partners, customers and friends, and is highly aware of the necessity of
creating local and global linkages for receiving information and ideas and for gaining
experience via learning from others. Intra- and inter-community trust is high, and the
company gains competitive advantages over other local enterprises in the wood-business
by allowing sales on credit to trusted customers above the kinship level, and also by
allowing bank transfers rather than cash payment.

Akberali’s social network is both wide and diversified. He has a membership with the
local chapter of the Rotary Club, another membership with a group of businesspersons in
the region, and he is also a member of the Asian Business Community. In all the clubs,
meetings provide ample opportunity to gain knowledge and experiences. In addition to
information and new ideas from a multitude of sources, close relations also secure access
to capital. In the words of the entrepreneur, ‘one can use just a word of mouth to secure a
big loan for business investments’. In order to qualify for a credit, the reputation of the
borrower and his social relations are basic prerequisites. His own community, with whom
meeting happens almost daily particularly during prayers, also has its own saving and
funding society. The contributors of this community can seek for a loan and no interest is
charged. The system of credit operates without any formal contracts. In most cases the
system is based on trust. The micro-level and meso-level trust is high, and his local
community counts on a high number of prosperous business people. The entrepreneur
also has good and close contacts with the government officials, and this he opines helps
him get valuable information on ‘new government policies, and the like’.

The Muslim-Asian sub-culture of Tanga thus creates a basis for a rich social capital with
apparent impacts on motivation and access to business ideas and information. It also
facilitates access to capital and markets, and to bureaucratic goodwill. In short, all this
adds up to contribute to his business development and makes this entrepreneur highly

5. Concluding discussion

Our case studies indicate a distinct difference in business development and success
between entrepreneurs of African and Asian origins in the wood-business in a Tanzanian
town. This is a difference which is not unique for the selected cases but is also found
among the remaining interviewed entrepreneurs in this business in the town of Tanga, as
well as in other businesses and other geographical areas in Tanzania (Kristiansen et al.
2005). Asians are generally better endowed with social capital in the forms of social
networks and trust. Their entrepreneurial resources, like ambitions and motivation, ideas
and information, and capital and market access, are generally much stronger. Social
capital endowment and entrepreneurial resources can be traced back to sub-cultural
characteristics, like group cohesion, mobility, and education. Asians generally score
much higher on in-group solidarity, physical mobility and internet connection, and on
level of education. Their unique backgrounds and shared traditions, like for diaspora in
other geographical settings, thus contribute to explaining their business success. A
summary of the findings in our case studies is presented in table 1.

Table 1. Sub-cultural qualities, social capital and entrepreneurial resources among
African and Asian entrepreneurs

                                  Group                   Entrepreneurial
          Education Mobility               Social capital
                                  cohesion                resources
Africans Low           Low/medium Low      Low            Low
Asians    High         High             High       High            High

Business people of African origin in Tanzania may have much to learn from their Asian
fellow countrymen in the ways of developing identity, mobility and knowledge for the
improvement of social capital and the building of entrepreneurial resources. Political
measures, like emphasising and facilitating access to secondary education for all, should
also be considered to develop a level playing field among various groups and thus limit
ethnical tensions in society. However, neither business people of African nor of British
Indian origin are particularly successful in establishing larger-scaled and competitive
manufacturing enterprises in Tanzania today. Also in the wood-works industry, as we
have seen, firms face an increasing challenge from highly competitive imported goods,
not least from China.

Indigenous business entrepreneurs dominantly operate micro- and small-scale firms,
while the Asian diaspora increasingly concentrate in trading businesses, to high extent
large-scale and lucrative import traffic. Not least the Muslim Gujarati, with their globally
extended and dense social networks, are strong in such businesses. Previous experience
has taught them that short-term investment in trade may be more profitable than long-
term investment in industrial production. Meanwhile, firms from South Africa and China
dominate in the profitable extracting industries, like coal mines, gold and gemstones. In
small-scale and cottage industries, owned by indigenous entrepreneurs, business
adaptation, survival and even growth can be made without significant productivity
improvements or market expansion (Kristiansen et al. 2005), because the Tanzanian
economy, like many others in poor areas, is still characterised by fragmented markets and
localised production. The modern economic sector has penetrated the village level and
rural areas only modestly, still. Increasingly today, however, Asian importers gain a
competitive advantage also at local levels due to liberalised trade policies and global
marketing strategies. Though small- and medium-sized traders play important roles in
African economic development (Pedersen 2006), policy focus should now be on how to
avoid trade leakages (Hymer and Resnick 1969), and on measures to strengthen local
producers, of Asian and African origin, in their competition against imported
commodities. The development of a stronger industrial culture and social capital for all
ethnic groups should be keywords in such policies.


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