The role of social networks in business development, investment and employment creation in Tanzania’s Emerging Urban Centres

Thesis

This study examines the role of social networks in influencing business developments, investment, and employment creation in Ilula and Madizini EUCs. The study focuses on answering the following research questions: i) What are the kinds of businesses that operate in Ilula and Madizini EUCs? ii) What are the characteristic features of EUC businesses in terms of flows of goods and services in and outside Ilula and Madizini EUCs? iii) How are business networks in Ilula and Madizini EUCs structured? iv) What are available trading opportunities and potentials given business embeddedness and brokerage positions in Ilula and Madizini business network? Similarly, the study aims to test the following hypotheses: i) The size and influence of social networks of EUC business owners do not affect business performance. ii) Strong and weak social network ties of EUC businesses do not influence business investment choices in EUCs. iii) The size and influence of social networks of EUC business owners do not influence EUC business employment creation. This study took its point of departure from Social Network Theory, which argues that economic actors’ actions are embedded within their social relations and that their positions within the web of social interactions determine their opportunities and constraints. It examines business development from a social network perspective, which enables researchers to understand the evolution of different businesses in small towns over time and space. Empirically, the study focuses on Ilula and Madizini EUCs, which are in the rural areas of the Iringa and Morogoro regions in Tanzania. The study was based on quantitative data collected using survey questionnaire from a random sample of 459 and 296 businesses in the EUCs in Ilula and Madizini, respectively. Qualitative data were collected using interview guides from 38 key informants and six focus group discussions. Data processing and descriptive and multivariate analyses were done using Microsoft Excel, SPSS, and STATA software. Organisation and analysis of social network data was done using Gephi software, while content analysis was empployed to analyse qualitative information using NVIVO software. The findings of this study showed that Ilula and Madizini EUCs are key market centres for dominant agricultural produce, mainly tomato and paddy/rice from the surrounding near and distant villages. A large proportion of the agricultural produce was traded to regional and international markets, which are also market nodes for industrial goods from other urban areas to surrounding rural areas. About 60 % of all businesses belong to the trading category (mostly unspecialised). Many of these businesses are involved in crop- trading and wholesale/retail. Service based businesses, manufacturing and transportation were seen to develop alongside major crop value-chain businesses. Opportunities created through the development of crops and other business linkages have attracted many migrants from the surrounding rural areas and other parts of the country. Migrants own about 75 % of the surveyed businesses. The product and information exchange structure in Ilula and Madizini business networks was centralised to few businesses within the trading category, mainly tomato and paddy/rice traders and wholesale/retail. Majority of businesses were not networked in the general EUC business network, mainly due to a lack of network relations with businesses within the value chain of dominant crops (tomatoes and paddy). Similar businesses also acted as brokers of products and information, both horizontally across businesses within the EUC and vertically across businesses outside the EUCs. This guaranteed networked businesses access to better and quality products and information. Business development in the EUCs was enhanced by increasing the size and influence of social network, which positively impacted business stock and sales turnovers because extensive social networks were also linked with highly influential businesses. Business investment decisions in the EUCs and the types of businesses were influenced by business owners’ strong ties of family, relatives, and friendship networks and weak ties of business acquaintances/colleagues. These networks were particularly influential in food crop trading, transportation, and wholesale and retail business investment, most of which were directly linked to the tomato and paddy value chains. However, the relevance of strong ties in influencing investment decisions decreased as business owner human and financial capital improved. Lack of formal institutional arrangements was identified to constrain networking and inform business investment decisions. In terms of employment creation, most businesses in Ilula (66 %) and Madizini (62 %) were run by owners without employing any extra labour. However, they created more employment opportunities indirectly through the services they demanded, like storage, transportation, security, renting shop space and cullies (loading and unloading). Indirect employment was created mostly around businesses with stronger/high network linkages. Large proportion of this employment was created by businesses operating in close connection with major tomato and paddy crop value-chains, such as trading, manufacturing, wholesale/retail and construction. Strong and weak social networks played a significant role in businesses recruitment in Ilula and Madizini EUCs. The likelihood of employment creation increased when social networks’ size and influence increased among Madizini and Ilula businesses. However, the increasing influence of social networks among Madizini businesses reduced the prospects of creating employment opportunities. The result is connected to the earlier observation that many businesses were not networked in the general EUC business value chain, which is exacerbated by a lack of business-crop effect where paddy/rice and sugarcane value chains as key crops in Madizini were narrow and poorly integrated into EUC web of doing business. Thus, from the two cases, EUCs were revealed to be focal centres of business investment in Tanzania as they facilitate rural-urban linkages through trade of goods and services to and from rural and urban areas. Social networks were further revealed to play a significant role in influencing business development, informing investment decisions, recruiting labour, and creating employment opportunities. This is because access to market information, labour, and capital relied mainly on social networks. The likelihood of developing a business and creating more employment was also determined by increasing the scope (size and influence) of one’s social network, mainly around dominant crop value chains. Therefore, as informal sector is still dorminant in rural areas, social networks are instrumental in realising rural development as they enable business development by assuring access to capital, market information, goods, and labour. Given the role of EUCs in supporting business development, it calls for government and private sector action in prioritising EUCs as trade and value addition centres that will benefit majority rural populations. Moreover, dedicated public and private sector support on the development of crop value chains around EUCs is called for to support subsequent business and rural development, investment, and creation of employment potentials for growing rural population.