Human capital elements and performance of small-scale manufacturing firms in Tanzania

Previously, Tanzania pursued a socialist approach to development. This failed there, as in most other countries. Consequently, since the 1990s Tanzania started promoting SME entrepreneurship to fast-track its economic growth and development. A lack of human capital can hinder development just as a shortage of physical capital. This is more so in the new economy that is increasingly knowledge-based. Investment in education and training improves individual and organisational efficiency, with externality benefits. This study, based on a sample of 200 manufacturing firms, examines the influence of human capital elements of entrepreneurs and workers on enterprise performance in Tanzania over the period 1999-2003. Regression and Cobb-Douglas production function analyses undertaken confirm that the firm cannot be 'entrepreneurless'. Human capital elements of labour and the entrepreneur together with physical capital are found to be critical predictors of performance, with combined estimated beta coefficients of 3.38, evidence of increasing returns.