Dar es Salaam. Tanzania's efforts to use public procurement as a catalyst for the growth of small and medium enterprises (SMEs) are beginning to bear fruit, but businesses still need stronger technological capabilities if they are to compete effectively for government contracts, a new study has revealed.
The study by researchers from the University of Dodoma (UDOM); "Preferential Purchasing Policies and SME Participation in Public Procurement Markets: Do Technological Capabilities Matter?” was authored by Baraka Israel and Alban Dismas Mchopa.
It was published in the African Business Management Journal (ABMJ) by the University of Dodoma in 2026 and it examines whether preferential procurement policies are helping Tanzanian SMEs secure a larger share of the country's public procurement market.
The findings come at a time when successive governments have emphasised local content, industrialisation and private-sector-led growth, with SMEs widely regarded as the backbone of Tanzania's economy.
Globally, SMEs account for about 90 percent of businesses, generate roughly 50 percent of employment, and contribute around 40 percent of Gross Domestic Product (GDP) in emerging economies. Yet despite their economic significance, their participation in public procurement remains disproportionately low.
In Tanzania, the researchers note that SMEs account for only about four percent of participation in public procurement, compared with 18 percent for large firms, highlighting a significant gap in access to government business opportunities.
The study argues that although the government has introduced preferential purchasing policies to create opportunities for smaller firms, these measures alone cannot unlock the sector's full potential.
"Preferential purchasing policies significantly enhance SME participation in public procurement," the researchers conclude, adding that technology adoption remains essential for firms seeking to compete more effectively.
The research surveyed 283 SMEs operating in Dar es Salaam, Dodoma, Arusha, Mbeya and Mwanza, examining how procurement policies and technological capabilities influence participation in government tenders.
The results showed that preferential purchasing policies have a strong positive influence on SME participation.
However, while technological capability was found to improve competitiveness, it did not significantly strengthen the relationship between preferential policies and procurement participation statistically. Rather than viewing this as a setback, the researchers argue that it highlights a broader challenge facing many Tanzanian SMEs.
"Technology on its own is not enough," the study suggests. "Supportive procurement policies remain the primary driver, but firms also need stronger digital capabilities to compete effectively."
For Tanzania, where public procurement accounts for a substantial share of government expenditure every year, expanding SME participation could have far-reaching economic benefits, including increased employment, innovation and local industrial development.
The researchers recommend a multi-pronged approach.
First, they urge the government to strengthen implementation of preferential procurement policies by ensuring procuring entities consistently reserve eligible contracts for SMEs and simplify bidding procedures.
Second, they recommend that the Public Procurement Regulatory Authority (PPRA) intensify training programmes that help SMEs understand procurement procedures while encouraging wider adoption of electronic procurement systems.
Financial institutions are also urged to develop financing products tailored to SMEs so that businesses can obtain working capital needed to execute government contracts.
For SMEs themselves, the study recommends greater investment in digital technologies, staff training and modern business systems to improve competitiveness.
Economic analyst Dr Gerrald Mungoi says the findings reinforce what many businesses have experienced for years.
"Access to procurement opportunities is important, but winning contracts requires capacity," he said.
"Many SMEs struggle because they lack adequate financial records, digital systems and working capital. Government reforms should therefore go beyond reserving tenders to strengthening the enterprises themselves."
He said digital transformation should now become part of Tanzania's industrial strategy.
"If businesses cannot prepare competitive electronic bids or meet contract requirements, preferential policies alone will have limited impact."
Business development expert Thobias Chacha shares similar views, saying technology is becoming a basic business requirement rather than a competitive advantage.
"We are entering an economy where procurement is increasingly digital. SMEs that continue relying on manual systems risk being left behind," he noted.
According to him, entrepreneurship support programmes should increasingly focus on digital literacy, financial management and compliance with procurement regulations. Government initiatives already point in that direction. Through the National e-Procurement System (NeST), the government has been digitising procurement processes to improve transparency, efficiency and accessibility.
Authorities have also continued implementing SME development programmes under the Ministry of Industry and Trade, while local content policies seek to ensure Tanzanian firms benefit more from public investment.
Recent government statements have consistently stressed that empowering local enterprises is central to achieving the country's industrialisation agenda and expanding employment opportunities.
However, the UDOM study concludes that policy alone cannot transform the sector.
Instead, Tanzania needs an ecosystem where government, regulators, financial institutions, training providers and SMEs work together to improve enterprise competitiveness.
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