Capacity utilization and labour productivity in selected textile firms in Tanzania (1970-81)

During the past period of about a decade Tanzania like other developing countries increasingly found herself in severe economic hardships because of decreasing ability of the economy to provide for basic necessities of life to the people. Being a country with limited resources the major concern of Tanzania in her broad objective of economic development has been and continues to be maximum utilization of the available resources. Among such resources are capital and labour resources which usually involve huge investments. More specifically a country would usually be concerned with, among other things, the use of capital investments or rather their capacities and its impact on the utilization of other factor inputs of the economy like labour. As a result of exogenous and endogeneous problems faced by developing countries that are outlined in this work use of capital stocks or more conviniently capacity utilization of most industrial establishments in those countries have been low and/or decreasing. This has been happening despite the great need to increase industrial output so as to realise accelerated economic growth in those countries. One further consequence of this problem has been low or declining factor productivity of resources employed, for instance, labour productivity. The objective of this work was to contribute to the study of the relationship between capacity utilization and labour productivity in Tanzania. This study was meant to be more specific than many others in that consideration is given to few selected firms in one sector of the economy, namely, the textile sector. It is believed that a study of this type would be more relevant as it is likely to provide more appropriate and specific recommendations as solutions to the economic problems of the industrial units. In addition to the consideration of capacity utilization and labour productivity in the firms studied, which as would be agreed are some of the aspects of their performance, further investigation of their performance was done by analysing the influence of the nature of ownership and size of the firms. It was suspected that this could provide a clue on the performance of the large publicly owned capital investments in our country. It is understood that public investments were made in line with our policy of Socialism and Self Reliance and for this reason this approach may help to assess the public sector of our economy. Both qualitative and quantitative methods of analysis were used in this study. The qualitative analysis involves theoretical and empirical survey of both capacity utilization and labour productivity, their relationship and the general framework in which the study was undertaken. As regards the quantitative analysis statistical and econometric techniques were applied. For the statistical exercise tabulated and graphed trends of capacity utilization and labour productivity for the period 1970-1981 were prepared. In the econometric analysis linearized single equation models linking labour productivity to capacity utilization and capacity utilization to both the nature of ownership and size of the firms individually or in appropriate groups were used. On the basis of the methods of analysis used it was observed that capacity utilization and labour productivity are strongly related problems among the firms studied, More specifically trends in capacity utilization determine trends in labour productivity. Since capacity utilization was found to be low and/or decreasing for most firms labour productivity took the same trend. On the other hand capacity utilization was seen to be closely linked to both the nature of ownership and the size of the firms. It was observed that large size and management policies of the type used by private firms favoured high capacity utilization and hence labour productivity. In short a larger firm has better chances of achieving high capacity utilization while a private firm is likely to utilize more capacity than a similar public firm. The causes of underutilization of capacity in the firms were also studied. These causes were categorized as being exogenous and endogeneous to the firms. However, the major cause was seen to be foreign exchange shortage which has tended to limit the abilities of the firms to import inputs to sustain production at a high level and spare parts for maintenance and rehabilitation of the industrial units. The other causes have also been extensively discussed in the study. It is, perhaps, important to note that some of the causes of excess capacity are general affecting all firms while the rest were seen to affect only some firms. The recommendations made for increased capacity utilization are trained, able and business minded management, training, appropriate maintenance and repair procedures, market research, combating labour indiscipline, improvement of working conditions, setting of realistic targets, better infrastructural facilities and incentives. These are some of the solutions to the endogeneous problems observed to be existing in the firms. The other set of recommendations for the exogeneous factors that hinder full utilization of capacity and high labour productivity are to increase foreign exchange earning capacity of our economy, reduce delays in allocation and release of foreign exchange to the firms economize on inputs like fuel, raw materials and consumables and improved provision of infrastructural facilities. Substantial improvement in the performance of the firms would be observed if the above recqmmendations would be seriously considered by the concerned authorities. Solutions to the problems causing excess capacity would lead to increased factor productivity and hence greater output.