Analysis of Technical Efficiency and Profitability of Manufacturing Enterprises Operating in Informal Sector in Dar es Salaam Region

Abstract

Contribution of informal sector to the economy remains substantial in developed countries such as Tanzania. In order to promote sustainable industrialization through manufacturing enterprises in the informal sector, this study was conducted to analyze their technical efficiency and profitability. The study employed data from the 2019 Informal Sector Survey conducted in Dar es Salaam, Tanzania. Variables involved in this study were output, maximum possible output, technical efficiency level, value added, net income, return on assets, total asset value, capital investment in equipment and machinery, number of workers, labor costs, worker productivity, intermediate consumption, age of enterprise, and sex and education level of enterprise operators. The study employed multiple linear regression and stochastic frontier production function for analysis. Results from multiple linear regression showed that output increased significantly with labor costs (p < 0.1) and with intermediate consumption (p < 0.01). Also, results showed that technical efficiency ranged between 0.00 and 70.15, with an average of 17.77 percent. Additionally, profitability increased significantly with worker productivity (p < 0.01) and with sex of the enterprise operator being female compared to a male (p < 0.05). The study recommends enhancing resource optimization and strengthening workforce capacity to support profitable manufacturing practices.