Post on 08-Aug-2018
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Social Accountability Report
on
The Contribution of Foreign Direct Investment to
Local Economy in Tanzania: Achievements,
Challenges and Prospects
held at
Tanzania Global Learning Agency
Report by:
John Mathew Mnali
Ag. Director of Investment Promotion
Tanzania Investment Centre
August 2012
SAS No.3
Social Accountability Session Report
on
The Contribution of Foreign Direct
Investment to Local Economy in Tanzania:
Achievements, Challenges and Prospects
Held atTanzania Global Learning Agency
Report by:
John Mathew Mnali
Ag. Director of Investment Promotion
Tanzania Investment Centre
August 2012
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Report Contents:
1. Executive Summary ..22. Background ..33. Laws governing investment in Tanzania ..44. Attractive Investment Climate in Tanzania ..65. Sectors for investment in Tanzania ..76. Trends of registered investment projects in Tanzania ..87. Contribution of FDI to the Economy ..138. Challenges of FDI inflows in Tanzania ..159. Efforts to address challenges FDI inflows challenges ..1510.Plenary discussion ..1611. Conclusion and recommendation ..1812. References ..20
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Executive Summary
This report is prepared by Tanzania Investment Centre following a presentation given during
the Social Accountability Session number 3 organized by Tanzania Country Level
Knowledge Network (CLKnet).The topic on board was The Impact of Foreign Direct
Investment to the Local Economy. The presentation aimed to underscore achievements,
challenges and prospects of Foreign Direct Investment (FDI) inflows to Tanzania.
It is through this presentation the participating stakeholders had an opportunity to discuss
thoroughly about the topic with a view to propose to the government to review
investment policies that will enable FDI inflows to have positive impact to the local
economy in Tanzania. The session gathered participants from government institutions,
academia and researchers, NGOs and the private sector.
The presentation started with the background of the Tanzania economy in mid 1980s,
followed by investment legislations that are in place, investment climate that prevails in
Tanzania, the priority sectors for investment, institutions that supports investment,
incentives that are extended to investment projects, the trends of registered investment
for the period of 1990 to 2011, the sector distribution of the investment in Tanzania, the
contribution of FDI to the local economy by citing the impact created by the
telecommunication industry in Tanzania. Lastly, it was followed by the conclusion and
pointed out the challenges and strategies that have been employed to resolve those
challenges.
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1. Background
Since 1986, Tanzania has embarked into various economic reforms which aimed to
transform the economy from centrally planned public owned economy into market
driven private sector led economy. The government recognises that it has the role to
facilitate the private sector and other economic agents to actively and effectively
invest in productive and commercial activities in order to accelerate economic
growth and development. The Government do this mainly through putting
favourable policies in place, provision of a
conducive investment environment for local and
foreign investment, promotion of institutional
changes conducive to the development of the
private sector, stimulating investors confidence
through transparent, effective and efficient
administrative processes in government
institutions and to put in place an appropriate
legal and regulatory framework. The major policy
and structural reforms carried out played a significant role in improving the business
and investment environment in the country.
Various economic reforms
undertaken by the
government aimed to put
in place laws and policies
that will facilitate
conducive investment
environment for local and
foreign projects.
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2. Laws Governing Investment in Tanzania
During mid-1980s in recognition of the
important role towards creating an
enabling environment for private sector
development, Tanzania enacted a
number of investment related laws and
policies, undertaken financial reforms,
liberalised its trading regime; put in place
an attractive investment package; and
undertook a number of initiatives to
promote and develop the private sector. Some of the laws were such as:-
Tanzania Investment Act No. 26 of 1997 aimed at guiding investment activitiesin Tanzania except for the mining and oil exploration projects;
The Village Land Act No. 5 of 1999 which provides for the management andadministration of land in the village and for related matters;
The Land Act No. 4 of 1999 which provides for basic law in relation to landother than village land, the management of land settlement of disputes and
related matters;
During mid-1980s
government initiated a
number of investment related
laws and policies in
recognition of the important
role towards creating anenabling environment for the
private sector development.
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Banking and Financial Institutions Act No.12 of 1991 which intends toharmonise the operations of all financial institutions in Tanzania. To regulate
credit operations and to provide for other related matters;
Mining Act No. 5 of 1998 which provides for mineral mining, trading and anyother related matters;
Capital Markets and Securities Act No.5 of 1995 which provides forestablishment of capital markets and securities authority (CMSA) for the
purpose of promoting and facilitating the development of capital markets and
securities in Tanzania.
Export Processing Zones Act 2002 provides guidance on the set up ofprocessing zones, export requirements and other related matters;
Special Economic Zones Act 2005 which involves investment in other sectorsthan manufacturing for both export and local markets;
Foreign Exchange Act, 1992 to administer and manage matters related toforeign currency, securities, payment, debts, import/export, transfer of funds
and other related matters;
Petroleum (Exploration and Production) Act 1981 which governs investment inthe petroleum exploration and production sector;
Public Private Partnership Act, 2010 which provides for investment in thepublic private partnership projects such as investment in the Infrastructure
Sector;
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Value Added Tax Act, 1997 which provides for the imposition of value addedtax on supplies of goods and services and related matters;
Immigration Act, 1997 for control of immigration in Tanzania and for mattersrelated to immigration.
3. Attractive Investment Climate in Tanzania.
Tanzania like many other countries across the globe has managed to build and
maintain attractive and predictable investment climate through several actions. This
has been implemented as a result of:-
Tanzania Investment Act 1997, which provides protection againstnationalization, access to credit from domestic sources and right for investor
to transfer capital and profits after having paid all the taxes required by law in
Tanzania.
Their active memberships to investment guarantee agencies such asMultilateral Investment guarantee agency (MIGA), African trade Insurance
Agency (ATIA); and International Centre for Settlement of Investment
Disputes.
National Investment Steering Committee chaired by the Prime Minister is
entrusted with the role of investment policy formulation and resolving
problems of investors on a fast track basis with the view to improve business
environment and foster economic growth through increased investment.
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Also the Government through National Business Council organizes round tablemeeting that are chaired by the President so as to discuss, resolve investors
matters while advising government on areas that need improvements.
One stop shop facilitative role offered by TIC through stationed senior officialsfrom Ministries/government department who assist investors to obtain
various approvals, licenses and permits on matters related to immigration,
registration of companies, business licensing, land, labour, taxes and other
facilitation matters.
Tax incentives which provide exemption of import duty to capital goodsincluding establishment facilities for investment by 90% and reduced VAT on
projects capital goods including deemed capital goods to 10%, assistance to
obtain land for investment, automatic immigration quota of up to 5
expatriates at the initial stage of the project and strategic investor status
granted to projects that put up investment in remote and marginalized
regions, create massive employment to local people, inject enough capital
that can have an impact to the economy, transfer of technology and its
contribution of foreign exchange earnings.
4. Sectors for Investment
Tanzania promotes and facilitates investment in various sectors. These sectors
includes agriculture and livestock, natural resources, tourism, manufacturing, (back
up services for petroleum and mining sectors), commercial building, transportation,
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services, financial institutions, telecommunication, energy, human resources,
economic infrastructure and broadcasting sector.
5. Trends of Registered Investment Projects in Tanzania
The major institutional and legal framework carried by government since mid 1980s
resulted into an increase inflow of foreign direct investment. Such increase has been
evidenced by an increased number of registered projects and its ownership, value of
investment capital injected, employment and number of countries that has increased
investment flow to Tanzania. Such positive results brought by FDI have also
contributed to GDP growth and provides stable inflation rates since 1997 to 2011
figures.
5.1.Projects registered by TIC from 2005 to 2011
Attractive laws and predictable investment climate has attracted increasing number
of both FDI and domestic investment that were registered by TIC; in 2008 the centre
registered a total of 871 projects compared to 550 projects registered in 2005 an
increase of 36%. However the impact of global financial crisis leads to the registration
of 572 and 509 in 2009 and 2010 respectively. Overall the registered projects received
a robust response stock inflow amounting to 4706 projects from 2005 to 2011.
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Figure 1: Registered Projects by TIC 2005 - 2011
Source: TIC Database
According to the UNCTAD reports on FDI inflows globally, there has been an increase
inflow of foreign direct investment (FDI) to Tanzania of 12million USD in 1992 to
unprecedented record of 1095million USD in 2011 while the FDI stock amounted to
388million USD in 1990 compared to 7823million USD in 2011.
The World Investment
Report published in 2012
shows that Tanzania took
the lead in attracting Foreign
Direct Investment (FDI) in
the East African region during the past 1 year, attracting the record of $1.1 billion
Major institutional and legal framework carried
by government since mid 1980s resulted intoan increase inflow of foreign direct investment
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equivalent to (TSh1.76 trillion). The same report has highlighted that between June
2011 and June 2012, Tanzania overtook Kenya- the regions biggest economy,
indicating the high confidence among foreign investors in Tanzania. The same report
has shown that for the past three years, Tanzania has attracted about 47 percent of
all FDI flows in the five East African countries.
Figure 2: FDI Inflows to Tanzania from 2006 2011
Source: UNCTAD World Investment Report -2012
5.2.Ownership of Projects Registered by TIC 1990 2011Tanzania Investment Act provides three types of project ownership as follows. An
investment project may be whole owned by Tanzanians or by foreign nationals or the
project may be jointly owned by Tanzanians and Foreigners (Joint Venture).
According to the TIC registered projects for the period 2005 - 2011 Tanzanians have
been playing a leading role in terms of establishing investment projects, followed by
Joint Venture projects and lastly foreign nationals as shown in a pie chart;-
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Figure 3: Ownership of Investment Projects 2005 - 2011
Source: Tanzania Investment Centre
5.3.Leading Countries that have invested in TanzaniaMost of the investments from abroad (FDI) originate from the United Kingdom due
to the historical background. Tanzania was a British colony that is why it is well
known by investors from UK than other parts of the World.
From the figure above it shows that 23% of registered projects originate from UK, 15%
from India, another 15% from Kenya, Netherlands 10%, China 10%, USA 10%, South
Africa 7%, Canada 5%, Germany 3%, and Oman 2%.
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Figure 4: Ten Leading Companies Invested in Tanzania 2005 2011
Source: Tanzania Investment Centre
5.4.Employment Generated by Investment Projects from 2007 to 2011
TIC registered projects have projected to create new jobs every year as follows;
Table 1: Projected Number of New Jobs Created 2007 - 2011
Year 2007 2008 2009 2010 2011
Jobs created 103,958 109,521 56,615 43,640 79,101
Source: TIC Database
Steady GDP growth and lower inflation rates as a result of implemented institutional
reforms and legal framework has been instrumental towards attracting investors to
invest in Tanzania.
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Figure 5: GDP Growth Rates and Inflation 1997 -2011
6. Contribution of FDI to the Economy (A case of Telecommunication Industry)
In Tanzania more than 25% of the TIC registered projects are owned by foreign
affiliates/companies that have operations in Tanzania in sectors such as agriculture,
manufacturing, tourism, telecommunication, services, petroleum and mining just to
mention a few. Its impact to the local economy has been in terms of job creation,
government revenue, transfer of technology and skills, capital invested and foreign
exchange earnings.
0
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2
3
4
5
6
7
8
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
YEAR
GDPgrowthrate%
0
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Inflation%
GDP growth rate Inflation
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Specifically, the telecommunication sector has contributed significantly to the
employment creation of both direct and indirect jobs. The indirect jobs includes
Tanzanians selling cell-phones, airtime, cell phone battery charging services, providing
calls services, money transfer and so forth. The industry has improved the
communication services compared to the previous situation prevailed 20years ago. It is
this industry which has enabled rapid mobile technology penetration to the villages,
mobile telephone banking services across Tanzania. Moreover the telecommunication
sector has contributed significantly to the government tax revenues.
The data below shows an increase of service subscriber reaching over a half of Tanzanian
population equivalent to about 24million in 2011.
Table 2: Total number of Mobile Phone Users
Service provider 2010 2011
VODACOM 8 6 0 6 10 2 8 081
TIGO 4,477,510 5,263,330
AIRTEL 6,021,091 6,834,301
ZANTEL MOBILE 1,700,528 1,374,057
SASATEL 24,827 7,461
TTCL MOBILE 86,965 220,932
BENSON 2,396 1,708
TOTAL 20,983,853 23,979,870
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7. Challenges of FDI inflows in Tanzania
According to the World Investment Report (WIR) issued by the United Nations
Conference on Trade and Development, focusing on the past twelve months ending
June, 2012, shows that for the past three years, Tanzania has attracted about 47 percent
of all FDI flows in the five East African countries. Despite the increasing figures of FDI
inflows yet Tanzania face a number of challenges that requires deliberate measures in
order to attract and retain more investors. Some of the challenges are lack of adequate
and reliable power, poor infrastructure especially feeder roads, lack of designated areas
for investment projects (such as farming land, industrial plots) where investors may
acquire for investment purposes and negative image of Africa propagated by western
media about the continent.
8. Efforts taken by the Government to Address the Challenges
The government has taken some efforts to tackle the challenges in the view of attracting
investors. Some efforts that have been undertaken includes attracting investors in the
energy sector as a priority of government plans, the ongoing efforts to establish a land
bank whereby TIC is working hand in hand with other stakeholders in this area. In
addition the government has put in place a new PPP legislation which aims to attract
public private partnership projects such as infrastructure projects. Lastly, the
government has kept on creating awareness through embassies and other organizations
such as TTB, TANTRADE, TIC, EPZA etc to its outward mission about the Tanzania
investment climate and opportunities in the country.
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9. Discussions from the Participating Stakeholders
Soon after an account from the presentation, participating stakeholders had an
opportunity to contribute their views as a way forward to guide government through
review and amendment of policies that can enable significant contribution of FDI inflows
to the local economy. Participants underscored several issues that need to be done to
support spillover effect of FDI to the local economy as below:-
9.1.Integrity Leadership
Tanzania like many African countries lack leaders with integrity to administer
government matters that have impact to the economy at large. Participants
requested Tanzanians who gets an opportunity to play a leading role in Government
institutions to be patriotic for the benefit of the nation at large.
9.2.Mechanism to collect government revenuesIt was explained that, despite the fact that, Tanzania Revenue Authority has
improved its technology and broaden tax base over time, yet it lacks appropriate
mechanism to tape government revenues compared to our neighboring Kenya.
9.3.Discrimination of tax incentives across sectors
Tanzania like many countries offers tax incentives in order to attract FDI flows.
However, there is a need to assess that there are sectors that will attract investors
even without incentives so as to circumvent loopholes that can be created in such
sectors.
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9.4.Employment creation by FDI projectsIt was explained that, it is high time for the government to attract FDI that will create
quality employment to the local people.
9.5.Availability of land for investmentThe participants underscored the importance of designated land for investment so as
to avoid land disputes between investors and local people.
9.6.Transfer of Skills and Technology
Stakeholders observed that transfer of skills and technology is not one of the
prerequisite for an investment project to be established in Tanzania, hence no any
investment project is forced to transfer skills and technology. There is a great need to
amend governing investment laws and agreements so that right skills and technology
can be transferred to benefit the local economy within a particular time.
9.7.Change of Management Name of Hotel Operators and Public Awareness
Participants were informed that, change of hotel management companies (ie. Hotel
names) that has been done by hotel operators in Tanzania, does not imply that hotel
owners want to evade taxes hence does not affect the revenue collections; the
stakeholders strongly suggested the importance of TIC in sensitizing the public on
many matters including activities carried by TIC, change of management names by
Hotel operators and its impact to revenue collections.
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9.8.Granting more Mandate to TICUndoubtedly the participating stakeholders expressed the crucial role of FDI to the
economic development especially to the developing country like Tanzania. They
recommended TIC to be given more mandate to undertake facilitative role that can
enhance investment projects to realize their investment plans. This can be done
through effective and efficient Facilitative Centre in-housed with technical Human
Resources and allocating enough budget as well as land that will enable investment
projects to take off. Participants indicated the need to concentrate on resolving
existing challenges rather than undertaking massive promotion campaigns.
9.9.Critical Contribution of Researchers and AcademiaThe stakeholders gave plea to the researchers and academia to share findings of their
research work with the public and also requested them to conduct research that will
endeavor into policy reviews.
10.Conclusion and recommendationsFDI inflows have a significant contribution to the economic growth of Tanzania. It is
therefore recommended that:
It is high time to have review of Tanzania Investment Act No. 26 of 1997 togetherwith Tanzania Investment Policy 1996, its Regulations and any other related
Investment Acts/Policies so as the local economy can benefit from the FDI flows.
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There is a need to have a strategic and comprehensive promotion and facilitation ofinvestment that need to achieve the interest of Tanzania.
Tanzania needs to abandon the fragmented approach hence adopt working togetherattitude for the National interest. Policy gaps in the TIA, 1997 needs to address issues
related to employment, transfer of skills and technology, repatriation of capital,
foreign exchange, business linkages and capital injection of FDI inflow to Tanzania so
that its contribution to the economy can be viable.
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REFERENCES
1. United Republic of Tanzania (1997): Tanzania Investment Act, 1997 Act No;72. United Republic of Tanzania (1996): Tanzania Investment Policy 19963. United Republic of Tanzania (2011): The Tanzania Five Years Development Plan, 2011/2012
2015/2015
4. United nations Conference on Trade and development (UNCTAD): World InvestmentReport 2012
5. Tanzania Investment Centre: Tanzania Investment Guide 2010 and Beyond6. United Republic of Tanzania (2011): The Economic Survey of Tanzania7. United Republic of Tanzania (2011): Finance Act8. www.clknet .or.tz