Report the Contribution

8/22/2019 Report the Contribution

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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

1

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

2

4

6

8

10

12

14

16

18

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

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