Foreign Direct Investment (FDI) Trends
Year	USD million
2000	463.4
2001	467.2
2002	430
2003	526.8
2004	469.9
2005	325
2006	501.5

2008 INVESTMENT CLIMATE STATEMENT

Openness to Foreign Investment

The Government of Tanzania (GOT) has a favorable attitude toward foreign direct investment (FDI) and made significant efforts to encourage foreign investments. According to the United Nations Conference on Trade and Development (UNCTAD) World Investment Report 2007, Tanzania had the highest inflows of FDI in the East Africa region in 2006. There is no restriction in foreign exchange and foreign investors are not denied national treatment. The GOT has lent its support to an open investment regime, mobilization of private capital initiatives (PCI), and further liberalization of the financial sector in line with the World Bank’s recommendations. An increased number of privatized public enterprises have been awarded to foreign investors.

The Tanzanian Investment Center (TIC), established by the Tanzanian Investment Act of 1997, is the focal point for all investors’ inquiries and facilitates project start-ups. TIC continues to improve investment facilitation services, provide joint venture opportunities between local and foreign investors, and disseminate investment information. The TIC received the highest positive scores on the UNIDO Africa Foreign Investor Survey 2005. Companies holding TIC certificates of incentive are allowed 100% foreign ownership; VAT and import duty exemptions; and repatriation of 100% of profits, dividends, and capital after tax and other obligations.

The GOT demonstrated its pro-investment attitude anew in September 2007 when President Jakaya Kikwete led a trade and investment mission to the United States to promote Tanzania’s investment opportunities for the second year in a row. The mission included Government agencies and private sector investors from the manufacturing, tourism, transport, minerals and agriculture sectors. In 2007 the GOT also undertook official investment promotion trips to Germany, China, Indonesia, the United Arab Emirates, India, Sweden, Italy, Japan, South Korea, the United Kingdom, Australia, Malaysia, Egypt, and Iran.

Among investment and trade opportunities in Tanzania that remain undeveloped are the energy sector, including coal reserves and natural gas deposits; and the transportation sector. The GOT accepts foreign investment in Built, Operate and Transfer (BOT) projects and has launched a concession system aimed at attracting foreign investors to build infrastructure. Investment Tax Incentives are stable and predictable.

Land ownership remains restrictive in Tanzania. Occupation of land by non-citizens is restricted to land for investment purposes regardless of the sector. Under the

1990 Land Act, however, a foreign investor may occupy land up to 99 years through derivatives rights.

In February 2005, the GOT established the Better Regulation Unit (BRU) to manage the implementation of the Business Environment Strengthening for Tanzania (BEST) program. In June 2006, Tanzanian Parliament passed a law to establish Special Economic Zones (SEZs) to augment investments in the light industry, agro-processing industry and agriculture sectors. Green field foreign direct investments are allowed through this SEZ legislation. The GOT continues to promote Export Processing Zones (EPZ) to attract investments in agribusiness, textiles and electronics and Spatial Development Initiatives (SDI). The EPZs are tax free zones.

Investments on the Dar es Salaam Stock Exchange (DSE) are open to foreign investors, but capped at 60 percent. Foreign investors are barred from participating in government securities. The financial sector has expanded with an increase in foreign-affiliated financial institutions and banks operating in Tanzania. As of August 2007, the Bank of Tanzania listed a total of 23 Commercial Banks licensed and operating in Tanzania, over half of which are foreign-affiliated banks. Competition among these foreign commercial banks has resulted in significant improvement in the efficiency and quality of financial services provisions.

Kenya, Tanzania, and Uganda signed a Customs Union Protocol in 2004, putting in place a three-tier tariff system paving the way for a common market within the East African Community (EAC). Rwanda and Burundi acceded to the EAC on June 18, 2007 and became full members on July 1, 2007. EAC member states agree to allow zero-rated entry of raw materials from other EAC members, levy a 10% duty on semi-processed goods, and levy a 25% duty on finished goods. Although the EAC member countries continue to discuss economic integration, non-tariff barriers--such as the administration of duties and other taxes, and corruption--remain a problem.

Conversion and Transfer Policies

Regulations permit unconditional transfers through any authorized bank in freely convertible currency of net profits, repayment of foreign loans, royalties, fees charged for foreign technology and remittance of proceeds. The only official limit on transfers of foreign currency is on cash carried by individuals traveling abroad, which cannot exceed USD 10,000 over a period of forty days. Tanzania occasionally experiences shortages of foreign exchange, but this problem has been greatly eased by the growth of bureau de changes returns. Bureaucratic hurdles continue to impact the length of time it takes to process and effect a transfer, which can range from days to weeks.

Expropriation and Compensation

The GOT may expropriate property only for the purpose of national interest and after due process. The Tanzanian Investment Law guarantees:

Payment of fair, adequate and prompt compensation;
A right of access to the Court or a right to arbitration for the determination of the investor’s interest or right and the amount of compensation;
Any compensation payable under this section shall be paid promptly and authorization for its repatriation in convertible currency, where applicable, shall be issued.
GOT authorities do not discriminate against U.S. investments, companies or representatives in expropriation. Since 1985, the Government of Tanzania has not expropriated any foreign investments.

Dispute Settlement

Tanzania is a member of both the International Center for the Settlement of Investment Disputes (ICSID) and the Multilateral Investment Guarantee Agency (MIGA). The ICSID was established under the auspices of the World Bank by the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States. The MIGA is also World Bank-affiliated and issues guarantees against non-commercial risk to enterprises that invest in member countries. GOT regulations maintain that a dispute between a foreign investor and the Tanzanian Investment Center (TIC) which is not settled through negotiations may be submitted to arbitration. There are four options open to the parties:

Arbitration in accordance with the rules and procedures of the International Center for Settlement of Investment Disputes, within the framework of the bilateral or multilateral agreement on investment protection to which the Government and the country of which the investor is a national are parties.

Arbitration in accordance with the World Bank's Multilateral Investment Guarantee Agency (MIGA), in which Tanzania is a signatory, Or in accordance with any other international machinery for settlement of investment disputes agreed upon by the parties.

The Commercial Court of Tanzania was established in 1999 as a division of the High Court under the 1999 amendments of the Civil Procedure Code Act of 1966 and the Law Reform Commission of Tanzania Act of 1980.

Performance Requirements and Incentives

The GOT uses Trade-related Investment Measures (TRIMs) to promote development objectives, encourage investments in line with national priorities to attract and regulate foreign investment. Trade development instruments that Tanzania has adopted include Export Processing Zones (EPZs); Investment Code and Rules; Export Development/Promotion and Export Facilitation.

EPZs were established by the EPZ Act 2002 and are open to both domestic and foreign investors. In July 2006, Dr. Adelhelm Meru was appointed the first Director General of the Export Processing Zones Authority (EPZA), which is housed in the Ministry of Industry, Trade, and Marketing. The EPZA is charged with designating suitable areas for the location of EPZs throughout Tanzania. The EPZA also oversees incentive packages directed at increasing investment. The incentives include exemption of corporate tax; withholding taxes on rent, dividends and interest; the remission of customs duty, value-added tax (VAT) and other taxes on raw materials and goods of capital nature; as well as the exemption from VAT on utilities, wharf charges, and levies imposed by local authorities--all for a period of ten years.

Tanzania is still in transition from a largely public sector economy to one in which the private sector is taking the leading role. The Investment Code, as a trade policy instrument, seeks to compensate for distortions which impede the flow of foreign investments due to market imperfections. It is a necessary interim instrument for stimulating both foreign and domestic investments especially in agriculture and industry (where the level of domestic investments is still low) while initiating measures for strengthening the enabling the business environment and working for the emergence of a vibrant market economy. As part of the Investment Code, Tanzania offers a well-balanced package of investment benefits and incentives that are applied uniformly to all investors (domestic and foreign investors):

Right to Private Ownership and Establishment

Tanzanian regulations allow foreign and domestic private entities to establish and own business enterprises and engage in legal forms of remunerative activity. The Business Registration and Licensing Act established licensing regulations for business operations. It provides the right to freely establish private entities, to own property both movable and immovable, and to acquire and dispose of property including interest in business enterprises and intellectual property.

Under Tanzanian law, occupation of land by non- citizens is restricted to lands for investment purposes under the Tanzania Investment Act 1997 and the revised new Land Act 1999. Land in Tanzania is government property and citizens or non-citizens only lease the land from the government for 33, 66, or 99 years depending on the nature of the investment. The law does not allow individual Tanzanians to sell land to foreigners. Foreigners can only lease land in Tanzania through the Tanzania Investment Center (TIC).

Protection of Property Rights

Movable Property and Land Rights: Secured interests in property, both movable and real, are recognized and enforced under different laws in Tanzania. There is no one comprehensive law to secure property rights.

The concept of mortgage exists and the Ministry of Lands and Human Settlements Development handles registration of mortgages and rights of occupancies. The Office of the Registrar of Titles is responsible for issuing titles and registering mortgage deeds. Title deeds are recognized as mortgage for securing loans from banks and upon failure to pay back the loans the banks can sell an attached plot.

Intellectual Property Rights: Adherence to key international agreements on intellectual property rights in Tanzania began only in recent years. In 1999, Tanzania passed the Copyright and Neighboring Rights Act Number 7 of 1999, the current legislation in Tanzania addressing the protection of intellectual property rights (IPR) and protection for expressions of folklore. This legislation conforms to international copyright and property rights conventions and provides adequate protection for intellectual property, patents, copyrights, trademarks and trade secrets. This is one of the steps Tanzania has taken to implement and enforce the WTO Trade-Related aspects of Intellectual Property Rights (TRIPS). This law provides one of the means under which Tanzanians and foreign nationals may secure, exercise, and enforce exclusive intellectual property rights. The Act also establishes the Copyrights Society of Tanzania (COSOTA) which has the duty and powers to promote and enforce these rights, collect and distribute royalties on behalf of its members, maintain registers of works, productions and association of its members, search to identify and publicize rights of owners and defend them.

The establishment of both the Commercial Court of Tanzania (in 1999) and a special Land Court (under section 167 of Lands Ordinance number 4 of 1999), as special divisions of the High Court, has been a positive step towards protection and effective enforcement of property rights.

The Commercial Court deals with efficient litigation of commercial cases including those related to infringements of IPR and trade in counterfeit and pirated goods. Several cases have already been heard and decisions rendered from these high court divisions. Although the GOT has made efforts to address the deficiencies in commercial cases, the Commercial Court still lacks expertise in commercial law, including intellectual property rights and international business or financial transactions.

The Tanzanian Fair Competition Commission (FCC) has initiated amendments to the outdated Merchandise Marks Act, which provides the legal framework for handling counterfeits. The amendments provide for the appointment by the Minister of Trade of a Chief Inspector to conduct investigations into suspected importers or shops. The FCC has taken positive steps towards combating counterfeits. In just one month (October 2007) the FCC confiscated and destroyed 303 cartons of counterfeit kiwi shoe polish worth about USD 20, 000; counterfeit Britmax fluorescence tube lights worth USD 18,000; and counterfeit electric extension cables worth over USD 48,000.

Tanzania has not yet signed or ratified the WIPO internet treaties.

Transparency of the Regulatory System

The GOT has made progress in formulating policies and effective laws to foster competition. Tanzania has enacted three laws to govern competition and regulate economic activity: the Fair Trade Practices Act 1994, the Energy and Water Utilities Regulatory Act (EWURA) 2001, and the Surface and Marine Transport Regulatory Act (SUMATRA) 2001. The GOT is expediting the implementation of a Competition Law under the coordination of the Fair Commission for Trade and related regulatory institutions and promotes consumer protection through broad-based public awareness on consumer’s rights and obligations.

The current institutionalization of the public-private sector dialogue through various forums such the Investors Round Table (IRT) process, ensures that the bureaucratic hurdles hindering private investments are addressed. Since the adoption of the IRT process in July 2002, Government Ministries, Departments and Agencies have broadened reforms. The IRT serves as an advisory board on best practices in trade and investment to the top national leadership.

Tanzania is implementing a taxpayer's charter that enables taxpayers to complain against problems or malpractice within the Tanzania Revenue Authority (TRA) officers. The tax policy reform agenda includes abolition of nuisance taxes, harmonization of regulatory framework, clear incentive regime and gradual reduction in rate structure. The GOT has broadened tax incentives and incorporated them in the relevant tax laws to attract more investments. The current tax policy does not impede or distort investment.

The GOT established a Law Reform Commission (LRC) to take and keep under review laws and regulations, and to examine the legal and regulatory requirements relating to trade and investments. The GOT is also modernizing the business-licensing regime to reduce impediments to investment. The Tanzania Investment Center (TIC) has become a 'one-stop shop' that provides fast track assistance to obtain approvals and permits such as work permits, industrial license and trading licenses.

The judicial system continues to function slowly and imperfectly and is easily influenced by privileged individuals. These factors increase the cost and difficulty of doing business in Tanzania. In order to overcome shortfalls in the judicial system, the GOT is adopting anti-corruption measures and legal reforms to reduce bureaucratic snags and redundant laws and regulations.

Efficient Capital Markets and Portfolio Investment

The Capital Markets and Securities Authority (CMSA) Act of 1994 facilitates the free flow of capital or financial resources to support the product and factor markets. The CMSA opened the Dar es Salaam Stock Exchange (DSE) to foreigners. The DSE improves access to medium and long-term capital, and concurrently promotes a wider ownership of stocks and other equities. Corporate enterprises can recapitalize and grow when listed on DSE. Individuals can invest in shares and gain profitable returns; the maximum limit for foreign participation is 60 percent. Foreigners are not allowed to participate in government securities.

Foreign investors can get credit on the local market for capital injection within the country and for importation of capital goods for use within the country. While credit is allocated on market terms, it has been uneconomical to borrow from local sources/commercial banks due to high interest rates. Bank lending rates range from 14 percent to 24 percent for ordinary borrowers. Corporate borrowers can negotiate lower rates. The Multilateral Investment Guarantee Agency (MIGA)’s Guarantees against political risk, International Finance Corporation (IFC) facilities, U.S. Exim Bank are available for financing projects.

The financial sector has expanded with a significant increase in the number of foreign-affiliated financial institutions and banks operating in Tanzania. By August 2007, there were a total of 23 Commercial Banks licensed and operating in Tanzania, of which more than half are foreign-affiliated banks. The private sector players have access to a variety of commercial credit instruments including documentary credits (letters of credits), overdrafts, term loans, and guarantees.

The Central Bank in Tanzania (the Bank of Tanzania or BoT) administers and provides special export credit guarantees from which joint venture initiatives between local and foreign investors can benefit. In November 2006, EXIM Bank (Tanzania) Ltd obtained a new credit line from PROPARCO, the private sector arm of the Agence Francaise De Development (AFD), the official French Development Institution. This line increased EXIM Bank’s capacity to support long-term foreign currency lending both in Euros and US dollars to SMEs and corporations. In Tanzania, PROPARCO's operations represent a total of USD 36 million, mainly to banks, the tea and manufacturing sectors.

Foreign investors can open accounts and make deposits in registered private commercial banks. Interest earned by non-residents or foreign investors from deposits in banks registered by the Central Bank of Tanzania is exempt from income tax, in accordance with the Income Tax Act 2004. Foreign exchange regulations have been eliminated to allow an enabling environment to attract investors and simplify international transactions. Profits, dividends, and capital can be readily repatriated. Several venture capitals have been established to meet the demand for equity injections into growing businesses.

The Banking and Financial Institution Act 2006 established a Credit Reference Bureau and permits banks and financial institutions to release information to licensed reference bureaus in accordance with regulations and allows credit reference bureaus to provide to any person, upon legitimate business request, a credit report. International reserves at the BoT stood at almost 2 billion US dollars in 2006, which is the highest for over 30 years and equivalent to almost seven months of imports. This has helped BoT to intervene whenever minor fluctuations have led to a slight depreciation of the Tanzanian Shilling.

Political Violence

Tanzania is one of the most politically stable countries in Africa and the prospects for serious and sustained violence are very low. Since gaining independence, Tanzania has enjoyed a remarkable degree of peace and stability. In 1992, the constitution was amended to allow for multiple political parties; in 1995, the first multi-party election took place.

As the country underwent the transition from a socialist to a democratic entity beginning in 1992, occasional conflicts took place, particularly during election campaigns. In 2001, demonstrators clashed with police on Pemba (Zanzibar) and several persons were killed. However, the 2005 general elections were primarily peaceful and marked by an absence of major violence. In January 2007, the two main political parties on Zanzibar opened a dialogue and most observers expect that further clashes on Zanzibar are unlikely; the chance for conflict on the Mainland remains remote.

Corruption

Corruption is one of the areas of major concern encountered by foreign investors. The administration of President Kikwete, who took office in December 2005, has made the fight against corruption one of its priority areas. While giving or receiving a bribe (including bribes to a foreign official) is a criminal offense in Tanzania, the enforcement of laws, regulations and penalties to combat corruption has overall been largely ineffective. Areas where corruption persists include government procurement, privatization, taxation, ports, and customs clearance.

The Customs Department, the Port Authority, and the Tanzania Revenue Authority (TRA) remain a great hindrance to importers throughout Tanzania. Unpredictable and lengthy clearance delays and bribes to expedite service are commonplace. In late December 2007, amidst the elections crisis in Kenya which closed Kenyan ports and caused many businesses to consider Dar es Salaam Port as an alternative, the TRA announced new plans to reduce delays by fully automating the customs system and hastening cargo clearances.

While Transparency International (TI) has consistently rated Tanzania as one of the worst countries in the world for corrupt business practices, TI’s 2007 Corruption Perceptions Index (CPI) again showed a slight improvement in Tanzania's anti-bribery activities. (Note: The CPI score tracks perceptions of corruption seen by business and country analysts, ranging from zero as highly corrupt, to 10, not corrupt). The CPI showed Tanzania edging up from 1.9 points in 1999 to 2.5 in 2006, and 3.2 in 2007.

The GOT launched the National Anti-Corruption Strategy (NACS) and sector-specific action plans for all ministries, independent government departments, executive agencies and local authorities on December 10, 2006. The Anti-Corruption Bill was passed on April 17, 2007 and became operational on July 1, 2007. It is commonly referred to as the Prevention and Combating of Corruption Bureau (PCCB) Act. On January 9, 2008, Tanzanian President Jakaya Kikwete ousted the Governor of the Bank of Tanzania (BoT) in response to a special audit report on the BoT’s repayment of Tanzania’s external debts. In what will be the first major corruption case for the PCCB, Kikwete directed the Attorney General, the Inspector General of Police and the Director of the PCCB to investigate all companies and individuals who were involved in the scandal, and to take appropriate action.

Bilateral Investment Agreements

Currently, the United States of America and Tanzania do not have a bilateral investment agreement.

On November 27, 2007, the East African Community (EAC) member states--including Tanzania--signed an interim economic partnership agreement (EPA) with the European Union. Tanzania is also a member of the Southern Africa Development Community (SADC), and the GOT has said it will consider economic partnerships with both the EAC and SADC. Tanzania quit the Common Market for Eastern and Southern Africa (COMESA) in 2000.

OPIC and Other Investment Insurance Programs

The U.S. Overseas Private Investment Corporation's (OPIC) program is available to citizens of the United States; corporations, partnerships, or other associations created under the laws of the United States; foreign corporations at least 95 percent owned by U.S. investors; and foreign entities that are 100 percent U.S.-owned.

OPIC signed an incentive agreement with the GOT in December 1996. While the number of U.S. subsidiaries and affiliated companies that could qualify for OPIC financing remains small, a few companies have used OPIC programs in Tanzania. OPIC insurance products cover three political risks:

The Export-Import Bank (Ex-Im Bank) of the United States, the official export credit agency of the United States, supports the purchases of U.S. goods and services by creditworthy Tanzanian buyers that cannot obtain credit through traditional trade finance sources. The agency offers export credit insurance and guarantees of commercial loans. The Ex-Im Bank helps U.S. companies sustain and create jobs by financing U.S. exports. The Ex-Im Bank has established a cooperative agreement with the EXIM Bank of Tanzania Limited to facilitate access to guarantees by investors within Tanzania.

Tanzania is also a member of the International Center for Settlement of Investment Disputes (ICSID). Investments in Tanzania are guaranteed against nationalization and expropriation.

Labor

Private companies can hire or fire employees whose performance is not desirable. The limited availability of skilled labor remains a major problem for businesses in Tanzania. There are no legal requirements to use specific employment agencies for recruitment and no imposed conditions on employment of host country nationals. The applicable labor laws are the Employment Ordinance Act CAP.366; Security of Employment Act CAP 574 No. 62; Workmen’s Compensation Ordinance CAP 263; and Severance Allowance Act CAP 487 No.47 of 1962.

The labor and immigration formalities allow foreign investors to recruit up to 5 expatriates; more work permits can be granted on meeting specified conditions. As an incentive under the EPZ Act, the GOT can provide work permits for management and technical staff when these skills are unavailable locally. The number of such personnel is determined in consultation with the Ministry of Labor.

The Ministry of Labor published a government order on November 16, 2007 establishing new minimum wage requirements. The new law, which went into effect January 1, 2008, divides the labor force into eight sectors: health services; agricultural services; trade industries, and commercial services; transport and communication services; mining services; fishing and marine services; domestic and hospitality services; and private security services. The law, which sets a different minimum wage for each subsector, was ordered by the Minister of Labor under recommendation by the newly-formed Minimum Wage Board.

Partly in response to objections filed by the Confederation of Tanzania Industries (CTI), in December 2007 the Ministry of Labor issued an amendment to the order, lowering the minimum wage for companies employing 300 plus workers and exporting 25 percent or more of its products to 80,000 Tsh from the 150,000 Tsh originally established in the order. Companies in the Export Processing Zones (EPZs) and Special Economic Zones (SECs) and labor-intensive industries such as textiles, will benefit from this amendment--although the established rate is still a 40% increase over the previous universal minimum wage of 48,000 Tsh.

While there continues to be a deficit of skilled labor, the number of university graduates in Tanzania, especially in business management and IT, is growing. However, many foreign investors still find that local labor is not sufficient to fill management and administrative positions.

Foreign Trade Zones/Free Trade Zones

Refer to EPZ information above. Efforts are progressing to make Zanzibar Port a free port. In addition, free economic zones have been established in three areas of Pemba and Zanzibar. Tanga and Kigoma ports will also soon become free trade zones.

Source : U.S Dept of State, Investment climate Statement , Tanzania

Updated: July 2010