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2009 Investment Climate Statement - Tanzania


2009 Investment Climate Statement
Bureau of Economic, Energy and Business Affairs
February 2009
Report
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Openness to Foreign Investment

The Government of Tanzania (GOT) generally has a favorable attitude toward foreign direct investment (FDI) and has made significant efforts to encourage foreign investment. Inflows of FDI continued to grow in 2007, according to the United Nations Conference on Trade and Development (UNCTAD) World Investment Report 2008. There is no restriction in foreign exchange. Foreign investors generally receive national treatment; however, the Tourism Act of 2007 bars foreigners from engaging in some tourism-related businesses. 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. 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. Similar incentives are offered to investors in Zanzibar through the Zanzibar Investment Promotion Agency (ZIPA).

Among investment and trade opportunities promoted by the TIC are agriculture, mining, tourism, telecommunications, financial services, and energy and transportation infrastructure. The GOT accepts foreign investment in Build, 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; under the Land Act of 1999, all land in Tanzania belongs to the state. However, non-citizen investors may occupy land for investment purposes through a government-granted right of occupancy, through derivative rights, or through sub-leases through a granted right of occupancy. Rights of occupancy and derivative rights may be granted for periods up to 99 years and are renewable.

The government Better Regulation Unit (BRU) manages the implementation of the Business Environment Strengthening for Tanzania (BEST) program, which aims to reduce the regulatory and administrative burden. In 2007, the World Bank's "Doing Business" report listed Tanzania as among the top ten reformers. In response to subsequent slippage in the comparative rankings since then, the GOT is consolidating in the Prime Minister's Office responsibility for key reform programs requiring interministerial action.

The Economic Processing Zones Act 2006 authorized the establishment of Special Economic Zones (SEZs) to augment investments in the light industry, agro-processing industry and agriculture sectors. Greenfield foreign direct investments are allowed through this legislation. The GOT's Export Processing Zones Authority continues to promote Export Processing Zones (EPZ) to attract investments in agribusiness, textiles and electronics and Spatial Development Initiatives (SDI). Investors in EPZs are eligible for tax exemptions.

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 continued to expand, with an increase in foreign-affiliated financial institutions and banks operating in Tanzania. As of December 2008, the Bank of Tanzania listed a total of 25 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.

Kenya, Tanzania, and Uganda signed a Customs Union Protocol in 2004, putting in place a three-tier tariff system with a view to establishing a common market within the East African Community (EAC). Rwanda and Burundi became full EAC members in 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. Tanzania is also a member of the Southern Africa Development Community.

Conversion and Transfer Policies

Tanzanian 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. Shortages of foreign exchange occur rarely. Bureaucratic hurdles continue to cause delays in processing and effecting transfers; delays 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.

The Tanzania Revenue Authority (TRA) has used its authority to confiscate property as a tax recovery measure to threaten effective expropriation in tax disputes.

Dispute Settlement

Investment disputes in Tanzania, while uncommon, can be protracted. The Commercial Court of Tanzania, established in 1999, is headquartered in Dar es Salaam. The government is establishing additional commercial courts in other regions, including in western and southern Tanzania.

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.

Under Tanzanian regulations, disputes between a foreign investor and the Tanzanian Investment Center that are not settled through negotiations may be submitted to arbitration, through one of several options:

  • Arbitration based on the Arbitration Laws of Tanzania;
  • Arbitration in accordance with the rules of procedures of the ICSID;
  • Arbitration within the framework of any 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), to which Tanzania is a signatory; or
  • Arbitration in accordance with any other international machinery for settlement of investment disputes agreed upon by the parties.

Performance Requirements and Incentives

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

EPZs were established by the 2002 EPZ Act and are open to both domestic and foreign investors. The Export Processing Zones Authority (EPZA), housed in the Ministry of Industry, Trade and Marketing, is charged with designating suitable areas for the location of EPZs. The EPZA also oversees incentive packages directed at increasing investment, including exemption of corporate tax and withholding taxes on rent, dividends and interest; remission of customs duty, value-added tax (VAT) and other taxes on raw materials and capital goods; and exemption from VAT on utilities, wharf charges, and levies imposed by local authorities, for up to ten years.

Tanzania is still in transition from a largely public sector economy to one in which the private sector has 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. Established by TIC, the Investment Code offers a well-balanced package of investment benefits and incentives that are applied uniformly to both domestic and foreign investors. These include:
  • Zero Custom Duty and deferred VAT on capital goods for investments in sectors such as mining, export processing zones, infrastructure, road construction, bridges, railways, airports, generation of electricity, telecommunications and water services.
  • 100% Capital allowance deduction in the years of income for the above mentioned types of investments.
  • No remittance restrictions. The GOT does not restrict the right of a foreign investor to repatriate returns from an investment.
  • Investments in Tanzania are guaranteed against nationalization and expropriation. Any dispute arising between the Government and investors can be settled through negotiations or submitted for arbitration.
  • Allowing interest deduction on capital loans; removal of the 5-year limit for carrying forward losses of investors.
  • Five percent Customs Duty and VAT tax deferral on capital goods for priority sectors, including livestock, aviation, commercial buildings, commercial development and micro- finance banks, export oriented projects, geographical special development areas, human resources development, manufacturing, natural resources including fisheries, rehabilitation and expansion projects, tourism and tour operators, transport, and radio and television broadcasting.

The Zanzibar Investment Promotion Agency (ZIPA) and the Zanzibar Free Economic Zones Authority (ZAFREZA) offer roughly equivalent incentives as those offered by the Mainland's TIC and EPZ policies.

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. The Act stipulates that no business entity can enter into business activities in Tanzania before getting a business license through the Business Registration and Licensing Agency (BRELA). Registration fees or charges for foreign companies are significantly higher than for domestic companies. The government is beginning implementation of the Business Activities Registration Act of 2007, with the aim to reduce administrative barriers.
Under Tanzanian law, occupation of land by non-citizen investors is restricted to lands for investment purposes under the Tanzania Investment Act 1997 and the Land Act 1999. Land in Tanzania is state property can be leased for up to 99 years. 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). The TIC has designated specific plots of land (a land bank) to be made available to foreign investors. Foreign investors may also enter into joint ventures with Tanzanians, in which case the Tanzanian provides the use of the land (but retains ownership, i.e., the leasehold).

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 single comprehensive law to secure property rights.

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: The Copyright and Neighboring Rights Act Number 7 of 1999, the current legislation in Tanzania addressing the protection of intellectual property rights (IPR), 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) 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 Commercial Court, established in 1999, deals with litigation of commercial cases, including those related to infringements of IPR, trade in counterfeit and pirated goods. The Commercial Court has handed down decisions in several cases, most recently (November 2008) in a case involving rights to a trademark. The Commercial Court continues to develop its expertise in commercial law, including intellectual property rights and international business and financial transactions, but lacks resources and capacity to address its growing case load.

The Tanzanian Fair Competition Commission (FCC) has taken positive steps towards combating counterfeits. The FCC has continued to apprehend importers of fake products, and to seize and destroy the counterfeit products.

Tanzania has not signed or ratified the WIPO internet treaties.

Transparency of Regulatory System


Tanzania is implementing a taxpayer's charter that enables taxpayers to complain about problems or malpractice within the Tanzania Revenue Authority (TRA). The tax policy reform agenda includes abolition of nuisance taxes, harmonization of the regulatory framework, establishment of a 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.

Tanzania has enacted three laws to govern competition and regulate economic activity. These are 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 of consumers' rights and obligations.

The ongoing institutionalization of public-private sector dialogue, through various forums such the Investors Round Table (IRT) process, ensures that 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 held its fifth annual IRT meeting in December 2008, at which issues such as the Stamp Duty on foreign transactions were identified as ongoing obstacles to foreign investment in Tanzania. The BEST program's advocacy component supports private sector organizations to identify priority areas for reform.

In addition to the BEST program, the GOT established a Law Reform Commission (LRC) to review 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 licenses, and trading licenses.

The Tanzanian 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 foreign exchange reserves of the Bank of Tanzania in January 2009 were approximately USD 2.7 billion, equivalent to 5 months of imports. Tanzanian residents held almost USD 1.6 billion of foreign currency deposits in banks, while commercial banks held another USD 600 million in net foreign assets.

The Tanzanian Capital Markets and Securities Authority (CMSA) Act of 1994 facilitates the free flow of capital and financial resources to support the product and factor markets. The CMSA opened the Dar es Salaam Stock Exchange (DSE) to foreigners. Foreign individuals or companies can invest in shares; the maximum limit for foreign participation is 60 percent. Foreigners are not permitted to participate in government securities.

Foreign investors can get credit in the local financial market, where credit is allocated on market terms. Recent bank lending rates ranged from 13 to 15 percent for ordinary borrowers. Corporate borrowers can negotiate lower lending rates. Credit to the private sector has continued to grow rapidly.

The financial sector in Tanzania has expanded in recent years, with a significant increase in the number of foreign-affiliated financial institutions and banks. Of the 25 commercial banks licensed and operating in Tanzania, more than half are foreign-affiliated banks. The banking sector is adequately capitalized and has limited reliance on foreign borrowing. Private sector companies have access to a variety of commercial credit instruments including documentary credits (letters of credit), overdrafts, term loans, and guarantees.

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 BOT 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 capital funds 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.

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. Tanzania has held three national multi-party elections since 1995; the fourth will be held in 2010. While elections on the mainland have been generally free of political violence, there is a history of political conflict on Zanzibar. However, the 2005 general elections were free from significant violence.

Corruption


Corruption remains a major concern for foreign investors. 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 largely been ineffective. However, the government launched a series of high-profile corruption prosecutions in late 2008.

Some 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.

Transparency International (TI) has consistently rated Tanzania poorly for its perceived corrupt business practices. TI’s 2008 Corruption Perceptions Index (CPI) showed a slight deterioration, from 3.2 to 3, after several years of improvement. (Note: The CPI score tracks perceptions of corruption seen by business and country analysts, ranging from zero as highly corrupt, to 10, not corrupt).

In an effort to deal with corruption, the GOT put in place the National Anti-Corruption Strategy (NACS) and sector-specific action plans for all ministries, independent government departments, executive agencies and local authorities. The Anti-Corruption Bill, commonly referred to as the Prevention and Combating of Corruption Bureau (PCCB) Act, became operational in 2007.

In late 2008, the government arrested and filed charges against more than twenty individuals, including four officials of the Bank of Tanzania, for their involvement in a scheme to fraudulently obtain funds from the Bank of Tanzania's External Payment Arrears Account. The government also began prosecutions of two former ministers and the former Permanent Secretary in the Ministry of Finance and Economic Affairs for abuse of office in a case concerning government contracting.

Tanzania is a party to the UN Convention against Corruption.

Bilateral Investment Agreements

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

Tanzania is a member of the East African Community (EAC), which signed a Trade and Investment Framework Agreement (TIFA) with the United States in July 2008. In November 2007, the EAC member states signed an interim economic partnership agreement with the European Union.

OPIC and Other Investment Insurance Programs

The U.S. Overseas Private Investment Corporation's (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.

Tanzania is an active member of the Multilateral Investment Guarantee Agency (MIGA), a member of the World Bank Group that promotes foreign direct investment in developing countries by offering political risk insurance (guarantees) to investors and lenders, and by providing technical assistance to help developing countries attract and retain foreign investment.

The Export-Import Bank (Ex-Im Bank) of the United States 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


Tanzania faces persistent shortages of skilled labor. While the number of university graduates, especially in business management and information technology, continues to grow, many foreign investors find that local labor is insufficient to fill management and administrative positions.

Labor and immigration regulations permit foreign investors to recruit up to five expatriates; more work permits may be granted under specific conditions. As an incentive under the EPZ Act, the government may provide work permits for management and technical staff when these skills are unavailable locally.

New minimum wage requirements came into effect in 2008. The requirements, which set different minimum wages for eight sectors of the economy, were established by the Minister of Labor on the recommendation of the 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 or more workers and exporting 25 percent or more of their products, to the benefit of labor-intensive industries such as textiles.

Several elements of labor law reform are in progress under the BEST program.

Foreign-Trade Zones/Free Ports

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. The GOT intends to establish free trade zones in Tanga and Kigoma ports.

Foreign Direct Investment Statistics

FDI statistics for fiscal year (July-June) 2007/08 are not yet available.

The Bank of Tanzania (BOT) reported Foreign Direct Investment (FDI) trends in Tanzania as follows:

Year 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07
Value of FDI (USD$ million)467.2430526.8469.9325501.5

Source: Bank of Tanzania (BOT)

FDI into Tanzania has been principally in the mining, manufacturing, tourism, construction and transportation sectors.



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