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Diplomacy in Action

2010 Investment Climate Statement - Tanzania


2010 Investment Climate Statement
Bureau of Economic, Energy and Business Affairs
March 2010
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. However, the legacy of statism has not yet been overcome. After several years of growing FDI, new FDI declined sharply from USD 6.68 billion in 2008 to USD 2.3 billion in 2009. 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 Dar Es Salaam Stock Exchange forbids companies with more than 60 percent foreign ownership from listing. There are no laws or regulations authorizing private firms to limit or prohibit foreign investment, participation, or control, and firms generally do not restrict foreign participation in practice. The global economic crisis had minimal impact on the Tanzanian financial sector due to its relatively low global integration, however tourist arrivals dropped up to 20 percent, new tourist projects fell by 50 percent, and FDI dropped within the natural resource sector, resulting in layoffs at gold mining firms and stalled mineral and gas exploration and development projects.

The Tanzanian Investment Center (TIC), established by the Tanzanian Investment Act of 1997, is the focal point for all investors’ inquiries, screens foreign investments, and facilitates project start-ups. Filing with TIC is not mandatory, but offers incentives for joint ventures with Tanzanians and wholly owned foreign projects above USD 300,000. The review process takes up to 10 days, and involves multiple GOT agencies, which are required by law to cooperate fully with TIC in facilitating foreign investment, but in practice can create bureaucratic delays. Projects are not currently reviewed for anti-competition concerns. Companies are not required to disclose proprietary information as part of the approval process. TIC continues to improve investment facilitation services, provide joint venture opportunities between local and foreign investors, and disseminate investment information. TIC does not have specific criteria for screening or approving projects, but considers factors such as: foreign exchange generation and savings, import substitution, employment creation, linkages to the local economy, technology transfer, and expansion of production of goods and services. Very few projects that submit all required documents are rejected. Approved projects receive TIC certificates of incentive and 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 generally stable and predictable, though the government proposed removing capital goods and fuel tax exemptions in the 2009/2010 budget. (GOT recently confirmed that investors' TIC Certificates of Incentives issued prior to June 30, 2009 will continue to be honored and that TRA will grant tax relief to deemed Capital Goods until the expiry of their respective project implementation periods.)

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 inter-ministerial 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 2009, the Bank of Tanzania listed a total of 27 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. As of January 1, 2010 all duties on goods traded within the region are removed. 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.

Measure 2009 Ranking
TI Corruption Index126/180
Heritage Economic Freedom58.3/100
World Bank Doing Business131/183
MCC Government Effectiveness82/100
MCC Rule of Law92/100
MCC Control of Corruption73/100
MCC Fiscal Policy29/100
MCC Trade Policy68/100
MCC Regulatory Quality71/100
MCC Business Start Up66/100
MCC Land Rights and Access8/100
MCC Natural Resource Mgmt56/100

Note: MCC countries are ranked relative to the median in their income peer group. Tanzania was lower ranked on Fiscal Policy due to a relatively high dependence on donor funds. Tanzania dropped sharply in its World Bank Transparency International and Doing Business rankings this year.

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. Investors rarely use convertible instruments. Investors do not complain of any delays in remitting returns and there have been no remittance policy changes this year.

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

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. Lack of capacity is an issue, and cases are currently backlogged.

Local foreign investors complain GOT often "changes the goalposts" and doesn't honor agreements. There is a written bankruptcy law in Tanzania, but according to the World Bank's Doing Business report it takes on average 3 years to close a business, while the recovery rate for creditors on insolvent firms is only 21.3 cents to the dollar. Judgments are typically made in local currency.

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. There is no specific legislation in Tanzania providing for enforcement under the 1958 NY Convention or for the enforcement of awards under the ICSID Convention.

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. GOT does not maintain any measures it has notified the WTO to be inconsistent with TRIMS, nor that allegedly violate TRIMS. 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. Foreign investors are aggressively courted to take over the management of formerly state-run companies in public-private partnerships, but successful privatizations have been rare. Though there is an official privatization program, bidding criteria are not always clear and transparent, as in the example of Air Tanzania, and the Julius Nyerere International Airport, where deals appear to be negotiated privately.

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, without performance requirements.

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.

There is currently no requirement that foreign investors buy from local sources, export a certain percentage of output or only access foreign exchange in relation to exports. There is currently no requirement that nationals own shares, that the share of foreign equity be reduced over time, or that technology be transferred on certain terms. While TIC does help guide investors to specific locations through their land bank, there are no government-imposed conditions on permission to invest. US and other foreign firms can and do participate in government / donor - funded research and development programs on a national treatment basis.

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 now implementing the Business Activities Registration Act of 2007, which aims to reduce administrative barriers with one centralized licensing database.

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. Though the Tanzania Investment Center maintains a land bank, restrictions on foreign land ownership can delay investments.

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. The Tanzanian Food and Drug Authority has impounded anti-malarials and other drugs they deemed sub-standard or counterfeit.

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. The IRT meets twice a year for domestic investors and twice a year for foreign investors. According to international business climate consultants, the IRT process is politicized and does little to actually stimulate investment. The BEST program's advocacy component supports private sector organizations to identify priority areas for reform. The CEO Roundtable, an association whose membership is limited to the CEOs of the largest firms in Tanzania, regularly advocates on behalf of investors with the President and other top policy makers. President Kikwete formed an Investor's Complaints Bureau within State House in 2009.

Tax, labor, environment, health and safety, and other laws and policies do not impede investment, though bureaucratic procedures for licenses and permits are burdensome and time-consuming. NGOs and private sector associations do not informally manage any regulatory processes, though the Tanzania Chamber of Commerce and Industry Association issues certificates of origin for companies exporting to the US under AGOA. Proposed laws and regulations are published in draft form for public comment. There are many opportunities to provide input as government officials are relatively accessible, especially to industry associations. Legal, regulatory and accounting systems are transparent and consistent with international norms. There are no efforts to restrict foreign participation in industry standards-setting consortia or organizations. Associations representing the tourism and mining industries are composed of, and often led by, foreigners.

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. Under the Tanzania Investment Act, 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 from various ministries. The Business Activities Registration Act (BARA) was enacted in February 2007 to replace the former Business Licensing Act No. 25 of 1972. The new business registration system is implemented by the Business Registration and Licensing Agency (BRELA). BARA is piloting a simplified and decentralized registration system which establishes a single national database for all registered businesses.

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 the end of June 2009 were about USD 3 billion, sufficient to cover 4.6 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. There are no "cross-shareholding" and "stable shareholder" arrangements used by private firms to restrict foreign investment through mergers and acquisitions. There are no measures designed to protect against foreign hostile takeovers.

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 though very little capital (USD 4 million) is required to start a bank, limiting the number of institutions large enough to participate in significant deals.

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 27 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. According to the central bank governor Benno Ndulu, only 7.2 percent of the total asset base is estimated as non-performing. Private sector companies have access to a variety of commercial credit instruments including documentary credits (letters of credit), overdrafts, term loans, and guarantees. The assets of major local banks CRDB and NBC as of September 2009 were approximately USD 1.0 million and USD 1.3 million respectively. Citibank Tanzania had revenues of more than USD 15 million in 2009. According to local investors, very few local banks have sufficient capitalization to finance major deals such as infrastructure projects and power stations.

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. However, there is no national credit database.

Competition from State-Owned Enterprises (SOEs)

Public enterprises do not compete under the same terms and conditions as private enterprises because they have access to government subsidies and other benefits. SOEs are active in the power, communications, railway, aviation, and port sectors. SOEs typically report to ministries and are led by a board which may be led by a presidential appointee but also composed of private leadership. Tanzania does not have a sovereign wealth fund.

Corporate Social Responsibility

There is an awareness of corporate social responsibility among both producers and consumers, and President Kikwete presents an annual CSR company award. Large foreign companies tend to follow generally accepted CSR principles.

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. The government launched a series of high-profile corruption prosecutions in late 2008 but there were no high level corruption prosecutions in 2009. Corruption is economy-wide, and measures to combat it are applied impartially to foreign and domestic investors.

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 2009 Corruption Perceptions Index (CPI) showed continued deterioration, falling 24 places to 126th in the world for a score of 2.6, though increased perception of corruption could have resulted from increased prosecution and media reporting. (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. The PCCB is responsible for combating corruption. International, regional and local watchdog organizations such as Transparency International, FORDIA, and Agenda Participation 2000 operate freely in Tanzania.

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. Tanzania is not a signatory to the OECD Convention on Combating Bribery.

US businesspeople have identified petty corruption, particularly among customs and immigration agents and traffic police, as an obstacle to investment. A national survey conducted by the local NGO ForDIA over 5 months in 2009 found that state power utility Tanesco, was considered the most corrupt institution, while the police were the second most corrupt, followed by the judiciary and licensing and revenue offices. Corruption is pervasive in government procurement and the granting of tax exemptions. Giving and accepting bribes are criminal acts, as are bribes by local companies to foreign officials. Many senior government officials are accused of participating in corruption. Anti-corruption legislation passed in 2007 established the Prevention and Combating of Corruption Bureau (PCCB), which investigates corruption and imposes penalties such as jail sentences and fines on individuals engaging in corruption. However, the PCCB’s progress has been slow, and there is a widespread perception, reinforced by Tanzania’s deterioration this year in Transparency International’s Corruption Perception Index, that corruption is occurring at all levels with impunity.

Bilateral Investment Agreements

Currently, the United States of America and Tanzania do not have bilateral investment or taxation agreements.

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.

The risk of currency depreciation over the next year is low due to stable reserves and sound central bank management despite the global recession resulting in a decrease in exports and donor commitments. All USG agencies within the Mission at Dar es Salaam used a total of Tsh 38.5 billion, equivalent to USD 28.9 million across mission operations last fiscal year. The Embassy’s exchange rate is about 1330 Tsh to 1 USD.

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. Currently, only a few specific teaching professions are granted cross-border access to Tanzania's labor market under the EAC.

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. Capital equipment is relatively expensive to import, making labor more attractive. However investors complain about skill shortages among Tanzanian employees.

The union and Zanzibar governments have separate labor laws. Workers on the mainland have the right to form and join independent trade unions, as well as to strike. Association with an international trade union requires government approval. As of 2005 (the most recent data available), approximately 27 percent of the formal sector work force were members of the Trade Union Congress of Tanzania (TUCTA), the sole labor federation. In the agricultural sector, the country's single largest employer, an estimated 5 to 8 percent of the work force was unionized. Mainland employers have the right to a lockout after complying with certain legal requirements and procedures, such as an agreement to attempt arbitration. A lawful strike or lockout is protected and does not constitute a breach of contract, nor can it be considered a criminal offense. The law restricts the right to strike when to do so would endanger the life and health of the population. Workers in certain sectors (water and sanitation, electricity, health services and associated laboratory services, firefighting, air traffic control, civil aviation telecommunications, and any transport services required for the provisions of these services) are restricted from striking.

The labor law in Zanzibar applies only to private sector workers. Zanzibari public sector workers do not have the right to strike. An estimated 40 percent of the Zanzibar workforce is unionized. In collaboration with the International Labor organization (ILO), the Zanzibar government worked to redraft its labor laws during the year, but legislation had not been finalized by year's end.

Tanzanian law provides for collective bargaining in the private sector, and workers and employers practiced it freely during the year. In the public sector the government sets wages administratively, including for employees of state-owned organizations. On the mainland, disputes are regulated and resolved by mediation through the Commission for Mediation and Arbitration. If the mediator fails to resolve a dispute within 30 days of referral, or any longer period agreed upon in writing by both parties, either party to the dispute may give notice of its intention to commence a strike or lockout. If the mediation fails to resolve the complaint, the Commission for Mediation and Arbitration may appoint an arbitrator to decide the dispute, or it may be referred to the labor court. The law requires employers found guilty of antiunion activities to reinstate workers.

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 owned firms have the same investment opportunities as host country entities.

Foreign Direct Investment Statistics

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

Year2001/022002/032003/04
2004/
05
2005/
06
2006/
07
2007/
08
2008/09
Value of FDI

(USD$ million)
467.2
430
526.8
469.9
325
501.5
647
744

Source: Bank of Tanzania & TIC

Stock of FDI by sector by percentage, 2002 – 2006:

SECTORS
2002
2003
2004
2005
% in 2006
Mining and Quarrying
26.6
31.3
31.3
27.9
36.2
Wholesale & Retail trade
15.0
12.7
14.5
16.1
19.1
Manufacturing
22.4
23.4
25.5
20.7
18.2
Financing & Insurance
9.4
8.7
8.9
10.1
10.2
Transport & communication
10.8
9.1
9.6
7.9
5.2
Utilities
7.1
6.8
3.8
4.8
4.6
Construction
3.9
4.0
3.3
3.4
3.3
Agriculture
4.5
3.8
3.0
9.0
3.1
Community & social
0.2
0.2
0.2
0.2
0.1
Total
100.0
100.0
100.0
100.0
100.0
Source: TIC

Stock of FDI by Source Country, 1999-2006:

Values in USD Million.

COUNTRY
1999
2000
2001
2002
2003
2004
2005
2006
% in 2006
South Africa
98.7
346.6
415.7
487.6
608.5
979.5
888.0
1,325.8
25.5
Canada
39.0
342.6
371.9
475.8
694.8
666.6
694.2
962.9
18.5
United Kingdom
522.7
510.4
471.2
479.3
526.0
434.0
872.4
620.7
12.0
USA
282.0
(1.8)
(64.3)
163.1
154.9
149.1
210.0
237.1
4.6
Netherlands
97.7
155.9
201.9
205.3
198.9
247.6
225.6
216.9
4.2
Mauritius
106.4
173.3
179.6
119.6
177.7
220.4
219.3
187.1
3.6
Kenya
55.4
132.1
115.4
87.7
162.6
191.0
264.3
170.2
3.3
Switzerland
72.8
159.3
146.9
53.2
45.7
47.9
61.6
152.5
2.9
British Virgin Island
4.1
-
-
7.6
9.0
54.7
122.9
114.1
2.2
China
25.7
30.9
27.5
46.0
50.9
44.2
61.6
112.3
2.2
Total of Top-ten
1,304.5
1,849.3
1,865.8
2,125.2
2,629.0
3,035.0
3,619.9
4,099.6
79.0
Others
687.7
827.3
1,001.5
814.2
961.4
919.3
1,108.6
1,092.4
21.0
Total
1,992.2
2,676.6
2,867.3
2,939.4
3,590.4
3,954.3
4,728.5
5,192.0
100.0

Source: TIC

Sectoral distribution of FDI stock by selected countries, 2006:

Values in USD Million

Canada
South Africa
United Kingdom
USA
Kenya
Sector
Value
% Share
Value
% Share
Value
% Share
Value
% Share
Value
% Share
Mining and quarrying
828.1
86.1
911.3
68.9
39.9
6.4
11.3
4.8
0.0
0.0
Manufacturing
18.8
2.0
82.0
6.2
123.9
20.0
98.6
41.6
78.2
45.9
Transport and communication
1.1
0.1
1.7
0.1
9.9
1.6
4.4
1.9
8.4
4.9
Wholesale and retail trade
0.2
0.0
226.7
17.1
212.2
34.2
38.1
16.1
28.7
16.9
Finance and insurance
3.1
0.3
92.2
7.0
98.8
15.9
49.8
21.0
42.9
25.2
Utilities
106.7
11.1
0.0
0.0
95.9
15.5
0.0
0.0
0.0
0.0
Agriculture
3.6
0.4
0.6
0.0
8.6
1.4
34.9
14.7
5.6
3.3
Construction
0.0
0.0
8.5
0.6
30.7
4.9
0.0
0.0
6.3
3.7
Community and social services
0.0
0.0
0.0
0.0
0.8
0.1
0.0
0.0
0.2
0.1
Total
961.6
100.0
1,325.8
100.0
620.7
100.0
237.1
100.0
170.3
100.0

US FDI into Tanzania by sector, 1999 – 2006:

Values in USD Million

Sector
1999
2000
2001
2002
2003
2004
2005
2006
Agriculture, hunting, forestry and fishing
5.8
30.0
25.7
7.6
5.0
2.4
8.5
34.9
Community, social and personal services
3.8
0.0
0.0
0.3
0.3
0.3
0.3
0.0
Construction
0.1
0.1
0.1
0.1
0.1
0.0
0.2
0.0
Financing, Insurance, real estate, and business services
46.7
40.0
35.1
38.2
34.7
36.7
41.6
49.8
Manufacturing
168.2
9.5
6.3
85.6
73.2
65.8
98.2
98.6
Mining and Quarrying
0.0
-148.3
-197.0
3.0
3.0
3.0
9.9
11.3
Transport, storage & communication
31.3
29.1
28.7
1.3
1.5
2.0
4.6
4.4
Wholesale & Retail trade, catering & accommodation services
26.2
37.8
36.9
27.2
37.0
38.9
46.8
38.1
Total
282.0
-1.8
-64.3
163.1
154.9
149.1
210.0
237.1

Source: TIC

Little current year data on FDI by country, sector or outgoing destination is available. FDI into Tanzania has been principally in the mining, manufacturing, tourism, construction and transportation sectors. Tanzanians are currently restricted from investing abroad by BOT capital controls, and very few international firms (primarily Kenyan) list on the Dar Es Salaam stock exchange. There is currently no reliable public information on Tanzanian FDI abroad, though Tanzania’s largest trading partners include China, India, Kenya and the UK. According to Mr. Emanuel Ole Naiko, the Executive Director of TIC, US - affiliated investors currently have 154 projects in Tanzania valued at USD 645.3 million and providing 37,163 jobs.

Web Resources

Tanzanian Investment Center: http://www.tic.co.tz

Public Procurement Regulatory Authority: http://www.ppra.go.tz

Doing Business in Tanzanian (World Bank Report): http://www.doingbusiness.org



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