A joint initiative by the United Nations, The Government of Tanzania and The Economic and Social Research Foundation
Topic : Incentive Package for Foreign Direct Investment (FDI) in Tanzania
Welcome to TAKNET online Discussion! The theme under discussion is the incentive package for Foreign Direct Investment in Tanzania. This is part of a larger ongoing debate on Investment climate in the country.
There is abundance of literature to indicate that Tanzania is direly in search for
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Welcome to TAKNET online Discussion! The theme under discussion is the incentive package for Foreign Direct Investment in Tanzania. This is part of a larger ongoing debate on Investment climate in the country.
There is abundance of literature to indicate that Tanzania is direly in search for Investments from across the globe. Laws and policies have been amended and enacted in order to attract more FDI. Some of these measures are briefly elaborated below.
Tanzania approved its new investment policy in October 1996. The aim of the review was to establish a better business and investment environment by pointing out old legislation that was anti-business. Such measures were meant to reduce or eliminate bureaucracy and prepare an even better package for investors coming into the country.
Following the Policy, TIC was established in 1997 as a one-stop centre so as to promote, coordinate, and facilitate investment in Tanzania. It is a focal point for all investors and liaises with investors from initial enquiries right up to project start-up. The Center aims at completing the application process within 14 working days. All government departments and agencies are required by law to cooperate fully with the Center. The TIC deals with all enterprises whose minimum capital investment is not less than US$300,000 if foreign owned and US$ 50,000 if locally owned.
There is an Investment Guide meant to provide investors with important information on investment opportunities existing in Tanzania. Investment potential in Tanzania Mainland includes sectors such as mining and infrastructure (road construction, bridges, airports, generation of electricity, telecommunication, water services, and backup services to mining). Others are agriculture, commercial buildings, micro finance banks, export processing, manufacturing and tourism.
The incentive package items in Tanzanian investment policy are diverse. They include: • Import duty drawback on raw materials • Rescheduling of VAT payment on project capital assets • Zero-rated VAT on manufactured exports • Yearly appreciation of un-recovered capital investment in mining • Five-year carry-over of all business losses against future profits • The right to transfer outside the country 100 percent of foreign exchange and profit earned • Reduced import tariffs on project capital items, 5 per cent import duty for investment in priority areas and zero per cent for investment in lead sectors • 100 per cent investment allowances and deductions against Tanzanian corporate tax in the first year of income • Access to land • Automatic approval of the employment of up to five foreign nationals in any project granted a certificate of incentives
From this menu, a number questions have been under public debate. These have included;
1. Isn’t this package too generous? 2. Is US $ 300,000 good enough capital investment for a foreign investor into Tanzania? 3. Isn’t US $ 50,000 too much capital requirement for a local small scale investor? 4. What is your view on investor free access to land? 5. What about transfer of 100 percent of foreign exchange in the form of capital or profits outside Tanzania?
These and many other issues are highly debatable. We invite you to come into discussion in these or other related matters of your concern. Information debated herein will be analyzed and a summary report shall be produced out of such analysis. The ball is into your hands!
It has been awhile for any new thought in this topic; however I would like to underscore important points raised by Temu. He is more optimistic with remittances than unconditional incentives which also act as a slot for channeling net profit outside the country. He further suggested an institutional framework to encourage Tanzanian Diaspora to invest in the country due to less conditions attachment with it. I totally agreed with it and I guess if Mwalimu was alive and hear this aspect of self reliance investment through remittances he will burst into that famous smile. Agility of institution is of paramount as Temu and other contributors said earlier, we need institutions which cope with times in a similar fashion as western are doing to protect our resources.
Temu, ABS : Wednesday, March 11, 2009
May add another angle to this discussion as in my haste preview I have note noted this point. Perhaps has been discussed already or deemed irrelevant. However, I see it quite relevant as it is perhaps even more effective that the FDI
Our government lures investors with incentives that encourages capital flight, in the hope we get that benefit for employments etc. Practically, and perhaps understandably, these are, in the majority, for people who have their hearts outside the country, AND they are business people first you have to remember that.
However, there is another pool outside Tanzania, with small scale cash access who can be encouraged and facilitated as a strategic approach at National level, with full support from the central bank, and hopefully coordinating with friendly western governments and or banks, such that it becomes easier for Tanzanian Diaspora to do regular monthly remittances home. These small transfers have direct impact to the development activities at the grassroot level with lesser involvements with any bureaucratic issues experienced in other initiatives. I do not want to politicize this point, but it is true, most Tanzanians outside the country, more so with the generation that started going out from the late 80s, these people are still very close to Tanzania as NYUMBANI, and they potential need not to be disregarded.
FDI yes, but we need to give remittances equal if not more weight. To me, remittances are in fact in line with self reliance principles we so desire to achieve, and have been trying for years.
It has been reported, remittances in Africa overtook FDI [see link below]. These are all resources that we seriously need to consider strategically for promoting cash inflow. I have noted, some banks in the West, with the down turn, with some pressure from their government, have started getting pressured to make such services slightly tougher to reduce capital flow from their countries. Our governments need to promptly respond on this as part of initiatives to ensure we don't get left out in the dry while they are sorting out their own rescue plans while still retaining their privileged access and permit to unconditionally transfer from Africa/Tanzania to abroad through any authorized bank freely convertible currency of net profits, repayment of foreign loans, royalties, fees charged for foreign technology and remittance of proceeds, as we keep sweetening them. I think we need to be pretty agile with our ways to respond and deal in the 21st Century. Let us be innovative and not forget the other resources we can attract and facilitate.
At present most of our foreign mining investors are sending their profits outside Tanzania. Our government knows well about this and can't do nothing.The royalty we are receiving is not enough to be used in the fight angaint poverty.
What we actually need is local mining investors.The government has to encourage the small local miners to get modern mining technology and equipment so that they can turn to large scale mining for example in gold mining. In this way the gold mining profits will remain in the country.
Dr.Khamis
Exporation and Mining Consultant
Festo E. Maro : Wednesday, March 11, 2009
Much of the discussions were slanted on the incentive package and local participation in the investment opportunities in the country. Here comes the twist of our discussion, the issues of land and capital flight. Below are two questions to focus our contributions.
What is your view on investor free access to land?
What about transfer of 100 percent of foreign exchange in the form of capital or profits outside Tanzania?
Kindly share your experience and knowledge on how best the government can regulate without hampering FDI's.
Peter Nyanje : Wednesday, February 25, 2009
I think, if we make doing business environments more friendlier, we wont need many other kinds of incentives for investors. I dont believe on the notion that we are competing for investors with other countries. A businessman will come to invest if he is asured of making a profit, if he is asured of stability. Businessman who is attracted by incentives, to me, is not serious in his business. I dont believe that business can be sustained through incentives and that is why I believe that if we retionalise redtape and have conducive business atmosphere, we will attract more serious investors compared to other countries which rely on incesntives as a way of attracting investors
Festo E. Maro : Tuesday, February 24, 2009
We have seen good points made on FDI and incentive package i.e. promotion of local investors, incentives are expensive to the government in the long run, incentive should be on competitive basis, improvement of infrastructure to attract more FDI than designing incentive packages, employment creation, revenue collection, increase of CSR from FDI's, EPZ opportunities and local investors, etc. Those are just highlights from previous discussion. We have not capture the plight of capital flight which could be linked direct or indirect with increasing FDI's. What is your opinion on this issues versus the benefits of increasing FDIs?
Festo E. Maro : Tuesday, February 24, 2009
The discussion discourse is flaring up! Divergence in ideas and opinions is part of the discussion however; we should stick on the substance and not individuals. I would like participants to use friendly language not attacking language e.g. government officials. Please use words like strategy, policy, acts, law, regulation, authority, agency etc. This will help us to write the report of the discussion when the topic is closed precisely recommending on the substance of the policy it self and not otherwise.
Nils Jensen : Monday, February 23, 2009
You shouldn't expect players in the private sector to to have social ambitions, even if some of them like to appear as nice guys and may have some form of social programmes (with the purpose of selling more). It's called Corporative Social Responsibility (CSR) and can take many forms. The main solution for fair pricing is competition. Some times goverment regulations can force companies to lower prices, as in the Telecom case where the regulator (TCRA in Tanzania) force the telecom operators to use low inter-connect rates, which in turn lower the call rates. The inter-connect rate is the rate used by the opeartors for transferring calls between them E.g. when a customer to Vodacom calls someone having a Zain number.
Joseph Michael Abila : Monday, February 23, 2009
Hi, Thanks Jacob for this. Theoretically, what you are saying is right. Though not the reality in Tanzania. In many cases, foreign based companies tend to use ignorance of people on other side of the world to do whatever they like.We have seen some elements of price hikes locally above the world market indicative prices. I hope we can attest to this point to recent gasoline price saga in Tanzania. Also, much as the multinational companies would practice market discrimination, this goes along with a price-tag, in terms of low quality products left for the poor markets like Tanzania.
M.Abila
Jacob JACONIAH : Saturday, February 21, 2009
Our forum moderator has raised a question concerning the way FDIs may improve poor people’s welfare. I consider tax remission as a means of putting consumers on relief. The reality is that these exemptions help minimise firms’ marginal costs, and as a result consumers in Tanzania may be able to obtain FDIs products at a reasonable price. Similarly, the importance of having multinational companies investing in our country is mirrored in the ability of the concerned companies to discriminate markets by selling products at a low price in Tanzania where the consumer reservation price, or rather purchasing power is very low; aiming to make super profits in other markets where consumers have deep pockets. This is a notable benefit to people with a limited purchasing power. The invisible hand will take surplus from a pocket of a consumer in UK, for instance, and put into a basket of a consumer – a poor person- in Tanzania.
Jacob
Jacob JACONIAH : Saturday, February 21, 2009
Moved by the spirit underlying the EPZ Act, which is to encourage exportation of locally produced products and hence enhancing economic capability of local firms, the TZ government should collaborate with neighbouring countries to ensure that better transport infrastructures are in place. This will help strengthening export markets within Africa where consumers share the same taste as to product-standards. I understand that such efforts are already being undertaken, but we need to do more. I was shocked by one European study which pointed out that it was more costly to transport a tonne of maize to Zambia from TZ than transporting the same from TZ to EU or even to USA. The study attributed this situation to lack of good transport infrastructure. The same study even went further to reveal the bottlenecks haunting our port systems: while it takes one day to clear a container through ports in the EU or USA, in countries like TZ it takes weeks.
Jacob
Jacob JACONIAH : Saturday, February 21, 2009
While I agree that the country should favour local investors, I disagree that FDIs should not be given equal priority. We are in the era of market economy, in which only smart competitors will survive. Let us leave the incentives open to anyone wishing to enter the market, be he a black, white or yellow, provided he is able to positively move the economic ship forward. In deed, laws regulating unfair business practices are already in place to foster healthy business competition.
I have had an opportunity to peruse the provisions of the Export Processing Zones Act (Chapter 373 of the Laws) and realised that local investors are even put in a forefront as far as incentive packages are concerned. The EPZ Act aims to:
1. Attract and promote investment for export-led industrialisation with a view to diversifying and facilitating Tanzania's exports and promoting international competitiveness.
2. Create and expand foreign exchange earnings.
3. Create and increase employment and the development of skilled labour.
4. Attract and encourage transfer of new technology.
5. Foster linkages of the local economy with the international market
6. Promote processing of local raw materials for export
The Act delineates an "investor" as a company incorporated in the United Republic which manufactures and exports industrial products from the Export Processing Zones to foreign markets. This is a Tanzanian legal person upon whom the Act bestows the following incentives:
1. Exemption from foreign exchange control or restrictions on operations carried on in an Export Processing Zone.
2. Exemption from payment of corporate tax for an initial period of ten years and thereafter a corporate tax shall be charged at the rate of not more than twenty-five per centum.
3. Exemption from payment of withholding tax on dividends and interest for the first ten years.
4. Remission of customs duty, value added tax and any other tax payable in respect of goods purchased for use as raw materials, equipment, machinery including all goods and services directly related to the manufacturing in the Export Processing Zones.
5. Exemption from payment of all taxes and levies imposed by local government authorities for goods and services produced or purchased in the Export Processing Zones.
6. Exemption from pre-shipment inspection requirements.
7. Accessibility to high quality infrastructure.
8. On-site customs inspection of goods in lieu of off-port inspection.
9. Provision of temporary visas at the point of entry to key technical, management, and training staff for a maximum period of thirty days.
In light of the EPZ Act, it seems to me that those who argue that foreign investors come to grab all opportunities that would otherwise be left to local investors are one sided, and should remember that our local capacities are very limited to the extent that local firms cannot exhaust the domestic market let alone the export industry. Those who argue that our government should build the capacity of local firms have probably not had a glance at incentives such as those in the EPZ Act which are aimed to realise this goal. This is not a time our government should tell local manufacturers and merchants as to what they should do. Our government should only be concerned with telling the people what they should abstain from doing. Then it will remain a duty of economic players to grab legal opportunities, which are already in place, to further their goals.
Jacob
Admin : Saturday, February 21, 2009
Dear Friends,
I think Michael Joseph Abila may be right in some sense. However, we should know that employment opportunities for local Tanzanians is and must remain a priority in every sense of economic planning and development. South Africa's Minister of Finance speech for instance priotizes promoting local employment as number two, after supporting the poor. Economic growth without emphasis on local employment employment promotion is as bad as what happened in Zimbabwe a few years ago.
I am of the view that we should have the state to guarantee local investors to be able to borrow to local investments. That way we shall porotect jobs and avoid expatriation of profits. This point is very important from a political economy point of view. Otherwise we shall just have all super stores, but without that many Tanzanians to buy from them which will even discourage the very foreign investors we are busy inviting.
Let us have our strategies for development right before speeding up with implementation.
Deus Msipotwa Kibamba
Joseph Michael Abila : Friday, February 20, 2009
Dear members,
I feel the best way and longterm measure to lure investors is to put right the fundementals of the economy. This include lowering the costs of doing business in the country. While things like tax breaks/incetives might look generous to investors, they are not sustainable and affordable in in the longrun. Therefore, I would argue we need to pursue the incentive policy as a shortem measure while focusing more on rebuilidng fundementals that lower the costs of doing business. It is only through this approach we will remain attractive for generations. Besides, there is an issue of poor or rather greedy governance in the country. Officials do grant incentivs even in the areas not wanted, a lot of garbages coming-in in pretence of FDI etc.
Thanks.
M.Abila
Festo E. Maro : Thursday, February 19, 2009
Salum Awadhi has also come up with important point which raises the need to link FDI's incentives and the poor in the country. In other words Salum is concerned on direct impact to the poor from FDI's incentives. This invites a question which can form a policy recommendation for improving the welfare of the poor from FDI's. What are the other modalities of including the poor in growing FDI's apart from tax and employments?
Festo E. Maro : Thursday, February 19, 2009
Justin Martin raises an important question on whether the incentives are applied to privatized public companies. In my opinion they have different incentives from other investors who came to look for business opportunities in the country. Investor's in public companies came as consultant through tendering process and are given performance contract and special incentives on importing equipments or expertise not locally available for that particular project, also they have limited freedom in venturing to unrelated investments. From these explanations I hope your concern is covered. Justin also highlight the importance of having targets in promoting FDI's and subsequently the quality of investments including the services/products produced. Does our country have sufficient monitoring system of investments or we only promote?
Salum Awadh : Monday, February 16, 2009
incentive?FDI?
i think we as a country need to have enough statistical background information in order to show whether there has been a desirable impact of incentives on FDI.
however, i believe the Government needs to understand as well between incentive for FDI and 'poor open door policy needed for air and not uncontrolled flies who take advantage of the wide open door and easily fly in'.
lets re-visit our incentive package and see how it can really bring about desirable FDI before its too late. and in the future we need to talk of the same for local investors with the continued failure of capitalism as a mode of production.
Justin Martin : Monday, February 16, 2009
Does the incetive have the direct relationship with the type of investors we source around eg the TRL, TTCL etc.
What I see is trying to please everone who claims to be an investor regardless of the capacity. With investment we have to effectively see fair competition with local industries, improved quality of products and services, technology transfer made posible etc. How can every one of these be achieved if we dont access the quality of investor we accept. Does incentives serve to be enougth and sufficient to achieve these objectives. Enouraging investor is a good thing BUT we have to do it with a target which must as weel be achieved.
I believe that a country can develop and specifically ripe the fruits of trade if it can either encourage both local and international investors.
Festo E. Maro : Thursday, February 12, 2009
Previous discussions we see its imperative to develop local capacity to increase home grown investments. Recently the Minister for Finance and Economic Affairs has tabled a bill on reviewing tax exemption policies. The bill seeks to salvage our weakening economy from global economic effects. This is an emergency plan to increase domestic source of revenues as remittances, donors fund and FDI would continue to tumble for a while putting further strain on the economy. Do you think the measure will crowd out FDI's? How will incentive packages be affected? Which sector will likely be affected? How selective the measure should be to protect local investments? This is recent issue for discussion; I welcome all to engage in this interesting policy measure.
Petro J. Emmanuel : Monday, February 9, 2009
Dear Freinds,
Tanzania like other developing country it facing a lot os economic problems; that reduce the local investment in its economy as when you consider now we are in global economy which is very sophisticate and need a great care to handle. Tanzania will loose a lot to FDI, bacause the system and structure for Tanzania is not favour the local investors in general.
For Tanzania what is needed: First is to solicitic local funds for invest in various intervations by use the avilable resouces and expertise, Second is to make systems and structure to favour the local investors and thirdly to set systems free trom corruption that has setback local investment.
Tanzania for FDI it real will dry the resources in short time as forigner investors economic sustainability in all angles are not a priority to them just to earn profit.
Tanzania to take steps on policies that are necessary to encourage local investiment for attract private-sector credit and investment and have proven the best means of achieving long-term, sustainable economic growth.
Thanks
MR. Petro Emmanuel.
Festo E. Maro : Tuesday, February 3, 2009
Infact the point raised by Deus is very valid at this moment of global economy downturn, when incentives are too generous means more FDI nearly in all sectors. This increases the degrees of global risks to our economy. Developing local investors capacity will save as shock absorbers in the face of ailling global economy. This is true because developing countries that are hard hit by global financial crisis are those that depends on FDI for their development. Is our government doing enough to develop local investors? Is government engagement on FDI very strategic to develop important local sectors? to increase domestic serving needed to develop our manufacturing sector?
Deus Msipotwa Kibamba : Tuesday, February 3, 2009
I am so glad to be reading from TAKNET this time around. As you will all know, it takes one's brain to think about how such incentive packages were designed. It is true that TIC led us in this and for sure they had good intentions to attract as many investors as possible. But on the other hand, I think we tend to be over-generous at times to Foreign investors forgeting that come what may, there must be efforts to develop local capacities to invest and to do business as well.
Festo E. Maro : Saturday, January 31, 2009
FDI's are growth impetus in an economy through employement creation, tax collection, technology and human skill development. Its important that the incetive packages to be strategically designed to stimulate key sectors in our economy. Despite that some incentive packages are genorous, dont you think that its high time to refocus the agriculture sector given its inherited multiplier effects in the economy? while pondering that take example of ICT development in the country incentive model.
Festo E. Maro : Friday, January 30, 2009
After a successful launch of TAKNET, I would like to welcome you in this knowledge sharing portal where professional from different discipline meet with one common goal of improving the countries policies with ultimate goal of poverty reduction. The topic on the table is on incentive package for FDI in Tanzania. Key questions have been highlighted on the topic introductory note; please feel free to air your concrete arguments that will lead to improvement of incentives packages policies.
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Tanzania Knowledge Network (TAKNET) Platform is supported by The Government of United Republic of Tanzania, United Nations Development Programme (UNDP) and coordinated by Economic and Social Research Foundation (ESRF).
