TANZANIA Investment Guide

Openness to Foreign Investment

Tanzania enjoys the reputation of welcoming foreign and local investments. In August 1990, it promulgated the National Investment Promotion and Protection Act (NIPPA), which established the Investment Promotion Center (IPC). The IPC was designed to seek out, direct and assist foreign investment in Tanzania. NIPPA provided for priority investment areas, conferred qualified investors with generous incentives and attractive benefits and spelled out guarantees against nationalization, as well as provided assurances for disputes settlement. The investment act of 1997 updated the NIPPA. In this act, IPC was transformed to a new organization know as Tanzania Investment Center (TIC).

During 1985-1991 Tanzania underwent an intensive structural adjustment program initiated by the IMF and World Bank. This program was largely successful in bringing about a real gross domestic product growth of about five percent. Unfortunately, four years of successive drought and one year of El Nino floods have dampened the GDP growth rate. Hardest hit has been the agricultural sector, from which over 83 percent of Tanzania's 30 million people derive employment and sustenance. This sector is responsible for nearly 48 percent of foreign exchange earnings. An excessive amount of rain affected transportation and communication sectors in 1997/98.

Tanzania is formally open to all foreign investment, although many procedural barriers must be overcome by the successful investor. The TIC plays a role in promoting and supporting outside investment. A recent policy decision to tax imported capital equipment at a uniform, low rate of five per cent is calculated to enhance Tanzania's attractiveness to investors.

Currency Conversion and Transfer Policies

Although Tanzania continues to be plagued by intermittent shortages of foreign exchange, the advent of Bureaux de Change (money exchange shops) in 1993 was designed to help facilitate the conversion and transfer of profits, dividends and other investment returns. Repatriations and externalizations that were held up for years can now, in principle, take few weeks. Unfortunately, bureaucratic infighting and corruption can adversely affect the amount of time it takes to obtain official permission to transfer/remit funds.

Expropriation and Compensation

Tanzania's history of expropriation culminated in 1973 with the nationalization of European firms in the country. That expropriatory action took place under President Julius Nyerere, a long time advocate of socialism, who believed it was the government's responsibility to manage the market place. Under Tanzanian Second President Ali Hassan Mwinyi, Tanzania committed itself to free market reforms. During President Mwinyi's 10-year tenure (1985 - 1995), the Government took no action to seriously undermine the international community's confidence that Tanzania will not return to its policies of expropriating foreign interests. The new administration is seen to be following in the footsteps of the Mwinyi administration.

There have been no recent cases of expropriation by the Tanzanian Government. The Government has a past record of dealing fairly with compensation issues, although it has been slow and ponderous in dealing with these issues.

Dispute Settlement

Tanzania is a member of both International Center for Settlement of Investment Disputes (ICSID), and Multilateral Investment Guarantee Agency -MIGA.

Performance Requirements and Incentives

The Tanzanian Government has not instituted business, work, or performance requirements.

Private Ownership Rights

Law and the Union Constitution guarantee the right to private ownership and establishment in Tanzania. This right includes freedom to establish a company, to own property both movable and immovable, acquire property and dispose of property including business enterprises and intellectual property. However, access to land is difficult to obtain, costly, and with few exceptions, will be on the basis of leasehold rather than freehold.

Protection of Property Rights

The laws in Tanzania protect property rights, and facilitate the acquisition and disposal of property, including intellectual property. However, it is very difficult to obtain effective protection under these laws.

Transparency of Regulatory System

Tanzania has in place an extensive set of policies, regulations and procedures that greatly influence trade, commerce, employment and resource utilization. Many of these provisions are outdated and reflect conditions from the colonial era; many others reflect socialist-era circumstances and have yet to be adjusted to serve the needs of a liberal market based economy. Also, the justice system functions slowly and imperfectly and is easily influenced or manipulated by unscrupulous individuals. These factors increase the cost and difficulty of doing business in Tanzania, but can be overcome by diligence and on-the-ground knowledge.

Political Violence

Under one-party rule, Tanzania has enjoyed political peace and tranquility for nearly 30 years. And most political observers believe that the chance for internecine conflict in Tanzania remains minimal.

Corruption and Crime

As in many third world countries, corruption is one of major setbacks encountered by foreign investors in Tanzania. The administration of President Mkapa has termed the elimination of corruption as a major priority item in Mkapa's election manifesto. Laws, regulations and penalties to combat corruption do exist, although effective enforcement is not at the level that foreign investors would like.

Areas in which corruption persists include government procurement and customs clearance. Current efforts by the Government to deal with corruption include establishment of a presidential commission on corruption that was chaired by Judge Joseph Warioba, former prime minister. As a way to combat corruption, the Government has adopted the commission's recommendations, but done little to apprehend those identified in the report as corrupt elements.

Giving or accepting a bribe is a criminal offence that leads to imprisonment. A bribe to a foreign official is equally a criminal act, and as such a bribe to a foreign official is not deductible from taxes.

Labor

Although labor is plentiful in Tanzania, it is largely unskilled. The few jobless but highly educated Tanzanians lacks experience and self-motivation. There is a scarcity of people with management expertise.

International Investment Agreements

Tanzania has a bilateral investment agreement with the United Kingdom.

Foreign Trade Zones

A free port is in the process of being established in Zanzibar. Free economic zones have been established in three places in Zanzibar and Pemba islands.

Foreign Investment Statistics

Since the establishment of the Investment Promotion Center in 1990, the institution has approved about 1025 projects worth approximately USD 3.1 billion. Investors from the United Kingdom, Germany, Italy, Thailand, India, Canada, South Africa and the U.S. constitute more than 90 percent of the total foreign investments in Tanzania. Sectors that have attracted foreign investors are manufacturing, tourism, agriculture, fisheries and, mining.

Taxation

The general corporate income tax rate, for both resident and non-resident enterprises, is 35 percent. Mining operations are subject to a 30 percent tax on income, and cooperatives are subject to a 25 percent income tax. Dividends and interest are subject to withholding taxes of 20 percent and 15 percent, respectively.
From July 1, 1998, the Tanzania Revenue Authority introduced a value added tax - VAT, at a standard rate of 20 percent. The VAT will replace sales tax and stamp duties for businesses exceeding an annual turnover of shilling 20 million (About US$30,000). Withholding tax on dividends has been reduced from 20 per cent to five percent and is charged before VAT.

Stock Market

The Capital Development and Market's Authority (CD&MA) was established in 1994, and the first stock exchange was opened in Dar es Salaam in March 1998. The Dar es Salaam Stock Exchange (DSSE) began trading in April 1998; TOL Limited was the first company listed on the exchange. Currently, there are two listed companies on the DSSE, TOL Limited and Tanzania Breweries Limited. By the end of the1990's, Tanzania had 4 listed companies.

For further information on Tanzania, please visit: http://www.tanzania.go.tz