Foreign Investment In Tanzania

By Hon. Nimrod E. Mkono M.P. & Ofotsu A. Tetteh-Kujorjie

Posted: 19th October 2012 09:51

The United Republic of Tanzania, made up of Mainland Tanzania and Zanzibar, is endowed with substantial mineral wealth and has a population of close to 43 million people.  It is one of the most promising emerging markets in the region, offering a unique combination of developed economic infrastructure, a vibrant emerging market economy and a clear policy of openness to foreign investment.
 
Regulations permit unconditional transferability through any authorised bank in freely convertible currency of net profits, repayment of foreign loans, royalties, foreign technology licenses, remittance of proceeds and payment of emoluments and other benefits to foreign employees working in Tanzania.  Investment in Tanzania is guaranteed against nationalisation and expropriation.  Also, Tanzania is a member of both the International Centre for Settlement of Investment Disputes (ICSID) and the Multilateral Investment Guarantee Agency (MIGA).
 
Indeed,due partly to economic reforms initiated in 1986, the economy has been enjoying steady growth, averaging 6-7% a year since 2000, making it one of the top 20 fastest growing economies in the world and an investment destination of interest to many foreign investors.  The economic reforms initiated in 1986 produced trade liberalisation, the implementation of Tanzania’s first investment code in 1990 and paved the way for private investment in designated areas.
 
In 1996 the government of Tanzania reviewed the investment policy of 1990 and in 1997 a new investment law replaced the previous investment law of 1990, aiming to streamline investment
incentives and to make the Tanzania Investment Center (TIC) a “one-stop-centre” for investment facilitation and promotion.  The TIC is a special government agency established in 1997 under the Tanzania Investment Act, 1997.  Its main functions are to coordinate, encourage and promote the investment process in Tanzania.
 
Indeed, TIC, on behalf of investors, facilitates investment activities including tax registration, land issues, business licensing and registration, immigration issues and labour issues.  TIC has also been authorised to administer Public Private Partnerships (PPPs) for foreign companies under the Public Private Partnership Act, 2010, which establishes a framework for Build-Operate-Transfer arrangements with private companies.
 
Although registering with the TIC is not mandatory, registration offers incentives for joint ventures with Tanzanians and wholly owned foreign investment projects exceeding US$300,000.  The review process can take up to 10 business days and involves several government agencies, which, by law, are required to cooperate fully with TIC to facilitate foreign investment. 
 
Incidentally, investment projects are not presently being screened for anti-competition concerns and companies are not required to disclose proprietary information to secure approval.  While TIC does not have specific criteria for screening projects, it takes into account factors such as foreign exchange generation, import substitution, employment creation, linkages to the local economy, technology transfer and expansion of the production of goods and services.  Indeed, very few projects that submit all requisite documentation are disallowed. 
 
Once approved, a project is granted a TIC certificate of incentives, allowing for full foreign ownership, VAT and import duty exemptions, repatriation of profits, dividends and capital after tax.  Significantly, semi-autonomous Zanzibar, through the Zanzibar Investment Promotion Agency (ZIPA), also offers similar incentives to investors.
 
Between 1997 and 2007 TIC registered over 4,000 investments, of which over a quarter were foreign.  Survey findings show that during the period 2001-2005, the stock of foreign private investments (FPI) in Tanzania continued to increase, growing at an annual average rate of nearly 14 percent to about USD 5,785.2 million in 2005.  The share of foreign direct investment (FDI) remains the largest in the total stock of FPI as it contributed almost 90 percent. 
 
Undoubtedly, foreign investors’ confidence in the Tanzanian economy is getting stronger, as evidenced by the fact that equity from shareholders remains the major source of financing of FDI.  Among the sectors that have benefited most from the increased inflows are services, mining, manufacturing and tourism.  Inflows to the agricultural sector have however been hindered by poor infrastructure.
 
In general, the Government of Tanzania (GoT) has maintained a positive disposition towards business and FDI.   There are no laws or regulations that limit or prohibit foreign investment, participation or control.  New legislation in 2010 required foreign-owned telecommunications firms to list on the Dar es Salaam Stock Exchange within three years and gave the Minister of Energy and Minerals discretion to require foreign mining companies to give the government a free carried share of ownership in order to receive a Mining Development Agreement.  Otherwise, foreign investors are generally accorded national treatment, although certain laws prevent foreign companies from engaging in certain activities that are reserved for Tanzanian citizens. 
 
Importantly, Tanzania has also adopted trade development instruments including Export Processing Zones (EPZs), Special Economic Zones (SEZs) and Export Development/Promotion and Export Facilitation.  EPZs were established by the Export Processing Zone Act, 2002 and are open to both domestic and foreign investors.  The EPZ policy places emphasis on products that utilise local materials and the Export Processing Zones Authority (EPZA) oversees incentive packages aimed squarely at increasing investment. 
 
Furthermore, SEZs have been used in Tanzania to promote rapid economic growth by using fiscal and business incentives to attract foreign investment and technology.  Accordingly, the Special Economic Zones Act 2006 designates industrial parks, export processing zones, free trade zones, free ports, tourist parks, science and technological parks as special economic zones open for foreign investment.
 
Indeed, the GoT’s aim of promoting foreign investments in Tanzania remains to facilitate sustainable long-term poverty reducing economic growth, as well as advance a seamless integration of the Tanzanian economy into the global economy.  After liberalising the economy and pursuing various efforts to create an enabling environment for foreign investment, Tanzania has taken important steps towards instituting a clear policy of openness to foreign investment.  Even though hurdles still remain, Tanzania appears to have succeeded in establishing the necessary foundation to attract and sustain foreign investment.
 

Hon. Nimrod E. Mkono M.Pis a Member of Parliament and the founder and Managing Partner of Mkono & Co. Advocates, Tanzania’s leading and largest law firm.  He has headed the practice since 1977 and is recognised as one of the country’s top corporate and finance lawyers.  He has represented the government of Tanzania in a number of international commercial arbitrations and has acted for clients in numerous transactional matters, including mergers and acquisitions as well as production sharing agreements in the energy sector.  Hon. Mkono has also been instrumental in the drafting of several Tanzanian laws and regulations.  He regularly writes for the International Finance Review and is a practicing advocate in Tanzania and Zanzibar.  Hon. Mkono holds a Legum Baccalaureus(LL.B.) from the University of East Africa, University College, Dar es Salaam, and a Master of Arts (M.A.) in Business Law from the Council for National Academic Awards of the United Kingdom.  He is also a fellow of the Institute of Chartered Secretaries and Administrators in London.
 
Ofotsu A. Tetteh-Kujorjie is Cross-Border Counsel at Mkono & Co.  He is anIvy League-educated lawyer, with corporate finance and private equity transactional experience. Ofotsu holds a Bachelor’s (B.S) and Master’s (M.Eng.) in engineering from Cornell University, a Juris Doctor (J.D.) from the University of Pennsylvania Law School, a Certificate in Business & Public Policy, from the Wharton School of the University of Pennsylvania and a Legum Magister (LL.M.) in Taxation from the Georgetown University Law Center.  Ofotsu’s career interests span the universe of cross-border transactions.  In his current position at Mkono, he focuses on special projects, as well as on a broad range of energy, banking, taxation, mining and corporate advisory matters.
 
Hon. Nimrod E. Mkono M.P. & Ofotsu A. Tetteh-Kujorjie can be contacted by phone on +255 22 211 8789/90/91 or alternatively via email at info@mkono.com

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