Foreign direct investment (FDI) in Tanzania

FDI in Figures

Tanzania is one of the most preferred destinations for foreign investment in Africa, ranking among the 10 biggest recipients of FDI on the continent. According to UNCTAD’s World Investment Report 2023, FDI to the United Republic of Tanzania increased by 8% to USD 1.1 billion (from USD 1 billion one year earlier). Moreover, the number of announced greenfield projects in the country surged by 60%, and there was also a rise in the number of international project finance deals. At the end of the same period, the total stock of FDI stood at USD 18.6 billion, around 24.2% of the country’s GDP. According to the Tanzania Investment Centre (TIC) Quarterly Investment Bulletin for the period July to September 2023, a total of 137 projects valued at USD 2069.49 million were approved. These projects are anticipated to create 86,986 new employment opportunities. The manufacturing, mining, and energy sectors are the primary recipients of FDI in Tanzania. Other sectors such as agriculture, tourism, and infrastructure have also been attracting FDI in recent years. The country’s primary investors are China, India, Kenya, the United Kingdom, Mauritius, Oman, the United Arab Emirates, Canada, the United States, the Netherlands, South Africa, and Germany. Several foreign companies, including Statoil, BG Group, and ExxonMobil, are investing in natural gas exploration and production projects, while mining companies such as Barrick Gold, AngloGold Ashanti, and Acacia Mining are also investing in the country.

Investors are drawn to the country's commitment to implementing sound macroeconomic policies, its efficient privatization program, and abundant natural resources. However, low levels of industrial development, environmental concerns, lack of transparency, and poor compliance with legislation are barriers to investment. The business environment remains hampered by ineffective regulations. Labour regulations are not flexible enough to support a dynamic labour market. Foreign investment in land is limited, and investment in other sectors can be screened. During John Magufuli's presidency (2015-2021), investor unfriendly policies have caused a growing mistrust of international investors, damaging the perception of Tanzania's business climate, which remains restrictive. In 2017, Tanzania approved new regulations in the mining sector that allow the government to tear up and renegotiate mining contracts, partially nationalize mining companies, introduce higher royalties, enforce local beneficiation of minerals, and bring in strict local-content requirements, which undermined investor confidence. President Samia Suluhu Hassan affirmed her commitment to prioritizing economic growth and strengthening Tanzania's economy through further development of the country's mining and quarrying sector. She also stressed the need for Tanzania to increase foreign investment to encourage growth, particularly in helium, gold, and nickel mining and oil extraction. Foreign investors generally enjoy treatment equivalent to domestic investors in Tanzania, but limitations persist in various sectors. There are no geographical restrictions on private establishments with foreign participation or ownership, nor are there limitations on the number of foreign entities allowed to operate in any given sector. Additionally, there are no sectors where approval is required for greenfield Foreign Direct Investment (FDI) but not for domestic investment. However, Tanzania discourages foreign investment in certain sectors through restrictions on foreign equity ownership or other activities. These sectors include aerospace, agribusiness (fishing), banking, insurance, construction and heavy equipment, travel and tourism, energy and environmental industries, information and communication, and publishing, media, and entertainment. In 2020, Tanzania relaxed but did not entirely eliminate the foreign ownership limitations in the mining sector. Tanzania ranks 87th among the 132 economies on the 2023 Corruption Perception Index and 86th out of 184 countries on the latest Index of Economic Freedom.

What to consider if you invest in Tanzania

Strong Points

Strong points of investing in Tanzania include:

• High economic growth potential (the GDP growth over the last 10 years is around 7%, one of the fastest growing economies in Africa)
• Increasing economic stability (inflation down from 16% in 2012 to 4% in 2018)
• Rich natural resources (arable land and mineral subsoil)
• Strategic location (the country is a gateway to 6 landlocked countries - Uganda, DRC, Rwanda, Burundi, Zambia and Malawi)
• Three deep water ports that serve neighbouring countries
• Access to Southern African Development Community free trade market
• Political stability (the country has not experienced any conflict or civil war since gaining independence)

Weak Points

Weak points of investing in Tanzania include:

• Limits of foreign right to private establishment (foreign companies are banned from operating certain tourist businesses and need to give a certain share of ownership to the government to receive a mining development license, investment restrictions on government bonds, etc.)
• Foreign equity ownership restrictions on certain services sector (telecommunications, TV channels, newspapers)
• Lack of adequate and reliable power
• Poor infrastructure
• Lack of skilled labour force

Government Measures to Motivate or Restrict FDI

Foreign investors can benefit from many fiscal and non-fiscal incentives. These include:

• Access to Tanzania Investment Centre (TIC) One Stop Facilitation Centre for procedures related to permits, licenses and approvals
• 0% import duty on Project Capital Goods, Computers and Computer Accessories, Raw Materials and Replacement Parts for Agriculture, Animal Husbandry and Fishing, Human and Livestock Pharmaceuticals and Medicaments, Motor Vehicle in Completely Knocked down (CKD) form and inputs for Manufacturing Pharmaceutical Products, Hotel equipment
• 10% import duty on semi-processed/semi-finished goods
• 100% capital expenditure deduction (mining and agricultural sectors)
• 50% capital allowances in the first year of use for plant and machinery used in manufacturing processes and fixed in a factory, fish farming; or providing services to tourists and in a hotel
• Right to repatriate 100% of foreign exchange earned, profits and capital.
• Automatic permit of employment to 5 foreign nationals on projects holding certificates of incentives