2012 Investment Climate Statement - Tanzania

2012 Investment Climate Statement
Bureau of Economic and Business Affairs
June 2012

The Government of Tanzania (GOT) generally has a favorable attitude toward foreign direct investment (FDI) and has had considerable success in attracting FDI. However, the legacy of statism has not yet been overcome and some officials remain suspicious of foreign investors and free competition. After several years of growing FDI, new FDI in 2009 declined modestly due to the global economic crisis to USD 650 million from 2008's record USD 744 million.

Tanzania's Capital Account regime restricts the free flow of investment in and out of the country. Non-citizens cannot buy bonds and other debt securities in the domestic market. In addition, Tanzanians cannot sell or issue securities abroad, unless approved by the Capital Markets and Securities Authority (CMSA). The Dar Es Salaam Stock Exchange (DSE) forbids companies with more than 60 percent foreign ownership from listing. Under the terms of the planned East African Community (EAC) monetary union, all EAC residents are expected to receive national treatment by 2012, though this deadline will likely be pushed back.

There are no laws or regulations that limit or prohibit foreign investment, participation, or control, and firms generally do not restrict foreign participation in practice. In 2010, new legislation required foreign-owned telecommunications firms to list on the DSE within 3 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. Foreign investors generally receive national treatment; however, the Tourism Act of 2008 bars foreign companies from engaging in mountain guiding activities. According to the legislation, only Tanzanian citizens can operate travel agencies and car rental services and engage in tour guiding.

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. TIC has been given authority to manage Public Private Partnerships (PPPs) for foreign companies under the 2010 PPP legislation that sets a framework for Build-Operate-Transfer arrangements with private companies. 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, 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 semi-autonomous 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. Investment tax incentives can be unpredictable; in 2010 an export tax on air freight was imposed and then rescinded, capital goods tax exemptions were reinstated, and agricultural equipment imports were given generous exemptions.

Land ownership remains restrictive in Tanzania; under the Land Act of 1999, all land in Tanzania belongs to the state. Procedures for obtaining a lease or certificate of occupancy can be complex and lengthy, both for citizens and foreign investors. Less than 10% of land has been surveyed, and registration of title deeds is currently manual and mainly handled at the local level. Non-citizen investors may occupy land for investment purposes through a government-granted right of occupancy ("derivative rights" facilitated by TIC), or through sub-leases through a granted right of occupancy. Foreign investors can also partner with Tanzanian leaseholders. Rights of occupancy and derivative rights may be granted for periods up to 99 years and are renewable.

The Economic Processing Zones Act 2006 authorized the establishment of Special Economic Zones (SEZs) to encourage greenfield investments in the light industry, agro-processing industry and agriculture sectors. The GOT's Export Processing Zones Authority (EPZA) continues to promote Export Processing Zones (EPZ) to attract investments in agricultural value added processing, textiles and electronics. EPZA has earmarked 4000 hectares for export clusters, though on-site infrastructure and facilities are lacking. 6 zones have already been developed; one is owned by the GOT and the rest by the private sector. (40 companies in total, mostly foreign textile exporters.) In early 2011 EPZ-A announced the Tanzania Revenue Authority had opened an office in its Mabibo EPZ, streamlining seamless tax and revenue procedures for participants. Investors in EPZs are eligible for various incentives including prime locations near ports and main roads, 10 year tax holidays, exemption on interest and dividend taxes for 10 years, duty free importation of capital goods, exemption on VAT for utilities and exemption of local tax levies.