Identifier
Created
Classification
Origin
05DARESSALAAM77
2005-01-14 08:19:00
UNCLASSIFIED
Embassy Dar Es Salaam
Cable title:  

TANZANIA: 2005 Investment Climate Statement

Tags:  ECON EINV KTDB OPIC USTR TZ 
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UNCLAS SECTION 01 OF 08 DAR ES SALAAM 000077 

SIPDIS

STATE FOR EB/IFD/OIA AND AF/EPS
PLEASE PASS USTR

E.O. 12958:N/A
TAGS: ECON EINV KTDB OPIC USTR TZ
SUBJECT: TANZANIA: 2005 Investment Climate Statement

REF: 04 STATE 250356

UNCLAS SECTION 01 OF 08 DAR ES SALAAM 000077

SIPDIS

STATE FOR EB/IFD/OIA AND AF/EPS
PLEASE PASS USTR

E.O. 12958:N/A
TAGS: ECON EINV KTDB OPIC USTR TZ
SUBJECT: TANZANIA: 2005 Investment Climate Statement

REF: 04 STATE 250356


1. Per reftel, post submits the 2005 Investment Climate
Statement below.

--------------
Openness to Foreign Investment
--------------


2. The Government of Tanzania has taken significant steps to
encourage foreign investment by creating an attractive
package of incentives for investors and easing bureaucratic
requirements. As a result, FDI in Tanzania has increased
steadily in the last five years. Tanzania is formally open
to foreign investment in all sectors, although a successful
investor must overcome many procedural barriers. The
Tanzania Investment Center (TIC),established by the
Tanzania Investment Act of 1997, is a focal point for all
investors and performs all liaison work such as answering
inquiries and facilitating project start-up. Tanzania was
named Africa's best investment promoter at the Africa
Investment Promotion Agencies 2004 competition, where the
TIC received the first prize among 48 African countries that
took part. The TIC provides certificates of incentives on
approved projects that have a minimum investment of US
$300,000 if foreign owned and US $100,000 if locally owned.


3. The priority sectors for investment, as identified by
TIC, are: mining, petroleum and gas, tourism, infrastructure
development, aviation, agriculture, construction, financial
services, and manufacturing. Investment in other sectors is
not restricted. Foreign firms can participate in
privatization programs without restriction. There is no
limit on foreign ownership or control, though land ownership
remains restricted. TIC services are provided to local and
foreign investors without discrimination, though a variety
of regulatory fees are higher for foreign firms than for
local firms. Remaining obstacles to foreign investment
include bureaucratic intransigence, corruption and poor
infrastructure.


4. Zanzibar, consisting of two islands off the coast of
Tanzania with a semi-autonomous government, controls its own
investment policies and maintains the Zanzibar Investment
Promotion Agency (ZIPA). Like the mainland, Zanzibar aims
to create a welcoming environment for foreign investors and

provides similar incentives.

--------------
Conversion and Transfer Policies
--------------


5. Regulations continue to permit the unconditional transfer
through any authorized bank in freely convertible currency
of net profits, repayment of foreign loans, royalties, fees,
charges in respect of foreign technology, and remittance of
proceeds. The only official ceiling on transfers of foreign
currency apply to cash carried by individuals traveling
abroad, which should not exceed US$ 10,000 over a period of
forty days. Tanzania occasionally experiences shortages of
foreign exchange, but this problem has been eased
considerably by the growth of Bureau de change returns.
Bureaucratic hurdles continue to impact the length of time
it takes to process and effect a transfer, which can range
from days to weeks.

--------------
Expropriation and Compensation
--------------


6. Since 1985, the government of Tanzania has not
expropriated any foreign investments.

--------------
Disputes Settlement
--------------


7. Tanzania is a member of both the International Center for
the Settlement of Investment Disputes (ICSID) and the
Multilateral Investment Guarantee Agency (MIGA). About five
years ago the Tanzania Institute of Arbitrators (TIA) was
established in accordance with the Tanzania arbitration law.
This domestic arbitration body has proven to be inefficient,
and most disputes end up at the ICSID. The Government of
Tanzania established a Commercial Court in September 1999.
The Commercial Court is a division of the High Court of
Tanzania and, in principle, provides a place for speedy,
efficient and commercially aware litigation of commercial
disputes. While the Commercial Court has helped to speed up
some commercial cases, the court system continues to be
plagued by inefficiency and corruption. The few recent
disputes involving U.S. firms have shown that it is
difficult to enforce external arbitration awards within
Tanzania. Disputes with the Government of Tanzania are
generally resolved only after much effort and time.

--------------
Performance Requirements and Incentives
--------------


8. According to the National Trade Policy (February 2003),
the Tanzanian government intends, in the course of future
WTO TRIMs negotiations, to adopt measures related to equity
requirements, local content requirements, technology
transfer and export performance as necessary conditions for
a Least Developed Country to expedite socio-economic
development. Currently, however, Tanzania has not
introduced such measures. There is no requirement that
specifies that local investors must hold a certain
percentage of a firm's equity or that the share of foreign
equity be reduced over time. The government does not
require investors to purchase from local sources nor require
local content in exports. The government does not impose
any "offset" requirements with respect to approval of major
procurements. Only companies operating in Export Processing
Zones (discussed below) are required to export a certain
percentage of goods produced.


9. The Tanzania Investment Center (TIC) offers assistance in
the establishment of enterprises and provides facilitation
services for required permits and licenses for both local
and foreign investors. TIC is the country's focal point for
all investors and acts as a one-stop government liaison for
investors from inquiry stage right up to project start. All
Government departments and agencies are required by law to
cooperate fully with TIC in facilitating investors. TIC
issues the formal Investment Certificate of Incentives,
which serves as the official recognition of one's status in
the country.


10. Tanzania offers a well-balanced package of investment
benefits and incentives that are applied uniformly to all
investors (domestic and foreign investors) and
systematically as specified by law (the Tanzania Investment
Act, 1997 No. 26 of 1997). These incentives include:

-- Zero Customs Duty and deferred VAT on capital goods for
investments in targeted sectors: mining, export processing
zones, infrastructure, road construction, bridges, railways,
airports, generation of electricity, telecommunications, and
water services.

-- Five percent Customs Duty and deferred VAT on capital
goods for other sectors: livestock, aviation, commercial
buildings, commercial development and micro finance banks,
export oriented projects, geographical special development
areas, human resources development, manufacturing, natural
resources including fisheries, rehabilitation and expansion
projects, tourism and tour operators, transport, radio and
television broadcasting.

-- Exemption from corporate income tax for up to five years.

-- Income tax benefits such as: allowing interest deduction
on capital loans; removal of the 5-year limit for carrying
forward losses; 100% capital allowance deduction in the
years of income for targeted sectors.

-- Further incentives for companies with EPZ status
(discussed below).


11. The Export Processing Zone (EPZ) Act has enabled the
establishment of EPZs throughout the country. EPZ incentive
packages are managed by the National Development Corporation
(NDC),independently from TIC. The government has
established one EPZ business park for the purpose of
attracting export industry investment, but EPZ benefits do
not depend on location in a specific geographical area.
Rather EPZ status reflects unique benefits offered to export
industries. EPZ companies must export at least 70 percent
of goods produced, and export at least US$100,000 to qualify
to apply for EPZ status. EPZ status is available to both
domestic and foreign investors, but is currently limited to
"new export companies," thus excluding established exporters
from benefiting.


12. Companies investing within the EPZ park have access to
ready-made buildings and reliable infrastructure, which
limits the need for large capital investments in
infrastructure. The EPZ policy places emphasis on products
that use local materials such as textiles and garments,
leather goods, agro-processing, and the lapidary industry.
Historically, large job-creating investments (in the textile
industry, for example) have received significant incentives
packages.


13. Incentives offered to EPZ exporters are numerous, and
may include:

-- Exemption from corporate income tax for the first 10
years; after 10 years, a reduced tax of 25 percent rather
than the ordinary 30 percent.

-- Exemption from withholding tax on dividends and interest
for the first 10 years.

-- Exemption from all taxes and levies imposed by local
governments for goods and services produced or purchased in
the EPZs.

-- Exemption from potential foreign exchange control and
restrictions.

-- Exemption from pre-shipment inspection requirements.

-- On-site Customs inspection in lieu of off-port
inspection.

-- Remission of Customs duty, VAT, and any other tax payable
on goods purchased for use as raw materials, equipment, and
machinery, or goods and services related to manufacturing in
the EPZs (except motor vehicles, spare parts, and
consumables).

-- Provision of temporary visas at the point of entry to key
technical, management, and training staff for a maximum of
period of 30 days.

-- Access to high-quality infrastructure.


14. Incentives, whether under the TIC or EPZ provisions, are
granted on a case-by-case basis, following general
guidelines. The Tanzanian Investment Act allows for the
Minister of Trade to specify additional incentives and
benefits in consultation with TIC's inter-ministerial board
"for the purpose of promoting identified strategic or major
investments."


15. Incentives and investment guarantees are offered to both
domestic and foreign investors. Investments in Tanzania are
guaranteed against nationalization and expropriation.
Tanzania is a member and signatory of several international
agreements for protecting investments. Any dispute arising
between the Government and investors are settled through
negotiations or may be submitted for arbitration before the
international organizations.


16. Generally, the Government of Tanzania facilitates
investors with TIC or EPZ certificates in the otherwise
onerous bureaucratic process of acquiring the various
required permits. However, investors are routinely granted
work and residence permits for only five 5 expatriates;
investors complain that this is insufficient and limits
their ability to operate.


17. The Zanzibar Investment Promotion Agency (ZIPA) and the
Zanzibar Free Economic Zones Authority (ZAFREZA) offer
roughly equivalent incentives as those offered by the
mainland's TIC and EPZ policies.

--------------
Right to Private Ownership and Establishment
--------------


18. Tanzania observes the right of foreign and domestic
private entities to establish and own business enterprises
and engage in legal forms of remunerative activity. The
Business Registration and Licensing Act provides the right
of any local or foreign investor to freely establish private
entities; to own property both movable and immovable; to
acquire and dispose of property including interest in
business enterprises and intellectual property. The Act
stipulates that no business entity can enter into business
activities in Tanzania before getting a business license
through the Business Registration and Licensing Agency
(BRELA). Registration fees for foreign companies are
significantly higher than for local companies.


19. Competitive equality is applied and embedded in the
Tanzanian National Trade Policy of February 2003 as a
standard. The Tanzanian competition policy aims at
perpetuating freedom of trade, freedom of choice and access
to markets. It prohibits firms (both private and public
enterprises) from engaging in anti-competitive behavior and
abuse of dominant market position. Tanzania has established
the Fair Competition Commission (FCC) to oversee compliance
with competitive equality standards.


20. Under Tanzanian law, non-citizens or foreign companies
cannot own land, which continues to be a significant barrier
to foreign investment. Land in Tanzania is government
property and can only be leased from the government for 33,
66, or 99 years, depending on its use. Occupation of land
by non-citizens is restricted to lands for investment
purposes, as approved by the TIC. Under this arrangement,
known as Derivative Title, Tanzanian tenants sub-lease their
land to a TIC-approved foreign investor. The TIC has
designated specific plots of land (a land bank) to be made
available to foreign investors. Foreign investors may also
enter into joint ventures with Tanzanians, in which case the
Tanzanian provides the use of the land (but retains
ownership, i.e. the leasehold).

--------------
Protection of Property Rights
--------------


21. Secured interests in property, both movable and real,
are recognized and enforced in Tanzania under an evolving
set of laws, some of which appear contradictory. Land in
Tanzania is technically owned only by the government and is
leased for periods of up to 99 years. Recent reforms have
tried to establish a reliable system of transferable
property rights, with titles representing leaseholds. The
Ministry of Lands and Human Settlements Development deals
with the registration of mortgages and rights of
occupancies. The Office of the Registrar of Titles within
the Ministry is responsible for issuing the pertinent title
and registered mortgage deeds. Under the recent Land Act
(1999),such title deeds can now be used for securing loans
from banks. However, the concept of a mortgage is very new,
and the system to register such security interests remains
unreliable. In practice, banks only issue mortgage loans on
capital improvements on the land, and not on the value of
the land itself.


22. The establishment of both the Commercial Court of
Tanzania and a special Land Court as special divisions of
the High Court has been a tremendous step towards protection
and effective enforcement of property rights. The new Land
Act, the Ministry of Lands registration offices and the Land
Court comprise a legal system that will potentially protect
and facilitate the acquisition and disposition of land,
buildings, and mortgages, but the system is still in its
infancy.


23. Adherence to key international agreements on
intellectual property rights in Tanzania began only in
recent years. In 1999, Tanzania passed the Copyright and
Neighbouring Rights Act Number 7 of 1999, which deals with
the protection of intellectual property rights (IPR) and
also protects expressions of folklore. This legislation
conforms to international copyright and property rights
conventions, including the WTO TRIPS agreement, and provides
adequate protection for intellectual property, patents,
copyrights, trademarks and trade secrets. The Act also
establishes the Copyrights Society of Tanzania (COSOTA),
which has the duty and authority to promote and enforce
intellectual property rights; collect and distribute
royalties on behalf of its members; maintain registers of
works, productions and association of its members; and
identify, publicize and defend the rights of copyright
owners.


24. Despite the recent legislation, enforcement of
intellectual property rights remains ineffective.
Violations are not seriously investigated, and the courts
lack experience and training in IPR issues.

25. Tanzania has not yet signed or ratified the WIPO
Internet treaties.

--------------
Transparency of the Regulatory System
--------------


26. The TIC facilitates applications for the variety of
permits an investor may need, which greatly decreases the
time and effort spent on complying with bureaucratic
regulations. The regulatory system can be burdensome, but
does not generally serve to impede investment.


27. Government decisions are not always completely
transparent, and Ministers and high-level officials have
significant authority to make exceptions to the rule. Well-
connected companies may obtain allowances or unfair
advantages. Further, government procurement is often less
transparent than international standards.


28. Many of the laws and regulations in Tanzania that impact
investment (including tax, labor, environment, health and
safety) are outdated, but the Government of Tanzania has
made an effort to revise and harmonize them. In Tanzania,
all proposed laws and regulations, including those affecting
trade and investment matters, must be discussed by
stakeholders and must be published in draft form for public
comment.


29. For example, the Government of Tanzania met with private
sector business associations, including an investors
roundtable group, to discuss a proposed income tax bill,
which was passed into law in April 2004. Tanzania is now
implementing the new tax charter with a view toward
establishing a tax regime that is more transparent,
equitable, efficient, and that will increase revenues. This
ambitious tax policy reform agenda has included the
abolition of nuisance taxes, the harmonization of the
regulatory framework, the establishment of a transparent
incentive regime and a structure for a gradual reduction in
rates. It also emphasizes transparent accounting consistent
with international norms.


30. Disputes regarding the regulatory system are difficult
to solve. The court system continues to function slowly and
imperfectly and is easily influenced or manipulated by
privileged individuals. These factors increase the cost and
difficulty of doing business in Tanzania, but can be
overcome by diligence and on-the-ground knowledge. Ongoing
good governance and anti-corruption measures may continue to
improve government transparency.

-------------- --------------
Efficient Capital Markets and Portfolio Investment
-------------- --------------


31. The Capital Markets and Securities Authority (CMSA) Act
of 1994 provides a policy that facilitates the free flow of
capital or financial resources to support in the product and
factor markets. Currently the CMSA has opened the Dar es
Salaam Stock Exchange (DSE) to foreigners. The maximum
allowed limit for foreign participation in any single
company listed on the DSE is 60 percent. Foreigners are not
allowed to participate in Government Securities. The DSE
provides announcements, stock reports, listings and
financial trading statistics and updates online at
www.darstockexchange.com.


32. Foreign investors are able to get credit on the local
market for capital injection within the country and
importation of capital goods for use within the country.
Each credit application is vetted on its own merit using
normal banking procedures and best practices. While credit
is allocated on market terms, high interest rates make it
uneconomical to borrow from local sources. Bank lending
rates range from 14 percent to 24 percent for ordinary
borrowers. Large corporate borrowers can negotiate lower
rates. The private sector has access to a variety of
commercial credit instruments including documentary credits
(letters of credits),overdrafts, term loans, and
guarantees.


33. In the last several years, the Government of Tanzania
has followed a very successful macro-economic policy. The
exchange rate of the Tanzanian shilling in relation to major
trading partners currencies like the US dollar and the EURO
has remained significantly stable for the past twelve
months. The stability of the exchange rate, low inflation
and falling interest rates have been major factors behind
excellent macro-economic stability that has attracted
investors in all the major sectors of the economy like
mining, tourism, manufacturing, services and agriculture.
The international reserves at the Central Bank (Bank of
Tanzania) stood at 1.5 billion US dollars, which is the
highest for over 30 years and equivalent to seven months of
imports. This has helped BOT to intervene whenever minor
fluctuations have led to a slight depreciation of the
Tanzanian shilling.


34. The banking industry is growing in Tanzania, with a half
dozen international banks expanding operations in the
country. The process of privatizing the remaining
government owned banks is continuing, with the diagnostic
studies for the privatization of Tanzania Postal Bank (TPB)
completed and the privatization of the National Micro-
Finance Bank (NMB) at an advanced stage.

--------------
Political Violence
--------------


35. Tanzania has enjoyed a remarkable degree of political
peace and tranquility since it gained independence. In
1992, the constitution was amended to allow for multiple
political parties and the first multi-party election took
place in 1995. As the country transforms from a socialist
to a democratic entity, there will likely be occasional
conflict, particularly during election campaigns. The
prospects for serious and sustained violence are nonetheless
extremely low. Demonstrators clashed with police officials
on Pemba (Zanzibar) in January 2001 during a protest against
the official outcome of the October 2000 elections. The
number of dead remains under dispute. (The government claims
23 people died; the CUF opposition party claims over 70.)
While renewed short-term violence could recur on Zanzibar,
particularly as the 2005 elections approach, sustained
conflicts appear unlikely. Most political observers believe
that the chance for internecine conflict on the mainland
remains minimal.

--------------
Corruption
--------------


36. Corruption is one of the major difficulties encountered
by foreign investors (including U.S. firms) in Tanzania. The
administration of President Mkapa has termed the elimination
of corruption as a major priority. Since President Mkapa
was elected in 1995 his administration has undertaken a
number of important steps to combat corruption. The steps
include the formation of a presidential commission of
inquiry against corruption, the requirement for all top
political leaders to declare their assets, the firing of
public servants for evidence corruption, and the
strengthening of the Prevention of Corruption Bureau (PCB).
The president also created the cabinet position of Minister
of State for Governance in the president's office, charged
with, among other responsibilities, fighting corruption. The
National Anti-Corruption Strategy to root out systemic
corruption, has been developed, released and distributed
countrywide for implementation by the PCB. Giving or
accepting a bribe (including bribes to a foreign official)
is a criminal offense.


37. Despite the laws, regulations and penalties to combat
corruption, enforcement is ineffective. Areas in which
corruption persists include government procurement,
privatization, taxation, ports, and customs clearance.
Transparency International has consistently rated Tanzania
as one of the worst countries in the world for corrupt
business practices.

--------------
Bilateral Investment Agreements
--------------


38. Currently, the U.S. and Tanzania do not have a bilateral
investment agreement.
--------------
OPIC and Other Investment Insurance Programs
--------------


39. OPIC insurance programs are available for Tanzania.
OPIC signed an updated incentive agreement with the
government of Tanzania in December 1996. Few companies have
used OPIC programs in Tanzania.


40. Tanzania is an active member of the Multilateral
Investment Guarantee Agency (MIGA),and foreign investors
have successfully utilized MIGA guarantees.


41. The Export-Import Bank of the United States provides its
loan and guarantee products for short-term and medium-term
financing in Tanzania's private sector. In 2004, Ex-Im Bank
negotiated a master guarantee agreement with Exim Bank
Tanzania, a local commercial bank.

--------------
Labor
--------------


42. Tanzania passed a revised Labor Law in 2004 that
conforms to international standards, including the ILO
convention protecting worker rights. Firms are able to make
private hiring decisions without requirements to use
specific employment agencies. Employees have the right to
organize in unions, to bargain collectively, and to legally
strike under certain conditions. Labor laws apply equally
to private and public sector workers, including workers in
EPZs or free trade zones.


43. Unskilled labor is plentiful and inexpensive. There
continues to be a deficit of skilled labor in Tanzania,
though the number of university graduates is growing,
especially in business management and information
technology. Many foreign investors find that local labor is
not sufficient to fill management and administrative
positions. Currently, the labor and immigration regulations
allow foreign investors to recruit up to five expatriates.
Though additional work permits for expatriates can be
granted under certain conditions, it can be difficult to get
approval.

--------------
Foreign Trade Zones/Free Trade Zones
--------------


44. Beyond the incentives of Export Processing Zones (EPZs)
discussed above, the Government of Tanzania has made efforts
to institute free trade zones at various ports, including
Zanzibar, Tanga, and Kigoma. At these free ports, importers
may bring goods of foreign origin without paying customs
duties and taxes, pending their eventual processing,
transshipment or re-exportation.


45. Zanzibar has named three areas as free trade zones,
under the authority of the Zanzibar Free Economic Zones
Authority. These zones are effectively export-processing
zones, with EPZ incentives for companies operating within
the zone.

--------------
Foreign Direct Investment Statistics
--------------


46. Tanzania Mainland: FDI Stocks and Flows
values: US Dollar millions & percentage of GDP

1999 2000 2001 2002 2003 2004
GDP
Nominal 8,025 8,377 8,711 8,927 9,447 n/a

FDI
Inflows 541.7 282.0 467.2 429.8 526.8 469.9

FDI
Inflows
(Percent 6.7 3.3 5.3 4.8 5.5 n/a
GDP)

FDI
Stocks 2,419 3,038 3,777 4,206 4,733 5,203

FDI
Stocks
(Percent 30.1 36.2 43.2 47.1 50.1 n/a
GDP)

Source: Bank of Tanzania

OWEN