TANZANIA: INVESTMENT CLIMATE STATEMENT 2007

UNCLAS DAR ES SALAAM 000170

SIPDIS

SIPDIS

DEPT FOR EB/IFD/OIA JNHATCHER AND AMKAMBARA
DEPT ALSO AF/EPS, AF/E FOR BYODER
TREASURY FOR DO/JWALLACE
PASS TO USTR FOR WJACKSON

E.O. 12958: N/A
TAGS: EINV EFIN ETRD ELAB KTDB OPIC PGOV USTR TZ
SUBJECT: TANZANIA: INVESTMENT CLIMATE STATEMENT 2007

REF: 06 SECSTATE 178303

Following is the 2007 Investment Climate Statement (ICS)
for Tanzania. The ICS has also been transmitted to
ES/IFD/OIA via e-mail and included in Chapter 6 of the 2007
Country Commercial Guide for Tanzania.

A.1. Openness to Foreign Investment
--------------
The Government of Tanzania (GOT) has a favorable attitude
toward FDI and made significant efforts to encourage
foreign investments. Tanzania is ranked eleventh in
Foreign Direct Investment (FDI) inflows as an investment
destination in Africa, according to the United Nations
Conference on Trade and Development (UNCTAD)?s World
Investment Report 2006. There is no restriction in foreign
exchange and foreign investors are not denied national
treatment. The GOT has lent its support to an open
investment regime, mobilization of private capital
initiatives (PCI) and further liberalization of the
financial sector in line with the World Bank?s
recommendations. An increased number of privatized public
enterprises have been awarded to foreign investors.

The Tanzanian Investment Center (TIC),established by the
Tanzanian Investment Act of 1997, is the focal point for
all investors to answer inquiries and facilitate project
start-ups. TIC continues to improve investment
facilitation services, provide joint venture opportunities
between local and foreign investors, and disseminate
investment information.

The GOT demonstrated its pro-investment attitude in
September 2006 when President Jakaya Kikwete led a 55-
member trade and investment mission to the United States to
promote Tanzania?s investment opportunities. The mission
included Government agencies and private sector investors
from the manufacturing, tourism, transport, minerals and
agriculture sectors.

Among investment and trade opportunities in Tanzania that
remain underexploited are the energy sector, including coal
reserves and natural gas deposits, and the transportation
sector. The GOT accepts foreign investment in Built,
Operate and Transfer (BOT) projects and has launched a
concession system aimed at attracting foreign investors to
build infrastructure. Investment Tax Incentives are stable
and predictable.

Land ownership remains restrictive in Tanzania. Occupation
of land by non-citizens is restricted to land for
investment purposes regardless of the sector. Under the
1990 Land Act, however, a foreign investor may occupy land
up to 99 years through derivatives rights.

In February 2005, the GOT established the Better Regulation
Unit (BRU) to manage the implementation of the Business
Environment Strengthening for Tanzania (BEST) program. In
June 2006, Tanzanian Parliament passed a law to establish
Special Economic Zones (SEZs) to augment investments in the
light industry, agro-processing industry and agriculture
sectors. Green field foreign direct investments are
allowed through this SEZ legislation. The GOT continues to
promote Export Processing Zones (EPZ) to attract
investments in agribusiness, textiles and electronics and
Spatial Development Initiatives (SDI). The EPZ are tax
free zones.

Investments on the Dar es Salaam Stock Exchange (DSE) are
open to foreign investors, but capped at 60 percent.
Foreign investors are barred from participating in
government securities. The financial sector has expanded
with an increase in foreign affiliated financial
institutions and banks operating in Tanzania. As of
December 2005, a total of 29 Commercial Banks were licensed
and operating in Tanzania, 14 of which are foreign
affiliated banks. Competition among these foreign
commercial banks has resulted in significant improvement in
the efficiency and quality of financial services provision.

A.2 Conversion and Transfer Policies
--------------
Regulations permit unconditional transfers through any
authorized bank in freely convertible currency of net
profits, repayment of foreign loans, royalties, fees
charged for foreign technology and remittance of proceeds.
The only official ceiling on transfers of foreign currency
is on cash carried by individuals traveling abroad, which
cannot exceed US$ 10,000 over a period of forty days.
Tanzania occasionally experiences shortages of foreign
exchange, but this problem has been greatly eased by the
growth of bureau de changes 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.

A.3 Expropriation and Compensation
--------------
The GOT may expropriate property only for the purpose of
national interest and after due process. The Tanzanian
Investment Law guarantees:
Payment of fair, adequate and prompt compensation;
A right of access to the Court or a right to
arbitration for the determination of the investor?s
interest or right and the amount of compensation;
Any compensation payable under this section shall be
paid promptly and authorization for its repatriation
in convertible currency, where applicable, shall be
issued.

GOT authorities do not discriminate against U.S.
investments, companies or representatives in expropriation.
Since 1985, the Government of Tanzania has not expropriated
any foreign investments.

A.4. Dispute Settlement
--------------
Tanzania is a member of both International Center for the
Settlement of Investment Disputes (ICSID) and the
Multilateral Investment Guarantee Agency (MIGA). The
regulations maintain that a dispute between a foreign
investor and the Center which is not settled through
negotiations may be submitted to arbitration:

In accordance with arbitration laws for investors;
In accordance with the rules of procedure for
arbitration of the International Center for the
Settlement of Investment Disputes; or
Within the framework of any bilateral or multilateral
agreement on investment protection agreed to by the
GOT and the country of the investor.

A.5 Performance Requirements and Incentives
--------------
The GOT uses Trade-related Investment Measures (TRIMs) to
promote development objectives, encourage investments in
line with national priorities to attract and regulate
foreign investment. Trade development instruments that
Tanzania has adopted include Export Processing Zones
(EPZs); Investment Code and Rules; Export
Development/Promotion and Export Facilitation.

The Export Processing Zones (EPZ) are open to both domestic
and foreign investors. The 2006 EPZ Act should stimulate
export-oriented economic activities and encourage the
acquisition of appropriate technology and skills. The EPZ
law eliminates the initial investments in infrastructure
and limits capital investments to machinery and equipment.
The law also stipulates that more than 20 percent of the
goods, which are subject to exemption from duties and taxes
within EPZ, can be taken out of the zone. This is an
interim measure to compensate investors for economic
distortions pending the emergence of a more efficient
market system.

The Investment Code, as a trade policy instrument,
compensates works for distortions which impede the flow of
foreign investments due to market imperfections. The
Investment Code in Tanzania is a necessary interim
instrument for stimulating both foreign and domestic
investments especially in agriculture and industry (where
the level of domestic investments is still low),while
initiating measures for strengthening the enabling business
environment and working for the emergence of a vibrant
market economy. In sum, Tanzania offers a well-balanced
package of investment benefits and incentives that are
applied uniformly to all investors (domestic and foreign
investors):

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

100% Capital allowance deduction in the years of
income for the above mentioned types of investments.

No remittance restrictions. The Government does not
restrict the right of a foreign investor to repatriate
returns from an investment.

Investments in Tanzania are guaranteed against
nationalization and expropriation. Any dispute arising
between the Government and investors can be settled
through negotiations or may be submitted for
arbitration before the international organizations.

Allowing interest deduction on capital loans; removal
of the 5-year limit for carrying forward losses of
investors.

Five percent Customs Duty and VAT tax deferral on
capital goods for priority sectors including
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.

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.

A.6. Right to Private Ownership and Establishment
-------------- ---
Tanzania observes the right of foreign and domestic private
entities to establish and own business enterprises and
engage in legal forms of remunerative activity.
prohibited). The Business Registration and Licensing Act
provides for licensing for business operations. It provides
the right to freely establish private entities; to own
property both movable and immovable; to acquire and dispose
off property including interest in business enterprises and
intellectual property. To register a company or a business
enterprise in Tanzania is a right of those who wish to
associate and freely form themselves into a company
pursuant to the existing company laws.

Tanzania is still in transition from a largely public
sector economy to one in which the private sector is taking
the leading role.

Under Tanzanian law, occupation of land by non-
citizens is restricted to lands for investment
purposes under the Tanzania Investment Act 1997 and
the revised new Land Act 1999.
Land in Tanzania is a government property and citizens
or non-citizens only leases the land from the
government for 33, 66, or 99 years depending on the
nature of the investment. The law does not allow
individual Tanzanians to sell land to foreigners.
Foreigners can only buy land in Tanzania through TIC.

A.7. Protection of Property Rights
-------------- --------------
Movable Property and Land Rights: Secured interests in
property, both movable and real, are recognized and
enforced under different laws in Tanzania. There is no one
comprehensive law to secure property rights.

The concept of mortgage exists and the Ministry of Lands
and Human Settlements Development handles registration of
mortgages and rights of occupancies. The Office of the
Registrar of Titles is responsible for issuing titles and
registering mortgage deeds. Title deeds are now recognized
as mortgage for securing loans from banks and upon failure
to pay back the loans the banks can sell an attached plot.

Intellectual Property Rights: Adherence to key
international agreements on intellectual property rights in
Tanzania began only in recent years. In 1999, Tanzania
passed the Copyright and Neighboring Rights Act Number 7 of
1999, the current legislation in Tanzania addressing the
protection of intellectual property rights (IPR) and
protection for expressions of folklore. This legislation
conforms to international copyright and property rights
conventions and provides adequate protection for:
intellectual property, patents, copyrights, trademarks and
trade secrets. This is one of the steps Tanzania has taken
to implement and enforce the WTO Trade Related aspects of
Intellectual Property Rights (TRIPS). This law provides one
of the means under which Tanzanians and foreign nationals
may secure, exercise, and enforce exclusive intellectual
property rights. The Act also establishes the Copyrights
Society of Tanzania (COSOTA) which has the duty and powers
to promote and enforce these rights, collect and distribute
royalties on behalf of its members, maintain registers of
works, productions and association of its members, search
to identify and publicize rights of owners and defend them.

The establishment of both the Commercial Court of Tanzania
(in 1999) and a special Land Court (under section 167 of
Lands Ordinance number 4 of 1999),as special divisions of
the High Court, has been a tremendous step towards
protection and effective enforcement of property rights.

The Commercial Court deals with efficient litigation of
commercial cases including those related to infringements
of IPR and trade in counterfeit and pirated goods. Several
cases have already been handled and determined at these
high court divisions.

Tanzania has not yet signed or ratified the WIPO internet
treaties.

A.8. Transparency of the Regulatory System
--------------
The GOT has made progress in formulating policies and
effective laws to foster competition. Tanzania has enacted
three laws to govern competition and regulate economic
activity: Fair Trade Practices Act 1994; Energy and Water
Utilities Regulatory Act (EWURA) 2001; and Surface and
Marine Transport Regulatory Act (SUMATRA) 2001. The GOT is
expediting the implementation of Competition Law under the
co-ordination of the Fair Commission for Trade and related
regulatory institutions and promotes consumer protection
through broad-based public awareness on consumer?s rights
and obligations.

The current institutionalization of the public-private
sector dialogue through various forums such the Investors
Round Table (IRT) process, ensures that the bureaucratic
hurdles hindering private investments are addressed. Since
the adoption of the IRT process in July 2002, Government
Ministries, Departments and Agencies have broadened
reforms. The IRT serves as an advisory board on best
practices in trade and investment to the top national
leadership.

Tanzania is implementing a taxpayer's Charter that enables
taxpayers to complain against problems or malpractice
within the Tanzania Revenue Authority (TRA) officers. The
tax policy reform agenda includes abolition of nuisance
taxes, harmonization of regulatory framework, clear
incentive regime and gradual reduction in rate structure.
The GOT has broadened tax incentives and incorporated them
in the relevant tax laws to attract more investments. The
current tax policy does not impede or distort investment.

The GOT has established a Law Reform Commission (LRC) to
take and keep under review laws and regulations, and to
examine the legal and regulatory requirements relating to
trade and investments. The GOT is also modernizing
business-licensing regime to reduce impediments to
investment. The Tanzania Investment Center has become a
'one-stop shop' that provides fast track assistance to
obtain approvals and permits such as work permits,

industrial license and trading licenses.

The judicial system continues to function slowly and
imperfectly and is easily influenced by privileged
individuals. These factors increase the cost and difficulty
of doing business in Tanzania. In order to overcome
shortfalls in the judicial system, the GOT is adopting
anti-corruption measures and legal reforms to reduce
bureaucratic snags and redundant laws and regulations.

A.9. Efficient Capital Markets and Portfolio Investment
-------------- ---
The Capital Markets and Securities Authority (CMSA) Act of
1994 facilitates the free flow of capital or financial
resources to support the product and factor markets.
Currently the CMSA has opened the Dar es Salaam Stock
Exchange (DSE) to foreigners. The DSE improves access to
medium and long term capital, and concurrently promotes a
wider ownership of stocks and other equities. Corporate
enterprises can recapitalize and grow when listed on DSE.
Individuals can invest in shares and gain profitable
returns; the maximum limit for foreign participation is 60
percent. Foreigners are not allowed to participate in
government securities.

Foreign investors can get credit on the local market for
capital injection within the country and for importation of
capital goods for use within the country. While credit is
allocated on market terms, it has been uneconomical to
borrow from local sources/commercial banks due to high
interest rates. Bank lending rates range from 14 percent to
24 percent for ordinary borrowers. Corporate borrowers can
negotiate lower rates. The Multilateral Investment
Guarantee Agency (MIGA)?s Guarantees against political
risk, International Finance Corporation (IFC) facilities,
U.S. Exim Bank are available for financing projects.

The financial sector has expanded with a significant
increase in the number of foreign affiliated financial
institutions and banks operating in Tanzania. By December
2005, there was a total of 29 Commercial Banks licensed and
operating in Tanzania out of which 14 are foreign
affiliated banks. The private sector players have access
to a variety of commercial credit instruments including
documentary credits (letters of credits),overdrafts, term
loans, and guarantees.

The Central Bank in Tanzania (Bank of Tanzania) administers
and provides special export credit guarantees from which
joint venture initiatives between local and foreign
investors can benefit. In November 2006, EXIM Bank
(Tanzania) Ltd obtained a new credit line from PROPARCO,
the private sector arm of the AGENCE FRANCAISE DE
DEVELOPMENT (AFD),the official French Development
Institution. This line increases EXIM Bank?s capacity to
support long-term foreign currency lending both in Euros
and US dollars to SMEs and corporates. In Tanzania,
PROPARCO's operations represent a total of USD$ 36.0
million, mainly to banks, the tea and manufacturing
sectors.

Foreign investors can open accounts and make deposits in
registered private commercial banks. Interest earned by
non-residents or foreign investors from deposits in banks
registered by the Central Bank of Tanzania is exempt from
income tax, in accordance with the Income Tax Act 2004.
Foreign exchange regulations have been eliminated to allow
an enabling environment to attract investors and simplify
international transactions. Profits, dividends and capital
can be readily repatriated. Several venture capitals have
been established to meet the demand for equity injections
into growing businesses.

The Banking and Financial Institution Act 2006 established
a Credit Reference Bureau and permits banks and financial
institutions to release information to licensed reference
bureaus in accordance with regulations and allows credit
reference bureaus to provide to any person, upon legitimate
business request, a credit report.
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.

A.10. Political Violence
--------------
Tanzania is one of the most politically stable countries in
Africa and the prospects for serious and sustained violence
are very low. Since gaining independence, Tanzanian has
enjoyed a remarkable degree of peace and stability. In
1992, the constitution was amended to allow for multiple
political parties; in 1995, the first multi-party election
took place.

As the country underwent the transition from a socialist to
a democratic entity, beginning 1992, occasional conflicts
took place, particularly during election campaigns. In
2001, demonstrators clashed with police on Pemba (Zanzibar)
and several persons were killed. However, the 2005 general
elections were primarily peaceful and marked by an absence
of major violence. In January 2007, the two main political
parties on Zanzibar opened a dialogue and most observers
expect that further clashes on Zanzibar are unlikely; the
chance for conflict on the Mainland remains remote.

A.11.a Corruption
--------------
Corruption is one of the areas of major concern encountered
by foreign investors. The administration of President
Kikwete, who took office in December 2005, has made the
fight against corruption one of its priority areas. While
giving or receiving a bribe (including bribes to a foreign
official) is a criminal offense in Tanzania, the
enforcement of laws, regulations and penalties to combat
corruption has overall been largely ineffective. Areas
where corruption persists include government procurement,
privatization, taxation, ports, and customs clearance.

In 2004-05, the GOT took measures to strengthen good
governance and accountability in social services delivery
under the National Anti-Corruption Strategy (NACSAP).
Tanzania has in place law and regulations to combat
corruption. In early 2007, the Ministry of Finance will
introduce amendments to the anti-corruption law to
strengthen the institutions that fight graft, particularly
the Prevention of Corruption Bureau (PCB). These amendments
will give the PCB more powers to search, arrest,
investigate and prosecute.

While Transparency International (TI) has consistently
rated Tanzania as one of the worst countries in the world
for corrupt business practices, TI?s 2006 Corruption
Perceptions Index (CPI) showed slight improvement in
Tanzania's anti-bribery activities. (Note: The CPI score
tracks perceptions of corruption seen by business and
country analysts, ranging from zero as highly corrupt, to
10, not corrupt). CPI showed Tanzania edging up from 1.9
points in 1999 to 2.5 in 2006.

A World Bank survey conducted in 2004 places Tanzania as
one of the better performers in anti-corruption efforts
among African countries from 1996 to 2004.

A.11.b Bilateral Investment Agreements
--------------
Currently, the United States of America and Tanzania do not
have a bilateral investment agreement.

A.11.c OPIC and Other Investment Insurance Programs
-------------- --
The U.S. Overseas Private Investment Corporation's (OPIC)
program is available to citizens of the United States;
corporations, partnerships or other associations created
under the laws of the United States; to foreign
corporations at least 95 percent owned by U.S. investors;
and to foreign entities that are 100 percent U.S.-owned.

OPIC signed an incentive agreement with the GOT in December

1996. While the number of U.S. subsidiaries and affiliated
companies that could qualify for OPIC financing remains
small, a few companies have used OPIC programs in Tanzania.
OPIC insurance products cover three political risks:

-- Currency Inconvertibility - deterioration in the
investor's ability to convert profits, debt service and
other investment returns from local currency into U.S.
Dollars and to transfer those U.S. Dollars out of host
country.
-- Expropriation - loss of an investment due to
expropriation, nationalization or confiscation by the host
government; and
-- Political Violence - loss of assets or income due to
war, revolution, insurrection or politically motivated
civil strife, terrorism and sabotage.

Tanzania is an active member of the Multilateral Investment
Guarantee Agency (MIGA),a member of the World Bank Group,
that promotes foreign direct investment in developing
countries by offering political risk insurance (guarantees)
to investors and lenders, and by providing technical
assistance to help developing countries attract and retain
foreign investment.

The Export-Import Bank (Ex-Im Bank) of the United
States, the official export credit agency of the
United States, supports in Tanzania the purchases of
U.S. goods and services by creditworthy Tanzanian
buyers that cannot obtain credit through traditional
trade finance sources. The agency offers export credit
insurance and guarantees of commercial loans. Ex-Im
Bank helps U.S. companies sustain and create jobs by
financing U.S. exports. The Ex-Im Bank has
established a cooperative agreement with the EXIM Bank
of Tanzania Limited to facilitate access to guarantees
by investors within Tanzania.

Tanzania is also a member of the International Center
for Settlement of Investment Disputes (ICSID).
Investments in Tanzania are guaranteed against
nationalization and expropriation.

A.11.d. Labor
--------------
Private companies can hire or fire employees whose
performance is not desirable. The limited availability of
skilled labor remains one of the major concerns that need
policy intervention. There are no legal requirements to use
specific employment agencies for recruitment and no imposed
conditions on employment of host country nationals. The
applicable labor laws are the Employment Ordinance Act
CAP.366; Security of Employment Act CAP 574 No. 62;
Workmen?s Compensation Ordinance CAP 263; and Severance
Allowance Act CAP 487 No.47 of 1962.

The labor and immigration formalities allow foreign
investors to recruit up to 5 expatriates; more work
permits can be granted on meeting specified
conditions.
As an incentive under the EPZ Act, the GOT can provide
work permits for management and technical staff when
these skills are unavailable locally. The number of
such personnel will be determined in consultation with
the Ministry of Labor.
Unskilled labor in Tanzania is plentiful and
inexpensive. While there continues to be a deficit of
skilled labor, the number of university graduates,
especially in business management and IT, is growing.
However, many foreign investors find that local labor
is not sufficient to fill management and
administrative positions.

A.11.e Foreign Trade Zones/Free Trade Zones
-------------- -
Refer to EPZ information above (SectionA.12). Efforts are
progressing to make Zanzibar Port a free port. In addition,
free economic zones have been established in three areas of
Pemba and Zanzibar. Tanga and Kigoma ports will also soon
become free trade zones.

A.11.f Foreign Direct Investment Statistics
--------------


Foreign Direct Investment Total Flows (USD million):*
YmAX""1pQ(8}Q94d6Q^6#RTQk>3QQ,h"Tanzania (BOT)

The FDI has been principally in mining, manufacturing,
tourism, construction and transportation sectors. In
2005, the value of FDI decreased to US$325.0 million
from US$469.9 million in 2004. Among other factors,
this reduction was due to decreased investment in the
mining sector. RETZER