The commitment of the government of Tanzania to encourage foreign investment is reflected in legislative changes, particularly the introduction of the Tanzanian Investment Act 1997, which sets out the legal criteria for all investors. This, together with the creation of a government privatization bureau and the Tanzania Investment Centre have clearly instilled confidence among foreign investors, who can enjoy certain tax breaks in the early years of investment.
Foreign investment opportunities in Tanzania
Statistics show that Europe lags behind other parts of the world in terms of foreign investment in Tanzania. South African companies have become major investors in the country since the end of apartheid in 1994. While European nations have a significant foreign office and government aid presence, the major growth sectors, such as mining, are dominated by companies from the US, Canada and Australia (the latter country does not even have a diplomatic presence in Tanzania).
The government's privatization programme since the nineties has been a contributing factor to increased interest from foreign investors. The government's trade liberalization policy and relaxation of control over foreign exchange transactions was reinforced by legislative reform through the Public Corporations Act, 1992 (PCA), which aimed to promote the private sector in the economy as well as encourage Tanzanians to own businesses in privatized state-owned enterprises.
The PCA is the legal mechanism for privatizations in Tanzania, but it is the Tanzania Investment Act 1997 that has encouraged foreign investors and private sector financing. In all of its privatizations a certain amount of shares is reserved for sale to Tanzanians so as to encourage local private investment. This aims to alleviate the public's concerns over privatizations, as many Tanzanians believe that it is a ploy to sell assets to foreigners.
Tanzania Investment Centre (TIC)
The TIC was set up to promote and assist investment in Tanzania whether by Tanzanians or foreigners. Its authority is derived from the Tanzania Investment Act 1997. TIC assists all prospective investors in obtaining the requisite permits and authorizations, whatever the preferred sector, with priority given to sectors such as agriculture, mining and infrastructure.
The Tanzania Investment Act sets out the minimum criteria that must be met by any prospective foreign investor. There must be a minimum investment of $300,000, for which the foreign investor is entitled to 100% control of the Tanzanian entity. Unlike Tanzanian investors, foreign nationals must obtain a permit from TIC in order to be able to invest.
Once a Certificate of Incentives is obtained, investors can enjoy tax breaks, particularly import duties. Allowances are also made for capital expenditure, excise duty paid on fuel as well as certain VAT exemptions and deferments. There is also a special rate of corporation tax set at 30%, a withholding tax rate on dividends set at 10% and zero tax on loan interest in the priority sectors. Separate incentives are available for investment in the mining and petroleum sectors.
The TIC has made the transition easier for foreign nationals who might otherwise be nervous to invest in a developing economy by not only assisting with business permits but also with work permits and other related immigration issues. This has disposed of much of the bureaucracy that historically met any foreign national wishing to work or invest in Tanzania.
Nimrod E Mkono and Bart J Wilms