Economic and social research foundation (esrf)

6.3 Impact of FDI in Zanzibar

6.3.1 Employment Opportunities

On availability of employment opportunities, there are a lot of complaints that local workers are marginalized, since foreign investors prefer to employ labourers from outside the islands. The fact that one could not expect rational profit seekers bypass local workers with the same level of skills, efficiency and work ethics and incur extra costs of importing workers, indicates that this is an issue which merits combined efforts between employers the government and local workers. While employers have certain responsibilities in training their staff on job, the government of Zanzibar has the foremost responsibility to ensure that dynamic job seekers do not face unnecessary hurdles in their efforts to acquire requisite skills.

6.3.2 Transfer of Technology and Technical Know How

The calibre of the people where most investment are taking place has not been conducive in terms of transferring technical and managerial skills. While the beautiful beaches and landscapes as well as peaceful environment in the remote villages draw investors in the sectors, the quality of the labour force has hampered absorption of skills and knowledge emanating from FDI ventures.

7.0 CONCLUSIONS

Investment increases productivity (which requires investment in new technology, in R&D, in training) and is therefore the main source of output growth. In most growth regressions including those that focus on SSA, investment is the largest and most robust determinant of economic growth – an important cause of SSA’s slow economic growth is low levels of investment. Cognisant of this fact, the government has endeavoured to formulate policies that should nurture an environment that can foster increase in level of investments. Indeed these efforts have borne much fruit that Tanzania scored the highest in Africa’s Improvement Index documented in The Africa Competitiveness Report 2000/2001 published by the Centre for International Development based at Harvard University in the US. Ironically, despite these achievements, the investment effort in Tanzania is still low with gross fixed capital formation at 20 percent of GDP. This implies that challenges that need to be faced to increase the national investment efforts that are subsequently expected to trigger higher economic growth rates are far from over.

Despite their benefits, macroeconomic reforms have had negative short-term consequences for investment. Fiscal restraint has reduced the government’s ability to undertake high priority investments in the social sectors and in infrastructure. Public investment in these areas should be complementary (yielding positive externalities) to private investment. Recurrent expenditures on education and health fell from 6.1% of GDP between 1981-1985 to 3.5% in the latter part of the 1980s. More positively, the share of the social sectors in total government expenditure has increased from 12.9% in 1995/96 to 42% in 2000/2001. This development is in line with the PRSP-HIPC process. The scenario is not as encouraging on the infrastructure side with allocations in economic services declining from 43 percent to 16 percent of government expenditure over the same period. However, an encouraging side to this is that between 1996 and 1998 the bulk of public investments (about 2 thirds) were in manufacturing and transport and communication. The cash budgeting system has reduced the ability of the government to effectively manage its expenditure and especially it investments. Tight monetary policy while good for inflation has resulted in high real interest rates and a credit squeeze – reducing investment. Exchange rate adjustment and trade liberalisation have increased the supply of foreign exchange and needed (imported) inputs into production. Exchange rate devaluation has increased the incentive to export and invest in exporting activities. However, the real exchange rate has appreciated since 1994 raising possibility that interest rates are too high.
As such there remain a number of constraints to private sector investment in Tanzania. The poor quality of the road network (especially rural roads) provides a constraint to agriculture and rural investment, and the objective of a more even regional distribution of development. Investments in infrastructure (e.g., in power and telecommunications) would also stimulate private sector investment. The legal, regulatory and taxation environment provides a further needs to be revamped. Some of the hurdles to be removed include: inadequate supply of high middle-cadre personnel who are equipped with modern business techniques and customer service standards due to legacy of the previous regime; scarcity of loan capital from local banks with high rates of interest charged on the few loans that can be secured; labour laws which over protect employees; restrictive land laws; and multiplicity of taxes and regulatory bodies.
The encouraging scenario of private foreign investment inflows notwithstanding, Tanzania is still faced with a number challenges which need to be addressed if these are to contribute meaningfully to its development process. The main challenge is to successfully attract both the kind and amount of investment that will be accompanied by asset bundles that match development needs amidst intensified competition among potential host countries for these investments. This will entail ensuring that there is a constant awareness and understanding of the factors (which are more often than not, dynamic) influencing these inflows and their performance in the country. It also requires the existence of a sound, acceptable national development direction that would provide a sound bases for identifying the quantity and quality of investments that are to be promoted and for co-ordinating policies, incentives and regulation order to ensure the appropriate investment environment is created. The Development Vision 2025 seems to be fitting into this role slowly and surely as major policy documents that have either been formulated or revised after it launching continue to be informed by it.
Summarily more work needs to be done in order to ensure that both the education policy and science and technology policy conform well to the skill requirements of the nation’s developmental aspirations. The Education policy needs to guide the formation of a curricula that will have inbuilt dynamism to respond to diverse manpower needs of the growing private sector and which are bound to be continuously changing with technological advances that will also need to be harnessed and utilised effectively by this manpower. The S&T policy needs to be aligned with technological needs of the various sectors so that these can get adequate technological support. One area that will need immediate attention is ensuring that there is a workable link between potential and available R&D potential and available capacity and productive sectors by way creating an S&T framework that encompasses policies concerned with the structure and operation of S&T issues, policies concerned with linkage and feedback R&D subsystem and users of its outputs, policies which support assessments of impact of technical change and concerned with the importation absorption and innovation of technologies.

REFERENCES

Bank of Tanzania (BoT) (1982). Tanzania: Twenty Years of Independence (1961 - 1981). Dar es Salaam

_______, (2000). Economic and Operations Report for the Year Ended June 2000. Dar es Salaam

Bhinda, N. S. Griffith-Jones, J. Leape & M. Martin (2000). Private Capital Flows to Africa: Perception and Reality. FONDAD (The Hague).

Economic and Social Research Foundation (ESRF) (2001). “Country Draft Report on Competition Regime: A Case of Tanzania”. Paper prepared for CUTS Centre for International Trade, Environment and Economics. October

Foreign Investment Advisory Service (FIAS) (2002). “Foreign Direct Investment and Competition Policy: Issues and Recommendations”. February.

Kida, T. M. (2000). “Human Resources”: Position Paper Presented to Directors of Policy at Paradise Hotel, Bagamoyo, March 2001.

Lipumba, N. H. I. (1989). “Reflections on Economic Development: The Tanzania Experience” in UCHUMI-(Journal of the Economic Society of Tanzania), Vol.2. No.1. 1989.

Madete, L. B. (2000). Foreign Direct Investment and Public Policy in Tanzania. Unpublished MA Dissertation submitted to the University of Dar es Salaam, Economics Department.

Maenda, A. T. (2000). “Salient Features of the Labour Laws of Tanzania”. Part of background Material Prepared for Association of Tanzania Employers (ATE)/Frederich Neuman Foundation (FNF) Industrial Relations and Labour Laws Training Seminar for Human Resource Managers and Adminstrators held on 28^th to 31^st August, 2001 at Hotel Oasis, Morogoro.

Mans, D. (1993). “Tanzania: Resolute Action” in Husain, I., Farquee and Rashid (Ed.) Adjustment in Africa: Lessons from Country Case Studies. World Bank. Washington.

Mkenda, B. K. (2002). “The Evolution of East African Trade: Structure and Policies”. Paper Prepared for presentation at a workshop to launch the project on “Globalisation and East African Economies” held at the ESRF, April 15-16, 2002 Dar es Salaam.

Mtatifikolo, F. (1998). The Content and Challenges of Reform Programs in Africa: The Case Study of Tanzania. Beritche aus dem Weltwirtschaftlichen colloquim der Universtat Bremen. Nr. 56.

Mwandenga, A. M. (2000). “Socio-Economic Impact of Privatisation: The Tanzania Experience.” The African Journal of Finance and Management. Vol 9 no. 1 July 2000. Institute of Finance Management (IFM).

Nyagetera, B. (1995). Investment, Foreign Aid and Self Reliance in Tanzania: A State of the Art Review. ESRF Discussion Paper Series, No. 001

Parastatal Sector Reform Commission (PSRC), (2001). Privatisation in Tanzania. A bimonthly Newsletter of the PSRC. Issue No. 8, November-December.

Tibandebage, P. (2000). “Public Policy and Public Sector Investment”. Paper prepared for ILO as part of IPRE Studies. Dar es Salaam., Dar es Salaam.

Tsikata, Y. M. and L. B. Madete, (2000). “Private Sector Investment”. Paper prepared for ILO as part of a Study on Investment for Poverty Reducing Employment (IPRE). Dar es Salaam.

United Nations Conference on Trade and Development (UNCTAD)(1998). World Investment Directory. Volume V (Africa). Geneva. New York

__________, (2001). Investment Policy Review: United Republic of Tanzania –Unedited Advance Copy. Geneva. December 5.

__________, World Investment Report. Various Issues. Geneva. New York.

United Republic of Tanzania (URT) and World Bank (2001). Tanzania at the Turn of the Century: From Reforms to Sustained Growth and Poverty Reduction. World Bank, Washington DC.

URT. Budget Speeches (Various years)

_________, Economic Survey. Various Issues.

_________, National Accounts of Tanzania (Various Years). National Bureau of Statistics. Dar es Salaam

_________, (1999). “The Integrated Framework for Trade Development (Volume I): Executive Summary” Ministry of Industries and Trade.

Wangwe, S. M., S. Mjasiri and G. Robi (1996). “Cost of Adapting National IPR Laws and Institutional Arrangements to the TRIPS Agreement – The Case of Tanzania”

Wangwe, S. M., (1997). “Fostering Technological Capacity Building in the Unite Republic of Tanzania and Ethiopia” Paper prepared for UNCTAD.

Wangwe, S. M. and B. J. Ndulu, (1997). “Managing Tanzania in Transition to Sustained Development”. Paper prepared for Workshop on Economic Management held at the Kilimanjaro Hotel, Dar es Salaam. 20-21 March 1997.

Wangwe, S. M. and Y. M. Tsikata. (1998) “Macroeconomic Developments and Employment in Tanzania”. Paper prepared for ILO, Dar es Salaam

Wangwe, S. M., G. T. Hobbs and H. G. Lawuo (2000) “Conceptual Context Paper”. Paper prepared for ILO as part of IPRE Studies. Dar es Salaam., Dar es Salaam.

Wangwe, S. M. and G. T. Hobbs (2000) “IPRE Synthesis Paper”. Paper prepared for ILO as part of IPRE Studies. Dar es Salaam., Dar es Salaam.

Wangwe, S. M. and L. B. Madete (2000). “Investment in Tanzania: The Business and Administrative Environment”. Paper prepared for TIC/UNIDO National Workshop on Investment Regulations, 11-12^th May 2000, Sea Cliff Hotel, Dar es Salaam,

Wangwe, S. M. (2001). “Case Study On Institutional Capacity In Intellectual Property Policy, Administration And Enforcement: The Case Of Tanzania”

1 World Economic Outlook Data base http://www.imf.org/external/pubs/ft/weo/2001/01/data/index.htm 7/8/2002

2 For FDI data

3 MIC (Tanzania) Limited, Tri Telecommunications (Tanzania) Ltd, Celnet Mobile, Vodacom Tanzania Ltd and ZANTEL

4 Wilken Afsat Tanzania Ltd, DATEL Tanzania Ltd, EQUANT (T) Ltd, SIMBANET (T) Ltd, SOFT-TECH (T) Ltd and FASTCOM AFRICA Ltd.

5 Computer and Telecoms Systems Ltd (CATS), Cyber Twiga Ltd, SIMUNET Co. Ltd, Planetel Communications (T) Ltd, University Computing Centre Ltd. (UCC) and Africanonline.

6 ACG Telesystems Ltd, which later changed its name to Adesemi, Beep Me Ltd, Call Systems Ltd. TTCL. However, low returns have hampered the growth of this service. As of December 2001 none of these companies were providing the services.

7 Kidatu, Mtera, Nyumba ya Mungu, Hale and Lower Kihansi

8 Recently started undergoing a divestiture process.

9 It is worth noting that real exchange rate depreciation between 1990 and 1994 increased the price of (mostly imported) capital goods over this period.

10 E.g., large interest rate spread, fragmented financial market and narrow range of available saving instruments.

11 Tanzania Investment Report: Report on the Study of Private Capital Flows in Tanzania, December 2001.

12 1990-1994 is not available on an annual basis. Aggregated data indicates that 32 percent of the approved projects were in the manufacturing sector.

13 TIC data shows that it accounted for 20 percent of investments approved between 1990 and 1994

14 Tanzania Breweries Limited (TBL), Tanzania Cigarette Co., Tanzania Tea Packers Limited and TOL Limited.

15 3 year East African Development Bank (EADB) bonds since November 1999 and 5 year Treasury Bonds from early this year.

16 As per BoT Press Release, ay 21 2002.

17 As of April 2001, the government had passed two bills to facilitate the establishment of two multi-sector regulatory authorities. These were the Energy and Water Utility Regulatory Authority Act (EWURA) and the Surface and Maritime Transportation Regulatory Authority Act (SUMATRA), which provide for the setting up of authorities to regulate energy and water utilities and surface and marine transportation respectively.

18 Mostly done by relevant ministries directly before formation of PSRC

19 Loans Advances and Realisation Trust –created in 1991 to provide a machinery for removing non-performing assets from financial institutions and allow them to restore their balance sheets.

20 Sourced from “Foreign Direct Investment and Competition Policy: Issues and Recommendations” Report prepared by FIAS in February 2002.

21 The Tanzania Investor Road Map: US Agency for International Development: Two reports, 1996 &1999

22 The revenue sources for the Local Government come from a number of local taxes and fees collected within the jurisdiction of each local authority e.g. City Council, Municipal Council, Town Council and District Councils.

23 More details in section 3.2 above

24 Roads and Bridges Construction, Airports, Generation of Electricity, Telecommunications, Water Services and Back up Services to the Mining Sector)

25 Comprising of Ministers for Finance, Planning and Privatisation, Agriculture and Livestock Development, Industries and Trade and Ministry of Lands and Human Settlements Development, the Attorney General and Governor of the Central Bank, with the Director General of TIC as its secretary. The NISC is back stopped by a Technical committee chaired by the Deputy Permanent Secretary (DPS) of the Ministry of Finance, and Planning and Privatisation, the Commissioner for Lands, Director of International law (Ministry of Justice and Constitutional Affairs) with the Director of Investment at the TIC as its Secretary

26 Based on a paper titled: “Zanzibar Direct Investments: Evolution and Performance” by Mohamed Hafidh. The paper was presented at the first NRG Meeting held in February 2002.

27 Approved by ZIPA only