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THE UNITED REPUBLIC OF TANZANIATANZANIA INVESTMENT CENTRE

³INVESTMENT FOR AFRICAN

DEVELOPMENT: Making it happen´

NEPAD/OECD INVESTMENT INITIATIVE,Imperial Resort Beach Hotel

ENTEBBE, UGANDA

25 th ± 27 th May 2005,Presented by:Samuel J. SittaExecutive Director Tanzania Investment CentreE-mail : [email protected] Website : www.tic.co.tz

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CONTENTS/OVERVIEW

1. Introduction2. Economic Policy Reform3. Investment Policy Framework 4. Private Sector Development Initiatives

a) National Investment Steering Committee (NISC)b) Tanzania National Business Council (TNBC)c) Investment guarantees & settlement of disputes

5. Remaining regulatory, legislative & administrative

impediments to private investment6. Tanzania Investment Regime7. Challenges and The way Forward8. Conclusion

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ECONOMIC REFORMS AND THE DEVELOPMENT OFTHE NATIONAL INVESTMENT PROMOTION POLICY

Economic reforms initiated in 1986:Trade liberalization

First Investment Code June 1990

Private investment allowed in allocated areas

Some of the problems met in implementing the 1990Investment Policy & the Act as per studies carried out:

Restrictive investment environment

Lack of coordination of sectorial policies and the

investment policyExistence of several laws and regulations that conflicted

with the investment code

Existence of a non commercialised society

Existence of a non facilitative civil service

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M ajor highlights of the Studies carried

(i) Review of the investment Policy and Law, prepared by Dr. H.Sinare and Dr. F. Ringo under the auspices of Economic andSocial Research Foundation (ESRF) - 1996 and

(ii) Investors Road Map (1996) prepared by The Services Group, ateam from USA.

B oth reports addressed policy, legal, procedural andadministrative barriers to investment in Tanzania

The reports forced GoT departments to re-examine their processes and make appropriate changes; main changes whereas follows: -

Adoption of the New Investment Policy 1996 Enactment of the new investment code 1997 & establishmentof Tanzania Investment Centre (TIC) One Stop Shop forinvestors

Harmonized key legislation Removed restrictions on investment areas Enhanced economic and social reforms from 1996 onwards.

CORRECTIVE MEASURES TAKEN TO FURTHERIMPROVE THE TANZANIAN INVESTMENT CLIMATE

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TANZANIA ECONO M IC REFOR M S

The Government has implemented reformsaimed at transforming its economy fromone based on a large State-owned sector and central planning to a market-and

private-sector-based economy.16 major reform legislations were enactedbetween 1990 and 2004.

These reforms have helped Tanzania to improveefficiency and weed out ills that impedegrowth .

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Major reform legislations enacted between 1990 and 2002are as follows:-The Income Tax Act 2004The Companies Act No. 12 of 2002The Export Processing Zones Act No. 11 of 2002The Commission for Human Rights & Good Governance Act No. 7 of 2001

The Land Act 1999The Mining Act 1998The Privatisation Trust Act No. 7 of 1997The Financial Laws Miscellaneous Amendments Act 1997The Tanzania Investment Act No. 26 of 1997The Tanzania Revenue Authority Act No. 11 of 1995

The Immigration Act No. 7 of 1995Capital Market and Security Act No. 5 of 1994 and as amended byCapital Market and Security Act No. 4 of 1997The Public Corporations Act 1992 and Amendment Act 1993The Foreign Exchange Act 1992The Banking and Financial Institutions Act No 12 of 1991The Loans and Advances Realization Act 1991

TANZANIA ECONO M IC REFOR M S

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TIC established in 1997 to be ³ The Primary Agencyof the Government to coordinate, encourage,promote and facilitate investment.³ One-Stop Facilitative Centre´ with officers fromMinistry of Trade & Industry, Business Registration &Licensing Authority (BRELA), Lands, Immigration,Labour and TRA stationed at the TIC.

TIC Relationship Managers regularly visit investmentprojects to follow up on implementation and obtainfeedback to resolve any business problems.

Facilitates investors to acquire land by offering themland derivative titles on behalf of the Govt.

TANZANIA INVESTMENT CENTRE (TIC)

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TIC is committed to facilitating investors Application Days taken

Company Registration 3

Business licensing 3Certificate of incentives 7

Resident Permit Class µA¶ 14

Resident Permit Class µB¶ 14Special Pass 1

TIC voted Africa¶s Best IPA of the year 2004

TIC CLIENTS CHARTER OUR CO MM IT M ENT TO INVESTORS

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TANZANIA INVEST M ENT CENTRE

Currently TICis installingthe computerworkflowmanagement

systemtowardspaperlessofficeoperation.

Africa America Europe Tanzania Asia

Internet

PowerShift eCRM

Domino.DocDocumentManagement

eTrack

ProjectManagement(QuickPlace)

DominoWorkFlowEngine

Pre-Investment

Investment

Operational

Respective Government Agencies/ Approval / Routing /Project Tracking & Management

Business Development Services

Customers

TICSystems ArchitectureDomino Workflow

January 2005

OpticalScanner

SignedDocuments

C ertificate of Incentives processing

In addition it is also re-designing and updating its website so asto constantly provide current and update investmentinformation including new legislations/regulations to investors

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NATIONAL INVESTMENT STEERINGCOMMITTEE (NISC)

Spearheading investment policy formulation,Fast track solutions to investors problems of investors,Identify and supervise the elimination of legal

impediments to investmentChaired by the Hon. Prime M inister,Other members of the committee are M inistersfor Finance, Agriculture, Lands, Industry and

Trade, President¶s Office Planning &Privatisation; Governor of BoT; AttorneyGeneral and Executive Director-TIC(Secretary).

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NATIONAL BUSINESS COUNCIL (TNBC)

National Business Council seeks to enhancePublic/Private sector ³ smart partnership´.

The Business Council is chaired by thePresident and the Chairman of TanzaniaPrivate Sector Foundation is Vice Chairman.

TNBC organizes and facilitates InvestorsRound Table Meetings (IRT); Local andInternational

The TNBC has resolved a number of businessimpediments including enactment of a newbusiness friendly land law and abolition of many nuisance taxes.

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INVESTMENT GUARANTEES ANDSETTLEMENTS OF DISPUTES

Tanzanian law offers guarantees againstnationalization and expropriation,

Tanzania is a member of both the I nternational

Centre for Settlement of Investment Disputeand M ultilateral Investment GuaranteeAgency,

Free/Unconditional Transfer of Capital,Profits, dividends and other benefits forinvestors and employees working in Tanzania

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REGULATORY TREAT M E M ENT OF FDI INTANZANIA (RESTRICTIONS ON INVEST M ENT

S/No. Restriction Current Status New Developments

1. General Restrictions on entryEntry of FDI

Foreign purchase of SharesIMF Article VIII statusLiquidation proceeds transfer

Abroad

Yes (threshold of USD0.3m and USD 0.1mfor foreign & localrespectively

No restrictions

Signed

No restrictions

However at DSE foreignersare not required to exceed 6 5% share purchase in a ListedC ompany

2. Sectoral Limitations to FDIFinancial Services

Other Services

Primary SectorsManufacturingAcquisition of real estates for

FDI purposes

Some restrictions

No restrictions,however no incentivesoffered for someservices

Minimal restrictions No restrictions

No restrictions

Initiatives are underway toestablish SpecialEconomic Zones (SEZ)

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S/No. Restriction Current Status New Developments

3. Post entry restrictionsAccess to local financeAccess to privatisationAccess to public

procurementTaxationDiscriminatory licensing in

public utilitiesNationality-based

restrictions on boardsDiscriminatory practicesEntry of key personnelPerformance requirements

No restrictions

No restrictions

No restrictions

No restrictions

No restrictions

No restrictions

No

No restrictions

Not required

Land Act 1999 has also beenamended so that land can beused as collateral by local andforeign investors to get bank loans

New income Tax 2004

REGULATORY TREAT M E M ENT OF FDI INTANZANIA (RESTRICTIONS ON INVEST M ENT

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REGULATORY PRACTICES OTHER THANRESTRICTIONS

S/No. Regulatory Practices Current

Status

New Developments

1. Practices encouraging FDIFDI-targeted tax & and other

incentivesNumber of bilateral investment

treaties (of which with OE C Dmembers)

Number of bilateral tax treaties(of which with OE C D members)

Yes

20

(12)12(7 )

Initiatives are underway toharmoniseEA C investmentRegimes

Pending negotiations 10

Pending negotiations 8

2. Enhancing Policy TransparencyPublications of regulations

Notification prior to regulatorychanges

Negative list of restricted sectors³silent and consent´ authorisation

Yes

Yes

YesYes

Publication through variousmedia including newly

parliamentary website at:www.parliament.go.tzGovernment website at:www.tanzania.go.tz andTreasury at: www.mof.go.tz

A good example is at theTIC¶ s One Stop C entreoperation, when seekingauthority from other Govt.

MDAsM DAs = M inistries, Departments and Agencies

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BILATERAL INVEST M ENT TREATIES. LISTOF BIT SIGNED AS OF JANUARY 2005

S/No OECD Countries Year of Signing

S/No Non OECDCountries

Year of Signing

1 Denmark 1999 1 South Africa 1959

2 Finland 2001 2 Zambia 196 8

3 Germany 1965 3 India 19 7 9

4 Italy 2001 4 Egypt 199 7

5 Korea 1998 5 Mauritius 2003

6 Netherlands 2001 6 Zimbabwe 2003

7 Sweden 1999 7 Malawi* 2003

8 Switzerland 1965 8 OPE C Fund* 2003

9 United Kingdom 1994

10 C anada 199 5

11 Korea 199 8

12 Swiss C onfederation 2004

Source: Government of Tanzania * Partial Agreement

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BILATERAL TAX TREATIES. LIST OF DTTsSIGNED AS OF JANUARY 2005

S/No OECD Countries Year of Signing

S/No Non OECDCountries

Year of Signing

1 C anada 199 5 1 Zambia 196 8

2 Denmark 19 7 6 2 South Africa 19 5 9

3 Finland 19 7 6 3 India 19 7 9

4 Italy 19 7 3 4 Kenya (EA C ) 2004

5 Norway 19 7 6 5 Uganda (EA C ) 2004

6 Sweden 19 7 6 6 Zimbabwe

7 Korea 2003 7 UAE

8 Russia

9 Seychelles

10 Mauritius

11 Egypt

12 Yugoslavia

13 Oman

Source: Government of Tanzania * Under negotiations

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TANZANIA INVEST M ENT REGI M E

Investment framework in Tanzania is characterised by: -Relative ease of entry and establishmentNo ownership restrictions or performance requirements.A fiscal stability clause, Section 19(2) of TI Act 199 7 that

guarantees investors that incentives provided will not beamended or modified to the detriment of the investorsenjoying those benefits.No restrictions on the repatriation of profits or disinvestments in TanzaniaInvestors have the right to make transfer payments infreely convertible currency

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Investors are allowed to obtain land for investment purposesthrough the TI C that issues derivative rights (under the new Land(Amendment) Act (2004) ) .Under Section 24 of the TI Act 199 7 , TIC certificate holders havethe right of an initial automatic quota of employing up to five

persons during the start up period.

Only in a few cases are foreigners required to pay an extra taxother wise the corporate tax stands at 30 percent, and VAT is 20 percent for all companies except for those that have specificincentives.Govt. has passed the Employment and Labour Relations Act

(2004) with the purpose of having a labour regime whose policies,laws and regulatory structures promote employment, protectlabour and at the same time allow enterprises to grow and competein the modern economy.The country also benefits from specific bilateral initiatives

particularly USA, under the familiar AGOA program, and the EUunder E B A.

TANZANIA INVEST M ENT REGI M E

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RECENT DEVELOP M ENTS

The establishment of theC

ustoms Union Protocol, which wassigned on 2 nd March 2004, is one of the greatestachievements of the new EA C .A number of specialized taskforces have been formulated andrevision of regulations through task forces such as the Tax

Reform Taskforce, the Land Reform Taskforce, and theLabour Reform Taskforce, etc. These task forces includemembers from different government departments, civilsociety, and the business community.Tanzania has also signed a number of internationalagreements governing the protection of foreign investment inTanzania including bilateral investment treaties ( B IT) anddouble taxation treaties (DTT). Negotiations are currently inthe process to conclude agreements with Zimbabwe, Malawi,Mauritius and South Africa.

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ATTRACTIONS

1. Beautiful country with friendly people

2. Favourable Investment Environment A. Successful Macroeconomic performance

B. Effective ³One Stop facilitative Centre´ (TIC)

C. National Investment Steering Committee

D. Tanzania National Business Council for³smartpartnership´

3. Abundant Investment Opportunities

4. Talented and skilled labour force.

5. Willingness to listen

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PERCEPTIONS HINDERING FDIBUREAUCRACY

No. of Days to start a business

122

40353846

85

153

45

92

215

146

97

4

0

50

100

150

200

250

A n g o l a

B o t s w

a n a D R C

L e s o t h o

M a l a w i

M o z a

m b i q u e

N a m i b i a

S / A f r i c a

T a n z a

n i a

Z a m b i a

Z i m b a

b w e

C h i n a U S A

Source: Doing business in 2004 (World Bank)

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TANZANIA ECONOMIC STATISTICS

1997 1998 1999 2000 2001 2002 2003

Population (millions) 29.1 30.0 30.9 31.9 32.9 34.5 36.0

GDP (factor cost ) Tshsbn

4,282 5,125 5,978 6,705 7,635 8,629 9,110

Real GDP Growth, %change

3.3 4.0 4.7 4.9 5.6 6.2 5.6

GDP per Capita(at c/prices-Tshs 000¶)

147 171 193 210 232 256 300

Exchange rate(Tshs/US$) ann. Avg.

612 665 745 808 876 967 1039

Inflationannual average (%)

16.1 12.9 7.8 6.0 5.2 4.5 4.4

Investment/GDP ratio(%)

14.7 16.0 15.4 17.6 17.0 18.9 18.5

FDI (US$ mn) 158 172 542 282 467 240 248

Source: National Bureau of Statistics 2004 - Tanzania

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GDP GROWTH RATE AND INFLATIONIN TANZANIA (1997 ± 2004)

0

1

2

3

4

5

6

7

8

1997 1998 1999 2000 2001 2002 2003 2004 Years

G D P G o w r h

%

0

2

4

6

8

10

12

14

16

18

I n f l a t i o n r a t e

%

GDP Growth Inflation

Source : Bank of Tanzania - 2005

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0

50

100

150

200

250

300

350

400

450500

1 9 9 5

1 9 9 6

1 9 9 7

1 9 9 8

1 9 9 9

2 0 0 0

2 0 0 1

2 0 0 2

2 0 0 3

2 0 0 4

Years

N o .

o f R e g

i s t e r e d

P r o

j e c t s

0

200

400

600

8001000

1200

1400

1600

1800

V

a l u e s o

f P r o

j e c t s i n U S $ M i l l i o n

No. of Registered Projects Values of Projects (US$ Million)

TIC REGISTERED PROJECTSFROM 1995 TO 2004

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FDI INFLOWS TO TANZANIAFROM 1992-97 TO 2003

Despite declining world FDI inflows, FDI into Tanzania has beenincreasing in the past five years, with an average of US$ 3 5 6million annually.

90

172

248240

467

282

542

0

100

200

300

400

500

600

1992-97 1998 1999 2000 2001 2002 2003

US$ Million *

@

*

@ Annual average from 1992 to 1997

* Sharp increase was due to huge investment in mining projects

Source: World Investment Report - 2004

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THE WAY FORWARD

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THE BEST PROGRA MM E

The Government and Donors (DFID, SIDA,DANIDA and the Royal Netherlands Govt. haveset-up a basket fund late 2003 for the BusinessEnvironment Strengthening of Tanzania(BEST) .This is a five year programme commenced thisyear (2004) to year 200 8 at a cost of US$ 1 8 million.The B EST programme piloting continuousimprovement of an enabling environment for

private sector operations.C reating a better policy, administrative, legal,regulatory and judicial framework

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SU MM ARY OF THE INTERLINKED CO M PONENTSOF THE BEST PROGRA MM E

S/No.CO M PONENTS M AIN OUTPUTS

Achieving B etter Regulation

Unnecessary regulations removed

Sustainable process established for ensuring business-friendly laws,regulations and administrative procedures

Improved efficiency and transparency of government institutionsdealing with business

ImprovingC ommercial DisputeResolution

Improved accessibility to the court system for formal and informal business

Speed and quality of service provided by court system for businessimprovement

Strengthening the

Tanzania InvestmentC entre

Increased number and value of local and foreign investment in

Tanzania Enhanced promotion of Tanzania as investment destination

C hanging the C ultureof Government

Improved customer service ethos for services provided to the privatesector by the public and judicial service

Empowering PrivateSector Advocacy

Improved capacity of private sector stakeholders to identify regulatory problems and solutions and advocate for an improved businessenvironment

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THE WAY FORWARD

The establishment/formation of programmes such asB usiness Environment Strengthening for Tanzania(B EST)Export Processing Zone (EPZ)Special Economic Zones (SEZ)

Spatial Development Initiatives (SDIs)Tanzania National B usiness C ouncil (TN BC )

National Investment Steering C ommittee (NIS C )Among others, is a manifestation of the Govt ¶s

commitment towards establishing a private sector led economic growth.

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THE WAY FORWARD

Proactively championing Regional Integrationto create bigger markets and investments withenhanced benefits and faster growth to all.As follow up action to the UNCTAD InvestmentPolicy Review ±2003, TIC has commissionedtwo research studies (i.e. Tanzaniacomparative/competitive advantages study and astudy to evaluate the growth and impact of investment) in order to target more preciselyinvestment promotion & facilitation activities.New licensing legislation (under BESTprogramme)Labour laws being amended

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