2011 Investment Climate Statement
Bureau of Economic, Energy and Business Affairs
March 2011
Report

Openness To and Restrictions Upon Foreign Investment

The Government of Tanzania (GOT) generally has a favorable attitude toward foreign direct investment (FDI) and has had considerable success in attracting FDI. However, the legacy of statism has not yet been overcome and some officials remain suspicious of foreign investors and free competition. After several years of growing FDI, new FDI in 2009 declined modestly due to the global economic crisis to USD 650 million from 2008's record USD 744 million.

Tanzania's Capital Account regime restricts the free flow of investment in and out of the country. Non-citizens cannot buy bonds and other debt securities in the domestic market. In addition, Tanzanians cannot sell or issue securities abroad, unless approved by the Capital Markets and Securities Authority (CMSA). The Dar Es Salaam Stock Exchange (DSE) forbids companies with more than 60 percent foreign ownership from listing. Under the terms of the planned East African Community (EAC) monetary union, all EAC residents are expected to receive national treatment by 2012, though this deadline will likely be pushed back.

There are no laws or regulations that limit or prohibit foreign investment, participation, or control, and firms generally do not restrict foreign participation in practice. In 2010, new legislation required foreign-owned telecommunications firms to list on the DSE within 3 years and gave the Minister of Energy and Minerals discretion to require foreign mining companies to give the government a free carried share of ownership in order to receive a Mining Development Agreement. Foreign investors generally receive national treatment; however, the Tourism Act of 2008 bars foreign companies from engaging in mountain guiding activities. According to the legislation, only Tanzanian citizens can operate travel agencies and car rental services and engage in tour guiding.

The Tanzanian Investment Center (TIC), established by the Tanzanian Investment Act of 1997, is the focal point for all investors’ inquiries, screens foreign investments, and facilitates project start-ups. TIC has been given authority to manage Public Private Partnerships (PPPs) for foreign companies under 2010 PPP legislation that sets a framework for Build-Operate-Transfer arrangements with private companies. Filing with TIC is not mandatory, but offers incentives for joint ventures with Tanzanians and wholly owned foreign projects above USD 300,000. The review process takes up to 10 days and involves multiple GOT agencies, which are required by law to cooperate fully with TIC in facilitating foreign investment, but in practice can create bureaucratic delays. Projects are not currently reviewed for anti-competition concerns. Companies are not required to disclose proprietary information as part of the approval process. TIC continues to improve investment facilitation services, provide joint venture opportunities between local and foreign investors, and disseminate investment information. TIC does not have specific criteria for screening or approving projects, but considers factors such as: foreign exchange generation, import substitution, employment creation, linkages to the local economy, technology transfer, and expansion of production of goods and services. Very few projects that submit all required documents are rejected. Approved projects receive TIC certificates of incentive and are allowed 100% foreign ownership; VAT and import duty exemptions; and repatriation of 100% of profits, dividends, and capital after tax and other obligations. Similar incentives are offered to investors in semi-autonomous Zanzibar through the Zanzibar Investment Promotion Agency (ZIPA). Among investment and trade opportunities promoted by the TIC are agriculture, mining, tourism, telecommunications, financial services, and energy and transportation infrastructure. Investment tax incentives can be unpredictable; in 2010 an export tax on air freight was imposed and then rescinded, capital goods tax exemptions were reinstated, and agricultural equipment imports were given generous exemptions.

Land ownership remains restrictive in Tanzania; under the Land Act of 1999, all land in Tanzania belongs to the state. Procedures for obtaining a lease or certificate of occupancy can be complex and lengthy, both for citizens and foreign investors. Non-citizen investors may occupy land for investment purposes through a government-granted right of occupancy, through derivative rights, or through sub-leases through a granted right of occupancy. Rights of occupancy and derivative rights may be granted for periods up to 99 years and are renewable.

The government Better Regulation Unit (BRU) manages the implementation of the World Bank- supported Business Environment Strengthening for Tanzania (BEST) program, which aims to reduce the regulatory and administrative burden. In 2007, the World Bank's "Doing Business" report listed Tanzania as among the top ten reformers. In response to subsequent slippage in the comparative rankings since then, the GOT has consolidated in the Prime Minister's Office responsibility for key reform programs requiring inter-ministerial action. The stated goal is to implement "quick wins" that will significantly improve Tanzania's ranking.

This "Road Map" to a better business environment has already started:

- reducing the number of roadblocks on main highways;

- streamlining business registration and making it available online;

- increasing agricultural lending through a dedicated loan window at the Tanzania Investment Bank, pending establishment of a full agricultural bank;

- introducing electronic case management systems in backed up courts and small claims commercial "streams" in lower courts; and

- reducing port clearing times by shifting goods to inland container depots and increasing storage fees.

The Road Map details plans to:

- computerize work permits processing,

- establish a port "single window",

- consolidate construction permit and inspection procedures,

- make tax filing and payment electronic,

- appoint more civil court judges and incorporate small claims commercial cases in mainstream courts

- computerize land registry titles.

The Economic Processing Zones Act 2006 authorized the establishment of Special Economic Zones (SEZs) to encourage greenfield investments in the light industry, agro-processing industry and agriculture sectors. The GOT's Export Processing Zones Authority (EPZA) continues to promote Export Processing Zones (EPZ) to attract investments in agricultural value added processing, textiles and electronics. Investors in EPZs are eligible for tax exemptions, e.g., on building and construction materials, and other incentives.

EPZA has made the following steps towards improving the investment climate in 2010:

Licenses and Registration

By streamlining bureaucratic procedures and requirements, the EPZA has reduced the amount of time required to register and license new investors from one month in 2009 to a reported maximum 7 days in 2010.

Establishment of One Stop Service Center

The establishment of a One Stop Service Center at Benjamin William Mkapa Special Economic Zone puts various procedures from different departments under one roof e.g., work permit applications.

Serviced Land

The EPZA has set aside additional land, equipped with infrastructure, for EPZ activities in Bagamoyo and Mkuranga. The authority has earmarked an additional 16 sites countrywide for development.

Timely Clearance of Goods

Goods destined for EPZA registered companies have been accorded special treatment and exemptions and are treated as transit cargo. This results in faster clearance and lower clearance costs.

The financial sector has continued to expand, with an increase in foreign-affiliated financial institutions and banks operating in Tanzania. In 2010, Ecobank started operations in Tanzania. As of December 2010, the Bank of Tanzania listed a total of 28 commercial banks licensed and operating in Tanzania, (41 financial institutions in all) over half of which are foreign-affiliated. The banking system showed a high concentration of total assets - 57 percent - being held by four large banks. Foreign-owned banks in Tanzania account for about 48 percent of the banking industry’s total assets. Competition among these foreign commercial banks has resulted in significant improvement in the efficiency and quality of financial services, though interest rates are still relatively high, reflecting the high risk of fraud due to the lack of a national ID or credit reference bureau.

The EAC's Customs Union came into force on January 1, 2010, after a five year transition period. All duties were removed on goods traded within the region (the EAC comprises Burundi, Kenya, Rwanda, Tanzania and Uganda). In July 2010 the member states enacted a Common Market Protocol to allow free movement of goods, people, and capital within the region. Although the EAC member countries continue to discuss economic integration and harmonize regulations, non-tariff barriers--such as the administration of duties and other taxes, and corruption--remain a problem. Tanzania is also a member of the Southern Africa Development Community.

If a scroll bar appears below the following table, swipe the table to move left/right of the dashed line.

Measure

Year

Index/Ranking

TI Corruption Index

2010

116/178

Heritage Economic Freedom

2011

58.3/100

World Bank Doing Business

2011

128/183

MCC Gov’t Effectiveness

2011

84/100

MCC Rule of Law

2011

81/100

MCC Control of Corruption

2011

82/100

MCC Fiscal Policy

2011

20/100

MCC Trade Policy

2011

54/100

MCC Regulatory Quality

2011

74/100

MCC Business Start Up

2011

73/100

MCC Land Rights Access

2011

88/100

MCC Natural Resource Mgmt

2011

49/100

Note: MCC countries are ranked relative to the median in their income peer group. Tanzania was lower ranked on Fiscal Policy due in part to a relatively high dependence on donor budget support.

Conversion and Transfer Policies

Tanzanian 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 limit on transfers of foreign currency is on cash carried by individuals traveling abroad, which cannot exceed USD 10,000 over a period of forty days. Shortages of foreign exchange occur rarely. Bureaucratic hurdles continue to cause delays in processing and effecting transfers; delays can range from days to weeks. Investors rarely use convertible instruments. Investors do not complain of any delays in remitting returns and there have been no remittance policy changes this year.

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.

Dispute Settlement

Investment disputes in Tanzania can be protracted. The Commercial Court of Tanzania, established in 1999, is headquartered in Dar es Salaam. The government is establishing additional commercial courts in other regions, including in western and southern Tanzania. Lack of capacity is an issue, and cases are currently backlogged. Foreign investors sometimes complain that the government of Tanzania (GOT) "changes the goalposts" and doesn't honor agreements. There is a bankruptcy law in Tanzania, but according to the World Bank's Doing Business report it takes on average 3 years to close a business, while the recovery rate for creditors on insolvent firms is only 21.9 cents on the dollar. Judgments are typically made in local currency.

Tanzania is a member of both the International Center for the Settlement of Investment Disputes (ICSID) and the Multilateral Investment Guarantee Agency (MIGA). The ICSID was established under the auspices of the World Bank by the Convention on the Settlement of Investment Disputes between States and Nationals of Other States. The MIGA is also World Bank-affiliated and issues guarantees against non-commercial risk to enterprises that invest in member countries. There is no specific legislation in Tanzania providing for enforcement under the 1958 NY Convention or for the enforcement of awards under the ICSID Convention. In December 2010, ICSID ruled that state power utility Tanesco owed Dowans, a foreign emergency power producer, USD 65 million. In 2010 foreign mining companies complained the government did not honor pledges made in their individual Mining Development Agreements to exempt them from VAT on diesel fuel.

Under Tanzanian regulations, disputes between a foreign investor and the Tanzanian Investment Center that are not settled through negotiations may be submitted to arbitration, through one of several options:

--Arbitration based on the arbitration laws of Tanzania;

--Arbitration in accordance with the rules of procedures of the ICSID;

--Arbitration within the framework of any bilateral or multilateral agreement on investment protection to which the Government and the country of which the investor is a national are parties;

--Arbitration in accordance with the World Bank's Multilateral Investment Guarantee Agency (MIGA), to which Tanzania is a signatory;

--Arbitration in accordance with any other international machinery for settlement of investment disputes agreed upon by the parties.

Performance Requirements/Incentives

The government uses WTO’s Trade-related Investment Measures (TRIMs) to promote development objectives, to encourage investments in line with national priorities, and to attract and regulate foreign investment. The GOT does not maintain any measures it has notified the WTO to be inconsistent with TRIMS, nor that allegedly violate TRIMS. Trade development instruments that Tanzania has adopted include Export Processing Zones (EPZs), Investment Code and Rules, and Export Development/Promotion and Export Facilitation. EPZs were established by the 2002 EPZ Act and are open to both domestic and foreign investors. The Export Processing Zones Authority (EPZA), housed in the Ministry of Industry, Trade and Marketing, is charged with designating suitable areas for the location of EPZs. The EPZA also oversees incentive packages directed at increasing investment, including exemption of corporate tax and withholding taxes on rent, dividends and interest; remission of customs duty, value-added tax (VAT) and other taxes on raw materials and capital goods; and exemption from VAT on utilities, wharf charges, and levies imposed by local authorities, for up to ten years.

Tanzania has largely completed its transition to a liberalized market economy, though the government retains a presence in sectors such as telecommunications, banking and mining. The GOT has sought foreign investors to manage formerly state-run companies in public-private partnerships, but successful privatizations have been rare. Though there is an official privatization program, bidding criteria are not always clear and transparent. In 2009-10 the government took control back from formerly privatized Tanzania Railways Limited, General Tyre, and Kilimanjaro International Airport after expressing disappointment with the failure of the management companies to achieve desired goals.

The Investment Code offers a package of investment benefits and incentives that are applied uniformly to both domestic and foreign investors by TIC, without performance requirements.

These include:

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

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

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

- Guarantees against nationalization and expropriation. Any dispute arising between the Government and investors can be settled through negotiations or submitted for arbitration.

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

- Customs Duty and VAT tax deferral on capital goods for priority sectors, including agro-processing and transport.

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.

There is currently no requirement that foreign investors buy from local sources, export a certain percentage of output or only access foreign exchange in relation to exports. The Mining Act of 2010 gives the Minister of Energy and Minerals discretion to require procurement of locally available goods in order for foreign mining companies to obtain a Mining Development Agreement. While TIC does guide foreign investors to specific locations through its land bank, there are no government-imposed conditions on permission to invest. Foreign investors are limited by difficulties in accessing land; the GOT plans to expand TIC's land bank and modernize its land titling and registration system are long delayed in execution. U.S. and other foreign firms can and do participate in government/donor-funded research and development programs on a national treatment basis.

Right to Private Ownership and Establishment

Tanzanian regulations allow 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 establishes licensing regulations for business operations. It provides the right to freely establish private entities, to own property both movable and immovable, and 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 obtaining a business license through the Business Registration and Licensing Agency (BRELA). Registration fees or charges for foreign companies are significantly higher than for domestic companies. The government is now implementing the Business Activities Registration Act of 2007, which aims to reduce administrative barriers with one centralized licensing database. Under Tanzanian law, occupation of land by non-citizen investors is restricted to lands for investment purposes under the Tanzania Investment Act 1997 and the Land Act 1999. Land in Tanzania is state property that can be leased for up to 99 years. The law does not allow individual Tanzanians to sell land to foreigners. Foreigners can only lease land in Tanzania through the Tanzania Investment Center (TIC). 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

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 single comprehensive law to secure property rights. Though the Tanzania Investment Center maintains a land bank, restrictions on foreign land ownership can significantly delay investments. Land not already processed for investment in the land bank has to go through a lengthy review and approval process by local level authorities as well as the President's office, in order to be officially re-designated, from Village Land, with customary rights of occupancy, to General Land, which can be titled for investment and sale.

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 recognized as mortgage for securing loans from banks and upon failure to pay back the loans banks can sell an attached plot. Traditional Certificates of Occupancy for Village Land are still being piloted for use as collateral, and this is currently limited to groupings of village level borrowers.

Intellectual Property Rights

The Copyright and Neighboring Rights Act Number 7 of 1999, the current legislation in Tanzania addressing the protection of intellectual property rights (IPR), 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). Tanzanians and foreign nationals may secure, exercise, and enforce exclusive intellectual property rights under the Act. The Act also established the Copyrights Society of Tanzania (COSOTA) 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 Commercial Court deals with litigation of commercial cases, including those related to infringements of IPR, trade in counterfeit and pirated goods. The Commercial Court has handed down decisions in several cases involving rights to a trademark. The Commercial Court continues to develop its expertise in commercial law, including intellectual property rights and international business and financial transactions, but lacks resources and capacity to address its growing case load. The Tanzanian Fair Competition Commission (FCC) has taken positive steps towards combating counterfeits, though its current penalties (about $3,300) are too low to be an effective deterrent. The FCC has apprehended importers of fake products, and seized and destroyed counterfeit products, though its limited resources do not allow for effective nation-wide investigations. The Tanzanian Food and Drug Authority has impounded and banned anti-malarial and other drugs deemed sub-standard or counterfeit. Tanzania has not signed or ratified the WIPO internet treaties.

Transparency of the Regulatory System

Tanzania is implementing a taxpayer's charter that enables taxpayers to complain about problems or malpractice within the Tanzania Revenue Authority (TRA). The tax policy reform agenda includes abolition of nuisance taxes, harmonization of the regulatory framework, establishment of a 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.

Tanzania has enacted three laws to govern competition and regulate economic activity. These are the Fair Trade Practices Act 1994, the Energy and Water Utilities Regulatory Act (EWURA) 2001, and the Surface and Marine Transport Regulatory Act (SUMATRA) 2001. The GOT is in the process of implementing a Competition Law and related regulatory institutions under the Fair Competition Commission (FCC) and promotes consumer protection through efforts to increase public awareness of consumers' rights and obligations.

The private sector has a voice through private associations such as the Confederation of Tanzania Industries, TIC, and the umbrella Tanzania Private Sector Federation, though larger companies complained they were not being served well by the TPSF, which provides grants and business training for small local businesses. The Tanzania National Business Council (made up of 50% government and 50% Private Sector representatives) is the lead dialogue institution where the government interacts with diverse stakeholder representatives from the private sector for dialogue on strategic issues related to the investment process and business environment in Tanzania. The Council is chaired by the President of Tanzania. The President participates in several roundtables such as the local Investor’s Round Table (LIRT), International Investor’s Roundtable (IIRT) and the Chief Executive Officers (CEO) Roundtable on a regular basis to discuss specific issues aimed at improving Tanzania’s business competitiveness. However, local businesspeople complain the government is not sufficiently responsive to the private sector's concerns.

Tax, labor, environment, health and safety, and other laws and policies do not impede investment, though bureaucratic procedures for licenses and permits are burdensome and time-consuming. The GOT's "Road Map" to improve the investment climate seeks to reduce the number of construction permits and inspection procedures. NGOs and private sector associations do not informally manage any regulatory processes, though the Tanzania Chamber of Commerce and Industry Association issues certificates of origin for companies exporting to the U.S. under AGOA. Proposed laws and regulations are sometimes published in draft form for public comment. There are many opportunities to provide input as government officials are relatively accessible, especially to industry associations. The Tanzania Chamber of Minerals and Energy was heavily involved in the years-long dialogue process that led to the Mining Act of 2010. However, the Electronic Communications Act, which requires telecommunications firms to list on the DSE, was passed in early 2010 with little opportunity for stakeholder comment. Legal, regulatory, and accounting systems are transparent and consistent with international norms. There are no efforts to restrict foreign participation in industry standards-setting consortia or organizations. Associations representing the tourism, telecommunications, and mining industries are composed of, and often led by, foreigners. In addition to the BEST program, the GOT established a Law Reform Commission (LRC) to review the legal and regulatory requirements relating to trade and investments. The GOT is also modernizing the business-licensing regime to reduce impediments to investment. Under the Tanzania Investment Act, the Tanzania Investment Center (TIC) has become a 'one-stop shop' that provides fast track assistance to obtain approvals and permits such as work permits, industrial licenses, and trading licenses from various ministries. The Business Activities Registration Act (BARA), enacted in February 2007, is implemented by the Business Registration and Licensing Agency (BRELA). BARA is rolling out a simplified and decentralized registration system which establishes a single national database for all registered businesses. The Tanzanian judicial system continues to function inefficiently and is subject to influence by privileged individuals. These factors increase the cost and difficulty of doing business in Tanzania.

Efficient Capital Markets and Portfolio Investment

Indicators of the financial strength of the banking system show that the system continues to be sound and stable in aggregate terms. Most banks were well capitalized and liquidity was well above the regulatory requirements; the banking industry has been consistently profitable. Only 12% of the population participates in the formal banking sector.

The Tanzanian Capital Markets and Securities Authority (CMSA) Act of 1994 facilitates the free flow of capital and financial resources to support the product and factor markets. Foreign individuals or companies can invest in shares though the limit for foreign participation is 60 percent of the aggregate value of the listed shares. Foreign individuals or companies are not permitted to participate in government securities. There are no "cross-shareholding" and "stable shareholder" arrangements used by private firms to restrict foreign investment through mergers and acquisitions. There are no measures designed to protect against foreign hostile takeovers. Foreign investors can get credit in the local financial market, where credit is allocated on market terms. Recent bank lending rates ranged from 13 to 15 percent for ordinary borrowers. Corporate borrowers can negotiate lower lending rates. Credit to the private sector has continued to grow rapidly though there are few local institutions large enough to finance significant deals such as infrastructure projects and power stations. The financial sector in Tanzania has expanded in recent years, with a significant increase in the number of foreign-affiliated financial institutions and banks. Of the 28 commercial banks licensed and operating in Tanzania, more than half are foreign-affiliated banks. The banking sector is adequately capitalized and has limited reliance on foreign borrowing. Private sector companies have access to a variety of commercial credit instruments including documentary credits (letters of credit), overdrafts, term loans, and guarantees. 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 BOT is exempt from income tax, in accordance with the Income Tax Act of 2004. Foreign exchange regulations have been eliminated to attract investors and simplify international transactions. Profits, dividends, and capital can be readily repatriated. Several venture capital funds have been established to meet the demand for equity injections into growing businesses. The Banking and Financial Institution Act of 2006 establishes a framework for 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. However, there is no national credit database. The Tanzania Bankers Association this year agreed to share information and the central Bank of Tanzania will consolidate credit histories for release to authorized bureaus.

Corporate Social Responsibility

CSR is practiced mainly by large foreign firms in the banking, mining and telecommunications sectors and is generally viewed favorably. Companies typically pay for media coverage of their charitable activities.

Competition from State-Owned Enterprises (SOEs)

Public enterprises do not compete under the same terms and conditions as private enterprises because they have access to government subsidies and other benefits. SOEs are active in the power, communications, railway, telecommunication, aviation, and port sectors. SOEs typically report to ministries and are led by a board which may be led by a presidential appointee but also composed of private leadership. SOEs do not have hard budget constraints. Tanzania does not have a sovereign wealth fund. SOEs do not discriminate against or unfairly burden foreigners, though they do have access to sovereign credit guarantees. SOE financial results are audited by donors and accessed by the media.

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, Tanzania has enjoyed a remarkable degree of peace and stability. Tanzania has held four national multi-party elections since 1995, the most recent in 2010. Elections on the mainland have been generally free of political violence. The 2010 elections in Zanzibar, held following changes to the constitution to mandate formation of a Government of National Unity, were the most peaceful since Zanzibar's entry into the union. Updated consular guidance on country conditions is available at: http://travel.state.gov/travel/cis_pa_tw/cis/cis_1038.html

Corruption

Corruption remains a major concern for foreign investors. 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 largely been ineffective. The government launched a series of high-profile corruption prosecutions in late 2008 and secured a conviction in 2010. Corruption is economy-wide, and measures to combat it are applied impartially to foreign and domestic investors. Corruption persists in government procurement, privatization, taxation, and customs clearance. A 2010 nationwide survey by NGO Concern for Development in Africa (ForDIA) found the police were considered most corrupt, followed by local health authorities, the judiciary, state power utility Tanesco and the Tanzania Revenue Authority (TRA). The Tanzania Port Authority and the TRA remain a great hindrance to importers throughout Tanzania despite some success this year in reducing average port dwell times from more than 20 days to about 11 days by increasing storage fees and pushing more goods to inland container depots. Unpredictable and lengthy clearance delays and bribes to expedite service are commonplace. Transparency International (TI) has consistently rated Tanzania poorly for its perceived corrupt business practices. TI’s 2010 Corruption Perception Index (CPI) for Tanzania is 116 / 178 for a score of 2.7. (Note: The CPI score tracks perceptions of corruption seen by business and country analysts, ranging from zero as highly corrupt, to 10, not corrupt). The Tanzania police and judiciary featured in the list of the top 10 most corrupt institutions in the region. US businesspeople have identified petty corruption, particularly among customs and immigration agents and traffic police, as an obstacle to investment.

In an effort to deal with corruption, the GOT put in place the National Anti-Corruption Strategy (NACS) and sector-specific action plans for all ministries, independent government departments, executive agencies and local authorities. The Anti-Corruption Bill, commonly referred to as the Prevention and Combating of Corruption Bureau (PCCB) Act, became operational in 2007. The PCCB is responsible for combating corruption. International, regional and local watchdog organizations such as Transparency International, FORDIA, and the Tanzania Media Women's Association operate freely in Tanzania.

The government's efforts to fight corruption have been fitful. Late 2008 saw the first-ever major court cases on grand corruption, with the arrests of individuals whose companies allegedly siphoned funds from the Bank of Tanzania (BOT), along with several Bank employees, and the separate arrests of two long-serving former ministers on corruption-related changes. In May 2010, the former BOT Director of Personnel and Administration, Amatus Liyumba, was sentenced to two years in prison for abuse of office in connection with construction of the BOT headquarters. This conviction marked the first in the grand corruption cases. Overall, the court cases have progressed slowly and several other well-publicized scandals have yet to result in prosecutions.

Tanzania is a party to the UN Convention against Corruption. Tanzania is not a signatory to the OECD Convention on Combating Bribery. Anti-corruption legislation passed in 2007 established the Prevention and Combating of Corruption Bureau (PCCB), which investigates corruption and imposes penalties such as jail sentences and fines on individuals engaging in corruption. However, the PCCB’s progress has been slow.

Bilateral Investment Agreements

Currently, the United States of America and Tanzania do not have bilateral investment or taxation agreements. Tanzania is a member of the East African Community (EAC), which signed a Trade and Investment Framework Agreement (TIFA) with the United States in July 2008. In November 2007, the EAC member states signed an interim economic partnership agreement with the European Union; as of 2010 this still had not been finalized.

OPIC and Other Investment Insurance Programs

The U.S. Overseas Private Investment Corporation (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 participated in OPIC funds in Tanzania. 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 has established a cooperative agreement with the EXIM Bank of Tanzania Limited to facilitate access to guarantees by investors and importers within Tanzania. In 2010, several Tanzanian companies initiated the process to apply for EXIM-guaranteed financing for US agricultural and construction equipment. Tanzania is also a member of the International Center for Settlement of Investment Disputes (ICSID). Investments in Tanzania are guaranteed against nationalization and expropriation.

The risk of currency depreciation over the next year is low due to stable reserves and sound central bank management. The US Embassy used a total USD 24.5 million, about Tsh 34.4 billion, across mission operations last fiscal year. The average exchange rate in 2010 was 1,402 Tsh to 1 USD.

Labor

Tanzania faces persistent shortages of skilled labor. While the number of university graduates, especially in business management and information technology, continues to grow, tertiary education is very limited, and many foreign investors find that local labor is insufficient to fill even administrative positions. Currently, only a few professions within the EAC, such as English and science teachers, are granted cross-border access to Tanzania's labor market without a work permit. Labor and immigration regulations permit foreign investors to recruit up to five expatriates; more work permits may be granted under specific conditions. As an incentive under the EPZ Act, the government may provide work permits for management and technical staff when these skills are unavailable locally. Capital equipment is relatively expensive to import, making labor more attractive.

Tanzania's minimum wage is set by categories covering eight employment sectors. The minimum wage ranges from 65,000 Tsh per month for manual hotel workers to 350,000 Tsh per month for workers in the mineral sector. Tanzania's minimum wage was last changed in May 2010.

The union and Zanzibar governments have separate labor laws. Workers on the mainland had the right to form and join independent trade unions. Trade unions must consist of more than 20 employees and were required to register with the government. A trade union or employers' association must register within six months of its establishment; failure to register is a criminal offense. The registrar in the Ministry of Labor exerted significant power over trade unions, including the right to deregister unions if overlap existed within an enterprise. Unions had to submit financial records and a membership list to the registrar annually. The registrar could suspend a trade union if it determined that the union violated the law or endangered public security. Association with an international trade union required government approval.

As of 2010, approximately 33 percent of the formal sector work force(550,000 workers) were members of the Trade Union Congress of Tanzania, (TUCTA) the sole labor federation. In the agricultural sector, the country's largest employment sector, an estimated 5 to 8 percent of the work force was unionized.

The law provides for collective bargaining in the private sector, and workers and employers practiced it freely during the year. In the public sector, the government set wages administratively, including for employees of state-owned organizations.

On the mainland disputes were regulated and resolved by mediation through the Commission for Mediation and Arbitration. If the mediator failed to resolve a dispute within 30 days of referral, or any longer period agreed upon in writing by both parties, either party to the dispute may give notice of its intention to commence a strike or lockout. If the mediation fails to resolve the complaint, the Commission for Mediation and Arbitration may appoint an arbitrator to decide the dispute, or it may be referred to the labor court.

On the mainland the law prohibits discriminatory activities by an employer against union members; however, in practice many private sector employers adopted anti-union policies or tactics. The law required employers found guilty of anti-union activities to reinstate workers.

Mainland workers have the legal right to strike, and employers have the right to a lockout after complying with certain legal requirements and procedures. These rights are qualified according to the law. For example, all parties to a dispute may be bound by an agreement to arbitrate, and neither party may then engage in a strike or a lockout until that process has been completed.

A lawful strike or lockout is protected and does not constitute a breach of contract, nor can it be considered a criminal offense. An employer may not terminate the employment of an employee for participating in a lawful strike or terminate an employee who accedes to the demands of an employer during a lockout.

The law restricts the right to strike when to do so would endanger the life and health of the population. Workers in certain sectors (water and sanitation, electricity, health services and associated laboratory services, firefighting, air traffic control, civil aviation telecommunications, and any transport services required for the provisions of these services) are restricted from striking. Workers in other sectors may also be subject to this limitation.

The labor law in Zanzibar applies to both public and to private sector workers. Zanzibar government workers do have the right to strike as long as they follow outlined procedures in the Employment Act of 2005. They are not allowed to join mainland-based labor unions. The Zanzibar labor law requires a union with 50 or more members to be registered and sets literacy standards for trade union officers. An estimated 40 percent of the Zanzibar workforce is unionized. In collaboration with the International Labor Organization (ILO), the Zanzibar government worked to draft regulations under the Employment Act of 2005 to facilitate a smooth implementation of the Act. The regulations have been finalized but have not yet been implemented.

Foreign Trade Zones/Free Ports

Refer to EPZ information provided above in overview. Efforts are progressing to make Zanzibar's Malindi Port a free port. In addition, free economic zones have been established in three areas of Pemba and Zanzibar. The GOT intends to establish free trade zones in Tanga and Kigoma ports. Foreign owned firms have the same investment opportunities as host country entities in Foreign Trade Zones.

Foreign Direct Investment Statistics

The Bank of Tanzania (BOT) and Tanzania Investment Center (TIC) reported Foreign Direct Investment (FDI) trends in Tanzania as follows:

If a scroll bar appears below the following table, swipe the table to move left/right of the dashed line.

Year

2002/03

2003/04

2004/05

2005/06

2007/08

2008/09

2009/10

2010/11

USD m

430

526.8

469.9

325

501.5

647

744

650

In recent years, the top sources of FDI into Tanzania have been the United Kingdom, Kenya, South Africa, India, China and the United States. Significant US and other foreign investments include: telecommunications services; energy infrastructure; road construction; breweries; tourism / hotels; coal, diamond, gold, nickel and uranium mining; and agriculture. Tanzanians are currently restricted from investing abroad by capital controls, and very few international firms (primarily Kenyan) list on the Dar es Salaam stock exchange. There is currently no information on Tanzanian FDI abroad (FDI outflows), as Tanzanians are legally barred from participating in foreign investment funds or offerings.

[This is a mobile copy of Tanzania]