The Inadequacies of Fdi Determinants in Tanzania: Some Evidence.

Topics: Foreign direct investment, Investment, Tanzania Pages: 13 (4434 words) Published: November 18, 2008
The paper dwells on the inadequacies of foreign direct investment (FDI) determinants in Tanzania. Despite of the several efforts , such as the far-reaching reforms in the economy, done by Tanzania to increase FDI inflows in the country, the results are far from satisfactory. The author argues that the unsatisfactory FDI inflows into Tanzania is caused by, inter alia the inadequacy of FDI determinants in the country. The main conclusion is that Tanzania lacks the adequate FDI determinants that would attract a substantial FDI inflows into the country. This makes it necessary for the country to make sure that the determinants are available in adequate amount if it is to receive more of the badly needed FDI inflows in a substantial amount.

FDI determinants characterize a country as either a good investment location (if the determinants are present in the country in adequate amount) or otherwise if the opposite is the case.
Tanzania like many other countries desires to have more FDI inflows due to the potential roles of such investments like employment creation, government revenue, efficiency, closing the investment gap and linkages effects with the rest of the economy, to mention but a few .( See for example Dunning (1994) and Buckleg and Clegg (1991) on more benefits of FDI) . Tanzania has not performed very well in as far FDI inflows into the country are concerned. Of the seven recent FDI front runners in Africa, Tanzania is not one of them. The front runners have attracted rapidly increasing FDI inflows, reaching absolute levels never reached before and comparable to those of other well performing developing economies. Front runners performed well in at least one of the following criteria: annual inflows of FDI; FDI inflows per 1000USD GDP; ration of FDI inflows to gross fixed capital formation; or FDI inflows per capita.

In the period 1993 – 1997, twelve (12) African countries received more FDI inflows than Tanzania. The countries and the FDI inflows in annual average in millions of USD in brackets are; Nigeria (1503), Egypt (775), South Africa (755), Morocco (562), Tunisia (367), Angola (254), Algeria (203), Cote d’ Ivoire (182), Ghana (133), Uganda (112), Namibia (110), Equatorial Guinea (109). Tanzania received FDI inflows to the tune of 100 million USD annually.(Source: UNCTAD 1999b :53)

In terms of FDI inflows as a percentage of gross fixed capital formation for the period 1991-1997, fifteen (15) African countries performed better than Tanzania. The figure for Tanzania was 6.4% compared to Angola (50.6%), Chad (14.9%), Djibouti (9.9%), Equatorial Guinea (226.7%) and The Gambia (16.1%). (For figures for other countries see UNCTAD ; 1999b : 58 –59).

FDI in the context of Tanzania refers to the flows of capital and personnel from abroad for investment in the country. The ownership of such a capital can be either by a natural person or an institution such as a company registered outside the country. The shares owned by such a person or an institution should be fifty percent of the total investment or more.

Efforts in the past have been made by the Tanzanian government to attract more investments from abroad. The early intention of the government was shown in 1963 when the Foreign Investment Act was passed in order to persuade FDI in the early years of independent Tanganyika . (Green, 1982). Such efforts were somewhat unsuccessful since the government opted for a socialist path of economic development. This policy option lead to the implementation of the political manifesto called the Arusha Declaration in 1967. The Ministerial Order under the Industrial (Acquisition) Act Number 5 of 1967 required all Multination Enterprises (MNEs) operating in Tanzania as well as big private businesses owned by Tanzanians in Mainland Tanzania to make the government of Tanzania the main shareholder of such companies. Hence, from 1967 to 1972 the majority of the MNEs operating...

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