THE UNITED REPUBLIC OF TANZANIA INVESTMENT CENTRE INVESTMENT

THE UNITED REPUBLIC OF TANZANIA INVESTMENT CENTRE “INVESTMENT 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. Sitta Executive Director Tanzania Investment Centre E-mail: sitta@tic. co. tz Website: www. tic. co. tz

CONTENTS/OVERVIEW 1. 2. 3. 4. 5. 6. 7. 8. Introduction Economic Policy Reform Investment Policy Framework Private Sector Development Initiatives a) National Investment Steering Committee (NISC) b) Tanzania National Business Council (TNBC) c) Investment guarantees & settlement of disputes Remaining regulatory, legislative & administrative impediments to private investment Tanzania Investment Regime Challenges and The way Forward Conclusion 2

ECONOMIC REFORMS AND THE DEVELOPMENT OF THE 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 1990 Investment Policy & the Act as per studies carried out: § Restrictive investment environment § Lack of coordination of sectorial policies and the investment policy § Existence of several laws and regulations that conflicted with the investment code § Existence of a non commercialised society § Existence of a non facilitative civil service 3

CORRECTIVE MEASURES TAKEN TO FURTHER IMPROVE THE TANZANIAN INVESTMENT CLIMATE Major 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 and Social Research Foundation (ESRF) - 1996 and (ii) Investors Road Map (1996) prepared by The Services Group, a team from USA. § Both reports addressed policy, legal, procedural administrative barriers to investment in Tanzania § The reports forced Go. T departments to re-examine their processes and make appropriate changes; main changes where as follows: Ø Ø Ø and Adoption of the New Investment Policy 1996 Enactment of the new investment code 1997 & establishment of Tanzania Investment Centre (TIC) One Stop Shop for investors Harmonized key legislation Removed restrictions on investment areas Enhanced economic and social reforms from 1996 onwards. 4

TANZANIA ECONOMIC REFORMS The Government has implemented reforms aimed at transforming its economy from one based on a large State-owned sector and central planning to a market-and privatesector-based economy. 16 major reform legislations were enacted between 1990 and 2004. These reforms have helped Tanzania to improve efficiency and weed out ills that impede growth. 5

TANZANIA ECONOMIC REFORMS Major reform legislations enacted between 1990 and 2002 are as follows: § § § § The Income Tax Act 2004 The Companies Act No. 12 of 2002 The Export Processing Zones Act No. 11 of 2002 The Commission for Human Rights & Good Governance Act No. 7 of 2001 The Land Act 1999 The Mining Act 1998 The Privatisation Trust Act No. 7 of 1997 The Financial Laws Miscellaneous Amendments Act 1997 The Tanzania Investment Act No. 26 of 1997 The Tanzania Revenue Authority Act No. 11 of 1995 The Immigration Act No. 7 of 1995 Capital Market and Security Act No. 5 of 1994 and as amended by Capital Market and Security Act No. 4 of 1997 The Public Corporations Act 1992 and Amendment Act 1993 The Foreign Exchange Act 1992 The Banking and Financial Institutions Act No 12 of 1991 The Loans and Advances Realization Act 1991 6

TANZANIA INVESTMENT CENTRE (TIC) § TIC established in 1997 to be “The Primary Agency of the Government to coordinate, encourage, promote and facilitate investment. § “One-Stop Facilitative Centre” with officers from Ministry of Trade & Industry, Business Registration & Licensing Authority (BRELA), Lands, Immigration, Labour and TRA stationed at the TIC. § TIC Relationship Managers regularly visit investment projects to follow up on implementation and obtain feedback to resolve any business problems. § Facilitates investors to acquire land by offering them land derivative titles on behalf of the Govt. 7

TIC CLIENTS CHARTER OUR COMMITMENT TO INVESTORS TIC is committed to facilitating investors Application Days taken § Company Registration 3 § Business licensing 3 § Certificate of incentives 7 § Resident Permit Class ‘A’ 14 § Resident Permit Class ‘B’ 14 § Special Pass 1 § TIC voted Africa’s Best IPA of the year 2004 8

TANZANIA INVESTMENT CENTRE Currently TIC is installing the computer workflow management system towards paperless office operation. In addition it is also re-designing and updating its website so as to constantly provide current and update investment information including new legislations/regulations to investors 9

NATIONAL INVESTMENT STEERING COMMITTEE (NISC) • Spearheading investment policy formulation, • Fast track solutions to investors problems of investors, • Identify and supervise the elimination of legal impediments to investment • Chaired by the Hon. Prime Minister, • Other members of the committee are Ministers for Finance, Agriculture, Lands, Industry and Trade, President’s Office Planning & Privatisation; Governor of Bo. T; Attorney General and Executive Director-TIC (Secretary). 10

NATIONAL BUSINESS COUNCIL (TNBC) § National Business Council seeks to enhance Public/Private sector “smart partnership”. § The Business Council is chaired by the President and the Chairman of Tanzania Private Sector Foundation is Vice Chairman. § TNBC organizes and facilitates Investors Round Table Meetings (IRT); Local and International § The TNBC has resolved a number of business impediments including enactment of a new business friendly land law and abolition of many nuisance taxes. 11

INVESTMENT GUARANTEES AND SETTLEMENTS OF DISPUTES • Tanzanian law offers guarantees nationalization and expropriation, against • Tanzania is a member of both the International Centre for Settlement of Investment Dispute and Multilateral Investment Guarantee Agency, • Free/Unconditional Transfer of Capital, Profits, dividends and other benefits for investors and employees working in Tanzania 12

REGULATORY TREATMEMENT OF FDI IN TANZANIA (RESTRICTIONS ON INVESTMENT S/No. Restriction 1. General Restrictions on entry • Entry of FDI • Foreign purchase of Shares • IMF Article VIII status • Liquidation proceeds transfer Abroad 2. Sectoral Limitations to FDI • Financial Services • Other Services • Primary Sectors • Manufacturing • Acquisition of real estates for FDI purposes Current Status New Developments Yes (threshold of USD 0. 3 m and USD 0. 1 m foreign & local respectively No restrictions Signed However at DSE foreigners are not required to exceed 65% share purchase in a Listed Company No restrictions Some restrictions No restrictions, however no incentives offered for some services Initiatives are underway to establish Special Economic Zones (SEZ) Minimal restrictions No restrictions 13

REGULATORY TREATMEMENT OF FDI IN TANZANIA (RESTRICTIONS ON INVESTMENT S/No. Restriction 3. Post entry restrictions • Access to local finance • Access to privatisation • Access to public procurement • Taxation • Discriminatory licensing in public utilities • Nationality-based restrictions on boards • Discriminatory practices • Entry of key personnel • Performance requirements Current Status No restrictions New Developments Land Act 1999 has also been amended so that land can be used as collateral by local and foreign investors to get bank loans No restrictions New income Tax 2004 No restrictions Not required 14

REGULATORY PRACTICES OTHER THAN RESTRICTIONS S/No. Regulatory Practices 1. Practices encouraging FDI • FDI-targeted tax & and other incentives • Number of bilateral investment treaties (of which with OECD members) • Number of bilateral tax treaties (of which with OECD members) 2. Enhancing Policy Transparency • Publications of regulations • Notification prior to regulatory changes • Negative list of restricted sectors • “silent and consent” authorisation Current Status Yes 20 (12) 12 (7) Yes Yes New Developments Initiatives are underway to harmonise EAC investment Regimes Pending negotiations 10 Pending negotiations 8 Publication through various media including newly parliamentary website at: www. parliament. go. tz Government website at: www. tanzania. go. tz and Treasury at: www. mof. go. tz A good example is at the TIC’s One Stop Centre operation, when seeking authority from other Govt. MDAs = Ministries, Departments and Agencies 15

BILATERAL INVESTMENT TREATIES. LIST OF BIT SIGNED AS OF JANUARY 2005 S/No OECD Countries Year of Signing S/No Non OECD Countries Year of Signing 1 Denmark 1999 1 South Africa 1959 2 Finland 2001 2 Zambia 1968 3 Germany 1965 3 India 1979 4 Italy 2001 4 Egypt 1997 5 Korea 1998 5 Mauritius 2003 6 Netherlands 2001 6 Zimbabwe 2003 7 Sweden 1999 7 Malawi* 2003 8 Switzerland 1965 8 OPEC Fund* 2003 9 United Kingdom 1994 10 Canada 1995 11 Korea 1998 12 Swiss Confederation 2004 Source: Government of Tanzania * Partial Agreement 16

BILATERAL TAX TREATIES. LIST OF DTTs SIGNED AS OF JANUARY 2005 S/No OECD Countries Year of Signing S/No Non OECD Countries Year of Signing 1 Canada 1995 1 Zambia 1968 2 Denmark 1976 2 South Africa 1959 3 Finland 1976 3 India 1979 4 Italy 1973 4 Kenya (EAC) 2004 5 Norway 1976 5 Uganda (EAC) 2004 6 Sweden 1976 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 17

TANZANIA INVESTMENT REGIME Investment framework in Tanzania is characterised by: • Relative ease of entry and establishment • No ownership restrictions or performance requirements. • A fiscal stability clause, Section 19(2) of TI Act 1997 that guarantees investors that incentives provided will not be amended or modified to the detriment of the investors enjoying those benefits. • No restrictions on the repatriation of profits or disinvestments in Tanzania • Investors have the right to make transfer payments in freely convertible currency 18

TANZANIA INVESTMENT REGIME • Investors are allowed to obtain land for investment purposes through the TIC that issues derivative rights (under the new Land (Amendment) Act (2004) ). • Under Section 24 of the TI Act 1997, TIC certificate holders have the 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 tax other wise the corporate tax stands at 30 percent, and VAT is 20 percent for all companies except for those that have specific incentives. • 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, protect labour and at the same time allow enterprises to grow and compete in the modern economy. • The country also benefits from specific bilateral initiatives particularly USA, under the familiar AGOA program, and the EU under EBA. 19

RECENT DEVELOPMENTS • The establishment of the Customs Union Protocol, which was signed on 2 nd March 2004, is one of the greatest achievements of the new EAC. • A number of specialized taskforces have been formulated and revision of regulations through task forces such as the Tax Reform Taskforce, the Land Reform Taskforce, and the Labour Reform Taskforce, etc. These task forces include members from different government departments, civil society, and the business community. • Tanzania has also signed a number of international agreements governing the protection of foreign investment in Tanzania including bilateral investment treaties (BIT) and double taxation treaties (DTT). Negotiations are currently in the process to conclude agreements with Zimbabwe, Malawi, Mauritius and South Africa. 20

ATTRACTIONS 1. Beautiful country with friendly people 2. Favourable Investment Environment A. Successful Macroeconomic performance B. Effective “One Stop facilitative Centre” (TIC) C. National Investment Steering Committee D. Tanzania National Business Council for“smart partnership” 3. Abundant Investment Opportunities 4. Talented and skilled labour force. 5. Willingness to listen 21

PERCEPTIONS HINDERING FDI BUREAUCRACY Source: Doing business in 2004 (World Bank) 22

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 ) Tshs bn 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$) ann. Avg. 612 665 745 808 876 967 1039 Inflation annual average (%) 16. 1 12. 9 7. 8 6. 0 5. 2 4. 5 4. 4 Investment/GDP ratio (%) 14. 7 16. 0 15. 4 17. 6 17. 0 18. 9 18. 5 FDI (US$ mn) 158 172 542 282 467 240 248 Source: National Bureau of Statistics 2004 - Tanzania 23

GDP GROWTH RATE AND INFLATION IN TANZANIA (1997 – 2004) Source: Bank of Tanzania - 2005 24

TIC REGISTERED PROJECTS FROM 1995 TO 2004 25

FDI INFLOWS TO TANZANIA FROM 1992 -97 TO 2003 * * @ @ Annual average from 1992 to 1997 * Sharp increase was due to huge investment in mining projects Source: World Investment Report - 2004 • Despite declining world FDI inflows, FDI into Tanzania has been increasing in the past five years, with an average of US$ 356 million annually. 26

THE WAY FORWARD 27

THE BEST PROGRAMME • The Government and Donors (DFID, SIDA, DANIDA and the Royal Netherlands Govt. have set-up a basket fund late 2003 for the Business Environment Strengthening of Tanzania (BEST). • This is a five year programme commenced this year (2004) to year 2008 at a cost of US$ 18 million. • The BEST programme piloting continuous improvement of an enabling environment for private sector operations. • Creating a better policy, administrative, legal, regulatory and judicial framework 28

SUMMARY OF THE INTERLINKED COMPONENTS OF THE BEST PROGRAMME S/No. COMPONENTS MAIN OUTPUTS Achieving Better Regulation ØUnnecessary regulations removed ØSustainable process established for ensuring business-friendly laws, regulations and administrative procedures ØImproved efficiency and transparency of government institutions dealing with business Improving Commercial Dispute Resolution ØImproved accessibility to the court system formal and informal business Strengthening the Tanzania Investment Centre ØIncreased number and value of local and foreign investment in Tanzania Changing the Culture of Government ØImproved customer service ethos for services provided to the private sector by the public and judicial service Empowering Private Sector Advocacy ØImproved capacity of private sector stakeholders to identify regulatory problems and solutions and advocate for an improved business environment ØSpeed and quality of service provided by court system for business improvement ØEnhanced promotion of Tanzania as investment destination 29

THE WAY FORWARD The establishment/formation of programmes such as • Business Environment Strengthening for Tanzania (BEST) • Export Processing Zone (EPZ) • Special Economic Zones (SEZ) • Spatial Development Initiatives (SDIs) • Tanzania National Business Council (TNBC) • National Investment Steering Committee (NISC) Among others, is a manifestation of the Govt’s commitment towards establishing a private sector led economic growth. 30

THE WAY FORWARD • Proactively championing Regional Integration to create bigger markets and investments with enhanced benefits and faster growth to all. • As follow up action to the UNCTAD Investment Policy Review – 2003, TIC has commissioned two research studies (i. e. Tanzania comparative/competitive advantages study and a study to evaluate the growth and impact of investment) in order to target more precisely investment promotion & facilitation activities. • New licensing legislation (under BEST programme) • Labour laws being amended 31

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Visit us on: http: //www. tic. co. tz 33