Thursday, November 30, 2006

The Case for Investing in Tanzania


A visionary and Pan Africanist, Tanzania’s first president Julius Nyrere implemented what he called the Ujamaa campaign, which was aimed at uniting the country around traditional African values, while at the same time abolishing the destructive vestiges of tribalism that has ravaged much of the African state. Marina Ottaway states that Africans tend to make their national identity secondary to their ethnic identity because there are greater benefits to being aligned with their own group because of the near total lack of governance and infrastructure in many nations. Through tactics such as education campaigns which dropped the illiteracy rate to 9.6 percent by 1986, and making Tanzania the only country to make an indigenous African language (Swahili) the national language, he was able to affectively foster a sense of nationhood and subsequently reversed the paradigm that is so common on the rest of the continent. This national sense of unity has given the country an astounding amount of stability in a region that has seen its share of upheaval (see Democratic Republic of Congo, Uganda, Rwanda, and Burundi). Despite not possessing a mono ethnic society like Botswana, it has similarly established national unity. Like most other African countries it originally followed socialist economic doctrine, but has been able to avoid ethnic clashes. It is also similar to most of the continent in that it has many marketable resources, but lacks a major “cash cow” such as diamonds or oil.

Tanzania is one of the primarily Swahili speaking East African nations, with extreme political and locational advantages to become an economic powerhouse. Despite being one of the poorest African nations with a paltry per capita income of $221, unique conditions make its potential undeniable. Its relatively large market is composed of 36 million people and has $10 billion GDP. It is a member of both the East African Community (Kenya, Uganda, and Tanzanian, with Rwanda and Burundi set to join soon) as well as the aforementioned Southern African Development Community (14 countries and a combined population of 215 million). The East African contender is bordered by the Democratic Republic of Congo, Rwanda and Burundi to the East, Uganda and Kenya to the north, and Zambia and Mozambique to the south. It also has connections to several strategic bodies of water which include the Indian Ocean, Lake Victoria, Lake Tanganyika, and Lake Nyasa. The three major ports of Dar es Salaam, Tanga, and Mtwara make Tanzania accessible by sea, while international airports at Dar es Salaam and Kilimanjaro make it accessible by air.

Due to the economic policies implemented by Nyrere (which mirrored the socialist leanings of so many other African nations at independence) the country is a relatively late economic bloomer. Despite its early struggles, a look at the current economic environment is very encouraging for investors. Being a late comer to Foreign Direct Investment (FDI), Tanzania has seen great increases in FDI over the past ten years. From 1986-1991 the country only received about $2 million in FDI, while from 1995-2000 it received $1 billion. By 1992 annual inflows had increased to $12 million, and accelerated at a rapid rate each subsequent year, reaching a sustainable $150 million by 1996, and $193 million in 2000. Considering that the country had no inflows only a few years ago, the rapid growth is impressive. The mid to late 1990’s positioned Tanzania to be considered a serious player in the arena of foreign investment, as it began to encompass more of the share of the regional and continental pie. From 1991-1995 its share of FDI inflows in least developed countries was 2.7 percent, but doubled to 5.3 percent from 1996-1999. Its share of Sub Saharan inflows increased to 3.3 percent from 1.5 percent in the same time period.

Perhaps the greatest opportunity for FDI comes in the Agriculture and related industries sector. Tanzania views this as potentially vibrant investment opportunity with a land suitable for the cultivation of a variety of products such as tea, coffee, tobacco, sisal, cashew nuts, sugar, pyrethrum, cotton, and jatropha. Agriculture provides a livelihood to 80 percent of the country’s citizens, who mainly live off of subsistence of only 2 hectares of land or less. But since only about 7 percent of FDI goes into this sector, and less than 10 percent of the country’s irrigable land is developed there are ample opportunities awaiting investors. Forestry also has great investment potential with the country’s 33.5 million hectares of forests and woodlands. Opportunities in this sector include bee products (there 9.2 million honeybee colonies), and wood-based products.

Starting a business in Tanzania takes significantly less time (slightly more than half the average) than other Sub Saharan countries. Enforcing contracts also is cheaper and faster than other Sub Saharan countries. Access to land also seems to be a relatively painless process in Tanzania, as only 21 percent of large and 16 percent of very large enterprises reported it being a serious problem.

The history of the development of every thriving nation in the world is littered with examples of foreign investment. The United States could not have developed had it not had the initial foreign capital and resources of international investors to give the economy a jumpstart. When nations lack start up capital it is only logical to seek investment from outside sources to get the economic ball rolling. China and India are developing at such a rapid rate in large part because of this fact. Africa has far too many resources to be in a subservient position to any nation, continent, or lender. Obstacles to economic growth in countries like Tanzania can largely be overcome by Diaspora African investors that partner with the people of the country to develop the beautiful soil of Africa.

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