Since Tanzania’s transition from a purely socialist approach to economic governance, the country has made some strides in attracting foreign investment. Given its negligible domestic saving culture, the answer to capital formation, job creation and general social upliftment lies in large part in foreign investment. Unlike the Ujaamanization era – when the government wanted to play a dominant role as an investor, with disastrous economic consequences – the current situation demands that the state create an environment conducive to foreign investment. The Tanzanian government can achieve this through instituting regulations and providing a foundation for its own people to emerge as entrepreneurs with the capacity to partner with foreign investors. In addition, the government has to invest in human capital development.
This paper recognises Tanzania’s political stability, its membership in the East African Community and SADC, and its physical location as constituting a positive platform on which it can build its competitive advantage for foreign investment. Further, Tanzania’s highly liberal regulatory regime on foreign investment, as encapsulated in various domestic statutes and bilateral investment treaties, is a positive attribute. Nevertheless, if the country is to realise its full potential as an investment destination it must deal with those structural challenges that impede the attraction and retention of foreign direct investment. It should update its bilateral investment treaty network; harmonise all investment regulatory instruments; empower the Tanzania Investment Centre as an institution; take primary responsibility for developing the skills of Tanzanians; facilitate the integration of its small and medium enterprises into regional and global value chains by encouraging foreign firms to set up in its export processing zones; incentivise locals to integrate into agricultural and agro-processing value chains by providing them with title deeds to their land (which can be used as collateral to raise finance); and link incentive schemes to the integration of locals into value chains and skills development.
