VZCZCXYZ0003
PP RUEHWEB

DE RUEHDR #0170/01 0371253
ZNR UUUUU ZZH
P 061253Z FEB 07
FM AMEMBASSY DAR ES SALAAM
TO RUEHC/SECSTATE WASHDC PRIORITY 5466
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/USDOC WASHDC
RUEHNR/AMEMBASSY NAIROBI 0474
RUEHKM/AMEMBASSY KAMPALA 2922
RUEHJB/AMEMBASSY BUJUMBURA 2475
RUEHLGB/AMEMBASSY KIGALI 0899

UNCLAS DAR ES SALAAM 000170 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR EB/IFD/OIA JNHATCHER AND AMKAMBARA 
DEPT ALSO AF/EPS, AF/E FOR BYODER 
TREASURY FOR DO/JWALLACE 
PASS TO USTR FOR WJACKSON 
 
E.O. 12958: N/A 
TAGS: EINV EFIN ETRD ELAB KTDB OPIC PGOV USTR TZ
SUBJECT:  TANZANIA:  INVESTMENT CLIMATE STATEMENT 2007 
 
REF:  06 SECSTATE 178303 
 
Following is the 2007 Investment Climate Statement (ICS) 
for Tanzania. The ICS has also been transmitted to 
ES/IFD/OIA via e-mail and included in Chapter 6 of the 2007 
Country Commercial Guide for Tanzania. 
 
A.1. Openness to Foreign Investment 
----------------------------------- 
The Government of Tanzania (GOT) has a favorable attitude 
toward FDI and made significant efforts to encourage 
foreign investments.  Tanzania is ranked eleventh in 
Foreign Direct Investment (FDI) inflows as an investment 
destination in Africa, according to the United Nations 
Conference on Trade and Development (UNCTAD)?s World 
Investment Report 2006.  There is no restriction in foreign 
exchange and foreign investors are not denied national 
treatment.  The GOT has lent its support to an open 
investment regime, mobilization of private capital 
initiatives (PCI) and further liberalization of the 
financial sector in line with the World Bank?s 
recommendations.  An increased number of privatized public 
enterprises have been awarded to foreign investors. 
 
The Tanzanian Investment Center (TIC), established by the 
Tanzanian Investment Act of 1997, is the focal point for 
all investors to answer inquiries and facilitate project 
start-ups.  TIC continues to improve investment 
facilitation services, provide joint venture opportunities 
between local and foreign investors, and disseminate 
investment information. 
 
The GOT demonstrated its pro-investment attitude in 
September 2006 when President Jakaya Kikwete led a 55- 
member trade and investment mission to the United States to 
promote Tanzania?s investment opportunities.  The mission 
included Government agencies and private sector investors 
from the manufacturing, tourism, transport, minerals and 
agriculture sectors. 
 
Among investment and trade opportunities in Tanzania that 
remain underexploited are the energy sector, including coal 
reserves and natural gas deposits, and the transportation 
sector.  The GOT accepts foreign investment in Built, 
Operate and Transfer (BOT) projects and has launched a 
concession system aimed at attracting foreign investors to 
build infrastructure. Investment Tax Incentives are stable 
and predictable. 
 
Land ownership remains restrictive in Tanzania.  Occupation 
of land by non-citizens is restricted to land for 
investment purposes regardless of the sector.  Under the 
1990 Land Act, however, a foreign investor may occupy land 
up to 99 years through derivatives rights. 
 
In February 2005, the GOT established the Better Regulation 
Unit (BRU) to manage the implementation of the Business 
Environment Strengthening for Tanzania (BEST) program.  In 
June 2006, Tanzanian Parliament passed a law to establish 
Special Economic Zones (SEZs) to augment investments in the 
light industry, agro-processing industry and agriculture 
sectors.  Green field foreign direct investments are 
allowed through this SEZ legislation. The GOT continues to 
promote Export Processing Zones (EPZ) to attract 
investments in agribusiness, textiles and electronics and 
Spatial Development Initiatives (SDI).  The EPZ are tax 
free zones. 
 
Investments on the Dar es Salaam Stock Exchange (DSE) are 
open to foreign investors, but capped at 60 percent. 
Foreign investors are barred from participating in 
government securities. The financial sector has expanded 
with an increase in foreign affiliated financial 
institutions and banks operating in Tanzania.  As of 
December 2005, a total of 29 Commercial Banks were licensed 
and operating in Tanzania, 14 of which are foreign 
affiliated banks. Competition among these foreign 
commercial banks has resulted in significant improvement in 
the efficiency and quality of financial services provision. 
 
A.2  Conversion and Transfer Policies 
------------------------------------- 
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 ceiling on transfers of foreign currency 
is on cash carried by individuals traveling abroad, which 
cannot exceed US$ 10,000 over a period of forty days. 
Tanzania occasionally experiences shortages of foreign 
exchange, but this problem has been greatly eased by the 
growth of bureau de changes returns.  Bureaucratic hurdles 
continue to impact the length of time it takes to process 
and effect a transfer, which can range from days to weeks. 
 
A.3   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. 
 
A.4.  Dispute Settlement 
------------------------ 
Tanzania is a member of both International Center for the 
Settlement of Investment Disputes (ICSID) and the 
Multilateral Investment Guarantee Agency (MIGA). The 
regulations maintain that a dispute between a foreign 
investor and the Center which is not settled through 
negotiations may be submitted to arbitration: 
 
   In accordance with arbitration laws for investors; 
   In accordance with the rules of procedure for 
arbitration of the International Center for the 
Settlement of Investment Disputes; or 
   Within the framework of any bilateral or multilateral 
agreement on investment protection agreed to by the 
GOT and the country of the investor. 
 
A.5 Performance Requirements and Incentives 
-------------------------------------------- 
The GOT uses Trade-related Investment Measures (TRIMs) to 
promote development objectives, encourage investments in 
line with national priorities to attract and regulate 
foreign investment.  Trade development instruments that 
Tanzania has adopted include Export Processing Zones 
(EPZs); Investment Code and Rules; Export 
Development/Promotion and Export Facilitation. 
 
The Export Processing Zones (EPZ) are open to both domestic 
and foreign investors.  The 2006 EPZ Act should stimulate 
export-oriented economic activities and encourage the 
acquisition of appropriate technology and skills. The EPZ 
law eliminates the initial investments in infrastructure 
and limits capital investments to machinery and equipment. 
The law also stipulates that more than 20 percent of the 
goods, which are subject to exemption from duties and taxes 
within EPZ, can be taken out of the zone.  This is an 
interim measure to compensate investors for economic 
distortions pending the emergence of a more efficient 
market system. 
 
The Investment Code, as a trade policy instrument, 
compensates works for distortions which impede the flow of 
foreign investments due to market imperfections.  The 
Investment Code in Tanzania is a necessary interim 
instrument for stimulating both foreign and domestic 
investments especially in agriculture and industry (where 
the level of domestic investments is still low), while 
initiating measures for strengthening the enabling business 
environment and working for the emergence of a vibrant 
market economy.  In sum, Tanzania offers a well-balanced 
package of investment benefits and incentives that are 
applied uniformly to all investors (domestic and foreign 
investors): 
 
   Zero Custom Duty and deferred VAT on capital goods for 
investments in sectors such as mining, export 
processing zones, infrastructure, road construction, 
bridges, railways, airports, generation of 
electricity, telecommunications and water services. 
 
   100% Capital allowance deduction in the years of 
income for the above mentioned types of investments. 
 
   No remittance restrictions. The Government does not 
restrict the right of a foreign investor to repatriate 
returns from an investment. 
 
   Investments in Tanzania are guaranteed against 
nationalization and expropriation. Any dispute arising 
between the Government and investors can be settled 
through negotiations or may be submitted for 
arbitration before the international organizations. 
 
   Allowing interest deduction on capital loans; removal 
of the 5-year limit for carrying forward losses of 
investors. 
 
   Five percent Customs Duty and VAT tax deferral on 
capital goods for priority sectors including 
livestock, aviation, commercial buildings, commercial 
development and micro finance banks, export oriented 
projects, geographical special development areas, 
human resources development, manufacturing, natural 
resources including fisheries, rehabilitation and 
expansion projects, tourism and tour operators, 
transport, radio and television broadcasting. 
 
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. 
 
A.6.   Right to Private Ownership and Establishment 
--------------------------------------------- --- 
Tanzania observes the right of foreign and domestic private 
entities to establish and own business enterprises and 
engage in legal forms of remunerative activity. 
prohibited).  The Business Registration and Licensing Act 
provides for licensing for business operations. It provides 
the right to freely establish private entities; to own 
property both movable and immovable; to acquire and dispose 
off property including interest in business enterprises and 
intellectual property. To register a company or a business 
enterprise in Tanzania is a right of those who wish to 
associate and freely form themselves into a company 
pursuant to the existing company laws. 
 
Tanzania is still in transition from a largely public 
sector economy to one in which the private sector is taking 
the leading role. 
 
   Under Tanzanian law, occupation of land by non- 
citizens is restricted to lands for investment 
purposes under the Tanzania Investment Act 1997 and 
the revised new Land Act 1999. 
   Land in Tanzania is a government property and citizens 
or non-citizens only leases the land from the 
government for 33, 66, or 99 years depending on the 
nature of the investment. The law does not allow 
individual Tanzanians to sell land to foreigners. 
Foreigners can only buy land in Tanzania through TIC. 
 
A.7. 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 one 
comprehensive law to secure property rights. 
 
The concept of mortgage exists and 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 now recognized 
as mortgage for securing loans from banks and upon failure 
to pay back the loans the banks can sell an attached plot. 
 
Intellectual Property Rights:  Adherence to key 
international agreements on intellectual property rights in 
Tanzania began only in recent years.  In 1999, Tanzania 
passed the Copyright and Neighboring Rights Act Number 7 of 
1999, the current legislation in Tanzania addressing the 
protection of intellectual property rights (IPR) and 
protection for expressions of folklore.  This legislation 
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). This law provides one 
of the means under which Tanzanians and foreign nationals 
may secure, exercise, and enforce exclusive intellectual 
property rights. The Act also establishes the Copyrights 
Society of Tanzania (COSOTA) which has the duty and powers 
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 establishment of both the Commercial Court of Tanzania 
(in 1999) and a special Land Court (under section 167 of 
Lands Ordinance number 4 of 1999), as special divisions of 
the High Court, has been a tremendous step towards 
protection and effective enforcement of property rights. 
 
The Commercial Court deals with efficient litigation of 
commercial cases including those related to infringements 
of IPR and trade in counterfeit and pirated goods. Several 
cases have already been handled and determined at these 
high court divisions. 
 
Tanzania has not yet signed or ratified the WIPO internet 
treaties. 
 
A.8.  Transparency of the Regulatory System 
------------------------------------------ 
The GOT has made progress in formulating policies and 
effective laws to foster competition.  Tanzania has enacted 
three laws to govern competition and regulate economic 
activity: Fair Trade Practices Act 1994; Energy and Water 
Utilities Regulatory Act (EWURA) 2001; and Surface and 
Marine Transport Regulatory Act (SUMATRA) 2001. The GOT is 
expediting the implementation of Competition Law under the 
co-ordination of the Fair Commission for Trade and related 
regulatory institutions and promotes consumer protection 
through broad-based public awareness on consumer?s rights 
and obligations. 
 
The current institutionalization of the public-private 
sector dialogue through various forums such the Investors 
Round Table (IRT) process, ensures that the bureaucratic 
hurdles hindering private investments are addressed.  Since 
the adoption of the IRT process in July 2002, Government 
Ministries, Departments and Agencies have broadened 
reforms.  The IRT serves as an advisory board on best 
practices in trade and investment to the top national 
leadership. 
 
Tanzania is implementing a taxpayer's Charter that enables 
taxpayers to complain against problems or malpractice 
within the Tanzania Revenue Authority (TRA) officers.  The 
tax policy reform agenda includes abolition of nuisance 
taxes, harmonization of regulatory framework, 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. 
 
The GOT has established a Law Reform Commission (LRC) to 
take and keep under review laws and regulations, and to 
examine the legal and regulatory requirements relating to 
trade and investments. The GOT is also modernizing 
business-licensing regime to reduce impediments to 
investment. The Tanzania Investment Center has become a 
'one-stop shop' that provides fast track assistance to 
obtain approvals and permits such as work permits, 
 
industrial license and trading licenses. 
 
The judicial system continues to function slowly and 
imperfectly and is easily influenced by privileged 
individuals. These factors increase the cost and difficulty 
of doing business in Tanzania.  In order to overcome 
shortfalls in the judicial system, the GOT is adopting 
anti-corruption measures and legal reforms to reduce 
bureaucratic snags and redundant laws and regulations. 
 
A.9.  Efficient Capital Markets and Portfolio Investment 
--------------------------------------------- --- 
The Capital Markets and Securities Authority (CMSA) Act of 
1994 facilitates the free flow of capital or financial 
resources to support the product and factor markets. 
Currently the CMSA has opened the Dar es Salaam Stock 
Exchange (DSE) to foreigners.  The DSE improves access to 
medium and long term capital, and concurrently promotes a 
wider ownership of stocks and other equities. Corporate 
enterprises can recapitalize and grow when listed on DSE. 
Individuals can invest in shares and gain profitable 
returns; the maximum limit for foreign participation is 60 
percent.  Foreigners are not allowed to participate in 
government securities. 
 
Foreign investors can get credit on the local market for 
capital injection within the country and for importation of 
capital goods for use within the country. While credit is 
allocated on market terms, it has been uneconomical to 
borrow from local sources/commercial banks due to high 
interest rates. Bank lending rates range from 14 percent to 
24 percent for ordinary borrowers.  Corporate borrowers can 
negotiate lower rates.  The Multilateral Investment 
Guarantee Agency (MIGA)?s Guarantees against political 
risk, International Finance Corporation (IFC) facilities, 
U.S. Exim Bank are available for financing projects. 
 
The financial sector has expanded with a significant 
increase in the number of foreign affiliated financial 
institutions and banks operating in Tanzania. By December 
2005, there was a total of 29 Commercial Banks licensed and 
operating in Tanzania out of which 14 are foreign 
affiliated banks.  The private sector players have access 
to a variety of commercial credit instruments including 
documentary credits (letters of credits), overdrafts, term 
loans, and guarantees. 
 
The Central Bank in Tanzania (Bank of Tanzania) administers 
and provides special export credit guarantees from which 
joint venture initiatives between local and foreign 
investors can benefit.  In November 2006, EXIM Bank 
(Tanzania) Ltd obtained a new credit line from PROPARCO, 
the private sector arm of the AGENCE FRANCAISE DE 
DEVELOPMENT (AFD), the official French Development 
Institution.  This line increases EXIM Bank?s capacity to 
support long-term foreign currency lending both in Euros 
and US dollars to SMEs and corporates.  In Tanzania, 
PROPARCO's operations represent a total of USD$ 36.0 
million, mainly to banks, the tea and manufacturing 
sectors. 
 
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 Central Bank of Tanzania is exempt from 
income tax, in accordance with the Income Tax Act 2004. 
Foreign exchange regulations have been eliminated to allow 
an enabling environment to attract investors and simplify 
international transactions.  Profits, dividends and capital 
can be readily repatriated. Several venture capitals have 
been established to meet the demand for equity injections 
into growing businesses. 
 
The Banking and Financial Institution Act 2006 established 
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. 
International reserves at the Central Bank (Bank of 
Tanzania) stood at 1.5 billion US dollars, which is the 
highest for over 30 years and equivalent to seven months of 
imports. This has helped BOT to intervene whenever minor 
fluctuations have led to a slight depreciation of the 
Tanzanian shilling. 
 
A.10.   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, Tanzanian has 
enjoyed a remarkable degree of peace and stability.  In 
1992, the constitution was amended to allow for multiple 
political parties; in 1995, the first multi-party election 
took place. 
 
As the country underwent the transition from a socialist to 
a democratic entity, beginning 1992, occasional conflicts 
took place, particularly during election campaigns.  In 
2001, demonstrators clashed with police on Pemba (Zanzibar) 
and several persons were killed.  However, the 2005 general 
elections were primarily peaceful and marked by an absence 
of major violence.  In January 2007, the two main political 
parties on Zanzibar opened a dialogue and most observers 
expect that further clashes on Zanzibar are unlikely; the 
chance for conflict on the Mainland remains remote. 
 
 A.11.a   Corruption 
-------------------- 
Corruption is one of the areas of major concern encountered 
by foreign investors.  The administration of President 
Kikwete, who took office in December 2005, has made the 
fight against corruption one of its priority areas.  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 overall been largely ineffective.  Areas 
where corruption persists include government procurement, 
privatization, taxation, ports, and customs clearance. 
 
In 2004-05, the GOT took measures to strengthen good 
governance and accountability in social services delivery 
under the National Anti-Corruption Strategy (NACSAP). 
Tanzania has in place law and regulations to combat 
corruption.  In early 2007, the Ministry of Finance will 
introduce amendments to the anti-corruption law to 
strengthen the institutions that fight graft, particularly 
the Prevention of Corruption Bureau (PCB). These amendments 
will give the PCB more powers to search, arrest, 
investigate and prosecute. 
 
While Transparency International (TI) has consistently 
rated Tanzania as one of the worst countries in the world 
for corrupt business practices, TI?s 2006 Corruption 
Perceptions Index (CPI) showed slight improvement in 
Tanzania's anti-bribery activities. (Note: The CPI score 
tracks perceptions of corruption seen by business and 
country analysts, ranging from zero as highly corrupt, to 
10, not corrupt).  CPI showed Tanzania edging up from 1.9 
points in 1999 to 2.5 in 2006. 
 
A World Bank survey conducted in 2004 places Tanzania as 
one of the better performers in anti-corruption efforts 
among African countries from 1996 to 2004. 
 
A.11.b  Bilateral Investment Agreements 
--------------------------------------- 
Currently, the United States of America and Tanzania do not 
have a bilateral investment agreement. 
 
A.11.c   OPIC and Other Investment Insurance Programs 
--------------------------------------------- -- 
The U.S. Overseas Private Investment Corporation's (OPIC) 
program is available to citizens of the United States; 
corporations, partnerships or other associations created 
under the laws of the United States; to foreign 
corporations at least 95 percent owned by U.S. investors; 
and to foreign entities that are 100 percent U.S.-owned. 
 
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 used OPIC programs in Tanzania. 
OPIC insurance products cover three political risks: 
 
   -- Currency Inconvertibility - deterioration in the 
investor's ability to convert profits, debt service and 
other investment returns from local currency into U.S. 
Dollars and to transfer those U.S. Dollars out of host 
country. 
   -- Expropriation - loss of an investment due to 
expropriation, nationalization or confiscation by the host 
government; and 
   -- Political Violence - loss of assets or income due to 
war, revolution, insurrection or politically motivated 
civil strife, terrorism and sabotage. 
 
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, the official export credit agency of the 
United States, supports in Tanzania the purchases of 
U.S. goods and services by creditworthy Tanzanian 
buyers that cannot obtain credit through traditional 
trade finance sources. The agency offers export credit 
insurance and guarantees of commercial loans. Ex-Im 
Bank helps U.S. companies sustain and create jobs by 
financing U.S. exports.  The Ex-Im Bank has 
established a cooperative agreement with the EXIM Bank 
of Tanzania Limited to facilitate access to guarantees 
by investors within Tanzania. 
 
   Tanzania is also a member of the International Center 
for Settlement of Investment Disputes (ICSID). 
Investments in Tanzania are guaranteed against 
nationalization and expropriation. 
 
A.11.d.   Labor 
---------------- 
Private companies can hire or fire employees whose 
performance is not desirable. The limited availability of 
skilled labor remains one of the major concerns that need 
policy intervention. There are no legal requirements to use 
specific employment agencies for recruitment and no imposed 
conditions on employment of host country nationals. The 
applicable labor laws are the Employment Ordinance Act 
CAP.366; Security of Employment Act CAP 574 No. 62; 
Workmen?s Compensation Ordinance CAP 263; and Severance 
Allowance Act CAP 487 No.47 of 1962. 
 
   The labor and immigration formalities allow foreign 
investors to recruit up to 5 expatriates; more work 
permits can be granted on meeting specified 
conditions. 
   As an incentive under the EPZ Act, the GOT can provide 
work permits for management and technical staff when 
these skills are unavailable locally.  The number of 
such personnel will be determined in consultation with 
the Ministry of Labor. 
   Unskilled labor in Tanzania is plentiful and 
inexpensive.  While there continues to be a deficit of 
skilled labor, the number of university graduates, 
especially in business management and IT, is growing. 
However, many foreign investors find that local labor 
is not sufficient to fill management and 
administrative positions. 
 
A.11.e    Foreign Trade Zones/Free Trade Zones 
--------------------------------------------- - 
Refer to EPZ information above (SectionA.12).  Efforts are 
progressing to make Zanzibar Port a free port. In addition, 
free economic zones have been established in three areas of 
Pemba and Zanzibar.  Tanga and Kigoma ports will also soon 
become free trade zones. 
 
A.11.f  Foreign Direct Investment Statistics 
-------------------------------------------- 
 
 
Foreign Direct Investment Total Flows (USD million):* 
YmAX""1pQ(8}Q94d6Q^6#RTQk>3QQ,h"Tanzania (BOT) 
 
   The FDI has been principally in mining, manufacturing, 
tourism, construction and transportation sectors. In 
2005, the value of FDI decreased to US$325.0 million 
from US$469.9 million in 2004.  Among other factors, 
this reduction was due to decreased investment in the 
mining sector. RETZER