Revealed: Why FDI inflows to Tanzania dipped by 15pc

Dar es Salaam. Business leaders have identified five reasons for the 15 per cent decline in Foreign Direct Investment (FDI) flows to Tanzania last year.

Inflows to Tanzania dwindled to $1.4 billion in 2016 (Sh3.1 trillion at the exchange rate then). This is according to the World Investment Report of the United Nations Conference on Trade and Development (UNCTAD).

Stakeholders who spoke to The Citizen on the sidelines of the 2nd East African Business and Entrepreneurship Conference and Exhibition last week attributed the decline to weak commodity prices, change in weather conditions, diversification of non-exported products, decline in the performance of oil and gas trade, as well as high lending rates.

Commenting on the matter, the vice-chairman of the East African Business Council (EABC), Mr Felix Mosha, said diversification of non-exported goods – especially agricultural products – pushed down export earnings.

He also blamed the decline in commodity prices for dampening of FDI flows to the country, saying that macroeconomic policies have been put to a serious test.

In addition to that, he pointed an accusing finger at poor weather conditions, saying the weather of the day dampened agricultural production, resulting in low export volumes and earnings.

“The precipitous fall in prices of various commodities that occurred in the previous year weighed – although not heavily – on FDI flows to the country,” Mr Mosha stated.

Sharing his sentiments, the Tanzania Private Sector Foundation (TPSF) executive director, Godfrey Simbeye, said the decline was largely contributed to by poor performance in the oil and gas subsector.

He said that subsector did not perform well during the period under review – partly because there were not many new investments.

“A large number of registered new projects with the Tanzania Investment Center in 2016 are from the manufacturing sector and not oil and gas,” noted Mr Simbeye, adding: “I think the delay in making a decision (on whether or not) to construct a Liquefied Natural Gas facility in the country has reduced investor confidence in the sector.”

Although the country’s FDI inflows number is declining, it is nonetheless much stronger compared with those of other member states of the East African Community.

Citing the case of Kenya as an example, the report shows that investment inflows to Kenya during the period under review declined by 36 per cent, to $394 million (Sh882.5 billion).

However, inflows to East Africa as a region – according to the report – increased by 13 per cent, to $7.1 billion (Sh15.9 trillion), driven by increased inflows to Ethiopia, Mauritius and Madagascar.

Further, the report reveals that Africa continues to attract more FDIs in the services sector.

In 2016, FDI projects into which inflows were high in the services industry were mainly business services, infrastructure, real estate, electricity, gas and water.

Manufacturing – mostly in chemicals, renewable energy, textiles and clothing – and locomotives came next.

Inflows into projects in the primary sector fell sharply, reflecting the commodity prices slump.

Looking at the trend beyond that period – between 2005 and 2013 – the EAC economies experienced the modest annual growth rate of about five per cent, driven by the services and the agricultural sectors.

Value-added to Gross Domestic Product (GDP) by the services and agricultural sectors in the region was on average at 65.6 per cent, 26.6 per cent and ten per cent respectively.

Nevertheless, based on infrastructural development and the launch of the Single Customs Territory (SCT), among other policy reforms being undertaken in the EAC countries, as well as the recent discovery of natural resources – including mineral oils and gas – economic growth prospects for the region remain positive.

The economies are expected to grow in the medium-term at five per cent per annum.

The large mineral resource base in the EAC region, which largely remains untapped, coupled with discoveries of oil and gas reserves, suggests a possible influx of FDIs to the region.