Tanzania: Investment via EPZA drops by 88% in 5 years

Tanzania, known for its diverse natural resources and strategic location in East Africa, has been facing a significant decline in new investment capital in the Export Processing Zones Authority (EPZA) over the past five years. According to the controller and Auditor General for the 2019/20 financial year, the total investment capital injected by investors decreased by a staggering 88%, from about $500 million in 2015/16 to approximately $60 million in the 2019/20 financial year. This decline has raised concerns among industry experts and stakeholders about the factors contributing to this significant drop in investments. Salum Awadh, the CEO of SSC Capital, shed light on some of the key challenges faced by investors and the EPZA that have led to this decline. One major issue highlighted was the bureaucratic hurdles and red tape involved in obtaining investment approvals and licenses in Tanzania. Setting up an investment project in the country often requires navigating through various channels, leading to delays and hindrances for potential investors. Additionally, EPZA's policy of mandating investors to sell 20% of their products in the local market and export 80% has posed challenges, especially for investors looking to export across the East African region. The East African market's commodity protocol restricts these exports from being considered as international sales, limiting investors' ability to meet the local market quota. The disruption caused by the COVID-19 pandemic further compounded these challenges, as many businesses across the globe had to halt or postpone their investment plans. The pandemic's impact on global economies affected investor confidence and willingness to undertake new projects, resulting in a slowdown in investment activities. Awadh also pointed out institutional challenges within EPZA, such as the availability of land for investors to set up their projects. The lack of sufficient land opportunities has been a barrier to attracting new investments and expanding industrial activities within the country. The decline in investment capital in EPZA over the past five years indicates a need for strategic reforms and policies to revitalize Tanzania's investment landscape. Despite the disruptions caused by the pandemic, Awadh emphasized that not all countries and investors shut down their operations entirely during the crisis. Strategic investors continued to explore business opportunities, suggesting that other factors also contributed to Tanzania's investment decline. One area that requires immediate attention is the review of existing policies that impede investment growth, such as the restriction on selling more than 20% of products in the East African community member states' markets. Awadh emphasized the importance of creating exceptions to allow investors to export within the region, thereby attracting more investments to Tanzania. Additionally, reforming outdated investment policies, like the 1996 investment policy, and developing a new strategy to promote foreign investments in the country is essential. As Tanzania aims to harness the opportunities presented by the African Continental Free Trade Area agreement and promote regional integration, Awadh recommended ratifying the protocol and building a resilient local economy. The country needs to focus on strengthening the manufacturing sector by investing in infrastructure, particularly in energy to reduce production costs and enhance export competitiveness. Access to finance for domestic investors is also crucial to ensure that economic activities benefit the local economy and foster sustainable growth. With strategic reforms and a conducive business environment, Tanzania can position itself as a hub for investments and leverage the untapped potential in various sectors.