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Foreign Investment in Tanzania: Wants & Needs

Second in a series. Begin at the introduction.

People want investment. No country, from Tunisia to South Africa, can compete economically with the West. World Bank assistance to Tanzania topped $3bn in 2009, nearly double the amount a decade before. Funds are being spent on infrastructure and attracting foreign capital.

Post-British Empire Tanzania adopted socialist reforms, an understandable reaction to colonialism. But the Soviet Union collapsed and China embraced the global market, leaving no choice but to take fledgling steps towards privatization. The country seems to have escaped the widespread corruption which afflicted Russia’s own liberalization, but just because it’s not Zimbabwe or Kazakhstan doesn’t mean that greasing a palm doesn’t lube the wheels of bureaucracy.

Agriculture comprises more than a quarter of the GDP, most exports and around 80% of employment. Small enterprises have made in-roads into diversifying the economy, exploiting the natural beauty of Mount Kilimanjaro, Lake Victoria and the Serengeti. Tourism is an valuable and growing contributor to the coffer but any hippie will tell you it’s impossible cashing in on nature unless you can process and package the hell out of it. Austrian backpackers chasing after wildebeests may fund wildlife preserves but they won’t pay for skyscrapers in Dar Es Salaam. Mining is similarly growing and gold is a major export. Speculators suspect that vast reserves of metals and minerals remain untapped but the industry remains small, possibly due to concerns over the ecological impact. Natural gas exploitation has ratcheted up in response to regional issues with hydroelectricity but extraction has yet to lead to the power market.1

United Nations Advisers

Despite a high literacy rate and pushes towards expanding secondary education, despite manageable unemployment rates and commercial growth, Tanzania remains statistically poor. In 2002 the United Nations Conference on Trade and Development (UNCTAD) paid a visit to investigate the economy. They found that policies proved too restrictive for business development. Laws no longer reflected the freewheeling market. Regulations on tourism and fishing choked private entities with a red tape noose. Corporations were scared off by labor laws and taxes.

In 2010 UNCATD returned to evaluate how well the government had adopted their recommendations. Progress was slow, and stubbornness prevailed.2

Foreign investment and land laws were repeatedly mentioned in both UNCTAD reports. Since 2001, land is classified in one of three ways: Village Land is the roughly defined borders of some twelve thousand rural villages throughout the country, administrated by a local council; Reserved Land has been set aside for national parks and Austrian backpackers; Everything in between is General Land. However the lines are anything but clear because Tanzania has not implemented any technical surveys, geotagging or, frankly, computers.3

Presidential decree can convert Village Land to General Land. Although safeguards are in place to guarantee relocation and compensation, there are few title deeds, boundaries are essentially undefined, house values are eyeballed and there is no recognition of how villagers use land outside their poorly designated borders.

But only General Land can be leased to foreign companies.

These murky waters inhibit foreign investment in a country with maximum 33-year leases and restrictions on projects over 300 hectares. At the urging of UNCTAD a commission was created to court business, the Tanzania Investment Centre (TIC). The TIC has set about creating a land bank of parcels set aside for plug-and-play installations, and guides potential investors through the processes of acquiring their very own plot. Whether the potential investors pay for resettlement and compensation of villagers depends on the site survey and which side of the line a village falls.

But the TIC receives an annual 10% commission of lease payments. The agency also evaluates, prices and arranges water rights.

Parcels over 300 hectares require presidential approval. This means that the scope, placement and possession of the largest tracts of land are under the control of one agency, which raises the specter of both corruption and neglect. Particularly when Tanzania is flirting with becoming a leader in biofuel production and processing, which requires large tracts of cash crops on decent land.

And decent land can be had for .14¢ a hectare. In Hardin County, Iowa (UPDATED* – I fucked this up), where Agrisol Energy makes its home, farmland averaged $7,890 per acre in the year 2011. A hectare is almost 2.5 times larger than an acre. While it is fair to say that the standard of living in Tanzania merits a cheaper hectare of land, but only if you say that people with less money should have a crack at cheaper land while people with more money pay for more expensive land.

Agriculture in Tanzania

Tanzania does not suffer famine but the population suffers malnutrition. In response to protein deficiency, poor yields and a wild commodities market the government initiated it’s Kilimo Kwanza (Agriculture First) policy to bolster the agriculture sector. Foreign firms with projects evaluated over $20m receive tax breaks (if not outright tax relief) and have their duty fees waived. Good for the company, but not great for local businesses supplying equipment, fuel and other gear.

However, permission to initiate large-scale projects require a company to fulfill a running list of requirements negotiated prior the a lease being signed. Commonly these revolve around funding infrastructure development around the allotted land. Rural communities could benefit from roads and electricity, but thus far very few large scale leases have been awarded and none have run long enough to require any solid developments. Rural communities wouldn’t benefit from a new road leading from the fields to the processing plant, then down to the railway. The merits of infrastructure is to be determined by the TIC, who can strip the land and lease if the company fails to comply with the provisions of their contract. In fact many attempts to lease land have failed before anything is ever signed. Ministries accessing a bid for land have denied applicants when the growth of a nearby village is projected to infringe upon land which would be leased. All companies looking to invest must pay for an Environmental Impact Assessment before being considered for a lease.

One hoped for side-effect of foreign investment is jobs. UNCTAD finds modern, career-worthy skills to be lacking and has been pushing for industry insiders and business advisers to help craft education. The happy robots churned out by trade schools were unavailable for comment. A shrewd older law stubbornly refusing UNCTAD advice acts to provide training through foreign know-how. There are severe restrictions on importing workers, even skilled ones usually able to acquire special visas. Companies can appeal for additional permits to bring skilled workers in, but all underlings and assistants must be local.

Large-scale agricultural projects will be elbow to elbow with small communities of subsistence farmers. American industrial farming is reliant on chemical fertilizers, pesticides, machinery and manipulating nature. Short the few locals lucky enough to ride shotgun in a combine or running a conveyer belt, most employment would be seasonal and short lived.

New industries could bring new opportunities and take a new generation beyond dirt roads and the corn field. Diversified crops and greater yields could prevent local price fluctuations and combat malnourishment. Schools could be built, roads laid between distant villages, utilities brought on line for everyone. New industries could exploit cheap land and a cheaper labor market. Higher education could remain out of reach and trade skills could continue to condemn a new generation to lives as breathing robots. It all depends on the ability of a company to balance the bottom line with stewardship, and on the ability of a government to keep abuses in check while fostering growth. There will be hiccups, but they don’t need to ruin anyone.

Next in the series: The Agrisol Proposal

Image from the Food and Agriculture Organization of the United Nations. No photographer credited. See it in its original context here. I call it fair use.

1Background information from the CIA Factbook. (back)
2General information from the UNCTAD document Report on the Implementation of IPR which can be downloaded here. Read it before you bitch at me. (back)
3General information comes from the Oakland Institute document Country Report: Tanzania which can be downloaded here. Read this too before you bitch at me. (back)
*I originally stated that Agrisol is based in Story County, which had a price of $8,444 per acre in 2011 (back)

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