Tanzania: East Africa’s New Powerhouse

The country’s socioeconomic transformation has accelerated at an unprecedented pace over the past decade. The architects were the late President John Pombe Magufuli, with a very combative and controversial approach, and his successor, President Samia Suluhu Hassan, who favored a subtle but firm style.

The results are obvious. GDP growth has averaged 5.5% over the past 10 years, making Tanzania one of the fastest growing economies in the world. The dynamic persists, with growth forecast at 5.4% in 2024 and 6% in 2025.

“Tanzania has a reputation for peace and stability compared to [other] East African country,” says Tenda Msinjili, head of banking and finance at the Tanzania office of law firm Clyde & Co. This places Tanzania among the few countries in Africa where investors can plan for the long term. term without fear of sudden political upheavals.

A stable democracy, accompanied by crucial economic reforms and interventions, has enabled Tanzania to become a bastion of foreign direct investment (FDI). Investors are flocking to the country to exploit opportunities in sectors such as mining, energy, agriculture, tourism, manufacturing, transportation and commercial real estate.

UNCTAD’s World Investment Report 2024 shows that while FDI flows to Africa declined by 3% in 2023, Tanzania stood out. Inflows increased by 6.3% between 2021 and 2022, to about $1.3 billion from about $1.2 billion. The total stock of FDI reached around $20 billion in 2023, up from $18.6 billion in 2022.

Government data paints an impressive picture. The Tanzania Investment Center (TIC) reports that in the 2023/24 financial year, the country attracted FDI worth a staggering $3.5 billion.

The constant increase in incoming flows is not the result of chance. Besides political stability and economic reforms, factors such as strategic location, abundance of natural resources, expanding infrastructure, investment incentives and a growing local and regional market are among the factors that make Tanzania very attractive.

A crucial reform was the enactment of the Tanzania Investment Act 2022, which helped simplify business registration processes, improve transparency, drive efficiency and reduce bureaucratic hurdles.

But creating an environment of certainty for investors has been more crucial. A few areas stand out. The first is to protect existing contracts, which is crucial for long-term investment planning.

Second, dispute resolution and arbitration, ensuring investors have a reliable and impartial platform to resolve disputes. Given that Tanzania is at odds with foreign investors in the mining sector due to the arbitrary revocation of retention licenses in 2018, this is important.

In 2023, the country paid Winshear Gold $30 million for the expropriation of the company’s gold mine concession. He is also battling other cases at the International Center for Settlement of Investment Disputes, in which various companies are collectively seeking $300 million for wrongful license terminations.

Another advantage of the new investment law is the establishment of a fair and investor-friendly framework for the repatriation of profits. As long as foreign companies fulfill all their tax obligations and issue a dividend notice, they can repatriate their profits without any penalty.

“This law marks a major change in the government’s rhetoric towards investments and the business world,” notes Imani Muhingo, head of financial research and analysis at Tanzanian investment broker and advisor Alpha Capital. He adds that by also reducing the minimum capital requirement to $500,000 for foreign investors, Tanzania has become an affordable destination.

Apart from regulatory reforms, Tanzania has also invested massive resources in improving infrastructure, including roads, ports and railways, to make doing business easier. The $2.9 billion Julius Nyerere hydroelectric project, largely internally financed, is nearing completion. With a capacity of 2,115 MW, it will significantly reduce electricity costs.

Tanzania has also invested in a standard gauge railway linking the port of Dar es Salaam to neighboring Uganda, Rwanda, Burundi and the Democratic Republic of Congo (DRC). The new railway reduced transportation costs by 40% and improved efficiency. Tanzania is expected to become the preferred gateway to the EAC, at the expense of Kenya.

The country’s status was significantly boosted in October when it joined the US-controlled Lobito Corridor rail project linking Angola, Zambia and the DRC. Costing more than $4 billion, the project will connect the Atlantic coast to the Indian Ocean.

Abundant natural resources

When it comes to minerals, Tanzania is a hotspot. There are more than 40 different types of minerals, including gold, diamond, silver, tanzanite, iron ore, copper, nickel, cobalt, graphite and uranium, as well as natural gas.

Government data shows that the mining sector accounts for 9.1% of GDP, generating $3.3 billion in 2022. Revenue is expected to double to $6.6 billion by 2027. To ensure Tanzania benefits from these resources, the government requires a free carried interest of 16% in each project.