AS world grapples with covid-19 effects and newly evidently covid-19 covariant, questionably to be precarious in terms of its infection rate compared to first covid-19 pandemic, the global economy has been sent into a tailspin, and recovery remains highly uncertain until the virus is stamped out by on-going inoculation.
Amidst recovering journey, most emerging nations are lacking fiscal space to begin with and this is likely to lead to these nations to face severe economic crises due to reduced exports, tourism receipts and remittance income, coupled with reduced tax revenue.
Last week, Hon. Prof. Kitila Mkumbo, Minister of State in the President’s office (investment) cited in the media, was urging investors to come and invest in Tanzania’s diverse sectors when speaking at the global investors meeting aimed at exploring investment opportunities in agriculture, infrastructure and the industrial sector when it comes to invest in Africa.
Hon Prof Kitila Mkumbo call in my view is timely and appropriate as Tanzania is one of the fastest growing economies in Sub Sahara Africa that, under 5th phase government, led by Dr JPM, that has made Tanzania economies on investors radar, despite the economic slowdown felt elsewhere.
Amongst cited ingredients to attract investors were political will, peace, enough and fertile land for agriculture, labour force and market as among the factors that make Tanzania the best investment destination in the continent in its history.
These ingredients are flawless, but as a rule, Tanzania shouldn’t forget woes on projected decline in foreign direct investment (FDI) by 40%, according to UNCTAD’s World Investment Report, which has noted three major challenges for LDCs.
Foremost, a reduction in FDI or a possible divestment due to pandemic-induced scares coupled with the limited preparedness and capacity of emerging nations to respond.
Next, an acceleration in already-declining greenfield FDI in the first quarter of 2020-20% in value and 27 in number and lastly, lower corporate earnings of multinational enterprises affecting reinvested earning potential in emerging nations, where the reliance on this source of FDI is somewhat high.
As guest speaker, at the most recent CEO round table of Tanzania meeting on harnessing investment opportunities in Tanzania Prof. Mkumbo sketched his right of way in increasing local and foreign direct investment.
It is on basis of these priorities and national investment guideline championed by Tanzania investment centre I thought of penning down what it takes to attract quality foreign direct investment into a country. In my opinion, the biggest challenge in attracting FDI is to attract quality FDI that could link foreign investors into the local host country economy.
Much as can be a debatable subject, in my view quality FDI is characterised as one that can contribute to the creation of decent and value-adding jobs, one that can enhance the skill base of host economies while smoothing the transfer of technology, knowledge and know-how aimed at enhancing competitiveness of domestic firms and enabling their access to competitive markets and more importantly operating in a socially and environmentally responsible manner.
To realise this, ingredients highlighted by honourable prof Mkumbo aren’t enough to seriously net in quality FDI, host countries such as Tanzania cannot just relax and see what international market forces may bring to them. Somewhat, Tanzania need made-to-order kind of policies to overcome internal imperfections that could deter the smooth integration of indigenous and foreign firms into world-wide supply-chain networks.
Africa development bank President Akinwumi Adesina quoted in the media mentioned that Tanzania is burgeoning with value added potential and advising investors from across the global to take Tanzania as their area of priority when the think of investing in Africa.
While these observations are perfect, I am of the opinion, there are few areas that could help Tanzania for attracting quality FDI. To attract quality FDI, there is a need to ensure as government work seriously to reduce restrictions on FDI.
This includes providing open, transparent and steady conditions for all kinds of businesses, whether foreign or domestic, comprising: ease of doing business, access to imports, somewhat flexible labour markets and fortification of intellectual property rights. In addition, an effective agency dedicated could target suitable foreign investors and could then become the link between them and the domestic economy.
This agency in my view should act as a one-stop shop for the requirements investors demand while at the same should act as a catalyst in prompting and offer top notch infrastructure and ready access to skilled workers, technicians, engineers and managers that may be required to attract such investors.
Currently, this aspect is missing in our promotion kit. Presently, if not proven right, there is no what I could call engage in after-investment care, admitting the sit-in effects from satisfied investors, the potential for reinvestments, and the potential for clusterdevelopment of follow-up investments.
In Tanzania this is missing and in my view this is critical for investors. To attract quality FDI, there is a requisite to allow for the competitive pressure of foreign players on local suppliers to raise competitiveness of the latter and realistic to allow for multiple forms of direct assistance from foreign to local businesses, in the form of training, help with setting up production lines, management coaching regarding strategy, financial planning and financing.
At the moment it is hard to arbiter if at all this is being done. To earnestly induce flow of excellence FDI into Tanzania, there is a need to encourage first-time foreign direct investors. Foreign firms that are not already part of an extensive network of subsidiaries are readier to accept linkages to domestic suppliers and this in my view could be more of use to our emerging businessperson.
FDI doesn’t shine on their own, hence in my view there is a need to provide access to credit by remodelling domestic stock market. Here the importance of market liquidity and its relationship to financial market is very important. Setting-up a businessfriendly financial structure helps home-grown businesses to respond to challenges and impulses from foreign entrants, to self-select into supplier status, and to thereby grow and prosper.
As a nation line up to netin those quality FDIs, there is a need to shape export processing zones in a way that they lead into the domestic economy. There is a need to avoid EPZ code of practice that discriminates against the creation of local supplier relationships.
Set-up a secondary industrial zone for local suppliers, be it as a geographical site next to to prescribed export processing zones, or be it as a legal status permitting for easy foreigndomestic linkages with, for instance, databanks and marriage counsellors, could help to support in supplier selection.
Enticing quality inward FDI, there is a need to be strategic in approach. Those with power or authority to sanction which is quality and which isn’t quality FDI, there is a need to not hold that all inward FDI be at the most sophisticated technical level.
In my judgement, international companies with middle-level technology can offer assistances and connect-up with local providers whose capabilities match the foreign businesses more watchfully.
The essence of the submissions provided here is to advocate a light form of ensuring Tanzania net in quality FDI that could seeks to hold-up FDI to development goals and to help engender backward linkages as deep as possible into the Tanzania economy.
Having veiled what it takes to entice quality FDI, to sumup, the extent to which the foreign investment can underwrite to the economic growth depends on a range of features. Foremost is the receiving country characteristic that I can call absorptive capacity- gist a competence of the receiving economy to use technological spill overs from the more builtup nations and the capacity to amass and best utilize technology and knowledge.
The main determining factor of the absorptive capacity is the quality of institutions, particularly, the rule of law in managing disputes that may arise in-between and clear setup in manner in which such commercial disputes are managed or could be handled and the property rights protection.
In order to reap the benefits of FDI Tanzania moving forward will need to implement some strategies, such as perfections of the general macroeconomic and institutional frameworks; creation of a regulatory setting that is conducive to FDI inflows to help full potential benefits of foreign business presence can be gained.
Even though there are contradictory thoughts about the bearing and gains of FDI on the economic growth, it is broadly held that investments positively contribute enormously to the economic growth of receiving nation. Negative effect may be experienced if a county go for pitiable quality FDIs. Significantly, countries do not benefit from the investments at the same level.
Positive development impact is not an automatic consequence of FDI in all cases. Our challenge in the years to come will be to make sure that Tanzania markets take advantage of its potential upside while correspondingly working to edge the potential risks FDI bring. Quality FDA matters.