Speech by the President of the United Republic of Tanzania, His Excellency Benjamin William Mkapa, at a Meeting with the Confederation of Danish Industries, Copenhagen, 25th August, 1998

Mr. Director-General;
Distinguished Participants;
Ladies and Gentlemen.

I am most thankful for the opportunity provided by this meeting to engage you in a dialogue that I hope will increase the participation of Danish industries in the economic development of my country. It is most kind of you, Mr. Director-General, to organise this encounter during my visit to Denmark; and I want to thank you all for coming to hear me out as I try to market Tanzania as a worthwhile investment destination for Danish capital.

The Nordic countries have for many years been our biggest partners in development. Now that we are opening up for foreign private investment, I consider it appropriate that investors from these countries should have an early start in taking advantage of the new opportunities emerging in Tanzania. I am glad that a few Danish companies are already active in our country. I am also grateful that the Danish government has, through the Industrialisation Fund for Developing Countries (IFU), made provision for facilitating Danish investments in countries such as Tanzania.

From the mid-1960's to the mid-1980's Tanzania was renowned for its socialist policies that led to the nationalisation of private enterprises. But times have changed, and so have we. We are now a Government and a country that seeks to build a mutually rewarding co-operation and partnership with private investors - both domestic and foreign. Over the last several years we have evolved a policy framework that increasingly puts in private hands production and commercial activities.

Through various policy statements, and through legislative and administrative changes, we have demonstrated beyond doubt that we are now a pro-business and pro-private sector government. This is a firm and irreversible change of policy. Henceforth, the role of Government in the economy will be regulatory and supervisory only, in addition to its traditional roles of maintaining law and order.

Economic Policy Reforms
For over 12 years now we have been implementing economic reform programmes, with the support of the IMF and the World Bank, and other donors, to put the economy on a path of sustainable growth. We have, among other things, created a macro-economic framework we think is conducive to profitable private investment, and an environment that allows private investors to get a fair return on their investments. In return we expect private investment to create jobs for our people, increase tax revenues for the government, and develop skills and capacities for a self-sustaining economy. Through an on-going dialogue with the private sector, we hope to be able to continue improving on this investment climate.

The economy has responded positively to the reform measures being taken. The GDP, which had been decelerating at around 1% a year during the early 1980s, has since 1985 averaged an annual real growth rate of 4%. Last year it was 3.3% only because of the drought, followed by El Niño floods, that affected the agricultural sector which accounts for 55% of GDP, and which also destroyed a large part of our infrastructure.

The rate of inflation has fallen from 33.1% in 1994 to 12% now. Our objective is to bring it further down to 7.5% by the end of June 1999. Deficit financing, which is an inflationary way of government borrowing, is now a thing of the past. Foreign exchange controls of the past have been dismantled. The value of the shilling which for a long time was administratively fixed, is now determined by an inter-bank foreign exchange market. Current international transactions have been fully liberalised following Tanzania's accession to Article VII of the IMF Articles of Agreement in mid-July 1996.

Domestic exports now finance half of the import bill compared to only a quarter of such imports in the 1980s.

Tax administration has improved with the establishment of the Tanzania Revenue Authority. This July the TRA successfully launched a Value Added Tax that will broaden the tax base and narrow the tax band as requested by local and foreign business-people in Tanzania. Budgetary controls are now more purposeful, and discipline in government expenditures has improved quite significantly. This has made government budgetary operations impressive by all accounts for the last few years.

Financial reforms have led to a large increase in local and foreign-owned banks. As I speak, we have in Tanzania 20 banks and 8 non-bank financial institutions, most owned by private interests. Private insurance companies have been licensed and have begun to operate in Tanzania. The liberalisation of exchange rates and interest rates has also received the commendation of the business community.

From 1992 to the present, close to half of the almost 400 public enterprises have been privatised. The privatised state enterprises have recorded increased output and productivity. For the first time, after a long time, these companies have started paying dividends not only to the private owners, but also for the shares retained by Government. Notable success has been recorded in beer brewing, cigarette manufacturing, diamond mining, manufacture of electrical goods, cement factories and several others. This year, we intend to privatise our two largest banks, the telecommunications company, and utilities such as water and power.

Between 1990 and now the Tanzania Investment Centre approved a total of 1025 private sector projects worth nearly USD 3.2 billion. Many possibilities remain for private sector participation in the economy, and the Government is fully committed to continuing with the reforms. But we need strategic investors, people with the financial, technological and managerial resources to help us realise these goals. Towards that end, we are open to your views on how we can make Tanzania an even more attractive investment destination for you and others.

Stability and Good Governance
Tanzania has always enjoyed peace, political stability, national unity and social cohesion. These, I think, are very important considerations for private investors. It is also the intention of my Government to promote greater transparency, accountability and the rule of law. Sound public management, efficiency, responsiveness, war against corruption, and strengthening integrity in public management and administration, are all key elements of good governance which my Government will pursue with even greater zeal.

Legal Framework
Tanzania has also instituted a legal framework that should accommodate the interests and satisfy the concerns of investors. The framework includes domestic laws, including the Tanzania Investment Act 1997. At the international, regional and bilateral level we are party to several agreements on the promotion and protection of foreign direct investment; on avoidance of double taxation; on settlement of commercial disputes; as well as the Convention Establishing Multilateral Investment Guarantee Agency, (MIGA).

Geographical Location
Tanzania provides tremendous opportunities for transit trade, being the entrêpot for many landlocked countries such as Uganda, Rwanda, Burundi, Congo-Kinshasa, Zambia, and Malawi. Investments in marine services across Lake Victoria that links the three East African countries of Kenya, Tanzania and Uganda, which are busy integrating their economies, will bring in rich rewards for the investor, while contributing to East African development.

Main Investment Areas
Let me now briefly describe the investment opportunities available in some other important sectors of our economy. I will also leave with you a few copies of the 1998 Investors' Guide to Tanzania that will provide you with more detailed information. For the next few years, principal growth sectors will remain agriculture, industry, mining, and construction as well as trade, tourism, infrastructure and technology development.

Agriculture and Livestock is as of now the most important economic sector in our country. It employs about 80 percent of the active labour force; it accounts for about 55 percent of GDP and almost half of all export earnings. It is the main source of food supply and raw materials for domestic industries. And yet, much of it remains un-exploited or under-exploited. Tanzania has 90 million hectares of arable land out of which only 6-7 million hectares are actually utilised. With modernisation, agriculture in Tanzania has the potential to be several times more productive, and it can make Tanzania a veritable bread basket of East Africa.

Industrial manufacturing is another sector of considerable economic potential. It is a key sector in assuring sustained growth, job creation and envisaged socio-economic transformation. With the current policy reforms, and following the formulation of the Industrial Policy, the sector has begun to recover. New industries are emerging, and most of the privatised ones have been turned around.

With additional capital, it will be possible to build a strong, diversified and resilient industrial sector which can produce not only for the expanding domestic population, but also supply competitively to the regional and world markets. Important areas include food processing, beverages, tobacco, footwear, electrical equipment, textiles, ready-made garments, batteries and chemicals; to name only a few.

Mining is yet another important growth sector. We have proven reserves of minerals such as gold, diamonds, and many types of gemstones; energy minerals such as coal, peat and uranium; iron ore; base metals such as nickel, cobalt and platinum; industrial minerals such as kaolin, soda ash, gypsum, mica, phosphates, salt and limestone.

In order to fully realise our mineral potential, the Government has produced a Mineral Sector Policy, and enacted a new law on mining, the 1997 Mining Act, that offers special and generous incentives to those investing in this sector. Quite a large number of world class mining houses are active in Tanzania, and we expect at least 4 gold mines to come onstream in the next 3 years.

With respect to tourism, Tanzania has one of the richest and most diverse habitats of plant and animal species. Our 880 km coastline provides numerous and varied possibilities for tourism development. Tourist packages that include game viewing, safaris, beach holidays, sea sports, mountain climbing, sightseeing, game hunting, and photographic safaris, can easily be organised in Tanzania. It can rightly be said that Tanzania is indeed a one-stop tourism destination.

The continuing construction of private commercial tourist enterprises, such as hotels and tour operators, has resulted in a marked increase in capacity and in the quality of services offered. Tourist arrivals have doubled in the last six years only, from 201,744 in 1992 to almost 400,000 now, and so have incomes from the sector.

Administrative Framework
Let me now address a few of the administrative issues that have often been the subject of complaints by private business people.

The new Tanzania Investment Centre is being developed to be a one-stop centre for all foreign investors, offering services such as assisting them to obtain all necessary permits, licences, registration, and the like, among many other things.

The Government has taken measures to streamline the administration of taxes. We have begun to broaden the tax base, while narrowing the tax bands. In doing so we consulted the private sector, and took into account many of their concerns.

Immigration was another area that needed rationalisation. The Government is fully aware of the problems which visitors to Tanzania often face when applying for entry visa or work permits. The immigration formalities are sometimes too long and unnecessarily bureaucratic. But we have already taken measures to rationalise and ease them, and I am told things are much better now.

Given the importance of land as a major productive asset, security of land tenure is being addressed. A new National Land Policy has been formulated and discussed widely in order to engender a national consensus on this sensitive issue to both investors and the local people. Our Parliament will consider the legislative decisions that need to be made later this year. But even now there are guaranteed legal provisions and guidelines for granting long-term leaseholds to potential investors and developers.

The Government is equally aware of the critical role which basic infrastructure - roads and other means of transport, communications, energy, water, and other services - play in facilitating investments. Measures are being taken to improve them, often with donor support, including the support of the Danish government. The policy options which we are taking for developing infrastructure include the involvement of the private sector. And, as I said, we are in the process of privatising utilities and infrastructure such as electricity, shipping, air transport, railways, telecommunications, and even urban water supply.

I would like to end my speech by making a strong plea to potential investors to come to invest in Tanzania. The climate for investments is more than right. The potential benefits for both investors and Tanzanians are enormous. Among our strengths is the fact that Tanzania has vast natural resources which only need capital and technology to be developed. We have enjoyed uninterrupted peace and tranquillity throughout the 37 years of our independence. My Government is strongly committed to upholding these national values, characteristics and achievements. The Government is equally committed to forge ahead with the reforms as the only way to bring about rapid economic development.

Let me thank you once again for coming and for listening to me.