Andrea Bohnstedt accompanies the visit of a German trade and investment delegation to Dar es Salaam and wonders how attractive Tanzania for German firms.
At the beginning of December 2008, the German Africa business association Afrika Verein led a German trade and investment delegation to Tanzania to explore investment opportunities. The first day in Dar es Salaam opened with presentations by the Tanzania Investment Centre (TIC), the Export Promotion Board, and the Private Sector Foundation. Raymund Mbilinyi from TIC emphasised that in 2007, Tanzania was one of the key destinations for foreign direct investment (FDI) in sub-Saharan Africa with more than USD600m. In that year, the largest chunk of FDI went into tourism, overtaking the mining sector for the first time. In the same year, exports to Germany, dominated by fish and fish products, coffee, tobacco and tea, had amounted to USD100.3m, and imports from Germany to USD136.2m. The latter mostly comprised wheat, electrical goods, and vehicles. The Tanzanian government, Mbilinyi stated, was keen to attract investment in agribusiness, fisheries, extractive industries, and infrastructure, amongst others, and also sees potential in education and healthcare. In principle, there is scope to broaden economic relations between Tanzania and Germany significantly – but how realistic is this?
From Socialism to Donor Dominance
The German delegation was impressed by the warm welcome they received by Tanzanian officials, but the subsequent meetings showed that the challenges of investing in Tanzania would be significant. The country’s socialist legacy, combined with a profusion of donor agencies, had created a difficult business environment:
- Socialist hangover: It was a frequent observation by both Tanzanian representatives and members of the donor community that the country had begun its transition from a socialist economic regime less than two decades ago, and the effect is still clearly felt in both public management and the private sector.
- Donor dependence: If socialism had not encouraged private and individual initiative, the large number of donors who work in and with Tanzania has not helped either. There are two noticeable effects that were flagged repeatedly in the meetings: For the Tanzanian government, the ever-present crowd of donors resulted in limited incentives to engage in long-term planning, take charge of their economic affairs, and invest in maintenance. In addition, satisfying the reporting and other requirements of donors also means that a considerable part of public management capacity is simply tied up in these tasks rather than being focused on running the country.
- Regulation or overregulation? The hangover from socialism created a counterproductive mixture with health, safety and other regulations introduced by donors – of which Tanzania has a great many. Given the early stage of its economy and industry, many now consider Tanzania overregulated.
- President Jakaya Kikwete’s recent crackdown on corrupt practices has earned him praise, but has also had the adverse effect of slowing already slow processes down further. Those who are open to ‘facilitation’ do not want to get caught, but are also reluctant to get anything done without it, so no decisions get taken at all.
- Low-cost competitors and lack of quality awareness: In Tanzania, former colonialist Britain is no longer the main competition Chinese firms have nudged them aside a while ago. Much of the current investment is low tech, and for German companies, it would be incredibly challenging to compete against such low-cost competitors as China or the indigenous Indian business community. In addition, the current level of education, language skills and training add to the challenges to produce quality goods and services.
Made in Germany From Aid to Investment?
‘Made in Germany’, especially in engineering and related fields, is often well respected and sought after, but Germany has none of the traditional networks that British and French firms can rely on. German companies therefore often find it considerably more difficult to set foot in Africa. During the delegation’s Tanzania trip, the donor-heavy agenda indicated that to date, Germany’s focus in its Africa engagement was on aid rather than trade and investment. Even though recipient countries benefit from untied aid, the Germany industry and business community has been critical that their country’s aid contains few investment promotion incentives, quite in contrast to the contributions of many other industrialised countries.
Perspectives
Tanzania is probably the most promising destination for those sectors that are physically tied to the land, e.g. tourism and mining – both industries that were frontrunners in attracting foreign direct investment in the past year. Suppliers to these sectors, e.g. in technology for the mining sector, should also take a look at Tanzania. Especially for German companies that would have a wider regional approach, or are not tied to any particular country, Kenya would still make a more attractive destination since its market is larger, and its business environment is far more advanced and Nairobi acts as a regional hub. However, this implies that businesses operating out of Nairobi would run the risk of facing the usual resentments against Kenyan business in Tanzania.
Apart from its natural resources, one of Tanzania’s key assets is surely its security. Compared to EAC neighbours Kenya and Uganda, Tanzania has often looked safe, friendly and probably more attractive than it really is, at least at first glance: Kenya is infamous for its corruption, and Uganda left a seemingly indelible Idi Amin imprint on many minds, however outdated this image is. President Jakaya Kikwete’s efforts to address some the entrenched corruption in Tanzania indicates that the country had really been flying under the radar screen for a long time, benefiting from its ‘nice and harmless image’.
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