Tanzania Economy

27 January 2010
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MACROECONOMIC  PANEL
Tanzania is among the poorest countries in the world with an economy dependent on agriculture, which accounts for half of GDP.
Because of the topography and climatic conditions, however, the arable land is only 4% of the total.
The main agricultural products are coffee, tea, cotton, sisal, pyrethrum (a natural insecticide extracted from chrysanthemums), cashews, tobacco, cloves, corn, wheat, tapioca, bananas, fruit.

The breeding of goats and cattle, which for some populations, such as the Masai, is the only economic resource, is now an area under development. The agro-pastoral sector occupies 82% of the workforce, providing 44.7% of GDP.

Important are the forest resources, which are derived from large amounts of precious woods.

Fishing, practiced mainly in inland waters, allows discrete production. Indian Ocean tuna and sardines are caught are mostly exported.

The mining of the country is based on deposits of diamonds, gold and salt in the country are also small deposits of coal, lead, iron ore, tungsten, kaolin, phosphate and magnesium. The absence of energy resources forced the country to import oil. Most of the production of electricity - the 91.1% - occurs in hydropower and the remaining 8.9% by plant fuel.

Much hope for the economy based on the development of the manufacturing sector, which has been allocated substantial investment.

Industries, mostly state, provide 17.8% of annual GDP, using only 3% of the workforce. They are mostly engaged in the processing of commodities. It is supported the production of hemp textile industry.

In the village there are also breweries, oil mills, furniture and cement.

The main trading partners are Great Britain, Germany, Japan, Italy, Iran, Denmark and the Netherlands.

Tourism, since the late 80s, is constantly growing and is a very important voice in the state budget. The country has special attractions including wildlife reserves, the National Park of Serengeti, Kilimanjaro, the coastal strip and Zanzibar. The authorities are making considerable efforts to try to adjust the carrying capacity to the international application and to take advantage of the natural beauty of the area.

Industry is mainly limited to processing agricultural products (sugar, tobacco, beer, wood, fertilizers) and some consumer goods (shoes, cement, textiles).

The country is also rich in mineral resources (gold, gems, diamonds).

Even the oil sector is an important sector for the economy of the country mainly for oil refining. In recent years have been discovered natural gas reserves in the Rufiji River delta, where mining could begin soon.

In Tanzania there is a small group of Italian entrepreneurs with diversified investments in trade, transport, tourism, mining and construction.

In particular, the travel report the substantial investments made in recent years with regard to the settlements of holiday villages on the island of Zanzibar.


OPPORTUNITIES FOR INVESTMENT
The areas that appear most attractive for investment are: agro-industrial and canning industry, machine tools for the textile industry for the manufacture of leather, construction materials, machines for working wood, marble and ornamental stone and packaging, equipment and machinery for jewelry, computer equipment and telecommunications, supplies and sanitation facilities, water treatment plants.

In recent years there has been a constant flow of Italian investment in tourism.

In the mining sector and services can be reported rather small operations by owners of small businesses and midsize companies.

Investment opportunities arising from the programs of modernization of roads, construction of bridges, the new government development programs in energy and agriculture and the exploitation of natural resources for the development of products for the pharmaceutical and cosmetics industries.


ISSUES RELATING TO INVESTMENTS IN FOREIGN COUNTRY
Tanzania is open to foreign direct investment in all sectors of the economy.

The relevant legislation, as regards foreign investment, was enacted in 1996 with the drafting of the National Investment Promotion Policy. "

In 1997, as required by that law, you created the Tanzania Investment Center (TIC), which serves as a focal point for investors with the aim to facilitate, coordinate and promote investments in the country and provide support to the Government in terms of " policy ". In particular, the central issue of certificates for approved projects involving a minimum investment of $ 300,000 if foreign owned, and $ 100,000, if the national property. These certificates provide a series of tax incentives for investors.

The investor who wants to operate in the country has taken to the registration of his business (both branches owned 100% of both new business space in partnership with another local firm or not) at BRELA (Business Registrations and Licensing Agency).
Registration with the BRELA should ensure greater protection for the new company as the opportunity to register trademarks and inventions and the protection of intellectual property.

The Investment Law guarantees unconditional transferability through approved banking channels, and net profits of all other financial income in convertible currency associated with foreign direct investment even though the transfer process can be lengthy and bureaucratic.

Italy and Tanzania in 2001 signed a bilateral agreement on protection and promotion of mutual investments.

It is also in force since 1983, the Convention against double taxation on income and / or wealth.

Tanzanian law guarantees the right of private ownership and establishment, except for the right to the land which remains the exclusive property of the Tanzanian State. In fact, the occupation of land, including for investment in Tanzania is granted only on the basis of lease contracts with a duration of 33, 66 or 99 years.

The main barriers to investment are made by inefficient bureaucracy, by the poor infrastructure, by the changeability in electricity supply, a weak regulatory framework, from an inefficient judicial system, together with a high rate of corruption.

The legal system is derived from the British, but very often is not able to guarantee a proper implementation of procedures, because of structural limitations and an attitude not very protective nature with regard to foreign interests in the country.

It is moreover, provided contractual practice and accepted as the possibility of delegating the resolution of trade disputes related to foreign investment or an arbitral tribunal, set up both on the ground at the International Chamber of Commerce in Paris.
There is the need for greater transparency in government procurement, privatization, tax and customs administration and port management.
It should however be acknowledged authorities Tanzania to make considerable efforts to deepen the transition to a free market economy and to create a climate more conducive to investment. E 'to study the reformulation of the investment law.

It has also recently came into force a new law on taxation, which should streamline and simplify the tax system.

Finally it was recently approved by Parliament a law establishing the so-called "Special Economic Zones, located in 25 parts of the country in which force a preferential tax regime, in addition to exemption from customs duties and which would in future be given adequate infrastructural facilities to facilitate investment.


TARIFF BARRIERS
Tanzania is still widely used tariff barriers to protect local industry, although the recent reform has simplified and liberalized the trade regime and reduced the average customs duties applied to goods entering the country.

Tanzania is a part, with Kenya and Uganda, the East African Community, established on 30 November 1999. The founding Treaty provided for the establishment of a Customs Union, which has been created March 2, 2004 and became effective from 1 January 2005.
The Customs Union has created an integrated market potential of about 92 million people, with a GDP of around 30 billion dollars. On 1 July 2007, he joined also Rwanda and Burundi.
As a member of the Customs Union, Tanzania applies the common external tariff value CIF (cost, insurance, freight) of imported goods.
The structure of duties provides for three rates (0% for raw materials and some inputs for agriculture and industry, 10% for semi-finished products and parts industry, 25% on final goods consumption).
In addition to the duty, it applies the value added tax whose rate is 20%. Tax exemptions are warranted for the importation of goods and services associated with projects funded by donors, NGOs or religious projects that fall under an investment incentive agreement, etc..
On textiles, food and electronics imported to Zanzibar we apply a lower tax than the mainland. E 'but in an effort to measure uniformity of tariffs, opposed by the Government of Zanzibar.
There remains the dilemma of Tanzania concerning the choice of continuing to be part of the community of regional integration SADC (Southern African Development Community) or opt to re-join the Common Market of West Africa and Southern Africa (COMESA), from which it withdrew in 2001 , and how it should integrate the two options involving current EAC Customs Union.

Tanzania benefits from preferential trade treatment under the AGOA (AfricaGrowth and Opportunity Act) for exports to the U.S. market and the Everything But Arms (EBA) European Union.


NON TARIFF BARRIERS
Tanzania is among the founding countries of the WTO. In recent years it has implemented a process of reform and trade liberalization that led to the elimination of most non-tariff barriers. In the past, Tanzania extensively used non-tariff barriers to protect local industry and its market. As a result of liberalization, many of these barriers have been eliminated, though not completely.

Considerable progress has been made by the country as regards the gradual abolishment of the prohibition of quotas and licensing and the substantial reduction of red tape, administrative controls, along with the facilitation and simplification of procedures.

The import and export licenses were abolished except for those on sensitive products for the health and public safety. There are no special requirements for standards other than those in use for specific categories of products.

The Tanzania Bureau of Standards is the national body responsible for standardization, recognized by the ISO (International Standards Organization.) It usually adopt international standards and issue certificates of quality, especially for manufactured goods.

Most of the standards in Tanzania is voluntary. Tanzania follows the ISO standards regarding the labeling of imported products and does not impose special requirements on the subject.
The Ministry of Agriculture shall issue import permits for all agricultural products and imported animals. All products are imported with a value over $ 5000, with certain exceptions, must be subject to a pre-shipment inspection. Importers of these products must complete an Import Declaration Form submit to a bank with the payment of 1, 2% of FOB value of the goods.
Despite the virtual absence of non-tariff barriers, the customs agency and port authorities are the main barrier to entry for importers because of delays and inefficiencies.


FORMS OF COMPANY APPROVED
Foreign investors can operate in Tanzania like Tanzanian investors about the corporate organization of their affairs . They can, therefore, constitute society without the sponsorship or participation by members tanzania, provided that they meet the legal requirements.

Sole Proprietorship
In this organizational form, an individual conducts business on its behalf, making oneself personally responsible in all respects, including any debts.

Partnerships

Are permitted by law societies in Tanzania is the collective noun is a limited partnership which, moreover, are not a corporate form in common use in Tanzania. The number of members provided range from a minimum of two to a maximum of twenty for a commercial general or ten banking activities.
If these limits are exceeded, require the registration of the society on the basis of the "Companies Ordinance". Even for this form is obliged to register the name on the basis of the "Business Names Ordinance.

Incorporated companies
They are so named corporations governed by the "Companies Ordinance".
Are recognized in Tanzania the following types of company:
- "Unlimited companies", in this type of company the partners are personally liable for all debts contracted by the company;
- "Limited companies", for social obligations responds only society with its heritage and can be private or public.

These companies, for which there is fixed a minimum of social capital, can not be made up of more than fifty members.

The partnership limited by shares, though admitted as a corporate form Tanzanian law, is not practically in use.

Branches of foreign companies
According to the terms of the "Companies Ordinance", to foreign companies are allowed to set up a subsidiary in Tanzania, "branch". To this purpose should be contacted with the Business Registration and Licensing Agency (BREL), which will require a detailed documentation of the company. The BRELA, after having examined the statutory requirements laid down, will issue a "certificate of compliance.

Appoint an accountant-auditor approved by the National Board of Accounts and Auditors, which each year must report on the entity's shareholders and management of the company. The subsidiaries of foreign companies are required to submit annually to BRELA also the parent company's financial statements.

Recordings
The first contact of a foreign investor with reality is through the bureaucratic Tanzanian Business Registration and Licensing Agency (Brela), enactment of the local Ministry of Industry and Commerce.

The partnership or partnerships will register only the name. This is done through written request to BRELA.

As for a "limited company", the BRELA requires more detailed documentation on the regulations and corporate organization chart before issuing the so-called "certificate of incorporation" that allows the company to start business.
Once obtained, the "certificate of incorporation, it takes an additional company registration with the Income Tax Office will assign a reference number indicated that the company will permanently in its dealings with the tax authorities of the country.

In addition to the "certificate of incorporation" Tanzanian aforementioned complex legislation includes a number of specific licenses and permits, depending on the nature of the business that you intend to follow.


THE TAX SYSTEM
The complex tax structure is divided into direct and indirect taxation. The first relates to income tax and property while the second refers to the consumption and international trade.
The entity that manages all transactions relating to 'taxation is the Tanzania Revenue Authority (TRA). Please note that the Agreement is in force between Italy and Tanzania to avoid double taxation.

Corporation tax
The current rate is 35% and is levied on taxable profits accumulated by any company which carries on business in the country. To this end, all companies (including subsidiaries of foreign companies) are required to compile an annual interim report, a kind of self-assessment, based on estimated earnings, while the final report must be filed within three months from the end of 'accounting period relative.

The tax, which  is deducted  with the comparison between the two investigations, must be paid when submitting the final.

Income tax
Compete with each resident, meaning that for every person residing permanently in Tanzania, or that has been present in the country for a period of at least 183 days in the year under reference, or at least 122 days in 'as in the reference year in progress three previous years.

All components of salary, with the exception of housing assistance, are taxable. The income tax is divided into four groups of progressive rates ranging from 17.5% currently to 35%. All employees are required to pay their income tax based on the Pay as You Earn (PAYE) Scheme.

Capital gains tax
The rate of tax imposed on capital gains is currently 10% calculated on the difference between the value of the financial interest or sold and the determined cost of that interest or financial assets.

Value added  tax
This is a general tax levy of 20% consumption of most goods and services produced in the country or imported. Any company that produces or sells goods on which VAT is applicable, before starting his business activities, must register with the offices of TRA.

The import of capital goods for investment in what are the priority sectors of development from' Investment Promotion Center, is not subject to VAT.

Consumption tax on locally manufactured goods
It is applied against certain local products such as drinks, beer, cigarettes and petroleum products. This is the ad valorem rate of which differs depending on the product.

Import duty
This is an ad valorem duty calculated on the CIF value of imported goods in the country.

The current tariff regime establishes four classes of rates: 5%, 10%, 20% and 25%.

Holders of "Certificate of incentives" are exempt from payment of import duties on capital goods related to sectors deemed strategic and priority development, such as fertilizers, pesticides, tractors and even equipment for the infrastructure sector.

In general, it is not required "certificate of incentives" to be exempt from payment of import duty on tractors, as well as on capital goods for mining.

Imports of raw materials, spare parts and capital goods are taxed at 5%, semi-finished products and parts to 10%, finished products and parts of motor vehicles to 20%. The increased rate of 25% refers to consumer goods.

Consumption tax
Rate of 10% is levied on motor vehicles, while luxury goods are taxed at 30%.

Specific rates are reserved for drinks and spirits import, as well as to petroleum products.


INVESTMENT RULES
Investments are governed by the "Tanzania Investment Act of 1997.

Tanzania Investment Center
The government agency is mandated to coordinate, promote and facilitate investment in Tanzania and provide necessary assistance to the Government in the formulation of policy and investment issues.

It shall issued a "certificate of incentives" that certifies the official status as an investor in the country.

Firms wishing to invest in mining and oil are required to follow a specific procedure for obtaining the necessary permissions to carry out their activities, in accordance with the provisions of the Mining Act 1998 and Petroleum (Exploration and Production) Act, 1980.

The Center is, however, available to assist these operators in paths bureaucratic requirements.
   
The main functions of the Tanzania Investment Center are:
- Promote the necessary measures to support a more favorable climate for investment;
- Collect, analyze and disseminate information about investment opportunities for entrepreneurs, including the search for partners for joint ventures;
- Assist investors in obtaining permits, authorizations, licenses and registrations necessary for the conduct of its business;
- To find sites, properties, land on behalf of investors;
- Know the benefits and incentives provided by law;
- Undertake and support promotional activities to encourage and facilitate investment at the local level, as well as entrepreneurial development programs.

Certificate of incentives
To obtain the certificate in question relate to "new projects, expansion or rehabilitation" shall be the following minimum capital invested:
- USD 300.00 for projects that belong entirely to foreign citizens or companies registered;
- USD 100,000 for projects that belong entirely to Tanzani citizens or companies registered locally and whose majority of shares owned by nationals Tanzania that they have control.

The application of the "certificate of incentives," is granted with different benefits and incentives to the economic sector of reference.


Benefits for the investor
The resulting advantages can be summarized as follows:
- Recognition of private property and protection against non-commercial risks (Tanzania is a member of the Multilateral Investment Guarantee Agensy "and the" International Center for Settlement of Disputes Investiment ", both affiliated with the World Bank);
- Favorable deductions (100%) to costs for industrial buildings, plant, equipment and expenses related to 'agriculture;
- Reduced import tariffs on capital goods of the project (5% import duty for investment in priority sectors and zero for investment in leading sectors);
- Extension of payment of VAT on fixed assets;
- Repayment of import duty on raw materials;
- Elimination of 'tax on the export of manufactured goods;
- Favorable deduction for depreciation on capital goods;
- Annual revaluation of investment capital not recovered in relation to mining;
- Losses in which it is incurred in running a business' business may be, for tax purposes, deducted from income the following year for a period of five years. For those carrying out an 'mining, these losses can be carried forward indefinitely;
- Corporate income tax of 30%, 10% coupon on dividends and no interest for the loan;
- The right to transfer abroad of 100% of profits and capital in foreign currency;
- Facilitation in obtaining residence permits and work;
- Permit the use of at least five expatriates for a project guaranteed by the "certified".


Zanzibar
The island of Zanzibar has a specific investment policy, governed by the Investment Act of 1986, establishing procedures and offers a range of incentives to investors.

The priority of the Government of Zanzibar in promoting foreign investment is given to projects that generate foreign exchange earnings.

The "Zanzibar Investment Promotion Agency (ZIPA) is the point of contact for potential investors and the necessary connection with that government.

The government of Zanzibar has created the "Zanzibar Free Economic Trade Zones Authority (ZAFRESA) in law enforcement" Free Economic Zones Act of 1992 and subsequent amendment of 1997 to provide a variety of infrastructure services to investors, including leasing of plots and services for businesses.

Although 100% foreign ownership is permitted in most sectors, the Government of Zanzibar retains some restrictions as regards the small retail, small tour operators and fishing on a small scale.

Concerning Zanzibar, the investment must be authorized or ZIPA or ZAFRESA.


Trade disputes
Tanzania is signatory of the Convention Establishing the Multilateral Investment Guarantee Agency (MIGA) and is also a member of the International Center for Settlement of Investment Disputes.

The Lome Convention  between the ACP and the U. E. fixes the principles for the protection of European investments.

In August 2001, and 'Agreement was signed between Italy and Tanzania for the Promotion and Protection of Investments, where there are clear provisions for resolving commercial disputes.


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