Doing Business in Tanzania – A Challenge!

With a GDP growth rate of more than six per cent over the last five consecutive years, Tanzania is one of the fastest growing economies in the world. The country is still seen as the gateway to the region, and European companies have not hesitated to board the train of investment and trade opportunities. Together, these companies already export €3 billion to the East African Community and allowed the European Union (EU) to become the first trading partner of countries like Kenya, Uganda and Burundi.

In Tanzania, the EU is already the largest investor and the third training partner after China and India, accounting for about 17 per cent of Tanzania’s total exports in 2010 and 12 per cent of Tanzania’s imports. More trade and investments would bring Tanzanian’s consumers a wider offer of goods and services from Europe, which have the general reputation of quality, innovation and cost efficiency. Yet, nothing is guaranteed. Bringing a magnifying glass to this otherwise rosy picture, some cracks and pitfalls indicate that the way to successful business ventures in Tanzania is far from being a smooth ride. Leaders of EU companies report that in the last few years, the number of issues faced by businesses, their frequency, and their severity has increased.

According to the World Bank index, Tanzania ranks only at the 134th place (out of 185 countries) for ease of doing business in 2013, down from 127th place two years ago. In comparison, Rwanda, Uganda and Kenya stand respectively at number 52, 121 and 122 respectively. This is bad news, not only for investors in general, but certainly for the end-consumer who ends up paying the extra cost of business impediments. Where does the problem lie? The usual culprits are the lack of appropriate infrastructure, and the amazing length of red tape. Energy supply is certainly the most pressing issue, and business leaders are increasingly worried about the power perspectives in the very short tem.

The Government measures to reduce these burdens involve major works, reforms, and related big budgets. EU Business leaders also argue, however, that some targeted actions on identified priorities, such as the fiscal environment, the immigration challenges, land situation, and port operations, could trigger tangible improvements in the short term, for minimal investments. A simple example is the lack of clarity and transparency of regulations, be it on the tax assessment and dispute settlement, the work permit procedures, the custom operations at the port. These create an unpredictable working environment, which has to be factored-in by companies in their investment and operations risk assessment.

In the best case scenario, this results in increased costs of operations and related prices to consumers. In the worst cases, and most particularly for small to medium-sized companies, the risk becomes unaffordable and the company has to terminate operations or relocate to more favourable investment climates. The Dutch Business Group reports frequent cases, in particular for agricultural enterprises, of disputed tax assessments, with companies required to pay levies for which they should officially be exempt. Regarding work permits, companies of the EU Business Network report increasing difficulty in understanding and pushing through application procedures.

They deplore conflicting information provided from various entities involved, lengthy processes, substantial amount of paperwork with the high risks that this entails. Getting the appropriate expert on board a company becomes a business venture in itself.
The EU business community has well understood that working together on these issues, in the true spirit of public-private partnership with the relevant authorities, is the best way to deal with them. Acting through the EU business network, and with dedicated support from EU diplomatic missions, this community has the capacity to best analyse problems, the added-value of presenting the most innovative solutions and the leverage to make things happen.

While already engaged in various dialogues with the Government of Tanzania, it will need to be increasingly taken into account if the country wants to attract and retain foreign investment.

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