TRENDS AND IMPACTS OF FOREIGN INVESTMENT IN DEVELOPING COUNTRY AGRICULTURE

TANZANIA
Trends and impacts of foreign investment in
developing country agriculture
privatized enterprises, thus boosting their
competitiveness and contributing to the transfer
of technology and skills.
However, although the impact is strongest in
the industries in which FDI is concentrated, it has
mixed implications for the entire economy. The
scale of this impact is still small and a number
of desired results are not occurring (such as
linkages to the local economy thus impacting
poverty reduction, or strengthening local science
and technology capacities). In most cases, FDI
currently has little impact on the employment
situation, as it is directed towards capital-intensive
sectors. Likewise, there is considerable public
concern that impact on government revenue
generation has remained minimal and measures
have been initiated to address this concern,
through negotiations with mining companies for
higher royalties and public share ownership in
publicly traded companies. One of the outcomes
of these initiatives is the cross-listing of African
Barick Gold (ABG) at the Dar-es-Salaam Stock
Exchange (ABG is formally listed at the London
Stock Exchange). Thus, after initial successes
with FDI, the challenge for the United Republic
of Tanzania is now to push FDI towards new
frontiers, such as agriculture, which is important
in the fight against poverty.
The Tanzanian economy is constrained
by low productivity, inadequate physical and
economic infrastructures, dependence on the
export of primary goods with very limited
value addition through manufacturing and low
product standards and standardization. These
are key issues for reaping the full benefits from
FDI. In its Vision 2025, the government has
placed emphasis on the industrial sector to play
the central role of transforming the economy
from a low productivity agriculture to a semiindustrialized
one led by modernized and
highly productive agricultural activities, which
are effectively integrated and buttressed by
supportive industrial and service activities which
are in turn, laid down in the Kilimo Kwanza
framework. However, given the limited financial
capabilities of the government, it is hoped that
FDI will play a central role in this direction.
Tanzanian agriculture is dominated by
smallholder farmers cultivating an average of
82
0.5- 2 hectares. Productivity has been especially
low for smallholders compared to agricultural
undertakings by estates or large commercial
farms, which have been able to attract
considerable FDI. Records from TIC show that
more than 90 percent of FDI in agriculture went
to the crop sub-sectors (e.g. sugarcane, jatropha,
oil palm and sisal), whose smallholder farmers
are well organized and sufficiently integrated to
support foreign investments.
Although several factors (age, origin of the
farmer, educational level, and farm area) have
been observed to affect the technical efficiency
of smallholders in the United Republic of
Tanzania, the integration of smallholders with
large enterprises was a major factor in some
investments (e.g. Mtibwa Sugar Estate scheme).
Furthermore, smallholders who are close to a
processing plant or factory have been found to
be more efficient compared to those who were
farther away. This factor is closely associated with
high transportation costs to smallholder farmers
far from the factory, as in some cases, the large
firms provide transportation for farmers close to
the factory, while others are forced to use private
transportation.
Appropriate reforms targeting the regulatory
environment have been key factors influencing
the attraction and harnessing of benefits of FDI
in the United Republic of Tanzania. With respect
to the regulation of FDI, the general trend
over the past decade has been for the gradual
liberalization of rules governing foreign investors
and their investments. Furthermore, privatization
programmes from the early 1990s have
expanded the opportunities for foreign investors.
For example, the intent behind the ongoing
land reforms is to facilitate the use of land as
collateral in bank borrowing and to spur private
investment in agriculture. Investment promotion
has concurrently become an important policy tool
for attracting FDI. Policies aimed at attracting FDI
have ranged from relatively passive and general
promotion schemes to much more aggressive
targeting of foreign investors combined with the
use of investment incentives.
Despite these efforts and the recent growth
of the sector, together with observed productivity
and efficiency increasing capabilities, FDI flow into