Tanzanian tourism boom undermined by investor concerns

Tanzania is witnessing a tourism boom. International tourist arrivals stood at a record 1.275 million visitors in 2017, according to the World Bank, having almost doubled since 2009. 

“One of the fastest growing sectors in Tanzania is the tourism sector. In fact, the travel and tourism sector employs more than 10% of the total workforce in the country,” says Abdallah Mtinika, deputy mayor of Dar es Salaam, Tanzania’s commercial capital and largest city.

An African leader

Tanzania, which includes the semi-autonomous tropical archipelago of Zanzibar off its coast, was ranked first in Africa and 12th globally in terms of natural resources by the World Economic Forum in 2019. The east African country of 56 million people boasts seven Unesco World Heritage sites, is home to Africa’s tallest mountain, Mount Kilimanjaro, and is a popular safari location with over 44% of its landmass set aside for national parks and game reserves. 

Its touristic appeal and growth in numbers has borne foreign investment too. Greenfield investment monitor fDi Markets tracked a record six greenfield FDI projects in the hotels and tourism sector in Tanzania in 2019. This accounted for more than half of the estimated $845m of announced greenfield investment in the country in this period. 

The majority of these projects were announced in Dar es Salaam, where US-based hotel chain Sheraton, Morocco-based Onomo Hotels and United Arab Emirates-based Rotana all opened hotels in 2019. This marked the largest number of greenfield projects announced in Tanzania’s hotels and tourism industry since fDi Markets records began in 2003. 

Headline FDI inflows – which include both greenfield investment and crossborder M&A – have recovered in Tanzania since a sharp fall of 45% in 2016. FDI inflows rose by 18% year on year in 2018 to an estimated $1.1bn, according to Unctad’s latest figures.

Job creation

The Tanzanian economy’s real GDP growth rate has exceeded that of emerging market and developing economy averages since 2013, a trend that is projected to continue until 2024, according to the IMF. As the commercial capital, Dar es Salaam has attracted the largest share of tangible job-creating foreign investment projects in the country since 2003. 

fDi Markets tracked 105 greenfield FDI projects with a total investment of $4.39bn in Dar es Salaam since 2003, representing one-third of all announced greenfield investments in the country. Of the 21 greenfield projects where a motive was recorded, 80.9% of them were driven by domestic market growth, according to fDi Markets. 

Rapid urbanisation in Dar es Salaam, which is one of the most populous cities in east Africa and has seen its population almost triple over the past two decades, appears to be one of the driving factors of foreign investment into the city.

Port problems

Bolstered by its strategic positioning on the east African coast, Tanzania, via its main port in Dar es Salaam, provides access to six landlocked countries, including Malawi, Zambia, Uganda and Rwanda. A record 1744 ships went through the port in 2018, while 14.4 million deadweight tonnes of cargo was handled, a 58% increase compared with 2010, according to Tanzania’s National Bureau of Statistics. 

Despite this growth, Dar es Salaam’s port handles less cargo than the nearby Kenyan port of Mombasa, its main competitor, and has been criticised for inefficiency and malpractice. A 2013 World Bank report estimated that an average household would save $147 per year, or 8.5% of total expenditure, if the Dar es Salaam port were as efficient as that of Mombasa.

“Improved efficiency in the Port of Dar es Salaam would reduce anchorage and cargo handling times, [while a] reduction of official port fees would improve its regional competitiveness,” says Ed Hobey-Hamsher, senior Africa analyst at risk consultancy Verisk Maplecroft. “Addressing the prevalence of collusive and coercive bribery demands at the Port of Dar es Salaam would reduce legal and reputational risks that investors face,” he adds. 

Magufuli concerns

Tanzania hopes to utilise its coastline and the access it provides to fast-growing east African economies to boost economic development through several major infrastructure projects. Under former president Jakaya Kikwete, a framework agreement was signed with China Merchant Holdings in 2013 to construct a $10bn port at Bagamoyo, a small town located about 72.5 kilometres north of Dar es Salaam. 

Tanzania is a key partner for China in its ambitious Belt and Road Initiative, which aims to fund and build infrastructure in more than 78 countries across Asia, the Middle East, Africa, Europe and the Americas. On top of plans to build what would be the largest deepwater port in east Africa, state-owned enterprise China Merchant Holdings has agreed to construct railways and a special economic zone in Tanzania, according to the Center for International Maritime Security. However, current Tanzanian president John Magufuli has kicked back against these projects, suspending them indefinitely in October 2019 after claiming that the terms were too heavily weighted in China’s favour.

Elsewhere, Mr Magufuli, nicknamed 'the bulldozer' for his tough approach on dissent, has been criticised for his crackdown on media, opposition politicians and civil society. Mr Magufuli’s ruling Chama Cha Mapinduzi party ran virtually unopposed in local government polls at the end of November 2019, heightening concerns about the fairness of upcoming presidential elections in October 2020. International criticism has also emerged over the mid-2019 arrest of prominent investigative journalist Erick Kabendera, an outspoken critic of Mr Magufuli. 

Under Mr Magufuli, the Tanzanian government has increasingly interfered in foreign companies’ operations and investment projects. Tanzania’s largest gold miner, Acacia Mining, entered a long-term tax evasion dispute with the government in 2017 after changes to mining regulations. The case was settled by Acacia’s parent company, Canada-based Barrick Gold, for $300m in October 2019.

“Investors are more concerned about Mr Magufuli’s aggressive nationalism, unilateral and unpredictable decision making, and the poor record of infrastructure delivery than they are the ongoing crackdown on the opposition, which has so far had little direct impact on their business operations,” says Mr Hobey-Hamsher.

Rail delays 

The Tanzanian government also plans to spend $14.2bn to build a 2561-kilometre standard-gauge railway over the next five years, stretching from the port of Dar es Salaam to the shores of Lake Victoria. The government hopes the project will position Tanzania as an economic hub in east Africa through boosting trade between Tanzania and its neighbouring landlocked countries. 

The construction tender for the project was awarded to Turkey-based Yapı Merkezi and Portugal-based Mota-Engil. The first phase between Dar es Salaam and Morogoro, a town about 150 kilometres away from the commercial capital, failed to meet its initial deadline of November 2019 and is expected to be finished by April 2020.

Concerns persist about the delivery and potential dividends of infrastructure projects in Tanzania. The Dar es Salaam City Council has made ongoing attempts to impeach current mayor Isaya Mwita, a move that “is expected to further delay delivery of infrastructure projects to improve business activities and living standards in the city”, says Mr Hobey-Hamsher. 

Silver lining

In many respects Tanzania is an African bellwether. In a comparative study of 14 African countries as investment destinations on comparison tool fDi Benchmark, Tanzania had the highest gross fixed investment as a percentage of GDP at 39.2%, outstretching the study average by 65%.

Tanzania has a high global value chain participation compared with other African countries, with eight special economic zones, and a 39% share of foreign value added in exports – the second highest of any country in Africa. 

Tanzania also ranked as the second most peaceful country in east Africa after Malawi, and saw the largest improvement in confidence in election honesty according to the Global Peace Index 2019. “For investors the important thing is the stability of the country in terms of peace, security and where anyone can invest money,” says Mr Mtinika.

Tanzania has also taken steps to simplify its investment process. According to Unctad’s World Investment Report 2019, it established an online registration system significantly reducing times and costs for investors. “The price of land is cheap and there is a quick investment process for any outside investors, because we are ready to welcome them and we are prepared,” says Mr Mtinika.

Work remains to be done. Tanzania ranked 141 out of 190 economies in the World Bank’s 2020 Doing Business report. Despite an improvement of three places compared with the 2019 report, Tanzania is still far below its northern neighbour Kenya, which ranked 56th.