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DETERMINANTS OF FOREIGN DIRECT INVESTMENTS (FDIs

)
IN EAST AFRICA COUNTRIES OF TANZANIA AND
KENYA
DETERMINANTS OF FOREIGN DIRECT INVESTMENTS (FDIs)
IN EAST AFRICA COUNTRIES OF TANZANIA AND
KENYA











By
FLAVIANUS M. MAHITI











A Thesis Submitted to Mzumbe University, Dar es Salaam Campus College in Partial
Fulfillment of the Requirements for the Award of the Degree of Master of Science in
Accounting and Finance (MSc-A&F) of Mzumbe University.


2012



(c) Copyright by Flavianus M. Mahiti
All Right Reserved


























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CERTIFICATION

We, the undersigned certify that we have read and hereby recommend for acceptance
by the Mzumbe University, a dissertation entitled: Determinants of Foreign Direct
Investment in East Africa Countries of Tanzania and Kenya: The case study of
Tanzania and Kenya in fulfilment of the requirements for award of the degree of
Masters of Science in Accounting and Finance of Mzumbe university.





________________________
Major Supervisor




________________________
Internal Examiner



Accepted for the Board of




……..………………………………
PRINCIPAL, CAMPUS BOARD
ii

DECLARATION
AND
COPYRIGHT

I, Flavianus M. Mahiti, declare that this thesis is my own original work and that it has
not been presented and will not be presented to any other university for similar or any
other degree award.






Signature ……………………………………….

Date …………………………………………....








© 2012
This dissertation is a copyright material protected under the Berne Convention, the
Copyright Act 1999 and other international and national enactments, in that behalf,
on intellectual property. It may not be produced by any means in full or in part,
except for short extracts in fair dealings, for research or private study, critical
scholarly review or discourse with an acknowledgement, without the written
permission of Mzumbe University, on behalf of the author.
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ACKNOLEDGEMENT
First and foremost, I wish to express my thanks to Dr. Wilhelm Leornard, my
research supervisor, for his views and comments throughout the research process.
Many thanks go to Tanzania Investment Centre (TIC) for allowing me to conduct this
research at their premises. Thanks are extended to their moral support which made
this work possible. In a more special way I would like to thank the TIC Executive
Director, Mr. E. Ole Naiko for allowing me to conduct this study at TIC.
I also feel obliged to thank Mr Njoki Tibenda (Senior Statistician) and Martin Masalu
(Research Officer) for providing me with all relevant information required to fulfill
the objectives of this research. Thanks are further extended to the management and
staff of Tanzania Investment Centre for their moral and material support during the
data collection stage. They were very useful and of great assistance as far as the
collection of data are concerned.
Many thanks should go to Kenyan Embassy for allowing having access to the
relevant data and information at their premises. At this juncture I would like to thank
the Kenyan Ambassador to Tanzania, Mr. Mtinda Mutiso for allowing the
opportunity to collect data at their embassy. At the embassy I also thank Mr.
Boniface Makeni, the whole management and staff for providing me with the
relevant information required to accomplish the objective of this research.
Finally, I extend my thanks to my fellow students from Msc. Accounting and Finance
and MBA programme for the ideas we shared during our stay at Mzumbe University
Dar es Salaam Campus College.





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DEDICATION

This work is dedicated to my Wife Elizabeth Salvatory M. Momba for her care and
material support. It is also dedicated to my lovely daughter Janice Momba and my
son Jayden Momba Junior who missed me a lot during my study absence.


























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ABSTRACT
This study intended to examine the Determinants of Foreign Direct Investments in
East Africa countries of Tanzania and Kenya. The research was carried out at
Tanzania Investment Centre (TIC) and the Embassy of Kenya. The study was
conducted with the following objectives: To assess the determinants for attracting
FDI to East Africa, To assess the difficulties of attracting FDI to East Africa, To
determine the efforts done by the selected East African governments in attracting FDI
in favour of their countries, To determine the contribution of FDI to the selected
countries’ social economic development.
Data were collected through Questionnaires, Interviews and Documentary Review.
Questionnaires were open-ended questions, which allowed individuals to express
their views concerning FDI in Tanzania and Kenya. Interviews were conducted on
the basis of predetermined interview guide. Thus both qualitative and quantitative
methods were collectively employed in the process of collecting data and information
required in this research.
After Analysis of the data, tests of questionnaires were carried and presented in tables
for easy interpretation. From findings, a researcher has concluded that Tanzania
Investment Centre and Kenya Investment Authority have a lot to do in order to attract
more Foreign Direct Investment in Tanzania and Kenya respectively. This study
recommends that it is necessary to attract high quality investment. Tanzania and
Kenya have been trying to attract FDI through the provision of some incentives to
encourage FDI in inflow; however it is doubtful to ascertain the extent to which such
initiatives will manage to attract the quality of investment. Also the study notes that
such infrastructure as Roads, Airports and Railways need significant improvement for
attracting more Foreign Direct Investments in East African Region. Indeed it is important to
review incentives granted to Investors from time to time in order to make sure that they
serve the intended objectives. Finally to ensure that new technologies are transferred to
Tanzania and Kenya so that the two countries become competitive in terms of technologies.
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TABLE OF CONTENTS

Pages
CERTIFICATION ...................................................................................................... i
DECLARATION AND COPYRIGHT ..................................................................... ii
ACKNOLEDGEMENT ............................................................................................ iii
DEDICATION ........................................................................................................... iv
ABSTRACT ................................................................................................................ v
TABLE OF CONTENTS .......................................................................................... vi
LIST OF TABLES .................................................................................................. viii
LIST OF FIGURES .................................................................................................. ix

CHAPTER ONE ......................................................................................................... 1
INTRODUCTION AND BACKGROUND INFORMATION ............................... 1
1.1 Overview of the Study ................................................................................. 1
1.2 Background of the Study ............................................................................. 1
1.3 Statement of the Problem ............................................................................. 4
1.4 Objectives of the Study ................................................................................ 5
1.4.1 Main Objective ............................................................................................ 5
1.4.2 Specific Objectives ...................................................................................... 5
1.5 Research Question ....................................................................................... 6
1.5.1 General Research Question .......................................................................... 6
1.5.2 Specific Research Questions ........................................................................ 6
1.6 Limitations of the Study .............................................................................. 6
1.7 Delimitation of Study................................................................................... 7
1.8 Significance of the Study ............................................................................. 7

CHAPTER TWO ........................................................................................................ 8
LITERATURE REVIEW .......................................................................................... 8
2.1 Introduction .................................................................................................. 8
2.2 Theoretical Literature Review ..................................................................... 8
2.2.1 The historical Background of Foreign Direct Investment (FDI) ................. 8
2.2.2 Definition of FDI ......................................................................................... 9
2.3 Foreign Direct Investment (FDI) in Tanzania ............................................. 9
2.3.1 FDI Inflows in Tanzania ............................................................................ 11
2.3.3 Determinants of Foreign Direct Investment (FDI). ................................... 12
2.4 Foreign Direct Investment in Kenya .......................................................... 15
2.4.1 Determinants of Foreign Direct Investment Inflows in Kenya.................. 19
2.5 Empirical Literature of the Past Studies .................................................... 20
2.5.1 Review of the Studies from Africa ............................................................ 20
2.6 Theoretical perspective underpinning the study ........................................ 22



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CHAPTER THREE ................................................................................................. 23
RESEARCH METHODOLOGY ............................................................................ 23
3.1 Introduction ................................................................................................ 23
3.2 The Research Design ................................................................................. 23
3.3 Study Area ................................................................................................. 23
3.4 Types of Data ............................................................................................. 23
3.5 Sampling Procedures ................................................................................. 24
3.6 Research Instruments ................................................................................. 26
3.7 Source of Data ........................................................................................... 27
3.8 Method of Data Analysis ........................................................................... 27

CHAPTER FOUR .................................................................................................... 28
PRESENTATION AND DISCUSSION OF FINDINGS ...................................... 28
4.1 Introduction ................................................................................................ 28
4.2 Determinants of Foreign Direct Investment in Tanzania and Kenya ........ 28
4.3 The efforts done by East African governments to attract FDI to East
African countries........................................................................................ 37
4.4 The contributions of FDI to East African countries social economic
development ............................................................................................... 44
4.4.1 The contributions of FDI to social economic development in Tanzania ... 44
4.4.2 The contributions of FDI to social economic development in Kenya ....... 44

CHAPTER FIVE ...................................................................................................... 46
CONCLUSION AND RECOMMENDATIONS ................................................... 46
5.1 Introduction ................................................................................................ 46
5.2 Conclusion ................................................................................................. 46
5.4 Recommendations ...................................................................................... 47
5.5 Suggestion on the direction for future study .............................................. 49
REFERENCES ......................................................................................................... 50

APPENDICES .......................................................................................................... 54
Appendix I: Questionnaire for Masters Degree Course Research ..................... 54
Appendix II: Interview Questions to Investors/Others........................................ 57
Appendix III: Kenya Sectors Break down of FDI Projects Registered by IPC,
1997-2004 ...................................................................................... 60
Appendix IV: FDI by Sectors in Tanzania, 1999-2008 ........................................ 61







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LIST OF TABLES

Pages
Table 3.1: Categories of Respondents ................................................................. 24
Table 3.2: Regional Distribution of FDI Flows (USD Million), 2005-2008 ....... 25
Table 3.3: Regional Distribution of FDI-Registered Projects, 2005-2008 .......... 25
Table 3.4: Categories of Respondents ................................................................. 26
Table 4.1: Determinants of Foreign Direct Investment and frequency of scores 29
Table 4.2: Determinants of Foreign Direct Investment and frequency of scores 30
Table 4.3: Efforts done by Tanzanian government and frequency scores........... 38
Table 4.4: Efforts done by Kenyan government and frequency scores ............... 41




















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LIST OF FIGURES

Pages
Figure 2.1: FDI Inflows to the East Africa Region ............................................. 17


























1

CHAPTER ONE

INTRODUCTION AND BACKGROUND INFORMATION

1.1 Overview of the Study
The research intended to investigate the determinants of foreign direct investment in
the selected East African countries, namely Tanzania and Kenya. The purpose is to
have the broad understanding of the determinants of foreign direct investment in the
two countries. This chapter provides the background information which highlights
historical background of the problem, statement of the problem which opens up the
problem under study, main and specific objectives of the study, Research questions,
limitations, Delimitation, and finally significance of the study.

1.2 Background of the Study
In the early 1960s the two East African countries attained their independences from
colonial rules at different levels of economic developments. Where Kenya
economically is believed that was well developed compared to Tanzania (by then
Tanganyika). This research work intended to investigate the main drivers of Foreign
Direct Investments (FDIs) in the two countries. At the moment it is widely
acknowledged that FDI has significance contributions that foster the economical
development of developing countries (Ngowi, 2000).

Moreover; in the period late 1980s and 1990s there was of great economic change in
East Africa due to the adoption of the economic liberalization policies whereby these
countries and their government intended to use the private sector as the main engine
of economic development. To realize this changed focus of the governments there
were a need of capital, new technology and skills needed to be injected to the private
sector to enable the sector manage to attract Foreign Direct Investments (FDIs).

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For attracting Foreign Direct Investments inflows in East Africa, East African
countries set out Investments Authorities in their countries. For the case of Tanzania
in 1990, the government set out an Investment Promotion Centre (IPC) to help attract
FDIs in Tanzania. And later after seven years not much of FDIs attraction and private
sector development were achieved. The level of annual FDIs value attraction was
about USD 148.64 millions. With such minor achievement called for a need to
transform IPC into a more aggressive institution on attracting more FDI in Tanzania.
Later Tanzania Investment Centre (TIC) was established in 1997 by the Tanzania
Investment Act No.26 of 1997 to be the primary agency of Government to
coordinate, encourage, promote and facilitate investments and to advise the
government on investment related matters (TIC Investment Report, 2009).

TIC is the focal point for investors and first point of call for potential investors. It is
also an efficient and effective investment promotion agency, a “One Stop Facilitative
Centre for all investors”, engaging in the business of marketing Tanzania as an
investment destination. As agency of the Government in all investment matters, TIC
is charge with the following roles:-
Assisting in the establishment of enterprises; obtain necessary licenses, work permits,
visas, approvals, facilities or services; Sort out any administrative barriers
confronting both local and foreign investments; Promote both foreign and local
investment activities; Secure investment sites and assist investors to establish Export
Processing Zones (EPZ) Projects; Grant certificates of incentives, investments
guarantees and register technology agreements for all investments, which are over
and above US$ 300,000 and US$ 100,000 for foreign and local investments
respectively; Provide and disseminate up to date information on existing investment
opportunities, benefits or incentives available to investors; and assist all investors
whether or not registered by TIC (TIC Investment Report, 2009).

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In order to strengthen and expedite facilitation services, senior officers from
Government or its Executive Agencies have been permanently stationed at TIC to
serve investors under the general direction of the TIC Executive Director.
Presently these officers are drawn from Lands Department; Land Division;
Directorate of Trade and Business Registration and Licensing Agency (BRELA)
(Tanzania Investment Act, 1997).

The priority sectors for investment, as identified by TIC, are: Tourism, infrastructure
development, aviation, agriculture, construction, manufacturing and financial
services. However, investment is not restricted in other sectors. Moreover, there is no
limit on foreign ownership or control, though land ownership remains restricted. TIC
services are provided to local and foreign investors without discrimination, though a
variety of regulatory fees are higher for foreign firms than for local firms. Remaining
obstacles to foreign investment include bureaucratic intransigence, corruption and
poor infrastructure. And for the case of Zanzibar, there is Zanzibar Investment
Promotion Agency (ZIPA). Like Tanzania mainland, Zanzibar aims to create a
welcoming environment for foreign investors and provides similar incentives.

For the case of Kenya, Kenya Investment Authority was set out in 2004 by the
government to help attract investments in Kenya. Kenya Investment Authority (Ken
Invest) is a statutory body established in 2004 through an Act of parliament. It is
responsible for promoting investment, facilitate the implementation of new projects,
providing after care services for existing investments in Kenya, as well as organizing
investment promotion activities both locally and internationally. Kenya has had a
long history with foreign companies. In the 1970s it was one of most favored
destinations for FDI in East Africa. However over the years, Kenya lost its appeal to
foreign firms a phenomenon that has continued to the present. This forced Kenya in
2008 to launch vision 2030 where it hopes to achieve global competitiveness and
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prosperity of the nation. This initiative has seen as a renewed commitment to attract
FDI and assist in the industrialization process (Kinyanjui, Kinuthia, 2010).

This study is worth conducting simply because enable East African countries to
determine the Determinants of Foreign Direct Investment in East Africa, difficulties
faced by countries to attract more FDI in their countries, efforts done by countries
and the solution to address the issue and achieve intended objectives.

1.3 Statement of the Problem
Foreign Direct Investments (FDIs) have grown and continue to grow as well as
playing significant roles in growth and development of many economies in the world
by contributing to the Gross Domestic Products (GDP). However; In Tanzania and
Kenya FDIs have performed below expectations due to the combination of various
factors which attract Foreign Direct Investments (FDIs). The determinants of foreign
direct investments have become an important topic not only for the governments,
policy makers but also for academic research. Moreover; the importance of foreign
direct investments to both countries arises in view of dismal performance of previous
policies that emphasized more attraction of foreign direct investments in their
countries.

Despite of the extensive efforts done to attract FDIs in Kenya and Tanzania, it seems
very little attention has been paid to help to attract more FDIs in East Africa.
Although many relevant investment authorities have targeted many developed
countries, by extending their services, their coverage has remained minimal and
much effort is needed to attract Foreign Direct Investments which at the end will
contribute to sustainable development in two countries. One of the serious
impediments is the limited capacity of many investment authorities to cover many
countries which can come and invest in Kenya and Tanzania, Policy framework for
FDI and Economic determinants for Foreign Direct Investments. The institutions and
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investment authorities supporting Foreign Direct Investments are weak, fragmented
and uncoordinated. Their services are quite basic; mainly focusing on short term
basis. There are hardly any initiatives for targeted, comprehensive and sustained
support specifically to facilitate upward mobility of Foreign Direct Investment in
Kenya and Tanzania.

As a result of the above situation, determinants of Foreign Direct Investment might
permanently remain micro and informal, limiting more foreign direct investments and
some support services. This situation is likely to worsen as competition intensifies
with ongoing globalization. It is in the line of the above argument that this study
intends to identify and understand more on the determinants of foreign direct
investment in the selected countries of East Africa, namely Kenya and Tanzania.

1.4 Objectives of the Study

1.4.1 Main Objective
The objective of the study was to identify and understand more on the determinants
of Foreign Direct Investment (FDI) in East Africa.

1.4.2 Specific Objectives
The study was guided by the following specific objectives:-
(i) To identify and assess the determinants of attracting FDI to East Africa.
(ii) To identify and assess the difficulties of attracting FDI to East Africa.
(iii) To determine the effort done by East African governments to attract FDI to
East African countries.
(iv) To determine the contribution of FDI to countries social economic
development.


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1.5 Research Question
The study was guided by the following general and specific research questions:-

1.5.1 General Research Question
The primary research question was; what are the determinants of Foreign Direct
Investments (FDIs) in East Africa?

1.5.2 Specific Research Questions
To Operationalize the main research question, the following specific research
questions were used:
(i) What are the determinants of FDI in attracting FDIs in Tanzania and Kenya?
(ii) What is the effort done by East African governments to attract more FDI in
their countries through various relevant authorities?
(iii) What are the contributions of FDI in economic development in East Africa?

1.6 Limitations of the Study
The study constrained by financial, and confidentiality. The financial resource was
not sufficient enough to pay a visit to Kenya Investment Authority in Nairobi to
collect more primary data rather than relying on secondary data available. However, I
managed to collect the data effectively to the selected samples to come up with this
dissertation.

Moreover confidentiality was another research constraint since some respondents
rejected to answer questionnaires, a good example was at Kenyan Embassy where
only ten questionnaires out of thirty were answered, and some of Embassy officials
interviewed did not even respond to the questions by saying that they are not
embassy spokes persons.


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1.7 Delimitation of Study
The study focused on the determinants of Foreign Direct Investment (FDI) in East
Africa, particularly in Tanzania and Kenya. Questionnaires and Interview were
employed in the collection of the primary information used in the study. Secondary
data were obtained from Kenya Embassy, TIC, BOT, Kenya Investment Act (2004).
Tanzania Investment Act, (1997) and its regulations

1.8 Significance of the Study
The study increases the knowledge of users on the determinants of Foreign Direct
Investment (FDI) in East Africa, since the study gives highlight on the determinants
on FDI in both Kenya and Tanzania. Moreover the study shows where each country
should put effort to attract more FDI in the country. Indeed this study is useful for a
country to determine which sector attracts more FDI in country.

Furthermore; practically the study helps investment authorities (Tanzania Investment
Authority and Kenya Investment Authority) to review their laws and regulations
basing on the study in order to cope with the reality, for example the authorities are in
a position to identify which part of sectors should be given incentives to attract more
Foreign Direct Investments. On top of that the study opens up a way for others to
conduct further studies on the issues related to the determinants of Foreign Direct
Investment in East Africa. On the other hand the study enables the researcher to meet
one of a necessary condition of being awarded a degree of Masters of Science in
Accounting and Finance.






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CHAPTER TWO

LITERATURE REVIEW

2.1 Introduction
In this chapter a detailed literature review on Foreign Direct Investment is given. The
chapter is divided into two parts, theoretical Literature Review and Empirical
Literature.

This chapter presents theoretical and empirical literature that aims at developing an
understanding of the determinants of Foreign Direct Investments in the selected East
African Countries of Tanzania and Kenya.

2.2 Theoretical Literature Review

2.2.1 The historical Background of Foreign Direct Investment (FDI)
FDI is believed to begin in the late nineteenth century. The Victorian and Edwardian
eras saw the creation of many of the great vertically integrated multinationals that
would be recognized today as colonial plantation companies such as Lever Brothers
(now Unilever) investing in West African vegetable Oil plantations, Cadbury’s in
Cocoa, Dunlop in rubber. The UK as the great imperial power of the time, dominated
world international business with over 45% of the world’s total stock of the FDI in
1914. Following the World II, the FDI leadership passed over to the US, with
companies such as General Motors, Ford Chrysler, and IBM, developing
manufacturing bases around the world. By 1960, US counted over 48% of the world
investment. However; the significant entrant in international scene has been Japan.
In 1960, Japanese firms accounted for less than 1% of the world accumulated FDI.
By 1989, the Japanese share was over 12%, against 29.5% for the US and 15% for
the UK.
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In 1990s there was a significant change in the trend of FDI. This is because FDI
started flowing to the developing countries surged to 30%-40% compared with
just15% and 18% in 1980s. However, the majority of the FDI went to countries of the
Asia- Pacific region. Major countries namely the US, UK, and Japan, accounted for
this bulk outward investment (Buckley, 2000:356).

2.2.2 Definition of FDI
Buckley (2000) defines foreign direct investment (FDI) as a term used to denote the
acquisition abroad of physical assets, such as plant and equipment, with operational
control ultimately residing with the parent company in the home country. FDI may
take different forms such as the establishment of new enterprises in an overseas
country either as a subsidiary or branch, the expansion of overseas branch or
subsidiary and the acquisition of overseas business enterprise or its assets. FDI differs
from foreign portfolio investment where a stake is taken in an overseas business
without operational control, but with the view to acquiring an investment income
stream through dividends, capital gains and so on. FDI is furthermore, defined as a
situation where a foreign company create a subsidiary to provide goods and services.
Thus a firm undertakes FDI in a foreign market if it possessed an ownership
advantage over the local competitors. The ownership of the foreign investment
usually remains in the investing (home) country. FDI represents the primary means of
transfer of private capital (i.e. physical or financial), technology personnel and access
to the brand names and marketing advantage (Makola, 2003).

2.3 Foreign Direct Investment (FDI) in Tanzania
FDI is still in its infancy in Tanzania. It is still a relative new Concept in this country
which had a socialist orientation until in recent past years. Efforts in the past have
been made by the Tanzanian government to attract more investments from abroad.
The early intention of the government was shown in 1963. Foreign Investment Act
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was passed in order to attract FDI in the new independent Tanganyika, then name of
mainland Tanzania before the 1964 union with the Island of Zanzibar (Green, 1982).
Such efforts were somewhat unsuccessful since the government opted for socialist
path of economic development in 1967 following the Arusha Declaration (Ngowi,
2002).

The Arusha Declaration pronounced a socialist policy that was to be followed by the
country. The ministerial order under the industrial (Acquisition) Act Number 5 of
1967 required all MNEs operating in the country as well as big private businesses
owned by Tanzanians in Mainland Tanzania to make the government of Tanzania
majority shareholder of such companies. The majority of the MNEs and big local
companies operating in Tanzania were nationalized. The public corporation Act 17 of
1969 was created to put all nationalized companies under the government control and
management (Ngowi, 2002). The revival of the foreign direct investment attraction
came in 1985 when among other things; Tanzania found that it could not cope with
the ailing and ill-managed public enterprises and companies. Deliberate economic
liberalization policies were initiated and implemented. Reforms in the financial
institutions, public sector, civil service and other areas were made and are still under
way to fine-tune the attraction of FDIs in the country. The National Investment Act
of 1997 was passed in order to promote local and foreign investments in the country
(Ngowi, 2002).

According to The World Economic Forum’s Africa Competitiveness Report 2000-
2001, published in conjunction with the Harvard Institute for International
Development has top-ranked Tanzania, in a survey of African nations’ efforts to
improve economic and investment conditions, out of twenty-four countries on its
index for the correction of initial economic conditions in recent years. The report also
ranked Tanzania number two after Nigeria in the African continent for optimism for
future growth. It is however important to note that despite the progress made in
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improving the initial conditions, investment effort in Tanzania is still too low and a
lot of improvements are still needed to make investment work for its development
(Investment policy in Tanzania, 1997).

2.3.1 FDI Inflows in Tanzania
FDI in East Africa have been increasing over time. BOT et al (2001:9) point out that
monetary value of the FDI inflow into Tanzania increased sixteen-fold from US$ 47
million in 1990 to US$ 768 million by 2000. This is an increase by 15.3% over a
decade or an average of 1.53% annual increase. There has been an increase in FDI
stocks in Tanzania from 1985 to 1990. Then there was a dramatic decline in 1995,
before peaking up in 1998 and 1999. FDI in flows into Tanzania have been
increasing over time. The increase from 1996 is both in absolute terms and in relation
to other countries, including Kenya. The increased inflows can be attributed to, inter
alia, the far –reaching reforms that Tanzania has been undertaking and still at the
midst of mainly from the mid-1980s (Ngowi, 2002). Tanzania under Julius Nyerere
attempted a socialist transformation that saw widespread nationalization of property,
including the seizure of foreign assets. Foreign investment was legally and effectively
banned. This was widened in the 1970s to include most Asian-owned businesses and
an (unevenly enforced) expropriation of any property valued at greater than $15,000.
Capitalism and foreign capital in particular were considered UN African, whereas
ujamaa was considered more “authentic” and appropriate. More recently the climate
has changed considerably. Economic reforms began slowly in 1986, and accelerated
after an economic crisis in the mid 1990s, substantially altering the government’s
stance on foreign investment.

The privatization program, which included many nationalized firms previously
owned by foreign companies, facilitated the return of foreign firms back into the
country. Mining reforms in the early 1990s allowed major new investment by foreign
firms, especially Ghana’s Ashanti Goldfields and South Africa’s AngloGold. Foreign
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banks were allowed entry after 1993 and several large South African and British
banks began operations soon thereafter. Legal changes in 1997 lifted most of the
remaining sectoral restrictions on foreign investment on the mainland (although
many regulations remain in place in semi-autonomous Zanzibar). Previous demands
of government equity have also been lifted for all sectors, except for petroleum
(UNCTAD, 2002).

Otherwise, foreign investors are mostly afforded national treatment, including
protection of fiscal incentives, guarantee of repatriation, and importation of expatriate
staff.

2.3.3 Determinants of Foreign Direct Investment (FDI).
These are some of the factors that determine FDI inflows into a given geographical
region, or country. They give investors the confidence needed to invest in foreign
markets. The list of these determinants may be very long, but not all determinants are
equally important to every investor in every location at all times. Some determinants
may be more important to a given investor in a given location at a given time than to
another investor (UNCTAD World Investment Report, 1998).

A given determinant may be a necessary and satisfactory factor by itself for FDI
inflow in one location but not in another. For the most part, they form a
complementary set. It is difficult to determine the exact quantity and quality of FDI
determinants that should be present in a location for it to attract a given level of FDI
inflows. What is clear is that every location must possess a certain critical minimum
of these determinants before FDI inflows begin to take place. UNCTADs 1998 World
Report presents some host country determinants of FDI. These include the following:
(i) Policy framework for FDI: This include economic, political and social
stability; rules other regulating entry and operations of FDIs; standard of treatment of
foreign affiliates; policies on functioning and structure of the market; international
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agreement on FDIs; privatization policy; trade policy (tariffs and non-tariff barriers
and coherence of FDI and trade policy; and tax policy ( UNCTAD World Investment
Report, 1998).

(ii) Economic determinants: These include business facilitation; investment
promotion (including image-building and investment-generating activities and
investment-facilitating services); investment incentives; hassle costs (related to
corruption and administrative efficiency); social amenities (for example quality of
life); and after investment services (UNCTAD World Investment Report, 1998).
UNCTAD (1998) lists the principal economic determinants in the host countries. It
matches types of FDI by motives of the firms with those principal economic
determinants. Where we have a market- seeking type of FDI, it looks for criteria
concerning market size and per capital income; market growth; access to regional and
global and global markets; country specific consumer preferences and; structure of
the markets. In case of FDI of a resource/asset seeking type, the focus would turn on
raw materials, low cost unskilled labor as well as skilled labor, technological,
innovative and other created assets (like brand names), and physical infrastructure
(roads, ports, telecommunications and power).

According to Ngowi (2000) FDI inflows to a country depend largely on the presence
in that country, of a certain critical minimum of FDI determinants. The determinants
are among the factors that give MNEs the confidence and interest to invest their
massive and expensive capital in foreign markets. Among the FDI determinants that
MNEs look for are the presence of economic, political and social stability; and rules
regulating entry and operations of businesses. Others are standards of treatment of the
foreign affiliates; business facilitation (including, inter-alia, investment incentives;
market size, growth, structure and accessibility; raw materials, low cost but efficient
labor force and physical infrastructure in form of ports, roads, power and
telecommunication.
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John H. Dunning (1995), for example, suggested that one of the dominant influences
on foreign direct investment was the growth and size of the host country market in
terms of population growth.

Holland and others (2000) reviewed several studies for Eastern and Central Europe,
producing evidence of the importance of the market size and growth potential as
determinants of FDI. Loree and Guisinger (1995) studying the determinants of
foreign direct investment by United States in 1977 and 1982 (both towards developed
countries as well as developing countries), concluded that variables related to host
country policy were significant in the developed countries on when infrastructure was
an important determinant in all regions.

Root and Ahmed and Schneider and Frey found statistically significant relation
between foreign direct investment and market demand (as measured by per capital
GDP or GNP) and market growth (as measured by the growth rate of GDP or GNP).
Evaluating the investment Promotion function, they also included measures of market
demand in this study.

Following Schneider and Frey; our hypothesis was that the higher per the per capital
income, the greater the investment inflow. Accordingly, expected sign of this variable
is positive. Our hypothesis with respect to the growth rate of the market was that the
higher the rate of economic growth, the greater the investment inflows. In this as in
other variables, causality could, of course, run in either or both directions. They
conclude that, foreign investors could be attracted by high growth rates, and high
growth rates could be the results of foreign direct investment.

Thunnell (1977) tested the hypotheses that foreign investment in a country decreased
when it was politically unstable and increased when it was stable. He found that
political events were not directly associated with short- term fluctuations, but only
15

with trend changes in foreign investment flows. He also concluded that the
relationship was asymmetric in that investing companies reacted differently to a
change in which a country becomes more stable and change in which a country
becomes unstable.

Green (1972) tried to find out whether political instability had a deterrent effect in
influencing FDI in flows. He found that the allocation of FDI in United States of
America was not affected by political instability in recipient countries. He concluded
that there was even a positive relationship between investment flow and instability in
the recipient countries.

2.4 Foreign Direct Investment in Kenya
Kenya is a relatively big country with a total land area of 580.4km square. Its
location is strategic within East Africa and has a population of approximately 40
million people. The country is well endowed with a broad range of natural resources,
flora and fauna and arable land. Kenya highlands comprise of the most successful
agricultural production regions in East Africa. Foreign investment has been of
considerable significance in financing development in Kenya not only in the
manufacturing but also in the primary and tertiary sectors.

Rweyemamu (1987) before independence in 1963, bulk of it went to primary
production and plantations. The few manufacturing industries established up to
World War II were mainly for basic processing of agricultural exports and the
processing of food for the local market. After the war British manufacturing firms
begun to invest directly in the manufacturing, in part, because of the competition
from non British trading firms, which threatened Britain's share in the Kenyan
market.

16

According to Rweyemamu (1987) and Gachino (2006); after land resettlement
between 1962 and 1964, the Kenyan government prevented foreign firms from
purchasing more land and as a result foreign ownership in agriculture was greatly
reduced. In commerce and industry by contrast, virtually all the expansion which
took place, that is a 50 percent increase in output between 1964 and 1970 and 100
percent increase in the annual level of investment, was foreign owned. At first much
of it involved capital transfer out of agriculture, especially following the introduction
of exchange controls in 1965. But two years later after the initial period of
uncertainty as to the government development strategy, a substantial inflow of
foreign direct investment and its diversification to other sectors occurred. In addition
the government set up institutions which would assist in the development of the
manufacturing sector. During this period Kenya had pursued import substitution
from as early as 1950s. This industrial policy advocated for a large role of the public
sector participation and protection of the infant manufacturing industries.

The government used a combination of tariffs and quotas supplemented by foreign
allocation measures including overvaluing exchange rates to maintain import costs
low, favorable credit and interest rate policies intended to subsidize the
manufacturing consumer goods.

During this period FDI levels were reasonably high in comparison to other East
African countries (see graph 1). This was partly attributed to the fact that Kenya had
maintained a favourable investment climate. Obrien and Ryan (2002) note that Kenya
was for many years a relatively attractive location for foreign investment. However,
Bradshaw (1988) observes that although that was the case, there were already
concerns by both scholars and government planners that, because of Kenya's liberal
repatriation policies, more international investment income left Kenya in the form of
profit remittances than flows into the country. As a result the government instituted
measures to encourage reinvestment of their profits in the country. From 1974, firms
17

with high repatriation rate had their local borrowing rights restricted by the Central
Bank. The government also attempted to cut down on the level of management
remittances and technical fees by imposing a 14 percent withholding tax. These
efforts discouraged foreign investors

Figure 2.1: FDI Inflows to the East Africa Region
Graph 1: FDI inflows to the East Africa Region
- 100
-
100
200
300
400
500
600
700
800
1
9
7
0
1
9
7
2
1
9
7
4
1
9
7
6
1
9
7
8
1
9
8
0
1
9
8
2
1
9
8
4
1
9
8
6
1
9
8
8
1
9
9
0
1
9
9
2
1
9
9
4
1
9
9
6
1
9
9
8
2
0
0
0
2
0
0
2
2
0
0
4
2
0
0
6
Years
M

U
S
D
Kenya Uganda Tanzania

Source: UNCTAD 2008

FDI in Kenya has not only been volatile but also low since the 1970s. This led to the
stagnation of the manufacturing sector which was largely been dominated by the
foreign firms. This decline was blamed on the inward oriented strategy as well as the
collapse of the East Africa Community in 1977. Ensuing economic distortions
resulted in severe structural constraints and macro economic imbalances and firms
failed to develop competitive capabilities to penetrate the international markets. The
inward looking policies pursued at the time under import substitution made it
difficult to effectively participate and compete keenly in the export markets. As a
result the manufacturing industry failed to play a more dynamic role enough to
function as an engine of country's growth and did not contribute significantly to
foreign exchange (Kenya Government 1994).

18

Further, the economic stagnation in the mid 1980s and 1990s affected Kenya’s
industrialization with consequent effects on labor productivity (Gachino and Rasiah,
2003). Political instability in neighbouring countries particularly Uganda also drew
away markets and investment in Kenya.

Macro economic constraints arising from a collapse in the IMF’s Structural
Adjustment Program (SAPs) in 1986(Mwega and Ndungu, 2002), massive
destruction of infrastructure due to El Nino rains and weak institutions had all
contributed to economic stagnation (Phillip and Obwana, 2000; Todaro, 2000; Rasiah
and Gachino 2005). Hence, although Kenya introduced a number of instruments to
promote FDI and export oriented industrialization during this period, these efforts did
not yield much.

After the disappointing period of the 1990s, Kenya resumed the path to rapid
economic growth in 2002 through the implementation of the Economic Recovery
Strategy paper which was replaced by vision 2030 after it expired in 2007. During
this period the government embarked on establishment of free trade zones,
improvement of business climate, infrastructure, and development of incentives
among initiatives. These efforts are aimed at building a momentum that can sustain
economic growth and promote development. At the centre of these efforts is a
commitment to attract foreign direct investment which was hoped would assist in the
industrialization process.

Foreign firms in Kenya since the 1970s have invested in a wide range of sectors.
Most notably they played a major role in floriculture and horticulture, with close to
90 percent of flowers being controlled by foreign affiliates. In the Manufacturing
sector FDI has concentrated on the consumer goods sector, such as food and beverage
industries. This has changed in the recent years with the growth of the garment sector
because of African Growth and Opportunities Act (AGOA). Of the 34 companies
19

involved in AGOA 28 are foreign most of them concentrated in the Export
Processing Zones (EPZs). FDI is also distributed to other sectors including services,
telecommunication among others. 55 percent of the foreign firms are concentrated in
Nairobi while Mombasa accounts for about 23 percent, thus Nairobi and Mombasa
account for over 78 percent of FDI in Kenya. The main form of FDI establishment
has been through the form of green fields establishments and Kenya has in total more
than 200 multinational corporations. The main traditional sources of foreign
investments are Britain, US and Germany, South Africa, Netherlands, Switzerland
and of late China and India (UNCTAD, 2005).

2.4.1 Determinants of Foreign Direct Investment Inflows in Kenya.
While it is difficult to determine the exact quality and quantity of FDI determinants
that should be present in a particular location, it’s never the less clear that a critical
minimum of these determinants must be present before FDI inflows begun to occur
(Ngowi, 2001). One would rationally expect that investors would choose a location in
accordance to its profitability. In an extensive literature review on the determinants of
FDI, Ajayi (2007) has identified the following factors as determinants: market size
and growth, costs and the skills of workers, availability of goods infrastructure,
country risk openness, institution environment, natural resources, agglomeration
affects, returns on investment, macroeconomic policies among others.

More recently Faeth (2009) presents a more elaborate work and observes that R&D
and advertising expenditure, skills and technology intensity, the existence of multi
plant enterprises and firm size are important ownership advantages in a number of
studies, while in other studies aggregate variables such as market size, growth, and
trade barriers have an effect on FDI.


20

In Kenya few studies have been conducted on FDI determinants. Kinaro (200.) using
time series analysis finds that FDI in Kenya is determined by economic openness,
human capital, real exchange, inflation, and FDI in the previous periods. Opolot et al
(2008) find using panel data for Sub Saharan African countries, Kenqa included that
market potential, openness to trade, infrastructure, urbanization, and rate of return on
investment positively affect foreign direct investment inflows to Sub-Saharan Africa,
while macroeconomic instability is a disincentive to foreign direct investment. Other
variables such as government consumption, financial development, natural resources,
wage and political rights are found to be insignificant.

Mwega and Rose (2007) using panel data of 43 countries with a Kenyan dummy find
that Kenya is not different from other countries and that FDI is determined by growth
rates, terms of trade shocks, external debt ratio and quality of institutions.
UNCTAD (2005) argue that Kenya's inability to attract FDI is due to growing
problems of corruption and governance, inconsistencies in economic policies and
structural reforms, deteriorating public service and poor infrastructure.

Todd et al (2005) argues that Kenya officially encourages and grants national
treatment to foreigners but that the problem is Kenya's political elites who resent FDI
perceiving it to lead to dependency. Himbara (1994) shares similar sentiments.
Kareithi (1991) concerned with the impact of foreign-owned media upon the body
politic of Kenya argues that foreign ownership undermines both national sovereignty
and even the rudiments of political freedom.

2.5 Empirical Literature of the Past Studies

2.5.1 Review of the Studies from Africa
Developing countries are increasingly aware of the role of foreign direct investment
as an engine of growth in their economies. Foreign investors can contribute to growth
21

by providing much needed capital and skills, by sharing risks in large projects and by
serving as a vehicle for technology transfer. For many developing countries, FDI is a
mechanism by which to promote industries in which they have a potential
comparative advantage that cannot otherwise be exploited.

The globalization of economic activity has been marked by a surge in FDI flows.
Over the decade, global FDI flows have increased at large percentage. Unfortunately,
these trends have largely bypassed sub-Saharan Africa. In 1997, Sub-Saharan Africa
received less than 1 percent of world FDI inflows, or 1.7 percent of total FDI flows to
developing countries. These statistics, moreover, conceal large disparities in the
distribution of FDI among host African countries. For example, 55 percent of FDI
flows to Africa in 1997 went to the three traditionally biggest recipients – Nigeria,
South Africa and Egypt. There are also worrying signs that the whole of the African
continent is being marginalized in the global competition for FDI. FDI flows to
Africa have decreased 6.1 percent annually between 1994 and 1997. Since the recent
years have seen significant improvements in the conditions governing FDI including,
but not limited to, economic reform, democratization, privatization, greater peace and
political stability, these trends raise important questions about foreign investors'
attitude towards Africa.

Moreover; the literature on the empirical determinants of FDI in developing countries
is wide and varied. Schneider and Frey (1986) have made important contributions in
determinants of foreign direct investments as well as UNCTAD (1992) survey the
empirical literature on FDIs. However, the empirical work has not directly and fully
addressed the question of determinants of FDI in sub-Saharan Africa.

Further; there is no unified theory of determinants of FDI. Instead, the theoretical
literature is choked with an array of hypotheses drawing heavily on theories of
imperfect competition and market failure to explain the determinants of FDI
22

phenomenon. An alternative and perhaps more practical classification of the host-
country determinants of FDI distinguish between business facilitation measures, the
policy framework for FDI, and economic determinants. Business facilitation
measures include investment incentives, measures directed at reducing the hassle
costs related to corruption and administrative inefficiency, and social amenities.
Policy determinants of FDI comprise policy and political stability, rules relating to
FDI, international agreements on FDI, and privatization, trade and tax policies. The
economic determinants are further categorized into market-seeking (market size and
growth, market structure, access to regional markets), resource-seeking (availability
of raw materials, labour, physical infrastructure) and efficiency-seeking (cost of
resources, labour productivity).

2.6 Theoretical perspective underpinning the study
The theoretical perspective that guides this study is motivation theory. This is
because the study is on the determinants of Foreign Direct Investment (FDI) in East
Africa, with an intention of identifying drive forces for FDI and what should be done
to attract or motivate more FDI in Tanzania and Kenya as part of East African
countries. Motivation theory looks on the environment that influence the occurrence
of good performance, motivation is categorised into macro motivation and micro
motivation. Macro motivation is affected by environmental conditions lying outside
organisation, while micro motivation is affected by environmental conditions lying
within the organisation. Moreover; this study aimed at identifying determinants of
Foreign Direct Investment (FDI). These determinants are influenced by both external
and internal environments which are in line with motivation theory to attract more
Foreign Direct Investment in East Africa. With this, the theoretical modal for this
study is motivation theory as the basis for analysis and development of the arguments
in the study.

23

CHAPTER THREE

RESEARCH METHODOLOGY

3.1 Introduction
Research methodology is the systematic way to solve the research problem. It may be
understood as a science of studying how research is done scientifically. This chapter
presents the methodology and procedures used in the study, which include research
design, types of data, and methods of data collection, analysis and presentation.

3.2 The Research Design
This is a plan that specifies how data from the study was collected and analyzed. For
the proposed study, a case study designed was applied to get the necessary required
information. The case study design was chosen due to its ability to provide in-depth
of the case to be studied. It is appropriate for gathering data from various sources
including documentary reading, questionnaires and interviews. It is also useful in
studying a particular social unit and it guarantees a particular freedom and flexibility
in the actual process of data collection in the area of study.

3.3 Study Area
The United Republic of Tanzania and Republic of Kenya through their Investment
Authorities like Tanzania Investment Centre (TIC), Kenya Investment Authority
(Ken Invest), Kenyan Embassy in Tanzania, Bank of Tanzania and foreign investors
used as the universe to obtain the sample.

3.4 Types of Data
Quantitative and qualitative data was used by the researcher to collect data.


24

3.5 Sampling Procedures
Simple random sampling was employed to obtain respondents to the study; where by
the appropriate sample size were 45 respondents who are investors and employees of
various investments authorities in Kenya and Tanzania.

Numbers of respondents were 39 out of 45. The table below shows the categories of
respondents.

Table 3.1: Categories of Respondents
Organization TIC Kenyan Embassy Investors BOT
Number 21 10 6 2
Source: Analyzed data, 2012

From table 3.3: 39 Questionnaire were distributed; 21 Questionnaires were
distributed to Tanzania Investment Centre (TIC), 10 were distributed to Kenyan
Embassy officials, 6 were distributed to investors and 2 were distributed to Bank of
Tanzania (BOT).












25

Table 3.2: Regional Distribution of FDI Flows (USD Million), 2005-2008
Region 2005 2006 2007 2008p Average % of Average
Dar es Salaam 691.3 355.1 418.4 334.5 449.9 77.6
Mwanza 89.8 91.0 -4.0 -4.8 43.0 7.4
North Unguja 29.9 20.2 69.3 26.6 36.5 6.3
Kagera 55.5 1.2 -0.3 0.0 14.1 2.4
Urban West 4.2 20.6 14.0 12.8 12.9 2.2
Tanga 6.4 12.2 14.4 10.0 10.7 1.9
Shinyanga -15.2 49.0 22.9 -18.6 9.6 1.7
Morogoro 8.0 14.1 2.6 10.8 8.9 1.5
Iringa 3.4 10.0 7.7 12.5 8.9 1.5
Kilimanjaro 24.8 3.7 1.4 -0.7 7.3 1.3
South Unguja 5.5 4.0 2.9 1.2 3.4 0.6
Mbeya 1.6 1.1 4.5 6.4 3.4 0.6
Source: PCF survey

Table 3.3: Regional Distribution of FDI-Registered Projects, 2005-2008
(Percentage of total)
Region Percentage
Nairobi 55.5%
Mombasa 17.9%
Kisumu 16.6%
Kilifi 1.4%
Malindi 2.3%
Migori 0.3%
Others 6%
Source: Promotion centre

26

3.6 Research Instruments
Due to the design chosen, the following instructions were employed.
(a) Interview
Interview was conducted to collect qualitative information such as opinions and
views of the study. Interviews were guided by interview guide questions (see
appendix ii). Kenyan Embassy, TIC and BOT officials were interviewed during data
collection; they were able to come up with the answers on interview questions. The
advantages of using interview was quick method of gathering information, the
researcher would know whether the respondents understands the questions and the
method was not restricted to educated class alone. This means that the questionnaires
were not given and answered by employees of the above mentioned institution but
also investors who are not belonging to above mentioned institutions.

(b) Questionnaire
Is a pre-formulated written set of questions to which respondents record their
answers, usually within rather closely defined alternatives (Kothari, 2001).
Questionnaires were open-ended questions, which allowed individuals to express
their views concerning FDI in Tanzania (see appendix I). The questionnaires were
distributed to respondents aimed at getting information regarding the Determinants of
Foreign Direct in East Africa particularly Kenya and Tanzania. One of the set of
questionnaires was designed for various Investment Authorities and other relevant
authorities.
Numbers of respondents were 39 out of 45. The table below shows the categories of
respondents.

Table 3.4: Categories of Respondents
Organization TIC Kenyan Embassy Investors BOT
Number 21 10 6 2
Source: Analyzed data, 2012
27

From table 3.3: 39 Questionnaire were distributed; 21 Questionnaires were
distributed to Tanzania Investment Centre (TIC), 10 were distributed to Kenyan
Embassy officials, 6 were distributed to investors and 2 were distributed to Bank of
Tanzania (BOT).

3.7 Source of Data
Both secondary and primary data were employed. Questionnaires and interviews
were employed in the collection of primary information. Secondary data obtained
from Kenyan Embassy in Tanzania, TIC, BOT, Kenya Investment Centre, and from
various Investors. These include Tanzania Investment Acts 1997, Kenya Investment
Act 2004, Tanzania Investment Report 2009 and Kenya Investment Report 2009.

3.8 Method of Data Analysis
Findings have been presented by using statistical procedure/models such as tables
and percentages, which were used to summarize the results in order to draw
conclusion the Determinants of Foreign Direct Investment (FDI) in East Africa
particularly Tanzania and Kenya. The study applied both qualitative and quantitative
analysis techniques. The researcher used Microsoft word and Excel in analyzing both
primary and secondary data. With the use of Microsoft word and Excel the researcher
was able to analyze the information from the findings quickly. The analysis was
guided by research objectives and research questions.






28

CHAPTER FOUR

PRESENTATION AND DISCUSSION OF FINDINGS

4.1 Introduction
In this chapter the analysis and discussion of the findings are presented. The analysis
and discussion in this chapter is based on the responses from research questionnaires,
interview questions and secondary data information. The research intended to find
out the determinants of Foreign Direct Investments in Tanzania and Kenya. Main
areas of concern in the research are the identification of the determinants for
attracting FDI in Tanzania and Kenya, the difficulties of attracting FDI, efforts done
by East African governments to attract FDI to East African countries, and the
contributions of FDI to East African countries social economic development and this
was according to the research objectives.
The study was guided by the following specific objectives:-
(i) To identify and assess the determinants of attracting FDI to East Africa
(ii) To identify and assess the difficulties of attracting FDI to East Africa
(iii) To determine the effort done by East African governments to attract FDI to
East African countries.

4.2 Determinants of Foreign Direct Investment in Tanzania and Kenya
According to primary and secondary data the following are some of the determinants
in East Africa (Tanzania and Kenya) countries respectively;-
Questionnaires were distributed to 45 people of various categories as mentioned in
Table 3.3, 39 (86.7%) of 45 responded, 3 (6.7%) respondents out of 45 did not
respond and 3 people were contacted for interview, 3 (100%) people responded. The
following is the table showing the determinants of foreign direct in East indicated by
various respondents and their percentage scores as indicated in table 3.4 & 3.5

29

IN TANZANIA

Table 4.1: Determinants of Foreign Direct Investment and frequency of scores
Determinants No. of
respondents
Actual No. of
respondents
% of scores Total
percentage (%)
Natural resources 39 39 100% 100%
Investment policies 32 39 82% 100%
Investment
opportunities
27 39 69% 100%
Incentives 36 39 92% 100%
Taxation system 37 39 94% 100%
Promotion centre 24 39 61% 100%
Political climate 33 39 85% 100%
Cost of doing
business
19 39 49% 100%
Source: Analyzed data, 2012

According to the table above Tanzania is performing very well almost in every
determinant of Foreign Direct Investment mentioned by respondents in the
questionnaires and during the interview. Therefore Tanzania should put many efforts
on the above mentioned determinants to attract more Foreign Direct Investment
(FDI) in Tanzania and East Africa in general.







30

IN KENYA

Table 4.2: Determinants of Foreign Direct Investment and frequency of scores
Determinants No. of
respondents
Actual No. of
respondents
% of scores Total
percentage (%)
Natural resources 12 39 31% 100%
Investment
policies
38 39 97% 100%
Investment
opportunities
21 39 54% 100%
Incentives 29 39 74% 100%
Taxation system 26 39 67% 100%
Promotion centre
campaign
39 39 100% 100%
Political climate 14 39 36% 100%
Cost of doing
business
23 39 59% 100%
Source: Analyzed data, 2012

According to the table above Kenya should put more efforts on promotion activities,
provision of investment incentives, and make reforms on investment policies to
attract more Foreign Direct Investment in the country and East Africa in general.

Moreover; the data collected through documentary review which included; Tanzania
Investment Act (1997), Tanzania Investment Report (2009), Kenya Investment Act
(2004), Kenya Economic Report (2009), Kenya Investment Policy Review (2005),
and Kenya Investment Authority Report (2010) revealed the following as some of
the determinants of Foreign Direct Investments in Kenya and Tanzania:-

31

i. Availability of abundant natural resources like minerals
The availability of natural resource has been shown by Tanzania Investment
Report (2009) and Kenya Investment Authority Report (2010) as the
significant determinant of Foreign Direct Investment in any country.
According to the first mentioned report Tanzania is attracting more FDI than
Kenya due to abundant natural resources like gold, Tanzanite and platinum.
Indeed this match with the opinion from various respondents as indicated by
table 3.4 & 3.5 above.

ii. Availability of marketing campaigns to attract FDIs
Availability of serious marketing campaign has been highlighted by Kenya
Investment Authority Report (2010) as one of factors that attract FDI in
Kenya compared to other East African countries like Tanzania. Moreover this
match with table 3.5 above where the determinant scored 100% as per
respondents

iii. Availability of investments opportunities
Indeed the study shows that availability of investment opportunities has been
one of the determinants of Foreign Direct Investment in both countries.
However Tanzania has more investment opportunities compared to other
East African Countries like Kenya (UN World Investment Report, 2011).

iv. Availability of good investments policies
According to Tanzania Investment Report (2010) and Kenya Investment
Authority Report (2010) indicate that both Tanzania and Kenya attract FDI
because of their investment policies being favorable to foreign investors. This
has been further supported by analyzed date as indicated above in table 3.4
&3.5.

32

v. Availability of incentives for investments
According to Tanzania Investment Act (1997) and Kenya Investment Act
(2004) both countries are attracting Foreign Direct Investment (FDI) due to
availability of investment incentives. However Tanzania has more investment
incentives compared to Kenya.

Moreover the following are the investment incentives offered by both countries
according to Tanzania Investment Act (1997) and Kenya Investment Act (2004)
respectively;-

IN TANZANIA
The incentives available to holders of TIC certificates of incentives
The following are some of the incentives offered by Tanzania in mining industry as
an effort to promote FDI in East Africa as per Tanzania Investment Act, 1997:-
(i) Exemption from corporate Income tax for up to five years
(ii) Ten percent (10%) import duty for semi-processed inputs and spare parts
other than motor vehicles.
(iii) Exemption from pre-shipment inspection requirements
(iv) Zero percent (0%) import duty on project capital goods, Computers,
husbandry and fishing , human and livestock pharmaceutical products and
medicaments, Computer accessories, Raw materials and Replacement parts
for agriculture, Animal Motor vehicle in completely knocked down form and
inputs for manufacturing pharmaceutical products.
(v) Recognition of private property and protections against any non-commercial
risks
(vi) Twenty five percent (25%)-import Duty for final consumer goods.
(vii) Fifteen percent (15%)-Import Duty for fully processed input and motor
vehicles spares.
33

(viii) Introduction of pay and refund scheme for excise duty paid on fuel purchased
by eligible companies.
(ix) 50% expensing of capital expenditure for all classes os assets. In subsequent
years implement Wear and Tear allowance as classified below:
(x) Class I-37.5% per annum a.-eg Computers, Heavy Industrial Machinery,
Tractors, Combine Harvesters, Heavy moving Equipment etc.
(xi) Class III-12.5% per annum eg. Other Machinery including ships
(xii) VAT exception on ground transport run by Tour Operators, milk packaging
Materials, Computers, Printers, and Accessories, Hospitals equipments and
Drug used by victims of HIV, Malaria and TB and locally produced Yarm.
(xiii) Import Duty drawback on Raw materials used to produce goods for Exports
and Deemed exports
(xiv) Deemed of VAT payment on Project Capital Assets
(xv) Zero-rated VAT on Exports
(xvi) Straight line Depreciation Allowance on Capital Goods
(xvii) Indefinite carry forward of losses against future profits.
(xviii) Corporate Tax Rate of 30% and withholding Tax Rates on dividends (10%)
and (0%) on loan interest in both priority and lead sectors.
(xix) The right to transfer outside the country 100% of foreign exchange earned
profits and capital.
(xx) The ease of obtaining other permits such as Residency/work permits,
industrial license, trading etc.
(xxi) Land Rent on commercial agriculture Farms, Livestock Ranches and Forests
Tshs.200/= per annum.

Special Incentives offered in Mining Industry in Tanzania
The following are some of the incentives offered by Tanzania in mining industry as
an effort to promote FDI in East Africa as per Tanzania Investment Act, 1997:-
34

Examples of special incentives offered in mining industry include; Duty and VAT on
all Capital Goods, Spare-parts, fuel and Oils, Explosive and Other supplies.
Corporate Tax 30%, Zero percent (0%) Import Duty on Capital Goods, Capital
allowance 50% on the first year of income and in subsequent years:-
Class I: 37.5% of the balance per annum
Class II: 25% of the balance per annum
Class III: 12.5% of the balance per annum
Addition 15% Capital allowance on un-redeemed qualifying Capital Expenditure as
set out in the Mining Act No. 5 of 1998 for those who had invested as of July 2001.
Existing investors allowed deferring payment of royalty or getting the royalty
refunded when cash flow is below zero.
Royalty 3% except diamonds which is 5%
No capital gains tax
No Tax, duty free or other fiscal import on dividends
Indefinite carryover of losses against future profits
After first 5 years of commercial production the company will be charged 5% Duty
and VAT.

Special incentives offered in Petroleum exploration and Production in Tanzania
Below are some of the incentives offered to companies investing in oil Exploration:-
(i) Relatively large exploration areas. Normally, a license consists of 60 blocks,
however each PSA can consist more than one exploration license.
(ii) Long exploration periods of 4 (Initials) 4(first Extension and 3 (second
extension) years, Totaling 11 years
(iii) Maximum TPDC participation is capped at 20% from former 50%
(iv) No signature or production bonus payment
(v) Income Tax and Royalty paid for by TPDC on behalf of the concessionary
company.
35

(vi) Full allowance for un-recovered exploration costs incurred under earlier
PSA's in any contract area by the same companies that make a discovery in a
subsequent PSA (No ring-fencing)
(vii) No import Taxes on all equipment used in petroleum exploration.
(viii) No foreign exchange restrictions
(ix) Economic basement interpretation allowed for determination of exploration of
well total depth.

IN KENYA
The following are incentives available for investors in Kenya
(i) 10 year tax holiday and thereafter a flat 25 per cent tax for 10 years;
(ii) Exemption from all withholding taxes on dividends and other payments to
non-residents during the first 10 years;
(iii) Exemption from import duties on, raw materials and intermediate inputs;
(iv) No restrictions on management or technical arrangements;
(v) Exemption from Stamp Duty;
(vi) Exemption from VAT;
(vii) and Operate on one license only.


The following are the special incentives available for investors in Kenya
Tax Incentives
Investment allowance is provided as an incentive for investment in the manufacturing
and hotel sectors at the rate of 100% countrywide. For Manufacturers under Bond,
the applicable rate is 100%. In addition, eligible capital expenditures have been
expanded to include certain infrastructure and environmental protection equipment
related to the manufacturing activity (Kenya Investment Act, 2004)


36

Export Promotion Programmes
Duty Remission Facility
Materials imported for use in manufacturing for export; the production of raw
materials for export; or the production of duty free items for sale domestically are
eligible for duty remission. Applications for this facility should be made to the Tax
remission for export office (TREO) at the Ministry of Finance (Kenya Investment
Act, 2004).

Manufacture under Bond
To encourage manufacturing in Kenya for export to the world market, the
Government has established the Manufacture under Bond programme that is open to
both local and foreign investors. Enterprises operating under the programme are
offered the following incentives:

Exemption from duty and VAT on imported raw materials and other imported inputs;
and, 100 per cent investment allowance on plant, machinery, equipment and
buildings.

Bonded manufacturing enterprises can be licensed to operate within a 30 km radius
of a Customs Office. This programme is facilitated by the Investment Promotion
Centre and administered by the Kenya Investment Authority (Kenya Investment Act,
2004).

Export Processing Zones Programme (According to Kenya Investment Act,
2004)
The Export Processing Zones Authority (EPZA) coordinates operations of Export
Processing Zones (EPZs). The Government encourages the development of private
EPZs, and a number of them have already been established.

37

Enterprises operating in these zones in Kenya enjoy the following benefits:
(i) 10 year tax holiday and thereafter a flat 25 per cent tax for 10 years;
(ii) Exemption from all withholding taxes on dividends and other payments to
non-residents during the first 10 years;
(iii) Exemption from import duties on, raw materials and intermediate inputs;
(iv) No restrictions on management or technical arrangements;
(v) Exemption from Stamp Duty;
(vi) Exemption from VAT;
(vii) and Operate on one license only.

4.3 The efforts done by East African governments to attract FDI to East
African countries

TANZANIAN GOVERNMENT
The following are some of the efforts done by Tanzanian Government to attract FDIs
in the country as mentioned by various categories of respondents:-













38

Table 4.3: Efforts done by Tanzanian government and frequency scores
Efforts No. of
respondents
No. of actual
respondents
% of scores Total
percentage %
Establishment of
good investment
policy
35 39 89% 100%
Provision of
investment
guarantees

33 39 85% 100%
Reduction of
licensing
bureaucracy
11 39 28% 100%
Giving incentives
to investors like tax
holidays
39 39 100% 100%
Application of
fiscal policies
which attract
foreign investors
20 39 51% 100%
Improve investment
facilitating
infrastructures
22 39 56% 100%
Reduction of cost
of doing business
23 39 59% 100%
Source: Analyzed data, 2012


39

According to the interview and questionnaires respondents Tanzanian government
has done many efforts to attract FDI in the country by making reforms on investment
policy reforms which achieves 89% out of actual No. of respondents, provision of
investment guarantees (85%), and provision of incentives to foreign investors like tax
holidays (100%). However need to strengthen her efforts more on reduction of cost of
doing business (59%), Reduction of licensing bureaucracy (28%) and improve
investment facilitating infrastructures (56%) since these efforts have achieved fewer
score to attract more FDI in the country and East Africa in general.

Special Incentives offered in Mining Industry in Tanzania according to
Tanzania Investment Act, 1997
The following are some of the incentives offered by Tanzania in mining industry as
an effort to promote FDI in East Africa as per Tanzania Investment Act, 1997:-
Examples of special incentives offered in mining industry include; Duty and VAT on
all Capital Goods, Spare-parts, fuel and Oils, Explosive and Other supplies.
Corporate Tax 30%, Zero percent (0%) Import Duty on Capital Goods, Capital
allowance 50% on the first year of income and in subsequent years:-
Class I: 37.5% of the balance per annum
Class II: 25% of the balance per annum
Class III: 12.5% of the balance per annum
Addition 15% Capital allowance on un-redeemed qualifying Capital Expenditure as
set out in the Mining Act No. 5 of 1998 for those who had invested as of July 2001.
Existing investors allowed deferring payment of royalty or getting the royalty
refunded when cash flow is below zero.
Royalty 3% except diamonds which is 5%
No capital gains tax
No Tax, duty free or other fiscal import on dividends
Indefinite carryover of losses against future profits
40

After first 5 years of commercial production the company will be charged 5% Duty
and VAT.

Special incentives offered in Petroleum exploration and Production in Tanzania
Below are some of the incentives offered to companies investing in oil Exploration:-
(i) Relatively large exploration areas. Normally, a license consists of 60 blocks,
however each PSA can consist more than one exploration license.
(ii) Long exploration periods of 4 (Initials) 4(first Extension and 3 (second
extension) years, Totaling 11 years
(iii) Maximum TPDC participation is capped at 20% from former 50%
(iv) No signature or production bonus payment
(v) Income Tax and Royalty paid for by TPDC on behalf of the concessionary
company.
(vi) Full allowance for un-recovered exploration costs incurred under earlier
PSA's in any contract area by the same companies that make a discovery in a
subsequent PSA (No ring-fencing)
(vii) No import Taxes on all equipment used in petroleum exploration.
(viii) No foreign exchange restrictions
(ix) Economic basement interpretation allowed for determination of exploration of
well total depth.

KENYAN GOVERNMENT
The following are some of the efforts done by Kenyan Government to attract FDIs in
the country as mentioned by various categories of respondents in the questionnaires
and interview:-




41

Table 4.4: Efforts done by Kenyan government and frequency scores
Efforts No. of
respondents
No. of actual
respondents
% of scores Total
percentage %
Establishment of
good investment
policy
27 39 69% 100%
Provision of
investment
guarantees

14 39 36% 100%
Reduction of
licensing
bureaucracy
36 39 92% 100%
Giving incentives
to investors like tax
holidays
17 39 44% 100%
Application of
fiscal policies
which attract
foreign investors
24 39 62% 100%
Improve investment
facilitating
infrastructures
39 39 100% 100%
Reduction of cost
of doing business
12 39 31% 100%
Source: Analyzed data, 2012


42

According to the interview and questionnaires respondents Kenyan government has
done many efforts to attract FDI in the country by making reforms on investment
policy reforms which achieves 69% out of actual No. of respondents, Reduction of
licensing bureaucracy (92%) and provision investment facilitating infrastructures
(100%). However need to strengthen her efforts more on reduction of cost of doing
business (31%), Giving incentives to investors like tax holidays (44%), s Provision of
investment guarantee (36%), since these efforts have achieved fewer score to attract
more FDI in the country and East Africa in general.

The following are the special incentives available for investors in Kenya
(According to Kenya Investment Act, 2004)
Tax Incentives
Investment allowance is provided as an incentive for investment in the manufacturing
and hotel sectors at the rate of 100% countrywide. For Manufacturers under Bond,
the applicable rate is 100%. In addition, eligible capital expenditures have been
expanded to include certain infrastructure and environmental protection equipment
related to the manufacturing activity (Kenya Investment Act, 2004)

Export Promotion Programmes
Duty Remission Facility
Materials imported for use in manufacturing for export; the production of raw
materials for export; or the production of duty free items for sale domestically are
eligible for duty remission. Applications for this facility should be made to the Tax
remission for export office (TREO) at the Ministry of Finance (Kenya Investment
Act, 2004).




43

Manufacture under Bond
To encourage manufacturing in Kenya for export to the world market, the
Government has established the Manufacture under Bond programme that is open to
both local and foreign investors. Enterprises operating under the programme are
offered the following incentives:

Exemption from duty and VAT on imported raw materials and other imported inputs;
and, 100 per cent investment allowance on plant, machinery, equipment and
buildings.

Bonded manufacturing enterprises can be licensed to operate within a 30 km radius
of a Customs Office. This programme is facilitated by the Investment Promotion
Centre and administered by the Kenya Investment Authority (Kenya Investment Act,
2004).

Export Processing Zones Programme (According to Kenya Investment Act,
2004)
The Export Processing Zones Authority (EPZA) coordinates operations of Export
Processing Zones (EPZs). The Government encourages the development of private
EPZs, and a number of them have already been established. Enterprises operating in
these zones in Kenya enjoy the following benefits:
(i) 10 year tax holiday and thereafter a flat 25 per cent tax for 10 years;
(ii) Exemption from all withholding taxes on dividends and other payments to
non-residents during the first 10 years;
(iii) Exemption from import duties on, raw materials and intermediate inputs;
(iv) No restrictions on management or technical arrangements;
(v) Exemption from Stamp Duty;
(vi) Exemption from VAT;
(vii) and Operate on one license only.
44

4.4 The contributions of FDI to East African countries social economic
development

4.4.1 The contributions of FDI to social economic development in Tanzania
The following are some of the contribution of FDI to the country social economic
development in Tanzania.
(i) The technologies and skills of computer use, Mobile phones use, Security
Systems use, etc. have been transferred to Tanzania.
(ii) Increasing government Revenue: FDIs have contributed to the government
revenue in various ways, which include tax payment, payment of royalty,
payment for licenses and fees and payments in the acquisition process of the
for state owned enterprises in the divestiture exercise
(iii) Capital formation: FDIs contributed to the capital formation in the country. It
is also a means of transferring Production Technology, Skills, Innovative
Capacity, and Organizational and Managerial practices between locations, as
well as of accessing International Marketing Networks. In addition, the
Foreign Direct Investment could improve overall growth by promoting
competition in the domestic input market.
(iv) Infrastructure: This is yet another area which had benefited from FDI. Some
progress had been made in Telecommunications and Transport although the
high cost and unavailability of power are major impediments.
(v) About 2,288,978 direct jobs have been created in Tanzania.
(vi) Projects with the value of USD 4,357.6 million capital has been invested in
Tanzania in 2008

4.4.2 The contributions of FDI to social economic development in Kenya
(i) The technologies and skills of computer use, Mobile phones use,
Security Systems use, etc. have been transferred to Kenya.
45

(ii) Increasing government Revenue: FDIs have contributed to the
government revenue in various ways, which include tax payment,
payment of royalty, payment for licenses and fees and payments in the
acquisition process of the for state owned enterprises in the divestiture
exercise
(iii) Capital formation: FDIs contributed to the capital formation in the
country. It is also a means of transferring Production Technology,
Skills, Innovative Capacity, and Organizational and Managerial
practices between locations, as well as of accessing International
Marketing Networks. In addition, the Foreign Direct Investment could
improve overall growth by promoting competition in the domestic
input market.
(iv) Infrastructure: This is yet another area which had benefited from FDI.
Some progress had been made in Telecommunications and Transport
although the high cost and unavailability of power are major
impediment.













46

CHAPTER FIVE

CONCLUSION AND RECOMMENDATIONS

5.1 Introduction
In this chapter, summary of the study, conclusions, recommendations and need for
further research are presented. The main objective of the study was to examine the
determinants of Foreign Direct Investments in East Africa.

The study was conducted through questionnaires and interviews to the selected
sample and data were collected and analyzed. Three important areas of the study
concern were the determinants of foreign direct investments in Tanzania and Kenya,
efforts done by East African governments (Kenya and Tanzania) to attract FDI to
East African countries and the contributions of FDI to East African countries social
economic development.

5.2 Conclusion
The objective of this study was to examine the determinants of foreign direct
investments in East Africa particularly in Tanzania and Kenya. Data were collected
and analyzed. The study revealed the following on each country basing on the
purpose of the study.

For Tanzania
The study revealed that most of the investors attracted to invest in Tanzania than
Kenya because abundant determinants of FDIs available in Tanzania than Kenya.
Moreover; availability of natural resources, Taxation system, investment policies,
political climate, and cheap cost of doing business are key determinants of Foreign
Direct Investment in East Africa.

47

The study further revealed that FDIs contributed to job creations, Technological
transfer, Skills development, Capital formation, Improvement of living standards of
citizens, and an increase of government source of revenue.

Furthermore; the study reveals that FDIs has been faced by various challenges which
include bad impression on investors developed by local people due to lack of
knowledge on FDIs, Poor linkage between major investors and other suppliers, and
Bureaucratic licensing.

For Kenya
The study revealed that most of the investors attracted to invest in Kenya because of
promotion activities, provision of investment incentives, and reforms on investment
policies.
The study further revealed that FDIs contributed to job creations, Technological
transfer, Skills development, Capital formation, Improvement of living standards of
citizens, and an increase of government source of revenue.

Furthermore; the study reveals that FDIs has been faced by various challenges which
include bad impression on investors developed by local people due to lack of
knowledge on FDIs, Poor linkage between major investors and other suppliers, and
poor political climate in Kenya.

5.4 Recommendations

For Tanzania
Tanzania should improve their economies in order to attract more FDI in East Africa,
by doing these major companies will be attracted to operate in East Africa.

48

The East African countries should harmonize their investment policies to attract more
foreign direct investments and indeed to combine their efforts in forming one
promotion centre since they have one community as Eat African Community.

Infrastructure example Railways, Roads and Airports should be improved to attract
FDI in various parts of East Africa rather than concentrating in accessible regions.
Indeed infrastructure is a very determinant in attracting Foreign Direct Investment
(FDI).

To ensure that the new technologies transferred to Kenya and Tanzania is wise used
and spread in order to promote more production output in East African Region.

For Kenya
FDIs should create jobs in Kenya which means alleviating income poverty to most of
Kenyans and East Africa region in general.

Kenya should maintain political stability in the region since is one of the
determinants of Foreign Direct Investment (FDI) in every country in the world.
Indeed foreign investors before making investment decision they do consider
political stability because of political risk.

Kenya should ensure that FDIs build a linkage with the rest of the economy ( a need
to review profit repatriation incentive so that FDI investor re-invest profits in Kenya
but give them guarantees against imports for creating long-term export capacity).
This would ensure that both Kenya and investors enjoy a fair return of FDI inflows.

Kenya Investment Authority should enhance Investment Promotion Activities. This
will ensure Kenya attract high quality of Foreign Direct Investment that would lead
to meaningful Economic and Social Development in the country.
49

5.5 Suggestion on the direction for future study
The study was only conducted in Tanzania and Kenya because of lack of sufficient
resources in terms of finance. A cross-country study could be done covering all East
African countries could add more value in the findings.

























50

REFERENCES

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Bank of Tanzania, Tanzania Investment Centre and National Bureau of Statistics
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Chris Maina Peter and Saudin Jacob Mwakaje (2004), Investment in Tanzania, Some
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Faeth, I (2009) “Determinants of Foreign Direct Investment-A tale of nine theoretical
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Gachino, G.G (2006) Foreign Direct Investment, Spillovers and Innovations: The
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Kenya Investment Authority Report (2010), South Eastern Region Investment
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Kenya Investment Economic Report (2009), Building a Global Competitive
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Kenya Investment Policy Review (2005), New York and Geneva

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Kenya Investment Policy Review (2005), United Nations Conference on Trade and
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nd
Annual and
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Global FDI share?”

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Tanzania Investment report (2009), Report on Foreign Private Investment in
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54

APPENDICES

Appendix I: Questionnaire for Masters Degree Course Research

To TIC/Investors/Others
Dear Respondent
The following is the questionnaire intending to collect data basing on the following
topic: The determinants of Foreign Direct Investments (FDIs) in East Africa
countries of Tanzania and Kenya. You are requested to assist in responding
questions as you know them.
The information contained in the questionnaire will be confidential, and only for
research purposes
I anticipate my gratitude to your assistance

PART A: GENERAL INFORMATION
RESPONDENTS SHOULD COMPLETE THIS PART
(a) Name…………………………………………………………………………...
(b) Company………………………………………………………………………
(c) Name and position of a person completing this questionnaire
…………………………………………………………………………………

(d) Company Address:
P.O. Box………………………………………………………………………..
Region……………………………………District…………………………….
Telephone Number……………………….Fax………………………………...
Web site………………………………..Email………………………………...
(e) Date of establishment…………………………………………………………..
(f) Date of commencement………………………………………………………..

55

PART B: QUESTIONS

1. What are the determinants of Foreign Direct Investments (FDIs) in Tanzania?
(i) ……………………………………………………………………
(ii) ……………………………………………………………………
(iii) ……………………………………………………………………
(iv) ……………………………………………………………………
(v) ……………………………………………………………………
(vi) ……………………………………………………………………

2. What are the determinants of Foreign Direct Investment in Kenya?
(i) ………………………………………………………………………….
(ii) ………………………………………………………………………….
(iii) ………………………………………………………………………….
(iv) ………………………………………………………………………….
(v) ………………………………………………………………………….
(vi) ………………………………………………………………………….

3. Which Country (Tanzania/ Kenya) has more FDI determinants than the other?
................................................................................................................

4. What are the contributions of Kenyan/Tanzanian government on creating
more FDI determinants?
(i) ……………………………………………………………………
(ii) ……………………………………………………………………
(iii) ……………………………………………………………………
(iv) ……………………………………………………………………
(v) ……………………………………………………………………
56

5. What should be done by the Kenyan and Tanzanian governments to create
more determinants of FDIs?
(i) ……………………………………………………………………...
(ii) ……………………………………………………………………...
(iii) ……………………………………………………………………...

6. What are the contributions of FDIs to East African Countries economies?
(i) ……………………………………………………………...............
(ii) ……………………………………………………………...............
(iii) ……………………………………………………………...............

7. What are the key sectors attracting FDIs in East Africa?
(i) …………………………………………………….................................
(ii) ………………………………………………….....................................
(iii) ………………………………………………….....................................
(iv) ……………………………………………….........................................
(v) ………………………………………………….....................................

8. What are the challenges facing foreign direct investment in East Africa?
(i) .................................................................................................................
(ii) .................................................................................................................
(iii) .................................................................................................................

9. Any Observations/Suggestions?
(i) …………………………………………………………………………
(ii) …………………………………………………………………………


Thank you in Advance for your Cooperation
57

Appendix II: Interview Questions to Investors/Others

Dear Respondent
The following Interview intended to collect data basing on the following topic;
the determinants of Foreign Direct Investment in East Africa case of Tanzania and
Kenya. You are requested to assist in responding questions as you know them. The
research is for academic purposes and the report will be submitted at Mzumbe
University as part of the requirements for Msc. Accounting and Finance degree.
I anticipate my gratitude to your assistance
General information
Name of Interviewee………………………...Phone number…………………………
Company Name…………………………Fax………………..Email…………………

















58

Questions
1) To what extent do the following Investment Determinants attract FDI in
Tanzania and Kenya?
Determinants of FDI Strong
Positive
Effect
Positive
Effect
No Effect Negative
Effect
Strong
negative
Effect
Abundant natural
resources e.g. minerals

Political climate
One stop centre for
investment facilitation
and promotion e.g. TIC
and Ken Investment

Incentives for
investment

Investment policies
Cost of doing business
Investment facilities
e.g.
Telecommunication &
Roads

Investment
opportunities

Licensing bureaucracy
Investment guarantees

2) Do you think Tanzania has more FDI determinants than Kenya?

59

3) Do you think Kenyan and Tanzanian governments are taking proper efforts to
attract more FDIs in East Africa?

4) Do you think FDI is contributing to East African Countries economies?

5) Do you think TIC and Ken Investment have played their roles to attract FDI
in their respective countries?
















Thank you in Advance for your Cooperation





60

Appendix III: Kenya Sectors Break down of FDI Projects Registered by IPC,
1997-2004
(Percentage of foreign capital value)
Sectors Percentage
Tourism 10.7
Power 15.4
Agro 9.9
Petrol services 4.4
Pharma 3.0
Mining 2.5
Garments 2.2
Other Manufacturing 27.6
Others 24.2
Total 100
Source: Investment Promotion Centre














61

Appendix IV: FDI by Sectors in Tanzania, 1999-2008
(Percentage of foreign capital value)
Sectors Percentage
Mining 26.99
Manufacturing 22.95
Wholesale and retail trade 15.29
Finance 13.07
Communication 8.35
Utilities 6.80
Construction 3.80
Agriculture 2.25
Community and social services 0.49
Total 100.00
Source: PCF survey















62

TANZANIA INVESTMENT CENTRE
PROJECTS REGISTRATION AND FOR TEN LEADING COUNTRIES
Leading countries 1990-2007 Descending by Value
Country Projects Jobs Value (Mln.USD)
UK 554 234,115 1,267.58
India 166 20,685 1,022.27
Kenya 274 40,515 976.62
USA 130 37,974 565.02
SA 130 14,600 480.77
Netherlands 100 10,392 480.08
China 174 50,666 449.27
Germany 119 12,207 266.71
Italy 76 5,820 84.26
Swiss 38 4,492 67.60