(TIC) Executive Director, Raymond Mbilinyi

Tanzania took the lead in attracting Foreign Direct Investment (FDI) in the East African region during the past 12 months, attracting a record $1.1 billion (Sh1.76 trillion), the World Investment Report shows.

According to the report launched in Dar es Salaam yesterday, between June 2011 and June 2012, Tanzania overtook Kenya—the region’s biggest economy—indicating the high confidence among foreign investors about Tanzania.

The latest World Investment Report (WIR) by the United Nations Conference on Trade and Development (UNCTAD) focusing on the past twelve months ending in June, this year shows that for the past three years, Tanzania has attracted about 47 percent of all FDI flows in the five East African countries.

Tanzania is East Africa’s second biggest economy behind Kenya, thus attracting more funds by foreign investment flows looks encouraging.

“ European countries are leading in FDI flows, and in East Africa Tanzania is the leading country in receiving such capital as we managed to attract more than $1.095 billion in the past year and for the past three years inflows have been rising annually,” said Tanzania Investment Center (TIC) Executive Director Raymond Mbilinyi during the launching of the report.

Exploration and discoveries of the natural gas was singled out by the TIC Executive Director to be the main factor placing the country in a better position to attract investments compared to neighbouring countries.

Also, the communication sector, service industries including hotels, financial institutions and the education sector are areas attracting more investors into the country.

Speaking during the event, the United Nation Resident Coordinator Alberic Kacou said it’s important to connect the investment policy framework to the overall development strategy, for example MKUKUTA.

“It’s important to ensure that foreign investment supports sustainable development and the quest for in countries like Tanzania where a sizeable population is left out of the development process. Investment must have strong incentive to do so as these objectives are fundamental in sustaining growth and development, equity, peace and security,” the UNDP envoy noted.

The UN Resident Coordinator advised that mobilizing investment and ensuring that it includes sustainable development should be the objective of all countries.

The proposed investment framework would be particularly relevant for Tanzania not only because investments are primarily a tool for sustained growth, but also because of the recent paradigm shift in achieving development targets under Vision 2025, he remarked.

“We need to ensure continued investment policy relevance and effectiveness. Implementation would be key in this respect, this is the area where Tanzania needs to pay special attention as it is somewhat languid in policy implementation in key areas such as foreign investment,” he said.

Kacou said the investment challenge always remains at the national level,, urging policymakers in Tanzania to use the proposed Investment Policy Framework for sustainable Development so as to benefit the people of this country.

The said framework is useful as it has gone through numerous consultations comprehensively and by individual parts with experts, academics and development practitioners, he stated.

The WIR 2012 finds that investment flows climbed 16 per cent in 2011, but economic uncertainty around the world is now making itself felt.

Nearly half of global FDI or 45 percent in 2011 went to developing countries, a new record high, rising by 11 per cent on earlier flows and increasing during 2011 by 25 per cent.

FDI attraction top ten countries in 2011 were China, Belgium, Singapore, Luxembourg, Ireland, Chile, Kazakhastan, Mongolia, Turkmenistan, Lebanon, the report said, singling out the Congo as the last in FDI flow growth.

Global foreign direct investment (FDI) inflows rose 16 per cent in 2011, surpassing the 2005–2007 pre-crisis level for the first time, despite the continuing effects of the global financial and economic crisis and the current debt crisis in Europe, UNCTAD’s annual survey of investment trends reports.

Resurgence of economic uncertainty and the possibility of lower growth rates in major emerging markets risk undercutting FDI in 2012, the report contends. UNCTAD predicts the growth rate of FDI will slow in 2012, with flows levelling off at around $1.6 trillion. Leading indicators are suggestive of this trend, with the value of both cross-border mergers and acquisitions and greenfield investments retreating in the first five months of 2012, it was noted.

UNCTAD projections for the medium term based on macroeconomic fundamentals show FDI flows increasing at a moderate but steady pace, reaching $1.8 trillion in 2013 and $1.9 trillion in 2014, barring any macroeconomic shocks. Investor uncertainty on the course of economic events for this period is still high, with UNCTAD’s annual survey of executives of transnational corporations (TNCs) finding that roughly half of respondents are either neutral or undecided about the state of the global investment climate in 2012.

The World Investment Report 2012 also finds that developing economies continued to account for nearly half of global FDI (45 per cent) in 2011 as their inflows reached a new record high, rising 11 per cent to $684 billion (see table). Inflows to transition economies accounted for another 6 per cent. They increased during 2011 by 25 per cent.

Rising FDI to these economies was driven by a strong increase in flows to Asia and better-than-average growth in Latin America and the Caribbean and the transition economies. Flows to Africa, in contrast, continued to decline in 2011. The poorest countries remained in FDI recession, with flows to the least developed countries retreating 11 per cent to $15 billion. FDI is projected to continue to rise in both developing and transition economies overall, reaching, respectively, $720 billion and $100 billion in 2012, and increasing to between $760 billion–$930 billion for developing countries and $110 billion–$150 billion for transition economies by 2014.

FDI from developed countries rose sharply in 2011 – by 25 per cent – to reach $1.24 trillion. All three major developed-economy investor blocs – the European Union, North America and Japan – contributed to this increase. FDI from the United States was driven by a record level of reinvested earnings, as TNCs built on their foreign cash holdings. The rise in FDI outflows from the European Union was driven by cross-border mergers and acquisitions.

An appreciating yen improved the purchasing power of Japanese TNCs, resulting in a doubling of their FDI outflows, with net purchases of mergers and acquisitions in North America.