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How to attract FDIs and retain economic gains
2005-10-04 22:56:08
By Mireny John
Figures speak volumes. Over the last ten years, Tanzania has made dramatic drive in attracting Direct Foreign Investments (FDIs).
While way back from 1995, FDIs amounting to USD30m per annum were recorded. The figure had shot up by fifteen times last year, clocking to an impressive USD450m.
A recent UNDP report also rates Tanzania as among the top three recipients of FDIs among non-oil producing African countries.
Just as Ghana, much of Tanzania’s acclaimed FDIs have gone to the mining sector owing to lucrative incentives for the kind of profit-investment-export business transnational companies would mostly prefer.
At large, we have committed ourselves to a costly sustained path of economic reforms, leading to massive retrenchments and loss of revenue in tax rebates all in the name of attracting FDIs.
The mining sector pays only 3 percent royalty, and despite proven scientific precautions, operations carry high environmental and social costs.
According to Unctad’s report released fortnight and titled Economic Development in Africa: Rethinking of the Role of FDIs, because we have to compete to attract FDIs, we have fixed ourselves to an ”incentive inflation” syndrome, with little attention to economic gains to show for it.
Citing the case of gold mining, six major companies are credited for being able to increase the amount of gold export revenues from less than single percent in late 1990s to over 40 percent in 2003.
The transaction between 1997-2002 shows that the companies earned about USD890m, from which Tanzania benefited USD89m, or about 10 per cent of the gold harvest.
Reassuringly, this is a typical risk of FDIs-led enclave development, one which lacks necessary incentives of sparking off much expected squirt in economic growth, create economic diversification, technology spill-over and job creation.
While one ought to be grateful for the various social investment schemes which have been supported by mining FDIs, it remains a daunting domestic challenge to evaluate full impact of FDIs with an aim of making them complementary component of the wider package of development strategies needed to improve growth and create jobs.
Lets imagine of mining as becoming lead sector in terms of generating wealth for the time being.
Using the same policy model of ’incentive inflation’, we could get the contractual commitment of FDIs retaining some of their gains right here, finance research and development in other equally profitable lines of say, agri-business.
If that were demanding too much from FDI shareholders, why not try investing in mineral processing and retain some of the benefits in the country as Botswana and South Africa are doing with their diamonds?
FDIs are streaming to us because of the beneficial policy environment we have created for them.
Equally important, there are also other policy options which could as well make them feel good investing part of their earnings to other sectors as well.
Entire develloping countries are envying the success of the China’s economy which grows at 10 per cent leap annually.
FDIs are key to China’s impressive economic record, and once in there, one can easily feel the growth impact.
The much visible difference can be seen in massive Chine textile exports threatening both European Union and US markets.
In two years’ time, China will clothe the whole world. There we are now to learn.
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