Analysis of factors affecting foreign direct investment flows into agricultural sector in Tanzania

Global economy, trade and foreign direct investment (FDI) has grown by approximately 20 times since 1980. Developing countries receive about a third of world FDI inflows. Tanzania has been receiving an average of US $ 489 million FDI inflows for the past 10 years. Sectoral distribution of Tanzanian FDI favors mining, trade and manufacturing sectors. However agriculture sector, which contributes about 26% of GDP in 2008 and employs 74% of the population, is among the sectors receiving minimum amount of FDI. The objective of this study is to make agricultural sector attractive to investors and as such resulting to an increase in investments and general agricultural productivity. The study examined how domestic regulatory policy framework, promotional strategies, infrastructure and supporting services affected FDI flows into agriculture as well as determining the empirical relationship between macroeconomic variables and FDI flow trends into agriculture sector in Tanzania. OLS method was applied together with attitude ratings. Factors found unfavourable for FDI in agricultural sector were foreign exchange rate and domestic currency stability rated by 55%, the import and export procedures rated by 37% and 28% found inflation rate to be unfavourable. About 91% commented on political stability to be the favoring factor as well as tax holidays (99%), tax exemption (81%) and entrepreneurship (83.3%), also telecommunication (71%). FDI inflows in agriculture was found negatively related to GDP; positively related to rate of domestic inflation; negatively related to exchange rate, positively related to interest rates and to the country’s openness to trade. All the variables were found significant at 1% level. The study recommended that, the government should invest more into basic infrastructure and sectoral strategic investment promotions. Also, itiii should advocate reforms in labour related laws, investment environment, macroeconomic stability and entrepreneurship skills promotion as well as harnessing investment in agricultural sector, political will and commitment in agribusiness.

Ministry of Labour, Employment and Youth Development